International Paper Company
Annual Report 2017

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2017 Annual Performance Summary We continued to create long-term value, achieved above cost-of-capital returns for the eighth consecutive year and generated strong free cash flow by providing sustainable solutions to our customers. Mark S. Sutton, Chairman and CEO To our shareowners, In 2017, we continued to pursue our vision of being among the most successful, sustainable and responsible companies in the world. Our 52,000 colleagues increased sales and earnings, generated strong free cash flow and returns above cost-of-capital, and strengthened our balance sheet. As one of the world’s leading producers of renewable, fiber-based packaging, pulp and paper, our global team is committed to strengthening our people and the communities where we live and work, using all resources responsibly and efficiently, and ensuring our businesses are safe, successful and sustainable for generations to come. We transform renewable resources into recyclable products that people depend on every day. Every day, our global teams create: • Packaging products that protect and promote goods, enable worldwide commerce and keep consumers safe • Pulp for diapers, tissue and other personal hygiene products that promote health and wellness • Papers that facilitate education and communication CE I n 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 Sustaining FOREST S I m p r o v i n g o u r P L A N ET In novative PR O D U C T S THE IP WAY F O R WA R D We create long-term stakeholder value via The IP Way Forward, our strategic framework consisting of five Strategic Drivers: • Sustaining Forests • Investing in People • Improving our Planet • Creating Innovative Products • Delivering Inspired Performance 2017 ANNUAL PERFORMANCE SUMMARY | 1 Sustaining Forests Our entire business depends upon the sustainability of forests. We will continue to lead the world in responsible forest stewardship to ensure healthy and productive forest ecosystems for generations to come. From 2013 to 2017, we invested $9.5 million in Forestland Stewards, a collaboration with the National Fish and Wildlife Foundation (NFWF) aimed at restoring, protecting and enhancing more than 240,000 acres of ecologically significant forestlands in the United States. Our investment generated more than $24 million in matching funds for a total conservation impact of $34 million. In 2017, we renewed and expanded our relationship with NFWF and pledged to contribute an additional $10 million over the next five years to protect forests in the United States. Forestland Collaborations: Forestland Stewards, our conservation collaborative with the National Fish and Wildlife Foundation World Wildlife Fund Global Forest and Trade Network The Carolinas Working Forest Conservation Collaborative, formed by American Forest Foundation, International Paper, The Procter & Gamble Company and 3M Company International Paper has systems in place to ensure our products contain wood fiber that has been responsibly managed and harvested. Sarah Gibson, Global Sourcing, Georgetown, S.C., Mill Investing in People engagement plans to build on our strengths and to address the opportunities for improvement. We also promote a culture of inclusion where individuals feel respected, are treated fairly and have an opportunity to We make sustainable investments to protect and improve the do their best work every day. In 2017, we appointed a Chief lives of our employees and mobilize our people, products and Diversity Officer, Shiela Vinczeller, to guide our progress. resources to address critical needs in the communities where our employees live and work. Above all, we care about people. Our most important measure of success is ensuring all employees, contractors and visitors arrive home safely every day. We focus on achieving injury-free operations by: • Providing safe working conditions and building in Layers of Protection • Using Safety Leading Indicators, Safe Work Observations and moments of high influence to ensure safe work actions • Training all employees to recognize and address hazards and unsafe conditions • Promoting accountability and responsibility for ourselves and our colleagues • Maintaining an active safety mindset at work and at home We are also committed to developing, promoting and supporting employees at all levels. We create a supportive work environment where our colleagues are inspired to collaborate, grow and continuously improve, and we help our employees grow based upon their interests and capabilities, as well as the needs of our company. In 2017, we initiated the MyView employee engagement survey to gather input from our colleagues on company strengths and improvement opportunities. Eighty-nine percent of our global team members completed surveys; leaders at all levels are using the feedback to build We continue to be a force for good in our communities by mobilizing our people, products and resources to address critical needs in the communities where our employees live and work. In 2017, we contributed more than $16 million to charitable organizations. More than 60% reduction in serious safety incidents since 2012 Serious Safety Incidents 25 35 36 38 2017 2016 2015 2014 2013 2012 50 68 Data include the North American Consumer Packaging business 2017 ANNUAL PERFORMANCE SUMMARY | 3 Improving our Planet We tackle the toughest issues in our value chain, improve our environmental footprint and promote the long-term sustainability of natural capital. We work continuously to reduce our global manufacturing emissions including greenhouse gas, sulfur dioxide, nitrogen oxides and particulate matter, in order to improve our impact on the planet. We reduce our air emissions by implementing efficient manufacturing technologies, investing in energy efficiency improvements, fuel switching and operating our mills with nearly 75 percent renewable biomass residuals energy rather than fossil fuels. We know that healthy watersheds are essential to people’s lives, our planet, the manufacturing of our products and our company’s performance. We return nearly 95 percent of the water we use back to waterways and work deliberately to improve the quality of that water. 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 an improved environmental footprint and lower energy costs. We are on pace to meet or exceed 10 of the 12 goals, have line-of-sight to achieving our goal for energy efficiency and remain committed to pursuing our goal for solid waste reduction. We are committed to improving our environmental footprint 95% of water returned to waterways Nearly 75% of mill energy derived from renewable biomass residuals Innovative Products We create innovative, sustainable and recyclable products that help our customers achieve their objectives. We transform renewable resources into recyclable products that 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 and our papers facilitate education and communication. In every moment, in every experience, our customers expect nothing but the best. We understand our customers’ businesses and provide them sustainable solutions — not just products. We understand the markets we serve and how our individual roles impact each customer’s success. In addition to our standard products for a wide-range of packaging, printing and health and wellness applications, we work with our customers to provide innovative, fiber-based solutions: • Our SpaceKraft® product line, is a bulk container used to transport non-hazardous liquids. SpaceKraft’s innovative and sustainable design meets unique filling and dispensing requirements, and its flexible inner liner eliminates air exposure making it a leading product for food safety and aseptic applications. • With our THRIVE™ products, we provide innovative solutions by introducing wood fibers to enhance performance and provide a more environmentally friendly solution for reinforced plastic composites. THRIVE is used in automotive and other applications to replace glass fiber with a lighter, renewable material. • In this digital age where smartphones are an essential part of communication, we have developed apps to help our customers unlock new capabilities to achieve their goals. By using our IP4D app and incorporating augmented reality technology into print designs produced on Accent® Opaque 120 lb. Cover, we demonstrate how paper and technology integration can create more impact and value for our customers. 2017 ANNUAL PERFORMANCE SUMMARY | 5 Inspired Performance We deliver long-term value for all stakeholders by establishing advantaged positions in attractive market segments with safe, efficient manufacturing operations near sustainable fiber sources. In 2017, our global businesses generated adjusted EBITDA of $3.7 billion — 16 percent higher than the prior year — and adjusted operating earnings per diluted share of $3.49. Our commercial teams performed well and contributed to 11 percent revenue growth, our Global Cellulose Fibers business generated $155 million in integration synergies and exceeded its run-rate target and our Ilim joint venture contributed $130 million in cash dividends. On January 1, 2018, we completed the transfer of our North American Consumer Packaging business to Graphic Packaging. As a result of the transaction, we now hold a 20.5 percent ownership interest in the subsidiary of Graphic Packaging that holds the assets of the combined businesses. This transaction created value for IP’s shareholders by positioning us to benefit from a much stronger consumer packaging platform, while allowing us to remain focused on growing value in our core businesses. We delivered cost-of-capital returns for the eighth consecutive year and generated $2 billion in free cash flow, which enabled us to reduce debt, further de-risk our pension plan, increase our dividend for the sixth consecutive year and make strategic investments for growth in our core businesses. Five-year average: 10% return on invested capital Five-year average: $1.9B free cash flow 6th consecutive year of dividend increase 8th consecutive year above cost-of-capital returns Free Cash Flow $2.1B $2.0B $1.8B $1.8B $1.9B 2013 2014 2015 2016 2017 Return On Invested Capital Annualized Dividend 2013 2014 2015 2016 2017 9.7% 9.2% 11.4% 10% 9.9% $1.85 $1.90 $1.76 $1.60 $1.40 2013 2014 2015 2016 2017 As a result of the transfer of the North American Consumer Packaging business, all current year and prior year amounts (with the exception of free cash flow) have been adjusted to reflect this business as a discontinued operation. Outlook We committed to increasing EBITDA by 10 percent-plus in 2018 We believe the impact of the Tax Cuts and Jobs Act will and expect to continue to generate strong free cash flow and help drive economic growth in the United States and level returns well above our cost-of-capital. We anticipate healthy the playing field with our competitors around the world. demand in our North American Industrial Packaging and International Paper will benefit from a lower corporate tax Global Cellulose Fibers businesses and continued realization of rate, the ability to repatriate foreign cash and accelerated previous price increases. We also expect to improve margins depreciation rules. with continued optimization and cost reduction efforts. Overall, International Paper is well-positioned to create value for Our Ilim joint venture remains well-positioned for another our shareowners and other stakeholders − with the talent and strong year of performance and we expect to start to see the resources to execute our strategy of establishing advantaged benefits of our Graphic Packaging equity position. In the second positions to serve attractive markets. half of 2018, we expect to see the benefits of our Madrid Mill conversion to lightweight, recycled containerboard. Mark S. Sutton, Chairman and CEO Governance Transitions We believe that strong governance accelerates Department of Commerce and the National of International Operations at Zoetis, a the pursuit of our vision; therefore we continue Oceanic and Atmospheric Association global leader in the discovery, development, to maintain strong leadership on our Board Administration between 2011 and 2017. Kathy is manufacture and commercialization of animal of Directors. a veteran of three space shuttle missions and is health medicines and vaccines. He also serves In December 2017, William G. Walter and Stacey J. Mobley retired from the Board of Directors of International Paper, pursuant to the first American woman to walk in space. She as treasurer for the International Federation for serves on the Governance Committee and the Animal Health, the industry trade association in Public Policy and Environment Committee. Europe. Clint serves on the Public Policy the board’s mandatory retirement policy. Christopher M. Connor, effective October 1, 2017 Chris retired as executive chairman of The and Environment Committee and the Governance Committee. Bill Walter joined our board in January 2005. During his tenure, he served on and chaired both the Management Development and Compensation Committee and the Audit and Finance Committee. Bill’s financial expertise, chief executive experience and affinity for pressure-testing ideas were key assets throughout his 13 years of service. Stacey Mobley joined our board in July 2008. He served on the Governance Committee since 2009 and was appointed committee chair in May 2011. Stacey also served on the Public Policy and Environment Committee. During his tenure, Stacey strengthened our governance practices. As an attorney with a passion for mentoring and developing future leaders, he reinforced our commitment to the highest ethical standards and advanced our efforts to create and maintain diverse and inclusive workplaces. Four new board members were elected in 2017: Sherwin-Williams Company in December of Our governance guidelines suggest that the 2016, after more than 30 years at that company. presiding director position should be rotated He is chairman of the Rock & Roll Hall of Fame periodically. In October, the board elected and serves on the board of directors of Ilene S. Gordon as its new independent Eaton Corporation and Yum! Brands. Chris presiding director, effective January 2018. In serves on the Audit and Finance Committee this role, Ilene will provide strong independent and Management Development and leadership in the boardroom. Ilene joined Compensation Committee. the board in October 2012 and serves on Jacqueline C. Hinman, effective November 4, 2017 Jacque is former chairman, president and chief executive officer of CH2M HILL Companies, a Fortune 500 engineering and consulting firm focused on delivering infrastructure, energy, environmental and industrial solutions. She recently served on the Executive Committee of the Business Roundtable and is a member of the Business Council; Jacque is a board director for Catalyst, a leading nonprofit organization accelerating progress for women through workplace inclusion. Jacque serves on the Audit the Executive Committee, the Governance Committee and the Management Development and Compensation Committee. She is executive chairman of Ingredion Incorporated, a publicly traded global ingredient solutions company. She also serves on the board of directors of Lockheed Martin Corporation, a publicly traded global security and aerospace company. We wish to thank J. Steven Whistler for serving as the previous independent presiding director. Dr. Kathryn D. Sullivan, effective March 1, 2017 and Finance Committee and the Public Policy Kathy is ambassador-at-large at the and Environment Committee. Smithsonian National Air and Space Museum. She served in several roles in the U.S. Clinton A. Lewis Jr., effective November 4, 2017 Clint is Executive Vice President and President 2017 ANNUAL PERFORMANCE SUMMARY | 7 Our Businesses We transform renewable resources into recyclable products that people depend on every day. International Paper is a leading global producer of renewable, fiber-based packaging, pulp and paper products with 52,000 employees located in more than 24 countries. Industrial Packaging 69 % of total revenue 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 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. Additionally, it includes our EMEA coated paperboard business which supplies high-quality folding boxboard and liquid packaging board to customers in a variety of market segments. Segments • eCommerce • Protein • Fruit & vegetables • Distribution • Processed food & beverage • Durable/non-durable goods Revenue by region 87% North America 11% EMEA 2% Brazil Papers 19 % of total revenue International Paper is the world’s largest producer of uncoated freesheet. Our global Papers businesses manufacture a wide variety of uncoated papers for commercial printing, imaging and converting segments. Customers rely on our signature brands including Accent®, Chamex®, Hammermill®, POL™, PRO-DESIGN® and REY® to educate, communicate and advertise. Segments Revenue by region 44% North America 29% EMEA 23% Brazil 4% India • Consumers • Schools • Businesses • Commercial printing • Book publishing • Advertising • Direct mail, bills & statements • Office products • Retail packaging & labeling applications Cellulose Fibers 12 % of total revenue 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. Segments Revenue by region • Absorbent hygiene products • Paper & tissue • Textiles • Reinforced plastics • Filtration • Paints & coatings The majority of revenue is generated in North America, although this business exports a significant portion of its total volume globally. About International Paper Senior Leadership Team As of February 28, 2018 Seated Left to Right Catherine I. Slater Senior Vice President International Paper Mark S. Sutton Chairman of the Board and Chief Executive Officer Glenn R. Landau Senior Vice President and Chief Financial Officer Jean-Michel Ribiéras Senior Vice President Global Cellulose Fibers Thomas J. Plath Senior Vice President Human Resources and Global Citizenship Sharon R. Ryan Senior Vice President General Counsel and Corporate Secretary Standing Left to Right C. Cato Ealy Senior Vice President Corporate Development Gregory T. Wanta Senior Vice President North American Container John V. Sims Senior Vice President and President International Paper EMEA Timothy S. Nicholls Senior Vice President Industrial Packaging The Americas W. Michael Amick, Jr. Senior Vice President Paper The Americas and India Tommy S. Joseph Senior Vice President Manufacturing, Technology, EHS and Global Sourcing Our vision is to be among the most successful, sustainable and responsible companies in the world. Fortune Magazine’s “World’s Most Admired Companies® 2018” for 15 years Ethisphere Institute’s “World’s Most Ethical Companies® 2018” for 12 consecutive years Institutional Investor’s “Most Honored Company” 2018 Women’s Choice Award® “Best Companies to Work For — Millennial Women” 2018 IDG’s Computerworld “100 Best Places to Work in IT” 2017 10 | INTERNATIONAL PAPER F o r m 1 0 K - FINANCIAL HIGHLIGHTS In millions, except per share amounts, at December 31 FINANCIAL SUMMARY Net Sales Operating Profit Earnings from Continuing Operations Before Income Taxes and Equity Earnings Net Earnings Net Earnings Attributable to Noncontrolling Interests Net Earnings Attributable to International Paper Company Total Assets Total Shareholders’ Equity Attributable to International Paper Company PER SHARE OF COMMON STOCK Basic Earnings Per Share Attributable to International Paper Company Common Shareholders Diluted Earnings Per Share Attributable to International Paper Company Common Shareholders Cash Dividends Common Shareholders’ Equity SHAREHOLDER PROFILE Shareholders of Record at December 31 Shares Outstanding at December 31 Average Common Shares Outstanding Average Common Shares Outstanding – Assuming Dilution 2017 2016 $21,743 $19,495 2,069 (a) 848 (b) 2,144 (b,c) — 2,144 (b,c) 33,903 6,522 2,102 (a) 795 (d) 902 (d,e) (2) 904 (d,e) 33,093 4,341 $ 5.19 (b,c) $ 2.20 (d,e) $ 5.13 (b,c) $ 2.18 (d,e) 1.8625 15.79 11,828 412.9 412.7 417.7 1.7825 10.56 12,352 411.2 411.1 415.6 (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 19 and the operating profit table on page 79 for details of operating profit by industry segment. Includes pre-tax restructuring and other charges of $67 million including charges of $83 million for debt extinguishment costs, a gain of $14 million related to the sale of our investment in ArborGen and a gain of $2 million for other items. Also included are a charge of $376 million for a settlement accounting charge associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees, a charge of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, charges of $20 million for the removal of abandoned property at our mills, a charge of $14 million to amortize the inventory fair value step-up for the pulp business acquired in December 2016, charges of $33 million for integration costs associated with the pulp business acquisition, a charge of $9 million for the impairment of the assets of our Foodservice business in Asia, a charge of $10 million for accelerated amortization of a Brazil Packaging intangible asset, a net bargain purchase gain of $6 million associated with the June 2016 Holmen Paper mill acquisition in Madrid, Spain and a gain of $5 million for interest income related to income tax refund claims. Includes a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, a tax benefit of $113 million related to income tax refund claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million related to international investment restructuring and a tax expense of $38 million associated with a 2017 cash pension contribution. Also includes the operating earnings of the North American Consumer Packaging business, net after-tax charges of $10 million for costs associated with the divestiture of that business and $28 million for non-operating pension expenses related to curtailment charges and termination benefits. Includes pre-tax restructuring and other charges of $54 million including charges of $29 million for 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 are a charge of $439 million for a 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 associated with the pulp business acquisition, a charge of $19 million to amortize the 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 are the operating earnings of the North American Consumer Packaging business and an after-tax charge of $5 million for a legal settlement associated with the xpedx business which was spun-off in 2014. 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, net of tax refunds Kleen settlement Insurance reimbursement for Guaranty Bank settlement Free Cash Flow 2017 2016 2015 2014 2013 $ 1,757 $ 2,478 $ 2,580 $ 3,077 $ 3,028 (1,391) 1,250 354 — $ 1,970 (1,348) 750 — — $ 1,880 (1,487) 750 — — $ 1,843 (1,366) 353 — — $ 2,064 (1,198) 31 — (30) $ 1,831 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 2017 2016 2015 2014 2013 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 $ 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 Tax Rate Operating Earnings Before Interest and Equity Earnings Equity Earnings, Net of Tax Operating Earnings Before Interest 848 572 501 484 2,405 30% 1,684 177 $ 1,861 $ 795 520 182 610 2,107 32% 1,433 198 $ 1,631 $ 1,132 555 559 258 2,504 33% 1,678 117 $ 1,795 $ 734 607 1,046 212 2,599 31% 1,793 (200) $1,593 $1,092 612 305 323 2,332 26% 1,726 (39) $1,687 The Company considers adjusted return on invested capital (“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. 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 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. 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 In millions, at December 31 Calculation of Adjusted EBITDA Earnings from Continuing Operations Before Interest, Income Taxes, Equity Earnings and Cumulative Effect of Accounting Changes Depreciation, amortization and cost of timber harvested Special items Non-operating pension expense Adjusted EBITDA 2017 2016 $1,420 1,343 491 484 $3,738 $1,315 1,124 182 610 $3,231 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, 2017 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 Emerging growth company (Do not check if a smaller reporting company) If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. 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, 2017) was approximately $23,247,397,657. The number of shares outstanding of the Company’s common stock as of February 16, 2018 was 412,940,532. 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 2018 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K. INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY INDEX TO ANNUAL REPORT ON FORM 10-K INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 FOR THE YEAR ENDED DECEMBER 31, 2017 INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY INDEX TO ANNUAL REPORT ON FORM 10-K INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 FOR THE YEAR ENDED DECEMBER 31, 2017 PART I. PART I. ITEM 1. ITEM 1. ITEM 1A. ITEM 1A. ITEM 1B. ITEM 1B. ITEM 2. ITEM 2. ITEM 3. ITEM 3. ITEM 4. ITEM 4. PART II. PART II. ITEM 5. ITEM 5. ITEM 6. ITEM 6. ITEM 7. ITEM 7. BUSINESS. BUSINESS. General General Financial Information Concerning Industry Segments Financial Information Concerning Industry Segments Financial Information About International and U.S. Operations Financial Information About International and U.S. Operations Competition and Costs Competition and Costs Marketing and Distribution Marketing and Distribution Description of Principal Products Description of Principal Products Sales Volumes by Product Sales Volumes by Product Research and Development Research and Development Environmental Protection Environmental Protection Climate Change Climate Change Employees Employees Executive Officers of the Registrant Executive Officers of the Registrant Raw Materials Raw Materials Forward-looking Statements Forward-looking Statements RISK FACTORS. RISK FACTORS. UNRESOLVED STAFF COMMENTS. UNRESOLVED STAFF COMMENTS. PROPERTIES. PROPERTIES. Forestlands Forestlands Mills and Plants Mills and Plants Capital Investments and Dispositions Capital Investments and Dispositions LEGAL PROCEEDINGS. LEGAL PROCEEDINGS. MINE SAFETY DISCLOSURES. MINE SAFETY DISCLOSURES. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. SECURITIES. SELECTED FINANCIAL DATA. SELECTED FINANCIAL DATA. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. AND RESULTS OF OPERATIONS. Executive Summary Executive Summary Results of Operations Results of Operations Description of Industry Segments Description of Industry Segments Industry Segment Results Industry Segment Results Liquidity and Capital Resources Liquidity and Capital Resources Critical Accounting Policies and Significant Accounting Estimates Critical Accounting Policies and Significant Accounting Estimates Recent Accounting Developments Recent Accounting Developments Legal Proceedings Legal Proceedings Effect of Inflation Effect of Inflation Foreign Currency Effects Foreign Currency Effects Market Risk Market Risk 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 5 5 5 5 6 6 6 6 7 7 11 11 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 14 14 17 17 17 17 20 20 23 23 24 24 27 27 31 31 35 35 35 35 35 35 35 35 35 35 ITEM 7A. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. RISK. ITEM 8. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Management on Financial Statements, Internal Control over Report of Management on Financial Statements, Internal Control over Financial Reporting and Internal Control Environment and Board of Financial Reporting and Internal Control Environment and Board of Directors Oversight Directors Oversight Accounting Firm Accounting Firm Reports of Deloitte & Touche LLP, Independent Registered Public Reports of Deloitte & Touche LLP, Independent Registered Public Consolidated Statement of Operations Consolidated Statement of Operations Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Interim Financial Results (Unaudited) Interim Financial Results (Unaudited) ITEM 9. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ACCOUNTING AND FINANCIAL DISCLOSURE. CONTROLS AND PROCEDURES. CONTROLS AND PROCEDURES. OTHER INFORMATION. OTHER INFORMATION. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. MANAGEMENT AND RELATED STOCKHOLDER MATTERS. ITEM 13. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. DIRECTOR INDEPENDENCE. ITEM 14. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ITEM 9A. ITEM 9A. ITEM 9B. ITEM 9B. PART III. PART III. ITEM 10. ITEM 10. ITEM 11. ITEM 11. ITEM 12. ITEM 12. PART IV. PART IV. ITEM 15. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Additional Financial Data Additional Financial Data Schedule II – Valuation and Qualifying Accounts Schedule II – Valuation and Qualifying Accounts SIGNATURES SIGNATURES APPENDIX I APPENDIX I 2017 LISTING OF FACILITIES 2017 LISTING OF FACILITIES APPENDIX II APPENDIX II 2017 CAPACITY INFORMATION 2017 CAPACITY INFORMATION 36 36 37 37 37 37 39 39 41 41 42 42 43 43 44 44 45 45 46 46 81 81 83 83 83 83 84 84 84 84 84 84 84 84 84 84 84 84 85 85 85 85 85 85 85 85 89 89 90 90 A-1 A-1 A-4 A-4 Financial Information Concerning Industry Segments Financial Information Concerning Industry Segments Financial Information About International and U.S. Operations Financial Information About International and U.S. Operations INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY INDEX TO ANNUAL REPORT ON FORM 10-K INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 FOR THE YEAR ENDED DECEMBER 31, 2017 PART I. PART I. ITEM 1. ITEM 1. BUSINESS. BUSINESS. General General Competition and Costs Competition and Costs Marketing and Distribution Marketing and Distribution Description of Principal Products Description of Principal Products Sales Volumes by Product Sales Volumes by Product Research and Development Research and Development Environmental Protection Environmental Protection Climate Change Climate Change Employees Employees Executive Officers of the Registrant Executive Officers of the Registrant Raw Materials Raw Materials Forward-looking Statements Forward-looking Statements ITEM 1A. ITEM 1A. RISK FACTORS. RISK FACTORS. ITEM 1B. ITEM 1B. UNRESOLVED STAFF COMMENTS. UNRESOLVED STAFF COMMENTS. ITEM 2. ITEM 2. PROPERTIES. PROPERTIES. Forestlands Forestlands Mills and Plants Mills and Plants Capital Investments and Dispositions Capital Investments and Dispositions LEGAL PROCEEDINGS. LEGAL PROCEEDINGS. MINE SAFETY DISCLOSURES. MINE SAFETY DISCLOSURES. ITEM 3. ITEM 3. ITEM 4. ITEM 4. PART II. PART II. ITEM 5. ITEM 5. ITEM 6. ITEM 6. ITEM 7. ITEM 7. SECURITIES. SECURITIES. SELECTED FINANCIAL DATA. SELECTED FINANCIAL DATA. AND RESULTS OF OPERATIONS. AND RESULTS OF OPERATIONS. Executive Summary Executive Summary Results of Operations Results of Operations Description of Industry Segments Description of Industry Segments Industry Segment Results Industry Segment Results Liquidity and Capital Resources Liquidity and Capital Resources Legal Proceedings Legal Proceedings Effect of Inflation Effect of Inflation Foreign Currency Effects Foreign Currency Effects Market Risk Market Risk MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Critical Accounting Policies and Significant Accounting Estimates Critical Accounting Policies and Significant Accounting Estimates Recent Accounting Developments Recent Accounting Developments 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 5 5 5 5 6 6 6 6 7 7 11 11 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 14 14 17 17 17 17 20 20 23 23 24 24 27 27 31 31 35 35 35 35 35 35 35 35 35 35 INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY INDEX TO ANNUAL REPORT ON FORM 10-K INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 FOR THE YEAR ENDED DECEMBER 31, 2017 ITEM 7A. ITEM 7A. ITEM 8. ITEM 8. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. RISK. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Management on Financial Statements, Internal Control over Report of Management on Financial Statements, Internal Control over Financial Reporting and Internal Control Environment and Board of Financial Reporting and Internal Control Environment and Board of Directors Oversight Directors Oversight Reports of Deloitte & Touche LLP, Independent Registered Public Reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm Accounting Firm Consolidated Statement of Operations Consolidated Statement of Operations Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Interim Financial Results (Unaudited) Interim Financial Results (Unaudited) CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ACCOUNTING AND FINANCIAL DISCLOSURE. CONTROLS AND PROCEDURES. CONTROLS AND PROCEDURES. OTHER INFORMATION. OTHER INFORMATION. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. MANAGEMENT AND RELATED STOCKHOLDER MATTERS. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. DIRECTOR INDEPENDENCE. PRINCIPAL ACCOUNTANT FEES AND SERVICES. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ITEM 9. ITEM 9. ITEM 9A. ITEM 9A. ITEM 9B. ITEM 9B. PART III. PART III. ITEM 10. ITEM 10. ITEM 11. ITEM 11. ITEM 12. ITEM 12. ITEM 13. ITEM 13. ITEM 14. ITEM 14. PART IV. PART IV. ITEM 15. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Additional Financial Data Additional Financial Data Schedule II – Valuation and Qualifying Accounts Schedule II – Valuation and Qualifying Accounts APPENDIX I APPENDIX I SIGNATURES SIGNATURES 2017 LISTING OF FACILITIES 2017 LISTING OF FACILITIES APPENDIX II APPENDIX II 2017 CAPACITY INFORMATION 2017 CAPACITY INFORMATION 36 36 37 37 37 37 39 39 41 41 42 42 43 43 44 44 45 45 46 46 81 81 83 83 83 83 84 84 84 84 84 84 84 84 84 84 84 84 85 85 85 85 85 85 85 85 89 89 90 90 A-1 A-1 A-4 A-4 PART I. PART I. ITEM 1. BUSINESS ITEM 1. BUSINESS GENERAL GENERAL International Paper Company (the “Company” or International Paper Company (the “Company” or “International Paper,” which may also be referred to as “International Paper,” which may also be referred to as “we” or “us”) is a global producer of renewable fiber- “we” or “us”) is a global producer of renewable fiber- based packaging, pulp and paper products with based packaging, pulp and paper products with manufacturing operations in North America, Latin manufacturing operations in North America, Latin America, Europe, North Africa, India and Russia. We America, Europe, North Africa, India and Russia. We are a New York corporation, incorporated in 1941 as the are a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same successor to the New York corporation of the same name organized in 1898. Our home page on the Internet name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more is www.internationalpaper.com. You can learn more about us by visiting that site. about us by visiting that site. In the United States, at December 31, 2017, the In the United States, at December 31, 2017, the Company operated 29 pulp, paper and packaging mills, Company operated 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling 170 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at plants and three bag facilities. Production facilities at December 31, 2017 in Canada, Europe, India, North December 31, 2017 in Canada, Europe, India, North Africa, Latin America included 16 pulp, paper and Africa, Latin America included 16 pulp, paper and packaging mills, 47 converting and packaging plants, packaging mills, 47 converting and packaging plants, and two recycling plants. We operate a printing and and two recycling plants. We operate a printing and packaging products distribution business principally packaging products distribution business principally through 9 branches in Asia. At December 31, 2017, we through 9 branches in Asia. At December 31, 2017, we owned or managed approximately 329,000 acres of owned or managed approximately 329,000 acres of forestland in Brazil and had, through licenses and forest forestland in Brazil and had, through licenses and forest management agreements, harvesting rights on management agreements, harvesting rights on government-owned forestlands in Russia. Substantially government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry to continue to experience, cycles relating to industry capacity and general economic conditions. capacity and general economic conditions. For management and financial reporting purposes, our For management and financial reporting purposes, our three segments: businesses are separated three segments: businesses are separated Industrial Packaging; Global Cellulose Fibers; and Industrial Packaging; Global Cellulose Fibers; and Printing Papers. Printing Papers. into into A description of these business segments can be found A description of these business segments can be found on pages 23 and 24 of Item 7. Management’s Item 7. Management’s on pages 23 and 24 of Discussion and Analysis of Financial Condition and Discussion and Analysis of Financial Condition and Results of Operations. The Company’s 50% equity Results of Operations. The Company’s 50% equity interest in Ilim Holding S.A. ("Ilim") is also a separate interest in Ilim Holding S.A. ("Ilim") is also a separate reportable industry segment. reportable industry segment. quality quality product product From 2013 through 2017, International Paper’s capital From 2013 through 2017, International Paper’s capital expenditures approximated $6.8 billion, excluding expenditures approximated $6.8 billion, excluding mergers and acquisitions. These expenditures reflect mergers and acquisitions. These expenditures reflect our continuing efforts to use our capital strategically to our continuing efforts to use our capital strategically to improve environmental improve environmental performance, as well as lower costs and maintain performance, as well as lower costs and maintain reliability of operations. Capital spending in 2017 was reliability of operations. Capital spending in 2017 was approximately $1.4 billion and is expected to be approximately $1.4 billion and is expected to be approximately $1.5 billion in 2018. You can find more approximately $1.5 billion in 2018. You can find more information about capital expenditures on page 28 of information about capital expenditures on page 28 of Item 7. Management’s Discussion and Analysis of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Results of Operations. and and Discussions of acquisitions can be found on page 28 of Discussions of acquisitions can be found on page 28 of Item 7. Management’s Discussion and Analysis of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Results of Operations. You can find discussions of restructuring charges and You can find discussions of restructuring charges and other special items on pages 22 and 23 of Item 7. other special items on pages 22 and 23 of Item 7. Management’s Discussion and Analysis of Financial Management’s Discussion and Analysis of Financial Condition and Results of Operations. Condition and Results of Operations. Throughout this Annual Report on Form 10-K, we Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts “incorporate by reference” certain information in parts of other documents filed with the Securities and of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that disclose important information by referring to it in that manner. Please refer to such information. Our annual manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with all other and current reports on Form 8-K, along with all other reports and any amendments thereto filed with or reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet charge on the Investor Relations section of our Internet Web site at www.internationalpaper.com as soon as Web site at www.internationalpaper.com as soon as reasonably practicable after we electronically file such reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information material with, or furnish it to, the SEC. The information contained on or connected to our Web site is not contained on or connected to our Web site is not incorporated by reference into this Form 10-K and incorporated by reference into this Form 10-K and should not be considered part of this or any other report should not be considered part of this or any other report that we filed with or furnished to the SEC. that we filed with or furnished to the SEC. FINANCIAL INFORMATION CONCERNING FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS INDUSTRY SEGMENTS The financial information concerning segments is set The financial information concerning segments is set forth in Note 19 Financial Information by Industry forth in Note 19 Financial Information by Industry Segment and Geographic Area on pages 78 through Segment and Geographic Area on pages 78 through 80 of Item 8. Financial Statements and Supplementary 80 of Item 8. Financial Statements and Supplementary Data. Data. FINANCIAL INFORMATION ABOUT FINANCIAL INFORMATION ABOUT INTERNATIONAL AND U.S. OPERATIONS INTERNATIONAL AND U.S. OPERATIONS The financial information concerning international and The financial information concerning international and U.S. operations and export sales is set forth in Note 19 U.S. operations and export sales is set forth in Note 19 Financial Industry Segment and Industry Segment and Financial Geographic Area on page 80 of Item 8. Financial Geographic Area on page 80 of Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. Information by Information by COMPETITION AND COSTS COMPETITION AND COSTS The markets in the pulp, paper and packaging product The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products principal products are very competitive. Our products compete with similar products produced by other forest compete with similar products produced by other forest products companies. We also compete, in some products companies. We also compete, in some instances, with companies in other industries and instances, with companies in other industries and against substitutes for wood-fiber products. against substitutes for wood-fiber products. Many factors influence the Company’s competitive Many factors influence the Company’s competitive position, including price, cost, product quality and position, including price, cost, product quality and services. You can find more information about the impact services. You can find more information about the impact of these factors on operating profits on pages 20 through of these factors on operating profits on pages 20 through 27 of Item 7. Management’s Discussion and Analysis of 27 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can Financial Condition and Results of Operations. You can find information about the Company’s manufacturing find information about the Company’s manufacturing capacities on page A-4 of Appendix II. capacities on page A-4 of Appendix II. MARKETING AND DISTRIBUTION MARKETING AND DISTRIBUTION The Company sells products directly to end users and The Company sells products directly to end users and converters, as well as through agents, resellers and converters, as well as through agents, resellers and paper distributors. paper distributors. DESCRIPTION OF PRINCIPAL PRODUCTS DESCRIPTION OF PRINCIPAL PRODUCTS The Company’s principal products are described on The Company’s principal products are described on pages 23 and 24 of Item 7. Management’s Discussion pages 23 and 24 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of and Analysis of Financial Condition and Results of Operations. Operations. SALES VOLUMES BY PRODUCT SALES VOLUMES BY PRODUCT Sales volumes of major products for 2017, 2016 and 2015 were as follows: Sales volumes of major products for 2017, 2016 and 2015 were as follows: Sales Volumes by Product (a) Sales Volumes by Product (a) In thousands of short tons (except as noted) In thousands of short tons (except as noted) Industrial Packaging Industrial Packaging Corrugated Packaging (c) Corrugated Packaging (c) Containerboard Containerboard Recycling Recycling Saturated Kraft Saturated Kraft Gypsum/Release Kraft Gypsum/Release Kraft Bleached Kraft Bleached Kraft EMEA Packaging (c) (d) EMEA Packaging (c) (d) Asian Box (c) (e) Asian Box (c) (e) Brazilian Packaging (c) Brazilian Packaging (c) European Coated Paperboard European Coated Paperboard Industrial Packaging Industrial Packaging Global Cellulose Fibers (in thousands of metric tons) (b) Global Cellulose Fibers (in thousands of metric tons) (b) Printing Papers Printing Papers U.S. Uncoated Papers U.S. Uncoated Papers European and Russian Uncoated Papers European and Russian Uncoated Papers Brazilian Uncoated Papers Brazilian Uncoated Papers Indian Uncoated Papers Indian Uncoated Papers Printing Papers Printing Papers 2017 2017 2016 2016 2015 2015 10,413 10,413 3,294 3,294 2,257 2,257 1,518 1,518 181 181 229 229 27 27 — — 357 357 398 398 18,674 18,674 3,708 3,708 1,915 1,915 1,483 1,483 1,167 1,167 253 253 4,818 4,818 1,477 1,477 1,417 1,417 10,392 10,392 3,091 3,091 2,450 2,450 182 182 200 200 24 24 208 208 371 371 393 393 18,788 18,788 1,870 1,870 1,872 1,872 1,536 1,536 1,114 1,114 241 241 4,763 4,763 10,284 10,284 3,110 3,110 2,379 2,379 156 156 171 171 23 23 426 426 348 348 381 381 18,695 18,695 1,575 1,575 1,879 1,879 1,493 1,493 1,125 1,125 241 241 4,738 4,738 Includes third-party and inter-segment sales and excludes sales of equity investees. 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 pulp business acquired Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired (a) (a) (b) (b) beginning December 1, 2016. beginning December 1, 2016. (c) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons. (c) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons. (d) Excludes newsprint sales volumes at Madrid, Spain mill. (d) Excludes newsprint sales volumes at Madrid, Spain mill. (e) (e) Includes sales volumes through the date of sale on June 30, 2016. Includes sales volumes through the date of sale on June 30, 2016. 1 1 2 2 PART I. PART I. ITEM 1. BUSINESS ITEM 1. BUSINESS GENERAL GENERAL International Paper Company (the “Company” or International Paper Company (the “Company” or “International Paper,” which may also be referred to as “International Paper,” which may also be referred to as “we” or “us”) is a global producer of renewable fiber- “we” or “us”) is a global producer of renewable fiber- based packaging, pulp and paper products with based packaging, pulp and paper products with manufacturing operations in North America, Latin manufacturing operations in North America, Latin America, Europe, North Africa, India and Russia. We America, Europe, North Africa, India and Russia. We are a New York corporation, incorporated in 1941 as the are a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same successor to the New York corporation of the same name organized in 1898. Our home page on the Internet name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more is www.internationalpaper.com. You can learn more about us by visiting that site. about us by visiting that site. In the United States, at December 31, 2017, the In the United States, at December 31, 2017, the Company operated 29 pulp, paper and packaging mills, Company operated 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling 170 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at plants and three bag facilities. Production facilities at December 31, 2017 in Canada, Europe, India, North December 31, 2017 in Canada, Europe, India, North Africa, Latin America included 16 pulp, paper and Africa, Latin America included 16 pulp, paper and packaging mills, 47 converting and packaging plants, packaging mills, 47 converting and packaging plants, and two recycling plants. We operate a printing and and two recycling plants. We operate a printing and packaging products distribution business principally packaging products distribution business principally through 9 branches in Asia. At December 31, 2017, we through 9 branches in Asia. At December 31, 2017, we owned or managed approximately 329,000 acres of owned or managed approximately 329,000 acres of forestland in Brazil and had, through licenses and forest forestland in Brazil and had, through licenses and forest management agreements, harvesting management agreements, harvesting rights on rights on government-owned forestlands in Russia. Substantially government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry to continue to experience, cycles relating to industry capacity and general economic conditions. capacity and general economic conditions. For management and financial reporting purposes, our For management and financial reporting purposes, our businesses are separated businesses are separated into into three segments: three segments: Industrial Packaging; Global Cellulose Fibers; and Industrial Packaging; Global Cellulose Fibers; and Printing Papers. Printing Papers. A description of these business segments can be found A description of these business segments can be found on pages 23 and 24 of on pages 23 and 24 of Item 7. Management’s Item 7. Management’s Discussion and Analysis of Financial Condition and Discussion and Analysis of Financial Condition and Results of Operations. The Company’s 50% equity Results of Operations. The Company’s 50% equity interest in Ilim Holding S.A. ("Ilim") is also a separate interest in Ilim Holding S.A. ("Ilim") is also a separate reportable industry segment. reportable industry segment. From 2013 through 2017, International Paper’s capital From 2013 through 2017, International Paper’s capital expenditures approximated $6.8 billion, excluding expenditures approximated $6.8 billion, excluding mergers and acquisitions. These expenditures reflect mergers and acquisitions. These expenditures reflect our continuing efforts to use our capital strategically to our continuing efforts to use our capital strategically to improve improve product product quality quality and and environmental environmental performance, as well as lower costs and maintain performance, as well as lower costs and maintain reliability of operations. Capital spending in 2017 was reliability of operations. Capital spending in 2017 was approximately $1.4 billion and is expected to be approximately $1.4 billion and is expected to be approximately $1.5 billion in 2018. You can find more approximately $1.5 billion in 2018. You can find more information about capital expenditures on page 28 of information about capital expenditures on page 28 of Item 7. Management’s Discussion and Analysis of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Results of Operations. Discussions of acquisitions can be found on page 28 of Discussions of acquisitions can be found on page 28 of Item 7. Management’s Discussion and Analysis of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Results of Operations. You can find discussions of restructuring charges and You can find discussions of restructuring charges and other special items on pages 22 and 23 of Item 7. other special items on pages 22 and 23 of Item 7. Management’s Discussion and Analysis of Financial Management’s Discussion and Analysis of Financial Condition and Results of Operations. Condition and Results of Operations. Throughout this Annual Report on Form 10-K, we Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts “incorporate by reference” certain information in parts of other documents filed with the Securities and of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that disclose important information by referring to it in that manner. Please refer to such information. Our annual manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with all other and current reports on Form 8-K, along with all other reports and any amendments thereto filed with or reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet charge on the Investor Relations section of our Internet Web site at www.internationalpaper.com as soon as Web site at www.internationalpaper.com as soon as reasonably practicable after we electronically file such reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information material with, or furnish it to, the SEC. The information contained on or connected to our Web site is not contained on or connected to our Web site is not incorporated by reference into this Form 10-K and incorporated by reference into this Form 10-K and should not be considered part of this or any other report should not be considered part of this or any other report that we filed with or furnished to the SEC. that we filed with or furnished to the SEC. FINANCIAL INFORMATION CONCERNING FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS INDUSTRY SEGMENTS The financial information concerning segments is set The financial information concerning segments is set forth in Note 19 Financial Information by Industry forth in Note 19 Financial Information by Industry Segment and Geographic Area on pages 78 through Segment and Geographic Area on pages 78 through 80 of Item 8. Financial Statements and Supplementary 80 of Item 8. Financial Statements and Supplementary Data. Data. FINANCIAL INFORMATION ABOUT FINANCIAL INFORMATION ABOUT INTERNATIONAL AND U.S. OPERATIONS INTERNATIONAL AND U.S. OPERATIONS The financial information concerning international and The financial information concerning international and U.S. operations and export sales is set forth in Note 19 U.S. operations and export sales is set forth in Note 19 Financial Financial Information by Information by Industry Segment and Industry Segment and Geographic Area on page 80 of Item 8. Financial Geographic Area on page 80 of Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. COMPETITION AND COSTS COMPETITION AND COSTS The markets in the pulp, paper and packaging product The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products principal products are very competitive. Our products compete with similar products produced by other forest compete with similar products produced by other forest products companies. We also compete, in some products companies. We also compete, in some instances, with companies in other industries and instances, with companies in other industries and against substitutes for wood-fiber products. against substitutes for wood-fiber products. Many factors influence the Company’s competitive Many factors influence the Company’s competitive position, including price, cost, product quality and position, including price, cost, product quality and services. You can find more information about the impact services. You can find more information about the impact of these factors on operating profits on pages 20 through of these factors on operating profits on pages 20 through 27 of Item 7. Management’s Discussion and Analysis of 27 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can Financial Condition and Results of Operations. You can find information about the Company’s manufacturing find information about the Company’s manufacturing capacities on page A-4 of Appendix II. capacities on page A-4 of Appendix II. MARKETING AND DISTRIBUTION MARKETING AND DISTRIBUTION The Company sells products directly to end users and The Company sells products directly to end users and converters, as well as through agents, resellers and converters, as well as through agents, resellers and paper distributors. paper distributors. DESCRIPTION OF PRINCIPAL PRODUCTS DESCRIPTION OF PRINCIPAL PRODUCTS The Company’s principal products are described on The Company’s principal products are described on pages 23 and 24 of Item 7. Management’s Discussion pages 23 and 24 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of and Analysis of Financial Condition and Results of Operations. Operations. SALES VOLUMES BY PRODUCT SALES VOLUMES BY PRODUCT Sales volumes of major products for 2017, 2016 and 2015 were as follows: Sales volumes of major products for 2017, 2016 and 2015 were as follows: Sales Volumes by Product (a) Sales Volumes by Product (a) In thousands of short tons (except as noted) In thousands of short tons (except as noted) Industrial Packaging Industrial Packaging Corrugated Packaging (c) Corrugated Packaging (c) Containerboard Containerboard Recycling Recycling Saturated Kraft Saturated Kraft Gypsum/Release Kraft Gypsum/Release Kraft Bleached Kraft Bleached Kraft EMEA Packaging (c) (d) EMEA Packaging (c) (d) Asian Box (c) (e) Asian Box (c) (e) Brazilian Packaging (c) Brazilian Packaging (c) European Coated Paperboard European Coated Paperboard Industrial Packaging Industrial Packaging Global Cellulose Fibers (in thousands of metric tons) (b) Global Cellulose Fibers (in thousands of metric tons) (b) Printing Papers Printing Papers U.S. Uncoated Papers U.S. Uncoated Papers European and Russian Uncoated Papers European and Russian Uncoated Papers Brazilian Uncoated Papers Brazilian Uncoated Papers Indian Uncoated Papers Indian Uncoated Papers Printing Papers Printing Papers 2017 2017 2016 2016 2015 2015 10,413 10,413 3,294 3,294 2,257 2,257 181 181 229 229 27 27 1,518 1,518 — — 357 357 398 398 18,674 18,674 3,708 3,708 1,915 1,915 1,483 1,483 1,167 1,167 253 253 4,818 4,818 10,392 10,392 3,091 3,091 2,450 2,450 182 182 200 200 24 24 1,477 1,477 208 208 371 371 393 393 18,788 18,788 1,870 1,870 1,872 1,872 1,536 1,536 1,114 1,114 241 241 4,763 4,763 10,284 10,284 3,110 3,110 2,379 2,379 156 156 171 171 23 23 1,417 1,417 426 426 348 348 381 381 18,695 18,695 1,575 1,575 1,879 1,879 1,493 1,493 1,125 1,125 241 241 4,738 4,738 (a) (a) (b) (b) Includes third-party and inter-segment sales and excludes sales of equity investees. 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 pulp business acquired Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired beginning December 1, 2016. beginning December 1, 2016. (c) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons. (c) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons. (d) Excludes newsprint sales volumes at Madrid, Spain mill. (d) Excludes newsprint sales volumes at Madrid, Spain mill. (e) (e) Includes sales volumes through the date of sale on June 30, 2016. Includes sales volumes through the date of sale on June 30, 2016. 1 1 2 2 RESEARCH AND DEVELOPMENT RESEARCH AND DEVELOPMENT The Company operates its primary research and The Company operates its primary research and development center in Loveland, Ohio, as well as development center in Loveland, Ohio, as well as several other product development facilities, including several other product development facilities, including the Global Cellulose Fibers technology center in the Global Cellulose Fibers technology center in Federal Way, Washington. Federal Way, Washington. packaging packaging We direct research and development activities to short- We direct research and development activities to short- term, long-term and technical assistance needs of term, long-term and technical assistance needs of customers and operating divisions, and to process, customers and operating divisions, and to process, equipment and product innovations. Activities include equipment and product innovations. Activities include product development within the operating divisions; product development within the operating divisions; studies on innovation and improvement of pulping, studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials and coating processes; packaging design and materials development; mechanical systems, systems, development; mechanical environmentally sensitive printing inks and reduction of environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw materials in environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and manufacturing processes; recycling of consumer and packaging paper products; energy conservation; packaging paper products; energy conservation; applications of computer controls to manufacturing applications of computer controls to manufacturing operations; innovations and improvement of products; operations; innovations and improvement of products; and development of various new products. Our and development of various new products. Our development efforts specifically address product safety development efforts specifically address product safety as well as the minimization of solid waste. The cost to as well as the minimization of solid waste. The cost to the Company of its research and development the Company of its research and development operations was $28 million in 2017, $20 million in 2016, operations was $28 million in 2017, $20 million in 2016, and $27 million in 2015. and $27 million in 2015. We own numerous patents, copyrights, trademarks, We own numerous patents, copyrights, trademarks, trade secrets and other intellectual property rights trade secrets and other intellectual property rights relating to our products and to the processes for their relating to our products and to the processes for their production. We also license intellectual property rights production. We also license intellectual property rights to and from others where advantageous or necessary. to and from others where advantageous or necessary. Many of the manufacturing processes are among our Many of the manufacturing processes are among our trade secrets. Some of our products are covered by trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them and other intellectual property rights, and by using them as required to support our businesses. as required to support our businesses. ENVIRONMENTAL PROTECTION ENVIRONMENTAL PROTECTION on on impacts impacts International Paper is subject to extensive federal and International Paper is subject to extensive federal and state environmental regulation as well as similar state environmental regulation as well as similar regulations internationally. Our continuing objectives regulations internationally. Our continuing objectives include: (1) controlling emissions and discharges from include: (1) controlling emissions and discharges from our facilities into the air, water and groundwater to avoid our facilities into the air, water and groundwater to avoid adverse and adverse and (2) maintaining compliance with applicable laws and (2) maintaining compliance with applicable laws and regulations. The Company spent $86 million in 2017 for regulations. The Company spent $86 million in 2017 for capital projects to control environmental releases into capital projects to control environmental releases into the air and water, and to assure environmentally sound the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend management and disposal of waste. We expect to spend $71 million in 2018 for environmental capital projects. $71 million in 2018 for environmental capital projects. Capital expenditures for 2019 environmental projects Capital expenditures for 2019 environmental projects are anticipated to be approximately $87 million. Capital are anticipated to be approximately $87 million. Capital environment, environment, the the expenditures for 2020 environmental projects are expenditures for 2020 environmental projects are estimated to be $73 million. estimated to be $73 million. The 2017 spend included costs associated with the U.S. The 2017 spend included costs associated with the U.S. Environmental Protection Agency's (EPA) Boiler MACT Environmental Protection Agency's (EPA) Boiler MACT (maximum achievable control technology) regulations (maximum achievable control technology) regulations that require owners of specified boilers to meet revised that require owners of specified boilers to meet revised air emissions standards for certain substances. Several air emissions standards for certain substances. Several lawsuits were filed to challenge all or portions of the lawsuits were filed to challenge all or portions of the Boiler MACT regulations. On December 23, 2016, the Boiler MACT regulations. On December 23, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded the U.S. Court of Appeals for the D.C. Circuit remanded the Boiler MACT regulations to the EPA requiring the agency Boiler MACT regulations to the EPA requiring the agency to revise emission standards for boiler subcategories to revise emission standards for boiler subcategories that had been affected by flawed calculations. The Court that had been affected by flawed calculations. The Court determined that the existing MACT standards should determined that the existing MACT standards should remain in place while the revised standards are being remain in place while the revised standards are being developed, but did not establish a deadline for the EPA developed, but did not establish a deadline for the EPA to complete the rulemaking. The Company has to complete the rulemaking. The Company has completed its Boiler MACT capital projects to meet the completed its Boiler MACT capital projects to meet the existing regulations. We are not able to project any existing regulations. We are not able to project any additional Boiler MACT capital project expenditures as additional Boiler MACT capital project expenditures as it is uncertain to what extent the EPA will revise Boiler it is uncertain to what extent the EPA will revise Boiler MACT standards that are subject to the remand. MACT standards that are subject to the remand. Amendments lowering National Ambient Air Quality Amendments lowering National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2), nitrogen Standards (NAAQS) for sulfur dioxide (SO2), nitrogen dioxide (NO2), fine particulate (PM2.5), and ozone have dioxide (NO2), fine particulate (PM2.5), and ozone have been finalized by the EPA in recent years but to date been finalized by the EPA in recent years but to date have not had a material impact on the Company. have not had a material impact on the Company. CLIMATE CHANGE CLIMATE CHANGE In an effort to mitigate the potential climate change In an effort to mitigate the potential climate change impacts from human activities, various international, impacts from human activities, various international, national and sub-national (regional, state and local) national and sub-national (regional, state and local) governmental actions have been or may be undertaken. governmental actions have been or may be undertaken. Presently, these efforts have not materially impacted Presently, these efforts have not materially impacted International Paper, but such efforts may have a material International Paper, but such efforts may have a material impact on the Company in the future. impact on the Company in the future. International Efforts International Efforts efforts efforts international international toward reducing toward reducing A successor program to the 1997 Kyoto Protocol, the A successor program to the 1997 Kyoto Protocol, the Paris Agreement, went into effect in November 2016 and Paris Agreement, went into effect in November 2016 and voluntary continued voluntary continued commitments the emissions of the emissions of commitments greenhouse gases (GHGs). Consistent with this greenhouse gases (GHGs). Consistent with this objective, participating countries aim to balance GHG objective, participating countries aim to balance GHG emissions generation and removal in the second half of emissions generation and removal in the second half of this century or, in effect, achieve net-zero global GHG this century or, in effect, achieve net-zero global GHG emissions. emissions. and and As part of the Paris Agreement, many countries, As part of the Paris Agreement, many countries, including the U.S. and EU member states, established including the U.S. and EU member states, established non-binding emissions reduction targets. The U.S. non- non-binding emissions reduction targets. The U.S. non- binding commitment is for GHG emissions to be 7% binding commitment is for GHG emissions to be 7% below 2005 GHG emissions levels by 2020 and 26% to below 2005 GHG emissions levels by 2020 and 26% to 28% below by 2025. Other countries in which we do 28% below by 2025. Other countries in which we do business made similar non-binding commitments. On business made similar non-binding commitments. On 3 3 August 4, 2017, the U.S. filed official notice to withdraw August 4, 2017, the U.S. filed official notice to withdraw if implemented, could pose potential cost increases for if implemented, could pose potential cost increases for from the Paris Agreement. Notwithstanding the notice from the Paris Agreement. Notwithstanding the notice electricity purchased by the Company. The magnitude electricity purchased by the Company. The magnitude of withdrawal by the U.S., the Company’s voluntary GHG of withdrawal by the U.S., the Company’s voluntary GHG of cost increases to the Company, if any, are not possible of cost increases to the Company, if any, are not possible reductions, which are set out in our annual Global reductions, which are set out in our annual Global to estimate reliably at this time. to estimate reliably at this time. Citizenship report, remain roughly in line with the Citizenship report, remain roughly in line with the percentages of the U.S. prior target reductions. It is not percentages of the U.S. prior target reductions. It is not clear at this time what, if any, further reductions by the clear at this time what, if any, further reductions by the Company might be required by the countries in which Company might be required by the countries in which we operate. Due to this uncertainty, it is not possible at we operate. Due to this uncertainty, it is not possible at this time to estimate the potential impacts of these this time to estimate the potential impacts of these agreements on the Company. agreements on the Company. To assist member countries in meeting obligations under To assist member countries in meeting obligations under the Kyoto Protocol, the EU established and continues the Kyoto Protocol, the EU established and continues to operate an Emissions Trading System (EU ETS). to operate an Emissions Trading System (EU ETS). Currently, we have two sites directly subject to regulation Currently, we have two sites directly subject to regulation under Phase III of the EU ETS, one in Poland and one under Phase III of the EU ETS, one in Poland and one in France. Other sites that we operate in the EU in France. Other sites that we operate in the EU experience indirect impacts of the EU ETS through experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the impacts of the EU ETS have been material to the Company, but they could be material to the Company in Company, but they could be material to the Company in the future depending on how the Paris Agreement's non- the future depending on how the Paris Agreement's non- binding commitments or allocation of and market prices binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the for GHG credits under existing rules evolve over the coming years. coming years. U.S. Efforts U.S. Efforts In the U.S., the 1997 Kyoto Protocol was not ratified and In the U.S., the 1997 Kyoto Protocol was not ratified and Congress has not passed GHG legislation. The EPA, Congress has not passed GHG legislation. The EPA, however, enacted regulations to: (i) control GHGs from however, enacted regulations to: (i) control GHGs from mobile sources by adopting mobile sources by adopting transportation transportation fuel fuel efficiency standards; (ii) control GHG emissions from efficiency standards; (ii) control GHG emissions from new Electric Generating Units (EGUs); (iii) require new Electric Generating Units (EGUs); (iii) require reporting of GHGs from sources of GHGs greater than reporting of GHGs from sources of GHGs greater than 25,000 tons per year; (iv) in 2015, require states to 25,000 tons per year; (iv) in 2015, require states to develop plans to reduce GHGs from utility EGUs and develop plans to reduce GHGs from utility EGUs and (v) in 2016 EPA took the first steps in the process of (v) in 2016 EPA took the first steps in the process of developing emissions standards for existing sources in developing emissions standards for existing sources in the oil and gas sector. The 2017 change in leadership the oil and gas sector. The 2017 change in leadership of the U.S. executive branch may result in significant of the U.S. executive branch may result in significant revisions to or rescission of the EPA's GHG regulations. revisions to or rescission of the EPA's GHG regulations. It is unclear what impacts, if any, the EPA's GHG It is unclear what impacts, if any, the EPA's GHG regulatory revisions and any other future revisions will regulatory revisions and any other future revisions will have on the Company’s operations. have on the Company’s operations. In 2015, EPA promulgated the Clean Power Plan (CPP) In 2015, EPA promulgated the Clean Power Plan (CPP) rule to address climate change by reducing carbon rule to address climate change by reducing carbon dioxide (CO2) and other designated greenhouse gas dioxide (CO2) and other designated greenhouse gas pollutant emissions from utility EGUs. In response, pollutant emissions from utility EGUs. In response, states were to develop and begin implementing states were to develop and begin implementing programs to reduce GHGs from EGUs by about 32 programs to reduce GHGs from EGUs by about 32 percent by the 2022 to 2033 timeframe as compared to percent by the 2022 to 2033 timeframe as compared to 2005 baseline levels. In October 2017, the EPA issued 2005 baseline levels. In October 2017, the EPA issued a regulatory action to withdraw the CPP in its entirety. a regulatory action to withdraw the CPP in its entirety. Notwithstanding the withdrawal of the CPP, some states Notwithstanding the withdrawal of the CPP, some states have remained committed to reaching the reduction have remained committed to reaching the reduction targets set out in the CPP. These GHG reduction plans, targets set out in the CPP. These GHG reduction plans, 4 4 State, Regional and Local Measures State, Regional and Local Measures A few U.S. states have enacted or are considering legal A few U.S. states have enacted or are considering legal measures to require the reduction of emissions of GHGs measures to require the reduction of emissions of GHGs by companies and public utilities, primarily through the by companies and public utilities, primarily through the development of GHG emission inventories or regional development of GHG emission inventories or regional GHG cap-and-trade programs. California has already GHG cap-and-trade programs. California has already enacted such a program and similar actions are being enacted such a program and similar actions are being considered by Oregon. The Company does not have considered by Oregon. The Company does not have any sites currently subject any sites currently subject to California's GHG to California's GHG regulatory plan and since the Oregon program is still regulatory plan and since the Oregon program is still being developed, it is too early to know how or if being developed, it is too early to know how or if Company owned sites in Oregon may be affected. Company owned sites in Oregon may be affected. There may be indirect impacts from changing input costs There may be indirect impacts from changing input costs (such as electricity) at some of our California converting (such as electricity) at some of our California converting operations but these have yet to manifest themselves operations but these have yet to manifest themselves in material impacts. Although we are monitoring in material impacts. Although we are monitoring proposed programs in other states, it is unclear what proposed programs in other states, it is unclear what impacts, if any, state-level GHG rules will have on the impacts, if any, state-level GHG rules will have on the Company’s operations. Further state measures are Company’s operations. Further state measures are under substantive review as they respond to the under substantive review as they respond to the withdrawal of the EPA’s CPP. withdrawal of the EPA’s CPP. Summary Summary Regulation of GHGs continues to evolve in various Regulation of GHGs continues to evolve in various countries in which we do business. While it is likely that countries in which we do business. While it is likely that there will be increased governmental action regarding there will be increased governmental action regarding GHGs and climate change, any material impact to the GHGs and climate change, any material impact to the Company is not likely to occur before 2020 and at this Company is not likely to occur before 2020 and at this time it is not reasonably possible to estimate Company time it is not reasonably possible to estimate Company costs of compliance with rules that have not yet been costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct implemented in the future. In addition to possible direct impacts, future legislation and regulation could have impacts, future legislation and regulation could have indirect impacts on International Paper, such as higher indirect impacts on International Paper, such as higher prices for transportation, energy and other inputs, as prices for transportation, energy and other inputs, as well as more protracted air permitting processes, well as more protracted air permitting processes, causing delays and higher costs to implement capital causing delays and higher costs to implement capital projects. projects. International Paper has controls and International Paper has controls and procedures procedures in place in place to stay to stay informed about informed about developments concerning possible climate change developments concerning possible climate change legislation and regulation in the U.S. and in other legislation and regulation in the U.S. and in other countries where we operate. We regularly assess countries where we operate. We regularly assess whether such legislation or regulation may have a whether such legislation or regulation may have a material effect on the Company, its operations or material effect on the Company, its operations or financial condition, and whether we have any related financial condition, and whether we have any related disclosure obligations. disclosure obligations. International Paper plays a significant role in responding International Paper plays a significant role in responding to the climate change challenge. Our entire business to the climate change challenge. Our entire business depends upon the sustainability of forests. We transform depends upon the sustainability of forests. We transform renewable resources into recyclable products that renewable resources into recyclable products that people depend on every day. This cycle begins with people depend on every day. This cycle begins with RESEARCH AND DEVELOPMENT RESEARCH AND DEVELOPMENT expenditures for 2020 environmental projects are expenditures for 2020 environmental projects are estimated to be $73 million. estimated to be $73 million. The Company operates its primary research and The Company operates its primary research and development center in Loveland, Ohio, as well as development center in Loveland, Ohio, as well as The 2017 spend included costs associated with the U.S. The 2017 spend included costs associated with the U.S. several other product development facilities, including several other product development facilities, including Environmental Protection Agency's (EPA) Boiler MACT Environmental Protection Agency's (EPA) Boiler MACT the Global Cellulose Fibers technology center in the Global Cellulose Fibers technology center in (maximum achievable control technology) regulations (maximum achievable control technology) regulations Federal Way, Washington. Federal Way, Washington. We direct research and development activities to short- We direct research and development activities to short- term, long-term and technical assistance needs of term, long-term and technical assistance needs of customers and operating divisions, and to process, customers and operating divisions, and to process, equipment and product innovations. Activities include equipment and product innovations. Activities include product development within the operating divisions; product development within the operating divisions; studies on innovation and improvement of pulping, studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials and coating processes; packaging design and materials development; mechanical development; mechanical packaging packaging systems, systems, environmentally sensitive printing inks and reduction of environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw materials in environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and manufacturing processes; recycling of consumer and packaging paper products; energy conservation; packaging paper products; energy conservation; applications of computer controls to manufacturing applications of computer controls to manufacturing operations; innovations and improvement of products; operations; innovations and improvement of products; and development of various new products. Our and development of various new products. Our development efforts specifically address product safety development efforts specifically address product safety as well as the minimization of solid waste. The cost to as well as the minimization of solid waste. The cost to the Company of the Company of its research and development its research and development operations was $28 million in 2017, $20 million in 2016, operations was $28 million in 2017, $20 million in 2016, and $27 million in 2015. and $27 million in 2015. We own numerous patents, copyrights, trademarks, We own numerous patents, copyrights, trademarks, trade secrets and other intellectual property rights trade secrets and other intellectual property rights relating to our products and to the processes for their relating to our products and to the processes for their production. We also license intellectual property rights production. We also license intellectual property rights to and from others where advantageous or necessary. to and from others where advantageous or necessary. Many of the manufacturing processes are among our Many of the manufacturing processes are among our trade secrets. Some of our products are covered by trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them and other intellectual property rights, and by using them as required to support our businesses. as required to support our businesses. ENVIRONMENTAL PROTECTION ENVIRONMENTAL PROTECTION International Paper is subject to extensive federal and International Paper is subject to extensive federal and state environmental regulation as well as similar state environmental regulation as well as similar regulations internationally. Our continuing objectives regulations internationally. Our continuing objectives include: (1) controlling emissions and discharges from include: (1) controlling emissions and discharges from our facilities into the air, water and groundwater to avoid our facilities into the air, water and groundwater to avoid adverse adverse impacts impacts on on the the environment, environment, and and (2) maintaining compliance with applicable laws and (2) maintaining compliance with applicable laws and regulations. The Company spent $86 million in 2017 for regulations. The Company spent $86 million in 2017 for capital projects to control environmental releases into capital projects to control environmental releases into the air and water, and to assure environmentally sound the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend management and disposal of waste. We expect to spend $71 million in 2018 for environmental capital projects. $71 million in 2018 for environmental capital projects. Capital expenditures for 2019 environmental projects Capital expenditures for 2019 environmental projects are anticipated to be approximately $87 million. Capital are anticipated to be approximately $87 million. Capital 3 3 that require owners of specified boilers to meet revised that require owners of specified boilers to meet revised air emissions standards for certain substances. Several air emissions standards for certain substances. Several lawsuits were filed to challenge all or portions of the lawsuits were filed to challenge all or portions of the Boiler MACT regulations. On December 23, 2016, the Boiler MACT regulations. On December 23, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded the U.S. Court of Appeals for the D.C. Circuit remanded the Boiler MACT regulations to the EPA requiring the agency Boiler MACT regulations to the EPA requiring the agency to revise emission standards for boiler subcategories to revise emission standards for boiler subcategories that had been affected by flawed calculations. The Court that had been affected by flawed calculations. The Court determined that the existing MACT standards should determined that the existing MACT standards should remain in place while the revised standards are being remain in place while the revised standards are being developed, but did not establish a deadline for the EPA developed, but did not establish a deadline for the EPA to complete the rulemaking. The Company has to complete the rulemaking. The Company has completed its Boiler MACT capital projects to meet the completed its Boiler MACT capital projects to meet the existing regulations. We are not able to project any existing regulations. We are not able to project any additional Boiler MACT capital project expenditures as additional Boiler MACT capital project expenditures as it is uncertain to what extent the EPA will revise Boiler it is uncertain to what extent the EPA will revise Boiler MACT standards that are subject to the remand. MACT standards that are subject to the remand. Amendments lowering National Ambient Air Quality Amendments lowering National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2), nitrogen Standards (NAAQS) for sulfur dioxide (SO2), nitrogen dioxide (NO2), fine particulate (PM2.5), and ozone have dioxide (NO2), fine particulate (PM2.5), and ozone have been finalized by the EPA in recent years but to date been finalized by the EPA in recent years but to date have not had a material impact on the Company. have not had a material impact on the Company. CLIMATE CHANGE CLIMATE CHANGE In an effort to mitigate the potential climate change In an effort to mitigate the potential climate change impacts from human activities, various international, impacts from human activities, various international, national and sub-national (regional, state and local) national and sub-national (regional, state and local) governmental actions have been or may be undertaken. governmental actions have been or may be undertaken. Presently, these efforts have not materially impacted Presently, these efforts have not materially impacted International Paper, but such efforts may have a material International Paper, but such efforts may have a material impact on the Company in the future. impact on the Company in the future. International Efforts International Efforts A successor program to the 1997 Kyoto Protocol, the A successor program to the 1997 Kyoto Protocol, the Paris Agreement, went into effect in November 2016 and Paris Agreement, went into effect in November 2016 and continued continued international international efforts efforts and and voluntary voluntary commitments commitments toward reducing toward reducing the emissions of the emissions of greenhouse gases (GHGs). Consistent with this greenhouse gases (GHGs). Consistent with this objective, participating countries aim to balance GHG objective, participating countries aim to balance GHG emissions generation and removal in the second half of emissions generation and removal in the second half of this century or, in effect, achieve net-zero global GHG this century or, in effect, achieve net-zero global GHG emissions. emissions. As part of the Paris Agreement, many countries, As part of the Paris Agreement, many countries, including the U.S. and EU member states, established including the U.S. and EU member states, established non-binding emissions reduction targets. The U.S. non- non-binding emissions reduction targets. The U.S. non- binding commitment is for GHG emissions to be 7% binding commitment is for GHG emissions to be 7% below 2005 GHG emissions levels by 2020 and 26% to below 2005 GHG emissions levels by 2020 and 26% to 28% below by 2025. Other countries in which we do 28% below by 2025. Other countries in which we do business made similar non-binding commitments. On business made similar non-binding commitments. On August 4, 2017, the U.S. filed official notice to withdraw August 4, 2017, the U.S. filed official notice to withdraw from the Paris Agreement. Notwithstanding the notice from the Paris Agreement. Notwithstanding the notice of withdrawal by the U.S., the Company’s voluntary GHG of withdrawal by the U.S., the Company’s voluntary GHG reductions, which are set out in our annual Global reductions, which are set out in our annual Global Citizenship report, remain roughly in line with the Citizenship report, remain roughly in line with the percentages of the U.S. prior target reductions. It is not percentages of the U.S. prior target reductions. It is not clear at this time what, if any, further reductions by the clear at this time what, if any, further reductions by the Company might be required by the countries in which Company might be required by the countries in which we operate. Due to this uncertainty, it is not possible at we operate. Due to this uncertainty, it is not possible at this time to estimate the potential impacts of these this time to estimate the potential impacts of these agreements on the Company. agreements on the Company. To assist member countries in meeting obligations under To assist member countries in meeting obligations under the Kyoto Protocol, the EU established and continues the Kyoto Protocol, the EU established and continues to operate an Emissions Trading System (EU ETS). to operate an Emissions Trading System (EU ETS). Currently, we have two sites directly subject to regulation Currently, we have two sites directly subject to regulation under Phase III of the EU ETS, one in Poland and one under Phase III of the EU ETS, one in Poland and one in France. Other sites that we operate in the EU in France. Other sites that we operate in the EU experience indirect impacts of the EU ETS through experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the impacts of the EU ETS have been material to the Company, but they could be material to the Company in Company, but they could be material to the Company in the future depending on how the Paris Agreement's non- the future depending on how the Paris Agreement's non- binding commitments or allocation of and market prices binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the for GHG credits under existing rules evolve over the coming years. coming years. U.S. Efforts U.S. Efforts transportation transportation In the U.S., the 1997 Kyoto Protocol was not ratified and In the U.S., the 1997 Kyoto Protocol was not ratified and Congress has not passed GHG legislation. The EPA, Congress has not passed GHG legislation. The EPA, however, enacted regulations to: (i) control GHGs from however, enacted regulations to: (i) control GHGs from fuel mobile sources by adopting fuel mobile sources by adopting efficiency standards; (ii) control GHG emissions from efficiency standards; (ii) control GHG emissions from new Electric Generating Units (EGUs); (iii) require new Electric Generating Units (EGUs); (iii) require reporting of GHGs from sources of GHGs greater than reporting of GHGs from sources of GHGs greater than 25,000 tons per year; (iv) in 2015, require states to 25,000 tons per year; (iv) in 2015, require states to develop plans to reduce GHGs from utility EGUs and develop plans to reduce GHGs from utility EGUs and (v) in 2016 EPA took the first steps in the process of (v) in 2016 EPA took the first steps in the process of developing emissions standards for existing sources in developing emissions standards for existing sources in the oil and gas sector. The 2017 change in leadership the oil and gas sector. The 2017 change in leadership of the U.S. executive branch may result in significant of the U.S. executive branch may result in significant revisions to or rescission of the EPA's GHG regulations. revisions to or rescission of the EPA's GHG regulations. It is unclear what impacts, if any, the EPA's GHG It is unclear what impacts, if any, the EPA's GHG regulatory revisions and any other future revisions will regulatory revisions and any other future revisions will have on the Company’s operations. have on the Company’s operations. In 2015, EPA promulgated the Clean Power Plan (CPP) In 2015, EPA promulgated the Clean Power Plan (CPP) rule to address climate change by reducing carbon rule to address climate change by reducing carbon dioxide (CO2) and other designated greenhouse gas dioxide (CO2) and other designated greenhouse gas pollutant emissions from utility EGUs. In response, pollutant emissions from utility EGUs. In response, states were to develop and begin implementing states were to develop and begin implementing programs to reduce GHGs from EGUs by about 32 programs to reduce GHGs from EGUs by about 32 percent by the 2022 to 2033 timeframe as compared to percent by the 2022 to 2033 timeframe as compared to 2005 baseline levels. In October 2017, the EPA issued 2005 baseline levels. In October 2017, the EPA issued a regulatory action to withdraw the CPP in its entirety. a regulatory action to withdraw the CPP in its entirety. Notwithstanding the withdrawal of the CPP, some states Notwithstanding the withdrawal of the CPP, some states have remained committed to reaching the reduction have remained committed to reaching the reduction targets set out in the CPP. These GHG reduction plans, targets set out in the CPP. These GHG reduction plans, if implemented, could pose potential cost increases for if implemented, could pose potential cost increases for electricity purchased by the Company. The magnitude electricity purchased by the Company. The magnitude of cost increases to the Company, if any, are not possible of cost increases to the Company, if any, are not possible to estimate reliably at this time. to estimate reliably at this time. State, Regional and Local Measures State, Regional and Local Measures A few U.S. states have enacted or are considering legal A few U.S. states have enacted or are considering legal measures to require the reduction of emissions of GHGs measures to require the reduction of emissions of GHGs by companies and public utilities, primarily through the by companies and public utilities, primarily through the development of GHG emission inventories or regional development of GHG emission inventories or regional GHG cap-and-trade programs. California has already GHG cap-and-trade programs. California has already enacted such a program and similar actions are being enacted such a program and similar actions are being considered by Oregon. The Company does not have considered by Oregon. The Company does not have to California's GHG any sites currently subject any sites currently subject to California's GHG regulatory plan and since the Oregon program is still regulatory plan and since the Oregon program is still being developed, it is too early to know how or if being developed, it is too early to know how or if Company owned sites in Oregon may be affected. Company owned sites in Oregon may be affected. There may be indirect impacts from changing input costs There may be indirect impacts from changing input costs (such as electricity) at some of our California converting (such as electricity) at some of our California converting operations but these have yet to manifest themselves operations but these have yet to manifest themselves in material impacts. Although we are monitoring in material impacts. Although we are monitoring proposed programs in other states, it is unclear what proposed programs in other states, it is unclear what impacts, if any, state-level GHG rules will have on the impacts, if any, state-level GHG rules will have on the Company’s operations. Further state measures are Company’s operations. Further state measures are under substantive review as they respond to the under substantive review as they respond to the withdrawal of the EPA’s CPP. withdrawal of the EPA’s CPP. Summary Summary Regulation of GHGs continues to evolve in various Regulation of GHGs continues to evolve in various countries in which we do business. While it is likely that countries in which we do business. While it is likely that there will be increased governmental action regarding there will be increased governmental action regarding GHGs and climate change, any material impact to the GHGs and climate change, any material impact to the Company is not likely to occur before 2020 and at this Company is not likely to occur before 2020 and at this time it is not reasonably possible to estimate Company time it is not reasonably possible to estimate Company costs of compliance with rules that have not yet been costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct implemented in the future. In addition to possible direct impacts, future legislation and regulation could have impacts, future legislation and regulation could have indirect impacts on International Paper, such as higher indirect impacts on International Paper, such as higher prices for transportation, energy and other inputs, as prices for transportation, energy and other inputs, as well as more protracted air permitting processes, well as more protracted air permitting processes, causing delays and higher costs to implement capital causing delays and higher costs to implement capital International Paper has controls and projects. International Paper has controls and projects. procedures informed about informed about procedures developments concerning possible climate change developments concerning possible climate change legislation and regulation in the U.S. and in other legislation and regulation in the U.S. and in other countries where we operate. We regularly assess countries where we operate. We regularly assess whether such legislation or regulation may have a whether such legislation or regulation may have a material effect on the Company, its operations or material effect on the Company, its operations or financial condition, and whether we have any related financial condition, and whether we have any related disclosure obligations. disclosure obligations. in place in place to stay to stay International Paper plays a significant role in responding International Paper plays a significant role in responding to the climate change challenge. Our entire business to the climate change challenge. Our entire business depends upon the sustainability of forests. We transform depends upon the sustainability of forests. We transform renewable resources into recyclable products that renewable resources into recyclable products that people depend on every day. This cycle begins with people depend on every day. This cycle begins with 4 4 sourcing renewable fiber from responsibly managed sourcing renewable fiber from responsibly managed forests, and at the end of use our products are recycled forests, and at the end of use our products are recycled into new products at a higher rate than any other base into new products at a higher rate than any other base material. We will continue to lead the world in material. We will continue to lead the world in responsible forest stewardship to ensure healthy and responsible forest stewardship to ensure healthy and productive forest ecosystems for generations to come. productive forest ecosystems for generations to come. Our efforts to advance sustainable forest management Our efforts to advance sustainable forest management and restore forest landscapes are an important lever for and restore forest landscapes are an important lever for mitigating climate change through carbon storage in mitigating climate change through carbon storage in forests. Furthermore, we use biomass and forests. Furthermore, we use biomass and manufacturing residuals (rather than fossil fuels) to manufacturing residuals (rather than fossil fuels) to generate a substantial majority of the manufacturing generate a substantial majority of the manufacturing energy at our mills. energy at our mills. Additional information regarding climate change and Additional information regarding climate change and International Paper is available in our 2016 Global International Paper is available in our 2016 Global Citizenship report found on our Internet Web site at Citizenship report found on our Internet Web site at www.internationalpaper.com, though this information is www.internationalpaper.com, though this information is not incorporated by reference into this Form 10-K and not incorporated by reference into this Form 10-K and should not be considered part of this or any other report should not be considered part of this or any other report that we file with or furnish to the SEC. that we file with or furnish to the SEC. EMPLOYEES EMPLOYEES the United States. Of the United States. Of As of December 31, 2017, we have approximately As of December 31, 2017, we have approximately 56,000 employees, nearly 36,000 of whom are located 56,000 employees, nearly 36,000 of whom are located in the U.S. employees, in the U.S. employees, approximately 25,000 are hourly, with unions approximately 25,000 are hourly, with unions representing approximately 15,000 employees. representing approximately 15,000 employees. Approximately 12,000 of this number are represented Approximately 12,000 of this number are represented by the United Steelworkers union (USW). by the United Steelworkers union (USW). International Paper, the USW, and several other unions International Paper, the USW, and several other unions have entered into two master agreements covering have entered into two master agreements covering various mills and converting facilities. These master various mills and converting facilities. These master agreements cover several specific items, including agreements cover several specific items, including wages, select benefit programs, successorship, wages, select benefit programs, successorship, employment security, and health and safety. Individual employment security, and health and safety. Individual facilities continue to have local agreements for other facilities continue to have local agreements for other subjects not covered by the master agreements. If local subjects not covered by the master agreements. If local facility agreements are not successfully negotiated at facility agreements are not successfully negotiated at the time of expiration, under the terms of the master the time of expiration, under the terms of the master agreements the local contracts will automatically renew agreements the local contracts will automatically renew with the same terms in effect. The master agreements with the same terms in effect. The master agreements cover the majority of our union represented mills and cover the majority of our union represented mills and converting facilities. In addition, International Paper is converting facilities. In addition, International Paper is party to a master agreement with District Council 2, party to a master agreement with District Council 2, International Brotherhood of Teamsters, covering International Brotherhood of Teamsters, covering additional converting facilities. additional converting facilities. EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS OF THE REGISTRANT Mark S. Sutton, 56, chairman (since January 1, 2015) Mark S. Sutton, 56, chairman (since January 1, 2015) & chief executive officer (since November 1, 2014). & chief executive officer (since November 1, 2014). Mr. Sutton previously served as president & chief Mr. Sutton previously served as president & chief operating officer from June 1, 2014 to October 31, operating officer from June 1, 2014 to October 31, 2014, senior vice president - industrial packaging from 2014, senior vice president - industrial packaging from November 2011 to May 31, 2014, senior vice president November 2011 to May 31, 2014, senior vice president - printing and communications papers of the Americas - printing and communications papers of the Americas from 2010 until 2011, senior vice president - supply from 2010 until 2011, senior vice president - supply chain from 2008 to 2009, vice president - supply chain chain from 2008 to 2009, vice president - supply chain from 2007 until 2008, and vice president - strategic from 2007 until 2008, and vice president - strategic planning from 2005 until 2007. Mr. Sutton joined planning from 2005 until 2007. Mr. Sutton joined International Paper in 1984. Mr. Sutton serves on the International Paper in 1984. Mr. Sutton serves on the board of directors of The Kroger Company. He is a board of directors of The Kroger Company. He is a member of The Business Council and the Business member of The Business Council and the Business Roundtable and serves on the American Forest & Roundtable and serves on the American Forest & Paper Association board of directors and the Paper Association board of directors and the international advisory board of the Moscow School of international advisory board of the Moscow School of Management - Skolkovo. He was appointed chairman Management - Skolkovo. He was appointed chairman of the U.S. Russian Business Council and was also of the U.S. Russian Business Council and was also appointed to the U.S. Section of the U.S.