P U R S U I N G O U R
V I S I O N T O B E
A M O N G T H E M O S T
S U C C E S S F U L ,
S U S TA I N A B L E A N D
R E S P O N S I B L E
C O M P A N I E S I N
T H E W O R L D
To our shareowners,
As one of the world’s leading producers of renewable fiber-
based packaging, pulp and paper products, we know it’s our
responsibility to create long-term value for all stakeholders
in the most responsible and sustainable manner.
I’m confident in the future of International Paper. By investing
in attractive, fiber-based markets, controlling costs, managing
capital spending and focusing on deliberate improvement
efforts to increase productivity and efficiency, we have
generated strong sustainable free cash flow despite
challenging economic conditions.
In 2016, we developed The IP Way Forward to drive the
next wave of improvements and continue to meet our
commitments to our shareowners, customers, employees
and communities. The IP Way Forward consists of five
Strategic Drivers critical to our success: sustaining forests,
investing in people, improving our planet, creating innovative
products and delivering inspired performance.
Mark Sutton
Chairman
and CEO
Sustaining FORESTS
Our entire business depends on the sustainability of forests.
By providing a dependable market for responsibly grown fiber,
we provide an economic incentive for landowners to grow,
harvest and regenerate forests for continuous, sustainable use.
CE
N
A
M
R
O
F
R
E
P
d
e
r
i
p
s
n
I
v e s t i ng in PEOPLE
I n
Sustaining
FORESTS
In
novative PR O D U C T
S
I
m
p
r
o
v
i
n
g
o
u
r
P
L
A
N
ET
The IP Way Forward is our
strategic framework for
achieving our vision to be
among the most successful,
sustainable and responsible
companies in the world.
2016 Annual Performance Summary 1
ADDITIONAL
$10 MILLION
TO NFWF
FOR FOREST ECOSYSTEM
PROTECTION
ALMOST 50%
REDUCTION IN
SERIOUS SAFETY
INCIDENTS
SINCE 2012
“We protect and
improve the lives
of our employees.”
We will continue to lead the world in responsible forest stewardship
to ensure healthy and productive forest ecosystems for generations
to come. Our investments in forest restoration and sustainable
forest management help increase forest carbon stocks and mitigate
climate change.
Since 2013, we have invested more than $7.5 million in the Forestland
Stewards Initiative, a partnership with the National Fish and Wildlife
Foundation (NFWF) aimed at protecting and enhancing ecologically
significant forestlands in the United States. Our investment generated
more than $24.5 million in matching funds for a total conservation
impact of $32 million. In 2016, we renewed our commitment to this
partnership and pledged to increase our contribution to $10 million over
the next five years.
Investing in PEOPLE
Our most important measure of success is ensuring all employees,
contractors and visitors arrive home safely every day. In 2016,
we expanded our focus on prevention with Safety Leading Indicators
to identify hazards and unsafe actions before accidents occur.
Engaged employees drive sustainable results, and good leaders engage,
align and inspire colleagues. Building our capability means not only
improving our assets, but also developing our employees, retaining
our top talent and creating a culture of inclusion, where individuals feel
respected, are treated fairly and have opportunities to do their best
every day.
We continue to be a force for good in our communities. By mobilizing
our people, products and resources we can help address critical
community needs where our employees live and work. In 2016,
we increased our charitable contributions and focused our community
engagement strategy on four signature people causes: education,
hunger, health and wellness and disaster relief.
SERIOUS SAFETY INCIDENTS
68
50
38
36
35
2012
2013
2014
2015
2016
2 International Paper
*This data includes the 2016 acquisitions.
$14 MILLION
INVESTED TO
ADDRESS CRITICAL
COMMUNITY NEEDS
AND TO IMPROVE
THE PLANET
Improving our PLANET
Our sustainability story is embedded in the renewability and
recyclability of our products, and in the way we operate.
More than 70 percent of the energy used in our global mill system
is generated from renewable, carbon-neutral biomass. We set our
Vision 2020 Goals using a 2010 baseline; since then, we’ve reduced
our energy use and greenhouse gas and other air emissions, resulting
in a reduced environmental footprint and lower energy costs.
“We are committed to reducing
our environmental footprint.”
6.4% ENERGY
EFFICIENCY
IMPROVEMENT
SINCE 2010
19%
REDUCTION
IN GHG
EMISSIONS SINCE 2010
2016 Annual Performance Summary 3
Innovative PRODUCTS
We transform renewable resources into recyclable
products people depend on every day. Our packaging
products protect and promote goods, enable
worldwide commerce and keep consumers safe.
Our pulp for diapers, tissue and other personal
hygiene products promote health and wellness.
Our papers facilitate education and communication,
and our food service products provide convenience
and portability for on-the-go consumers.
In December 2016, we acquired Weyerhaeuser’s
pulp business and integrated it with our existing
business to create our Global Cellulose Fibers
business, the world’s premier manufacturer of fluff
and specialty pulp. This acquisition gave us best-
in-class manufacturing assets and capabilities,
a valuable patent portfolio and an expanded
innovation team that will help us improve and grow
our entire pulp business. We also gained additional
mills in key coastal locations, which allows us to
expand our exports of fluff pulp around the world.
We continue to focus on creating innovative,
sustainable and recyclable products that help our
customers achieve their objectives and satisfy
changing global consumer demand.
M E E T I N G C O N S U M E R D E M A N D S
$160 million
Madrid mill acquisition
and planned conversion
Our acquisition and planned conversion
of the Madrid mill represents a strategic
opportunity to grow our corrugated
packaging business in EMEA by further
enhancing our value proposition and
offering our customers even more choices
in terms of innovative, tailored and
high-performance packaging solutions.
$2.2 billion
Weyerhaeuser Pulp acquisition
This 2016 acquisition positions
International Paper as the premier global
supplier of fluff pulp and enhances our
ability to generate additional cash flow.
In this transaction, International Paper
acquired five pulp mills and two converting
facilities that produce fluff pulp, softwood
pulp and specialty pulp products for
consumer applications including diapers,
other hygiene products, tissue and textiles.
$170 million
strategic capital investments
in our containerboard mills
We invested in our containerboard
mills in Prattville, Ala., and Springfield,
Ore., in 2016 to expand capacity and
improve efficiency.
4 International Paper
RETURN ON INVESTED CAPITAL
2012
2013
2014
2015
2016
8.3%
9.3%
9.2%
11%
9.9%
7TH
CONSECUTIVE
YEAR ABOVE
COST-OF-
CAPITAL
RETURNS
Inspired PERFORMANCE
We deliver long-term value for our stakeholders by establishing
advantaged positions in attractive, fiber-based market segments with
safe, efficient manufacturing operations near sustainable fiber sources.
Challenging market conditions and increasing costs for fiber and
energy caused us to fall short of our 2016 earnings goal. However,
we remain focused on generating strong free cash flow, creating
value with returns greater than our cost of capital, returning cash
to shareowners, maintaining a strong balance sheet and making
investments for future growth.
FIVE-YEAR AVERAGE:
9.6% RETURN ON
INVESTED CAPITAL
FIVE-YEAR AVERAGE:
$ 1.8B FREE
CASH FLOW
5TH CONSECUTIVE YEAR OF
DIVIDEND INCREASE
FREE CASH FLOW
ANNUALIZED DIVIDEND
$2.1B
$1.8B
$1.9B
$1.8B
$1.6B
$1.76
$1.85
$1.60
$1.40
$1.20
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2016 Annual Performance Summary 5
We value strong leadership and continue to work actively to maintain a strong bench of leaders.
L E A D E R S H I P
Farewell to Our Colleagues
Bill Hoel, former Senior Vice President,
Container the Americas, retired effective
March 31, 2017. Bill joined Masonite
Corporation, an International Paper
subsidiary, in 1983. For 34 years he led
several businesses including Decorative
Products and Wood Products. In 2004, Bill
was elected Senior Vice President, Corporate
Sales and Marketing. For more than a decade,
Bill led our corrugated packaging businesses
in North America and Latin America;
he directed the integrations of Box USA,
Weyerhaeuser Packaging and Temple-Inland,
helping to develop one of the world’s premier
corrugated packaging businesses.
Carol Roberts, former Senior Vice
President and Chief Financial Officer,
retired effective March 31, 2017. For more
than 35 years, Carol was a key contributor
to our company’s success. She joined
International Paper in 1981 as an associate
engineer at the Mobile mill and was named
mill manager at Oswego in 1991. Carol
became an officer in 1997, serving as Vice
President, People Development. In 2005,
Carol was elected Senior Vice President,
Industrial Packaging, and in 2011 was
appointed Senior Vice President and Chief
Financial Officer. We will continue to benefit
from the world-class financial organization
that Carol helped build.
Tom Kadien, Senior Vice President,
Human Resources, Government Relations
and Global Citizenship, has announced his
retirement effective June 30, 2017. Tom joined
International Paper in 1978 and was named an
officer in 1999 while leading the Fine Papers
business. In April 2003, he was appointed
President of IP Europe and was elected as
Senior Vice President in 2004.
Tom led xpedx from 2006 to 2010 and then
served as Senior Vice President, Consumer
Packaging, IP Asia and IP India. In 2014,
Tom was named Senior Vice President,
Human Resources and Government Relations
with continuing responsibility for IP India
and Supply Chain Operations. In 2015,
Tom added leadership of Global Citizenship
to his responsibilities. We appreciate his
many contributions over nearly four decades.
6 International Paper
Congratulations to Our Newly
Elected Senior Vice Presidents
John Sims was elected Senior Vice
President and President, Europe, the Middle
East, Africa and IP Russia, effective July 1,
2016. John joined International Paper in 1994
and has served in marketing, supply chain,
strategic planning, finance and general
management roles. John leads the paper
and packaging businesses in this region.
Greg Wanta was elected Senior Vice
President, North American Container,
effective December 1, 2016. Greg joined
International Paper in 1991 and has served
in several manufacturing and general
management roles. Greg leads our North
American corrugated packaging business.
Cathy Slater was elected Senior Vice
President, Consumer Packaging, effective
December 1, 2016. Cathy joined International
Paper in 2016 from Weyerhaeuser, where
she served in manufacturing and general
management roles. Cathy leads our North
American consumer packaging business,
which includes our coated paperboard
and foodservice businesses.
Tom Plath was elected Senior Vice
President, Human Resources and Global
Citizenship, effective March 1, 2017.
Tom joined International Paper in 1991
and has served in human resources, strategic
planning and general management roles.
Most recently, he served as Vice President,
Human Resources, Global Businesses.
New Assignments for
Senior Vice Presidents
Jean-Michel Ribieras was named
Senior Vice President, Global Cellulose
Fibers, effective July 1, 2016. Jean-Michel
also assumed responsibility for IP Asia on
March 1, 2017.
Glenn Landau was named Senior Vice
President, Finance, effective January 1, 2017,
and Chief Financial Officer effective
February 22, 2017.
Mike Amick, Jr., was named Senior
Vice President, Paper the Americas,
effective January 1, 2017. Mike leads
our North American and Latin American
Papers businesses. Mike also assumed
responsibility for International Paper India
and APPM Ltd., on April 1, 2017.
Tim Nicholls was named Senior Vice
President, Industrial Packaging the Americas,
effective January 1, 2017. Tim leads our North
American and Latin American Industrial
Packaging businesses.
Board Member Transitions
In December 2016, Joan Spero retired from
the Board of Directors of International Paper
Company, pursuant to the board’s mandatory
retirement policy. Joan joined our board
in 2011.
Joan served in the U.S. Department of State
as Undersecretary for Economic, Business
and Agricultural Affairs and as Ambassador
to the United Nations for Economic and Social
Affairs. She held leadership positions in
corporate strategy and corporate affairs over
a span of 12 years at American Express, and
from 1997 to 2008, she served as president
of the Doris Duke Charitable Foundation.
Joan is currently a senior research scholar at
Columbia University’s School of International
and Public Affairs.
Joan also served on the board of directors
of ING Group N.V., Delta Air Lines Inc., and
First Data Corporation. She is a member of
IBM’s and Citigroup’s boards of directors,
a trustee of both the Council on Foreign
Relations and the Wisconsin Alumni
Research Foundation, and a trustee emeritus
of Columbia University and Amherst College.
She earned a master’s and a doctorate from
Columbia University. We recognize and
appreciate her contributions, especially
her engagement with our Governance and
Public Policy and Environment committees.
Effective March 1, 2017, we welcomed
a new board member, Dr. Kathryn Sullivan,
the Charles A. Lindbergh Fellow of Aerospace
History at the Smithsonian National Air and
Space Museum.
Kathy served in several roles in the U.S.
Department of Commerce and the National
Oceanic and Atmospheric Association
Administration (NOAA), including
Undersecretary of Commerce for Oceans
& Atmosphere and NOAA Administrator.
She was the inaugural director of the
Battelle Center for Mathematics and Science
Education Policy in the John Glenn School
of Public Affairs at Ohio State University.
A former mission specialist for NASA, Kathy
is a veteran of three shuttle missions, with
more than 500 hours in space and the first
American woman to walk in space. Kathy
earned a bachelor’s in earth sciences from
the University of California, Santa Cruz
and a doctorate in geology from Dalhousie
University in Nova Scotia.
Her extensive environmental and sustainability
experience will bring a unique and valuable
perspective to the International Paper Board
of Directors and we are pleased to have Kathy
join our board.
O U T L O O K
In 2017, we expect to continue our trend of strong
cash generation and returns well above our cost
of capital.
We expect higher margins and earnings in our North
American Industrial Packaging business through
implementation of price increases, growing customer
demand and internal improvement initiatives. We also
expect to improve margins with continued strong
operations and extensive cost reduction efforts
across many of our other businesses.
We expect to complete the conversion of the Madrid
mill to recycled containerboard in the second half
of the year, which will enable us to offer better
products for our customers and to increase earnings
in our European Industrial Packaging business.
Our Ilim joint venture remains well-positioned for
another strong year of performance.
As we integrate Weyerhaeuser’s pulp business,
we expect to achieve synergies and continue to
evolve our ability to meet customer and global
demands with innovative products. Through this
integration, we will improve our overall product
mix and, consequently, the earnings of our global
cellulose fibers business.
And with the strong free cash flow that comes
from all of this, we will continue to create value
with a near-term focus on debt reduction.
We are confident in how International Paper is
positioned and the value-creating opportunities
we are pursuing. Our global team is committed
to continuously strengthening our people and local
communities, using resources responsibly and
efficiently and ensuring our businesses are safe,
successful and sustainable for generations to come.
Mark Sutton | Chairman and CEO
FORTUNE’S “WORLD’S
MOST ADMIRED
COMPANIES®” 14 OF
THE LAST 15 YEARS
ETHISPHERE INSTITUTE’S
“WORLD’S MOST ETHICAL
COMPANIES®” FOR
11 CONSECUTIVE YEARS
INSTITUTIONAL
INVESTOR’S
“MOST HONORED
COMPANY” 2017
MEMPHIS COMMERCIAL
APPEAL “BEST PLACES
TO WORK – LARGE
COMPANY” 2016
March 2017
*FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Performance Summary may be considered forward-looking statements within the meaning of the federal securities
laws. These statements reflect management’s current views and are subject to risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in these statements. Factors that could cause actual results to differ include but are not limited to those listed and
discussed in the Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K portion of this Annual
Performance Summary.
2016 Annual Performance Summary 7
Businesses
International Paper is a leading global producer of renewable fiber-based packaging, pulp and paper products
with 55,000 employees located in more than 24 countries.
I N D U S T R I A L P A C K A G I N G
International Paper is the world’s premier manufacturer of
containerboard and corrugated packaging. Our containerboard mills,
box plants and converting operations across the globe allow us to
sustainably meet the most challenging customer sales, shipping,
storage and display requirements.
Industrial packaging also includes our North American recycling
business, which recovers, processes and sells several million tons
of corrugated packaging and paper annually.
Customer segments:
• Beverages
• Fruit and vegetables
• Protein and processed foods
• eCommerce
• Consumer and industrial goods
• Shipping and distribution
85%
NORTH
AMERICA
67%
of total
revenue
4%
ASIA
9%
EMEA
2%
BRAZIL
C O N S U M E R P A C K A G I N G
International Paper’s global coated paperboard business produces
high-quality coated paperboard for a variety of packaging and
foodservice applications. In addition to coated paperboard, consumer
packaging includes our foodservice business, which produces paper
cups, food containers and lids.
Our consumer packaging businesses collaborate with customers
across a wide range of market segments to meet consumer-driven
demand for high-quality, sustainable and innovative products.
Customer segments:
• Pharmaceuticals
• Health and beauty
• Media
• Packaged food
• General consumer goods
• Quick-service restaurants
• Specialty coffee
• Grocery and convenience stores
• Hospitality
83%
NORTH
AMERICA
9%
of total
revenue
17%
EMEA/
RUSSIA
8 International Paper
G L O B A L C E L L U L O S E F I B E R S
International Paper is a premier producer of fluff pulp for absorbent
hygiene products like baby diapers, feminine care, adult incontinence,
and other non-woven products, as well as pulp used for tissue and
paper products. Our innovative, specialty pulps are used for non-
absorbent end uses including textiles, filtration, construction material,
paints and coatings, reinforced plastics and more.
Our cellulose fibers products serve diverse, global customers who
share a common need for confidence in the quality and convenience
of personal hygiene and household products, and who value
innovative solutions.
Customer segments:
• Absorbent hygiene products
• Paper and tissue
• Textiles
• Reinforced plastics
• Filtration
• Paints and coatings
5%
of total
revenue
*Global Cellulose Fibers numbers include Dec 1, 2016,
acquisition of Weyerhaeuser’s pulp business
P R I N T I N G P A P E R S
International Paper’s global paper businesses manufacture a wide
variety of uncoated papers for commercial printing, imaging and
converting market segments. Customers rely on our signature brands
including Accent®, Chamex®, Hammermill®, POL™, PRO-DESIGN®
and Rey® to communicate, advertise, educate and inform.
Customer segments:
• Consumers
• Schools
• Businesses
• Commercial printing
• Book publishing
• Advertising
• Direct mail, bills, and statements
• Office products
• Retail packaging and labeling
applications
47%
NORTH
AMERICA
19%
of total
revenue
27%
EMEA/RUSSIA
4%
INDIA
22%
BRAZIL
2016 Annual Performance Summary 9
About International Paper
S E N I O R L E A D E R S H I P T E A M
As of March 31, 2017
(Seated left to right)
Glenn R. Landau
Senior Vice President
Chief Financial Officer
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
(Standing left to right)
Carol L. Roberts
Senior Vice President
Chief Financial Officer
(Retired March 31, 2017)
Gregory T. Wanta
Senior Vice President
North American Container
Sharon R. Ryan
Senior Vice President, General
Counsel and Corporate
Secretary
Jean-Michel Ribieras
Senior Vice President
Global Cellulose Fibers
C. Cato Ealy
Senior Vice President
Corporate Development
Catherine I. Slater
Senior Vice President
Consumer Packaging
Thomas G. Kadien
Senior Vice President
Human Resources,
Government Relations
and Global Citizenship
(Retiring June 30, 2017)
John V. Sims
Senior Vice President
and President
International Paper
Europe, Middle East,
Africa, and Russia
Timothy S. Nicholls
Senior Vice President
Industrial Packaging
The Americas
W. Michael Amick, Jr.
Senior Vice President
Paper The Americas
William P. Hoel
Senior Vice President
Container The Americas
(Retired March 31, 2017)
Tommy S. Joseph
Senior Vice President
Manufacturing, Technology,
EH&S and Global Sourcing
Thomas J. Plath (not pictured)
Senior Vice President
Human Resources and
Global Citizenship
(Effective March 1, 2017)
Our mission is to improve people’s lives, the planet and
our company’s performance by transforming renewable
resources into products people depend on every day.
10 International Paper
FORM 10-K
K
-
0
1
m
r
o
F
Our mission is to improve people’s lives, the planet and
our company’s performance by transforming renewable
resources into products people depend on every day.
FINANCIAL HIGHLIGHTS
In millions, except per share amounts, at December 31
2016
2015
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 – Net Earnings
Diluted Earnings Per Share Attributable to International Paper Company
Common Shareholders – Net Earnings
Cash Dividends
Total 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
$21,079
$22,365
2,202 (a)
956 (b)
902 (b,c)
(2)
904 (b,c)
33,345
4,341
$
$
2.20 (b,c)
2.18 (b,c)
1.783
10.56
12,352
411.2
411.1
415.6
2,361 (a)
1,266 (d)
917 (d,e)
(21)
938 (d,e)
30,531
3,884
$
$
2.25 (d,e)
2.23 (d,e)
1.6400
9.43
12,730
412.1
417.4
420.6
(a)
(b)
(c)
(d)
(e)
See the reconciliation of net earnings (loss) attributable to International Paper Company to its total industry segment operating profit on page 20 and the
operating profit table on page 81 for details of operating profit by industry segment.
Includes pre-tax restructuring and other charges of $54 million including charges of $29 million for early debt extinguishment costs, charges of $17 million
for costs associated with the write-off of our India Packaging business evaluation, a gain of $8 million related to the sale of our investment in Arizona
Chemical, charges of $9 million for costs associated with the Riegelwood, North Carolina mill conversion to 100% pulp production and a charge of
$7 million for costs associated with the closure of a mill in Turkey. Also included a $439 million settlement accounting charge associated with term-vested
lump sum pension payments, charges of $70 million for the impairment of the assets of our Asia corrugated packaging business and costs associated with
the sale of that business, charges of $31 million of costs associated with the newly acquired pulp business, a charge of $19 million to amortize the newly
acquired pulp business inventory fair value step-up and a charge of $8 million for the write-off of certain regulatory pre-engineering costs.
Includes a tax benefit of $57 million related to the legal restructuring of our Brazil Packaging business, a tax expense of $31 million associated with a
Luxembourg tax rate change, a tax expense of $23 million associated with 2016 cash pension contributions, a tax benefit of $14 million related to the
closure of a U.S. federal tax audit and a tax benefit of $6 million related to an international legal entity restructuring. Also included is an after-tax charge
of $5 million for a legal settlement associated with the xpedx business which was spun-off in 2014.
Includes pre-tax restructuring and other charges of $252 million including charges of $207 million for early debt extinguishment costs, charges of
$16 million for costs associated with the Timber Monetization restructuring, a charge of $15 million for a legal liability reserve adjustment, a charge of
$8 million for costs associated with our Riegelwood, North Carolina mill conversion to 100% pulp production, net of proceeds from the sale of the Carolina
Coated Bristols brand and charges of $6 million for other items. Also included are a pre-tax charge of $137 million related to the impairment of goodwill
and a trade name intangible for our Brazil Packaging business, a pre-tax charge of $174 million related to the impairment of our 55% equity share in the
IP-Sun JV and gain of $4 million related to the refund of state tax credits.
Includes a tax benefit of $67 million related to the impairment of the IP-Sun JV, a tax expense of $23 million for the tax impact of the 2015 cash pension
contribution of $750 million and a tax expense of $7 million for other items.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
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 18.
In millions, at December 31
Calculation of Free Cash Flow
Cash provided by operations
(Less)/Add:
Cash invested in capital projects
Cash contribution to pension plan
Cash received from unwinding a timber monetization
Change in control payments related to Temple-Inland acquisition
Insurance reimbursement for Guaranty Bank settlement
Free Cash Flow
2016
2015
2014
2013
2012
$ 2,478
$ 2,580
$ 3,077
$ 3,028
$ 2,967
(1,348)
750
—
—
—
$ 1,880
(1,487)
750
—
—
—
$ 1,843
(1,366)
353
—
—
—
$ 2,064
(1,198)
31
—
—
(30)
$ 1,831
(1,383)
44
(251)
120
80
$ 1,577
Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes
that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after
reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future
growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain
items that are not indicative of the Company’s ongoing performance, free cash flow also enables investors to perform meaningful comparisons
between past and present periods.
In millions, at December 31
2016
2015
2014
Reconciliation of Operating Earnings Before Net Interest Expense to Net Earnings
Before Taxes and Equity Earnings
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings (Losses)
Add back: Net Interest Expense
Add back: Special Items Before Taxes
Add back: Non-Operating Pension Expense Before Taxes
Operating Earnings Before Interest, Taxes and Equity Earnings (Losses)
Tax Rate
Operating Earnings Before Interest and Equity Earnings
Equity Earnings (Loss), Net of Tax
Operating Earnings Before Interest
$
956
520
182
610
2,268
31.8%
1,547
198
$ 1,745
$ 1,266
555
559
258
2,638
33.0%
1,767
117
$ 1,884
$
872
607
1,052
212
2,743
30.7%
1,901
(200)
$ 1,701
The Company considers adjusted return on invested capital (“adjusted ROIC”) to be a meaningful indicator of our operating performance, and
we evaluate this metric because it measures how effectively and efficiently we use the capital invested in our business. Adjusted ROIC is not
a measure of financial performance under U.S. generally accepted accounting principles (“GAAP”) and may not be defined and calculated
by other companies in the same manner. The Company defines and calculates adjusted ROIC using in the numerator Operating Earnings
Before Interest, the most directly comparable GAAP measure to which is Earnings Before Income Taxes and Equity Earnings. The Company
calculates Operating Earnings Before Interest by excluding net interest expense, the after-tax effect on non-operating pension expense and
items considered by management to be unusual from the earnings reported under GAAP. Management uses this measure to focus on on-
going operations and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present
operating results.
Adjusted ROIC = Operating Earnings Before Interest / Average Invested Capital
Average Invested Capital = Equity adjusted to remove pension-related amounts in OCI, net of taxes + interest-bearing debt
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, 2016
or
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)
New York
(State or other jurisdiction of incorporation or organization)
13-0872805
(I.R.S. Employer Identification No.)
6400 Poplar Avenue
Memphis, Tennessee
(Address of principal executive offices)
38197
(Zip Code)
Registrant’s telephone number, including area code: (901) 419-9000
_____________________________________________________
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
No
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
No
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
No
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
No
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
No
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, 2016) was approximately $17,330,052,160.
The number of shares outstanding of the Company’s common stock as of February 17, 2017 was 411,255,197.
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 2017
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, 2016
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
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
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
1
1
1
2
2
2
3
3
3
5
5
6
7
7
11
11
11
11
11
12
12
12
12
14
18
18
21
24
25
30
34
37
37
37
38
38
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
ITEM 8.
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
Accounting Firm
Reports of Deloitte & Touche LLP, Independent Registered Public
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)
ITEM 9.
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.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
PART IV.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Additional Financial Data
Schedule II – Valuation and Qualifying Accounts
SIGNATURES
APPENDIX I
2016 LISTING OF FACILITIES
APPENDIX II
2016 CAPACITY INFORMATION
38
39
39
41
43
44
45
46
47
48
83
85
85
86
86
86
87
87
87
87
87
87
87
90
91
A-1
A-4
Financial Information Concerning Industry Segments
Financial Information About International and U.S. Operations
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
PART I.
ITEM 1.
BUSINESS.
General
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
ITEM 1A.
RISK FACTORS.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
ITEM 2.
PROPERTIES.
Forestlands
Mills and Plants
Capital Investments and Dispositions
LEGAL PROCEEDINGS.
MINE SAFETY DISCLOSURES.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
SECURITIES.
SELECTED FINANCIAL DATA.
AND RESULTS OF OPERATIONS.
Executive Summary
Results of Operations
Description of Industry Segments
Industry Segment Results
Liquidity and Capital Resources
Legal Proceedings
Effect of Inflation
Foreign Currency Effects
Market Risk
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Critical Accounting Policies and Significant Accounting Estimates
Recent Accounting Developments
1
1
1
1
1
1
2
2
2
3
3
3
5
5
6
7
7
11
11
11
11
11
12
12
12
12
14
18
18
21
24
25
30
34
37
37
37
38
38
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
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
SIGNATURES
2016 LISTING OF FACILITIES
APPENDIX II
2016 CAPACITY INFORMATION
38
39
39
41
43
44
45
46
47
48
83
85
85
86
86
86
87
87
87
87
87
87
87
90
91
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 producer of renewable fiber-
based packaging, pulp and paper products with
manufacturing operations in North America, Latin
America, Europe, North Africa, Asia and Russia. 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, 2016, the
Company operated 29 pulp, paper and packaging mills,
170 converting and packaging plants, 16 recycling
plants and three bag facilities. Production facilities at
December 31, 2016 in Canada, Europe, Asia, Africa,
India, Latin America included 17 pulp, paper and
packaging mills, 68 converting and packaging plants,
and two recycling plants. We operate a printing and
packaging products distribution business principally
through 12 branches in Asia. At December 31, 2016,
we owned or managed approximately 329,000 acres of
forestland in Brazil and had, through licenses and forest
management agreements, harvesting
rights on
government-owned forestlands 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.
to
For management and financial reporting purposes, our
businesses are separated into four segments: Industrial
Packaging; Global Cellulose Fibers; Printing Papers;
and Consumer Packaging. Subsequent
the
acquisition of the Weyerhaeuser pulp business in
December 2016, the Company began reporting the
Global Cellulose Fibers business as a separate busines
segment due to the increased materiality of the results
of this business. This segment includes the Company's
legacy pulp business and the newly acquired pulp
business. As such, amounts related to the legacy pulp
business have been reclassified out of the Printing
Papers business segment and into the new Global
Cellulose Fibers business segment for all prior periods.
A description of these business segments can be found
on pages 24 and 25 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. ("Ilim") is also a separate
reportable industry segment.
From 2012 through 2016, International Paper’s capital
expenditures approximated $6.8 billion, excluding
mergers and acquisitions. These expenditures reflect
our continuing efforts to improve product quality and
environmental performance, as well as lower costs and
maintain reliability of operations. Capital spending in
2016 was approximately $1.3 billion and is expected to
be approximately $1.5 billion in 2017. You can find more
information about capital expenditures on pages 30 and
31 of Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Discussions of acquisitions can be found on page 31
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 23 and 24 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
Segment and Geographic Area on pages 79 through
81 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 81 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-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
18 through 30 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.
MARKETING AND DISTRIBUTION
The Company sells products directly to end users and
converters, as well as through agents, resellers and
paper distributors.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Company’s principal products are described on
pages 24 and 25 of Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
SALES VOLUMES BY PRODUCT
Sales volumes of major products for 2016, 2015 and 2014 were as follows:
Sales Volumes by Product (1)
In thousands of short tons (except as noted)
Industrial Packaging
North American Corrugated Packaging (3)
North American Containerboard
North American Recycling
North American Saturated Kraft
North American Gypsum/Release Kraft
North American Bleached Kraft
EMEA Industrial Packaging (3) (4)
Cellulose Fibers (in thousands of metric tons) (2)
European and Russian Uncoated Papers
Asian Box (3) (5)
Brazilian Packaging
Industrial Packaging
Printing Papers
U.S. Uncoated Papers
Brazilian Uncoated Papers
Indian Uncoated Papers
Uncoated Papers
Consumer Packaging
North American Consumer Packaging
European and Russian Coated Paperboard
Asian Coated Paperboard (6)
Consumer Packaging
2016
2015
2014
10,392
3,091
2,402
182
200
24
208
371
1,477
18,347
1,870
1,872
1,536
1,114
241
4,763
1,189
393
—
1,582
10,284
3,110
2,379
156
171
23
426
348
1,417
18,314
1,575
1,879
1,493
1,125
241
4,738
1,425
381
958
2,764
10,355
3,035
2,459
186
168
26
407
362
1,379
18,377
1,612
1,968
1,531
1,141
231
4,871
1,486
354
1,358
3,198
(1)
(2)
(5)
(6)
Includes third-party and inter-segment sales and excludes sales of equity investees.
Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the newly acquired pulp
business beginning December 1, 2016.
(3) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons.
(4) Excludes newsprint sales volumes at Madrid, Spain mill.
Includes sales volumes through the date of sale on June 30, 2016.
Includes sales volumes through the date of sale in October 2015.
1
2
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 producer of renewable fiber-
based packaging, pulp and paper products with
manufacturing operations in North America, Latin
America, Europe, North Africa, Asia and Russia. 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, 2016, the
Company operated 29 pulp, paper and packaging mills,
170 converting and packaging plants, 16 recycling
plants and three bag facilities. Production facilities at
December 31, 2016 in Canada, Europe, Asia, Africa,
India, Latin America included 17 pulp, paper and
packaging mills, 68 converting and packaging plants,
and two recycling plants. We operate a printing and
packaging products distribution business principally
through 12 branches in Asia. At December 31, 2016,
we owned or managed approximately 329,000 acres of
forestland in Brazil and had, through licenses and forest
management agreements, harvesting
rights on
government-owned forestlands 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.
For management and financial reporting purposes, our
businesses are separated into four segments: Industrial
Packaging; Global Cellulose Fibers; Printing Papers;
and Consumer Packaging. Subsequent
to
the
acquisition of the Weyerhaeuser pulp business in
December 2016, the Company began reporting the
Global Cellulose Fibers business as a separate busines
segment due to the increased materiality of the results
of this business. This segment includes the Company's
legacy pulp business and the newly acquired pulp
business. As such, amounts related to the legacy pulp
business have been reclassified out of the Printing
Papers business segment and into the new Global
Cellulose Fibers business segment for all prior periods.
A description of these business segments can be found
on pages 24 and 25 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. ("Ilim") is also a separate
reportable industry segment.
From 2012 through 2016, International Paper’s capital
expenditures approximated $6.8 billion, excluding
mergers and acquisitions. These expenditures reflect
our continuing efforts to improve product quality and
environmental performance, as well as lower costs and
maintain reliability of operations. Capital spending in
2016 was approximately $1.3 billion and is expected to
be approximately $1.5 billion in 2017. You can find more
information about capital expenditures on pages 30 and
31 of Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Discussions of acquisitions can be found on page 31
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 23 and 24 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
Segment and Geographic Area on pages 79 through
81 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
Information by
Industry Segment and
Geographic Area on page 81 of Item 8. Financial
Statements and Supplementary Data.
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-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
18 through 30 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.
MARKETING AND DISTRIBUTION
The Company sells products directly to end users and
converters, as well as through agents, resellers and
paper distributors.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Company’s principal products are described on
pages 24 and 25 of Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
SALES VOLUMES BY PRODUCT
Sales volumes of major products for 2016, 2015 and 2014 were as follows:
Sales Volumes by Product (1)
In thousands of short tons (except as noted)
Industrial Packaging
North American Corrugated Packaging (3)
North American Containerboard
North American Recycling
North American Saturated Kraft
North American Gypsum/Release Kraft
North American Bleached Kraft
EMEA Industrial Packaging (3) (4)
Asian Box (3) (5)
Brazilian Packaging
Industrial Packaging
Cellulose Fibers (in thousands of metric tons) (2)
Printing Papers
U.S. Uncoated Papers
European and Russian Uncoated Papers
Brazilian Uncoated Papers
Indian Uncoated Papers
Uncoated Papers
Consumer Packaging
North American Consumer Packaging
European and Russian Coated Paperboard
Asian Coated Paperboard (6)
Consumer Packaging
2016
2015
2014
10,392
3,091
2,402
182
200
24
1,477
208
371
18,347
1,870
1,872
1,536
1,114
241
4,763
1,189
393
—
1,582
10,284
3,110
2,379
156
171
23
1,417
426
348
18,314
1,575
1,879
1,493
1,125
241
4,738
1,425
381
958
2,764
10,355
3,035
2,459
186
168
26
1,379
407
362
18,377
1,612
1,968
1,531
1,141
231
4,871
1,486
354
1,358
3,198
(1)
(2)
Includes third-party and inter-segment sales and excludes sales of equity investees.
Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the newly acquired pulp
business beginning December 1, 2016.
(3) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons.
(4) Excludes newsprint sales volumes at Madrid, Spain mill.
(5)
(6)
Includes sales volumes through the date of sale on June 30, 2016.
Includes sales volumes through the date of sale in October 2015.
1
2
RESEARCH AND DEVELOPMENT
The Company operates its primary research and
development center in Loveland, Ohio, as well as
several other product development facilities, including
the Global Cellulose Fibers technology center in
Federal Way, Washington that was acquired in 2016.
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
development; mechanical
systems,
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 $20 million in 2016, $27 million in 2015,
and $16 million in 2014.
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 advantageous or 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
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
adverse
the environment, and
(2) maintaining compliance with applicable laws and
regulations. The Company spent $83 million in 2016 for
capital projects to control environmental releases into
the air and water, and to assure environmentally sound
management and disposal of waste. The 2016 spend
impacts on
included costs associated with the U.S. Environmental
Protection Agency’s (EPA) Boiler MACT (maximum
achievable control technology) regulations. We expect
to spend $111 million in 2017 for environmental capital
projects. Capital expenditures for 2018 environmental
projects are anticipated to be approximately $54 million.
Capital expenditures for 2019 environmental projects
are estimated to be $51 million. On January 31, 2013,
EPA issued the final suite of Boiler MACT 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.
On December 23, 2016, the U.S. Court of Appeals for
the D.C. Circuit remanded the Boiler MACT regulations
to EPA requiring the agency to revise emission
standards for boiler subcategories that had been
affected by flawed calculations. The Court determined
that the existing MACT standards should remain in
place while the revised standards are being developed,
but did not establish a deadline for EPA to complete the
rulemaking. As such, the projected capital expenditures
for environmental projects represent our current best
estimate of future expenditures with the recognition that
the Boiler MACT regulations could change as a result
of new, revised standards.
Amendments lowering National Ambient Air Quality
Standards (NAAQS) for sulfur dioxide (SO2), nitrogen
dioxide (NO2), fine particulate (PM2.5), and ozone have
been finalized in recent years but to date have not had
a material impact on the Company.
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 may have a material impact on the
Company in the future.
International Efforts
A successor program to the 1997 Kyoto Protocol, the
Paris Agreement went into effect in November 2016
which continued international efforts and voluntary
commitments toward reducing Greenhouse gasses
(GHGs). Consistent with this objective, participating
countries aim to balance GHG emissions generation
states are to develop and begin implementing programs
and removal in the second half of this century, or in
to reduce GHGs from EGUs by about 32 percent by the
effect achieve a net-zero global GHG emissions. As
2022 to 2033 timeframe as compared to 2005 baseline
part of the Paris agreement, many countries, including
levels. These plans, if implemented could pose
the U.S. and EU member states, established non-
potential cost increases for electricity purchased by the
binding emissions reduction targets. The U.S non-
Company. The magnitude of cost increases to the
binding commitment is for GHG emissions to be 7%
Company, if any, are not possible to estimate reliably
below 2005 GHG emissions levels by 2020 and 26%
at this time. Adding to the uncertainty, states and some
to 28% below by 2025. Other countries in which we do
industry parties have filed lawsuits challenging the rule,
business made similar non-binding commitments. The
and on February 9, 2016, the U.S. Supreme Court
Company’s voluntary GHG reductions, which are set
granted a stay of the Clean Power Plan. The stay will
out in the annual Global Reporting Initiative (GRI)
remain in effect until final disposition of the case, and
report, are roughly in line with the percentages of the
as such, the rule’s potential impact on the Company
U.S. target reductions. It is not clear at this time what,
remains unclear.
if any, further reductions by the Company might be
required by the countries in which we operate. Due to
this uncertainty, it is not possible at this time to estimate
the potential impacts of 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 the Paris Agreement
non-binding commitments or allocation of and market
prices for GHG credits under existing rules evolve over
the coming years.
National Efforts
In the U.S., the 1997 Kyoto Protocol was not ratified
and Congress has not passed GHG legislation. EPA
however has enacted regulations to: (i) control GHGs
from mobile sources by adopting transportation fuel
efficiency standards; (ii) control GHG emissions from
new Electric Generating Units (EGUs), (iii) require
reporting of GHGs from sources of GHGs greater than
25,000 tons per year, (iv) in 2015, require states to
develop plans to reduce GHGs from utility electric
generating units (EGUs) and (v) in 2016 EPA took the
first steps in the process of developing emissions
standards for existing sources in the oil and gas sector.
The EPA has not yet identified the pulp and paper
industry in the sectors to be covered by new standards.
However, we anticipate that at some future time pulp
and paper sources may 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.
In 2015, EPA promulgated the Clean Power Plan (CPP)
rule to address climate change by reducing carbon
dioxide (CO2) and other designated greenhouse gas
pollutant emissions from utility EGUs. In response,
State, Regional and Local Measures
A few U.S. states have enacted or are considering legal
measures to require the reduction of emissions of
GHGs by companies and public utilities, primarily
through the development of GHG emission inventories
or regional GHG cap-and-trade programs. California
has already enacted such a program and similar actions
are being considered by Oregon. The Company does
not have any sites currently subject to California's GHG
regulatory plan and since the Oregon program is still
being developed, it is too early to know how or if
Company owned sites in Oregon may be affected.
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. Further state
measures are under substantive review as they
respond to EPA’s 2015 Clean Power Plan and develop
an implementation plan over the next 1 to 3 years. The
CPP allows significant flexibility in how states develop
their plans, so the uncertainty regarding potential
impacts will remain high until more specificity is reached
and
individual power companies develop
their
compliance strategies.
Summary
Regulation of GHGs continues to evolve in various
countries in which we do business. While it is likely that
there will be increased governmental action regarding
GHGs and climate change, any material impact to the
company is not likely to occur before 2020 and at this
time it is not reasonably possible to estimate Company
costs of compliance with rules that have not yet been
adopted or implemented and may not be adopted or
implemented in the future. 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,
3
4
RESEARCH AND DEVELOPMENT
The Company operates its primary research and
development center in Loveland, Ohio, as well as
several other product development facilities, including
the Global Cellulose Fibers technology center in
Federal Way, Washington that was acquired in 2016.
Additionally, the Company has an interest in ArborGen,
Inc., a joint venture with certain other forest products
companies.
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
development; mechanical
packaging
systems,
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 $20 million in 2016, $27 million in 2015,
and $16 million in 2014.
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 advantageous or 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
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
adverse
impacts on
the environment, and
(2) maintaining compliance with applicable laws and
regulations. The Company spent $83 million in 2016 for
capital projects to control environmental releases into
the air and water, and to assure environmentally sound
management and disposal of waste. The 2016 spend
included costs associated with the U.S. Environmental
Protection Agency’s (EPA) Boiler MACT (maximum
achievable control technology) regulations. We expect
to spend $111 million in 2017 for environmental capital
projects. Capital expenditures for 2018 environmental
projects are anticipated to be approximately $54 million.
Capital expenditures for 2019 environmental projects
are estimated to be $51 million. On January 31, 2013,
EPA issued the final suite of Boiler MACT 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.
On December 23, 2016, the U.S. Court of Appeals for
the D.C. Circuit remanded the Boiler MACT regulations
to EPA requiring the agency to revise emission
standards for boiler subcategories that had been
affected by flawed calculations. The Court determined
that the existing MACT standards should remain in
place while the revised standards are being developed,
but did not establish a deadline for EPA to complete the
rulemaking. As such, the projected capital expenditures
for environmental projects represent our current best
estimate of future expenditures with the recognition that
the Boiler MACT regulations could change as a result
of new, revised standards.
Amendments lowering National Ambient Air Quality
Standards (NAAQS) for sulfur dioxide (SO2), nitrogen
dioxide (NO2), fine particulate (PM2.5), and ozone have
been finalized in recent years but to date have not had
a material impact on the Company.
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 may have a material impact on the
Company in the future.
International Efforts
A successor program to the 1997 Kyoto Protocol, the
Paris Agreement went into effect in November 2016
which continued international efforts and voluntary
commitments toward reducing Greenhouse gasses
(GHGs). Consistent with this objective, participating
countries aim to balance GHG emissions generation
and removal in the second half of this century, or in
effect achieve a net-zero global GHG emissions. As
part of the Paris agreement, many countries, including
the U.S. and EU member states, established non-
binding emissions reduction targets. The U.S non-
binding commitment is for GHG emissions to be 7%
below 2005 GHG emissions levels by 2020 and 26%
to 28% below by 2025. Other countries in which we do
business made similar non-binding commitments. The
Company’s voluntary GHG reductions, which are set
out in the annual Global Reporting Initiative (GRI)
report, are roughly in line with the percentages of the
U.S. target reductions. It is not clear at this time what,
if any, further reductions by the Company might be
required by the countries in which we operate. Due to
this uncertainty, it is not possible at this time to estimate
the potential impacts of 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 the Paris Agreement
non-binding commitments or allocation of and market
prices for GHG credits under existing rules evolve over
the coming years.
National Efforts
In the U.S., the 1997 Kyoto Protocol was not ratified
and Congress has not passed GHG legislation. EPA
however has enacted regulations to: (i) control GHGs
from mobile sources by adopting transportation fuel
efficiency standards; (ii) control GHG emissions from
new Electric Generating Units (EGUs), (iii) require
reporting of GHGs from sources of GHGs greater than
25,000 tons per year, (iv) in 2015, require states to
develop plans to reduce GHGs from utility electric
generating units (EGUs) and (v) in 2016 EPA took the
first steps in the process of developing emissions
standards for existing sources in the oil and gas sector.
The EPA has not yet identified the pulp and paper
industry in the sectors to be covered by new standards.
However, we anticipate that at some future time pulp
and paper sources may 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.
In 2015, EPA promulgated the Clean Power Plan (CPP)
rule to address climate change by reducing carbon
dioxide (CO2) and other designated greenhouse gas
pollutant emissions from utility EGUs. In response,
states are to develop and begin implementing programs
to reduce GHGs from EGUs by about 32 percent by the
2022 to 2033 timeframe as compared to 2005 baseline
levels. These plans, if implemented could pose
potential cost increases for electricity purchased by the
Company. The magnitude of cost increases to the
Company, if any, are not possible to estimate reliably
at this time. Adding to the uncertainty, states and some
industry parties have filed lawsuits challenging the rule,
and on February 9, 2016, the U.S. Supreme Court
granted a stay of the Clean Power Plan. The stay will
remain in effect until final disposition of the case, and
as such, the rule’s potential impact on the Company
remains unclear.
State, Regional and Local Measures
A few U.S. states have enacted or are considering legal
measures to require the reduction of emissions of
GHGs by companies and public utilities, primarily
through the development of GHG emission inventories
or regional GHG cap-and-trade programs. California
has already enacted such a program and similar actions
are being considered by Oregon. The Company does
not have any sites currently subject to California's GHG
regulatory plan and since the Oregon program is still
being developed, it is too early to know how or if
Company owned sites in Oregon may be affected.
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. Further state
measures are under substantive review as they
respond to EPA’s 2015 Clean Power Plan and develop
an implementation plan over the next 1 to 3 years. The
CPP allows significant flexibility in how states develop
their plans, so the uncertainty regarding potential
impacts will remain high until more specificity is reached
and
their
individual power companies develop
compliance strategies.
Summary
Regulation of GHGs continues to evolve in various
countries in which we do business. While it is likely that
there will be increased governmental action regarding
GHGs and climate change, any material impact to the
company is not likely to occur before 2020 and at this
time it is not reasonably possible to estimate Company
costs of compliance with rules that have not yet been
adopted or implemented and may not be adopted or
implemented in the future. 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,
3
4
to stay
in place
causing delays and higher costs to implement capital
International Paper has controls and
projects.
procedures
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 is available in our 2015 Global
Reporting Initiative (GRI) report found at http://
.com/docs/default-source/
www.internationalpaper
english/sustainability/2015-gri-report.pdf?sfvrsn=26
though this 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.
EMPLOYEES
the United States. Of
As of December 31, 2016, we have approximately
55,000 employees, nearly 36,000 of whom are located
in
the U.S. employees,
approximately 25,000 are hourly, with unions
representing approximately 15,000 employees.
Approximately 11,500 of this number are represented
by the United Steelworkers union (USW).
International Paper, the USW, and several other unions
have entered into two master agreements covering
various mills and converting facilities. These master
agreements cover several specific items, including
wages, select benefit programs, 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 19 of our U.S. pulp, paper, and
packaging mills; the converting agreement includes 61
of our converting facilities. In addition, International
Paper is party to a master agreement with District
Council 2, International Brotherhood of Teamsters,
covering 13 additional converting facilities.
During 2016, local labor agreements were negotiated
at four mills and 13 converting facilities. Two of these
were locations not covered by a master agreement. In
2017, local labor agreements are scheduled to be
negotiated at 24 facilities, including seven mills and 17
converting facilities. 23 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
Mark S. Sutton, 55, chairman (since January 1, 2015)
& chief executive officer (since November 1, 2014).
Mr. Sutton previously served as president & chief
operating officer from June 1, 2014 to October 31,
2014, senior vice president - industrial packaging from
November 2011 to May 31, 2014, senior vice
president - printing and communications papers of the
Americas from 2010 until 2011, senior vice president
- supply chain from 2008 to 2009, vice president -
supply chain from 2007 until 2008, and vice president
- strategic planning from 2005 until 2007. Mr. Sutton
joined International Paper in 1984. Mr. Sutton serves
on the board of directors of The Kroger Company. He
is a member of The Business Council and the
Business Roundtable and serves on the American
Forest & Paper Association board of directors and the
international advisory board of the Moscow School of
Management - Skolkovo. He was appointed chairman
of the U.S. Russian Business Council and was also
appointed to the U.S. Section of the U.S.-Brazil CEO
Forum. He also serves on the board of directors of
Memphis Tomorrow and board of governors for New
Memphis Institute. Mr. Sutton has been a director
since June 1, 2014.
W. Michael Amick, Jr., 53, senior vice president -
paper the Americas since January 1, 2017. Mr. Amick
previously served as senior vice president - North
American papers & consumer packaging from July
2016 until December 2016, senior vice president -
North American papers, pulp & consumer packaging
from November 2014 until June 2016, vice president
- president, IP India, from August 2012 to October
2014, and vice president and general manager for the
coated paperboard business from 2010 to 2012. Mr.
Amick joined International Paper in 1990.
C. Cato Ealy, 60, 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, 60, senior vice president since
January 2017. Mr. Hoel previously served as senior
vice president - Container The Americas from
February 2012 until December 2016, 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, 57, senior vice president -
manufacturing,
technology, EH&S and global
sourcing since January 2010. Mr. Joseph previously
served as senior vice president - manufacturing,
Alcoa Corp., VF Corporation, the Yale University
technology, EH&S
from February 2009 until
Presidents Advisory Council, and the local governing
December 2009, and vice president - technology from
board of the University of Memphis. Ms. Roberts
2005 until February 2009. Mr. Joseph is a director of
joined International Paper in 1981.
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, 60, senior vice president - human
resources, government relations & global citizenship
Sharon R. Ryan, 57, senior vice president, general
counsel & corporate secretary since November 2011.
Ms. Ryan previously served as vice president, acting
general counsel & corporate secretary from May 2011
until November 2011, vice president from March 2011
until May 2011, associate general counsel, chief
since November 1, 2014. Mr. Kadien previously
ethics and compliance officer from 2009 until 2011,
served as senior vice president - consumer packaging
and associate general counsel from 2006 until 2009.
and IP Asia from January 2010 to October 31, 2014,
Ms. Ryan joined International Paper in 1988.
and senior vice president and president - xpedx from
2005 until 2009. Mr. Kadien serves on the board of
directors of The Sherwin-Williams Company. Mr.
Kadien joined International Paper in 1978.
Glenn R. Landau, 48, senior vice president - finance
since January 1, 2017. Mr. Landau previously served
John V. Sims, 54, senior vice president - president,
IP Europe, Middle East, Africa & Russia since July
2016. Mr. Sims previously served as vice president
and general manager, European papers from March
2016 until June 2016, vice president & general
manager, North American papers from 2013 until
as senior vice president - president, IP Latin America
February 2016, and vice president, finance and
from November 2014 through December 2016, vice
strategy, industrial packaging, from 2009 until 2013.
president - president IP Latin America from 2013 to
Mr. Sims is a director of Ilim Holding S.A., a Swiss
October 2014, vice president - investor relations from
Holding Company in which International Paper holds
2011 to 2013, and vice president and general
a 50% interest, and of its subsidiary, Ilim Group. Mr.
manager, containerboard and recycling from 2007 to
Sims joined International Paper in 1994.
2011. Mr. Landau joined International Paper in 1991.
Timothy S. Nicholls, 55, senior vice president -
industrial packaging the Americas since January 1,
Catherine I. Slater, 53, senior vice president -
consumer packaging since December 2016. Ms.
Slater joined International Paper from Weyerhaeuser
2017. Mr. Nicholls previously served as senior vice
Company in December 2016, effective with the
president - industrial packaging from November 2014
completion of the acquisition of Weyerhaeuser’s
through December 2016, senior vice president -
cellulose fibers business, which she previously led.
printing and communications papers of the Americas
Ms. Slater’s 24-year career with Weyerhaeuser
from November 2011 through October 2014, senior
included leadership roles in manufacturing, printing
vice president and chief financial officer from 2007
papers, consumer products, wood products,
until 2011, vice president and executive project leader
distribution and the cellulose fibers business.
of IP Europe during 2007, and vice president and chief
financial officer - IP Europe from 2005 until 2007. Mr.
Nicholls joined International Paper in 1991.
Jean-Michel Ribieras, 54, senior vice president -
global cellulose fibers since July 2016. Mr. Ribieras
Gregory T. Wanta, 51, senior vice president - North
American container since December 2016. Mr. Wanta
has served in a variety of roles of increasing
responsibility
in manufacturing and commercial
leadership
roles
in specialty papers, coated
previously served as senior vice president - president,
paperboard, printing papers, foodservice and industrial
IP Europe, Middle East, Africa & Russia from 2013
packaging, including vice president, central region,
until June 2016, and president - IP Latin America from
Container the Americas, from January 2012 through
2009 until 2013. Mr. Ribieras is a director of Ilim
November 2016. Mr. Wanta joined International Paper
Holding S.A., a Swiss holding company in which
in 1991.
International Paper holds a 50% interest, and of its
subsidiary,
Ilim Group. Mr. Ribieras
joined
International Paper in 1993.
Carol L. Roberts, 57, senior vice president & 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
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
chemicals,
including caustic soda and starch.
Information concerning
fiber supply purchase
agreements that were entered into in connection with
the Company’s 2006 Transformation Plan, the 2008
5
6
causing delays and higher costs to implement capital
projects.
International Paper has controls and
EXECUTIVE OFFICERS OF THE REGISTRANT
procedures
in place
to stay
informed about
Mark S. Sutton, 55, chairman (since January 1, 2015)
developments concerning possible climate change
& chief executive officer (since November 1, 2014).
legislation and regulation in the U.S. and in other
Mr. Sutton previously served as president & chief
countries where we operate. We regularly assess
operating officer from June 1, 2014 to October 31,
whether such legislation or regulation may have a
2014, senior vice president - industrial packaging from
material effect on the Company, its operations or
November 2011 to May 31, 2014, senior vice
financial condition, and whether we have any related
president - printing and communications papers of the
disclosure obligations.
Americas from 2010 until 2011, senior vice president
- supply chain from 2008 to 2009, vice president -
Additional information regarding climate change and
supply chain from 2007 until 2008, and vice president
International Paper is available in our 2015 Global
- strategic planning from 2005 until 2007. Mr. Sutton
Reporting Initiative (GRI) report found at http://
joined International Paper in 1984. Mr. Sutton serves
www.internationalpaper
.com/docs/default-source/
on the board of directors of The Kroger Company. He
english/sustainability/2015-gri-report.pdf?sfvrsn=26
is a member of The Business Council and the
though this information is not incorporated by reference
Business Roundtable and serves on the American
into this Form 10-K and should not be considered part
Forest & Paper Association board of directors and the
of this or any other report that we file with or furnish to
international advisory board of the Moscow School of
the SEC.
EMPLOYEES
As of December 31, 2016, we have approximately
55,000 employees, nearly 36,000 of whom are located
in
the United States. Of
the U.S. employees,
approximately 25,000 are hourly, with unions
representing approximately 15,000 employees.
Approximately 11,500 of this number are represented
by the United Steelworkers union (USW).
International Paper, the USW, and several other unions
have entered into two master agreements covering
various mills and converting facilities. These master
agreements cover several specific items, including
wages, select benefit programs, 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 19 of our U.S. pulp, paper, and
packaging mills; the converting agreement includes 61
of our converting facilities. In addition, International
Paper is party to a master agreement with District
Council 2, International Brotherhood of Teamsters,
covering 13 additional converting facilities.
During 2016, local labor agreements were negotiated
at four mills and 13 converting facilities. Two of these
were locations not covered by a master agreement. In
2017, local labor agreements are scheduled to be
negotiated at 24 facilities, including seven mills and 17
converting facilities. 23 of these agreements will
automatically renew under the terms of the applicable
master agreement if new agreements are not reached.
Management - Skolkovo. He was appointed chairman
of the U.S. Russian Business Council and was also
appointed to the U.S. Section of the U.S.-Brazil CEO
Forum. He also serves on the board of directors of
Memphis Tomorrow and board of governors for New
Memphis Institute. Mr. Sutton has been a director
since June 1, 2014.
W. Michael Amick, Jr., 53, senior vice president -
paper the Americas since January 1, 2017. Mr. Amick
previously served as senior vice president - North
American papers & consumer packaging from July
2016 until December 2016, senior vice president -
North American papers, pulp & consumer packaging
from November 2014 until June 2016, vice president
- president, IP India, from August 2012 to October
2014, and vice president and general manager for the
coated paperboard business from 2010 to 2012. Mr.
Amick joined International Paper in 1990.
C. Cato Ealy, 60, 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, 60, senior vice president since
January 2017. Mr. Hoel previously served as senior
vice president - Container The Americas from
February 2012 until December 2016, 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, 57, senior vice president -
manufacturing,
technology, EH&S and global
sourcing since January 2010. Mr. Joseph previously
served as senior vice president - manufacturing,
from February 2009 until
technology, EH&S
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, 60, senior vice president - human
resources, government relations & global citizenship
since November 1, 2014. Mr. Kadien previously
served as senior vice president - consumer packaging
and IP Asia from January 2010 to October 31, 2014,
and senior vice president and president - xpedx from
2005 until 2009. Mr. Kadien serves on the board of
directors of The Sherwin-Williams Company. Mr.
Kadien joined International Paper in 1978.
Glenn R. Landau, 48, senior vice president - finance
since January 1, 2017. Mr. Landau previously served
as senior vice president - president, IP Latin America
from November 2014 through December 2016, vice
president - president IP Latin America from 2013 to
October 2014, vice president - investor relations from
2011 to 2013, and vice president and general
manager, containerboard and recycling from 2007 to
2011. Mr. Landau joined International Paper in 1991.
Timothy S. Nicholls, 55, senior vice president -
industrial packaging the Americas since January 1,
2017. Mr. Nicholls previously served as senior vice
president - industrial packaging from November 2014
through December 2016, senior vice president -
printing and communications papers of the Americas
from November 2011 through October 2014, senior
vice president and chief financial officer from 2007
until 2011, vice president and executive project leader
of IP Europe during 2007, and vice president and chief
financial officer - IP Europe from 2005 until 2007. Mr.
Nicholls joined International Paper in 1991.
Jean-Michel Ribieras, 54, senior vice president -
global cellulose fibers since July 2016. Mr. Ribieras
previously served as senior vice president - president,
IP Europe, Middle East, Africa & Russia from 2013
until June 2016, and 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,
joined
International Paper in 1993.
Ilim Group. Mr. Ribieras
Carol L. Roberts, 57, senior vice president & 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 Corp., VF Corporation, the Yale University
Presidents Advisory Council, and the local governing
board of the University of Memphis. Ms. Roberts
joined International Paper in 1981.
Sharon R. Ryan, 57, senior vice president, general
counsel & corporate secretary since November 2011.
Ms. Ryan previously served as vice president, acting
general counsel & corporate secretary from May 2011
until November 2011, vice president from March 2011
until May 2011, associate general counsel, chief
ethics and compliance officer from 2009 until 2011,
and associate general counsel from 2006 until 2009.
Ms. Ryan joined International Paper in 1988.
John V. Sims, 54, senior vice president - president,
IP Europe, Middle East, Africa & Russia since July
2016. Mr. Sims previously served as vice president
and general manager, European papers from March
2016 until June 2016, vice president & general
manager, North American papers from 2013 until
February 2016, and vice president, finance and
strategy, industrial packaging, from 2009 until 2013.
Mr. Sims 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.
Sims joined International Paper in 1994.
Catherine I. Slater, 53, senior vice president -
consumer packaging since December 2016. Ms.
Slater joined International Paper from Weyerhaeuser
Company in December 2016, effective with the
completion of the acquisition of Weyerhaeuser’s
cellulose fibers business, which she previously led.
Ms. Slater’s 24-year career with Weyerhaeuser
included leadership roles in manufacturing, printing
papers, consumer products, wood products,
distribution and the cellulose fibers business.
Gregory T. Wanta, 51, senior vice president - North
American container since December 2016. Mr. Wanta
has served in a variety of roles of increasing
responsibility
in manufacturing and commercial
in specialty papers, coated
leadership
paperboard, printing papers, foodservice and industrial
packaging, including vice president, central region,
Container the Americas, from January 2012 through
November 2016. Mr. Wanta joined International Paper
in 1991.
roles
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
chemicals,
including caustic soda and starch.
fiber supply purchase
Information concerning
agreements that were entered into in connection with
the Company’s 2006 Transformation Plan, the 2008
5
6
of
Weyerhaeuser
acquisition
Company’s
Containerboard, Packaging and Recycling business
and the 2016 acquisition of Weyerhaeuser's pulp
business is presented in Note 11 Commitments and
Contingent Liabilities on page 61 of Item 8. Financial
Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-
K (including the exhibits hereto) that are not historical
in nature may be considered
“forward-looking”
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are
often identified by the words, “will,” “may,” “should,”
“continue,” “anticipate,” “believe,” “expect,” “plan,”
“appear,” “project,” “estimate,” “intend,” and words of a
similar nature. These statements are not guarantees of
future performance and reflect management’s current
views with respect to future events, which are subject
to risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in
these statements. Factors which could cause actual
results to differ include but are not limited to: (i) the level
of our indebtedness and changes in interest rates; (ii)
industry conditions, including but not limited to changes
in the cost or availability of raw materials, energy and
transportation costs, competition we face, cyclicality
and changes in consumer preferences, demand and
pricing for our products; (iii) global economic conditions
and political changes, including but not limited to 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) changes in our estimates for the costs and
insurance coverage associated with the recent incident
at our Pensacola, Florida mill and for the time required
to resume full operations at the mill; (vi) whether we
experience a material disruption at one of our other
manufacturing
in
conducting business through a joint venture; (viii) the
failure to realize the expected synergies and cost-
savings from our purchase of the cellulose fibers
business of Weyerhaeuser Company; and (ix) our
ability to achieve the benefits we expect from all other
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.
facilities;
inherent
risks
(vii)
ITEM 1A. RISK FACTORS
pursued or achieved by competitors could negatively
In addition, we are subject to agreements that require
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. In addition, the
increase 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.
impact our financial results.
RISKS RELATING TO MARKET AND ECONOMIC
FACTORS
ADVERSE DEVELOPMENTS
IN GENERAL
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,
white-collar employment
levels and consumer
confidence, all of which impact demand for our
products. In addition, volatility in the capital and credit
markets, which
impacts
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.
THE LEVEL OF OUR INDEBTEDNESS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND IMPAIR OUR ABILITY TO OPERATE OUR
BUSINESS. As of December 31, 2016, International
Paper had approximately $11.3 billion of outstanding
indebtedness. The level of our indebtedness could have
important consequences to our financial condition,
operating results and business, including the following:
•
it may limit our ability to obtain additional debt or
equity
financing
for working capital, capital
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
operations, capital expenditures and
future
business opportunities;
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.
CHANGES
IN CREDIT RATINGS
ISSUED BY
NATIONALLY RECOGNIZED STATISTICAL RATING
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.
Under
the
terms of
the agreements governing
approximately $2.3 billion of our debt as of
December 31, 2016, the applicable interest rate on
such debt may increase upon each downgrade in our
credit rating below investment grade. As a result, a
downgrade in our credit rating below investment grade
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
•
the debt service requirements of our indebtedness
agreements governing
the
terms of any
future
could make it more difficult for us to satisfy other
indebtedness that we may incur.
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.
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 Temple-Inland in connection with Temple-
Inland's 2007 sales of forestlands may be downgraded
below a required rating. Since 2007, 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
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.
COMPETITION
IN THE UNITED STATES AND
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
7
8
INDUSTRIES
AFFECT
OUR
acquisition
of
Weyerhaeuser
Company’s
Containerboard, Packaging and Recycling business
and the 2016 acquisition of Weyerhaeuser's pulp
business is presented in Note 11 Commitments and
Contingent Liabilities on page 61 of Item 8. Financial
Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
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
Certain statements in this Annual Report on Form 10-
Company’s actual results to differ materially from those
K (including the exhibits hereto) that are not historical
projected in any forward-looking statement.
in nature may be considered
“forward-looking”
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are
often identified by the words, “will,” “may,” “should,”
“continue,” “anticipate,” “believe,” “expect,” “plan,”
“appear,” “project,” “estimate,” “intend,” and words of a
similar nature. These statements are not guarantees of
future performance and reflect management’s current
views with respect to future events, which are subject
to risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in
these statements. Factors which could cause actual
results to differ include but are not limited to: (i) the level
of our indebtedness and changes in interest rates; (ii)
industry conditions, including but not limited to changes
in the cost or availability of raw materials, energy and
transportation costs, competition we face, cyclicality
and changes in consumer preferences, demand and
pricing for our products; (iii) global economic conditions
and political changes, including but not limited to 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) changes in our estimates for the costs and
insurance coverage associated with the recent incident
at our Pensacola, Florida mill and for the time required
to resume full operations at the mill; (vi) whether we
experience a material disruption at one of our other
manufacturing
facilities;
(vii)
risks
inherent
in
conducting business through a joint venture; (viii) the
failure to realize the expected synergies and cost-
savings from our purchase of the cellulose fibers
business of Weyerhaeuser Company; and (ix) our
ability to achieve the benefits we expect from all other
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
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. In addition, the
increase 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.
THE
INDUSTRIES
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
AFFECT
OUR
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 addition, changes
in consumer
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.
COMPETITION
IN THE UNITED STATES AND
INTERNATIONALLY COULD NEGATIVELY IMPACT
OUR FINANCIAL RESULTS. We operate
in a
publicly update any
forward-looking statements,
competitive environment, both in the United States and
whether as a result of new information, future events or
internationally, in all of our operating segments. Product
otherwise.
innovations, manufacturing and operating efficiencies,
and marketing, distribution and pricing strategies
7
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 CONDITION
AND IMPAIR OUR ABILITY TO OPERATE OUR
BUSINESS. As of December 31, 2016, International
Paper had approximately $11.3 billion of outstanding
indebtedness. The level of our indebtedness could have
important consequences to our financial condition,
operating results and business, including the following:
•
•
•
•
•
•
financing
it may limit our ability to obtain additional debt or
equity
for working capital, capital
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
operations, capital expenditures and
future
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.
IN CREDIT RATINGS
CHANGES
ISSUED BY
NATIONALLY RECOGNIZED STATISTICAL RATING
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 $2.3 billion of our debt as of
December 31, 2016, the applicable interest rate on
such debt may increase upon each downgrade in our
credit rating below investment grade. As a result, a
downgrade in our credit rating below investment grade
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
future
the
agreements governing
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 Temple-Inland in connection with Temple-
Inland's 2007 sales of forestlands may be downgraded
below a required rating. Since 2007, 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
8
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
payments of up to $831 million in deferred income taxes
if replacement banks cannot be obtained. The deferred
taxes are currently recorded
the Company's
consolidated financial statements. See Note 12,
Variable Interest Entities, on pages 64 through 66, and
Note 10, Income Taxes, on pages 59 through 61, in Item
8. Financial Statements and Supplementary Data for
further information.
in
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 former U.S. hourly
employees, as well as financial assistance towards the
cost of individual retiree medical coverage for certain
former U.S. salaried 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 could
increase pension costs. Health care reform under the
Patient Protection and Affordable Care Act of 2010, and
modifications thereto, could also increase costs with
respect to medical coverage of the Company’s full-time
employees. 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, 2016 was $3.4
billion. The amount and timing of future contributions
will depend upon a number of factors, including the
actual earnings and changes in values of plan assets
and changes in interest rates.
IN
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, Russia, Brazil, Poland, 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. Fluctuations in the value of local currency versus
the U.S. dollar, downturns in economic activity, adverse
tax consequences, 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
including
governmental subsidies,
tax benefits and other
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
jurisdictions. For example,
the Foreign Corrupt
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
the
various adverse consequences,
imposition of civil or criminal sanctions and the
prosecution of executives overseeing our international
operations.
these countries.
competing
products,
including
of
in
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, labor and
employment, data privacy, and health care. 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
9
10
regulations. There can be no assurance that future
•
domestic and international laws and regulations
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 that could
significantly increase our 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 do not believe
that the outcome of any pending or threatened lawsuits
or claims will 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
MATERIAL DISRUPTIONS AT ONE OF OUR
MANUFACTURING
FACILITIES
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
facility,
could
cease
operations
unexpectedly due to a number of events, including:
•
fires, floods, earthquakes, hurricanes or other
catastrophes;
water supply;
•
the effect of a drought or reduced rainfall on its
•
the effect of other severe weather conditions on
equipment and facilities;
•
terrorism or threats of terrorism;
•
•
•
•
•
•
•
•
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 or other equipment;
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
• widespread outbreak of an illness or any other
communicable disease, or any other public health
tunnels;
crisis;
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.
For example, on January 22, 2017, we experienced
significant structural damage to the largest pulp
digester as well as the power house at our Pensacola
pulp and paper mill in Cantonment, Florida. We
restarted the power house and resumed partial
operations producing fluff pulp at the mill using a series
of small batch digesters within a couple weeks.
Repairing the damaged digester will take more time,
however, and we know that we will not be able to resume
full operations producing containerboard at the mill
during the first quarter of 2017.
WE ARE
SUBJECT
TO
INFORMATION
TECHNOLOGY RISKS RELATED TO BREACHES
OF SECURITY PERTAINING TO SENSITIVE
COMPANY, CUSTOMER, EMPLOYEE AND VENDOR
INFORMATION AS WELL AS BREACHES IN THE
TECHNOLOGY USED TO MANAGE OPERATIONS
AND OTHER BUSINESS PROCESSES. Our business
operations rely upon secure information technology
systems for data capture, processing, storage and
reporting. Despite careful security and controls design,
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
CHANGES
IN
INTERNATIONAL CONDITIONS
COULD ADVERSELY AFFECT OUR BUSINESS AND
RESULTS OF OPERATIONS. Our operating results
one or more of these banks may subject the Company
and business prospects could be substantially affected
to additional costs of securing a replacement letter-of-
by risks related to the countries outside the United
credit bank or could result in an acceleration of
States in which we have manufacturing facilities or sell
payments of up to $831 million in deferred income taxes
our products. Specifically, Russia, Brazil, Poland, India,
if replacement banks cannot be obtained. The deferred
and Turkey, where we have substantial manufacturing
taxes are currently recorded
in
the Company's
facilities, are countries that are exposed to economic
consolidated financial statements. See Note 12,
and political instability in their respective regions of the
Variable Interest Entities, on pages 64 through 66, and
world. Fluctuations in the value of local currency versus
Note 10, Income Taxes, on pages 59 through 61, in Item
the U.S. dollar, downturns in economic activity, adverse
8. Financial Statements and Supplementary Data for
tax consequences, nationalization or any change in
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 former U.S. hourly
employees, as well as financial assistance towards the
cost of individual retiree medical coverage for certain
former U.S. salaried 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 could
increase pension costs. Health care reform under the
modifications thereto, could also increase costs with
respect to medical coverage of the Company’s full-time
employees. 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, 2016 was $3.4
billion. The amount and timing of future contributions
will depend upon a number of factors, including the
actual earnings and changes in values of plan assets
and changes in interest rates.
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
governmental subsidies,
tax benefits and other
measures giving
local producers a competitive
advantage over
International Paper, may also
adversely impact our operating results and business
prospects
in
these countries.
In addition, our
international operations are subject to regulation under
U.S. law and other laws related to operations in foreign
jurisdictions. For example,
the Foreign Corrupt
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,
including
the
imposition of civil or criminal sanctions and the
prosecution of executives overseeing our international
operations.
RISKS RELATING TO LEGAL PROCEEDINGS AND
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.
Our operations are subject
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, labor and
employment, data privacy, and health care. 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
Patient Protection and Affordable Care Act of 2010, and
COMPLIANCE COSTS
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 that could
significantly increase our 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 do not believe
that the outcome of any pending or threatened lawsuits
or claims will 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
operations
could
operational
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;
9
10
•
•
•
•
•
•
•
•
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 or other equipment;
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;
• widespread outbreak of an illness or any other
communicable disease, or any other public health
crisis;
•
•
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.
For example, on January 22, 2017, we experienced
significant structural damage to the largest pulp
digester as well as the power house at our Pensacola
pulp and paper mill in Cantonment, Florida. We
restarted the power house and resumed partial
operations producing fluff pulp at the mill using a series
of small batch digesters within a couple weeks.
Repairing the damaged digester will take more time,
however, and we know that we will not be able to resume
full operations producing containerboard at the mill
during the first quarter of 2017.
TO
SUBJECT
WE ARE
INFORMATION
TECHNOLOGY RISKS RELATED TO BREACHES
OF SECURITY PERTAINING TO SENSITIVE
COMPANY, CUSTOMER, EMPLOYEE AND VENDOR
INFORMATION AS WELL AS BREACHES IN THE
TECHNOLOGY USED TO MANAGE OPERATIONS
AND OTHER BUSINESS PROCESSES. Our business
operations rely upon secure information technology
systems for data capture, processing, storage and
reporting. Despite careful security and controls design,
Condition and Results of Operations, and on page 54
and pages 56 and 57 of Item 8. Financial Statements
PART II.
and Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
Information
concerning
the Company’s
legal
proceedings is set forth in Note 11 Commitments and
Dividend per share data on the Company’s common
Contingencies on pages 61 through 63 of Item 8.
stock and the high and low sales prices for the
Financial Statements and Supplementary Data.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Company’s common stock for each of the four quarters
in 2016 and 2015 are set forth on page 83 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. As of February 17, 2017, there were
approximately 12,311 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.
October 1, 2016 - October 31, 2016
November 1, 2016 - November 30, 2016
December 1, 2016 - December 31, 2016
Period
Total
Total Number of Shares
Average Price Paid per
Purchased (a)
Share
—
9,096
2,642
11,738
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)
$—
45.03
52.29
—
—
—
$0.933
0.933
0.933
(a) 11,738 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs.
During these periods, no shares were purchased under our share repurchase program, which was was approved by our Board of Directors
and announced on July 8, 2014. Through this program, which does not have an expiration date, we were authorized to purchase, in open
market transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion of shares of our common stock.
As of February 17, 2017, approximately $933 million of shares of our common stock remained authorized for purchase under this program.
implementation, updating and independent third party
verification, our information technology systems, and
those of our third party providers, could become subject
to employee error or malfeasance, cyber attacks, or
natural disasters. Network, system, application and
data breaches could result in operational disruptions or
information misappropriation including, but not limited
to, 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.
incidents. Any of
CERTAIN OPERATIONS ARE CONDUCTED BY
JOINT VENTURES THAT WE CANNOT OPERATE
SOLELY FOR OUR BENEFIT. Certain operations in
Russia are carried on by a joint venture, Ilim. 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 we receive only our portion of those benefits.
JOINT
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS
VENTURES,
FROM ACQUISITIONS,
DIVESTITURES AND OTHER CORPORATE
TRANSACTIONS. Our strategy for long-term growth,
productivity and profitability depends, in part, on our
joint
to accomplish prudent acquisitions,
ability
ventures, divestitures and other corporate transactions
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 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 who place
higher strategic value on such businesses and assets
than does International Paper.
On December 1, 2016, for example, we completed our
acquisition of Weyerhaeuser's pulp business. The
success of the acquisition will depend, in part, on our
ability to realize the anticipated synergies, cost savings
and growth opportunities from integrating the acquired
business with our existing businesses. The integration
process may be complex, costly and time-consuming,
and we may not accomplish the integration of the
business smoothly, successfully or within
the
anticipated costs or timeframe. Potential integration
risks include, among other things, our ability to
successfully implement our business plan for the
combined business and retain key customers, suppliers
and employees.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
FORESTLANDS
As of December 31, 2016, the Company owned or
managed approximately 329,000 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 the Brazilian National Forest
Certification Program (CERFLOR) and the Forest
Stewardship Council (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
discussion about
level of planned capital
investments for 2017 on page 31 and 32, and
restructuring activities as of
dispositions and
December 31, 2016, on pages 23 and 24 of Item 7.
Management’s Discussion and Analysis of Financial
the
11
12
implementation, updating and independent third party
than does International Paper.
verification, our information technology systems, and
those of our third party providers, could become subject
to employee error or malfeasance, cyber attacks, or
natural disasters. Network, system, application and
data breaches could result in operational disruptions or
information misappropriation including, but not limited
to, 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
incidents. Any of
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.
CERTAIN OPERATIONS ARE CONDUCTED BY
JOINT VENTURES THAT WE CANNOT OPERATE
SOLELY FOR OUR BENEFIT. Certain operations in
Russia are carried on by a joint venture, Ilim. 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 we receive only our portion of those benefits.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS
FROM ACQUISITIONS,
JOINT
VENTURES,
DIVESTITURES AND OTHER CORPORATE
TRANSACTIONS. Our strategy for long-term growth,
productivity and profitability depends, in part, on our
ability
to accomplish prudent acquisitions,
joint
ventures, divestitures and other corporate transactions
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 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 who place
higher strategic value on such businesses and assets
On December 1, 2016, for example, we completed our
acquisition of Weyerhaeuser's pulp business. The
success of the acquisition will depend, in part, on our
ability to realize the anticipated synergies, cost savings
and growth opportunities from integrating the acquired
business with our existing businesses. The integration
process may be complex, costly and time-consuming,
and we may not accomplish the integration of the
business smoothly, successfully or within
the
anticipated costs or timeframe. Potential integration
risks include, among other things, our ability to
successfully implement our business plan for the
combined business and retain key customers, suppliers
and employees.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
FORESTLANDS
As of December 31, 2016, the Company owned or
managed approximately 329,000 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 the Brazilian National Forest
Certification Program (CERFLOR) and the Forest
Stewardship Council (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
discussion about
the
level of planned capital
investments for 2017 on page 31 and 32, and
dispositions and
restructuring activities as of
December 31, 2016, on pages 23 and 24 of Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and on page 54
and pages 56 and 57 of Item 8. Financial Statements
and Supplementary Data.
ITEM 3. LEGAL PROCEEDINGS
concerning
legal
Information
proceedings is set forth in Note 11 Commitments and
Contingencies on pages 61 through 63 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 2016 and 2015 are set forth on page 83 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. As of February 17, 2017, there were
approximately 12,311 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, 2016 - October 31, 2016
November 1, 2016 - November 30, 2016
December 1, 2016 - December 31, 2016
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)
—
9,096
2,642
11,738
$—
45.03
52.29
—
—
—
$0.933
0.933
0.933
(a) 11,738 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs.
During these periods, no shares were purchased under our share repurchase program, which was was approved by our Board of Directors
and announced on July 8, 2014. Through this program, which does not have an expiration date, we were authorized to purchase, in open
market transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion of shares of our common stock.
As of February 17, 2017, approximately $933 million of shares of our common stock remained authorized for purchase under this program.
11
12
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 31, 2011 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 31, 2011. The graph portrays total return,
2011–2016, assuming reinvestment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY (a)
Note 1: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin
S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, and UPM-
Kymmene Corp. MeadWestvaco Corp. and Rock-Tenn Company are included in the ROIC Peer Group results through 2014 and
subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015.
Note 2: Returns are calculated in $USD.
13
Current assets less current liabilities
$ 2,897
$
2,553
$
3,050
$
3,898
$
3,907
Dollar amounts in millions, except per
share amounts and stock prices
RESULTS OF OPERATIONS
Net sales
Costs and expenses, excluding interest
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Equity earnings (loss), net of taxes
Discontinued operations, net of taxes
Net earnings (loss)
Noncontrolling interests, net of taxes
Net earnings (loss) attributable to
International Paper Company
FINANCIAL POSITION
Plants, properties and equipment, net
Forestlands
Total assets
long-term debt
Long-term debt
Notes payable and current maturities of
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
Return on shareholders’ equity
CAPITAL EXPENDITURES
NUMBER OF EMPLOYEES
2016
2015
2014
2013
2012
$ 21,079
19,603
$ 22,365
20,544
$ 23,617
22,138
$ 23,483
21,643
$ 21,852
20,214
(b)
(c)
(b-d)
956
198
(5)
902
(2)
1,266
(e)
117
—
917
(21)
(e-f)
(g)
(h)
(g-i)
872
(200)
(13)
536
(19)
1,228
(j)
967
(m)
(39)
(309)
1,378
(17)
(k)
(j-l)
61
77
799
5
(n)
(m-o)
904
(b-d)
938
(e-f)
555
(g-i)
1,395
(j-l)
794
(m-o)
13,990
456
33,345
239
11,075
4,341
11,980
366
30,531
426
8,844
3,884
12,728
507
28,637
742
8,584
5,115
13,672
557
31,488
661
8,787
8,105
$
57.90
$
55.73
$
50.33
$
39.88
$
2.21
$
2.25
$
1.33
$
3.85
$
(0.01)
2.20
—
2.25
(0.03)
1.30
(0.70)
3.15
$
2.19
$
2.23
$
1.31
$
3.80
$
(0.01)
2.18
1.783
10.56
$ 54.68
32.50
53.06
1.7
0.72
(0.02)
1.29
1.450
12.18
44.24
53.58
1.6
0.65
(0.69)
3.11
1.250
18.57
39.47
49.03
1.8
0.54
$1,198
64,000
—
2.23
1.640
9.43
36.76
37.70
1.7
0.70
14
22.1% (b-d)
20.0% (e-f)
7.7% (g-i)
20.2% (j-l)
11.6% (m-o)
$ 1,348
55,000
$
1,487
56,000
$
1,366
58,000
13,949
622
32,106
444
9,649
6,304
1.65
0.17
1.82
1.63
0.17
1.80
1.088
14.33
27.29
39.84
1.8
0.62
$1,383
65,000
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 31, 2011 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 31, 2011. The graph portrays total return,
2011–2016, assuming reinvestment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY (a)
Dollar amounts in millions, except per
share amounts and stock prices
RESULTS OF OPERATIONS
Net sales
Costs and expenses, excluding interest
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Equity earnings (loss), net of taxes
Discontinued operations, net of taxes
Net earnings (loss)
Noncontrolling interests, net of taxes
Net earnings (loss) attributable to
International Paper Company
FINANCIAL POSITION
2016
2015
2014
2013
2012
$ 21,079
19,603
$ 22,365
20,544
$ 23,617
22,138
$ 23,483
21,643
$ 21,852
20,214
(b)
(c)
(b-d)
956
198
(5)
902
(2)
1,266
(e)
117
—
917
(21)
(e-f)
(g)
(h)
(g-i)
872
(200)
(13)
536
(19)
1,228
(j)
967
(m)
(39)
(309)
1,378
(17)
(k)
(j-l)
61
77
799
5
(n)
(m-o)
904
(b-d)
938
(e-f)
555
(g-i)
1,395
(j-l)
794
(m-o)
Current assets less current liabilities
$ 2,897
$
2,553
$
3,050
$
3,898
$
3,907
Note 1: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin
S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, and UPM-
Kymmene Corp. MeadWestvaco Corp. and Rock-Tenn Company are included in the ROIC Peer Group results through 2014 and
subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015.
Note 2: Returns are calculated in $USD.
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
Return on shareholders’ equity
CAPITAL EXPENDITURES
NUMBER OF EMPLOYEES
13,990
456
33,345
239
11,075
4,341
11,980
366
30,531
426
8,844
3,884
12,728
507
28,637
742
8,584
5,115
13,672
557
31,488
661
8,787
8,105
$
2.21
$
2.25
$
1.33
$
3.85
$
(0.01)
2.20
—
2.25
(0.03)
1.30
(0.70)
3.15
$
2.19
$
2.23
$
1.31
$
3.80
$
—
2.23
1.640
9.43
(0.02)
1.29
1.450
12.18
(0.69)
3.11
1.250
18.57
13,949
622
32,106
444
9,649
6,304
1.65
0.17
1.82
1.63
0.17
1.80
1.088
14.33
$
57.90
$
55.73
$
50.33
$
39.88
36.76
37.70
44.24
53.58
39.47
49.03
27.29
39.84
(0.01)
2.18
1.783
10.56
$ 54.68
32.50
53.06
1.7
0.72
22.1% (b-d)
1.7
0.70
20.0% (e-f)
1.6
0.65
7.7% (g-i)
$ 1,348
55,000
$
1,487
56,000
$
1,366
58,000
1.8
0.54
20.2% (j-l)
$1,198
64,000
1.8
0.62
11.6% (m-o)
$1,383
65,000
13
14
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).
FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY
(a) All periods presented have been restated to reflect
the xpedx business and the Temple-Inland Building
Products business as discontinued operations and
prior period amounts have been adjusted to
conform with current year presentation,
if
applicable.
2016:
(b) Includes the following charges (gains):
In millions
2016
Before
Tax
After
Tax
Riegelwood mill conversion costs
$
9
$
India Packaging evaluation write-off
Write-off of certain regulatory pre-
engineering costs
Early debt extinguishment costs
Costs associated with the newly
acquired pulp business
Asia Box impairment / restructuring
Gain on sale of investment in Arizona
Chemical
Turkey mill closure
Amortization of Weyerhaeuser
inventory fair value step-up
Total special items
Non-operating pension expense
Total
17
8
29
31
70
(8)
7
6
11
5
18
21
58
(5)
6
19
182
610
792
$
$
11
131
375
506
$
$
(c) Includes a pre-tax charge of $8 million ($5 million
after taxes) for a legal settlement associated with
the xpedx business.
(d) Includes the following tax expenses (benefits):
2014:
2013:
In millions
Cash pension contribution
U.S. Federal audit
Brazil goodwill
International legal entity restructuring
Luxembourg tax rate change
Total
2015:
2016
23
(14)
(57)
(6)
31
(23)
$
$
(e) Includes the following charges (gains):
In millions
2015
Before
Tax
After
Tax
Riegelwood mill conversion costs, net
of proceeds from sale of the Carolina
Coated Bristols brand
$
8
$
Timber monetization restructuring
Early debt extinguishment costs
IP-Sun JV impairment
Legal reserve adjustment
Refund and state tax credits
Impairment of Orsa goodwill and
trade name intangible
Other items
Total special items
Non-operating pension expense
Total
16
207
174
15
(4)
137
6
559
258
817
$
$
$
$
4
10
133
180
9
(2)
137
5
476
157
633
(f) Includes the following tax expenses (benefits):
In millions
IP-Sun JV impairment
Cash pension contribution
Other items
Total
2015
$
$
(67)
23
7
(37)
(g) Includes the following charges (gains):
(j) Includes the following charges (gains):
In millions
In millions
Temple-Inland integration
$
16
$
Temple-Inland integration
$
62
$
Courtland mill shutdown
Early debt extinguishment costs
India legal contingency resolution
Multi-employer pension plan
withdrawal liability
Foreign tax amnesty program
Asia Industrial Packaging goodwill
impairment
Loss on sale by investee and
impairment of investment
Other items
Total special items
$ 1,052
$
Non-operating pension expense
Total
$ 1,264
$
(h) Includes the operating earnings of the xpedx
business prior to the spin-off and the following
charges (gains):
(i) Includes the following tax expenses (benefits):
In millions
xpedx spinoff
Building Products divestiture
xpedx restructuring
Total
In millions
State legislative tax change
Internal restructuring
Other items
Total
2014
Before
Tax
After
Tax
554
276
(20)
35
32
100
47
12
212
10
338
169
(20)
21
17
100
36
9
680
129
809
2014
Before
Tax
After
Tax
$
$
24
16
1
$
41
$
16
9
(1)
24
2014
$
$
10
(90)
(1)
(81)
2013
Before
Tax
After
Tax
(30)
(19)
Courtland mill shutdown
Early debt extinguishment costs
Insurance reimbursement related to
legal settlement
Shut down of paper machine at
Augusta mill
India Papers tradename and goodwill
Fair value adjustment of company
Cass Lake environmental reserve
Bargain purchase adjustment -
impairment
airplanes
Turkey
Other items
Total
Total
Non-operating pension expense
118
25
45
127
9
6
(13)
(5)
344
323
667
$
$
$
$
38
72
16
28
122
5
4
2
(13)
255
197
452
(k) Includes the operating earnings of the xpedx
business for the full year and the Temple-Inland
Building Products business through the date of sale
in July 2013. Also includes the following charges
(gains):
In millions
xpedx spinoff
xpedx goodwill impairment
Building Products divestiture
xpedx restructuring
Total
2013
Before
Tax
After
Tax
$
22
$
400
23
32
14
366
19
19
$
477
$
418
(l) Includes the following tax expenses (benefits):
Settlement of U.S. federal tax audits
Income tax reserve release
In millions
Other items
Total
2013
$
(744)
(31)
1
$
(774)
15
16
(d) Includes the following tax expenses (benefits):
2014:
2013:
(g) Includes the following charges (gains):
(j) Includes the following charges (gains):
In millions
2014
Before
Tax
After
Tax
In millions
2013
Before
Tax
After
Tax
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.
In millions
Cash pension contribution
U.S. Federal audit
Brazil goodwill
International legal entity restructuring
Luxembourg tax rate change
Total
2016
23
(14)
(57)
(6)
31
(23)
$
$
Return on shareholders’ equity—
net earnings attributable to International Paper
Company divided by average shareholders’ equity
2015:
(computed monthly).
(e) Includes the following charges (gains):
Temple-Inland integration
$
16
$
Courtland mill shutdown
Early debt extinguishment costs
India legal contingency resolution
Multi-employer pension plan
withdrawal liability
Foreign tax amnesty program
Asia Industrial Packaging goodwill
impairment
Loss on sale by investee and
impairment of investment
Other items
554
276
(20)
35
32
100
47
12
Total special items
$ 1,052
$
Non-operating pension expense
212
Total
$ 1,264
$
10
338
169
(20)
21
17
100
36
9
680
129
809
(h) Includes the operating earnings of the xpedx
business prior to the spin-off and the following
charges (gains):
In millions
xpedx spinoff
Building Products divestiture
xpedx restructuring
Total
2014
Before
Tax
After
Tax
$
$
24
16
1
$
41
$
16
9
(1)
24
2015
(i) Includes the following tax expenses (benefits):
In millions
State legislative tax change
Internal restructuring
Other items
Total
2014
$
$
10
(90)
(1)
(81)
2015
Before
Tax
After
Tax
In millions
Riegelwood mill conversion costs, net
of proceeds from sale of the Carolina
Coated Bristols brand
$
8
$
Timber monetization restructuring
Early debt extinguishment costs
IP-Sun JV impairment
Legal reserve adjustment
Refund and state tax credits
Impairment of Orsa goodwill and
trade name intangible
Other items
Total special items
Non-operating pension expense
Total
16
207
174
15
(4)
137
6
559
258
817
$
$
(f) Includes the following tax expenses (benefits):
4
10
133
180
9
(2)
137
5
476
157
633
(67)
23
7
(37)
$
$
$
$
In millions
IP-Sun JV impairment
Cash pension contribution
Other items
Total
FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY
(a) All periods presented have been restated to reflect
the xpedx business and the Temple-Inland Building
Products business as discontinued operations and
prior period amounts have been adjusted to
conform with current year presentation,
if
applicable.
2016:
(b) Includes the following charges (gains):
In millions
Riegelwood mill conversion costs
$
9
$
2016
Before
Tax
After
Tax
India Packaging evaluation write-off
Write-off of certain regulatory pre-
engineering costs
Early debt extinguishment costs
Costs associated with the newly
acquired pulp business
Asia Box impairment / restructuring
Gain on sale of investment in Arizona
Chemical
Turkey mill closure
Amortization of Weyerhaeuser
inventory fair value step-up
Total special items
Non-operating pension expense
Total
17
8
29
31
70
(8)
7
6
11
5
18
21
58
(5)
6
19
182
610
792
$
$
11
131
375
506
$
$
(c) Includes a pre-tax charge of $8 million ($5 million
after taxes) for a legal settlement associated with
the xpedx business.
15
16
Temple-Inland integration
$
62
$
Courtland mill shutdown
Early debt extinguishment costs
Insurance reimbursement related to
legal settlement
Shut down of paper machine at
Augusta mill
India Papers tradename and goodwill
impairment
Fair value adjustment of company
airplanes
Cass Lake environmental reserve
Bargain purchase adjustment -
Turkey
Other items
Total
Non-operating pension expense
Total
$
$
118
25
38
72
16
(30)
(19)
45
127
9
6
(13)
(5)
344
323
667
$
$
28
122
5
4
(13)
2
255
197
452
(k) Includes the operating earnings of the xpedx
business for the full year and the Temple-Inland
Building Products business through the date of sale
in July 2013. Also includes the following charges
(gains):
In millions
xpedx spinoff
xpedx goodwill impairment
Building Products divestiture
xpedx restructuring
Total
2013
Before
Tax
After
Tax
$
22
$
400
23
32
14
366
19
19
$
477
$
418
(l) Includes the following tax expenses (benefits):
In millions
Settlement of U.S. federal tax audits
Income tax reserve release
Other items
Total
2013
$
(744)
(31)
1
$
(774)
2012:
(m) Includes the following charges (gains):
(n) Includes the operating earnings of the xpedx
business and the Temple-Inland Building Products
business for the full year. Also includes the following
charges (gains):
In millions
2012
Before
Tax
After
Tax
Temple-Inland integration
$
164
$
105
In millions
2012
Before
Tax
After
Tax
Early debt extinguishment costs
EMEA packaging business
restructuring
Temple-Inland inventory fair value
adjustment
Hueneme mill long-lived asset fair
value adjustment
Containerboard mill divestitures
Other
Total
Non-operating pension expense
Total
48
17
20
62
29
30
12
12
38
55
(5)
335
159
494
$
$
(5)
247
113
360
$
$
Building Products divestiture
xpedx restructuring
Total
$
$
15
44
59
$
$
(o) Includes the following tax expenses (benefits):
In millions
Internal restructuring
Deferred tax asset adjustment related to
Medicare Part D reimbursement
Other
Total
2012
$
$
9
28
37
14
5
6
25
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
Diluted earnings
(loss) attributable
to common
shareholders were $904 million ($2.18 per share) in 2016,
compared with $938 million ($2.23 per share) in 2015 and
$555 million ($1.29 per share) in 2014. Adjusted
Operating Earnings is a non-GAAP measure and is
defined as net earnings from continuing operations (a
GAAP measure) excluding special items and non-
operating pension expense.
International Paper
generated Adjusted Operating Earnings Attributable to
Common Shareholders of $1.4 billion ($3.35 per share)
in 2016, compared with $1.5 billion ($3.65 per share) in
2015, and $1.3 billion ($3.00 per share) in 2014 (see
reconciliation on page 19).
Despite a tough global environment, International Paper
delivered another year of solid performance, with
continued strong cash flow generation and a return on
invested capital in excess of our cost of capital. During
2016, we took steps to further strengthen our portfolio.
We completed the acquisition of Weyerhaeuser’s pulp
business, which we have combined with IP’s legacy pulp
business to form our new Global Cellulose Fibers
business. We also completed the conversion of a machine
at the Riegelwood, North Carolina mill to produce fluff
pulp, which coupled with the newly acquired pulp
business, gives the Company the capacity to grow both
fluff and high-value specialty pulp products. In addition,
we also acquired a top-quartile mill asset in Madrid, which
we will convert in the second half of 2017 to produce
recycled containerboard to support our EMEA Industrial
Packaging business. Finally, we were able to return cash
to our shareholders in the form of a 5% increase in the
annual dividend, making it the fifth consecutive year of a
dividend increase.
Our 2016 results reflect margin pressure across most of
our businesses throughout the year along with escalating
input costs, primarily natural gas and OCC, in the later
portion of the year. Full-year 2016 earnings were
impacted by price erosion and weaker mix across many
of our businesses, in particular, our North American
Industrial Packaging business which experienced lower
export pricing and the impact of early 2016 pricing index
changes to boxes. Volume was positive compared to
2015, primarily driven by increased North American box
demand. Manufacturing operations, despite solid
performance across our mill systems, were negatively
impacted by the Riegelwood conversion and ramp up,
Hurricane Matthew, and inventory valuation charges
associated with
the October containerboard price
increase. We did see signs of strengthening in some of
our key markets in the second half of the year, which
enabled us to announce and implement price increases
across various businesses that will benefit us in 2017. Our
Ilim joint venture had another solid year in 2016,
experiencing strong demand which led to record full-year
production.
Looking ahead to the 2017 first quarter, we expect sales
volumes for North American Industrial Packaging to be
slightly higher despite seasonally lower daily shipments
due to four more shipping days. Sales volumes for Global
Cellulose Fibers will be higher due to the full-quarter
impact of the newly acquired pulp business. In addition,
sales volumes for EMEA Industrial Packaging, North
American Printing Papers and North American Consumer
Packaging are also expected to be seasonally higher.
Pricing is expected to increase for both North American
Industrial Packaging and Brazilian Industrial Packaging,
reflecting the continuing implementation of box price
increases announced in 2016. Pricing for both North
American Printing Papers and North American Consumer
Packaging is expected to be lower due to market
pressures. Planned maintenance outages are expected
to increase due to a heavy outage quarter, including a
significant outage currently underway at the Global
Cellulose Fibers Port Wentworth mill. Input costs are
expected to increase primarily for our North American
operations, largely driven by natural gas, wood and OCC.
Additionally, we expect the results of Ilim to be
sequentially lower, primarily due to seasonally lower
volumes and seasonally higher input costs.
Looking to full year 2017, we are encouraged by an
improving economic climate and are eager to begin the
integration of our newly acquired pulp business, driving
the anticipated synergies to the bottom line. We expect
higher earnings
in our North American
Industrial
Packaging business through benefits from the previously
announced price increase, growing demand from our
customers and improvement initiatives. We also expect
to improve margins with continued strong operations and
extensive cost reduction efforts across many of our other
businesses. Additionally, we are on track for our planned
conversion of the Madrid mill in the second half of the
year, which will enable a better offering for our customers
and earnings improvement for our EMEA Industrial
Packaging business. Finally, with the strong cash flow that
we expect from all of these initiatives, we will continue to
allocate capital to create value with a near-term focus on
debt reduction and returning value to our shareholders.
Adjusted Operating Earnings and Adjusted Operating
Earnings Per Share are non-GAAP measures. Diluted
earnings (loss) and Diluted earnings (loss) per share
attributable to common shareholders are the most direct
comparable GAAP measures. The Company calculates
Adjusted Operating Earnings by excluding the after-tax
effect of items considered by management to be unusual,
from the earnings reported under GAAP, non-operating
pension expense (includes all U.S. pension costs,
excluding service costs and prior service costs), and
17
18
2012:
(m) Includes the following charges (gains):
(n) Includes the operating earnings of the xpedx
business and the Temple-Inland Building Products
business for the full year. Also includes the following
charges (gains):
Temple-Inland integration
$
164
$
105
In millions
In millions
Early debt extinguishment costs
EMEA packaging business
restructuring
Temple-Inland inventory fair value
adjustment
Hueneme mill long-lived asset fair
value adjustment
Containerboard mill divestitures
Other
Total
Total
Non-operating pension expense
2012
Before
Tax
After
Tax
48
17
20
62
29
30
12
12
38
55
(5)
335
159
494
$
$
(5)
247
113
360
$
$
Building Products divestiture
xpedx restructuring
Total
(o) Includes the following tax expenses (benefits):
In millions
Internal restructuring
Deferred tax asset adjustment related to
Medicare Part D reimbursement
Other
Total
2012
Before
Tax
After
Tax
$
$
15
44
59
$
$
9
28
37
14
5
6
25
2012
$
$
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
(loss) attributable
to common
Diluted earnings
shareholders were $904 million ($2.18 per share) in 2016,
compared with $938 million ($2.23 per share) in 2015 and
$555 million ($1.29 per share) in 2014. Adjusted
Operating Earnings is a non-GAAP measure and is
defined as net earnings from continuing operations (a
GAAP measure) excluding special items and non-
operating pension expense.
International Paper
generated Adjusted Operating Earnings Attributable to
Common Shareholders of $1.4 billion ($3.35 per share)
in 2016, compared with $1.5 billion ($3.65 per share) in
2015, and $1.3 billion ($3.00 per share) in 2014 (see
reconciliation on page 19).
Despite a tough global environment, International Paper
delivered another year of solid performance, with
continued strong cash flow generation and a return on
invested capital in excess of our cost of capital. During
2016, we took steps to further strengthen our portfolio.
We completed the acquisition of Weyerhaeuser’s pulp
business, which we have combined with IP’s legacy pulp
business to form our new Global Cellulose Fibers
business. We also completed the conversion of a machine
at the Riegelwood, North Carolina mill to produce fluff
pulp, which coupled with the newly acquired pulp
business, gives the Company the capacity to grow both
fluff and high-value specialty pulp products. In addition,
we also acquired a top-quartile mill asset in Madrid, which
we will convert in the second half of 2017 to produce
recycled containerboard to support our EMEA Industrial
Packaging business. Finally, we were able to return cash
to our shareholders in the form of a 5% increase in the
annual dividend, making it the fifth consecutive year of a
dividend increase.
Our 2016 results reflect margin pressure across most of
our businesses throughout the year along with escalating
input costs, primarily natural gas and OCC, in the later
portion of the year. Full-year 2016 earnings were
impacted by price erosion and weaker mix across many
of our businesses, in particular, our North American
Industrial Packaging business which experienced lower
export pricing and the impact of early 2016 pricing index
changes to boxes. Volume was positive compared to
2015, primarily driven by increased North American box
demand. Manufacturing operations, despite solid
performance across our mill systems, were negatively
impacted by the Riegelwood conversion and ramp up,
Hurricane Matthew, and inventory valuation charges
associated with
the October containerboard price
increase. We did see signs of strengthening in some of
our key markets in the second half of the year, which
enabled us to announce and implement price increases
across various businesses that will benefit us in 2017. Our
Ilim joint venture had another solid year in 2016,
experiencing strong demand which led to record full-year
production.
Looking ahead to the 2017 first quarter, we expect sales
volumes for North American Industrial Packaging to be
slightly higher despite seasonally lower daily shipments
due to four more shipping days. Sales volumes for Global
Cellulose Fibers will be higher due to the full-quarter
impact of the newly acquired pulp business. In addition,
sales volumes for EMEA Industrial Packaging, North
American Printing Papers and North American Consumer
Packaging are also expected to be seasonally higher.
Pricing is expected to increase for both North American
Industrial Packaging and Brazilian Industrial Packaging,
reflecting the continuing implementation of box price
increases announced in 2016. Pricing for both North
American Printing Papers and North American Consumer
Packaging is expected to be lower due to market
pressures. Planned maintenance outages are expected
to increase due to a heavy outage quarter, including a
significant outage currently underway at the Global
Cellulose Fibers Port Wentworth mill. Input costs are
expected to increase primarily for our North American
operations, largely driven by natural gas, wood and OCC.
Additionally, we expect the results of Ilim to be
sequentially lower, primarily due to seasonally lower
volumes and seasonally higher input costs.
in our North American
Looking to full year 2017, we are encouraged by an
improving economic climate and are eager to begin the
integration of our newly acquired pulp business, driving
the anticipated synergies to the bottom line. We expect
higher earnings
Industrial
Packaging business through benefits from the previously
announced price increase, growing demand from our
customers and improvement initiatives. We also expect
to improve margins with continued strong operations and
extensive cost reduction efforts across many of our other
businesses. Additionally, we are on track for our planned
conversion of the Madrid mill in the second half of the
year, which will enable a better offering for our customers
and earnings improvement for our EMEA Industrial
Packaging business. Finally, with the strong cash flow that
we expect from all of these initiatives, we will continue to
allocate capital to create value with a near-term focus on
debt reduction and returning value to our shareholders.
Adjusted Operating Earnings and Adjusted Operating
Earnings Per Share are non-GAAP measures. Diluted
earnings (loss) and Diluted earnings (loss) per share
attributable to common shareholders are the most direct
comparable GAAP measures. The Company calculates
Adjusted Operating Earnings by excluding the after-tax
effect of items considered by management to be unusual,
from the earnings reported under GAAP, non-operating
pension expense (includes all U.S. pension costs,
excluding service costs and prior service costs), and
17
18
discontinued operations. Adjusted Operating Earnings
Per Share is calculated by dividing Adjusted Operating
Earnings by diluted average shares of common stock
outstanding. Management uses this measure to focus on
on-going operations, and believes that it is useful to
investors because it enables them to perform meaningful
comparisons of past and present operating results. The
Company believes that using this information, along with
the most direct comparable GAAP measure, provides for
a more complete analysis of the results of operations.
(loss) attributable
Diluted earnings
to common
shareholders were $0.53 in the 2016 fourth quarter,
compared with $0.75 in the 2016 third quarter and $0.43
in the 2015 fourth quarter. Adjusted Operating Earnings
attributable to common shareholders of $303 million
($0.73 per share) in the 2016 fourth quarter were lower
than both the $380 million ($0.91 per share) in the 2016
third quarter and the $361 million ($0.87 per share) in the
2015 fourth quarter.
The following are reconciliations of Diluted earnings (loss)
to Adjusted
to common shareholders
attributable
operating earnings attributable to common shareholders.
Diluted Earnings (Loss) Attributable
to Shareholders
Add back - Discontinued operations
(gain) loss
Diluted Earnings (Loss) from
Continuing Operations
Add back - Non-operating pension
(income) expense
Add back - Net special items expense
(income)
Income tax effect - Non-operating
pension and special items expense
Adjusted Operating Earnings (Loss)
Attributable to Shareholders
Diluted Earnings (Loss) Per Share
Attributable to Shareholders
Add back - Discontinued operations
(gain) loss per share
Diluted Earnings (Loss) Per Share
from Continuing Operations
Add back - Non-operating pension
(income) expense
Add back - Net special items expense
(income)
Income tax effect - Non-operating
pension and special items expense
Adjusted Operating Earnings (Loss)
Per Share Attributable to
Shareholders
2016
2015
2014
$ 904 $ 938 $ 555
5
—
13
909
610
182
938
568
258
212
559
1,052
(309)
(221)
(536)
$ 1,392 $ 1,534 $ 1,296
2016
2015
2014
$ 2.18 $ 2.23 $ 1.29
0.01
—
0.02
2.19
2.23
1.31
1.47
0.61
0.49
0.44
1.33
2.44
(0.75)
(0.52)
(1.24)
$ 3.35 $ 3.65 $ 3.00
Three Months
Ended
December 31,
2016
Three Months
Ended
September 30,
2016
Three Months
Ended
December 31,
2015
$
218
$
312
$
178
—
218
37
45
3
—
312
42
66
—
178
60
158
(40)
(35)
$
303
$
380
$
361
the impact of equity earnings and noncontrolling interests,
Corporate items
Three Months
Ended
December 31,
2016
Three Months
Ended
September 30,
2016
Three Months
Ended
December 31,
2015
$
0.53
$
0.75
$
0.43
States.
—
—
—
0.53
0.09
0.11
0.75
0.43
0.10
0.14
0.16
0.38
—
(0.10)
(0.08)
$
0.73
$
0.91
$
0.87
past and present periods. Free Cash Flow of $1.9 billion
The following table presents a reconciliation of net
generated in 2016 was higher than the $1.8 billion
earnings (loss) from continuing operations attributable to
generated in 2015, but lower than the $2.1 billion
International Paper Company to its total Business
generated in 2014 (see reconciliation on page 30).
Segment Operating Profit:
Free Cash Flow of $467 million generated in the 2016
fourth quarter was lower than the $575 million generated
in the 2016 third quarter and the $501 million generated
in the 2015 fourth quarter (see reconciliation on page 30).
Results of Operations
Business 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. Business Segment Operating Profits are
defined as earnings (loss) from continuing operations
before income taxes and equity earnings, but including
excluding corporate items and corporate special items.
Business 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
International Paper operates in four segments: Industrial
Packaging, Global Cellulose Fibers, Printing Papers and
Consumer Packaging.
In millions
2016
2015
2014
Earnings (Loss) From Continuing
Operations Attributable to
International Paper Company
Add back (deduct)
Income tax provision (benefit)
Equity (earnings) loss, net of taxes
Noncontrolling interests, net of
taxes
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Equity Earnings
Interest expense, net
Noncontrolling interests/equity
earnings included in operations
Corporate special items (income)
expense
Non-operating pension expense
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Equity Earnings
Business Segment Operating Profit
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
$
909 $ 938 $ 568
247
466
(198)
(117)
123
200
(2)
(21)
(19)
956
520
1
69
46
610
1,266
555
8
36
238
258
872
601
2
51
320
212
$ 2,202 $ 2,361 $ 2,058
$ 1,651 $ 1,853 $ 1,896
(180)
540
191
68
465
61
(77)
(25)
178
Total Business Segment Operating
Profit
$ 2,202 $ 2,361 $ 2,058
Business Segment Operating Profits in 2016 included a
net loss from special items of $136 million compared with
$321 million in 2015 and $732 million in 2014.
Operationally, compared with 2015, the benefits from
higher sales volumes ($62 million), lower maintenance
outage costs ($14 million), lower input costs ($82 million)
and the incremental operating earnings from the newly
acquired pulp business ($17 million) were offset by lower
average sales price realizations and mix ($443 million),
higher operating costs ($62 million) and higher other
costs ($14 million).
Diluted Earnings
(Loss) Attributable
to Shareholders
Add back -
Discontinued
operations (gain) loss
Diluted Earnings
(Loss) from
Continuing
Operations
Add back - Non-
operating pension
(income) expense
Add back - Net
special items
expense (income)
Income tax effect -
Non-operating
pension and special
items expense
Adjusted Operating
Earnings (Loss)
Attributable to
Shareholders
Diluted Earnings
(Loss) Per Share
Attributable to
Shareholders
Add back -
Discontinued
operations (gain) loss
per share
Diluted Earnings
(Loss) Per Share
from Continuing
Operations
Add back - Non-
operating pension
(income) expense
per share
Add back - Net
special items
expense (income)
per share
Income tax effect per
share - Non-
operating pension
and special items
expense
Adjusted Operating
Earnings (Loss) Per
Share Attributable
to Shareholders
Free Cash Flow is a non-GAAP measure and the most
directly comparable GAAP measure is cash provided by
operations. Management believes that Free Cash Flow
is useful to investors as a liquidity measure because it
measures the amount of cash generated that is available,
after reinvesting in the business, to maintain a strong
balance sheet, pay dividends, repurchase stock, repay
debt and make investments for future growth. It should
not be inferred that the entire free cash flow amount is
available for discretionary expenditures. By adjusting for
certain items that are not indicative of the Company's
ongoing performance, free cash flow also enables
investors to perform meaningful comparisons between
19
20
discontinued operations. Adjusted Operating Earnings
Per Share is calculated by dividing Adjusted Operating
Earnings by diluted average shares of common stock
outstanding. Management uses this measure to focus on
on-going operations, and believes that it is useful to
investors because it enables them to perform meaningful
comparisons of past and present operating results. The
Company believes that using this information, along with
the most direct comparable GAAP measure, provides for
a more complete analysis of the results of operations.
Diluted earnings
(loss) attributable
to common
shareholders were $0.53 in the 2016 fourth quarter,
compared with $0.75 in the 2016 third quarter and $0.43
in the 2015 fourth quarter. Adjusted Operating Earnings
attributable to common shareholders of $303 million
($0.73 per share) in the 2016 fourth quarter were lower
than both the $380 million ($0.91 per share) in the 2016
third quarter and the $361 million ($0.87 per share) in the
2015 fourth quarter.
The following are reconciliations of Diluted earnings (loss)
attributable
to common shareholders
to Adjusted
operating earnings attributable to common shareholders.
Diluted Earnings (Loss) Attributable
to Shareholders
Add back - Discontinued operations
(gain) loss
Diluted Earnings (Loss) from
Continuing Operations
Add back - Non-operating pension
(income) expense
Add back - Net special items expense
(income)
Income tax effect - Non-operating
pension and special items expense
Adjusted Operating Earnings (Loss)
Attributable to Shareholders
Diluted Earnings (Loss) Per Share
Attributable to Shareholders
Add back - Discontinued operations
(gain) loss per share
Diluted Earnings (Loss) Per Share
from Continuing Operations
Add back - Non-operating pension
(income) expense
Add back - Net special items expense
(income)
Income tax effect - Non-operating
pension and special items expense
Adjusted Operating Earnings (Loss)
Per Share Attributable to
Shareholders
2016
2015
2014
$ 904 $ 938 $ 555
5
—
13
909
610
182
938
568
258
212
559
1,052
(309)
(221)
(536)
$ 1,392 $ 1,534 $ 1,296
2016
2015
2014
$ 2.18 $ 2.23 $ 1.29
0.01
—
0.02
2.19
2.23
1.31
1.47
0.61
0.49
0.44
1.33
2.44
(0.75)
(0.52)
(1.24)
$ 3.35 $ 3.65 $ 3.00
Diluted Earnings
(Loss) Attributable
to Shareholders
Add back -
Discontinued
operations (gain) loss
Diluted Earnings
(Loss) from
Continuing
Operations
Add back - Non-
operating pension
(income) expense
Add back - Net
special items
expense (income)
Income tax effect -
Non-operating
pension and special
items expense
Adjusted Operating
Earnings (Loss)
Attributable to
Shareholders
Diluted Earnings
(Loss) Per Share
Attributable to
Shareholders
Add back -
Discontinued
operations (gain) loss
per share
Diluted Earnings
(Loss) Per Share
from Continuing
Operations
Add back - Non-
operating pension
(income) expense
per share
Add back - Net
special items
expense (income)
per share
Income tax effect per
share - Non-
operating pension
and special items
expense
Adjusted Operating
Earnings (Loss) Per
Share Attributable
to Shareholders
Three Months
Three Months
Three Months
December 31,
September 30,
December 31,
Ended
2016
Ended
2016
Ended
2015
$
218
$
312
$
178
—
218
37
45
3
—
312
42
66
—
178
60
158
(40)
(35)
$
303
$
380
$
361
Three Months
Three Months
Three Months
December 31,
September 30,
December 31,
Ended
2016
Ended
2016
Ended
2015
$
0.53
$
0.75
$
0.43
—
—
—
0.53
0.09
0.75
0.43
0.10
0.14
0.11
0.16
0.38
—
(0.10)
(0.08)
$
0.73
$
0.91
$
0.87
Free Cash Flow is a non-GAAP measure and the most
directly comparable GAAP measure is cash provided by
operations. Management believes that Free Cash Flow
is useful to investors as a liquidity measure because it
measures the amount of cash generated that is available,
after reinvesting in the business, to maintain a strong
balance sheet, pay dividends, repurchase stock, repay
debt and make investments for future growth. It should
not be inferred that the entire free cash flow amount is
available for discretionary expenditures. By adjusting for
certain items that are not indicative of the Company's
ongoing performance, free cash flow also enables
investors to perform meaningful comparisons between
past and present periods. Free Cash Flow of $1.9 billion
generated in 2016 was higher than the $1.8 billion
generated in 2015, but lower than the $2.1 billion
generated in 2014 (see reconciliation on page 30).
The following table presents a reconciliation of net
earnings (loss) from continuing operations attributable to
International Paper Company to its total Business
Segment Operating Profit:
Free Cash Flow of $467 million generated in the 2016
fourth quarter was lower than the $575 million generated
in the 2016 third quarter and the $501 million generated
in the 2015 fourth quarter (see reconciliation on page 30).
Results of Operations
Business 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. Business Segment Operating Profits are
defined as earnings (loss) from continuing operations
before income taxes and equity earnings, but including
the impact of equity earnings and noncontrolling interests,
excluding corporate items and corporate special items.
Business 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.
International Paper operates in four segments: Industrial
Packaging, Global Cellulose Fibers, Printing Papers and
Consumer Packaging.
In millions
2016
2015
2014
Earnings (Loss) From Continuing
Operations Attributable to
International Paper Company
Add back (deduct)
$
909 $ 938 $ 568
Income tax provision (benefit)
Equity (earnings) loss, net of taxes
247
466
(198)
(117)
123
200
Noncontrolling interests, net of
taxes
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Equity Earnings
Interest expense, net
Noncontrolling interests/equity
earnings included in operations
Corporate items
Corporate special items (income)
expense
Non-operating pension expense
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Equity Earnings
Business Segment Operating Profit
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
(2)
(21)
(19)
956
520
1
69
46
610
1,266
555
8
36
238
258
872
601
2
51
320
212
$ 2,202 $ 2,361 $ 2,058
$ 1,651 $ 1,853 $ 1,896
(180)
540
191
68
465
61
(77)
(25)
178
Total Business Segment Operating
Profit
$ 2,202 $ 2,361 $ 2,058
Business Segment Operating Profits in 2016 included a
net loss from special items of $136 million compared with
$321 million in 2015 and $732 million in 2014.
Operationally, compared with 2015, the benefits from
higher sales volumes ($62 million), lower maintenance
outage costs ($14 million), lower input costs ($82 million)
and the incremental operating earnings from the newly
acquired pulp business ($17 million) were offset by lower
average sales price realizations and mix ($443 million),
higher operating costs ($62 million) and higher other
costs ($14 million).
19
20
and lower input costs were partially offset by lower
lower average sales price
sales volumes,
realizations and mix and higher other costs. In
addition, operating profits in 2016 included a charge
of $9 million related to the conversion of our
Riegelwood mill to 100% pulp production. In 2015,
operating losses included an asset impairment
charge of $174 million related to the sale of our 55%
equity share of the IP-Sun JV in Asia, a net cost of
$8 million related to costs for our Riegelwood mill
conversion, net of proceeds from the sale of the
Carolina Coated Bristols brand, and $2 million of
sheet plant closure costs.
Liquidity and Capital Resources
For the year ended December 31, 2016, International
Paper generated $2.5 billion of cash flow from operations
compared with $2.6 billion in 2015 and $3.1 billion in 2014.
Cash flow from operations included $750 million, $750
million and $353 million of cash pension contributions in
2016, 2015 and 2014, respectively. Capital spending for
2016 totaled $1.3 billion, or 110% of depreciation and
amortization expense. Net increases in debt totaled $1.9
billion, the proceeds from which were primarily used to
fund the acquisition of the Weyerhaeuser pulp business.
Our liquidity position remains strong, supported by
approximately $2.1 billion of credit facilities that we
believe are adequate
liquidity
requirements. Maintaining an investment-grade credit
rating for our long-term debt continues to be an important
element in our overall financial strategy.
to meet
future
We expect strong cash generation again in 2017 and will
continue our balanced use of cash through the payment
of dividends, reducing total debt and making investments
for future growth.
Capital spending for 2017 is targeted at $1.5 billion, or
about 107% of depreciation and amortization.
Legal
See Note 11 Commitments and Contingent Liabilities on
pages 61 through 63 of Item 8. Financial Statements and
Supplementary Data for a discussion of legal matters.
RESULTS OF OPERATIONS
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.
21
22
Product prices are affected by general economic
relating to the Company’s investment in Ilim Holding,
trends, inventory levels, currency exchange rate
SA.
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,
2016, and the major factors affecting these results
compared to 2015 and 2014.
For the year ended December 31, 2016, International
Paper reported net sales of $21.1 billion, compared with
$22.4 billion in 2015 and $23.6 billion in 2014.
International net sales (including U.S. exports) totaled
$7.2 billion or 34% of total sales in 2016. This compares
with international net sales of $7.8 billion in 2015 and
$9.3 billion in 2014.
Full year 2016 net earnings attributable to International
Paper Company totaled $904 million ($2.18 per share),
compared with net earnings of $938 million ($2.23 per
share) in 2015 and $555 million ($1.29 per share) in
2014. Amounts in 2016 and 2014 include the results of
discontinued operations.
Earnings from continuing operations attributable to
International Paper Company after taxes in 2016, 2015
and 2014 were as follows:
In millions
2016
2015
2014
Earnings from continuing
operations attributable to
International Paper
Company
$ 909 (a) $ 938 (b) $ 568 (c)
(a) Includes $108 million of net special items charges and $375
million of non-operating pension expense which included a pre-
tax charge of $439 million ($270 million after taxes) for a
settlement accounting charge associated with payments under
a term-vested lump sum buyout.
(b) Includes $439 million of net special items charges and $157
million of non-operating pension expense.
(c) Includes $599 million of net special items gains and $129 million
of non-operating pension expense in 2014.
Compared with 2015, the benefits from higher sales
volumes, lower maintenance outage costs, lower input
costs, incremental earnings from the acquisition of
Weyerhaeuser's pulp business, lower interest expense
and lower tax expense were offset by lower average
sales price realizations and mix, higher operating costs
and higher corporate and other costs. In addition, 2016
results included higher equity earnings, net of taxes,
See Business Segment Results on pages 25 through
30 for a discussion of the impact of these factors by
segment.
2016:
Discontinued Operations
In 2016, there was $5 million of discontinued operations
expense associated with a legal settlement related to
the xpedx business.
There were no discontinued operations in 2015.
2015:
2014:
In 2014, $24 million of net income adjustments were
recorded relating to discontinued businesses, including
$16 million of costs associated with the spin-off of the
xpedx business and $9 million of costs associated with
the divestiture of the Temple-Inland Building Products
business. Also included are the operating earnings of
the xpedx business prior to the spin-off on July 1, 2014.
Income Taxes
A net income tax provision of $247 million was recorded
for 2016 including tax benefits of $63 million related to
legal entity restructurings, a tax expense of $31 million
associated with a tax rate change in Luxembourg, a tax
expense of $23 million associated with the $750 million
of 2016 cash pension contributions, and a tax benefit
of $14 million related to the closure of a federal tax audit.
Excluding these items, a $51 million tax benefit for other
special items and a $235 million tax benefit related to
non-operating pension expense, the tax provision was
$556 million, or 32% of pre-tax earnings before equity
earnings.
A net income tax provision of $466 million was recorded
for 2015 including a tax benefit of $62 million related to
internal restructurings, a tax expense of $23 million for
the tax impact of the 2015 cash pension contribution of
$750 million and a $2 million tax expense for other
The principal changes in operating profit by segment
were as follows:
•
Industrial Packaging’s profits of $1.7 billion were
$202 million lower than in 2015 as the benefits of
higher sales volumes, lower maintenance outage
costs and lower input costs were more than offset
by lower average sales price realizations and mix,
higher operating costs and higher other costs. In
addition, operating profits in 2016 included a charge
of $70 million for impairment and other costs
associated with the sale of our corrugated packaging
business in Asia and a charge of $7 million related
to the closure of a mill in Turkey. In 2015, operating
trade name
profits
impairment charge of $137 million related to our
Brazil Packaging business.
included a goodwill and
• Global Cellulose Fibers' operating loss of $180
million was $248 million unfavorable versus 2015 as
the benefits of higher sales volumes, lower input
costs, lower other costs and the earnings from the
newly acquired business were more than offset by
lower average sales price realizations and mix,
higher operating costs and higher maintenance
outage costs. The operating loss in 2016 included
$31 million of costs associated with the acquisition
of the pulp business and a charge of $19 million to
amortize the newly acquired pulp business inventory
fair value adjustment.
• Printing Papers’ profits of $540 million represented
a $75 million increase in operating profits from 2015.
The benefits from higher sales volumes, higher
average sales price realizations and mix, lower
operating costs, lower maintenance outage costs
and lower input costs were partially offset by higher
other costs.
• Consumer Packaging’s operating profit of $191
million represented a $216 million increase in
operating profits from 2015. The benefits from lower
operating costs, lower maintenance outage costs,
sales volumes,
and lower input costs were partially offset by lower
lower average sales price
realizations and mix and higher other costs. In
addition, operating profits in 2016 included a charge
of $9 million related to the conversion of our
Riegelwood mill to 100% pulp production. In 2015,
operating losses included an asset impairment
charge of $174 million related to the sale of our 55%
equity share of the IP-Sun JV in Asia, a net cost of
$8 million related to costs for our Riegelwood mill
conversion, net of proceeds from the sale of the
Carolina Coated Bristols brand, and $2 million of
sheet plant closure costs.
Liquidity and Capital Resources
For the year ended December 31, 2016, International
Paper generated $2.5 billion of cash flow from operations
compared with $2.6 billion in 2015 and $3.1 billion in 2014.
Cash flow from operations included $750 million, $750
million and $353 million of cash pension contributions in
2016, 2015 and 2014, respectively. Capital spending for
2016 totaled $1.3 billion, or 110% of depreciation and
amortization expense. Net increases in debt totaled $1.9
billion, the proceeds from which were primarily used to
fund the acquisition of the Weyerhaeuser pulp business.