-Brazil CEO appointed to the U.S. Section of the U.S.-Brazil CEO Forum. He also serves on the board of directors of Forum. He also serves on the board of directors of Memphis Tomorrow and board of governors for New Memphis Tomorrow and board of governors for New Memphis Institute. Mr. Sutton has been a director since Memphis Institute. Mr. Sutton has been a director since June 1, 2014. June 1, 2014. W. Michael Amick, Jr., 54, senior vice president - W. Michael Amick, Jr., 54, senior vice president - paper the Americas & India since January 1, 2017. Mr. paper the Americas & India since January 1, 2017. Mr. Amick previously served as senior vice president - Amick previously served as senior vice president - North American papers & consumer packaging from North American papers & consumer packaging from July 2016 until December 2016, senior vice president July 2016 until December 2016, senior vice president - North American papers, pulp & consumer packaging - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president from November 2014 until June 2016, vice president - president, IP India, from August 2012 to October - president, IP India, from August 2012 to October 2014, and vice president and general manager for the 2014, and vice president and general manager for the coated paperboard business from 2010 to 2012. Mr. coated paperboard business from 2010 to 2012. Mr. Amick joined International Paper in 1990. Amick joined International Paper in 1990. C. Cato Ealy, 61, senior vice president - corporate C. Cato Ealy, 61, senior vice president - corporate development since 2003. Mr. Ealy is a director of Ilim development since 2003. Mr. Ealy is a director of Ilim Holding S.A., a Swiss holding company in which Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ealy joined International subsidiary, Ilim Group. Mr. Ealy joined International Paper in 1992. Paper in 1992. Tommy S. Joseph, 58, senior vice president - Tommy S. Joseph, 58, senior vice president - manufacturing, technology, EH&S and global sourcing manufacturing, technology, EH&S and global sourcing since January 2010. Mr. Joseph previously served as since January 2010. Mr. Joseph previously served as senior vice president - manufacturing, technology, senior vice president - manufacturing, technology, EH&S from February 2009 until December 2009, and EH&S from February 2009 until December 2009, and vice president - technology from 2005 until February vice president - technology from 2005 until February 2009. Mr. Joseph is a director of Ilim Holding S.A., a 2009. Mr. Joseph is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Joseph joined International Paper in 1983. Mr. Joseph joined International Paper in 1983. Glenn R. Landau, 49, senior vice president & chief Glenn R. Landau, 49, senior vice president & chief financial officer since February 22, 2017. Mr. Landau financial officer since February 22, 2017. Mr. Landau previously served as senior vice president - finance previously served as senior vice president - finance from January 1, 2017 to February 22, 2017, senior vice from January 1, 2017 to February 22, 2017, senior vice president - president, IP Latin America from November president - president, IP Latin America from November 2014 through December 2016, vice president - 2014 through December 2016, vice president - president IP Latin America from 2013 to October 2014, president IP Latin America from 2013 to October 2014, vice president - investor relations from 2011 to 2013, vice president - investor relations from 2011 to 2013, vice president and general manager, and vice president and general manager, and containerboard and recycling from 2007 to 2011. Mr. containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory Landau serves on the board of directors of Factory Mutual Insurance Company (FM Global). Mr. Landau Mutual Insurance Company (FM Global). Mr. Landau 2016 2016 to December 2017. to December 2017. Ms. Slater Ms. Slater joined joined joined International Paper in 1991. joined International Paper in 1991. Timothy S. Nicholls, 56, senior vice president - Timothy S. Nicholls, 56, senior vice president - industrial packaging the Americas since January 1, industrial packaging the Americas since January 1, International Paper from Weyerhaeuser Company in International Paper from Weyerhaeuser Company in December 2016, effective with the completion of the December 2016, effective with the completion of the acquisition of Weyerhaeuser’s cellulose acquisition of Weyerhaeuser’s cellulose fibers fibers business, which she previously led. Ms. Slater’s 24- business, which she previously led. Ms. Slater’s 24- 2017. Mr. Nicholls previously served as senior vice 2017. Mr. Nicholls previously served as senior vice year career with Weyerhaeuser included leadership year career with Weyerhaeuser included leadership president - industrial packaging from November 2014 president - industrial packaging from November 2014 roles in manufacturing, printing papers, consumer roles in manufacturing, printing papers, consumer through December 2016, senior vice president - through December 2016, senior vice president - products, wood products and the cellulose fibers products, wood products and the cellulose fibers printing and communications papers of the Americas printing and communications papers of the Americas business. business. from November 2011 through October 2014, senior from November 2011 through October 2014, senior vice president and chief financial officer from 2007 until vice president and chief financial officer from 2007 until 2011, vice president and executive project leader of IP 2011, vice president and executive project leader of IP Gregory T. Wanta, 52, senior vice president - North Gregory T. Wanta, 52, senior vice president - North American container since November 2016. Mr. Wanta American container since November 2016. Mr. Wanta Europe during 2007, and vice president and chief Europe during 2007, and vice president and chief has served in a variety of roles of increasing has served in a variety of roles of increasing financial officer - IP Europe from 2005 until 2007. Mr. financial officer - IP Europe from 2005 until 2007. Mr. responsibility responsibility in manufacturing and commercial in manufacturing and commercial Nicholls joined International Paper in 1991. Nicholls joined International Paper in 1991. leadership leadership roles roles in specialty papers, coated in specialty papers, coated paperboard, printing papers, paperboard, printing papers, foodservice and foodservice and industrial packaging, including vice president, central industrial packaging, including vice president, central Thomas J. Plath, 54, senior vice president - human Thomas J. Plath, 54, senior vice president - human resources and global citizenship since March 1, 2017. resources and global citizenship since March 1, 2017. region, Container the Americas, from January 2012 region, Container the Americas, from January 2012 Mr. Plath previously served as vice president - human Mr. Plath previously served as vice president - human through October 2016. Mr. Wanta joined International through October 2016. Mr. Wanta joined International resources, global businesses from November 2014 resources, global businesses from November 2014 Paper in 1991. Paper in 1991. through February 2017, and vice president - HR through February 2017, and vice president - HR manufacturing, technology, EH&S and global supply manufacturing, technology, EH&S and global supply chain from April 2013 to November 2014. Mr. Plath chain from April 2013 to November 2014. Mr. Plath joined International Paper in 1991. joined International Paper in 1991. Jean-Michel Ribieras, 55, senior vice president - Jean-Michel Ribieras, 55, senior vice president - global cellulose fibers since July 2016. Mr. Ribieras global cellulose fibers since July 2016. Mr. Ribieras previously served as senior vice president - president, previously served as senior vice president - president, IP Europe, Middle East, Africa & Russia from 2013 until IP Europe, Middle East, Africa & Russia from 2013 until June 2016, and president - IP Latin America from 2009 June 2016, and president - IP Latin America from 2009 until 2013. Mr. Ribieras joined International Paper in until 2013. Mr. Ribieras joined International Paper in 1993. 1993. Sharon R. Ryan, 58, senior vice president, general Sharon R. Ryan, 58, senior vice president, general counsel & corporate secretary since November 2011. counsel & corporate secretary since November 2011. Ms. Ryan previously served as vice president, acting Ms. Ryan previously served as vice president, acting general counsel & corporate secretary from May 2011 general counsel & corporate secretary from May 2011 until November 2011, vice president from March 2011 until November 2011, vice president from March 2011 until May 2011, associate general counsel, chief ethics until May 2011, associate general counsel, chief ethics and compliance officer from 2009 until 2011, and and compliance officer from 2009 until 2011, and associate general counsel from 2006 until 2009. Ms. associate general counsel from 2006 until 2009. Ms. Ryan joined International Paper in 1988. Ryan joined International Paper in 1988. John V. Sims, 55, senior vice president - president, John V. Sims, 55, senior vice president - president, IP Europe, Middle East, Africa & Russia since July IP Europe, Middle East, Africa & Russia since July 2016. Mr. Sims previously served as vice president 2016. Mr. Sims previously served as vice president and general manager, European papers from March and general manager, European papers from March 2016 until June 2016, vice president & general 2016 until June 2016, vice president & general manager, North American papers from 2013 until manager, North American papers from 2013 until February 2016, and vice president, finance and February 2016, and vice president, finance and strategy, industrial packaging, from 2009 until 2013. strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a director of Ilim Holding S.A., a Swiss Mr. Sims is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. a 50% interest, and of its subsidiary, Ilim Group. Mr. Sims joined International Paper in 1994. Sims joined International Paper in 1994. Catherine I. Slater, 54, senior vice president since Catherine I. Slater, 54, senior vice president since January 2018. Ms. Slater previously served as senior January 2018. Ms. Slater previously served as senior vice president - consumer packaging from December vice president - consumer packaging from December RAW MATERIALS RAW MATERIALS Raw materials essential to our businesses include wood Raw materials essential to our businesses include wood fiber, purchased in the form of pulpwood, wood chips fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain and old corrugated containers (OCC), and certain chemicals, chemicals, including caustic soda and starch. including caustic soda and starch. Information Information concerning concerning fiber fiber supply purchase supply purchase agreements that were entered into in connection with agreements that were entered into in connection with the Company’s 2006 Transformation Plan, the 2008 the Company’s 2006 Transformation Plan, the 2008 acquisition acquisition of of Weyerhaeuser Weyerhaeuser Company’s Company’s Containerboard, Packaging and Recycling business, Containerboard, Packaging and Recycling business, and the 2016 acquisition of Weyerhaeuser's pulp and the 2016 acquisition of Weyerhaeuser's pulp business is presented in on page 30. business is presented in on page 30. FORWARD-LOOKING STATEMENTS FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K Certain statements in this Annual Report on Form 10-K (including the exhibits hereto) that are not historical in (including the exhibits hereto) that are not historical in nature may be considered “forward-looking” statements nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often Reform Act of 1995. These statements are often identified by identified by the words, the words, “will,” “will,” “may,” “may,” “should,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of similar nature. These statements are not guarantees of future performance and reflect management’s current future performance and reflect management’s current views with respect to future events, which are subject views with respect to future events, which are subject to risks and uncertainties that could cause actual results to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in to differ materially from those expressed or implied in these statements. Factors which could cause actual these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and for our products; (iii) global economic conditions and political changes, including but not limited to the political changes, including but not limited to the 5 5 6 6 sourcing renewable fiber from responsibly managed sourcing renewable fiber from responsibly managed from 2010 until 2011, senior vice president - supply from 2010 until 2011, senior vice president - supply forests, and at the end of use our products are recycled forests, and at the end of use our products are recycled chain from 2008 to 2009, vice president - supply chain chain from 2008 to 2009, vice president - supply chain into new products at a higher rate than any other base into new products at a higher rate than any other base from 2007 until 2008, and vice president - strategic from 2007 until 2008, and vice president - strategic material. We will continue to lead the world in material. We will continue to lead the world in planning from 2005 until 2007. Mr. Sutton joined planning from 2005 until 2007. Mr. Sutton joined responsible forest stewardship to ensure healthy and responsible forest stewardship to ensure healthy and International Paper in 1984. Mr. Sutton serves on the International Paper in 1984. Mr. Sutton serves on the productive forest ecosystems for generations to come. productive forest ecosystems for generations to come. board of directors of The Kroger Company. He is a board of directors of The Kroger Company. He is a Our efforts to advance sustainable forest management Our efforts to advance sustainable forest management member of The Business Council and the Business member of The Business Council and the Business and restore forest landscapes are an important lever for and restore forest landscapes are an important lever for Roundtable and serves on the American Forest & Roundtable and serves on the American Forest & mitigating climate change through carbon storage in mitigating climate change through carbon storage in Paper Association board of directors and Paper Association board of directors and the the forests. Furthermore, we use biomass and forests. Furthermore, we use biomass and international advisory board of the Moscow School of international advisory board of the Moscow School of manufacturing residuals (rather than fossil fuels) to manufacturing residuals (rather than fossil fuels) to Management - Skolkovo. He was appointed chairman Management - Skolkovo. He was appointed chairman generate a substantial majority of the manufacturing generate a substantial majority of the manufacturing of the U.S. Russian Business Council and was also of the U.S. Russian Business Council and was also energy at our mills. energy at our mills. appointed to the U.S. Section of the U.S.-Brazil CEO appointed to the U.S. Section of the U.S.-Brazil CEO Forum. He also serves on the board of directors of Forum. He also serves on the board of directors of Additional information regarding climate change and Additional information regarding climate change and Memphis Tomorrow and board of governors for New Memphis Tomorrow and board of governors for New International Paper is available in our 2016 Global International Paper is available in our 2016 Global Memphis Institute. Mr. Sutton has been a director since Memphis Institute. Mr. Sutton has been a director since Citizenship report found on our Internet Web site at Citizenship report found on our Internet Web site at June 1, 2014. June 1, 2014. www.internationalpaper.com, though this information is www.internationalpaper.com, though this information is not incorporated by reference into this Form 10-K and not incorporated by reference into this Form 10-K and W. Michael Amick, Jr., 54, senior vice president - W. Michael Amick, Jr., 54, senior vice president - should not be considered part of this or any other report should not be considered part of this or any other report paper the Americas & India since January 1, 2017. Mr. paper the Americas & India since January 1, 2017. Mr. that we file with or furnish to the SEC. that we file with or furnish to the SEC. EMPLOYEES EMPLOYEES As of December 31, 2017, we have approximately As of December 31, 2017, we have approximately 56,000 employees, nearly 36,000 of whom are located 56,000 employees, nearly 36,000 of whom are located in in the United States. Of the United States. Of the U.S. employees, the U.S. employees, approximately 25,000 are hourly, with unions approximately 25,000 are hourly, with unions representing approximately 15,000 employees. representing approximately 15,000 employees. Approximately 12,000 of this number are represented Approximately 12,000 of this number are represented by the United Steelworkers union (USW). by the United Steelworkers union (USW). International Paper, the USW, and several other unions International Paper, the USW, and several other unions have entered into two master agreements covering have entered into two master agreements covering various mills and converting facilities. These master various mills and converting facilities. These master agreements cover several specific items, including agreements cover several specific items, including wages, select benefit programs, successorship, wages, select benefit programs, successorship, employment security, and health and safety. Individual employment security, and health and safety. Individual facilities continue to have local agreements for other facilities continue to have local agreements for other subjects not covered by the master agreements. If local subjects not covered by the master agreements. If local facility agreements are not successfully negotiated at facility agreements are not successfully negotiated at the time of expiration, under the terms of the master the time of expiration, under the terms of the master agreements the local contracts will automatically renew agreements the local contracts will automatically renew with the same terms in effect. The master agreements with the same terms in effect. The master agreements cover the majority of our union represented mills and cover the majority of our union represented mills and converting facilities. In addition, International Paper is converting facilities. In addition, International Paper is party to a master agreement with District Council 2, party to a master agreement with District Council 2, International Brotherhood of Teamsters, covering International Brotherhood of Teamsters, covering additional converting facilities. additional converting facilities. EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS OF THE REGISTRANT Mark S. Sutton, 56, chairman (since January 1, 2015) Mark S. Sutton, 56, chairman (since January 1, 2015) & chief executive officer (since November 1, 2014). & chief executive officer (since November 1, 2014). Mr. Sutton previously served as president & chief Mr. Sutton previously served as president & chief operating officer from June 1, 2014 to October 31, operating officer from June 1, 2014 to October 31, 2014, senior vice president - industrial packaging from 2014, senior vice president - industrial packaging from November 2011 to May 31, 2014, senior vice president November 2011 to May 31, 2014, senior vice president - printing and communications papers of the Americas - printing and communications papers of the Americas Amick previously served as senior vice president - Amick previously served as senior vice president - North American papers & consumer packaging from North American papers & consumer packaging from July 2016 until December 2016, senior vice president July 2016 until December 2016, senior vice president - North American papers, pulp & consumer packaging - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president from November 2014 until June 2016, vice president - president, IP India, from August 2012 to October - president, IP India, from August 2012 to October 2014, and vice president and general manager for the 2014, and vice president and general manager for the coated paperboard business from 2010 to 2012. Mr. coated paperboard business from 2010 to 2012. Mr. Amick joined International Paper in 1990. Amick joined International Paper in 1990. C. Cato Ealy, 61, senior vice president - corporate C. Cato Ealy, 61, senior vice president - corporate development since 2003. Mr. Ealy is a director of Ilim development since 2003. Mr. Ealy is a director of Ilim Holding S.A., a Swiss holding company in which Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ealy joined International subsidiary, Ilim Group. Mr. Ealy joined International Paper in 1992. Paper in 1992. Tommy S. Joseph, 58, senior vice president - Tommy S. Joseph, 58, senior vice president - manufacturing, technology, EH&S and global sourcing manufacturing, technology, EH&S and global sourcing since January 2010. Mr. Joseph previously served as since January 2010. Mr. Joseph previously served as senior vice president - manufacturing, technology, senior vice president - manufacturing, technology, EH&S from February 2009 until December 2009, and EH&S from February 2009 until December 2009, and vice president - technology from 2005 until February vice president - technology from 2005 until February 2009. Mr. Joseph is a director of Ilim Holding S.A., a 2009. Mr. Joseph is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Joseph joined International Paper in 1983. Mr. Joseph joined International Paper in 1983. Glenn R. Landau, 49, senior vice president & chief Glenn R. Landau, 49, senior vice president & chief financial officer since February 22, 2017. Mr. Landau financial officer since February 22, 2017. Mr. Landau previously served as senior vice president - finance previously served as senior vice president - finance from January 1, 2017 to February 22, 2017, senior vice from January 1, 2017 to February 22, 2017, senior vice president - president, IP Latin America from November president - president, IP Latin America from November 2014 through December 2016, vice president - 2014 through December 2016, vice president - president IP Latin America from 2013 to October 2014, president IP Latin America from 2013 to October 2014, vice president - investor relations from 2011 to 2013, vice president - investor relations from 2011 to 2013, and and vice president and general manager, vice president and general manager, containerboard and recycling from 2007 to 2011. Mr. containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory Landau serves on the board of directors of Factory Mutual Insurance Company (FM Global). Mr. Landau Mutual Insurance Company (FM Global). Mr. Landau joined International Paper in 1991. joined International Paper in 1991. Timothy S. Nicholls, 56, senior vice president - Timothy S. Nicholls, 56, senior vice president - industrial packaging the Americas since January 1, industrial packaging the Americas since January 1, 2017. Mr. Nicholls previously served as senior vice 2017. Mr. Nicholls previously served as senior vice president - industrial packaging from November 2014 president - industrial packaging from November 2014 through December 2016, senior vice president - through December 2016, senior vice president - printing and communications papers of the Americas printing and communications papers of the Americas from November 2011 through October 2014, senior from November 2011 through October 2014, senior vice president and chief financial officer from 2007 until vice president and chief financial officer from 2007 until 2011, vice president and executive project leader of IP 2011, vice president and executive project leader of IP Europe during 2007, and vice president and chief Europe during 2007, and vice president and chief financial officer - IP Europe from 2005 until 2007. Mr. financial officer - IP Europe from 2005 until 2007. Mr. Nicholls joined International Paper in 1991. Nicholls joined International Paper in 1991. Thomas J. Plath, 54, senior vice president - human Thomas J. Plath, 54, senior vice president - human resources and global citizenship since March 1, 2017. resources and global citizenship since March 1, 2017. Mr. Plath previously served as vice president - human Mr. Plath previously served as vice president - human resources, global businesses from November 2014 resources, global businesses from November 2014 through February 2017, and vice president - HR through February 2017, and vice president - HR manufacturing, technology, EH&S and global supply manufacturing, technology, EH&S and global supply chain from April 2013 to November 2014. Mr. Plath chain from April 2013 to November 2014. Mr. Plath joined International Paper in 1991. joined International Paper in 1991. Jean-Michel Ribieras, 55, senior vice president - Jean-Michel Ribieras, 55, senior vice president - global cellulose fibers since July 2016. Mr. Ribieras global cellulose fibers since July 2016. Mr. Ribieras previously served as senior vice president - president, previously served as senior vice president - president, IP Europe, Middle East, Africa & Russia from 2013 until IP Europe, Middle East, Africa & Russia from 2013 until June 2016, and president - IP Latin America from 2009 June 2016, and president - IP Latin America from 2009 until 2013. Mr. Ribieras joined International Paper in until 2013. Mr. Ribieras joined International Paper in 1993. 1993. Sharon R. Ryan, 58, senior vice president, general Sharon R. Ryan, 58, senior vice president, general counsel & corporate secretary since November 2011. counsel & corporate secretary since November 2011. Ms. Ryan previously served as vice president, acting Ms. Ryan previously served as vice president, acting general counsel & corporate secretary from May 2011 general counsel & corporate secretary from May 2011 until November 2011, vice president from March 2011 until November 2011, vice president from March 2011 until May 2011, associate general counsel, chief ethics until May 2011, associate general counsel, chief ethics and compliance officer from 2009 until 2011, and and compliance officer from 2009 until 2011, and associate general counsel from 2006 until 2009. Ms. associate general counsel from 2006 until 2009. Ms. Ryan joined International Paper in 1988. Ryan joined International Paper in 1988. John V. Sims, 55, senior vice president - president, John V. Sims, 55, senior vice president - president, IP Europe, Middle East, Africa & Russia since July IP Europe, Middle East, Africa & Russia since July 2016. Mr. Sims previously served as vice president 2016. Mr. Sims previously served as vice president and general manager, European papers from March and general manager, European papers from March 2016 until June 2016, vice president & general 2016 until June 2016, vice president & general manager, North American papers from 2013 until manager, North American papers from 2013 until February 2016, and vice president, finance and February 2016, and vice president, finance and strategy, industrial packaging, from 2009 until 2013. strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a director of Ilim Holding S.A., a Swiss Mr. Sims is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. a 50% interest, and of its subsidiary, Ilim Group. Mr. Sims joined International Paper in 1994. Sims joined International Paper in 1994. Catherine I. Slater, 54, senior vice president since Catherine I. Slater, 54, senior vice president since January 2018. Ms. Slater previously served as senior January 2018. Ms. Slater previously served as senior vice president - consumer packaging from December vice president - consumer packaging from December 5 5 6 6 Ms. Slater Ms. Slater to December 2017. to December 2017. 2016 joined joined 2016 International Paper from Weyerhaeuser Company in International Paper from Weyerhaeuser Company in December 2016, effective with the completion of the December 2016, effective with the completion of the acquisition of Weyerhaeuser’s cellulose fibers fibers acquisition of Weyerhaeuser’s cellulose business, which she previously led. Ms. Slater’s 24- business, which she previously led. Ms. Slater’s 24- year career with Weyerhaeuser included leadership year career with Weyerhaeuser included leadership roles in manufacturing, printing papers, consumer roles in manufacturing, printing papers, consumer products, wood products and the cellulose fibers products, wood products and the cellulose fibers business. business. Gregory T. Wanta, 52, senior vice president - North Gregory T. Wanta, 52, senior vice president - North American container since November 2016. Mr. Wanta American container since November 2016. Mr. Wanta has served in a variety of roles of increasing has served in a variety of roles of increasing in manufacturing and commercial responsibility in manufacturing and commercial responsibility in specialty papers, coated roles roles leadership in specialty papers, coated leadership paperboard, printing papers, foodservice and foodservice and paperboard, printing papers, industrial packaging, including vice president, central industrial packaging, including vice president, central region, Container the Americas, from January 2012 region, Container the Americas, from January 2012 through October 2016. Mr. Wanta joined International through October 2016. Mr. Wanta joined International Paper in 1991. Paper in 1991. RAW MATERIALS RAW MATERIALS Raw materials essential to our businesses include wood Raw materials essential to our businesses include wood fiber, purchased in the form of pulpwood, wood chips fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain and old corrugated containers (OCC), and certain including caustic soda and starch. chemicals, including caustic soda and starch. chemicals, supply purchase concerning Information supply purchase concerning Information agreements that were entered into in connection with agreements that were entered into in connection with the Company’s 2006 Transformation Plan, the 2008 the Company’s 2006 Transformation Plan, the 2008 acquisition Company’s acquisition Company’s Containerboard, Packaging and Recycling business, Containerboard, Packaging and Recycling business, and the 2016 acquisition of Weyerhaeuser's pulp and the 2016 acquisition of Weyerhaeuser's pulp business is presented in on page 30. business is presented in on page 30. Weyerhaeuser Weyerhaeuser fiber fiber of of FORWARD-LOOKING STATEMENTS FORWARD-LOOKING STATEMENTS “will,” “will,” “may,” “may,” the words, the words, Certain statements in this Annual Report on Form 10-K Certain statements in this Annual Report on Form 10-K (including the exhibits hereto) that are not historical in (including the exhibits hereto) that are not historical in nature may be considered “forward-looking” statements nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often Reform Act of 1995. These statements are often identified by “should,” identified by “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of similar nature. These statements are not guarantees of future performance and reflect management’s current future performance and reflect management’s current views with respect to future events, which are subject views with respect to future events, which are subject to risks and uncertainties that could cause actual results to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in to differ materially from those expressed or implied in these statements. Factors which could cause actual these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and for our products; (iii) global economic conditions and political changes, including but not limited to the political changes, including but not limited to the impairment of financial institutions, changes in currency impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with expenditures related to the cost of compliance with existing and new environmental and other governmental existing and new environmental and other governmental regulations and to actual or potential litigation; (v) regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in our manufacturing facilities; (vi) risks inherent in conducting business through a joint venture; and (vii) conducting business through a joint venture; and (vii) our ability to achieve the benefits we expect from all our ability to achieve the benefits we expect from all acquisitions, divestitures and restructurings. These and acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual other factors that could cause or contribute to actual results differing materially from such forward looking results differing materially from such forward looking statements are discussed in greater detail below in “Item statements are discussed in greater detail below in “Item 1A. Risk Factors.” We undertake no obligation to publicly 1A. Risk Factors.” We undertake no obligation to publicly update any forward-looking statements, whether as a update any forward-looking statements, whether as a result of new information, future events or otherwise. result of new information, future events or otherwise. ITEM 1A. RISK FACTORS ITEM 1A. RISK FACTORS In addition to the risks and uncertainties discussed In addition to the risks and uncertainties discussed elsewhere in this Annual Report on Form 10-K elsewhere in this Annual Report on Form 10-K (particularly in Item 7. Management’s Discussion and (particularly in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Analysis of Financial Condition and Results of Operations), or in the Company’s other filings with the Operations), or in the Company’s other filings with the Securities and Exchange Commission, the following are Securities and Exchange Commission, the following are some important factors that could cause the Company’s some important factors that could cause the Company’s actual results to differ materially from those projected in actual results to differ materially from those projected in any forward-looking statement. any forward-looking statement. RISKS RELATING TO INDUSTRY CONDITIONS RISKS RELATING TO INDUSTRY CONDITIONS CHANGES IN THE COST OR AVAILABILITY OF RAW CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR PROFITABILITY. We rely COULD AFFECT OUR PROFITABILITY. We rely heavily on the use of certain raw materials (principally heavily on the use of certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda and virgin wood fiber, recycled fiber, caustic soda and starch), energy sources (principally natural gas, coal starch), energy sources (principally natural gas, coal and fuel oil) and third-party companies that transport our and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies goods. The market price of virgin wood fiber varies based upon availability and source. In addition, the based upon availability and source. In addition, the increase in demand of products manufactured, in whole increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may or in part, from recycled fiber, on a global basis, may cause an occasional tightening in the supply of recycled cause an occasional tightening in the supply of recycled fiber. Energy prices, in particular prices for oil and natural fiber. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may gas, have fluctuated dramatically in the past and may continue to fluctuate in the future. Our profitability has continue to fluctuate in the future. Our profitability has been, and will continue to be, affected by changes in the been, and will continue to be, affected by changes in the costs and availability of such raw materials, energy costs and availability of such raw materials, energy sources and transportation sources. sources and transportation sources. INDUSTRIES INDUSTRIES IN WHICH WE OPERATE IN WHICH WE OPERATE THE THE EXPERIENCE BOTH ECONOMIC CYCLICALITY EXPERIENCE BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES. AND CHANGES IN CONSUMER PREFERENCES. FLUCTUATIONS IN THE PRICES OF, AND THE FLUCTUATIONS IN THE PRICES OF, AND THE DEMAND FOR, OUR PRODUCTS COULD DEMAND FOR, OUR PRODUCTS COULD MATERIALLY FINANCIAL FINANCIAL MATERIALLY CONDITION, RESULTS OF OPERATIONS AND CONDITION, RESULTS OF OPERATIONS AND AFFECT AFFECT OUR OUR CASH FLOWS. Substantially all of our businesses have CASH FLOWS. Substantially all of our businesses have experienced, and are likely to continue to experience, experienced, and are likely to continue to experience, cycles relating to industry capacity and general cycles relating to industry capacity and general economic conditions. The length and magnitude of economic conditions. The length and magnitude of these cycles have varied over time and by product. In these cycles have varied over time and by product. In addition, changes in consumer preferences may addition, changes in consumer preferences may increase or decrease the demand for our products. increase or decrease the demand for our products. These consumer preferences affect the prices of our These consumer preferences affect the prices of our products. Consequently, our financial results are products. Consequently, our financial results are sensitive to changes in the pricing and demand for our sensitive to changes in the pricing and demand for our products. products. COMPETITION IN THE UNITED STATES AND IN THE UNITED STATES AND COMPETITION INTERNATIONALLY COULD NEGATIVELY IMPACT INTERNATIONALLY COULD NEGATIVELY IMPACT in a OUR FINANCIAL RESULTS. We operate OUR FINANCIAL RESULTS. We operate in a competitive environment, both in the United States and competitive environment, both in the United States and internationally, in all of our operating segments. Product internationally, in all of our operating segments. Product innovations, manufacturing and operating efficiencies, innovations, manufacturing and operating efficiencies, and marketing, distribution and pricing strategies and marketing, distribution and pricing strategies pursued or achieved by competitors could negatively pursued or achieved by competitors could negatively impact our financial results. impact our financial results. RISKS RELATING TO MARKET AND ECONOMIC RISKS RELATING TO MARKET AND ECONOMIC FACTORS FACTORS ADVERSE DEVELOPMENTS IN GENERAL IN GENERAL ADVERSE DEVELOPMENTS BUSINESS AND ECONOMIC CONDITIONS COULD BUSINESS AND ECONOMIC CONDITIONS COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS AND OUR FINANCIAL CONDITION OUR PRODUCTS AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General economic AND RESULTS OF OPERATIONS. General economic conditions may adversely affect industrial non-durable conditions may adversely affect industrial non-durable goods production, consumer spending, commercial goods production, consumer spending, commercial activity, white-collar printing activity, white-collar printing employment levels and consumer confidence, all of employment levels and consumer confidence, all of which impact demand for our products. In addition, which impact demand for our products. In addition, volatility in the capital and credit markets, which impacts volatility in the capital and credit markets, which impacts interest rates, currency exchange rates and the interest rates, currency exchange rates and the availability of credit, could have a material adverse effect availability of credit, could have a material adverse effect on our business, financial condition and our results of on our business, financial condition and our results of operations. operations. advertising advertising and and THE LEVEL OF OUR INDEBTEDNESS COULD THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, 2017, International BUSINESS. As of December 31, 2017, International Paper had approximately $11.2 billion of outstanding Paper had approximately $11.2 billion of outstanding indebtedness. The level of our indebtedness could have indebtedness. The level of our indebtedness could have important consequences to our financial condition, important consequences to our financial condition, operating results and business, including the following: operating results and business, including the following: • • • • financing financing it may limit our ability to obtain additional debt or it may limit our ability to obtain additional debt or equity for working capital, capital equity for working capital, capital expenditures, product development, dividends, expenditures, product development, dividends, share repurchases, debt service requirements, share repurchases, debt service requirements, acquisitions and general corporate or other acquisitions and general corporate or other purposes; purposes; a portion of our cash flows from operations will be a portion of our cash flows from operations will be dedicated to payments on indebtedness and will dedicated to payments on indebtedness and will not be available for other purposes, including not be available for other purposes, including 7 7 8 8 operations, capital expenditures and operations, capital expenditures and future future circumstances so warrant. Any such downgrade of our circumstances so warrant. Any such downgrade of our business opportunities; business opportunities; • • the debt service requirements of our indebtedness the debt service requirements of our indebtedness could make it more difficult for us to satisfy other could make it more difficult for us to satisfy other obligations; obligations; • • our indebtedness that is subject to variable rates our indebtedness that is subject to variable rates of interest exposes us to increased debt service of interest exposes us to increased debt service obligations in the event of increased interest rates; obligations in the event of increased interest rates; • • it may limit our ability to adjust to changing market it may limit our ability to adjust to changing market conditions and place us at a competitive conditions and place us at a competitive disadvantage compared to our competitors that disadvantage compared to our competitors that have less debt; and have less debt; and • • it may increase our vulnerability to a downturn in it may increase our vulnerability to a downturn in general economic conditions or in our business, general economic conditions or in our business, and may make us unable to carry out capital and may make us unable to carry out capital spending that is important to our growth. spending that is important to our growth. In addition, we are subject to agreements that require In addition, we are subject to agreements that require meeting and maintaining certain financial ratios and meeting and maintaining certain financial ratios and covenants. A significant or prolonged downturn in covenants. A significant or prolonged downturn in general business and economic conditions may affect general business and economic conditions may affect our ability to comply with these covenants or meet those our ability to comply with these covenants or meet those financial ratios and tests and could require us to take financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary action to reduce our debt or to act in a manner contrary to our current business objectives. to our current business objectives. CHANGES CHANGES IN CREDIT RATINGS IN CREDIT RATINGS ISSUED BY ISSUED BY NATIONALLY RECOGNIZED STATISTICAL RATING NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULD ADVERSELY AFFECT ORGANIZATIONS COULD ADVERSELY AFFECT OUR COST OF FINANCING AND HAVE AN ADVERSE OUR COST OF FINANCING AND HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR EFFECT ON THE MARKET PRICE OF OUR SECURITIES. Maintaining an investment-grade credit SECURITIES. Maintaining an investment-grade credit rating is an important element of our financial strategy, rating is an important element of our financial strategy, and a downgrade of the Company’s ratings below and a downgrade of the Company’s ratings below investment grade may limit our access to the capital investment grade may limit our access to the capital markets, have an adverse effect on the market price of markets, have an adverse effect on the market price of our securities, increase our cost of borrowing and our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability require us to post collateral for derivatives in a net liability position. The Company’s desire position. The Company’s desire to maintain to maintain its its investment grade rating may cause the Company to take investment grade rating may cause the Company to take certain actions designed to improve its cash flow, certain actions designed to improve its cash flow, including sale of assets, suspension or reduction of our including sale of assets, suspension or reduction of our dividend and reductions in capital expenditures and dividend and reductions in capital expenditures and working capital. working capital. Under Under the the terms of terms of the agreements governing the agreements governing approximately $1.4 billion of our debt as of approximately $1.4 billion of our debt as of December 31, 2017, the applicable interest rate on such December 31, 2017, the applicable interest rate on such debt may increase upon each downgrade in our credit debt may increase upon each downgrade in our credit rating below investment grade. As a result, a downgrade rating below investment grade. As a result, a downgrade in our credit rating below investment grade may lead to in our credit rating below investment grade may lead to an increase in our interest expense. There can be no an increase in our interest expense. There can be no assurance that such credit ratings will remain in effect assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, rating agencies, if, in each rating agency’s judgment, credit ratings could adversely affect our cost of credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements result in more restrictive covenants in agreements governing the terms of any future indebtedness that we governing the terms of any future indebtedness that we may incur. may incur. DOWNGRADES IN THE CREDIT RATINGS OF DOWNGRADES IN THE CREDIT RATINGS OF BANKS ISSUING CERTAIN LETTERS OF CREDIT BANKS ISSUING CERTAIN LETTERS OF CREDIT WILL INCREASE OUR COST OF MAINTAINING WILL INCREASE OUR COST OF MAINTAINING CERTAIN INDEBTEDNESS AND MAY RESULT IN CERTAIN INDEBTEDNESS AND MAY RESULT IN THE ACCELERATION OF DEFERRED TAXES. We are THE ACCELERATION OF DEFERRED TAXES. We are subject to the risk that a bank with currently issued subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes irrevocable letters of credit supporting installment notes delivered to Temple-Inland in connection with Temple- delivered to Temple-Inland in connection with Temple- Inland's 2007 sales of forestlands may be downgraded Inland's 2007 sales of forestlands may be downgraded below a required rating. Since 2007, certain banks have below a required rating. Since 2007, certain banks have fallen below the required ratings threshold and were fallen below the required ratings threshold and were successfully replaced, or waivers were obtained successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing regarding their replacement. As a result of continuing uncertainty in the banking environment, a number of the uncertainty in the banking environment, a number of the letter-of-credit banks currently in place remain subject letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified to risk of downgrade and the number of qualified replacement banks remains limited. The downgrade of replacement banks remains limited. The downgrade of one or more of these banks may subject the Company one or more of these banks may subject the Company to additional costs of securing a replacement letter-of- to additional costs of securing a replacement letter-of- credit bank or could result in an acceleration of payments credit bank or could result in an acceleration of payments of up to $538 million in deferred income taxes if of up to $538 million in deferred income taxes if replacement banks cannot be obtained. The deferred replacement banks cannot be obtained. The deferred taxes are currently recorded taxes are currently recorded in in the Company's the Company's consolidated financial statements. See Note 12, consolidated financial statements. See Note 12, Variable Interest Entities, on pages 63 through 64, and Variable Interest Entities, on pages 63 through 64, and Note 10, Income Taxes, on pages 57 through 60, in Item Note 10, Income Taxes, on pages 57 through 60, in Item 8. Financial Statements and Supplementary Data for 8. Financial Statements and Supplementary Data for further information. further information. OUR PENSION AND HEALTH CARE COSTS ARE OUR PENSION AND HEALTH CARE COSTS ARE SUBJECT TO NUMEROUS FACTORS WHICH SUBJECT TO NUMEROUS FACTORS WHICH COULD CAUSE THESE COSTS TO CHANGE. We COULD CAUSE THESE COSTS TO CHANGE. We have defined benefit pension plans covering have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to substantially all U.S. salaried employees hired prior to July 1, 2004 and substantially all hourly and union July 1, 2004 and substantially all hourly and union employees regardless of hire date. We provide retiree employees regardless of hire date. We provide retiree health care benefits to certain former U.S. hourly health care benefits to certain former U.S. hourly employees, as well as financial assistance towards the employees, as well as financial assistance towards the cost of individual retiree medical coverage for certain cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costs are former U.S. salaried employees. Our pension costs are dependent upon numerous factors resulting from actual dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. plan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and market returns, changes in general interest rates and changes in the number of retirees may result in changes in the number of retirees may result in increased pension costs in future periods. Likewise, increased pension costs in future periods. Likewise, changes in assumptions regarding current discount changes in assumptions regarding current discount rates and expected rates of return on plan assets could rates and expected rates of return on plan assets could increase pension costs. increase pension costs. impairment of financial institutions, changes in currency impairment of financial institutions, changes in currency CASH FLOWS. Substantially all of our businesses have CASH FLOWS. Substantially all of our businesses have exchange rates, credit ratings issued by recognized exchange rates, credit ratings issued by recognized experienced, and are likely to continue to experience, experienced, and are likely to continue to experience, credit rating organizations, the amount of our future credit rating organizations, the amount of our future cycles relating to industry capacity and general cycles relating to industry capacity and general pension funding obligation, changes in tax laws and pension funding obligation, changes in tax laws and economic conditions. The length and magnitude of economic conditions. The length and magnitude of pension and health care costs; (iv) unanticipated pension and health care costs; (iv) unanticipated these cycles have varied over time and by product. In these cycles have varied over time and by product. In expenditures related to the cost of compliance with expenditures related to the cost of compliance with addition, changes in consumer preferences may addition, changes in consumer preferences may existing and new environmental and other governmental existing and new environmental and other governmental increase or decrease the demand for our products. increase or decrease the demand for our products. regulations and to actual or potential litigation; (v) regulations and to actual or potential litigation; (v) These consumer preferences affect the prices of our These consumer preferences affect the prices of our whether we experience a material disruption at one of whether we experience a material disruption at one of products. Consequently, our financial results are products. Consequently, our financial results are our manufacturing facilities; (vi) risks inherent in our manufacturing facilities; (vi) risks inherent in sensitive to changes in the pricing and demand for our sensitive to changes in the pricing and demand for our conducting business through a joint venture; and (vii) conducting business through a joint venture; and (vii) products. products. our ability to achieve the benefits we expect from all our ability to achieve the benefits we expect from all acquisitions, divestitures and restructurings. These and acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual other factors that could cause or contribute to actual results differing materially from such forward looking results differing materially from such forward looking statements are discussed in greater detail below in “Item statements are discussed in greater detail below in “Item 1A. Risk Factors.” We undertake no obligation to publicly 1A. Risk Factors.” We undertake no obligation to publicly update any forward-looking statements, whether as a update any forward-looking statements, whether as a result of new information, future events or otherwise. result of new information, future events or otherwise. ITEM 1A. RISK FACTORS ITEM 1A. RISK FACTORS In addition to the risks and uncertainties discussed In addition to the risks and uncertainties discussed elsewhere in this Annual Report on Form 10-K elsewhere in this Annual Report on Form 10-K (particularly in Item 7. Management’s Discussion and (particularly in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Analysis of Financial Condition and Results of Operations), or in the Company’s other filings with the Operations), or in the Company’s other filings with the Securities and Exchange Commission, the following are Securities and Exchange Commission, the following are some important factors that could cause the Company’s some important factors that could cause the Company’s actual results to differ materially from those projected in actual results to differ materially from those projected in any forward-looking statement. any forward-looking statement. RISKS RELATING TO INDUSTRY CONDITIONS RISKS RELATING TO INDUSTRY CONDITIONS CHANGES IN THE COST OR AVAILABILITY OF RAW CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR PROFITABILITY. We rely COULD AFFECT OUR PROFITABILITY. We rely and fuel oil) and third-party companies that transport our and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies goods. The market price of virgin wood fiber varies based upon availability and source. In addition, the based upon availability and source. In addition, the increase in demand of products manufactured, in whole increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may or in part, from recycled fiber, on a global basis, may cause an occasional tightening in the supply of recycled cause an occasional tightening in the supply of recycled fiber. Energy prices, in particular prices for oil and natural fiber. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may gas, have fluctuated dramatically in the past and may continue to fluctuate in the future. Our profitability has continue to fluctuate in the future. Our profitability has been, and will continue to be, affected by changes in the been, and will continue to be, affected by changes in the costs and availability of such raw materials, energy costs and availability of such raw materials, energy sources and transportation sources. sources and transportation sources. THE THE INDUSTRIES INDUSTRIES IN WHICH WE OPERATE IN WHICH WE OPERATE EXPERIENCE BOTH ECONOMIC CYCLICALITY EXPERIENCE BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES. AND CHANGES IN CONSUMER PREFERENCES. FLUCTUATIONS IN THE PRICES OF, AND THE FLUCTUATIONS IN THE PRICES OF, AND THE DEMAND FOR, OUR PRODUCTS COULD DEMAND FOR, OUR PRODUCTS COULD MATERIALLY MATERIALLY AFFECT AFFECT OUR OUR FINANCIAL FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CONDITION, RESULTS OF OPERATIONS AND COMPETITION COMPETITION IN THE UNITED STATES AND IN THE UNITED STATES AND INTERNATIONALLY COULD NEGATIVELY IMPACT INTERNATIONALLY COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate OUR FINANCIAL RESULTS. We operate in a in a competitive environment, both in the United States and competitive environment, both in the United States and internationally, in all of our operating segments. Product internationally, in all of our operating segments. Product innovations, manufacturing and operating efficiencies, innovations, manufacturing and operating efficiencies, and marketing, distribution and pricing strategies and marketing, distribution and pricing strategies pursued or achieved by competitors could negatively pursued or achieved by competitors could negatively impact our financial results. impact our financial results. RISKS RELATING TO MARKET AND ECONOMIC RISKS RELATING TO MARKET AND ECONOMIC FACTORS FACTORS ADVERSE DEVELOPMENTS ADVERSE DEVELOPMENTS IN GENERAL IN GENERAL BUSINESS AND ECONOMIC CONDITIONS COULD BUSINESS AND ECONOMIC CONDITIONS COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS AND OUR FINANCIAL CONDITION OUR PRODUCTS AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General economic AND RESULTS OF OPERATIONS. General economic conditions may adversely affect industrial non-durable conditions may adversely affect industrial non-durable goods production, consumer spending, commercial goods production, consumer spending, commercial printing printing and and advertising advertising activity, white-collar activity, white-collar employment levels and consumer confidence, all of employment levels and consumer confidence, all of which impact demand for our products. In addition, which impact demand for our products. In addition, volatility in the capital and credit markets, which impacts volatility in the capital and credit markets, which impacts interest rates, currency exchange rates and the interest rates, currency exchange rates and the THE LEVEL OF OUR INDEBTEDNESS COULD THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, 2017, International BUSINESS. As of December 31, 2017, International Paper had approximately $11.2 billion of outstanding Paper had approximately $11.2 billion of outstanding indebtedness. The level of our indebtedness could have indebtedness. The level of our indebtedness could have important consequences to our financial condition, important consequences to our financial condition, operating results and business, including the following: operating results and business, including the following: • • it may limit our ability to obtain additional debt or it may limit our ability to obtain additional debt or equity equity financing financing for working capital, capital for working capital, capital expenditures, product development, dividends, expenditures, product development, dividends, share repurchases, debt service requirements, share repurchases, debt service requirements, acquisitions and general corporate or other acquisitions and general corporate or other purposes; purposes; • • a portion of our cash flows from operations will be a portion of our cash flows from operations will be dedicated to payments on indebtedness and will dedicated to payments on indebtedness and will not be available for other purposes, including not be available for other purposes, including heavily on the use of certain raw materials (principally heavily on the use of certain raw materials (principally availability of credit, could have a material adverse effect availability of credit, could have a material adverse effect virgin wood fiber, recycled fiber, caustic soda and virgin wood fiber, recycled fiber, caustic soda and on our business, financial condition and our results of on our business, financial condition and our results of starch), energy sources (principally natural gas, coal starch), energy sources (principally natural gas, coal operations. operations. • • • • • • • • operations, capital expenditures and operations, capital expenditures and business opportunities; business opportunities; future future the debt service requirements of our indebtedness the debt service requirements of our indebtedness could make it more difficult for us to satisfy other could make it more difficult for us to satisfy other obligations; obligations; our indebtedness that is subject to variable rates our indebtedness that is subject to variable rates of interest exposes us to increased debt service of interest exposes us to increased debt service obligations in the event of increased interest rates; obligations in the event of increased interest rates; it may limit our ability to adjust to changing market it may limit our ability to adjust to changing market conditions and place us at a competitive conditions and place us at a competitive disadvantage compared to our competitors that disadvantage compared to our competitors that have less debt; and have less debt; and it may increase our vulnerability to a downturn in it may increase our vulnerability to a downturn in general economic conditions or in our business, general economic conditions or in our business, and may make us unable to carry out capital and may make us unable to carry out capital spending that is important to our growth. spending that is important to our growth. In addition, we are subject to agreements that require In addition, we are subject to agreements that require meeting and maintaining certain financial ratios and meeting and maintaining certain financial ratios and covenants. A significant or prolonged downturn in covenants. A significant or prolonged downturn in general business and economic conditions may affect general business and economic conditions may affect our ability to comply with these covenants or meet those our ability to comply with these covenants or meet those financial ratios and tests and could require us to take financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary action to reduce our debt or to act in a manner contrary to our current business objectives. to our current business objectives. IN CREDIT RATINGS IN CREDIT RATINGS CHANGES ISSUED BY ISSUED BY CHANGES NATIONALLY RECOGNIZED STATISTICAL RATING NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULD ADVERSELY AFFECT ORGANIZATIONS COULD ADVERSELY AFFECT OUR COST OF FINANCING AND HAVE AN ADVERSE OUR COST OF FINANCING AND HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR EFFECT ON THE MARKET PRICE OF OUR SECURITIES. Maintaining an investment-grade credit SECURITIES. Maintaining an investment-grade credit rating is an important element of our financial strategy, rating is an important element of our financial strategy, and a downgrade of the Company’s ratings below and a downgrade of the Company’s ratings below investment grade may limit our access to the capital investment grade may limit our access to the capital markets, have an adverse effect on the market price of markets, have an adverse effect on the market price of our securities, increase our cost of borrowing and our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability require us to post collateral for derivatives in a net liability position. The Company’s desire its its position. The Company’s desire investment grade rating may cause the Company to take investment grade rating may cause the Company to take certain actions designed to improve its cash flow, certain actions designed to improve its cash flow, including sale of assets, suspension or reduction of our including sale of assets, suspension or reduction of our dividend and reductions in capital expenditures and dividend and reductions in capital expenditures and working capital. working capital. to maintain to maintain the the terms of terms of the agreements governing the agreements governing Under Under approximately $1.4 billion of our debt as of approximately $1.4 billion of our debt as of December 31, 2017, the applicable interest rate on such December 31, 2017, the applicable interest rate on such debt may increase upon each downgrade in our credit debt may increase upon each downgrade in our credit rating below investment grade. As a result, a downgrade rating below investment grade. As a result, a downgrade in our credit rating below investment grade may lead to in our credit rating below investment grade may lead to an increase in our interest expense. There can be no an increase in our interest expense. There can be no assurance that such credit ratings will remain in effect assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, rating agencies, if, in each rating agency’s judgment, circumstances so warrant. Any such downgrade of our circumstances so warrant. Any such downgrade of our credit ratings could adversely affect our cost of credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements result in more restrictive covenants in agreements governing the terms of any future indebtedness that we governing the terms of any future indebtedness that we may incur. may incur. DOWNGRADES IN THE CREDIT RATINGS OF DOWNGRADES IN THE CREDIT RATINGS OF BANKS ISSUING CERTAIN LETTERS OF CREDIT BANKS ISSUING CERTAIN LETTERS OF CREDIT WILL INCREASE OUR COST OF MAINTAINING WILL INCREASE OUR COST OF MAINTAINING CERTAIN INDEBTEDNESS AND MAY RESULT IN CERTAIN INDEBTEDNESS AND MAY RESULT IN THE ACCELERATION OF DEFERRED TAXES. We are THE ACCELERATION OF DEFERRED TAXES. We are subject to the risk that a bank with currently issued subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes irrevocable letters of credit supporting installment notes delivered to Temple-Inland in connection with Temple- delivered to Temple-Inland in connection with Temple- Inland's 2007 sales of forestlands may be downgraded Inland's 2007 sales of forestlands may be downgraded below a required rating. Since 2007, certain banks have below a required rating. Since 2007, certain banks have fallen below the required ratings threshold and were fallen below the required ratings threshold and were successfully replaced, or waivers were obtained successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing regarding their replacement. As a result of continuing uncertainty in the banking environment, a number of the uncertainty in the banking environment, a number of the letter-of-credit banks currently in place remain subject letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified to risk of downgrade and the number of qualified replacement banks remains limited. The downgrade of replacement banks remains limited. The downgrade of one or more of these banks may subject the Company one or more of these banks may subject the Company to additional costs of securing a replacement letter-of- to additional costs of securing a replacement letter-of- credit bank or could result in an acceleration of payments credit bank or could result in an acceleration of payments of up to $538 million in deferred income taxes if of up to $538 million in deferred income taxes if replacement banks cannot be obtained. The deferred replacement banks cannot be obtained. The deferred taxes are currently recorded the Company's the Company's taxes are currently recorded consolidated financial statements. See Note 12, consolidated financial statements. See Note 12, Variable Interest Entities, on pages 63 through 64, and Variable Interest Entities, on pages 63 through 64, and Note 10, Income Taxes, on pages 57 through 60, in Item Note 10, Income Taxes, on pages 57 through 60, in Item 8. Financial Statements and Supplementary Data for 8. Financial Statements and Supplementary Data for further information. further information. in in OUR PENSION AND HEALTH CARE COSTS ARE OUR PENSION AND HEALTH CARE COSTS ARE SUBJECT TO NUMEROUS FACTORS WHICH SUBJECT TO NUMEROUS FACTORS WHICH COULD CAUSE THESE COSTS TO CHANGE. We COULD CAUSE THESE COSTS TO CHANGE. We have defined benefit pension plans covering have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to substantially all U.S. salaried employees hired prior to July 1, 2004 and substantially all hourly and union July 1, 2004 and substantially all hourly and union employees regardless of hire date. We provide retiree employees regardless of hire date. We provide retiree health care benefits to certain former U.S. hourly health care benefits to certain former U.S. hourly employees, as well as financial assistance towards the employees, as well as financial assistance towards the cost of individual retiree medical coverage for certain cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costs are former U.S. salaried employees. Our pension costs are dependent upon numerous factors resulting from actual dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. plan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and market returns, changes in general interest rates and changes in the number of retirees may result in changes in the number of retirees may result in increased pension costs in future periods. Likewise, increased pension costs in future periods. Likewise, changes in assumptions regarding current discount changes in assumptions regarding current discount rates and expected rates of return on plan assets could rates and expected rates of return on plan assets could increase pension costs. increase pension costs. 7 7 8 8 OUR PENSION PLANS ARE CURRENTLY OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE UNDERFUNDED, AND OVER TIME WE MAY BE REQUIRED TO MAKE CASH PAYMENTS TO THE REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record a liability associated with OUR BUSINESS. We record a liability associated with our pension plans equal to the excess of the benefit our pension plans equal to the excess of the benefit obligation over the fair value of plan assets. The benefit obligation over the fair value of plan assets. The benefit liability recorded under the provisions of Accounting liability recorded under the provisions of Accounting Standards Codification (ASC) 715, “Compensation – Standards Codification (ASC) 715, “Compensation – Retirement Benefits,” at December 31, 2017 was $2.0 Retirement Benefits,” at December 31, 2017 was $2.0 billion. The amount and timing of future contributions will billion. The amount and timing of future contributions will depend upon a number of factors, including the actual depend upon a number of factors, including the actual earnings and changes in values of plan assets and earnings and changes in values of plan assets and changes in interest rates. changes in interest rates. of of IN IN products, products, competing competing INTERNATIONAL CONDITIONS CHANGES INTERNATIONAL CONDITIONS CHANGES COULD ADVERSELY AFFECT OUR BUSINESS AND COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected and business prospects could be substantially affected by risks related to the countries outside the United States by risks related to the countries outside the United States in which we have manufacturing facilities or sell our in which we have manufacturing facilities or sell our products. Specifically, Russia, Brazil, Poland, India, and products. Specifically, Russia, Brazil, Poland, India, and Turkey, where we have substantial manufacturing Turkey, where we have substantial manufacturing facilities, are countries that are exposed to economic facilities, are countries that are exposed to economic and political instability in their respective regions of the and political instability in their respective regions of the world. Fluctuations in the value of local currency versus world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalization or any change in tax consequences, nationalization or any change in social, political or labor conditions in any of these social, political or labor conditions in any of these countries or regions could negatively affect our financial countries or regions could negatively affect our financial results. Trade protection measures in favor of local results. Trade protection measures in favor of local including producers producers including tax benefits and other governmental subsidies, tax benefits and other governmental subsidies, measures giving local producers a competitive local producers a competitive measures giving advantage over International Paper, may also adversely advantage over International Paper, may also adversely impact our operating results and business prospects in impact our operating results and business prospects in these countries. Likewise, disruption in existing trade these countries. Likewise, disruption in existing trade agreements (e.g., NAFTA) or increased trade friction agreements (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) could have between countries (e.g., the U.S. and China) could have a negative effect on our business and results of a negative effect on our business and results of operations by restricting the free flow of goods and operations by restricting the free flow of goods and services across borders. In addition, our international services across borders. In addition, our international operations are subject to regulation under U.S. law and operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions. other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or business abroad. Failure to comply with domestic or foreign in various adverse in various adverse result result foreign consequences, including the imposition of civil or consequences, including the imposition of civil or criminal sanctions and the prosecution of executives criminal sanctions and the prosecution of executives overseeing our international operations. overseeing our international operations. laws could laws could RISKS RELATING TO LEGAL PROCEEDINGS AND RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS COMPLIANCE COSTS laws, laws, WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, REGULATIONS AND OTHER GOVERNMENT REGULATIONS AND OTHER GOVERNMENT REQUIREMENTS THAT MAY CHANGE IN REQUIREMENTS THAT MAY CHANGE IN SIGNIFICANT WAYS, AND THE COST OF SIGNIFICANT WAYS, AND THE COST OF COMPLIANCE WITH SUCH REQUIREMENTS COMPLIANCE WITH SUCH REQUIREMENTS COULD IMPACT OUR BUSINESS AND RESULTS OF COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operations are subject to regulation OPERATIONS. Our operations are subject to regulation under a wide variety of U.S. federal and state and non- under a wide variety of U.S. federal and state and non- U.S. regulations and other government regulations and other government U.S. requirements -- including, among others, those relating requirements -- including, among others, those relating to the environment, health and safety, labor and to the environment, health and safety, labor and employment, data privacy, tax and health care. There employment, data privacy, tax and health care. There can be no assurance that laws, regulations and can be no assurance that laws, regulations and government requirements will not be changed, applied government requirements will not be changed, applied or interpreted in ways that will require us to modify our or interpreted in ways that will require us to modify our operations and objectives or affect our returns on operations and objectives or affect our returns on investments by restricting existing activities and investments by restricting existing activities and products, subjecting them to escalating costs. products, subjecting them to escalating costs. For example, we have incurred, and expect that we will For example, we have incurred, and expect that we will continue to incur, significant capital, operating and other continue to incur, significant capital, operating and other expenditures complying with applicable environmental expenditures complying with applicable environmental laws and regulations. There can be no assurance that laws and regulations. There can be no assurance that future remediation requirements and compliance with future remediation requirements and compliance with existing and new laws and requirements, including with existing and new laws and requirements, including with global climate change laws and regulations, will not global climate change laws and regulations, will not require significant expenditures, or that existing require significant expenditures, or that existing reserves for specific matters will be adequate to cover reserves for specific matters will be adequate to cover future costs. We could also incur substantial fines or future costs. We could also incur substantial fines or sanctions, enforcement actions (including orders sanctions, enforcement actions (including orders limiting our operations or requiring corrective limiting our operations or requiring corrective measures), natural resource damages claims, cleanup measures), natural resource damages claims, cleanup and closure costs, and third-party claims for property and closure costs, and third-party claims for property damage and personal injury as a result of violations of, damage and personal injury as a result of violations of, or liabilities under, environmental laws, regulations, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the contribution or to whether we knew of, or caused, the release of hazardous substances. release of hazardous substances. As another example, we are subject to a number of labor As another example, we are subject to a number of labor and employment laws and regulations that could and employment laws and regulations that could significantly increase our operating costs and reduce significantly increase our operating costs and reduce our operational flexibility. Additionally, changing privacy our operational flexibility. Additionally, changing privacy laws in the United States, Europe and elsewhere, laws in the United States, Europe and elsewhere, including the adoption of the European Union of the including the adoption of the European Union of the General Data Protection Regulation (GDPR), which will General Data Protection Regulation (GDPR), which will become effective May 2018, creates new individual become effective May 2018, creates new individual privacy rights and imposes increased obligations on privacy rights and imposes increased obligations on companies handling personal data. Compliance with the companies handling personal data. Compliance with the stringent rules under GDPR will require an extensive stringent rules under GDPR will require an extensive review of our global data processing systems, which is review of our global data processing systems, which is ongoing. A failure to comply with GDPR could result in ongoing. A failure to comply with GDPR could result in fines up to 20 million Euros or 4% of annual global fines up to 20 million Euros or 4% of annual global revenues, whichever is higher. revenues, whichever is higher. As a final example, in December 2017, the U.S. As a final example, in December 2017, the U.S. government enacted comprehensive tax legislation government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code. For a discussion of the changes to the U.S. tax code. For a discussion of the immediate and potential impacts to the Company of the immediate and potential impacts to the Company of the Tax Act and the uncertainties around the Company's Tax Act and the uncertainties around the Company's current estimates of such impacts, see Note 10, Income current estimates of such impacts, see Note 10, Income Taxes. Taxes. RESULTS OF LEGAL PROCEEDINGS COULD HAVE RESULTS OF LEGAL PROCEEDINGS COULD HAVE A MATERIAL EFFECT ON OUR CONSOLIDATED A MATERIAL EFFECT ON OUR CONSOLIDATED FINANCIAL STATEMENTS. The costs and other effects FINANCIAL STATEMENTS. The costs and other effects of pending litigation against us cannot be determined of pending litigation against us cannot be determined with certainty. Although we do not believe that the with certainty. Although we do not believe that the outcome of any pending or threatened lawsuits or claims outcome of any pending or threatened lawsuits or claims will have a material effect on our business or will have a material effect on our business or consolidated financial statements, there can be no consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will assurance that the outcome of any lawsuit or claim will be as expected. be as expected. RISKS RELATING TO OUR OPERATIONS RISKS RELATING TO OUR OPERATIONS MATERIAL DISRUPTIONS AT ONE OF OUR MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING MANUFACTURING FACILITIES FACILITIES COULD COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate our facilities in compliance with applicable We operate our facilities in compliance with applicable rules and regulations and take measures to minimize rules and regulations and take measures to minimize the risks of disruption at our facilities. A material the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our disruption at our corporate headquarters or one of our manufacturing facilities could prevent us from meeting manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing impact our financial condition. Any of our manufacturing facilities, or any of our machines within an otherwise facilities, or any of our machines within an otherwise operational operational facility, facility, could could cease cease operations operations unexpectedly due to a number of events, including: unexpectedly due to a number of events, including: catastrophes; catastrophes; water supply; water supply; • • the effect of a drought or reduced rainfall on its the effect of a drought or reduced rainfall on its • • the effect of other severe weather conditions on the effect of other severe weather conditions on equipment and facilities; equipment and facilities; terrorism or threats of terrorism; terrorism or threats of terrorism; • • • • • • • • • • • • the world; the world; unscheduled maintenance outages; unscheduled maintenance outages; prolonged power failures; prolonged power failures; an equipment failure; an equipment failure; a chemical spill or release; a chemical spill or release; explosion of a boiler or other equipment; explosion of a boiler or other equipment; damage or disruptions caused by third parties damage or disruptions caused by third parties operating on or adjacent operating on or adjacent to one of our to one of our manufacturing facilities; manufacturing facilities; • • disruptions in the transportation infrastructure, disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and including roads, bridges, railroad tracks and • widespread outbreak of an illness or any other • widespread outbreak of an illness or any other communicable disease, or any other public health communicable disease, or any other public health tunnels; tunnels; crisis; crisis; labor difficulties; and labor difficulties; and other operational problems. other operational problems. • • • • • • • • Any such downtime or facility damage could prevent us Any such downtime or facility damage could prevent us from meeting customer demand for our products and/ from meeting customer demand for our products and/ or require us to make unplanned expenditures. If one of or require us to make unplanned expenditures. If one of these machines or facilities were to incur significant these machines or facilities were to incur significant downtime, our ability to meet our production targets and downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on resulting in lower sales and having a negative effect on our business and financial results. our business and financial results. WE ARE WE ARE SUBJECT SUBJECT TO TO INFORMATION INFORMATION TECHNOLOGY RISKS RELATED TO BREACHES OF TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, CUSTOMER, EMPLOYEE EMPLOYEE AND AND VENDOR VENDOR INFORMATION AS WELL AS BREACHES IN THE INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business AND OTHER BUSINESS PROCESSES. Our business operations rely upon secure information technology operations rely upon secure information technology systems for data capture, processing, storage and systems for data capture, processing, storage and reporting. Despite careful security and controls design, reporting. Despite careful security and controls design, implementation, updating and independent third party implementation, updating and independent third party those of our third party providers, could become subject those of our third party providers, could become subject to employee error or malfeasance, cyber attacks, or to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, application and data natural disasters. Network, system, application and data breaches could result in operational disruptions or breaches could result in operational disruptions or information misappropriation including, but not limited information misappropriation including, but not limited to, interruption to systems availability, denial of access to, interruption to systems availability, denial of access to and misuse of applications required by our customers to and misuse of applications required by our customers to conduct business with International Paper. Access to to conduct business with International Paper. Access to internal applications required to plan our operations, internal applications required to plan our operations, inappropriate disclosure of confidential company, inappropriate disclosure of confidential company, employee, customer or vendor information, could stem employee, customer or vendor information, could stem from such from such incidents. Any of incidents. Any of these operational these operational disruptions and/or misappropriation of information could disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity result in lost sales, business delays, negative publicity and could have a material effect on our business. and could have a material effect on our business. domestic and international laws and regulations domestic and international laws and regulations source materials, manufacture and ship finished goods source materials, manufacture and ship finished goods applicable to our Company and our business applicable to our Company and our business and account for orders could be denied or misused. and account for orders could be denied or misused. partners, including joint venture partners, around partners, including joint venture partners, around Theft of intellectual property or trade secrets, and Theft of intellectual property or trade secrets, and • • fires, floods, earthquakes, hurricanes or other fires, floods, earthquakes, hurricanes or other verification, our information technology systems, and verification, our information technology systems, and 9 9 10 10 OUR PENSION PLANS ARE CURRENTLY OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE UNDERFUNDED, AND OVER TIME WE MAY BE REQUIRED TO MAKE CASH PAYMENTS TO THE REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record a liability associated