Our liquidity position remains strong, supported by
approximately $2.1 billion of credit facilities that we
liquidity
requirements. Maintaining an investment-grade credit
rating for our long-term debt continues to be an important
believe are adequate
to meet
future
element in our overall financial strategy.
We expect strong cash generation again in 2017 and will
continue our balanced use of cash through the payment
of dividends, reducing total debt and making investments
for future growth.
Capital spending for 2017 is targeted at $1.5 billion, or
about 107% of depreciation and amortization.
Legal
See Note 11 Commitments and Contingent Liabilities on
pages 61 through 63 of Item 8. Financial Statements and
Supplementary Data for a discussion of legal matters.
RESULTS OF OPERATIONS
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 exchange rate
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,
2016, and the major factors affecting these results
compared to 2015 and 2014.
For the year ended December 31, 2016, International
Paper reported net sales of $21.1 billion, compared with
$22.4 billion in 2015 and $23.6 billion in 2014.
International net sales (including U.S. exports) totaled
$7.2 billion or 34% of total sales in 2016. This compares
with international net sales of $7.8 billion in 2015 and
$9.3 billion in 2014.
Full year 2016 net earnings attributable to International
Paper Company totaled $904 million ($2.18 per share),
compared with net earnings of $938 million ($2.23 per
share) in 2015 and $555 million ($1.29 per share) in
2014. Amounts in 2016 and 2014 include the results of
discontinued operations.
Earnings from continuing operations attributable to
International Paper Company after taxes in 2016, 2015
and 2014 were as follows:
In millions
2016
2015
2014
Earnings from continuing
operations attributable to
International Paper
Company
$ 909 (a) $ 938 (b) $ 568 (c)
(a) Includes $108 million of net special items charges and $375
million of non-operating pension expense which included a pre-
tax charge of $439 million ($270 million after taxes) for a
settlement accounting charge associated with payments under
a term-vested lump sum buyout.
(b) Includes $439 million of net special items charges and $157
million of non-operating pension expense.
(c) Includes $599 million of net special items gains and $129 million
of non-operating pension expense in 2014.
Compared with 2015, the benefits from higher sales
volumes, lower maintenance outage costs, lower input
costs, incremental earnings from the acquisition of
Weyerhaeuser's pulp business, lower interest expense
and lower tax expense were offset by lower average
sales price realizations and mix, higher operating costs
and higher corporate and other costs. In addition, 2016
results included higher equity earnings, net of taxes,
relating to the Company’s investment in Ilim Holding,
SA.
See Business Segment Results on pages 25 through
30 for a discussion of the impact of these factors by
segment.
Discontinued Operations
2016:
In 2016, there was $5 million of discontinued operations
expense associated with a legal settlement related to
the xpedx business.
2015:
There were no discontinued operations in 2015.
2014:
In 2014, $24 million of net income adjustments were
recorded relating to discontinued businesses, including
$16 million of costs associated with the spin-off of the
xpedx business and $9 million of costs associated with
the divestiture of the Temple-Inland Building Products
business. Also included are the operating earnings of
the xpedx business prior to the spin-off on July 1, 2014.
Income Taxes
A net income tax provision of $247 million was recorded
for 2016 including tax benefits of $63 million related to
legal entity restructurings, a tax expense of $31 million
associated with a tax rate change in Luxembourg, a tax
expense of $23 million associated with the $750 million
of 2016 cash pension contributions, and a tax benefit
of $14 million related to the closure of a federal tax audit.
Excluding these items, a $51 million tax benefit for other
special items and a $235 million tax benefit related to
non-operating pension expense, the tax provision was
$556 million, or 32% of pre-tax earnings before equity
earnings.
A net income tax provision of $466 million was recorded
for 2015 including a tax benefit of $62 million related to
internal restructurings, a tax expense of $23 million for
the tax impact of the 2015 cash pension contribution of
$750 million and a $2 million tax expense for other
21
22
The principal changes in operating profit by segment
were as follows:
•
Industrial Packaging’s profits of $1.7 billion were
$202 million lower than in 2015 as the benefits of
higher sales volumes, lower maintenance outage
costs and lower input costs were more than offset
by lower average sales price realizations and mix,
higher operating costs and higher other costs. In
addition, operating profits in 2016 included a charge
of $70 million for impairment and other costs
associated with the sale of our corrugated packaging
business in Asia and a charge of $7 million related
to the closure of a mill in Turkey. In 2015, operating
profits
included a goodwill and
trade name
impairment charge of $137 million related to our
Brazil Packaging business.
• Global Cellulose Fibers' operating loss of $180
million was $248 million unfavorable versus 2015 as
the benefits of higher sales volumes, lower input
costs, lower other costs and the earnings from the
newly acquired business were more than offset by
lower average sales price realizations and mix,
higher operating costs and higher maintenance
outage costs. The operating loss in 2016 included
$31 million of costs associated with the acquisition
of the pulp business and a charge of $19 million to
amortize the newly acquired pulp business inventory
fair value adjustment.
• Printing Papers’ profits of $540 million represented
a $75 million increase in operating profits from 2015.
The benefits from higher sales volumes, higher
average sales price realizations and mix, lower
operating costs, lower maintenance outage costs
and lower input costs were partially offset by higher
other costs.
• Consumer Packaging’s operating profit of $191
million represented a $216 million increase in
operating profits from 2015. The benefits from lower
operating costs, lower maintenance outage costs,
items. Excluding these items, an $83 million net tax
benefit for other special items and a $101 million tax
benefit related to non-operating pension expense, the
tax provision was $687 million, or 33% of pre-tax
earnings before equity earnings.
A net income tax provision of $123 million was recorded
for 2014 including a tax benefit of $90 million related to
internal restructurings and a net $9 million tax expense
for other items. Excluding these items, a $372 million
net tax benefit for other special items and a $83 million
tax benefit related to non-operating pension expense,
the tax provision was $659 million, or 31% of pre-tax
earnings before equity earnings.
Equity Earnings, Net of Taxes
Equity earnings, net of taxes in 2016, 2015 and 2014
consisted principally of the Company’s share of
earnings from its 50% investment in Ilim Holding S.A.
in Russia (see page 29 and 30).
that additional charges and costs will be incurred in
future periods in our core businesses should such
triggering events occur.
During 2016, 2015 and 2014, pre-tax restructuring and
other charges totaling $54 million, $252 million and
$846 million were recorded in the business segments.
Details of these charges are as follows:
Restructuring and
Other
In millions
Business Segments
Riegelwood mill
conversion costs net of
proceeds from the sale
of Carolina Coated
Bristols brand
2016
2015
2014
$
9 (a) $
8 (a) $ —
Turkey mill closure
7 (b)
Courtland mill
shutdown
Other items
—
—
16
—
—
2 (a)
10
—
554 (c)
15 (d)
569
Interest Expense and Noncontrolling Interest
Corporate
Net corporate interest expense totaled $520 million in
2016, $555 million in 2015 and $601 million in 2014.
The decrease in 2016 compared with 2015 is due to
lower average interest rates. The decrease in 2015
compared with 2014 also reflects lower average interest
rates.
Net earnings attributable to noncontrolling interests
totaled a loss of $2 million in 2016 compared with a loss
of $21 million in 2015 and a loss of $19 million in 2014.
The decrease in 2016 reflects the sale of our equity
share of the IP-Sun JV in 2015. The decrease in 2015
compared with 2014 also reflects the sale of our interest
in the IP-Sun JV and lower earnings for the joint venture
in China prior to its divestiture.
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) 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, among other outcomes,
(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 assets have 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
Early debt
extinguishment costs
(see Note 13)
India Packaging
business evaluation
write-off
Gain on sale of
investment in Arizona
Chemical
Timber monetization
restructuring
Legal liability reserve
adjustment
Other Items
Total
$
$
29
207
276
17
(8)
—
—
—
38
54
—
—
16
15
4
—
—
—
—
1
242
277
$ 252
$ 846
(a) Recorded in the Consumer Packaging business segment.
(b) Recorded in the Industrial Packaging business segment.
(c) Recorded in the Printing Papers business segment.
(d) Recorded in the Industrial Packaging business segment ($7
million) and Consumer Packaging business segment ($8
million).
23
24
Other Corporate Special Items
In addition, other corporate special items totaling $8
million, $4 million and $43 million were recorded in
2016, 2015 and 2014, respectively. Details of these
charges were as follows:
Other Corporate Items
In millions
Write-off of certain regulatory pre-
engineering costs
Sale of investment by ASG and
impairment of that investment
Other
Total
Impairments of Goodwill
2016
2015
2014
$
8 $ — $ —
—
—
—
(4)
$
8 $
(4) $
47
(4)
43
No goodwill impairment charges were recorded in 2016.
In the fourth quarter of 2015, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Brazil Packaging business and
determined that all of the goodwill in the business,
totaling $137 million, should be written off. The decline
in the fair value of the Brazil Packaging business and
resulting impairment charge was due to the negative
impacts on the cash flows of the business caused by
the continued decline of the overall Brazilian economy.
In the fourth quarter of 2014, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Asia Industrial Packaging 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 $100 million, should
be written off. The decline in the fair value of the Asia
Industrial Packaging business and resulting impairment
charge was due to a change in the strategic outlook for
the business.
earnings from the newly acquired pulp business ($17
million) were more than offset by lower average sales
price realizations and mix ($443 million), higher
operating costs ($62 million) and higher other costs
($14 million). Special items were a $136 million net loss
in 2016 compared with a net loss of $321 million in 2015.
Market-related downtime
in 2016
increased
to
approximately 448,000
tons
from approximately
440,000 tons in 2015.
DESCRIPTION OF BUSINESS SEGMENTS
International Paper’s business segments discussed
below 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.
Industrial Packaging
International Paper is the largest manufacturer of
containerboard
in
the United States. Our U.S.
production capacity is over 13 million tons annually. Our
products
include
linerboard, medium, whitetop,
recycled linerboard, recycled medium and saturating
kraft. About 80% of our production is converted
domestically
into corrugated boxes and other
packaging by our 166 U.S. container plants.
Additionally, we recycle approximately one million tons
of OCC and mixed and white paper through our 18
recycling plants. In EMEA, our operations include two
recycled fiber containerboard mills in Morocco and
Turkey and 26 container plants in France, Italy, Spain,
Morocco and Turkey. During 2016 we acquired a
newsprint mill in Spain which we intend to convert to a
recycled containerboard mill during 2017. In Brazil our
operations include three containerboard mills and four
box plants. Our container plants are supported by
regional design centers, which offer total packaging
solutions and supply chain initiatives.
Net Losses on Sales and Impairments of Businesses
Global Cellulose Fibers
Net losses on sales and impairments of businesses
included in special items totaled a pre-tax loss of $70
million in 2016, a pre-tax loss of $174 million in 2015
and a pre-tax loss of $38 million in 2014. See Note 7
Divestitures / Spinoff on pages 56 and 57 of Item 8.
Financial Statements and Supplementary Data) for
further discussion.
Business Segment Operating Profits
Business segment operating profits of $2.2 billion in
2016 decreased from $2.4 billion in 2015. The benefits
from higher sales volumes ($62 million), higher
maintenance outage costs ($14 million), lower input
costs ($82 million) and the incremental operating
Our cellulose fibers product portfolio includes fluff,
market and specialty pulps. Our fluff pulp is used to
make absorbent hygiene products like baby diapers,
feminine care, adult incontinence and other non-woven
products, and our market pulp is used for tissue and
paper products. We continue to invest in exploring new
innovative uses for our products, such as our specialty
pulps, which are used for non-absorbent end uses
including textiles, filtration, construction material, paints
and coatings, reinforced plastics and more. Our
products are made in the United States, Canada,
France, Poland, and Russia and are sold around the
world. International Paper facilities have annual dried
pulp capacity of about 4 million metric tonnes.
items. Excluding these items, an $83 million net tax
that additional charges and costs will be incurred in
Other Corporate Special Items
benefit for other special items and a $101 million tax
future periods in our core businesses should such
benefit related to non-operating pension expense, the
triggering events occur.
tax provision was $687 million, or 33% of pre-tax
earnings before equity earnings.
During 2016, 2015 and 2014, pre-tax restructuring and
other charges totaling $54 million, $252 million and
A net income tax provision of $123 million was recorded
$846 million were recorded in the business segments.
for 2014 including a tax benefit of $90 million related to
Details of these charges are as follows:
2016
2015
2014
Restructuring and
Other
In millions
Business Segments
Riegelwood mill
conversion costs net of
proceeds from the sale
of Carolina Coated
Bristols brand
Courtland mill
shutdown
Other items
Corporate
Early debt
extinguishment costs
(see Note 13)
India Packaging
business evaluation
write-off
Gain on sale of
investment in Arizona
Chemical
Timber monetization
restructuring
Legal liability reserve
adjustment
Other Items
Turkey mill closure
7 (b)
$
9 (a) $
8 (a) $ —
—
554 (c)
15 (d)
569
2 (a)
$
29
207
276
—
—
10
—
—
16
15
4
—
—
16
17
(8)
—
—
—
38
54
—
—
—
—
1
Total
$
$ 252
$ 846
242
277
(a) Recorded in the Consumer Packaging business segment.
(b) Recorded in the Industrial Packaging business segment.
(c) Recorded in the Printing Papers business segment.
(d) Recorded in the Industrial Packaging business segment ($7
million) and Consumer Packaging business segment ($8
million).
In addition, other corporate special items totaling $8
million, $4 million and $43 million were recorded in
2016, 2015 and 2014, respectively. Details of these
charges were as follows:
Other Corporate Items
In millions
Write-off of certain regulatory pre-
engineering costs
Sale of investment by ASG and
impairment of that investment
Other
Total
Impairments of Goodwill
2016
2015
2014
$
8 $ — $ —
—
—
—
(4)
$
8 $
(4) $
47
(4)
43
No goodwill impairment charges were recorded in 2016.
In the fourth quarter of 2015, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Brazil Packaging business and
determined that all of the goodwill in the business,
totaling $137 million, should be written off. The decline
in the fair value of the Brazil Packaging business and
resulting impairment charge was due to the negative
impacts on the cash flows of the business caused by
the continued decline of the overall Brazilian economy.
In the fourth quarter of 2014, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Asia Industrial Packaging 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 $100 million, should
be written off. The decline in the fair value of the Asia
Industrial Packaging business and resulting impairment
charge was due to a change in the strategic outlook for
the business.
earnings from the newly acquired pulp business ($17
million) were more than offset by lower average sales
price realizations and mix ($443 million), higher
operating costs ($62 million) and higher other costs
($14 million). Special items were a $136 million net loss
in 2016 compared with a net loss of $321 million in 2015.
Market-related downtime
approximately 448,000
440,000 tons in 2015.
in 2016
increased
to
from approximately
tons
DESCRIPTION OF BUSINESS SEGMENTS
International Paper’s business segments discussed
below 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.
Industrial Packaging
in
include
International Paper is the largest manufacturer of
containerboard
the United States. Our U.S.
production capacity is over 13 million tons annually. Our
products
linerboard, medium, whitetop,
recycled linerboard, recycled medium and saturating
kraft. About 80% of our production is converted
domestically
into corrugated boxes and other
packaging by our 166 U.S. container plants.
Additionally, we recycle approximately one million tons
of OCC and mixed and white paper through our 18
recycling plants. In EMEA, our operations include two
recycled fiber containerboard mills in Morocco and
Turkey and 26 container plants in France, Italy, Spain,
Morocco and Turkey. During 2016 we acquired a
newsprint mill in Spain which we intend to convert to a
recycled containerboard mill during 2017. In Brazil our
operations include three containerboard mills and four
box plants. Our container plants are supported by
regional design centers, which offer total packaging
solutions and supply chain initiatives.
Net Losses on Sales and Impairments of Businesses
Global Cellulose Fibers
Net losses on sales and impairments of businesses
included in special items totaled a pre-tax loss of $70
million in 2016, a pre-tax loss of $174 million in 2015
and a pre-tax loss of $38 million in 2014. See Note 7
Divestitures / Spinoff on pages 56 and 57 of Item 8.
Financial Statements and Supplementary Data) for
further discussion.
Business Segment Operating Profits
Business segment operating profits of $2.2 billion in
2016 decreased from $2.4 billion in 2015. The benefits
from higher sales volumes ($62 million), higher
maintenance outage costs ($14 million), lower input
costs ($82 million) and the incremental operating
Our cellulose fibers product portfolio includes fluff,
market and specialty pulps. Our fluff pulp is used to
make absorbent hygiene products like baby diapers,
feminine care, adult incontinence and other non-woven
products, and our market pulp is used for tissue and
paper products. We continue to invest in exploring new
innovative uses for our products, such as our specialty
pulps, which are used for non-absorbent end uses
including textiles, filtration, construction material, paints
and coatings, reinforced plastics and more. Our
products are made in the United States, Canada,
France, Poland, and Russia and are sold around the
world. International Paper facilities have annual dried
pulp capacity of about 4 million metric tonnes.
23
24
internal restructurings and a net $9 million tax expense
for other items. Excluding these items, a $372 million
net tax benefit for other special items and a $83 million
tax benefit related to non-operating pension expense,
the tax provision was $659 million, or 31% of pre-tax
earnings before equity earnings.
Equity Earnings, Net of Taxes
Equity earnings, net of taxes in 2016, 2015 and 2014
consisted principally of the Company’s share of
earnings from its 50% investment in Ilim Holding S.A.
in Russia (see page 29 and 30).
Interest Expense and Noncontrolling Interest
Net corporate interest expense totaled $520 million in
2016, $555 million in 2015 and $601 million in 2014.
The decrease in 2016 compared with 2015 is due to
lower average interest rates. The decrease in 2015
compared with 2014 also reflects lower average interest
rates.
Net earnings attributable to noncontrolling interests
totaled a loss of $2 million in 2016 compared with a loss
of $21 million in 2015 and a loss of $19 million in 2014.
The decrease in 2016 reflects the sale of our equity
share of the IP-Sun JV in 2015. The decrease in 2015
compared with 2014 also reflects the sale of our interest
in the IP-Sun JV and lower earnings for the joint venture
in China prior to its divestiture.
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) 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, among other outcomes,
(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 assets have 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
Printing Papers
BUSINESS SEGMENT RESULTS
International Paper is one of the world’s largest
producers of printing and writing papers. The primary
product in this segment is 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 4 million
tons annually. Brazilian
operations function through International Paper do
Brasil, Ltda, which owns or manages approximately
329,000 acres of forestlands in Brazil.
that
Consumer Packaging
International Paper is one of the world’s largest
producers of solid bleached sulfate board with annual
U.S. production capacity of about 1.2 million tons . Our
coated paperboard business produces high quality
coated paperboard for a variety of packaging and
foodservice end uses. Our Everest®, Fortress®, and
Starcote® brands are used in packaging applications
for everyday products such as food, cosmetics,
pharmaceuticals and tobacco products. Our U.S.
capacity is supplemented by about 395,000 tons of
capacity at our mills producing coated board in Poland
and Russia.
Our Foodservice business produces cups, lids, food
containers and plates through three domestic plants
and four international facilities.
Ilim Holding S.A.
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 3.4 million tons. Ilim
has exclusive harvesting rights on timberland and forest
areas exceeding 14.9 million acres (6.0 million
hectares).
Products and brand designations appearing in italics
are trademarks of International Paper or a related
company.
The following tables present net sales and operating
profit (loss) which is the Company's measure of
segment profitability. The tables include a detail of
special items in each year, where applicable, in order
to show operating profit before special items.
Industrial Packaging
Demand for Industrial Packaging products is closely
correlated with non-durable
industrial goods
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
In millions
Net Sales
Operating Profit (Loss)
Turkey mill closure
Asia Packaging restructuring
and impairment
Brazil Packaging goodwill and
trade name impairment
Temple-Inland acquisition
Multi-employer pension
withdrawal liability
Box plant closures
EMEA Packaging
restructuring
Turkey acquisition
Brazil Packaging integration
costs
Asia Packaging goodwill
impairment
Operating Profit Before
Special Items
2016
2014
2015
$ 14,191 $ 14,484 $ 14,944
1,651 $ 1,853 $ 1,896
$
—
—
7
70
—
—
—
—
—
—
—
—
—
137
—
—
—
—
—
—
—
7
—
16
35
(5)
5
1
(1)
100
$
1,728 $ 1,990 $ 2,054
Industrial Packaging net sales for 2016 decreased 2% to
$14.2 billion compared with $14.5 billion in 2015, and
5% compared with $14.9 billion in 2014. Operating
profits in 2016 were 11% lower than in 2015 and 13%
lower than in 2014. Comparing 2016 with 2015, benefits
from higher sales volumes ($61 million),
lower
maintenance outage costs ($15 million) and lower input
costs ($42 million) were offset by lower average sales
price realizations and mix ($278 million), higher
operating costs ($101 million) and higher other costs
($1 million). In addition, special items were an expense
of $77 million in 2016 compared with $137 million in
2015.
25
26
North American Industrial
EMEA Industrial Packaging
Packaging
In millions
Net Sales
2016
2015
2014
$ 12,227 $ 12,541 $ 12,663
In millions
Net Sales
Operating Profit (Loss)
$
1,757 $ 2,009 $ 1,986
Temple-Inland acquisition
Multi-employer pension
withdrawal liability
Box plant closures
Operating Profit Before
Special Items
—
—
—
—
—
—
16
35
(5)
$
1,757 $ 2,009 $ 2,032
Turkey Mill Closure
EMEA Packaging
restructuring
Turkey acquisition
Operating Profit Before
Special Items
2016
2015
2014
1,227 $ 1,114 $ 1,307
$
$
7
—
—
—
—
—
25
—
5
1
$
22 $
13 $
31
Operating Profit (Loss)
15 $
13 $
North American
Industrial Packaging's sales volumes
increased in 2016 compared with 2015 reflecting higher
box shipments and higher shipments of containerboard
to export markets. In 2016, the business took about
914,000 tons of total downtime of which about 445,000
were economic downtime and 469,000 were
maintenance downtime. The business took about
814,000 tons of total downtime in 2015 of which 363,000
were economic downtime and 451,000 were
maintenance
downtime. Average
sales
price
realizations were significantly lower for containerboard
due to pricing pressures in export markets. Average
sales prices for boxes were lower primarily due to
contract de-escalators that were triggered in the first
quarter by a decrease in a key containerboard price
index. Input costs for wood, energy and freight fuel
surcharges were lower, but for recycled fiber were
higher. Planned maintenance downtime costs were
$16 million lower in 2016 than in 2015.
Looking ahead to the first quarter of 2017, compared
with the fourth quarter of 2016, sales volumes for boxes
are expected to be slightly higher despite seasonally
lower daily shipments due to four more shipping days.
Shipments of containerboard to export markets are
expected to decrease. Average sales price realizations
should
increase,
reflecting
the
continuing
implementation of the box price increase announced in
the fourth quarter of 2016. Input costs are expected to
be higher for recycled fiber, energy and wood. Planned
maintenance downtime spending is expected to be
about $57 million higher. Operating costs are expected
to improve. In addition, the Company is evaluating the
financial impact of the digester incident that occurred
estimated that the total impact will be in excess of $50
million, but that property damage and business
interruption insurance will cover a significant portion of
the costs. The timing of these costs and potential
insurance recoveries is unknown.
on January 22, 2017 at the Pensacola mill. It is currently
costs
EMEA Industrial Packaging's sales volumes in 2016 were
higher than in 2015 reflecting improved market demand
in the Eurozone and recovery from the prior year labor
strikes in Turkey. Average sales margins improved due
to sales price increases and material cost decreases.
Input costs for energy were lower, but operations were
negatively
impacted by
foreign exchange rates,
primarily in Turkey. Operating earnings in 2015 included
a gain of $4 million related to the change in ownership
of our OCC collection operations in Turkey.
Entering the first quarter of 2017, compared with the
fourth quarter of 2016 sales volumes are expected to
be slightly lower. Average sales margins are expected
to be slightly lower. Input costs for energy should be
flat, but operating costs are expected to be lower.
On June 30, 2016 the Company completed the
acquisition of Holmen Paper's newsprint mill in Madrid,
Spain. Under the terms of the agreement, International
Paper purchased the Madrid newsprint mill as well as
associated recycling operations and a 50% ownership
interest in a cogeneration facility. The Company intends
to convert the mill to produce recycled containerboard
in 2017 with an expected capacity of 419,000 tons.
Once completed, the converted mill will support the
Company's corrugated packaging business in EMEA.
Brazilian Industrial
Packaging
In millions
Net Sales
Operating Profit (Loss)
Brazil Packaging goodwill and
trade name impairment
Brazil Packaging integration
2016
2015
2014
$
$
232 $
(43) $
228 $
349
(163) $
—
—
137
—
(3)
—
(1)
(4)
Operating Profit Before
Special Items
$
(43) $
(26) $
Brazilian Industrial Packaging's 2016 sales volumes
decreased compared with 2015 for boxes and sheets
due to overall weak economic conditions, but increased
for containerboard. Average sales price realizations
were higher. Input costs increased, primarily for
recycled fiber. Operating costs were higher largely due
to the effects of inflation. Planned maintenance
downtime costs were $1 million higher in 2016
compared with 2015.
—
—
$
$
2014
2016
13 $
—
—
15 $
7
2016
2015
2014
$
22 $
13 $
31
—
—
—
—
5
1
1,227 $ 1,114 $ 1,307
25
—
—
—
—
35
(5)
$
1,757 $ 2,009 $ 2,032
2015
$ 12,227 $ 12,541 $ 12,663
1,757 $ 2,009 $ 1,986
$
16
EMEA Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
Turkey Mill Closure
EMEA Packaging
restructuring
Turkey acquisition
Operating Profit Before
Special Items
North American Industrial
Packaging
In millions
Net Sales
Operating Profit (Loss)
Temple-Inland acquisition
Multi-employer pension
withdrawal liability
Box plant closures
Operating Profit Before
Special Items
Printing Papers
BUSINESS SEGMENT RESULTS
International Paper is one of the world’s largest
producers of printing and writing papers. The primary
product in this segment is 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
names
that
include Hammermill, Springhill,
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 4 million
tons annually. Brazilian
operations function through International Paper do
Brasil, Ltda, which owns or manages approximately
329,000 acres of forestlands in Brazil.
Consumer Packaging
International Paper is one of the world’s largest
producers of solid bleached sulfate board with annual
U.S. production capacity of about 1.2 million tons . Our
coated paperboard business produces high quality
coated paperboard for a variety of packaging and
foodservice end uses. Our Everest®, Fortress®, and
Starcote® brands are used in packaging applications
for everyday products such as food, cosmetics,
pharmaceuticals and tobacco products. Our U.S.
capacity is supplemented by about 395,000 tons of
capacity at our mills producing coated board in Poland
and Russia.
Our Foodservice business produces cups, lids, food
containers and plates through three domestic plants
and four international facilities.
Ilim Holding S.A.
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 3.4 million tons. Ilim
has exclusive harvesting rights on timberland and forest
areas exceeding 14.9 million acres (6.0 million
hectares).
company.
Products and brand designations appearing in italics
are trademarks of International Paper or a related
The following tables present net sales and operating
profit (loss) which is the Company's measure of
segment profitability. The tables include a detail of
special items in each year, where applicable, in order
to show operating profit before special items.
Industrial Packaging
Demand for Industrial Packaging products is closely
correlated with non-durable
industrial goods
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
In millions
Net Sales
Operating Profit (Loss)
$
1,651 $ 1,853 $ 1,896
2016
2015
2014
$ 14,191 $ 14,484 $ 14,944
Turkey mill closure
Asia Packaging restructuring
and impairment
Brazil Packaging goodwill and
trade name impairment
Temple-Inland acquisition
Multi-employer pension
withdrawal liability
Box plant closures
EMEA Packaging
restructuring
Turkey acquisition
Brazil Packaging integration
costs
Asia Packaging goodwill
impairment
Operating Profit Before
Special Items
7
70
—
—
—
—
—
—
—
—
137
—
—
—
—
—
—
—
—
—
—
7
—
16
35
(5)
5
1
(1)
100
$
1,728 $ 1,990 $ 2,054
Industrial Packaging net sales for 2016 decreased 2% to
$14.2 billion compared with $14.5 billion in 2015, and
5% compared with $14.9 billion in 2014. Operating
profits in 2016 were 11% lower than in 2015 and 13%
lower than in 2014. Comparing 2016 with 2015, benefits
from higher sales volumes ($61 million),
lower
maintenance outage costs ($15 million) and lower input
costs ($42 million) were offset by lower average sales
price realizations and mix ($278 million), higher
operating costs ($101 million) and higher other costs
($1 million). In addition, special items were an expense
of $77 million in 2016 compared with $137 million in
2015.
Industrial Packaging's sales volumes
North American
increased in 2016 compared with 2015 reflecting higher
box shipments and higher shipments of containerboard
to export markets. In 2016, the business took about
914,000 tons of total downtime of which about 445,000
were economic downtime and 469,000 were
maintenance downtime. The business took about
814,000 tons of total downtime in 2015 of which 363,000
were economic downtime and 451,000 were
maintenance
price
downtime. Average
realizations were significantly lower for containerboard
due to pricing pressures in export markets. Average
sales prices for boxes were lower primarily due to
contract de-escalators that were triggered in the first
quarter by a decrease in a key containerboard price
index. Input costs for wood, energy and freight fuel
surcharges were lower, but for recycled fiber were
higher. Planned maintenance downtime costs were
$16 million lower in 2016 than in 2015.
sales
the
reflecting
increase,
Looking ahead to the first quarter of 2017, compared
with the fourth quarter of 2016, sales volumes for boxes
are expected to be slightly higher despite seasonally
lower daily shipments due to four more shipping days.
Shipments of containerboard to export markets are
expected to decrease. Average sales price realizations
should
continuing
implementation of the box price increase announced in
the fourth quarter of 2016. Input costs are expected to
be higher for recycled fiber, energy and wood. Planned
maintenance downtime spending is expected to be
about $57 million higher. Operating costs are expected
to improve. In addition, the Company is evaluating the
financial impact of the digester incident that occurred
on January 22, 2017 at the Pensacola mill. It is currently
estimated that the total impact will be in excess of $50
million, but that property damage and business
interruption insurance will cover a significant portion of
the costs. The timing of these costs and potential
insurance recoveries is unknown.
EMEA Industrial Packaging's sales volumes in 2016 were
higher than in 2015 reflecting improved market demand
in the Eurozone and recovery from the prior year labor
strikes in Turkey. Average sales margins improved due
to sales price increases and material cost decreases.
Input costs for energy were lower, but operations were
negatively
foreign exchange rates,
primarily in Turkey. Operating earnings in 2015 included
a gain of $4 million related to the change in ownership
of our OCC collection operations in Turkey.
impacted by
Entering the first quarter of 2017, compared with the
fourth quarter of 2016 sales volumes are expected to
be slightly lower. Average sales margins are expected
to be slightly lower. Input costs for energy should be
flat, but operating costs are expected to be lower.
On June 30, 2016 the Company completed the
acquisition of Holmen Paper's newsprint mill in Madrid,
Spain. Under the terms of the agreement, International
Paper purchased the Madrid newsprint mill as well as
associated recycling operations and a 50% ownership
interest in a cogeneration facility. The Company intends
to convert the mill to produce recycled containerboard
in 2017 with an expected capacity of 419,000 tons.
Once completed, the converted mill will support the
Company's corrugated packaging business in EMEA.
Brazilian Industrial
Packaging
In millions
Net Sales
Operating Profit (Loss)
Brazil Packaging goodwill and
trade name impairment
Brazil Packaging integration
costs
Operating Profit Before
Special Items
2016
2015
2014
$
$
232 $
(43) $
228 $
(163) $
349
(3)
—
—
137
—
$
(43) $
(26) $
—
(1)
(4)
Brazilian Industrial Packaging's 2016 sales volumes
decreased compared with 2015 for boxes and sheets
due to overall weak economic conditions, but increased
for containerboard. Average sales price realizations
were higher. Input costs increased, primarily for
recycled fiber. Operating costs were higher largely due
to the effects of inflation. Planned maintenance
downtime costs were $1 million higher in 2016
compared with 2015.
25
26
Looking ahead to the first quarter of 2017, compared
with the fourth quarter of 2016 sales volumes are
expected to be lower for containerboard and sheets,
but higher for boxes. Average sales margins should
improve reflecting a sales price increase for boxes.
Input costs are expected to be slightly lower, but offset
by higher operating costs. Planned maintenance
downtime costs are expected to be $1 million higher.
Asian Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
Asia Packaging restructuring
and impairment
Asia Packaging goodwill
impairment
Operating Profit Before
Special Items
2016
2015
2014
$
$
505 $
(78) $
601 $
(6) $
625
(112)
70
—
—
—
7
100
$
(8) $
(6) $
(5)
Asian Industrial Packaging's sales volumes in the first half
of 2016 for boxes were higher than the comparable
period in 2015, but average sales margins were lower
due to competitive pressures and weak economic
conditions.
On June 30, 2016, the Company completed the sale of
its corrugated packaging business in China and
Southeast Asia to Xiamen Bridge Hexing Equity
Investment Partnership Enterprise. See Note 7
Divestitures / Spinoff on pages 56 and 57 of Item 8.
Financial Statements and Supplementary Data for
further discussion of the sale of this business. Net sales
and operating profits beginning with the third quarter of
2016 reflect the results of the distribution operations of
the business.
Global Cellulose Fibers
Demand for Cellulose Fibers products is closely
correlated with changes in demand for absorbent
hygiene products and is further affected by changes in
currency rates that can benefit or hurt producers in
different geographic regions. Principal cost drivers
include manufacturing efficiency, raw material and
energy costs and freight costs.
Global Cellulose Fibers
In millions
Net Sales
2016
2015
2014
$ 1,092 $
975 $ 1,046
Operating Profit (Loss)
$
(180) $
68 $
Acquisition costs
Inventory fair value step-up
amortization
Operating Profit Before
Special Items
31
19
—
—
$
(130) $
68 $
61
—
—
61
Global Cellulose Fibers results for 2016 include net sales
of $111 million and an operating loss of $(21) million
(including $38 million of special items) associated with
the newly acquired pulp business from the date of
acquisition on December 1, 2016. See Note 6
Acquisitions and Joint Ventures on pages 54 through
56 of Item 8. Financial Statements and Supplementary
Data for additional information about the acquisition.
Net sales for 2016 increased 12% to $1.1 billion
compared with $975 million in 2015 and 4% compared
with $1.0 billion in 2014. Operating profits in 2016 were
significantly lower than in both 2015 and 2014.
Comparing 2016 with 2015, benefits from higher sales
volumes ($10 million), lower input costs ($6 million),
and lower other costs ($1 million) were offset by lower
average sales price realizations and mix ($36 million),
higher operating costs ($59 million) and higher planned
maintenance downtime costs ($38 million). In addition,
special items expense in 2016 was $50 million.
Sales volumes for the legacy business were higher for
both fluff and market pulp. Average sales margins
decreased, reflecting lower sales price realizations for
both fluff pulp and softwood market pulp and an
unfavorable mix resulting
the Riegelwood
conversion and ramp-up. In Europe and Russia,
average sales margins decreased due to competitive
pressures. Input costs were slightly lower. Planned
maintenance downtime costs were $38 million higher
in 2016 primarily related to the Riegelwood mill.
Operating costs were higher due to costs associated
with the Riegelwood mill conversion.
from
Entering the first quarter of 2017, sales volumes will be
higher due to the full-quarter impact of the acquisition.
Average sales price realizations are expected to be
stable and mix will continue to be challenged due to the
ramp-up of the Riegelwood mill. Input costs are
expected to increase primarily for wood. Planned
maintenance downtime costs should be $47 million
higher than in the fourth quarter of 2016 due to a large
outage and capital investment project to upgrade the
recovery boiler, turbine and power system at our Port
Wentworth mill.
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. Principal cost drivers include
manufacturing efficiency, raw material and energy costs
and freight costs.
Operating Profit (Loss)
$
540 $
465 $
(77)
Printing Papers
In millions
Net Sales
Courtland mill closure
Brazil tax amnesty
India legal contingency
Operating Profit Before
Special Items
2016
2015
2014
$ 4,058 $ 4,056 $ 4,674
—
—
—
—
—
—
554
32
(20)
$
540 $
465 $
489
Printing Papers net sales for 2016 of $4.1 billion were
even with $4.1 billion in 2015, but decreased 13%
compared with $4.7 billion in 2014. Operating profits in
2016 were 16% higher than in 2015 and significantly
higher than in 2014. Comparing 2016 with 2015,
benefits from higher sales volumes ($11 million), higher
average sales price realizations and mix ($25 million),
lower operating costs ($20 million), lower planned
maintenance downtime costs ($23 million) and lower
input costs ($4 million) were partly offset by higher other
costs ($8 million).
North American Printing
Papers
In millions
Net Sales
Operating Profit (Loss)
Courtland mill closure
Operating Profit Before
Special Items
2016
2015
2014
$ 1,890 $ 1,942 $ 2,055
236 $
179 $
(398)
—
—
554
236 $
179 $
156
North American Printing Papers' sales volumes for 2016
were unchanged from 2015. Average sales price
realizations decreased for both cutsize paper and rolls.
Average sales margins were also impacted by an
unfavorable mix. Input costs were lower, mainly for
wood. Planned maintenance downtime costs were $24
million lower in 2016. Manufacturing operating costs
also improved.
Entering the first quarter of 2017, sales volumes are
expected to be seasonally higher. Average sales
margins should decrease reflecting lower average
sales price realizations partially offset by a more
favorable geographic mix. Input costs are expected to
be higher, primarily for energy. Planned maintenance
downtime costs are expected to be about $23 million
higher with outages scheduled in the 2017 first quarter.
Brazilian Papers
In millions
Net Sales
Operating Profit (Loss)
Brazil tax amnesty
Operating Profit Before
Special Items
2016
2015
2014
897 $
173 $
—
878 $ 1,061
186 $
—
177
32
173 $
186 $
209
Brazilian Papers' sales volumes for in 2016 were lower
compared with 2015 under weak economic conditions.
Average sales price realizations improved for domestic
$
$
$
$
$
uncoated freesheet paper due to the realization of price
increases implemented in the first half of 2016. Sales
prices to export markets decreased. Raw material costs
increased for energy, wood, chemicals and virgin fiber.
Operating costs were higher than in 2015, largely due
to inflation. Planned maintenance downtime costs were
$1 million lower.
Looking ahead to 2017, compared with the fourth
quarter of 2016 sales volumes for uncoated freesheet
paper in the first quarter are expected to be seasonally
weaker in both domestic and export markets. Average
sales price realizations should increase due to the
implementation of a domestic sales price increase for
both cutsize and offset paper. Input costs are expected
to be slightly higher for chemicals and energy.
European Papers
In millions
Net Sales
2016
2015
2014
$ 1,109 $ 1,064 $ 1,321
Operating Profit (Loss)
$
142 $
111 $
136
European Papers' sales volumes for uncoated freesheet
paper in 2016 were higher in both Russia and Europe
compared with 2015. Average sales price realizations
improved for uncoated freesheet paper following price
increases implemented in 2015 in Europe and in the
first quarter of 2016 in Russia. Input costs were lower
for wood, energy and chemicals in Europe, but were
higher in Russia. Planned maintenance downtime costs
were $4 million lower in 2016 than in 2015.
Entering 2017, sales volumes for uncoated freesheet
paper in the first quarter are expected to be seasonally
weaker in Russia but higher in Europe. Average sales
price realizations are expected to be stable with price
increases implemented in certain markets. Input costs
should be slightly
lower. Planned maintenance
downtime costs should be $15 million lower than in the
fourth quarter of 2016.
Indian Papers
In millions
Net Sales
Operating Profit (Loss)
India legal contingency
Operating Profit Before
Special Items
2016
2015
2014
167 $
(11) $
—
172 $
(11) $
—
178
8
(20)
(11) $
(11) $
(12)
$
$
$
Indian Papers' average sales price realizations in 2016
were slightly higher than in 2015. Sales volumes were
flat. Input costs were lower for wood and chemicals.
Operating costs were higher in 2016, while planned
maintenance downtime costs were even with 2015.
Looking ahead to the first quarter of 2017, sales
volumes are expected to be slightly lower, but
seasonally strong. Average sales price realizations are
expected to be stable.
27
28
Looking ahead to the first quarter of 2017, compared
the newly acquired pulp business from the date of
with the fourth quarter of 2016 sales volumes are
acquisition on December 1, 2016. See Note 6
expected to be lower for containerboard and sheets,
Acquisitions and Joint Ventures on pages 54 through
but higher for boxes. Average sales margins should
56 of Item 8. Financial Statements and Supplementary
improve reflecting a sales price increase for boxes.
Data for additional information about the acquisition.
Input costs are expected to be slightly lower, but offset
Net sales for 2016 increased 12% to $1.1 billion
by higher operating costs. Planned maintenance
compared with $975 million in 2015 and 4% compared
downtime costs are expected to be $1 million higher.
with $1.0 billion in 2014. Operating profits in 2016 were
Printing Papers
In millions
Net Sales
Operating Profit (Loss)
Courtland mill closure
Brazil tax amnesty
India legal contingency
Operating Profit Before
Special Items
2016
2015
$ 4,058 $ 4,056 $ 4,674
(77)
$
465 $
2014
540 $
—
—
—
—
—
—
554
32
(20)
$
540 $
465 $
489
significantly lower than in both 2015 and 2014.
Comparing 2016 with 2015, benefits from higher sales
volumes ($10 million), lower input costs ($6 million),
and lower other costs ($1 million) were offset by lower
average sales price realizations and mix ($36 million),
higher operating costs ($59 million) and higher planned
maintenance downtime costs ($38 million). In addition,
special items expense in 2016 was $50 million.
Sales volumes for the legacy business were higher for
both fluff and market pulp. Average sales margins
decreased, reflecting lower sales price realizations for
both fluff pulp and softwood market pulp and an
unfavorable mix resulting
from
the Riegelwood
conversion and ramp-up. In Europe and Russia,
average sales margins decreased due to competitive
pressures. Input costs were slightly lower. Planned
maintenance downtime costs were $38 million higher
in 2016 primarily related to the Riegelwood mill.
Operating costs were higher due to costs associated
with the Riegelwood mill conversion.
Entering the first quarter of 2017, sales volumes will be
higher due to the full-quarter impact of the acquisition.
Average sales price realizations are expected to be
stable and mix will continue to be challenged due to the
ramp-up of the Riegelwood mill. Input costs are
expected to increase primarily for wood. Planned
maintenance downtime costs should be $47 million
higher than in the fourth quarter of 2016 due to a large
outage and capital investment project to upgrade the
recovery boiler, turbine and power system at our Port
Wentworth mill.
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. Principal cost drivers include
manufacturing efficiency, raw material and energy costs
and freight costs.
Asian Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
Asia Packaging restructuring
and impairment
Asia Packaging goodwill
impairment
Operating Profit Before
Special Items
2016
2015
2014
$
$
505 $
(78) $
601 $
625
(6) $
(112)
70
—
—
—
7
100
$
(8) $
(6) $
(5)
Asian Industrial Packaging's sales volumes in the first half
of 2016 for boxes were higher than the comparable
period in 2015, but average sales margins were lower
due to competitive pressures and weak economic
conditions.
On June 30, 2016, the Company completed the sale of
its corrugated packaging business in China and
Southeast Asia to Xiamen Bridge Hexing Equity
Investment Partnership Enterprise. See Note 7
Divestitures / Spinoff on pages 56 and 57 of Item 8.
Financial Statements and Supplementary Data for
further discussion of the sale of this business. Net sales
and operating profits beginning with the third quarter of
2016 reflect the results of the distribution operations of
the business.
Global Cellulose Fibers
Demand for Cellulose Fibers products is closely
correlated with changes in demand for absorbent
hygiene products and is further affected by changes in
currency rates that can benefit or hurt producers in
different geographic regions. Principal cost drivers
include manufacturing efficiency, raw material and
energy costs and freight costs.
Global Cellulose Fibers
In millions
Net Sales
2016
2015
2014
$ 1,092 $
975 $ 1,046
Operating Profit (Loss)
$
(180) $
68 $
Acquisition costs
Inventory fair value step-up
amortization
Operating Profit Before
Special Items
31
19
—
—
$
(130) $
68 $
61
—
—
61
Global Cellulose Fibers results for 2016 include net sales
of $111 million and an operating loss of $(21) million
(including $38 million of special items) associated with
Printing Papers net sales for 2016 of $4.1 billion were
even with $4.1 billion in 2015, but decreased 13%
compared with $4.7 billion in 2014. Operating profits in
2016 were 16% higher than in 2015 and significantly
higher than in 2014. Comparing 2016 with 2015,
benefits from higher sales volumes ($11 million), higher
average sales price realizations and mix ($25 million),
lower operating costs ($20 million), lower planned
maintenance downtime costs ($23 million) and lower
input costs ($4 million) were partly offset by higher other
costs ($8 million).
North American Printing
Papers
In millions
Net Sales
Operating Profit (Loss)
Courtland mill closure
Operating Profit Before
Special Items
2014
2016
2015
$ 1,890 $ 1,942 $ 2,055
(398)
$
554
236 $
—
179 $
—
$
236 $
179 $
156
North American Printing Papers' sales volumes for 2016
were unchanged from 2015. Average sales price
realizations decreased for both cutsize paper and rolls.
Average sales margins were also impacted by an
unfavorable mix. Input costs were lower, mainly for
wood. Planned maintenance downtime costs were $24
million lower in 2016. Manufacturing operating costs
also improved.
Entering the first quarter of 2017, sales volumes are
expected to be seasonally higher. Average sales
margins should decrease reflecting lower average
sales price realizations partially offset by a more
favorable geographic mix. Input costs are expected to
be higher, primarily for energy. Planned maintenance
downtime costs are expected to be about $23 million
higher with outages scheduled in the 2017 first quarter.
Brazilian Papers
In millions
Net Sales
Operating Profit (Loss)
Brazil tax amnesty
Operating Profit Before
Special Items
2016
2015
2014
897 $
173 $
—
878 $ 1,061
186 $
—
177
32
173 $
186 $
209
$
$
$
Brazilian Papers' sales volumes for in 2016 were lower
compared with 2015 under weak economic conditions.
Average sales price realizations improved for domestic
27
28
uncoated freesheet paper due to the realization of price
increases implemented in the first half of 2016. Sales
prices to export markets decreased. Raw material costs
increased for energy, wood, chemicals and virgin fiber.
Operating costs were higher than in 2015, largely due
to inflation. Planned maintenance downtime costs were
$1 million lower.
Looking ahead to 2017, compared with the fourth
quarter of 2016 sales volumes for uncoated freesheet
paper in the first quarter are expected to be seasonally
weaker in both domestic and export markets. Average
sales price realizations should increase due to the
implementation of a domestic sales price increase for
both cutsize and offset paper. Input costs are expected
to be slightly higher for chemicals and energy.
European Papers
In millions
Net Sales
Operating Profit (Loss)
2016
2015
$ 1,109 $ 1,064 $ 1,321
136
$
142 $
111 $
2014
European Papers' sales volumes for uncoated freesheet
paper in 2016 were higher in both Russia and Europe
compared with 2015. Average sales price realizations
improved for uncoated freesheet paper following price
increases implemented in 2015 in Europe and in the
first quarter of 2016 in Russia. Input costs were lower
for wood, energy and chemicals in Europe, but were
higher in Russia. Planned maintenance downtime costs
were $4 million lower in 2016 than in 2015.
Entering 2017, sales volumes for uncoated freesheet
paper in the first quarter are expected to be seasonally
weaker in Russia but higher in Europe. Average sales
price realizations are expected to be stable with price
increases implemented in certain markets. Input costs
should be slightly
lower. Planned maintenance
downtime costs should be $15 million lower than in the
fourth quarter of 2016.
Indian Papers
In millions
Net Sales
Operating Profit (Loss)
India legal contingency
Operating Profit Before
Special Items
2016
2015
2014
167 $
(11) $
—
172 $
(11) $
—
178
8
(20)
(11) $
(11) $
(12)
$
$
$
Indian Papers' average sales price realizations in 2016
were slightly higher than in 2015. Sales volumes were
flat. Input costs were lower for wood and chemicals.
Operating costs were higher in 2016, while planned
maintenance downtime costs were even with 2015.
Looking ahead to the first quarter of 2017, sales
volumes are expected to be slightly lower, but
seasonally strong. Average sales price realizations are
expected to be stable.
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
In millions
Net Sales
Operating Profit (Loss)
Riegelwood conversion costs
net of proceeds from the sale
of the Carolina coated bristols
brand
Asia Coated Paperboard
goodwill and PP&E impairment
NA Coated Paperboard sheet
plant closures
2016
2015
$ 1,955 $ 2,940 $ 3,403
178
$
191 $
(25) $
2014
9
—
—
8
174
2
—
—
8
Operating Profit Before
Special Items
$
200 $
159 $
186
Consumer Packaging net sales in 2016 decreased 34% to
$2.0 billion from $2.9 billion in 2015, and decreased
43% from $3.4 billion in 2014. Operating profits
increased significantly from 2015 and increased 7%
from 2014. Comparing 2016 with 2015, benefits from
lower operating costs ($78 million), lower planned
maintenance downtime costs ($13 million) and lower
input costs ($30 million) were partially offset by lower
sales volumes ($20 million), lower average sales price
realizations and mix ($56 million), and higher other
costs ($4 million). In addition, special items expense
was $9 million in 2016 and $184 million in 2015.
North American Consumer
Packaging
In millions
Net Sales
2016
2015
2014
$ 1,628 $ 1,939 $ 1,993
Operating Profit (Loss)
$
98 $
81 $
92
Riegelwood conversion costs
net of proceeds from the sale
of the Carolina coated bristols
brand
NA Coated Paperboard sheet
plant closures
Operating Profit Before
Special Items
9
—
8
2
—
8
$
107 $
91 $
100
North American Consumer Packaging coated paperboard
sales volumes in 2016 were lower than in 2015 primarily
due to our exit from the coated bristols market. Average
sales price realizations decreased year over year due
to competitive pressures. Input costs decreased for
wood, chemicals and energy. Planned maintenance
downtime costs were $11 million lower in 2016.
Operating costs decreased, reflecting the impact of cost
savings initiatives and lower depreciation expense.
Foodservice sales volumes decreased slightly in 2016
compared with 2015. Average sales margins
decreased due to lower sales price realizations partially
offset by lower resin costs and a more favorable mix.
Operating costs were higher, while distribution costs
were lower.
Looking ahead to the first quarter of 2017, Coated
to be
Paperboard sales volumes are expected
seasonally higher than in the fourth quarter of 2016.
Average sales price realizations are expected to be
lower due to market pressures. Input costs are expected
to be higher for energy and chemicals, partially offset
by lower wood costs. Planned maintenance downtime
costs should be $11 million lower with no maintenance
outages scheduled in the first quarter. Foodservice
sales volumes are expected to be seasonally lower.
Sales margins are expected
to continue under
pressure, partially offset by lower operating costs.
European Consumer
Packaging
In millions
Net Sales
Operating Profit (Loss)
2016
2015
2014
$
$
327 $
93 $
319 $
87 $
365
91
European Consumer Packaging's sales volumes in 2016
compared with 2015 increased in both Europe and
Russia. Average sales price realizations were higher
in Russia. In Europe average sales margins decreased
reflecting lower average sales prices. Input cost,
primarily for wood and energy were lower in Europe,
but were higher in Russia. Planned maintenance
downtime costs were $2 million lower in 2016.
Looking forward to the first quarter of 2017, compared
with the fourth quarter of 2016, sales volumes are
expected to increase. Average sales price realizations
are expected to be flat in both Europe and Russia. Input
higher.
costs
expected
are
be
to
Asian Consumer Packaging
In millions
Net Sales
Operating Profit (Loss)
Asia Coated Paperboard
goodwill and PP&E impairment
Operating Profit Before
Special Items
2016
2015
2014
— $
— $
682 $ 1,045
(193) $
(5)
—
174
—
— $
(19) $
(5)
$
$
$
The Company sold its 55% equity share in IP Asia
Coated Paperboard (IP-Sun JV) in October 2015. See
Note 7 Divestitures / Spinoff on pages 56 and 57 of Item
8. Financial Statements and Supplementary Data for
further discussion of the sale of the IP Sun JV. Net sales
and operating profits presented below include results
through September 30, 2015.
Equity Earnings, Net of Taxes – Ilim Holding S.A.
International Paper accounts for its investment in Ilim
Holding S.A. (Ilim), a separate reportable industry
segment, using the equity method of accounting.
29
30
The Company recorded equity earnings, net of taxes,
related to Ilim of $199 million in 2016 compared with a
loss of $131 million in 2015 and a loss of $194 million
in 2014. Operating results recorded in 2016 included
an after-tax non-cash foreign exchange gain of $25
million compared with an after-tax foreign exchange
loss of $75 million in 2015 and an after-tax foreign
exchange loss of $269 million in 2014 primarily on the
remeasurement of Ilim's U.S. dollar-denominated net
debt.
Sales volumes for the joint venture increased year over
year for shipments to China of softwood pulp and
linerboard, but decreased for hardwood pulp. Sales
volumes in the domestic Russian market increased for
softwood pulp, hardwood pulp and paper, but
decreased
for
linerboard. Average sales price
realizations were lower in 2016 for sales of softwood
pulp and hardwood pulp to export markets and
linerboard to the Russian domestic market, but were
partially offset by higher average sales price
realizations for sales of paper to export and domestic
Russian markets. Input costs increased year-over-year
for wood, chemicals and energy. Maintenance outage
costs were also higher in 2016. The Company received
cash dividends from the joint venture of $60 million in
2016, $35 million in 2015 and $56 million in 2014.
Entering the first quarter of 2017, sales volumes are
expected to be seasonally lower than in the fourth
quarter of 2016 due to the January holidays in China
and the seasonal slowdown in Russia. Average sales
price realizations are expected to increase for exported
hardwood pulp, softwood pulp and for sales of paper in
the domestic Russian market. Average sales price
realizations for linerboard in the Russian domestic
market are expected to be lower. Distribution costs and
input costs for energy are projected to be higher.
Cash Provided by Operating Activities
Cash provided by operations totaled $2.5 billion in 2016
compared with $2.6 billion for 2015 and $3.1 billion for
2014. Cash provided by working capital components,
accounts receivable and inventory less accounts
payable and accrued liabilities, interest payable and
other totaled $71 million in 2016, compared with a cash
use of $222 million in 2015 and a cash use of $158
million in 2014.
The Company generated Free Cash Flow of
approximately $1.9 billion, $1.8 billion and $2.1 billion
in 2016, 2015 and 2014, respectively. The following are
reconciliations of free cash flow to cash provided by
operations:
In millions
Cash provided by
operations
Adjustments:
2016
2015
2014
$
2,478 $
2,580 $
3,077
Cash invested in capital
projects
Cash contribution to
pension plan
(1,348)
(1,487)
(1,366)
750
750
353
Free Cash Flow
$
1,880 $
1,843 $
2,064
Three
Months
Ended
Three
Months
Ended
Three
Months
Ended
December
31, 2016
September
December
30, 2016
31, 2015
$
912 $
341 $
990
(445)
(266)
(489)
In millions
Cash provided by
operations
Adjustments:
Cash invested in capital
projects
Cash contribution to
pension plan
Free Cash Flow
$
467 $
—
500
575 $
—
501
LIQUIDITY AND CAPITAL RESOURCES
Investment Activities
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.
Investment activities in 2016 were up from 2015
reflecting
the purchase of Weyerhaeuser's pulp
business for $2.2 billion in cash, the purchase of the
Holmen business for $57 million in cash, net of cash
acquired, and proceeds from the sale of the Asia
Packaging business of $108 million, net of cash
divested. In 2015, investment activity includes higher
capital spending and the use of $198 million of cash in
conjunction with the timber monetization restructuring
(see Note 12 Variable Interest Entities and Preferred
Securities of Subsidiaries on pages 64 through 66 of
Item 8. Financial Statements and Supplementary Data).
Cash uses during 2016 were primarily focused on
In addition, 2014 investment activity includes the receipt
working capital requirements, capital spending, debt
of approximately $400 million in connection with the
reductions, pension contributions, the acquisitions of
spin-off of the xpedx distribution business. The
the Weyerhaeuser pulp business and the mill asset in
Company maintains an average capital spending target
Madrid, and returning cash to shareholders.
around depreciation or amortization levels or modestly
above due to strategic plans over the course of an
economic cycle. Capital spending was $1.3 billion in
Consumer Packaging
Demand and pricing for Consumer Packaging products
correlate closely with consumer spending and general
economic activity. In addition to prices and volumes,
were lower.
decreased due to lower sales price realizations partially
offset by lower resin costs and a more favorable mix.
Operating costs were higher, while distribution costs
major factors affecting the profitability of Consumer
Looking ahead to the first quarter of 2017, Coated
Packaging are raw material and energy costs, freight
Paperboard sales volumes are expected
to be
costs, manufacturing efficiency and product mix.
Consumer Packaging
In millions
Net Sales
2016
2015
2014
$ 1,955 $ 2,940 $ 3,403
Operating Profit (Loss)
$
191 $
(25) $
178
Riegelwood conversion costs
net of proceeds from the sale
of the Carolina coated bristols
brand
Asia Coated Paperboard
goodwill and PP&E impairment
NA Coated Paperboard sheet
plant closures
9
—
—
174
8
2
—
—
8
Operating Profit Before
Special Items
$
200 $
159 $
186
Consumer Packaging net sales in 2016 decreased 34% to
$2.0 billion from $2.9 billion in 2015, and decreased
43% from $3.4 billion in 2014. Operating profits
increased significantly from 2015 and increased 7%
from 2014. Comparing 2016 with 2015, benefits from
lower operating costs ($78 million), lower planned
maintenance downtime costs ($13 million) and lower
input costs ($30 million) were partially offset by lower
sales volumes ($20 million), lower average sales price
realizations and mix ($56 million), and higher other
costs ($4 million). In addition, special items expense
was $9 million in 2016 and $184 million in 2015.
Operating Profit (Loss)
$
98 $
81 $
92
2016
2015
2014
$ 1,628 $ 1,939 $ 1,993
North American Consumer
Packaging
In millions
Net Sales
Riegelwood conversion costs
net of proceeds from the sale
of the Carolina coated bristols
brand
NA Coated Paperboard sheet
plant closures
Operating Profit Before
Special Items
9
—
8
2
—
8
$
107 $
91 $
100
North American Consumer Packaging coated paperboard
sales volumes in 2016 were lower than in 2015 primarily
due to our exit from the coated bristols market. Average
sales price realizations decreased year over year due
to competitive pressures. Input costs decreased for
wood, chemicals and energy. Planned maintenance
downtime costs were $11 million lower in 2016.
Operating costs decreased, reflecting the impact of cost
savings initiatives and lower depreciation expense.
Foodservice sales volumes decreased slightly in 2016
compared with 2015. Average sales margins
seasonally higher than in the fourth quarter of 2016.
Average sales price realizations are expected to be
lower due to market pressures. Input costs are expected
to be higher for energy and chemicals, partially offset
by lower wood costs. Planned maintenance downtime
costs should be $11 million lower with no maintenance
outages scheduled in the first quarter. Foodservice
sales volumes are expected to be seasonally lower.
Sales margins are expected
to continue under
pressure, partially offset by lower operating costs.
European Consumer
Packaging
In millions
Net Sales
Operating Profit (Loss)
2016
2015
2014
$
$
327 $
319 $
93 $
87 $
365
91
European Consumer Packaging's sales volumes in 2016
compared with 2015 increased in both Europe and
Russia. Average sales price realizations were higher
in Russia. In Europe average sales margins decreased
reflecting lower average sales prices. Input cost,
primarily for wood and energy were lower in Europe,
but were higher in Russia. Planned maintenance
downtime costs were $2 million lower in 2016.
Looking forward to the first quarter of 2017, compared
with the fourth quarter of 2016, sales volumes are
expected to increase. Average sales price realizations
are expected to be flat in both Europe and Russia. Input
costs
are
expected
to
be
higher.
Asian Consumer Packaging
In millions
Net Sales
Operating Profit (Loss)
Asia Coated Paperboard
goodwill and PP&E impairment
Operating Profit Before
Special Items
2016
2015
2014
— $
— $
682 $ 1,045
(193) $
(5)
—
174
—
— $
(19) $
(5)
$
$
$
The Company sold its 55% equity share in IP Asia
Coated Paperboard (IP-Sun JV) in October 2015. See
Note 7 Divestitures / Spinoff on pages 56 and 57 of Item
8. Financial Statements and Supplementary Data for
further discussion of the sale of the IP Sun JV. Net sales
and operating profits presented below include results
through September 30, 2015.
Equity Earnings, Net of Taxes – Ilim Holding S.A.
International Paper accounts for its investment in Ilim
Holding S.A. (Ilim), a separate reportable industry
segment, using the equity method of accounting.
The Company recorded equity earnings, net of taxes,
related to Ilim of $199 million in 2016 compared with a
loss of $131 million in 2015 and a loss of $194 million
in 2014. Operating results recorded in 2016 included
an after-tax non-cash foreign exchange gain of $25
million compared with an after-tax foreign exchange
loss of $75 million in 2015 and an after-tax foreign
exchange loss of $269 million in 2014 primarily on the
remeasurement of Ilim's U.S. dollar-denominated net
debt.
for
Sales volumes for the joint venture increased year over
year for shipments to China of softwood pulp and
linerboard, but decreased for hardwood pulp. Sales
volumes in the domestic Russian market increased for
softwood pulp, hardwood pulp and paper, but
decreased
linerboard. Average sales price
realizations were lower in 2016 for sales of softwood
pulp and hardwood pulp to export markets and
linerboard to the Russian domestic market, but were
partially offset by higher average sales price
realizations for sales of paper to export and domestic
Russian markets. Input costs increased year-over-year
for wood, chemicals and energy. Maintenance outage
costs were also higher in 2016. The Company received
cash dividends from the joint venture of $60 million in
2016, $35 million in 2015 and $56 million in 2014.
Entering the first quarter of 2017, sales volumes are
expected to be seasonally lower than in the fourth
quarter of 2016 due to the January holidays in China
and the seasonal slowdown in Russia. Average sales
price realizations are expected to increase for exported
hardwood pulp, softwood pulp and for sales of paper in
the domestic Russian market. Average sales price
realizations for linerboard in the Russian domestic
market are expected to be lower. Distribution costs and
input costs for energy are projected to be higher.