with OUR BUSINESS. We record a liability associated with our pension plans equal to the excess of the benefit our pension plans equal to the excess of the benefit obligation over the fair value of plan assets. The benefit obligation over the fair value of plan assets. The benefit liability recorded under the provisions of Accounting liability recorded under the provisions of Accounting Standards Codification (ASC) 715, “Compensation – Standards Codification (ASC) 715, “Compensation – Retirement Benefits,” at December 31, 2017 was $2.0 Retirement Benefits,” at December 31, 2017 was $2.0 billion. The amount and timing of future contributions will billion. The amount and timing of future contributions will depend upon a number of factors, including the actual depend upon a number of factors, including the actual earnings and changes in values of plan assets and earnings and changes in values of plan assets and changes in interest rates. changes in interest rates. CHANGES CHANGES IN IN INTERNATIONAL CONDITIONS INTERNATIONAL CONDITIONS COULD ADVERSELY AFFECT OUR BUSINESS AND COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected and business prospects could be substantially affected by risks related to the countries outside the United States by risks related to the countries outside the United States in which we have manufacturing facilities or sell our in which we have manufacturing facilities or sell our products. Specifically, Russia, Brazil, Poland, India, and products. Specifically, Russia, Brazil, Poland, India, and Turkey, where we have substantial manufacturing Turkey, where we have substantial manufacturing facilities, are countries that are exposed to economic facilities, are countries that are exposed to economic and political instability in their respective regions of the and political instability in their respective regions of the world. Fluctuations in the value of local currency versus world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalization or any change in tax consequences, nationalization or any change in social, political or labor conditions in any of these social, political or labor conditions in any of these countries or regions could negatively affect our financial countries or regions could negatively affect our financial results. Trade protection measures in favor of local results. Trade protection measures in favor of local producers producers of of competing competing products, products, including including governmental subsidies, governmental subsidies, tax benefits and other tax benefits and other measures giving measures giving local producers a competitive local producers a competitive advantage over International Paper, may also adversely advantage over International Paper, may also adversely impact our operating results and business prospects in impact our operating results and business prospects in these countries. Likewise, disruption in existing trade these countries. Likewise, disruption in existing trade agreements (e.g., NAFTA) or increased trade friction agreements (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) could have between countries (e.g., the U.S. and China) could have a negative effect on our business and results of a negative effect on our business and results of operations by restricting the free flow of goods and operations by restricting the free flow of goods and services across borders. In addition, our international services across borders. In addition, our international operations are subject to regulation under U.S. law and operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions. other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or business abroad. Failure to comply with domestic or foreign foreign laws could laws could result result in various adverse in various adverse consequences, including the imposition of civil or consequences, including the imposition of civil or criminal sanctions and the prosecution of executives criminal sanctions and the prosecution of executives overseeing our international operations. overseeing our international operations. RISKS RELATING TO LEGAL PROCEEDINGS AND RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS COMPLIANCE COSTS WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, REGULATIONS AND OTHER GOVERNMENT REGULATIONS AND OTHER GOVERNMENT REQUIREMENTS THAT MAY CHANGE REQUIREMENTS THAT MAY CHANGE IN IN SIGNIFICANT WAYS, AND THE COST OF SIGNIFICANT WAYS, AND THE COST OF COMPLIANCE WITH SUCH REQUIREMENTS COMPLIANCE WITH SUCH REQUIREMENTS COULD IMPACT OUR BUSINESS AND RESULTS OF COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operations are subject to regulation OPERATIONS. Our operations are subject to regulation under a wide variety of U.S. federal and state and non- under a wide variety of U.S. federal and state and non- U.S. U.S. laws, laws, regulations and other government regulations and other government requirements -- including, among others, those relating requirements -- including, among others, those relating to the environment, health and safety, labor and to the environment, health and safety, labor and employment, data privacy, tax and health care. There employment, data privacy, tax and health care. There can be no assurance that laws, regulations and can be no assurance that laws, regulations and government requirements will not be changed, applied government requirements will not be changed, applied or interpreted in ways that will require us to modify our or interpreted in ways that will require us to modify our operations and objectives or affect our returns on operations and objectives or affect our returns on investments by restricting existing activities and investments by restricting existing activities and products, subjecting them to escalating costs. products, subjecting them to escalating costs. For example, we have incurred, and expect that we will For example, we have incurred, and expect that we will continue to incur, significant capital, operating and other continue to incur, significant capital, operating and other expenditures complying with applicable environmental expenditures complying with applicable environmental laws and regulations. There can be no assurance that laws and regulations. There can be no assurance that future remediation requirements and compliance with future remediation requirements and compliance with existing and new laws and requirements, including with existing and new laws and requirements, including with global climate change laws and regulations, will not global climate change laws and regulations, will not require significant expenditures, or require significant expenditures, or that existing that existing reserves for specific matters will be adequate to cover reserves for specific matters will be adequate to cover future costs. We could also incur substantial fines or future costs. We could also incur substantial fines or sanctions, enforcement actions (including orders sanctions, enforcement actions (including orders limiting our operations or limiting our operations or requiring corrective requiring corrective measures), natural resource damages claims, cleanup measures), natural resource damages claims, cleanup and closure costs, and third-party claims for property and closure costs, and third-party claims for property damage and personal injury as a result of violations of, damage and personal injury as a result of violations of, or liabilities under, environmental laws, regulations, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the contribution or to whether we knew of, or caused, the release of hazardous substances. release of hazardous substances. As another example, we are subject to a number of labor As another example, we are subject to a number of labor and employment laws and regulations that could and employment laws and regulations that could significantly increase our operating costs and reduce significantly increase our operating costs and reduce our operational flexibility. Additionally, changing privacy our operational flexibility. Additionally, changing privacy laws in the United States, Europe and elsewhere, laws in the United States, Europe and elsewhere, including the adoption of the European Union of the including the adoption of the European Union of the General Data Protection Regulation (GDPR), which will General Data Protection Regulation (GDPR), which will become effective May 2018, creates new individual become effective May 2018, creates new individual privacy rights and imposes increased obligations on privacy rights and imposes increased obligations on companies handling personal data. Compliance with the companies handling personal data. Compliance with the stringent rules under GDPR will require an extensive stringent rules under GDPR will require an extensive review of our global data processing systems, which is review of our global data processing systems, which is ongoing. A failure to comply with GDPR could result in ongoing. A failure to comply with GDPR could result in fines up to 20 million Euros or 4% of annual global fines up to 20 million Euros or 4% of annual global revenues, whichever is higher. revenues, whichever is higher. As a final example, in December 2017, the U.S. As a final example, in December 2017, the U.S. government enacted comprehensive tax legislation government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code. For a discussion of the changes to the U.S. tax code. For a discussion of the immediate and potential impacts to the Company of the immediate and potential impacts to the Company of the Tax Act and the uncertainties around the Company's Tax Act and the uncertainties around the Company's current estimates of such impacts, see Note 10, Income current estimates of such impacts, see Note 10, Income Taxes. Taxes. RESULTS OF LEGAL PROCEEDINGS COULD HAVE RESULTS OF LEGAL PROCEEDINGS COULD HAVE A MATERIAL EFFECT ON OUR CONSOLIDATED A MATERIAL EFFECT ON OUR CONSOLIDATED FINANCIAL STATEMENTS. The costs and other effects FINANCIAL STATEMENTS. The costs and other effects of pending litigation against us cannot be determined of pending litigation against us cannot be determined with certainty. Although we do not believe that the with certainty. Although we do not believe that the outcome of any pending or threatened lawsuits or claims outcome of any pending or threatened lawsuits or claims will have a material effect on our business or will have a material effect on our business or consolidated financial statements, there can be no consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will assurance that the outcome of any lawsuit or claim will be as expected. be as expected. RISKS RELATING TO OUR OPERATIONS RISKS RELATING TO OUR OPERATIONS FACILITIES FACILITIES MATERIAL DISRUPTIONS AT ONE OF OUR MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING COULD COULD MANUFACTURING NEGATIVELY IMPACT OUR FINANCIAL RESULTS. NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate our facilities in compliance with applicable We operate our facilities in compliance with applicable rules and regulations and take measures to minimize rules and regulations and take measures to minimize the risks of disruption at our facilities. A material the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our disruption at our corporate headquarters or one of our manufacturing facilities could prevent us from meeting manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing impact our financial condition. Any of our manufacturing facilities, or any of our machines within an otherwise facilities, or any of our machines within an otherwise operational operations could operational operations could unexpectedly due to a number of events, including: unexpectedly due to a number of events, including: facility, facility, cease cease • • • • • • • • • • • • • • • • • • fires, floods, earthquakes, hurricanes or other fires, floods, earthquakes, hurricanes or other catastrophes; catastrophes; the effect of a drought or reduced rainfall on its the effect of a drought or reduced rainfall on its water supply; water supply; the effect of other severe weather conditions on the effect of other severe weather conditions on equipment and facilities; equipment and facilities; terrorism or threats of terrorism; terrorism or threats of terrorism; domestic and international laws and regulations domestic and international laws and regulations applicable to our Company and our business applicable to our Company and our business partners, including joint venture partners, around partners, including joint venture partners, around the world; the world; unscheduled maintenance outages; unscheduled maintenance outages; prolonged power failures; prolonged power failures; an equipment failure; an equipment failure; a chemical spill or release; a chemical spill or release; 9 9 10 10 • • • • • • explosion of a boiler or other equipment; explosion of a boiler or other equipment; damage or disruptions caused by third parties damage or disruptions caused by third parties operating on or adjacent to one of our to one of our operating on or adjacent manufacturing facilities; manufacturing facilities; disruptions in the transportation infrastructure, disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and including roads, bridges, railroad tracks and tunnels; tunnels; • widespread outbreak of an illness or any other • widespread outbreak of an illness or any other communicable disease, or any other public health communicable disease, or any other public health crisis; crisis; • • • • labor difficulties; and labor difficulties; and other operational problems. other operational problems. Any such downtime or facility damage could prevent us Any such downtime or facility damage could prevent us from meeting customer demand for our products and/ from meeting customer demand for our products and/ or require us to make unplanned expenditures. If one of or require us to make unplanned expenditures. If one of these machines or facilities were to incur significant these machines or facilities were to incur significant downtime, our ability to meet our production targets and downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on resulting in lower sales and having a negative effect on our business and financial results. our business and financial results. TO TO AND AND SUBJECT SUBJECT EMPLOYEE EMPLOYEE WE ARE INFORMATION INFORMATION WE ARE TECHNOLOGY RISKS RELATED TO BREACHES OF TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, VENDOR VENDOR CUSTOMER, INFORMATION AS WELL AS BREACHES IN THE INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business AND OTHER BUSINESS PROCESSES. Our business operations rely upon secure information technology operations rely upon secure information technology systems for data capture, processing, storage and systems for data capture, processing, storage and reporting. Despite careful security and controls design, reporting. Despite careful security and controls design, implementation, updating and independent third party implementation, updating and independent third party verification, our information technology systems, and verification, our information technology systems, and those of our third party providers, could become subject those of our third party providers, could become subject to employee error or malfeasance, cyber attacks, or to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, application and data natural disasters. Network, system, application and data breaches could result in operational disruptions or breaches could result in operational disruptions or information misappropriation including, but not limited information misappropriation including, but not limited to, interruption to systems availability, denial of access to, interruption to systems availability, denial of access to and misuse of applications required by our customers to and misuse of applications required by our customers to conduct business with International Paper. Access to to conduct business with International Paper. Access to internal applications required to plan our operations, internal applications required to plan our operations, source materials, manufacture and ship finished goods source materials, manufacture and ship finished goods and account for orders could be denied or misused. and account for orders could be denied or misused. Theft of intellectual property or trade secrets, and Theft of intellectual property or trade secrets, and inappropriate disclosure of confidential company, inappropriate disclosure of confidential company, employee, customer or vendor information, could stem employee, customer or vendor information, could stem these operational from such from such these operational disruptions and/or misappropriation of information could disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity result in lost sales, business delays, negative publicity and could have a material effect on our business. and could have a material effect on our business. incidents. Any of incidents. Any of ITEM 5. MARKET FOR REGISTRANT’S COMMON ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ISSUER PURCHASES OF EQUITY SECURITIES the filing of this Annual Report on Form 10-K, the the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Company’s common shares are traded on the New York Stock Exchange. As of February 16, 2018, there were Stock Exchange. As of February 16, 2018, there were approximately 11,766 record holders of common stock approximately 11,766 record holders of common stock of the Company. of the Company. Dividend per share data on the Company’s common Dividend per share data on the Company’s common The table below presents information regarding the The table below presents information regarding the stock and the high and low sales prices for the stock and the high and low sales prices for the Company’s purchase of its equity securities for the time Company’s purchase of its equity securities for the time Company’s common stock for each of the four quarters Company’s common stock for each of the four quarters periods presented. periods presented. in 2017 and 2016 are set forth on page 81 of Item 8. in 2017 and 2016 are set forth on page 81 of Item 8. Financial Statements and Supplementary Data. As of Financial Statements and Supplementary Data. As of PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. October 1, 2017 - October 31, 2017 October 1, 2017 - October 31, 2017 November 1, 2017 - November 30, 2017 November 1, 2017 - November 30, 2017 December 1, 2017 - December 31, 2017 December 1, 2017 - December 31, 2017 Period Period Total Total Total Number of Shares Total Number of Shares Average Price Paid per Average Price Paid per Purchased (a) Purchased (a) Share Share 78 $ 78 $ — — 5,257 5,257 5,335 5,335 Total Number of Shares (or Total Number of Shares (or Units) Purchased as Part of Units) Purchased as Part of Publicly Announced Publicly Announced Programs Programs Maximum Number Maximum Number (or Approximate Dollar (or Approximate Dollar Value) of Shares that Value) of Shares that May Yet Be Purchased May Yet Be Purchased Under the Plans or Under the Plans or Programs (in billions) Programs (in billions) 56.82 56.82 — — 56.96 56.96 — $ — $ — — — — 0.933 0.933 0.933 0.933 0.933 0.933 (a) (a) 5,335 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs. 5,335 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 approved by our Board of Directors and During these periods, no shares were purchased under our share repurchase program, which 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 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 shares of our common stock. As of transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion shares of our common stock. As of February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program. February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program. CERTAIN OPERATIONS ARE CONDUCTED BY CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operations in SOLELY FOR OUR BENEFIT. Certain operations in Russia are carried on by a joint venture, Ilim. In joint Russia are carried on by a joint venture, Ilim. In joint ventures, we share ownership and management of a ventures, we share ownership and management of a company with one or more parties who may or may not company with one or more parties who may or may not have the same goals, strategies, priorities or resources have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint our exclusive benefit. Operating a business as a joint requires additional organizational venture often requires additional organizational venture often formalities as well as time-consuming procedures for formalities as well as time-consuming procedures for sharing information and making decisions. In joint sharing information and making decisions. In joint ventures, we are required to pay more attention to our ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co- a successful joint venture are shared among the co- owners, so we receive only our portion of those benefits. owners, so we receive only our portion of those benefits. JOINT JOINT WE MAY NOT ACHIEVE THE EXPECTED BENEFITS WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM ACQUISITIONS, VENTURES, FROM ACQUISITIONS, VENTURES, DIVESTITURES AND OTHER CORPORATE DIVESTITURES AND OTHER CORPORATE TRANSACTIONS. Our strategy for long-term growth, TRANSACTIONS. Our strategy for long-term growth, productivity and profitability depends, in part, on our productivity and profitability depends, in part, on our ability joint to accomplish prudent acquisitions, ability joint to accomplish prudent acquisitions, ventures, divestitures and other corporate transactions ventures, divestitures and other corporate transactions and to realize the benefits we expect from such and to realize the benefits we expect from such transactions, and we are subject to the risk that we may transactions, and we are subject to the risk that we may not achieve the expected benefits. Among the benefits not achieve the expected benefits. Among the benefits we expect from potential as well as completed we expect from potential as well as completed acquisitions and joint ventures are synergies, cost acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets savings, growth opportunities or access to new markets (or a combination thereof), and in the case of (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher businesses and assets to purchasers who place higher strategic value on such businesses and assets than strategic value on such businesses and assets than does International Paper. does International Paper. On January 1, 2018, for example, we completed a On January 1, 2018, for example, we completed a transaction transferring our North American Consumer transaction transferring our North American Consumer Packaging business to Graphic Packaging in exchange Packaging business to Graphic Packaging in exchange for, among other things, an equity interest in the for, among other things, an equity interest in the combined business of 20.5%, as of immediately combined business of 20.5%, as of immediately following the closing, and the assumption by the following the closing, and the assumption by the combined business of $660 million of indebtedness that combined business of $660 million of indebtedness that we incurred prior to closing of the transaction. The we incurred prior to closing of the transaction. The success of the transaction will depend, in part, on the success of the transaction will depend, in part, on the financial performance of the combined business and on financial performance of the combined business and on the ability of the combined business to realize the ability of the combined business to realize anticipated growth opportunities, cost savings and other anticipated growth opportunities, cost savings and other synergies. The success of the combined business in synergies. The success of the combined business in realizing these growth opportunities, cost savings and realizing these growth opportunities, cost savings and other synergies, and the timing of this realization, will other synergies, and the timing of this realization, will depend on the successful integration of our North depend on the successful integration of our North American Consumer Packaging business with Graphic American Consumer Packaging business with Graphic Packaging's business. Packaging's business. ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 1B. UNRESOLVED STAFF COMMENTS PART II. PART II. None. None. ITEM 2. PROPERTIES ITEM 2. PROPERTIES FORESTLANDS FORESTLANDS through through licenses and licenses and As of December 31, 2017, the Company owned or As of December 31, 2017, the Company owned or managed approximately 329,000 acres of forestlands in managed approximately 329,000 acres of forestlands in forest Brazil, and had, Brazil, and had, forest rights on management agreements, harvesting rights on management agreements, harvesting government-owned forestlands in Russia. All owned government-owned forestlands in Russia. All owned lands in Brazil are independently third-party certified for lands in Brazil are independently third-party certified for sustainable forestry under the Brazilian National Forest sustainable forestry under the Brazilian National Forest Certification Program (CERFLOR) and the Forest Certification Program (CERFLOR) and the Forest Stewardship Council (FSC). Stewardship Council (FSC). MILLS AND PLANTS MILLS AND PLANTS A listing of our production facilities by segment, the vast A listing of our production facilities by segment, the vast majority of which we own, can be found in Appendix I majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference. hereto, which is incorporated herein by reference. The Company’s facilities are in good operating condition The Company’s facilities are in good operating condition and are suited for the purposes for which they are and are suited for the purposes for which they are presently being used. We continue to study the presently being used. We continue to study the economics of modernization or adopting other economics of modernization or adopting other alternatives for higher cost facilities. alternatives for higher cost facilities. CAPITAL INVESTMENTS AND DISPOSITIONS CAPITAL INVESTMENTS AND DISPOSITIONS Given the size, scope and complexity of our business Given the size, scope and complexity of our business interests, we continually examine and evaluate a wide interests, we continually examine and evaluate a wide variety of business opportunities and planning variety of business opportunities and planning alternatives, including possible acquisitions and sales or alternatives, including possible acquisitions and sales or other dispositions of properties. You can find a other dispositions of properties. You can find a discussion about the level of planned capital investments discussion about the level of planned capital investments for 2018 on page 28, and dispositions and restructuring for 2018 on page 28, and dispositions and restructuring activities as of December 31, 2017, on pages 21 and 22 activities as of December 31, 2017, on pages 21 and 22 of Item 7. Management’s Discussion and Analysis of of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and on Financial Condition and Results of Operations, and on pages 51 and pages 53 through 55 of Item 8. Financial pages 51 and pages 53 through 55 of Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. ITEM 3. LEGAL PROCEEDINGS ITEM 3. LEGAL PROCEEDINGS concerning concerning Information legal legal Information proceedings is set forth in Note 11 Commitments and proceedings is set forth in Note 11 Commitments and Contingencies on pages 60 through 63 of Item 8. Contingencies on pages 60 through 63 of Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. the Company’s the Company’s ITEM 4. MINE SAFETY DISCLOSURES ITEM 4. MINE SAFETY DISCLOSURES Not applicable. Not applicable. 11 11 12 12 CERTAIN OPERATIONS ARE CONDUCTED BY CERTAIN OPERATIONS ARE CONDUCTED BY ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 1B. UNRESOLVED STAFF COMMENTS PART II. PART II. ITEM 5. MARKET FOR REGISTRANT’S COMMON ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ISSUER PURCHASES OF EQUITY SECURITIES Dividend per share data on the Company’s common Dividend per share data on the Company’s common stock and the high and low sales prices for the stock and the high and low sales prices for the Company’s common stock for each of the four quarters Company’s common stock for each of the four quarters in 2017 and 2016 are set forth on page 81 of Item 8. in 2017 and 2016 are set forth on page 81 of Item 8. Financial Statements and Supplementary Data. As of Financial Statements and Supplementary Data. As of the filing of this Annual Report on Form 10-K, the the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Company’s common shares are traded on the New York Stock Exchange. As of February 16, 2018, there were Stock Exchange. As of February 16, 2018, there were approximately 11,766 record holders of common stock approximately 11,766 record holders of common stock of the Company. of the Company. The table below presents information regarding the The table below presents information regarding the Company’s purchase of its equity securities for the time Company’s purchase of its equity securities for the time periods presented. periods presented. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. Period Period October 1, 2017 - October 31, 2017 October 1, 2017 - October 31, 2017 November 1, 2017 - November 30, 2017 November 1, 2017 - November 30, 2017 December 1, 2017 - December 31, 2017 December 1, 2017 - December 31, 2017 Total Total (a) (a) Total Number of Shares Total Number of Shares Purchased (a) Purchased (a) Average Price Paid per Average Price Paid per Share Share Total Number of Shares (or Total Number of Shares (or Units) Purchased as Part of Units) Purchased as Part of Publicly Announced Publicly Announced Programs Programs Maximum Number Maximum Number (or Approximate Dollar (or Approximate Dollar Value) of Shares that Value) of Shares that May Yet Be Purchased May Yet Be Purchased Under the Plans or Under the Plans or Programs (in billions) Programs (in billions) 78 $ 78 $ — — 5,257 5,257 5,335 5,335 56.82 56.82 — — 56.96 56.96 — $ — $ — — — — 0.933 0.933 0.933 0.933 0.933 0.933 5,335 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs. 5,335 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 approved by our Board of Directors and During these periods, no shares were purchased under our share repurchase program, which 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 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 shares of our common stock. As of transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion shares of our common stock. As of February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program. February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program. JOINT VENTURES THAT WE CANNOT OPERATE JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operations in SOLELY FOR OUR BENEFIT. Certain operations in None. None. Russia are carried on by a joint venture, Ilim. In joint Russia are carried on by a joint venture, Ilim. In joint ventures, we share ownership and management of a ventures, we share ownership and management of a company with one or more parties who may or may not company with one or more parties who may or may not have the same goals, strategies, priorities or resources have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint our exclusive benefit. Operating a business as a joint venture often venture often requires additional organizational requires additional organizational formalities as well as time-consuming procedures for formalities as well as time-consuming procedures for sharing information and making decisions. In joint sharing information and making decisions. In joint ventures, we are required to pay more attention to our ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co- a successful joint venture are shared among the co- owners, so we receive only our portion of those benefits. owners, so we receive only our portion of those benefits. WE MAY NOT ACHIEVE THE EXPECTED BENEFITS WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM ACQUISITIONS, FROM ACQUISITIONS, JOINT JOINT VENTURES, VENTURES, DIVESTITURES AND OTHER CORPORATE DIVESTITURES AND OTHER CORPORATE TRANSACTIONS. Our strategy for long-term growth, TRANSACTIONS. Our strategy for long-term growth, productivity and profitability depends, in part, on our productivity and profitability depends, in part, on our ability ability to accomplish prudent acquisitions, to accomplish prudent acquisitions, joint joint ventures, divestitures and other corporate transactions ventures, divestitures and other corporate transactions and to realize the benefits we expect from such and to realize the benefits we expect from such transactions, and we are subject to the risk that we may transactions, and we are subject to the risk that we may not achieve the expected benefits. Among the benefits not achieve the expected benefits. Among the benefits we expect from potential as well as completed we expect from potential as well as completed acquisitions and joint ventures are synergies, cost acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets savings, growth opportunities or access to new markets (or a combination thereof), and in the case of (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher businesses and assets to purchasers who place higher strategic value on such businesses and assets than strategic value on such businesses and assets than does International Paper. does International Paper. On January 1, 2018, for example, we completed a On January 1, 2018, for example, we completed a transaction transferring our North American Consumer transaction transferring our North American Consumer Packaging business to Graphic Packaging in exchange Packaging business to Graphic Packaging in exchange for, among other things, an equity interest in the for, among other things, an equity interest in the combined business of 20.5%, as of immediately combined business of 20.5%, as of immediately following the closing, and the assumption by the following the closing, and the assumption by the combined business of $660 million of indebtedness that combined business of $660 million of indebtedness that we incurred prior to closing of the transaction. The we incurred prior to closing of the transaction. The success of the transaction will depend, in part, on the success of the transaction will depend, in part, on the financial performance of the combined business and on financial performance of the combined business and on the ability of the combined business to realize the ability of the combined business to realize anticipated growth opportunities, cost savings and other anticipated growth opportunities, cost savings and other synergies. The success of the combined business in synergies. The success of the combined business in realizing these growth opportunities, cost savings and realizing these growth opportunities, cost savings and other synergies, and the timing of this realization, will other synergies, and the timing of this realization, will depend on the successful integration of our North depend on the successful integration of our North American Consumer Packaging business with Graphic American Consumer Packaging business with Graphic Packaging's business. Packaging's business. ITEM 2. PROPERTIES ITEM 2. PROPERTIES FORESTLANDS FORESTLANDS As of December 31, 2017, the Company owned or As of December 31, 2017, the Company owned or managed approximately 329,000 acres of forestlands in managed approximately 329,000 acres of forestlands in Brazil, and had, Brazil, and had, through through licenses and licenses and forest forest management agreements, harvesting management agreements, harvesting rights on rights on government-owned forestlands in Russia. All owned government-owned forestlands in Russia. All owned lands in Brazil are independently third-party certified for lands in Brazil are independently third-party certified for sustainable forestry under the Brazilian National Forest sustainable forestry under the Brazilian National Forest Certification Program (CERFLOR) and the Forest Certification Program (CERFLOR) and the Forest Stewardship Council (FSC). Stewardship Council (FSC). MILLS AND PLANTS MILLS AND PLANTS A listing of our production facilities by segment, the vast A listing of our production facilities by segment, the vast majority of which we own, can be found in Appendix I majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference. hereto, which is incorporated herein by reference. The Company’s facilities are in good operating condition The Company’s facilities are in good operating condition and are suited for the purposes for which they are and are suited for the purposes for which they are presently being used. We continue to study the presently being used. We continue to study the economics of modernization or adopting other economics of modernization or adopting other alternatives for higher cost facilities. alternatives for higher cost facilities. CAPITAL INVESTMENTS AND DISPOSITIONS CAPITAL INVESTMENTS AND DISPOSITIONS Given the size, scope and complexity of our business Given the size, scope and complexity of our business interests, we continually examine and evaluate a wide interests, we continually examine and evaluate a wide variety of business opportunities and planning variety of business opportunities and planning alternatives, including possible acquisitions and sales or alternatives, including possible acquisitions and sales or other dispositions of properties. You can find a other dispositions of properties. You can find a discussion about the level of planned capital investments discussion about the level of planned capital investments for 2018 on page 28, and dispositions and restructuring for 2018 on page 28, and dispositions and restructuring activities as of December 31, 2017, on pages 21 and 22 activities as of December 31, 2017, on pages 21 and 22 of Item 7. Management’s Discussion and Analysis of of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and on Financial Condition and Results of Operations, and on pages 51 and pages 53 through 55 of Item 8. Financial pages 51 and pages 53 through 55 of Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. ITEM 3. LEGAL PROCEEDINGS ITEM 3. LEGAL PROCEEDINGS Information Information concerning concerning the Company’s the Company’s legal legal proceedings is set forth in Note 11 Commitments and proceedings is set forth in Note 11 Commitments and Contingencies on pages 60 through 63 of Item 8. Contingencies on pages 60 through 63 of Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. ITEM 4. MINE SAFETY DISCLOSURES ITEM 4. MINE SAFETY DISCLOSURES Not applicable. Not applicable. 11 11 12 12 PERFORMANCE GRAPH PERFORMANCE GRAPH The performance graph shall not be deemed to be The performance graph shall not be deemed to be “soliciting material” or to be “filed” with the Commission “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as amended. of Section 18 of the Exchange Act of 1934, as amended. The following graph compares a $100 investment in The following graph compares a $100 investment in Company stock on December 31, 2012 with a $100 Company stock on December 31, 2012 with a $100 investment in our Return on Invested Capital (ROIC) investment in our Return on Invested Capital (ROIC) Peer Group and the S&P 500 also made at market close Peer Group and the S&P 500 also made at market close on December 31, 2012. The graph portrays total return, on December 31, 2012. The graph portrays total return, 2012–2017, assuming reinvestment of dividends. 2012–2017, assuming reinvestment of dividends. Note 1: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin 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- 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 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. subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015. Note 2: Returns are calculated in $USD. Note 2: Returns are calculated in $USD. Current assets less current liabilities Current assets less current liabilities $ 3,175 $ 3,175 $ $ 2,601 2,601 $ $ 2,244 2,244 $ $ 2,719 2,719 $ $ 3,597 3,597 ITEM 6. SELECTED FINANCIAL DATA ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR FINANCIAL SUMMARY (a) FIVE-YEAR FINANCIAL SUMMARY (a) Dollar amounts in millions, except per share Dollar amounts in millions, except per share amounts and stock prices amounts and stock prices RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales Net sales Costs and expenses, excluding interest Costs and expenses, excluding interest Earnings (loss) from continuing operations Earnings (loss) from continuing operations before income taxes and equity earnings before income taxes and equity earnings Equity earnings (loss), net of taxes Equity earnings (loss), net of taxes Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) Noncontrolling interests, net of taxes Noncontrolling interests, net of taxes Net earnings (loss) attributable to International Net earnings (loss) attributable to International Paper Company Paper Company FINANCIAL POSITION FINANCIAL POSITION Plants, properties and equipment, net Plants, properties and equipment, net Forestlands Forestlands Total assets Total assets term debt term debt Long-term debt Long-term debt Notes payable and current maturities of long- Notes payable and current maturities of long- Total shareholders’ equity Total shareholders’ equity BASIC EARNINGS PER SHARE BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations Discontinued operations Net earnings (loss) Net earnings (loss) DILUTED EARNINGS PER SHARE DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations Discontinued operations Net earnings (loss) Net earnings (loss) Cash dividends Cash dividends Total shareholders’ equity Total shareholders’ equity COMMON STOCK PRICES COMMON STOCK PRICES High High Low Low Year-end Year-end FINANCIAL RATIOS FINANCIAL RATIOS Current ratio Current ratio Total debt to capital ratio Total debt to capital ratio Return on shareholders’ equity Return on shareholders’ equity CAPITAL EXPENDITURES CAPITAL EXPENDITURES NUMBER OF EMPLOYEES NUMBER OF EMPLOYEES 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 $ 21,743 $ 21,743 20,323 20,323 $ 19,495 $ 19,495 18,180 18,180 $ 20,675 $ 20,675 18,988 18,988 $ 21,889 $ 21,889 20,548 20,548 $ 21,244 $ 21,244 19,540 19,540 848 848 177 177 34 34 2,144 2,144 (b) (b) (c) (c) (b-d) (b-d) — — (e) (e) (f) (f) (e-g) (e-g) 795 795 198 198 102 102 902 902 (2) (2) 1,132 1,132 (h) (h) 734 734 (k) (k) 1,092 1,092 (n) (n) 117 117 85 85 917 917 (21) (21) (i) (i) (h-j) (h-j) (200) (200) 77 77 536 536 (19) (19) (l) (l) (k-m) (k-m) (39) (39) (215) (215) (o) (o) 1,378 1,378 (n-p) (n-p) (17) (17) 2,144 2,144 (b-d) (b-d) 904 904 (e-g) (e-g) 938 938 (h-j) (h-j) 555 555 (k-m) (k-m) 1,395 1,395 (n-p) (n-p) 13,265 13,265 448 448 33,903 33,903 311 311 10,846 10,846 6,522 6,522 $ $ $ $ 5.11 5.11 0.08 0.08 5.19 5.19 5.05 5.05 0.08 0.08 5.13 5.13 1.863 1.863 15.79 15.79 $ 58.96 $ 58.96 49.60 49.60 57.94 57.94 13,003 13,003 456 456 33,093 33,093 239 239 11,075 11,075 4,341 4,341 1.95 1.95 0.25 0.25 2.20 2.20 1.93 1.93 0.25 0.25 2.18 2.18 1.783 1.783 10.56 10.56 32.50 32.50 53.06 53.06 $ $ $ $ 11,000 11,000 366 366 30,271 30,271 426 426 8,844 8,844 3,884 3,884 2.05 2.05 0.20 0.20 2.25 2.25 2.03 2.03 0.20 0.20 2.23 2.23 1.640 1.640 9.43 9.43 36.76 36.76 37.70 37.70 $ $ $ $ 11,794 11,794 507 507 28,369 28,369 742 742 8,584 8,584 5,115 5,115 1.12 1.12 0.18 0.18 1.30 1.30 1.10 1.10 0.19 0.19 1.29 1.29 1.450 1.450 12.18 12.18 44.24 44.24 53.58 53.58 $ $ $ $ 1.6 1.6 0.63 0.63 43.9% 43.9% 1.6 1.6 0.72 0.72 22.1% 22.1% 1.6 1.6 0.70 0.70 20.0% 20.0% $ 1,391 $ 1,391 56,000 56,000 $ $ 1,348 1,348 55,000 55,000 $ $ 1,487 1,487 56,000 56,000 1.5 1.5 0.65 0.65 7.7% 7.7% $1,366 $1,366 58,000 58,000 12,745 12,745 557 557 31,242 31,242 661 661 8,787 8,787 8,105 8,105 $ $ 3.63 3.63 (0.48) (0.48) 3.15 3.15 $ $ 3.59 3.59 (0.48) (0.48) 3.11 3.11 1.250 1.250 18.57 18.57 39.47 39.47 49.03 49.03 1.7 1.7 0.54 0.54 20.2% 20.2% $1,198 $1,198 64,000 64,000 $ $ 54.68 54.68 $ $ 57.90 57.90 $ $ 55.73 55.73 $ $ 50.33 50.33 13 13 14 14 PERFORMANCE GRAPH PERFORMANCE GRAPH The performance graph shall not be deemed to be The performance graph shall not be deemed to be “soliciting material” or to be “filed” with the Commission “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as amended. of Section 18 of the Exchange Act of 1934, as amended. The following graph compares a $100 investment in The following graph compares a $100 investment in Company stock on December 31, 2012 with a $100 Company stock on December 31, 2012 with a $100 investment in our Return on Invested Capital (ROIC) investment in our Return on Invested Capital (ROIC) Peer Group and the S&P 500 also made at market close Peer Group and the S&P 500 also made at market close on December 31, 2012. The graph portrays total return, on December 31, 2012. The graph portrays total return, 2012–2017, assuming reinvestment of dividends. 2012–2017, assuming reinvestment of dividends. ITEM 6. SELECTED FINANCIAL DATA ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR FINANCIAL SUMMARY (a) FIVE-YEAR FINANCIAL SUMMARY (a) Dollar amounts in millions, except per share Dollar amounts in millions, except per share amounts and stock prices amounts and stock prices RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales Net sales Costs and expenses, excluding interest Costs and expenses, excluding interest Earnings (loss) from continuing operations Earnings (loss) from continuing operations before income taxes and equity earnings before income taxes and equity earnings Equity earnings (loss), net of taxes Equity earnings (loss), net of taxes Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) Noncontrolling interests, net of taxes Noncontrolling interests, net of taxes Net earnings (loss) attributable to International Net earnings (loss) attributable to International Paper Company Paper Company FINANCIAL POSITION FINANCIAL POSITION 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 $ 21,743 $ 21,743 20,323 20,323 $ 19,495 $ 19,495 18,180 18,180 $ 20,675 $ 20,675 18,988 18,988 $ 21,889 $ 21,889 20,548 20,548 $ 21,244 $ 21,244 19,540 19,540 848 848 177 177 34 34 2,144 2,144 (b) (b) (c) (c) (b-d) (b-d) — — (e) (e) (f) (f) (e-g) (e-g) 795 795 198 198 102 102 902 902 (2) (2) 1,132 1,132 (h) (h) 734 734 (k) (k) 1,092 1,092 (n) (n) 117 117 85 85 917 917 (21) (21) (i) (i) (h-j) (h-j) (200) (200) 77 77 536 536 (19) (19) (l) (l) (k-m) (k-m) (39) (39) (215) (215) (o) (o) 1,378 1,378 (n-p) (n-p) (17) (17) 2,144 2,144 (b-d) (b-d) 904 904 (e-g) (e-g) 938 938 (h-j) (h-j) 555 555 (k-m) (k-m) 1,395 1,395 (n-p) (n-p) Current assets less current liabilities Current assets less current liabilities $ 3,175 $ 3,175 $ $ 2,601 2,601 $ $ 2,244 2,244 $ $ 2,719 2,719 $ $ 3,597 3,597 Note 1: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin 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- 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 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. subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015. Note 2: Returns are calculated in $USD. Note 2: Returns are calculated in $USD. Plants, properties and equipment, net Plants, properties and equipment, net Forestlands Forestlands Total assets Total assets Notes payable and current maturities of long- Notes payable and current maturities of long- term debt term debt Long-term debt Long-term debt Total shareholders’ equity Total shareholders’ equity BASIC EARNINGS PER SHARE BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations Discontinued operations Net earnings (loss) Net earnings (loss) DILUTED EARNINGS PER SHARE DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations Discontinued operations Net earnings (loss) Net earnings (loss) Cash dividends Cash dividends Total shareholders’ equity Total shareholders’ equity COMMON STOCK PRICES COMMON STOCK PRICES High High Low Low Year-end Year-end FINANCIAL RATIOS FINANCIAL RATIOS Current ratio Current ratio Total debt to capital ratio Total debt to capital ratio Return on shareholders’ equity Return on shareholders’ equity CAPITAL EXPENDITURES CAPITAL EXPENDITURES NUMBER OF EMPLOYEES NUMBER OF EMPLOYEES 13,265 13,265 448 448 33,903 33,903 311 311 10,846 10,846 6,522 6,522 $ $ $ $ 5.11 5.11 0.08 0.08 5.19 5.19 5.05 5.05 0.08 0.08 5.13 5.13 1.863 1.863 15.79 15.79 $ 58.96 $ 58.96 49.60 49.60 57.94 57.94 1.6 1.6 0.63 0.63 43.9% 43.9% 13,003 13,003 456 456 33,093 33,093 239 239 11,075 11,075 4,341 4,341 1.95 1.95 0.25 0.25 2.20 2.20 1.93 1.93 0.25 0.25 2.18 2.18 1.783 1.783 10.56 10.56 $ $ $ $ 11,000 11,000 366 366 30,271 30,271 426 426 8,844 8,844 3,884 3,884 $ $ $ $ 2.05 2.05 0.20 0.20 2.25 2.25 2.03 2.03 0.20 0.20 2.23 2.23 1.640 1.640 9.43 9.43 11,794 11,794 507 507 28,369 28,369 742 742 8,584 8,584 5,115 5,115 1.12 1.12 0.18 0.18 1.30 1.30 1.10 1.10 0.19 0.19 1.29 1.29 1.450 1.450 12.18 12.18 $ $ $ $ 12,745 12,745 557 557 31,242 31,242 661 661 8,787 8,787 8,105 8,105 $ $ 3.63 3.63 (0.48) (0.48) 3.15 3.15 $ $ 3.59 3.59 (0.48) (0.48) 3.11 3.11 1.250 1.250 18.57 18.57 $ $ 54.68 54.68 $ $ 57.90 57.90 $ $ 55.73 55.73 $ $ 50.33 50.33 32.50 32.50 53.06 53.06 1.6 1.6 0.72 0.72 22.1% 22.1% 36.76 36.76 37.70 37.70 1.6 1.6 0.70 0.70 20.0% 20.0% 44.24 44.24 53.58 53.58 1.5 1.5 0.65 0.65 7.7% 7.7% $1,366 $1,366 58,000 58,000 39.47 39.47 49.03 49.03 1.7 1.7 0.54 0.54 20.2% 20.2% $1,198 $1,198 64,000 64,000 $ 1,391 $ 1,391 56,000 56,000 $ $ 1,348 1,348 55,000 55,000 $ $ 1,487 1,487 56,000 56,000 13 13 14 14 FINANCIAL GLOSSARY FINANCIAL GLOSSARY Current ratio— Current ratio— current assets divided by current liabilities. current assets divided by current liabilities. Total debt to capital ratio— Total debt to capital ratio— long-term debt plus notes payable and current long-term debt plus notes payable and current maturities of long-term debt divided by long-term maturities of long-term debt divided by long-term debt, notes payable and current maturities of long- debt, notes payable and current maturities of long- term debt and total shareholders’ equity. term debt and total shareholders’ equity. (d) Includes the following tax expenses (benefits): (d) Includes the following tax expenses (benefits): In millions In millions International legal entity restructuring International legal entity restructuring Income tax refund claims Income tax refund claims Cash pension contribution Cash pension contribution International Tax Law Change International Tax Law Change Tax benefit of Tax Cuts and Jobs Act Tax benefit of Tax Cuts and Jobs Act Tax impact of other special items Tax impact of other special items 2017 2017 $ $ 34 34 (113) (113) 38 38 9 9 (1,222) (1,222) $ (1,254) $ (1,254) Return on shareholders’ equity— Return on shareholders’ equity— 2016: 2016: net earnings attributable to International Paper net earnings attributable to International Paper Company divided by average shareholders’ equity Company divided by average shareholders’ equity (computed monthly). (computed monthly). (e) Includes the following charges (gains): (e) Includes the following charges (gains): FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY In millions In millions 2016 2016 Before Before Tax Tax After After Tax Tax Riegelwood mill conversion costs Riegelwood mill conversion costs $ $ 9 9 $ $ (a) All periods presented have been restated to reflect the North (a) All periods presented have been restated to reflect the North American Consumer Packaging business, xpedx business, and American Consumer Packaging business, xpedx business, and the Temple-Inland Building Products business as discontinued the Temple-Inland Building Products business as discontinued operations (excluding cash flow related items) and prior period operations (excluding cash flow related items) and prior period amounts have been adjusted to conform with current year amounts have been adjusted to conform with current year presentation, if applicable. presentation, if applicable. 2017: 2017: (b) Includes the following charges (gains): (b) Includes the following charges (gains): In millions In millions 2017 2017 Before Before Tax Tax After After Tax Tax India Packaging evaluation write-off India Packaging evaluation write-off Write-off of certain regulatory pre-engineering Write-off of certain regulatory pre-engineering costs costs Early debt extinguishment costs Early debt extinguishment costs Costs associated with the newly acquired pulp Costs associated with the newly acquired pulp business business Asia Box impairment / restructuring Asia Box impairment / restructuring Gain on sale of investment in Arizona Chemical Gain on sale of investment in Arizona Chemical Turkey mill closure Turkey mill closure Amortization of Weyerhaeuser inventory fair Amortization of Weyerhaeuser inventory fair value step-up value step-up Total special items Total special items Gain on sale of investment in ArborGen Gain on sale of investment in ArborGen $ $ (14) $ (14) $ (9) (9) Non-operating pension expense Non-operating pension expense Total Total 17 17 8 8 29 29 31 31 70 70 (8) (8) 7 7 6 6 11 11 5 5 18 18 21 21 58 58 (5) (5) 6 6 19 19 182 182 610 610 792 792 $ $ $ $ 11 11 131 131 375 375 506 506 $ $ $ $ Costs associated with the pulp business Costs associated with the pulp business acquired in 2016 acquired in 2016 Amortization of Weyerhaeuser inventory fair Amortization of Weyerhaeuser inventory fair value step-up value step-up Holmen bargain purchase gain Holmen bargain purchase gain Abandoned property removal Abandoned property removal Kleen Products settlement Kleen Products settlement Asia Foodservice sale Asia Foodservice sale Brazil Packaging wood supply accelerated Brazil Packaging wood supply accelerated amortization amortization Debt extinguishment costs Debt extinguishment costs Interest income on income tax refund claims Interest income on income tax refund claims Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total 33 33 14 14 (6) (6) 20 20 354 354 9 9 10 10 83 83 (5) (5) (2) (2) $ $ $ $ 496 496 484 484 980 980 $ $ $ $ 20 20 8 8 (6) (6) 13 13 219 219 4 4 7 7 51 51 (3) (3) (2) (2) 302 302 298 298 600 600 (c) Includes the operating earnings of the North American Consumer (c) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following charges (gains): charges (gains): In millions In millions North American Consumer Packaging North American Consumer Packaging transaction costs transaction costs Non-operating pension expense Non-operating pension expense Total Total 2017 2017 Before Before Tax Tax After After Tax Tax $ $ $ $ 17 17 45 45 62 62 $ $ $ $ 10 10 28 28 38 38 (f) Includes the operating earnings of the North American Consumer (f) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following charges (gains): charges (gains): 2014: 2014: (k) Includes the following charges (gains): (k) Includes the following charges (gains): In millions In millions xpedx legal settlement xpedx legal settlement Total Total 2016 2016 Before Before Tax Tax After After Tax Tax $ $ $ $ 8 8 8 8 $ $ $ $ 5 5 5 5 (g) Includes the following tax expenses (benefits): (g) Includes the following tax expenses (benefits): In millions In millions Temple-Inland integration Temple-Inland integration Courtland mill shutdown Courtland mill shutdown Early debt extinguishment costs Early debt extinguishment costs India legal contingency resolution India legal contingency resolution Multi-employer pension plan withdrawal Multi-employer pension plan withdrawal liability liability In millions In millions 2016 2016 Foreign tax amnesty program Foreign tax amnesty program Cash pension contribution Cash pension contribution $ $ U.S. Federal audit U.S. Federal audit Brazil goodwill Brazil goodwill International legal entity restructuring International legal entity restructuring Luxembourg tax rate change Luxembourg tax rate change 23 23 (14) (14) (57) (57) (6) (6) 31 31 Asia Industrial Packaging goodwill impairment Asia Industrial Packaging goodwill impairment Loss on sale by investee and impairment of Loss on sale by investee and impairment of investment investment Other items Other items Total special items Total special items $ 1,052 $ 1,052 $ $ Non-operating pension expense Non-operating pension expense Tax impact of other special items Tax impact of other special items $ $ (23) (23) Total Total $ 1,264 $ 1,264 $ $ 2014 2014 Before Before Tax Tax After After Tax Tax $ $ 16 16 $ $ 554 554 276 276 (20) (20) 35 35 32 32 100 100 47 47 12 12 212 212 10 10 338 338 169 169 (20) (20) 21 21 17 17 100 100 36 36 9 9 680 680 129 129 809 809 2015: 2015: (h) Includes the following charges (gains): (h) Includes the following charges (gains): (l) Includes the operating earnings of the North American Consumer (l) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business prior to the spin-off Packaging business and the xpedx business prior to the spin-off and the following charges (gains): and the following charges (gains): In millions In millions Riegelwood mill conversion costs, net of Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated proceeds from sale of the Carolina Coated Bristols brand Bristols brand $ $ 8 8 $ $ Timber monetization restructuring Timber monetization restructuring Early debt extinguishment costs Early debt extinguishment costs IP-Sun JV impairment IP-Sun JV impairment Legal reserve adjustment Legal reserve adjustment Refund and state tax credits Refund and state tax credits intangible intangible Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total Impairment of Orsa goodwill and trade name Impairment of Orsa goodwill and trade name 2015 2015 Before Before Tax Tax After After Tax Tax 16 16 207 207 174 174 15 15 (4) (4) 137 137 6 6 559 559 258 258 817 817 $ $ $ $ $ $ $ $ 4 4 10 10 133 133 180 180 9 9 (2) (2) 137 137 5 5 476 476 157 157 633 633 (i) Includes the operating earnings of the North American Consumer (i) Includes the operating earnings of the North American Consumer Packaging business for the full year . Packaging business for the full year . (j) Includes the following tax expenses (benefits): (j) Includes the following tax expenses (benefits): In millions In millions IP-Sun JV impairment IP-Sun JV impairment Cash pension contribution Cash pension contribution Other items Other items 2015 2015 $ $ (67) (67) 23 23 7 7 Tax impact of other special items Tax impact of other special items $ $ (37) (37) In millions In millions xpedx spinoff xpedx spinoff Building Products divestiture Building Products divestiture xpedx restructuring xpedx restructuring Total Total 2014 2014 Before Before Tax Tax After After Tax Tax $ $ $ $ 24 24 16 16 1 1 $ $ 41 41 $ $ 16 16 9 9 (1) (1) 24 24 (m) Includes the following tax expenses (benefits): (m) Includes the following tax expenses (benefits): In millions In millions State legislative tax change State legislative tax change Internal restructuring Internal restructuring Other items Other items Tax impact of other special items Tax impact of other special items 2014 2014 $ $ $ $ 10 10 (90) (90) (1) (1) (81) (81) 2013: 2013: (n) Includes the following charges (gains): (n) Includes the following charges (gains): 2013 2013 Before Before Tax Tax After After Tax Tax $ $ 62 62 $ $ (30) (30) (19) (19) 127 127 122 122 $ $ $ $ $ $ $ $ 118 118 25 25 9 9 6 6 (13) (13) (5) (5) 299 299 323 323 622 622 400 400 23 23 45 45 32 32 38 38 72 72 16 16 5 5 4 4 2 2 (13) (13) 227 227 197 197 424 424 14 14 366 366 19 19 28 28 19 19 In millions In millions Temple-Inland integration Temple-Inland integration Courtland mill shutdown Courtland mill shutdown Early debt extinguishment costs Early debt extinguishment costs Insurance reimbursement related to legal Insurance reimbursement related to legal settlement settlement impairment impairment India Papers tradename and goodwill India Papers tradename and goodwill Fair value adjustment of company airplanes Fair value adjustment of company airplanes Cass Lake environmental reserve Cass Lake environmental reserve Bargain purchase adjustment - Turkey Bargain purchase adjustment - Turkey Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total (o) Includes the operating earnings of the North American Consumer (o) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business for the full year, and Packaging business and the xpedx business for the full year, and the Temple-Inland Building Products business through the date of the Temple-Inland Building Products business through the date of sale in July 2013. Also includes the following charges (gains): sale in July 2013. Also includes the following charges (gains): In millions In millions xpedx spinoff xpedx spinoff xpedx goodwill impairment xpedx goodwill impairment Building products divestiture Building products divestiture xpedx restructuring xpedx restructuring Total Total Shut down of paper machine at Augusta mill Shut down of paper machine at Augusta mill 2013 2013 Before Before Tax Tax After After Tax Tax $ $ 22 22 $ $ $ $ 522 522 $ $ 446 446 (p) Includes the following tax expenses (benefits): (p) Includes the following tax expenses (benefits): Settlement of U.S. federal tax audits Settlement of U.S. federal tax audits Income tax reserve release Income tax reserve release In millions In millions Other items Other items Tax impact of other special items Tax impact of other special items 2013 2013 $ $ (744) (744) (31) (31) 1 1 $ $ (774) (774) 15 15 16 16 FINANCIAL GLOSSARY FINANCIAL GLOSSARY Current ratio— Current ratio— current assets divided by current liabilities. current assets divided by current liabilities. Total debt to capital ratio— Total debt to capital ratio— long-term debt plus notes payable and current long-term debt plus notes payable and current maturities of long-term debt divided by long-term maturities of long-term debt divided by long-term debt, notes payable and current maturities of long- debt, notes payable and current maturities of long- term debt and total shareholders’ equity. term debt and total shareholders’ equity. In millions In millions International legal entity restructuring International legal entity restructuring Income tax refund claims Income tax refund claims Cash pension contribution Cash pension contribution International Tax Law Change International Tax Law Change Tax benefit of Tax Cuts and Jobs Act Tax benefit of Tax Cuts and Jobs Act Tax impact of other special items Tax impact of other special items Return on shareholders’ equity— Return on shareholders’ equity— 2016: 2016: net earnings attributable to International Paper net earnings attributable to International Paper Company divided by average shareholders’ equity Company divided by average shareholders’ equity (computed monthly). (computed monthly). (e) Includes the following charges (gains): (e) Includes the following charges (gains): Riegelwood mill conversion costs Riegelwood mill conversion costs $ $ 9 9 $ $ In millions In millions costs costs business business India Packaging evaluation write-off India Packaging evaluation write-off Write-off of certain regulatory pre-engineering Write-off of certain regulatory pre-engineering Early debt extinguishment costs Early debt extinguishment costs Costs associated with the newly acquired pulp Costs associated with the newly acquired pulp Asia Box impairment / restructuring Asia Box impairment / restructuring Gain on sale of investment in Arizona Chemical Gain on sale of investment in Arizona Chemical Amortization of Weyerhaeuser inventory fair Amortization of Weyerhaeuser inventory fair Turkey mill closure Turkey mill closure value step-up value step-up Total special items Total special items Total Total 2017 2017 $ $ 34 34 (113) (113) 38 38 9 9 (1,222) (1,222) $ (1,254) $ (1,254) 2016 2016 Before Before Tax Tax After After Tax Tax 17 17 8 8 29 29 31 31 70 70 (8) (8) 7 7 6 6 11 11 5 5 18 18 21 21 58 58 (5) (5) 6 6 19 19 182 182 610 610 792 792 $ $ $ $ 11 11 131 131 375 375 506 506 2016 2016 Before Before Tax Tax After After Tax Tax 8 8 8 8 $ $ $ $ 5 5 5 5 $ $ $ $ $ $ $ $ 2016 2016 $ $ 23 23 (14) (14) (57) (57) (6) (6) 31 31 FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY (a) All periods presented have been restated to reflect the North (a) All periods presented have been restated to reflect the North American Consumer Packaging business, xpedx business, and American Consumer Packaging business, xpedx business, and the Temple-Inland Building Products business as discontinued the Temple-Inland Building Products business as discontinued operations (excluding cash flow related items) and prior period operations (excluding cash flow related items) and prior period amounts have been adjusted to conform with current year amounts have been adjusted to conform with current year presentation, if applicable. presentation, if applicable. 2017: 2017: (b) Includes the following charges (gains): (b) Includes the following charges (gains): In millions In millions Costs associated with the pulp business Costs associated with the pulp business acquired in 2016 acquired in 2016 Amortization of Weyerhaeuser inventory fair Amortization of Weyerhaeuser inventory fair value step-up value step-up Holmen bargain purchase gain Holmen bargain purchase gain Abandoned property removal Abandoned property removal Kleen Products settlement Kleen Products settlement Asia Foodservice sale Asia Foodservice sale Brazil Packaging wood supply accelerated Brazil Packaging wood supply accelerated amortization amortization Debt extinguishment costs Debt extinguishment costs Interest income on income tax refund claims Interest income on income tax refund claims Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total In millions In millions North American Consumer Packaging North American Consumer Packaging transaction costs transaction costs Non-operating pension expense Non-operating pension expense Total Total 2017 2017 Before Before Tax Tax After After Tax Tax 33 33 14 14 (6) (6) 20 20 354 354 9 9 10 10 83 83 (5) (5) (2) (2) $ $ $ $ 496 496 484 484 980 980 $ $ $ $ 20 20 8 8 (6) (6) 13 13 219 219 4 4 7 7 51 51 (3) (3) (2) (2) 302 302 298 298 600 600 2017 2017 Before Before Tax Tax After After Tax Tax $ $ $ $ 17 17 45 45 62 62 $ $ $ $ 10 10 28 28 38 38 (c) Includes the operating earnings of the North American Consumer (c) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following charges (gains): charges (gains): (d) Includes the following tax expenses (benefits): (d) Includes the following tax expenses (benefits): 2015: 2015: (h) Includes the following charges (gains): (h) Includes the following charges (gains): (l) Includes the operating earnings of the North American Consumer (l) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business prior to the spin-off Packaging business and the xpedx business prior to the spin-off and the following charges (gains): and the following charges (gains): In millions In millions 2015 2015 Before Before Tax Tax After After Tax Tax Riegelwood mill conversion costs, net of Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated proceeds from sale of the Carolina Coated Bristols brand Bristols brand $ $ 8 8 $ $ Timber monetization restructuring Timber monetization restructuring Early debt extinguishment costs Early debt extinguishment costs IP-Sun JV impairment IP-Sun JV impairment Legal reserve adjustment Legal reserve adjustment Refund and state tax credits Refund and state tax credits Impairment of Orsa goodwill and trade name Impairment of Orsa goodwill and trade name intangible intangible Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total 16 16 207 207 174 174 15 15 (4) (4) 137 137 6 6 559 559 258 258 817 817 $ $ $ $ $ $ $ $ 4 4 10 10 133 133 180 180 9 9 (2) (2) 137 137 5 5 476 476 157 157 633 633 (i) Includes the operating earnings of the North American Consumer (i) Includes the operating earnings of the North American Consumer Packaging business for the full year . Packaging business for the full year . (j) Includes the following tax expenses (benefits): (j) Includes the following tax expenses (benefits): In millions In millions IP-Sun JV impairment IP-Sun JV impairment Cash pension contribution Cash pension contribution Other items Other items 2015 2015 $ $ (67) (67) 23 23 7 7 Gain on sale of investment in ArborGen Gain on sale of investment in ArborGen $ $ (14) $ (14) $ (9) (9) Non-operating pension expense Non-operating pension expense Tax impact of other special items Tax impact of other special items $ $ (37) (37) (f) Includes the operating earnings of the North American Consumer (f) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following charges (gains): charges (gains): 2014: 2014: (k) Includes the following charges (gains): (k) Includes the following charges (gains): (g) Includes the following tax expenses (benefits): (g) Includes the following tax expenses (benefits): In millions In millions xpedx legal settlement xpedx legal settlement Total Total In millions In millions Cash pension contribution Cash pension contribution U.S. Federal audit U.S. Federal audit Brazil goodwill Brazil goodwill International legal entity restructuring International legal entity restructuring Luxembourg tax rate change Luxembourg tax rate change In millions In millions Temple-Inland integration Temple-Inland integration Courtland mill shutdown Courtland mill shutdown Early debt extinguishment costs Early debt extinguishment costs India legal contingency resolution India legal contingency resolution Multi-employer pension plan withdrawal Multi-employer pension plan withdrawal liability liability Foreign tax amnesty program Foreign tax amnesty program Asia Industrial Packaging goodwill impairment Asia Industrial Packaging goodwill impairment Loss on sale by investee and impairment of Loss on sale by investee and impairment of investment investment Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Tax impact of other special items Tax impact of other special items $ $ (23) (23) Total Total 2014 2014 Before Before Tax Tax After After Tax Tax $ $ 16 16 $ $ 554 554 276 276 (20) (20) 35 35 32 32 100 100 47 47 12 12 $ 1,052 $ 1,052 $ $ 212 212 $ 1,264 $ 1,264 $ $ 10 10 338 338 169 169 (20) (20) 21 21 17 17 100 100 36 36 9 9 680 680 129 129 809 809 15 15 16 16 In millions In millions xpedx spinoff xpedx spinoff Building Products divestiture Building Products divestiture xpedx restructuring xpedx restructuring Total Total 2014 2014 Before Before Tax Tax After After Tax Tax $ $ $ $ 24 24 16 16 1 1 $ $ 41 41 $ $ 16 16 9 9 (1) (1) 24 24 (m) Includes the following tax expenses (benefits): (m) Includes the following tax expenses (benefits): In millions In millions State legislative tax change State legislative tax change Internal restructuring Internal restructuring Other items Other items Tax impact of other special items Tax impact of other special items 2014 2014 $ $ $ $ 10 10 (90) (90) (1) (1) (81) (81) 2013: 2013: (n) Includes the following charges (gains): (n) Includes the following charges (gains): In millions In millions Temple-Inland integration Temple-Inland integration Courtland mill shutdown Courtland mill shutdown Early debt extinguishment costs Early debt extinguishment costs Insurance reimbursement related to legal Insurance reimbursement related to legal settlement settlement India Papers tradename and goodwill India Papers tradename and goodwill impairment impairment Fair value adjustment of company airplanes Fair value adjustment of company airplanes Cass Lake environmental reserve Cass Lake environmental reserve Bargain purchase adjustment - Turkey Bargain purchase adjustment - Turkey Other items Other items Total special items Total special items Non-operating pension expense Non-operating pension expense Total Total 2013 2013 Before Before Tax Tax After After Tax Tax $ $ 62 62 $ $ 118 118 25 25 38 38 72 72 16 16 (30) (30) (19) (19) 127 127 122 122 9 9 6 6 (13) (13) (5) (5) 299 299 323 323 622 622 $ $ $ $ 5 5 4 4 (13) (13) 2 2 227 227 197 197 424 424 $ $ $ $ (o) Includes the operating earnings of the North American Consumer (o) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business for the full year, and Packaging business and the xpedx business for the full year, and the Temple-Inland Building Products business through the date of the Temple-Inland Building Products business through the date of sale in July 2013. Also includes the following charges (gains): sale in July 2013. Also includes the following charges (gains): In millions In millions xpedx spinoff xpedx spinoff xpedx goodwill impairment xpedx goodwill impairment Building products divestiture Building products divestiture Shut down of paper machine at Augusta mill Shut down of paper machine at Augusta mill xpedx restructuring xpedx restructuring Total Total 2013 2013 Before Before Tax Tax After After Tax Tax $ $ 22 22 $ $ 400 400 23 23 45 45 32 32 14 14 366 366 19 19 28 28 19 19 $ $ 522 522 $ $ 446 446 (p) Includes the following tax expenses (benefits): (p) Includes the following tax expenses (benefits): In millions In millions Settlement of U.S. federal tax audits Settlement of U.S. federal tax audits Income tax reserve release Income tax reserve release Other items Other items Tax impact of other special items Tax impact of other special items 2013 2013 $ $ (744) (744) (31) (31) 1 1 $ $ (774) (774) ITEM 7. MANAGEMENT’S DISCUSSION AND ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS EXECUTIVE SUMMARY EXECUTIVE SUMMARY International Paper delivered a year of strong International Paper delivered a year of strong performance in 2017, driven by excellent commercial performance in 2017, driven by excellent commercial execution across our businesses. Our Global Cellulose execution across our businesses. Our Global Cellulose Fibers business is on track to achieve the estimated Fibers business is on track to achieve the estimated transaction synergies. We continued to grow value for transaction synergies. We continued to grow value for our shareholders with our return on invested capital our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth solidly exceeding our cost of capital for the eighth consecutive year. We made substantial progress in consecutive year. We made substantial progress in further strengthening our portfolio during 2017. We further strengthening our portfolio during 2017. We accelerated strategic investments for growth in the accelerated strategic investments for growth in the Industrial Packaging business, providing the Company Industrial Packaging business, providing the Company with the flexibility we need around capacity, products and with the flexibility we need around capacity, products and geography to support our customers. In addition, the geography to support our customers. In addition, the Company made an important strategic move to transfer Company made an important strategic move to transfer the North American Consumer Packaging business, the North American Consumer Packaging business, which included the North American Coated Paperboard which included the North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. This strategic move Packaging Holding Company. This strategic move enables us to focus on growing value in our core enables us to focus on growing value in our core businesses and establish a 20.5% ownership interest in businesses and establish a 20.5% ownership interest in the subsidiary of Graphic Packaging Holding Company the subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Finally, that holds the assets of the combined business. Finally, we generated strong free cash flow which enabled us to we generated strong free cash flow which enabled us to increase our annual dividend for the sixth consecutive increase our annual dividend for the sixth consecutive year. year. Our 2017 results reflect significant pricing and mix Our 2017 results reflect significant pricing and mix improvement, which accelerated throughout the year. improvement, which accelerated throughout the year. The improvement in price and mix was primarily driven The improvement in price and mix was primarily driven by price realization on price increases announced in prior by price realization on price increases announced in prior quarters in our North American Industrial Packaging and quarters in our North American Industrial Packaging and Global Cellulose Fibers businesses. Operations were Global Cellulose Fibers businesses. Operations were negatively impacted by hurricanes and the Pensacola negatively impacted by hurricanes and the Pensacola event earlier in the year; however, 2017 was a lower event earlier in the year; however, 2017 was a lower maintenance outage year. Input costs were higher maintenance outage year. Input costs were higher compared to 2016, driven by significantly higher compared to 2016, driven by significantly higher recovered fiber costs, as well as, higher energy and recovered fiber costs, as well as, higher energy and transportation costs during the latter part of the year. Our transportation costs during the latter part of the year. Our Ilim joint venture delivered solid operational and financial Ilim joint venture delivered solid operational and financial results, driven by pricing and strong volume, and results, driven by pricing and strong volume, and provided more than $130 million in cash dividends to provided more than $130 million in cash dividends to International Paper in 2017. Finally, our 2017 results International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associated with the reflect the provisional net tax benefit associated with the impact of the December 2017 enactment of the Tax Cuts impact of the December 2017 enactment of the Tax Cuts and Jobs Act. and Jobs Act. Looking ahead to the 2018 first quarter, overall industry Looking ahead to the 2018 first quarter, overall industry conditions are expected to remain strong, and we should conditions are expected to remain strong, and we should continue to benefit from announced price increases, cost continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect reduction initiatives and additional synergies. We expect higher export price realization in our North American higher export price realization in our North American Industrial Packaging business and improved pricing in Industrial Packaging business and improved pricing in our Printing Papers segment, as price increases our Printing Papers segment, as price increases implemented in 2017 are realized. We also expect 2018 implemented in 2017 are realized. We also expect 2018 first quarter sales volumes for North American Industrial first quarter sales volumes for North American Industrial Packaging and Brazil Papers to be down due to Packaging and Brazil Papers to be down due to seasonally lower demand. Our North American mill seasonally lower demand. Our North American mill operations have been affected by the severe cold operations have been affected by the severe cold weather experienced at the beginning of 2018 which is weather experienced at the beginning of 2018 which is expected to impact operating costs. Costs will be higher expected to impact operating costs. Costs will be higher in our European Packaging business related to the in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due to a heavy outage outages are expected to increase due to a heavy outage quarter, as 70% of the Company outages are planned quarter, as 70% of the Company outages are planned during the first half of 2018. Input costs are expected to during the first half of 2018. Input costs are expected to increase across our businesses, driven by higher wood, increase across our businesses, driven by higher wood, energy and transportation costs. Additionally, we expect energy and transportation costs. Additionally, we expect equity earnings for Ilim to be sequentially higher, driven equity earnings for Ilim to be sequentially higher, driven by price realization across the pulp portfolio which will be by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes. partly offset by seasonally lower volumes. Looking to full year 2018, our focus will be on value Looking to full year 2018, our focus will be on value creation in our growth businesses. We anticipate another creation in our growth businesses. We anticipate another year of strong growth, driven by a continued strong year of strong growth, driven by a continued strong outlook in our core businesses and the full-year price flow outlook in our core businesses and the full-year price flow through of the 2017 increases. We continue to see through of the 2017 increases. We continue to see healthy demand and solid fundamentals across our healthy demand and solid fundamentals across our portfolio. We expect higher maintenance outage portfolio. We expect higher maintenance outage expenses due to the calendar impact of mills on an expenses due to the calendar impact of mills on an eighteen-month cycle and extended outages at several eighteen-month cycle and extended outages at several of our mills, as we position them for longer maintenance of our mills, as we position them for longer maintenance cycle schedules in the future. We are planning for $1.5 cycle schedules in the future. We are planning for $1.5 billion including billion including approximately $500 million that will be invested in approximately $500 million that will be invested in strategic projects, including the Madrid Mill conversion strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the and the Riverdale conversion. Also, we will see the positive cash tax impact associated with tax reform. Our positive cash tax impact associated with tax reform. Our Ilim joint venture is well positioned for another strong year Ilim joint venture is well positioned for another strong year of performance, and we will start to see the benefits of of performance, and we will start to see the benefits of our investment in Graphic Packaging. All in, we expect our investment in Graphic Packaging. All in, we expect another year of strong cash generation enabling us to another year of strong cash generation enabling us to continue to allocate capital to grow value for our continue to allocate capital to grow value for our shareholders. shareholders. in capital expenditures in capital expenditures in 2018, in 2018, Adjusted Operating Earnings and Adjusted Operating Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations (a defined as net earnings from continuing operations (a GAAP measure) excluding special items and non- GAAP measure) excluding special items and non- operating pension expense. Diluted earnings (loss) and operating pension expense. Diluted earnings (loss) and Diluted earnings (loss) per share attributable to common Diluted earnings (loss) per share attributable to common shareholders are the most direct comparable GAAP shareholders are the most direct comparable GAAP measures. The Company calculates Adjusted Operating measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of items Earnings by excluding the after-tax effect of items considered by management to be unusual, from the considered by management to be unusual, from the earnings reported under GAAP, non-operating pension earnings reported under GAAP, non-operating pension expense (includes all U.S. pension costs, excluding expense (includes all U.S. pension costs, excluding service costs and prior service costs), and discontinued service costs and prior service costs), and discontinued operations. Adjusted Operating Earnings Per Share is operations. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. diluted average shares of common stock outstanding. Management uses this measure to focus on on-going Management uses this measure to focus on on-going operations, and believes that it is useful to investors operations, and believes that it is useful to investors 17 17 18 18 because because it enables it enables them them to perform meaningful to perform meaningful comparisons of past and present operating results. The comparisons of past and present operating results. The Company believes that using this information, along with Company believes that using this information, along with the most direct comparable GAAP measure, provides for the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations. a more complete analysis of the results of operations. The following are reconciliations of Diluted earnings The following are reconciliations of Diluted earnings (loss) attributable to common shareholders to Adjusted (loss) attributable to common shareholders to Adjusted operating earnings attributable to common shareholders. operating earnings attributable to common shareholders. Diluted Earnings (Loss) Attributable Diluted Earnings (Loss) Attributable to Shareholders to Shareholders Add back - Discontinued operations Add back - Discontinued operations (gain) loss (gain) loss Diluted Earnings (Loss) from Diluted Earnings (Loss) from Continuing Operations Continuing Operations Add back - Non-operating pension Add back - Non-operating pension (income) expense (income) expense Add back - Net special items expense Add back - Net special items expense (income) (income) Income tax effect - Non-operating Income tax effect - Non-operating pension and special items expense pension and special items expense Adjusted Operating Earnings (Loss) Adjusted Operating Earnings (Loss) Attributable to Shareholders Attributable to Shareholders Diluted Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share Attributable to Shareholders Attributable to Shareholders Add back - Discontinued operations Add back - Discontinued operations (gain) loss per share (gain) loss per share Diluted Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share from Continuing Operations from Continuing Operations Add back - Non-operating pension Add back - Non-operating pension (income) expense (income) expense Add back - Net special items expense Add back - Net special items expense (income) (income) Income tax effect - Non-operating Income tax effect - Non-operating pension and special items expense pension and special items expense Adjusted Operating Earnings (Loss) Adjusted Operating Earnings (Loss) Per Share Attributable to Per Share Attributable to Shareholders Shareholders 2017 2017 2016 2016 2015 2015 $ 2,144 $ 904 $ 938 $ 2,144 $ 904 $ 938 (34) (34) (102) (102) (85) (85) 2,110 2,110 802 802 853 853 484 484 496 496 610 610 258 258 182 182 559 559 (1,634) (1,634) (309) (309) (221) (221) $ 1,456 $ 1,285 $ 1,449 $ 1,456 $ 1,285 $ 1,449 2017 2017 2016 2016 2015 2015 $ 5.13 $ 2.18 $ 2.23 $ 5.13 $ 2.18 $ 2.23 (0.08) (0.08) (0.25) (0.25) (0.20) (0.20) 5.05 5.05 1.93 1.93 2.03 2.03 1.16 1.16 1.47 1.47 0.61 0.61 1.19 1.19 0.44 0.44 1.33 1.33 (3.91) (3.91) (0.75) (0.75) (0.52) (0.52) $ 3.49 $ 3.09 $ 3.45 $ 3.49 $ 3.09 $ 3.45 Three Months Three Months Three Months Three Months Three Months Three Months December 31, December 31, September 30, September 30, December 31, December 31, Ended Ended 2017 2017 Ended Ended 2016 2016 Ended Ended 2017 2017 $ $ 1,460 1,460 $ $ 395 395 $ $ 218 218 8 8 (29) (29) (24) (24) 1,468 1,468 366 366 194 194 386 386 106 106 (1,430) (1,430) 33 33 23 23 (2) (2) 37 37 45 45 3 3 $ $ 530 530 $ $ 420 420 $ $ 279 279 Three Months Three Months Three Months Three Months Three Months Three Months December 31, December 31, September 30, September 30, December 31, December 31, Ended Ended 2017 2017 Ended Ended 2016 2016 Ended Ended 2017 2017 $ $ 3.50 3.50 $ $ 0.95 0.95 $ $ 0.53 0.53 0.02 0.02 (0.07) (0.07) (0.06) (0.06) 3.52 3.52 0.92 0.92 0.25 0.25 0.88 0.88 0.47 0.47 0.08 0.08 0.09 0.09 0.05 0.05 0.11 0.11 (3.42) (3.42) — — — — Diluted Earnings Diluted Earnings (Loss) Attributable (Loss) Attributable to Shareholders to Shareholders Add back - Add back - Discontinued Discontinued operations (gain) operations (gain) loss loss Diluted Earnings Diluted Earnings (Loss) from (Loss) from Continuing Continuing Operations Operations Add back - Non- Add back - Non- operating pension operating pension (income) expense (income) expense Add back - Net Add back - Net special items special items expense (income) expense (income) Income tax effect - Income tax effect - Non-operating Non-operating pension and special pension and special items expense items expense Adjusted Operating Adjusted Operating Earnings (Loss) Earnings (Loss) Attributable to Attributable to Shareholders Shareholders Diluted Earnings Diluted Earnings (Loss) Per Share (Loss) Per Share Attributable to Attributable to Shareholders Shareholders Add back - Add back - Discontinued Discontinued operations (gain) operations (gain) loss per share loss per share Diluted Earnings Diluted Earnings (Loss) Per Share (Loss) Per Share from Continuing from Continuing Operations Operations Add back - Non- Add back - Non- operating pension operating pension (income) expense (income) expense per share per share Add back - Net Add back - Net special items special items expense (income) expense (income) per share per share Income tax effect Income tax effect per share - Non- per share - Non- operating pension operating pension and special items and special items expense expense Adjusted Operating Adjusted Operating Earnings (Loss) Earnings (Loss) Per Share Per Share Attributable to Attributable to Shareholders Shareholders $ $ 1.27 1.27 $ $ 1.01 1.01 $ $ 0.67 0.67 Free Cash Flow is a non-GAAP measure and the most Free Cash Flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by directly comparable GAAP measure is cash provided by operations. Management believes that Free Cash Flow operations. Management believes that Free Cash Flow is useful to investors as a liquidity measure because it is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, repay balance sheet, pay dividends, repurchase stock, repay debt and make investments for future growth. It should debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's certain items that are not indicative of the Company's ongoing performance, free cash flow also enables ongoing performance, free cash flow also enables them them it enables it enables because to perform meaningful to perform meaningful because comparisons of past and present operating results. The comparisons of past and present operating results. The Company believes that using this information, along with Company believes that using this information, along with the most direct comparable GAAP measure, provides for the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations. a more complete analysis of the results of operations. ITEM 7. MANAGEMENT’S DISCUSSION AND ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS EXECUTIVE SUMMARY EXECUTIVE SUMMARY International Paper delivered a year of strong International Paper delivered a year of strong performance in 2017, driven by excellent commercial performance in 2017, driven by excellent commercial execution across our businesses. Our Global Cellulose execution across our businesses. Our Global Cellulose Fibers business is on track to achieve the estimated Fibers business is on track to achieve the estimated transaction synergies. We continued to grow value for transaction synergies. We continued to grow value for our shareholders with our return on invested capital our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth solidly exceeding our cost of capital for the eighth consecutive year. We made substantial progress in consecutive year. We made substantial progress in further strengthening our portfolio during 2017. We further strengthening our portfolio during 2017. We accelerated strategic investments for growth in the accelerated strategic investments for growth in the Industrial Packaging business, providing the Company Industrial Packaging business, providing the Company with the flexibility we need around capacity, products and with the flexibility we need around capacity, products and geography to support our customers. In addition, the geography to support our customers. In addition, the Company made an important strategic move to transfer Company made an important strategic move to transfer the North American Consumer Packaging business, the North American Consumer Packaging business, which included the North American Coated Paperboard which included the North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. This strategic move Packaging Holding Company. This strategic move enables us to focus on growing value in our core enables us to focus on growing value in our core businesses and establish a 20.5% ownership interest in businesses and establish a 20.5% ownership interest in the subsidiary of Graphic Packaging Holding Company the subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Finally, that holds the assets of the combined business. Finally, we generated strong free cash flow which enabled us to we generated strong free cash flow which enabled us to increase our annual dividend for the sixth consecutive increase our annual dividend for the sixth consecutive year. year. Our 2017 results reflect significant pricing and mix Our 2017 results reflect significant pricing and mix improvement, which accelerated throughout the year. improvement, which accelerated throughout the year. The improvement in price and mix was primarily driven The improvement in price and mix was primarily driven by price realization on price increases announced in prior by price realization on price increases announced in prior quarters in our North American Industrial Packaging and quarters in our North American Industrial Packaging and Global Cellulose Fibers businesses. Operations were Global Cellulose Fibers businesses. Operations were negatively impacted by hurricanes and the Pensacola negatively impacted by hurricanes and the Pensacola event earlier in the year; however, 2017 was a lower event earlier in the year; however, 2017 was a lower maintenance outage year. Input costs were higher maintenance outage year. Input costs were higher compared to 2016, driven by significantly higher compared to 2016, driven by significantly higher recovered fiber costs, as well as, higher energy and recovered fiber costs, as well as, higher energy and transportation costs during the latter part of the year. Our transportation costs during the latter part of the year. Our Ilim joint venture delivered solid operational and financial Ilim joint venture delivered solid operational and financial results, driven by pricing and strong volume, and results, driven by pricing and strong volume, and provided more than $130 million in cash dividends to provided more than $130 million in cash dividends to International Paper in 2017. Finally, our 2017 results International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associated with the reflect the provisional net tax benefit associated with the impact of the December 2017 enactment of the Tax Cuts impact of the December 2017 enactment of the Tax Cuts and Jobs Act. and Jobs Act. Looking ahead to the 2018 first quarter, overall industry Looking ahead to the 2018 first quarter, overall industry conditions are expected to remain strong, and we should conditions are expected to remain strong, and we should continue to benefit from announced price increases, cost continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect reduction initiatives and additional synergies. We expect higher export price realization in our North American higher export price realization in our North American Industrial Packaging business and improved pricing in Industrial Packaging business and improved pricing in our Printing Papers segment, as price increases our Printing Papers segment, as price increases implemented in 2017 are realized. We also expect 2018 implemented in 2017 are realized. We also expect 2018 first quarter sales volumes for North American Industrial first quarter sales volumes for North American Industrial Packaging and Brazil Papers to be down due to Packaging and Brazil Papers to be down due to seasonally lower demand. Our North American mill seasonally lower demand. Our North American mill operations have been affected by the severe cold operations have been affected by the severe cold weather experienced at the beginning of 2018 which is weather experienced at the beginning of 2018 which is expected to impact operating costs. Costs will be higher expected to impact operating costs. Costs will be higher in our European Packaging business related to the in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due to a heavy outage outages are expected to increase due to a heavy outage quarter, as 70% of the Company outages are planned quarter, as 70% of the Company outages are planned during the first half of 2018. Input costs are expected to during the first half of 2018. Input costs are expected to increase across our businesses, driven by higher wood, increase across our businesses, driven by higher wood, energy and transportation costs. Additionally, we expect energy and transportation costs. Additionally, we expect equity earnings for Ilim to be sequentially higher, driven equity earnings for Ilim to be sequentially higher, driven by price realization across the pulp portfolio which will be by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes. partly offset by seasonally lower volumes. Looking to full year 2018, our focus will be on value Looking to full year 2018, our focus will be on value creation in our growth businesses. We anticipate another creation in our growth businesses. We anticipate another year of strong growth, driven by a continued strong year of strong growth, driven by a continued strong outlook in our core businesses and the full-year price flow outlook in our core businesses and the full-year price flow through of the 2017 increases. We continue to see through of the 2017 increases. We continue to see healthy demand and solid fundamentals across our healthy demand and solid fundamentals across our portfolio. We expect higher maintenance outage portfolio. We expect higher maintenance outage expenses due to the calendar impact of mills on an expenses due to the calendar impact of mills on an eighteen-month cycle and extended outages at several eighteen-month cycle and extended outages at several of our mills, as we position them for longer maintenance of our mills, as we position them for longer maintenance cycle schedules in the future. We are planning for $1.5 cycle schedules in the future. We are planning for $1.5 billion billion in capital expenditures in capital expenditures in 2018, in 2018, including including approximately $500 million that will be invested in approximately $500 million that will be invested in strategic projects, including the Madrid Mill conversion strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the and the Riverdale conversion. Also, we will see the positive cash tax impact associated with tax reform. Our positive cash tax impact associated with tax reform. Our Ilim joint venture is well positioned for another strong year Ilim joint venture is well positioned for another strong year of performance, and we will start to see the benefits of of performance, and we will start to see the benefits of our investment in Graphic Packaging. All in, we expect our investment in Graphic Packaging. All in, we expect another year of strong cash generation enabling us to another year of strong cash generation enabling us to continue to allocate capital to grow value for our continue to allocate capital to grow value for our shareholders. shareholders. Adjusted Operating Earnings and Adjusted Operating Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations (a defined as net earnings from continuing operations (a GAAP measure) excluding special items and non- GAAP measure) excluding special items and non- operating pension expense. Diluted earnings (loss) and operating pension expense. Diluted earnings (loss) and Diluted earnings (loss) per share attributable to common Diluted earnings (loss) per share attributable to common shareholders are the most direct comparable GAAP shareholders are the most direct comparable GAAP measures. The Company calculates Adjusted Operating measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of items Earnings by excluding the after-tax effect of items considered by management to be unusual, from the considered by management to be unusual, from the earnings reported under GAAP, non-operating pension earnings reported under GAAP, non-operating pension expense (includes all U.S. pension costs, excluding expense (includes all U.S. pension costs, excluding service costs and prior service costs), and discontinued service costs and prior service costs), and discontinued operations. Adjusted Operating Earnings Per Share is operations. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. diluted average shares of common stock outstanding. Management uses this measure to focus on on-going Management uses this measure to focus on on-going operations, and believes that it is useful to investors operations, and believes that it is useful to investors The following are reconciliations of Diluted earnings The following are reconciliations of Diluted earnings (loss) attributable to common shareholders to Adjusted (loss) attributable to common shareholders to Adjusted operating earnings attributable to common shareholders. operating earnings attributable to common shareholders. Diluted Earnings (Loss) Attributable Diluted Earnings (Loss) Attributable to Shareholders to Shareholders Add back - Discontinued operations Add back - Discontinued operations (gain) loss (gain) loss Diluted Earnings (Loss) from Diluted Earnings (Loss) from Continuing Operations Continuing Operations Add back - Non-operating pension Add back - Non-operating pension (income) expense (income) expense Add back - Net special items expense Add back - Net special items expense (income) (income) Income tax effect - Non-operating Income tax effect - Non-operating pension and special items expense pension and special items expense Adjusted Operating Earnings (Loss) Adjusted Operating Earnings (Loss) Attributable to Shareholders Attributable to Shareholders Diluted Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share Attributable to Shareholders Attributable to Shareholders Add back - Discontinued operations Add back - Discontinued operations (gain) loss per share (gain) loss per share Diluted Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share from Continuing Operations from Continuing Operations Add back - Non-operating pension Add back - Non-operating pension (income) expense (income) expense Add back - Net special items expense Add back - Net special items expense (income) (income) Income tax effect - Non-operating Income tax effect - Non-operating pension and special items expense pension and special items expense Adjusted Operating Earnings (Loss) Adjusted Operating Earnings (Loss) Per Share Attributable to Per Share Attributable to Shareholders Shareholders 2017 2017 2016 2016 2015 2015 $ 2,144 $ 904 $ 938 $ 2,144 $ 904 $ 938 (34) (34) (102) (102) (85) (85) 2,110 2,110 802 802 853 853 484 484 496 496 610 610 258 258 182 182 559 559 (1,634) (1,634) (309) (309) (221) (221) $ 1,456 $ 1,285 $ 1,449 $ 1,456 $ 1,285 $ 1,449 2017 2017 2016 2016 2015 2015 $ 5.13 $ 2.18 $ 2.23 $ 5.13 $ 2.18 $ 2.23 (0.08) (0.08) (0.25) (0.25) (0.20) (0.20) 5.05 5.05 1.93 1.93 2.03 2.03 1.16 1.16 1.47 1.47 0.61 0.61 1.19 1.19 0.44 0.44 1.33 1.33 (3.91) (3.91) (0.75) (0.75) (0.52) (0.52) $ 3.49 $ 3.09 $ 3.45 $ 3.49 $ 3.09 $ 3.45 17 17 18 18 Three Months Three Months Ended Ended December 31, December 31, 2017 2017 Three Months Three Months Ended Ended September 30, September 30, 2017 2017 Three Months Three Months Ended Ended December 31, December 31, 2016 2016 $ $ 1,460 1,460 $ $ 395 395 $ $ 218 218 8 8 (29) (29) (24) (24) 1,468 1,468 366 366 194 194 386 386 106 106 (1,430) (1,430) 33 33 23 23 (2) (2) 37 37 45 45 3 3 $ $ 530 530 $ $ 420 420 $ $ 279 279 Three Months Three Months Ended Ended December 31, December 31, 2017 2017 Three Months Three Months Ended Ended September 30, September 30, 2017 2017 Three Months Three Months Ended Ended December 31, December 31, 2016 2016 $ $ 3.50 3.50 $ $ 0.95 0.95 $ $ 0.53 0.53 0.02 0.02 (0.07) (0.07) (0.06) (0.06) 3.52 3.52 0.92 0.92 0.25 0.25 0.88 0.88 0.47 0.47 0.08 0.08 0.09 0.09 0.05 0.05 0.11 0.11 (3.42) (3.42) — — — — $ $ 1.27 1.27 $ $ 1.01 1.01 $ $ 0.67 0.67 Diluted Earnings Diluted Earnings (Loss) Attributable (Loss) Attributable to Shareholders to Shareholders Add back - Add back - Discontinued Discontinued operations (gain) operations (gain) loss loss Diluted Earnings Diluted Earnings (Loss) from (Loss) from Continuing Continuing Operations Operations Add back - Non- Add back - Non- operating pension operating pension (income) expense (income) expense Add back - Net Add back - Net special items special items expense (income) expense (income) Income tax effect - Income tax effect - Non-operating Non-operating pension and special pension and special items expense items expense Adjusted Operating Adjusted Operating Earnings (Loss) Earnings (Loss) Attributable to Attributable to Shareholders Shareholders Diluted Earnings Diluted Earnings (Loss) Per Share (Loss) Per Share Attributable to Attributable to Shareholders Shareholders Add back - Add back - Discontinued Discontinued operations (gain) operations (gain) loss per share loss per share Diluted Earnings Diluted Earnings (Loss) Per Share (Loss) Per Share from Continuing from Continuing Operations Operations Add back - Non- Add back - Non- operating pension operating pension (income) expense (income) expense per share per share Add back - Net Add back - Net special items special items expense (income) expense (income) per share per share Income tax effect Income tax effect per share - Non- per share - Non- operating pension operating pension and special items and special items expense expense Adjusted Operating Adjusted Operating Earnings (Loss) Earnings (Loss) Per Share Per Share Attributable to Attributable to Shareholders Shareholders Free Cash Flow is a non-GAAP measure and the most Free Cash Flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by directly comparable GAAP measure is cash provided by operations. Management believes that Free Cash Flow operations. Management believes that Free Cash Flow is useful to investors as a liquidity measure because it is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, repay balance sheet, pay dividends, repurchase stock, repay debt and make investments for future growth. It should debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's certain items that are not indicative of the Company's ongoing performance, free cash flow also enables ongoing performance, free cash flow also enables Earnings (Loss) From Continuing Earnings (Loss) From Continuing Operations Before Income Taxes and Operations Before Income Taxes and Equity Earnings Equity Earnings $ $ 1,188 $ 1,188 $ (709) $ (709) $ 912 912 Interest expense, net Interest expense, net Noncontrolling interests/equity earnings Noncontrolling interests/equity earnings included in operations included in operations (456) (456) (271) (271) (445) (445) Corporate items Corporate items — — — — 1,250 1,250 354 354 — — — — Corporate special items (income) Corporate special items (income) expense expense Non-operating pension expense Non-operating pension expense Free Cash Flow Free Cash Flow $ $ 732 $ 732 $ 624 $ 624 $ 467 467 Business Segment Operating Profit Business Segment Operating Profit Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers 848 848 572 572 (2) (2) 91 91 76 76 484 484 795 795 520 520 1 1 121 121 55 55 610 610 1,132 1,132 555 555 8 8 96 96 422 422 258 258 $ 2,069 $ 2,102 $ 2,471 $ 2,069 $ 2,102 $ 2,471 $ 1,547 $ 1,741 $ 1,938 $ 1,547 $ 1,741 $ 1,938 65 65 457 457 (179) (179) 540 540 68 68 465 465 investors to perform meaningful comparisons between investors to perform meaningful comparisons between past and present periods. past and present periods. The Company generated Free Cash Flow of The Company generated Free Cash Flow of approximately $2.0 billion, $1.9 billion and $1.8 billion in approximately $2.0 billion, $1.9 billion and $1.8 billion in 2017, 2016 and 2015, respectively. The following are 2017, 2016 and 2015, respectively. The following are reconciliations of free cash flow to cash provided by reconciliations of free cash flow to cash provided by operations: operations: 2017 2017 2016 2016 2015 2015 $ $ 1,757 $ 1,757 $ 2,478 $ 2,478 $ 2,580 2,580 (1,391) (1,391) (1,348) (1,348) (1,487) (1,487) 1,250 1,250 354 354 1,970 $ 1,970 $ $ $ 750 750 — — 750 750 — — 1,880 $ 1,880 $ 1,843 1,843 Three Three Months Months Ended Ended December December 31, 2017 31, 2017 Three Three Months Months Ended Ended September September 30, 2017 30, 2017 Three Three Months Months Ended Ended December December 31, 2016 31, 2016 In millions In millions Cash provided by Cash provided by operations operations Adjustments: Adjustments: Cash invested in capital Cash invested in capital projects projects Cash contribution to Cash contribution to pension plan pension plan Cash payment for Kleen Cash payment for Kleen Settlement Settlement Free Cash Flow Free Cash Flow In millions In millions Cash provided by Cash provided by operations operations Adjustments: Adjustments: Cash invested in capital Cash invested in capital projects projects Cash contribution to Cash contribution to pension plan pension plan Cash payment for Kleen Cash payment for Kleen Settlement Settlement Results of Operations Results of Operations Business Segment Operating Profits are used by Business Segment Operating Profits are used by International Paper’s management to measure the International Paper’s management to measure the earnings performance of its businesses. Management earnings performance of its businesses. Management believes that this measure allows a better understanding believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and of trends in costs, operating efficiencies, prices and volumes. Business Segment Operating Profits are volumes. Business Segment Operating Profits are defined as earnings (loss) from continuing operations defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling the impact of equity earnings and noncontrolling interests, excluding corporate items and corporate interests, excluding corporate items and corporate special items. Business Segment Operating Profits are special items. Business Segment Operating Profits are defined by the Securities and Exchange Commission as defined by the Securities and Exchange Commission as a non-GAAP financial measure, and are not GAAP a non-GAAP financial measure, and are not GAAP alternatives to net income or any other operating alternatives to net income or any other operating measure prescribed by accounting principles generally measure prescribed by accounting principles generally accepted in the United States. accepted in the United States. in in three segments: three segments: International Paper operates International Paper operates Industrial Packaging, Global Cellulose Fibers and Industrial Packaging, Global Cellulose Fibers and Printing Papers. During 2017, as a result of the transfer Printing Papers. During 2017, as a result of the transfer of the North American Coated Paperboard business and of the North American Coated Paperboard business and the associated reclassification of this business to the associated reclassification of this business to Discontinued Operations, the remaining sales and Discontinued Operations, the remaining sales and operating profits previously reported in the Consumer operating profits previously reported in the Consumer Packaging segment have been reclassified for segment Packaging segment have been reclassified for segment reporting for all periods presented. The European reporting for all periods presented. The European Coated Paperboard business is now included in the Coated Paperboard business is now included in the Industrial Packaging segment and sales and earnings Industrial Packaging segment and sales and earnings historically included in the Consumer Packaging historically included in the Consumer Packaging segment associated with previously divested businesses segment associated with previously divested businesses are now included in Corporate items. are now included in Corporate items. The following table presents a reconciliation of net The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to earnings (loss) from continuing operations attributable to International Paper Company to its total Business International Paper Company to its total Business Segment Operating Profit: Segment Operating Profit: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings (Loss) From Continuing Earnings (Loss) From Continuing Operations Attributable to Operations Attributable to International Paper Company International Paper Company Add back (deduct) Add back (deduct) $ 2,110 $ 802 $ 853 $ 2,110 $ 802 $ 853 The principal changes in operating profit by business The principal changes in operating profit by business segment were as follows: segment were as follows: Income tax provision (benefit) Income tax provision (benefit) (1,085) (1,085) 193 193 417 417 Equity (earnings) loss, net of taxes Equity (earnings) loss, net of taxes (177) (177) (198) (198) (117) (117) Noncontrolling interests, net of taxes Noncontrolling interests, net of taxes — — (2) (2) (21) (21) for the amortization of the inventory fair value for the amortization of the inventory fair value adjustment associated with that acquisition. adjustment associated with that acquisition. • Printing Papers’ profits of $457 million represented • Printing Papers’ profits of $457 million represented a $83 million decrease in operating profits from a $83 million decrease in operating profits from 2016. The benefits from higher sales volumes, lower 2016. The benefits from higher sales volumes, lower maintenance outage costs and lower other costs maintenance outage costs and lower other costs were more than offset by lower average sales price were more than offset by lower average sales price realizations and mix, higher operating costs and realizations and mix, higher operating costs and higher input costs. Operating profits in 2017 higher input costs. Operating profits in 2017 included charges of $2 million for the removal of included charges of $2 million for the removal of abandoned property at our mills. abandoned property at our mills. Liquidity and Capital Resources Liquidity and Capital Resources For the year ended December 31, 2017, International For the year ended December 31, 2017, International Paper generated $1.8 billion of cash flow from operations Paper generated $1.8 billion of cash flow from operations compared with $2.5 billion in 2016 and $2.6 billion in compared with $2.5 billion in 2016 and $2.6 billion in 2015. Cash flow from operations included $1.25 billion, 2015. Cash flow from operations included $1.25 billion, $750 million and $750 million of cash pension $750 million and $750 million of cash pension contributions in 2017, 2016 and 2015, respectively. contributions in 2017, 2016 and 2015, respectively. Capital spending for 2017 totaled $1.4 billion, or 98% of Capital spending for 2017 totaled $1.4 billion, or 98% of depreciation and amortization expense. Our liquidity depreciation and amortization expense. Our liquidity position remains strong, supported by approximately position remains strong, supported by approximately $2.1 billion of credit facilities that we believe are adequate $2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt investment-grade credit rating for our long-term debt continues to be an important element in our overall continues to be an important element in our overall financial strategy. financial strategy. We expect strong cash generation again in 2018, We expect strong cash generation again in 2018, including the benefits of U.S. tax reform, and will continue including the benefits of U.S. tax reform, and will continue our balanced use of cash through the payment of our balanced use of cash through the payment of dividends, reducing total debt and making investments dividends, reducing total debt and making investments for future growth. for future growth. Capital spending for 2018 is targeted at $1.5 billion, or Capital spending for 2018 is targeted at $1.5 billion, or about 111% of depreciation and amortization. about 111% of depreciation and amortization. Legal Legal See Note 11 Commitments and Contingent Liabilities on See Note 11 Commitments and Contingent Liabilities on pages 60 through 63 of Item 8. Financial Statements and pages 60 through 63 of Item 8. Financial Statements and Supplementary Data for a discussion of legal matters. Supplementary Data for a discussion of legal matters. RESULTS OF OPERATIONS RESULTS OF OPERATIONS While the operating results for International Paper’s While the operating results for International Paper’s various business segments are driven by a number of various business segments are driven by a number of business-specific business-specific factors, changes factors, changes in in International International Paper’s operating results are closely tied to changes in Paper’s operating results are closely tied to changes in general economic conditions in North America, Europe, general economic conditions in North America, Europe, Russia, Latin America, India, North Africa and the Middle Russia, Latin America, India, North Africa and the Middle East. Factors that impact the demand for our products East. Factors that impact the demand for our products include include industrial non-durable goods production, industrial non-durable goods production, consumer spending, commercial printing and advertising consumer spending, commercial printing and advertising activity, white-collar employment levels, and movements activity, white-collar employment levels, and movements in currency exchange rates. in currency exchange rates. Product prices are affected by general economic trends, Product prices are affected by general economic trends, inventory levels, currency exchange rate movements and inventory levels, currency exchange rate movements and • • Industrial Packaging’s profits of $1.5 billion were Industrial Packaging’s profits of $1.5 billion were $194 million lower than in 2016 as the benefits of $194 million lower than in 2016 as the benefits of higher average sales price realizations and mix and higher average sales price realizations and mix and higher sales volumes were partially offset by higher higher sales volumes were partially offset by higher operating costs, higher maintenance outage costs, operating costs, higher maintenance outage costs, higher input costs and higher other costs. In higher input costs and higher other costs. In addition, operating profits in 2017 included a charge addition, operating profits in 2017 included a charge of $354 million related to the agreement to settle the of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, Kleen Products anti-trust class action lawsuit, charges of $14 million for the removal of abandoned charges of $14 million for the removal of abandoned property at our mills, a charge of $10 million for the property at our mills, a charge of $10 million for the accelerated amortization of an intangible asset in accelerated amortization of an intangible asset in Brazil and a gain of $6 million for a net bargain Brazil and a gain of $6 million for a net bargain purchase gain associated with the 2016 acquisition purchase gain associated with the 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain. of Holmen Paper's newsprint mill in Madrid, Spain. In 2016, operating profits included a charge of $70 In 2016, operating profits included a charge of $70 million for impairment and other costs associated million for impairment and other costs associated with the sale of our corrugated packaging business with the sale of our corrugated packaging business in Asia and a charge of $7 million related to the in Asia and a charge of $7 million related to the closure of a mill in Turkey. closure of a mill in Turkey. • Global Cellulose Fibers' operating profit of $65 • Global Cellulose Fibers' operating profit of $65 million was $244 million favorable versus 2016 as million was $244 million favorable versus 2016 as the benefits of higher average sales price the benefits of higher average sales price realizations and mix, lower operating costs, lower realizations and mix, lower operating costs, lower maintenance outage costs and lower input costs maintenance outage costs and lower input costs were partially offset by higher other costs. Operating were partially offset by higher other costs. Operating profits in 2017 included $33 million of costs profits in 2017 included $33 million of costs associated with the acquisition and integration of associated with the acquisition and integration of the pulp business acquired in late 2016 from the pulp business acquired in late 2016 from Weyerhaeuser, a charge of $14 million for the Weyerhaeuser, a charge of $14 million for the amortization of the remaining inventory fair value amortization of the remaining inventory fair value adjustment associated with that acquisition and a adjustment associated with that acquisition and a charge of $4 million for the removal of abandoned charge of $4 million for the removal of abandoned property at our mills. Results for 2017 also reflect property at our mills. Results for 2017 also reflect the transaction synergies associated with the the transaction synergies associated with the Weyerhaeuser acquisition. In 2016, the operating Weyerhaeuser acquisition. In 2016, the operating loss included $31 million of costs associated with loss included $31 million of costs associated with the acquisition of the pulp business and $19 million the acquisition of the pulp business and $19 million Business Segment Operating Profit Business Segment Operating Profit $ 2,069 $ 2,102 $ 2,471 $ 2,069 $ 2,102 $ 2,471 Business Segment Operating Profits in 2017 included a Business Segment Operating Profits in 2017 included a net loss from special items of $425 million compared with net loss from special items of $425 million compared with $127 million in 2016 and $137 million in 2015. $127 million in 2016 and $137 million in 2015. Operationally, compared with 2016, the benefits from Operationally, compared with 2016, the benefits from higher average sales price realizations and mix ($605 higher average sales price realizations and mix ($605 million), higher sales volumes ($33 million), lower million), higher sales volumes ($33 million), lower the maintenance outage costs ($55 million) and the maintenance outage costs ($55 million) and incremental operating earnings from the pulp business incremental operating earnings from the pulp business acquired in late 2016 ($117 million) were offset by higher acquired in late 2016 ($117 million) were offset by higher operating costs ($172 million), higher input costs ($362 operating costs ($172 million), higher input costs ($362 million) and higher other costs ($11 million). million) and higher other costs ($11 million). Corporate items includes operating profits (losses) of Corporate items includes operating profits (losses) of previously divested businesses of $0 million in 2017, ($2) previously divested businesses of $0 million in 2017, ($2) million in 2016 and ($62) million in 2015. million in 2016 and ($62) million in 2015. 19 19 20 20 investors to perform meaningful comparisons between investors to perform meaningful comparisons between Packaging segment have been reclassified for segment Packaging segment have been reclassified for segment past and present periods. past and present periods. The Company generated Free Cash Flow of The Company generated Free Cash Flow of approximately $2.0 billion, $1.9 billion and $1.8 billion in approximately $2.0 billion, $1.9 billion and $1.8 billion in 2017, 2016 and 2015, respectively. The following are 2017, 2016 and 2015, respectively. The following are reconciliations of free cash flow to cash provided by reconciliations of free cash flow to cash provided by operations: operations: In millions In millions Cash provided by Cash provided by operations operations Adjustments: Adjustments: 2017 2017 2016 2016 2015 2015 $ $ 1,757 $ 1,757 $ 2,478 $ 2,478 $ 2,580 2,580 Cash invested in capital Cash invested in capital projects projects Cash contribution to Cash contribution to pension plan pension plan Cash payment for Kleen Cash payment for Kleen Settlement Settlement (1,391) (1,391) (1,348) (1,348) (1,487) (1,487) 1,250 1,250 354 354 750 750 — — 750 750 — — Free Cash Flow Free Cash Flow $ $ 1,970 $ 1,970 $ 1,880 $ 1,880 $ 1,843 1,843 reporting for all periods presented. The European reporting for all periods presented. The European Coated Paperboard business is now included in the Coated Paperboard business is now included in the Industrial Packaging segment and sales and earnings Industrial Packaging segment and sales and earnings historically included in the Consumer Packaging historically included in the Consumer Packaging segment associated with previously divested businesses segment associated with previously divested businesses are now included in Corporate items. are now included in Corporate items. The following table presents a reconciliation of net The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to earnings (loss) from continuing operations attributable to International Paper Company to its total Business International Paper Company to its total Business Segment Operating Profit: Segment Operating Profit: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings (Loss) From Continuing Earnings (Loss) From Continuing Operations Attributable to Operations Attributable to International Paper Company International Paper Company Add back (deduct) Add back (deduct) 848 848 572 572 (2) (2) 91 91 76 76 484 484 795 795 520 520 1 1 121 121 55 55 610 610 1,132 1,132 555 555 8 8 96 96 422 422 258 258 $ 2,069 $ 2,102 $ 2,471 $ 2,069 $ 2,102 $ 2,471 $ 1,547 $ 1,741 $ 1,938 $ 1,547 $ 1,741 $ 1,938 65 65 457 457 (179) (179) 540 540 68 68 465 465 In millions In millions Cash provided by Cash provided by operations operations Adjustments: Adjustments: Cash invested in capital Cash invested in capital projects projects Cash contribution to Cash contribution to pension plan pension plan Cash payment for Kleen Cash payment for Kleen Settlement Settlement Three Three Months Months Ended Ended Three Three Months Months Ended Ended Three Three Months Months Ended Ended December December 31, 2017 31, 2017 September September December December 30, 2017 30, 2017 31, 2016 31, 2016 $ $ 1,188 $ 1,188 $ (709) $ (709) $ 912 912 Earnings (Loss) From Continuing Earnings (Loss) From Continuing Operations Before Income Taxes and Operations Before Income Taxes and Equity Earnings Equity Earnings Interest expense, net Interest expense, net Noncontrolling interests/equity earnings Noncontrolling interests/equity earnings included in operations included in operations Corporate special items (income) Corporate special items (income) expense expense Non-operating pension expense Non-operating pension expense (456) (456) (271) (271) (445) (445) Corporate items Corporate items — — — — 1,250 1,250 354 354 — — — — Free Cash Flow Free Cash Flow $ $ 732 $ 732 $ 624 $ 624 $ 467 467 Business Segment Operating Profit Business Segment Operating Profit Results of Operations Results of Operations Business Segment Operating Profits are used by Business Segment Operating Profits are used by International Paper’s management to measure the International Paper’s management to measure the earnings performance of its businesses. Management earnings performance of its businesses. Management Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Business Segment Operating Profit Business Segment Operating Profit $ 2,069 $ 2,102 $ 2,471 $ 2,069 $ 2,102 $ 2,471 believes that this measure allows a better understanding believes that this measure allows a better understanding Business Segment Operating Profits in 2017 included a Business Segment Operating Profits in 2017 included a of trends in costs, operating efficiencies, prices and of trends in costs, operating efficiencies, prices and net loss from special items of $425 million compared with net loss from special items of $425 million compared with volumes. Business Segment Operating Profits are volumes. Business Segment Operating Profits are $127 million in 2016 and $137 million in 2015. $127 million in 2016 and $137 million in 2015. defined as earnings (loss) from continuing operations defined as earnings (loss) from continuing operations Operationally, compared with 2016, the benefits from Operationally, compared with 2016, the benefits from before income taxes and equity earnings, but including before income taxes and equity earnings, but including higher average sales price realizations and mix ($605 higher average sales price realizations and mix ($605 the impact of equity earnings and noncontrolling the impact of equity earnings and noncontrolling million), higher sales volumes ($33 million), lower million), higher sales volumes ($33 million), lower interests, excluding corporate items and corporate interests, excluding corporate items and corporate maintenance outage costs ($55 million) and maintenance outage costs ($55 million) and the the special items. Business Segment Operating Profits are special items. Business Segment Operating Profits are incremental operating earnings from the pulp business incremental operating earnings from the pulp business defined by the Securities and Exchange Commission as defined by the Securities and Exchange Commission as acquired in late 2016 ($117 million) were offset by higher acquired in late 2016 ($117 million) were offset by higher a non-GAAP financial measure, and are not GAAP a non-GAAP financial measure, and are not GAAP operating costs ($172 million), higher input costs ($362 operating costs ($172 million), higher input costs ($362 alternatives to net income or any other operating alternatives to net income or any other operating million) and higher other costs ($11 million). million) and higher other costs ($11 million). measure prescribed by accounting principles generally measure prescribed by accounting principles generally accepted in the United States. accepted in the United States. Corporate items includes operating profits (losses) of Corporate items includes operating profits (losses) of previously divested businesses of $0 million in 2017, ($2) previously divested businesses of $0 million in 2017, ($2) International Paper operates International Paper operates in in three segments: three segments: million in 2016 and ($62) million in 2015. million in 2016 and ($62) million in 2015. Industrial Packaging, Global Cellulose Fibers and Industrial Packaging, Global Cellulose Fibers and Printing Papers. During 2017, as a result of the transfer Printing Papers. During 2017, as a result of the transfer of the North American Coated Paperboard business and of the North American Coated Paperboard business and the associated reclassification of this business to the associated reclassification of this business to Discontinued Operations, the remaining sales and Discontinued Operations, the remaining sales and operating profits previously reported in the Consumer operating profits previously reported in the Consumer 19 19 $ 2,110 $ 802 $ 853 $ 2,110 $ 802 $ 853 The principal changes in operating profit by business The principal changes in operating profit by business segment were as follows: segment were as follows: Income tax provision (benefit) Income tax provision (benefit) (1,085) (1,085) 193 193 417 417 Equity (earnings) loss, net of taxes Equity (earnings) loss, net of taxes (177) (177) (198) (198) (117) (117) Noncontrolling interests, net of taxes Noncontrolling interests, net of taxes — — (2) (2) (21) (21) • • Industrial Packaging’s profits of $1.5 billion were Industrial Packaging’s profits of $1.5 billion were $194 million lower than in 2016 as the benefits of $194 million lower than in 2016 as the benefits of higher average sales price realizations and mix and higher average sales price realizations and mix and higher sales volumes were partially offset by higher higher sales volumes were partially offset by higher operating costs, higher maintenance outage costs, operating costs, higher maintenance outage costs, higher input costs and higher other costs. In higher input costs and higher other costs. In addition, operating profits in 2017 included a charge addition, operating profits in 2017 included a charge of $354 million related to the agreement to settle the of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, Kleen Products anti-trust class action lawsuit, charges of $14 million for the removal of abandoned charges of $14 million for the removal of abandoned property at our mills, a charge of $10 million for the property at our mills, a charge of $10 million for the accelerated amortization of an intangible asset in accelerated amortization of an intangible asset in Brazil and a gain of $6 million for a net bargain Brazil and a gain of $6 million for a net bargain purchase gain associated with the 2016 acquisition purchase gain associated with the 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain. of Holmen Paper's newsprint mill in Madrid, Spain. In 2016, operating profits included a charge of $70 In 2016, operating profits included a charge of $70 million for impairment and other costs associated million for impairment and other costs associated with the sale of our corrugated packaging business with the sale of our corrugated packaging business in Asia and a charge of $7 million related to the in Asia and a charge of $7 million related to the closure of a mill in Turkey. closure of a mill in Turkey. • Global Cellulose Fibers' operating profit of $65 • Global Cellulose Fibers' operating profit of $65 million was $244 million favorable versus 2016 as million was $244 million favorable versus 2016 as the benefits of higher average sales price the benefits of higher average sales price realizations and mix, lower operating costs, lower realizations and mix, lower operating costs, lower maintenance outage costs and lower input costs maintenance outage costs and lower input costs were partially offset by higher other costs. Operating were partially offset by higher other costs. Operating profits in 2017 included $33 million of costs profits in 2017 included $33 million of costs associated with the acquisition and integration of associated with the acquisition and integration of the pulp business acquired in late 2016 from the pulp business acquired in late 2016 from Weyerhaeuser, a charge of $14 million for the Weyerhaeuser, a charge of $14 million for the amortization of the remaining inventory fair value amortization of the remaining inventory fair value adjustment associated with that acquisition and a adjustment associated with that acquisition and a charge of $4 million for the removal of abandoned charge of $4 million for the removal of abandoned property at our mills. Results for 2017 also reflect property at our mills. Results for 2017 also reflect the transaction synergies associated with the the transaction synergies associated with the Weyerhaeuser acquisition. In 2016, the operating Weyerhaeuser acquisition. In 2016, the operating loss included $31 million of costs associated with loss included $31 million of costs associated with the acquisition of the pulp business and $19 million the acquisition of the pulp business and $19 million 20 20 for the amortization of the inventory fair value for the amortization of the inventory fair value adjustment associated with that acquisition. adjustment associated with that acquisition. • Printing Papers’ profits of $457 million represented • Printing Papers’ profits of $457 million represented a $83 million decrease in operating profits from a $83 million decrease in operating profits from 2016. The benefits from higher sales volumes, lower 2016. The benefits from higher sales volumes, lower maintenance outage costs and lower other costs maintenance outage costs and lower other costs were more than offset by lower average sales price were more than offset by lower average sales price realizations and mix, higher operating costs and realizations and mix, higher operating costs and higher input costs. Operating profits in 2017 higher input costs. Operating profits in 2017 included charges of $2 million for the removal of included charges of $2 million for the removal of abandoned property at our mills. abandoned property at our mills. Liquidity and Capital Resources Liquidity and Capital Resources For the year ended December 31, 2017, International For the year ended December 31, 2017, International Paper generated $1.8 billion of cash flow from operations Paper generated $1.8 billion of cash flow from operations compared with $2.5 billion in 2016 and $2.6 billion in compared with $2.5 billion in 2016 and $2.6 billion in 2015. Cash flow from operations included $1.25 billion, 2015. Cash flow from operations included $1.25 billion, $750 million and $750 million of cash pension $750 million and $750 million of cash pension contributions in 2017, 2016 and 2015, respectively. contributions in 2017, 2016 and 2015, respectively. Capital spending for 2017 totaled $1.4 billion, or 98% of Capital spending for 2017 totaled $1.4 billion, or 98% of depreciation and amortization expense. Our liquidity depreciation and amortization expense. Our liquidity position remains strong, supported by approximately position remains strong, supported by approximately $2.1 billion of credit facilities that we believe are adequate $2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt investment-grade credit rating for our long-term debt continues to be an important element in our overall continues to be an important element in our overall financial strategy. financial strategy. We expect strong cash generation again in 2018, We expect strong cash generation again in 2018, including the benefits of U.S. tax reform, and will continue including the benefits of U.S. tax reform, and will continue our balanced use of cash through the payment of our balanced use of cash through the payment of dividends, reducing total debt and making investments dividends, reducing total debt and making investments for future growth. for future growth. Capital spending for 2018 is targeted at $1.5 billion, or Capital spending for 2018 is targeted at $1.5 billion, or about 111% of depreciation and amortization. about 111% of depreciation and amortization. Legal Legal See Note 11 Commitments and Contingent Liabilities on See Note 11 Commitments and Contingent Liabilities on pages 60 through 63 of Item 8. Financial Statements and pages 60 through 63 of Item 8. Financial Statements and Supplementary Data for a discussion of legal matters. Supplementary Data for a discussion of legal matters. RESULTS OF OPERATIONS RESULTS OF OPERATIONS in in While the operating results for International Paper’s While the operating results for International Paper’s various business segments are driven by a number of various business segments are driven by a number of International factors, changes business-specific business-specific International factors, changes Paper’s operating results are closely tied to changes in Paper’s operating results are closely tied to changes in general economic conditions in North America, Europe, general economic conditions in North America, Europe, Russia, Latin America, India, North Africa and the Middle Russia, Latin America, India, North Africa and the Middle East. Factors that impact the demand for our products East. Factors that impact the demand for our products industrial non-durable goods production, include industrial non-durable goods production, include consumer spending, commercial printing and advertising consumer spending, commercial printing and advertising activity, white-collar employment levels, and movements activity, white-collar employment levels, and movements in currency exchange rates. in currency exchange rates. Product prices are affected by general economic trends, Product prices are affected by general economic trends, inventory levels, currency exchange rate movements and inventory levels, currency exchange rate movements and worldwide capacity utilization. In addition to these worldwide capacity utilization. In addition to these revenue-related factors, net earnings are impacted by revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include various cost drivers, the more significant of which include changes in raw material costs, principally wood, recycled changes in raw material costs, principally wood, recycled fiber and chemical costs; energy costs; freight costs; fiber and chemical costs; energy costs; freight costs; salary and benefits costs, including pensions; and salary and benefits costs, including pensions; and manufacturing conversion costs. manufacturing conversion costs. The following is a discussion of International Paper’s The following is a discussion of International Paper’s results of operations for the year ended December 31, results of operations for the year ended December 31, 2017, and the major factors affecting these results 2017, and the major factors affecting these results compared to 2016 and 2015. compared to 2016 and 2015. For the year ended December 31, 2017, International For the year ended December 31, 2017, International Paper reported net sales of $21.7 billion, compared with Paper reported net sales of $21.7 billion, compared with $19.5 billion in 2016 and $20.7 billion in 2015. $19.5 billion in 2016 and $20.7 billion in 2015. International net sales (including U.S. exports) totaled International net sales (including U.S. exports) totaled $8.4 billion or 39% of total sales in 2017. This compares $8.4 billion or 39% of total sales in 2017. This compares with international net sales of $6.9 billion in 2016 and $7.6 with international net sales of $6.9 billion in 2016 and $7.6 billion in 2015. billion in 2015. Full year 2017 net earnings attributable to International Full year 2017 net earnings attributable to International Paper Company totaled $2.1 billion ($5.13 per diluted Paper Company totaled $2.1 billion ($5.13 per diluted share), compared with net earnings of $904 million ($2.18 share), compared with net earnings of $904 million ($2.18 per diluted share) in 2016 and $938 million ($2.23 per per diluted share) in 2016 and $938 million ($2.23 per diluted share) in 2015. Amounts in all periods include the diluted share) in 2015. Amounts in all periods include the results of discontinued operations. results of discontinued operations. Earnings from continuing operations attributable to Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 2016 International Paper Company after taxes in 2017, 2016 and 2015 were as follows: and 2015 were as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings from continuing Earnings from continuing operations attributable to operations attributable to International Paper International Paper Company Company $ 2,110 (a) $ 802 (b) $ 853 (c) $ 2,110 (a) $ 802 (b) $ 853 (c) (a) Includes $952 million of net special items income which included (a) Includes $952 million of net special items income which included a provisional net tax benefit of $1.2 billion related to the enactment a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cut and Jobs Act and $298 million of non-operating of the Tax Cut and Jobs Act and $298 million of non-operating pension expense which included a pre-tax charge of $376 million pension expense which included a pre-tax charge of $376 million ($232 million after taxes) for a settlement accounting charge ($232 million after taxes) for a settlement accounting charge associated with an annuity purchase and transfer of pension associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees. obligations for approximately 45,000 retirees. (b) Includes $108 million of net special items charges and $375 million (b) Includes $108 million of net special items charges and $375 million of non-operating pension expense which included a pre-tax of non-operating pension expense which included a pre-tax charge of $439 million ($270 million after taxes) for a settlement charge of $439 million ($270 million after taxes) for a settlement accounting charge associated with payments under a term- accounting charge associated with payments under a term- vested lump sum buyout. vested lump sum buyout. (c) Includes $439 million of net special items charges and $157 million (c) Includes $439 million of net special items charges and $157 million of non-operating pension expense. of non-operating pension expense. Compared with 2016, the benefits from higher sales Compared with 2016, the benefits from higher sales volumes, higher average sales price realizations and mix, volumes, higher average sales price realizations and mix, lower maintenance outage costs, incremental earnings lower maintenance outage costs, incremental earnings from the acquisition of Weyerhaeuser's pulp business, from the acquisition of Weyerhaeuser's pulp business, lower other costs, and lower tax expense were partially lower other costs, and lower tax expense were partially offset by higher operating costs, higher input costs and offset by higher operating costs, higher input costs and higher net interest expense. In addition, 2017 results higher net interest expense. In addition, 2017 results included lower equity earnings, net of taxes, relating to included lower equity earnings, net of taxes, relating to the Company’s investment in Ilim Holding, SA. the Company’s investment in Ilim Holding, SA. Income Taxes Income Taxes Special Items Special Items A net income tax benefit of $1.1 billion was recorded for A net income tax benefit of $1.1 billion was recorded for Restructuring and Other Charges Restructuring and Other Charges 2017, including a provisional net tax benefit of $1.2 billion 2017, including a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, related to the enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million international tax law change, tax expenses of $34 million related to international investment restructuring and a tax related to international investment restructuring and a tax expense of $38 million associated with a cash pension expense of $38 million associated with a cash pension contribution. Excluding these items, a $194 million net tax contribution. Excluding these items, a $194 million net tax benefit for other special items and a $186 million tax benefit for other special items and a $186 million tax benefit related to non-operating pension expense, the tax benefit related to non-operating pension expense, the tax provision was $549 million, or 30% of pre-tax earnings provision was $549 million, or 30% of pre-tax earnings before equity earnings. before equity earnings. International Paper continually evaluates its operations International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to expected recovery of the carrying value of the facility to A net income tax provision of $193 million was recorded A net income tax provision of $193 million was recorded determine if an impairment of the assets have occurred. determine if an impairment of the assets have occurred. for 2016 including tax benefits of $63 million related to for 2016 including tax benefits of $63 million related to In recent years, this policy has led to the shutdown of a In recent years, this policy has led to the shutdown of a legal entity restructurings, a tax expense of $31 million legal entity restructurings, a tax expense of $31 million number of facilities and the recording of significant asset number of facilities and the recording of significant asset associated with a tax rate change in Luxembourg, a tax associated with a tax rate change in Luxembourg, a tax impairment charges and severance costs. It is possible impairment charges and severance costs. It is possible expense of $23 million associated with a $750 million cash expense of $23 million associated with a $750 million cash that additional charges and costs will be incurred in future that additional charges and costs will be incurred in future pension contribution, and a tax benefit of $14 million pension contribution, and a tax benefit of $14 million periods in our core businesses should such triggering periods in our core businesses should such triggering related to the closure of a federal tax audit. Excluding related to the closure of a federal tax audit. Excluding events occur. events occur. these items, a $51 million tax benefit for other special these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non- items and a $235 million tax benefit related to non- operating pension expense, the tax provision was $502 operating pension expense, the tax provision was $502 million, or 32% of pre-tax earnings before equity earnings. million, or 32% of pre-tax earnings before equity earnings. A net income tax provision of $417 million was recorded A net income tax provision of $417 million was recorded for 2015 including a tax benefit of $62 million related to for 2015 including a tax benefit of $62 million related to internal restructurings, a tax expense of $23 million for internal restructurings, a tax expense of $23 million for the tax impact of a cash pension contribution of $750 the tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items. million and a $2 million tax expense for other items. Excluding these items, an $83 million net tax benefit for Excluding these items, an $83 million net tax benefit for During 2017, 2016 and 2015, pre-tax restructuring and During 2017, 2016 and 2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 other charges totaling $67 million, $54 million and $252 million were recorded. Details of these charges are as million were recorded. Details of these charges are as follows: follows: Restructuring and Other Restructuring and Other Business Segments Business Segments In millions In millions 2017 2017 2016 2016 2015 2015 Turkey mill closure Turkey mill closure $ — $ — $ $ 7 (a) $ — 7 (a) $ — — — 7 7 — — other special items and a $101 million tax benefit related other special items and a $101 million tax benefit related Corporate Corporate to non-operating pension expense, the tax provision was to non-operating pension expense, the tax provision was $638 million, or 33% of pre-tax earnings before equity $638 million, or 33% of pre-tax earnings before equity Early debt extinguishment Early debt extinguishment costs (see Note 13) costs (see Note 13) $ $ 83 83 $ $ 29 29 $ 207 $ 207 earnings. earnings. Equity Earnings, Net of Taxes Equity Earnings, Net of Taxes Equity earnings, net of taxes in 2017, 2016 and 2015 Equity earnings, net of taxes in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia from its 50% investment in Ilim Holding S.A. in Russia (see page 27). (see page 27). Interest Expense and Noncontrolling Interest Interest Expense and Noncontrolling Interest Net corporate interest expense totaled $572 million in Net corporate interest expense totaled $572 million in 2017, $520 million in 2016 and $555 million in 2015. Net 2017, $520 million in 2016 and $555 million in 2015. Net interest expense in 2017 includes $5 million of interest interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The income associated with income tax refund claims. The average outstanding debt. The decrease in 2016 average outstanding debt. The decrease in 2016 compared with 2015 reflects lower average interest rates. compared with 2015 reflects lower average interest rates. There were no net earnings attributable to noncontrolling There were no net earnings attributable to noncontrolling interests in 2017, compared with a loss of $2 million in interests in 2017, compared with a loss of $2 million in 2016 and a loss of $21 million in 2015. The decrease 2016 and a loss of $21 million in 2015. The decrease from 2015 reflects the sale of our equity share of the IP- from 2015 reflects the sale of our equity share of the IP- Sun JV in 2015. Sun JV in 2015. Gain on sale of investment Gain on sale of investment in ArborGen in ArborGen (14) (14) India Packaging business India Packaging business evaluation write-off evaluation write-off Gain on sale of investment Gain on sale of investment in Arizona Chemical in Arizona Chemical Riegelwood mill conversion Riegelwood mill conversion costs net of proceeds from costs net of proceeds from the sale of Carolina Coated the sale of Carolina Coated Bristols brand Bristols brand Timber monetization Timber monetization restructuring restructuring Legal liability reserve Legal liability reserve adjustment adjustment Other Items Other Items — — — — — — — — — — (2) (2) 67 67 67 67 — — 17 17 (8) (8) 9 9 — — — — — — 47 47 54 54 — — — — — — 8 8 16 16 15 15 6 6 252 252 $ 252 $ 252 (a) Recorded in the Industrial Packaging business segment. (a) Recorded in the Industrial Packaging business segment. increase in 2017 compared with 2016 is due to higher increase in 2017 compared with 2016 is due to higher Total Total $ $ $ $ See Business Segment Results on pages 24 through 27 See Business Segment Results on pages 24 through 27 for a discussion of the impact of these factors by segment. for a discussion of the impact of these factors by segment. Discontinued Operations Discontinued Operations 2017: 2017: On January 1, 2018, the Company completed the transfer On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, of its North American Consumer Packaging business, which includes its North American Coated Paperboard which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. International Paper International Paper Packaging Holding Company. received a 20.5% ownership interest in a subsidiary of received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the Graphic Packaging Holding Company that holds the assets of the combined business. As a result of this assets of the combined business. As a result of this transfer, all current and prior year amounts have been transfer, all current and prior year amounts have been adjusted to reflect the North American Consumer adjusted to reflect the North American Consumer Packaging business as a discontinued operation. See Packaging business as a discontinued operation. See Note 7 on pages 53 through 55 of Item 8. Financial Note 7 on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data further further Statements and Supplementary Data discussion. discussion. for for Included in discontinued operations were the operating Included in discontinued operations were the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging business, an after-tax charge of $10 million for costs business, an after-tax charge of $10 million for costs associated with the transfer and an after-tax charge of associated with the transfer and an after-tax charge of $28 million for non-operating pension expenses related $28 million for non-operating pension expenses related to curtailment charges and termination benefits in to curtailment charges and termination benefits in connection with this same transaction. connection with this same transaction. 2016: 2016: In 2016, discontinued operations included the operating In 2016, discontinued operations included the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging business and an after-tax charge of $5 million expense business and an after-tax charge of $5 million expense associated with a legal settlement related to the xpedx associated with a legal settlement related to the xpedx business. business. 2015: 2015: In 2015, discontinued operations included the operating In 2015, discontinued operations included the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging business. business. 21 21 22 22 worldwide capacity utilization. In addition to these worldwide capacity utilization. In addition to these included lower equity earnings, net of taxes, relating to included lower equity earnings, net of taxes, relating to Income Taxes Income Taxes Special Items Special Items revenue-related factors, net earnings are impacted by revenue-related factors, net earnings are impacted by the Company’s investment in Ilim Holding, SA. the Company’s investment in Ilim Holding, SA. various cost drivers, the more significant of which include various cost drivers, the more significant of which include changes in raw material costs, principally wood, recycled changes in raw material costs, principally wood, recycled fiber and chemical costs; energy costs; freight costs; fiber and chemical costs; energy costs; freight costs; salary and benefits costs, including pensions; and salary and benefits costs, including pensions; and manufacturing conversion costs. manufacturing conversion costs. The following is a discussion of International Paper’s The following is a discussion of International Paper’s results of operations for the year ended December 31, results of operations for the year ended December 31, 2017, and the major factors affecting these results 2017, and the major factors affecting these results compared to 2016 and 2015. compared to 2016 and 2015. For the year ended December 31, 2017, International For the year ended December 31, 2017, International Paper reported net sales of $21.7 billion, compared with Paper reported net sales of $21.7 billion, compared with $19.5 billion in 2016 and $20.7 billion in 2015. $19.5 billion in 2016 and $20.7 billion in 2015. International net sales (including U.S. exports) totaled International net sales (including U.S. exports) totaled $8.4 billion or 39% of total sales in 2017. This compares $8.4 billion or 39% of total sales in 2017. This compares with international net sales of $6.9 billion in 2016 and $7.6 with international net sales of $6.9 billion in 2016 and $7.6 billion in 2015. billion in 2015. Full year 2017 net earnings attributable to International Full year 2017 net earnings attributable to International Paper Company totaled $2.1 billion ($5.13 per diluted Paper Company totaled $2.1 billion ($5.13 per diluted share), compared with net earnings of $904 million ($2.18 share), compared with net earnings of $904 million ($2.18 per diluted share) in 2016 and $938 million ($2.23 per per diluted share) in 2016 and $938 million ($2.23 per diluted share) in 2015. Amounts in all periods include the diluted share) in 2015. Amounts in all periods include the results of discontinued operations. results of discontinued operations. Earnings from continuing operations attributable to Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 2016 International Paper Company after taxes in 2017, 2016 and 2015 were as follows: and 2015 were as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings from continuing Earnings from continuing operations attributable to operations attributable to International Paper International Paper Company Company $ 2,110 (a) $ 802 (b) $ 853 (c) $ 2,110 (a) $ 802 (b) $ 853 (c) (a) Includes $952 million of net special items income which included (a) Includes $952 million of net special items income which included a provisional net tax benefit of $1.2 billion related to the enactment a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cut and Jobs Act and $298 million of non-operating of the Tax Cut and Jobs Act and $298 million of non-operating pension expense which included a pre-tax charge of $376 million pension expense which included a pre-tax charge of $376 million ($232 million after taxes) for a settlement accounting charge ($232 million after taxes) for a settlement accounting charge associated with an annuity purchase and transfer of pension associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees. obligations for approximately 45,000 retirees. of non-operating pension expense which included a pre-tax of non-operating pension expense which included a pre-tax charge of $439 million ($270 million after taxes) for a settlement charge of $439 million ($270 million after taxes) for a settlement accounting charge associated with payments under a term- accounting charge associated with payments under a term- vested lump sum buyout. vested lump sum buyout. (c) Includes $439 million of net special items charges and $157 million (c) Includes $439 million of net special items charges and $157 million of non-operating pension expense. of non-operating pension expense. Compared with 2016, the benefits from higher sales Compared with 2016, the benefits from higher sales volumes, higher average sales price realizations and mix, volumes, higher average sales price realizations and mix, lower maintenance outage costs, incremental earnings lower maintenance outage costs, incremental earnings from the acquisition of Weyerhaeuser's pulp business, from the acquisition of Weyerhaeuser's pulp business, lower other costs, and lower tax expense were partially lower other costs, and lower tax expense were partially (b) Includes $108 million of net special items charges and $375 million (b) Includes $108 million of net special items charges and $375 million 2016: 2016: offset by higher operating costs, higher input costs and offset by higher operating costs, higher input costs and business. business. higher net interest expense. In addition, 2017 results higher net interest expense. In addition, 2017 results See Business Segment Results on pages 24 through 27 See Business Segment Results on pages 24 through 27 for a discussion of the impact of these factors by segment. for a discussion of the impact of these factors by segment. Discontinued Operations Discontinued Operations 2017: 2017: On January 1, 2018, the Company completed the transfer On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, of its North American Consumer Packaging business, which includes its North American Coated Paperboard which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. Packaging Holding Company. International Paper International Paper received a 20.5% ownership interest in a subsidiary of received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the Graphic Packaging Holding Company that holds the assets of the combined business. As a result of this assets of the combined business. As a result of this transfer, all current and prior year amounts have been transfer, all current and prior year amounts have been adjusted to reflect the North American Consumer adjusted to reflect the North American Consumer Packaging business as a discontinued operation. See Packaging business as a discontinued operation. See Note 7 on pages 53 through 55 of Item 8. Financial Note 7 on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data Statements and Supplementary Data for for further further discussion. discussion. Included in discontinued operations were the operating Included in discontinued operations were the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging business, an after-tax charge of $10 million for costs business, an after-tax charge of $10 million for costs associated with the transfer and an after-tax charge of associated with the transfer and an after-tax charge of $28 million for non-operating pension expenses related $28 million for non-operating pension expenses related to curtailment charges and termination benefits in to curtailment charges and termination benefits in connection with this same transaction. connection with this same transaction. In 2016, discontinued operations included the operating In 2016, discontinued operations included the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging business and an after-tax charge of $5 million expense business and an after-tax charge of $5 million expense associated with a legal settlement related to the xpedx associated with a legal settlement related to the xpedx business. business. 2015: 2015: In 2015, discontinued operations included the operating In 2015, discontinued operations included the operating earnings of the North American Consumer Packaging earnings of the North American Consumer Packaging A net income tax benefit of $1.1 billion was recorded for A net income tax benefit of $1.1 billion was recorded for 2017, including a provisional net tax benefit of $1.2 billion 2017, including a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, related to the enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million international tax law change, tax expenses of $34 million related to international investment restructuring and a tax related to international investment restructuring and a tax expense of $38 million associated with a cash pension expense of $38 million associated with a cash pension contribution. Excluding these items, a $194 million net tax contribution. Excluding these items, a $194 million net tax benefit for other special items and a $186 million tax benefit for other special items and a $186 million tax benefit related to non-operating pension expense, the tax benefit related to non-operating pension expense, the tax provision was $549 million, or 30% of pre-tax earnings provision was $549 million, or 30% of pre-tax earnings before equity earnings. before equity earnings. A net income tax provision of $193 million was recorded A net income tax provision of $193 million was recorded for 2016 including tax benefits of $63 million related to for 2016 including tax benefits of $63 million related to legal entity restructurings, a tax expense of $31 million legal entity restructurings, a tax expense of $31 million associated with a tax rate change in Luxembourg, a tax associated with a tax rate change in Luxembourg, a tax expense of $23 million associated with a $750 million cash expense of $23 million associated with a $750 million cash pension contribution, and a tax benefit of $14 million pension contribution, and a tax benefit of $14 million related to the closure of a federal tax audit. Excluding related to the closure of a federal tax audit. Excluding these items, a $51 million tax benefit for other special these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non- items and a $235 million tax benefit related to non- operating pension expense, the tax provision was $502 operating pension expense, the tax provision was $502 million, or 32% of pre-tax earnings before equity earnings. million, or 32% of pre-tax earnings before equity earnings. A net income tax provision of $417 million was recorded A net income tax provision of $417 million was recorded for 2015 including a tax benefit of $62 million related to for 2015 including a tax benefit of $62 million related to internal restructurings, a tax expense of $23 million for internal restructurings, a tax expense of $23 million for the tax impact of a cash pension contribution of $750 the tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items. million and a $2 million tax expense for other items. Excluding these items, an $83 million net tax benefit for Excluding these items, an $83 million net tax benefit for other special items and a $101 million tax benefit related other special items and a $101 million tax benefit related to non-operating pension expense, the tax provision was to non-operating pension expense, the tax provision was $638 million, or 33% of pre-tax earnings before equity $638 million, or 33% of pre-tax earnings before equity earnings. earnings. Equity Earnings, Net of Taxes Equity Earnings, Net of Taxes Equity earnings, net of taxes in 2017, 2016 and 2015 Equity earnings, net of taxes in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia from its 50% investment in Ilim Holding S.A. in Russia (see page 27). (see page 27). Interest Expense and Noncontrolling Interest Interest Expense and Noncontrolling Interest Net corporate interest expense totaled $572 million in Net corporate interest expense totaled $572 million in 2017, $520 million in 2016 and $555 million in 2015. Net 2017, $520 million in 2016 and $555 million in 2015. Net interest expense in 2017 includes $5 million of interest interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The income associated with income tax refund claims. The increase in 2017 compared with 2016 is due to higher increase in 2017 compared with 2016 is due to higher average outstanding debt. The decrease in 2016 average outstanding debt. The decrease in 2016 compared with 2015 reflects lower average interest rates. compared with 2015 reflects lower average interest rates. There were no net earnings attributable to noncontrolling There were no net earnings attributable to noncontrolling interests in 2017, compared with a loss of $2 million in interests in 2017, compared with a loss of $2 million in 2016 and a loss of $21 million in 2015. The decrease 2016 and a loss of $21 million in 2015. The decrease from 2015 reflects the sale of our equity share of the IP- from 2015 reflects the sale of our equity share of the IP- Sun JV in 2015. Sun JV in 2015. Restructuring and Other Charges Restructuring and Other Charges International Paper continually evaluates its operations International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to expected recovery of the carrying value of the facility to determine if an impairment of the assets have occurred. determine if an impairment of the assets have occurred. In recent years, this policy has led to the shutdown of a In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset number of facilities and the recording of significant asset impairment charges and severance costs. It is possible impairment charges and severance costs. It is possible that additional charges and costs will be incurred in future that additional charges and costs will be incurred in future periods in our core businesses should such triggering periods in our core businesses should such triggering events occur. events occur. During 2017, 2016 and 2015, pre-tax restructuring and During 2017, 2016 and 2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 other charges totaling $67 million, $54 million and $252 million were recorded. Details of these charges are as million were recorded. Details of these charges are as follows: follows: Restructuring and Other Restructuring and Other In millions In millions 2017 2017 2016 2016 2015 2015 Business Segments Business Segments Turkey mill closure Turkey mill closure $ — $ — $ $ 7 (a) $ — 7 (a) $ — — — 7 7 — — Corporate Corporate Early debt extinguishment Early debt extinguishment costs (see Note 13) costs (see Note 13) $ $ 83 83 $ $ 29 29 $ 207 $ 207 Gain on sale of investment Gain on sale of investment in ArborGen in ArborGen (14) (14) India Packaging business India Packaging business evaluation write-off evaluation write-off Gain on sale of investment Gain on sale of investment in Arizona Chemical in Arizona Chemical Riegelwood mill conversion Riegelwood mill conversion costs net of proceeds from costs net of proceeds from the sale of Carolina Coated the sale of Carolina Coated Bristols brand Bristols brand Timber monetization Timber monetization restructuring restructuring Legal liability reserve Legal liability reserve adjustment adjustment Other Items Other Items Total Total $ $ — — — — — — — — — — (2) (2) 67 67 67 67 — — 17 17 (8) (8) 9 9 — — — — — — 47 47 54 54 $ $ — — — — — — 8 8 16 16 15 15 6 6 252 252 $ 252 $ 252 (a) Recorded in the Industrial Packaging business segment. (a) Recorded in the Industrial Packaging business segment. 21 21 22 22 Other Corporate Special Items Other Corporate Special Items In addition, other corporate special items totaling $0 In addition, other corporate special items totaling $0 million, $8 million and $(4) million were recorded in 2017, million, $8 million and $(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges 2016 and 2015, respectively. Details of these charges were as follows: were as follows: Other Corporate Items Other Corporate Items In millions In millions Write-off of certain regulatory pre- Write-off of certain regulatory pre- engineering costs engineering costs Other Other Total Total Impairments of Goodwill Impairments of Goodwill 2017 2017 2016 2016 2015 2015 $ — $ $ — $ 8 $ — 8 $ — — — — — $ — $ $ — $ 8 $ 8 $ (4) (4) (4) (4) one one include include recycled recycled operations operations white paper through our 18 recycling plants. In EMEA, white paper through our 18 recycling plants. In EMEA, our fiber our fiber containerboard mill in Morocco and 27 container plants containerboard mill in Morocco and 27 container plants in France, Italy, Spain, Morocco and Turkey. During in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we 2016, we acquired a newsprint mill in Spain which we are in the process of converting to a recycled are in the process of converting to a recycled containerboard mill. In Brazil our operations include containerboard mill. In Brazil our operations include three containerboard mills and four box plants. Our three containerboard mills and four box plants. Our container plants are supported by regional design container plants are supported by regional design centers, which offer total packaging solutions and supply centers, which offer total packaging solutions and supply chain initiatives. chain initiatives. International Paper also produces high quality coated International Paper also produces high quality coated paperboard for a variety of packaging end uses with paperboard for a variety of packaging end uses with 431,000 tons of capacity at our mills in Poland and 431,000 tons of capacity at our mills in Poland and Russia. Russia. No goodwill impairment charges were recorded in 2017 No goodwill impairment charges were recorded in 2017 or 2016. or 2016. Global Cellulose Fibers Global Cellulose Fibers In the fourth quarter of 2015, in conjunction with the annual In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair impairments, the Company calculated the estimated fair value of its Brazil Packaging business and determined value of its Brazil Packaging business and determined that all of the goodwill in the business, totaling $137 that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the of the business caused by the continued decline of the overall Brazilian economy. overall Brazilian economy. Net Losses on Sales and Impairments of Businesses Net Losses on Sales and Impairments of Businesses Net losses on sales and impairments of businesses Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre- in 2017, a pre-tax loss of $70 million in 2016 and a pre- tax loss of $174 million in 2015. See Note 7 Divestitures tax loss of $174 million in 2015. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion. and Supplementary Data) for further discussion. DESCRIPTION OF BUSINESS SEGMENTS DESCRIPTION OF BUSINESS SEGMENTS International Paper’s business segments discussed International Paper’s business segments discussed below are consistent with the internal structure used to below are consistent with the internal structure used to manage these businesses. All segments are manage these businesses. All segments are differentiated on a common product, common customer differentiated on a common product, common customer basis consistent with the business segmentation basis consistent with the business segmentation generally used in the forest products industry. generally used in the forest products industry. Industrial Packaging Industrial Packaging in in International Paper is the largest manufacturer of International Paper is the largest manufacturer of containerboard the United States. Our U.S. containerboard the United States. Our U.S. production capacity is over 13 million tons annually. Our production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into 80% of our production is converted domestically into corrugated boxes and other packaging by our 178 North corrugated boxes and other packaging by our 178 North American container plants. Additionally, we recycle American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and approximately one million tons of OCC and mixed and Our cellulose fibers product portfolio includes fluff, Our cellulose fibers product portfolio includes fluff, market and specialty pulps. Our fluff pulp is used to make market and specialty pulps. Our fluff pulp is used to make absorbent hygiene products like baby diapers, feminine absorbent hygiene products like baby diapers, feminine care, adult incontinence and other non-woven products, care, adult incontinence and other non-woven products, and our market pulp is used for tissue and paper and our market pulp is used for tissue and paper products. We continue to invest in exploring new products. We continue to invest in exploring new innovative uses for our products, such as our specialty innovative uses for our products, such as our specialty pulps, which are used for non-absorbent end uses pulps, which are used for non-absorbent end uses including textiles, filtration, construction material, paints including textiles, filtration, construction material, paints and coatings, reinforced plastics and more. Our and coatings, reinforced plastics and more. Our products are made in the United States, Canada, products are made in the United States, Canada, France, Poland, and Russia and are sold around the France, Poland, and Russia and are sold around the world. International Paper facilities have annual dried world. International Paper facilities have annual dried pulp capacity of about 4 million metric tonnes. pulp capacity of about 4 million metric tonnes. Printing Papers Printing Papers International Paper is one of the world’s largest International Paper is one of the world’s largest producers of printing and writing papers. The primary producers of printing and writing papers. The primary product in this segment is uncoated papers. This product in this segment is uncoated papers. This business produces papers for use in copiers, desktop business produces papers for use in copiers, desktop and laser printers and digital imaging. End use and laser printers and digital imaging. End use applications include advertising and promotional applications include advertising and promotional materials such as brochures, pamphlets, greeting cards, materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. Uncoated papers books, annual reports and direct mail. Uncoated papers also produces a variety of grades that are converted by also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms our customers into envelopes, tablets, business forms and file folders. Uncoated papers are sold under private and file folders. Uncoated papers are sold under private label and International Paper brand names that include label and International Paper brand names that include Hammermill, Springhill, Williamsburg, Postmark, Hammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet, Rey, Pol, and Accent, Great White, Chamex, Ballet, Rey, Pol, and Svetocopy. The mills producing uncoated papers are Svetocopy. The mills producing uncoated papers are located in the United States, France, Poland, Russia, located in the United States, France, Poland, Russia, Brazil and India. The mills have uncoated paper Brazil and India. The mills have uncoated paper production capacity of over 4 million tons annually. production capacity of over 4 million tons annually. Brazilian operations function through International Brazilian operations function through International Paper do Brasil, Ltda, which owns or manages Paper do Brasil, Ltda, which owns or manages approximately 329,000 acres of forestlands in Brazil. approximately 329,000 acres of forestlands in Brazil. 23 23 24 24 Ilim Holding S.A. Ilim Holding S.A. In October 2007, International Paper and Ilim Holding In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust- facilities include three paper mills located in Bratsk, Ust- Ilimsk, and Koryazhma, Russia, with combined total pulp Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.4 million metric tons. Ilim and paper capacity of over 3.4 million metric tons. Ilim has exclusive harvesting rights on timberland and forest has exclusive harvesting rights on timberland and forest areas exceeding 16.4 million acres areas exceeding 16.4 million acres (6.6 million (6.6 million hectares). hectares). Products and brand designations appearing in italics are Products and brand designations appearing in italics are trademarks of International Paper or a related company. trademarks of International Paper or a related company. BUSINESS SEGMENT RESULTS BUSINESS SEGMENT RESULTS The following tables present net sales and operating The following tables present net sales and operating profit (loss) which is the Company's measure of segment profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items profitability. The tables include a detail of special items in each year, where applicable, in order to show operating in each year, where applicable, in order to show operating profit before special items. profit before special items. Industrial Packaging Industrial Packaging Demand for Industrial Packaging products is closely Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, correlated with non-durable industrial goods production, as well as with demand for processed foods, poultry, meat as well as with demand for processed foods, poultry, meat and agricultural products. In addition to prices and and agricultural products. In addition to prices and volumes, major factors affecting the profitability of volumes, major factors affecting the profitability of Industrial Packaging are raw material and energy costs, Industrial Packaging are raw material and energy costs, freight costs, manufacturing efficiency and product mix. freight costs, manufacturing efficiency and product mix. Industrial Packaging Industrial Packaging In millions In millions Net Sales Net Sales 2017 2017 2016 2016 2015 2015 $ 15,077 $ 14,226 $ 14,559 $ 15,077 $ 14,226 $ 14,559 Operating Profit (Loss) Operating Profit (Loss) $ $ 1,547 $ 1,741 $ 1,938 1,547 $ 1,741 $ 1,938 Asia Packaging restructuring Asia Packaging restructuring and impairment and impairment Holmen mill bargain purchase Holmen mill bargain purchase gain gain Kleen Products anti-trust Kleen Products anti-trust settlement settlement Brazil Packaging Wood Supply Brazil Packaging Wood Supply Accelerated Amortization Accelerated Amortization Turkey mill closure Turkey mill closure Brazil Packaging goodwill and Brazil Packaging goodwill and trade name impairment trade name impairment Other Other Items Items Operating Profit Before Special Operating Profit Before Special — — (6) (6) 354 354 10 10 — — — — 14 14 70 70 — — — — — — 7 7 — — — — — — — — — — — — — — 137 137 — — $ $ 1,919 $ 1,818 $ 2,075 1,919 $ 1,818 $ 2,075 Industrial Packaging net sales for 2017 increased 6% to Industrial Packaging net sales for 2017 increased 6% to $15.1 billion compared with $14.2 billion in 2016, and 4% $15.1 billion compared with $14.2 billion in 2016, and 4% compared with $14.6 billion in 2015. Operating profits in compared with $14.6 billion in 2015. Operating profits in 2017 were 11% lower than in 2016 and 20% lower than 2017 were 11% lower than in 2016 and 20% lower than in 2015. Comparing 2017 with 2016, benefits from higher in 2015. Comparing 2017 with 2016, benefits from higher average sales price realizations and mix ($593 million) average sales price realizations and mix ($593 million) and higher sales volumes ($75 million) were offset by and higher sales volumes ($75 million) were offset by higher operating higher operating costs costs ($245 million), higher ($245 million), higher maintenance outage costs ($1 million), higher input costs maintenance outage costs ($1 million), higher input costs ($304 million) and higher other costs ($17 million). ($304 million) and higher other costs ($17 million). North American Industrial Packaging North American Industrial Packaging In millions In millions Net Sales (a) Net Sales (a) 2017 2017 2016 2016 2015 2015 $ 13,329 $ 12,450 $ 12,618 $ 13,329 $ 12,450 $ 12,618 Operating Profit (Loss) Operating Profit (Loss) $ $ 1,504 $ 1,757 $ 2,009 1,504 $ 1,757 $ 2,009 Kleen Products anti-trust Kleen Products anti-trust settlement settlement Other Other 354 354 14 14 — — — — — — — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 1,872 $ 1,757 $ 2,009 1,872 $ 1,757 $ 2,009 (a) Includes intra-segment sales of $172 million for 2017 and (a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016. $143 million for 2016. North American North American Industrial Packaging's sales volumes Industrial Packaging's sales volumes increased in 2017 compared with 2016 reflecting higher increased in 2017 compared with 2016 reflecting higher box shipments and higher shipments of containerboard box shipments and higher shipments of containerboard to export markets. In 2017, the business took about to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were were economic downtime and 381,000 were maintenance downtime. The business maintenance downtime. The business took about took about 914,000 tons of total downtime in 2016 of which 445,000 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were were economic downtime and 469,000 were maintenance downtime. Average sales prices for boxes maintenance downtime. Average sales prices for boxes and average sales price realizations for containerboard and average sales price realizations for containerboard in export markets were significantly higher. Input costs in export markets were significantly higher. Input costs were significantly higher, primarily for recycled fiber, but were significantly higher, primarily for recycled fiber, but also for energy, chemicals and freight, while wood costs also for energy, chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were were lower. Planned maintenance downtime costs were $5 million higher in 2017 than in 2016. $5 million higher in 2017 than in 2016. Looking ahead to the first quarter of 2018, compared with Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes for boxes are the fourth quarter of 2017, sales volumes for boxes are expected to be seasonally lower despite two more expected to be seasonally lower despite two more shipping days. Shipments of containerboard to export shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales markets are also expected to decrease. Average sales price realizations should reflect the continuing realization price realizations should reflect the continuing realization of containerboard export price increases. Input costs are of containerboard export price increases. Input costs are expected to be higher for wood, energy and chemicals. expected to be higher for wood, energy and chemicals. Planned maintenance downtime spending is expected to Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather to be negatively impacted by the severe winter weather conditions in the 2018 first quarter. conditions in the 2018 first quarter. $ — $ $ — $ 8 $ — 8 $ — chain initiatives. chain initiatives. 2017 2017 2016 2016 2015 2015 — — — — $ — $ $ — $ 8 $ 8 $ (4) (4) (4) (4) Other Corporate Special Items Other Corporate Special Items In addition, other corporate special items totaling $0 In addition, other corporate special items totaling $0 million, $8 million and $(4) million were recorded in 2017, million, $8 million and $(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges 2016 and 2015, respectively. Details of these charges were as follows: were as follows: Other Corporate Items Other Corporate Items In millions In millions Write-off of certain regulatory pre- Write-off of certain regulatory pre- engineering costs engineering costs Other Other Total Total or 2016. or 2016. Impairments of Goodwill Impairments of Goodwill No goodwill impairment charges were recorded in 2017 No goodwill impairment charges were recorded in 2017 In the fourth quarter of 2015, in conjunction with the annual In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair impairments, the Company calculated the estimated fair value of its Brazil Packaging business and determined value of its Brazil Packaging business and determined that all of the goodwill in the business, totaling $137 that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the of the business caused by the continued decline of the overall Brazilian economy. overall Brazilian economy. Net Losses on Sales and Impairments of Businesses Net Losses on Sales and Impairments of Businesses Net losses on sales and impairments of businesses Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre- in 2017, a pre-tax loss of $70 million in 2016 and a pre- tax loss of $174 million in 2015. See Note 7 Divestitures tax loss of $174 million in 2015. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion. and Supplementary Data) for further discussion. DESCRIPTION OF BUSINESS SEGMENTS DESCRIPTION OF BUSINESS SEGMENTS International Paper’s business segments discussed International Paper’s business segments discussed below are consistent with the internal structure used to below are consistent with the internal structure used to manage manage these businesses. All segments are these businesses. All segments are differentiated on a common product, common customer differentiated on a common product, common customer basis consistent with the business segmentation basis consistent with the business segmentation generally used in the forest products industry. generally used in the forest products industry. Industrial Packaging Industrial Packaging International Paper is the largest manufacturer of International Paper is the largest manufacturer of containerboard containerboard in in the United States. Our U.S. the United States. Our U.S. production capacity is over 13 million tons annually. Our production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into 80% of our production is converted domestically into corrugated boxes and other packaging by our 178 North corrugated boxes and other packaging by our 178 North American container plants. Additionally, we recycle American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and approximately one million tons of OCC and mixed and white paper through our 18 recycling plants. In EMEA, white paper through our 18 recycling plants. In EMEA, our our operations operations include include one one recycled recycled fiber fiber containerboard mill in Morocco and 27 container plants containerboard mill in Morocco and 27 container plants in France, Italy, Spain, Morocco and Turkey. During in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we 2016, we acquired a newsprint mill in Spain which we are in the process of converting to a recycled are in the process of converting to a recycled containerboard mill. In Brazil our operations include containerboard mill. In Brazil our operations include three containerboard mills and four box plants. Our three containerboard mills and four box plants. Our container plants are supported by regional design container plants are supported by regional design centers, which offer total packaging solutions and supply centers, which offer total packaging solutions and supply International Paper also produces high quality coated International Paper also produces high quality coated paperboard for a variety of packaging end uses with paperboard for a variety of packaging end uses with 431,000 tons of capacity at our mills in Poland and 431,000 tons of capacity at our mills in Poland and Russia. Russia. Global Cellulose Fibers Global Cellulose Fibers Our cellulose fibers product portfolio includes fluff, Our cellulose fibers product portfolio includes fluff, market and specialty pulps. Our fluff pulp is used to make market and specialty pulps. Our fluff pulp is used to make absorbent hygiene products like baby diapers, feminine absorbent hygiene products like baby diapers, feminine care, adult incontinence and other non-woven products, care, adult incontinence and other non-woven products, and our market pulp is used for tissue and paper and our market pulp is used for tissue and paper products. We continue to invest in exploring new products. We continue to invest in exploring new innovative uses for our products, such as our specialty innovative uses for our products, such as our specialty pulps, which are used for non-absorbent end uses pulps, which are used for non-absorbent end uses including textiles, filtration, construction material, paints including textiles, filtration, construction material, paints and coatings, reinforced plastics and more. Our and coatings, reinforced plastics and more. Our products are made in the United States, Canada, products are made in the United States, Canada, France, Poland, and Russia and are sold around the France, Poland, and Russia and are sold around the world. International Paper facilities have annual dried world. International Paper facilities have annual dried pulp capacity of about 4 million metric tonnes. pulp capacity of about 4 million metric tonnes. Printing Papers Printing Papers International Paper is one of the world’s largest International Paper is one of the world’s largest producers of printing and writing papers. The primary producers of printing and writing papers. The primary product in this segment is uncoated papers. This product in this segment is uncoated papers. This business produces papers for use in copiers, desktop business produces papers for use in copiers, desktop and laser printers and digital imaging. End use and laser printers and digital imaging. End use applications applications include advertising and promotional include advertising and promotional materials such as brochures, pamphlets, greeting cards, materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. Uncoated papers books, annual reports and direct mail. Uncoated papers also produces a variety of grades that are converted by also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms our customers into envelopes, tablets, business forms and file folders. Uncoated papers are sold under private and file folders. Uncoated papers are sold under private label and International Paper brand names that include label and International Paper brand names that include Hammermill, Springhill, Williamsburg, Postmark, Hammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet, Rey, Pol, and Accent, Great White, Chamex, Ballet, Rey, Pol, and Svetocopy. The mills producing uncoated papers are Svetocopy. The mills producing uncoated papers are located in the United States, France, Poland, Russia, located in the United States, France, Poland, Russia, Brazil and India. The mills have uncoated paper Brazil and India. The mills have uncoated paper production capacity of over 4 million tons annually. production capacity of over 4 million tons annually. Brazilian operations function through International Brazilian operations function through International Paper do Brasil, Ltda, which owns or manages Paper do Brasil, Ltda, which owns or manages approximately 329,000 acres of forestlands in Brazil. approximately 329,000 acres of forestlands in Brazil. Ilim Holding S.A. Ilim Holding S.A. In October 2007, International Paper and Ilim Holding In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust- facilities include three paper mills located in Bratsk, Ust- Ilimsk, and Koryazhma, Russia, with combined total pulp Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.4 million metric tons. Ilim and paper capacity of over 3.4 million metric tons. Ilim has exclusive harvesting rights on timberland and forest has exclusive harvesting rights on timberland and forest areas exceeding 16.4 million acres (6.6 million areas exceeding 16.4 million acres (6.6 million hectares). hectares). Products and brand designations appearing in italics are Products and brand designations appearing in italics are trademarks of International Paper or a related company. trademarks of International Paper or a related company. BUSINESS SEGMENT RESULTS BUSINESS SEGMENT RESULTS The following tables present net sales and operating The following tables present net sales and operating profit (loss) which is the Company's measure of segment profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items profitability. The tables include a detail of special items in each year, where applicable, in order to show operating in each year, where applicable, in order to show operating profit before special items. profit before special items. Industrial Packaging Industrial Packaging Demand for Industrial Packaging products is closely Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, correlated with non-durable industrial goods production, as well as with demand for processed foods, poultry, meat as well as with demand for processed foods, poultry, meat and agricultural products. In addition to prices and and agricultural products. In addition to prices and volumes, major factors affecting the profitability of volumes, major factors affecting the profitability of Industrial Packaging are raw material and energy costs, Industrial Packaging are raw material and energy costs, freight costs, manufacturing efficiency and product mix. freight costs, manufacturing efficiency and product mix. Industrial Packaging Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Asia Packaging restructuring Asia Packaging restructuring and impairment and impairment Holmen mill bargain purchase Holmen mill bargain purchase gain gain Kleen Products anti-trust Kleen Products anti-trust settlement settlement Brazil Packaging Wood Supply Brazil Packaging Wood Supply Accelerated Amortization Accelerated Amortization Turkey mill closure Turkey mill closure Brazil Packaging goodwill and Brazil Packaging goodwill and trade name impairment trade name impairment Other Other 2017 2017 2016 2016 $ 15,077 $ 14,226 $ 14,559 $ 15,077 $ 14,226 $ 14,559 1,547 $ 1,741 $ 1,938 1,547 $ 1,741 $ 1,938 $ $ 2015 2015 — — (6) (6) 354 354 10 10 — — — — 14 14 70 70 — — — — — — 7 7 — — — — — — — — — — — — — — 137 137 — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 1,919 $ 1,818 $ 2,075 1,919 $ 1,818 $ 2,075 23 23 24 24 Industrial Packaging net sales for 2017 increased 6% to Industrial Packaging net sales for 2017 increased 6% to $15.1 billion compared with $14.2 billion in 2016, and 4% $15.1 billion compared with $14.2 billion in 2016, and 4% compared with $14.6 billion in 2015. Operating profits in compared with $14.6 billion in 2015. Operating profits in 2017 were 11% lower than in 2016 and 20% lower than 2017 were 11% lower than in 2016 and 20% lower than in 2015. Comparing 2017 with 2016, benefits from higher in 2015. Comparing 2017 with 2016, benefits from higher average sales price realizations and mix ($593 million) average sales price realizations and mix ($593 million) and higher sales volumes ($75 million) were offset by and higher sales volumes ($75 million) were offset by higher operating ($245 million), higher ($245 million), higher higher operating maintenance outage costs ($1 million), higher input costs maintenance outage costs ($1 million), higher input costs ($304 million) and higher other costs ($17 million). ($304 million) and higher other costs ($17 million). costs costs North American Industrial Packaging North American Industrial Packaging In millions In millions Net Sales (a) Net Sales (a) Operating Profit (Loss) Operating Profit (Loss) Kleen Products anti-trust Kleen Products anti-trust settlement settlement Other Other 2017 2017 2016 2016 $ 13,329 $ 12,450 $ 12,618 $ 13,329 $ 12,450 $ 12,618 1,504 $ 1,757 $ 2,009 1,504 $ 1,757 $ 2,009 $ $ 2015 2015 354 354 14 14 — — — — — — — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 1,872 $ 1,757 $ 2,009 1,872 $ 1,757 $ 2,009 (a) Includes intra-segment sales of $172 million for 2017 and (a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016. $143 million for 2016. Industrial Packaging's sales volumes Industrial Packaging's sales volumes North American North American increased in 2017 compared with 2016 reflecting higher increased in 2017 compared with 2016 reflecting higher box shipments and higher shipments of containerboard box shipments and higher shipments of containerboard to export markets. In 2017, the business took about to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were were economic downtime and 381,000 were maintenance downtime. The business took about maintenance downtime. The business took about 914,000 tons of total downtime in 2016 of which 445,000 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were were economic downtime and 469,000 were maintenance downtime. Average sales prices for boxes maintenance downtime. Average sales prices for boxes and average sales price realizations for containerboard and average sales price realizations for containerboard in export markets were significantly higher. Input costs in export markets were significantly higher. Input costs were significantly higher, primarily for recycled fiber, but were significantly higher, primarily for recycled fiber, but also for energy, chemicals and freight, while wood costs also for energy, chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were were lower. Planned maintenance downtime costs were $5 million higher in 2017 than in 2016. $5 million higher in 2017 than in 2016. Looking ahead to the first quarter of 2018, compared with Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes for boxes are the fourth quarter of 2017, sales volumes for boxes are expected to be seasonally lower despite two more expected to be seasonally lower despite two more shipping days. Shipments of containerboard to export shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales markets are also expected to decrease. Average sales price realizations should reflect the continuing realization price realizations should reflect the continuing realization of containerboard export price increases. Input costs are of containerboard export price increases. Input costs are expected to be higher for wood, energy and chemicals. expected to be higher for wood, energy and chemicals. Planned maintenance downtime spending is expected to Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather to be negatively impacted by the severe winter weather conditions in the 2018 first quarter. conditions in the 2018 first quarter. EMEA Industrial Packaging EMEA Industrial Packaging In millions In millions 2017 2017 2016 2016 2015 2015 Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Holmen mill net bargain Holmen mill net bargain purchase gain purchase gain Turkey Mill Closure Turkey Mill Closure $ $ $ $ 1,334 $ 1,227 $ 1,114 1,334 $ 1,227 $ 1,114 13 13 15 $ 15 $ 6 $ 6 $ (6) (6) — — — — 7 7 — — — — 13 13 Operating Profit Before Special Operating Profit Before Special Items Items $ $ — $ — $ 22 $ 22 $ EMEA Industrial Packaging's sales volumes in 2017 were EMEA Industrial Packaging's sales volumes in 2017 were higher than in 2016 reflecting improved market demand, higher than in 2016 reflecting improved market demand, particularly in Morocco and Turkey while sales volumes particularly in Morocco and Turkey while sales volumes in the Eurozone were negatively impacted by poor in the Eurozone were negatively impacted by poor weather conditions. Average sales margins improved weather conditions. Average sales margins improved due to sales price increases and a more favorable mix due to sales price increases and a more favorable mix that more than offset higher containerboard costs and the that more than offset higher containerboard costs and the impact of unfavorable currency translation. Input costs impact of unfavorable currency translation. Input costs for energy were higher and operating costs were for energy were higher and operating costs were negatively impacted by inflation. negatively impacted by inflation. Entering the first quarter of 2018, compared with the Entering the first quarter of 2018, compared with the fourth quarter of 2017 sales volumes are expected to be fourth quarter of 2017 sales volumes are expected to be slightly lower. Average sales margins are expected to be slightly lower. Average sales margins are expected to be lower due to continuing higher containerboard prices. lower due to continuing higher containerboard prices. of of Operating costs will be higher due to the conversion Operating costs will be higher due to the conversion the Madrid mill. the Madrid mill. Brazilian Industrial Packaging Brazilian Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Brazil Packaging goodwill and Brazil Packaging goodwill and trade name impairment trade name impairment Operating Profit Before Special Operating Profit Before Special Items Items 2017 2017 2016 2016 2015 2015 251 $ 251 $ (35) $ (35) $ 232 $ 232 $ (43) $ (43) $ 228 228 (163) (163) 10 10 — — 137 137 (25) $ (25) $ (43) $ (43) $ (26) (26) $ $ $ $ $ $ reflecting reflecting Brazilian Industrial Packaging's sales volumes in 2017 Brazilian Industrial Packaging's sales volumes in 2017 for boxes and increased compared with 2016 for boxes and increased compared with 2016 containerboard, economic containerboard, economic conditions. Average sales price realizations were also conditions. Average sales price realizations were also higher. Input costs decreased, primarily for recycled fiber higher. Input costs decreased, primarily for recycled fiber and wood. Operating costs were higher largely due to and wood. Operating costs were higher largely due to the effects of inflation. Planned maintenance downtime the effects of inflation. Planned maintenance downtime costs were $1 million lower in 2017 compared with 2016. costs were $1 million lower in 2017 compared with 2016. improving improving Looking ahead to the first quarter of 2018, compared with Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected the fourth quarter of 2017, sales volumes are expected to be higher for boxes, but lower for containerboard and to be higher for boxes, but lower for containerboard and sheets. Average sales margins should improve, reflecting sheets. Average sales margins should improve, reflecting a sales price increase for boxes. Input costs are expected a sales price increase for boxes. Input costs are expected to be flat, but operating costs will be higher due to other to be flat, but operating costs will be higher due to other costs. Planned maintenance downtime costs are costs. Planned maintenance downtime costs are expected to be $1 million higher. expected to be $1 million higher. European Coated Paperboard European Coated Paperboard In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 335 $ 335 $ 72 $ 72 $ 327 $ 327 $ 93 $ 93 $ 319 319 87 87 European Coated Paperboard's sales volumes in 2017 European Coated Paperboard's sales volumes in 2017 compared with 2016 increased in Europe, but decreased compared with 2016 increased in Europe, but decreased in Russia. Average sales price realizations were lower in in Russia. Average sales price realizations were lower in Russia while in Europe average sales margins increased Russia while in Europe average sales margins increased reflecting higher average sales prices and a more reflecting higher average sales prices and a more favorable mix. Input costs for wood, energy and favorable mix. Input costs for wood, energy and purchased pulp were higher. Planned maintenance purchased pulp were higher. Planned maintenance downtime costs were $3 million lower in 2017. downtime costs were $3 million lower in 2017. lower lower Looking forward to the first quarter of 2018, compared Looking forward to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are with the fourth quarter of 2017, sales volumes are expected to increase in Europe, but expected to be expected to increase in Europe, but expected to be seasonally in Russia. Average sales price in Russia. Average sales price seasonally realizations are expected to be higher in both Europe and realizations are expected to be higher in both Europe and Russia. Input costs are expected to be lower. Planned Russia. Input costs are expected to be lower. Planned maintenance outage costs are expected to be $5 million maintenance outage costs are expected to be $5 million higher in the first quarter of 2018 due to a planned outage higher in the first quarter of 2018 due to a planned outage at the Kwidzyn mill. at the Kwidzyn mill. Asian Industrial Packaging Asian Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Asia Packaging restructuring Asia Packaging restructuring and impairment and impairment Operating Profit Before Special Operating Profit Before Special Items Items $ $ $ $ $ $ 2017 2017 2016 2016 2015 2015 — $ — $ — $ — $ 133 $ 133 $ (81) $ (81) $ 280 280 (8) (8) — — 70 70 — $ — $ (11) $ (11) $ — — (8) (8) On June 30, 2016, the Company completed the sale of On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and in China and its corrugated packaging business Southeast Asia to Xiamen Bridge Hexing Equity to Xiamen Bridge Hexing Equity Southeast Asia Investment Partnership Enterprise. See Note 7 Investment Partnership Enterprise. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data further further Statements and Supplementary Data discussion of the sale of this business. discussion of the sale of this business. for for Global Cellulose Fibers Global Cellulose Fibers Demand is closely is closely for Cellulose Fibers products for Cellulose Fibers products Demand correlated with changes in demand for absorbent hygiene correlated with changes in demand for absorbent hygiene products and is further affected by changes in currency products and is further affected by changes in currency rates that can benefit or hurt producers in different rates that can benefit or hurt producers in different geographic regions. Principal cost drivers include geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs manufacturing efficiency, raw material and energy costs and freight costs. and freight costs. Global Cellulose Fibers Global Cellulose Fibers In millions In millions Net Sales Net Sales 2017 2017 2016 2016 2015 2015 $ 2,551 $ 1,092 $ $ 2,551 $ 1,092 $ 975 975 Operating Profit (Loss) Operating Profit (Loss) $ $ 65 $ 65 $ (179) $ (179) $ Acquisition costs Acquisition costs Inventory fair value step-up Inventory fair value step-up amortization amortization Other Other 33 33 14 14 4 4 31 31 19 19 — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 116 $ 116 $ (129) $ (129) $ 68 68 — — — — — — 68 68 Global Cellulose Fibers results include the net sales and Global Cellulose Fibers results include the net sales and operating profit associated with the pulp business operating profit associated with the pulp business acquired from Weyerhaeuser from the date of acquisition acquired from Weyerhaeuser from the date of acquisition on December 1, 2016. See Note 6 Acquisitions and Joint on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for additional Statements and Supplementary Data for additional information about the acquisition. information about the acquisition. Net sales for 2017 increased to $2.6 billion compared Net sales for 2017 increased to $2.6 billion compared with $1.1 billion in 2016 and $975 million in 2015. with $1.1 billion in 2016 and $975 million in 2015. Operating profits in 2017 were significantly higher than Operating profits in 2017 were significantly higher than in 2016 and 4% lower than in 2015. Comparing 2017 with in 2016 and 4% lower than in 2015. Comparing 2017 with 2016 for the legacy business, benefits from higher 2016 for the legacy business, benefits from higher average sales price realizations and mix ($61 million), average sales price realizations and mix ($61 million), lower planned maintenance downtime costs ($39 lower planned maintenance downtime costs ($39 million), lower input costs ($5 million), lower operating million), lower input costs ($5 million), lower operating costs ($1 million) and lower other costs ($6 million) were costs ($1 million) and lower other costs ($6 million) were offset by offset by lower sales volumes ($5 million). The lower sales volumes ($5 million). The incremental operating profits from the acquired business incremental operating profits from the acquired business were $117 million in 2017. were $117 million in 2017. For the legacy business, sales volumes were lower. For the legacy business, sales volumes were lower. Average sales margins increased, reflecting higher sales Average sales margins increased, reflecting higher sales price realizations for both fluff pulp and softwood market price realizations for both fluff pulp and softwood market pulp and a favorable product mix. Input costs were slightly pulp and a favorable product mix. Input costs were slightly lower. Planned maintenance downtime costs were $39 lower. Planned maintenance downtime costs were $39 million lower in 2017 primarily due to the non-recurrence million lower in 2017 primarily due to the non-recurrence of the 2016 costs associated with the conversion of the of the 2016 costs associated with the conversion of the Riegelwood mill to 100% fluff pulp production. Operating Riegelwood mill to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europe costs were flat, while input costs were lower. In Europe and Russia, average sales margins and Russia, average sales margins increased increased significantly and planned maintenance downtime costs significantly and planned maintenance downtime costs were $3 million lower than in 2016. were $3 million lower than in 2016. Entering the first quarter of 2018, sales volumes will be Entering the first quarter of 2018, sales volumes will be lower due to capacity constraints resulting from planned lower due to capacity constraints resulting from planned maintenance downtime. Average sales price realizations maintenance downtime. Average sales price realizations are expected to be stable and product mix should be are expected to be stable and product mix should be favorable. Operating costs are expected to be higher, favorable. Operating costs are expected to be higher, partly due to the severe winter weather experienced in partly due to the severe winter weather experienced in January. Input costs are expected to increase for energy, January. Input costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime wood and chemicals. Planned maintenance downtime costs should be $52 million higher than in the fourth costs should be $52 million higher than in the fourth quarter of 2017. In addition, a fourth-quarter favorable quarter of 2017. In addition, a fourth-quarter favorable inventory valuation adjustment will not repeat. inventory valuation adjustment will not repeat. Printing Papers Printing Papers Demand Demand for Printing Papers products for Printing Papers products is closely is closely correlated with changes in commercial printing and correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated advertising activity, direct mail volumes and, for uncoated cut-size products, with changes cut-size products, with changes in white-collar in white-collar employment levels that affect the usage of copy and laser employment levels that affect the usage of copy and laser printer printer paper. Principal paper. Principal cost cost drivers drivers include include manufacturing efficiency, raw material and energy costs manufacturing efficiency, raw material and energy costs and freight costs. and freight costs. Printing Papers Printing Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Other Other Items Items Operating Profit Before Special Operating Profit Before Special 2017 2017 2016 2016 2015 2015 $ 4,157 $ 4,058 $ 4,056 $ 4,157 $ 4,058 $ 4,056 457 $ 457 $ 540 $ 540 $ 2 2 — — 465 465 — — 459 $ 459 $ 540 $ 540 $ 465 465 Printing Papers net sales for 2017 of $4.2 billion increased Printing Papers net sales for 2017 of $4.2 billion increased 2% compared with $4.1 billion in both 2016 and 2015. 2% compared with $4.1 billion in both 2016 and 2015. Operating profits in 2017 were 15% lower than in 2016 Operating profits in 2017 were 15% lower than in 2016 and 2% lower than in 2015. Comparing 2017 with 2016, and 2% lower than in 2015. Comparing 2017 with 2016, benefits from higher sales volumes ($25 million), lower benefits from higher sales volumes ($25 million), lower planned maintenance downtime costs ($15 million) and planned maintenance downtime costs ($15 million) and lower other costs ($12 million) were more than offset by lower other costs ($12 million) were more than offset by lower average sales price realizations and mix ($61 lower average sales price realizations and mix ($61 million), higher operating costs ($31 million) and higher million), higher operating costs ($31 million) and higher input costs ($41 million). input costs ($41 million). North American Printing Papers North American Printing Papers In millions In millions Net Sales Net Sales Other Other Items Items Operating Profit (Loss) Operating Profit (Loss) Operating Profit Before Special Operating Profit Before Special 2017 2017 2016 2016 2015 2015 $ 1,833 $ 1,890 $ 1,942 $ 1,833 $ 1,890 $ 1,942 132 $ 132 $ 236 $ 236 $ 2 2 — — 179 179 — — 134 $ 134 $ 236 $ 236 $ 179 179 $ $ $ $ $ $ $ $ North American Printing Papers' sales volumes for 2017 were North American Printing Papers' sales volumes for 2017 were higher than in 2016. Average sales price realizations higher than in 2016. Average sales price realizations decreased for both cut size paper and rolls. Average sales decreased for both cutsize paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially costs were higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. downtime costs were $12 million higher in 2017. Operating costs were lower. Operating costs were lower. Entering the first quarter of 2018, sales volumes are Entering the first quarter of 2018, sales volumes are expected to be seasonally higher. Average sales margins expected to be seasonally higher. Average sales margins should be relatively flat. Operating costs are expected to should be relatively flat. Operating costs are expected to be higher, partly due to the severe winter weather be higher, partly due to the severe winter weather experienced in January. Input costs should be higher. experienced in January. Input costs should be higher. Planned maintenance downtime costs will increase by Planned maintenance downtime costs will increase by about $22 million in the 2018 first quarter. about $22 million in the 2018 first quarter. Brazilian Papers Brazilian Papers In millions In millions Net Sales (a) Net Sales (a) Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 972 $ 972 $ 194 $ 194 $ 897 $ 897 $ 173 $ 173 $ 878 878 186 186 (a) Includes intra-segment sales of $24 million for 2017 and $5 (a) Includes intra-segment sales of $24 million for 2017 and $5 million for 2016. million for 2016. 25 25 26 26 EMEA Industrial Packaging EMEA Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Holmen mill net bargain Holmen mill net bargain purchase gain purchase gain Turkey Mill Closure Turkey Mill Closure Operating Profit Before Special Operating Profit Before Special Items Items 2017 2017 2016 2016 2015 2015 1,334 $ 1,227 $ 1,114 1,334 $ 1,227 $ 1,114 6 $ 6 $ 15 $ 15 $ (6) (6) — — — — 7 7 — $ — $ 22 $ 22 $ 13 13 — — — — 13 13 European Coated Paperboard's sales volumes in 2017 European Coated Paperboard's sales volumes in 2017 compared with 2016 increased in Europe, but decreased compared with 2016 increased in Europe, but decreased in Russia. Average sales price realizations were lower in in Russia. Average sales price realizations were lower in Russia while in Europe average sales margins increased Russia while in Europe average sales margins increased reflecting higher average sales prices and a more reflecting higher average sales prices and a more favorable mix. Input costs for wood, energy and favorable mix. Input costs for wood, energy and purchased pulp were higher. Planned maintenance purchased pulp were higher. Planned maintenance downtime costs were $3 million lower in 2017. downtime costs were $3 million lower in 2017. Looking forward to the first quarter of 2018, compared Looking forward to the first quarter of 2018, compared EMEA Industrial Packaging's sales volumes in 2017 were EMEA Industrial Packaging's sales volumes in 2017 were with the fourth quarter of 2017, sales volumes are with the fourth quarter of 2017, sales volumes are higher than in 2016 reflecting improved market demand, higher than in 2016 reflecting improved market demand, expected to increase in Europe, but expected to be expected to increase in Europe, but expected to be particularly in Morocco and Turkey while sales volumes particularly in Morocco and Turkey while sales volumes seasonally seasonally lower lower in Russia. Average sales price in Russia. Average sales price in the Eurozone were negatively impacted by poor in the Eurozone were negatively impacted by poor realizations are expected to be higher in both Europe and realizations are expected to be higher in both Europe and weather conditions. Average sales margins improved weather conditions. Average sales margins improved Russia. Input costs are expected to be lower. Planned Russia. Input costs are expected to be lower. Planned due to sales price increases and a more favorable mix due to sales price increases and a more favorable mix maintenance outage costs are expected to be $5 million maintenance outage costs are expected to be $5 million that more than offset higher containerboard costs and the that more than offset higher containerboard costs and the higher in the first quarter of 2018 due to a planned outage higher in the first quarter of 2018 due to a planned outage impact of unfavorable currency translation. Input costs impact of unfavorable currency translation. Input costs at the Kwidzyn mill. at the Kwidzyn mill. for energy were higher and operating costs were for energy were higher and operating costs were negatively impacted by inflation. negatively impacted by inflation. Entering the first quarter of 2018, compared with the Entering the first quarter of 2018, compared with the fourth quarter of 2017 sales volumes are expected to be fourth quarter of 2017 sales volumes are expected to be slightly lower. Average sales margins are expected to be slightly lower. Average sales margins are expected to be lower due to continuing higher containerboard prices. lower due to continuing higher containerboard prices. Operating costs will be higher due to the conversion Operating costs will be higher due to the conversion of of the Madrid mill. the Madrid mill. Brazilian Industrial Packaging Brazilian Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Brazil Packaging goodwill and Brazil Packaging goodwill and trade name impairment trade name impairment Operating Profit Before Special Operating Profit Before Special Items Items 2017 2017 2016 2016 2015 2015 251 $ 251 $ (35) $ (35) $ 232 $ 232 $ 228 228 (43) $ (43) $ (163) (163) 10 10 — — 137 137 (25) $ (25) $ (43) $ (43) $ (26) (26) Asian Industrial Packaging Asian Industrial Packaging In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Asia Packaging restructuring Asia Packaging restructuring and impairment and impairment Operating Profit Before Special Operating Profit Before Special Items Items $ $ $ $ $ $ 2017 2017 2016 2016 2015 2015 — $ — $ — $ — $ 133 $ 133 $ (81) $ (81) $ 280 280 (8) (8) — — 70 70 — $ — $ (11) $ (11) $ — — (8) (8) On June 30, 2016, the Company completed the sale of On June 30, 2016, the Company completed the sale of its corrugated packaging business its corrugated packaging business in China and in China and Southeast Asia Southeast Asia to Xiamen Bridge Hexing Equity to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. See Note 7 Investment Partnership Enterprise. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data Statements and Supplementary Data for for further further discussion of the sale of this business. discussion of the sale of this business. Global Cellulose Fibers Global Cellulose Fibers $ $ $ $ $ $ $ $ $ $ $ $ Brazilian Industrial Packaging's sales volumes in 2017 Brazilian Industrial Packaging's sales volumes in 2017 Demand Demand for Cellulose Fibers products for Cellulose Fibers products is closely is closely increased compared with 2016 increased compared with 2016 for boxes and for boxes and correlated with changes in demand for absorbent hygiene correlated with changes in demand for absorbent hygiene containerboard, containerboard, reflecting reflecting improving improving economic economic products and is further affected by changes in currency products and is further affected by changes in currency conditions. Average sales price realizations were also conditions. Average sales price realizations were also rates that can benefit or hurt producers in different rates that can benefit or hurt producers in different higher. Input costs decreased, primarily for recycled fiber higher. Input costs decreased, primarily for recycled fiber geographic regions. Principal cost drivers include geographic regions. Principal cost drivers include and wood. Operating costs were higher largely due to and wood. Operating costs were higher largely due to manufacturing efficiency, raw material and energy costs manufacturing efficiency, raw material and energy costs the effects of inflation. Planned maintenance downtime the effects of inflation. Planned maintenance downtime and freight costs. and freight costs. costs were $1 million lower in 2017 compared with 2016. costs were $1 million lower in 2017 compared with 2016. Looking ahead to the first quarter of 2018, compared with Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected the fourth quarter of 2017, sales volumes are expected to be higher for boxes, but lower for containerboard and to be higher for boxes, but lower for containerboard and sheets. Average sales margins should improve, reflecting sheets. Average sales margins should improve, reflecting a sales price increase for boxes. Input costs are expected a sales price increase for boxes. Input costs are expected to be flat, but operating costs will be higher due to other to be flat, but operating costs will be higher due to other costs. Planned maintenance downtime costs are costs. Planned maintenance downtime costs are expected to be $1 million higher. expected to be $1 million higher. European Coated Paperboard European Coated Paperboard In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 335 $ 335 $ 327 $ 327 $ 72 $ 72 $ 93 $ 93 $ 319 319 87 87 Global Cellulose Fibers Global Cellulose Fibers In millions In millions Net Sales Net Sales 2017 2017 2016 2016 2015 2015 $ 2,551 $ 1,092 $ $ 2,551 $ 1,092 $ 975 975 Operating Profit (Loss) Operating Profit (Loss) $ $ 65 $ 65 $ (179) $ (179) $ Acquisition costs Acquisition costs Inventory fair value step-up Inventory fair value step-up amortization amortization Other Other 33 33 14 14 4 4 31 31 19 19 — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 116 $ 116 $ (129) $ (129) $ 68 68 — — — — — — 68 68 Global Cellulose Fibers results include the net sales and Global Cellulose Fibers results include the net sales and operating profit associated with the pulp business operating profit associated with the pulp business acquired from Weyerhaeuser from the date of acquisition acquired from Weyerhaeuser from the date of acquisition on December 1, 2016. See Note 6 Acquisitions and Joint on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for additional Statements and Supplementary Data for additional information about the acquisition. information about the acquisition. Net sales for 2017 increased to $2.6 billion compared Net sales for 2017 increased to $2.6 billion compared with $1.1 billion in 2016 and $975 million in 2015. with $1.1 billion in 2016 and $975 million in 2015. Operating profits in 2017 were significantly higher than Operating profits in 2017 were significantly higher than in 2016 and 4% lower than in 2015. Comparing 2017 with in 2016 and 4% lower than in 2015. Comparing 2017 with 2016 for the legacy business, benefits from higher 2016 for the legacy business, benefits from higher average sales price realizations and mix ($61 million), average sales price realizations and mix ($61 million), lower planned maintenance downtime costs ($39 lower planned maintenance downtime costs ($39 million), lower input costs ($5 million), lower operating million), lower input costs ($5 million), lower operating costs ($1 million) and lower other costs ($6 million) were costs ($1 million) and lower other costs ($6 million) were lower sales volumes ($5 million). The offset by offset by lower sales volumes ($5 million). The incremental operating profits from the acquired business incremental operating profits from the acquired business were $117 million in 2017. were $117 million in 2017. For the legacy business, sales volumes were lower. For the legacy business, sales volumes were lower. Average sales margins increased, reflecting higher sales Average sales margins increased, reflecting higher sales price realizations for both fluff pulp and softwood market price realizations for both fluff pulp and softwood market pulp and a favorable product mix. Input costs were slightly pulp and a favorable product mix. Input costs were slightly lower. Planned maintenance downtime costs were $39 lower. Planned maintenance downtime costs were $39 million lower in 2017 primarily due to the non-recurrence million lower in 2017 primarily due to the non-recurrence of the 2016 costs associated with the conversion of the of the 2016 costs associated with the conversion of the Riegelwood mill to 100% fluff pulp production. Operating Riegelwood mill to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europe costs were flat, while input costs were lower. In Europe increased and Russia, average sales margins increased and Russia, average sales margins significantly and planned maintenance downtime costs significantly and planned maintenance downtime costs were $3 million lower than in 2016. were $3 million lower than in 2016. Entering the first quarter of 2018, sales volumes will be Entering the first quarter of 2018, sales volumes will be lower due to capacity constraints resulting from planned lower due to capacity constraints resulting from planned maintenance downtime. Average sales price realizations maintenance downtime. Average sales price realizations are expected to be stable and product mix should be are expected to be stable and product mix should be favorable. Operating costs are expected to be higher, favorable. Operating costs are expected to be higher, partly due to the severe winter weather experienced in partly due to the severe winter weather experienced in January. Input costs are expected to increase for energy, January. Input costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime wood and chemicals. Planned maintenance downtime costs should be $52 million higher than in the fourth costs should be $52 million higher than in the fourth quarter of 2017. In addition, a fourth-quarter favorable quarter of 2017. In addition, a fourth-quarter favorable inventory valuation adjustment will not repeat. inventory valuation adjustment will not repeat. Printing Papers Printing Papers is closely for Printing Papers products Demand is closely for Printing Papers products Demand correlated with changes in commercial printing and correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated advertising activity, direct mail volumes and, for uncoated cut-size products, with changes in white-collar cut-size products, with changes in white-collar employment levels that affect the usage of copy and laser employment levels that affect the usage of copy and laser printer include include printer manufacturing efficiency, raw material and energy costs manufacturing efficiency, raw material and energy costs and freight costs. and freight costs. paper. Principal paper. Principal drivers drivers cost cost 25 25 26 26 Printing Papers Printing Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Other Other 2017 2017 2016 2016 $ 4,157 $ 4,058 $ 4,056 $ 4,157 $ 4,058 $ 4,056 465 465 $ $ 540 $ 540 $ 2015 2015 457 $ 457 $ 2 2 — — — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 459 $ 459 $ 540 $ 540 $ 465 465 Printing Papers net sales for 2017 of $4.2 billion increased Printing Papers net sales for 2017 of $4.2 billion increased 2% compared with $4.1 billion in both 2016 and 2015. 2% compared with $4.1 billion in both 2016 and 2015. Operating profits in 2017 were 15% lower than in 2016 Operating profits in 2017 were 15% lower than in 2016 and 2% lower than in 2015. Comparing 2017 with 2016, and 2% lower than in 2015. Comparing 2017 with 2016, benefits from higher sales volumes ($25 million), lower benefits from higher sales volumes ($25 million), lower planned maintenance downtime costs ($15 million) and planned maintenance downtime costs ($15 million) and lower other costs ($12 million) were more than offset by lower other costs ($12 million) were more than offset by lower average sales price realizations and mix ($61 lower average sales price realizations and mix ($61 million), higher operating costs ($31 million) and higher million), higher operating costs ($31 million) and higher input costs ($41 million). input costs ($41 million). North American Printing Papers North American Printing Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) Other Other 2017 2017 2016 2016 $ 1,833 $ 1,890 $ 1,942 $ 1,833 $ 1,890 $ 1,942 179 179 $ $ 236 $ 236 $ 2015 2015 132 $ 132 $ 2 2 — — — — Operating Profit Before Special Operating Profit Before Special Items Items $ $ 134 $ 134 $ 236 $ 236 $ 179 179 North American Printing Papers' sales volumes for 2017 were North American Printing Papers' sales volumes for 2017 were higher than in 2016. Average sales price realizations higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls. Average sales decreased for both cut size paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially costs were higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. downtime costs were $12 million higher in 2017. Operating costs were lower. Operating costs were lower. Entering the first quarter of 2018, sales volumes are Entering the first quarter of 2018, sales volumes are expected to be seasonally higher. Average sales margins expected to be seasonally higher. Average sales margins should be relatively flat. Operating costs are expected to should be relatively flat. Operating costs are expected to be higher, partly due to the severe winter weather be higher, partly due to the severe winter weather experienced in January. Input costs should be higher. experienced in January. Input costs should be higher. Planned maintenance downtime costs will increase by Planned maintenance downtime costs will increase by about $22 million in the 2018 first quarter. about $22 million in the 2018 first quarter. Brazilian Papers Brazilian Papers In millions In millions Net Sales (a) Net Sales (a) Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 972 $ 972 $ 194 $ 194 $ 897 $ 897 $ 173 $ 173 $ 878 878 186 186 (a) Includes intra-segment sales of $24 million for 2017 and $5 (a) Includes intra-segment sales of $24 million for 2017 and $5 million for 2016. million for 2016. Brazilian Papers' sales volumes for uncoated freesheet Brazilian Papers' sales volumes for uncoated freesheet paper in 2017 were higher compared with 2016 reflecting paper in 2017 were higher compared with 2016 reflecting improving economic conditions. Average sales price improving economic conditions. Average sales price realizations increased primarily for domestic uncoated realizations increased primarily for domestic uncoated freesheet paper due to the realization of price increases freesheet paper due to the realization of price increases in 2016, while export sales price implemented in 2016, while export sales price implemented increased. Raw material costs realizations also increased. Raw material costs realizations also decreased for pulp, but were partly offset by higher costs decreased for pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were lower for chemicals and virgin fiber. Operating costs were lower than in 2016. Planned maintenance downtime costs than in 2016. Planned maintenance downtime costs were $4 million lower. were $4 million lower. Looking ahead to 2018, compared with the fourth quarter Looking ahead to 2018, compared with the fourth quarter of 2017, sales volumes for uncoated freesheet paper in of 2017, sales volumes for uncoated freesheet paper in the first quarter are expected to be seasonally weaker in the first quarter are expected to be seasonally weaker in both domestic and export markets. Average sales price both domestic and export markets. Average sales price realizations should increase due to the implementation realizations should increase due to the implementation of sales price increases in both domestic and export of sales price increases in both domestic and export markets. Input costs are expected to be slightly higher markets. Input costs are expected to be slightly higher for wood, chemicals and energy. Planned maintenance for wood, chemicals and energy. Planned maintenance downtime costs are expected to be $5 million higher in downtime costs are expected to be $5 million higher in the first quarter of 2018. the first quarter of 2018. European Papers European Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 $ 1,187 $ 1,109 $ 1,064 $ 1,187 $ 1,109 $ 1,064 111 111 $ $ 136 $ 136 $ 142 $ 142 $ 2015 2015 European Papers' sales volumes for uncoated freesheet European Papers' sales volumes for uncoated freesheet paper in 2017 were lower in Russia and about flat in paper in 2017 were lower in Russia and about flat in Europe compared with 2016. Average sales price Europe compared with 2016. Average sales price realizations improved for uncoated freesheet paper realizations improved for uncoated freesheet paper following price increases implemented in 2017. Input following price increases implemented in 2017. Input costs were higher for wood, energy, chemicals and costs were higher for wood, energy, chemicals and purchased pulp. Planned maintenance downtime costs purchased pulp. Planned maintenance downtime costs were $22 million lower in 2017 than in 2016. were $22 million lower in 2017 than in 2016. Entering 2018, sales volumes for uncoated freesheet Entering 2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be stable. paper in the first quarter are expected to be stable. Average sales price realizations are expected to be Average sales price realizations are expected to be slightly lower in Russia, but higher in Europe. Input costs slightly lower in Russia, but higher in Europe. Input costs should be slightly lower, mainly for wood. Planned should be slightly lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 maintenance downtime costs in the first quarter of 2018 should be $8 million higher than in the fourth quarter of should be $8 million higher than in the fourth quarter of 2017. 2017. Indian Papers Indian Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 189 $ 189 $ (5) $ (5) $ 167 $ 167 $ (11) $ (11) $ 172 172 (11) (11) Indian Papers' average sales price realizations in 2017 Indian Papers' average sales price realizations in 2017 were higher than in 2016. Sales volumes also increased. were higher than in 2016. Sales volumes also increased. Input costs were lower for wood, partially offset by higher Input costs were lower for wood, partially offset by higher chemical costs. Operating costs were higher in 2017, chemical costs. Operating costs were higher in 2017, while planned maintenance downtime costs were even while planned maintenance downtime costs were even with 2016. Looking ahead to the first quarter of 2018, with 2016. Looking ahead to the first quarter of 2018, sales volumes are expected to be slightly lower than in sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to increase. sales price realizations are expected to increase. Equity Earnings, Net of Taxes – Ilim Holding S.A. Equity Earnings, Net of Taxes – Ilim Holding S.A. Cash Provided by Operating Activities Cash Provided by Operating Activities Acquisitions and Joint Ventures Acquisitions and Joint Ventures International Paper accounts for its investment in Ilim International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting. segment, using the equity method of accounting. The Company recorded equity earnings, net of taxes, The Company recorded equity earnings, net of taxes, related to Ilim of $183 million in 2017 compared with related to Ilim of $183 million in 2017 compared with earnings of $199 million in 2016 and earnings of $131 earnings of $199 million in 2016 and earnings of $131 million in 2015. Operating results recorded in 2017 million in 2015. Operating results recorded in 2017 included an after-tax noncash foreign exchange gain of included an after-tax noncash foreign exchange gain of $15 million compared with an after-tax foreign exchange $15 million compared with an after-tax foreign exchange gain of $25 million in 2016 and an after-tax foreign gain of $25 million in 2016 and an after-tax foreign exchange loss of $75 million in 2015 primarily on the exchange loss of $75 million in 2015 primarily on the remeasurement of Ilim's U.S. dollar denominated net remeasurement of Ilim's U.S. dollar denominated net debt. debt. Sales volumes for the joint venture decreased year over Sales volumes for the joint venture decreased year over year for shipments to China of softwood pulp and year for shipments to China of softwood pulp and linerboard, but were partially offset by increased sales of linerboard, but were partially offset by increased sales of hardwood pulp to China. Sales volumes in the Russian hardwood pulp to China. Sales volumes in the Russian market decreased for softwood pulp and hardwood pulp, market decreased for softwood pulp and hardwood pulp, but increased for linerboard. Average sales price but increased for linerboard. Average sales price realizations were higher in 2017 for sales of softwood realizations were higher in 2017 for sales of softwood pulp, hardwood pulp and linerboard to China and other pulp, hardwood pulp and linerboard to China and other export markets. Average sales price realizations in export markets. Average sales price realizations in Russian markets increased year over year for all Russian markets increased year over year for all products. Input costs also increased in 2017 for wood, products. Input costs also increased in 2017 for wood, energy and fuel. Distribution costs were higher in 2017. energy and fuel. Distribution costs were higher in 2017. The Company received cash dividends from the joint The Company received cash dividends from the joint venture of $133 million in 2017, $58 million in 2016, and venture of $133 million in 2017, $58 million in 2016, and $35 million in 2015. $35 million in 2015. Entering the first quarter of 2018, sales volumes are Entering the first quarter of 2018, sales volumes are expected to be lower than in the fourth quarter of 2017 expected to be lower than in the fourth quarter of 2017 due to the seasonal slowdown in Russia and export due to the seasonal slowdown in Russia and export markets. Average sales price realizations are expected markets. Average sales price realizations are expected to increase for hardwood pulp, softwood pulp and to increase for hardwood pulp, softwood pulp and linerboard to China. Input costs are expected to be lower, linerboard to China. Input costs are expected to be lower, while distribution costs are projected to increase. while distribution costs are projected to increase. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY AND CAPITAL RESOURCES Overview Overview A major factor in International Paper’s liquidity and capital A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and which is highly sensitive to changes in the pricing and demand for our major products. While changes in key demand for our major products. While changes in key cash operating costs, such as energy, raw material and cash operating costs, such as energy, raw material and transportation costs, do have an effect on operating cash transportation costs, do have an effect on operating cash generation, we believe that our focus on pricing and cost generation, we believe that our focus on pricing and cost controls has improved our cash flow generation over an controls has improved our cash flow generation over an operating cycle. operating cycle. Cash uses during 2017 were primarily focused on Cash uses during 2017 were primarily focused on working capital requirements, capital spending, debt working capital requirements, capital spending, debt reductions, pension contributions, and returning cash to reductions, pension contributions, and returning cash to shareholders. shareholders. Cash provided by operations, including discontinued Cash provided by operations, including discontinued operations, totaled $1.8 billion in 2017 compared with operations, totaled $1.8 billion in 2017 compared with $2.5 billion for 2016 and $2.6 billion for 2015. Cash used $2.5 billion for 2016 and $2.6 billion for 2015. Cash used by working capital components (accounts receivable and by working capital components (accounts receivable and inventory less accounts payable and accrued liabilities, inventory less accounts payable and accrued liabilities, interest payable and other) totaled $402 million in 2017, interest payable and other) totaled $402 million in 2017, compared with cash provided by working capital compared with cash provided by working capital components of $71 million in 2016 and a cash use for components of $71 million in 2016 and a cash use for working capital components of $222 million in 2015. The working capital components of $222 million in 2015. The increase in 2017 working capital is largely due to growth increase in 2017 working capital is largely due to growth in receivables primarily tied to year-over-year price in receivables primarily tied to year-over-year price increases. increases. Investment Activities Investment Activities Including discontinued operations, investment activities Including discontinued operations, investment activities in 2017 decreased from 2016 as 2016 included the in 2017 decreased from 2016 as 2016 included the purchase of Weyerhaeuser's pulp business for $2.2 purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging business of $108 from the sale of the Asia Packaging business of $108 million, net of cash divested. In 2015, investment activity million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 includes higher capital spending and the use of $198 million of cash in conjunction with the timber monetization million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries on pages 63 through Preferred Securities of Subsidiaries on pages 63 through 64 of Item 8. Financial Statements and Supplementary 64 of Item 8. Financial Statements and Supplementary Data). The Company maintains an average capital Data). The Company maintains an average capital spending target around depreciation and amortization spending target around depreciation and amortization levels or modestly above due to strategic plans over the levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 course of an economic cycle. Capital spending was $1.4 billion in 2017, or 98% of depreciation and amortization, billion in 2017, or 98% of depreciation and amortization, compared with $1.3 billion in 2016, or 110% of compared with $1.3 billion in 2016, or 110% of depreciation and amortization, and $1.5 billion, or 115% depreciation and amortization, and $1.5 billion, or 115% of depreciation and amortization in 2015. Across our of depreciation and amortization in 2015. Across our businesses, capital spending as a percentage of businesses, capital spending as a percentage of depreciation and amortization ranged from 37.5% to depreciation and amortization ranged from 37.5% to 107.0% in 2017. 107.0% in 2017. The The following following table shows capital spending table shows capital spending for for operations by business segment for the years ended operations by business segment for the years ended December 31, 2017, 2016 and 2015, excluding amounts December 31, 2017, 2016 and 2015, excluding amounts related to discontinued operations of $111 million in 2017, related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015. $107 million in 2016 and $177 million in 2015. In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Subtotal Subtotal Corporate and other Corporate and other Capital Spending Capital Spending 2017 2017 2016 2016 2015 2015 $ $ 836 $ 836 $ 832 $ 871 832 $ 871 188 188 235 235 1,259 1,259 21 21 174 174 215 215 129 129 232 232 1,221 1,221 1,232 1,232 20 20 78 78 $ 1,280 $ 1,241 $1,310 $ 1,280 $ 1,241 $1,310 Capital expenditures in 2018 are currently expected to Capital expenditures in 2018 are currently expected to be about $1.5 billion, or 111% of depreciation and be about $1.5 billion, or 111% of depreciation and amortization. amortization. See Note 6 Acquisitions and Joint Ventures on pages 51 See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and through 53 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's Supplementary Data for a discussion of the Company's acquisitions. acquisitions. Financing Activities Financing Activities Amounts related to early debt extinguishment during the Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were years ended December 31, 2017, 2016 and 2015 were as follows: as follows: In millions In millions Debt reductions (a) Debt reductions (a) Pre-tax early debt extinguishment costs Pre-tax early debt extinguishment costs (b) (b) 83 83 29 29 207 207 2017 2017 2016 2016 2015 2015 $ 993 $ 266 $ 2,151 $ 993 $ 266 $ 2,151 (a) Reductions related to notes with interest rates ranging from (a) Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). 12 Variable Interest Entities). (b) Amounts are included in Restructuring and other charges in the (b) Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. accompanying consolidated statements of operations. 2017: Financing activities during 2017 included debt 2017: Financing activities during 2017 included debt issuances of $1.9 billion and retirements of $1.4 billion issuances of $1.9 billion and retirements of $1.4 billion for a net increase of $483 million. for a net increase of $483 million. International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2017, International interest expense. At December 31, 2017, International Paper had no interest rate swap contracts outstanding Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2017, the inclusion of the Supplementary Data). During 2017, the inclusion of the offsetting interest income from short-term investments offsetting interest income from short-term investments reduced the effective interest rate from 5.0% to 4.7%. reduced the effective interest rate from 5.0% to 4.7%. In 2017, International Paper issued $1.0 billion of 4.35% In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination proceeds from this offering, together with a combination of available cash and other borrowings, were used to of available cash and other borrowings, were used to make a $1.25 billion voluntary cash contribution to the make a $1.25 billion voluntary cash contribution to the Company's pension plan. Company's pension plan. In December 2017, In December 2017, International Paper received $660 million in cash International Paper received $660 million in cash proceeds from a new loan entered into as part of the proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are repayments, including $82 million of cash premiums, are included in restructuring and other charges in the included in restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the twelve months ended December 31, 2017. The $660 the twelve months ended December 31, 2017. The $660 27 27 28 28 Brazilian Papers' sales volumes for uncoated freesheet Brazilian Papers' sales volumes for uncoated freesheet paper in 2017 were higher compared with 2016 reflecting paper in 2017 were higher compared with 2016 reflecting improving economic conditions. Average sales price improving economic conditions. Average sales price realizations increased primarily for domestic uncoated realizations increased primarily for domestic uncoated freesheet paper due to the realization of price increases freesheet paper due to the realization of price increases implemented implemented in 2016, while export sales price in 2016, while export sales price realizations also realizations also increased. Raw material costs increased. Raw material costs decreased for pulp, but were partly offset by higher costs decreased for pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were lower for chemicals and virgin fiber. Operating costs were lower than in 2016. Planned maintenance downtime costs than in 2016. Planned maintenance downtime costs were $4 million lower. were $4 million lower. International Paper accounts for its investment in Ilim International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting. segment, using the equity method of accounting. The Company recorded equity earnings, net of taxes, The Company recorded equity earnings, net of taxes, related to Ilim of $183 million in 2017 compared with related to Ilim of $183 million in 2017 compared with earnings of $199 million in 2016 and earnings of $131 earnings of $199 million in 2016 and earnings of $131 million in 2015. Operating results recorded in 2017 million in 2015. Operating results recorded in 2017 included an after-tax noncash foreign exchange gain of included an after-tax noncash foreign exchange gain of $15 million compared with an after-tax foreign exchange $15 million compared with an after-tax foreign exchange Looking ahead to 2018, compared with the fourth quarter Looking ahead to 2018, compared with the fourth quarter gain of $25 million in 2016 and an after-tax foreign gain of $25 million in 2016 and an after-tax foreign of 2017, sales volumes for uncoated freesheet paper in of 2017, sales volumes for uncoated freesheet paper in exchange loss of $75 million in 2015 primarily on the exchange loss of $75 million in 2015 primarily on the the first quarter are expected to be seasonally weaker in the first quarter are expected to be seasonally weaker in remeasurement of Ilim's U.S. dollar denominated net remeasurement of Ilim's U.S. dollar denominated net both domestic and export markets. Average sales price both domestic and export markets. Average sales price debt. debt. realizations should increase due to the implementation realizations should increase due to the implementation of sales price increases in both domestic and export of sales price increases in both domestic and export Sales volumes for the joint venture decreased year over Sales volumes for the joint venture decreased year over markets. Input costs are expected to be slightly higher markets. Input costs are expected to be slightly higher year for shipments to China of softwood pulp and year for shipments to China of softwood pulp and for wood, chemicals and energy. Planned maintenance for wood, chemicals and energy. Planned maintenance linerboard, but were partially offset by increased sales of linerboard, but were partially offset by increased sales of downtime costs are expected to be $5 million higher in downtime costs are expected to be $5 million higher in hardwood pulp to China. Sales volumes in the Russian hardwood pulp to China. Sales volumes in the Russian the first quarter of 2018. the first quarter of 2018. European Papers European Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ 1,187 $ 1,109 $ 1,064 $ 1,187 $ 1,109 $ 1,064 $ $ 136 $ 136 $ 142 $ 142 $ 111 111 European Papers' sales volumes for uncoated freesheet European Papers' sales volumes for uncoated freesheet paper in 2017 were lower in Russia and about flat in paper in 2017 were lower in Russia and about flat in Europe compared with 2016. Average sales price Europe compared with 2016. Average sales price realizations improved for uncoated freesheet paper realizations improved for uncoated freesheet paper following price increases implemented in 2017. Input following price increases implemented in 2017. Input costs were higher for wood, energy, chemicals and costs were higher for wood, energy, chemicals and purchased pulp. Planned maintenance downtime costs purchased pulp. Planned maintenance downtime costs were $22 million lower in 2017 than in 2016. were $22 million lower in 2017 than in 2016. Entering 2018, sales volumes for uncoated freesheet Entering 2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be stable. paper in the first quarter are expected to be stable. Average sales price realizations are expected to be Average sales price realizations are expected to be slightly lower in Russia, but higher in Europe. Input costs slightly lower in Russia, but higher in Europe. Input costs should be slightly lower, mainly for wood. Planned should be slightly lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 maintenance downtime costs in the first quarter of 2018 should be $8 million higher than in the fourth quarter of should be $8 million higher than in the fourth quarter of 2017. 2017. Indian Papers Indian Papers In millions In millions Net Sales Net Sales Operating Profit (Loss) Operating Profit (Loss) 2017 2017 2016 2016 2015 2015 $ $ $ $ 189 $ 189 $ (5) $ (5) $ 167 $ 167 $ (11) $ (11) $ 172 172 (11) (11) Indian Papers' average sales price realizations in 2017 Indian Papers' average sales price realizations in 2017 were higher than in 2016. Sales volumes also increased. were higher than in 2016. Sales volumes also increased. Input costs were lower for wood, partially offset by higher Input costs were lower for wood, partially offset by higher chemical costs. Operating costs were higher in 2017, chemical costs. Operating costs were higher in 2017, while planned maintenance downtime costs were even while planned maintenance downtime costs were even with 2016. Looking ahead to the first quarter of 2018, with 2016. Looking ahead to the first quarter of 2018, sales volumes are expected to be slightly lower than in sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to increase. sales price realizations are expected to increase. 27 27 market decreased for softwood pulp and hardwood pulp, market decreased for softwood pulp and hardwood pulp, but increased for linerboard. Average sales price but increased for linerboard. Average sales price realizations were higher in 2017 for sales of softwood realizations were higher in 2017 for sales of softwood pulp, hardwood pulp and linerboard to China and other pulp, hardwood pulp and linerboard to China and other export markets. Average sales price realizations in export markets. Average sales price realizations in Russian markets increased year over year for all Russian markets increased year over year for all products. Input costs also increased in 2017 for wood, products. Input costs also increased in 2017 for wood, energy and fuel. Distribution costs were higher in 2017. energy and fuel. Distribution costs were higher in 2017. The Company received cash dividends from the joint The Company received cash dividends from the joint venture of $133 million in 2017, $58 million in 2016, and venture of $133 million in 2017, $58 million in 2016, and $35 million in 2015. $35 million in 2015. Entering the first quarter of 2018, sales volumes are Entering the first quarter of 2018, sales volumes are expected to be lower than in the fourth quarter of 2017 expected to be lower than in the fourth quarter of 2017 due to the seasonal slowdown in Russia and export due to the seasonal slowdown in Russia and export markets. Average sales price realizations are expected markets. Average sales price realizations are expected to increase for hardwood pulp, softwood pulp and to increase for hardwood pulp, softwood pulp and linerboard to China. Input costs are expected to be lower, linerboard to China. Input costs are expected to be lower, while distribution costs are projected to increase. while distribution costs are projected to increase. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY AND CAPITAL RESOURCES Overview Overview A major factor in International Paper’s liquidity and capital A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and which is highly sensitive to changes in the pricing and demand for our major products. While changes in key demand for our major products. While changes in key cash operating costs, such as energy, raw material and cash operating costs, such as energy, raw material and transportation costs, do have an effect on operating cash transportation costs, do have an effect on operating cash generation, we believe that our focus on pricing and cost generation, we believe that our focus on pricing and cost controls has improved our cash flow generation over an controls has improved our cash flow generation over an operating cycle. operating cycle. Cash uses during 2017 were primarily focused on Cash uses during 2017 were primarily focused on working capital requirements, capital spending, debt working capital requirements, capital spending, debt reductions, pension contributions, and returning cash to reductions, pension contributions, and returning cash to shareholders. shareholders. Equity Earnings, Net of Taxes – Ilim Holding S.A. Equity Earnings, Net of Taxes – Ilim Holding S.A. Cash Provided by Operating Activities Cash Provided by Operating Activities Acquisitions and Joint Ventures Acquisitions and Joint Ventures Cash provided by operations, including discontinued Cash provided by operations, including discontinued operations, totaled $1.8 billion in 2017 compared with operations, totaled $1.8 billion in 2017 compared with $2.5 billion for 2016 and $2.6 billion for 2015. Cash used $2.5 billion for 2016 and $2.6 billion for 2015. Cash used by working capital components (accounts receivable and by working capital components (accounts receivable and inventory less accounts payable and accrued liabilities, inventory less accounts payable and accrued liabilities, interest payable and other) totaled $402 million in 2017, interest payable and other) totaled $402 million in 2017, compared with cash provided by working capital compared with cash provided by working capital components of $71 million in 2016 and a cash use for components of $71 million in 2016 and a cash use for working capital components of $222 million in 2015. The working capital components of $222 million in 2015. The increase in 2017 working capital is largely due to growth increase in 2017 working capital is largely due to growth in receivables primarily tied to year-over-year price in receivables primarily tied to year-over-year price increases. increases. Investment Activities Investment Activities Including discontinued operations, investment activities Including discontinued operations, investment activities in 2017 decreased from 2016 as 2016 included the in 2017 decreased from 2016 as 2016 included the purchase of Weyerhaeuser's pulp business for $2.2 purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging business of $108 from the sale of the Asia Packaging business of $108 million, net of cash divested. In 2015, investment activity million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 includes higher capital spending and the use of $198 million of cash in conjunction with the timber monetization million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries on pages 63 through Preferred Securities of Subsidiaries on pages 63 through 64 of Item 8. Financial Statements and Supplementary 64 of Item 8. Financial Statements and Supplementary Data). The Company maintains an average capital Data). The Company maintains an average capital spending target around depreciation and amortization spending target around depreciation and amortization levels or modestly above due to strategic plans over the levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 course of an economic cycle. Capital spending was $1.4 billion in 2017, or 98% of depreciation and amortization, billion in 2017, or 98% of depreciation and amortization, compared with $1.3 billion in 2016, or 110% of compared with $1.3 billion in 2016, or 110% of depreciation and amortization, and $1.5 billion, or 115% depreciation and amortization, and $1.5 billion, or 115% of depreciation and amortization in 2015. Across our of depreciation and amortization in 2015. Across our businesses, capital spending as a percentage of businesses, capital spending as a percentage of depreciation and amortization ranged from 37.5% to depreciation and amortization ranged from 37.5% to 107.0% in 2017. 107.0% in 2017. following following table shows capital spending table shows capital spending The for for The operations by business segment for the years ended operations by business segment for the years ended December 31, 2017, 2016 and 2015, excluding amounts December 31, 2017, 2016 and 2015, excluding amounts related to discontinued operations of $111 million in 2017, related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015. $107 million in 2016 and $177 million in 2015. In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Subtotal Subtotal Corporate and other Corporate and other Capital Spending Capital Spending $ $ 2017 2017 2016 2016 836 $ 836 $ 188 188 2015 2015 832 $ 871 832 $ 871 129 129 174 174 232 215 232 215 1,232 1,221 1,232 1,221 78 78 $ 1,280 $ 1,241 $1,310 $ 1,280 $ 1,241 $1,310 235 235 1,259 1,259 20 20 21 21 Capital expenditures in 2018 are currently expected to Capital expenditures in 2018 are currently expected to be about $1.5 billion, or 111% of depreciation and be about $1.5 billion, or 111% of depreciation and amortization. amortization. 28 28 See Note 6 Acquisitions and Joint Ventures on pages 51 See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and through 53 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's Supplementary Data for a discussion of the Company's acquisitions. acquisitions. Financing Activities Financing Activities Amounts related to early debt extinguishment during the Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were years ended December 31, 2017, 2016 and 2015 were as follows: as follows: In millions In millions Debt reductions (a) Debt reductions (a) 2017 2017 2016 2016 2015 2015 $ 993 $ 266 $ 2,151 $ 993 $ 266 $ 2,151 Pre-tax early debt extinguishment costs Pre-tax early debt extinguishment costs (b) (b) 83 83 29 29 207 207 (a) Reductions related to notes with interest rates ranging from (a) Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). 12 Variable Interest Entities). (b) Amounts are included in Restructuring and other charges in the (b) Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. accompanying consolidated statements of operations. 2017: Financing activities during 2017 included debt 2017: Financing activities during 2017 included debt issuances of $1.9 billion and retirements of $1.4 billion issuances of $1.9 billion and retirements of $1.4 billion for a net increase of $483 million. for a net increase of $483 million. International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2017, International interest expense. At December 31, 2017, International Paper had no interest rate swap contracts outstanding Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2017, the inclusion of the Supplementary Data). During 2017, the inclusion of the offsetting interest income from short-term investments offsetting interest income from short-term investments reduced the effective interest rate from 5.0% to 4.7%. reduced the effective interest rate from 5.0% to 4.7%. In 2017, International Paper issued $1.0 billion of 4.35% In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination proceeds from this offering, together with a combination of available cash and other borrowings, were used to of available cash and other borrowings, were used to make a $1.25 billion voluntary cash contribution to the make a $1.25 billion voluntary cash contribution to the In December 2017, Company's pension plan. In December 2017, Company's pension plan. International Paper received $660 million in cash International Paper received $660 million in cash proceeds from a new loan entered into as part of the proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are repayments, including $82 million of cash premiums, are included in restructuring and other charges in the included in restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the twelve months ended December 31, 2017. The $660 the twelve months ended December 31, 2017. The $660 million term loan was subsequently assumed by Graphic million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale in the accompanying classified as Liabilities held for sale in the accompanying consolidated balance sheet. consolidated balance sheet. In December 2016, International Paper entered into a In December 2016, International Paper entered into a new $1.5 billion contractually committed credit facility that new $1.5 billion contractually committed credit facility that expires in December 2021 and has a facility fee of 0.15% expires in December 2021 and has a facility fee of 0.15% payable annually. payable annually. 2015. 2015. operations for the twelve months ended December 31, operations for the twelve months ended December 31, Contractual obligations for future payments under Contractual obligations for future payments under In June 2016, International Paper entered into a In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As be issued either as fixed notes or floating rate notes. As of December 31, 2017 and 2016, the Company had $180 of December 31, 2017 and 2016, the Company had $180 million and $165 million, respectively, outstanding under million and $165 million, respectively, outstanding under this commercial paper program. this commercial paper program. Other financing activities during 2017 included the net Other financing activities during 2017 included the net issuance of approximately 1.7 million shares of treasury issuance of approximately 1.7 million shares of treasury stock, including restricted stock withholding. Payments stock, including restricted stock withholding. Payments of restricted stock withholding taxes totaled $47.0 million. of restricted stock withholding taxes totaled $47.0 million. In October 2017, International Paper announced that the In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth share to $0.4750 per share, effective for the 2017 fourth quarter. quarter. 2016: Financing activities during 2016 included debt 2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion. for a net increase of $1.9 billion. International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2016, International interest expense. At December 31, 2016, International Paper had no interest rate swap contracts outstanding Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2016, the amortization of Supplementary Data). During 2016, the amortization of deferred gains on previously terminated swaps had no deferred gains on previously terminated swaps had no impact on the weighted average cost of long-term impact on the weighted average cost of long-term recourse debt. The inclusion of the offsetting interest recourse debt. The inclusion of the offsetting interest the income the income effective rate from 5.3% to 4.8%. effective rate from 5.3% to 4.8%. investments reduced investments reduced from short-term from short-term In 2016, International Paper issued $1.1 billion of 3.00% In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047, the proceeds from which were maturity date in 2047, the proceeds from which were primarily used to fund the acquisition of Weyerhaeuser's primarily used to fund the acquisition of Weyerhaeuser's the Company repaid pulp business. pulp business. the Company repaid approximately $266 million of notes with an interest rate approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt debt retirement costs of $29 million related to the debt repayments, including the $31 million of cash premiums, repayments, including the $31 million of cash premiums, are included in restructuring and other charges in the are included in restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the twelve months ended December 31, 2016. the twelve months ended December 31, 2016. In addition, In addition, Other financing activities during 2015 included the net Other financing activities during 2015 included the net repurchase of approximately 8.0 million shares of repurchase of approximately 8.0 million shares of treasury stock, including restricted stock withholding, and treasury stock, including restricted stock withholding, and the issuance of 62,000 shares of common stock for the issuance of 62,000 shares of common stock for various plans, including stock option exercises that various plans, including stock option exercises that generated approximately $2.4 million of cash. generated approximately $2.4 million of cash. Repurchases of common stock and payments of Repurchases of common stock and payments of restricted stock withholding taxes totaled $604.6 million, restricted stock withholding taxes totaled $604.6 million, including $522.6 million related to shares repurchased including $522.6 million related to shares repurchased under the Company's share repurchase program. under the Company's share repurchase program. In October 2015, International Paper announced that the In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth share to $0.44 per share, effective for the 2015 fourth quarter. quarter. Variable Interest Entities Variable Interest Entities Information concerning variable interest entities is set Information concerning variable interest entities is set forth in Note 12 Variable Interest Entities on pages 63 forth in Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and through 64 of Item 8. Financial Statements and Supplementary Data for discussion. Supplementary Data for discussion. Liquidity and Capital Resources Outlook for 2018 Liquidity and Capital Resources Outlook for 2018 Capital Expenditures and Long-Term Debt Capital Expenditures and Long-Term Debt International Paper expects to be able to meet projected International Paper expects to be able to meet projected capital expenditures, service existing debt and meet capital expenditures, service existing debt and meet working capital and dividend requirements during 2018 working capital and dividend requirements during 2018 with current cash balances and cash from operations. with current cash balances and cash from operations. Additionally, the Company has existing credit facilities Additionally, the Company has existing credit facilities totaling $2.1 billion available at December 31, 2017. totaling $2.1 billion available at December 31, 2017. The Company will continue to rely upon debt and capital The Company will continue to rely upon debt and capital markets for the majority of any necessary long-term markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed majority of International Paper’s debt is accessed through global public capital markets where we have a through global public capital markets where we have a wide base of investors. The Company was in compliance wide base of investors. The Company was in compliance with all its debt covenants at December 31, 2017 and was with all its debt covenants at December 31, 2017 and was well below the thresholds stipulated under the covenants well below the thresholds stipulated under the covenants as defined in the credit agreements. as defined in the credit agreements. Maintaining an investment grade credit rating is an Maintaining an investment grade credit rating is an important element of International Paper’s financing important element of International Paper’s financing strategy. At December 31, 2017, the Company held long- strategy. At December 31, 2017, the Company held long- term credit ratings of BBB (stable outlook) and Baa2 term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. (stable outlook) by S&P and Moody’s, respectively. existing debt and lease commitments and purchase existing debt and lease commitments and purchase obligations at December 31, 2017, were as follows: obligations at December 31, 2017, were as follows: In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter Maturities of long-term Maturities of long-term debt (a) debt (a) Lease obligations Lease obligations Purchase obligations (b) Purchase obligations (b) $ $ 311 $ 311 $ 126 $ 126 $ 164 $ 164 $ 440 $ 440 $ 956 $ 956 $ 9,160 9,160 130 130 3,415 3,415 102 102 680 680 77 77 583 583 53 53 523 523 37 37 463 463 141 141 2,197 2,197 Total (c) Total (c) $ 3,856 $ $ 3,856 $ 908 $ 908 $ 824 $ 1,016 $ 1,456 $ 824 $ 1,016 $ 1,456 $ 11,498 11,498 (a) Total debt includes scheduled principal payments only. (a) Total debt includes scheduled principal payments only. (b) (b) Includes $1.6 billion relating to fiber supply agreements entered Includes $1.6 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling Company’s Containerboard, Packaging and Recycling business. Also includes $1.2 billion relating to fiber supply business. Also includes $1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business. of Weyerhaeuser's pulp business. (c) Not included in the above table due to the uncertainty of the (c) Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits amount and timing of the payment are unrecognized tax benefits of approximately $134 million. of approximately $134 million. We consider the undistributed earnings of our foreign We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017, to be permanently subsidiaries as of December 31, 2017, to be permanently reinvested and, accordingly, no U.S. income taxes have reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax been provided thereon. As a result of recent U.S. tax legislation, the Company is evaluating this assertion (see legislation, the Company is evaluating this assertion (see Note 10 Income Taxes on pages 57 through 60 of Item Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). As of 8. Financial Statements and Supplementary Data). As of December 31, 2017, the amount of cash associated with December 31, 2017, the amount of cash associated with permanently permanently reinvested reinvested foreign foreign earnings was earnings was approximately $590 million. We do not anticipate the approximately $590 million. We do not anticipate the need to repatriate funds to the United States to satisfy need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our business, including liquidity needs associated with our domestic debt service requirements. domestic debt service requirements. Pension Obligations and Funding Pension Obligations and Funding At December 31, 2017, the projected benefit obligation At December 31, 2017, the projected benefit obligation for the Company’s U.S. defined benefit plans determined for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $1.9 billion higher under U.S. GAAP was approximately $1.9 billion higher than the fair value of plan assets. Approximately $1.5 than the fair value of plan assets. Approximately $1.5 billion of this amount relates to plans that are subject to billion of this amount relates to plans that are subject to minimum funding requirements. Under current IRS minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding funding rules, the calculation of minimum funding requirements differs from the calculation of the present requirements differs from the calculation of the present value of plan benefits(the projected benefit obligation) for value of plan benefits(the projected benefit obligation) for accounting purposes. In December 2008, the Worker, accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension passed by the U.S. Congress which provided for pension funding relief and funding relief and technical corrections. Funding technical corrections. Funding contributions depend on the funding method selected by contributions depend on the funding method selected by the Company, and the timing of its implementation, as the Company, and the timing of its implementation, as Other financing activities during 2016 included the net Other financing activities during 2016 included the net repurchase of approximately 0.9 million shares of repurchase of approximately 0.9 million shares of treasury stock, including restricted stock withholding. treasury stock, including restricted stock withholding. Repurchases of common stock and payments of Repurchases of common stock and payments of restricted stock withholding taxes totaled $132.3 million, restricted stock withholding taxes totaled $132.3 million, including $100.1 million related to shares repurchased including $100.1 million related to shares repurchased under the Company's share repurchase program. under the Company's share repurchase program. In October 2016, International Paper announced that the In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth share to $0.46 per share, effective for the 2016 fourth quarter. quarter. 2015: Financing activities during 2015 included debt 2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million. for a net decrease of $74 million. During 2015, the Company restructured the timber During 2015, the Company restructured the timber monetization which resulted in the use of $630 million in monetization which resulted in the use of $630 million in cash to pay down a portion of the third party bank loans cash to pay down a portion of the third party bank loans and refinance the loans on nonrecourse terms. (see Note and refinance the loans on nonrecourse terms. (see Note 12 Variable Interest Entities on pages 63 through 64 of 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data). Item 8. Financial Statements and Supplementary Data). International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary 69 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 5.9% decreased the weighted average cost of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this interest income from short-term investments reduced this effective rate to 5.1%. effective rate to 5.1%. In 2015, International Paper issued $700 million of 3.80% In 2015, International Paper issued $700 million of 3.80% senior unsecured notes with a maturity date in 2026, $600 senior unsecured notes with a maturity date in 2026, $600 million of 5.00% senior unsecured notes with a maturity million of 5.00% senior unsecured notes with a maturity date in 2035, and $700 million of 5.15% senior unsecured date in 2035, and $700 million of 5.15% senior unsecured notes with a maturity date in 2046. The proceeds from notes with a maturity date in 2046. The proceeds from this borrowing were used to repay approximately $1.0 this borrowing were used to repay approximately $1.0 billion of notes with interest rates ranging from 4.75% to billion of notes with interest rates ranging from 4.75% to 9.38% and original maturities from 2018 to 2022, along 9.38% and original maturities from 2018 to 2022, along with $211 million of cash premiums associated with the with $211 million of cash premiums associated with the debt repayments. Additionally, the proceeds from this debt repayments. Additionally, the proceeds from this borrowing were used to make a $750 million voluntary borrowing were used to make a $750 million voluntary cash contribution to the Company's pension plan. Pre- cash contribution to the Company's pension plan. Pre- tax early debt retirement costs of $207 million related to tax early debt retirement costs of $207 million related to the debt repayments, including the $211 million of cash the debt repayments, including the $211 million of cash premiums, are included in restructuring and other premiums, are included in restructuring and other charges in the accompanying consolidated statement of charges in the accompanying consolidated statement of 29 29 30 30 million term loan was subsequently assumed by Graphic million term loan was subsequently assumed by Graphic In December 2016, International Paper entered into a In December 2016, International Paper entered into a Packaging International, LLC on January 1, 2018 and is Packaging International, LLC on January 1, 2018 and is new $1.5 billion contractually committed credit facility that new $1.5 billion contractually committed credit facility that classified as Liabilities held for sale in the accompanying classified as Liabilities held for sale in the accompanying expires in December 2021 and has a facility fee of 0.15% expires in December 2021 and has a facility fee of 0.15% consolidated balance sheet. consolidated balance sheet. payable annually. payable annually. In June 2016, International Paper entered into a In June 2016, International Paper entered into a Other financing activities during 2016 included the net Other financing activities during 2016 included the net commercial paper program with a borrowing capacity of commercial paper program with a borrowing capacity of repurchase of approximately 0.9 million shares of repurchase of approximately 0.9 million shares of $750 million. Under the terms of the program, individual $750 million. Under the terms of the program, individual treasury stock, including restricted stock withholding. treasury stock, including restricted stock withholding. maturities on borrowings may vary, but not exceed one maturities on borrowings may vary, but not exceed one Repurchases of common stock and payments of Repurchases of common stock and payments of year from the date of issue. Interest bearing notes may year from the date of issue. Interest bearing notes may restricted stock withholding taxes totaled $132.3 million, restricted stock withholding taxes totaled $132.3 million, be issued either as fixed notes or floating rate notes. As be issued either as fixed notes or floating rate notes. As including $100.1 million related to shares repurchased including $100.1 million related to shares repurchased of December 31, 2017 and 2016, the Company had $180 of December 31, 2017 and 2016, the Company had $180 under the Company's share repurchase program. under the Company's share repurchase program. million and $165 million, respectively, outstanding under million and $165 million, respectively, outstanding under this commercial paper program. this commercial paper program. Other financing activities during 2017 included the net Other financing activities during 2017 included the net issuance of approximately 1.7 million shares of treasury issuance of approximately 1.7 million shares of treasury stock, including restricted stock withholding. Payments stock, including restricted stock withholding. Payments of restricted stock withholding taxes totaled $47.0 million. of restricted stock withholding taxes totaled $47.0 million. In October 2017, International Paper announced that the In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth share to $0.4750 per share, effective for the 2017 fourth quarter. quarter. 2016: Financing activities during 2016 included debt 2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion. for a net increase of $1.9 billion. International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2016, International interest expense. At December 31, 2016, International Paper had no interest rate swap contracts outstanding Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2016, the amortization of Supplementary Data). During 2016, the amortization of deferred gains on previously terminated swaps had no deferred gains on previously terminated swaps had no impact on the weighted average cost of long-term impact on the weighted average cost of long-term recourse debt. The inclusion of the offsetting interest recourse debt. The inclusion of the offsetting interest income income from short-term from short-term investments reduced investments reduced the the effective rate from 5.3% to 4.8%. effective rate from 5.3% to 4.8%. In 2016, International Paper issued $1.1 billion of 3.00% In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047, the proceeds from which were maturity date in 2047, the proceeds from which were primarily used to fund the acquisition of Weyerhaeuser's primarily used to fund the acquisition of Weyerhaeuser's pulp business. pulp business. In addition, In addition, the Company repaid the Company repaid approximately $266 million of notes with an interest rate approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt debt retirement costs of $29 million related to the debt repayments, including the $31 million of cash premiums, repayments, including the $31 million of cash premiums, are included in restructuring and other charges in the are included in restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the twelve months ended December 31, 2016. the twelve months ended December 31, 2016. In October 2016, International Paper announced that the In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth share to $0.46 per share, effective for the 2016 fourth quarter. quarter. 