Cash Provided by Operating Activities
Cash provided by operations totaled $2.5 billion in 2016
compared with $2.6 billion for 2015 and $3.1 billion for
2014. Cash provided by working capital components,
accounts receivable and inventory less accounts
payable and accrued liabilities, interest payable and
other totaled $71 million in 2016, compared with a cash
use of $222 million in 2015 and a cash use of $158
million in 2014.
The Company generated Free Cash Flow of
approximately $1.9 billion, $1.8 billion and $2.1 billion
in 2016, 2015 and 2014, respectively. The following are
reconciliations of free cash flow to cash provided by
operations:
In millions
Cash provided by
operations
Adjustments:
2016
2015
2014
$
2,478 $
2,580 $
3,077
Cash invested in capital
projects
Cash contribution to
pension plan
Free Cash Flow
$
(1,348)
(1,487)
(1,366)
750
1,880 $
750
353
1,843 $
2,064
Three
Months
Ended
December
31, 2016
Three
Months
Ended
September
30, 2016
Three
Months
Ended
December
31, 2015
$
912 $
341 $
990
(445)
(266)
(489)
In millions
Cash provided by
operations
Adjustments:
Cash invested in capital
projects
Cash contribution to
pension plan
Free Cash Flow
$
467 $
—
500
575 $
—
501
LIQUIDITY AND CAPITAL RESOURCES
Investment Activities
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 2016 were primarily focused on
working capital requirements, capital spending, debt
reductions, pension contributions, the acquisitions of
the Weyerhaeuser pulp business and the mill asset in
Madrid, and returning cash to shareholders.
Investment activities in 2016 were up from 2015
reflecting
the purchase of Weyerhaeuser's pulp
business for $2.2 billion in cash, the purchase of the
Holmen business for $57 million in cash, net of cash
acquired, and proceeds from the sale of the Asia
Packaging business of $108 million, net of cash
divested. In 2015, investment activity includes higher
capital spending and the use of $198 million of cash in
conjunction with the timber monetization restructuring
(see Note 12 Variable Interest Entities and Preferred
Securities of Subsidiaries on pages 64 through 66 of
Item 8. Financial Statements and Supplementary Data).
In addition, 2014 investment activity includes the receipt
of approximately $400 million in connection with the
spin-off of the xpedx distribution business. The
Company maintains an average capital spending target
around depreciation or amortization levels or modestly
above due to strategic plans over the course of an
economic cycle. Capital spending was $1.3 billion in
29
30
2016, or 110% of depreciation and amortization,
compared with $1.5 billion in 2015, or 115% of
depreciation and amortization, and $1.4 billion, or 97%
of depreciation and amortization in 2014. Across our
businesses, capital spending as a percentage of
depreciation and amortization ranged from 37.3% to
161.1% in 2016.
following
The
for
operations by business segment for the years ended
December 31, 2016, 2015 and 2014.
table shows capital spending
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Subtotal
Corporate and other
Capital Spending
2016
2015
2014
$
816 $
174
858 $ 754
75
129
215
124
1,329
232
216
1,435
243
233
1,305
19
61
$ 1,348 $ 1,487 $1,366
52
Capital expenditures in 2017 are currently expected to
be about $1.5 billion, or 107% of depreciation and
amortization.
Acquisitions and Joint Ventures
See Note 6 Acquisitions and Joint Ventures on pages
54 through 56 of Item 8. Financial Statements and
Supplementary Data for a discussion of the Company's
acquisitions.
Financing Activities
Amounts related to early debt extinguishment during
the years ended December 31, 2016, 2015 and 2014
were as follows:
In millions
Debt reductions (a)
Pre-tax early debt extinguishment
costs (b)
2016
2015
2014
$ 266 $ 2,151 $ 1,625
29
207
276
(a) Reductions related to notes with interest rates ranging from
2.00% to 9.38% with original maturities from 2015 to 2030 for
the years ended December 31, 2016, 2015 and 2014. Includes
the $630 million payment for a portion of the Special Purpose
Entity Liability for the year ended December 31, 2015 (see
Note 12 Variable Interest Entities on pages 64 through 67 of
Item 8. Financial Statements and Supplementary Data).
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
2016: Financing activities during 2016 included debt
issuances of $3.8 billion and retirements of $1.9 billion
for a net increase of $1.9 billion.
International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2016,
International Paper had no interest rate swap contracts
outstanding (see Note 14 Derivatives and Hedging
Activities on pages 67 through 70 of Item 8. Financial
Statements and Supplementary Data). During 2016,
the amortization of deferred gains on previously
terminated swaps had no impact on the weighted
average cost of long-term recourse debt. The inclusion
of the offsetting interest income from short-term
investments reduced the effective rate from 5.3% to
4.8%.
to
In 2016, International Paper issued $1.1 billion of 3.00%
senior unsecured notes with a maturity date in 2027,
and $1.2 billion of 4.40% senior unsecured notes with
a maturity date in 2047, the proceeds from which were
the acquisition of
fund
primarily used
Weyerhaeuser's pulp business.
the
In addition,
Company repaid approximately $266 million of notes
with an interest rate of 7.95% and an original maturity
of 2018. Pre-tax early debt retirement costs of $29
million related to the debt repayments, including the $31
million of cash premiums, are included in restructuring
and other charges in the accompanying consolidated
statement of operations for the twelve months ended
December 31, 2016.
In June 2016, International Paper entered into a
commercial paper program with a borrowing capacity
of $750 million. Under the terms of the program,
individual maturities on borrowings may vary, but not
exceed one year from the date of issue. Interest bearing
notes may be issued either as fixed notes or floating
rate notes. As of December 31, 2016, the Company had
$165 million outstanding under this program.
Other financing activities during 2016 included the net
repurchase of approximately 0.9 million shares of
treasury stock, including restricted stock withholding.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $132.3
million, including $100.1 million related to shares
repurchased under the Company's share repurchase
program.
In October 2016, International Paper announced that
the quarterly dividend would be increased from $0.44
per share to $0.46 per share, effective for the 2016
fourth quarter.
2015: Financing activities during 2015 included debt
issuances of $6.9 billion and retirements of $6.9 billion
for a net decrease of $74 million.
During 2015, the Company restructured the timber
monetization which resulted in the use of $630 million
in cash to pay down a portion of the third party bank
loans and refinance the loans on nonrecourse terms.
(see Note 12 Variable Interest Entities on pages 64
through 66 of Item 8. Financial Statements and
Supplementary Data).
International Paper utilizes interest rate swaps to
notional amount of $230 million and maturities in 2018
change the mix of fixed and variable rate debt and
(see Note 14 Derivatives and Hedging Activities on
manage interest expense. At December 31, 2015,
pages 67 through 70 of Item 8. Financial Statements
International Paper had interest rate swaps with a total
and Supplementary Data). During 2014, existing swaps
notional amount of $17 million and maturities in 2018
and the amortization of deferred gains on previously
(see Note 14 Derivatives and Hedging Activities on
terminated swaps decreased the weighted average
pages 67 through 70 of Item 8. Financial Statements
cost of debt from 6.8% to an effective rate of 6.7%. The
and Supplementary Data). During 2015, existing swaps
inclusion of the offsetting interest income from short-
and the amortization of deferred gains on previously
term investments reduced this effective rate to 6.3%.
terminated swaps decreased the weighted average
cost of debt from 5.9% to an effective rate of 5.8%. The
inclusion of the offsetting interest income from short-
term investments reduced this effective rate to 5.1%.
In 2015, International Paper issued $700 million of
3.80% senior unsecured notes with a maturity date in
2026, $600 million of 5.00% senior unsecured notes
with a maturity date in 2035, and $700 million of 5.15%
senior unsecured notes with a maturity date in 2046.
The proceeds from this borrowing were used to repay
approximately $1.0 billion of notes with interest rates
ranging from 4.75% to 9.38% and original maturities
from 2018 to 2022, along with $211 million of cash
premiums associated with the debt repayments.
Additionally, the proceeds from this borrowing were
used to make a $750 million voluntary cash contribution
to the Company's pension plan. Pre-tax early debt
retirement costs of $207 million related to the debt
repayments,
including
the $211 million of cash
premiums, are included in restructuring and other
charges in the accompanying consolidated statement
of operations for the twelve months ended December
31, 2015.
During the second quarter of 2014, International Paper
issued $800 million of 3.65% senior unsecured notes
with a maturity date in 2024 and $800 million of 4.80%
senior unsecured notes with a maturity date in 2044.
The proceeds from this borrowing were used to repay
approximately $960 million of notes with interest rates
ranging from 7.95% to 9.38% and original maturities
from 2018 to 2019. Pre-tax early debt retirement costs
of $262 million related to these debt repayments,
including $258 million of cash premiums, are included
in Restructuring and other charges
in
the
accompanying consolidated statement of operations
for the twelve months ended December 31, 2014.
Other financing activities during 2014 included the net
repurchase of approximately 17.9 million shares of
treasury stock, including restricted stock withholding,
and the issuance of 1.6 million shares of common stock
for various plans, including stock options exercises that
generated approximately $66 million of cash.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $1.06 billion,
including $983 million related to shares repurchased
under the Company's share repurchase program.
Other financing activities during 2015 included the net
In September 2014, International Paper announced
repurchase of approximately 8.0 million shares of
that the quarterly dividend would be increased from
treasury stock, including restricted stock withholding,
$0.35 per share to $0.40 per share, effective for the
and the issuance of 62,000 shares of common stock
2014 fourth quarter.
for various plans, including stock option exercises that
generated approximately $2.4 million of cash.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $604.6
million, including $522.6 million related to shares
repurchased under the Company's share repurchase
program.
In October 2015, International Paper announced that
the quarterly dividend would be increased from $0.40
per share to $0.44 per share, effective for the 2015
fourth quarter.
2014: Financing activities during 2014 included debt
issuances of $2.0 billion and retirements of $2.1 billion,
for a net decrease of $113 million.
International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2014,
International Paper had interest rate swaps with a total
Variable Interest Entities
Information concerning variable interest entities is set
forth in Note 12 Variable Interest Entities on pages 64
through 66 of Item 8. Financial Statements and
Supplementary Data for discussion.
Liquidity and Capital Resources Outlook for 2017
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 2017
through current cash balances and cash
from
operations. Additionally, the Company has existing
credit
facilities
totaling $2.1 billion available at
December 31, 2016.
The Company’s
financial covenants require
the
maintenance of a minimum net worth of $9 billion and
31
32
2016, or 110% of depreciation and amortization,
outstanding (see Note 14 Derivatives and Hedging
compared with $1.5 billion in 2015, or 115% of
Activities on pages 67 through 70 of Item 8. Financial
depreciation and amortization, and $1.4 billion, or 97%
Statements and Supplementary Data). During 2016,
of depreciation and amortization in 2014. Across our
the amortization of deferred gains on previously
businesses, capital spending as a percentage of
terminated swaps had no impact on the weighted
depreciation and amortization ranged from 37.3% to
average cost of long-term recourse debt. The inclusion
161.1% in 2016.
of the offsetting interest income from short-term
investments reduced the effective rate from 5.3% to
The
following
table shows capital spending
for
operations by business segment for the years ended
4.8%.
December 31, 2016, 2015 and 2014.
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Subtotal
Corporate and other
Capital Spending
2016
2015
2014
$
816 $
858 $ 754
174
215
124
1,329
19
129
232
216
75
243
233
1,435
1,305
52
61
$ 1,348 $ 1,487 $1,366
Capital expenditures in 2017 are currently expected to
be about $1.5 billion, or 107% of depreciation and
amortization.
Acquisitions and Joint Ventures
See Note 6 Acquisitions and Joint Ventures on pages
54 through 56 of Item 8. Financial Statements and
Supplementary Data for a discussion of the Company's
acquisitions.
Financing Activities
Amounts related to early debt extinguishment during
the years ended December 31, 2016, 2015 and 2014
were as follows:
In millions
Debt reductions (a)
Pre-tax early debt extinguishment
costs (b)
2016
2015
2014
$ 266 $ 2,151 $ 1,625
29
207
276
(a) Reductions related to notes with interest rates ranging from
2.00% to 9.38% with original maturities from 2015 to 2030 for
the years ended December 31, 2016, 2015 and 2014. Includes
the $630 million payment for a portion of the Special Purpose
Entity Liability for the year ended December 31, 2015 (see
Note 12 Variable Interest Entities on pages 64 through 67 of
Item 8. Financial Statements and Supplementary Data).
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
2016: Financing activities during 2016 included debt
issuances of $3.8 billion and retirements of $1.9 billion
for a net increase of $1.9 billion.
International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2016,
International Paper had no interest rate swap contracts
In 2016, International Paper issued $1.1 billion of 3.00%
senior unsecured notes with a maturity date in 2027,
and $1.2 billion of 4.40% senior unsecured notes with
a maturity date in 2047, the proceeds from which were
primarily used
to
fund
the acquisition of
Weyerhaeuser's pulp business.
In addition,
the
Company repaid approximately $266 million of notes
with an interest rate of 7.95% and an original maturity
of 2018. Pre-tax early debt retirement costs of $29
million related to the debt repayments, including the $31
million of cash premiums, are included in restructuring
and other charges in the accompanying consolidated
statement of operations for the twelve months ended
December 31, 2016.
In June 2016, International Paper entered into a
commercial paper program with a borrowing capacity
of $750 million. Under the terms of the program,
individual maturities on borrowings may vary, but not
exceed one year from the date of issue. Interest bearing
notes may be issued either as fixed notes or floating
rate notes. As of December 31, 2016, the Company had
$165 million outstanding under this program.
Other financing activities during 2016 included the net
repurchase of approximately 0.9 million shares of
treasury stock, including restricted stock withholding.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $132.3
million, including $100.1 million related to shares
repurchased under the Company's share repurchase
program.
In October 2016, International Paper announced that
the quarterly dividend would be increased from $0.44
per share to $0.46 per share, effective for the 2016
fourth quarter.
2015: Financing activities during 2015 included debt
issuances of $6.9 billion and retirements of $6.9 billion
for a net decrease of $74 million.
During 2015, the Company restructured the timber
monetization which resulted in the use of $630 million
in cash to pay down a portion of the third party bank
loans and refinance the loans on nonrecourse terms.
(see Note 12 Variable Interest Entities on pages 64
through 66 of Item 8. Financial Statements and
Supplementary Data).
International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2015,
International Paper had interest rate swaps with a total
notional amount of $17 million and maturities in 2018
(see Note 14 Derivatives and Hedging Activities on
pages 67 through 70 of Item 8. Financial Statements
and Supplementary Data). During 2015, existing swaps
and the amortization of deferred gains on previously
terminated swaps decreased the weighted average
cost of debt from 5.9% to an effective rate of 5.8%. The
inclusion of the offsetting interest income from short-
term investments reduced this effective rate to 5.1%.
In 2015, International Paper issued $700 million of
3.80% senior unsecured notes with a maturity date in
2026, $600 million of 5.00% senior unsecured notes
with a maturity date in 2035, and $700 million of 5.15%
senior unsecured notes with a maturity date in 2046.
The proceeds from this borrowing were used to repay
approximately $1.0 billion of notes with interest rates
ranging from 4.75% to 9.38% and original maturities
from 2018 to 2022, along with $211 million of cash
premiums associated with the debt repayments.
Additionally, the proceeds from this borrowing were
used to make a $750 million voluntary cash contribution
to the Company's pension plan. Pre-tax early debt
retirement costs of $207 million related to the debt
repayments,
the $211 million of cash
premiums, are included in restructuring and other
charges in the accompanying consolidated statement
of operations for the twelve months ended December
31, 2015.
including
Other financing activities during 2015 included the net
repurchase of approximately 8.0 million shares of
treasury stock, including restricted stock withholding,
and the issuance of 62,000 shares of common stock
for various plans, including stock option exercises that
generated approximately $2.4 million of cash.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $604.6
million, including $522.6 million related to shares
repurchased under the Company's share repurchase
program.
In October 2015, International Paper announced that
the quarterly dividend would be increased from $0.40
per share to $0.44 per share, effective for the 2015
fourth quarter.
2014: Financing activities during 2014 included debt
issuances of $2.0 billion and retirements of $2.1 billion,
for a net decrease of $113 million.
International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2014,
International Paper had interest rate swaps with a total
notional amount of $230 million and maturities in 2018
(see Note 14 Derivatives and Hedging Activities on
pages 67 through 70 of Item 8. Financial Statements
and Supplementary Data). During 2014, 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 6.7%. The
inclusion of the offsetting interest income from short-
term investments reduced this effective rate to 6.3%.
During the second quarter of 2014, International Paper
issued $800 million of 3.65% senior unsecured notes
with a maturity date in 2024 and $800 million of 4.80%
senior unsecured notes with a maturity date in 2044.
The proceeds from this borrowing were used to repay
approximately $960 million of notes with interest rates
ranging from 7.95% to 9.38% and original maturities
from 2018 to 2019. Pre-tax early debt retirement costs
of $262 million related to these debt repayments,
including $258 million of cash premiums, are included
in Restructuring and other charges
the
accompanying consolidated statement of operations
for the twelve months ended December 31, 2014.
in
Other financing activities during 2014 included the net
repurchase of approximately 17.9 million shares of
treasury stock, including restricted stock withholding,
and the issuance of 1.6 million shares of common stock
for various plans, including stock options exercises that
generated approximately $66 million of cash.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $1.06 billion,
including $983 million related to shares repurchased
under the Company's share repurchase program.
In September 2014, International Paper announced
that the quarterly dividend would be increased from
$0.35 per share to $0.40 per share, effective for the
2014 fourth quarter.
Variable Interest Entities
Information concerning variable interest entities is set
forth in Note 12 Variable Interest Entities on pages 64
through 66 of Item 8. Financial Statements and
Supplementary Data for discussion.
Liquidity and Capital Resources Outlook for 2017
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 2017
through current cash balances and cash
from
operations. Additionally, the Company has existing
credit
totaling $2.1 billion available at
December 31, 2016.
facilities
The Company’s
the
maintenance of a minimum net worth of $9 billion and
financial covenants require
31
32
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
and Nonrecourse
comprehensive
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. The Company
was in compliance with all its debt covenants at
December 31, 2016 and was well below the thresholds
stipulated under the covenants as defined in the credit
agreements.
income/loss
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, 2016, the Company held
long-term credit ratings of BBB (stable outlook) and
Baa2
(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, 2016, were as follows:
In millions
2017
2018
2019
2020
2021
Thereafter
Maturities of long-term
debt (a)
$
239 $
690 $
433 $
179 $
612 $
9,161
Lease obligations
119
91
69
51
38
125
Purchase obligations
(b)
3,165
635
525
495
460
2,332
Total (c)
$ 3,523 $ 1,416 $ 1,027 $
725 $ 1,110 $
11,618
(a) Total debt includes scheduled principal payments only.
(b)
Includes $2 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. Also includes $1.1 billion relating to fiber
supply agreements assumed in conjunction with the 2016
acquisition of Weyerhaeuser's pulp business.
(c) 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 $77 million.
We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2016, to be indefinitely
reinvested and, accordingly, no U.S. income taxes have
been provided thereon. As of December 31, 2016, the
amount of cash associated with indefinitely reinvested
foreign earnings was approximately $620 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
to make
to minimum
that are subject
timing and amount of
At December 31, 2016, the projected benefit obligation
for
the Company’s U.S. defined benefit plans
determined under U.S. GAAP was approximately $3.4
billion higher than the fair value of plan assets.
Approximately $3.0 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
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 $750 million
for both years ended December 31, 2016 and 2015. At
this time, we do not expect to have any required
contributions to our plans in 2017, although the
future voluntary
Company may elect
contributions. The
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. International Paper announced a
former
voluntary,
employees who are participants in the Retirement Plan
of International Paper Company (the Pension Plan) to
request early payment of their entire Pension Plan
benefit in the form of a single lump sum payment. The
amount of total payments under this program was
approximately $1.2 billion, and were made from Plan
trust assets on June 30, 2016. Based on the level of
payments made, settlement accounting rules applied
and resulted in a plan remeasurement as of the June
30, 2016 payment date. As a result of settlement
accounting, the Company recognized a pro-rata portion
loss, after
of
remeasurement, resulting in a $439 million non-cash
charge to the Company's earnings in the second quarter
of 2016. Additional payments of $8 million and $9
million were made during the third and fourth quarters,
respectively, due to mandatory cash payouts and a
small lump sum payout, and the Pension Plan was
subsequently remeasured at September 30, 2016 and
December 31, 2016. As a result of settlement
recognized non-cash
accounting,
settlement charges of $3 million in both the third and
fourth quarters of 2016.
the unamortized net actuarial
limited-time opportunity
the Company
for
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 at
any time, either the Company or its partners may
commence procedures specified under the deadlock
agreement. If these or any other deadlock procedures
under the shareholder's agreement are commenced,
although it is not obligated to do so, the Company may
in certain situations choose to purchase its partners'
50% interest in Ilim. Any such transaction would be
subject to review and approval by Russian and other
relevant anti-trust authorities. Based on the provisions
of the agreement, the Company estimates that the
current purchase price for its partners' 50% interests
would be approximately $1.5 billion, which could be
satisfied by payment of cash or International Paper
common stock, or some combination of the two, at the
Company's option. The purchase by the Company of
its partners’ 50% interest in Ilim would result in the
consolidation of Ilim's financial position and results of
operations in all subsequent periods. The parties have
informed each other that they have no current intention
to commence procedures specified under the deadlock
provisions of the shareholder’s agreement.
CRITICAL ACCOUNTING POLICIES AND
SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity
estimated. Liabilities accrued for legal matters require
judgments regarding projected outcomes and range of
loss
based
on
historical
experience
and
recommendations of legal counsel. Liabilities for
environmental matters require evaluations of relevant
environmental regulations and estimates of future
remediation alternatives and costs.
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
impairment charges based on
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.
with accounting principles generally accepted in the
Under
the provisions of Accounting Standards
United States requires International Paper to establish
Codification (ASC) 350, “Intangibles – Goodwill and
accounting policies and to make estimates that affect
Other,” the testing of goodwill for possible impairment
both the amounts and timing of the recording of assets,
is a two-step process. In the first step, the fair value of
liabilities, revenues and expenses. Some of these
the Company’s reporting units is compared with their
estimates require judgments about matters that are
carrying value, including goodwill. If fair value exceeds
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 and Finance 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
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.
The
impairment analysis requires a number of
judgments by management.
In calculating
the
estimated fair value of its reporting units in step one,
33
34
a total debt-to-capital ratio of less than 60%. Net worth
in the ordinary course of business, including liquidity
Ilim Holding S.A. Shareholder’s Agreement
is defined as the sum of common stock, paid-in capital
needs associated with our domestic debt service
and retained earnings, less treasury stock plus any
requirements.
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. The Company
was in compliance with all its debt covenants at
December 31, 2016 and was well below the thresholds
stipulated under the covenants as defined in the credit
agreements.
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
planning objectives. The primary goals of
the
Company’s capital structure planning are to maximize
financial flexibility and preserve liquidity while reducing
interest expense. The majority of International Paper’s
debt is accessed through global public capital markets
where we have a wide base of investors.
Pension Obligations and Funding
At December 31, 2016, the projected benefit obligation
for
the Company’s U.S. defined benefit plans
determined under U.S. GAAP was approximately $3.4
billion higher than the fair value of plan assets.
Approximately $3.0 billion of this amount relates to
plans
that are subject
to minimum
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
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
Maintaining an investment grade credit rating is an
and elected to make contributions totaling $750 million
important element of International Paper’s financing
for both years ended December 31, 2016 and 2015. At
strategy. At December 31, 2016, the Company held
this time, we do not expect to have any required
long-term credit ratings of BBB (stable outlook) and
contributions to our plans in 2017, although the
Baa2
(stable outlook) by S&P and Moody’s,
Company may elect
to make
future voluntary
respectively.
Contractual obligations for future payments under
existing debt and lease commitments and purchase
obligations at December 31, 2016, were as follows:
In millions
2017
2018
2019
2020
2021
Thereafter
Lease obligations
119
91
69
51
38
125
$
239 $
690 $
433 $
179 $
612 $
9,161
Maturities of long-term
debt (a)
Purchase obligations
(b)
Total (c)
3,165
635
525
495
460
2,332
$ 3,523 $ 1,416 $ 1,027 $
725 $ 1,110 $
11,618
(a) Total debt includes scheduled principal payments only.
(b)
Includes $2 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. Also includes $1.1 billion relating to fiber
supply agreements assumed in conjunction with the 2016
acquisition of Weyerhaeuser's pulp business.
(c) 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 $77 million.
We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2016, to be indefinitely
reinvested and, accordingly, no U.S. income taxes have
been provided thereon. As of December 31, 2016, the
amount of cash associated with indefinitely reinvested
foreign earnings was approximately $620 million. We
do not anticipate the need to repatriate funds to the
United States to satisfy domestic liquidity needs arising
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. International Paper announced a
voluntary,
limited-time opportunity
for
former
employees who are participants in the Retirement Plan
of International Paper Company (the Pension Plan) to
request early payment of their entire Pension Plan
benefit in the form of a single lump sum payment. The
amount of total payments under this program was
approximately $1.2 billion, and were made from Plan
trust assets on June 30, 2016. Based on the level of
payments made, settlement accounting rules applied
and resulted in a plan remeasurement as of the June
30, 2016 payment date. As a result of settlement
accounting, the Company recognized a pro-rata portion
of
the unamortized net actuarial
loss, after
remeasurement, resulting in a $439 million non-cash
charge to the Company's earnings in the second quarter
of 2016. Additional payments of $8 million and $9
million were made during the third and fourth quarters,
respectively, due to mandatory cash payouts and a
small lump sum payout, and the Pension Plan was
subsequently remeasured at September 30, 2016 and
December 31, 2016. As a result of settlement
accounting,
the Company
recognized non-cash
settlement charges of $3 million in both the third and
fourth quarters of 2016.
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 at
any time, either the Company or its partners may
commence procedures specified under the deadlock
agreement. If these or any other deadlock procedures
under the shareholder's agreement are commenced,
although it is not obligated to do so, the Company may
in certain situations choose to purchase its partners'
50% interest in Ilim. Any such transaction would be
subject to review and approval by Russian and other
relevant anti-trust authorities. Based on the provisions
of the agreement, the Company estimates that the
current purchase price for its partners' 50% interests
would be approximately $1.5 billion, which could be
satisfied by payment of cash or International Paper
common stock, or some combination of the two, at the
Company's option. The purchase by the Company of
its partners’ 50% interest in Ilim would result in the
consolidation of Ilim's financial position and results of
operations in all subsequent periods. The parties have
informed each other that they have no current intention
to commence procedures specified under the deadlock
provisions of the shareholder’s agreement.
CRITICAL ACCOUNTING POLICIES AND
SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States requires International Paper to establish
accounting policies and to make estimates that affect
both the amounts and timing of the recording of assets,
liabilities, revenues and expenses. Some of these
estimates require judgments about matters that are
inherently uncertain.
Accounting policies whose application may have a
significant effect on the reported results of operations
and financial position of International Paper, and that
can require judgments by management that affect their
application, include 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 and Finance 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
33
34
based
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.
experience
on
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
these
of any
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
Under
the provisions of Accounting Standards
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.
impairment analysis requires a number of
The
judgments by management.
the
estimated fair value of its reporting units in step one,
In calculating
the Company uses the projected future cash flows to
be generated by each unit, discounted using the
estimated 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 in additional interim
testing and goodwill 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 to the Company’s market price per share
on the analysis date.
No goodwill impairment charges were recorded in 2016.
In the fourth quarter of 2015, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Brazil Packaging business using the
discounted future cash flows and determined that all of
the goodwill in the business, totaling $137 million,
should be written off. The decline in the fair value of the
Brazil Packaging business and resulting impairment
charge was due to the negative impacts on the cash
flows of the business caused by the continued decline
of the overall Brazilian economy.
In the fourth quarter of 2014, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Asia Industrial Packaging business using
the discounted future cash flows and determined that
all of the goodwill in this business, totaling $100 million,
should be written off. The decline in the fair value of the
Asia Industrial Packaging business and resulting
impairment charge was due to a change in the strategic
outlook for the business.
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, 2016, 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
Fair Value of
Plan Assets
$
13,307 $
10,312
376
280
219
23
—
—
153
—
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
2016
2015
2014
4.10%
4.40%
4.10%
3.75%
3.75%
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
2016
2015
6.50%
7.00%
5.00%
5.00%
2022
2022
these actuarial
International Paper determines
assumptions, after consultation with our actuaries, on
to calculate
December 31 of each year
liability
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.
The expected long-term rate of return on U.S. pension
plan assets used to determine net periodic cost for the
year ended December 31, 2016 was 7.75%.
Increasing (decreasing) the expected long-term rate of
return on U.S. plan assets by an additional 0.25% would
decrease (increase) 2017 pension expense by
approximately $26 million, while a (decrease) increase
of 0.25% in the discount rate would (increase) decrease
pension expense by approximately $33 million. The
effect on net postretirement benefit cost from a 1%
increase or decrease in the annual health care cost
Net periodic pension and postretirement plan
trend rate would be approximately $1 million.
expenses, calculated for all of International Paper’s
Actual rates of return earned on U.S. pension plan
assets for each of the last 10 years were:
Return
Return
Year
2016
2015
2014
2013
2012
7.1%
1.3%
6.4%
14.1%
14.1%
Year
2011
2010
2009
2008
2007
2.5 %
15.1 %
23.8 %
(23.6)%
9.6 %
The 2012, 2013 and 2014 returns above represent
weighted averages of International Paper and Temple-
Inland asset returns. International Paper and Temple-
Inland assets were combined in October 2014. The
annualized time-weighted rate of return earned on U.S.
pension plan assets was 8.5% and 6.3% for the past
five and ten years, respectively. The following graph
shows
the growth of a $1,000
investment
in
plans, were as follows:
In millions
2016
2015
2014
2013
2012
Pension expense
U.S. plans (non-
cash)
Non-U.S. plans
Postretirement
expense
U.S. plans
Non-U.S. plans
$ 809 $ 461 $ 387 $ 545 $ 342
—
5
3
4
13
1
6
8
5
7
7
(1)
7
(4)
1
Net expense
$ 827 $ 480 $ 401 $ 556 $ 342
The increase in 2016 U.S. pension expense principally
reflects a decrease in the discount rate and a large
settlement charge in 2016 related to the optional lump
sum payout partially offset by a higher return on assets
and lower amortization of actuarial losses.
International Paper’s U.S. Pension Plan Master Trust.
Assuming that discount rates, expected long-term
The graph portrays the time-weighted rate of return from
returns on plan assets and rates of future compensation
2006 – 2016.
increases remain the same as in 2016, 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
2018 (1)
2017 (1)
$
252 $
310
3
15
1
4
18
1
$
271 $
333
(1) Based on assumptions at December 31, 2016.
The Company estimates that it will record net pension
expense of approximately $310 million for its U.S.
defined benefit plans in 2017, with the decrease from
expense of $809 million in 2016 mainly related to no
expected settlement charges in 2017 and an increase
in the assumed discount rate to 4.10% in 2017 from
4.05% in 2016, partially offset by a lower return on asset
assumption of 7.50% in 2017, down from 7.75% in
2016.
The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2016 totaled approximately $10.3 billion, consisting of
approximately 51% equity securities, 27% debt
securities, 10% real estate and 12% other assets. Plan
assets include an immaterial amount of International
Paper common stock.
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
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
in pension expense
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 $341 million and $28 million, respectively.
35
36
the Company uses the projected future cash flows to
rate used to calculate plan liabilities, the projected rate
be generated by each unit, discounted using the
of future compensation increases and health care cost
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
2016
2015
2014
2013
2012
Return
7.1%
1.3%
6.4%
14.1%
14.1%
Year
2011
2010
2009
2008
2007
Return
2.5 %
15.1 %
23.8 %
(23.6)%
9.6 %
The 2012, 2013 and 2014 returns above represent
weighted averages of International Paper and Temple-
Inland asset returns. International Paper and Temple-
Inland assets were combined in October 2014. The
annualized time-weighted rate of return earned on U.S.
pension plan assets was 8.5% and 6.3% for the past
five and ten years, respectively. The following graph
shows
in
International Paper’s U.S. Pension Plan Master Trust.
The graph portrays the time-weighted rate of return from
2006 – 2016.
the growth of a $1,000
investment
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 $341 million and $28 million, respectively.
35
36
outstanding to the Company’s market price per share
The
table below shows assumptions used by
estimated discount rate for each reporting unit. These
trend rates.
testing and goodwill impairment charges in future
In millions
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 in additional interim
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
on the analysis date.
No goodwill impairment charges were recorded in 2016.
In the fourth quarter of 2015, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Brazil Packaging business using the
discounted future cash flows and determined that all of
the goodwill in the business, totaling $137 million,
should be written off. The decline in the fair value of the
Brazil Packaging business and resulting impairment
charge was due to the negative impacts on the cash
flows of the business caused by the continued decline
of the overall Brazilian economy.
In the fourth quarter of 2014, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its Asia Industrial Packaging business using
the discounted future cash flows and determined that
all of the goodwill in this business, totaling $100 million,
should be written off. The decline in the fair value of the
Asia Industrial Packaging business and resulting
impairment charge was due to a change in the strategic
outlook for the business.
Pension and Postretirement Benefit Obligations
The charges
recorded
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
Benefit obligations and fair values of plan assets as of
December 31, 2016, for International Paper’s pension
and postretirement plans were as follows:
U.S. qualified pension
U.S. nonqualified pension
U.S. postretirement
Non-U.S. pension
Non-U.S. postretirement
Benefit
Obligation
Fair Value of
Plan Assets
$
13,307 $
10,312
376
280
219
23
—
—
153
—
International Paper
to calculate U.S. pension
obligations for the years shown:
Discount rate
Rate of compensation
increase
2016
2015
2014
4.10%
4.40%
4.10%
3.75%
3.75%
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
declines to
Rate that the cost trend rate gradually
Year that the rate reaches the rate it is
assumed to remain
2016
2015
6.50%
7.00%
5.00%
5.00%
2022
2022
International Paper determines
these actuarial
assumptions, after consultation with our actuaries, on
December 31 of each year
to calculate
liability
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.
The expected long-term rate of return on U.S. pension
plan assets used to determine net periodic cost for the
year ended December 31, 2016 was 7.75%.
Increasing (decreasing) the expected long-term rate of
return on U.S. plan assets by an additional 0.25% would
decrease (increase) 2017 pension expense by
approximately $26 million, while a (decrease) increase
of 0.25% in the discount rate would (increase) decrease
pension expense by approximately $33 million. The
effect on net postretirement benefit cost from a 1%
Net periodic pension and postretirement plan
expenses, calculated for all of International Paper’s
plans, were as follows:
In millions
2016
2015
2014
2013
2012
Pension expense
U.S. plans (non-
cash)
Non-U.S. plans
Postretirement
expense
U.S. plans
Non-U.S. plans
$ 809 $ 461 $ 387 $ 545 $ 342
4
13
1
6
8
5
—
5
3
7
7
(1)
7
(4)
1
Net expense
$ 827 $ 480 $ 401 $ 556 $ 342
The increase in 2016 U.S. pension expense principally
reflects a decrease in the discount rate and a large
settlement charge in 2016 related to the optional lump
sum payout partially offset by a higher return on assets
and lower amortization of actuarial losses.
Assuming that discount rates, expected long-term
returns on plan assets and rates of future compensation
increases remain the same as in 2016, 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
2018 (1)
2017 (1)
$
252 $
310
3
15
1
4
18
1
$
271 $
333
(1) Based on assumptions at December 31, 2016.
The Company estimates that it will record net pension
expense of approximately $310 million for its U.S.
defined benefit plans in 2017, with the decrease from
expense of $809 million in 2016 mainly related to no
expected settlement charges in 2017 and an increase
in the assumed discount rate to 4.10% in 2017 from
4.05% in 2016, partially offset by a lower return on asset
assumption of 7.50% in 2017, down from 7.75% in
2016.
The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2016 totaled approximately $10.3 billion, consisting of
approximately 51% equity securities, 27% debt
securities, 10% real estate and 12% other assets. Plan
assets include an immaterial amount of International
Paper common stock.
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
the
the plan,
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. There are no required
contributions to the U.S. qualified plan in 2017. The
nonqualified defined benefit plans are funded to the
extent of benefit payments, which totaled $21 million
for the year ended December 31, 2016.
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
these
While
judgments and estimates are appropriate and
reasonable under the circumstances, actual resolution
of these matters may differ from recorded estimated
amounts.
that
The Company’s effective income tax rates, before
equity earnings and discontinued operations, were
26%, 37% and 14% for 2016, 2015 and 2014,
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 2016 was 32% of pre-tax
earnings compared with 33% in 2015 and 31% in 2014.
We estimate that the 2017 effective income tax rate will
37
be approximately 33% based on expected earnings and
business conditions.
Business Combinations
The Company’s acquisitions of businesses are
accounted for in accordance with ASC 805, "Business
Combinations", as amended. We allocate the total
purchase price of the assets acquired and liabilities
assumed based on their estimated fair value as of the
business combination date. In developing estimates of
fair values for long-lived assets, including identifiable
intangible assets, the Company utilizes a variety of
inputs including forecasted cash flows, anticipated
growth rates, discount rates, estimated replacement
costs and depreciation and obsolescence factors.
Determining the fair value for specifically identified
intangible assets such as customer lists and developed
technology involves judgment. We may refine our
estimates and make adjustments to the assets acquired
and liabilities assumed over a measurement period, not
to exceed one year. Upon the conclusion of the
measurement period or the final determination of the
values of assets acquired and liabilities assumed,
whichever comes first, any subsequent adjustments are
charged to the consolidated statements of earnings.
Subsequent actual results of the underlying business
activity supporting the specifically identified intangible
assets could change, requiring us to record impairment
charges or adjust their economic lives in future periods.
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 49 through 52 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 61 through
63 of Item 8. Financial Statements and Supplementary
Data.
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
risk exposure related to these investments was not
International Paper has operations in a number of
material.
countries. Its operations in those countries also export
We issue fixed and floating rate debt in a proportion that
to, and compete with, imports from other regions. As
management deems appropriate based on current and
such, currency movements can have a number of direct
projected market conditions. Derivative instruments,
and indirect impacts on the Company’s financial
such as, interest rate swaps, may be used to execute
statements. Direct impacts include the translation of
this strategy. At December 31, 2016 and 2015, the net
international operations’
local currency
financial
fair value liability of financial instruments with exposure
statements into U.S. dollars and the remeasurement
to interest rate risk was approximately $11.3 billion and
impact associated with non-functional currency
$9.3 billion, respectively. The potential loss in fair value
financial assets and liabilities. Indirect impacts include
resulting from a 10% adverse shift in quoted interest
the change in competitiveness of imports into, and
rates would have been approximately $623 million and
exports out of, the United States (and the impact on
$565 million at December 31, 2016 and 2015,
local currency pricing of products that are traded
respectively.
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.
MARKET RISK
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 or forward purchase contracts may be used to
manage risks associated with market fluctuations in
We use financial instruments, including fixed and
energy prices. The net fair value of such outstanding
variable rate debt, to finance operations, for capital
energy hedge contracts at December 31, 2016 and
spending programs and
for general corporate
2015 was approximately a $2 million and a $7 million
purposes. Additionally, financial instruments, including
liability, respectively. The potential loss in fair value
various derivative contracts, are used to hedge
resulting from a 10% adverse change in the underlying
exposures to interest rate, commodity and foreign
commodity prices would have been approximately $1
currency risks. We do not use financial instruments for
million at December 31, 2016 and 2015, respectively.
trading purposes. Information related to International
Paper’s debt obligations is included in Note 13 Debt
and Lines of Credit on pages 66 and 67 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 67 through 70 of Item 8. Financial Statements
and Supplementary Data.
Foreign Currency Risk
International Paper
transacts business
in many
currencies and is also subject to currency exchange
rate risk through investments and businesses owned
and operated in foreign countries. Our objective in
managing the associated foreign currency risks is to
minimize
the effect of adverse exchange rate
The fair value of our debt and financial instruments
fluctuations on our after-tax cash flows. We address
varies due to changes in market interest and foreign
these risks on a limited basis by entering into cross-
currency rates and commodity prices since the
currency and interest rate swaps, or foreign exchange
inception of the related instruments. We assess this
contracts. At December 31, 2016 and 2015, the net fair
market risk utilizing a sensitivity analysis. The sensitivity
value of financial instruments with exposure to foreign
analysis measures the potential loss in earnings, fair
currency risk was approximately a $1 million liability and
values and cash flows based on a hypothetical 10%
a $4 million asset, respectively. The potential loss in fair
change (increase and decrease) in interest and
value for such financial instruments from a 10% adverse
currency rates and commodity prices.
change in quoted foreign currency exchange rates
would have been approximately $23 million and $30
million at December 31, 2016 and 2015, respectively.
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
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
money market mutual funds with a minimum rating of
See the preceding discussion and Note 14 Derivatives
AAA and limit exposure to any one issuer or fund. Our
and Hedging Activities on pages 67 through 70 of
investments in marketable securities at December 31,
Item 8. Financial Statements and Supplementary Data.
2016 and 2015 are stated at cost, which approximates
market due to their short-term nature. Our interest rate
38
considering
the
funded status of
the plan,
tax
be approximately 33% based on expected earnings and
FOREIGN CURRENCY EFFECTS
deductibility, the cash flows generated by the Company,
business conditions.
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. There are no required
contributions to the U.S. qualified plan in 2017. The
nonqualified defined benefit plans are funded to the
extent of benefit payments, which totaled $21 million
for the year ended December 31, 2016.
Income Taxes
Business Combinations
The Company’s acquisitions of businesses are
accounted for in accordance with ASC 805, "Business
Combinations", as amended. We allocate the total
purchase price of the assets acquired and liabilities
assumed based on their estimated fair value as of the
business combination date. In developing estimates of
fair values for long-lived assets, including identifiable
intangible assets, the Company utilizes a variety of
International Paper records its global tax provision
inputs including forecasted cash flows, anticipated
based on the respective tax rules and regulations for
growth rates, discount rates, estimated replacement
the jurisdictions in which it operates. Where the
costs and depreciation and obsolescence factors.
Company believes that a tax position is supportable for
Determining the fair value for specifically identified
income tax purposes, the item is included in its income
intangible assets such as customer lists and developed
tax returns. Where treatment of a position is uncertain,
technology involves judgment. We may refine our
liabilities are recorded based upon the Company’s
estimates and make adjustments to the assets acquired
evaluation of the “more likely than not” outcome
and liabilities assumed over a measurement period, not
considering technical merits of the position based on
to exceed one year. Upon the conclusion of the
specific tax regulations and facts of each matter.
measurement period or the final determination of the
Changes to recorded liabilities are only made when an
values of assets acquired and liabilities assumed,
identifiable event occurs that changes the likely
whichever comes first, any subsequent adjustments are
outcome, such as settlement with the relevant tax
charged to the consolidated statements of earnings.
authority, the expiration of statutes of limitation for the
Subsequent actual results of the underlying business
subject tax year, change in tax laws, or a recent court
activity supporting the specifically identified intangible
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
assets could change, requiring us to record impairment
charges or adjust their economic lives in future periods.
RECENT ACCOUNTING DEVELOPMENTS
required in evaluating the need for and magnitude of
There were no new accounting pronouncements issued
appropriate valuation allowances against deferred tax
or effective during the fiscal year which have had or are
assets. The realization of these assets is dependent on
expected to have a material impact on the Company’s
generating future taxable income, as well as successful
consolidated financial statements. See Note 2 Recent
implementation of various tax planning strategies.
While
International Paper believes
that
these
judgments and estimates are appropriate and
reasonable under the circumstances, actual resolution
of these matters may differ from recorded estimated
amounts.
Accounting Developments on pages 49 through 52 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
The Company’s effective income tax rates, before
Commitments and Contingencies on pages 61 through
equity earnings and discontinued operations, were
63 of Item 8. Financial Statements and Supplementary
26%, 37% and 14% for 2016, 2015 and 2014,
Data.
local currency
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 and the remeasurement
impact associated with non-functional currency
financial assets and liabilities. 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.
MARKET RISK
We use financial instruments, including fixed and
variable rate debt, to finance operations, for capital
spending programs and
for general corporate
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 66 and 67 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 67 through 70 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.
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 2016 was 32% of pre-tax
earnings compared with 33% in 2015 and 31% in 2014.
We estimate that the 2017 effective income tax rate will
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.
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,
2016 and 2015 are stated at cost, which approximates
market due to their short-term nature. Our interest rate
37
38
risk exposure related to these investments was not
material.
We issue fixed and floating rate debt in a proportion that
management deems appropriate based on current and
projected market conditions. Derivative instruments,
such as, interest rate swaps, may be used to execute
this strategy. At December 31, 2016 and 2015, the net
fair value liability of financial instruments with exposure
to interest rate risk was approximately $11.3 billion and
$9.3 billion, respectively. The potential loss in fair value
resulting from a 10% adverse shift in quoted interest
rates would have been approximately $623 million and
$565 million at December 31, 2016 and 2015,
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 or forward purchase contracts may be used to
manage risks associated with market fluctuations in
energy prices. The net fair value of such outstanding
energy hedge contracts at December 31, 2016 and
2015 was approximately a $2 million and a $7 million
liability, respectively. The potential loss in fair value
resulting from a 10% adverse change in the underlying
commodity prices would have been approximately $1
million at December 31, 2016 and 2015, respectively.
Foreign Currency Risk
transacts business
International Paper
in many
currencies and is also subject to currency exchange
rate risk through investments and businesses owned
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 entering into cross-
currency and interest rate swaps, or foreign exchange
contracts. At December 31, 2016 and 2015, the net fair
value of financial instruments with exposure to foreign
currency risk was approximately a $1 million liability and
a $4 million asset, 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 $23 million and $30
million at December 31, 2016 and 2015, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See the preceding discussion and Note 14 Derivatives
and Hedging Activities on pages 67 through 70 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
preparation of
for external
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
of
financial
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.
The Company has assessed the effectiveness of its
internal control over
reporting as of
December 31, 2016. In making this assessment, it used
the criteria described in “Internal Control – Integrated
Framework (2013)” issued by the Committee of
Sponsoring Organizations
the Treadway
Commission (COSO). Based on this assessment,
management believes that, as of December 31, 2016,
the Company’s internal control over financial reporting
was effective.
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
reporting procedures,
the performance of
the
Company’s internal audit function and independent
auditors, and other matters set forth in its charter. The
Committee, which consists of 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. 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, 2016,
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.
MARK S. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CAROL L. ROBERTS
OFFICER
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
The Company completed the acquisition of Holmen
Paper’s newsprint mill in Madrid, Spain as well as
associated recycling operations and 50% ownership in
a cogeneration facility in June 2016. Due to the timing
of the acquisition we have excluded the Holmen
operations from our evaluation of the effectiveness of
internal control over financial reporting. For the period
ended December 31, 2016, sales and assets for the
former Holmen operations represented approximately
0.4% of net sales and 0.3% of total assets.
The Company completed
the acquisition of
Weyerhaeuser’s pulp business in December 2016. Due
to the timing of the acquisition we have excluded the
former Weyerhaeuser pulp business
from our
evaluation of the effectiveness of internal control over
financial reporting. For the period ended December 31,
2016, sales and assets for the former Weyerhaeuser
pulp business represented approximately 0.5% of net
sales and 6.5% of total assets.
The Company’s
registered public
independent
accounting 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 41 and 42.
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
39
40
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.
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.
The Company has assessed the effectiveness of its
internal control over
financial
reporting as of
December 31, 2016. In making this assessment, it used
the criteria described in “Internal Control – Integrated
Framework (2013)” issued by the Committee of
Sponsoring Organizations
of
the Treadway
Commission (COSO). Based on this assessment,
management believes that, as of December 31, 2016,
the Company’s internal control over financial reporting
was effective.
The Company completed the acquisition of Holmen
Paper’s newsprint mill in Madrid, Spain as well as
associated recycling operations and 50% ownership in
a cogeneration facility in June 2016. Due to the timing
of the acquisition we have excluded the Holmen
operations from our evaluation of the effectiveness of
internal control over financial reporting. For the period
ended December 31, 2016, sales and assets for the
former Holmen operations represented approximately
0.4% of net sales and 0.3% of total assets.
The Company completed
the acquisition of
Weyerhaeuser’s pulp business in December 2016. Due
to the timing of the acquisition we have excluded the
former Weyerhaeuser pulp business
from our
evaluation of the effectiveness of internal control over
financial reporting. For the period ended December 31,
2016, sales and assets for the former Weyerhaeuser
pulp business represented approximately 0.5% of net
sales and 6.5% of total assets.
Management believes that all representations made to
The Company’s
independent
registered public
the independent auditors during their audits were valid
accounting firm, Deloitte & Touche LLP, has issued its
and appropriate.
report on the effectiveness of the Company’s internal
control over financial reporting. The report appears on
Internal Control Over Financial Reporting
pages 41 and 42.
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
preparation of
financial statements
for external
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
Internal Control Environment And Board Of
Directors Oversight
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 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 performance of
The Board of Directors, assisted by the Audit and
Finance Committee (Committee), monitors the integrity
of the Company’s financial statements and financial
reporting procedures,
the
Company’s internal audit function and independent
auditors, and other matters set forth in its charter. The
Committee, which consists of independent directors,
meets regularly with representatives of management,
and with the independent auditors and the Internal
Auditor, with and without management representatives
their activities. The
review
in attendance,
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, 2016,
including critical accounting policies and significant
management judgments, with management and the
report
independent auditors. The Committee’s
recommending
financial
statements in this Annual Report on Form 10-K will be
set forth in our Proxy Statement.
inclusion of such
the
to
MARK S. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CAROL L. ROBERTS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
39
40
REPORT OF INDEPENDENT REGISTERED PUBLIC
FIRM, ON CONSOLIDATED
ACCOUNTING
FINANCIAL STATEMENTS
Commission, and our report dated February 22, 2017
expressed an unqualified opinion on the Company’s
internal control over financial reporting.
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, 2016
and 2015, 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, 2016. Our audits also included
the financial statement schedule listed in the Index at
Item 15. These financial statements and financial
statement schedule are the responsibility of the
Company's management. Our responsibility is to
express an opinion on the financial statements and
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, 2016 and 2015, and
the results of their operations and their cash flows for
each of the three years in the period ended December
31, 2016, 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, 2016, based on
the criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders of
International Paper Company:
in
in a cogeneration
We have audited the internal control over financial
reporting of
International Paper Company and
subsidiaries (the "Company") as of December 31, 2016,
based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee
the Treadway
of Sponsoring Organizations of
Commission. As described
the Report of
Internal Control over Financial
Management on
Reporting, management excluded from its assessment
the internal control over financial reporting of Holmen
Paper’s newsprint mill in Madrid, Spain as well as the
the associated recycling operations and a 50% a
ownership
facility (collectively
Holmen) and Weyerhaeuser’s pulp business, which
were acquired on June 30, 2016 and December 1, 2016
respectively. Holmen constitutes 0.4% of net sales and
0.3% of total assets of the consolidated financial
statement amounts as of and for the year ended
December 31, 2016. The former Weyerhaeuser pulp
business constitutes 0.5% of net sales and 6.5% of total
assets of the consolidated financial statement amounts
as of and for the year ended December 31, 2016.
Accordingly, our audit did not include the internal control
over financial reporting at Holmen or Weyerhaeuser
is
pulp business. The Company's management
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
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
41
respects. Our
audit
included
obtaining
an
and financial statement schedule as of and for the year
understanding of
internal control over
financial
ended December 31, 2016 of the Company and our
reporting, assessing the risk that a material weakness
report dated February 22, 2017 expressed an
exists, testing and evaluating the design and operating
unqualified opinion on those financial statements and
effectiveness of internal control based on the assessed
financial statement schedule.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 2017
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.
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
effected by
the company's board of directors,
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
to permit preparation of
financial
statements in accordance with generally accepted
accounting principles, and
that
receipts 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.
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, 2016, based on the
criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations
of
the Treadway
Commission.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements
42
and financial statement schedule as of and for the year
ended December 31, 2016 of the Company and our
report dated February 22, 2017 expressed an
unqualified opinion on those financial statements and
financial statement schedule.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 2017
audit
obtaining
included
internal control over
an
respects. Our
financial
understanding of
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING
FIRM, ON CONSOLIDATED
Commission, and our report dated February 22, 2017
expressed an unqualified opinion on the Company’s
FINANCIAL STATEMENTS
internal control over financial reporting.
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, 2016
and 2015, 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, 2016. Our audits also included
the financial statement schedule listed in the Index at
Item 15. These financial statements and financial
statement schedule are the responsibility of the
Company's management. Our responsibility is to
express an opinion on the financial statements and
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, 2016 and 2015, and
the results of their operations and their cash flows for
each of the three years in the period ended December
31, 2016, 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, 2016, based on
the criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
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, 2016,
based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of
the Treadway
Commission. As described
in
the Report of
Management on
Internal Control over Financial
Reporting, management excluded from its assessment
the internal control over financial reporting of Holmen
Paper’s newsprint mill in Madrid, Spain as well as the
the associated recycling operations and a 50% a
ownership
in a cogeneration
facility (collectively
Holmen) and Weyerhaeuser’s pulp business, which
were acquired on June 30, 2016 and December 1, 2016
respectively. Holmen constitutes 0.4% of net sales and
0.3% of total assets of the consolidated financial
statement amounts as of and for the year ended
December 31, 2016. The former Weyerhaeuser pulp
business constitutes 0.5% of net sales and 6.5% of total
assets of the consolidated financial statement amounts
as of and for the year ended December 31, 2016.
Accordingly, our audit did not include the internal control
over financial reporting at Holmen or Weyerhaeuser
pulp business. 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
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
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
financial
as necessary
statements in accordance with generally accepted
accounting principles, and
receipts 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, 2016, based on the
criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations
the Treadway
Commission.
of
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements
41
42
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
In millions for the years ended December 31
NET EARNINGS (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $343, $186 and $154)
Pension and postretirement liability adjustments:
U.S. plans (less tax of $283, $206 and $798)
Non-U.S. plans (less tax of $4, $0 and $5)
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 $3, $3 and $3)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $3, $8 and $1)
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
2016
2015
2014
$
902 $
917 $
536
545
296
242
(451)
3
260
(329)
(1,253)
(2)
(1,042)
(18)
(876)
344
1,246
(1,068)
(151)
(1,899)
(1,363)
(3)
12
21
6
10
(4)
19
12
(6)
(7)
2
2
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
$
1,250 $
(124) $
(1,332)
The accompanying notes are an integral part of these financial statements.
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
Interest expense, net
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY
EARNINGS (LOSSES)
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.
2016
2015
2014
$ 21,079 $ 22,365 $ 23,617
15,152
15,468
16,254
1,575
1,227
1,361
164
54
—
70
520
956
247
198
907
(5)
902
(2)
1,645
1,294
1,406
168
252
137
174
555
1,266
466
117
917
—
917
(21)
1,793
1,406
1,521
180
846
100
38
607
872
123
(200)
549
(13)
536
(19)
$
$
$
$
$
$
$
904 $
938 $
555
2.21 $
2.25 $
1.33
(0.01)
—
(0.03)
2.20 $
2.25 $
1.30
2.19 $
2.23 $
1.31
(0.01)
—
(0.02)
2.18 $
2.23 $
1.29
909 $
938 $
(5)
—
904 $
938 $
568
(13)
555
43
44
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
In millions for the years ended December 31
NET EARNINGS (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $343, $186 and $154)
Pension and postretirement liability adjustments:
U.S. plans (less tax of $283, $206 and $798)
Non-U.S. plans (less tax of $4, $0 and $5)
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 $3, $3 and $3)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $3, $8 and $1)
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
2016
2015
2014
$
902 $
917 $
536
545
296
242
(451)
3
260
(6)
(7)
344
1,246
2
2
(329)
(1,253)
(2)
(1,042)
(3)
12
(18)
(876)
10
(4)
(1,068)
(151)
(1,899)
(1,363)
21
6
19
12
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
$
1,250 $
(124) $
(1,332)
The accompanying notes are an integral part of these financial statements.
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
Interest expense, net
EARNINGS (LOSSES)
Income tax provision (benefit)
Equity earnings (loss), net of taxes
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY
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)
COMMON SHAREHOLDERS
Earnings (loss) from continuing operations
Discontinued operations, net of taxes
Net earnings (loss)
Earnings (loss) from continuing operations
Discontinued operations, net of taxes
Net earnings (loss)
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
2016
2015
2014
$ 21,079 $ 22,365 $ 23,617
15,152
15,468
16,254
1,575
1,227
1,361
164
54
—
70
520
956
247
198
907
(5)
902
(2)
1,645
1,294
1,406
168
252
137
174
555
1,266
466
117
917
—
917
(21)
1,793
1,406
1,521
180
846
100
38
607
872
123
(200)
549
(13)
536
(19)
$
$
$
$
$
$
$
904 $
938 $
555
2.21 $
2.25 $
1.33
(0.01)
—
(0.03)
2.20 $
2.25 $
1.30
2.19 $
2.23 $
1.31
(0.01)
—
(0.02)
2.18 $
2.23 $
1.29
909 $
938 $
(5)
—
904 $
938 $
568
(13)
555
The accompanying notes are an integral part of these financial statements.
43
44
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions, except per share amounts, at December 31
2016
2015
In millions for the years ended December 31
ASSETS
Current Assets
Cash and temporary investments
Accounts and notes receivable, less allowances of $70 in 2016 and $70 in 2015
Inventories
Deferred income tax assets
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
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
Commitments and Contingent Liabilities (Note 11)
Equity
Common stock $1 par value, 2016 - 448.9 shares & 2015 – 448.9 shares
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Common stock held in treasury, at cost, 2016 – 37.671 shares and 2015 – 36.776 shares
Total Shareholders’ Equity
Noncontrolling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
$ 1,033 $ 1,050
3,001
2,438
299
198
2,675
2,228
312
212
6,969
6,477
13,990
11,980
456
360
7,033
3,364
1,173
366
228
7,014
3,335
1,131
$ 33,345 $ 30,531
$
239 $
426
2,309
430
1,094
4,072
11,075
6,284
3,376
3,400
330
449
449
6,189
4,818
2,078
434
986
3,924
8,844
6,277
3,231
3,548
364
434
449
6,243
4,649
(5,362)
(5,708)
6,094
1,753
4,341
18
5,633
1,749
3,884
25
4,359
3,909
$ 33,345 $ 30,531
OPERATING ACTIVITIES
Net earnings (loss)
Depreciation, amortization, and cost of timber harvested
Deferred income tax provision (benefit), net
Restructuring and other charges
Pension plan contribution
Periodic pension expense, net
Net (gains) losses on sales and impairments of businesses
Equity (earnings) losses, net of taxes
Impairment of goodwill and other intangible assets
Other, net
Changes in current assets and liabilities
Accounts and notes receivable
Accounts payable and accrued liabilities
Inventories
Interest payable
Other
INVESTMENT ACTIVITIES
Invested in capital projects
Acquisitions, net of cash acquired
Proceeds from divestitures
Proceeds from spinoff
Investment in Special Purpose Entities
Proceeds from sale of fixed assets
Other
FINANCING ACTIVITIES
Issuance of common stock
Issuance of debt
Reduction of debt
Change in book overdrafts
Dividends paid
Debt tender premiums paid
Other
Acquisition of redeemable noncontrolling interest
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
CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES
Repurchase of common stock and payments of restricted stock tax withholding
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
2016
2015
2014
$
902 $
917 $
536
1,227
1,294
1,414
281
252
(750)
461
174
(117)
137
153
7
(131)
(89)
(17)
8
—
23
—
37
(198)
(14)
(685)
—
(211)
(14)
(71)
(831)
(135)
881
(353)
387
38
200
100
167
(97)
(103)
(18)
(18)
78
411
—
—
—
61
34
30
(620)
(114)
(269)
(4)
(52)
79
(1,487)
(1,366)
(49)
(114)
(3,498)
(1,739)
(860)
(605)
(1,062)
2
66
6,873
1,982
(6,947)
(2,095)
136
54
(750)
809
70
(198)
—
157
(94)
11
98
41
15
(1,348)
(2,228)
108
—
—
19
(132)
—
3,830
(1,938)
—
(733)
—
(31)
(14)
982
21
(17)
1,050
1,881
1,802
$
1,033 $
1,050 $
1,881
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
2,478
2,580
3,077
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
(1,601)
(2,086)
45
46
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions, except per share amounts, at December 31
2016
2015
In millions for the years ended December 31
$ 1,033 $ 1,050
Depreciation, amortization, and cost of timber harvested
Deferred income tax provision (benefit), net
OPERATING ACTIVITIES
Net earnings (loss)
Restructuring and other charges
Pension plan contribution
Periodic pension expense, net
Net (gains) losses on sales and impairments of businesses
Equity (earnings) losses, net of taxes
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
2016
2015
2014
$
902 $
917 $
536
1,227
1,294
1,414
136
54
(750)
809
70
(198)
—
157
(94)
11
98
41
15
281
252
(750)
461
174
(117)
137
153
7
(131)
(89)
(17)
8
(135)
881
(353)
387
38
200
100
167
(97)
(103)
(18)
(18)
78
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
2,478
2,580
3,077
INVESTMENT ACTIVITIES
Invested in capital projects
Acquisitions, net of cash acquired
Proceeds from divestitures
Proceeds from spinoff
Investment in Special Purpose Entities
Proceeds from sale of fixed assets
Other
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
Acquisition of redeemable noncontrolling interest
Debt tender premiums paid
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
(1,348)
(2,228)
108
—
—
19
(49)
(1,487)
(1,366)
—
23
—
(198)
37
(114)
—
—
411
—
61
34
(3,498)
(1,739)
(860)
(132)
—
3,830
(1,938)
—
(733)
—
(31)
(14)
982
21
(17)
(605)
(1,062)
2
66
6,873
1,982
(6,947)
(2,095)
(14)
(685)
—
(211)
(14)
30
(620)
(114)
(269)
(4)
(1,601)
(2,086)
(71)
(831)
(52)
79
1,050
1,881
1,802
$
1,033 $
1,050 $
1,881
Accounts and notes receivable, less allowances of $70 in 2016 and $70 in 2015
ASSETS
Current Assets
Cash and temporary investments
Inventories
Deferred income tax assets
Other current assets
Total Current Assets
Plants, Properties and Equipment, net
Forestlands
Investments
Goodwill
Deferred Charges and Other Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accrued payroll and benefits
Other accrued liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Pension Benefit Obligation
Financial Assets of Special Purpose Entities (Note 12)
Notes payable and current maturities of long-term debt
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12)
Postretirement and Postemployment Benefit Obligation
Commitments and Contingent Liabilities (Note 11)
Other Liabilities
Equity
Paid-in capital
Retained earnings
Common stock $1 par value, 2016 - 448.9 shares & 2015 – 448.9 shares
Total Shareholders’ Equity
Noncontrolling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
6,969
6,477
13,990
11,980
$ 33,345 $ 30,531
$
239 $
426
3,001
2,438
299
198
456
360
7,033
3,364
1,173
2,309
430
1,094
4,072
11,075
6,284
3,376
3,400
330
449
449
6,189
4,818
6,094
1,753
4,341
18
2,675
2,228
312
212
366
228
7,014
3,335
1,131
2,078
434
986
3,924
8,844
6,277
3,231
3,548
364
434
449
6,243
4,649
5,633
1,749
3,884
25
4,359
3,909
$ 33,345 $ 30,531
Accumulated other comprehensive loss
(5,362)
(5,708)
Less: Common stock held in treasury, at cost, 2016 – 37.671 shares and 2015 – 36.776 shares
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
45
46
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
$
447 $
6,463 $
4,446 $
(2,759) $
492 $
8,105 $
179 $
8,284
In millions
BALANCE, JANUARY 1,
2014
Issuance of stock for various
plans, net
Repurchase of stock
xpedx spinoff
Dividends
Acquisition of redeemable
noncontrolling interests
Remeasurement of
redeemable noncontrolling
interest
Comprehensive income
(loss)
BALANCE, DECEMBER 31,
2014
Issuance of stock for various
plans, net
Repurchase of stock
Dividends
Transactions of equity
method investees
Divestiture of noncontrolling
interests
Comprehensive income
(loss)
BALANCE, DECEMBER 31,
2015
Issuance of stock for
various plans, net
Repurchase of stock
Dividends
Transactions of equity
method investees
Divestiture of
noncontrolling interests
Other
Comprehensive income
(loss)
BALANCE, DECEMBER 31,
2016
$
2
—
—
—
—
—
—
69
—
(287)
—
—
—
—
—
—
—
(633)
46
(5)
555
—
—
—
—
—
—
(1,887)
(212)
1,062
—
—
—
—
—
449
6,245
4,409
(4,646)
1,342
—
—
—
—
—
—
35
—
—
(37)
—
—
—
—
(698)
—
—
938
—
—
—
—
—
(1,062)
(198)
605
—
—
—
—
449
6,243
4,649
(5,708)
1,749
—
—
—
—
—
—
—
(6)
—
—
(48)
—
—
—
—
—
(743)
—
—
8
904
—
—
—
—
—
—
346
(128)
132
—
—
—
—
—
283
(1,062)
(287)
(633)
46
(5)
(1,332)
5,115
233
(605)
(698)
(37)
—
(124)
3,884
122
(132)
(743)
(48)
—
8
1,250
—
—
—
—
—
—
283
(1,062)
(287)
(633)
46
(5)
(31)
(1,363)
148
5,263
—
—
—
—
(96)
(27)
25
—
—
—
—
(3)
—
(4)
233
(605)
(698)
(37)
(96)
(151)
3,909
122
(132)
(743)
(48)
(3)
8
1,246
449 $
6,189 $
4,818 $
(5,362) $
1,753 $
4,341 $
18 $
4,359
CONSOLIDATION
The accompanying notes are an integral part of these financial statements.
47
48
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 SUMMARY OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
International Paper (the Company) is a global paper
and packaging company with primary markets and
manufacturing operations in North America, Europe,
Latin America, Russia, Asia, Africa and the Middle
East. Substantially all of our businesses have
experienced, and are likely to continue to experience,
cycles relating to available industry capacity and
general economic conditions.
FINANCIAL STATEMENTS
These consolidated financial statements have been
prepared in conformity with accounting principles
generally accepted in the United States that require the
use of management’s estimates. Actual results could
differ from management’s estimates. Prior-period
amounts have been adjusted to conform with current
year presentation.
During the fourth quarter of 2016, the Company
finalized its purchase of Weyerhaeuser's pulp business
(see Note 6). Subsequent to the acquisition, the
Company began reporting Global Cellulose Fibers as
a separate business segment in the fourth quarter of
2016 due to the increased materiality of the results of
this business. This segment includes the Company's
legacy pulp business and the newly acquired pulp
business. As such, amounts related to the legacy pulp
business have been reclassified out of the Printing
Papers' business segment and included in the new
Global Cellulose Fibers business segment for all prior
periods to conform with current year presentation.
The consolidated financial statements include the
accounts of International Paper and its wholly-owned,
controlled majority-owned and financially controlled
subsidiaries. All significant intercompany balances and
transactions are eliminated.
Investments
in affiliated companies where
the
Company has significant influence over their operations
are accounted for by the equity method. International
Paper’s share of affiliates’ results of operations totaled
earnings (loss) of $198 million, $117 million and $(200)
million in 2016, 2015 and 2014, respectively.
REVENUE RECOGNITION
Revenue is recorded at the time of shipment for terms
designated f.o.b. (free on board) shipping point. For
sales
transactions designated
f.o.b. destination,
revenue is recorded when the product is delivered to
the customer’s delivery site, when title and risk of loss
are transferred. Timber and forestland sales revenue is
generally recognized when title and risk of loss pass to
the buyer.
SHIPPING AND HANDLING COSTS
Shipping and handling costs, such as freight to our
customers’ destinations, are included in distribution
expenses in the consolidated statement of operations.
When shipping and handling costs are included in the
sales price charged for our products, they are
recognized in net sales.
ANNUAL MAINTENANCE COSTS
Costs for repair and maintenance activities are
expensed in the month that the related activity is
performed under the direct expense method of
accounting.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of
three months or less are treated as cash equivalents
and are stated at cost, which approximates market
value.
INVENTORIES
Inventories are valued at the lower of cost or market
value and include all costs directly associated with
manufacturing products: materials,
labor and
manufacturing overhead. In the United States, costs of
raw materials and finished pulp and paper products, are
generally determined using the last-in, first-out method.
Other inventories are valued using the first-in, first-out
or average cost methods.
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost,
less accumulated depreciation. Expenditures
for
betterments are capitalized, whereas normal repairs
and maintenance are expensed as incurred. The units-
of-production method of depreciation is used for pulp
and paper mills, and the straight-line method is used
for other plants and equipment. Annual straight-line
depreciation rates generally are, for buildings — 2.50%
to 5.00%, and for machinery and equipment — 5% to
33%.
FORESTLANDS
Revenue is recognized when the customer takes title
and assumes the risks and rewards of ownership.
At December 31, 2016, International Paper and its
subsidiaries owned or managed approximately
329,000 acres of forestlands in Brazil, and through
449
6,245
4,409
(4,646)
1,342
(1,887)
(31)
(1,363)
148
5,263
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Common
Stock
Issued
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Shareholders’
Noncontrolling
Equity
Interests
Total
Equity
International
Total
Paper
$
447 $
6,463 $
4,446 $
(2,759) $
492 $
8,105 $
179 $
8,284
In millions
BALANCE, JANUARY 1,
2014
Issuance of stock for various
plans, net
Repurchase of stock
xpedx spinoff
Dividends
Acquisition of redeemable
noncontrolling interests
Remeasurement of
redeemable noncontrolling
Comprehensive income
interest
(loss)
2014
BALANCE, DECEMBER 31,
Issuance of stock for various
plans, net
Repurchase of stock
Dividends
Transactions of equity
method investees
Divestiture of noncontrolling
interests
Comprehensive income
BALANCE, DECEMBER 31,
(loss)
2015
Issuance of stock for
various plans, net
Repurchase of stock
Dividends
Transactions of equity
method investees
Divestiture of
noncontrolling interests
Other
(loss)
2016
Comprehensive income
BALANCE, DECEMBER 31,
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(287)
69
—
—
—
—
—
35
—
—
—
—
(37)
(6)
—
—
(48)
—
—
—
—
—
—
46
(633)
(5)
555
(698)
—
—
—
—
—
—
—
—
8
(743)
904
346
The accompanying notes are an integral part of these financial statements.
938
(1,062)
449
6,243
4,649
(5,708)
1,749
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(212)
1,062
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(198)
605
(128)
132
283
(1,062)
(287)
(633)
46
(5)
(1,332)
5,115
233
(605)
(698)
(37)
—
(124)
3,884
122
(132)
(743)
(48)
—
8
1,250
—
—
—
—
—
—
—
—
—
—
(96)
(27)
25
—
—
—
—
(3)
—
(4)
283
(1,062)
(287)
(633)
46
(5)
233
(605)
(698)
(37)
(96)
(151)
3,909
122
(132)
(743)
(48)
(3)
8
1,246
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 SUMMARY OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
International Paper (the Company) is a global paper
and packaging company with primary markets and
manufacturing operations in North America, Europe,
Latin America, Russia, Asia, Africa and the Middle
East. Substantially all of our businesses have
experienced, and are likely to continue to experience,
cycles relating to available industry capacity and
general economic conditions.
FINANCIAL STATEMENTS
These consolidated financial statements have been
prepared in conformity with accounting principles
generally accepted in the United States that require the
use of management’s estimates. Actual results could
differ from management’s estimates. Prior-period
amounts have been adjusted to conform with current
year presentation.
During the fourth quarter of 2016, the Company
finalized its purchase of Weyerhaeuser's pulp business
(see Note 6). Subsequent to the acquisition, the
Company began reporting Global Cellulose Fibers as
a separate business segment in the fourth quarter of
2016 due to the increased materiality of the results of
this business. This segment includes the Company's
legacy pulp business and the newly acquired pulp
business. As such, amounts related to the legacy pulp
business have been reclassified out of the Printing
Papers' business segment and included in the new
Global Cellulose Fibers business segment for all prior
periods to conform with current year presentation.
$
449 $
6,189 $
4,818 $
(5,362) $
1,753 $
4,341 $
18 $
4,359
CONSOLIDATION
The consolidated financial statements include the
accounts of International Paper and its wholly-owned,
controlled majority-owned and financially controlled
subsidiaries. All significant intercompany balances and
transactions are eliminated.
in affiliated companies where
the
Investments
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 $198 million, $117 million and $(200)
million in 2016, 2015 and 2014, respectively.
transactions designated
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
value.
INVENTORIES
Inventories are valued at the lower of cost or market
value and include all costs directly associated with
labor and
manufacturing products: materials,
manufacturing overhead. In the United States, costs of
raw materials and finished pulp and paper products, are
generally determined using the last-in, first-out method.
Other inventories are valued using the first-in, first-out
or average cost methods.
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost,
less accumulated depreciation. Expenditures
for
betterments are capitalized, whereas normal repairs
and maintenance are expensed as incurred. The units-
of-production method of depreciation is used for pulp
and paper mills, and the straight-line method is used
for other plants and equipment. Annual straight-line
depreciation rates generally are, for buildings — 2.50%
to 5.00%, and for machinery and equipment — 5% to
33%.
47
48
REVENUE RECOGNITION
FORESTLANDS
Revenue is recognized when the customer takes title
and assumes the risks and rewards of ownership.
At December 31, 2016, International Paper and its
subsidiaries owned or managed approximately
329,000 acres of forestlands in Brazil, and through
licenses and forest management agreements, had
harvesting rights on government-owned forestlands in
Russia. Costs attributable to timber are expensed as
trees are cut. The rate charged is determined annually
based on the relationship of incurred costs to estimated
current merchantable volume.
GOODWILL
Goodwill relating to a single business reporting unit is
included as an asset of the applicable segment. 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, discounted 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.
INCOME TAXES
for
the
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
future
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.
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.
TRANSLATION OF FINANCIAL STATEMENTS
international operations are
Balance sheets of
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
translation adjustments
in Accumulated other
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.
VARIABLE INTEREST ENTITIES
In October 2016, the FASB issued ASU 2016-17,
"Consolidation (Topic 810): Interests Held through
Related Parties That Are under Common Control."
Under consolidation guidance in ASU 2015-02 issued
by the FASB in 2015, a single decision maker was
required to consider an indirect interest held by a related
party under common control in its entirety. Under the
new guidance, the single decision maker will consider
that indirect interest on a proportionate basis. This
guidance is effective for annual reporting periods
beginning after December 15, 2016, and interim periods
within those years. This guidance should be applied
retrospectively to all relevant prior periods beginning
with the fiscal years in which ASU 2015-02 was initially
applied. Early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and
will adopt this ASU in the first quarter of 2017.
INCOME TAXES
In October 2016, the FASB issued ASU 2016-16,
"Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory." This ASU requires
companies to recognize the income tax effects of
intercompany sales and transfers of assets other than
inventory in the period in which the transfer occurs
rather than defer the income tax effects which is current
practice. This new guidance is effective for annual
reporting periods beginning after December 15, 2017,
and interim periods within those years. The guidance
requires companies to apply a modified retrospective
approach with a cumulative catch-up adjustment to
opening retained earnings in the period of adoption.
Early adoption is permitted. The Company is currently
evaluating the provisions of this guidance.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): "Balance Classification of
Deferred Taxes." This ASU requires entities to offset all
deferred tax assets and liabilities (and valuation
allowances) for each tax-paying jurisdiction within each
tax-paying component. The net deferred tax must be
presented as a single noncurrent amount. This ASU is
effective for annual reporting periods beginning after
December 15, 2016, and interim periods within those
years. Early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and
will adopt this ASU in the first quarter of 2017.
CASH FLOW CLASSIFICATION
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): "Classification of
Certain Cash Receipts and Cash Payments (a
consensus of the Emerging Issues Task Force)." This
ASU adds or clarifies guidance on the classification of
certain cash receipts and payments in the statement of
cash flows. This ASU is effective for annual reporting
periods beginning after December 15, 2017, and interim
periods with those years and must be applied
retrospectively to all periods presented but may be
applied prospectively from the earliest date practicable
if retrospective application would be impracticable. The
Company early adopted this guidance during 2016 with
no material impact on the consolidated financial
statements.
STOCK COMPENSATION
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718):
"Improvements to Employee Share-Based Payment
Accounting." Under this new guidance, all excess tax
benefits and tax deficiencies will be recognized in the
income statement as they occur and will therefore
impact the Company's effective tax rate. This guidance
replaces current guidance which requires tax benefits
that exceed compensation costs (windfalls) to be
recognized in equity. The new guidance will also change
the cash flow presentation of excess tax benefits,
classifying them as operating inflows rather than
financing activities as they are currently classified. In
addition, the new guidance will allow companies to
provide net settlement of stock-based compensation to
cover tax withholding as long as the net settlement
doesn't exceed the maximum individual statutory tax
rate in the employee's tax jurisdiction. Amendments
related to the timing of when excess tax benefits are
recognized, minimum
statutory
withholding
requirements, forfeitures, and intrinsic value should be
applied using a modified retrospective transition
method by means of a cumulative-effect adjustment to
equity as of the beginning of the period in which the
guidance is adopted. Amendments related to the
presentation of employee taxes paid on the statement
of cash flows when an employer withholds shares to
meet the minimum statutory withholding requirement
should be applied
retrospectively. Amendments
requiring recognition of excess tax benefits and tax
deficiencies in the income statement and the practical
expedient for estimating expected term should be
applied prospectively. An entity may elect to apply the
amendments related to the presentation of excess tax
benefits on the statement of cash flows using either a
prospective transition method or a retrospective
transition method. This ASU is effective for annual
reporting periods beginning after December 15, 2016,
and interim periods with those years. Early adoption is
permitted. The Company is currently evaluating the
provisions of this guidance.
INVESTMENTS - EQUITY METHOD AND JOINT VENTURES
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic
323): "Simplifying the Transition to the Equity Method
of Accounting." The amendments in the ASU eliminate
the requirement that when an investment qualifies for
use of the equity method as a result of an increase in
49
50
licenses and forest management agreements, had
reflect new tax rates in the periods rate changes are
VARIABLE INTEREST ENTITIES
harvesting rights on government-owned forestlands in
enacted.
Russia. Costs attributable to timber are expensed as
trees are cut. The rate charged is determined annually
International Paper records its worldwide tax provision
based on the relationship of incurred costs to estimated
based on the respective tax rules and regulations for
current merchantable volume.
GOODWILL
Goodwill relating to a single business reporting unit is
included as an asset of the applicable segment. 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, discounted 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
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.
INCOME TAXES
International Paper uses the asset and liability method
of accounting for income taxes whereby deferred
income
taxes are recorded
for
the
future
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
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.
ENVIRONMENTAL REMEDIATION COSTS
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.
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
translation adjustments
in Accumulated other
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.
respective reporting units are then determined to
Costs associated with environmental remediation
calculate the amount of any goodwill impairment charge
obligations are accrued when such costs are probable
In October 2016, the FASB issued ASU 2016-17,
"Consolidation (Topic 810): Interests Held through
Related Parties That Are under Common Control."
Under consolidation guidance in ASU 2015-02 issued
by the FASB in 2015, a single decision maker was
required to consider an indirect interest held by a related
party under common control in its entirety. Under the
new guidance, the single decision maker will consider
that indirect interest on a proportionate basis. This
guidance is effective for annual reporting periods
beginning after December 15, 2016, and interim periods
within those years. This guidance should be applied
retrospectively to all relevant prior periods beginning
with the fiscal years in which ASU 2015-02 was initially
applied. Early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and
will adopt this ASU in the first quarter of 2017.
INCOME TAXES
In October 2016, the FASB issued ASU 2016-16,
"Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory." This ASU requires
companies to recognize the income tax effects of
intercompany sales and transfers of assets other than
inventory in the period in which the transfer occurs
rather than defer the income tax effects which is current
practice. This new guidance is effective for annual
reporting periods beginning after December 15, 2017,
and interim periods within those years. The guidance
requires companies to apply a modified retrospective
approach with a cumulative catch-up adjustment to
opening retained earnings in the period of adoption.
Early adoption is permitted. The Company is currently
evaluating the provisions of this guidance.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): "Balance Classification of
Deferred Taxes." This ASU requires entities to offset all
deferred tax assets and liabilities (and valuation
allowances) for each tax-paying jurisdiction within each
tax-paying component. The net deferred tax must be
presented as a single noncurrent amount. This ASU is
effective for annual reporting periods beginning after
December 15, 2016, and interim periods within those
years. Early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and
will adopt this ASU in the first quarter of 2017.
CASH FLOW CLASSIFICATION
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): "Classification of
Certain Cash Receipts and Cash Payments (a
consensus of the Emerging Issues Task Force)." This
ASU adds or clarifies guidance on the classification of
certain cash receipts and payments in the statement of
cash flows. This ASU is effective for annual reporting
49
50
periods beginning after December 15, 2017, and interim
periods with those years and must be applied
retrospectively to all periods presented but may be
applied prospectively from the earliest date practicable
if retrospective application would be impracticable. The
Company early adopted this guidance during 2016 with
no material impact on the consolidated financial
statements.
STOCK COMPENSATION
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718):
"Improvements to Employee Share-Based Payment
Accounting." Under this new guidance, all excess tax
benefits and tax deficiencies will be recognized in the
income statement as they occur and will therefore
impact the Company's effective tax rate. This guidance
replaces current guidance which requires tax benefits
that exceed compensation costs (windfalls) to be
recognized in equity. The new guidance will also change
the cash flow presentation of excess tax benefits,
classifying them as operating inflows rather than
financing activities as they are currently classified. In
addition, the new guidance will allow companies to
provide net settlement of stock-based compensation to
cover tax withholding as long as the net settlement
doesn't exceed the maximum individual statutory tax
rate in the employee's tax jurisdiction. Amendments
related to the timing of when excess tax benefits are
recognized, minimum
withholding
requirements, forfeitures, and intrinsic value should be
applied using a modified retrospective transition
method by means of a cumulative-effect adjustment to
equity as of the beginning of the period in which the
guidance is adopted. Amendments related to the
presentation of employee taxes paid on the statement
of cash flows when an employer withholds shares to
meet the minimum statutory withholding requirement
should be applied
retrospectively. Amendments
requiring recognition of excess tax benefits and tax
deficiencies in the income statement and the practical
expedient for estimating expected term should be
applied prospectively. An entity may elect to apply the
amendments related to the presentation of excess tax
benefits on the statement of cash flows using either a
prospective transition method or a retrospective
transition method. This ASU is effective for annual
reporting periods beginning after December 15, 2016,
and interim periods with those years. Early adoption is
permitted. The Company is currently evaluating the
provisions of this guidance.
statutory
INVESTMENTS - EQUITY METHOD AND JOINT VENTURES
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic
323): "Simplifying the Transition to the Equity Method
of Accounting." The amendments in the ASU eliminate
the requirement that when an investment qualifies for
use of the equity method as a result of an increase in
the level of ownership interest or degree of influence,
an investor must adjust the investment, results of
operations, and retained earnings retroactively on a
step-by-step basis as if the equity method had been in
effect during all previous periods that the investment
had been held. The amendments require that the equity
method investor add the cost of acquiring the additional
interest in the investee to the current basis of the
investor's previously held interest and adopt the equity
method of accounting as of the date the investment
becomes qualified for equity method accounting.
Therefore, upon qualifying for the equity method of
accounting, no retroactive adjustment of the investment
is required. This ASU is effective for annual reporting
periods beginning after December 15, 2016, and interim
periods within those years and should be applied
prospectively upon the effective date. Early adoption is
permitted. The Company early adopted this guidance
during 2016 with no material impact on the consolidated
financial statements.
DERIVATIVES AND HEDGING
Also in March 2016, the FASB issued ASU 2016-05,
Derivatives and Hedging (Topic 815): "Effect of
Derivative Contract Novations on Existing Hedge
Accounting Relationships." The amendments in this
ASU apply to all reporting entities for which there is a
change in the counterparty to a derivative instrument
that has been designated as a hedging instrument
under Topic 815. This ASU clarifies that a change in the
counterparty to a derivative instrument that has been
designated as the hedging instrument under Topic 815
does not, in and of itself, require dedesignation of that
hedging relationship provided that all other hedge
accounting criteria continue to be met. This ASU is
effective for annual reporting periods beginning after
December 15, 2016, and interim periods within those
years, and allows for the amendments to be applied on
either a prospective basis or a modified retrospective
basis. The Company early adopted this guidance during
2016 with no material impact on the consolidated
financial statements.
LEASES
In February 2016, the FASB issued ASU 2016-02,
Leases Topic (842): "Leases." This ASU will require
most leases to be recognized on the balance sheet
which will increase reported assets and liabilities.
Lessor accounting will remain substantially similar to
current U.S. GAAP. This ASU is effective for annual
reporting periods beginning after December 15, 2018,
and interim periods within those years, and mandates
a modified retrospective transition method for all
entities. The Company expects to adopt this guidance
using a modified retrospective transition approach for
leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the
financial statements. We expect to recognize a liability
51
and corresponding asset associated with in-scope
operating and finance leases but we are still in the
process of determining those amounts and the
processes required to account for leasing activity on an
ongoing basis.
BUSINESS COMBINATIONS
In September 2015, the FASB issued ASU 2015-16,
"Business Combinations - Simplifying the Accounting
for Measurement Period Adjustments." This ASU
provides that an acquirer must recognize adjustments
to provisional amounts that are identified during the
measurement period in the reporting period in which
the adjustment amounts are determined. The ASU also
requires acquirers to present separately on the face of
the income statement, or disclose in the notes, the
portion of the amount recorded in current-period
earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the
provisional amounts had been recognized at the
acquisition date. The Company adopted this guidance
during 2016 with no material impact on the consolidated
financial statements.
INVENTORY
"Simplifying
In July 2015, the FASB issued ASU 2015-11, Inventory
the Measurement of
(Topic 330):
Inventory." This ASU provides that entities should
measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business less
reasonably predictable costs of completion, disposal
and
is
transportation. Subsequent measurement
unchanged for inventory measured using LIFO or the
retail inventory method. This ASU is effective for annual
reporting periods beginning after December 15, 2016,
and interim periods within those years. Early adoption
is permitted. The Company early adopted this guidance
during 2016 with no material impact on the consolidated
financial statements.
FAIR VALUE MEASUREMENT
the existing requirement
In May 2015, the FASB issued ASU 2015-07, "Fair
Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)." This
to
guidance eliminates
categorize within the fair value hierarchy investments
whose fair values are measured at net asset value
(NAV) using the practical expedient in ASC 820. Instead
entities are required to disclose the fair values of such
investments so that financial statement users can
reconcile amounts reported in the fair value hierarchy
table and the amounts reported on the balance sheet.
This guidance is effective for fiscal years beginning after
December 15, 2015 and interim periods within those
years and should be applied retrospectively. The
Company adopted the provisions of this guidance in
impact to be the additional required disclosures around
2016 with no material impact on the consolidated
revenue recognition in the notes to the consolidated
financial statements.
DEBT ISSUANCE COSTS
In April 2015, the FASB issued ASU 2015-03, "Interest
- Imputation of Interest (Subtopic 835-30: Simplifying
the Presentation of Debt Issuance Costs)," which
simplifies the balance sheet presentation of the costs
for issuing debt. This ASU was effective for annual
reporting periods beginning after December 15, 2015,
and interim periods within those years. The application
of the requirements of this guidance did not have a
material effect on the consolidated financial statements.
REVENUE RECOGNITION
In May 2014, the FASB issued ASU 2014-09, "Revenue
from Contracts with Customers." This guidance
replaces most existing revenue recognition guidance
and provides that an entity should recognize revenue
to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange
for those goods and services. This ASU was effective
for annual reporting periods beginning after December
15, 2016, and interim periods within those years and
permits the use of either the retrospective or cumulative
effect transition method; however, in August 2015, the
FASB issued ASU 2015-14 which defers the effective
date by one year making the guidance effective for
annual reporting periods beginning after December 15,
2017. The FASB has continued to clarify this guidance
in various updates during 2015 and 2016, all of which,
have the same effective date as the original guidance.
We are currently evaluating the impact of ASU 2014-09
and all related ASU's on our consolidated financial
statements. We plan to adopt the new revenue
guidance effective January 1, 2018 using the full
retrospective transition method. The Company does not
expect
the
impact on
its consolidated
financial
statements to be material and we anticipate the primary
NOTE 4 OTHER COMPREHENSIVE INCOME
financial statements.
NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE
TO INTERNATIONAL PAPER COMPANY COMMON
SHAREHOLDERS
Basic earnings per share is computed by dividing
earnings by the weighted average number of common
shares outstanding. Diluted earnings per share is
computed assuming
that all potentially dilutive
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
operations
Earnings (loss) from continuing
2016
2015
2014
$
909
$ 938
$ 568
Effect of dilutive securities
—
—
—
Earnings (loss) from continuing
operations – assuming dilution
$
909
$ 938
$ 568
Average common shares
outstanding
Effect of dilutive securities:
Restricted performance share
plan
Stock options (a)
Average common shares
411.1
417.4
427.7
4.5
—
3.2
—
4.2
0.1
outstanding – assuming dilution
415.6
420.6
432.0
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
$ 2.21
$ 2.25
$ 1.33
$ 2.19
$ 2.23
$ 1.31
(a) Options to purchase shares were not included in the
computation of diluted common shares outstanding if their
exercise price exceeded the average market price of the
Company’s common stock for each respective reporting date.
The following table presents changes in AOCI for the year ended December 31, 2016:
In millions
Balance as of December 31, 2015
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
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)
(3,169) $
(2,549) $
10 $
(448)
545
97
—
263
(3)
260
2
(6)
(7)
(13)
—
(5,708)
(191)
535
344
2
Balance as of December 31, 2016
(3,072) $
(2,287) $
(3) $
(5,362)
(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
$
$
52
the level of ownership interest or degree of influence,
and corresponding asset associated with in-scope
an investor must adjust the investment, results of
operating and finance leases but we are still in the
operations, and retained earnings retroactively on a
process of determining those amounts and the
step-by-step basis as if the equity method had been in
processes required to account for leasing activity on an
effect during all previous periods that the investment
ongoing basis.
Also in March 2016, the FASB issued ASU 2016-05,
financial statements.
had been held. The amendments require that the equity
method investor add the cost of acquiring the additional
interest in the investee to the current basis of the
investor's previously held interest and adopt the equity
method of accounting as of the date the investment
becomes qualified for equity method accounting.
Therefore, upon qualifying for the equity method of
accounting, no retroactive adjustment of the investment
is required. This ASU is effective for annual reporting
periods beginning after December 15, 2016, and interim
periods within those years and should be applied
prospectively upon the effective date. Early adoption is
permitted. The Company early adopted this guidance
during 2016 with no material impact on the consolidated
financial statements.
DERIVATIVES AND HEDGING
Derivatives and Hedging (Topic 815): "Effect of
Derivative Contract Novations on Existing Hedge
Accounting Relationships." The amendments in this
ASU apply to all reporting entities for which there is a
change in the counterparty to a derivative instrument
that has been designated as a hedging instrument
under Topic 815. This ASU clarifies that a change in the
counterparty to a derivative instrument that has been
designated as the hedging instrument under Topic 815
does not, in and of itself, require dedesignation of that
hedging relationship provided that all other hedge
accounting criteria continue to be met. This ASU is
effective for annual reporting periods beginning after
December 15, 2016, and interim periods within those
years, and allows for the amendments to be applied on
either a prospective basis or a modified retrospective
basis. The Company early adopted this guidance during
2016 with no material impact on the consolidated
financial statements.
LEASES
In February 2016, the FASB issued ASU 2016-02,
Leases Topic (842): "Leases." This ASU will require
most leases to be recognized on the balance sheet
which will increase reported assets and liabilities.
Lessor accounting will remain substantially similar to
current U.S. GAAP. This ASU is effective for annual
reporting periods beginning after December 15, 2018,
and interim periods within those years, and mandates
a modified retrospective transition method for all
entities. The Company expects to adopt this guidance
using a modified retrospective transition approach for
leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the
financial statements. We expect to recognize a liability
BUSINESS COMBINATIONS
In September 2015, the FASB issued ASU 2015-16,
"Business Combinations - Simplifying the Accounting
for Measurement Period Adjustments." This ASU
provides that an acquirer must recognize adjustments
to provisional amounts that are identified during the
measurement period in the reporting period in which
the adjustment amounts are determined. The ASU also
requires acquirers to present separately on the face of
the income statement, or disclose in the notes, the
portion of the amount recorded in current-period
earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the
provisional amounts had been recognized at the
acquisition date. The Company adopted this guidance
during 2016 with no material impact on the consolidated
INVENTORY
In July 2015, the FASB issued ASU 2015-11, Inventory
(Topic 330):
"Simplifying
the Measurement of
Inventory." This ASU provides that entities should
measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business less
reasonably predictable costs of completion, disposal
and
transportation. Subsequent measurement
is
unchanged for inventory measured using LIFO or the
retail inventory method. This ASU is effective for annual
reporting periods beginning after December 15, 2016,
and interim periods within those years. Early adoption
is permitted. The Company early adopted this guidance
during 2016 with no material impact on the consolidated
financial statements.
FAIR VALUE MEASUREMENT
In May 2015, the FASB issued ASU 2015-07, "Fair
Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)." This
guidance eliminates
the existing requirement
to
categorize within the fair value hierarchy investments
whose fair values are measured at net asset value
(NAV) using the practical expedient in ASC 820. Instead
entities are required to disclose the fair values of such
investments so that financial statement users can
reconcile amounts reported in the fair value hierarchy
table and the amounts reported on the balance sheet.
This guidance is effective for fiscal years beginning after
December 15, 2015 and interim periods within those
years and should be applied retrospectively. The
Company adopted the provisions of this guidance in
2016 with no material impact on the consolidated
financial statements.
impact to be the additional required disclosures around
revenue recognition in the notes to the consolidated
financial statements.
DEBT ISSUANCE COSTS
In April 2015, the FASB issued ASU 2015-03, "Interest
- Imputation of Interest (Subtopic 835-30: Simplifying
the Presentation of Debt Issuance Costs)," which
simplifies the balance sheet presentation of the costs
for issuing debt. This ASU was effective for annual
reporting periods beginning after December 15, 2015,
and interim periods within those years. The application
of the requirements of this guidance did not have a
material effect on the consolidated financial statements.
REVENUE RECOGNITION
In May 2014, the FASB issued ASU 2014-09, "Revenue
from Contracts with Customers." This guidance
replaces most existing revenue recognition guidance
and provides that an entity should recognize revenue
to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange
for those goods and services. This ASU was effective
for annual reporting periods beginning after December
15, 2016, and interim periods within those years and
permits the use of either the retrospective or cumulative
effect transition method; however, in August 2015, the
FASB issued ASU 2015-14 which defers the effective
date by one year making the guidance effective for
annual reporting periods beginning after December 15,
2017. The FASB has continued to clarify this guidance
in various updates during 2015 and 2016, all of which,
have the same effective date as the original guidance.
We are currently evaluating the impact of ASU 2014-09
and all related ASU's on our consolidated financial
statements. We plan to adopt the new revenue
guidance effective January 1, 2018 using the full
retrospective transition method. The Company does not
expect
financial
statements to be material and we anticipate the primary
its consolidated
impact on
the
NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE
TO INTERNATIONAL PAPER COMPANY COMMON
SHAREHOLDERS
Basic earnings per share is computed by dividing
earnings by the weighted average number of common
shares outstanding. Diluted earnings per share is
computed assuming
that all potentially dilutive
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
2016
2015
2014
$
909
$ 938
$ 568
Effect of dilutive securities
—
—
—
Earnings (loss) from continuing
operations – assuming dilution
$
909
$ 938
$ 568
Average common shares
outstanding
Effect of dilutive securities:
Restricted performance share
plan
Stock options (a)
411.1
417.4
427.7
4.5
—
3.2
—
4.2
0.1
Average common shares
outstanding – assuming dilution
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
415.6
420.6
432.0
$ 2.21
$ 2.25
$ 1.33
$ 2.19
$ 2.23
$ 1.31
(a) Options to purchase shares were not included in the
computation of diluted common shares outstanding if 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, 2016:
In millions
Balance as of December 31, 2015
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, 2016
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)
(3,169) $
(2,549) $
10 $
(448)
545
97
—
263
(3)
260
2
(6)
(7)
(13)
—
(5,708)
(191)
535
344
2
(3,072) $
(2,287) $
(3) $
(5,362)
$
$
(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.
51
52
The following table presents changes in AOCI for the year ended December 31, 2015:
OTHER ITEMS
NOTE 5 RESTRUCTURING CHARGES AND
NOTE 6 ACQUISITIONS AND JOINT VENTURES
In millions
Balance as of December 31, 2014
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, 2015
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)
(3,134) $
(1,513) $
1 $
(331)
296
(35)
—
(1,002)
(40)
(1,042)
6
(3)
12
9
—
(3,169) $
(2,549) $
10 $
$
$
(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, 2014:
In millions
Balance as of December 31, 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, 2014
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)
(2,105) $
(649) $
(5) $
(1,271)
242
(1,029)
—
(863)
(13)
(876)
12
10
(4)
6
—
(3,134) $
(1,513) $
1 $
$
$
(4,646)
(1,336)
268
(1,068)
6
(5,708)
(2,759)
(2,124)
225
(1,899)
12
(4,646)
(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
Amount Reclassified from Accumulated Other Comprehensive Income (a)
2016
2015
2014
Location of Amount
Reclassified from AOCI
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
Total pre-tax amount
Tax (expense)/benefit
Net of tax
(37) $
(851)
(888)
343
(545)
3
—
3
10
10
(3)
7
(33) $
(17) (b)
Cost of products sold
(449)
(482)
186
(296)
40
—
40
(20)
(20)
8
(12)
(379) (b)
Cost of products sold
(396)
154
(242)
13
—
13
Net (gains) losses on
sales and impairments of
businesses or Retained
earnings
3 (c)
Cost of products sold
3
1
4
Total reclassifications for the period
$
(535) $
(268) $
(225)
(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
employees.
details).
2016: During 2016, total restructuring and other
charges of $54 million before taxes were recorded.
These charges included:
In millions
2016
Early debt extinguishment costs (see Note 13)
India packaging evaluation write-off
Gain on sale of investment in Arizona Chemical
Riegelwood mill conversion costs (a)
Turkey mill closure (b)
Total
$
$
29
17
(8)
9
7
54
(a) Includes $3 million of accelerated depreciation, $3 million of
inventory write-off charges and $3 million of other charges.
(b) Includes $4 million of accelerated depreciation and $3 million of
severance charges which is related to 85 employees.
2015: During 2015, total restructuring and other
charges of $252 million before taxes were recorded.
These charges included:
In millions
Early debt extinguishment costs (see Note 13)
$
Timber monetization restructuring
Legal liability reserve adjustment
Riegelwood mill conversion costs net of proceeds
from the sale of Carolina Coated Bristols brand (a)
207
16
15
8
6
$
252
Other
Total
(a) Includes $5 million of severance charges, which is related to 69
employees, $24 million of accelerated depreciation, sale
proceeds of $22 million and $1 million of other charges.
2014: During 2014, total restructuring and other
charges of $846 million before taxes were recorded.
These charges included:
Early debt extinguishment costs (see Note 13)
Courtland mill shutdown (a)
In millions
Other (b)
Total
2014
276
554
16
846
$
$
(a) Includes $464 million of accelerated depreciation, $24 million
of inventory impairment charges, $26 million of severance
charges related to 49 employees and $40 million of other
charges which are recorded in the Printing Papers segment.
(b) Includes $15 million of severance charges related to 908
2015
In millions
Cash and temporary investments
$
WEYERHAEUSER PULP BUSINESS
2016: On December 1, 2016, the Company finalized
the purchase of Weyerhaeuser's pulp business for
approximately $2.2 billion in cash, subject to post-
closing adjustments. Under the terms of the agreement,
International Paper acquired four fluff pulp mills, one
northern bleached softwood kraft mill and
two
converting facilities of modified fiber, located in the
United States, Canada and Poland.
The Company is accounting for the acquisition under
ASC 805, "Business Combinations" and the newly
acquired pulp business's results of operations have
been included in International Paper's consolidated
financial statements beginning with the date of
acquisition.
The
following
table summarizes
the preliminary
allocation of the purchase price to the fair value of
assets and liabilities acquired as of December 1, 2016.
Plants, properties and equipment
1,711
Accounts and notes receivable
Inventory
Other current assets
Goodwill
Other intangible assets
Deferred charges and other assets
Total assets acquired
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Total liabilities assumed
Net assets acquired
12
195
254
11
19
212
6
111
104
22
237
2,420
$
2,183
Due to the timing of the completion of the acquisition,
the purchase price and
related allocation are
preliminary and could be revised as a result of
adjustments made to the purchase price, additional
information obtained regarding assets acquired and
liabilities assumed, and revisions of provisional
estimates of fair values, including, but not limited to, the
completion of independent appraisals and valuations
related to inventory, property, plant and equipment and
intangible assets. These changes to the purchase price
allocation could be significant. The purchase price
allocation will be finalized within the measurement
period of up to one year from the acquisition date.
53
54
NOTE 5 RESTRUCTURING CHARGES AND
OTHER ITEMS
NOTE 6 ACQUISITIONS AND JOINT VENTURES
WEYERHAEUSER PULP BUSINESS
2016: During 2016, total restructuring and other
charges of $54 million before taxes were recorded.
These charges included:
In millions
2016
Early debt extinguishment costs (see Note 13)
India packaging evaluation write-off
Gain on sale of investment in Arizona Chemical
Riegelwood mill conversion costs (a)
Turkey mill closure (b)
Total
$
$
29
17
(8)
9
7
54
(a) Includes $3 million of accelerated depreciation, $3 million of
inventory write-off charges and $3 million of other charges.
(b) Includes $4 million of accelerated depreciation and $3 million of
severance charges which is related to 85 employees.
2016: On December 1, 2016, the Company finalized
the purchase of Weyerhaeuser's pulp business for
approximately $2.2 billion in cash, subject to post-
closing adjustments. Under the terms of the agreement,
International Paper acquired four fluff pulp mills, one
northern bleached softwood kraft mill and
two
converting facilities of modified fiber, located in the
United States, Canada and Poland.
The Company is accounting for the acquisition under
ASC 805, "Business Combinations" and the newly
acquired pulp business's results of operations have
been included in International Paper's consolidated
financial statements beginning with the date of
acquisition.
2015: During 2015, total restructuring and other
charges of $252 million before taxes were recorded.
These charges included:
following
The
the preliminary
table summarizes
allocation of the purchase price to the fair value of
assets and liabilities acquired as of December 1, 2016.
Balance as of December 31, 2014
(3,134) $
(1,513) $
1 $
In millions
2015
In millions
The following table presents changes in AOCI for the year ended December 31, 2015:
In millions
Balance as of December 31, 2014
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
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)
(3,134) $
(1,513) $
1 $
(331)
296
(35)
—
(1,002)
(40)
(1,042)
6
Balance as of December 31, 2015
(3,169) $
(2,549) $
10 $
(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, 2014:
In millions
Balance as of December 31, 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
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)
(2,105) $
(649) $
(5) $
(1,271)
242
(1,029)
—
(863)
(13)
(876)
12
(3)
12
9
—
10
(4)
6
—
(4,646)
(1,336)
268
(1,068)
6
(5,708)
(2,759)
(2,124)
225
(1,899)
12
(4,646)
(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
Amount Reclassified from Accumulated Other Comprehensive Income (a)
2016
2015
2014
Location of Amount
Reclassified from AOCI
Defined benefit pension and postretirement items:
$
(33) $
(17) (b)
Cost of products sold
(379) (b)
Cost of products sold
Change in cumulative foreign currency translation adjustments:
Net gains and losses on cash flow hedging derivatives:
Components
In millions
Prior-service costs
Actuarial gains/(losses)
Total pre-tax amount
Tax (expense)/benefit
Net of tax
Business acquisition/divestiture
Tax (expense)/benefit
Net of tax
Foreign exchange contracts
Total pre-tax amount
Tax (expense)/benefit
Net of tax
additional details).
details).
$
$
$
$
(37) $
(851)
(888)
343
(545)
3
—
3
10
10
(3)
7
53
Early debt extinguishment costs (see Note 13)
$
Timber monetization restructuring
Legal liability reserve adjustment
Riegelwood mill conversion costs net of proceeds
from the sale of Carolina Coated Bristols brand (a)
Other
Total
207
16
15
8
6
$
252
(449)
(482)
186
(296)
40
—
40
(20)
(20)
8
(12)
(396)
154
(242)
13
—
13
3
1
4
Net (gains) losses on
sales and impairments of
businesses or Retained
earnings
3 (c)
Cost of products sold
(a) Includes $5 million of severance charges, which is related to 69
employees, $24 million of accelerated depreciation, sale
proceeds of $22 million and $1 million of other charges.
2014: During 2014, total restructuring and other
charges of $846 million before taxes were recorded.
These charges included:
In millions
Early debt extinguishment costs (see Note 13)
Courtland mill shutdown (a)
Other (b)
Total
2014
276
554
16
846
$
$
(a) Includes $464 million of accelerated depreciation, $24 million
of inventory impairment charges, $26 million of severance
charges related to 49 employees and $40 million of other
charges which are recorded in the Printing Papers segment.
(b) Includes $15 million of severance charges related to 908
Total reclassifications for the period
$
(535) $
(268) $
(225)
(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
(c) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional
employees.
Due to the timing of the completion of the acquisition,
the purchase price and
related allocation are
preliminary and could be revised as a result of
adjustments made to the purchase price, additional
information obtained regarding assets acquired and
liabilities assumed, and revisions of provisional
estimates of fair values, including, but not limited to, the
completion of independent appraisals and valuations
related to inventory, property, plant and equipment and
intangible assets. These changes to the purchase price
allocation could be significant. The purchase price
allocation will be finalized within the measurement
period of up to one year from the acquisition date.
54
Accounts and notes receivable
Inventory
Other current assets
Plants, properties and equipment
Goodwill
Other intangible assets
Deferred charges and other assets
Total assets acquired
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Total liabilities assumed
Net assets acquired
12
195
254
11
1,711
19
212
6
2,420
111
104
22
237
$
2,183
Cash and temporary investments
$
In connection with the purchase price allocation,
inventories were written up by $33 million to their
estimated fair value. During December 2016, $19
million before taxes ($12 million after taxes) were
expensed to Cost of products sold as the related
inventory was sold.
Since the date of acquisition, Net sales of $111 million
and Earnings (loss) from continuing operations before
income taxes and equity earnings of $(21) million from
the acquired business have been included in the
Company's consolidated statement of operations.
Additionally, Selling and administrative expenses for
2016 include $28 million in charges before taxes ($18
million after taxes) for integration costs associated with
the acquisition.
identifiable
The
in
connection with the acquisition of the Weyerhaeuser
pulp business included the following:
intangible assets acquired
In millions
Asset Class:
Customer relationships and lists
Trade names, patents, trademarks
and developed technology
Other
Total
Average
Remaining
Useful Life
(at acquisition
date)
24 years
8 years
10 years
Estimated
Fair Value
$
$
95
113
4
212
On an unaudited pro forma basis, assuming the
acquisition of the newly acquired pulp business had
closed January 1, 2015, the consolidated results would
have reflected Net sales of $22.4 billion and $23.9 billion
and Earnings (loss) from continuing operations before
income taxes and equity earnings of $1.1 billion and
$1.4 billion for the years ended December 31, 2016 and
2015, respectively.
The 2016 pro forma information includes adjustments
for additional amortization expense on identifiable
intangible assets of $18 million and eliminating the
write-off of the estimated fair value of inventory of $19
million and non-recurring integration costs associated
with the acquisition of $30 million.
The 2015 pro forma information includes adjustments
for additional amortization expense on identifiable
intangible assets of $18 million, non-recurring
integration costs associated with the acquisition of $30
million, and incremental expense of $33 million
associated with the write-off of the estimated fair value
of inventory.
forma consolidated
financial
The unaudited pro
information was prepared for comparative purposes
only and includes certain adjustments, as noted above.
The adjustments are estimates based on currently
available information and actual amounts may have
differed materially from these estimates. They do not
reflect the effect of costs or synergies that would have
been expected to result from the integration of the
acquisition. The pro forma information 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, 2015, nor is it
necessarily an indicator of future results.
HOLMEN PAPER NEWSPRINT MILL
2016: On June 30, 2016, the Company completed the
previously announced acquisition of Holmen Paper's
newsprint mill in Madrid, Spain. Under the terms of the
agreement, International Paper purchased the Madrid
newsprint mill, as well as, associated recycling
operations and a 50% ownership interest in a
cogeneration facility. The Company intends to convert
the mill during the second half of 2017 to produce
recycled containerboard with an expected capacity of
419,000 tons. Once completed, the converted mill will
support the Company's corrugated packaging business
in EMEA.
The Company's aggregated purchase price for the mill,
recycling operations and 50% ownership of the
cogeneration facility was €53 million (approximately
$59 million using June 30, 2016 exchange rate). The
measurement period adjustments recognized in the
third and fourth quarters of 2016 were to reallocate the
purchase price from property, plant and equipment to
the specific asset and liability balance sheet line items.
Approximately $60 million of the purchase price was
allocated to property, plant and equipment, $14 million
to current assets (primarily cash and accounts
receivable), $7 million to equity method investments,
$3 million to long-term assets, $9 million to short-term
liabilities and $16 million to long-term liabilities related
to a supply contract entered into with the seller. The
initial valuation amounts are not considered complete
as of December 31, 2016 as tax implications of the
valuation amounts are still being considered, however,
their impacts are not expected to be material to the
Company. The amount of revenue and earnings
recognized since the acquisition date are $90 million
and a net loss of $2 million, respectively, for the year
ended December 31, 2016. Pro forma information
related to the acquisition of the Holmen businesses has
not been included as it is impractical to obtain the
information due to the lack of availability of financial
data and does not have a material effect on the
Company's consolidated results of operations.
ORSA
2014: On April 8, 2014, the Company acquired the
remaining 25% of shares of Orsa International Paper
Embalangens S.A. (Orsa IP) from its joint venture
partner, Jari Celulose, Papel e Embalagens S.A. (Jari),
a Grupo Jari company, for approximately $127 million,
all periods presented in the consolidated statement of
of which $105 million was paid in cash with the
operations:
consolidated balance sheet. The net difference
Earnings
remaining $22 million held back pending satisfaction of
certain indemnification obligations by Jari. An additional
$11 million, which was not included in the purchase
price, was placed in an escrow account pending
resolution of certain open matters. During 2014, these
open matters were successfully resolved, which
resulted in $9 million paid out of escrow to Jari and
correspondingly added
to
the
final purchase
consideration. The remaining $2 million was released
back to the Company. As a result of this transaction,
the Company reversed the $168 million of Redeemable
noncontrolling interest included on the March 31, 2014
between
the Redeemable noncontrolling
interest
balance plus $14 million of currency translation
adjustment reclassified out of Other comprehensive
income less the 25% purchase price was reflected as
an increase to Retained earnings on the consolidated
balance sheet.
In the fourth quarter of 2016, International Paper
released the amount held back for indemnification
obligations, net of certain claims. Cash of $10 million
was paid to Jari, which included $3 million of accrued
interest. The remaining unpaid balance of $12 million
was reversed in the third quarter of 2016 with $8 million
recorded to Retained earnings as a final purchase price
adjustment, and $3 million to interest expense.
DISCONTINUED OPERATIONS
2014: On July 1, 2014, International Paper completed
the spinoff of its distribution business, xpedx, which
subsequently merged with Unisource Worldwide, Inc.,
with the combined companies now operating as Veritiv
Corporation
(Veritiv). The xpedx business had
historically represented the Company's Distribution
reportable segment.
The spinoff was accomplished by the contribution of the
xpedx business to Veritiv and the distribution of
8,160,000 shares of Veritiv common stock on a pro-rata
basis to International Paper shareholders. International
Paper received a payment of approximately $411
million, financed with new debt in Veritiv's capital
structure.
All historical operating results for xpedx are included in
Discontinued operations, net of
tax,
in
the
accompanying consolidated statement of operations.
The following summarizes the major classes of line
items comprising Earnings (Loss) Before Income Taxes
and Equity Earnings reconciled
to Discontinued
Operations, net of tax, related to the xpedx spinoff for
In millions
Net Sales
Costs and Expenses
Cost of products sold
Selling and administrative expenses
Depreciation, amortization and cost of timber
harvested
Distribution expenses
Restructuring and other charges
Impairment of goodwill and other intangibles
Other, net
Earnings (Loss) Before Income Taxes and Equity
Income tax provision (benefit)
Discontinued Operations, Net of Taxes (a)
$
2014
$ 2,604
2,309
191
9
69
25
—
3
(2)
(1)
(1)
(a) These amounts, along with those disclosed below related to
the Temple-Inland Building Products divestitures, are included
in Discontinued operations, net of tax, in the consolidated
statement of operations.
Total cash provided by operations related to xpedx of
$29 million for 2014 is included in Cash Provided By
(Used For) Operations in the consolidated statement of
cash flows. Total cash provided by (used for) investing
activities related to xpedx of $3 million for 2014 is
included in Cash Provided By (Used For) Investing
Activities in the consolidated statement of cash flows.
2016: On March 14, 2016, the Company announced
that it had entered into a definitive agreement to sell its
corrugated packaging business in China and Southeast
Asia to Xiamen Bridge Hexing Equity Investment
Partnership Enterprise. The sale of this business was
completed on June 30, 2016. Under the terms of the
transaction and after post-closing adjustments,
International Paper received a total of approximately
RMB 957 million (approximately $144 million at the
June 30, 2016 exchange rate), which included the
buyer's assumption of a liability for outstanding loans
of approximately $55 million. Based on the final sales
price, a determination was made that the current book
value of the asset group was not recoverable. As a
result, a combined pre-tax charge of $46 million was
recorded during 2016 in the Company's Industrial
Packaging segment to write down the long-lived assets
of this business to their estimated fair value. In addition,
the Company recorded a pre-tax charge of $24 million
for severance that was contingent upon the sale of this
business. The 2016 net loss totaling $70 million related
to the impairment and severance of IP Asia Packaging
is included in Net (gains) losses on sales and
impairments of businesses in the accompanying
consolidated statement of operations.
NOTE 7 DIVESTITURES / SPINOFF
OTHER DIVESTITURES AND IMPAIRMENTS
55
56
In connection with the purchase price allocation,
available information and actual amounts may have
inventories were written up by $33 million to their
differed materially from these estimates. They do not
estimated fair value. During December 2016, $19
reflect the effect of costs or synergies that would have
million before taxes ($12 million after taxes) were
been expected to result from the integration of the
expensed to Cost of products sold as the related
acquisition. The pro forma information does not purport
inventory was sold.
to represent International Paper's actual results of
operations as if the transaction described above would
Since the date of acquisition, Net sales of $111 million
have occurred as of January 1, 2015, nor is it
and Earnings (loss) from continuing operations before
necessarily an indicator of future results.
income taxes and equity earnings of $(21) million from
the acquired business have been included in the
Company's consolidated statement of operations.
Additionally, Selling and administrative expenses for
2016 include $28 million in charges before taxes ($18
million after taxes) for integration costs associated with
the acquisition.
The
identifiable
intangible assets acquired
in
connection with the acquisition of the Weyerhaeuser
pulp business included the following:
In millions
Asset Class:
Other
Total
Customer relationships and lists
Trade names, patents, trademarks
and developed technology
Average
Remaining
Useful Life
(at acquisition
date)
24 years
8 years
10 years
Estimated
Fair Value
$
$
95
113
4
212
On an unaudited pro forma basis, assuming the
acquisition of the newly acquired pulp business had
closed January 1, 2015, the consolidated results would
have reflected Net sales of $22.4 billion and $23.9 billion
and Earnings (loss) from continuing operations before
income taxes and equity earnings of $1.1 billion and
$1.4 billion for the years ended December 31, 2016 and
2015, respectively.
The 2016 pro forma information includes adjustments
for additional amortization expense on identifiable
intangible assets of $18 million and eliminating the
write-off of the estimated fair value of inventory of $19
million and non-recurring integration costs associated
with the acquisition of $30 million.
The 2015 pro forma information includes adjustments
for additional amortization expense on identifiable
intangible assets of $18 million, non-recurring
integration costs associated with the acquisition of $30
million, and incremental expense of $33 million
associated with the write-off of the estimated fair value
of inventory.
The unaudited pro
forma consolidated
financial
information was prepared for comparative purposes
only and includes certain adjustments, as noted above.
The adjustments are estimates based on currently
HOLMEN PAPER NEWSPRINT MILL
2016: On June 30, 2016, the Company completed the
previously announced acquisition of Holmen Paper's
newsprint mill in Madrid, Spain. Under the terms of the
agreement, International Paper purchased the Madrid
newsprint mill, as well as, associated recycling
operations and a 50% ownership interest in a
cogeneration facility. The Company intends to convert
the mill during the second half of 2017 to produce
recycled containerboard with an expected capacity of
419,000 tons. Once completed, the converted mill will
support the Company's corrugated packaging business
in EMEA.
The Company's aggregated purchase price for the mill,
recycling operations and 50% ownership of the
cogeneration facility was €53 million (approximately
$59 million using June 30, 2016 exchange rate). The
measurement period adjustments recognized in the
third and fourth quarters of 2016 were to reallocate the
purchase price from property, plant and equipment to
the specific asset and liability balance sheet line items.
Approximately $60 million of the purchase price was
allocated to property, plant and equipment, $14 million
to current assets (primarily cash and accounts
receivable), $7 million to equity method investments,
$3 million to long-term assets, $9 million to short-term
liabilities and $16 million to long-term liabilities related
to a supply contract entered into with the seller. The
initial valuation amounts are not considered complete
as of December 31, 2016 as tax implications of the
valuation amounts are still being considered, however,
their impacts are not expected to be material to the
Company. The amount of revenue and earnings
recognized since the acquisition date are $90 million
and a net loss of $2 million, respectively, for the year
ended December 31, 2016. Pro forma information
related to the acquisition of the Holmen businesses has
not been included as it is impractical to obtain the
information due to the lack of availability of financial
data and does not have a material effect on the
Company's consolidated results of operations.
2014: On April 8, 2014, the Company acquired the
remaining 25% of shares of Orsa International Paper
Embalangens S.A. (Orsa IP) from its joint venture
partner, Jari Celulose, Papel e Embalagens S.A. (Jari),
ORSA
55
a Grupo Jari company, for approximately $127 million,
of which $105 million was paid in cash with the
remaining $22 million held back pending satisfaction of
certain indemnification obligations by Jari. An additional
$11 million, which was not included in the purchase
price, was placed in an escrow account pending
resolution of certain open matters. During 2014, these
open matters were successfully resolved, which
resulted in $9 million paid out of escrow to Jari and
final purchase
correspondingly added
consideration. The remaining $2 million was released
back to the Company. As a result of this transaction,
the Company reversed the $168 million of Redeemable
noncontrolling interest included on the March 31, 2014
consolidated balance sheet. The net difference
between
interest
the Redeemable noncontrolling
balance plus $14 million of currency translation
adjustment reclassified out of Other comprehensive
income less the 25% purchase price was reflected as
an increase to Retained earnings on the consolidated
balance sheet.
the
to
In the fourth quarter of 2016, International Paper
released the amount held back for indemnification
obligations, net of certain claims. Cash of $10 million
was paid to Jari, which included $3 million of accrued
interest. The remaining unpaid balance of $12 million
was reversed in the third quarter of 2016 with $8 million
recorded to Retained earnings as a final purchase price
adjustment, and $3 million to interest expense.
all periods presented in the consolidated statement of
operations:
2014
$ 2,604
2,309
191
9
69
25
—
3
(2)
(1)
(1)
In millions
Net Sales
Costs and Expenses
Cost of products sold
Selling and administrative expenses
Depreciation, amortization and cost of timber
harvested
Distribution expenses
Restructuring and other charges
Impairment of goodwill and other intangibles
Other, net
Earnings (Loss) Before Income Taxes and Equity
Earnings
Income tax provision (benefit)
Discontinued Operations, Net of Taxes (a)
$
(a) These amounts, along with those disclosed below related to
the Temple-Inland Building Products divestitures, are included
in Discontinued operations, net of tax, in the consolidated
statement of operations.
Total cash provided by operations related to xpedx of
$29 million for 2014 is included in Cash Provided By
(Used For) Operations in the consolidated statement of
cash flows. Total cash provided by (used for) investing
activities related to xpedx of $3 million for 2014 is
included in Cash Provided By (Used For) Investing
Activities in the consolidated statement of cash flows.
NOTE 7 DIVESTITURES / SPINOFF
OTHER DIVESTITURES AND IMPAIRMENTS
DISCONTINUED OPERATIONS
2014: On July 1, 2014, International Paper completed
the spinoff of its distribution business, xpedx, which
subsequently merged with Unisource Worldwide, Inc.,
with the combined companies now operating as Veritiv
(Veritiv). The xpedx business had
Corporation
historically represented the Company's Distribution
reportable segment.
The spinoff was accomplished by the contribution of the
xpedx business to Veritiv and the distribution of
8,160,000 shares of Veritiv common stock on a pro-rata
basis to International Paper shareholders. International
Paper received a payment of approximately $411
million, financed with new debt in Veritiv's capital
structure.
All historical operating results for xpedx are included in
Discontinued operations, net of
the
accompanying consolidated statement of operations.
The following summarizes the major classes of line
items comprising Earnings (Loss) Before Income Taxes
to Discontinued
and Equity Earnings reconciled
Operations, net of tax, related to the xpedx spinoff for
tax,
in
2016: On March 14, 2016, the Company announced
that it had entered into a definitive agreement to sell its
corrugated packaging business in China and Southeast
Asia to Xiamen Bridge Hexing Equity Investment
Partnership Enterprise. The sale of this business was
completed on June 30, 2016. Under the terms of the
transaction and after post-closing adjustments,
International Paper received a total of approximately
RMB 957 million (approximately $144 million at the
June 30, 2016 exchange rate), which included the
buyer's assumption of a liability for outstanding loans
of approximately $55 million. Based on the final sales
price, a determination was made that the current book
value of the asset group was not recoverable. As a
result, a combined pre-tax charge of $46 million was
recorded during 2016 in the Company's Industrial
Packaging segment to write down the long-lived assets
of this business to their estimated fair value. In addition,
the Company recorded a pre-tax charge of $24 million
for severance that was contingent upon the sale of this
business. The 2016 net loss totaling $70 million related
to the impairment and severance of IP Asia Packaging
is included in Net (gains) losses on sales and
impairments of businesses in the accompanying
consolidated statement of operations.
56
The final purchase price payment of RMB 20 million
(approximately $3 million at the December 31, 2016
exchange rate) was received in the fourth quarter of
2016. The remaining payments to be received relate
to the assumed loans which total $14 million and are
payable up to three years from the closing of the sale.
The amount of pre-tax losses related to the IP Asia
Packaging business
the Company's
included
consolidated statement of operations were $83 million,
$8 million and $70 million for years ended December
31, 2016, 2015 and 2014, respectively.
in
2015: On October 13, 2015, the Company finalized the
sale of its 55% interest in IP Asia Coated Paperboard
(IP-Sun JV) business, within the Company's Consumer
Packaging segment, to its Chinese coated board joint
venture partner, Shandong Sun Holding Group Co., Ltd.
for RMB 149 million (approximately USD $23 million).
During the third quarter of 2015, a determination was
made that the current book value of the asset group
was not recoverable. As a result, the net pre-tax
impairment charge of $174 million ($113 million after
taxes) was recorded to write down the long-lived assets
of this business to their estimated fair value. The
impairment charge is included in Net (gains) losses on
sales and
the
accompanying consolidated statement of operations.
The amount of pre-tax losses related to noncontrolling
interest of the IP-Sun JV included in the Company's
consolidated statement of operations for the years
ended December 31, 2015 and 2014 were $19 million
and $12 million, respectively. The amount of pre-tax
losses related to the IP-Sun JV included in the
Company's consolidated statement of operations for
the years ended December 31, 2015 and 2014 were
$226 million and $51 million, respectively.
impairments of businesses
in
2014: During 2014, the Company recorded a net pre-
tax charge of $47 million ($36 million after taxes) for the
loss on the sale of a business by our equity method
investee,
to as AGI-
Shorewood), and the subsequent partial impairment of
this ASG investment.
(formerly
referred
ASG
The 2014 net loss totaling $38 million, including the ASG
impairment discussed above,
to other
divestitures and impairments is included in Net (gains)
losses on sales and impairments of businesses in the
accompanying consolidated statement of operations.
related
NOTE 8 SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of
three months or less are treated as cash equivalents
and are stated at cost. Temporary investments totaled
$757 million and $738 million at December 31, 2016
and 2015, respectively.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable, net of allowances, by
classification were:
Depreciation expense was $1.2 billion, $1.2 billion and
Amounts related to interest were as follows:
$1.3 billion for the years ended December 31, 2016,
2015 and 2014, respectively.