2015: Financing activities during 2015 included debt 2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million. for a net decrease of $74 million. During 2015, the Company restructured the timber During 2015, the Company restructured the timber monetization which resulted in the use of $630 million in monetization which resulted in the use of $630 million in cash to pay down a portion of the third party bank loans cash to pay down a portion of the third party bank loans and refinance the loans on nonrecourse terms. (see Note and refinance the loans on nonrecourse terms. (see Note 12 Variable Interest Entities on pages 63 through 64 of 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data). Item 8. Financial Statements and Supplementary Data). International Paper utilizes interest rate swaps to change International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary 69 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 5.9% decreased the weighted average cost of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this interest income from short-term investments reduced this effective rate to 5.1%. effective rate to 5.1%. In 2015, International Paper issued $700 million of 3.80% In 2015, International Paper issued $700 million of 3.80% senior unsecured notes with a maturity date in 2026, $600 senior unsecured notes with a maturity date in 2026, $600 million of 5.00% senior unsecured notes with a maturity million of 5.00% senior unsecured notes with a maturity date in 2035, and $700 million of 5.15% senior unsecured date in 2035, and $700 million of 5.15% senior unsecured notes with a maturity date in 2046. The proceeds from notes with a maturity date in 2046. The proceeds from this borrowing were used to repay approximately $1.0 this borrowing were used to repay approximately $1.0 billion of notes with interest rates ranging from 4.75% to billion of notes with interest rates ranging from 4.75% to 9.38% and original maturities from 2018 to 2022, along 9.38% and original maturities from 2018 to 2022, along with $211 million of cash premiums associated with the with $211 million of cash premiums associated with the debt repayments. Additionally, the proceeds from this debt repayments. Additionally, the proceeds from this borrowing were used to make a $750 million voluntary borrowing were used to make a $750 million voluntary cash contribution to the Company's pension plan. Pre- cash contribution to the Company's pension plan. Pre- tax early debt retirement costs of $207 million related to tax early debt retirement costs of $207 million related to the debt repayments, including the $211 million of cash the debt repayments, including the $211 million of cash premiums, are included in restructuring and other premiums, are included in restructuring and other charges in the accompanying consolidated statement of charges in the accompanying consolidated statement of operations for the twelve months ended December 31, operations for the twelve months ended December 31, 2015. 2015. Other financing activities during 2015 included the net Other financing activities during 2015 included the net repurchase of approximately 8.0 million shares of repurchase of approximately 8.0 million shares of treasury stock, including restricted stock withholding, and treasury stock, including restricted stock withholding, and the issuance of 62,000 shares of common stock for the issuance of 62,000 shares of common stock for various plans, including stock option exercises that various plans, including stock option exercises that generated approximately $2.4 million of cash. generated approximately $2.4 million of cash. Repurchases of common stock and payments of Repurchases of common stock and payments of restricted stock withholding taxes totaled $604.6 million, restricted stock withholding taxes totaled $604.6 million, including $522.6 million related to shares repurchased including $522.6 million related to shares repurchased under the Company's share repurchase program. under the Company's share repurchase program. In October 2015, International Paper announced that the In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth share to $0.44 per share, effective for the 2015 fourth quarter. quarter. Variable Interest Entities Variable Interest Entities Information concerning variable interest entities is set Information concerning variable interest entities is set forth in Note 12 Variable Interest Entities on pages 63 forth in Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and through 64 of Item 8. Financial Statements and Supplementary Data for discussion. Supplementary Data for discussion. Liquidity and Capital Resources Outlook for 2018 Liquidity and Capital Resources Outlook for 2018 Capital Expenditures and Long-Term Debt Capital Expenditures and Long-Term Debt International Paper expects to be able to meet projected International Paper expects to be able to meet projected capital expenditures, service existing debt and meet capital expenditures, service existing debt and meet working capital and dividend requirements during 2018 working capital and dividend requirements during 2018 with current cash balances and cash from operations. with current cash balances and cash from operations. Additionally, the Company has existing credit facilities Additionally, the Company has existing credit facilities totaling $2.1 billion available at December 31, 2017. totaling $2.1 billion available at December 31, 2017. The Company will continue to rely upon debt and capital The Company will continue to rely upon debt and capital markets for the majority of any necessary long-term markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed majority of International Paper’s debt is accessed through global public capital markets where we have a through global public capital markets where we have a wide base of investors. The Company was in compliance wide base of investors. The Company was in compliance with all its debt covenants at December 31, 2017 and was with all its debt covenants at December 31, 2017 and was well below the thresholds stipulated under the covenants well below the thresholds stipulated under the covenants as defined in the credit agreements. as defined in the credit agreements. Maintaining an investment grade credit rating is an Maintaining an investment grade credit rating is an important element of International Paper’s financing important element of International Paper’s financing strategy. At December 31, 2017, the Company held long- strategy. At December 31, 2017, the Company held long- term credit ratings of BBB (stable outlook) and Baa2 term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. (stable outlook) by S&P and Moody’s, respectively. 29 29 30 30 Contractual obligations for future payments under Contractual obligations for future payments under existing debt and lease commitments and purchase existing debt and lease commitments and purchase obligations at December 31, 2017, were as follows: obligations at December 31, 2017, were as follows: In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter Maturities of long-term Maturities of long-term debt (a) debt (a) Lease obligations Lease obligations Purchase obligations (b) Purchase obligations (b) $ $ 311 $ 311 $ 126 $ 126 $ 164 $ 164 $ 440 $ 440 $ 956 $ 956 $ 9,160 9,160 130 130 3,415 3,415 102 102 680 680 77 77 583 583 53 53 523 523 37 37 463 463 141 141 2,197 2,197 Total (c) Total (c) $ 3,856 $ $ 3,856 $ 908 $ 908 $ 824 $ 1,016 $ 1,456 $ 824 $ 1,016 $ 1,456 $ 11,498 11,498 (a) Total debt includes scheduled principal payments only. (a) Total debt includes scheduled principal payments only. (b) (b) Includes $1.6 billion relating to fiber supply agreements entered Includes $1.6 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling Company’s Containerboard, Packaging and Recycling business. Also includes $1.2 billion relating to fiber supply business. Also includes $1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business. of Weyerhaeuser's pulp business. (c) Not included in the above table due to the uncertainty of the (c) Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits amount and timing of the payment are unrecognized tax benefits of approximately $134 million. of approximately $134 million. We consider the undistributed earnings of our foreign We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017, to be permanently subsidiaries as of December 31, 2017, to be permanently reinvested and, accordingly, no U.S. income taxes have reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax been provided thereon. As a result of recent U.S. tax legislation, the Company is evaluating this assertion (see legislation, the Company is evaluating this assertion (see Note 10 Income Taxes on pages 57 through 60 of Item Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). As of 8. Financial Statements and Supplementary Data). As of December 31, 2017, the amount of cash associated with December 31, 2017, the amount of cash associated with earnings was permanently earnings was permanently approximately $590 million. We do not anticipate the approximately $590 million. We do not anticipate the need to repatriate funds to the United States to satisfy need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our business, including liquidity needs associated with our domestic debt service requirements. domestic debt service requirements. reinvested reinvested foreign foreign Pension Obligations and Funding Pension Obligations and Funding At December 31, 2017, the projected benefit obligation At December 31, 2017, the projected benefit obligation for the Company’s U.S. defined benefit plans determined for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $1.9 billion higher under U.S. GAAP was approximately $1.9 billion higher than the fair value of plan assets. Approximately $1.5 than the fair value of plan assets. Approximately $1.5 billion of this amount relates to plans that are subject to billion of this amount relates to plans that are subject to minimum funding requirements. Under current IRS minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding funding rules, the calculation of minimum funding requirements differs from the calculation of the present requirements differs from the calculation of the present value of plan benefits(the projected benefit obligation) for value of plan benefits(the projected benefit obligation) for accounting purposes. In December 2008, the Worker, accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension passed by the U.S. Congress which provided for pension technical corrections. Funding funding relief and technical corrections. Funding funding relief and contributions depend on the funding method selected by contributions depend on the funding method selected by the Company, and the timing of its implementation, as the Company, and the timing of its implementation, as well as on actual demographic data and the targeted well as on actual demographic data and the targeted funding level. The Company continually reassesses the funding level. The Company continually reassesses the amount and timing of any discretionary contributions and amount and timing of any discretionary contributions and elected to make contributions totaling $1,250 million and elected to make contributions totaling $1,250 million and $750 million for the years ended December 31, 2017 and $750 million for the years ended December 31, 2017 and 2016, respectively. At this time, we do not expect to have 2016, respectively. At this time, we do not expect to have any required contributions to our plans in 2018, although any required contributions to our plans in 2018, although the Company may elect to make future voluntary the Company may elect to make future voluntary contributions. The future contributions. The future contributions, which could be material, will depend on a contributions, which could be material, will depend on a number of factors, including the actual earnings and number of factors, including the actual earnings and changes in values of plan assets and changes in interest changes in values of plan assets and changes in interest rates. rates. timing and amount of timing and amount of During the fourth quarter of 2017, the Company entered During the fourth quarter of 2017, the Company entered into an agreement with The Prudential Insurance into an agreement with The Prudential Insurance Company of America to purchase a group annuity Company of America to purchase a group annuity contract and transfer approximately $1.3 billion of contract and transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan International Paper's U.S. qualified pension plan projected benefit obligations. The transaction closed on projected benefit obligations. The transaction closed on October 3, 2017 and was funded with pension plan October 3, 2017 and was funded with pension plan assets. Under the transaction, at the end of 2017, assets. Under the transaction, at the end of 2017, Prudential assumed responsibility for pension benefits Prudential assumed responsibility for pension benefits and annuity administration for approximately 45,000 and annuity administration for approximately 45,000 retirees or their beneficiaries receiving less than $450 in retirees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan. Settlement monthly benefit payments from the plan. Settlement accounting rules required a remeasurement of the accounting rules required a remeasurement of the qualified plan as of October 3, 2017 and the Company qualified plan as of October 3, 2017 and the Company recognized a non-cash pension settlement charge of recognized a non-cash pension settlement charge of $376 million before tax in the fourth quarter of 2017. In $376 million before tax in the fourth quarter of 2017. In addition, large payments from the non-qualified pension addition, large payments from the non-qualified pension plan also required a remeasurement as of October 2, plan also required a remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was 2017 and a non-cash settlement charge of $7 million was also recognized in the fourth quarter of 2017. also recognized in the fourth quarter of 2017. During the first quarter of 2016, International Paper During the first quarter of 2016, International Paper announced a voluntary, limited-time opportunity for announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The benefit in the form of a single lump sum payment. The amount of total payments under this program was amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted made, settlement accounting rules applied and resulted in a plan remeasurement as of the June 30, 2016 in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the payment date. As a result of settlement accounting, the Company the Company the unamortized net actuarial loss, after remeasurement, unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was subsequently payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and December 31, remeasured at September 30, 2016 and December 31, 2016. As a result of settlement accounting, the Company 2016. As a result of settlement accounting, the Company recognized non-cash settlement charges of $3 million in recognized non-cash settlement charges of $3 million in both the third and fourth quarters of 2016. both the third and fourth quarters of 2016. recognized a pro-rata portion of recognized a pro-rata portion of Ilim Holding S.A. Shareholder’s Agreement Ilim Holding S.A. Shareholder’s Agreement regarding projected outcomes and range of loss based regarding projected outcomes and range of loss based that the fair values of the Company's reporting units were that the fair values of the Company's reporting units were In October 2007, in connection with the formation of the In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, International Paper Ilim Holding S.A. joint venture, International Paper entered into a shareholder’s agreement that includes entered into a shareholder’s agreement that includes provisions relating to the reconciliation of disputes among provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, the partners. This agreement provides that at any time, either the Company or its partners may commence either the Company or its partners may commence procedures specified under the deadlock agreement. If procedures specified under the deadlock agreement. If these or any other deadlock procedures under the these or any other deadlock procedures under the shareholder's agreement are commenced, although it is shareholder's agreement are commenced, although it is not obligated to do so, the Company may in certain not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price the Company estimates that the current purchase price for its partners' 50% interests would be approximately for its partners' 50% interests would be approximately $1.5 billion, which could be satisfied by payment of cash $1.5 billion, which could be satisfied by payment of cash International Paper common stock, or some or International Paper common stock, or some or combination of the two, at the Company's option. The combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent position and results of operations in all subsequent periods. The parties have informed each other that they periods. The parties have informed each other that they have no current intention to commence procedures have no current intention to commence procedures specified under the specified under the shareholder’s agreement. shareholder’s agreement. the deadlock provisions of the deadlock provisions of CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES SIGNIFICANT ACCOUNTING ESTIMATES on historical experience and recommendations of legal on historical experience and recommendations of legal less than the carrying values of the reporting units. less than the carrying values of the reporting units. counsel. Liabilities for environmental matters require counsel. Liabilities for environmental matters require evaluations of relevant environmental regulations and evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. estimates of future remediation alternatives and costs. In addition, the Company considered whether there were In addition, the Company considered whether there were any events or circumstances subsequent to the annual any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units test that would reduce the fair value of its reporting units We calculate our workers' compensation reserves based We calculate our workers' compensation reserves based below their carrying amounts and necessitate another below their carrying amounts and necessitate another on estimated actuarially calculated development factors. on estimated actuarially calculated development factors. goodwill impairment test. In consideration of all relevant goodwill impairment test. In consideration of all relevant The workers' compensation reserves are reviewed at The workers' compensation reserves are reviewed at factors, there were no indicators that would require factors, there were no indicators that would require least quarterly to determine the adequacy of the accruals least quarterly to determine the adequacy of the accruals goodwill impairment subsequent to October 1, 2017. goodwill impairment subsequent to October 1, 2017. and related financial statement disclosure. While we and related financial statement disclosure. While we believe that our assumptions are appropriate, the believe that our assumptions are appropriate, the No goodwill impairment charges were recorded in 2017 No goodwill impairment charges were recorded in 2017 ultimate settlement of workers' compensation reserves ultimate settlement of workers' compensation reserves or 2016. or 2016. may differ significantly from amounts we have accrued may differ significantly from amounts we have accrued in our consolidated financial statements. in our consolidated financial statements. Impairment of Long-Lived Assets and Goodwill Impairment of Long-Lived Assets and Goodwill An impairment of a long-lived asset exists when the An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable recorded when the carrying amount is not recoverable through cash flows from future operations. A goodwill through cash flows from future operations. A goodwill impairment exists when the carrying amount of goodwill impairment exists when the carrying amount of goodwill exceeds exceeds its its fair value. Assessments of possible fair value. Assessments of possible impairments of long-lived assets and goodwill are made impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable the carrying value of the asset may not be recoverable through through future operations. Additionally, future operations. Additionally, testing testing for for In the fourth quarter of 2015, in conjunction with the In the fourth quarter of 2015, in conjunction with the annual annual testing of testing of its reporting units its reporting units for goodwill for goodwill impairment, the Company calculated the estimated fair impairment, the Company calculated the estimated fair value of its Brazil Packaging business using the value of its Brazil Packaging business using the discounted future cash flows and determined that all of discounted future cash flows and determined that all of the goodwill in the business, totaling $137 million, should the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall business caused by the continued decline of the overall Brazilian economy. Brazilian economy. Pension and Postretirement Benefit Obligations Pension and Postretirement Benefit Obligations possible impairment of goodwill and intangible asset possible impairment of goodwill and intangible asset The charges The charges recorded recorded for pension and other for pension and other balances is required annually. The amount and timing of balances is required annually. The amount and timing of postretirement benefit obligations are determined postretirement benefit obligations are determined any impairment charges based on these assessments any impairment charges based on these assessments annually annually in conjunction with in conjunction with International Paper’s International Paper’s require the estimation of future cash flows and the fair require the estimation of future cash flows and the fair consulting actuary, and are dependent upon various consulting actuary, and are dependent upon various market value of market value of the the related assets based on related assets based on assumptions including the expected long-term rate of assumptions including the expected long-term rate of management’s best estimates of certain key factors, management’s best estimates of certain key factors, return on plan assets, discount rates, projected future return on plan assets, discount rates, projected future including future selling prices and volumes, operating, including future selling prices and volumes, operating, compensation increases, health care cost trend rates and compensation increases, health care cost trend rates and raw material, energy and freight costs, and various other raw material, energy and freight costs, and various other mortality rates. mortality rates. projected operating economic factors. As these key projected operating economic factors. As these key factors change in future periods, the Company will update factors change in future periods, the Company will update its impairment analyses to reflect its latest estimates and its impairment analyses to reflect its latest estimates and projections. projections. The calculations of pension and postretirement benefit The calculations of pension and postretirement benefit obligations and expenses require decisions about a obligations and expenses require decisions about a number of key assumptions that can significantly affect number of key assumptions that can significantly affect liability and expense amounts, including the expected liability and expense amounts, including the expected ASU 2011-08, "Intangibles - Goodwill and Other," allows ASU 2011-08, "Intangibles - Goodwill and Other," allows long-term rate of return on plan assets, the discount rate long-term rate of return on plan assets, the discount rate entities testing goodwill for impairment the option of entities testing goodwill for impairment the option of used to calculate plan liabilities, the projected rate of used to calculate plan liabilities, the projected rate of performing a qualitative ("Step 0") assessment before performing a qualitative ("Step 0") assessment before future compensation increases and health care cost trend future compensation increases and health care cost trend calculating the fair value of a reporting unit for the goodwill calculating the fair value of a reporting unit for the goodwill rates. rates. impairment test. If a Step 0 assessment is performed, an impairment test. If a Step 0 assessment is performed, an entity is no longer required to calculate the fair value of entity is no longer required to calculate the fair value of a reporting unit unless the entity determines that, based a reporting unit unless the entity determines that, based on that Step 0 assessment, it is more likely than not that on that Step 0 assessment, it is more likely than not that its fair value is less than its carrying value. its fair value is less than its carrying value. The Company performed its annual testing of its reporting The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the units for possible goodwill impairments by applying the qualitative Step 0 analysis to its reporting units as of qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company October 1, 2017. For the current year test, the Company assessed assessed various various assumptions, assumptions, events events and and circumstances that would have affected the estimated circumstances that would have affected the estimated fair value of the reporting units. The results of this fair value of the reporting units. The results of this assessment indicated that it is not more likely than not assessment indicated that it is not more likely than not Benefit obligations and fair values of plan assets as of Benefit obligations and fair values of plan assets as of December 31, 2017, for International Paper’s pension December 31, 2017, for International Paper’s pension and postretirement plans were as follows: and postretirement plans were as follows: In millions In millions U.S. qualified pension U.S. qualified pension U.S. nonqualified pension U.S. nonqualified pension U.S. postretirement U.S. postretirement Non-U.S. pension Non-U.S. pension Non-U.S. postretirement Non-U.S. postretirement Benefit Benefit Obligation Obligation Fair Value of Fair Value of Plan Assets Plan Assets $ $ 12,895 $ 12,895 $ 11,368 11,368 369 369 270 270 247 247 25 25 — — — — 176 176 — — Accounting policies whose application may have a Accounting policies whose application may have a significant effect on the reported results of operations and significant effect on the reported results of operations and financial position of International Paper, and that can financial position of International Paper, and that can require judgments by management that affect their require judgments by management that affect their application, include the accounting for contingencies, application, include the accounting for contingencies, impairment or disposal of long-lived assets and goodwill, impairment or disposal of long-lived assets and goodwill, pensions and postretirement benefit obligations, stock pensions and postretirement benefit obligations, stock options and income taxes. The Company has discussed options and income taxes. The Company has discussed the selection of critical accounting policies and the effect the selection of critical accounting policies and the effect of significant estimates with the Audit and Finance of significant estimates with the Audit and Finance Committee of the Company’s Board of Directors. Committee of the Company’s Board of Directors. Contingent Liabilities Contingent Liabilities Accruals for contingent liabilities, including legal, and Accruals for contingent liabilities, including legal, and environmental matters, are recorded when it is probable environmental matters, are recorded when it is probable that a liability has been incurred or an asset impaired and that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments Liabilities accrued for legal matters require judgments 31 31 32 32 The preparation of financial statements in conformity with The preparation of financial statements in conformity with accounting principles generally accepted in the United accounting principles generally accepted in the United States to establish States to establish accounting policies and to make estimates that affect accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these liabilities, revenues and expenses. Some of these estimates require judgments about matters that are estimates require judgments about matters that are inherently uncertain. inherently uncertain. International Paper International Paper requires requires well as on actual demographic data and the targeted well as on actual demographic data and the targeted Ilim Holding S.A. Shareholder’s Agreement Ilim Holding S.A. Shareholder’s Agreement funding level. The Company continually reassesses the funding level. The Company continually reassesses the amount and timing of any discretionary contributions and amount and timing of any discretionary contributions and elected to make contributions totaling $1,250 million and elected to make contributions totaling $1,250 million and $750 million for the years ended December 31, 2017 and $750 million for the years ended December 31, 2017 and 2016, respectively. At this time, we do not expect to have 2016, respectively. At this time, we do not expect to have any required contributions to our plans in 2018, although any required contributions to our plans in 2018, although the Company may elect to make future voluntary the Company may elect to make future voluntary contributions. The contributions. The timing and amount of timing and amount of future future contributions, which could be material, will depend on a contributions, which could be material, will depend on a number of factors, including the actual earnings and number of factors, including the actual earnings and changes in values of plan assets and changes in interest changes in values of plan assets and changes in interest rates. rates. In October 2007, in connection with the formation of the In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, International Paper Ilim Holding S.A. joint venture, International Paper entered into a shareholder’s agreement that includes entered into a shareholder’s agreement that includes provisions relating to the reconciliation of disputes among provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, the partners. This agreement provides that at any time, either the Company or its partners may commence either the Company or its partners may commence procedures specified under the deadlock agreement. If procedures specified under the deadlock agreement. If these or any other deadlock procedures under the these or any other deadlock procedures under the shareholder's agreement are commenced, although it is shareholder's agreement are commenced, although it is not obligated to do so, the Company may in certain not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review in Ilim. Any such transaction would be subject to review During the fourth quarter of 2017, the Company entered During the fourth quarter of 2017, the Company entered and approval by Russian and other relevant anti-trust and approval by Russian and other relevant anti-trust into an agreement with The Prudential Insurance into an agreement with The Prudential Insurance authorities. Based on the provisions of the agreement, authorities. Based on the provisions of the agreement, Company of America to purchase a group annuity Company of America to purchase a group annuity the Company estimates that the current purchase price the Company estimates that the current purchase price contract and transfer approximately $1.3 billion of contract and transfer approximately $1.3 billion of for its partners' 50% interests would be approximately for its partners' 50% interests would be approximately International Paper's U.S. qualified pension plan International Paper's U.S. qualified pension plan $1.5 billion, which could be satisfied by payment of cash $1.5 billion, which could be satisfied by payment of cash projected benefit obligations. The transaction closed on projected benefit obligations. The transaction closed on or or International Paper common stock, or some International Paper common stock, or some October 3, 2017 and was funded with pension plan October 3, 2017 and was funded with pension plan combination of the two, at the Company's option. The combination of the two, at the Company's option. The assets. Under the transaction, at the end of 2017, assets. Under the transaction, at the end of 2017, purchase by the Company of its partners’ 50% interest purchase by the Company of its partners’ 50% interest Prudential assumed responsibility for pension benefits Prudential assumed responsibility for pension benefits in Ilim would result in the consolidation of Ilim's financial in Ilim would result in the consolidation of Ilim's financial and annuity administration for approximately 45,000 and annuity administration for approximately 45,000 position and results of operations in all subsequent position and results of operations in all subsequent retirees or their beneficiaries receiving less than $450 in retirees or their beneficiaries receiving less than $450 in periods. The parties have informed each other that they periods. The parties have informed each other that they monthly benefit payments from the plan. Settlement monthly benefit payments from the plan. Settlement have no current intention to commence procedures have no current intention to commence procedures accounting rules required a remeasurement of the accounting rules required a remeasurement of the specified under specified under the deadlock provisions of the deadlock provisions of the the qualified plan as of October 3, 2017 and the Company qualified plan as of October 3, 2017 and the Company shareholder’s agreement. shareholder’s agreement. recognized a non-cash pension settlement charge of recognized a non-cash pension settlement charge of $376 million before tax in the fourth quarter of 2017. In $376 million before tax in the fourth quarter of 2017. In addition, large payments from the non-qualified pension addition, large payments from the non-qualified pension plan also required a remeasurement as of October 2, plan also required a remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was 2017 and a non-cash settlement charge of $7 million was also recognized in the fourth quarter of 2017. also recognized in the fourth quarter of 2017. During the first quarter of 2016, International Paper During the first quarter of 2016, International Paper announced a voluntary, limited-time opportunity for announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The benefit in the form of a single lump sum payment. The amount of total payments under this program was amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted made, settlement accounting rules applied and resulted in a plan remeasurement as of the June 30, 2016 in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the payment date. As a result of settlement accounting, the Company Company recognized a pro-rata portion of recognized a pro-rata portion of the the unamortized net actuarial loss, after remeasurement, unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum due to mandatory cash payouts and a small lump sum CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES SIGNIFICANT ACCOUNTING ESTIMATES The preparation of financial statements in conformity with The preparation of financial statements in conformity with accounting principles generally accepted in the United accounting principles generally accepted in the United States States requires requires International Paper International Paper to establish to establish accounting policies and to make estimates that affect accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these liabilities, revenues and expenses. Some of these estimates require judgments about matters that are estimates require judgments about matters that are inherently uncertain. inherently uncertain. Accounting policies whose application may have a Accounting policies whose application may have a significant effect on the reported results of operations and significant effect on the reported results of operations and financial position of International Paper, and that can financial position of International Paper, and that can require judgments by management that affect their require judgments by management that affect their application, include the accounting for contingencies, application, include the accounting for contingencies, impairment or disposal of long-lived assets and goodwill, impairment or disposal of long-lived assets and goodwill, pensions and postretirement benefit obligations, stock pensions and postretirement benefit obligations, stock options and income taxes. The Company has discussed options and income taxes. The Company has discussed the selection of critical accounting policies and the effect the selection of critical accounting policies and the effect of significant estimates with the Audit and Finance of significant estimates with the Audit and Finance Committee of the Company’s Board of Directors. Committee of the Company’s Board of Directors. Contingent Liabilities Contingent Liabilities payout, and the Pension Plan was subsequently payout, and the Pension Plan was subsequently Accruals for contingent liabilities, including legal, and Accruals for contingent liabilities, including legal, and remeasured at September 30, 2016 and December 31, remeasured at September 30, 2016 and December 31, environmental matters, are recorded when it is probable environmental matters, are recorded when it is probable 2016. As a result of settlement accounting, the Company 2016. As a result of settlement accounting, the Company that a liability has been incurred or an asset impaired and that a liability has been incurred or an asset impaired and recognized non-cash settlement charges of $3 million in recognized non-cash settlement charges of $3 million in the amount of the loss can be reasonably estimated. the amount of the loss can be reasonably estimated. both the third and fourth quarters of 2016. both the third and fourth quarters of 2016. Liabilities accrued for legal matters require judgments Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based regarding projected outcomes and range of loss based on historical experience and recommendations of legal on historical experience and recommendations of legal counsel. Liabilities for environmental matters require counsel. Liabilities for environmental matters require evaluations of relevant environmental regulations and evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. estimates of future remediation alternatives and costs. We calculate our workers' compensation reserves based We calculate our workers' compensation reserves based on estimated actuarially calculated development factors. on estimated actuarially calculated development factors. The workers' compensation reserves are reviewed at The workers' compensation reserves are reviewed at least quarterly to determine the adequacy of the accruals least quarterly to determine the adequacy of the accruals and related financial statement disclosure. While we and related financial statement disclosure. While we believe that our assumptions are appropriate, the believe that our assumptions are appropriate, the ultimate settlement of workers' compensation reserves ultimate settlement of workers' compensation reserves may differ significantly from amounts we have accrued may differ significantly from amounts we have accrued in our consolidated financial statements. in our consolidated financial statements. Impairment of Long-Lived Assets and Goodwill Impairment of Long-Lived Assets and Goodwill its its future operations. Additionally, future operations. Additionally, An impairment of a long-lived asset exists when the An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable recorded when the carrying amount is not recoverable through cash flows from future operations. A goodwill through cash flows from future operations. A goodwill impairment exists when the carrying amount of goodwill impairment exists when the carrying amount of goodwill fair value. Assessments of possible exceeds exceeds fair value. Assessments of possible impairments of long-lived assets and goodwill are made impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable the carrying value of the asset may not be recoverable for through through for possible impairment of goodwill and intangible asset possible impairment of goodwill and intangible asset balances is required annually. The amount and timing of balances is required annually. The amount and timing of any impairment charges based on these assessments any impairment charges based on these assessments require the estimation of future cash flows and the fair require the estimation of future cash flows and the fair related assets based on market value of related assets based on market value of management’s best estimates of certain key factors, management’s best estimates of certain key factors, including future selling prices and volumes, operating, including future selling prices and volumes, operating, raw material, energy and freight costs, and various other raw material, energy and freight costs, and various other projected operating economic factors. As these key projected operating economic factors. As these key factors change in future periods, the Company will update factors change in future periods, the Company will update its impairment analyses to reflect its latest estimates and its impairment analyses to reflect its latest estimates and projections. projections. testing testing the the ASU 2011-08, "Intangibles - Goodwill and Other," allows ASU 2011-08, "Intangibles - Goodwill and Other," allows entities testing goodwill for impairment the option of entities testing goodwill for impairment the option of performing a qualitative ("Step 0") assessment before performing a qualitative ("Step 0") assessment before calculating the fair value of a reporting unit for the goodwill calculating the fair value of a reporting unit for the goodwill impairment test. If a Step 0 assessment is performed, an impairment test. If a Step 0 assessment is performed, an entity is no longer required to calculate the fair value of entity is no longer required to calculate the fair value of a reporting unit unless the entity determines that, based a reporting unit unless the entity determines that, based on that Step 0 assessment, it is more likely than not that on that Step 0 assessment, it is more likely than not that its fair value is less than its carrying value. its fair value is less than its carrying value. The Company performed its annual testing of its reporting The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the units for possible goodwill impairments by applying the qualitative Step 0 analysis to its reporting units as of qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company October 1, 2017. For the current year test, the Company assessed and assessed and circumstances that would have affected the estimated circumstances that would have affected the estimated fair value of the reporting units. The results of this fair value of the reporting units. The results of this assessment indicated that it is not more likely than not assessment indicated that it is not more likely than not assumptions, assumptions, various various events events 31 31 32 32 that the fair values of the Company's reporting units were that the fair values of the Company's reporting units were less than the carrying values of the reporting units. less than the carrying values of the reporting units. In addition, the Company considered whether there were In addition, the Company considered whether there were any events or circumstances subsequent to the annual any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units test that would reduce the fair value of its reporting units below their carrying amounts and necessitate another below their carrying amounts and necessitate another goodwill impairment test. In consideration of all relevant goodwill impairment test. In consideration of all relevant factors, there were no indicators that would require factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017. goodwill impairment subsequent to October 1, 2017. No goodwill impairment charges were recorded in 2017 No goodwill impairment charges were recorded in 2017 or 2016. or 2016. testing of testing of its reporting units its reporting units In the fourth quarter of 2015, in conjunction with the In the fourth quarter of 2015, in conjunction with the for goodwill annual for goodwill annual impairment, the Company calculated the estimated fair impairment, the Company calculated the estimated fair value of its Brazil Packaging business using the value of its Brazil Packaging business using the discounted future cash flows and determined that all of discounted future cash flows and determined that all of the goodwill in the business, totaling $137 million, should the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall business caused by the continued decline of the overall Brazilian economy. Brazilian economy. Pension and Postretirement Benefit Obligations Pension and Postretirement Benefit Obligations recorded recorded in conjunction with in conjunction with for pension and other The charges for pension and other The charges postretirement benefit obligations are determined postretirement benefit obligations are determined annually International Paper’s annually International Paper’s consulting actuary, and are dependent upon various consulting actuary, and are dependent upon various assumptions including the expected long-term rate of assumptions including the expected long-term rate of return on plan assets, discount rates, projected future return on plan assets, discount rates, projected future compensation increases, health care cost trend rates and compensation increases, health care cost trend rates and mortality rates. mortality rates. The calculations of pension and postretirement benefit The calculations of pension and postretirement benefit obligations and expenses require decisions about a obligations and expenses require decisions about a number of key assumptions that can significantly affect number of key assumptions that can significantly affect liability and expense amounts, including the expected liability and expense amounts, including the expected long-term rate of return on plan assets, the discount rate long-term rate of return on plan assets, the discount rate used to calculate plan liabilities, the projected rate of used to calculate plan liabilities, the projected rate of future compensation increases and health care cost trend future compensation increases and health care cost trend rates. rates. Benefit obligations and fair values of plan assets as of Benefit obligations and fair values of plan assets as of December 31, 2017, for International Paper’s pension December 31, 2017, for International Paper’s pension and postretirement plans were as follows: and postretirement plans were as follows: In millions In millions U.S. qualified pension U.S. qualified pension U.S. nonqualified pension U.S. nonqualified pension U.S. postretirement U.S. postretirement Non-U.S. pension Non-U.S. pension Non-U.S. postretirement Non-U.S. postretirement Benefit Benefit Obligation Obligation Fair Value of Fair Value of Plan Assets Plan Assets $ $ 12,895 $ 12,895 $ 11,368 11,368 369 369 270 270 247 247 25 25 — — — — 176 176 — — The table below shows assumptions used by table below shows assumptions used by The International Paper to calculate U.S. pension obligations International Paper to calculate U.S. pension obligations for the years shown: for the years shown: Discount rate Discount rate Rate of compensation increase Rate of compensation increase 2017 2017 2016 2016 2015 2015 3.60% 3.60% 3.75% 3.75% 4.10% 4.10% 3.75% 3.75% 4.40% 4.40% 3.75% 3.75% Inland assets were combined in October 2014. The Inland assets were combined in October 2014. The annualized time-weighted rate of return earned on U.S. annualized time-weighted rate of return earned on U.S. pension plan assets was 9.4% and 7.2% for the past five pension plan assets was 9.4% and 7.2% for the past five and ten years, respectively. The following graph shows and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from 2007 – 2017. time-weighted rate of return from 2007 – 2017. Assuming that discount rates, expected long-term Assuming that discount rates, expected long-term specific tax regulations and facts of each matter. specific tax regulations and facts of each matter. returns on plan assets and rates of future compensation returns on plan assets and rates of future compensation Changes to recorded liabilities are only made when an Changes to recorded liabilities are only made when an increases remain the same as of December 31, 2017, increases remain the same as of December 31, 2017, identifiable event occurs that changes the likely outcome, identifiable event occurs that changes the likely outcome, projected future net periodic pension and postretirement projected future net periodic pension and postretirement such as settlement with the relevant tax authority, the such as settlement with the relevant tax authority, the plan expenses would be as follows: plan expenses would be as follows: 2019 2019 2018 2018 the matter. the matter. expiration of statutes of limitation for the subject tax year, expiration of statutes of limitation for the subject tax year, change in tax laws, or a recent court case that addresses change in tax laws, or a recent court case that addresses Additionally, health care cost trend rates and other Additionally, health care cost trend rates and other assumptions used the calculation of U.S. assumptions used the calculation of U.S. postretirement obligations for the years shown were: postretirement obligations for the years shown were: in in Discount rate Discount rate Health care cost trend rate assumed for Health care cost trend rate assumed for next year next year Rate that the cost trend rate gradually Rate that the cost trend rate gradually declines to declines to Year that the rate reaches the rate it is Year that the rate reaches the rate it is assumed to remain assumed to remain 2017 2017 2016 2016 3.50% 3.50% 4.00% 4.00% 6.50% 6.50% 6.50% 6.50% 5.00% 5.00% 5.00% 5.00% 2022 2022 2022 2022 International Paper determines these actuarial these actuarial International Paper determines assumptions, after consultation with our actuaries, on assumptions, after consultation with our actuaries, on liability to calculate to calculate December 31 of each year December 31 of each year liability that date and pension and information as of that date and pension and information as of postretirement expense for the following year. The postretirement expense for the following year. The expected long-term rate of return on plan assets is based expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset on projected rates of return for current and planned asset classes in the plan’s investment portfolio. The discount classes in the plan’s investment portfolio. The discount rate assumption was determined based on a hypothetical rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high settlement portfolio selected from a universe of high quality corporate bonds. quality corporate bonds. The expected long-term rate of return on U.S. pension The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the plan assets used to determine net periodic cost for the year ended December 31, 2017 was 7.50%. year ended December 31, 2017 was 7.50%. Increasing (decreasing) the expected long-term rate of Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would return on U.S. plan assets by an additional 0.25% would decrease (increase) 2018 pension expense by decrease (increase) 2018 pension expense by approximately $27 million, while a (decrease) increase approximately $27 million, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease of 0.25% in the discount rate would (increase) decrease pension expense by approximately $35 million. The effect pension expense by approximately $35 million. The effect on net postretirement benefit cost from a 1% increase or on net postretirement benefit cost from a 1% increase or decrease in the annual health care cost trend rate would decrease in the annual health care cost trend rate would be approximately $1 million. be approximately $1 million. Actual rates of return earned on U.S. pension plan Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were: assets for each of the last 10 years were: Year Year 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 Return Return 19.3% 19.3% 7.1% 7.1% 1.3% 1.3% 6.4% 6.4% 14.1% 14.1% Year Year 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 14.1 % 14.1 % 2.5 % 2.5 % 15.1 % 15.1 % 23.8 % 23.8 % (23.6)% (23.6)% The 2012, 2013 and 2014 returns above represent The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple- weighted averages of International Paper and Temple- Inland asset returns. International Paper and Temple- Inland asset returns. International Paper and Temple- ASC 715, “Compensation – Retirement Benefits,” ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the losses, including amounts arising from changes in the estimated projected plan benefit obligation due to estimated projected plan benefit obligation due to changes in the assumed discount rate, differences changes in the assumed discount rate, differences between the actual and expected return on plan assets, between the actual and expected return on plan assets, and other assumption changes. These net gains and and other assumption changes. These net gains and losses are recognized in pension expense prospectively losses are recognized in pension expense prospectively over a period that approximates the average remaining over a period that approximates the average remaining service period of active employees expected to receive service period of active employees expected to receive benefits under the plans to the extent that they are not benefits under the plans to the extent that they are not offset by gains and losses in subsequent years. The offset by gains and losses in subsequent years. The estimated net loss and prior service cost that will be estimated net loss and prior service cost that will be amortized from accumulated other comprehensive from accumulated other comprehensive amortized income into net periodic pension cost for the U.S. pension income into net periodic pension cost for the U.S. pension plans over the next fiscal year are $327 million and $17 plans over the next fiscal year are $327 million and $17 million, respectively. million, respectively. Net periodic pension and postretirement plan expenses, Net periodic pension and postretirement plan expenses, calculated for all of International Paper’s plans, were as calculated for all of International Paper’s plans, were as follows: follows: In millions In millions Pension expense Pension expense 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 U.S. plans (non-cash) $ 717 $ 809 U.S. plans (non-cash) $ 717 $ 809 Non-U.S. plans Non-U.S. plans 4 4 5 5 $461 $461 $387 $387 $545 $545 6 6 8 8 5 5 — — 5 5 7 7 7 7 (1) (1) 7 7 17 17 1 1 13 13 1 1 Postretirement Postretirement expense expense U.S. plans U.S. plans Return Return Non-U.S. plans Non-U.S. plans Net expense Net expense $ 740 $ 827 $ 740 $ 827 $480 $480 $401 $401 $556 $556 The decrease in 2017 U.S. pension expense reflects The decrease in 2017 U.S. pension expense reflects lower settlement losses and lower actuarial losses lower settlement losses and lower actuarial losses partially offset by lower asset returns due to the annuity partially offset by lower asset returns due to the annuity purchase as well as curtailment and special termination purchase as well as curtailment and special termination benefit charges. benefit charges. 33 33 34 34 In millions In millions Pension expense Pension expense U.S. plans (non-cash) U.S. plans (non-cash) Non-U.S. plans Non-U.S. plans Postretirement expense Postretirement expense U.S. plans U.S. plans Non-U.S. plans Non-U.S. plans Net expense Net expense $ $ 30 $ 30 $ 167 167 5 5 14 14 1 1 4 4 16 16 1 1 $ $ 50 $ 50 $ 188 188 The Company estimates that it will record net pension The Company estimates that it will record net pension expense of approximately $167 million for its U.S. defined expense of approximately $167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 benefit plans in 2018, compared to expense of $717 million in 2017. The 2017 expense includes $45 million million in 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated of curtailment and special pension benefits associated with the North American Consumer Packaging business with the North American Consumer Packaging business and $383 million of settlement accounting charges. and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower interest pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a higher cost on the reduced pension obligation and a higher expected return on assets associated with the increased expected return on assets associated with the increased pension asset balance. pension asset balance. The market value of plan assets for International Paper’s The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 2017 totaled U.S. qualified pension plan at December 31, 2017 totaled approximately $11.4 billion, consisting of approximately approximately $11.4 billion, consisting of approximately 49% equity securities, 36% debt securities, 10% real 49% equity securities, 36% debt securities, 10% real estate and 5% other assets. estate and 5% other assets. The Company’s funding policy for its qualified pension The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that funding requirements, plus any additional amounts that the Company may determine the Company may determine to be appropriate to be appropriate considering the funded status of the plan, tax deductibility, considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other the cash flows generated by the Company, and other factors. The Company continually reassesses the factors. The Company continually reassesses the amount and timing of any discretionary contributions and amount and timing of any discretionary contributions and could elect to make voluntary contributions in the future. could elect to make voluntary contributions in the future. There are no required contributions to the U.S. qualified There are no required contributions to the U.S. qualified plan in 2018. The nonqualified defined benefit plans are plan in 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled funded to the extent of benefit payments, which totaled $40 million for the year ended December 31, 2017. $40 million for the year ended December 31, 2017. Income Taxes Income Taxes International Paper records its global tax provision International Paper records its global tax provision based based on the respective tax rules and regulations on the respective tax rules and regulations for the for the jurisdictions in which it operates. Where the jurisdictions in which it operates. Where the Company Company believes that a tax position is supportable for believes that a tax position is supportable for income tax income tax purposes, the item is included in its income purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome evaluation of the “more likely than not” outcome considering technical merits of the position based on considering technical merits of the position based on Valuation allowances are recorded to reduce deferred tax Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The valuation allowances against deferred tax assets. The realization of these assets is dependent on generating realization of these assets is dependent on generating future future taxable taxable income, as well as successful income, as well as successful implementation of various tax planning strategies. implementation of various tax planning strategies. While International Paper believes that these judgments While International Paper believes that these judgments and estimates are appropriate and reasonable under the and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may circumstances, actual resolution of these matters may differ from recorded estimated amounts. differ from recorded estimated amounts. The Company’s effective income tax rates, before equity The Company’s effective income tax rates, before equity earnings and discontinued operations, were (128)%, earnings and discontinued operations, were (128)%, 24% and 37% for 2017, 2016 and 2015, respectively. The 24% and 37% for 2017, 2016 and 2015, respectively. The income tax benefit in 2017 was primarily driven by the income tax benefit in 2017 was primarily driven by the recent U.S. tax legislation in December 2017 (see Note recent U.S. tax legislation in December 2017 (see Note 10 Income Taxes on pages 57 through 60 of Item 8. 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). These Financial Statements and Supplementary Data). These effective tax rates include the tax effects of certain special effective tax rates include the tax effects of certain special items that can significantly affect the effective income tax items that can significantly affect the effective income tax rate in a given year, but may not recur in subsequent rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate years. Management believes that the effective tax rate computed after excluding these special items may computed after excluding these special items may provide a better estimate of the rate that might be provide a better estimate of the rate that might be expected in future years if no additional special items expected in future years if no additional special items were to occur. However, as a result of recent U.S. tax were to occur. However, as a result of recent U.S. tax legislation, which includes a reduction of the U.S. income legislation, which includes a reduction of the U.S. income tax rate from 35% to 21%, we will have a lower worldwide tax rate from 35% to 21%, we will have a lower worldwide effective income tax rate going forward. Excluding these effective income tax rate going forward. Excluding these special items, the effective income tax rate for 2017 was special items, the effective income tax rate for 2017 was 30% of pre-tax earnings compared with 32% in 2016 and 30% of pre-tax earnings compared with 32% in 2016 and 33% in 2015. We estimate that the 2018 effective income 33% in 2015. We estimate that the 2018 effective income tax rate will be approximately 25-27% based on expected tax rate will be approximately 25-27% based on expected earnings and business conditions. earnings and business conditions. Business Combinations Business Combinations The Company’s acquisitions of businesses are The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business accounted for in accordance with ASC 805, "Business Combinations", as amended. We allocate the total Combinations", as amended. We allocate the total consideration of the assets acquired and liabilities consideration of the assets acquired and liabilities assumed based on their estimated fair value as of the assumed based on their estimated fair value as of the business combination date. In developing estimates of business combination date. In developing estimates of fair values for long-lived assets, including identifiable fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, anticipated growth rates, including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such fair value for specifically identified intangible assets such The The table below shows assumptions used by table below shows assumptions used by Inland assets were combined in October 2014. The Inland assets were combined in October 2014. The International Paper to calculate U.S. pension obligations International Paper to calculate U.S. pension obligations annualized time-weighted rate of return earned on U.S. annualized time-weighted rate of return earned on U.S. pension plan assets was 9.4% and 7.2% for the past five pension plan assets was 9.4% and 7.2% for the past five and ten years, respectively. The following graph shows and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from 2007 – 2017. time-weighted rate of return from 2007 – 2017. for the years shown: for the years shown: Discount rate Discount rate Rate of compensation increase Rate of compensation increase 2017 2017 2016 2016 2015 2015 3.60% 3.60% 3.75% 3.75% 4.10% 4.10% 3.75% 3.75% 4.40% 4.40% 3.75% 3.75% Additionally, health care cost trend rates and other Additionally, health care cost trend rates and other assumptions used assumptions used in in the calculation of U.S. the calculation of U.S. postretirement obligations for the years shown were: postretirement obligations for the years shown were: Discount rate Discount rate next year next year declines to declines to Health care cost trend rate assumed for Health care cost trend rate assumed for Rate that the cost trend rate gradually Rate that the cost trend rate gradually Year that the rate reaches the rate it is Year that the rate reaches the rate it is assumed to remain assumed to remain 2017 2017 2016 2016 3.50% 3.50% 4.00% 4.00% 6.50% 6.50% 6.50% 6.50% 5.00% 5.00% 5.00% 5.00% 2022 2022 2022 2022 International Paper determines International Paper determines these actuarial these actuarial assumptions, after consultation with our actuaries, on assumptions, after consultation with our actuaries, on December 31 of each year December 31 of each year to calculate to calculate liability liability information as of information as of that date and pension and that date and pension and postretirement expense for the following year. The postretirement expense for the following year. The expected long-term rate of return on plan assets is based expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset on projected rates of return for current and planned asset classes in the plan’s investment portfolio. The discount classes in the plan’s investment portfolio. The discount rate assumption was determined based on a hypothetical rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high settlement portfolio selected from a universe of high quality corporate bonds. quality corporate bonds. The expected long-term rate of return on U.S. pension The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the plan assets used to determine net periodic cost for the year ended December 31, 2017 was 7.50%. year ended December 31, 2017 was 7.50%. Increasing (decreasing) the expected long-term rate of Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would return on U.S. plan assets by an additional 0.25% would decrease decrease (increase) 2018 pension expense by (increase) 2018 pension expense by approximately $27 million, while a (decrease) increase approximately $27 million, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease of 0.25% in the discount rate would (increase) decrease pension expense by approximately $35 million. The effect pension expense by approximately $35 million. The effect on net postretirement benefit cost from a 1% increase or on net postretirement benefit cost from a 1% increase or decrease in the annual health care cost trend rate would decrease in the annual health care cost trend rate would be approximately $1 million. be approximately $1 million. Actual rates of return earned on U.S. pension plan Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were: assets for each of the last 10 years were: Year Year 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 19.3% 19.3% 7.1% 7.1% 1.3% 1.3% 6.4% 6.4% 14.1% 14.1% Year Year 2012 2012 2011 2011 2010 2010 2009 2009 2008 2008 14.1 % 14.1 % 2.5 % 2.5 % 15.1 % 15.1 % 23.8 % 23.8 % (23.6)% (23.6)% The 2012, 2013 and 2014 returns above represent The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple- weighted averages of International Paper and Temple- Inland asset returns. International Paper and Temple- Inland asset returns. International Paper and Temple- 33 33 ASC 715, “Compensation – Retirement Benefits,” ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the losses, including amounts arising from changes in the estimated projected plan benefit obligation due to estimated projected plan benefit obligation due to changes in the assumed discount rate, differences changes in the assumed discount rate, differences between the actual and expected return on plan assets, between the actual and expected return on plan assets, and other assumption changes. These net gains and and other assumption changes. These net gains and losses are recognized in pension expense prospectively losses are recognized in pension expense prospectively over a period that approximates the average remaining over a period that approximates the average remaining service period of active employees expected to receive service period of active employees expected to receive benefits under the plans to the extent that they are not benefits under the plans to the extent that they are not offset by gains and losses in subsequent years. The offset by gains and losses in subsequent years. The estimated net loss and prior service cost that will be estimated net loss and prior service cost that will be amortized amortized from accumulated other comprehensive from accumulated other comprehensive income into net periodic pension cost for the U.S. pension income into net periodic pension cost for the U.S. pension plans over the next fiscal year are $327 million and $17 plans over the next fiscal year are $327 million and $17 million, respectively. million, respectively. Net periodic pension and postretirement plan expenses, Net periodic pension and postretirement plan expenses, calculated for all of International Paper’s plans, were as calculated for all of International Paper’s plans, were as 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 U.S. plans (non-cash) $ 717 $ 809 U.S. plans (non-cash) $ 717 $ 809 $461 $461 $387 $387 $545 $545 Non-U.S. plans Non-U.S. plans 5 5 4 4 — — 5 5 follows: follows: In millions In millions Pension expense Pension expense Postretirement Postretirement expense expense U.S. plans U.S. plans 6 6 8 8 5 5 Net expense Net expense $ 740 $ 827 $ 740 $ 827 $480 $480 $401 $401 $556 $556 The decrease in 2017 U.S. pension expense reflects The decrease in 2017 U.S. pension expense reflects lower settlement losses and lower actuarial losses lower settlement losses and lower actuarial losses partially offset by lower asset returns due to the annuity partially offset by lower asset returns due to the annuity purchase as well as curtailment and special termination purchase as well as curtailment and special termination benefit charges. benefit charges. Assuming that discount rates, expected long-term Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation returns on plan assets and rates of future compensation increases remain the same as of December 31, 2017, increases remain the same as of December 31, 2017, projected future net periodic pension and postretirement projected future net periodic pension and postretirement plan expenses would be as follows: plan expenses would be as follows: In millions In millions Pension expense Pension expense U.S. plans (non-cash) U.S. plans (non-cash) Non-U.S. plans Non-U.S. plans Postretirement expense Postretirement expense U.S. plans U.S. plans Non-U.S. plans Non-U.S. plans Net expense Net expense 2019 2019 2018 2018 $ $ 30 $ 30 $ 167 167 5 5 14 14 1 1 4 4 16 16 1 1 $ $ 50 $ 50 $ 188 188 The Company estimates that it will record net pension The Company estimates that it will record net pension expense of approximately $167 million for its U.S. defined expense of approximately $167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 benefit plans in 2018, compared to expense of $717 million in 2017. The 2017 expense includes $45 million million in 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated of curtailment and special pension benefits associated with the North American Consumer Packaging business with the North American Consumer Packaging business and $383 million of settlement accounting charges. and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower interest pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a higher cost on the reduced pension obligation and a higher expected return on assets associated with the increased expected return on assets associated with the increased pension asset balance. pension asset balance. The market value of plan assets for International Paper’s The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 2017 totaled U.S. qualified pension plan at December 31, 2017 totaled approximately $11.4 billion, consisting of approximately approximately $11.4 billion, consisting of approximately 49% equity securities, 36% debt securities, 10% real 49% equity securities, 36% debt securities, 10% real estate and 5% other assets. estate and 5% other assets. The Company’s funding policy for its qualified pension The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that funding requirements, plus any additional amounts that the Company may determine to be appropriate the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other the cash flows generated by the Company, and other factors. The Company continually reassesses the factors. The Company continually reassesses the amount and timing of any discretionary contributions and amount and timing of any discretionary contributions and could elect to make voluntary contributions in the future. could elect to make voluntary contributions in the future. There are no required contributions to the U.S. qualified There are no required contributions to the U.S. qualified plan in 2018. The nonqualified defined benefit plans are plan in 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled funded to the extent of benefit payments, which totaled $40 million for the year ended December 31, 2017. $40 million for the year ended December 31, 2017. Return Return Return Return Non-U.S. plans Non-U.S. plans 17 17 1 1 13 13 1 1 7 7 7 7 (1) (1) 7 7 Income Taxes Income Taxes International Paper records its global tax provision International Paper records its global tax provision based based on the respective tax rules and regulations on the respective tax rules and regulations for the for the jurisdictions in which it operates. Where the jurisdictions in which it operates. Where the Company Company believes that a tax position is supportable for believes that a tax position is supportable for income tax income tax purposes, the item is included in its income purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome evaluation of the “more likely than not” outcome considering technical merits of the position based on considering technical merits of the position based on 34 34 specific tax regulations and facts of each matter. specific tax regulations and facts of each matter. Changes to recorded liabilities are only made when an Changes to recorded liabilities are only made when an identifiable event occurs that changes the likely outcome, identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, expiration of statutes of limitation for the subject tax year, change in tax laws, or a recent court case that addresses change in tax laws, or a recent court case that addresses the matter. the matter. Valuation allowances are recorded to reduce deferred tax Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The valuation allowances against deferred tax assets. The realization of these assets is dependent on generating realization of these assets is dependent on generating future income, as well as successful income, as well as successful future implementation of various tax planning strategies. implementation of various tax planning strategies. taxable taxable While International Paper believes that these judgments While International Paper believes that these judgments and estimates are appropriate and reasonable under the and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may circumstances, actual resolution of these matters may differ from recorded estimated amounts. differ from recorded estimated amounts. The Company’s effective income tax rates, before equity The Company’s effective income tax rates, before equity earnings and discontinued operations, were (128)%, earnings and discontinued operations, were (128)%, 24% and 37% for 2017, 2016 and 2015, respectively. The 24% and 37% for 2017, 2016 and 2015, respectively. The income tax benefit in 2017 was primarily driven by the income tax benefit in 2017 was primarily driven by the recent U.S. tax legislation in December 2017 (see Note recent U.S. tax legislation in December 2017 (see Note 10 Income Taxes on pages 57 through 60 of Item 8. 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). These Financial Statements and Supplementary Data). These effective tax rates include the tax effects of certain special effective tax rates include the tax effects of certain special items that can significantly affect the effective income tax items that can significantly affect the effective income tax rate in a given year, but may not recur in subsequent rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate years. Management believes that the effective tax rate computed after excluding these special items may computed after excluding these special items may provide a better estimate of the rate that might be provide a better estimate of the rate that might be expected in future years if no additional special items expected in future years if no additional special items were to occur. However, as a result of recent U.S. tax were to occur. However, as a result of recent U.S. tax legislation, which includes a reduction of the U.S. income legislation, which includes a reduction of the U.S. income tax rate from 35% to 21%, we will have a lower worldwide tax rate from 35% to 21%, we will have a lower worldwide effective income tax rate going forward. Excluding these effective income tax rate going forward. Excluding these special items, the effective income tax rate for 2017 was special items, the effective income tax rate for 2017 was 30% of pre-tax earnings compared with 32% in 2016 and 30% of pre-tax earnings compared with 32% in 2016 and 33% in 2015. We estimate that the 2018 effective income 33% in 2015. We estimate that the 2018 effective income tax rate will be approximately 25-27% based on expected tax rate will be approximately 25-27% based on expected earnings and business conditions. earnings and business conditions. Business Combinations Business Combinations The Company’s acquisitions of businesses are The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business accounted for in accordance with ASC 805, "Business Combinations", as amended. We allocate the total Combinations", as amended. We allocate the total consideration of the assets acquired and liabilities consideration of the assets acquired and liabilities assumed based on their estimated fair value as of the assumed based on their estimated fair value as of the business combination date. In developing estimates of business combination date. In developing estimates of fair values for long-lived assets, including identifiable fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, anticipated growth rates, including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such fair value for specifically identified intangible assets such as customer lists and developed technology involves as customer lists and developed technology involves judgment. We may refine our estimates and make judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated subsequent adjustments are charged to the consolidated statements of earnings. Subsequent actual results of the statements of earnings. Subsequent actual results of the underlying business activity supporting the specifically underlying business activity supporting the specifically identified intangible assets could change, requiring us to identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives record impairment charges or adjust their economic lives in future periods. in future periods. RECENT ACCOUNTING DEVELOPMENTS RECENT ACCOUNTING DEVELOPMENTS See Note 2 Recent Accounting Developments on pages See Note 2 Recent Accounting Developments on pages 48 through 49 of Item 8. Financial Statements and 48 through 49 of Item 8. Financial Statements and Supplementary Data for a discussion of new accounting Supplementary Data for a discussion of new accounting pronouncements. pronouncements. LEGAL PROCEEDINGS LEGAL PROCEEDINGS legal proceedings legal proceedings Information concerning the Company’s environmental Information concerning the Company’s environmental in Note 11 and in Note 11 and Commitments and Contingencies on pages 60 through Commitments and Contingencies on pages 60 through 63 of Item 8. Financial Statements and Supplementary 63 of Item 8. Financial Statements and Supplementary Data. Data. is set is set forth forth EFFECT OF INFLATION EFFECT OF INFLATION While inflationary increases in certain input costs, such While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general on the Company’s operating results, changes in general inflation have had minimal impact on our operating results inflation have had minimal impact on our operating results in each of the last three years. Sales prices and volumes in each of the last three years. Sales prices and volumes are more strongly influenced by economic supply and are more strongly influenced by economic supply and demand factors in specific markets and by exchange rate demand factors in specific markets and by exchange rate fluctuations than by inflationary factors. fluctuations than by inflationary factors. FOREIGN CURRENCY EFFECTS FOREIGN CURRENCY EFFECTS indirect indirect impacts on impacts on local currency local currency the Company’s the Company’s International Paper has operations in a number of International Paper has operations in a number of countries. Its operations in those countries also export countries. Its operations in those countries also export to, and compete with, imports from other regions. As to, and compete with, imports from other regions. As such, currency movements can have a number of direct such, currency movements can have a number of direct and financial financial and statements. Direct impacts include the translation of statements. Direct impacts include the translation of international operations’ financial international operations’ financial statements into U.S. dollars and the remeasurement statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change assets and liabilities. Indirect impacts include the change in competitiveness of imports into, and exports out of, the in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing United States (and the impact on local currency pricing of products that are traded internationally). In general, a of products that are traded internationally). In general, a weaker U.S. dollar and stronger local currency is weaker U.S. dollar and stronger local currency is beneficial to International Paper. The currencies that beneficial to International Paper. The currencies that have the most impact are the Euro, the Brazilian real, the have the most impact are the Euro, the Brazilian real, the Polish zloty and the Russian ruble. Polish zloty and the Russian ruble. The objective of our commodity exposure management The objective of our commodity exposure management is to minimize volatility in earnings due to large is to minimize volatility in earnings due to large See the preceding discussion and Note 14 Derivatives See the preceding discussion and Note 14 Derivatives fluctuations in the price of commodities. Commodity swap fluctuations in the price of commodities. Commodity swap and Hedging Activities on pages 65 through 69 of Item 8. and Hedging Activities on pages 65 through 69 of Item 8. or forward purchase contracts may be used to manage or forward purchase contracts may be used to manage Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. ITEM 7A. QUANTITATIVE AND QUALITATIVE ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISK risks associated with market fluctuations in energy prices. risks associated with market fluctuations in energy prices. The net fair value of such outstanding energy hedge The net fair value of such outstanding energy hedge contract at December 31, 2017 and 2016 was contract at December 31, 2017 and 2016 was approximately a $8 million and a $2 million liability, approximately a $8 million and a $2 million liability, respectively. The potential loss in fair value resulting from respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity a 10% adverse change in the underlying commodity prices would have been approximately $1 million at prices would have been approximately $1 million at December 31, 2017 and 2016, respectively. December 31, 2017 and 2016, respectively. Foreign Currency Risk Foreign Currency Risk International Paper International Paper transacts business transacts business in many in many currencies and is also subject to currency exchange rate currencies and is also subject to currency exchange rate risk through investments and businesses owned and risk through investments and businesses owned and operated in foreign countries. Our objective in managing operated in foreign countries. Our objective in managing the associated foreign currency risks is to minimize the the associated foreign currency risks is to minimize the effect of adverse exchange rate fluctuations on our after- effect of adverse exchange rate fluctuations on our after- tax cash flows. We address these risks on a limited basis tax cash flows. We address these risks on a limited basis by entering into cross-currency and interest rate swaps, by entering into cross-currency and interest rate swaps, or foreign exchange contracts. At December 31, 2017 or foreign exchange contracts. At December 31, 2017 and 2016, the net fair value of financial instruments with and 2016, the net fair value of financial instruments with exposure to foreign currency risk was approximately a exposure to foreign currency risk was approximately a $10 million asset and a $1 million liability, respectively. $10 million asset and a $1 million liability, respectively. The potential loss in fair value for such financial The potential loss in fair value for such financial instruments from a 10% adverse change in quoted instruments from a 10% adverse change in quoted foreign currency exchange rates would have been foreign currency exchange rates would have been approximately $29 million and $23 million at approximately $29 million and $23 million at December 31, 2017 and 2016, respectively. December 31, 2017 and 2016, respectively. MARKET RISK MARKET RISK Commodity Price Risk Commodity Price Risk We use financial instruments, including fixed and variable We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending rate debt, to finance operations, for capital spending programs and for general corporate purposes. programs and for general corporate purposes. Additionally, financial instruments, including various Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. do not use financial instruments for trading purposes. Information International Paper’s debt Information International Paper’s debt obligations is included in Note 13 Debt and Lines of Credit obligations is included in Note 13 Debt and Lines of Credit on pages 64 and 65 of Item 8. Financial Statements and on pages 64 and 65 of Item 8. Financial Statements and Supplementary Data. A discussion of derivatives and Supplementary Data. A discussion of derivatives and hedging activities is included in Note 14 Derivatives and hedging activities is included in Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. related related to to The fair value of our debt and financial instruments varies The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency due to changes in market interest and foreign currency rates and commodity prices since the inception of the rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing related instruments. We assess this market risk utilizing a sensitivity analysis. The sensitivity analysis measures a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity decrease) in interest and currency rates and commodity prices. prices. Interest Rate Risk Interest Rate Risk Our exposure to market risk for changes in interest rates Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations relates primarily to short- and long-term debt obligations and investments in marketable securities. We invest in and investments in marketable securities. We invest in investment-grade securities of financial institutions and investment-grade securities of financial institutions and money market mutual funds with a minimum rating of AAA money market mutual funds with a minimum rating of AAA and limit exposure to any one issuer or fund. Our and limit exposure to any one issuer or fund. Our investments in marketable securities at December 31, investments in marketable securities at December 31, 2017 and 2016 are stated at cost, which approximates 2017 and 2016 are stated at cost, which approximates market due to their short-term nature. Our interest rate market due to their short-term nature. Our interest rate risk exposure related to these investments was not risk exposure related to these investments was not material. material. We issue fixed and floating rate debt in a proportion that We issue fixed and floating rate debt in a proportion that management deems appropriate based on current and management deems appropriate based on current and projected market conditions. Derivative instruments, projected market conditions. Derivative instruments, such as, interest rate swaps, may be used to execute this such as, interest rate swaps, may be used to execute this strategy. At December 31, 2017 and 2016, the fair value strategy. At December 31, 2017 and 2016, the fair value of the net liability of financial instruments with exposure of the net liability of financial instruments with exposure to interest rate risk was approximately $11.1 billion and to interest rate risk was approximately $11.1 billion and $11.3 billion, respectively. The potential loss in fair value $11.3 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates resulting from a 10% adverse shift in quoted interest rates would have been approximately $679 million and $623 would have been approximately $679 million and $623 million at December 31, 2017 and 2016, respectively. million at December 31, 2017 and 2016, respectively. 