INTEREST
Interest payments of $682 million, $680 million and
$718 million were made during the years ended
December 31, 2016, 2015 and 2014, respectively.
In millions
Interest expense (a)
Interest income (a)
Capitalized interest costs
2016
2015
2014
$
695 $
644 $
677
175
28
89
25
70
23
(a)
Interest expense and interest income exclude approximately
$25 million and $38 million in 2015 and 2014, 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
In millions at December 31
Accounts and notes receivable:
2016
2015
GOODWILL
Trade
Other
Total
INVENTORIES
In millions at December 31
Raw materials
Finished pulp, paper and packaging
products
Operating supplies
Other
Inventories
$ 2,759 $ 2,480
242
195
$ 3,001 $ 2,675
2016
2015
$
296 $
339
1,381
1,248
661
100
563
78
$ 2,438 $ 2,228
The following tables present changes in the goodwill balances as allocated to each business segment for the years ended
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Consumer
Packaging
Total
December 31, 2016 and 2015:
Balance as of January 1, 2016
In millions
Goodwill
Accumulated impairment losses (a)
Reclassifications and other (b)
Additions/reductions
Impairment loss
Balance as of December 31, 2016
Goodwill
Total
Accumulated impairment losses (a)
Balance as of January 1, 2015
In millions
Goodwill
Accumulated impairment losses (a)
Reclassifications and other (b)
Additions/reductions
Impairment loss
Balance as of December 31, 2015
Goodwill
Total
Accumulated impairment losses (a)
(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 a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S.
(d) Reflects the acquisition of the newly acquired pulp business.
(e) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Consumer
Packaging
Total
19 (d)
(14) (e)
$—
—
—
—
—
19
—
$19
$—
—
—
—
—
—
—
—
$—
$2,124
(1,877)
247
33
—
2,143
(1,877)
$266
$2,234
(1,877)
357
(95)
—
2,124
(1,877)
$247
$1,664
(1,664)
—
—
—
—
1,664
(1,664)
$—
$1,784
(1,664)
120
(3)
—
1,664
(1,664)
$—
(15) (c)
(117) (d)
$7,113
(3,778)
3,335
29
—
—
7,142
(3,778)
$3,364
$7,414
(3,641)
3,773
(168)
(133)
(137)
7,113
(3,778)
$3,335
$3,325
(237)
3,088
(4)
(5) (c)
—
3,316
(237)
$3,079
$3,396
(100)
3,296
(70)
(1)
(137) (e)
3,325
(237)
$3,088
58
PLANTS, PROPERTIES AND EQUIPMENT
In millions at December 31
2016
2015
Pulp, paper and packaging facilities
$ 34,259 $ 31,466
Other properties and equipment
Gross cost
Less: Accumulated depreciation
1,311
1,242
35,570
32,708
21,580
20,728
Plants, properties and equipment, net
$ 13,990 $ 11,980
57
(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 a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.
(d) Reduction due to the sale and de-consolidation of Shandong Sun joint venture in Asia.
(e) Reflects a charge for goodwill impairment related to our Brazil Industrial Packaging business.
The last-in, first-out inventory method is used to value
most of
inventories.
Approximately 79% 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
have
inventory balances by
approximately $376 million and $345 million at
December 31, 2016 and 2015, respectively.
International Paper’s U.S.
increased
total
The final purchase price payment of RMB 20 million
(approximately $3 million at the December 31, 2016
exchange rate) was received in the fourth quarter of
2016. The remaining payments to be received relate
to the assumed loans which total $14 million and are
payable up to three years from the closing of the sale.
The amount of pre-tax losses related to the IP Asia
Packaging business
included
in
the Company's
consolidated statement of operations were $83 million,
$8 million and $70 million for years ended December
31, 2016, 2015 and 2014, respectively.
2015: On October 13, 2015, the Company finalized the
sale of its 55% interest in IP Asia Coated Paperboard
(IP-Sun JV) business, within the Company's Consumer
Packaging segment, to its Chinese coated board joint
venture partner, Shandong Sun Holding Group Co., Ltd.
for RMB 149 million (approximately USD $23 million).
During the third quarter of 2015, a determination was
made that the current book value of the asset group
was not recoverable. As a result, the net pre-tax
impairment charge of $174 million ($113 million after
taxes) was recorded to write down the long-lived assets
of this business to their estimated fair value. The
impairment charge is included in Net (gains) losses on
accompanying consolidated statement of operations.
The amount of pre-tax losses related to noncontrolling
interest of the IP-Sun JV included in the Company's
consolidated statement of operations for the years
ended December 31, 2015 and 2014 were $19 million
and $12 million, respectively. The amount of pre-tax
losses related to the IP-Sun JV included in the
Company's consolidated statement of operations for
the years ended December 31, 2015 and 2014 were
$226 million and $51 million, respectively.
2014: During 2014, the Company recorded a net pre-
tax charge of $47 million ($36 million after taxes) for the
loss on the sale of a business by our equity method
investee,
ASG
(formerly
referred
to as AGI-
Shorewood), and the subsequent partial impairment of
this ASG investment.
The 2014 net loss totaling $38 million, including the ASG
impairment discussed above,
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
Temporary investments with an original maturity of
three months or less are treated as cash equivalents
and are stated at cost. Temporary investments totaled
$757 million and $738 million at December 31, 2016
and 2015, respectively.
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
INVENTORIES
In millions at December 31
Raw materials
Finished pulp, paper and packaging
Operating supplies
Other
Inventories
$ 2,759 $ 2,480
242
195
$ 3,001 $ 2,675
2016
2015
$
296 $
339
1,381
1,248
661
100
563
78
$ 2,438 $ 2,228
The last-in, first-out inventory method is used to value
most of
International Paper’s U.S.
inventories.
Approximately 79% 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
have
increased
total
inventory balances by
approximately $376 million and $345 million at
December 31, 2016 and 2015, respectively.
PLANTS, PROPERTIES AND EQUIPMENT
In millions at December 31
2016
2015
Other properties and equipment
Gross cost
Less: Accumulated depreciation
1,311
1,242
35,570
32,708
21,580
20,728
Plants, properties and equipment, net
$ 13,990 $ 11,980
sales and
impairments of businesses
in
the
products
Depreciation expense was $1.2 billion, $1.2 billion and
$1.3 billion for the years ended December 31, 2016,
2015 and 2014, respectively.
INTEREST
Interest payments of $682 million, $680 million and
$718 million were made during the years ended
December 31, 2016, 2015 and 2014, respectively.
Amounts related to interest were as follows:
In millions
Interest expense (a)
Interest income (a)
Capitalized interest costs
2016
2015
2014
$
695 $
644 $
677
175
28
89
25
70
23
(a)
Interest expense and interest income exclude approximately
$25 million and $38 million in 2015 and 2014, respectively,
related to investments in and borrowings from variable interest
entities for which the Company has a legal right of offset (see
Note 12).
2016
2015
GOODWILL
NOTE 9 GOODWILL AND OTHER INTANGIBLES
The following tables present changes in the goodwill balances as allocated to each business segment for the years ended
December 31, 2016 and 2015:
In millions
Balance as of January 1, 2016
Goodwill
Accumulated impairment losses (a)
Reclassifications and other (b)
Additions/reductions
Impairment loss
Balance as of December 31, 2016
Goodwill
Accumulated impairment losses (a)
Total
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Consumer
Packaging
Total
$3,325
(237)
3,088
(4)
(5) (c)
—
3,316
(237)
$3,079
$—
—
—
—
19 (d)
—
19
—
$19
$2,124
(1,877)
$1,664
(1,664)
247
33
(14) (e)
—
—
—
—
—
2,143
(1,877)
$266
1,664
(1,664)
$—
$7,113
(3,778)
3,335
29
—
—
7,142
(3,778)
$3,364
(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 a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S.
(d) Reflects the acquisition of the newly acquired pulp business.
(e) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.
Pulp, paper and packaging facilities
$ 34,259 $ 31,466
Goodwill
In millions
Balance as of January 1, 2015
Accumulated impairment losses (a)
Reclassifications and other (b)
Additions/reductions
Impairment loss
Balance as of December 31, 2015
Goodwill
Accumulated impairment losses (a)
Total
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Consumer
Packaging
Total
$3,396
(100)
3,296
(70)
(1)
(137) (e)
3,325
(237)
$3,088
$—
—
—
—
—
—
—
—
$—
$2,234
(1,877)
357
(95)
$1,784
(1,664)
120
(3)
(15) (c)
(117) (d)
—
—
2,124
(1,877)
$247
1,664
(1,664)
$—
$7,414
(3,641)
3,773
(168)
(133)
(137)
7,113
(3,778)
$3,335
57
58
(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 a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.
(d) Reduction due to the sale and de-consolidation of Shandong Sun joint venture in Asia.
(e) Reflects a charge for goodwill impairment related to our Brazil Industrial Packaging business.
its reporting units
In the fourth quarter of 2015, in conjunction with the annual
for possible goodwill
testing of
impairments, the Company calculated the estimated fair
value of its Brazil Packaging business and determined that
all of the goodwill in the business, totaling $137 million,
should be written off. The decline in the fair value of the
Brazil Packaging business and resulting impairment
charge was due to the negative impacts on the cash flows
of the business caused by the continued decline of the
overall Brazilian economy.
OTHER INTANGIBLES
Identifiable intangible assets comprised the following:
In millions at
December 31
2016
2015
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships and lists
$
605 $
211 $
495 $
Non-compete agreements
Tradenames, patents and
trademarks, and developed
technology
Land and water rights
Software
Other
Total
69
173
10
21
48
64
56
2
20
26
69
61
33
22
46
166
56
54
6
20
29
$
926 $
379 $
726 $
331
The Company recognized the following amounts as
amortization expense related to intangible assets:
In millions
2016
2015
2014
Amortization expense related to
intangible assets
The provision (benefit) for income taxes (excluding
noncontrolling interests) by taxing jurisdiction was as
follows:
In millions
2016
2015
2014
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.
$
35 $
62 $ 175
—
76
12
111
9
74
$ 111 $
185 $ 258
$ 138 $
321 $
(67)
23
(25)
30
(70)
5
(73)
$ 136 $
281 $ (135)
Income tax provision (benefit)
$ 247 $
466 $ 123
The Company’s deferred income tax provision (benefit)
includes a $18 million provision, a $3 million provision
and a $13 million benefit for 2016, 2015 and 2014,
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 $90 million, $149 million and $172 million in
2016, 2015 and 2014, respectively.
A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the actual
income tax provision follows:
$
54 $
60 $
73
In millions
2016
2015
2014
Based on current intangibles subject to amortization,
estimated amortization expense for each of the succeeding
years is as follows: 2017 – $60 million, 2018 – $53 million,
2019 – $51 million, 2020 – $51 million, 2021 – $51 million,
and cumulatively thereafter – $275 million.
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.
2016
2015
2014
$
573 $ 1,147 $
383
119
565
307
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$
956 $ 1,266 $
872
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$ 956
$ 1,266
$ 872
Statutory U.S. income tax rate
35%
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 impairments
Sale of non-strategic assets
Tax audits
Subsidiary liquidation
Retirement plan dividends
Tax credits
Other, net
335
15
443
27
305
10
(27)
(44)
(72)
21
12
16
(12)
(14)
(46)
9
—
12
(14)
(63)
(6)
(28)
5
8
109
(61)
—
—
(5)
(15)
6
7
35
—
—
(85)
(5)
(34)
(8)
Income tax provision (benefit)
$ 247
$ 466
$ 123
Effective income tax rate
26%
37%
14%
59
60
The tax effects of significant temporary differences,
A reconciliation of the beginning and ending amount of
representing deferred income tax assets and liabilities
unrecognized
tax benefits
for
the years ended
at December 31, 2016 and 2015, were as follows:
December 31, 2016, 2015 and 2014 is as follows:
In millions
2016
2015
In millions
2016
2015
2014
Balance at January 1
$
(150) $
(158) $
(161)
$
165 $
172
1,344
1,403
(Additions) reductions based on
tax positions related to current
Deferred income tax assets:
Postretirement benefit accruals
Pension obligations
Alternative minimum and other tax
credits
Net operating and capital 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, related installment sales,
and investment in subsidiary
270
662
257
251
283
732
265
244
$
$
2,949
(403)
3,099
(430)
2,546 $
2,669
(231) $
(271)
(2,828)
(2,727)
(2,260)
(2,253)
Gross deferred income tax liabilities
$ (5,319) $ (5,251)
Net deferred income tax liability
$ (2,773) $ (2,582)
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. There is a decrease in deferred
income tax assets principally relating to the tax impact
of changes in qualified pension liabilities and the
utilization of tax credits and net operating loss
carryforwards. Deferred
tax
liabilities
increased
primarily due to tax greater than book depreciation. Of
the $2.3 billion forestlands, related installment sales,
and investment in subsidiary deferred tax liability, $1.4
billion is attributable to an investment in subsidiary and
relates to a 2006 International Paper installment sale
of forestlands and $831 million is attributable to a 2007
Temple-Inland installment sale of forestlands (see Note
12). Certain tax attributes reflected on our tax returns
as filed differ 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, 2016, 2015 and 2014 was $403
million, $430 million and $415 million, respectively. The
net change in the total valuation allowance for the years
ended December 31, 2016 and 2015 was a decrease
of $27 million and an increase of $15 million,
respectively.
Additions for tax positions of prior
Reductions for tax positions of
year
years
prior years
Settlements
Expiration of statutes of
limitations
Currency translation adjustment
(4)
(3)
33
19
5
2
(6)
(6)
7
2
4
7
(15)
(1)
9
—
2
8
Balance at December 31
$
(98) $
(150) $
(158)
Included in the balance at December 31, 2016, 2015
and 2014 are $0 million, $1 million and $1 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 $22
million and $34 million accrued for the payment of
estimated interest and penalties associated with
unrecognized tax benefits at December 31, 2016 and
2015, respectively.
The major jurisdictions where the Company files
income tax returns are the United States, Brazil, France,
Poland and Russia. Generally, tax years 2003 through
2015 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. Pending audit
settlements and the expiration of statute of limitations
could reduce the uncertain tax positions by $5 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.
value of its Brazil Packaging business and determined that
all of the goodwill in the business, totaling $137 million,
should be written off. The decline in the fair value of the
Brazil Packaging business and resulting impairment
charge was due to the negative impacts on the cash flows
of the business caused by the continued decline of the
Non-U.S.
overall Brazilian economy.
OTHER INTANGIBLES
Identifiable intangible assets comprised the following:
Customer relationships and lists
$
605 $
211 $
495 $
In millions at
December 31
Non-compete agreements
Tradenames, patents and
trademarks, and developed
technology
Land and water rights
Software
Other
Total
2016
2015
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
69
173
10
21
48
64
56
2
20
26
69
61
33
22
46
166
56
54
6
20
29
$
926 $
379 $
726 $
331
The Company recognized the following amounts as
amortization expense related to intangible assets:
In millions
2016
2015
2014
Amortization expense related to
intangible assets
Based on current intangibles subject to amortization,
estimated amortization expense for each of the succeeding
years is as follows: 2017 – $60 million, 2018 – $53 million,
2019 – $51 million, 2020 – $51 million, 2021 – $51 million,
and cumulatively thereafter – $275 million.
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.
2016
2015
2014
$
573 $ 1,147 $
383
119
565
307
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$
956 $ 1,266 $
872
In millions
2016
2015
2014
Current tax provision (benefit)
U.S. federal
U.S. state and local
Deferred tax provision (benefit)
U.S. federal
U.S. state and local
Non-U.S.
$
35 $
62 $ 175
—
76
12
111
9
74
$ 111 $
185 $ 258
$ 138 $
321 $
(67)
23
(25)
30
(70)
5
(73)
$ 136 $
281 $ (135)
Income tax provision (benefit)
$ 247 $
466 $ 123
The Company’s deferred income tax provision (benefit)
includes a $18 million provision, a $3 million provision
and a $13 million benefit for 2016, 2015 and 2014,
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 $90 million, $149 million and $172 million in
2016, 2015 and 2014, respectively.
A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the actual
income tax provision follows:
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$ 956
$ 1,266
$ 872
Statutory U.S. income tax rate
35%
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 impairments
Sale of non-strategic assets
Tax audits
Subsidiary liquidation
Retirement plan dividends
Tax credits
Other, net
335
15
443
27
305
10
(27)
(44)
(72)
21
12
16
(12)
(14)
(46)
9
—
12
(14)
(63)
(6)
(28)
5
8
109
(61)
—
—
(5)
(15)
6
7
35
—
—
(85)
(5)
(34)
(8)
Income tax provision (benefit)
$ 247
$ 466
$ 123
Effective income tax rate
26%
37%
14%
$
54 $
60 $
73
In millions
2016
2015
2014
In the fourth quarter of 2015, in conjunction with the annual
The provision (benefit) for income taxes (excluding
testing of
its reporting units
for possible goodwill
noncontrolling interests) by taxing jurisdiction was as
impairments, the Company calculated the estimated fair
follows:
The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2016 and 2015, were as follows:
A reconciliation of the beginning and ending amount of
the years ended
unrecognized
December 31, 2016, 2015 and 2014 is as follows:
tax benefits
for
In millions
2016
2015
In millions
2016
2015
2014
Deferred income tax assets:
Postretirement benefit accruals
Pension obligations
Alternative minimum and other tax
credits
Net operating and capital 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, related installment sales,
and investment in subsidiary
$
165 $
172
1,344
1,403
270
662
257
251
283
732
265
244
$
$
2,949
(403)
3,099
(430)
2,546 $
2,669
(231) $
(271)
(2,828)
(2,727)
(2,260)
(2,253)
Gross deferred income tax liabilities
$ (5,319) $ (5,251)
Net deferred income tax liability
$ (2,773) $ (2,582)
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. There is a decrease in deferred
income tax assets principally relating to the tax impact
of changes in qualified pension liabilities and the
utilization of tax credits and net operating loss
increased
carryforwards. Deferred
primarily due to tax greater than book depreciation. Of
the $2.3 billion forestlands, related installment sales,
and investment in subsidiary deferred tax liability, $1.4
billion is attributable to an investment in subsidiary and
relates to a 2006 International Paper installment sale
of forestlands and $831 million is attributable to a 2007
Temple-Inland installment sale of forestlands (see Note
12). Certain tax attributes reflected on our tax returns
as filed differ from those reflected in the deferred income
tax accounts due to uncertain tax benefits.
liabilities
tax
The valuation allowance for deferred income tax assets
as of December 31, 2016, 2015 and 2014 was $403
million, $430 million and $415 million, respectively. The
net change in the total valuation allowance for the years
ended December 31, 2016 and 2015 was a decrease
of $27 million and an increase of $15 million,
respectively.
59
60
Balance at January 1
$
(150) $
(158) $
(161)
(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
(4)
(3)
33
19
5
2
(6)
(6)
7
2
4
7
(15)
(1)
9
—
2
8
Balance at December 31
$
(98) $
(150) $
(158)
Included in the balance at December 31, 2016, 2015
and 2014 are $0 million, $1 million and $1 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 $22
million and $34 million accrued for the payment of
estimated interest and penalties associated with
unrecognized tax benefits at December 31, 2016 and
2015, respectively.
The major jurisdictions where the Company files
income tax returns are the United States, Brazil, France,
Poland and Russia. Generally, tax years 2003 through
2015 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. Pending audit
settlements and the expiration of statute of limitations
could reduce the uncertain tax positions by $5 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 2016, 2015 and 2014
income tax provision (benefit) are $(74) million, $(121)
million and $(453) 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:
Return to accrual
Internal restructurings
Settlement of tax audits and
legislative changes
Tax rate changes
Other tax adjustments
2016
2015
2014
$
(51) $
(84) $
(372)
23
(63)
(14)
23
8
23
(62)
—
—
2
—
(90)
10
—
(1)
Weyerhaeuser Company’s Containerboard, Packaging
and Recycling business and the 2016 acquisition of
Weyerhaeuser's pulp business.
At December 31, 2016,
future minimum
commitments under existing non-cancelable operating
leases and purchase obligations were as follows:
total
In millions
2017
2018
2019
2020
2021 Thereafter
$
119 $
91 $
69 $
51 $
38 $
125
Lease
obligations
Purchase
obligations
(a)
3,165
635
525
495
460
Total
$ 3,284 $ 726 $ 594 $ 546 $ 498 $
2,332
2,457
Income tax provision (benefit)
related to special items
$
(74) $
(121) $
(453)
(a)
The following details the scheduled expiration dates of
the Company’s net operating loss and income tax credit
carryforwards:
Includes $2.0 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. Also includes $1.1 billion
relating to fiber supply agreements assumed in conjunction
with the 2016 acquisition of Weyerhaeuser's pulp business.
2017
Through
2026
2027
Through
2036
Indefinite
Total
Rent expense was $161 million, $170 million and $154
million for 2016, 2015 and 2014, respectively.
$
67 $
9 $
455 $
531
GUARANTEES
associated with these matters to be approximately $134
two other parties to comply with the order subject to
million in the aggregate as of December 31, 2016. Other
its sufficient cause defenses.
remedial actions is not expected to have a material
• In October 2016, the Company and another PRP
than as described above, completion of required
effect on our consolidated financial statements.
Cass Lake: One of the matters included above arises
out of a closed wood-treating facility located in Cass
Lake, Minnesota. In June 2011, the United States
Environmental Protection Agency (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 $50 million to address
the selection of an alternative for the soil remediation
component of the overall site remedy, which includes
the ongoing groundwater remedy. In October 2011, the
EPA released a public statement indicating that the final
soil remedy decision would be delayed. In March 2016,
the EPA issued a proposed plan concerning clean-up
standards at a portion of the site, the estimated cost of
which is included within the $50 million reserve
referenced above. 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.
Kalamazoo River: The Company is a PRP with respect
to the Allied Paper, Inc./Portage Creek/Kalamazoo
River Superfund Site in Michigan. The EPA asserts that
the site is contaminated by polychlorinated biphenyls
(PCBs) primarily as a result of discharges from various
paper mills located along the Kalamazoo River,
including a paper mill (the Allied Paper Mill) formerly
owned by St. Regis Paper Company (St. Regis). The
Company is a successor in interest to St. Regis.
• In March 2016, the Company and other PRPs
received a special notice letter from the EPA (i)
inviting participation in implementing a remedy for a
portion of
the site, and
(ii) demanding
reimbursement of EPA past costs totaling $37
million, including $19 million in past costs previously
demanded by the EPA. The Company responded
to the special notice letter. In December 2016, EPA
issued a unilateral administrative order to the
Company and other PRPs to perform the remedy.
The unilateral administrative order has not yet
become effective and the Company is evaluating its
response.
• In April 2016, the EPA issued a separate unilateral
administrative order to the Company and certain
other PRPs for a time-critical removal action (TCRA)
of PCB-contaminated sediments from a different
portion of the site. The Company responded to the
unilateral administrative order and agreed along with
received a special notice letter from the EPA inviting
participation in the remedial design component of the
landfill remedy for the Allied Paper Mill. The record of
decision establishing the final landfill remedy for the
Allied Paper Mill was issued by the EPA in September
2016. The Company responded to the Allied Paper
Mill special notice letter in late December 2016.
The Company’s CERCLA liability has not been finally
determined with respect to these or any other portions
of the site, and except as noted above, the Company
has declined to perform any work or reimburse the EPA
at this time. As noted below, the Company is involved
in allocation/apportionment litigation with regard to the
site. Accordingly, it is premature to predict the outcome
or estimate our maximum reasonably possible loss with
respect to this site. However, we do not believe that any
material loss is probable.
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 costs purportedly
expended by plaintiffs ($79 million 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. NCR Corporation and
Weyerhaeuser Company are also named as
defendants in the suit. 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 past or future
costs. The parties’ responsibility, including that of the
Company, was the subject of a second trial, which was
concluded in late 2015. A decision has not been
rendered and it is unclear to what extent the Court will
address responsibility for future costs in that decision.
We are unable to predict the outcome or estimate our
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
liabilities are
to reasonable estimation, accrued
recorded at the time of sale as a cost of the transaction.
ENVIRONMENTAL AND LEGAL PROCEEDINGS
Environmental
International Paper has been named as a potentially
responsible party (PRP) in environmental remediation
actions under various federal and state laws, including
the Comprehensive Environmental Response,
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 PRPs. There are 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. Remediation costs are recorded in
the consolidated financial statements when they
become probable and
reasonably estimable.
International Paper has estimated the probable liability
61
62
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
U.S. federal and
state capital loss
carryforwards
139
176
22
52
21
—
—
191
183
380
—
22
Total
$
404 $
82 $
638 $
1,124
Deferred income taxes are not provided for temporary
differences of approximately $5.9 billion, $5.7 billion
and $5.2 billion as of December 31, 2016, 2015 and
2014, 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.
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,
to purchase
including
pulpwood that were entered into concurrently with the
Company’s 2006 Transformation Plan forestland sales
and in conjunction with the 2008 acquisition of
fiber supply agreements
Included in the Company’s 2016, 2015 and 2014
Weyerhaeuser Company’s Containerboard, Packaging
income tax provision (benefit) are $(74) million, $(121)
and Recycling business and the 2016 acquisition of
million and $(453) million, respectively, related to
Weyerhaeuser's pulp business.
2027
Through
Through
2017
2026
2036
Indefinite
Total
Rent expense was $161 million, $170 million and $154
million for 2016, 2015 and 2014, respectively.
$
67 $
9 $
455 $
531
GUARANTEES
special items. The components of the net provisions
related to special items were as follows:
In millions
Special items
Tax-related adjustments:
Return to accrual
Internal restructurings
Settlement of tax audits and
legislative changes
Tax rate changes
Other tax adjustments
2016
2015
2014
$
(51) $
(84) $
(372)
23
(63)
(14)
23
8
23
(62)
—
—
2
—
(90)
10
—
(1)
Income tax provision (benefit)
related to special items
$
(74) $
(121) $
(453)
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
U.S. federal and
state capital loss
carryforwards
139
176
22
52
21
—
—
191
183
380
—
22
Total
$
404 $
82 $
638 $
1,124
Deferred income taxes are not provided for temporary
differences of approximately $5.9 billion, $5.7 billion
and $5.2 billion as of December 31, 2016, 2015 and
2014, 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.
NOTE 11 COMMITMENTS AND CONTINGENT
LIABILITIES
PURCHASE COMMITMENTS AND OPERATING LEASES
Lease
obligations
Purchase
obligations
(a)
Total
At December 31, 2016,
total
future minimum
commitments under existing non-cancelable operating
leases and purchase obligations were as follows:
In millions
2017
2018
2019
2020
2021 Thereafter
$
119 $
91 $
69 $
51 $
38 $
125
3,165
635
525
495
460
$ 3,284 $ 726 $ 594 $ 546 $ 498 $
2,332
2,457
(a)
Includes $2.0 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. Also includes $1.1 billion
relating to fiber supply agreements assumed in conjunction
with the 2016 acquisition of Weyerhaeuser's pulp business.
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 AND LEGAL PROCEEDINGS
Environmental
International Paper has been named as a potentially
responsible party (PRP) in environmental remediation
actions under various federal and state laws, including
the Comprehensive Environmental Response,
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
equivalent state laws, as a practical matter, liability for
CERCLA cleanups is typically allocated among the
Certain property, machinery and equipment are leased
several liability is authorized under CERCLA and
under cancelable and non-cancelable agreements.
Unconditional purchase obligations have been entered
many PRPs. There are other remediation costs
into in the ordinary course of business, principally for
typically associated with the cleanup of hazardous
capital projects and the purchase of certain pulpwood,
substances at the Company’s current, closed or
logs, wood chips, raw materials, energy and services,
formerly-owned facilities, and recorded as liabilities in
including
fiber supply agreements
to purchase
the balance sheet. Remediation costs are recorded in
pulpwood that were entered into concurrently with the
the consolidated financial statements when they
Company’s 2006 Transformation Plan forestland sales
become probable and
reasonably estimable.
and in conjunction with the 2008 acquisition of
International Paper has estimated the probable liability
associated with these matters to be approximately $134
million in the aggregate as of December 31, 2016. Other
than as described above, completion of required
remedial actions is not expected to have a material
effect on our consolidated financial statements.
Cass Lake: One of the matters included above arises
out of a closed wood-treating facility located in Cass
Lake, Minnesota. In June 2011, the United States
Environmental Protection Agency (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 $50 million to address
the selection of an alternative for the soil remediation
component of the overall site remedy, which includes
the ongoing groundwater remedy. In October 2011, the
EPA released a public statement indicating that the final
soil remedy decision would be delayed. In March 2016,
the EPA issued a proposed plan concerning clean-up
standards at a portion of the site, the estimated cost of
which is included within the $50 million reserve
referenced above. 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.
Kalamazoo River: The Company is a PRP with respect
to the Allied Paper, Inc./Portage Creek/Kalamazoo
River Superfund Site in Michigan. The EPA asserts that
the site is contaminated by polychlorinated biphenyls
(PCBs) primarily as a result of discharges from various
paper mills located along the Kalamazoo River,
including a paper mill (the Allied Paper Mill) formerly
owned by St. Regis Paper Company (St. Regis). The
Company is a successor in interest to St. Regis.
the site, and
• In March 2016, the Company and other PRPs
received a special notice letter from the EPA (i)
inviting participation in implementing a remedy for a
portion of
(ii) demanding
reimbursement of EPA past costs totaling $37
million, including $19 million in past costs previously
demanded by the EPA. The Company responded
to the special notice letter. In December 2016, EPA
issued a unilateral administrative order to the
Company and other PRPs to perform the remedy.
The unilateral administrative order has not yet
become effective and the Company is evaluating its
response.
• In April 2016, the EPA issued a separate unilateral
administrative order to the Company and certain
other PRPs for a time-critical removal action (TCRA)
of PCB-contaminated sediments from a different
portion of the site. The Company responded to the
unilateral administrative order and agreed along with
two other parties to comply with the order subject to
its sufficient cause defenses.
• In October 2016, the Company and another PRP
received a special notice letter from the EPA inviting
participation in the remedial design component of the
landfill remedy for the Allied Paper Mill. The record of
decision establishing the final landfill remedy for the
Allied Paper Mill was issued by the EPA in September
2016. The Company responded to the Allied Paper
Mill special notice letter in late December 2016.
The Company’s CERCLA liability has not been finally
determined with respect to these or any other portions
of the site, and except as noted above, the Company
has declined to perform any work or reimburse the EPA
at this time. As noted below, the Company is involved
in allocation/apportionment litigation with regard to the
site. Accordingly, it is premature to predict the outcome
or estimate our maximum reasonably possible loss with
respect to this site. However, we do not believe that any
material loss is probable.
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 costs purportedly
expended by plaintiffs ($79 million 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. NCR Corporation and
Weyerhaeuser Company are also named as
defendants in the suit. 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 past or future
costs. The parties’ responsibility, including that of the
Company, was the subject of a second trial, which was
concluded in late 2015. A decision has not been
rendered and it is unclear to what extent the Court will
address responsibility for future costs in that decision.
We are unable to predict the outcome or estimate our
61
62
maximum reasonably possible loss. However, we do
not believe that any material loss is probable.
Harris County: International Paper and McGinnis
Industrial Maintenance Corporation
(MIMC), a
subsidiary of Waste Management, Inc., are PRPs at the
San Jacinto River Waste Pits Superfund Site (the San
Jacinto River Superfund Site) in Harris County, Texas.
The PRPs have been actively participating in the
activities at the site. In September 2016, the EPA issued
a proposed remedial action plan (PRAP) for the site,
which identifies the preferred remedy as the removal of
the contaminated material currently protected by an
armored cap. In addition, the EPA selected a preferred
remedy for the separate southern impoundments that
requires offsite disposal. The PRPs submitted
comments on the PRAP. At this stage, it is premature
to predict the outcome or estimate our maximum
reasonably possible loss with respect to this site.
However, we do not believe that any material loss is
probable.
In December 2011, Harris County, Texas filed a suit
against the Company seeking civil penalties with regard
to the alleged discharge of dioxin into the San Jacinto
River from the San Jacinto River Superfund Site. In
November 2014, International Paper secured a zero
liability jury verdict and the Texas Court of Appeals
affirmed in 2016. Harris County did not seek to appeal,
nor file for an extension, before the Supreme Court of
Texas prior to the filing deadline. The Company is also
defending a lawsuit related to the San Jacinto River
Superfund Site brought by approximately 400
individuals who allege property damage and personal
injury. Because this case is still in the discovery phase,
it is premature to predict the outcome or to estimate a
loss or range of loss, if any, which may be incurred.
Antitrust
that
2010,
including
In September
eight
Containerboard:
containerboard producers,
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. International Paper
Co. (N.D.
the
Ill.). The complaint alleges
defendants, beginning in February 2004 through
November 2010, conspired to limit the supply and
thereby increase prices of containerboard products.
The class is all persons who purchased containerboard
products directly from any defendant for use or delivery
in the United States during the period February 2004
to November 2010. The complaint seeks to recover
unspecified treble damages and attorneys' fees on
behalf of the purported class. Four similar complaints
were filed and have been consolidated in the Northern
District of Illinois. In March 2015, the District Court
certified a class of direct purchasers of containerboard
products; in June 2015, the United States Court of
Appeals for the Seventh Circuit granted the defendants'
petition to appeal, and on August 4, 2016, affirmed the
District Court's decision on all counts. We will continue
to aggressively defend this case, including challenges
to class certification. Likewise, in June 2016, a lawsuit
captioned Ashley Furniture Indus., Inc. v. Packaging
Corporation of America (W.D. Wis.), was filed in federal
court in Wisconsin. The Ashley Furniture lawsuit closely
tracks the allegations found in the Kleen Products
complaint but also asserts Wisconsin state antitrust
claims. Moreover, 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
containerboard from mid-2005 to 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.
No class certification materials have been filed to date
in the Tennessee action. The Company disputes the
allegations made and is vigorously defending each
action. However, because the Kleen Products action is
in the pretrial motions stage and the Tennessee and
Ashley Furniture actions are in a preliminary stage, we
are unable to predict an outcome or estimate a range
of reasonably possible loss.
to
invoices
Tax
On October 16, 2015, the Company was notified of a
$110 million tax assessment issued by the state of Sao
Paulo, Brazil for tax years 2011 through 2013. The
assessment pertains
the
Company related to the sale of paper to the editorial
segment, which is exempt from the payment of ICMS
value-added tax. This assessment is in the preliminary
stage. The Company does not believe that a material
loss is probable. During the second quarter of 2016, the
Company received a favorable first instance judgment
vacating the State's assessment. The Company
anticipates that the State will appeal the judgment.
issued by
General
The Company is involved in various other inquiries,
administrative proceedings and litigation relating to
environmental and safety matters, personal injury, labor
and employment, contracts, sales of property,
intellectual property 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 these
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
63
64
NOTE 12 VARIABLE INTEREST ENTITIES
In connection with the 2006 sale of approximately 5.6
million acres of
forestlands,
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 maturity
which was originally August 2016, 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 special purpose 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 special
purpose 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.
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.
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
provided that International Paper had, and intended to
effect, a legal right to offset its obligation under these
debt instruments with its investments in the Entities and
despite the offset treatment, these remained debt
obligations of International Paper. The use of the
Entities facilitated the monetization of the credit
enhanced Timber Notes in a cost effective manner by
increasing borrowing capacity and lowering the interest
rate, while providing for the offset accounting treatment
described above. Additionally,
the monetization
structure preserved the $1.4 billion tax deferral that
resulted from the 2006 forestlands sales.
During 2015, International Paper initiated a series of
actions in order to extend the 2006 monetization
structure and maintain the long-term nature of the $1.4
billion deferred tax liability. First, International Paper
acquired the Class A interests in the Investor Entities
from a third party for $198 million in cash. As a result,
International Paper became the owner of all of the Class
A and Class B interests in the Entities and became the
primary beneficiary of the Entities. The assets and
liabilities of the Entities, primarily consisting of the
Timber Notes and third party bank loans, were recorded
at fair value as of the acquisition date of the Class A
interests.
Subsequent to purchasing the Class A interests in the
Investor Entities, International Paper restructured the
Entities, which resulted in the formation of wholly-
owned, bankruptcy-remote special purpose entities
(the 2015 Financing Entities). As part of
the
restructuring, the Timber Notes held by the Borrower
Entities, subject to the third party bank loans, were
contributed to the 2015 Financing Entities along with
approximately $150 million in International Paper debt
obligations, approximately $600 million in cash and
approximately $130 million in demand loans from
International Paper, and certain Entities were
liquidated. As a
result of
these
transactions,
International Paper began consolidating the 2015
Financing Entities during the third quarter of 2015. Also,
during the third quarter of 2015, the 2015 Financing
Entities used $630 million in cash to pay down a portion
of
the
third party bank
loans and refinanced
approximately $4.2 billion of
those
loans on
nonrecourse terms (the 2015 Refinance Loans).
During the fourth quarter of 2015, International Paper
extended the maturity date on the Timber Notes for an
additional 5 years. The Timber Notes are shown in
Financial assets of special purpose entities on the
accompanying consolidated balance sheet and mature
in August 2021 unless extended for an additional 5
years. These notes are supported by approximately
$4.8 billion of irrevocable letters of credit. In addition,
the Company extinguished the 2015 Refinance Loans
scheduled to mature in May 2016 and entered into new
nonrecourse
third party bank
loans
totaling
approximately $4.2 billion (the Extension Loans).
Provisions of loan agreements related to approximately
$1.1 billion of the Extension Loans require the bank
issuing letters of credit supporting the Timber Notes
pledged as collateral to maintain a credit rating at or
above a specified threshold. In the event the credit
rating of the letter of credit bank is downgraded below
the specified threshold, the letters of credit must be
replaced within 60 days with letters of credit from a
qualifying financial institution. The Extension Loans are
shown in Nonrecourse financial liabilities of special
purpose entities on the accompanying consolidated
balance sheet and mature in the fourth quarter of 2020.
The extinguishment of the 2015 Refinance Loans of
approximately $4.2 billion and the issuance of the
Extension Loans of approximately $4.2 billion are
shown as part of reductions of debt and issuances of
debt, respectively, in the financing activities of the
consolidated statement of cash flows.
maximum reasonably possible loss. However, we do
Appeals for the Seventh Circuit granted the defendants'
NOTE 12 VARIABLE INTEREST ENTITIES
not believe that any material loss is probable.
Harris County: International Paper and McGinnis
Industrial Maintenance Corporation
(MIMC), a
subsidiary of Waste Management, Inc., are PRPs at the
San Jacinto River Waste Pits Superfund Site (the San
Jacinto River Superfund Site) in Harris County, Texas.
The PRPs have been actively participating in the
activities at the site. In September 2016, the EPA issued
a proposed remedial action plan (PRAP) for the site,
which identifies the preferred remedy as the removal of
the contaminated material currently protected by an
armored cap. In addition, the EPA selected a preferred
remedy for the separate southern impoundments that
requires offsite disposal. The PRPs submitted
comments on the PRAP. At this stage, it is premature
to predict the outcome or estimate our maximum
reasonably possible loss with respect to this site.
However, we do not believe that any material loss is
probable.
In December 2011, Harris County, Texas filed a suit
against the Company seeking civil penalties with regard
to the alleged discharge of dioxin into the San Jacinto
River from the San Jacinto River Superfund Site. In
November 2014, International Paper secured a zero
liability jury verdict and the Texas Court of Appeals
affirmed in 2016. Harris County did not seek to appeal,
nor file for an extension, before the Supreme Court of
Texas prior to the filing deadline. The Company is also
defending a lawsuit related to the San Jacinto River
Superfund Site brought by approximately 400
individuals who allege property damage and personal
injury. Because this case is still in the discovery phase,
it is premature to predict the outcome or to estimate a
loss or range of loss, if any, which may be incurred.
Antitrust
Containerboard:
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. International Paper
Co. (N.D.
Ill.). The complaint alleges
that
the
defendants, beginning in February 2004 through
November 2010, conspired to limit the supply and
thereby increase prices of containerboard products.
The class is all persons who purchased containerboard
products directly from any defendant for use or delivery
in the United States during the period February 2004
to November 2010. The complaint seeks to recover
unspecified treble damages and attorneys' fees on
behalf of the purported class. Four similar complaints
were filed and have been consolidated in the Northern
District of Illinois. In March 2015, the District Court
certified a class of direct purchasers of containerboard
products; in June 2015, the United States Court of
petition to appeal, and on August 4, 2016, affirmed the
District Court's decision on all counts. We will continue
to aggressively defend this case, including challenges
to class certification. Likewise, in June 2016, a lawsuit
captioned Ashley Furniture Indus., Inc. v. Packaging
Corporation of America (W.D. Wis.), was filed in federal
court in Wisconsin. The Ashley Furniture lawsuit closely
tracks the allegations found in the Kleen Products
complaint but also asserts Wisconsin state antitrust
claims. Moreover, 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
containerboard from mid-2005 to 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.
No class certification materials have been filed to date
in the Tennessee action. The Company disputes the
allegations made and is vigorously defending each
action. However, because the Kleen Products action is
in the pretrial motions stage and the Tennessee and
Ashley Furniture actions are in a preliminary stage, we
are unable to predict an outcome or estimate a range
of reasonably possible loss.
Tax
On October 16, 2015, the Company was notified of a
$110 million tax assessment issued by the state of Sao
Paulo, Brazil for tax years 2011 through 2013. The
assessment pertains
to
invoices
issued by
the
Company related to the sale of paper to the editorial
segment, which is exempt from the payment of ICMS
value-added tax. This assessment is in the preliminary
stage. The Company does not believe that a material
loss is probable. During the second quarter of 2016, the
Company received a favorable first instance judgment
vacating the State's assessment. The Company
anticipates that the State will appeal the judgment.
General
The Company is involved in various other inquiries,
administrative proceedings and litigation relating to
environmental and safety matters, personal injury, labor
and employment, contracts, sales of property,
intellectual property 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 these
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
its consolidated
financial
statements.
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 maturity
which was originally August 2016, are supported by
irrevocable letters of credit obtained by the buyers of
the forestlands.
in
During 2006, International Paper contributed the
Timber Notes to newly formed special purpose 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
the Borrower Entities, along with
approximately $400 million of International Paper
promissory notes, to other newly formed special
purpose 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.
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.
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
provided that International Paper had, and intended to
effect, a legal right to offset its obligation under these
debt instruments with its investments in the Entities and
despite the offset treatment, these remained debt
obligations of International Paper. The use of the
Entities facilitated the monetization of the credit
enhanced Timber Notes in a cost effective manner by
increasing borrowing capacity and lowering the interest
rate, while providing for the offset accounting treatment
described above. Additionally,
the monetization
structure preserved the $1.4 billion tax deferral that
resulted from the 2006 forestlands sales.
During 2015, International Paper initiated a series of
actions in order to extend the 2006 monetization
structure and maintain the long-term nature of the $1.4
billion deferred tax liability. First, International Paper
acquired the Class A interests in the Investor Entities
from a third party for $198 million in cash. As a result,
International Paper became the owner of all of the Class
63
64
A and Class B interests in the Entities and became the
primary beneficiary of the Entities. The assets and
liabilities of the Entities, primarily consisting of the
Timber Notes and third party bank loans, were recorded
at fair value as of the acquisition date of the Class A
interests.
Subsequent to purchasing the Class A interests in the
Investor Entities, International Paper restructured the
Entities, which resulted in the formation of wholly-
owned, bankruptcy-remote special purpose entities
(the 2015 Financing Entities). As part of
the
restructuring, the Timber Notes held by the Borrower
Entities, subject to the third party bank loans, were
contributed to the 2015 Financing Entities along with
approximately $150 million in International Paper debt
obligations, approximately $600 million in cash and
approximately $130 million in demand loans from
International Paper, and certain Entities were
liquidated. As a
transactions,
result of
International Paper began consolidating the 2015
Financing Entities during the third quarter of 2015. Also,
during the third quarter of 2015, the 2015 Financing
Entities used $630 million in cash to pay down a portion
loans and refinanced
of
approximately $4.2 billion of
loans on
nonrecourse terms (the 2015 Refinance Loans).
third party bank
these
those
the
loans
third party bank
During the fourth quarter of 2015, International Paper
extended the maturity date on the Timber Notes for an
additional 5 years. The Timber Notes are shown in
Financial assets of special purpose entities on the
accompanying consolidated balance sheet and mature
in August 2021 unless extended for an additional 5
years. These notes are supported by approximately
$4.8 billion of irrevocable letters of credit. In addition,
the Company extinguished the 2015 Refinance Loans
scheduled to mature in May 2016 and entered into new
nonrecourse
totaling
approximately $4.2 billion (the Extension Loans).
Provisions of loan agreements related to approximately
$1.1 billion of the Extension Loans require the bank
issuing letters of credit supporting the Timber Notes
pledged as collateral to maintain a credit rating at or
above a specified threshold. In the event the credit
rating of the letter of credit bank is downgraded below
the specified threshold, the letters of credit must be
replaced within 60 days with letters of credit from a
qualifying financial institution. The Extension Loans are
shown in Nonrecourse financial liabilities of special
purpose entities on the accompanying consolidated
balance sheet and mature in the fourth quarter of 2020.
The extinguishment of the 2015 Refinance Loans of
approximately $4.2 billion and the issuance of the
Extension Loans of approximately $4.2 billion are
shown as part of reductions of debt and issuances of
debt, respectively, in the financing activities of the
consolidated statement of cash flows.
The Extension Loans are nonrecourse to the Company,
and are secured by approximately $4.8 billion of Timber
Notes, the irrevocable letters of credit supporting the
Timber Notes and approximately $150 million of
International Paper debt obligations. The $150 million
of International Paper debt obligations are eliminated
in the consolidation of the 2015 Financing Entities and
are not reflected in the Company’s consolidated
balance sheet.
above
facilitated
described
The purchase of the Class A interests and subsequent
restructuring
the
refinancing and extensions of the third party bank loans
on nonrecourse terms. The transactions described in
long-term
these paragraphs result
classification of the $1.4 billion deferred tax liability
recognized in connection with the 2006 forestlands
sale.
in continued
As of December 31, 2016 and 2015, the fair value of
the Timber Notes was $4.7 billion for both the years
ended 2016 and 2015, and the fair value of the
Extension Loans was $4.3 billion for both the years
ended 2016 and 2015. The Timber Notes and Extension
Loans are classified as Level 2 within the fair value
hierarchy, which is further defined in Note 14.
Activity between the Company and the 2015 Financing
Entities (the Entities prior to the purchase of the Class
A interest discussed above) was as follows:
In millions
Revenue (a)
Expense (a)
Cash receipts (b)
Cash payments (c)
2014
2015
2016
$ 95 $ 43 $ 38
72
128
81
77
98
21
71
22
73
(a) The net expense related to the Company’s interest in the
Entities is included in the accompanying consolidated
statement of operations, as International Paper has and
intends to effect its legal right to offset as discussed above.
After formation of the 2015 Financing Entities, the revenue
and expense are included in Interest expense, net in the
accompanying consolidated statement of operations.
(b) The cash receipts are equity distributions from the Entities to
International Paper prior to the formation of the 2015 Financing
Entities. After formation of the 2015 Financing Entities, cash
receipts are interest received on the Financial assets of special
purpose entities.
(c) The cash payments are interest payments on the associated
debt obligations discussed above. After formation of the 2015
Financing Entities, the payments represent interest paid on
Nonrecourse financial liabilities of special purpose entities.
In connection with the acquisition of Temple-Inland in
February 2012, two special purpose entities became
wholly-owned subsidiaries of International Paper.
The use of the two wholly-owned special purpose
entities discussed below preserved the tax deferral that
resulted from the 2007 Temple-Inland timberlands
sales. The Company recognized an $831 million
deferred tax liability in connection with the 2007 sales,
which will be settled with the maturity of the notes in
2027.
In October 2007, Temple-Inland sold 1.55 million acres
of timberland for $2.4 billion. The total consideration
consisted almost entirely of notes due in 2027 issued
by the buyer of the timberland, 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 $2.4 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 $2.1 billion. As of
December 31, 2016 and 2015, the fair value of the notes
was $2.2 billion and $2.1 billion, respectively. These
notes are classified as Level 2 within the fair value
hierarchy, which is further defined in Note 14.
In December 2007, Temple-Inland's two wholly-owned
special purpose entities borrowed $2.1 billion shown in
Nonrecourse financial liabilities of special purpose
entities. The loans are repayable in 2027 and are
secured only by the $2.4 billion of notes and the
irrevocable letters of credit securing the notes and are
nonrecourse to us. 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 $2.0 billion. As of
December 31, 2016 and 2015, the fair value of this debt
was $2.1 billion and $2.0 billion, respectively. This debt
is classified as Level 2 within the fair value hierarchy,
which is further defined in Note 14.
Activity between the Company and the 2007 financing
entities was as follows:
In millions
Revenue (a)
Expense (b)
Cash receipts (c)
Cash payments (d)
2014
2015
2016
$ 37 $ 27 $ 26
25
27
37
15
27
7
18
7
18
(a) The revenue is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes approximately $19 million for the years ended
December 31, 2016, 2015 and 2014, respectively, of accretion
income for the amortization of the purchase accounting
adjustment on 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 approximately $7 million for the years ended
65
66
December 31, 2016, 2015 and 2014, respectively, of accretion
(a) Reductions related to notes with interest rates ranging from
expense for the amortization of the purchase accounting
adjustment on the Nonrecourse financial liabilities of special
(c) The cash receipts are interest received on the Financial assets
purpose entities.
of special purpose entities.
2.00% to 9.38% with original maturities from 2015 to 2030 for
the years ended December 31, 2016, 2015 and 2014. Includes
the $630 million payment for a portion of the Special Purpose
Entity Liability for the year ended December 31, 2015 (see
Note 12 Variable Interest Entities).
(d) The cash payments are interest paid on Nonrecourse financial
(b) Amounts are included in Restructuring and other charges in
liabilities of special purpose entities.
the accompanying consolidated statements of operations.
NOTE 13 DEBT AND LINES OF CREDIT
A summary of long-term debt follows:
In 2016, International Paper issued $1.1 billion of 3.00%
senior unsecured notes with a maturity date in 2027,
and $1.2 billion of 4.40% senior unsecured notes with
a maturity date in 2047. In addition, the Company repaid
approximately $266 million of notes with an interest rate
of 7.95% and an original maturity of 2018. Pre-tax early
debt retirement costs of $29 million related to the debt
repayments, including $31 million of cash premiums,
are included in restructuring and other charges in the
accompanying consolidated statement of operations
for the twelve months ended December 31, 2016.
In June 2016, International Paper entered into a
commercial paper program with a borrowing capacity
of $750 million. Under the terms of the program,
individual maturities on borrowings may vary, but not
exceed one year from the date of issue. Interest bearing
notes may be issued either as fixed notes or floating
rate notes. As of December 31, 2016, the Company had
$165 million outstanding under this program.
In 2015, International Paper issued $700 million of
3.80% senior unsecured notes with a maturity date in
2026, $600 million of 5.00% senior unsecured notes
with a maturity date in 2035, and $700 million of 5.15%
senior unsecured notes with a maturity date in 2046.
The proceeds from this borrowing were used to repay
approximately $1.0 billion of notes with interest rates
ranging from 4.75% to 9.38% and original maturities
from 2018 to 2022, along with $211 million of cash
premiums associated with the debt repayments.
Additionally, the proceeds from this borrowing were
used to make a $750 million voluntary cash contribution
to the Company's pension plan. Pre-tax early debt
retirement costs of $207 million related to these debt
repayments,
including
the $211 million of cash
premiums, are included in Restructuring and other
charges in the accompanying consolidated statement
of operations for the twelve months ended December
31, 2015.
Amounts related to early debt extinguishment during
the years ended December 31, 2016, 2015 and 2014
were as follows:
In millions
Debt reductions (a)
Pre-tax early debt extinguishment
costs (b)
29
207
276
2016
2015
2014
$
266 $ 2,151 $ 1,625
In millions at December 31
8.7% note – due 2038
9 3/8% note – due 2019
7.95% debenture – due 2018
7.5% note – due 2021
7.3% note – due 2039
6 7/8% notes – due 2023 – 2029
6.65% note – due 2037
6.4% to 7.75% debentures due 2025 –
2027
6 5/8% note – due 2018
6.0% note – due 2041
5.25% note – due 2016
4.8% note - due 2044
4.75% note – due 2022
3.00% to 4.40% notes – due 2024 – 2047
Floating rate notes – due 2016 – 2025 (a)
Environmental and industrial development
bonds – due 2016 – 2035 (b)
Short-term notes (c)
Other (d)
Total (e)
Less: current maturities
Long-term debt
2016
2015
$
264 $
295
382
598
721
131
4
142
72
585
—
796
810
3,786
763
681
—
4
11,314
239
264
295
648
603
721
131
4
142
185
585
261
796
817
1,490
438
594
5
11
9,270
426
$ 11,075 $ 8,844
5.00% to 5.15% notes – due 2035 – 2046
1,280
1,280
(a) The weighted average interest rate on these notes was 2.2%
(b) The weighted average interest rate on these bonds was 5.9%
in 2016 and 2.9% in 2015.
in 2016 and 5.8% in 2015.
(c) The weighted average interest rate was 2.2% in 2015. Includes
$5 million at December 31, 2015 related to non-U.S.
denominated borrowings with a weighted average interest rate
of 2.2% in 2015.
(d)
Includes $2 million at December 31, 2016 and $8 million at
December 31, 2015 related to the unamortized gain on interest
rate swap unwinds (see Note 14 Derivatives and Hedging
Instruments).
(e) The fair market value was approximately $12.0 billion at
December 31, 2016 and $9.9 billion at December 31, 2015.
Total maturities of long-term debt over the next five
years are 2017 – $239 million; 2018 – $690 million;
2019 – $433 million; 2020 – $179 million; and 2021 –
$612 million.
At December 31, 2016, International Paper’s credit
facilities (the Agreements) totaled $2.1 billion. The
Agreements generally provide for interest rates at a
floating rate index plus a pre-determined margin
dependent upon International Paper’s credit rating. The
The Extension Loans are nonrecourse to the Company,
deferred tax liability in connection with the 2007 sales,
and are secured by approximately $4.8 billion of Timber
which will be settled with the maturity of the notes in
Notes, the irrevocable letters of credit supporting the
2027.
Timber Notes and approximately $150 million of
International Paper debt obligations. The $150 million
In October 2007, Temple-Inland sold 1.55 million acres
of International Paper debt obligations are eliminated
of timberland for $2.4 billion. The total consideration
in the consolidation of the 2015 Financing Entities and
consisted almost entirely of notes due in 2027 issued
are not reflected in the Company’s consolidated
by the buyer of the timberland, which Temple-Inland
balance sheet.
contributed to two wholly-owned, bankruptcy-remote
special purpose entities. The notes are shown in
The purchase of the Class A interests and subsequent
Financial assets of special purpose entities in the
restructuring
described
above
facilitated
the
accompanying consolidated balance sheet and are
refinancing and extensions of the third party bank loans
supported by $2.4 billion of irrevocable letters of credit
on nonrecourse terms. The transactions described in
issued by three banks, which are required to maintain
these paragraphs result
in continued
long-term
minimum credit ratings on their long-term debt. In the
classification of the $1.4 billion deferred tax liability
third quarter of 2012, International Paper completed its
recognized in connection with the 2006 forestlands
preliminary analysis of the acquisition date fair value of
sale.
the notes and determined it to be $2.1 billion. As of
December 31, 2016 and 2015, the fair value of the notes
As of December 31, 2016 and 2015, the fair value of
was $2.2 billion and $2.1 billion, respectively. These
the Timber Notes was $4.7 billion for both the years
notes are classified as Level 2 within the fair value
ended 2016 and 2015, and the fair value of the
hierarchy, which is further defined in Note 14.
Extension Loans was $4.3 billion for both the years
ended 2016 and 2015. The Timber Notes and Extension
In December 2007, Temple-Inland's two wholly-owned
Loans are classified as Level 2 within the fair value
special purpose entities borrowed $2.1 billion shown in
hierarchy, which is further defined in Note 14.
Nonrecourse financial liabilities of special purpose
entities. The loans are repayable in 2027 and are
Activity between the Company and the 2015 Financing
secured only by the $2.4 billion of notes and the
Entities (the Entities prior to the purchase of the Class
irrevocable letters of credit securing the notes and are
A interest discussed above) was as follows:
In millions
Revenue (a)
Expense (a)
Cash receipts (b)
Cash payments (c)
2016
2015
2014
$ 95 $ 43 $ 38
128
77
98
81
21
71
72
22
73
(a) The net expense related to the Company’s interest in the
Entities is included in the accompanying consolidated
statement of operations, as International Paper has and
intends to effect its legal right to offset as discussed above.
After formation of the 2015 Financing Entities, the revenue
and expense are included in Interest expense, net in the
accompanying consolidated statement of operations.
(b) The cash receipts are equity distributions from the Entities to
International Paper prior to the formation of the 2015 Financing
Entities. After formation of the 2015 Financing Entities, cash
receipts are interest received on the Financial assets of special
purpose entities.
(c) The cash payments are interest payments on the associated
debt obligations discussed above. After formation of the 2015
Financing Entities, the payments represent interest paid on
Nonrecourse financial liabilities of special purpose entities.
In connection with the acquisition of Temple-Inland in
February 2012, two special purpose entities became
wholly-owned subsidiaries of International Paper.
The use of the two wholly-owned special purpose
entities discussed below preserved the tax deferral that
resulted from the 2007 Temple-Inland timberlands
sales. The Company recognized an $831 million
nonrecourse to us. 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 $2.0 billion. As of
December 31, 2016 and 2015, the fair value of this debt
was $2.1 billion and $2.0 billion, respectively. This debt
is classified as Level 2 within the fair value hierarchy,
which is further defined in Note 14.
Activity between the Company and the 2007 financing
entities was as follows:
In millions
Revenue (a)
Expense (b)
Cash receipts (c)
Cash payments (d)
2016
2015
2014
$ 37 $ 27 $ 26
37
15
27
27
7
18
25
7
18
(a) The revenue is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes approximately $19 million for the years ended
December 31, 2016, 2015 and 2014, respectively, of accretion
income for the amortization of the purchase accounting
adjustment on 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 approximately $7 million for the years ended
December 31, 2016, 2015 and 2014, respectively, of accretion
expense for the amortization of the purchase accounting
adjustment on the Nonrecourse financial liabilities of special
purpose entities.
(c) The cash receipts are interest received on the Financial assets
of special purpose entities.
(d) The cash payments are interest paid on Nonrecourse financial
liabilities of special purpose entities.
(a) Reductions related to notes with interest rates ranging from
2.00% to 9.38% with original maturities from 2015 to 2030 for
the years ended December 31, 2016, 2015 and 2014. Includes
the $630 million payment for a portion of the Special Purpose
Entity Liability for the year ended December 31, 2015 (see
Note 12 Variable Interest Entities).
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
NOTE 13 DEBT AND LINES OF CREDIT
A summary of long-term debt follows:
In 2016, International Paper issued $1.1 billion of 3.00%
senior unsecured notes with a maturity date in 2027,
and $1.2 billion of 4.40% senior unsecured notes with
a maturity date in 2047. In addition, the Company repaid
approximately $266 million of notes with an interest rate
of 7.95% and an original maturity of 2018. Pre-tax early
debt retirement costs of $29 million related to the debt
repayments, including $31 million of cash premiums,
are included in restructuring and other charges in the
accompanying consolidated statement of operations
for the twelve months ended December 31, 2016.
In June 2016, International Paper entered into a
commercial paper program with a borrowing capacity
of $750 million. Under the terms of the program,
individual maturities on borrowings may vary, but not
exceed one year from the date of issue. Interest bearing
notes may be issued either as fixed notes or floating
rate notes. As of December 31, 2016, the Company had
$165 million outstanding under this program.
In 2015, International Paper issued $700 million of
3.80% senior unsecured notes with a maturity date in
2026, $600 million of 5.00% senior unsecured notes
with a maturity date in 2035, and $700 million of 5.15%
senior unsecured notes with a maturity date in 2046.
The proceeds from this borrowing were used to repay
approximately $1.0 billion of notes with interest rates
ranging from 4.75% to 9.38% and original maturities
from 2018 to 2022, along with $211 million of cash
premiums associated with the debt repayments.
Additionally, the proceeds from this borrowing were
used to make a $750 million voluntary cash contribution
to the Company's pension plan. Pre-tax early debt
retirement costs of $207 million related to these debt
repayments,
the $211 million of cash
premiums, are included in Restructuring and other
charges in the accompanying consolidated statement
of operations for the twelve months ended December
31, 2015.
including
Amounts related to early debt extinguishment during
the years ended December 31, 2016, 2015 and 2014
were as follows:
In millions
Debt reductions (a)
2016
2015
2014
$
266 $ 2,151 $ 1,625
Pre-tax early debt extinguishment
costs (b)
29
207
276
In millions at December 31
8.7% note – due 2038
9 3/8% note – due 2019
7.95% debenture – due 2018
7.5% note – due 2021
7.3% note – due 2039
6 7/8% notes – due 2023 – 2029
6.65% note – due 2037
6.4% to 7.75% debentures due 2025 –
2027
6 5/8% note – due 2018
6.0% note – due 2041
5.25% note – due 2016
2016
2015
$
264 $
295
382
598
721
131
4
142
72
585
—
264
295
648
603
721
131
4
142
185
585
261
5.00% to 5.15% notes – due 2035 – 2046
1,280
1,280
4.8% note - due 2044
4.75% note – due 2022
3.00% to 4.40% notes – due 2024 – 2047
Floating rate notes – due 2016 – 2025 (a)
Environmental and industrial development
bonds – due 2016 – 2035 (b)
Short-term notes (c)
Other (d)
Total (e)
Less: current maturities
Long-term debt
796
810
3,786
763
681
—
4
11,314
239
796
817
1,490
438
594
5
11
9,270
426
$ 11,075 $ 8,844
(a) The weighted average interest rate on these notes was 2.2%
in 2016 and 2.9% in 2015.
(b) The weighted average interest rate on these bonds was 5.9%
in 2016 and 5.8% in 2015.
(c) The weighted average interest rate was 2.2% in 2015. Includes
$5 million at December 31, 2015 related to non-U.S.
denominated borrowings with a weighted average interest rate
of 2.2% in 2015.