35 35 36 36 ITEM 7A. QUANTITATIVE AND QUALITATIVE ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISK See the preceding discussion and Note 14 Derivatives See the preceding discussion and Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. MARKET RISK MARKET RISK Commodity Price Risk Commodity Price Risk The objective of our commodity exposure management The objective of our commodity exposure management is to minimize volatility in earnings due to large is to minimize volatility in earnings due to large fluctuations in the price of commodities. Commodity swap fluctuations in the price of commodities. Commodity swap or forward purchase contracts may be used to manage or forward purchase contracts may be used to manage risks associated with market fluctuations in energy prices. risks associated with market fluctuations in energy prices. The net fair value of such outstanding energy hedge The net fair value of such outstanding energy hedge contract at December 31, 2017 and 2016 was contract at December 31, 2017 and 2016 was approximately a $8 million and a $2 million liability, approximately a $8 million and a $2 million liability, respectively. The potential loss in fair value resulting from respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity a 10% adverse change in the underlying commodity prices would have been approximately $1 million at prices would have been approximately $1 million at December 31, 2017 and 2016, respectively. December 31, 2017 and 2016, respectively. Foreign Currency Risk Foreign Currency Risk transacts business transacts business International Paper in many in many International Paper currencies and is also subject to currency exchange rate currencies and is also subject to currency exchange rate risk through investments and businesses owned and risk through investments and businesses owned and operated in foreign countries. Our objective in managing operated in foreign countries. Our objective in managing the associated foreign currency risks is to minimize the the associated foreign currency risks is to minimize the effect of adverse exchange rate fluctuations on our after- effect of adverse exchange rate fluctuations on our after- tax cash flows. We address these risks on a limited basis tax cash flows. We address these risks on a limited basis by entering into cross-currency and interest rate swaps, by entering into cross-currency and interest rate swaps, or foreign exchange contracts. At December 31, 2017 or foreign exchange contracts. At December 31, 2017 and 2016, the net fair value of financial instruments with and 2016, the net fair value of financial instruments with exposure to foreign currency risk was approximately a exposure to foreign currency risk was approximately a $10 million asset and a $1 million liability, respectively. $10 million asset and a $1 million liability, respectively. The potential loss in fair value for such financial The potential loss in fair value for such financial instruments from a 10% adverse change in quoted instruments from a 10% adverse change in quoted foreign currency exchange rates would have been foreign currency exchange rates would have been approximately $29 million and $23 million at approximately $29 million and $23 million at December 31, 2017 and 2016, respectively. December 31, 2017 and 2016, respectively. as customer lists and developed technology involves as customer lists and developed technology involves judgment. We may refine our estimates and make judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated subsequent adjustments are charged to the consolidated statements of earnings. Subsequent actual results of the statements of earnings. Subsequent actual results of the underlying business activity supporting the specifically underlying business activity supporting the specifically identified intangible assets could change, requiring us to identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives record impairment charges or adjust their economic lives in future periods. in future periods. RECENT ACCOUNTING DEVELOPMENTS RECENT ACCOUNTING DEVELOPMENTS See Note 2 Recent Accounting Developments on pages See Note 2 Recent Accounting Developments on pages 48 through 49 of Item 8. Financial Statements and 48 through 49 of Item 8. Financial Statements and Supplementary Data for a discussion of new accounting Supplementary Data for a discussion of new accounting pronouncements. pronouncements. LEGAL PROCEEDINGS LEGAL PROCEEDINGS Information concerning the Company’s environmental Information concerning the Company’s environmental and and legal proceedings legal proceedings is set is set forth forth in Note 11 in Note 11 Commitments and Contingencies on pages 60 through Commitments and Contingencies on pages 60 through 63 of Item 8. Financial Statements and Supplementary 63 of Item 8. Financial Statements and Supplementary Data. Data. EFFECT OF INFLATION EFFECT OF INFLATION While inflationary increases in certain input costs, such While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general on the Company’s operating results, changes in general inflation have had minimal impact on our operating results inflation have had minimal impact on our operating results in each of the last three years. Sales prices and volumes in each of the last three years. Sales prices and volumes are more strongly influenced by economic supply and are more strongly influenced by economic supply and demand factors in specific markets and by exchange rate demand factors in specific markets and by exchange rate fluctuations than by inflationary factors. fluctuations than by inflationary factors. FOREIGN CURRENCY EFFECTS FOREIGN CURRENCY EFFECTS International Paper has operations in a number of International Paper has operations in a number of countries. Its operations in those countries also export countries. Its operations in those countries also export to, and compete with, imports from other regions. As to, and compete with, imports from other regions. As such, currency movements can have a number of direct such, currency movements can have a number of direct and and indirect indirect impacts on impacts on the Company’s the Company’s financial financial statements. Direct impacts include the translation of statements. Direct impacts include the translation of international operations’ international operations’ local currency local currency financial financial statements into U.S. dollars and the remeasurement statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change assets and liabilities. Indirect impacts include the change in competitiveness of imports into, and exports out of, the in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing United States (and the impact on local currency pricing of products that are traded internationally). In general, a of products that are traded internationally). In general, a weaker U.S. dollar and stronger local currency is weaker U.S. dollar and stronger local currency is beneficial to International Paper. The currencies that beneficial to International Paper. The currencies that have the most impact are the Euro, the Brazilian real, the have the most impact are the Euro, the Brazilian real, the Polish zloty and the Russian ruble. Polish zloty and the Russian ruble. We use financial instruments, including fixed and variable We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending rate debt, to finance operations, for capital spending programs and programs and for general corporate purposes. for general corporate purposes. Additionally, financial instruments, including various Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. do not use financial instruments for trading purposes. Information Information related related to to International Paper’s debt International Paper’s debt obligations is included in Note 13 Debt and Lines of Credit obligations is included in Note 13 Debt and Lines of Credit on pages 64 and 65 of Item 8. Financial Statements and on pages 64 and 65 of Item 8. Financial Statements and Supplementary Data. A discussion of derivatives and Supplementary Data. A discussion of derivatives and hedging activities is included in Note 14 Derivatives and hedging activities is included in Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. The fair value of our debt and financial instruments varies The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency due to changes in market interest and foreign currency rates and commodity prices since the inception of the rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing related instruments. We assess this market risk utilizing a sensitivity analysis. The sensitivity analysis measures a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity decrease) in interest and currency rates and commodity prices. prices. Interest Rate Risk Interest Rate Risk Our exposure to market risk for changes in interest rates Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations relates primarily to short- and long-term debt obligations and investments in marketable securities. We invest in and investments in marketable securities. We invest in investment-grade securities of financial institutions and investment-grade securities of financial institutions and money market mutual funds with a minimum rating of AAA money market mutual funds with a minimum rating of AAA and limit exposure to any one issuer or fund. Our and limit exposure to any one issuer or fund. Our investments in marketable securities at December 31, investments in marketable securities at December 31, 2017 and 2016 are stated at cost, which approximates 2017 and 2016 are stated at cost, which approximates market due to their short-term nature. Our interest rate market due to their short-term nature. Our interest rate risk exposure related to these investments was not risk exposure related to these investments was not material. material. We issue fixed and floating rate debt in a proportion that We issue fixed and floating rate debt in a proportion that management deems appropriate based on current and management deems appropriate based on current and projected market conditions. Derivative instruments, projected market conditions. Derivative instruments, such as, interest rate swaps, may be used to execute this such as, interest rate swaps, may be used to execute this strategy. At December 31, 2017 and 2016, the fair value strategy. At December 31, 2017 and 2016, the fair value of the net liability of financial instruments with exposure of the net liability of financial instruments with exposure to interest rate risk was approximately $11.1 billion and to interest rate risk was approximately $11.1 billion and $11.3 billion, respectively. The potential loss in fair value $11.3 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates resulting from a 10% adverse shift in quoted interest rates would have been approximately $679 million and $623 would have been approximately $679 million and $623 million at December 31, 2017 and 2016, respectively. million at December 31, 2017 and 2016, respectively. 35 35 36 36 ITEM 8. FINANCIAL STATEMENTS AND ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SUPPLEMENTARY DATA REPORT OF MANAGEMENT ON: REPORT OF MANAGEMENT ON: Financial Statements Financial Statements The management of International Paper Company is The management of International Paper Company is responsible for the preparation of the consolidated responsible for the preparation of the consolidated financial statements in this annual report and for financial statements in this annual report and for establishing and maintaining adequate internal controls establishing and maintaining adequate internal controls over financial reporting. The consolidated financial over financial reporting. The consolidated financial statements have been prepared using accounting statements have been prepared using accounting principles generally accepted in the United States of principles generally accepted in the United States of America considered appropriate in the circumstances America considered appropriate in the circumstances to present fairly the Company’s consolidated financial to present fairly the Company’s consolidated financial position, results of operations and cash flows on a position, results of operations and cash flows on a consistent basis. Management has also prepared the consistent basis. Management has also prepared the other information in this annual report and is responsible other information in this annual report and is responsible for its accuracy and consistency with the consolidated for its accuracy and consistency with the consolidated financial statements. financial statements. As can be expected in a complex and dynamic business As can be expected in a complex and dynamic business environment, some financial statement amounts are environment, some financial statement amounts are based on estimates and judgments. Even though based on estimates and judgments. Even though estimates and judgments are used, measures have estimates and judgments are used, measures have been taken to provide reasonable assurance of the been taken to provide reasonable assurance of the integrity and reliability of the financial information integrity and reliability of the financial information contained in this annual report. We have formed a contained in this annual report. We have formed a Disclosure Committee to oversee this process. Disclosure Committee to oversee this process. The accompanying consolidated financial statements The accompanying consolidated financial statements have been audited by the independent registered public have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During its accounting firm, Deloitte & Touche LLP. During its audits, Deloitte & Touche LLP was given unrestricted audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including access to all financial records and related data, including minutes of all meetings of stockholders and the board minutes of all meetings of stockholders and the board of directors and all committees of the board. the board. of directors and all committees of Management believes that all representations made to Management believes that all representations made to the independent auditors during their audits were valid the independent auditors during their audits were valid and appropriate. and appropriate. Internal Control Over Financial Reporting Internal Control Over Financial Reporting The management of International Paper Company is The management of International Paper Company is also responsible for establishing and maintaining also responsible for establishing and maintaining adequate internal control over financial reporting. adequate internal control over financial reporting. Internal control over financial reporting is the process Internal control over financial reporting is the process designed by, or under the supervision of, our principal designed by, or under the supervision of, our principal executive officer and principal financial officer, and executive officer and principal financial officer, and effected by our Board of Directors, management and effected by our Board of Directors, management and other personnel to provide reasonable assurance other personnel to provide reasonable assurance regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of for external for external preparation of purposes. All internal control systems have inherent purposes. All internal control systems have inherent limitations, including the possibility of circumvention and limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control reasonable assurance of achieving the designed control objectives. The Company’s internal control system is objectives. The Company’s internal control system is financial statements financial statements the Sarbanes-Oxley Act of 2002. The Committee has the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial reviewed and discussed the consolidated financial statements for the year ended December 31, 2017, statements for the year ended December 31, 2017, including critical accounting policies and significant including critical accounting policies and significant management judgments, with management and the management judgments, with management and the independent auditors. The Committee’s independent auditors. The Committee’s report report recommending recommending the the inclusion of such inclusion of such financial financial statements in this Annual Report on Form 10-K will be statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement. set forth in our Proxy Statement. MARK S. SUTTON MARK S. SUTTON CHAIRMAN AND CHIEF EXECUTIVE OFFICER CHAIRMAN AND CHIEF EXECUTIVE OFFICER GLENN R. LANDAU GLENN R. LANDAU OFFICER OFFICER SENIOR VICE PRESIDENT AND CHIEF FINANCIAL SENIOR VICE PRESIDENT AND CHIEF FINANCIAL supported by written policies and procedures, contains supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by internal audit function. Appropriate actions are taken by management to correct deficiencies as they are management to correct deficiencies as they are identified. identified. financial financial The Company has assessed the effectiveness of its The Company has assessed the effectiveness of its internal control over reporting as of reporting as of internal control over December 31, 2017. In making this assessment, it used December 31, 2017. In making this assessment, it used the criteria described in “Internal Control – Integrated the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management (COSO). Based on this assessment, management believes that, as of December 31, 2017, the Company’s believes that, as of December 31, 2017, the Company’s internal control over financial reporting was effective. internal control over financial reporting was effective. The Company’s registered public registered public independent independent The Company’s accounting firm, Deloitte & Touche LLP, has issued its accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal report on the effectiveness of the Company’s internal control over financial reporting. The report appears on control over financial reporting. The report appears on pages 39 and 40. pages 39 and 40. Internal Control Environment And Board Of Internal Control Environment And Board Of Directors Oversight Directors Oversight in in legal standards legal standards Our internal control environment includes an enterprise- Our internal control environment includes an enterprise- wide attitude of integrity and control consciousness that wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long- exemplified by our ethics program that includes long- standing principles and policies on ethical business standing principles and policies on ethical business conduct that require employees to maintain the highest conduct that require employees to maintain the highest the conduct of ethical and ethical and the conduct of International Paper business, which have been International Paper business, which have been distributed to all employees; a toll-free telephone distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously helpline whereby any employee may anonymously report suspected violations of law or International report suspected violations of law or International Paper’s policy; and an office of ethics and business Paper’s policy; and an office of ethics and business practice. The internal control system further includes practice. The internal control system further includes careful selection and training of supervisory and careful selection and training of supervisory and management personnel, appropriate delegation of management personnel, appropriate delegation of authority and division of responsibility, dissemination of authority and division of responsibility, dissemination of accounting and business policies throughout throughout accounting and business policies International Paper, and an extensive program of International Paper, and an extensive program of internal audits with management follow-up. internal audits with management follow-up. the performance of the performance of The Board of Directors, assisted by the Audit and The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial of the Company’s financial statements and financial the reporting procedures, the reporting procedures, Company’s internal audit function and independent Company’s internal audit function and independent auditors, and other matters set forth in its charter. The auditors, and other matters set forth in its charter. The Committee, which consists of independent directors, Committee, which consists of independent directors, meets regularly with representatives of management, meets regularly with representatives of management, and with the independent auditors and the Internal and with the independent auditors and the Internal Auditor, with and without management representatives Auditor, with and without management representatives in attendance, to review their activities. The Committee’s in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of SEC rules and regulations promulgated as a result of 37 37 38 38 the the inclusion of such inclusion of such the Sarbanes-Oxley Act of 2002. The Committee has the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial reviewed and discussed the consolidated financial statements for the year ended December 31, 2017, statements for the year ended December 31, 2017, including critical accounting policies and significant including critical accounting policies and significant management judgments, with management and the management judgments, with management and the independent auditors. The Committee’s report independent auditors. The Committee’s report financial financial recommending recommending statements in this Annual Report on Form 10-K will be statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement. set forth in our Proxy Statement. ITEM 8. FINANCIAL STATEMENTS AND ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SUPPLEMENTARY DATA REPORT OF MANAGEMENT ON: REPORT OF MANAGEMENT ON: Financial Statements Financial Statements The management of International Paper Company is The management of International Paper Company is responsible for the preparation of the consolidated responsible for the preparation of the consolidated financial statements in this annual report and for financial statements in this annual report and for establishing and maintaining adequate internal controls establishing and maintaining adequate internal controls over financial reporting. The consolidated financial over financial reporting. The consolidated financial statements have been prepared using accounting statements have been prepared using accounting principles generally accepted in the United States of principles generally accepted in the United States of America considered appropriate in the circumstances America considered appropriate in the circumstances to present fairly the Company’s consolidated financial to present fairly the Company’s consolidated financial supported by written policies and procedures, contains supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by internal audit function. Appropriate actions are taken by management to correct deficiencies as they are management to correct deficiencies as they are identified. identified. The Company has assessed the effectiveness of its The Company has assessed the effectiveness of its internal control over internal control over financial financial reporting as of reporting as of December 31, 2017. In making this assessment, it used December 31, 2017. In making this assessment, it used the criteria described in “Internal Control – Integrated the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management (COSO). Based on this assessment, management believes that, as of December 31, 2017, the Company’s believes that, as of December 31, 2017, the Company’s internal control over financial reporting was effective. internal control over financial reporting was effective. position, results of operations and cash flows on a position, results of operations and cash flows on a The Company’s The Company’s independent independent registered public registered public consistent basis. Management has also prepared the consistent basis. Management has also prepared the accounting firm, Deloitte & Touche LLP, has issued its accounting firm, Deloitte & Touche LLP, has issued its other information in this annual report and is responsible other information in this annual report and is responsible report on the effectiveness of the Company’s internal report on the effectiveness of the Company’s internal for its accuracy and consistency with the consolidated for its accuracy and consistency with the consolidated control over financial reporting. The report appears on control over financial reporting. The report appears on financial statements. financial statements. pages 39 and 40. pages 39 and 40. As can be expected in a complex and dynamic business As can be expected in a complex and dynamic business environment, some financial statement amounts are environment, some financial statement amounts are based on estimates and judgments. Even though based on estimates and judgments. Even though estimates and judgments are used, measures have estimates and judgments are used, measures have been taken to provide reasonable assurance of the been taken to provide reasonable assurance of the integrity and reliability of the financial information integrity and reliability of the financial information contained in this annual report. We have formed a contained in this annual report. We have formed a Disclosure Committee to oversee this process. Disclosure Committee to oversee this process. The accompanying consolidated financial statements The accompanying consolidated financial statements have been audited by the independent registered public have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During its accounting firm, Deloitte & Touche LLP. During its audits, Deloitte & Touche LLP was given unrestricted audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including access to all financial records and related data, including minutes of all meetings of stockholders and the board minutes of all meetings of stockholders and the board of directors and all committees of of directors and all committees of the board. the board. Management believes that all representations made to Management believes that all representations made to the independent auditors during their audits were valid the independent auditors during their audits were valid and appropriate. and appropriate. Internal Control Over Financial Reporting Internal Control Over Financial Reporting The management of International Paper Company is The management of International Paper Company is also responsible for establishing and maintaining also responsible for establishing and maintaining adequate internal control over financial reporting. adequate internal control over financial reporting. Internal control over financial reporting is the process Internal control over financial reporting is the process designed by, or under the supervision of, our principal designed by, or under the supervision of, our principal executive officer and principal financial officer, and executive officer and principal financial officer, and effected by our Board of Directors, management and effected by our Board of Directors, management and other personnel to provide reasonable assurance other personnel to provide reasonable assurance regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of preparation of financial statements financial statements for external for external purposes. All internal control systems have inherent purposes. All internal control systems have inherent limitations, including the possibility of circumvention and limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control reasonable assurance of achieving the designed control objectives. The Company’s internal control system is objectives. The Company’s internal control system is Internal Control Environment And Board Of Internal Control Environment And Board Of Directors Oversight Directors Oversight Our internal control environment includes an enterprise- Our internal control environment includes an enterprise- wide attitude of integrity and control consciousness that wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long- exemplified by our ethics program that includes long- standing principles and policies on ethical business standing principles and policies on ethical business conduct that require employees to maintain the highest conduct that require employees to maintain the highest ethical and ethical and legal standards legal standards in in the conduct of the conduct of International Paper business, which have been International Paper business, which have been distributed to all employees; a toll-free telephone distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously helpline whereby any employee may anonymously report suspected violations of law or International report suspected violations of law or International Paper’s policy; and an office of ethics and business Paper’s policy; and an office of ethics and business practice. The internal control system further includes practice. The internal control system further includes careful selection and training of supervisory and careful selection and training of supervisory and management personnel, appropriate delegation of management personnel, appropriate delegation of authority and division of responsibility, dissemination of authority and division of responsibility, dissemination of accounting and business policies accounting and business policies throughout throughout International Paper, and an extensive program of International Paper, and an extensive program of internal audits with management follow-up. internal audits with management follow-up. The Board of Directors, assisted by the Audit and The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial of the Company’s financial statements and financial reporting procedures, reporting procedures, the performance of the performance of the the Company’s internal audit function and independent Company’s internal audit function and independent auditors, and other matters set forth in its charter. The auditors, and other matters set forth in its charter. The Committee, which consists of independent directors, Committee, which consists of independent directors, meets regularly with representatives of management, meets regularly with representatives of management, and with the independent auditors and the Internal and with the independent auditors and the Internal Auditor, with and without management representatives Auditor, with and without management representatives in attendance, to review their activities. The Committee’s in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of SEC rules and regulations promulgated as a result of MARK S. SUTTON MARK S. SUTTON CHAIRMAN AND CHIEF EXECUTIVE OFFICER CHAIRMAN AND CHIEF EXECUTIVE OFFICER GLENN R. LANDAU GLENN R. LANDAU SENIOR VICE PRESIDENT AND CHIEF FINANCIAL SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OFFICER 37 37 38 38 REPORT OF INDEPENDENT REGISTERED REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of To the Board of Directors and Shareholders of International Paper Company: International Paper Company: Opinion on the Financial Statements Opinion on the Financial Statements We have audited the accompanying consolidated We have audited the accompanying consolidated balance sheets of International Paper Company and balance sheets of International Paper Company and subsidiaries (the "Company") as of December 31, 2017 subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of and 2016, the related consolidated statements of operations, comprehensive income, changes in equity, operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material the financial statements present fairly, in all material respects, the financial position of the Company as of respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the with accounting principles generally accepted in the United States of America. United States of America. We have also audited, in accordance with the standards We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee Integrated Framework (2013) issued by the Committee the Treadway of Sponsoring Organizations of the Treadway of Sponsoring Organizations of Commission and our report dated February 22, 2018, Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's expressed an unqualified opinion on the Company's internal control over financial reporting. internal control over financial reporting. Basis for Opinion Basis for Opinion the Company's the Company's These financial statements are the responsibility of the These financial statements are the responsibility of the Company's management. Our responsibility is to Company's management. Our responsibility is to financial express an opinion on financial express an opinion on statements based on our audits. We are a public statements based on our audits. We are a public accounting firm registered with the PCAOB and are accounting firm registered with the PCAOB and are required to be independent with respect to the Company required to be independent with respect to the Company in accordance with the U.S. federal securities laws and in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. and Exchange Commission and the PCAOB. We conducted our audits in accordance with the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable we plan and perform the audit to obtain reasonable assurance about whether the financial statements are assurance about whether the financial statements are free of material misstatement, whether due to error or free of material misstatement, whether due to error or fraud. Our audits included performing procedures to fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial assess the risks of material misstatement of the financial statements, whether due to error or fraud, and statements, whether due to error or fraud, and performing procedures that respond to those risks. performing procedures that respond to those risks. Such procedures included examining, on a test basis, Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the evidence regarding the amounts and disclosures in the financial statements. Our audits also included included financial statements. Our audits also evaluating the accounting principles used and the accounting principles used and evaluating significant estimates made by management, as well as significant estimates made by management, as well as evaluating the overall presentation of the financial evaluating the overall presentation of the financial statements. We believe that our audits provide a statements. We believe that our audits provide a reasonable basis for our opinion. reasonable basis for our opinion. to express an opinion on the Company's internal control to express an opinion on the Company's internal control Because of the inherent limitations of internal control Because of the inherent limitations of internal control over financial reporting based on our audit. We are a over financial reporting based on our audit. We are a over financial reporting, including the possibility of over financial reporting, including the possibility of public accounting firm registered with the PCAOB and public accounting firm registered with the PCAOB and collusion or improper management override of controls, collusion or improper management override of controls, are required to be independent with respect to the are required to be independent with respect to the material misstatements due to error or fraud may not be material misstatements due to error or fraud may not be Company in accordance with the U.S. federal securities Company in accordance with the U.S. federal securities prevented or detected on a prevented or detected on a timely basis. Also, timely basis. Also, laws and the applicable rules and regulations of the laws and the applicable rules and regulations of the projections of any evaluation of the effectiveness of the projections of any evaluation of the effectiveness of the Securities and Exchange Commission and the PCAOB. Securities and Exchange Commission and the PCAOB. internal control over financial reporting to future periods internal control over financial reporting to future periods are subject to the risk that the controls may become are subject to the risk that the controls may become inadequate because of changes in conditions, or that inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures the degree of compliance with the policies or procedures may deteriorate. may deteriorate. /s/ Deloitte & Touche LLP /s/ Deloitte & Touche LLP Memphis, Tennessee Memphis, Tennessee February 22, 2018 February 22, 2018 We conducted our audit in accordance with the We conducted our audit in accordance with the standards of the Public Company Accounting Oversight standards of the Public Company Accounting Oversight Board (United States). Those standards require that we Board (United States). Those standards require that we plan and perform the audit to obtain reasonable plan and perform the audit to obtain reasonable assurance about whether effective internal control over assurance about whether effective internal control over financial reporting was maintained in all material financial reporting was maintained in all material respects. Our audit included obtaining an understanding respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the of internal control over financial reporting, assessing the risk that a material weakness exists, testing and risk that a material weakness exists, testing and evaluating the design and operating effectiveness of evaluating the design and operating effectiveness of internal control based on the assessed risk, and internal control based on the assessed risk, and performing such other procedures as we considered performing such other procedures as we considered necessary in the circumstances. We believe that our necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Definition and Limitations of Internal Control over Financial Reporting Financial Reporting A company's internal control over financial reporting is A company's internal control over financial reporting is a process designed to provide reasonable assurance a process designed to provide reasonable assurance regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of preparation of financial statements financial statements for external for external purposes in accordance with generally accepted purposes in accordance with generally accepted accounting principles. A company's internal control over accounting principles. A company's internal control over financial financial reporting reporting includes includes those policies and those policies and procedures that (1) pertain to the maintenance of procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit transactions are recorded as necessary to permit preparation of financial statements in accordance with preparation of financial statements in accordance with generally accepted accounting principles, and that generally accepted accounting principles, and that receipts and expenditures of the company are being receipts and expenditures of the company are being made only in accordance with authorizations of made only in accordance with authorizations of management and directors of the company; and (3) management and directors of the company; and (3) provide reasonable assurance regarding prevention or provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a disposition of the company's assets that could have a material effect on the financial statements. material effect on the financial statements. /s/ Deloitte & Touche LLP /s/ Deloitte & Touche LLP Memphis, Tennessee Memphis, Tennessee February 22, 2018 February 22, 2018 We have served as the Company's auditor since We have served as the Company's auditor since 2002. 2002. REPORT OF INDEPENDENT REGISTERED PUBLIC REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of To the Board of Directors and Shareholders of International Paper Company: International Paper Company: Opinion on Opinion on Reporting Reporting Internal Control over Financial Internal Control over Financial We have audited the internal control over financial We have audited the internal control over financial reporting of International Paper Company and reporting of International Paper Company and subsidiaries (the "Company") as of December 31, 2017, subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control - based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, Commission. In our opinion, the Company maintained, in all material respects, effective internal control over in all material respects, effective internal control over financial reporting as of December 31, 2017, based on financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated the criteria established in Internal Control - Integrated the Committee of Framework (2013) the Committee of issued by Framework (2013) issued by the Treadway Sponsoring Organizations the Treadway Sponsoring Organizations Commission. Commission. of of We have also audited, in accordance with the standards We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board of the Public Company Accounting Oversight Board (United States), the consolidated financial statements (United States), the consolidated financial statements and financial statement schedule as of and for the year and financial statement schedule as of and for the year ended December 31, 2017 of the Company and our ended December 31, 2017 of the Company and our report dated February 22, 2018 expressed an report dated February 22, 2018 expressed an unqualified opinion on those financial statements and unqualified opinion on those financial statements and financial statement schedule. financial statement schedule. Basis for Opinion Basis for Opinion is responsible is responsible The Company's management for for The Company's management maintaining effective internal control over financial maintaining effective internal control over financial reporting and for its assessment of the effectiveness of reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the internal control over financial reporting, included in the accompanying Report of Management on Internal accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is Control over Financial Reporting. Our responsibility is 39 39 40 40 REPORT OF INDEPENDENT REGISTERED REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PUBLIC ACCOUNTING FIRM financial statements. Our audits also financial statements. Our audits also included included evaluating evaluating the accounting principles used and the accounting principles used and significant estimates made by management, as well as significant estimates made by management, as well as To the Board of Directors and Shareholders of To the Board of Directors and Shareholders of evaluating the overall presentation of the financial evaluating the overall presentation of the financial International Paper Company: International Paper Company: statements. We believe that our audits provide a statements. We believe that our audits provide a Opinion on the Financial Statements Opinion on the Financial Statements reasonable basis for our opinion. reasonable basis for our opinion. We have audited the accompanying consolidated We have audited the accompanying consolidated balance sheets of International Paper Company and balance sheets of International Paper Company and /s/ Deloitte & Touche LLP /s/ Deloitte & Touche LLP subsidiaries (the "Company") as of December 31, 2017 subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of and 2016, the related consolidated statements of operations, comprehensive income, changes in equity, operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material the financial statements present fairly, in all material respects, the financial position of the Company as of respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the with accounting principles generally accepted in the United States of America. United States of America. We have also audited, in accordance with the standards We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of of Sponsoring Organizations of the Treadway the Treadway Commission and our report dated February 22, 2018, Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's expressed an unqualified opinion on the Company's internal control over financial reporting. internal control over financial reporting. Basis for Opinion Basis for Opinion These financial statements are the responsibility of the These financial statements are the responsibility of the Company's management. Our responsibility is to Company's management. Our responsibility is to express an opinion on express an opinion on the Company's the Company's financial financial statements based on our audits. We are a public statements based on our audits. We are a public accounting firm registered with the PCAOB and are accounting firm registered with the PCAOB and are required to be independent with respect to the Company required to be independent with respect to the Company in accordance with the U.S. federal securities laws and in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. and Exchange Commission and the PCAOB. We conducted our audits in accordance with the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable we plan and perform the audit to obtain reasonable assurance about whether the financial statements are assurance about whether the financial statements are free of material misstatement, whether due to error or free of material misstatement, whether due to error or fraud. Our audits included performing procedures to fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial assess the risks of material misstatement of the financial statements, whether due to error or fraud, and statements, whether due to error or fraud, and performing procedures that respond to those risks. performing procedures that respond to those risks. Such procedures included examining, on a test basis, Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the evidence regarding the amounts and disclosures in the Memphis, Tennessee Memphis, Tennessee February 22, 2018 February 22, 2018 We have served as the Company's auditor since We have served as the Company's auditor since 2002. 2002. REPORT OF INDEPENDENT REGISTERED PUBLIC REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of To the Board of Directors and Shareholders of International Paper Company: International Paper Company: Opinion on Opinion on Internal Control over Financial Internal Control over Financial Reporting Reporting We have audited the internal control over financial We have audited the internal control over financial reporting of reporting of International Paper Company and International Paper Company and subsidiaries (the "Company") as of December 31, 2017, subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control - based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of of Sponsoring Organizations of the Treadway the Treadway Commission. In our opinion, the Company maintained, Commission. In our opinion, the Company maintained, in all material respects, effective internal control over in all material respects, effective internal control over financial reporting as of December 31, 2017, based on financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated the criteria established in Internal Control - Integrated Framework (2013) Framework (2013) issued by issued by the Committee of the Committee of Sponsoring Organizations Sponsoring Organizations of of the Treadway the Treadway Commission. Commission. We have also audited, in accordance with the standards We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board of the Public Company Accounting Oversight Board (United States), the consolidated financial statements (United States), the consolidated financial statements and financial statement schedule as of and for the year and financial statement schedule as of and for the year ended December 31, 2017 of the Company and our ended December 31, 2017 of the Company and our report dated February 22, 2018 expressed an report dated February 22, 2018 expressed an unqualified opinion on those financial statements and unqualified opinion on those financial statements and financial statement schedule. financial statement schedule. Basis for Opinion Basis for Opinion The Company's management The Company's management is responsible is responsible for for maintaining effective internal control over financial maintaining effective internal control over financial reporting and for its assessment of the effectiveness of reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the internal control over financial reporting, included in the accompanying Report of Management on Internal accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control to express an opinion on the Company's internal control over financial reporting based on our audit. We are a over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and public accounting firm registered with the PCAOB and are required to be independent with respect to the are required to be independent with respect to the Company in accordance with the U.S. federal securities Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the We conducted our audit in accordance with the standards of the Public Company Accounting Oversight standards of the Public Company Accounting Oversight Board (United States). Those standards require that we Board (United States). Those standards require that we plan and perform the audit to obtain reasonable plan and perform the audit to obtain reasonable assurance about whether effective internal control over assurance about whether effective internal control over financial reporting was maintained in all material financial reporting was maintained in all material respects. Our audit included obtaining an understanding respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the of internal control over financial reporting, assessing the risk that a material weakness exists, testing and risk that a material weakness exists, testing and evaluating the design and operating effectiveness of evaluating the design and operating effectiveness of internal control based on the assessed risk, and internal control based on the assessed risk, and performing such other procedures as we considered performing such other procedures as we considered necessary in the circumstances. We believe that our necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Definition and Limitations of Internal Control over Financial Reporting Financial Reporting Because of the inherent limitations of internal control Because of the inherent limitations of internal control over financial reporting, including the possibility of over financial reporting, including the possibility of collusion or improper management override of controls, collusion or improper management override of controls, material misstatements due to error or fraud may not be material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods internal control over financial reporting to future periods are subject to the risk that the controls may become are subject to the risk that the controls may become inadequate because of changes in conditions, or that inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures the degree of compliance with the policies or procedures may deteriorate. may deteriorate. /s/ Deloitte & Touche LLP /s/ Deloitte & Touche LLP Memphis, Tennessee Memphis, Tennessee February 22, 2018 February 22, 2018 reporting reporting financial statements financial statements A company's internal control over financial reporting is A company's internal control over financial reporting is a process designed to provide reasonable assurance a process designed to provide reasonable assurance regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of for external for external preparation of purposes in accordance with generally accepted purposes in accordance with generally accepted accounting principles. A company's internal control over accounting principles. A company's internal control over those policies and includes financial those policies and includes financial procedures that (1) pertain to the maintenance of procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit transactions are recorded as necessary to permit preparation of financial statements in accordance with preparation of financial statements in accordance with generally accepted accounting principles, and that generally accepted accounting principles, and that receipts and expenditures of the company are being receipts and expenditures of the company are being made only in accordance with authorizations of made only in accordance with authorizations of management and directors of the company; and (3) management and directors of the company; and (3) provide reasonable assurance regarding prevention or provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a disposition of the company's assets that could have a material effect on the financial statements. material effect on the financial statements. 39 39 40 40 CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) In millions for the years ended December 31 In millions for the years ended December 31 NET EARNINGS (LOSS) NET EARNINGS (LOSS) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Amortization of pension and postretirement prior service costs and net loss: Amortization of pension and postretirement prior service costs and net loss: U.S. plans (less tax of $280, $343 and $186) U.S. plans (less tax of $280, $343 and $186) Pension and postretirement liability adjustments: Pension and postretirement liability adjustments: U.S. plans (less tax of $69, $283 and $206) U.S. plans (less tax of $69, $283 and $206) Non-U.S. plans (less tax of $1, $4 and $0) Non-U.S. plans (less tax of $1, $4 and $0) Change in cumulative foreign currency translation adjustment Change in cumulative foreign currency translation adjustment Net gains/losses on cash flow hedging derivatives: Net gains/losses on cash flow hedging derivatives: Net gains (losses) arising during the period (less tax of $4, $3 and $3) Net gains (losses) arising during the period (less tax of $4, $3 and $3) Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8) Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8) TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Comprehensive Income (Loss) Comprehensive Income (Loss) Net (Earnings) Loss Attributable to Noncontrolling Interests Net (Earnings) Loss Attributable to Noncontrolling Interests Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests 2017 2017 2016 2016 2015 2015 $ $ 2,144 $ 2,144 $ 902 $ 902 $ 917 917 486 486 56 56 3 3 177 177 730 730 2,874 2,874 15 15 (7) (7) — — (1) (1) 545 545 296 296 (451) (451) 3 3 260 260 (329) (329) (2) (2) (1,042) (1,042) 344 344 1,246 1,246 (1,068) (1,068) (151) (151) (6) (6) (7) (7) 2 2 2 2 (3) (3) 12 12 21 21 6 6 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY $ $ 2,873 $ 2,873 $ 1,250 $ 1,250 $ (124) (124) The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. In millions, except per share amounts, for the years ended December 31 In millions, except per share amounts, for the years ended December 31 NET SALES NET SALES COSTS AND EXPENSES COSTS AND EXPENSES Cost of products sold Cost of products sold Selling and administrative expenses Selling and administrative expenses Depreciation, amortization and cost of timber harvested Depreciation, amortization and cost of timber harvested Distribution expenses Distribution expenses Taxes other than payroll and income taxes Taxes other than payroll and income taxes Restructuring and other charges Restructuring and other charges Impairment of goodwill and other intangibles Impairment of goodwill and other intangibles Net (gains) losses on sales and impairments of businesses Net (gains) losses on sales and impairments of businesses Litigation settlement Litigation settlement Net bargain purchase gain on acquisition of business Net bargain purchase gain on acquisition of business Interest expense, net Interest expense, net EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) EARNINGS (LOSSES) Income tax provision (benefit) Income tax provision (benefit) Equity earnings (loss), net of taxes Equity earnings (loss), net of taxes EARNINGS (LOSS) FROM CONTINUING OPERATIONS EARNINGS (LOSS) FROM CONTINUING OPERATIONS Discontinued operations, net of taxes Discontinued operations, net of taxes NET EARNINGS (LOSS) NET EARNINGS (LOSS) Less: Net earnings (loss) attributable to noncontrolling interests Less: Net earnings (loss) attributable to noncontrolling interests NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMPANY BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS COMMON SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS COMMON SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 2017 2017 2016 2016 2015 2015 $ 21,743 $ 19,495 $ 20,675 $ 21,743 $ 19,495 $ 20,675 15,300 15,300 14,057 14,057 14,313 14,313 1,653 1,653 1,343 1,343 1,434 1,434 169 169 67 67 — — 9 9 354 354 (6) (6) 572 572 848 848 (1,085) (1,085) 177 177 2,110 2,110 34 34 2,144 2,144 — — 1,484 1,484 1,124 1,124 1,237 1,237 154 154 54 54 — — 70 70 — — — — 520 520 795 795 193 193 198 198 800 800 102 102 902 902 1,539 1,539 1,167 1,167 1,248 1,248 158 158 252 252 137 137 174 174 — — — — 555 555 1,132 1,132 417 417 117 117 832 832 85 85 917 917 (2) (2) (21) (21) $ $ 2,144 $ 2,144 $ 904 $ 904 $ 938 938 $ $ $ $ $ $ $ $ $ $ $ $ 5.11 $ 5.11 $ 1.95 $ 1.95 $ 0.08 0.08 0.25 0.25 5.19 $ 5.19 $ 2.20 $ 2.20 $ 5.05 $ 5.05 $ 1.93 $ 1.93 $ 0.08 0.08 0.25 0.25 5.13 $ 5.13 $ 2.18 $ 2.18 $ 2,110 $ 2,110 $ 802 $ 802 $ 34 34 102 102 2,144 $ 2,144 $ 904 $ 904 $ 2.05 2.05 0.20 0.20 2.25 2.25 2.03 2.03 0.20 0.20 2.23 2.23 853 853 85 85 938 938 41 41 42 42 CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) In millions for the years ended December 31 In millions for the years ended December 31 NET EARNINGS (LOSS) NET EARNINGS (LOSS) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Amortization of pension and postretirement prior service costs and net loss: Amortization of pension and postretirement prior service costs and net loss: U.S. plans (less tax of $280, $343 and $186) U.S. plans (less tax of $280, $343 and $186) Pension and postretirement liability adjustments: Pension and postretirement liability adjustments: U.S. plans (less tax of $69, $283 and $206) U.S. plans (less tax of $69, $283 and $206) Non-U.S. plans (less tax of $1, $4 and $0) Non-U.S. plans (less tax of $1, $4 and $0) Change in cumulative foreign currency translation adjustment Change in cumulative foreign currency translation adjustment Net gains/losses on cash flow hedging derivatives: Net gains/losses on cash flow hedging derivatives: Net gains (losses) arising during the period (less tax of $4, $3 and $3) Net gains (losses) arising during the period (less tax of $4, $3 and $3) Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8) Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8) TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Comprehensive Income (Loss) Comprehensive Income (Loss) Net (Earnings) Loss Attributable to Noncontrolling Interests Net (Earnings) Loss Attributable to Noncontrolling Interests Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests 2017 2017 2016 2016 2015 2015 $ $ 2,144 $ 2,144 $ 902 $ 902 $ 917 917 486 486 56 56 3 3 177 177 15 15 (7) (7) 730 730 2,874 2,874 — — (1) (1) 545 545 296 296 (451) (451) 3 3 260 260 (6) (6) (7) (7) (329) (329) (2) (2) (1,042) (1,042) (3) (3) 12 12 344 344 1,246 1,246 (1,068) (1,068) (151) (151) 2 2 2 2 21 21 6 6 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY $ $ 2,873 $ 2,873 $ 1,250 $ 1,250 $ (124) (124) The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. In millions, except per share amounts, for the years ended December 31 In millions, except per share amounts, for the years ended December 31 NET SALES NET SALES COSTS AND EXPENSES COSTS AND EXPENSES Cost of products sold Cost of products sold Selling and administrative expenses Selling and administrative expenses Depreciation, amortization and cost of timber harvested Depreciation, amortization and cost of timber harvested Distribution expenses Distribution expenses Taxes other than payroll and income taxes Taxes other than payroll and income taxes Restructuring and other charges Restructuring and other charges Impairment of goodwill and other intangibles Impairment of goodwill and other intangibles Net (gains) losses on sales and impairments of businesses Net (gains) losses on sales and impairments of businesses Litigation settlement Litigation settlement Interest expense, net Interest expense, net Net bargain purchase gain on acquisition of business Net bargain purchase gain on acquisition of business EARNINGS (LOSSES) EARNINGS (LOSSES) Income tax provision (benefit) Income tax provision (benefit) Equity earnings (loss), net of taxes Equity earnings (loss), net of taxes EARNINGS (LOSS) FROM CONTINUING OPERATIONS EARNINGS (LOSS) FROM CONTINUING OPERATIONS Discontinued operations, net of taxes Discontinued operations, net of taxes NET EARNINGS (LOSS) NET EARNINGS (LOSS) Less: Net earnings (loss) attributable to noncontrolling interests Less: Net earnings (loss) attributable to noncontrolling interests NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMPANY EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS COMMON SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) COMMON SHAREHOLDERS COMMON SHAREHOLDERS Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) Earnings (loss) from continuing operations Earnings (loss) from continuing operations Discontinued operations, net of taxes Discontinued operations, net of taxes Net earnings (loss) Net earnings (loss) DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 2017 2017 2016 2016 2015 2015 $ 21,743 $ 19,495 $ 20,675 $ 21,743 $ 19,495 $ 20,675 15,300 15,300 14,057 14,057 14,313 14,313 1,653 1,653 1,343 1,343 1,434 1,434 169 169 67 67 — — 9 9 354 354 (6) (6) 572 572 848 848 (1,085) (1,085) 177 177 2,110 2,110 2,144 2,144 34 34 — — 1,484 1,484 1,124 1,124 1,237 1,237 154 154 54 54 — — 70 70 — — — — 520 520 795 795 193 193 198 198 800 800 102 102 902 902 (2) (2) (21) (21) $ $ 2,144 $ 2,144 $ 904 $ 904 $ 938 938 $ $ $ $ $ $ $ $ $ $ $ $ 5.11 $ 5.11 $ 1.95 $ 1.95 $ 0.08 0.08 0.25 0.25 5.19 $ 5.19 $ 2.20 $ 2.20 $ 5.05 $ 5.05 $ 1.93 $ 1.93 $ 0.08 0.08 0.25 0.25 5.13 $ 5.13 $ 2.18 $ 2.18 $ 2,110 $ 2,110 $ 802 $ 802 $ 34 34 102 102 2,144 $ 2,144 $ 904 $ 904 $ 1,539 1,539 1,167 1,167 1,248 1,248 158 158 252 252 137 137 174 174 — — — — 555 555 417 417 117 117 832 832 85 85 917 917 1,132 1,132 2.05 2.05 0.20 0.20 2.25 2.25 2.03 2.03 0.20 0.20 2.23 2.23 853 853 85 85 938 938 41 41 42 42 CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS In millions, except per share amounts, at December 31 In millions, except per share amounts, at December 31 2017 2017 2016 2016 In millions for the years ended December 31 In millions for the years ended December 31 ASSETS ASSETS Current Assets Current Assets Cash and temporary investments Cash and temporary investments Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016 Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016 Inventories Inventories Assets held for sale Assets held for sale Other current assets Other current assets Total Current Assets Total Current Assets Plants, Properties and Equipment, net Plants, Properties and Equipment, net Forestlands Forestlands Investments Investments Financial Assets of Special Purpose Entities (Note 12) Financial Assets of Special Purpose Entities (Note 12) Long-Term Assets Held for Sale Long-Term Assets Held for Sale Goodwill Goodwill Deferred Charges and Other Assets Deferred Charges and Other Assets TOTAL ASSETS TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES AND EQUITY Current Liabilities Current Liabilities Notes payable and current maturities of long-term debt Notes payable and current maturities of long-term debt Accounts payable Accounts payable Accrued payroll and benefits Accrued payroll and benefits Liabilities held for sale Liabilities held for sale Other accrued liabilities Other accrued liabilities Total Current Liabilities Total Current Liabilities Long-Term Liabilities Held for Sale Long-Term Liabilities Held for Sale Long-Term Debt Long-Term Debt Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12) Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12) Deferred Income Taxes Deferred Income Taxes Pension Benefit Obligation Pension Benefit Obligation Postretirement and Postemployment Benefit Obligation Postretirement and Postemployment Benefit Obligation Other Liabilities Other Liabilities Commitments and Contingent Liabilities (Note 11) Commitments and Contingent Liabilities (Note 11) Equity Equity Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares Paid-in capital Paid-in capital Retained earnings Retained earnings Accumulated other comprehensive loss Accumulated other comprehensive loss Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares Total International Paper Shareholders’ Equity Total International Paper Shareholders’ Equity Noncontrolling interests Noncontrolling interests Total Equity Total Equity TOTAL LIABILITIES AND EQUITY TOTAL LIABILITIES AND EQUITY The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. $ 1,018 $ 1,033 $ 1,018 $ 1,033 3,287 3,287 2,313 2,313 1,377 1,377 282 282 8,277 8,277 2,852 2,852 2,233 2,233 361 361 191 191 6,670 6,670 13,265 13,265 13,003 13,003 448 448 390 390 7,051 7,051 — — 3,411 3,411 1,061 1,061 456 456 360 360 7,033 7,033 1,018 1,018 3,364 3,364 1,189 1,189 $ 33,903 $ 33,093 $ 33,903 $ 33,093 $ $ 311 $ 311 $ 239 239 2,458 2,458 2,199 2,199 485 485 805 805 1,043 1,043 5,102 5,102 — — 401 401 161 161 1,069 1,069 4,069 4,069 8 8 10,846 10,846 11,075 11,075 6,291 6,291 2,291 2,291 1,939 1,939 326 326 567 567 449 449 6,206 6,206 6,180 6,180 6,284 6,284 3,127 3,127 3,400 3,400 330 330 441 441 449 449 6,189 6,189 4,818 4,818 (4,633) (4,633) (5,362) (5,362) 8,202 8,202 1,680 1,680 6,522 6,522 19 19 6,094 6,094 1,753 1,753 4,341 4,341 18 18 6,541 6,541 4,359 4,359 $ 33,903 $ 33,093 $ 33,903 $ 33,093 OPERATING ACTIVITIES OPERATING ACTIVITIES Net earnings (loss) Net earnings (loss) Depreciation, amortization, and cost of timber harvested Depreciation, amortization, and cost of timber harvested Deferred income tax provision (benefit), net Deferred income tax provision (benefit), net Restructuring and other charges Restructuring and other charges Pension plan contribution Pension plan contribution Periodic pension expense, net Periodic pension expense, net Net bargain purchase gain on acquisition of business Net bargain purchase gain on acquisition of business Net (gains) losses on sales and impairments of businesses Net (gains) losses on sales and impairments of businesses Ilim dividends received Ilim dividends received Equity (earnings) losses, net of taxes Equity (earnings) losses, net of taxes Impairment of goodwill and other intangible assets Impairment of goodwill and other intangible assets Other, net Other, net Changes in current assets and liabilities Changes in current assets and liabilities Accounts and notes receivable Accounts and notes receivable Accounts payable and accrued liabilities Accounts payable and accrued liabilities Inventories Inventories Interest payable Interest payable Other Other INVESTMENT ACTIVITIES INVESTMENT ACTIVITIES Invested in capital projects Invested in capital projects Acquisitions, net of cash acquired Acquisitions, net of cash acquired Proceeds from divestitures Proceeds from divestitures Investment in Special Purpose Entities Investment in Special Purpose Entities Proceeds from sale of fixed assets Proceeds from sale of fixed assets Other Other Issuance of common stock Issuance of common stock Issuance of debt Issuance of debt Reduction of debt Reduction of debt Change in book overdrafts Change in book overdrafts Dividends paid Dividends paid Debt tender premiums paid Debt tender premiums paid Other Other CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES FINANCING ACTIVITIES FINANCING ACTIVITIES Repurchase of common stock and payments of restricted stock tax withholding Repurchase of common stock and payments of restricted stock tax withholding CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Effect of Exchange Rate Changes on Cash Effect of Exchange Rate Changes on Cash Change in Cash and Temporary Investments Change in Cash and Temporary Investments Cash and Temporary Investments Cash and Temporary Investments Beginning of the period Beginning of the period End of the period End of the period The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 43 43 44 44 2017 2017 2016 2016 2015 2015 $ $ 2,144 $ 2,144 $ 902 $ 902 $ 917 917 1,227 1,227 1,294 1,294 1,423 1,423 (1,113) (1,113) 67 67 (1,250) (1,250) 717 717 (6) (6) 9 9 133 133 (177) (177) — — 212 212 (370) (370) (87) (87) 114 114 1 1 (60) (60) 4 4 — — 26 26 15 15 (47) (47) — — 1,907 1,907 (1,424) (1,424) 26 26 (769) (769) (84) (84) (8) (8) (399) (399) 18 18 (15) (15) (198) (198) (117) (117) 136 136 54 54 (750) (750) 809 809 — — 70 70 58 58 — — 99 99 11 11 98 98 41 41 15 15 (94) (94) 108 108 — — 19 19 281 281 252 252 (750) (750) 461 461 — — 174 174 35 35 137 137 118 118 7 7 (131) (131) (89) (89) (17) (17) 8 8 (1,487) (1,487) — — 23 23 37 37 (198) (198) (132) (132) — — (605) (605) 2 2 3,830 3,830 6,873 6,873 (1,938) (1,938) (6,947) (6,947) — — (733) (733) (31) (31) (14) (14) 982 982 21 21 (17) (17) (14) (14) (685) (685) (211) (211) (14) (14) (1,601) (1,601) (71) (71) (831) (831) (1,391) (1,391) (45) (45) (1,348) (1,348) (2,228) (2,228) (49) (49) (114) (114) (1,391) (1,391) (3,498) (3,498) (1,739) (1,739) 1,033 1,033 1,050 1,050 1,881 1,881 $ $ 1,018 $ 1,018 $ 1,033 $ 1,033 $ 1,050 1,050 CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 1,757 1,757 2,478 2,478 2,580 2,580 CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS In millions, except per share amounts, at December 31 In millions, except per share amounts, at December 31 2017 2017 2016 2016 In millions for the years ended December 31 In millions for the years ended December 31 $ 1,018 $ 1,033 $ 1,018 $ 1,033 Depreciation, amortization, and cost of timber harvested Depreciation, amortization, and cost of timber harvested Deferred income tax provision (benefit), net Deferred income tax provision (benefit), net OPERATING ACTIVITIES OPERATING ACTIVITIES Net earnings (loss) Net earnings (loss) Restructuring and other charges Restructuring and other charges Pension plan contribution Pension plan contribution Periodic pension expense, net Periodic pension expense, net Net bargain purchase gain on acquisition of business Net bargain purchase gain on acquisition of business Net (gains) losses on sales and impairments of businesses Net (gains) losses on sales and impairments of businesses Ilim dividends received Ilim dividends received Equity (earnings) losses, net of taxes Equity (earnings) losses, net of taxes Impairment of goodwill and other intangible assets Impairment of goodwill and other intangible assets Other, net Other, net Changes in current assets and liabilities Changes in current assets and liabilities Accounts and notes receivable Accounts and notes receivable Inventories Inventories Accounts payable and accrued liabilities Accounts payable and accrued liabilities Interest payable Interest payable Other Other 2017 2017 2016 2016 2015 2015 $ $ 2,144 $ 2,144 $ 902 $ 902 $ 917 917 1,423 1,423 (1,113) (1,113) 67 67 (1,250) (1,250) 717 717 (6) (6) 9 9 133 133 (177) (177) — — 212 212 (370) (370) (87) (87) 114 114 1 1 (60) (60) 1,227 1,227 1,294 1,294 136 136 54 54 (750) (750) 809 809 — — 70 70 58 58 281 281 252 252 (750) (750) 461 461 — — 174 174 35 35 (198) (198) (117) (117) — — 99 99 (94) (94) 11 11 98 98 41 41 15 15 137 137 118 118 7 7 (131) (131) (89) (89) (17) (17) 8 8 CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 1,757 1,757 2,478 2,478 2,580 2,580 INVESTMENT ACTIVITIES INVESTMENT ACTIVITIES Invested in capital projects Invested in capital projects Acquisitions, net of cash acquired Acquisitions, net of cash acquired Proceeds from divestitures Proceeds from divestitures Investment in Special Purpose Entities Investment in Special Purpose Entities Proceeds from sale of fixed assets Proceeds from sale of fixed assets Other Other 10,846 10,846 11,075 11,075 CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES FINANCING ACTIVITIES FINANCING ACTIVITIES Repurchase of common stock and payments of restricted stock tax withholding Repurchase of common stock and payments of restricted stock tax withholding Issuance of common stock Issuance of common stock Issuance of debt Issuance of debt Reduction of debt Reduction of debt Change in book overdrafts Change in book overdrafts Dividends paid Dividends paid Debt tender premiums paid Debt tender premiums paid Other Other CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Effect of Exchange Rate Changes on Cash Effect of Exchange Rate Changes on Cash Change in Cash and Temporary Investments Change in Cash and Temporary Investments Cash and Temporary Investments Cash and Temporary Investments Beginning of the period Beginning of the period End of the period End of the period The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. (1,391) (1,391) (45) (45) (1,348) (1,348) (2,228) (2,228) 4 4 — — 26 26 15 15 108 108 — — 19 19 (49) (49) (1,487) (1,487) — — 23 23 (198) (198) 37 37 (114) (114) (1,391) (1,391) (3,498) (3,498) (1,739) (1,739) (47) (47) — — 1,907 1,907 (1,424) (1,424) 26 26 (769) (769) (84) (84) (8) (8) (399) (399) 18 18 (15) (15) (132) (132) — — (605) (605) 2 2 3,830 3,830 6,873 6,873 (1,938) (1,938) (6,947) (6,947) — — (733) (733) (31) (31) (14) (14) 982 982 21 21 (17) (17) (14) (14) (685) (685) (211) (211) (14) (14) (1,601) (1,601) (71) (71) (831) (831) 1,033 1,033 1,050 1,050 1,881 1,881 $ $ 1,018 $ 1,018 $ 1,033 $ 1,033 $ 1,050 1,050 Plants, Properties and Equipment, net Plants, Properties and Equipment, net 13,265 13,265 13,003 13,003 Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016 Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016 ASSETS ASSETS Current Assets Current Assets Cash and temporary investments Cash and temporary investments Inventories Inventories Assets held for sale Assets held for sale Other current assets Other current assets Total Current Assets Total Current Assets Forestlands Forestlands Investments Investments Long-Term Assets Held for Sale Long-Term Assets Held for Sale Goodwill Goodwill Deferred Charges and Other Assets Deferred Charges and Other Assets TOTAL ASSETS TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES AND EQUITY Current Liabilities Current Liabilities Accounts payable Accounts payable Accrued payroll and benefits Accrued payroll and benefits Liabilities held for sale Liabilities held for sale Other accrued liabilities Other accrued liabilities Total Current Liabilities Total Current Liabilities Long-Term Liabilities Held for Sale Long-Term Liabilities Held for Sale Long-Term Debt Long-Term Debt Deferred Income Taxes Deferred Income Taxes Pension Benefit Obligation Pension Benefit Obligation Financial Assets of Special Purpose Entities (Note 12) Financial Assets of Special Purpose Entities (Note 12) Notes payable and current maturities of long-term debt Notes payable and current maturities of long-term debt Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12) Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12) Postretirement and Postemployment Benefit Obligation Postretirement and Postemployment Benefit Obligation Commitments and Contingent Liabilities (Note 11) Commitments and Contingent Liabilities (Note 11) Other Liabilities Other Liabilities Equity Equity Paid-in capital Paid-in capital Retained earnings Retained earnings Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares Accumulated other comprehensive loss Accumulated other comprehensive loss (4,633) (4,633) (5,362) (5,362) Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares Total International Paper Shareholders’ Equity Total International Paper Shareholders’ Equity Noncontrolling interests Noncontrolling interests Total Equity Total Equity TOTAL LIABILITIES AND EQUITY TOTAL LIABILITIES AND EQUITY The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. $ 33,903 $ 33,093 $ 33,903 $ 33,093 $ $ 311 $ 311 $ 239 239 2,458 2,458 2,199 2,199 3,287 3,287 2,313 2,313 1,377 1,377 282 282 8,277 8,277 448 448 390 390 7,051 7,051 — — 3,411 3,411 1,061 1,061 485 485 805 805 1,043 1,043 5,102 5,102 — — 6,291 6,291 2,291 2,291 1,939 1,939 326 326 567 567 449 449 6,206 6,206 6,180 6,180 8,202 8,202 1,680 1,680 6,522 6,522 19 19 2,852 2,852 2,233 2,233 361 361 191 191 6,670 6,670 456 456 360 360 7,033 7,033 1,018 1,018 3,364 3,364 1,189 1,189 401 401 161 161 1,069 1,069 4,069 4,069 8 8 6,284 6,284 3,127 3,127 3,400 3,400 330 330 441 441 449 449 6,189 6,189 4,818 4,818 6,094 6,094 1,753 1,753 4,341 4,341 18 18 6,541 6,541 4,359 4,359 $ 33,903 $ 33,093 $ 33,903 $ 33,093 43 43 44 44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY In millions In millions BALANCE, JANUARY 1, BALANCE, JANUARY 1, 2015 2015 Issuance of stock for various Issuance of stock for various plans, net plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Divestiture of noncontrolling Divestiture of noncontrolling interests interests Comprehensive income Comprehensive income (loss) (loss) BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, 2015 2015 Issuance of stock for various Issuance of stock for various plans, net plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Divestiture of noncontrolling Divestiture of noncontrolling interests interests Other Other Comprehensive income Comprehensive income (loss) (loss) BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, 2016 2016 Issuance of stock for Issuance of stock for various plans, net various plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Comprehensive income Comprehensive income (loss) (loss) Common Common Stock Stock Issued Issued Paid-in Paid-in Capital Capital Retained Retained Earnings Earnings Accumulated Accumulated Other Other Comprehensive Comprehensive Income (Loss) Income (Loss) Treasury Treasury Stock Stock Total Total International International Paper Paper Shareholders’ Shareholders’ Equity Equity Noncontrolling Noncontrolling Interests Interests Total Total Equity Equity $ $ 449 $ 449 $ 6,245 $ 6,245 $ 4,409 $ 4,409 $ (4,646) $ (4,646) $ 1,342 $ 1,342 $ 5,115 $ 5,115 $ 148 $ 148 $ 5,263 5,263 — — — — — — — — — — — — 35 35 — — — — (37) (37) — — — — — — — — (698) (698) — — — — 938 938 — — — — — — — — — — (1,062) (1,062) (198) (198) 605 605 — — — — — — — — 449 449 6,243 6,243 4,649 4,649 (5,708) (5,708) 1,749 1,749 — — — — — — — — — — — — — — (6) (6) — — — — (48) (48) — — — — — — — — — — (743) (743) — — — — 8 8 904 904 — — — — — — — — — — — — 346 346 (128) (128) 132 132 — — — — — — — — — — 449 449 6,189 6,189 4,818 4,818 (5,362) (5,362) 1,753 1,753 — — — — — — — — — — 42 42 — — — — (25) (25) — — — — — — (782) (782) — — 2,144 2,144 — — — — — — — — 729 729 (120) (120) 47 47 — — — — — — 233 233 (605) (605) (698) (698) (37) (37) — — (124) (124) 3,884 3,884 122 122 (132) (132) (743) (743) (48) (48) — — 8 8 1,250 1,250 4,341 4,341 162 162 (47) (47) (782) (782) (25) (25) 2,873 2,873 — — — — — — — — (96) (96) (27) (27) 25 25 — — — — — — — — (3) (3) — — (4) (4) 18 18 — — — — — — — — 1 1 233 233 (605) (605) (698) (698) (37) (37) (96) (96) (151) (151) 3,909 3,909 122 122 (132) (132) (743) (743) (48) (48) (3) (3) 8 8 1,246 1,246 4,359 4,359 162 162 (47) (47) (782) (782) (25) (25) 2,874 2,874 BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, 2017 2017 $ $ 449 $ 449 $ 6,206 $ 6,206 $ 6,180 $ 6,180 $ (4,633) $ (4,633) $ 1,680 $ 1,680 $ 6,522 $ 6,522 $ 19 $ 19 $ 6,541 6,541 The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS NOTE 1 SUMMARY OF BUSINESS AND NOTE 1 SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS NATURE OF BUSINESS International Paper (the Company) is a global paper and International Paper (the Company) is a global paper and packaging company with primary markets and packaging company with primary markets and manufacturing operations in North America, Europe, Latin manufacturing operations in North America, Europe, Latin America, North Africa, India and Russia. Substantially all America, North Africa, India and Russia. Substantially all of our businesses have experienced, and are likely to of our businesses have experienced, and are likely to continue to experience, cycles relating to available continue to experience, cycles relating to available industry capacity and general economic conditions. industry capacity and general economic conditions. transactions designated f.o.b. destination, revenue is transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer. recognized when title and risk of loss pass to the buyer. SHIPPING AND HANDLING COSTS SHIPPING AND HANDLING COSTS Shipping and handling costs, such as freight to our Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution customers’ destinations, are included in distribution expenses in the consolidated statement of operations. expenses in the consolidated statement of operations. When shipping and handling costs are included in the When shipping and handling costs are included in the sales price charged for our products, they are recognized sales price charged for our products, they are recognized in net sales. in net sales. FINANCIAL STATEMENTS FINANCIAL STATEMENTS ANNUAL MAINTENANCE COSTS ANNUAL MAINTENANCE COSTS These consolidated financial statements have been These consolidated financial statements have been prepared prepared in conformity with accounting principles in conformity with accounting principles generally accepted in the United States that require the generally accepted in the United States that require the use of management’s estimates. Actual results could use of management’s estimates. Actual results could differ differ from management’s estimates. Prior-period from management’s estimates. Prior-period amounts have been adjusted to conform with current year amounts have been adjusted to conform with current year presentation. presentation. On January 1, 2018, the Company completed the On January 1, 2018, the Company completed the previously announced transfer of its North American previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding businesses, to a subsidiary of Graphic Packaging Holding Company. The Company received a 20.5% ownership Company. The Company received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Company that holds the assets of the combined business. As a result of this transfer, all current and prior year As a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American amounts have been adjusted to reflect the North American Consumer Packaging business as a discontinued Consumer Packaging business as a discontinued operation. See Note 7 for further discussion. operation. See Note 7 for further discussion. CONSOLIDATION CONSOLIDATION The consolidated The consolidated financial statements financial statements include include the the accounts of International Paper and its wholly-owned, accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled controlled majority-owned and financially controlled subsidiaries. All significant intercompany balances and subsidiaries. All significant intercompany balances and transactions are eliminated. transactions are eliminated. Investments in affiliated companies where the Company Investments in affiliated companies where the Company has significant influence over their operations are has significant influence over their operations are accounted for by the equity method. International Paper’s accounted for by the equity method. International Paper’s share of affiliates’ results of operations totaled earnings share of affiliates’ results of operations totaled earnings (loss) of $177 million, $198 million and $117 million in (loss) of $177 million, $198 million and $117 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. REVENUE RECOGNITION REVENUE RECOGNITION Costs for repair and maintenance activities are expensed Costs for repair and maintenance activities are expensed in the month that the related activity is performed under in the month that the related activity is performed under the direct expense method of accounting. the direct expense method of accounting. TEMPORARY INVESTMENTS TEMPORARY INVESTMENTS Temporary investments with an original maturity of three Temporary investments with an original maturity of three months or less are treated as cash equivalents and are months or less are treated as cash equivalents and are stated at cost, which approximates market value. stated at cost, which approximates market value. INVENTORIES INVENTORIES Inventories are valued at the lower of cost or market value Inventories are valued at the lower of cost or market value and and include all costs directly associated with include all costs directly associated with manufacturing manufacturing products: materials, products: materials, labor labor and and manufacturing overhead. In the United States, costs of manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products, are raw materials and finished pulp and paper products, are generally determined using the last-in, first-out method. generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or Other inventories are valued using the first-in, first-out or average cost methods. average cost methods. PLANTS, PROPERTIES AND EQUIPMENT PLANTS, PROPERTIES AND EQUIPMENT Plants, properties and equipment are stated at cost, less Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production are expensed as incurred. The units-of-production method of depreciation is used for pulp and paper mills, method of depreciation is used for pulp and paper mills, and the straight-line method is used for other plants and and the straight-line method is used for other plants and equipment. equipment. GOODWILL GOODWILL Annual testing for possible goodwill impairment is Annual testing for possible goodwill impairment is performed as of the beginning of the fourth quarter of each performed as of the beginning of the fourth quarter of each year, with additional interim testing performed when year, with additional interim testing performed when management believes that it is more likely than not events management believes that it is more likely than not events or circumstances have occurred that would result in the or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill. impairment of a reporting unit’s goodwill. Revenue is recognized when the customer takes title and Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales f.o.b. (free on board) shipping point. For sales The Company has the option to assess goodwill for The Company has the option to assess goodwill for impairment by first performing a qualitative ("Step 0") impairment by first performing a qualitative ("Step 0") assessment to determine whether it is more likely than assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its not that the fair value of a reporting unit is less than its 45 45 46 46 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Common Common Stock Stock Issued Issued Paid-in Paid-in Capital Capital Retained Retained Earnings Earnings Accumulated Accumulated Other Other Comprehensive Comprehensive Income (Loss) Income (Loss) Treasury Treasury Stock Stock Shareholders’ Shareholders’ Noncontrolling Noncontrolling Equity Equity Interests Interests Total Total Equity Equity International International Total Total Paper Paper $ $ 449 $ 449 $ 6,245 $ 6,245 $ 4,409 $ 4,409 $ (4,646) $ (4,646) $ 1,342 $ 1,342 $ 5,115 $ 5,115 $ 148 $ 148 $ 5,263 5,263 938 938 (1,062) (1,062) 449 449 6,243 6,243 4,649 4,649 (5,708) (5,708) 1,749 1,749 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 35 35 — — — — — — — — (37) (37) (6) (6) — — — — (48) (48) — — — — — — 42 42 — — — — (25) (25) — — (698) (698) — — — — — — — — — — — — — — — — 8 8 (743) (743) — — — — — — (782) (782) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (198) (198) 605 605 (128) (128) 132 132 — — — — — — — — — — — — — — — — — — 47 47 — — — — — — (120) (120) 233 233 (605) (605) (698) (698) (37) (37) — — (124) (124) 3,884 3,884 122 122 (132) (132) (743) (743) (48) (48) — — 8 8 1,250 1,250 4,341 4,341 162 162 (47) (47) (782) (782) (25) (25) 2,873 2,873 — — — — — — — — (96) (96) (27) (27) 25 25 — — — — — — — — (3) (3) — — (4) (4) 18 18 — — — — — — — — 1 1 233 233 (605) (605) (698) (698) (37) (37) (96) (96) (151) (151) 3,909 3,909 122 122 (132) (132) (743) (743) (48) (48) (3) (3) 8 8 1,246 1,246 4,359 4,359 162 162 (47) (47) (782) (782) (25) (25) 2,874 2,874 904 904 346 346 449 449 6,189 6,189 4,818 4,818 (5,362) (5,362) 1,753 1,753 In millions In millions BALANCE, JANUARY 1, BALANCE, JANUARY 1, 2015 2015 Issuance of stock for various Issuance of stock for various plans, net plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Divestiture of noncontrolling Divestiture of noncontrolling interests interests Comprehensive income Comprehensive income (loss) (loss) 2015 2015 BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, Issuance of stock for various Issuance of stock for various plans, net plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Divestiture of noncontrolling Divestiture of noncontrolling interests interests Other Other (loss) (loss) 2016 2016 Comprehensive income Comprehensive income BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, Issuance of stock for Issuance of stock for various plans, net various plans, net Repurchase of stock Repurchase of stock Dividends Dividends Transactions of equity Transactions of equity method investees method investees Comprehensive income Comprehensive income (loss) (loss) 2017 2017 BALANCE, DECEMBER 31, BALANCE, DECEMBER 31, 2,144 2,144 729 729 $ $ 449 $ 449 $ 6,206 $ 6,206 $ 6,180 $ 6,180 $ (4,633) $ (4,633) $ 1,680 $ 1,680 $ 6,522 $ 6,522 $ 19 $ 19 $ 6,541 6,541 The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS NOTE 1 SUMMARY OF BUSINESS AND NOTE 1 SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS NATURE OF BUSINESS International Paper (the Company) is a global paper and International Paper (the Company) is a global paper and packaging company with primary markets and packaging company with primary markets and manufacturing operations in North America, Europe, Latin manufacturing operations in North America, Europe, Latin America, North Africa, India and Russia. Substantially all America, North Africa, India and Russia. Substantially all of our businesses have experienced, and are likely to of our businesses have experienced, and are likely to continue to experience, cycles relating to available continue to experience, cycles relating to available industry capacity and general economic conditions. industry capacity and general economic conditions. transactions designated f.o.b. destination, revenue is transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer. recognized when title and risk of loss pass to the buyer. SHIPPING AND HANDLING COSTS SHIPPING AND HANDLING COSTS Shipping and handling costs, such as freight to our Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution customers’ destinations, are included in distribution expenses in the consolidated statement of operations. expenses in the consolidated statement of operations. When shipping and handling costs are included in the When shipping and handling costs are included in the sales price charged for our products, they are recognized sales price charged for our products, they are recognized in net sales. in net sales. FINANCIAL STATEMENTS FINANCIAL STATEMENTS ANNUAL MAINTENANCE COSTS ANNUAL MAINTENANCE COSTS These consolidated financial statements have been These consolidated financial statements have been in conformity with accounting principles prepared prepared in conformity with accounting principles generally accepted in the United States that require the generally accepted in the United States that require the use of management’s estimates. Actual results could use of management’s estimates. Actual results could from management’s estimates. Prior-period differ differ from management’s estimates. Prior-period amounts have been adjusted to conform with current year amounts have been adjusted to conform with current year presentation. presentation. On January 1, 2018, the Company completed the On January 1, 2018, the Company completed the previously announced transfer of its North American previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding businesses, to a subsidiary of Graphic Packaging Holding Company. The Company received a 20.5% ownership Company. The Company received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Company that holds the assets of the combined business. As a result of this transfer, all current and prior year As a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American amounts have been adjusted to reflect the North American Consumer Packaging business as a discontinued Consumer Packaging business as a discontinued operation. See Note 7 for further discussion. operation. See Note 7 for further discussion. CONSOLIDATION CONSOLIDATION financial statements financial statements the the The consolidated The consolidated accounts of International Paper and its wholly-owned, accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled controlled majority-owned and financially controlled subsidiaries. All significant intercompany balances and subsidiaries. All significant intercompany balances and transactions are eliminated. transactions are eliminated. include include Investments in affiliated companies where the Company Investments in affiliated companies where the Company has significant influence over their operations are has significant influence over their operations are accounted for by the equity method. International Paper’s accounted for by the equity method. International Paper’s share of affiliates’ results of operations totaled earnings share of affiliates’ results of operations totaled earnings (loss) of $177 million, $198 million and $117 million in (loss) of $177 million, $198 million and $117 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. REVENUE RECOGNITION REVENUE RECOGNITION Costs for repair and maintenance activities are expensed Costs for repair and maintenance activities are expensed in the month that the related activity is performed under in the month that the related activity is performed under the direct expense method of accounting. the direct expense method of accounting. TEMPORARY INVESTMENTS TEMPORARY INVESTMENTS Temporary investments with an original maturity of three Temporary investments with an original maturity of three months or less are treated as cash equivalents and are months or less are treated as cash equivalents and are stated at cost, which approximates market value. stated at cost, which approximates market value. INVENTORIES INVENTORIES Inventories are valued at the lower of cost or market value Inventories are valued at the lower of cost or market value include all costs directly associated with and include all costs directly associated with and manufacturing and products: materials, products: materials, manufacturing and manufacturing overhead. In the United States, costs of manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products, are raw materials and finished pulp and paper products, are generally determined using the last-in, first-out method. generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or Other inventories are valued using the first-in, first-out or average cost methods. average cost methods. labor labor PLANTS, PROPERTIES AND EQUIPMENT PLANTS, PROPERTIES AND EQUIPMENT Plants, properties and equipment are stated at cost, less Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production are expensed as incurred. The units-of-production method of depreciation is used for pulp and paper mills, method of depreciation is used for pulp and paper mills, and the straight-line method is used for other plants and and the straight-line method is used for other plants and equipment. equipment. GOODWILL GOODWILL Annual testing for possible goodwill impairment is Annual testing for possible goodwill impairment is performed as of the beginning of the fourth quarter of each performed as of the beginning of the fourth quarter of each year, with additional interim testing performed when year, with additional interim testing performed when management believes that it is more likely than not events management believes that it is more likely than not events or circumstances have occurred that would result in the or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill. impairment of a reporting unit’s goodwill. 