Includes $2 million at December 31, 2016 and $8 million at
December 31, 2015 related to the unamortized gain on interest
rate swap unwinds (see Note 14 Derivatives and Hedging
Instruments).
(d)
(e) The fair market value was approximately $12.0 billion at
December 31, 2016 and $9.9 billion at December 31, 2015.
Total maturities of long-term debt over the next five
years are 2017 – $239 million; 2018 – $690 million;
2019 – $433 million; 2020 – $179 million; and 2021 –
$612 million.
At December 31, 2016, International Paper’s credit
facilities (the Agreements) totaled $2.1 billion. The
Agreements generally provide for interest rates at a
floating rate index plus a pre-determined margin
dependent upon International Paper’s credit rating. The
65
66
Agreements
include a $1.5 billion contractually
committed bank facility that expires in December 2021
and has a facility fee of 0.15% payable annually. The
liquidity facilities also include up to $600 million of
uncommitted financings based on eligible receivables
balances (approximately $600 million available as of
December 31, 2016) under a receivables securitization
program that expires in December 2017. At December
31, 2016, there were no borrowings under either the
bank facility or receivables securitization program.
Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2016, the Company held
long-term credit ratings of BBB (stable outlook) and
Baa2
(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.
The ineffective portion for both cash flow and fair value
hedges, which is not material for any year presented,
is immediately recognized in earnings.
reported
is
FOREIGN CURRENCY RISK MANAGEMENT
We manufacture and sell our products and finance
operations in a number of countries throughout the
67
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 value of certain non-qualifying
The change
instruments used
foreign exchange
to manage
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 or forward purchase contracts.
Derivative instruments are reported in the consolidated
balance sheets at their fair values, unless the derivative
instruments qualify for the normal purchase normal sale
("NPNS") exception under GAAP and such exception
has been elected. If the NPNS exception is elected,
the fair values of such contracts are not recognized on
the balance sheet.
Contracts that qualify 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
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 change in the fair value of certain non-qualifying
instruments used to reduce commodity price volatility
is immediately recognized in earnings.
The notional amounts of qualifying and non-qualifying
The following table shows gains or losses recognized
instruments used in hedging transactions were as
in AOCI, net of tax, related to derivative instruments:
follows:
In millions
Derivatives in Cash Flow
Hedging Relationships:
Foreign exchange contracts
(a)
Derivatives in Fair Value
Hedging Relationships:
Interest rate contracts
Derivatives Not Designated as
Hedging Instruments:
Electricity contract
Foreign exchange contracts
Interest rate contracts
December 31,
December 31,
2016
2015
275
290
In millions
Foreign exchange
contracts
Interest rate contracts
Gain (Loss)
Recognized in AOCI on Derivatives
(Effective Portion)
2016
2015
2014
$
$
4 $
(10)
(6) $
(3) $
—
(3) $
10
—
10
—
6
24
—
Total
loss.
17
16
35
38
During the next 12 months, the amount of the
December 31, 2016 AOCI balance, after tax, that is
expected to be reclassified to earnings is an immaterial
(a) These contracts had maturities of two years or less as of
December 31, 2016.
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
Total
In millions
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts
Derivatives Not Designated as Hedging Instruments:
Debt
Total
Total
Electricity Contracts
Foreign exchange contracts
Interest rate contracts
Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion)
2016
2015
2014
Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion)
$
$
7 $
7 $
(12) $
(12) $
4
4
Cost of products sold
Gain (Loss)
Recognized
in Income
2016
2015
2014
Location of Gain
(Loss)
in Consolidated
Statement of
Operations
$ —
$
3
$
1
Interest expense, net
—
(3)
(1)
Interest expense, net
$ —
$ —
$ —
$ —
$
—
5 (a)
(7)
(4)
$
(2)
(1)
Cost of products sold
Cost of products sold
13 (b)
12 (c)
Interest expense, net
$
5
$
2
$
9
(a) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges.
(b) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges.
(c) Excluding gain of $7 million, net related to debt issuance and debt reduction recorded to Restructuring and other charges.
68
Agreements
include a $1.5 billion contractually
world and, as a result, are exposed to movements in
committed bank facility that expires in December 2021
foreign currency exchange rates. The purpose of our
and has a facility fee of 0.15% payable annually. The
foreign currency hedging program is to manage the
liquidity facilities also include up to $600 million of
volatility associated with the changes in exchange
uncommitted financings based on eligible receivables
rates.
balances (approximately $600 million available as of
December 31, 2016) under a receivables securitization
To manage this exchange rate risk, we have historically
program that expires in December 2017. At December
utilized a combination of forward contracts, options and
31, 2016, there were no borrowings under either the
currency swaps. Contracts that qualify are designated
bank facility or receivables securitization program.
as cash flow hedges of certain forecasted transactions
denominated in foreign currencies. The effective
Maintaining an investment grade credit rating is an
portion of the changes in fair value of these instruments
important element of International Paper’s financing
is reported in AOCI and reclassified into earnings in the
strategy. At December 31, 2016, the Company held
same financial statement line item and in the same
long-term credit ratings of BBB (stable outlook) and
period or periods during which the related hedged
Baa2
(stable outlook) by S&P and Moody’s,
transactions affect earnings. The ineffective portion,
respectively.
ACTIVITIES
NOTE 14 DERIVATIVES AND HEDGING
which is not material for any year presented, is
immediately recognized in earnings.
The change
in value of certain non-qualifying
instruments used
to manage
foreign exchange
International Paper periodically uses derivatives and
exposure of intercompany financing transactions and
other financial instruments to hedge exposures to
certain balance sheet items subject to revaluation is
interest
rate, commodity and currency
risks.
immediately recognized in earnings, substantially
International Paper does not hold or issue financial
offsetting the foreign currency mark-to-market impact
instruments for trading purposes. For hedges that meet
of the related exposure.
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
is
reported
in Accumulated other
comprehensive income (“AOCI”) and reclassified into
interest expense over the life of the underlying debt.
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
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 or forward purchase contracts.
Derivative instruments are reported in the consolidated
balance sheets at their fair values, unless the derivative
instruments qualify for the normal purchase normal sale
("NPNS") exception under GAAP and such exception
has been elected. If the NPNS exception is elected,
the fair values of such contracts are not recognized on
the balance sheet.
Contracts that qualify 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
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 change in the fair value of certain non-qualifying
instruments used to reduce commodity price volatility
is 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
(a)
Derivatives in Fair Value
Hedging Relationships:
Interest rate contracts
Derivatives Not Designated as
Hedging Instruments:
Electricity contract
Foreign exchange contracts
Interest rate contracts
December 31,
2016
December 31,
2015
275
290
—
6
24
—
17
16
35
38
(a) These contracts had maturities of two years or less as of
December 31, 2016.
The following table shows gains or losses recognized
in AOCI, net of tax, related to derivative instruments:
In millions
Foreign exchange
contracts
Interest rate contracts
Total
Gain (Loss)
Recognized in AOCI on Derivatives
(Effective Portion)
2016
2015
2014
$
$
4 $
(10)
(6) $
(3) $
—
(3) $
10
—
10
During the next 12 months, the amount of the
December 31, 2016 AOCI balance, after tax, that is
expected to be reclassified to earnings is an immaterial
loss.
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
Total
In millions
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts
Debt
Total
Derivatives Not Designated as Hedging Instruments:
Electricity Contracts
Foreign exchange contracts
Interest rate contracts
Total
Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion)
2016
2015
2014
Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion)
$
$
7 $
7 $
(12) $
(12) $
4
4
Cost of products sold
Gain (Loss)
Recognized
in Income
2016
2015
2014
Location of Gain
(Loss)
in Consolidated
Statement of
Operations
$ —
$
3
$
1
Interest expense, net
—
(3)
(1)
Interest expense, net
$ —
$ —
$ —
$ —
$
—
5 (a)
(7)
(4)
$
(2)
(1)
Cost of products sold
Cost of products sold
13 (b)
12 (c)
Interest expense, net
$
5
$
2
$
9
(a) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges.
(b) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges.
(c) Excluding gain of $7 million, net related to debt issuance and debt reduction recorded to Restructuring and other charges.
67
68
The following activity is related to fully effective interest rate swaps designated as fair value hedges:
The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:
2016
2015
Issued
Terminated
Undesignated
Issued
Terminated
Undesignated
Fair Value Measurements
Level 2 – Significant Other Observable Inputs
In millions
Second Quarter
First Quarter
Total
$
$
—
—
— $
$
— $
55
55
$
—
—
—
$
$
—
—
—
$
$
175
—
175
$
$
38
—
38
Note: There was no activity in the third and fourth quarters in either 2016 or 2015.
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, options and other financial instruments that
are used
interest rate,
commodity and currency risks. For these financial
instruments, fair value is determined at each balance
sheet date using an income approach.
to hedge exposures
to
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:
Level 1: Quoted market prices in active markets for
identical assets or liabilities.
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.
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.
Foreign Exchange Contracts
Foreign currency forward and option contracts are
valued using standard valuation models. Significant
inputs used in these standard valuation models are
foreign currency forward and interest rate curves and
a volatility measurement. The fair value of each
contract is present valued using the applicable interest
rate. All significant inputs are readily available in public
markets, or can be derived from observable market
transactions.
Electricity Contract
The electricity contract is valued using the Mid-C index
forward curve obtained from the Intercontinental
Exchange. The market value of the contract is the sum
of the fair value of all future purchase payments
between the contract counterparties, discounted to
present value. The fair value of the future purchase
payments is determined by comparing the contract
price to the forward price and present valued using
International Paper's cost of capital.
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.
69
70
Assets
Liabilities
December 31,
December 31,
December 31,
December 31,
2016
2015
2016
2015
$
$
$
$
$
3 (a) $
5 (a) $
4 (b) $
3
—
—
3
$
$
$
$
5
—
—
5
$
$
$
$
4
$
2 (b) $
2
6
$
$
1 (b)
1
7 (c)
7
8
In millions
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow
Total derivatives designated as hedging
instruments
Derivatives not designated as hedging instruments
Total derivatives not designated as hedging
Electricity contract
instruments
Total derivatives
(a)
(b)
(c)
sheet.
Included in Other current assets in the accompanying consolidated balance sheet.
Included in Other accrued liabilities in the accompanying consolidated balance sheet.
Includes $4 million recorded in Other accrued liabilities and $3 million recorded in Other liabilities in the accompanying consolidated balance
The above contracts are subject to enforceable master
not required to post any collateral as of December 31,
netting arrangements that provide rights of offset with
2016 or 2015.
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
NOTE 15 CAPITAL STOCK
accounting policy election to not offset the fair value of
The authorized capital stock at both December 31,
recognized derivative assets and derivative liabilities in
2016 and 2015, consisted of 990,850,000 shares of
the consolidated balance sheet. The amounts owed to
common stock, $1 par value; 400,000 shares of
the counterparties and owed to the Company are
cumulative $4 preferred stock, without par value (stated
considered
immaterial with
respect
to each
value $100 per share); and 8,750,000 shares of serial
counterparty and
in
the aggregate with all
preferred stock, $1 par value. The serial preferred stock
counterparties.
Credit-Risk-Related Contingent Features
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
International Paper evaluates credit risk by monitoring
for the three years ended December 31, 2016, 2015
its exposure with each counterparty to ensure that
and 2014:
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 $15 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
terminate. The
fair values of
derivative instruments containing credit-risk-related
contingent features in a net liability position were $3
In thousands
Balance at January 1, 2014
Common Stock
Issued
Treasury
447,222
10,868
Issuance of stock for various plans, net
1,632
(4,668)
Repurchase of stock
— 22,534
Balance at December 31, 2014
448,854
28,734
Balance at December 31, 2015
448,916
36,776
Issuance of stock for various plans, net
Repurchase of stock
Issuance of stock for various plans, net
Repurchase of stock
62
(4,230)
— 12,272
—
—
(2,745)
3,640
Balance at December 31, 2016
448,916
37,671
NOTE 16 RETIREMENT PLANS
million and $1 million as of December 31, 2016 and
International Paper sponsors and maintains
the
December 31, 2015, respectively. The Company was
Retirement Plan of International Paper Company (the
“Pension Plan”), a tax-qualified defined benefit pension
2016
2015
In millions
Second Quarter
First Quarter
Total
Issued
Terminated
Undesignated
Issued
Terminated
Undesignated
$
$
—
—
— $
$
— $
55
55
$
—
—
—
$
$
—
—
—
$
$
175
—
175
$
$
38
38
—
Note: There was no activity in the third and fourth quarters in either 2016 or 2015.
Fair Value Measurements
The market value of each contract is the sum of the fair
value of all future interest payments between the
International Paper’s financial assets and liabilities that
contract counterparties, discounted to present value.
are recorded at fair value consist of derivative contracts,
The fair value of the future interest payments is
including interest rate swaps, foreign currency forward
determined by comparing the contract rate to the
contracts, options and other financial instruments that
derived forward interest rate and present valued using
are used
to hedge exposures
to
interest rate,
the appropriate derived interest rate curve.
commodity and currency risks. For these financial
instruments, fair value is determined at each balance
sheet date using an income approach.
Foreign Exchange Contracts
The guidance for fair value measurements and
valued using standard valuation models. Significant
disclosures sets out a fair value hierarchy that groups
inputs used in these standard valuation models are
fair value measurement inputs into the following three
foreign currency forward and interest rate curves and
Foreign currency forward and option contracts are
classifications:
a volatility measurement. The fair value of each
contract is present valued using the applicable interest
Level 1: Quoted market prices in active markets for
rate. All significant inputs are readily available in public
identical assets or liabilities.
markets, or can be derived from observable market
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.
transactions.
Electricity Contract
The electricity contract is valued using the Mid-C index
forward curve obtained from the Intercontinental
Level 3: Unobservable inputs for the asset or liability
Exchange. The market value of the contract is the sum
reflecting the reporting entity’s own assumptions or
of the fair value of all future purchase payments
external inputs from inactive markets.
between the contract counterparties, discounted to
present value. The fair value of the future purchase
Transfers between levels are recognized at the end of
payments is determined by comparing the contract
the reporting period. All of International Paper’s
price to the forward price and present valued using
derivative fair value measurements use Level 2 inputs.
International Paper's cost of capital.
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.
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 activity is related to fully effective interest rate swaps designated as fair value hedges:
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
Assets
Liabilities
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow
Total derivatives designated as hedging
instruments
Derivatives not designated as hedging instruments
Electricity contract
Total derivatives not designated as hedging
instruments
Total derivatives
$
$
$
$
$
3 (a) $
5 (a) $
4 (b) $
3
—
—
3
$
$
$
$
5
—
—
5
$
$
$
$
4
$
2 (b) $
2
6
$
$
1 (b)
1
7 (c)
7
8
(a)
(b)
(c)
Included in Other current assets in the accompanying consolidated balance sheet.
Included in Other accrued liabilities in the accompanying consolidated balance sheet.
Includes $4 million recorded in Other accrued liabilities and $3 million recorded in Other 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
to each
counterparty and
the aggregate with all
counterparties.
immaterial with
in
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 $15 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 and $1 million as of December 31, 2016 and
December 31, 2015, respectively. The Company was
terminate. The
69
70
not required to post any collateral as of December 31,
2016 or 2015.
NOTE 15 CAPITAL STOCK
The authorized capital stock at both December 31,
2016 and 2015, 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, 2016, 2015
and 2014:
Common Stock
In thousands
Balance at January 1, 2014
Issuance of stock for various plans, net
Repurchase of stock
Balance at December 31, 2014
Issued
447,222
1,632
Treasury
10,868
(4,668)
— 22,534
28,734
448,854
Issuance of stock for various plans, net
Repurchase of stock
Balance at December 31, 2015
Issuance of stock for various plans, net
Repurchase of stock
(4,230)
62
— 12,272
36,776
448,916
—
—
(2,745)
3,640
Balance at December 31, 2016
448,916
37,671
NOTE 16 RETIREMENT PLANS
International Paper sponsors and maintains
the
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); however,
salaried employees hired by Temple Inland prior to
March 1, 2007 or Weyerhaeuser Company's Cellulose
Fibers division prior to December 1, 2011 also
participate in the Pension Plan. 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).
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 $21 million,
$62 million and $38 million in 2016, 2015 and 2014,
respectively, and which are expected to be $38 million
in 2017.
The Company will freeze participation, including
credited service and compensation,
for salaried
employees under the Pension Plan, the Pension
Restoration Plan and the two SERP plans for all service
on or after January 1, 2019. This change will not affect
benefits accrued through December 31, 2018. For
service after this date, employees affected by the freeze
will receive Retirement Savings Account contributions
as described later in this Note 16.
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 2016 and 2015, and the
plans’ funded status.
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$14,438 $ 204 $14,741 $ 233
158
580
(1,222)
495
1
—
(767)
4
9
(2)
35
—
(1)
(9)
161
597
(43)
(254)
—
—
(764)
6
10
(12)
(1)
—
—
(7)
—
(21)
—
(25)
$13,683 $ 219 $14,438 $ 204
$10,923 $ 155 $10,918 $ 180
607
771
(767)
(1,222)
17
8
(9)
(2)
(1)
813
(764)
(43)
4
9
(7)
(12)
—
(16)
—
(19)
$10,312 $ 153 $10,923 $ 155
$ (3,371) $
(66) $ (3,515) $
(49)
In millions
Change in projected benefit
obligation:
Benefit obligation,
January 1
Service cost
Interest cost
Settlements
Actuarial loss (gain)
Acquisitions
Plan amendments
Benefits paid
Effect of foreign currency
exchange rate
movements
Benefit obligation,
December 31
Change in plan assets:
Fair value of plan assets,
January 1
Actual return on plan
assets
Company contributions
Benefits paid
Settlements
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:
Non-current asset
Current liability
$
— $
6 $
— $
(40)
(3)
(22)
Non-current liability
(3,331)
(69)
(3,493)
$ (3,371) $
(66) $ (3,515) $
7
(2)
(54)
(49)
Amounts recognized in
accumulated other
comprehensive income
under ASC 715 (pre-tax):
Prior service cost
Net actuarial loss
$
125 $ — $
166 $ —
4,757
61
4,899
$ 4,882 $
61 $ 5,065 $
42
42
$
(183) $
comprised the following:
The components of the $183 million and $19 million
change related to U.S. plans and non-U.S. plans,
respectively, in the amounts recognized in OCI during
2016 consisted of:
In millions
Current year actuarial (gain) loss
$
703 $
U.S.
Plans
Non-
U.S.
Plans
Amortization of actuarial loss
Current year prior service cost
Amortization of prior service cost
Settlements
Effect of foreign currency exchange
rate movements
(400)
—
(41)
(445)
—
27
(1)
(1)
—
—
(6)
19
The accumulated benefit obligation at December 31,
2016 and 2015 was $13.5 billion and $14.3 billion,
respectively, for our U.S. defined benefit plans and
$205 million and $189 million, respectively, at
December 31, 2016 and 2015 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, 2016 and 2015:
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 13,683 $ 190 $ 14,438 $
182
13,535
10,312
177
118
14,282
10,923
168
126
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
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
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 158 $
4 $ 161 $
6 $ 145 $
580
9
597
10
600
(815)
(10)
(783)
(11)
(762)
(14)
400
1
428
1
374
—
41
—
445
—
—
—
43
—
15
—
—
—
30
—
—
5
13
—
(4)
—
In millions
Service cost
Interest cost
Expected return
on plan assets
Actuarial loss /
(gain)
Amortization of
prior service
cost
Curtailment
loss / (gain)
Settlement loss
Net periodic
pension
expense (a)
$ 809 $
4 $ 461 $
6 $ 387 $ —
(a) Excludes $1 million in curtailments in 2014 related to the pension
freeze remeasurement that were recorded in restructuring and
other charges.
The increase in 2016 pension expense reflects a
decrease in the discount rate from 4.10% in 2015 to a
weighted average of 4.05% in 2016 (4.40% from
January 1, 2016 to June 30, 2016, 3.80% from July 1,
2016 to September 30, 2016 and 3.60% from October
1, 2016 to December 31, 2016 for the qualified plan)
and a $445 million settlement charge in 2016 related
to the previously announced optional lump sum payout
partially offset by higher asset returns and lower
actuarial losses.
Paper Company (the Pension Plan) to request early
payment of their entire Pension Plan benefit in the form
of a single lump sum payment. The amount of total
payments under this program was approximately $1.2
billion, and were made from Plan trust assets on June
30, 2016. Based on the level of payments made,
settlement accounting rules applied and resulted in a
in subsequent years. The estimated net loss and prior
As previously disclosed, in the first quarter of 2016
service cost that will be amortized from AOCI into net
International Paper announced a voluntary, limited-
periodic pension cost for the U.S. plans during the next
time opportunity for former employees who are
fiscal year are expected to be $341 million and $28
participants in the Retirement Plan of International
million, respectively.
71
72
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); however,
salaried employees hired by Temple Inland prior to
March 1, 2007 or Weyerhaeuser Company's Cellulose
Fibers division prior to December 1, 2011 also
participate in the Pension Plan. 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).
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 $21 million,
$62 million and $38 million in 2016, 2015 and 2014,
respectively, and which are expected to be $38 million
in 2017.
credited service and compensation,
for salaried
employees under the Pension Plan, the Pension
Restoration Plan and the two SERP plans for all service
on or after January 1, 2019. This change will not affect
benefits accrued through December 31, 2018. For
service after this date, employees affected by the freeze
will receive Retirement Savings Account contributions
as described later in this Note 16.
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 2016 and 2015, and the
plans’ funded status.
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$14,438 $ 204 $14,741 $ 233
(1,222)
158
580
495
1
—
(767)
4
9
(2)
35
—
(1)
(9)
161
597
(43)
(254)
—
—
(764)
6
10
(12)
(1)
—
—
(7)
—
(21)
—
(25)
$13,683 $ 219 $14,438 $ 204
$10,923 $ 155 $10,918 $ 180
607
771
(767)
(1,222)
17
8
(9)
(2)
(1)
813
(764)
(43)
4
9
(7)
(12)
—
(16)
—
(19)
$10,312 $ 153 $10,923 $ 155
$ (3,371) $
(66) $ (3,515) $
(49)
In millions
obligation:
Change in projected benefit
Benefit obligation,
January 1
Service cost
Interest cost
Settlements
Actuarial loss (gain)
Acquisitions
Plan amendments
Benefits paid
Effect of foreign currency
exchange rate
movements
Benefit obligation,
December 31
Change in plan assets:
Fair value of plan assets,
January 1
Actual return on plan
assets
Company contributions
Benefits paid
Settlements
Effect of foreign currency
exchange rate
movements
Fair value of plan
assets, December 31
Funded status,
December 31
Amounts recognized in the
consolidated balance
Non-current asset
Current liability
$
— $
6 $
— $
(40)
(3)
(22)
Non-current liability
(3,331)
(69)
(3,493)
$ (3,371) $
(66) $ (3,515) $
7
(2)
(54)
(49)
Amounts recognized in
accumulated other
comprehensive income
under ASC 715 (pre-tax):
Prior service cost
Net actuarial loss
$
125 $ — $
166 $ —
4,757
61
4,899
$ 4,882 $
61 $ 5,065 $
42
42
The Company will freeze participation, including
sheet:
The components of the $183 million and $19 million
change related to U.S. plans and non-U.S. plans,
respectively, in the amounts recognized in OCI during
2016 consisted of:
In millions
Current year actuarial (gain) loss
$
Amortization of actuarial loss
Current year prior service cost
Amortization of prior service cost
Settlements
Effect of foreign currency exchange
rate movements
U.S.
Plans
Non-
U.S.
Plans
703 $
(400)
—
(41)
(445)
—
$
(183) $
27
(1)
(1)
—
—
(6)
19
The accumulated benefit obligation at December 31,
2016 and 2015 was $13.5 billion and $14.3 billion,
respectively, for our U.S. defined benefit plans and
$205 million and $189 million, respectively, at
December 31, 2016 and 2015 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, 2016 and 2015:
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 13,683 $ 190 $ 14,438 $
182
13,535
10,312
177
118
14,282
10,923
168
126
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 $341 million and $28
million, respectively.
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:
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 158 $
4 $ 161 $
6 $ 145 $
580
9
597
10
600
5
13
(815)
(10)
(783)
(11)
(762)
(14)
400
1
428
1
374
—
41
—
445
—
—
—
43
—
15
—
—
—
30
—
—
—
(4)
—
$ 809 $
4 $ 461 $
6 $ 387 $ —
In millions
Service cost
Interest cost
Expected return
on plan assets
Actuarial loss /
(gain)
Amortization of
prior service
cost
Curtailment
loss / (gain)
Settlement loss
Net periodic
pension
expense (a)
(a) Excludes $1 million in curtailments in 2014 related to the pension
freeze remeasurement that were recorded in restructuring and
other charges.
The increase in 2016 pension expense reflects a
decrease in the discount rate from 4.10% in 2015 to a
weighted average of 4.05% in 2016 (4.40% from
January 1, 2016 to June 30, 2016, 3.80% from July 1,
2016 to September 30, 2016 and 3.60% from October
1, 2016 to December 31, 2016 for the qualified plan)
and a $445 million settlement charge in 2016 related
to the previously announced optional lump sum payout
partially offset by higher asset returns and lower
actuarial losses.
As previously disclosed, in the first quarter of 2016
International Paper announced a voluntary, limited-
time opportunity for former employees who are
participants in the Retirement Plan of International
Paper Company (the Pension Plan) to request early
payment of their entire Pension Plan benefit in the form
of a single lump sum payment. The amount of total
payments under this program was approximately $1.2
billion, and were made from Plan trust assets on June
30, 2016. Based on the level of payments made,
settlement accounting rules applied and resulted in a
71
72
for
accounting
ASSUMPTIONS
PLAN ASSETS
Fair Value Measurement at December 31, 2016
plan remeasurement as of the June 30, 2016 payment
the
date. As a result of settlement accounting,
Company recognized a pro-rata portion of
the
unamortized net actuarial loss, after remeasurement,
resulting in a $439 million non-cash charge to the
Company's earnings in the second quarter of 2016.
Additional payments of $8 million and $9 million were
made during the third and fourth quarters, respectively,
due to mandatory cash payouts and a small lump sum
payout, and the Pension Plan was subsequently
remeasured at September 30, 2016 and December 31,
2016. As a result of settlement accounting, the
Company recognized non-cash settlement charges of
$3 million in both the third and fourth quarters of 2016.
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
pensions. These
employers’
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, 2016 was also the discount rate
used to determine net pension expense for the 2017
year).
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 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
2016
2015
Target
Allocations
43% - 54%
25% - 35%
7% - 13%
8% - 17%
48%
33%
10%
9%
51%
27%
10%
12%
100%
100%
The fair values of International Paper’s pension plan
assets at December 31, 2016 and 2015 by asset class
are shown below. Plan assets included an immaterial
amount of International Paper common stock at
December 31, 2016 and 2015. Hedge funds disclosed
in the following table are allocated equally between
equity and fixed income accounts for target allocation
purposes.
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ 2,208 $
1,380 $
828 $
1,806
2,575
1,018
769
1,018
—
—
—
—
1
11
—
—
—
—
(71)
—
—
—
—
—
—
10
—
—
—
—
(20)
—
870
40
234
324
—
—
—
—
—
518
217
265
118
—
—
—
1
—
—
—
—
—
—
—
—
—
—
322
—
—
—
—
—
—
—
—
—
870
41
245
324
—
—
—
(71)
322
891
472
1,015
402
518
217
275
118
—
—
—
(19)
894
492
1,094
360
Asset Class
In millions
Equities – domestic
Equities – international
Corporate bonds
Government securities
Mortgage backed securities
Other fixed income
Commodities
Hedge funds
Private equity
Real estate
Derivatives
Cash and cash equivalents
Other investments: (a)
Hedge funds
Private equity
Real estate
Risk parity funds
Total Investments
Asset Class
In millions
Equities – international
Corporate bonds
Government securities
Mortgage backed securities
Other fixed income
Commodities
Hedge funds
Private equity
Real estate
Derivatives
Other investments: (a)
Hedge funds
Private equity
Real estate
Risk parity funds
Total Investments
$10,312 $
3,508 $
4,083 $
(59)
Fair Value Measurement at December 31, 2015
Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1)
Total
Significant
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Equities – domestic
$ 2,150 $
1,382 $
768 $
1,818
2,563
1,286
745
1,286
Cash and cash equivalents
975
975
$10,923 $
4,175 $
3,918 $
(10)
(a) In accordance with accounting guidance ASU 2015-07, certain
investments that are measured at fair value using the NAV per
share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy. The fair value amounts
presented in these tables for these investments are intended to
permit reconciliation of the fair value hierarchy to the amounts
presented in the reconciliation of changes in the plan's benefit
obligations and fair value of plan assets above. This has been
restated from prior year.
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:
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
4.10% 3.88% 4.40% 4.64% 4.10% 4.72%
3.75% 4.20% 3.75% 4.12% 3.75% 4.03%
Discount rate (a)
Expected long-term rate of return on plan assets (b)
Rate of compensation increase
4.05% 4.72% 4.10% 4.72% 4.65% 5.07%
7.75% 6.55% 7.75% 6.64% 7.75% 7.53%
3.75% 4.03% 3.75% 4.03% 3.75% 4.13%
(a) Represents the weighted average rate for the U.S. qualified plans in 2016 and 2014 due to the remeasurement in the second, third and fourth
quarters of 2016 and the first quarter of 2014.
(b) Represents the expected rate of return for International Paper's qualified pension plan for 2014. The weighted average rate for the Temple-
Inland Retirement Plan was 7.00% for 2014.
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 2017, the Company will use an
expected long-term rate of return on plan assets of
7.50% for the Retirement Plan of International Paper,
a discount rate of 4.10% and an assumed rate of
compensation increase of 3.75%. The Company
estimates that it will record net pension expense of
approximately $310 million for its U.S. defined benefit
plans in 2017, with the decrease from expense of $809
million in 2016 mainly related to no expected settlement
charges in 2017 and an increase in the discount rate to
4.10% in 2017 from 4.05% in 2016, partially offset by a
reduction in the return on asset assumption to 7.50%
in 2017 from 7.75% in 2016.
For non-U.S. pension plans, assumptions reflect
economic assumptions applicable to each country.
The following illustrates the effect on pension expense
for 2017 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
2017
$
33
26
(1)
73
74
plan remeasurement as of the June 30, 2016 payment
ASSUMPTIONS
PLAN ASSETS
Fair Value Measurement at December 31, 2016
date. As a result of settlement accounting,
Company recognized a pro-rata portion of
the
the
unamortized net actuarial loss, after remeasurement,
resulting in a $439 million non-cash charge to the
Company's earnings in the second quarter of 2016.
Additional payments of $8 million and $9 million were
made during the third and fourth quarters, respectively,
due to mandatory cash payouts and a small lump sum
payout, and the Pension Plan was subsequently
remeasured at September 30, 2016 and December 31,
2016. As a result of settlement accounting, the
Company recognized non-cash settlement charges of
$3 million in both the third and fourth quarters of 2016.
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’
accounting
for
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, 2016 was also the discount rate
used to determine net pension expense for the 2017
year).
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:
Actuarial assumptions used to determine net periodic pension cost for years
Discount rate
Rate of compensation increase
ended December 31:
Discount rate (a)
Expected long-term rate of return on plan assets (b)
Rate of compensation increase
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
4.10% 3.88% 4.40% 4.64% 4.10% 4.72%
3.75% 4.20% 3.75% 4.12% 3.75% 4.03%
4.05% 4.72% 4.10% 4.72% 4.65% 5.07%
7.75% 6.55% 7.75% 6.64% 7.75% 7.53%
3.75% 4.03% 3.75% 4.03% 3.75% 4.13%
(a) Represents the weighted average rate for the U.S. qualified plans in 2016 and 2014 due to the remeasurement in the second, third and fourth
(b) Represents the expected rate of return for International Paper's qualified pension plan for 2014. The weighted average rate for the Temple-
quarters of 2016 and the first quarter of 2014.
Inland Retirement Plan was 7.00% for 2014.
The expected long-term rate of return on plan assets is
approximately $310 million for its U.S. defined benefit
based on projected rates of return for current and
plans in 2017, with the decrease from expense of $809
planned asset classes in the plan’s investment portfolio.
million in 2016 mainly related to no expected settlement
Projected rates of return are developed through an
charges in 2017 and an increase in the discount rate to
asset/liability study in which projected returns for each
4.10% in 2017 from 4.05% in 2016, partially offset by a
of the plan’s asset classes are determined after
reduction in the return on asset assumption to 7.50%
analyzing historical experience and future expectations
in 2017 from 7.75% in 2016.
of returns and volatility of the various asset classes.
Based on the target asset allocation for each asset
economic assumptions applicable to each country.
class, the overall expected rate of return for the portfolio
is developed considering the effects of active portfolio
The following illustrates the effect on pension expense
management and expenses paid from plan assets. The
for 2017 of a 25 basis point decrease in the above
discount rate assumption was determined from a
assumptions:
For non-U.S. pension plans, assumptions reflect
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 2017, the Company will use an
expected long-term rate of return on plan assets of
7.50% for the Retirement Plan of International Paper,
a discount rate of 4.10% and an assumed rate of
compensation increase of 3.75%. The Company
estimates that it will record net pension expense of
In millions
Expense/(Income):
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
2017
$
33
26
(1)
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 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
2016
2015
51%
27%
10%
12%
100%
48%
33%
10%
9%
100%
Target
Allocations
43% - 54%
25% - 35%
7% - 13%
8% - 17%
The fair values of International Paper’s pension plan
assets at December 31, 2016 and 2015 by asset class
are shown below. Plan assets included an immaterial
amount of International Paper common stock at
December 31, 2016 and 2015. Hedge funds disclosed
in the following table are allocated equally between
equity and fixed income accounts for target allocation
purposes.
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
—
—
—
—
1
11
—
—
—
—
(71)
—
$ 2,208 $
1,380 $
828 $
1,806
—
—
—
—
—
—
—
—
—
322
769
1,018
870
40
234
324
—
—
—
—
—
2,575
1,018
870
41
245
324
—
—
—
(71)
322
891
472
1,015
402
$10,312 $
3,508 $
4,083 $
(59)
Asset Class
In millions
Equities – domestic
Equities – international
Corporate bonds
Government securities
Mortgage backed securities
Other fixed income
Commodities
Hedge funds
Private equity
Real estate
Derivatives
Cash and cash equivalents
Other investments: (a)
Hedge funds
Private equity
Real estate
Risk parity funds
Total Investments
Fair Value Measurement at December 31, 2015
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
$ 2,150 $
1,382 $
768 $
Equities – international
Corporate bonds
Government securities
Mortgage backed securities
Other fixed income
Commodities
Hedge funds
Private equity
Real estate
Derivatives
2,563
1,286
518
217
275
118
—
—
—
(19)
1,818
—
—
—
—
—
—
—
—
—
Cash and cash equivalents
975
975
745
1,286
518
217
265
118
—
—
—
1
—
—
—
—
—
—
10
—
—
—
—
(20)
—
Other investments: (a)
Hedge funds
Private equity
Real estate
Risk parity funds
Total Investments
894
492
1,094
360
$10,923 $
4,175 $
3,918 $
(10)
(a) In accordance with accounting guidance ASU 2015-07, certain
investments that are measured at fair value using the NAV per
share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy. The fair value amounts
presented in these tables for these investments are intended to
permit reconciliation of the fair value hierarchy to the amounts
presented in the reconciliation of changes in the plan's benefit
obligations and fair value of plan assets above. This has been
restated from prior year.
73
74
(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
fund
funds-of-funds
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.
Risk Parity Funds are defined as engineered beta
exposure to a wide range of asset classes and risk
premia, including equity, interest rates, credit, and
commodities. Risk parity funds seek to provide high
risk-adjusted returns while providing a high level of
diversification relative to a traditional equity/fixed
income portfolio. These funds seek to achieve this
objective with the use of modest leverage applied to
lower-risk, more diverse asset classes. Investments in
Risk parity funds are valued using monthly reported net
asset values. Also included in these funds are related
derivative instruments which are generally employed
as asset class substitutes 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.
In accordance with accounting standards, the following
investments are measured at NAV and are not classified
in the fair value hierarchy. Some of the investments
have redemption limitations, restrictions, and notice
requirements which are further explained below.
Other Investments at December 31, 2016
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
Hedge funds
Private equity
Real estate
Risk parity
funds
$
891 $
472
1,015
402
Total
$
2,780 $
—
226
224
—
450
Daily to
annually
None
1 - 100 days
None
Quarterly
45 - 60 days
Monthly
5 - 15 days
Other Investments at December 31, 2015
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
Hedge funds
Private equity
Real estate
Risk parity
funds
$
894 $
492
1,094
360
Total
$
2,840 $
—
102
59
—
161
Daily to
annually
None
1 - 100 days
None
Quarterly
45 - 60 days
Monthly
5 - 15 days
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
Commodities consist of commodity-linked notes and
commodity-linked derivatives. Commodities are valued
at closing prices determined by calculation agents for
outstanding transactions.
75
The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at
December 31, 2016.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
In millions
Beginning balance at December 31, 2015
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
Ending balance at December 31, 2016
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 $750 million, $750 million
and $353 million were made by the Company in 2016,
2015 and 2014, 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, 2016, projected future pension benefit
payments, excluding any termination benefits, were as
follows:
In millions
2017
2018
2019
2020
2021
2022 – 2026
OTHER U.S. PLANS
$
800
788
796
804
812
4,137
Mortgage
backed
securities
Other
fixed
income Derivatives
Total
$
— $
10 $
(20) $
(10)
—
—
1
—
1
—
—
—
(66)
(24)
39
—
(65)
(24)
40
—
$
1 $
11 $
(71) $
(59)
2004,
the Company makes Retirement Savings
Account contributions equal to a percentage of an
eligible employee’s pay.
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
their contributions
to
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.
Company matching contributions to the plans totaled
approximately $106 million, $100 million and $112
million for the plan years ending in 2016, 2015 and 2014,
respectively.
NOTE 17 POSTRETIREMENT BENEFITS
U.S. POSTRETIREMENT BENEFITS
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
International Paper sponsors the International Paper
service. International Paper does not fund these
Company Salaried Savings Plan and the International
benefits prior to payment and has the right to modify or
Paper Company Hourly Savings Plan, both of which are
terminate certain of these plans in the future.
tax-qualified defined contribution 401(k) savings plans.
Substantially all U.S. salaried and certain hourly
In addition to the U.S. plan, certain Brazilian and
employees are eligible to participate and may make
Moroccan employees are eligible for retiree health care
elective deferrals to such plans to save for retirement.
and life insurance benefits.
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,
76
In accordance with accounting standards, the following
Hedge funds are investment structures for managing
investments are measured at NAV and are not classified
private, loosely-regulated investment pools that can
in the fair value hierarchy. Some of the investments
pursue a diverse array of investment strategies with a
have redemption limitations, restrictions, and notice
wide range of different securities and derivative
The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at
December 31, 2016.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
—
226
224
—
450
—
102
59
—
161
requirements which are further explained below.
Other Investments at December 31, 2016
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
$
891 $
Daily to
annually
None
1 - 100 days
None
Quarterly
45 - 60 days
Monthly
5 - 15 days
Total
$
2,780 $
Hedge funds
Private equity
Real estate
Risk parity
funds
Hedge funds
Private equity
Real estate
Risk parity
funds
472
1,015
402
492
1,094
360
Other Investments at December 31, 2015
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
$
894 $
Daily to
annually
None
1 - 100 days
None
Quarterly
45 - 60 days
Monthly
5 - 15 days
Total
$
2,840 $
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
for certain risks
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.
Commodities consist of commodity-linked notes and
commodity-linked derivatives. Commodities are valued
at closing prices determined by calculation agents for
outstanding transactions.
instruments. These investments are made through
funds-of-funds
(commingled, multi-manager
fund
structures) and through direct investments in individual
hedge funds. Hedge funds are primarily valued by each
fund’s
third-party administrator based upon
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.
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.
Risk Parity Funds are defined as engineered beta
exposure to a wide range of asset classes and risk
premia, including equity, interest rates, credit, and
commodities. Risk parity funds seek to provide high
risk-adjusted returns while providing a high level of
diversification relative to a traditional equity/fixed
income portfolio. These funds seek to achieve this
objective with the use of modest leverage applied to
lower-risk, more diverse asset classes. Investments in
Risk parity funds are valued using monthly reported net
asset values. Also included in these funds are related
derivative instruments which are generally employed
as asset class substitutes 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.
In millions
Beginning balance at December 31, 2015
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
Ending balance at December 31, 2016
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 $750 million, $750 million
and $353 million were made by the Company in 2016,
2015 and 2014, 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, 2016, projected future pension benefit
payments, excluding any termination benefits, were as
follows:
In millions
2017
2018
2019
2020
2021
2022 – 2026
OTHER U.S. PLANS
$
800
788
796
804
812
4,137
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,
75
76
Mortgage
backed
securities
Other
fixed
income Derivatives
Total
$
— $
10 $
(20) $
(10)
—
—
1
—
1
—
—
—
(66)
(24)
39
—
(65)
(24)
40
—
$
1 $
11 $
(71) $
(59)
the Company makes Retirement Savings
2004,
Account contributions equal to a percentage of an
eligible employee’s pay.
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
the
contributions when
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
to
Company matching contributions to the plans totaled
approximately $106 million, $100 million and $112
million for the plan years ending in 2016, 2015 and 2014,
respectively.
NOTE 17 POSTRETIREMENT BENEFITS
U.S. POSTRETIREMENT BENEFITS
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. 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.
(4)
(4)
(10)
(2)
(13)
(1)
Change in projected benefit
obligation:
The components of postretirement benefit expense in
2016, 2015 and 2014 were as follows:
approximately $1 million for both U.S. and non-U.S.
plans.
In millions
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$
1 $ — $
1 $
1 $
1 $
11
5
3
2
11
6
5
1
14
5
1
6
1
Service cost
Interest cost
Actuarial loss
Amortization of
prior service
credits
Net
postretirement
(benefit)
expense
$
13 $
1 $
8 $
5 $
7 $
7
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.
The discount rates used to determine net U.S. and non-
U.S. postretirement benefit cost for the years ended
December 31, 2016, 2015 and 2014 were as follows:
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
4.20% 12.23% 3.90% 11.52% 4.50% 11.94%
The weighted average assumptions used to determine
the benefit obligation at December 31, 2016 and 2015
were as follows:
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
4.00% 10.53% 4.20% 12.23%
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
6.50% 10.90% 7.00% 11.41%
5.00% 5.81% 5.00% 5.94%
2022
2027
2022
2026
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, 2016 by approximately $13 million and
$5 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, 2016 by approximately $11 million and
$4 million, respectively. The effect on net postretirement
benefit cost from a 1% increase or decrease would be
The plans are only funded in an amount equal to
benefits paid. The following table presents the changes
in benefit obligation and plan assets for 2016 and 2015:
In millions
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
The components of the $30 million and ($26) million
of the Management Development and Compensation
increase and decrease in the amounts recognized in
Committee of the Board of Directors (the Committee)
OCI during 2016 for U.S. and non-U.S. plans,
that administers the ICP. Additionally, restricted stock,
respectively, consisted of:
In millions
Current year actuarial loss
Amortization of actuarial (loss) gain
Current year prior service cost
Amortization of prior service credit
Currency impact
U.S.
Plans
Non-
U.S.
Plans
$
31 $
5
(2)
(34)
4
1
(5)
—
4
—
$
30 $ (26)
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 $42 million, $17 million and $33
million in 2016, 2015 and 2014, respectively. The
portion of the change in funded status for the non-U.S.
plans was $(25) million, $0 million, and $14 million in
2016, 2015 and 2014, 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 2017 are expected to be
$8 million and $(2) million, respectively. The estimated
amounts for non-U.S. plans in 2017 are expected to be
$3 million and $(4) million, respectively.
At December 31, 2016, estimated
total
future
postretirement benefit payments, net of participant
contributions and estimated future Medicare Part D
subsidy receipts, were as follows:
In millions
2017
2018
2019
2020
2021
2022 – 2026
Benefit
Payments
Subsidy
Receipts
Benefit
Payments
U.S.
Plans
U.S.
Plans
$
31 $
2 $
Non-
U.S.
Plans
29
27
26
24
99
1
1
1
1
6
2
2
1
1
—
3
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
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
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 invested capital (ROIC)
and total shareholder return (TSR). All outstanding
options expired on March 15, 2015.
The following summarizes the status of the Stock
Option Program and the changes during the three years
ending December 31, 2016:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(years)
Aggregate
Intrinsic
Value
(thousands)
Options
(a)
Outstanding at December 31,
2013
1,752,789
$39.80
0.67
$16,175
Granted
Exercised
Expired
Granted
Exercised
Expired
Granted
Exercised
Expired
Outstanding at December 31,
2014
71,892
39.03
0.18
1,046
Outstanding at December 31,
2015
0.00
—
3,247
(1,634,858)
49.13
39.80
(49,286)
41.50
—
—
(62,477)
39.05
(9,415)
38.92
—
—
—
—
—
—
—
—
—
Outstanding at December 31,
2016
$—
0.00
$—
(a) 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
evenly over a three-year period. PSP awards are
earned based on
the achievement of defined
performance rankings of ROIC and TSR compared to
ROIC and TSR peer groups of companies. Awards are
weighted 75% for ROIC and 25% for TSR for all
participants except for officers for whom the awards are
weighted 50% for ROIC and 50% for TSR. The ROIC
component of the PSP awards is valued at the closing
stock price on the day prior to the grant date. As the
ROIC component contains a performance condition,
compensation expense, net of estimated forfeitures, is
Benefit obligation, January 1
$ 275 $
45 $ 306 $
59
Service cost
Interest cost
Participants’ contributions
Actuarial (gain) loss
Plan amendments
Benefits paid
Less: Federal subsidy
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
1
11
5
31
—
(44)
1
—
—
3
—
5
(35)
(1)
—
6
1
11
12
—
—
(57)
2
—
1
5
—
(1)
1
(1)
—
(19)
$ 280 $
23 $ 275 $
45
$ — $ — $ — $ —
39
5
(44)
1
—
(1)
45
12
(57)
1
—
(1)
$ — $ — $ — $ —
Funded status, December 31
$ (280) $ (23) $ (275) $ (45)
Amounts recognized in the
consolidated balance sheet
under ASC 715:
Current liability
Non-current liability
Amounts recognized in
accumulated other
comprehensive income under
ASC 715 (pre-tax):
Net actuarial loss (gain)
Prior service credit
$ (29) $
(2) $ (29) $
(251)
(21)
(246)
(2)
(43)
$ (280) $ (23) $ (275) $ (45)
$
$
68 $
21 $
42 $
(8)
(34)
(12)
60 $ (13) $
30 $
15
(2)
13
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.
77
78
The components of postretirement benefit expense in
approximately $1 million for both U.S. and non-U.S.
2016, 2015 and 2014 were as follows:
plans.
In millions
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$
1 $ — $
1 $
1 $
1 $
11
5
3
2
11
6
5
1
14
5
1
6
1
The plans are only funded in an amount equal to
benefits paid. The following table presents the changes
in benefit obligation and plan assets for 2016 and 2015:
In millions
2016
2015
(4)
(4)
(10)
(2)
(13)
(1)
Change in projected benefit
Service cost
Interest cost
Actuarial loss
Amortization of
prior service
credits
Net
postretirement
(benefit)
expense
The components of the $30 million and ($26) million
increase and decrease in the amounts recognized in
OCI during 2016 for U.S. and non-U.S. plans,
respectively, consisted of:
In millions
U.S.
Plans
Non-
U.S.
Plans
Current year actuarial loss
$
31 $
Amortization of actuarial (loss) gain
Current year prior service cost
Amortization of prior service credit
Currency impact
(5)
—
4
—
5
(2)
(34)
4
1
Benefit obligation, January 1
$ 275 $
45 $ 306 $
59
$
30 $ (26)
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 $42 million, $17 million and $33
million in 2016, 2015 and 2014, respectively. The
portion of the change in funded status for the non-U.S.
plans was $(25) million, $0 million, and $14 million in
2016, 2015 and 2014, 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 2017 are expected to be
$8 million and $(2) million, respectively. The estimated
amounts for non-U.S. plans in 2017 are expected to be
$3 million and $(4) million, respectively.
At December 31, 2016, 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
2017
2018
2019
2020
2021
2022 – 2026
U.S.
Plans
U.S.
Plans
$
31 $
2 $
Non-
U.S.
Plans
29
27
26
24
99
1
1
1
1
6
2
2
1
1
—
3
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
77
78
obligation:
Service cost
Interest cost
Participants’ contributions
Actuarial (gain) loss
Plan amendments
Benefits paid
Less: Federal subsidy
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
Amounts recognized in the
consolidated balance sheet
under ASC 715:
Current liability
Non-current liability
Amounts recognized in
accumulated other
comprehensive income under
ASC 715 (pre-tax):
Prior service credit
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
1
11
5
31
—
1
—
—
3
—
5
(35)
(1)
—
6
1
11
12
—
—
2
—
(44)
(57)
1
5
—
(1)
1
(1)
—
(19)
$ 280 $
23 $ 275 $
45
$ — $ — $ — $ —
39
5
(44)
1
—
(1)
45
12
(57)
1
—
(1)
$ — $ — $ — $ —
$ (29) $
(2) $ (29) $
(251)
(21)
(246)
(2)
(43)
$ (280) $ (23) $ (275) $ (45)
$
$
(8)
(34)
(12)
60 $ (13) $
30 $
15
(2)
13
Funded status, December 31
$ (280) $ (23) $ (275) $ (45)
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.
$
13 $
1 $
8 $
5 $
7 $
7
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.
The discount rates used to determine net U.S. and non-
U.S. postretirement benefit cost for the years ended
December 31, 2016, 2015 and 2014 were as follows:
2016
2015
2014
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
4.20% 12.23% 3.90% 11.52% 4.50% 11.94%
The weighted average assumptions used to determine
the benefit obligation at December 31, 2016 and 2015
were as follows:
2016
2015
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
4.00% 10.53% 4.20% 12.23%
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
5.00% 5.81% 5.00% 5.94%
2022
2027
2022
2026
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, 2016 by approximately $13 million and
$5 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, 2016 by approximately $11 million and
$4 million, respectively. The effect on net postretirement
benefit cost from a 1% increase or decrease would be
6.50% 10.90% 7.00% 11.41%
Net actuarial loss (gain)
68 $
21 $
42 $
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
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 invested capital (ROIC)
and total shareholder return (TSR). All outstanding
options expired on March 15, 2015.
The following summarizes the status of the Stock
Option Program and the changes during the three years
ending December 31, 2016:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(years)
Aggregate
Intrinsic
Value
(thousands)
Options
(a)
Outstanding at December 31,
2013
1,752,789
$39.80
0.67
$16,175
Granted
Exercised
Expired
3,247
(1,634,858)
49.13
39.80
(49,286)
41.50
Outstanding at December 31,
2014
71,892
39.03
0.18
1,046
Granted
Exercised
Expired
Outstanding at December 31,
2015
Granted
Exercised
Expired
Outstanding at December 31,
2016
—
—
(62,477)
39.05
(9,415)
38.92
—
—
—
—
—
0.00
—
—
—
—
—
$—
0.00
$—
(a) 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
evenly over a three-year period. PSP awards are
earned based on
the achievement of defined
performance rankings of ROIC and TSR compared to
ROIC and TSR peer groups of companies. Awards are
weighted 75% for ROIC and 25% for TSR for all
participants except for officers for whom the awards are
weighted 50% for ROIC and 50% for TSR. The ROIC
component of the PSP awards is valued at the closing
stock price on the day prior to the grant date. As the
ROIC 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.
PSP grants are made in performance-based restricted
stock units. The 2012 PSP awards issued to certain
members of senior management were accounted for as
liability awards, which were remeasured at fair value at
each balance sheet date. The valuation of these PSP
liability awards was computed based on the same
methodology as the PSP equity awards. On December
8, 2014, IP eliminated the election for executives to
withhold more than the minimum tax withholding for the
2013 and 2014 grants making them 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, 2016
22.36%-30.84%
0.67%-1.31%
The following summarizes PSP activity for the three
years ending December 31, 2016:
Outstanding at December 31, 2013
Granted
Shares issued
Forfeited
Outstanding at December 31, 2014
Granted
Shares issued
Forfeited
Outstanding at December 31, 2015
Granted
Shares issued
Forfeited
Weighted
Average
Grant Date
Fair Value
$31.20
46.82
37.18
43.10
34.98
53.25
37.09
53.97
38.69
37.26
43.82
43.61
Share/Units
8,117,489
3,682,663
(4,025,111)
(499,107)
7,275,934
1,863,623
(2,959,160)
(322,664)
5,857,733
2,617,982
(2,316,085)
(209,500)
Outstanding at December 31, 2016
5,950,130
$35.89
RESTRICTED STOCK AWARD PROGRAMS
The service-based Restricted Stock Award program
(RSA), designed for recruitment, retention and special
79
recognition purposes, provides for awards of restricted
stock to key employees.
The following summarizes the activity of the RSA
program for the three years ending December 31, 2016:
business segment due to the increased materiality of
Summarized financial information for Ilim which is
the results of this business. This segment includes the
accounted for under the equity method is presented in
Company's legacy pulp business and the newly
the following table. The audited U.S. GAAP financial
acquired pulp business. As such, amounts related to
statements for Ilim are included in Exhibit 99.1 to this
the legacy pulp business have been reclassified out of
Form 10-K.
Outstanding at December 31, 2013
Granted
Shares issued
Forfeited
Outstanding at December 31, 2014
Granted
Shares issued
Forfeited
Outstanding at December 31, 2015
Granted
Shares issued
Forfeited
Outstanding at December 31, 2016
Weighted
Average
Grant Date
Fair Value
$36.24
48.19
33.78
45.88
47.03
50.06
45.35
50.04
48.24
42.81
47.14
39.36
$45.34
Shares
112,374
89,500
(83,275)
(4,000)
114,599
36,300
(27,365)
(3,166)
120,368
117,881
(59,418)
(9,500)
169,331
At December 31, 2016, 2015 and 2014 a total of 14.3
million, 16.2 million and 16.3 million shares,
respectively, were available for grant under the ICP.
Stock-based compensation expense and related
income tax benefits were as follows:
In millions
2016
2015
2014
Total stock-based compensation
expense (included in selling and
administrative expense)
Income tax benefits related to stock-
based compensation
$
129 $
114 $
118
34
88
92
At December 31, 2016, $94 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 1.6 years.
NOTE 19 FINANCIAL INFORMATION BY
BUSINESS SEGMENT AND GEOGRAPHIC AREA
International Paper’s business segments, Industrial
Packaging, Global Cellulose Fibers, Printing Papers
and Consumer Packaging, are consistent with the
internal structure used to manage these businesses.
See the Description of Industry Segments in Part II. Item
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for a description
of the types of products and services from which each
reportable segment derives its revenues. Subsequent
to the acquisition of the Weyerhaeuser pulp business
in December 2016, the Company began reporting the
Global Cellulose Fibers business as a separate
the Printing Papers business segment and into the new
Global Cellulose Fibers business segment for all prior
periods. All segments are differentiated on a common
product, common customer basis consistent with the
business segmentation generally used in the Forest
Products industry.
Business 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. Business segment operating
profits are defined as earnings (loss) from continuing
operations before income taxes and equity earnings,
but including the impact of equity earnings and
noncontrolling interests, excluding corporate items and
corporate special items. Business 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.
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.
recorded equity earnings (losses), net of taxes, of $199
million, $131 million and $(194) million in 2016, 2015,
and 2014, respectively, for Ilim. Equity earnings (losses)
includes an after-tax foreign exchange gain (loss) of
$25 million, $(75) million and $(269) million in 2016,
2015 and 2014, respectively, primarily on
the
remeasurement of U.S. dollar-denominated net debt.
2016
2015
$ 774
$ 455
1,351
406
1,422
22
968
665
715
21
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Income Statement
In millions
Net sales
Gross profit
Income from continuing operations
Net income attributable to Ilim
2016
2015
2014
$1,927
$1,931
$2,138
957
419
391
971
254
237
772
(387)
(360)
At December 31, 2016 and 2015, the Company's
investment in Ilim was $302 million and $172 million,
respectively, which was $164 million and $161 million,
respectively, more than the Company's proportionate
share of the joint venture's underlying net assets. The
differences primarily relate to purchase price fair value
adjustments and currency translation adjustments. The
Company is party to a joint marketing agreement with
Ilim, under which the Company purchases, markets and
sells paper produced by Ilim. Purchases under this
agreement were $170 million, $170 million and $200
million for the years ended December 31, 2016, 2015
and 2014, respectively.
Net Sales
In millions
Industrial Packaging
$ 14,191
$ 14,484
$ 14,944
2016
2015
2014
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate and Intersegment
Sales
Net Sales
1,092
4,058
1,954
975
4,056
2,940
1,046
4,674
3,403
(216)
(90)
(450)
$ 21,079
$ 22,365
$ 23,617
The Company also holds a 50% interest in Ilim that is
a separate reportable industry segment. The Company
INFORMATION BY BUSINESS SEGMENT
80
recorded over the requisite service period based on the
recognition purposes, provides for awards of restricted
most probable number of awards expected to vest. The
stock to key employees.
TSR component of the PSP awards is valued using a
Monte Carlo simulation as the TSR component contains
The following summarizes the activity of the RSA
a market condition. The Monte Carlo simulation
program for the three years ending December 31, 2016:
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.
PSP grants are made in performance-based restricted
stock units. The 2012 PSP awards issued to certain
members of senior management were accounted for as
liability awards, which were remeasured at fair value at
each balance sheet date. The valuation of these PSP
liability awards was computed based on the same
methodology as the PSP equity awards. On December
8, 2014, IP eliminated the election for executives to
withhold more than the minimum tax withholding for the
2013 and 2014 grants making them 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, 2016
22.36%-30.84%
0.67%-1.31%
The following summarizes PSP activity for the three
years ending December 31, 2016:
Outstanding at December 31, 2013
Outstanding at December 31, 2014
Outstanding at December 31, 2015
Granted
Shares issued
Forfeited
Granted
Shares issued
Forfeited
Granted
Shares issued
Forfeited
Weighted
Average
Grant Date
Fair Value
$31.20
46.82
37.18
43.10
34.98
53.25
37.09
53.97
38.69
37.26
43.82
43.61
Share/Units
8,117,489
3,682,663
(4,025,111)
(499,107)
7,275,934
1,863,623
(2,959,160)
(322,664)
5,857,733
2,617,982
(2,316,085)
(209,500)
Outstanding at December 31, 2016
5,950,130
$35.89
RESTRICTED STOCK AWARD PROGRAMS
The service-based Restricted Stock Award program
(RSA), designed for recruitment, retention and special
79
Outstanding at December 31, 2013
Outstanding at December 31, 2014
Outstanding at December 31, 2015
Granted
Shares issued
Forfeited
Granted
Shares issued
Forfeited
Granted
Shares issued
Forfeited
Weighted
Average
Grant Date
Fair Value
$36.24
48.19
33.78
45.88
47.03
50.06
45.35
50.04
48.24
42.81
47.14
39.36
Shares
112,374
89,500
(83,275)
(4,000)
114,599
36,300
(27,365)
(3,166)
120,368
117,881
(59,418)
(9,500)
169,331
Outstanding at December 31, 2016
$45.34
At December 31, 2016, 2015 and 2014 a total of 14.3
million, 16.2 million and 16.3 million shares,
respectively, were available for grant under the ICP.
Stock-based compensation expense and related
income tax benefits were as follows:
In millions
2016
2015
2014
Total stock-based compensation
expense (included in selling and
administrative expense)
Income tax benefits related to stock-
based compensation
$
129 $
114 $
118
34
88
92
At December 31, 2016, $94 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 1.6 years.
NOTE 19 FINANCIAL INFORMATION BY
BUSINESS SEGMENT AND GEOGRAPHIC AREA
International Paper’s business segments, Industrial
Packaging, Global Cellulose Fibers, Printing Papers
and Consumer Packaging, are consistent with the
internal structure used to manage these businesses.
See the Description of Industry Segments in Part II. Item
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for a description
of the types of products and services from which each
reportable segment derives its revenues. Subsequent
to the acquisition of the Weyerhaeuser pulp business
in December 2016, the Company began reporting the
Global Cellulose Fibers business as a separate
business segment due to the increased materiality of
the results of this business. This segment includes the
Company's legacy pulp business and the newly
acquired pulp business. As such, amounts related to
the legacy pulp business have been reclassified out of
the Printing Papers business segment and into the new
Global Cellulose Fibers business segment for all prior
periods. All segments are differentiated on a common
product, common customer basis consistent with the
business segmentation generally used in the Forest
Products industry.
that
Business segment operating profits are used by
International Paper’s management to measure the
earnings performance of its businesses. Management
believes
this measure allows a better
understanding of trends in costs, operating efficiencies,
prices and volumes. Business segment operating
profits are defined as earnings (loss) from continuing
operations before income taxes and equity earnings,
but including the impact of equity earnings and
noncontrolling interests, excluding corporate items and
corporate special items. Business 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.
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.
Summarized financial information for Ilim which is
accounted for under the equity method is presented in
the following table. The audited U.S. GAAP financial
statements for Ilim are included in Exhibit 99.1 to this
Form 10-K.
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Income Statement
In millions
Net sales
Gross profit
Income from continuing operations
Net income attributable to Ilim
2016
$ 774
1,351
406
1,422
22
2015
$ 455
968
665
715
21
2016
$1,927
957
2015
$ 1,931
971
419
391
254
237
2014
$ 2,138
772
(387)
(360)
At December 31, 2016 and 2015, the Company's
investment in Ilim was $302 million and $172 million,
respectively, which was $164 million and $161 million,
respectively, more than the Company's proportionate
share of the joint venture's underlying net assets. The
differences primarily relate to purchase price fair value
adjustments and currency translation adjustments. The
Company is party to a joint marketing agreement with
Ilim, under which the Company purchases, markets and
sells paper produced by Ilim. Purchases under this
agreement were $170 million, $170 million and $200
million for the years ended December 31, 2016, 2015
and 2014, respectively.
INFORMATION BY BUSINESS SEGMENT
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 $199
million, $131 million and $(194) million in 2016, 2015,
and 2014, respectively, for Ilim. Equity earnings (losses)
includes an after-tax foreign exchange gain (loss) of
$25 million, $(75) million and $(269) million in 2016,
2015 and 2014, respectively, primarily on
the
remeasurement of U.S. dollar-denominated net debt.
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Industrial Packaging
Net Sales
In millions
$ 14,191
1,954
1,092
4,058
2016
Corporate and Intersegment
Sales
(216)
2015
$ 14,484
975
4,056
2,940
2014
$ 14,944
1,046
4,674
3,403
(90)
(450)
Net Sales
$ 21,079
$ 22,365
$ 23,617
80
Operating Profit
In millions
2016
2015
2014
Depreciation, Amortization and Cost of Timber
Harvested (c)
Industrial Packaging
$
1,651
$
1,853
$
1,896
In millions
2016
2015
2014
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Operating Profit
(180)
540
191
68
465
(25)
61
(77)
178
2,202
2,361
2,058
Earnings (loss) from
continuing operations before
income taxes and equity
earnings
Interest expense, net
Noncontrolling interests /
equity earnings adjustment
(a)
Corporate items, net
Corporate special items, net
Non-operating pension
expense
956
520
1
69
46
610
1,266
555
8
36
238
258
872
601
2
51
320
212
Adjusted Operating Profit
$
2,202
$
2,361
$
2,058
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate
Depreciation and
Amortization
715
108
232
121
51
$
725
$
73
234
215
47
775
76
291
223
41
$
1,227
$
1,294
$
1,406
External Sales By Major Product
In millions
2016
2015
Industrial Packaging
$ 14,095
$ 14,421
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Other
Net Sales
934
4,028
1,934
88
873
4,046
2,907
118
$ 21,079
$ 22,365
2014
$ 14,837
947
4,413
3,307
113
$ 23,617
Restructuring and Other Charges
In millions
2016
2015
2014
INFORMATION BY GEOGRAPHIC AREA
Net Sales (d)
NOTE 20 SUBSEQUENT EVENT
On January 22, 2017, International Paper Company
experienced significant structural damage to the largest
pulp digester as well as the power house at its
Pensacola pulp and paper mill in Cantonment, Florida.
We estimate that repairing the damaged digester may
take approximately three months. While we have
property damage and business interruption insurance
for these types of events, we expect the costs
associated with this event to be in excess of
deductibles. The timing of these costs and potential
insurance recoveries is unknown.
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate
Restructuring and Other
Charges
Assets
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate and other (b)
Assets
Capital Spending
7
—
—
9
38
$
— $
—
—
10
242
7
—
554
8
277
In millions
United States (e)
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Net Sales
2016
2015
$ 15,918
2,862
718
1,581
$ 16,554
2,770
1,501
1,540
$ 21,079
$ 22,365
2014
$ 16,645
3,273
1,951
1,748
$ 23,617
$
54
$
252
$
846
2016
$ 14,565
3,789
3,958
1,736
9,297
$ 33,345
2015
$ 14,483
983
3,713
2,115
9,237
$ 30,531
Long-Lived Assets (f)
In millions
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Corporate
Long-Lived Assets
2016
2015
$ 11,158
1,004
246
1,663
375
$ 14,446
$
9,683
827
353
1,085
398
$ 12,346
In millions
2016
2015
2014
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Subtotal
Corporate and other (b)
816
174
215
124
1,329
19
$
$
858
129
232
216
1,435
52
754
75
243
233
1,305
61
Capital Spending
$
1,348
$
1,487
$
1,366
(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 the closure and/
or repurposing of mills.
(d) Net sales are attributed to countries based on the location of
the seller.
(e) Export sales to unaffiliated customers were $2.0 billion in 2016,
$2.0 billion in 2015 and $2.3 billion in 2014.
(f) Long-Lived Assets
includes Forestlands and Plants,
Properties and Equipment, net.
81
82
Operating Profit
Depreciation, Amortization and Cost of Timber
NOTE 20 SUBSEQUENT EVENT
On January 22, 2017, International Paper Company
experienced significant structural damage to the largest
pulp digester as well as the power house at its
Pensacola pulp and paper mill in Cantonment, Florida.
We estimate that repairing the damaged digester may
take approximately three months. While we have
property damage and business interruption insurance
for these types of events, we expect the costs
associated with this event to be in excess of
deductibles. The timing of these costs and potential
insurance recoveries is unknown.
In millions
2016
2015
2014
Harvested (c)
Industrial Packaging
$
1,651
$
1,853
$
1,896
In millions
2016
2015
2014
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Operating Profit
(180)
540
191
68
465
(25)
61
(77)
178
2,202
2,361
2,058
Restructuring and Other Charges
INFORMATION BY GEOGRAPHIC AREA
Adjusted Operating Profit
$
2,202
$
2,361
$
2,058
In millions
2016
2015
2014
Industrial Packaging
$
$
— $
$
54
$
252
$
846
Net Sales
$ 21,079
$ 22,365
$ 23,617
Earnings (loss) from
continuing operations before
income taxes and equity
earnings
Interest expense, net
Noncontrolling interests /
equity earnings adjustment
(a)
Corporate items, net
Corporate special items, net
Non-operating pension
expense
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate
Restructuring and Other
Charges
Assets
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate and other (b)
Assets
Capital Spending
956
520
1
69
46
610
7
—
—
9
38
1,266
555
8
36
238
258
—
—
10
242
872
601
2
51
320
212
7
—
554
8
277
2016
2015
$ 14,565
$ 14,483
3,789
3,958
1,736
9,297
983
3,713
2,115
9,237
$ 33,345
$ 30,531
In millions
2016
2015
2014
Industrial Packaging
$
$
$
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Subtotal
Corporate and other (b)
816
174
215
124
1,329
19
858
129
232
216
1,435
52
754
75
243
233
1,305
61
Capital Spending
$
1,348
$
1,487
$
1,366
Industrial Packaging
$
$
725
$
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Corporate
Depreciation and
Amortization
715
108
232
121
51
73
234
215
47
775
76
291
223
41
$
1,227
$
1,294
$
1,406
External Sales By Major Product
In millions
2016
2015
2014
Industrial Packaging
$ 14,095
$ 14,421
$ 14,837
Global Cellulose Fibers
Printing Papers
Consumer Packaging
Other
Net Sales
934
4,028
1,934
88
873
4,046
2,907
118
947
4,413
3,307
113
$ 21,079
$ 22,365
$ 23,617
Net Sales (d)
In millions
United States (e)
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Long-Lived Assets (f)
In millions
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Corporate
Long-Lived Assets
2016
2015
2014
$ 15,918
$ 16,554
$ 16,645
2,862
718
1,581
2,770
1,501
1,540
3,273
1,951
1,748
2016
2015
$ 11,158
$
9,683
1,004
246
1,663
375
827
353
1,085
398
$ 14,446
$ 12,346
(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
(b)
Includes corporate assets and assets of businesses held for
(c) Excludes accelerated depreciation related to the closure and/
or repurposing of mills.
(d) Net sales are attributed to countries based on the location of
(e) Export sales to unaffiliated customers were $2.0 billion in 2016,
$2.0 billion in 2015 and $2.3 billion in 2014.
(f) Long-Lived Assets
includes Forestlands and Plants,
Properties and Equipment, net.
earnings.
sale.
the seller.
81
82
INTERIM FINANCIAL RESULTS (UNAUDITED)
In millions, except per share amounts
and stock prices
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
2016
Net sales
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
$ 5,110
$ 5,322
$ 5,266
$ 5,381
$ 21,079
317 (a)
(14) (a)
373 (a)
280 (a)
956 (a)
(5) (b)
—
—
—
(5) (b)
334 (a-c)
40 (a,c)
312 (a,c)
218 (a,c)
904 (a-c)
$
0.82 (a)
$
0.10 (a)
$
0.76 (a)
$
0.53 (a)
$
2.21 (a)
(0.01) (b)
—
—
—
(0.01) (b)
Net earnings (loss)
0.81 (a-c)
0.10 (a,c)
0.76 (a,c)
0.53 (a,c)
2.20 (a-c)
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued
operations
0.82 (a)
0.10 (a)
0.75 (a)
0.53 (a)
2.19 (a)
(0.01) (b)
—
—
—
(0.01) (b)
Net earnings (loss)
0.81 (a-c)
0.10 (a,c)
0.75 (a,c)
0.53 (a,c)
2.18 (a-c)
Dividends per share of common stock
0.4400
0.4400
0.4400
0.4625
1.7825
Common stock prices
High
Low
2015
Net sales
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
Net earnings (loss)
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued operations
Net earnings (loss)
$ 42.09
$ 44.60
$ 49.90
$ 54.68
$ 54.68
32.50
39.24
41.08
43.55
32.50
$ 5,517
$ 5,714
$ 5,691
$ 5,443
$ 22,365
406
—
313
266 (d)
329 (d)
265 (d)
1,266 (d)
—
—
—
—
227 (d,e)
220 (d,e)
178 (d,e)
938 (d,e)
$
0.74
$
0.54 (d)
$
0.53 (d)
$
0.43 (d)
$
2.25 (d)
—
0.74
0.74
—
0.74
—
—
—
—
0.54 (d,e)
0.53 (d,e)
0.43 (d,e)
2.25 (d,e)
0.54 (d)
0.53 (d)
0.43 (d)
2.23 (d)
—
—
—
—
0.54 (d,e)
0.53 (d,e)
0.43 (d,e)
2.23 (d,e)
Dividends per share of common stock
0.4000
0.4000
0.4000
0.4400
1.6400
Common stock prices
High
Low
$ 57.90
$ 56.49
$ 49.49
$ 44.83
$ 57.90
51.35
47.39
37.11
36.76
36.76
In millions
Q1
Q2
Q3
Q4
Refund and state tax
2016
$
9
$ — $ — $ —
IP-Sun JV impairment
— 186
(d) Includes the following pre-tax charges (gains):
In millions
Q1
Q2
Q3
Q4
2015
Riegelwood mill conversion
costs, net of proceeds from
sale of the Carolina Coated
Bristols brand
Timber monetization
restructuring
Early debt extinguishment
costs
credits
Legal reserve adjustment
Impairment of Orsa
goodwill and trade name
intangible
Other items
Total
$ — $ (14) $
7
$ 15
—
—
— 207
17
—
—
—
(1)
—
—
(12)
15
— 137
1
4
(4)
—
—
1
$ — $ 190
$ 211
$ 158
(e) Includes the following tax expenses (benefits):
Tax expense for cash
pension
Tax benefit related to IP-
Sun JV
Other items
items
Total
2015
Q1
Q2
Q3
Q4
$ — $ 23
$ — $ —
—
5
(67)
—
—
2
(67)
(3)
(13)
$ — $ (39) $ (70) $ (11)
—
—
—
—
—
—
—
—
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. In addition, the
unaudited selected consolidated financial data are derived from our
audited consolidated financial statements and have been revised to
reflect discontinued operations.
Footnotes to Interim Financial Results
(a) Includes the following pre-tax charges (gains):
Riegelwood mill conversion
India Packaging evaluation
Early debt extinguishment
costs
write-off
costs
Write-off of certain
regulatory pre-engineering
costs
Costs associated with the
newly acquired pulp
business
Asia Box impairment /
restructuring
Gain on sale of investment
in Arizona Chemical
Turkey mill closure
Amortization of
Weyerhaeuser inventory
fair value step-up
—
—
—
—
—
37
(8)
—
—
—
5
28
—
—
17
29
8
7
5
—
—
—
(b) Includes a pre-tax charge of $8 million for a legal
settlement associated with the xpedx business.
(c) Includes the following tax expenses (benefits):
2016
Q1
Q2
Q3
Q4
Cash pension contribution
$ — $ 23
$ — $ —
U.S. Federal audit
Brazil goodwill
International legal entity
restructuring
Luxembourg tax rate
Tax impact of other special
change
items
Total
(14)
(57)
—
—
—
—
(6)
—
—
—
—
—
(3)
(10)
(24)
(14)
$ (74) $
7
$ (24) $ 17
—
—
—
19
—
—
7
19
—
—
—
31
Total
$ 38
$ 33
$ 66
$ 45
Tax impact of other special
—
—
83
84
(d) Includes the following pre-tax charges (gains):
In millions
Q1
Q2
Q3
Q4
2015
Riegelwood mill conversion
costs, net of proceeds from
sale of the Carolina Coated
Bristols brand
Timber monetization
restructuring
Early debt extinguishment
costs
Refund and state tax
credits
IP-Sun JV impairment
Legal reserve adjustment
Impairment of Orsa
goodwill and trade name
intangible
Other items
$ — $ (14) $
7
$ 15
—
—
— 207
—
—
—
—
—
(4)
—
—
1
17
—
—
—
(1)
—
—
(12)
15
— 137
1
4
— 186
Total
$ — $ 190
$ 211
$ 158
(e) Includes the following tax expenses (benefits):
Tax expense for cash
pension
Tax benefit related to IP-
Sun JV
Other items
Tax impact of other special
items
2015
Q1
Q2
Q3
Q4
$ — $ 23
$ — $ —
—
—
—
—
5
(67)
—
—
2
(67)
(3)
(13)
Total
$ — $ (39) $ (70) $ (11)
INTERIM FINANCIAL RESULTS (UNAUDITED)
In millions, except per share amounts
and stock prices
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
$ 5,110
$ 5,322
$ 5,266
$ 5,381
$ 21,079
317 (a)
(14) (a)
373 (a)
280 (a)
956 (a)
(5) (b)
—
—
—
(5) (b)
334 (a-c)
40 (a,c)
312 (a,c)
218 (a,c)
904 (a-c)
2016
Net sales
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
operations
Gain (loss) from discontinued
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
operations
Gain (loss) from discontinued
Common stock prices
High
Low
2015
Net sales
Earnings (loss) from continuing
operations before income taxes and
equity earnings
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
Net earnings (loss)
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Net earnings (loss)
Common stock prices
High
Low
$
0.82 (a)
$
0.10 (a)
$
0.76 (a)
$
0.53 (a)
$
2.21 (a)
Net earnings (loss)
0.81 (a-c)
0.10 (a,c)
0.76 (a,c)
0.53 (a,c)
2.20 (a-c)
(0.01) (b)
—
—
—
(0.01) (b)
0.82 (a)
0.10 (a)
0.75 (a)
0.53 (a)
2.19 (a)
Net earnings (loss)
0.81 (a-c)
0.10 (a,c)
0.75 (a,c)
0.53 (a,c)
2.18 (a-c)
Dividends per share of common stock
0.4400
0.4400
0.4400
0.4625
1.7825
(0.01) (b)
—
—
—
(0.01) (b)
$ 42.09
$ 44.60
$ 49.90
$ 54.68
$ 54.68
32.50
39.24
41.08
43.55
32.50
$ 5,517
$ 5,714
$ 5,691
$ 5,443
$ 22,365
Gain (loss) from discontinued operations
—
—
—
—
266 (d)
329 (d)
265 (d)
1,266 (d)
227 (d,e)
220 (d,e)
178 (d,e)
938 (d,e)
Gain (loss) from discontinued operations
—
—
—
—
$
0.74
$
0.54 (d)
$
0.53 (d)
$
0.43 (d)
$
2.25 (d)
0.54 (d,e)
0.53 (d,e)
0.43 (d,e)
2.25 (d,e)
Gain (loss) from discontinued operations
—
—
—
—
0.54 (d)
0.53 (d)
0.43 (d)
2.23 (d)
Dividends per share of common stock
0.4000
0.4000
0.4000
0.4400
1.6400
0.54 (d,e)
0.53 (d,e)
0.43 (d,e)
2.23 (d,e)
$ 57.90
$ 56.49
$ 49.49
$ 44.83
$ 57.90
51.35
47.39
37.11
36.76
36.76
406
—
313
—
0.74
0.74
—
0.74
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. In addition, the
unaudited selected consolidated financial data are derived from our
audited consolidated financial statements and have been revised to
reflect discontinued operations.
Footnotes to Interim Financial Results
(a) Includes the following pre-tax charges (gains):
In millions
Q1
Q2
Q3
Q4
2016
Riegelwood mill conversion
costs
India Packaging evaluation
write-off
Early debt extinguishment
costs
Write-off of certain
regulatory pre-engineering
costs
Costs associated with the
newly acquired pulp
business
Asia Box impairment /
restructuring
Gain on sale of investment
in Arizona Chemical
Turkey mill closure
Amortization of
Weyerhaeuser inventory
fair value step-up
$
9
$ — $ — $ —
—
—
—
—
—
—
—
37
(8)
—
5
28
—
—
—
—
17
29
8
7
5
—
—
—
—
—
—
19
—
—
7
19
Total
$ 38
$ 33
$ 66
$ 45
(b) Includes a pre-tax charge of $8 million for a legal
settlement associated with the xpedx business.
(c) Includes the following tax expenses (benefits):
2016
Q1
Q2
Q3
Q4
Cash pension contribution
$ — $ 23
$ — $ —
U.S. Federal audit
Brazil goodwill
International legal entity
restructuring
Luxembourg tax rate
change
Tax impact of other special
items
Total
(14)
(57)
—
—
—
—
(6)
—
—
—
—
—
—
—
—
31
(3)
(10)
(24)
(14)
$ (74) $
7
$ (24) $ 17
83
84
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE 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
recorded, processed,
is
(the
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, 2016, 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, 2016.
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;
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
in accordance with
are being made only
authorizations of our management and directors;
•
•
assurance
reasonable
provide reasonable assurance as to the detection
of fraud.
provide
regarding
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
financial statements and attestation report are included
in Part II, Item 8 of this Annual Report under the heading
“Financial Statements and Supplementary Data.”
PART III.
MANAGEMENT’S PROCESS TO ASSESS THE
EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL
REPORTING
To comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, we
followed a
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
statements
and
financial
reporting
procedures, the performance of our internal audit
function and independent auditors, and other matters
set forth in its charter. The Committee, which consists
of
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.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Information concerning our directors
is hereby
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 5
and 6 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
following
the annual meeting of
shareholders and, until the election of successors,
subject to removal by the Board.
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
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.
There have been no changes in our internal control over
and the Charters of our Audit and Finance Committee,
financial
reporting during
the quarter ended
Management Development and Compensation
December 31, 2016, that have materially affected, or
Committee, Governance Committee and Public Policy
are reasonably likely to materially affect, our internal
and Environment Committee. Requests for copies may
control over financial reporting.
be directed to the corporate secretary at our corporate
ITEM 9B. OTHER INFORMATION
None.
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, 2016, management has assessed
the effectiveness of the Company’s internal control over
financial reporting. In a report included on pages 39 and
40, management concluded that the Company’s
internal control over financial reporting was effective as
of December 31, 2016.
In making this assessment, we used the criteria
described in “Internal Control – Integrated Framework
(2013)” issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company completed the acquisition of Holmen
Paper’s newsprint mill in Madrid, Spain as well as the
associated recycling operations and a 50% ownership
in a cogeneration facility in June 2016. Due to the timing
of the acquisition we have excluded the Holmen
operations from our evaluation of the effectiveness of
internal control over financial reporting. For the period
ended December 31, 2016, sales and assets for the
former Holmen operations represented approximately
0.4% of net sales and 0.3% of total assets.
The Company completed
the acquisition of
Weyerhaeuser’s pulp business in December 2016. Due
to the timing of the acquisition we have excluded the
former Weyerhaeuser pulp business
from our
evaluation of the effectiveness of internal control over
financial reporting. For the period ended December 31,
2016, sales and assets for the former Weyerhaeuser
pulp business represented approximately 0.5% of net
sales and 6.5% of total assets.
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. Deloitte & Touche LLP has also issued
an attestation report on our internal control over
financial reporting. Their report on the consolidated
85
86
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
•
provide
reasonable
assurance
regarding
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
ITEM 9A. CONTROLS AND PROCEDURES
•
provide reasonable assurance as to the detection
EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES
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
“Exchange Act”),
is
recorded, processed,
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, 2016, 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, 2016.
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
financial statements
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:
•
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
•
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;
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, 2016, management has assessed
the effectiveness of the Company’s internal control over
financial reporting. In a report included on pages 39 and
40, management concluded that the Company’s
internal control over financial reporting was effective as
of December 31, 2016.
In making this assessment, we used the criteria
described in “Internal Control – Integrated Framework
(2013)” issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company completed the acquisition of Holmen
Paper’s newsprint mill in Madrid, Spain as well as the
associated recycling operations and a 50% ownership
in a cogeneration facility in June 2016. Due to the timing
of the acquisition we have excluded the Holmen
operations from our evaluation of the effectiveness of
internal control over financial reporting. For the period
ended December 31, 2016, sales and assets for the
former Holmen operations represented approximately
0.4% of net sales and 0.3% of total assets.
The Company completed
the acquisition of
Weyerhaeuser’s pulp business in December 2016. Due
to the timing of the acquisition we have excluded the
former Weyerhaeuser pulp business
from our
evaluation of the effectiveness of internal control over
financial reporting. For the period ended December 31,
2016, sales and assets for the former Weyerhaeuser
pulp business represented approximately 0.5% of net
sales and 6.5% of total assets.
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. Deloitte & Touche LLP has also issued
an attestation report on our internal control over
financial reporting. Their report on the consolidated
financial statements and attestation report are included
in Part II, Item 8 of this Annual Report under the heading
“Financial Statements and Supplementary Data.”
PART III.
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 consists
regularly with
of
representatives of management, and with
the
independent auditors and the Internal Auditor, with and
without management representatives in attendance, to
review their activities.
independent directors, meets
statements
financial
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
reporting during
There have been no changes in our internal control over
financial
the quarter ended
December 31, 2016, that have materially affected, or
are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
85
86
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 5
and 6 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.
the consolidated
(2) Financial Statement Schedules – The following
additional financial data should be read in
conjunction with
financial
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
2016, 2015 and 2014
Consolidated Schedule:
II-Valuation and
Qualifying Accounts.
90
(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 February 9, 2016
(incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-
K dated February 8, 2016).
(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) Supplemental Indenture (including the form
(10.8) Form of Restricted Stock Unit Award
of Notes), dated as of June 10, 2014,
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 June 10, 2014).
(4.8) Supplemental Indenture (including the form
of Notes), dated as of May 26, 2015,
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 May 26, 2015).
(4.9) Supplemental Indenture (including the form
of Notes), dated as of August 11, 2016,
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 August 11, 2016).
(4.10) In
accordance
with
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 Plan (ICP) (incorporated by
reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February
10, 2014). +
(10.2) 2016 Management
Incentive
Plan
(incorporated by reference to Exhibit 99.1 to
the Company’s Current Report on Form 8-
K dated February 8, 2016). +
(10.3) 2017 Management Incentive Plan. * +
(10.4) Amended and Restated 2009 Executive
Management Incentive Plan, including 2015
Exhibits thereto (incorporated by reference
to Exhibit 10.4 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2014). +
(10.5) 2017 Exhibits to the Amended and Restated
2009 Executive Management
Incentive
Plan. * +
(10.6) Restricted
Stock
and
Deferred
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). +
(10.7) Form of Restricted Stock Award Agreement.
(incorporated by reference to Exhibit 10.8 to
the Company’s Annual Report on Form 10-
K for the fiscal year ended December 31,
2013). +
Agreement (cash settled). (incorporated by
reference to Exhibit 10.9 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2013). +
(10.9) Form of Restricted Stock Unit Award
Agreement (stock settled). (incorporated by
reference to Exhibit 10.10 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2013). +
(10.10) Form of Performance Share Plan award
certificate. * +
(10.11) 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). +
(10.12) Unfunded Supplemental Retirement Plan
for Senior Managers, as amended and
restated effective January 1, 2008
(incorporated by reference to Exhibit 10.21
to
the Company’s Annual Report on
Form 10-K
for
the
fiscal year ended
December 31, 2007). +
(10.13) Amendment No. 1 to the International Paper
Company
Unfunded
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). +
(10.14) Amendment No. 2 to the International Paper
Company
Unfunded
Supplemental
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). +
(10.15) Amendment No. 3 to the International Paper
Company
Unfunded
Supplemental
Retirement Plan for Senior Managers,
effective December 8, 2008 (incorporated
by reference
to Exhibit 10.20
to
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+
(10.16) Amendment No. 4 to the International Paper
Company
Unfunded
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). +
(10.17) Amendment No. 5 to the International Paper
Company
Unfunded
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). +
87
88
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.
SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
(1) Financial Statements – See Item 8. Financial
Statements and Supplementary Data.
(2) Financial Statement Schedules – The following
additional financial data should be read in
conjunction with
the consolidated
financial
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
2016, 2015 and 2014
Consolidated Schedule:
II-Valuation and
Qualifying Accounts.
90
(3.1) Restated Certificate of
Incorporation
of International
Paper
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 February 9, 2016
(incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-
K dated February 8, 2016).
(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) Supplemental Indenture (including the form
of Notes), dated as of June 10, 2014,
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 June 10, 2014).
(4.8) Supplemental Indenture (including the form
of Notes), dated as of May 26, 2015,
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 May 26, 2015).
(4.9) Supplemental Indenture (including the form
of Notes), dated as of August 11, 2016,
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 August 11, 2016).
(4.10) 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 Plan (ICP) (incorporated by
reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February
10, 2014). +
(10.2) 2016 Management
Plan
(incorporated by reference to Exhibit 99.1 to
the Company’s Current Report on Form 8-
K dated February 8, 2016). +
Incentive
(10.3) 2017 Management Incentive Plan. * +
(10.4) Amended and Restated 2009 Executive
Management Incentive Plan, including 2015
Exhibits thereto (incorporated by reference
to Exhibit 10.4 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2014). +
(10.5) 2017 Exhibits to the Amended and Restated
Incentive
2009 Executive Management
Plan. * +
(10.6) 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). +
(10.7) Form of Restricted Stock Award Agreement.
(incorporated by reference to Exhibit 10.8 to
the Company’s Annual Report on Form 10-
K for the fiscal year ended December 31,
2013). +
87
88
(10.8) Form of Restricted Stock Unit Award
Agreement (cash settled). (incorporated by
reference to Exhibit 10.9 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2013). +
(10.9) Form of Restricted Stock Unit Award
Agreement (stock settled). (incorporated by
reference to Exhibit 10.10 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2013). +
(10.10) Form of Performance Share Plan award
certificate. * +
(10.11) 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). +
(10.12) 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
fiscal year ended
Form 10-K
December 31, 2007). +
the
for
Unfunded
(10.13) 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
(10.14) Amendment No. 2 to the International Paper
Company
Supplemental
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
(10.15) 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
to
Unfunded
(10.16) 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). +
Unfunded
(10.17) 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
(10.18) Amendment No. 6 to the International Paper
Supplemental
Company
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). +
(10.19) 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
to
(10.20) 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
to
(10.21) 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). +
(10.22) 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
(10.23) 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). +
(10.24) 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). +
(10.25) 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). +
(10.26) Time Sharing Agreement, dated October 17,
2014 (and effective November 1, 2014), by
and between Mark S. Sutton and
International Paper Company (incorporated
by
the
Company’s Current Report on Form 8-K
dated October 14, 2014). +
to Exhibit 99.1
reference
to
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)
For the Year Ended December 31, 2016
Balance at
Beginning
of Period
Additions
Charged to
Earnings
Additions
Charged to
Other
Accounts
Deductions
Balance at
from
Reserves
End of
Period
Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts – current
$
Restructuring reserves
70 $
10
9 $
3
—
—
(9)(a) $
(7)(b)
70
6
For the Year Ended December 31, 2015
Balance at
Beginning
of Period
Additions
Charged to
Earnings
Additions
Charged to
Other
Accounts
Deductions
Balance at
from
Reserves
End of
Period
Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts – current
$
Restructuring reserves
82 $
16
11 $
5
—
—
(23)(a) $
(11)(b)
70
10
For the Year Ended December 31, 2014
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
$
109 $
Restructuring reserves
51
11 $
41
—
—
(38)(a) $
(76)(b)
82
16
(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.
(10.27) Five-Year Credit Agreement dated as of
August 5, 2014, among International
Paper Company, JPMorgan Chase
Bank, N.A.,
individually and as
administrative agent, and certain lenders
(incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2014).
(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. *
(23.1) Consent of
Independent Registered
Public Accounting Firm. *
(23.2) Consent of Independent Auditors. *
(24) Power of Attorney (contained on the
signature page to the Company’s Annual
Report on Form 10-K for the year ended
December 31, 2016). *
(31.1) Certification by Mark S. Sutton,
Chairman and Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. *
(31.2) Certification by Carol L. Roberts, Chief
Financial
to
Officer,
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.*
(99.1) Audited Financial Statements for Ilim
Holding S.A. and its subsidiaries as of
and for the year ended December 31,
2016 and 2015. *
(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
89
90
Balance at
End of
Period
Balance at
Beginning
of Period
Additions
Charged to
Earnings
Deductions
from
Reserves
For the Year Ended December 31, 2016
Additions
Charged to
Other
Accounts
(10.18) Amendment No. 6 to the International Paper
(10.27) Five-Year Credit Agreement dated as of
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Company
Unfunded
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). +
(10.19) Form of Non-Competition Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
by reference
to Exhibit 10.22
to
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+
(10.20) Form of Non-Solicitation Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
by
reference
to Exhibit 10.5
to
the
Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006). +
(10.21) 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). +
(10.22) Form of Change-in-Control Agreement - Tier
II, for all future senior vice presidents and all
"grandfathered" vice presidents elected
prior
to February 2008
- 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). +
(10.23) 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). +
(10.24) 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). +
(10.25) 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). +
(10.26) Time Sharing Agreement, dated October 17,
2014 (and effective November 1, 2014), by
and between Mark S. Sutton and
International Paper Company (incorporated
by
reference
to Exhibit 99.1
to
the
Company’s Current Report on Form 8-K
dated October 14, 2014). +
August 5, 2014, among International
Paper Company, JPMorgan Chase
Bank, N.A.,
individually and as
administrative agent, and certain lenders
(incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2014).
(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. *
(23.1) Consent of
Independent Registered
Public Accounting Firm. *
(23.2) Consent of Independent Auditors. *
(24) Power of Attorney (contained on the
signature page to the Company’s Annual
Report on Form 10-K for the year ended
December 31, 2016). *
(31.1) Certification by Mark S. Sutton,
Chairman and Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. *
(31.2) Certification by Carol L. Roberts, Chief
Financial
Officer,
pursuant
to
Section 302 of the Sarbanes-Oxley Act
of 2002. *
(32) Certification pursuant
to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.*
(99.1) Audited Financial Statements for Ilim
Holding S.A. and its subsidiaries as of
and for the year ended December 31,
2016 and 2015. *
(101.INS) XBRL Instance Document *
(101.SCH) XBRL Taxonomy Extension Schema *
(101.CAL) XBRL Taxonomy Extension Calculation
(101.DEF) XBRL Taxonomy Extension Definition
(101.LAB) XBRL Taxonomy Extension Label
(101.PRE) XBRL Extension Presentation Linkbase
Linkbase *
Linkbase *
Linkbase *
*
+ Management contract or compensatory plan or arrangement.
* Filed herewith
Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts – current
Restructuring reserves
Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts – current
Restructuring reserves
Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
$
70 $
10
9 $
3
—
—
(9)(a) $
(7)(b)
70
6
For the Year Ended December 31, 2015
Additions
Charged to
Other
Accounts
Deductions
from
Reserves
Additions
Charged to
Earnings
Balance at
End of
Period
Balance at
Beginning
of Period
$
82 $
16
11 $
5
—
—
(23)(a) $
(11)(b)
70
10
For the Year Ended December 31, 2014
Balance at
Beginning
of Period
Additions
Charged to
Earnings
Additions
Charged to
Other
Accounts
Deductions
from
Reserves
Balance at
End of
Period
Doubtful accounts – current
$
109 $
Restructuring reserves
51
11 $
41
—
—
(38)(a) $
(76)(b)
82
16
(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.
89
90
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 22, 2017
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:
Signature
Title
Date
Chairman of the Board & Chief
Executive Officer and Director
February 22, 2017
/S/ WILLIAM J. BURNS Director
February 22, 2017
/S/ JAY L. JOHNSON
Director
February 22, 2017
/S/ MARK S. SUTTON
Mark S. Sutton
/S/ DAVID J. BRONCZEK Director
David J. Bronczek
Willliam J. Burns
/S/ AHMET C. DORDUNCU Director
Ahmet C. Dorduncu
/S/ ILENE S. GORDON
Director
Ilene S. Gordon
Jay L. Johnson
/S/ STACEY J. MOBLEY Director
Stacey J. Mobley
/S/ JOHN L. TOWNSEND III Director
John L. Townsend III
/S/ WILLIAM G. WALTER Director
William G. Walter
/S/ J. STEVEN WHISLER Director
J. Steven Whisler
/S/ RAY G. YOUNG
Director
Ray G. Young
Carol L. Roberts
Vincent P. Bonnot
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
/S/ CAROL L. ROBERTS
Senior Vice President and Chief
Financial Officer
February 22, 2017
/S/ VINCENT P. BONNOT Vice President – Finance and Controller
February 22, 2017
91
92
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
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:
Signature
Title
Date
February 22, 2017
/S/ MARK S. SUTTON
Mark S. Sutton
Chairman of the Board & Chief
Executive Officer and Director
February 22, 2017
/S/ DAVID J. BRONCZEK Director
David J. Bronczek
February 22, 2017
/S/ WILLIAM J. BURNS Director
February 22, 2017
Willliam J. Burns
/S/ AHMET C. DORDUNCU Director
Ahmet C. Dorduncu
/S/ ILENE S. GORDON
Director
Ilene S. Gordon
February 22, 2017
February 22, 2017
/S/ JAY L. JOHNSON
Director
February 22, 2017
Jay L. Johnson
/S/ STACEY J. MOBLEY Director
Stacey J. Mobley
/S/ JOHN L. TOWNSEND III Director
John L. Townsend III
/S/ WILLIAM G. WALTER Director
William G. Walter
/S/ J. STEVEN WHISLER Director
J. Steven Whisler
/S/ RAY G. YOUNG
Director
Ray G. Young
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
/S/ CAROL L. ROBERTS
Senior Vice President and Chief
Financial Officer
February 22, 2017
Carol L. Roberts
/S/ VINCENT P. BONNOT Vice President – Finance and Controller
February 22, 2017
Vincent P. Bonnot
91
92
2016 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)
PRINTING PAPERS
U.S.:
Selma, Alabama (Riverdale Mill)
Ticonderoga, New York
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
International:
Luiz Antônio, São Paulo, Brazil
Mogi Guacu, São Paulo, Brazil
Cedar Rapids, Iowa
Henderson, Kentucky
Maysville, Kentucky
Bogalusa, Louisiana
Campti, Louisiana
Mansfield, Louisiana
Vicksburg, Mississippi
Valliant, Oklahoma
Springfield, Oregon
Orange, Texas
Três Lagoas, Mato Grosso do Sul, Brazil
International:
APPENDIX I
Tracy, California
Golden, Colorado
Wheat Ridge, Colorado
Putnam, Connecticut
Orlando, Florida
Plant City, Florida
Tampa, Florida leased
Columbus, Georgia
Forest Park, Georgia
Griffin, Georgia
Kennesaw, Georgia leased
Lithonia, Georgia
Franco da Rocha, São Paulo, Brazil
Savannah, Georgia
Nova Campina, São Paulo, Brazil
Stone Mountain, Georgia leased
Paulinia, São Paulo, Brazil
Tucker, Georgia
Cantonment, Florida (Pensacola Mill)
Corrugated Container
Veracruz, Mexico
Kenitra, Morocco
Madrid, Spain
Edirne, Turkey (2)
U.S.:
Bay Minette, Alabama
Decatur, Alabama
Dothan, Alabama leased
Huntsville, Alabama
Conway, Arkansas
Tolleson, Arizona
Yuma, Arizona
Anaheim, California
Camarillo, California
Carson, California
Aurora, Illinois (3 locations)
Bedford Park, Illinois (2 locations)
1 leased
Belleville, Illinois
Carroll Stream, Illinois
Des Plaines, Illinois
Lincoln, Illinois
Montgomery, Illinois
Northlake, Illinois
Rockford, Illinois
Butler, Indiana
Crawfordsville, Indiana
Fort Wayne, Indiana
Saint Anthony, Indiana
Tipton, Indiana
Cedar Rapids, Iowa
Waterloo, Iowa
Garden City, Kansas
Kansas City, Kansas
Fort Smith, Arkansas (2 locations)
Hammond, Indiana
Russellville, Arkansas (2 locations)
Indianapolis, Indiana (2 locations)
Grand Prairie, Alberta, Canada
Buena Park, California leased
Saillat, France
Kadiam, India
Rajahmundry, India
Kwidzyn, Poland
Svetogorsk, Russia
GLOBAL CELLULOSE FIBERS
U.S.:
Augusta, Georgia
Flint River, Georgia
Port Wentworth, Georgia
Columbus, Mississippi
New Bern, North Carolina
Riegelwood, North Carolina
Eastover, South Carolina
Georgetown, South Carolina
Franklin, Virginia
International:
Saillat, France
Gdansk, Poland
Kwidzyn, Poland
Svetogorsk, Russia
INDUSTRIAL PACKAGING
Containerboard
U.S.:
Pine Hill, Alabama
Prattville, Alabama
Cantonment, Florida (Pensacola Mill)
Rome, Georgia
Savannah, Georgia
Cayuga, Indiana
Cerritos, California leased
Bowling Green, Kentucky
Compton, California
Elk Grove, California
Exeter, California
Gilroy, California (2 locations)
Los Angeles, California
Modesto, California
Ontario, California
Salinas, California
Sanger, California
Lexington, Kentucky
Louisville, Kentucky
Walton, Kentucky
Bogalusa, Louisiana
Lafayette, Louisiana
Shreveport, Louisiana
Springhill, Louisiana
Auburn, Maine
Three Rivers, Michigan
San Leandro, California leased
Arden Hills, Minnesota
Santa Fe Springs, California (2
locations)
Stockton, California
Austin, Minnesota
Fridley, Minnesota
A-1
A-2
Minneapolis, Minnesota leased
Hazleton, Pennsylvania
Nanjing China (1)
Shakopee, Minnesota
Kennett Square, Pennsylvania
Shanghai, China (2 locations) (1)
White Bear Lake, Minnesota
Lancaster, Pennsylvania
Houston, Mississippi
Jackson, Mississippi
Magnolia, Mississippi leased
Olive Branch, Mississippi
Fenton, Missouri
Kansas City, Missouri
Mount Carmel, Pennsylvania
Georgetown, South Carolina
Laurens, South Carolina
Lexington, South Carolina
Shenyang, China (1)
Suzhou, China (1)
Tianjin, China (2 locations) (1)
Wuhan, China (1)
Arles, France
Ashland City, Tennessee leased
Chalon-sur-Saone, France
Cleveland, Tennessee
Creil, France
Maryland Heights, Missouri
Elizabethton, Tennessee leased
LePuy, France (Espaly Box Plant)
North Kansas City, Missouri leased
Morristown, Tennessee
Mortagne, France
Murfreesboro, Tennessee
Guadeloupe, French West Indies
Charlotte, North Carolina (2 locations)
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
1 leased
Lumberton, North Carolina
Manson, North Carolina
Newton, North Carolina
Statesville, North Carolina
Byesville, Ohio
Delaware, Ohio
Eaton, Ohio
Madison, Ohio
Marion, Ohio
Marysville, Ohio leased
Middletown, Ohio
Mt. Vernon, Ohio
Newark, Ohio
Streetsboro, Ohio
Wooster, Ohio
Oklahoma City, Oklahoma
Beaverton, Oregon (3 locations)
Hillsboro, Oregon
Portland, Oregon
Salem, Oregon leased
Amarillo, Texas
Carrollton, Texas (2 locations)
Edinburg, Texas
El Paso, Texas
Ft. Worth, Texas leased
Grand Prairie, Texas
Hidalgo, Texas
McAllen, Texas
San Antonio, Texas (2 locations)
Sealy, Texas
Waxahachie, Texas
Lynchburg, Virginia
Petersburg, Virginia
Richmond, Virginia
Moses Lake, Washington
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 (1)
Beijing, China (1)
Chengdu, China (1)
Dalian, China (1)
Dongguan, China (1)
Biglerville, Pennsylvania (2 locations)
Guangzhou, China (2 locations) (1)
Eighty-four, Pennsylvania
Hohhot, China (1)
Batam, Indonesia (1)
Bellusco, Italy
Catania, Italy
Pomezia, Italy
San Felice, Italy
Kuala Lumpur, Malaysia (1)
Juhor, Malaysia (1)
Apodaco (Monterrey), Mexico leased
Ixtaczoquitlan, Mexico
Juarez, Mexico leased
Los Mochis, Mexico
Puebla, Mexico leased
Reynosa, Mexico
San Jose Iturbide, Mexico
Santa Catarina, Mexico
Silao, Mexico
Villa Nicolas Romero, Mexico
Zapopan, Mexico
Agadir, Morocco
Casablanca, Morocco
Kenitra, Morocco
Singapore, Singapore (1)
Almeria, Spain
Barcelona, Spain
Bilbao, Spain
Gandia, Spain
Madrid, Spain
Bangkok, Thailand (1)
Adana, Turkey
Bursa, Turkey
Corlu, Turkey
Corum, Turkey
Gebze, Turkey
Izmir, Turkey
2016 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)
APPENDIX I
Minneapolis, Minnesota leased
Hazleton, Pennsylvania
Nanjing China (1)
Shakopee, Minnesota
Kennett Square, Pennsylvania
Shanghai, China (2 locations) (1)
White Bear Lake, Minnesota
Lancaster, Pennsylvania
Houston, Mississippi
Jackson, Mississippi
Magnolia, Mississippi leased
Olive Branch, Mississippi
Fenton, Missouri
Kansas City, Missouri
Mount Carmel, Pennsylvania
Georgetown, South Carolina
Laurens, South Carolina
Lexington, South Carolina
Shenyang, China (1)
Suzhou, China (1)
Tianjin, China (2 locations) (1)
Wuhan, China (1)
Arles, France
Ashland City, Tennessee leased
Chalon-sur-Saone, France
Cleveland, Tennessee
Creil, France
Maryland Heights, Missouri
Elizabethton, Tennessee leased
LePuy, France (Espaly Box Plant)
North Kansas City, Missouri leased
Morristown, Tennessee
Mortagne, France
Murfreesboro, Tennessee
Guadeloupe, French West Indies
Três Lagoas, Mato Grosso do Sul, Brazil
International:
Franco da Rocha, São Paulo, Brazil
Savannah, Georgia
Nova Campina, São Paulo, Brazil
Stone Mountain, Georgia leased
Paulinia, São Paulo, Brazil
Tucker, Georgia
Aurora, Illinois (3 locations)
Bedford Park, Illinois (2 locations)
Cantonment, Florida (Pensacola Mill)
Corrugated Container
Fort Smith, Arkansas (2 locations)
Hammond, Indiana
Russellville, Arkansas (2 locations)
Indianapolis, Indiana (2 locations)
Grand Prairie, Alberta, Canada
Buena Park, California leased
Cerritos, California leased
Bowling Green, Kentucky
PRINTING PAPERS
U.S.:
Selma, Alabama (Riverdale Mill)
Ticonderoga, New York
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
International:
Luiz Antônio, São Paulo, Brazil
Mogi Guacu, São Paulo, Brazil
Saillat, France
Kadiam, India
Rajahmundry, India
Kwidzyn, Poland
Svetogorsk, Russia
GLOBAL CELLULOSE FIBERS
U.S.:
Augusta, Georgia
Flint River, Georgia
Port Wentworth, Georgia
Columbus, Mississippi
New Bern, North Carolina
Riegelwood, North Carolina
Eastover, South Carolina
Georgetown, South Carolina
Franklin, Virginia
International:
Saillat, France
Gdansk, Poland
Kwidzyn, Poland
Svetogorsk, Russia
INDUSTRIAL PACKAGING
Containerboard
U.S.:
Pine Hill, Alabama
Prattville, Alabama
Rome, Georgia
Savannah, Georgia
Cayuga, Indiana
Cantonment, Florida (Pensacola Mill)
Cedar Rapids, Iowa
Henderson, Kentucky
Maysville, Kentucky
Bogalusa, Louisiana
Campti, Louisiana
Mansfield, Louisiana
Vicksburg, Mississippi
Valliant, Oklahoma
Springfield, Oregon
Orange, Texas
Veracruz, Mexico
Kenitra, Morocco
Madrid, Spain
Edirne, Turkey (2)
U.S.:
Bay Minette, Alabama
Decatur, Alabama
Dothan, Alabama leased
Huntsville, Alabama
Conway, Arkansas
Tolleson, Arizona
Yuma, Arizona
Anaheim, California
Camarillo, California
Carson, California
Compton, California
Elk Grove, California
Exeter, California
Gilroy, California (2 locations)
Los Angeles, California
Modesto, California
Ontario, California
Salinas, California
Sanger, California
Tracy, California
Golden, Colorado
Wheat Ridge, Colorado
Putnam, Connecticut
Orlando, Florida
Plant City, Florida
Tampa, Florida leased
Columbus, Georgia
Forest Park, Georgia
Griffin, Georgia
Kennesaw, Georgia leased
Lithonia, Georgia
1 leased
Belleville, Illinois
Carroll Stream, Illinois
Des Plaines, Illinois
Lincoln, Illinois
Montgomery, Illinois
Northlake, Illinois
Rockford, Illinois
Butler, Indiana
Crawfordsville, Indiana
Fort Wayne, Indiana
Saint Anthony, Indiana
Tipton, Indiana
Cedar Rapids, Iowa
Waterloo, Iowa
Garden City, Kansas
Kansas City, Kansas
Lexington, Kentucky
Louisville, Kentucky
Walton, Kentucky
Bogalusa, Louisiana
Lafayette, Louisiana
Shreveport, Louisiana
Springhill, Louisiana
Auburn, Maine
Three Rivers, Michigan
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
Madison, Ohio
Marion, Ohio
Marysville, Ohio leased
Middletown, Ohio
Mt. Vernon, Ohio
Newark, Ohio
Streetsboro, Ohio
Wooster, Ohio
Oklahoma City, Oklahoma
Beaverton, Oregon (3 locations)
Hillsboro, Oregon
Portland, Oregon
Salem, Oregon leased
Amarillo, Texas
Carrollton, Texas (2 locations)
Edinburg, Texas
El Paso, Texas
Ft. Worth, Texas leased
Grand Prairie, Texas
Hidalgo, Texas
McAllen, Texas
San Antonio, Texas (2 locations)
Sealy, Texas
Waxahachie, Texas
Lynchburg, Virginia
Petersburg, Virginia
Richmond, Virginia
Moses Lake, Washington
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 (1)
Beijing, China (1)
Chengdu, China (1)
Dalian, China (1)
Dongguan, China (1)
Batam, Indonesia (1)
Bellusco, Italy
Catania, Italy
Pomezia, Italy
San Felice, Italy
Kuala Lumpur, Malaysia (1)
Juhor, Malaysia (1)
Apodaco (Monterrey), Mexico leased
Ixtaczoquitlan, Mexico
Juarez, Mexico leased
Los Mochis, Mexico
Puebla, Mexico leased
Reynosa, Mexico
San Jose Iturbide, Mexico
Santa Catarina, Mexico
Silao, Mexico
Villa Nicolas Romero, Mexico
Zapopan, Mexico
Agadir, Morocco
Casablanca, Morocco
Kenitra, Morocco
Singapore, Singapore (1)
Almeria, Spain
Barcelona, Spain
Bilbao, Spain
Gandia, Spain
Madrid, Spain
Bangkok, Thailand (1)
Adana, Turkey
Bursa, Turkey
Corlu, Turkey
Corum, Turkey
Gebze, Turkey
Izmir, Turkey
San Leandro, California leased
Arden Hills, Minnesota
Santa Fe Springs, California (2
locations)
Stockton, California
Austin, Minnesota
Fridley, Minnesota
Biglerville, Pennsylvania (2 locations)
Guangzhou, China (2 locations) (1)
Eighty-four, Pennsylvania
Hohhot, China (1)
A-1
A-2
Recycling
U.S.:
Phoenix, Arizona
Fremont, California
Norwalk, California
West Sacramento, California
Itasca, Illinois
Des Moines, Iowa
Wichita, Kansas
Roseville, Minnesota
Omaha, Nebraska
Charlotte, North Carolina
Beaverton, Oregon
Eugene, Oregon leased
Carrollton, Texas
Salt Lake City, Utah
Richmond, Virginia
Kent, Washington
International:
International:
Kwidzyn, Poland
Svetogorsk, Russia
Foodservice
U.S.:
Visalia, California
Shelbyville, Illinois
Kenton, Ohio
International:
Shanghai, China
Tianjin, China
Bogota, Colombia
Cheshire, England leased
DISTRIBUTION
IP Asia
International:
Monterrey, Mexico leased
China (8 locations)
Malaysia
Taiwan
Thailand
Vietnam
Forest Resources
International:
Approximately 329,400 acres in Brazil
Xalapa, Veracruz, Mexico leased
Bags
U.S.:
Buena Park, California
Beaverton, Oregon
Grand Prairie, Texas
CONSUMER PACKAGING
Coated Paperboard
Augusta, Georgia
Prosperity, South Carolina
Texarkana, Texas
(1) Closed June 2016
(2) Closed January 2017
APPENDIX II
2016 CAPACITY INFORMATION
CONTINUING OPERATIONS
Industrial Packaging
Containerboard (a)
Global Cellulose Fibers
Printing Papers
Uncoated Freesheet
Bristols
Newsprint
Total Printing Papers
Consumer Packaging
Coated Paperboard
Uncoated Papers and Bristols
(in thousands of short tons except as noted)
U.S.
EMEA
India
Total
Americas,
other
than U.S.
Dried Pulp (in thousands of metric tons)
2,912
297
535
13,305
44
366
13,715
—
—
266
—
266
—
266
3,744
4,362
165
4,527
285
4,812
1,153
1,135
1,808
165
1,973
—
1,973
—
1,153
285
1,438
1,135
1,135
—
—
—
1,206
395
—
1,601
(a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum.
Forest Resources
We own, manage or have an interest in
approximately 1.4 million acres of forestlands
worldwide. These forestlands and associated acres
are located in the following regions:
We have harvesting rights in:
Brazil
Russia
Poland
Total
(M Acres)
329
1,047
—
1,376
A-3
A-4
International:
Kwidzyn, Poland
Svetogorsk, Russia
Foodservice
U.S.:
Visalia, California
Shelbyville, Illinois
Kenton, Ohio
International:
Shanghai, China
Tianjin, China
Bogota, Colombia
Cheshire, England leased
DISTRIBUTION
IP Asia
International:
Malaysia
Taiwan
Thailand
Vietnam
Forest Resources
International:
Approximately 329,400 acres in Brazil
International:
Monterrey, Mexico leased
China (8 locations)
Xalapa, Veracruz, Mexico leased
Recycling
U.S.:
Phoenix, Arizona
Fremont, California
Norwalk, California
West Sacramento, California
Itasca, Illinois
Des Moines, Iowa
Wichita, Kansas
Roseville, Minnesota
Omaha, Nebraska
Charlotte, North Carolina
Beaverton, Oregon
Eugene, Oregon leased
Carrollton, Texas
Salt Lake City, Utah
Richmond, Virginia
Kent, Washington
Bags
U.S.:
Buena Park, California
Beaverton, Oregon
Grand Prairie, Texas
CONSUMER PACKAGING
Coated Paperboard
Augusta, Georgia
Prosperity, South Carolina
Texarkana, Texas
(1) Closed June 2016
(2) Closed January 2017
2016 CAPACITY INFORMATION
CONTINUING OPERATIONS
(in thousands of short tons except as noted)
U.S.
EMEA
Americas,
other
than U.S.
India
Total
APPENDIX II
Industrial Packaging
Containerboard (a)
Global Cellulose Fibers
13,305
44
366
Dried Pulp (in thousands of metric tons)
2,912
297
535
Printing Papers
Uncoated Freesheet
Bristols
Uncoated Papers and Bristols
Newsprint
Total Printing Papers
Consumer Packaging
Coated Paperboard
—
—
266
—
266
—
266
13,715
3,744
4,362
165
4,527
285
4,812
1,808
165
1,973
—
1,973
1,153
1,135
—
1,153
285
1,438
—
1,135
—
1,135
1,206
395
—
—
1,601
(a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum.
Forest Resources
We own, manage or have an interest in
approximately 1.4 million acres of forestlands
worldwide. These forestlands and associated acres
are located in the following regions:
Brazil
We have harvesting rights in:
Russia
Poland
Total
(M Acres)
329
1,047
—
1,376
A-3
A-4
INTERNATIONAL PAPER LEADERSHIP
As of March 31, 2017
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
W. Michael Amick, Jr.
Senior Vice President
Paper The Americas
C. Cato Ealy
Senior Vice President
Corporate Development
William P. Hoel
(Retired March 31, 2017)
Senior Vice President
Container The Americas
Tommy S. Joseph
Senior Vice President
Manufacturing, Technology,
EHS and Global Sourcing
Thomas G. Kadien
(Retiring June 30, 2017)
Senior Vice President
Human Resources,
Government Relations and
Global Citizenship
Glenn R. Landau
Senior Vice President
Chief Financial Officer
Timothy S. Nicholls
Senior Vice President
Industrial Packaging
The Americas
Thomas J. Plath
(Effective March 1, 2017)
Senior Vice President
Human Resources and
Global Citizenship
Jean-Michel Ribieras
Senior Vice President
Global Cellulose Fibers
Carol L. Roberts
(Retired March 31, 2017)
Senior Vice President
Chief Financial Officer
Sharon R. Ryan
Senior Vice President
General Counsel and
Corporate Secretary
John V. Sims
Senior Vice President
and President
International Paper
Europe, Middle East,
Africa, and Russia
Catherine I. Slater
Senior Vice President
Consumer Packaging
Gregory T. Wanta
Senior Vice President
North American Container
Russell D. Anawalt
Vice President
Sales and Marketing
Global Cellulose Fibers
David W. Apollonio
Vice President
South Region
North American Container
Santiago Arbelaez
Vice President
Industrial Packaging
International Paper Brazil
Mark M. Azzarello
Vice President
Global Compensation
and Benefits
Hans M. Bjorkman
Vice President
European Papers
September G. Blain
Vice President Finance
and Strategic Planning
Industrial Packaging
Paul J. Blanchard
Vice President
Supply Chain
Industrial Packaging
Vincent P. Bonnot
Vice President
Finance and Controller
Eric Chartrain
Vice President
Europe, Middle East,
Africa Packaging
Thomas A. Cleves
Vice President
Global Citizenship
Kirt Cuevas
Vice President
Environment,
Health and Safety
Rodrigo Davoli
Vice President and
President International Paper
Latin America Printing Papers
Donald P. Devlin
(Effective April 30, 2017)
Vice President and President
International Paper India
Gary M. Gavin
Vice President
West Region
North American Container
Greg C. Gibson
Vice President
N.A. Papers and
Converting Papers
John F. Grover
Vice President
Enterprise Converting
Optimization
North American Container
William T. Hamic
Vice President
Containerboard and Recycling
Errol A. Harris
Vice President and Treasurer
Global Treasury
Russell V. Harris
Vice President
Manufacturing
North American Paper
Peter G. Heist
Vice President
North Region
North American Container
Cecilia Ho
Vice President and President
International Paper Asia
Robert M. Hunkeler
Vice President
Trust and Investments
Chris J. Keuleman
Vice President
Global Government Relations
David A. Liebetreu
Vice President
Global Sourcing and
Fiber Supply
Allison B. Magness
Vice President
Manufacturing
Containerboard
Rildo Martini
Vice President
Manufacturing
Europe, Middle
East, Africa and Russia
Clay R. Ellis
Vice President Manufacturing
Global Cellulose Fibers
Brian N.G. McDonald
Vice President
Strategic Planning
Jonathan E. Ernst
Vice President
Foodservice
Roman B. Gallo
Vice President
Manufacturing
Containerboard
Kevin G. McWilliams
Vice President
Tax
Brett A. Mosley
Vice President
Manufacturing
Containerboard
A-6
Chris R. Read
Vice President
Global Technology
Jay P. Royalty
Vice President
Investor Relations
Bathsheba T. Sams
Vice President
Human Resources
Global Cellulose Fibers
Rampraveen Swaminathan
(Until April 30, 2017)
Vice President and
President International
Paper India
Fred A. Towler
Vice President
Supply Chain Operations
N.A. Paper, Pulp and
Coated Paperboard
Keith R. Townsend
Vice President
and President
International Paper
Russia
Marc Van Lieshout
Vice President
Corporate Audit
Deon Vaughan
Vice President and Deputy
General Counsel
Shiela P. Vinczeller
Vice President
Talent Management and Mobility
Human Resources
Kent L. Walker
Vice President
Product Development,
Innovation and Customer
Technical Services
Global Cellulose Fibers
Robert W. Wenker
Vice President and Chief
Information Officer
Information Technology
Patrick Wilczynski
Vice President
Coated Paperboard
Ron P. Wise
Vice President
Commercial and National
Accounts
North American Container
ILIM GROUP
SENIOR LEADERSHIP
Ksenia Sosnina
Chief Executive Officer
BOARD OF DIRECTORS
As of March 31, 2017
Mark S. Sutton
Chairman of the Board and Chief Executive Officer
International Paper Company
David J. Bronczek
President and Chief
Operating Officer
FedEx Corporation
William J. Burns
President, The Carnegie
Endowment for International Peace
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
Retired Senior Vice President,
Chief Administrative Officer and General Counsel
DuPont
Kathyrn D. Sullivan
Charles A. Lindbergh Fellow of Aerospace History
Smithsonian National Air and Space Museum
John L. Townsend, III
Retired Managing Partner and Chief Operating Officer
Tiger Management, LLC
William G. Walter
Retired Chairman and Chief Executive Officer
FMC Corporation
J. Steven Whisler
Presiding Director
Retired Chairman and Chief Executive Officer
Phelps Dodge Corporation
Ray G. Young
Executive Vice President and Chief Financial Officer
Archer Daniels Midland Company
Printed on Accent® Opaque 100lb. Cover, 100lb. Text White Smooth and
Williamsburg Opaque Offset 50lb. White Smooth.
Senior Lead Team and Board of Directors Photographs
Toby Richards
©2017 International Paper Company. All rights reserved. Accent,
Registered trademark of International Paper Company.
A-7
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
International Paper Company
6400 Poplar Avenue Memphis, TN 38197
(901) 419-9000
ANNUAL MEETING
The next annual meeting of shareholders will be held at
International Paper’s global headquarters in Memphis, TN,
at 11:00 a.m. CDT on Monday, May 8, 2017.
TRANSFER AGENT AND REGISTRAR
Computershare, our transfer agent, maintains the records of
our registered shareholders and can help you with a variety 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
Telephone:
(800) 678-8715 (U.S.)
(201) 680-6578 (International)
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 additional 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, Ste. 800
Memphis, TN 38103
REPORTS AND PUBLICATIONS
This Annual Performance Summary is being delivered to
our shareholders to comply with the annual report delivery
requirements of the New York Stock Exchange and Rule 14a-3
under the Securities Exchange Act. All information required by
those applicable rules is contained in this Annual Performance
Summary, including certain information contained in the Form
10-K included herein, which has previously been filed with the
Securities and Exchange Commission. Copies of this Annual
Performance Summary (including the 10-K), 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.
INVESTOR RELATIONS
Investors desiring further information about International Paper
should contact the investor relations department at corporate
headquarters, (901) 419-9000.
International Paper
Board of Directors
As of March 31, 2017
B O A R D O F
D I R E C T O R S
(Seated left to right)
J. Steven Whisler
Presiding Director
Retired Chairman and
Chief Executive Officer
Phelps Dodge Corporation
Mark S. Sutton
Chairman of the Board and
Chief Executive Officer
International Paper Company
Ilene S. Gordon
Chairman, President
and Chief Executive Officer
Ingredion Incorporated
(Standing left to right)
William G. Walter
Retired Chairman and
Chief Executive Officer
FMC Corporation
Ahmet C. Dorduncu
Chief Executive Officer
Akkök Group
William J. Burns
President
The Carnegie Endowment
for International Peace
Jay L. Johnson
Retired Chairman and
Chief Executive Officer
General Dynamics Corporation
Ray G. Young
Executive Vice President
and Chief Financial Officer
Archer Daniels Midland Company
Joan E. Spero
(Retired December 31, 2016)
Adjunct Senior Research Scholar
Columbia University’s School of
International and Public Affairs
David J. Bronczek
President and
Chief Operating Officer
FedEx Corporation
Stacey J. Mobley
Retired Senior Vice
President,
Chief Administrative Officer
and General Counsel
DuPont
John L. Townsend, III
Retired Managing Partner
and Chief Operating Officer
Tiger Management, LLC
Kathryn D. Sullivan
(Effective March 1, 2017
not pictured)
Charles A. Lindbergh Fellow
of Aerospace History
Smithsonian National
Air and Space Museum
G L O B A L
H E A D Q U A R T E R S
International Paper
Company
6400 Poplar Avenue
Memphis, TN 38197, U.S.A.
R E G I O N A L
H E A D Q U A R T E R S
International Paper Europe
Middle East and Africa (EMEA)
Chaussée de la Hulpe 166
1170 Brussels, Belgium
International Paper Brazil
Avenida Engenheiro Luís
Carlos Berrini,
105 - 16 andar - São Paulo -
SP - Brazil
International Paper Asia
17-18F, West Building
Greenland Center
600 Middle Longhua Road
Shanghai, China 200032
International Paper India
Krishe Sapphire Building,
8th Floor Hitech City
Main Road, Madhapur
Hyderabad 500 081, India
International Paper Russia
Kropotkina Street 1, Litera I
Saint Petersburg, 197101, Russia
©2017 International Paper Company. All rights reserved. Accent, Chamex, Hammermill,
PRO-DESIGN and Rey are registered trademarks of International Paper Company or its
affiliates. Pol is a trademark of International Paper Company or its affiliates.
Forest Stewardship Council, FSC and the FSC logo are trademarks of Forest
Stewardship Council. PEFC and the PEFC logo are registered trademarks of the PEFC
Council. SFl marks are registered marks owned by Sustainable Forestry Initiative Inc.
“World’s Most Ethical Companies” and “Ethisphere” names and marks are registered
trademarks of Ethisphere LLC. From FORTUNE Magazine, March 1, 2017 ©2017 Time
Inc. Used under license. FORTUNE andThe World’s Most Admired Companies are
registered trademarks ofTime Inc. and are used under license. FORTUNE andTime Inc.
are not affiliated with, and do not endorse products or services of, International Paper
Company.
Annual Performance Summary printed on Accent® Opaque Cover Smooth 100lb.
andText Smooth 100lb. 10K printed on Williamsburg Offset Opaque Smooth 50lb.