45 45 46 46 Revenue is recognized when the customer takes title and Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales f.o.b. (free on board) shipping point. For sales The Company has the option to assess goodwill for The Company has the option to assess goodwill for impairment by first performing a qualitative ("Step 0") impairment by first performing a qualitative ("Step 0") assessment to determine whether it is more likely than assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit more likely than not that the fair value of a reporting unit is less than its carrying amounts, then the two-step is less than its carrying amounts, then the two-step goodwill impairment test is not required to be performed. goodwill impairment test is not required to be performed. If the company determines that it is more likely than not If the company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying that the fair value of a reporting unit is less than its carrying amount, or if the Company does not elect the option to amount, or if the Company does not elect the option to perform an initial qualitative assessment, the Company perform an initial qualitative assessment, the Company performs the two-step goodwill impairment test. In performs the two-step goodwill impairment test. In performing this testing, the Company estimates the fair performing this testing, the Company estimates the fair value of its reporting units using the projected future cash value of its reporting units using the projected future cash flows to be generated by each unit, discounted for each flows to be generated by each unit, discounted for each reporting unit. These estimated fair values are then reporting unit. These estimated fair values are then analyzed for reasonableness by comparing them to analyzed for reasonableness by comparing them to historic market transactions for businesses in the industry, historic market transactions for businesses in the industry, and by comparing the sum of the reporting unit fair values and by comparing the sum of the reporting unit fair values and other corporate assets and liabilities divided by and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s diluted common shares outstanding to the Company’s traded stock price on the testing date. For reporting units traded stock price on the testing date. For reporting units whose recorded value of net assets plus goodwill is in whose recorded value of net assets plus goodwill is in excess of their estimated fair values, the fair values of the excess of their estimated fair values, the fair values of the individual assets and liabilities of the respective reporting individual assets and liabilities of the respective reporting units are then determined to calculate the amount of any units are then determined to calculate the amount of any goodwill impairment charge required, if any. goodwill impairment charge required, if any. The Company performed its annual testing of its reporting The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the units for possible goodwill impairments by applying the qualitative Step 0 analysis to its reporting units as of qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company October 1, 2017. For the current year test, the Company assessed and assessed and circumstances that would have affected the estimated fair circumstances that would have affected the estimated fair value of the reporting units. The results of this assessment value of the reporting units. The results of this assessment indicated that it is not more likely than not that the fair indicated that it is not more likely than not that the fair values of the Company's reporting units were less than values of the Company's reporting units were less than the carrying values of the reporting units. the carrying values of the reporting units. assumptions, assumptions, various various events events In addition, the Company considered whether there were In addition, the Company considered whether there were any events or circumstances subsequent to the annual any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units test that would reduce the fair value of its reporting units below their carrying amounts and necessitate another below their carrying amounts and necessitate another goodwill impairment test. In consideration of all relevant goodwill impairment test. In consideration of all relevant factors, there were no indicators that would require factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017. See goodwill impairment subsequent to October 1, 2017. See Note 9 for further discussion. Note 9 for further discussion. IMPAIRMENT OF LONG-LIVED ASSETS IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for impairment upon the Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be indicate that the carrying value of the assets may not be recoverable, measured by comparing their net book value recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their by their use. Impaired assets are recorded at their estimated fair value. estimated fair value. INCOME TAXES INCOME TAXES International Paper uses the asset and liability method of International Paper uses the asset and liability method of accounting for income taxes whereby deferred income accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences taxes are recorded for the future tax consequences attributable to differences between the financial statement attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which expected to apply to taxable income in the years in which those temporary differences are expected to be recovered those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are or settled. Deferred tax assets and liabilities are remeasured to reflect new tax rates in the periods rate remeasured to reflect new tax rates in the periods rate changes are enacted. changes are enacted. International Paper records its worldwide tax provision International Paper records its worldwide tax provision based on the respective tax rules and regulations for the based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax believes that a tax position is supportable for income tax purposes, the item is included in its income tax returns. purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, liabilities are Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the recorded based upon the Company’s evaluation of the “more likely than not” outcome considering the technical “more likely than not” outcome considering the technical merits of the position based on specific tax regulations merits of the position based on specific tax regulations and the facts of each matter. Changes to recorded and the facts of each matter. Changes to recorded liabilities are made only when an identifiable event occurs liabilities are made only when an identifiable event occurs that changes the likely outcome, such as settlement with that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of the relevant tax authority, the expiration of statutes of limitation for the subject tax year, a change in tax laws, limitation for the subject tax year, a change in tax laws, or a recent court case that addresses the matter. or a recent court case that addresses the matter. While the judgments and estimates made by the While the judgments and estimates made by the Company are based on management’s evaluation of the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by technical merits of a matter, assisted as necessary by consultation with outside consultants, historical consultation with outside consultants, historical experience and other assumptions that management experience and other assumptions that management believes are appropriate and reasonable under current believes are appropriate and reasonable under current circumstances, actual resolution of these matters may circumstances, actual resolution of these matters may differ from recorded estimated amounts, resulting in differ from recorded estimated amounts, resulting in adjustments that could materially affect future financial adjustments that could materially affect future financial statements. statements. ENVIRONMENTAL REMEDIATION COSTS ENVIRONMENTAL REMEDIATION COSTS Costs associated with environmental remediation remediation Costs associated with environmental obligations are accrued when such costs are probable obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. further information develops or circumstances change. Costs of for environmental Costs of for environmental remediation obligations are discounted to their present remediation obligations are discounted to their present value when the amount and timing of expected cash value when the amount and timing of expected cash payments are reliably estimable. payments are reliably estimable. future expenditures future expenditures TRANSLATION OF FINANCIAL STATEMENTS TRANSLATION OF FINANCIAL STATEMENTS Balance sheets of international operations are translated Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. statements of operations are translated at average rates. Adjustments statement Adjustments statement translations are included as cumulative translation translations are included as cumulative translation adjustments in Accumulated other comprehensive loss. adjustments in Accumulated other comprehensive loss. resulting resulting financial financial from from NOTE 2 RECENT ACCOUNTING DEVELOPMENTS NOTE 2 RECENT ACCOUNTING DEVELOPMENTS annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early 2017, and interim periods within those years. Early Other than as described below, no new accounting Other than as described below, no new accounting adoption is permitted as of the beginning of an annual adoption is permitted as of the beginning of an annual pronouncement issued or effective during the fiscal year pronouncement issued or effective during the fiscal year period for which financial statement (interim or annual) period for which financial statement (interim or annual) has had or is expected to have a material impact on the has had or is expected to have a material impact on the have not been issued or made available for issuance. have not been issued or made available for issuance. consolidated financial statements. consolidated financial statements. COMPREHENSIVE INCOME COMPREHENSIVE INCOME In February 2018, the FASB issued ASU 2018-02, In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This Accumulated Other Comprehensive Income." This guidance gives entities the option to reclassify stranded guidance gives entities the option to reclassify stranded tax effects caused by the newly-enacted U.S. Tax Cuts tax effects caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective income to retained earnings. This guidance is effective for annual reporting periods beginning after December for annual reporting periods beginning after December 15, 2018, and interim periods within those years. The 15, 2018, and interim periods within those years. The Company is currently evaluating the provisions of this Company is currently evaluating the provisions of this guidance. guidance. DERIVATIVES AND HEDGING DERIVATIVES AND HEDGING In August 2017, the FASB issued ASU 2017-12, In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." Improvements to Accounting for Hedging Activities." The objective of this new guidance is the improvement The objective of this new guidance is the improvement of the financial reporting of hedging relationships to of the financial reporting of hedging relationships to better portray the economic results of an entity's risk better portray the economic results of an entity's risk management activities in its financial statements. In management activities in its financial statements. In addition to that main objective, the amendments in this addition to that main objective, the amendments in this guidance make certain targeted improvements to guidance make certain targeted improvements to simplify the application of the hedge accounting simplify the application of the hedge accounting guidance in current GAAP. This guidance is effective for guidance in current GAAP. This guidance is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted the adoption is permitted. The Company early adopted the provisions of this guidance effective January 1, 2018, provisions of this guidance effective January 1, 2018, with no material impact on the financial statements. with no material impact on the financial statements. RETIREMENT BENEFITS RETIREMENT BENEFITS In March 2017, the FASB issued ASU 2017-07, In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Improving the Presentation of Net Periodic Pension Costs and Net Periodic Postretirement Benefit Cost." Costs and Net Periodic Postretirement Benefit Cost." Under this new guidance, employers will present the Under this new guidance, employers will present the service costs component of the net periodic benefit cost service costs component of the net periodic benefit cost in the same income statement line item(s) as other in the same income statement line item(s) as other employee compensation costs arising from services employee compensation costs arising from services rendered during the period. In addition, only the service rendered during the period. In addition, only the service cost component will be eligible for capitalization in cost component will be eligible for capitalization in assets. Employers will present the other components assets. Employers will present the other components separately from the Line item(s) that includes the service separately from the Line item(s) that includes the service cost and outside of any subtotal of operating income. In cost and outside of any subtotal of operating income. In addition, disclosure of the Line(s) used to present the addition, disclosure of the Line(s) used to present the other components of net periodic benefit cost will be other components of net periodic benefit cost will be required if the components are not presented separately required if the components are not presented separately in the income statement. This guidance is effective for in the income statement. This guidance is effective for The Company adopted the provisions of the guidance The Company adopted the provisions of the guidance on January 1, 2018, using the retrospective method. The on January 1, 2018, using the retrospective method. The adoption resulted in a change in our adjusted operating adoption resulted in a change in our adjusted operating profit (used to measure the earnings performance of the profit (used to measure the earnings performance of the Company's business segments), which is offset by a Company's business segments), which is offset by a corresponding change corresponding change in non-operating pension in non-operating pension expense to reflect the impact of presenting the expense to reflect the impact of presenting the amortization of the prior service cost component of net amortization of the prior service cost component of net periodic pension expense outside of operating income. periodic pension expense outside of operating income. This guidance had no impact on our statements of This guidance had no impact on our statements of financial position or cash flows. financial position or cash flows. INTANGIBLES INTANGIBLES In January 2017, the FASB issued ASU 2017-04, In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This Simplifying the Test for Goodwill Impairment." This guidance eliminates the requirement to calculate the guidance eliminates the requirement to calculate the implied fair value of goodwill under Step 2 of today's implied fair value of goodwill under Step 2 of today's goodwill impairment test to measure a goodwill goodwill impairment test to measure a goodwill impairment charge. Instead, entities will record an impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting impairment charge based on the excess of a reporting unit's carrying amount over its fair value. This guidance unit's carrying amount over its fair value. This guidance should be applied prospectively and is effective for should be applied prospectively and is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2019, for any impairment test performed in 2020. Early 2019, for any impairment test performed in 2020. Early adoption is permitted for annual and interim goodwill adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The impairment testing dates after January 1, 2017. The Company is currently evaluating the provisions of this Company is currently evaluating the provisions of this guidance; however, we do not anticipate adoption guidance; however, we do not anticipate adoption having a material impact on the financial statements. having a material impact on the financial statements. INCOME TAXES INCOME TAXES In October 2016, the FASB issued ASU 2016-16, In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires Assets Other Than Inventory." This ASU requires companies to recognize the income tax effects of companies to recognize the income tax effects of intercompany sales and transfers of assets other than intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs rather inventory in the period in which the transfer occurs rather than defer the income tax effects which is current than defer the income tax effects which is current practice. This new guidance is effective for annual practice. This new guidance is effective for annual reporting periods beginning after December 15, 2017, reporting periods beginning after December 15, 2017, and interim periods within those years. The guidance and interim periods within those years. The guidance requires companies to apply a modified retrospective requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. opening retained earnings in the period of adoption. Early adoption is permitted. The Company does not Early adoption is permitted. The Company does not expect that the adoption of this standard will result in a expect that the adoption of this standard will result in a material impact on the financial statements. material impact on the financial statements. STOCK COMPENSATION STOCK COMPENSATION In May 2017, In May 2017, the FASB the FASB issued ASU 2017-09, issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Compensation - Stock Compensation (Topic 718): "Scope of Modification Accounting." This guidance "Scope of Modification Accounting." This guidance 47 47 48 48 more likely than not that the fair value of a reporting unit more likely than not that the fair value of a reporting unit and tax bases of assets and liabilities. Deferred tax assets and tax bases of assets and liabilities. Deferred tax assets is less than its carrying amounts, then the two-step is less than its carrying amounts, then the two-step and liabilities are measured using enacted tax rates and liabilities are measured using enacted tax rates goodwill impairment test is not required to be performed. goodwill impairment test is not required to be performed. expected to apply to taxable income in the years in which expected to apply to taxable income in the years in which If the company determines that it is more likely than not If the company determines that it is more likely than not those temporary differences are expected to be recovered those temporary differences are expected to be recovered that the fair value of a reporting unit is less than its carrying that the fair value of a reporting unit is less than its carrying or settled. Deferred tax assets and liabilities are or settled. Deferred tax assets and liabilities are amount, or if the Company does not elect the option to amount, or if the Company does not elect the option to remeasured to reflect new tax rates in the periods rate remeasured to reflect new tax rates in the periods rate perform an initial qualitative assessment, the Company perform an initial qualitative assessment, the Company changes are enacted. changes are enacted. performs the two-step goodwill impairment test. In performs the two-step goodwill impairment test. In performing this testing, the Company estimates the fair performing this testing, the Company estimates the fair International Paper records its worldwide tax provision International Paper records its worldwide tax provision value of its reporting units using the projected future cash value of its reporting units using the projected future cash based on the respective tax rules and regulations for the based on the respective tax rules and regulations for the flows to be generated by each unit, discounted for each flows to be generated by each unit, discounted for each jurisdictions in which it operates. Where the Company jurisdictions in which it operates. Where the Company reporting unit. These estimated fair values are then reporting unit. These estimated fair values are then believes that a tax position is supportable for income tax believes that a tax position is supportable for income tax analyzed for reasonableness by comparing them to analyzed for reasonableness by comparing them to purposes, the item is included in its income tax returns. purposes, the item is included in its income tax returns. historic market transactions for businesses in the industry, historic market transactions for businesses in the industry, Where treatment of a position is uncertain, liabilities are Where treatment of a position is uncertain, liabilities are and by comparing the sum of the reporting unit fair values and by comparing the sum of the reporting unit fair values recorded based upon the Company’s evaluation of the recorded based upon the Company’s evaluation of the and other corporate assets and liabilities divided by and other corporate assets and liabilities divided by “more likely than not” outcome considering the technical “more likely than not” outcome considering the technical diluted common shares outstanding to the Company’s diluted common shares outstanding to the Company’s merits of the position based on specific tax regulations merits of the position based on specific tax regulations traded stock price on the testing date. For reporting units traded stock price on the testing date. For reporting units and the facts of each matter. Changes to recorded and the facts of each matter. Changes to recorded whose recorded value of net assets plus goodwill is in whose recorded value of net assets plus goodwill is in liabilities are made only when an identifiable event occurs liabilities are made only when an identifiable event occurs excess of their estimated fair values, the fair values of the excess of their estimated fair values, the fair values of the that changes the likely outcome, such as settlement with that changes the likely outcome, such as settlement with units are then determined to calculate the amount of any units are then determined to calculate the amount of any limitation for the subject tax year, a change in tax laws, limitation for the subject tax year, a change in tax laws, goodwill impairment charge required, if any. goodwill impairment charge required, if any. or a recent court case that addresses the matter. or a recent court case that addresses the matter. The Company performed its annual testing of its reporting The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the units for possible goodwill impairments by applying the qualitative Step 0 analysis to its reporting units as of qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company October 1, 2017. For the current year test, the Company assessed assessed various various assumptions, assumptions, events events and and circumstances that would have affected the estimated fair circumstances that would have affected the estimated fair value of the reporting units. The results of this assessment value of the reporting units. The results of this assessment indicated that it is not more likely than not that the fair indicated that it is not more likely than not that the fair values of the Company's reporting units were less than values of the Company's reporting units were less than the carrying values of the reporting units. the carrying values of the reporting units. In addition, the Company considered whether there were In addition, the Company considered whether there were any events or circumstances subsequent to the annual any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units test that would reduce the fair value of its reporting units below their carrying amounts and necessitate another below their carrying amounts and necessitate another goodwill impairment test. In consideration of all relevant goodwill impairment test. In consideration of all relevant factors, there were no indicators that would require factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017. See goodwill impairment subsequent to October 1, 2017. See Note 9 for further discussion. Note 9 for further discussion. IMPAIRMENT OF LONG-LIVED ASSETS IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for impairment upon the Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be indicate that the carrying value of the assets may not be recoverable, measured by comparing their net book value recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their by their use. Impaired assets are recorded at their estimated fair value. estimated fair value. INCOME TAXES INCOME TAXES International Paper uses the asset and liability method of International Paper uses the asset and liability method of accounting for income taxes whereby deferred income accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences taxes are recorded for the future tax consequences While the judgments and estimates made by the While the judgments and estimates made by the Company are based on management’s evaluation of the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by technical merits of a matter, assisted as necessary by consultation with outside consultants, historical consultation with outside consultants, historical experience and other assumptions that management experience and other assumptions that management believes are appropriate and reasonable under current believes are appropriate and reasonable under current circumstances, actual resolution of these matters may circumstances, actual resolution of these matters may differ from recorded estimated amounts, resulting in differ from recorded estimated amounts, resulting in adjustments that could materially affect future financial adjustments that could materially affect future financial statements. statements. ENVIRONMENTAL REMEDIATION COSTS ENVIRONMENTAL REMEDIATION COSTS Costs associated with environmental Costs associated with environmental remediation remediation obligations are accrued when such costs are probable obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. further information develops or circumstances change. Costs of Costs of future expenditures future expenditures for environmental for environmental remediation obligations are discounted to their present remediation obligations are discounted to their present value when the amount and timing of expected cash value when the amount and timing of expected cash payments are reliably estimable. payments are reliably estimable. TRANSLATION OF FINANCIAL STATEMENTS TRANSLATION OF FINANCIAL STATEMENTS Balance sheets of international operations are translated Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. statements of operations are translated at average rates. Adjustments Adjustments resulting resulting from from financial financial statement statement translations are included as cumulative translation translations are included as cumulative translation adjustments in Accumulated other comprehensive loss. adjustments in Accumulated other comprehensive loss. carrying amount. If the Company determines that it is not carrying amount. If the Company determines that it is not attributable to differences between the financial statement attributable to differences between the financial statement NOTE 2 RECENT ACCOUNTING DEVELOPMENTS NOTE 2 RECENT ACCOUNTING DEVELOPMENTS Other than as described below, no new accounting Other than as described below, no new accounting pronouncement issued or effective during the fiscal year pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the has had or is expected to have a material impact on the consolidated financial statements. consolidated financial statements. COMPREHENSIVE INCOME COMPREHENSIVE INCOME In February 2018, the FASB issued ASU 2018-02, In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This Accumulated Other Comprehensive Income." This guidance gives entities the option to reclassify stranded guidance gives entities the option to reclassify stranded tax effects caused by the newly-enacted U.S. Tax Cuts tax effects caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective income to retained earnings. This guidance is effective for annual reporting periods beginning after December for annual reporting periods beginning after December 15, 2018, and interim periods within those years. The 15, 2018, and interim periods within those years. The Company is currently evaluating the provisions of this Company is currently evaluating the provisions of this guidance. guidance. individual assets and liabilities of the respective reporting individual assets and liabilities of the respective reporting the relevant tax authority, the expiration of statutes of the relevant tax authority, the expiration of statutes of DERIVATIVES AND HEDGING DERIVATIVES AND HEDGING In August 2017, the FASB issued ASU 2017-12, In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." Improvements to Accounting for Hedging Activities." The objective of this new guidance is the improvement The objective of this new guidance is the improvement of the financial reporting of hedging relationships to of the financial reporting of hedging relationships to better portray the economic results of an entity's risk better portray the economic results of an entity's risk management activities in its financial statements. In management activities in its financial statements. In addition to that main objective, the amendments in this addition to that main objective, the amendments in this guidance make certain targeted improvements to guidance make certain targeted improvements to simplify the application of the hedge accounting simplify the application of the hedge accounting guidance in current GAAP. This guidance is effective for guidance in current GAAP. This guidance is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted the adoption is permitted. The Company early adopted the provisions of this guidance effective January 1, 2018, provisions of this guidance effective January 1, 2018, with no material impact on the financial statements. with no material impact on the financial statements. RETIREMENT BENEFITS RETIREMENT BENEFITS In March 2017, the FASB issued ASU 2017-07, In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Improving the Presentation of Net Periodic Pension Costs and Net Periodic Postretirement Benefit Cost." Costs and Net Periodic Postretirement Benefit Cost." Under this new guidance, employers will present the Under this new guidance, employers will present the service costs component of the net periodic benefit cost service costs component of the net periodic benefit cost in the same income statement line item(s) as other in the same income statement line item(s) as other employee compensation costs arising from services employee compensation costs arising from services rendered during the period. In addition, only the service rendered during the period. In addition, only the service cost component will be eligible for capitalization in cost component will be eligible for capitalization in assets. Employers will present the other components assets. Employers will present the other components separately from the Line item(s) that includes the service separately from the Line item(s) that includes the service cost and outside of any subtotal of operating income. In cost and outside of any subtotal of operating income. In addition, disclosure of the Line(s) used to present the addition, disclosure of the Line(s) used to present the other components of net periodic benefit cost will be other components of net periodic benefit cost will be required if the components are not presented separately required if the components are not presented separately in the income statement. This guidance is effective for in the income statement. This guidance is effective for 47 47 48 48 annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early 2017, and interim periods within those years. Early adoption is permitted as of the beginning of an annual adoption is permitted as of the beginning of an annual period for which financial statement (interim or annual) period for which financial statement (interim or annual) have not been issued or made available for issuance. have not been issued or made available for issuance. The Company adopted the provisions of the guidance The Company adopted the provisions of the guidance on January 1, 2018, using the retrospective method. The on January 1, 2018, using the retrospective method. The adoption resulted in a change in our adjusted operating adoption resulted in a change in our adjusted operating profit (used to measure the earnings performance of the profit (used to measure the earnings performance of the Company's business segments), which is offset by a Company's business segments), which is offset by a in non-operating pension corresponding change in non-operating pension corresponding change expense to reflect the impact of presenting the expense to reflect the impact of presenting the amortization of the prior service cost component of net amortization of the prior service cost component of net periodic pension expense outside of operating income. periodic pension expense outside of operating income. This guidance had no impact on our statements of This guidance had no impact on our statements of financial position or cash flows. financial position or cash flows. INTANGIBLES INTANGIBLES In January 2017, the FASB issued ASU 2017-04, In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This Simplifying the Test for Goodwill Impairment." This guidance eliminates the requirement to calculate the guidance eliminates the requirement to calculate the implied fair value of goodwill under Step 2 of today's implied fair value of goodwill under Step 2 of today's goodwill impairment test to measure a goodwill goodwill impairment test to measure a goodwill impairment charge. Instead, entities will record an impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting impairment charge based on the excess of a reporting unit's carrying amount over its fair value. This guidance unit's carrying amount over its fair value. This guidance should be applied prospectively and is effective for should be applied prospectively and is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2019, for any impairment test performed in 2020. Early 2019, for any impairment test performed in 2020. Early adoption is permitted for annual and interim goodwill adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The impairment testing dates after January 1, 2017. The Company is currently evaluating the provisions of this Company is currently evaluating the provisions of this guidance; however, we do not anticipate adoption guidance; however, we do not anticipate adoption having a material impact on the financial statements. having a material impact on the financial statements. INCOME TAXES INCOME TAXES In October 2016, the FASB issued ASU 2016-16, In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires Assets Other Than Inventory." This ASU requires companies to recognize the income tax effects of companies to recognize the income tax effects of intercompany sales and transfers of assets other than intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs rather inventory in the period in which the transfer occurs rather than defer the income tax effects which is current than defer the income tax effects which is current practice. This new guidance is effective for annual practice. This new guidance is effective for annual reporting periods beginning after December 15, 2017, reporting periods beginning after December 15, 2017, and interim periods within those years. The guidance and interim periods within those years. The guidance requires companies to apply a modified retrospective requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. opening retained earnings in the period of adoption. Early adoption is permitted. The Company does not Early adoption is permitted. The Company does not expect that the adoption of this standard will result in a expect that the adoption of this standard will result in a material impact on the financial statements. material impact on the financial statements. STOCK COMPENSATION STOCK COMPENSATION issued ASU 2017-09, issued ASU 2017-09, In May 2017, In May 2017, Compensation - Stock Compensation (Topic 718): Compensation - Stock Compensation (Topic 718): "Scope of Modification Accounting." This guidance "Scope of Modification Accounting." This guidance the FASB the FASB clarifies when changes to the terms or conditions of a clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as share-based payment award must be accounted for as modifications. Under this guidance, entities will apply modifications. Under this guidance, entities will apply the modification accounting guidance if the value, the modification accounting guidance if the value, vesting conditions or classification of the award vesting conditions or classification of the award changes. This guidance is effective for annual reporting changes. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, periods within those years. Early adoption is permitted, including in any interim period. The Company adopted including in any interim period. The Company adopted the provisions of this guidance on January 1, 2018, with the provisions of this guidance on January 1, 2018, with no material impact on the financial statements. no material impact on the financial statements. LEASES LEASES In February 2016, the FASB issued ASU 2016-02, In February 2016, the FASB issued ASU 2016-02, Leases Topic (842): "Leases." This ASU will require Leases Topic (842): "Leases." This ASU will require most leases to be recognized on the balance sheet most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor which will increase reported assets and liabilities. Lessor accounting will remain substantially similar to current accounting will remain substantially similar to current U.S. GAAP. This ASU is effective for annual reporting U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2018, and interim periods within those years, and mandates a modified periods within those years, and mandates a modified retrospective transition method for all entities. The retrospective transition method for all entities. The Company expects to adopt this guidance using a Company expects to adopt this guidance using a modified retrospective transition approach for leases modified retrospective transition approach for leases existing at, or entered into after, the beginning of the existing at, or entered into after, the beginning of the earliest comparative period presented in the financial earliest comparative period presented in the financial statements. We expect to recognize a liability and statements. We expect to recognize a liability and corresponding asset associated with in-scope operating corresponding asset associated with in-scope operating and finance leases but we are still in the process of and finance leases but we are still in the process of determining those amounts and the processes required determining those amounts and the processes required to account for leasing activity on an ongoing basis. to account for leasing activity on an ongoing basis. BUSINESS COMBINATIONS BUSINESS COMBINATIONS fair value of fair value of the gross assets acquired the gross assets acquired In January 2017, the FASB issued ASU 2017-01, In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) - Clarifying the "Business Combinations (Topic 805) - Clarifying the Definition of a Business." Under the new guidance, an Definition of a Business." Under the new guidance, an entity must first determine whether substantially all of entity must first determine whether substantially all of the is the is concentrated in a single identifiable asset or a group of concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. set of transferred assets and activities is not a business. If this threshold is not met, the entity then evaluates If this threshold is not met, the entity then evaluates whether the set meets the requirement that a business whether the set meets the requirement that a business include, at a minimum, an input and a substantive include, at a minimum, an input and a substantive process that together significantly contribute to the process that together significantly contribute to the ability to create outputs. This guidance is effective for ability to create outputs. This guidance is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early 2017, and interim periods within those years. Early adoption is permitted. The Company adopted the adoption is permitted. The Company adopted the provisions of this guidance on January 1, 2018 with no provisions of this guidance on January 1, 2018 with no material impact on the financial statements. material impact on the financial statements. REVENUE RECOGNITION REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, "Revenue In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This guidance from Contracts with Customers." This guidance replaces most existing revenue recognition guidance replaces most existing revenue recognition guidance and provides that an entity should recognize revenue to and provides that an entity should recognize revenue to depict the transfer of promised goods or services to depict the transfer of promised goods or services to customers in an amount that reflects the consideration customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange to which the entity expects to be entitled in exchange for those goods and services. This ASU was effective for those goods and services. This ASU was effective for annual reporting periods beginning after December for annual reporting periods beginning after December 15, 2016, and interim periods within those years and 15, 2016, and interim periods within those years and permits the use of either the retrospective or cumulative permits the use of either the retrospective or cumulative effect transition method; however, in August 2015, the effect transition method; however, in August 2015, the FASB issued ASU 2015-14 which defers the effective FASB issued ASU 2015-14 which defers the effective date by one year making the guidance effective for date by one year making the guidance effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017. The FASB has continued to clarify this guidance 2017. The FASB has continued to clarify this guidance in various updates during 2015 and 2016, all of which, in various updates during 2015 and 2016, all of which, have the same effective date as the original guidance. have the same effective date as the original guidance. team, team, We have evaluated the impact of ASU 2014-09 and all We have evaluated the impact of ASU 2014-09 and all related ASUs on our consolidated financial statements. related ASUs on our consolidated financial statements. including transition The Company's including transition The Company's representatives from all of our business segments, has representatives from all of our business segments, has finalized its review and analysis of the impact of the finalized its review and analysis of the impact of the standard on our revenue contracts. Surveys were standard on our revenue contracts. Surveys were developed and reviews of customer contracts were developed and reviews of customer contracts were performed in order to gather information and identify performed in order to gather information and identify areas of the Company's business where potential areas of the Company's business where potential differences could result in applying the requirements of differences could result in applying the requirements of the new standard to its revenue contracts. The results the new standard to its revenue contracts. The results of the surveys, contract reviews and legal analysis of the surveys, contract reviews and legal analysis indicate that the adoption of the standard will require indicate that the adoption of the standard will require acceleration of revenue for products produced by the acceleration of revenue for products produced by the Company without an alternative future use and where Company without an alternative future use and where the Company has a legally enforceable right of payment the Company has a legally enforceable right of payment for production of products completed to date. The for production of products completed to date. The Company adopted the new revenue guidance effective Company adopted the new revenue guidance effective January 1, 2018, using the modified retrospective January 1, 2018, using the modified retrospective transition method. Due to the repetitive nature of our transition method. Due to the repetitive nature of our sales, we do not expect the impact of this acceleration sales, we do not expect the impact of this acceleration to significantly alter our reported sales over time. In to significantly alter our reported sales over time. In addition, we do not expect the net impact of adoption to addition, we do not expect the net impact of adoption to have a material impact on our consolidated results. have a material impact on our consolidated results. NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Basic earnings per share is computed by dividing Basic earnings per share is computed by dividing earnings by the weighted average number of common earnings by the weighted average number of common shares outstanding. Diluted earnings per share is shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities computed assuming that all potentially dilutive securities were converted into common shares. were converted into common shares. There are no adjustments required to be made to net There are no adjustments required to be made to net income for purposes of computing basic and diluted EPS. income for purposes of computing basic and diluted EPS. A reconciliation of A reconciliation of the amounts the amounts included included in in the the computation of basic earnings (loss) per share from computation of basic earnings (loss) per share from continuing operations, and diluted earnings (loss) per continuing operations, and diluted earnings (loss) per share from continuing operations is as follows: share from continuing operations is as follows: In millions, except per share amounts In millions, except per share amounts 2017 2017 2016 2016 2015 2015 Earnings (loss) from continuing Earnings (loss) from continuing operations attributable to operations attributable to International Paper common International Paper common shareholders shareholders Weighted average common shares Weighted average common shares outstanding outstanding Effect of dilutive securities: Effect of dilutive securities: $ 2,110 $ 2,110 $ 802 $ 802 $ 853 $ 853 412.7 412.7 411.1 411.1 417.4 417.4 Restricted performance share plan Restricted performance share plan 5.0 5.0 4.5 4.5 3.2 3.2 Weighted average common shares Weighted average common shares outstanding – assuming dilution outstanding – assuming dilution 417.7 417.7 415.6 415.6 420.6 420.6 Basic earnings (loss) per share Basic earnings (loss) per share from continuing operations from continuing operations Diluted earnings (loss) per share Diluted earnings (loss) per share from continuing operations from continuing operations $ 5.11 $ 5.11 $ 1.95 $ 1.95 $ 2.05 $ 2.05 $ 5.05 $ 5.05 $ 1.93 $ 1.93 $ 2.03 $ 2.03 The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years NOTE 4 OTHER COMPREHENSIVE INCOME NOTE 4 OTHER COMPREHENSIVE INCOME ended December 31: ended December 31: In millions In millions Defined Benefit Pension and Postretirement Adjustments Defined Benefit Pension and Postretirement Adjustments Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Change in Cumulative Foreign Currency Translation Adjustments Change in Cumulative Foreign Currency Translation Adjustments Balance at end of period Balance at end of period Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest Balance at end of period Balance at end of period Net Gains and Losses on Cash Flow Hedging Derivatives Net Gains and Losses on Cash Flow Hedging Derivatives Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Balance at end of period Balance at end of period 2017 2017 2016 2016 2015 2015 $ $ (3,072) $ (3,072) $ (3,169) $ (3,169) $ (3,134) (3,134) 59 59 486 486 (448) (448) 545 545 (331) (331) 296 296 (2,527) (2,527) (3,072) (3,072) (3,169) (3,169) (2,287) (2,287) 178 178 (2,549) (2,549) 263 263 (2,111) (2,111) (2,287) (2,287) (2,549) (2,549) (1,513) (1,513) (1,002) (1,002) (40) (40) 6 6 1 1 (3) (3) 12 12 10 10 (3) (3) 2 2 10 10 (6) (6) (7) (7) (3) (3) (1) (1) (1) (1) (3) (3) 15 15 (7) (7) 5 5 Total Accumulated Other Comprehensive Income (Loss) at End of Period Total Accumulated Other Comprehensive Income (Loss) at End of Period $ $ (4,633) $ (4,633) $ (5,362) $ (5,362) $ (5,708) (5,708) 49 49 50 50 clarifies when changes to the terms or conditions of a clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as share-based payment award must be accounted for as modifications. Under this guidance, entities will apply modifications. Under this guidance, entities will apply the modification accounting guidance if the value, the modification accounting guidance if the value, vesting conditions or classification of the award vesting conditions or classification of the award changes. This guidance is effective for annual reporting changes. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, periods within those years. Early adoption is permitted, including in any interim period. The Company adopted including in any interim period. The Company adopted the provisions of this guidance on January 1, 2018, with the provisions of this guidance on January 1, 2018, with no material impact on the financial statements. no material impact on the financial statements. LEASES LEASES In February 2016, the FASB issued ASU 2016-02, In February 2016, the FASB issued ASU 2016-02, Leases Topic (842): "Leases." This ASU will require Leases Topic (842): "Leases." This ASU will require most leases to be recognized on the balance sheet most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor which will increase reported assets and liabilities. Lessor accounting will remain substantially similar to current accounting will remain substantially similar to current U.S. GAAP. This ASU is effective for annual reporting U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2018, and interim periods within those years, and mandates a modified periods within those years, and mandates a modified retrospective transition method for all entities. The retrospective transition method for all entities. The Company expects to adopt this guidance using a Company expects to adopt this guidance using a modified retrospective transition approach for leases modified retrospective transition approach for leases existing at, or entered into after, the beginning of the existing at, or entered into after, the beginning of the earliest comparative period presented in the financial earliest comparative period presented in the financial statements. We expect to recognize a liability and statements. We expect to recognize a liability and corresponding asset associated with in-scope operating corresponding asset associated with in-scope operating and finance leases but we are still in the process of and finance leases but we are still in the process of determining those amounts and the processes required determining those amounts and the processes required to account for leasing activity on an ongoing basis. to account for leasing activity on an ongoing basis. BUSINESS COMBINATIONS BUSINESS COMBINATIONS In January 2017, the FASB issued ASU 2017-01, In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) - Clarifying the "Business Combinations (Topic 805) - Clarifying the Definition of a Business." Under the new guidance, an Definition of a Business." Under the new guidance, an entity must first determine whether substantially all of entity must first determine whether substantially all of the the fair value of fair value of the gross assets acquired the gross assets acquired is is concentrated in a single identifiable asset or a group of concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. set of transferred assets and activities is not a business. If this threshold is not met, the entity then evaluates If this threshold is not met, the entity then evaluates whether the set meets the requirement that a business whether the set meets the requirement that a business include, at a minimum, an input and a substantive include, at a minimum, an input and a substantive process that together significantly contribute to the process that together significantly contribute to the ability to create outputs. This guidance is effective for ability to create outputs. This guidance is effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early 2017, and interim periods within those years. Early adoption is permitted. The Company adopted the adoption is permitted. The Company adopted the provisions of this guidance on January 1, 2018 with no provisions of this guidance on January 1, 2018 with no material impact on the financial statements. material impact on the financial statements. REVENUE RECOGNITION REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, "Revenue In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This guidance from Contracts with Customers." This guidance replaces most existing revenue recognition guidance replaces most existing revenue recognition guidance and provides that an entity should recognize revenue to and provides that an entity should recognize revenue to depict the transfer of promised goods or services to depict the transfer of promised goods or services to customers in an amount that reflects the consideration customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange to which the entity expects to be entitled in exchange for those goods and services. This ASU was effective for those goods and services. This ASU was effective for annual reporting periods beginning after December for annual reporting periods beginning after December 15, 2016, and interim periods within those years and 15, 2016, and interim periods within those years and permits the use of either the retrospective or cumulative permits the use of either the retrospective or cumulative effect transition method; however, in August 2015, the effect transition method; however, in August 2015, the FASB issued ASU 2015-14 which defers the effective FASB issued ASU 2015-14 which defers the effective date by one year making the guidance effective for date by one year making the guidance effective for annual reporting periods beginning after December 15, annual reporting periods beginning after December 15, 2017. The FASB has continued to clarify this guidance 2017. The FASB has continued to clarify this guidance in various updates during 2015 and 2016, all of which, in various updates during 2015 and 2016, all of which, have the same effective date as the original guidance. have the same effective date as the original guidance. We have evaluated the impact of ASU 2014-09 and all We have evaluated the impact of ASU 2014-09 and all related ASUs on our consolidated financial statements. related ASUs on our consolidated financial statements. The Company's The Company's transition transition team, team, including including representatives from all of our business segments, has representatives from all of our business segments, has finalized its review and analysis of the impact of the finalized its review and analysis of the impact of the standard on our revenue contracts. Surveys were standard on our revenue contracts. Surveys were developed and reviews of customer contracts were developed and reviews of customer contracts were performed in order to gather information and identify performed in order to gather information and identify areas of the Company's business where potential areas of the Company's business where potential differences could result in applying the requirements of differences could result in applying the requirements of the new standard to its revenue contracts. The results the new standard to its revenue contracts. The results of the surveys, contract reviews and legal analysis of the surveys, contract reviews and legal analysis indicate that the adoption of the standard will require indicate that the adoption of the standard will require acceleration of revenue for products produced by the acceleration of revenue for products produced by the Company without an alternative future use and where Company without an alternative future use and where the Company has a legally enforceable right of payment the Company has a legally enforceable right of payment for production of products completed to date. The for production of products completed to date. The Company adopted the new revenue guidance effective Company adopted the new revenue guidance effective January 1, 2018, using the modified retrospective January 1, 2018, using the modified retrospective transition method. Due to the repetitive nature of our transition method. Due to the repetitive nature of our sales, we do not expect the impact of this acceleration sales, we do not expect the impact of this acceleration to significantly alter our reported sales over time. In to significantly alter our reported sales over time. In addition, we do not expect the net impact of adoption to addition, we do not expect the net impact of adoption to have a material impact on our consolidated results. have a material impact on our consolidated results. NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS SHAREHOLDERS Basic earnings per share is computed by dividing Basic earnings per share is computed by dividing earnings by the weighted average number of common earnings by the weighted average number of common shares outstanding. Diluted earnings per share is shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities computed assuming that all potentially dilutive securities were converted into common shares. were converted into common shares. There are no adjustments required to be made to net There are no adjustments required to be made to net income for purposes of computing basic and diluted EPS. income for purposes of computing basic and diluted EPS. the amounts the amounts A reconciliation of A reconciliation of computation of basic earnings (loss) per share from computation of basic earnings (loss) per share from continuing operations, and diluted earnings (loss) per continuing operations, and diluted earnings (loss) per share from continuing operations is as follows: share from continuing operations is as follows: included included the the in in In millions, except per share amounts In millions, except per share amounts 2017 2017 2016 2016 2015 2015 Earnings (loss) from continuing Earnings (loss) from continuing operations attributable to operations attributable to International Paper common International Paper common shareholders shareholders Weighted average common shares Weighted average common shares outstanding outstanding Effect of dilutive securities: Effect of dilutive securities: $ 2,110 $ 2,110 $ 802 $ 802 $ 853 $ 853 412.7 412.7 411.1 411.1 417.4 417.4 Restricted performance share plan Restricted performance share plan 5.0 5.0 4.5 4.5 3.2 3.2 Weighted average common shares Weighted average common shares outstanding – assuming dilution outstanding – assuming dilution 417.7 417.7 415.6 415.6 420.6 420.6 Basic earnings (loss) per share Basic earnings (loss) per share from continuing operations from continuing operations Diluted earnings (loss) per share Diluted earnings (loss) per share from continuing operations from continuing operations $ 5.11 $ 5.11 $ 1.95 $ 1.95 $ 2.05 $ 2.05 $ 5.05 $ 5.05 $ 1.93 $ 1.93 $ 2.03 $ 2.03 NOTE 4 OTHER COMPREHENSIVE INCOME NOTE 4 OTHER COMPREHENSIVE INCOME The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years ended December 31: ended December 31: In millions In millions Defined Benefit Pension and Postretirement Adjustments Defined Benefit Pension and Postretirement Adjustments Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Balance at end of period Balance at end of period Change in Cumulative Foreign Currency Translation Adjustments Change in Cumulative Foreign Currency Translation Adjustments Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest Balance at end of period Balance at end of period Net Gains and Losses on Cash Flow Hedging Derivatives Net Gains and Losses on Cash Flow Hedging Derivatives Balance at beginning of period Balance at beginning of period Other comprehensive income (loss) before reclassifications Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Balance at end of period Balance at end of period Total Accumulated Other Comprehensive Income (Loss) at End of Period Total Accumulated Other Comprehensive Income (Loss) at End of Period 2017 2017 2016 2016 2015 2015 $ $ $ $ (3,072) $ (3,072) $ 59 59 486 486 (2,527) (2,527) (3,169) $ (3,169) $ (448) (448) 545 545 (3,072) (3,072) (2,287) (2,287) 178 178 (1) (1) (1) (1) (2,111) (2,111) (2,549) (2,549) 263 263 (3) (3) 2 2 (2,287) (2,287) (3) (3) 15 15 (7) (7) 5 5 (4,633) $ (4,633) $ 10 10 (6) (6) (7) (7) (3) (3) (5,362) $ (5,362) $ (3,134) (3,134) (331) (331) 296 296 (3,169) (3,169) (1,513) (1,513) (1,002) (1,002) (40) (40) 6 6 (2,549) (2,549) 1 1 (3) (3) 12 12 10 10 (5,708) (5,708) 49 49 50 50 Reclassifications out of AOCI for the three years ended December 31 were as follows: Reclassifications out of AOCI for the three years ended December 31 were as follows: In millions In millions Defined benefit pension and postretirement items: Defined benefit pension and postretirement items: Prior-service costs Prior-service costs Actuarial gains/(losses) Actuarial gains/(losses) Total pre-tax amount Total pre-tax amount Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax Change in cumulative foreign currency translation Change in cumulative foreign currency translation adjustments: adjustments: Business acquisitions/divestiture Business acquisitions/divestiture Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax Net gains and losses on cash flow hedging derivatives: Net gains and losses on cash flow hedging derivatives: Foreign exchange contracts Foreign exchange contracts Total pre-tax amount Total pre-tax amount Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax Amount Reclassified from Accumulated Amount Reclassified from Accumulated Other Comprehensive Income Other Comprehensive Income 2017 2017 2016 2016 2015 2015 Location of Amount Location of Amount Reclassified from AOCI Reclassified from AOCI $ $ (33) $ (33) $ (37) $ (37) $ (33) (a) Cost of products sold (33) (a) Cost of products sold (733) (733) (766) (766) 280 280 (486) (486) 1 1 — — 1 1 9 9 9 9 (2) (2) 7 7 (851) (851) (888) (888) 343 343 (545) (545) 3 3 — — 3 3 10 10 10 10 (3) (3) 7 7 (449) (a) Cost of products sold (449) (a) Cost of products sold (482) (482) 186 186 (296) (296) 40 40 — — 40 40 Net (gains) losses on sales and Net (gains) losses on sales and impairments of businesses impairments of businesses (20) (b) Cost of products sold (20) (b) Cost of products sold (20) (20) 8 8 (12) (12) (268) (268) Total reclassifications for the period, net of tax Total reclassifications for the period, net of tax $ $ (478) $ (478) $ (535) $ (535) $ (a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for (a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for additional details). additional details). (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional details). details). NOTE 5 RESTRUCTURING CHARGES AND NOTE 5 RESTRUCTURING CHARGES AND OTHER ITEMS OTHER ITEMS (b) (b) Includes $4 million of accelerated depreciation and $3 million Includes $4 million of accelerated depreciation and $3 million of severance charges which is related to 85 employees. of severance charges which is related to 85 employees. 2017: During 2017, restructuring and other charges 2017: During 2017, restructuring and other charges totaling $67 million before taxes were recorded. These totaling $67 million before taxes were recorded. These charges included: charges included: In millions In millions Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) Gain on sale of investment in ArborGen Gain on sale of investment in ArborGen Other Other Total Total 2017 2017 83 83 (14) (14) (2) (2) 67 67 $ $ $ $ 2016: During 2016, total restructuring and other 2016: During 2016, total restructuring and other charges of $54 million before taxes were recorded. charges of $54 million before taxes were recorded. These charges included: These charges included: In millions In millions 2016 2016 Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) $ $ India packaging evaluation write-off India packaging evaluation write-off Gain on sale of investment in Arizona Chemical Gain on sale of investment in Arizona Chemical Riegelwood mill conversion costs (a) Riegelwood mill conversion costs (a) Turkey mill closure (b) Turkey mill closure (b) Total Total $ $ 29 29 17 17 (8) (8) 9 9 7 7 54 54 (a) (a) Includes $3 million of accelerated depreciation, $3 million of Includes $3 million of accelerated depreciation, $3 million of inventory write-off charges and $3 million of other charges. inventory write-off charges and $3 million of other charges. 2015: During 2015, total restructuring and other 2015: During 2015, total restructuring and other charges of $252 million before taxes were recorded. charges of $252 million before taxes were recorded. These charges included: These charges included: In millions In millions 2015 2015 Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) $ $ Timber monetization restructuring Timber monetization restructuring Legal liability reserve adjustment Legal liability reserve adjustment Riegelwood mill conversion costs net of proceeds Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand (a) from the sale of Carolina Coated Bristols brand (a) 207 207 16 16 15 15 8 8 6 6 $ $ 252 252 Other Other Total Total (a) (a) Includes $5 million of severance charges, which is related to Includes $5 million of severance charges, which is related to 69 employees, $24 million of accelerated depreciation, sale 69 employees, $24 million of accelerated depreciation, sale proceeds of $22 million and $1 million of other charges. proceeds of $22 million and $1 million of other charges. NOTE 6 ACQUISITIONS AND JOINT VENTURES NOTE 6 ACQUISITIONS AND JOINT VENTURES Canada and Poland. TANGIER, MOROCCO FACILITY TANGIER, MOROCCO FACILITY 2017: On June 30, 2017, the Company completed the 2017: On June 30, 2017, the Company completed the acquisition of Europac's Tangier, Morocco facility, a acquisition of Europac's Tangier, Morocco facility, a for €40 million corrugated packaging for €40 million corrugated packaging (approximately $46 million using the June 30, 2017 (approximately $46 million using the June 30, 2017 exchange rate). After working capital and other post- exchange rate). After working capital and other post- facility, facility, 51 51 52 52 close adjustments, final consideration exchanged was close adjustments, final consideration exchanged was €33 million (approximately $38 million using the June €33 million (approximately $38 million using the June The following table summarizes the final fair values December 1, 2016 In millions assigned to assets and liabilities acquired as of 30, 2017 exchange rate). 30, 2017 exchange rate). The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of The following table summarizes the provisional fair June 30, 2017: value assigned to assets and liabilities acquired as of June 30, 2017 June 30, 2017 June 30, 2017: In millions In millions Cash and temporary investments Cash and temporary investments Accounts and notes receivable Accounts and notes receivable Inventory Inventory Plants, properties and equipment Plants, properties and equipment Goodwill Goodwill Other intangible assets Other intangible assets Deferred charges and other assets Deferred charges and other assets Total assets acquired Total assets acquired Accounts payable and accrued liabilities Accounts payable and accrued liabilities Long-term debt Long-term debt Other long-term liabilities Other long-term liabilities Total liabilities assumed Total liabilities assumed Net assets acquired Net assets acquired $ $ $ $ 1 1 7 7 3 3 32 32 4 4 5 5 4 4 56 56 5 5 11 11 2 2 18 18 38 38 Adjustments, if any, to provisional amounts will be finalized within the measurement period of up to one Adjustments, if any, to provisional amounts will be year from the acquisition date. Since the date of finalized within the measurement period of up to one acquisition, Net sales of $6 million and Earnings (loss) year from the acquisition date. Since the date of from continuing operations before income taxes and acquisition, Net sales of $6 million and Earnings (loss) equity earnings of $(1) million from the acquired from continuing operations before income taxes and business have been included in the Company's equity earnings of $(1) million from the acquired consolidated statement of operations for the year ended business have been included in the Company's December 31, 2017. Pro forma information related to consolidated statement of operations for the year ended the acquisition of the Europac business has not been December 31, 2017. Pro forma information related to included as it is impractical to obtain the information due the acquisition of the Europac business has not been to the lack of availability of financial data and does not included as it is impractical to obtain the information due have a material effect on the Company's consolidated to the lack of availability of financial data and does not results of operations. have a material effect on the Company's consolidated results of operations. WEYERHAEUSER PULP BUSINESS WEYERHAEUSER PULP BUSINESS 2016: On December 1, 2016, the Company finalized the purchase of Weyerhaeuser's pulp business 2016: On December 1, 2016, the Company finalized the for approximately $2.2 billion in cash, subject to post- purchase of Weyerhaeuser's pulp business for closing adjustments. Under the terms of the agreement, approximately $2.2 billion in cash, subject to post- International Paper acquired four fluff pulp mills, one closing adjustments. Under the terms of the agreement, northern bleached softwood kraft mill and two converting International Paper acquired four fluff pulp mills, one facilities of modified fiber, located in the United States, northern bleached softwood kraft mill and two converting Canada and Poland. facilities of modified fiber, located in the United States, The following table summarizes the final fair values assigned to assets and liabilities acquired as of December 1, 2016: Cash and temporary investments December 1, 2016: Accounts and notes receivable In millions Inventory Cash and temporary investments Other current assets Accounts and notes receivable Plants, properties and equipment Inventory Goodwill Other current assets Other intangible assets Plants, properties and equipment Deferred charges and other assets Goodwill Total assets acquired Other intangible assets Accounts payable and accrued liabilities Deferred charges and other assets Long-term debt Total assets acquired Other long-term liabilities Accounts payable and accrued liabilities Total liabilities assumed Long-term debt Net assets acquired Other long-term liabilities $ $ $ December 1, 2016 12 195 238 12 11 195 1,711 238 52 11 212 1,711 6 52 2,437 212 114 6 104 2,437 28 114 246 104 2,191 28 Total liabilities assumed In connection with the allocation of fair value, inventories 246 were written up by $33 million to their estimated fair Net assets acquired 2,191 $ value. During 2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 In connection with the allocation of fair value, inventories million after taxes), respectively, were expensed to Cost were written up by $33 million to their estimated fair of products sold as the related inventory was sold. value. During 2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 Since the date of acquisition, Net sales of $111 million million after taxes), respectively, were expensed to Cost and Earnings (loss) from continuing operations before of products sold as the related inventory was sold. income taxes and equity earnings of $(21) million from the acquired business are included in the Company's Since the date of acquisition, Net sales of $111 million consolidated statement of operations for the year ended and Earnings (loss) from continuing operations before December 31, 2016. Additionally, Selling and income taxes and equity earnings of $(21) million from administrative expenses for 2016 include $28 million in the acquired business are included in the Company's charges before taxes ($18 million after taxes) for consolidated statement of operations for the year ended integration costs associated with the acquisition. December 31, 2016. Additionally, Selling and administrative expenses for 2016 include $28 million in The identifiable intangible assets acquired in connection charges before taxes ($18 million after taxes) for with the acquisition of the Weyerhaeuser pulp business integration costs associated with the acquisition. included the following: The identifiable intangible assets acquired in connection Average with the acquisition of the Weyerhaeuser pulp business Remaining Estimated Fair Value Useful Life In millions included the following: Asset Class: Customer relationships and lists In millions Trade names, patents, trademarks and developed technology $ Estimated 95 Fair Value 113 (at acquisition 8 years Asset Class: Other Customer relationships and lists Trade names, patents, trademarks and developed technology Total Other Total $ $ $ 4 95 212 113 4 212 (at acquisition date) Average Remaining 24 years Useful Life date) 10 years 24 years 8 years 10 years Reclassifications out of AOCI for the three years ended December 31 were as follows: Reclassifications out of AOCI for the three years ended December 31 were as follows: In millions In millions Defined benefit pension and postretirement items: Defined benefit pension and postretirement items: Change in cumulative foreign currency translation Change in cumulative foreign currency translation Prior-service costs Prior-service costs Actuarial gains/(losses) Actuarial gains/(losses) Total pre-tax amount Total pre-tax amount Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax adjustments: adjustments: Business acquisitions/divestiture Business acquisitions/divestiture Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax Foreign exchange contracts Foreign exchange contracts Total pre-tax amount Total pre-tax amount Tax (expense)/benefit Tax (expense)/benefit Net of tax Net of tax Net gains and losses on cash flow hedging derivatives: Net gains and losses on cash flow hedging derivatives: Amount Reclassified from Accumulated Amount Reclassified from Accumulated Other Comprehensive Income Other Comprehensive Income 2017 2017 2016 2016 2015 2015 Location of Amount Location of Amount Reclassified from AOCI Reclassified from AOCI $ $ (33) $ (33) $ (37) $ (37) $ (33) (a) Cost of products sold (33) (a) Cost of products sold (449) (a) Cost of products sold (449) (a) Cost of products sold (733) (733) (766) (766) 280 280 (486) (486) 1 1 — — 1 1 9 9 9 9 7 7 (2) (2) (851) (851) (888) (888) 343 343 (545) (545) 3 3 — — 3 3 10 10 10 10 (3) (3) 7 7 (482) (482) 186 186 (296) (296) 40 40 — — 40 40 (20) (20) 8 8 (12) (12) (268) (268) Net (gains) losses on sales and Net (gains) losses on sales and impairments of businesses impairments of businesses (20) (b) Cost of products sold (20) (b) Cost of products sold Total reclassifications for the period, net of tax Total reclassifications for the period, net of tax $ $ (478) $ (478) $ (535) $ (535) $ (a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for (a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional additional details). additional details). details). details). NOTE 5 RESTRUCTURING CHARGES AND NOTE 5 RESTRUCTURING CHARGES AND OTHER ITEMS OTHER ITEMS (b) (b) Includes $4 million of accelerated depreciation and $3 million Includes $4 million of accelerated depreciation and $3 million of severance charges which is related to 85 employees. of severance charges which is related to 85 employees. 2017: During 2017, restructuring and other charges 2017: During 2017, restructuring and other charges totaling $67 million before taxes were recorded. These totaling $67 million before taxes were recorded. These 2015: During 2015, total restructuring and other 2015: During 2015, total restructuring and other charges of $252 million before taxes were recorded. charges of $252 million before taxes were recorded. These charges included: These charges included: 2017 2017 In millions In millions charges included: charges included: In millions In millions Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) Gain on sale of investment in ArborGen Gain on sale of investment in ArborGen Other Other Total Total $ $ $ $ $ $ 83 83 (14) (14) (2) (2) 67 67 29 29 17 17 (8) (8) 9 9 7 7 54 54 2016: During 2016, total restructuring and other 2016: During 2016, total restructuring and other charges of $54 million before taxes were recorded. charges of $54 million before taxes were recorded. These charges included: These charges included: In millions In millions 2016 2016 Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) $ $ India packaging evaluation write-off India packaging evaluation write-off Gain on sale of investment in Arizona Chemical Gain on sale of investment in Arizona Chemical Riegelwood mill conversion costs (a) Riegelwood mill conversion costs (a) Turkey mill closure (b) Turkey mill closure (b) Total Total (a) (a) Includes $3 million of accelerated depreciation, $3 million of Includes $3 million of accelerated depreciation, $3 million of inventory write-off charges and $3 million of other charges. inventory write-off charges and $3 million of other charges. Early debt extinguishment costs (see Note 13) Early debt extinguishment costs (see Note 13) $ $ Timber monetization restructuring Timber monetization restructuring Legal liability reserve adjustment Legal liability reserve adjustment Riegelwood mill conversion costs net of proceeds Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand (a) from the sale of Carolina Coated Bristols brand (a) Other Other Total Total 2015 2015 207 207 16 16 15 15 8 8 6 6 $ $ 252 252 (a) (a) Includes $5 million of severance charges, which is related to Includes $5 million of severance charges, which is related to 69 employees, $24 million of accelerated depreciation, sale 69 employees, $24 million of accelerated depreciation, sale proceeds of $22 million and $1 million of other charges. proceeds of $22 million and $1 million of other charges. NOTE 6 ACQUISITIONS AND JOINT VENTURES NOTE 6 ACQUISITIONS AND JOINT VENTURES TANGIER, MOROCCO FACILITY TANGIER, MOROCCO FACILITY 2017: On June 30, 2017, the Company completed the 2017: On June 30, 2017, the Company completed the acquisition of Europac's Tangier, Morocco facility, a acquisition of Europac's Tangier, Morocco facility, a corrugated packaging corrugated packaging facility, facility, for €40 million for €40 million (approximately $46 million using the June 30, 2017 (approximately $46 million using the June 30, 2017 exchange rate). After working capital and other post- exchange rate). After working capital and other post- close adjustments, final consideration exchanged was close adjustments, final consideration exchanged was €33 million (approximately $38 million using the June €33 million (approximately $38 million using the June 30, 2017 exchange rate). 30, 2017 exchange rate). The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of The following table summarizes the provisional fair June 30, 2017: value assigned to assets and liabilities acquired as of June 30, 2017: In millions June 30, 2017 In millions Cash and temporary investments Cash and temporary investments Accounts and notes receivable Accounts and notes receivable Inventory Inventory Plants, properties and equipment Plants, properties and equipment Goodwill Goodwill Other intangible assets Other intangible assets Deferred charges and other assets Deferred charges and other assets Total assets acquired Total assets acquired Accounts payable and accrued liabilities Accounts payable and accrued liabilities Long-term debt Long-term debt Other long-term liabilities Other long-term liabilities Total liabilities assumed Total liabilities assumed Net assets acquired Net assets acquired $ $ $ $ June 30, 2017 1 1 7 7 3 3 32 32 4 4 5 5 4 4 56 56 5 5 11 11 2 2 18 18 38 38 Adjustments, if any, to provisional amounts will be finalized within the measurement period of up to one Adjustments, if any, to provisional amounts will be year from the acquisition date. Since the date of finalized within the measurement period of up to one acquisition, Net sales of $6 million and Earnings (loss) year from the acquisition date. Since the date of from continuing operations before income taxes and acquisition, Net sales of $6 million and Earnings (loss) equity earnings of $(1) million from the acquired from continuing operations before income taxes and business have been included in the Company's equity earnings of $(1) million from the acquired consolidated statement of operations for the year ended business have been included in the Company's December 31, 2017. Pro forma information related to consolidated statement of operations for the year ended the acquisition of the Europac business has not been December 31, 2017. Pro forma information related to included as it is impractical to obtain the information due the acquisition of the Europac business has not been to the lack of availability of financial data and does not included as it is impractical to obtain the information due have a material effect on the Company's consolidated to the lack of availability of financial data and does not results of operations. have a material effect on the Company's consolidated results of operations. WEYERHAEUSER PULP BUSINESS WEYERHAEUSER PULP BUSINESS 2016: On December 1, 2016, the Company finalized the purchase of Weyerhaeuser's pulp business for 2016: On December 1, 2016, the Company finalized the approximately $2.2 billion in cash, subject to post- for purchase of Weyerhaeuser's pulp business closing adjustments. Under the terms of the agreement, approximately $2.2 billion in cash, subject to post- International Paper acquired four fluff pulp mills, one closing adjustments. Under the terms of the agreement, northern bleached softwood kraft mill and two converting International Paper acquired four fluff pulp mills, one facilities of modified fiber, located in the United States, northern bleached softwood kraft mill and two converting Canada and Poland. facilities of modified fiber, located in the United States, Canada and Poland. The following table summarizes the final fair values assigned to assets and liabilities acquired as of December 1, 2016: 51 51 52 52 $ $ 12 December 1, 2016 The following table summarizes the final fair values In millions assigned to assets and liabilities acquired as of Cash and temporary investments December 1, 2016: Accounts and notes receivable In millions Inventory Cash and temporary investments Other current assets Accounts and notes receivable Plants, properties and equipment Inventory Goodwill Other current assets Other intangible assets Plants, properties and equipment Deferred charges and other assets Goodwill Total assets acquired Other intangible assets Accounts payable and accrued liabilities Deferred charges and other assets Long-term debt Total assets acquired Other long-term liabilities Accounts payable and accrued liabilities Total liabilities assumed Long-term debt Net assets acquired Other long-term liabilities 195 December 1, 2016 238 12 11 195 1,711 238 52 11 212 1,711 6 52 2,437 212 114 6 104 2,437 28 114 246 104 2,191 28 $ $ 246 2,191 In connection with the allocation of fair value, inventories Total liabilities assumed were written up by $33 million to their estimated fair Net assets acquired value. During 2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 In connection with the allocation of fair value, inventories million after taxes), respectively, were expensed to Cost were written up by $33 million to their estimated fair of products sold as the related inventory was sold. value. During 2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 Since the date of acquisition, Net sales of $111 million million after taxes), respectively, were expensed to Cost and Earnings (loss) from continuing operations before of products sold as the related inventory was sold. income taxes and equity earnings of $(21) million from the acquired business are included in the Company's Since the date of acquisition, Net sales of $111 million consolidated statement of operations for the year ended and Earnings (loss) from continuing operations before December 31, 2016. Additionally, Selling and income taxes and equity earnings of $(21) million from administrative expenses for 2016 include $28 million in the acquired business are included in the Company's charges before taxes ($18 million after taxes) for consolidated statement of operations for the year ended integration costs associated with the acquisition. December 31, 2016. Additionally, Selling and administrative expenses for 2016 include $28 million in The identifiable intangible assets acquired in connection charges before taxes ($18 million after taxes) for with the acquisition of the Weyerhaeuser pulp business integration costs associated with the acquisition. included the following: The identifiable intangible assets acquired in connection with the acquisition of the Weyerhaeuser pulp business In millions included the following: Average Remaining Useful Life Estimated Fair Value Asset Class: Customer relationships and lists In millions Trade names, patents, trademarks and developed technology Asset Class: Other Customer relationships and lists Total Trade names, patents, trademarks and developed technology Other Total (at acquisition date) Average Remaining Useful Life 24 years Estimated $ 95 Fair Value (at acquisition 8 years date) 10 years 24 years 8 years 10 years 113 4 95 212 113 4 212 $ $ $ On an unaudited pro forma basis, assuming the On an unaudited pro forma basis, assuming the acquisition of the newly acquired pulp business had acquisition of the newly acquired pulp business had closed January 1, 2015, the consolidated results would closed January 1, 2015, the consolidated results would have reflected Net sales of $20.8 billion and $22.2 billion have reflected Net sales of $20.8 billion and $22.2 billion and Earnings (loss) from continuing operations before and Earnings (loss) from continuing operations before income taxes and equity earnings of $942 million and income taxes and equity earnings of $942 million and $1.3 billion for the years ended December 31, 2016 and $1.3 billion for the years ended December 31, 2016 and 2015, respectively. 2015, respectively. The 2016 pro forma information includes adjustments The 2016 pro forma information includes adjustments for additional amortization expense on identifiable for additional amortization expense on identifiable intangible assets of $18 million and eliminating the write- intangible assets of $18 million and eliminating the write- off of the estimated fair value of inventory of $19 million off of the estimated fair value of inventory of $19 million and non-recurring integration costs associated with the and non-recurring integration costs associated with the acquisition of $30 million, including $12 million of deal acquisition of $30 million, including $12 million of deal costs. costs. The 2015 pro forma information includes adjustments The 2015 pro forma information includes adjustments for additional amortization expense on identifiable for additional amortization expense on identifiable intangible assets of $18 million, non-recurring intangible assets of $18 million, non-recurring integration costs associated with the acquisition of $30 integration costs associated with the acquisition of $30 million, and incremental expense of $33 million million, and incremental expense of $33 million associated with the write-off of the estimated fair value associated with the write-off of the estimated fair value of inventory. of inventory. forma consolidated forma consolidated The unaudited pro financial financial The unaudited pro information was prepared for comparative purposes information was prepared for comparative purposes only and includes certain adjustments, as noted above. only and includes certain adjustments, as noted above. They do not reflect the effect of costs or synergies that They do not reflect the effect of costs or synergies that would have been expected to result from the integration would have been expected to result from the integration of the acquisition. The pro forma information does not of the acquisition. The pro forma information does not purport to represent International Paper's actual results purport to represent International Paper's actual results of operations as if the transaction described above of operations as if the transaction described above would have occurred as of January 1, 2015, nor is it would have occurred as of January 1, 2015, nor is it necessarily an indicator of future results. necessarily an indicator of future results. HOLMEN PAPER NEWSPRINT MILL HOLMEN PAPER NEWSPRINT MILL 2016: On June 30, 2016, the Company completed the 2016: On June 30, 2016, the Company completed the previously announced acquisition of Holmen Paper's previously announced acquisition of Holmen Paper's newsprint mill in Madrid, Spain. Under the terms of the newsprint mill in Madrid, Spain. Under the terms of the acquisition agreement, International Paper purchased acquisition agreement, International Paper purchased the Madrid newsprint mill, as well as, associated the Madrid newsprint mill, as well as, associated recycling operations and a 50% ownership interest in a recycling operations and a 50% ownership interest in a cogeneration facility. The Company is in the process of cogeneration facility. The Company is in the process of converting the mill to produce recycled containerboard converting the mill to produce recycled containerboard with an expected capacity of 440,000 tons. Once with an expected capacity of 440,000 tons. Once completed, the completed, the Company's corrugated packaging business in EMEA. Company's corrugated packaging business in EMEA. the converted mill will support the converted mill will support The Company's aggregate purchase price for the mill, The Company's aggregate purchase price for the mill, recycling operations and 50% ownership of the recycling operations and 50% ownership of the cogeneration facility was €53 million (approximately $59 cogeneration facility was €53 million (approximately $59 million using June 30, 2016 exchange rate). The million using June 30, 2016 exchange rate). The assignment of fair value to assets acquired and liabilities assignment of fair value to assets acquired and liabilities assumed was completed in the first quarter of 2017 and assumed was completed in the first quarter of 2017 and is presented in the table below. is presented in the table below. In millions In millions Current assets Current assets Equity method investments Equity method investments Plants, properties and equipment Plants, properties and equipment Other long-term assets Other long-term assets Total assets acquired Total assets acquired Short-term liabilities Short-term liabilities Long-term liabilities Long-term liabilities Total liabilities assumed Total liabilities assumed Net assets acquired Net assets acquired $ $ $ $ June 30, 2016 June 30, 2016 14 14 14 14 60 60 5 5 93 93 9 9 16 16 25 25 68 68 The final fair values assigned indicated that the sum of The final fair values assigned indicated that the sum of the cash consideration paid was less than the fair value the cash consideration paid was less than the fair value of the underlying net assets, after adjustments, by $6 of the underlying net assets, after adjustments, by $6 million, resulting in a bargain purchase gain being million, resulting in a bargain purchase gain being recorded on this transaction. The amount of revenue recorded on this transaction. The amount of revenue and earnings recognized since the acquisition date are and earnings recognized since the acquisition date are $90 million and a net loss of $2 million, respectively, for $90 million and a net loss of $2 million, respectively, for the year ended December 31, 2016. Pro forma the year ended December 31, 2016. Pro forma information related to the acquisition of the Holmen information related to the acquisition of the Holmen businesses has not been included as it is impractical to businesses has not been included as it is impractical to obtain the information due to the lack of availability of obtain the information due to the lack of availability of financial data and does not have a material effect on the financial data and does not have a material effect on the Company's consolidated results of operations. Company's consolidated results of operations. The Company has accounted for the above acquisitions The Company has accounted for the above acquisitions under ASC 805, "Business Combinations" and the under ASC 805, "Business Combinations" and the results of operations have been included in International results of operations have been included in International Paper's financial statements beginning with the dates Paper's financial statements beginning with the dates of acquisition. of acquisition. NOTE 7 DIVESTITURES NOTE 7 DIVESTITURES DISCONTINUED OPERATIONS DISCONTINUED OPERATIONS 2017: On January 1, 2018, the Company completed the 2017: On January 1, 2018, the Company completed the previously announced transfer of its North American previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging businesses, to a subsidiary of Graphic Packaging Holding Company in exchange for a 20.5% ownership Holding Company in exchange for a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined Company that holds the assets of the combined business. As part of the transaction, International Paper business. As part of the transaction, International Paper also received $660 million in cash proceeds from a new also received $660 million in cash proceeds from a new loan entered into on December 8, 2017, which the loan entered into on December 8, 2017, which the Company used to pay down existing debt. The loan was Company used to pay down existing debt. The loan was subsequently assumed by Graphic Packaging subsequently assumed by Graphic Packaging International, LLC on the transaction closing date and International, LLC on the transaction closing date and is classified as Liabilities held the in in is classified as Liabilities held the accompanying consolidated balance sheet as of accompanying consolidated balance sheet as of for sale for sale transaction's impact to segment reporting, see Note 19. transaction's impact to segment reporting, see Note 19. Accounts payable Accounts payable Long-term assets held for sale Long-term assets held for sale 1,046 (a) 1,046 (a) 1,018 1,018 $ 1,377 $ 1,377 $ $ 104 104 $ 1,379 $ 1,379 $ $ 110 110 December 31, 2017. International Paper will account for December 31, 2017. International Paper will account for its ownership interest in the combined business under its ownership interest in the combined business under the equity method. The Company has not finalized the the equity method. The Company has not finalized the fair value of its investment in the combined business, fair value of its investment in the combined business, but expects to record a gain on the transfer in the first but expects to record a gain on the transfer in the first quarter of 2018. quarter of 2018. The North American Consumer Packaging business The North American Consumer Packaging business was historically presented in the Company's Consumer was historically presented in the Company's Consumer Packaging segment. For further discussion of the Packaging segment. For further discussion of the All current and historical operating results for North All current and historical operating results for North American Consumer Packaging are American Consumer Packaging are included included in in Discontinued operations, net of Discontinued operations, net of tax, tax, in in the the accompanying consolidated statement of operations. accompanying consolidated statement of operations. The following summarizes the major classes of line The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled and Equity Earnings reconciled to Discontinued to Discontinued Operations, net of tax, related to the transfer of the North Operations, net of tax, related to the transfer of the North American Consumer Packaging business for all periods American Consumer Packaging business for all periods presented in the consolidated statement of operations: presented in the consolidated statement of operations: In millions In millions Net Sales Net Sales Costs and Expenses Costs and Expenses Cost of products sold Cost of products sold Selling and administrative Selling and administrative expenses expenses Depreciation, amortization Depreciation, amortization and cost of timber harvested and cost of timber harvested Distribution expenses Distribution expenses Taxes other than payroll and Taxes other than payroll and income taxes income taxes Interest expense, net Interest expense, net Earnings (Loss) Before Earnings (Loss) Before Income Taxes and Equity Income Taxes and Equity Earnings Earnings Income tax provision Income tax provision (benefit) (benefit) Discontinued Operations, Discontinued Operations, Net of Taxes Net of Taxes 2017 2017 2016 2016 2015 2015 $ $ 1,559 $ 1,559 $ 1,584 $ 1,584 $ 1,690 1,690 1,179 1,179 1,095 1,095 1,155 1,155 110 110 80 80 126 126 11 11 1 1 52 52 18 18 91 91 103 103 124 124 10 10 — — 161 161 54 54 106 106 127 127 158 158 10 10 — — 134 134 49 49 85 85 $ $ 34 $ 34 $ 107 $ 107 $ All current and historical assets and liabilities of North All current and historical assets and liabilities of North American Consumer Packaging are classified as American Consumer Packaging are classified as current and long-term assets held for sale and current current and long-term assets held for sale and current and and long-term long-term liabilities held liabilities held for sale for sale in in the the accompanying consolidated balance sheet. The accompanying consolidated balance sheet. The following summarizes the major classes of assets and following summarizes the major classes of assets and liabilities of North American Consumer Packaging liabilities of North American Consumer Packaging reconciled to total Assets held for sale and total reconciled to total Assets held for sale and total Liabilities held Liabilities held for sale for sale in in the accompanying the accompanying consolidated balance sheet: consolidated balance sheet: Accounts and notes receivable Accounts and notes receivable $ $ $ $ In millions In millions Inventories Inventories Other current assets Other current assets Current assets held for sale Current assets held for sale Plants, properties and equipment Plants, properties and equipment Deferred charges and other assets Deferred charges and other assets Total Assets Held for Sale Total Assets Held for Sale Accrued payroll and benefits Accrued payroll and benefits Other accrued liabilities Other accrued liabilities Current liabilities held for sale Current liabilities held for sale Long-term debt Long-term debt Other liabilities Other liabilities 2017 2017 143 143 185 185 3 3 331 331 1,021 1,021 25 25 25 25 17 17 146 146 651 651 8 8 2016 2016 149 149 205 205 7 7 361 361 987 987 31 31 29 29 22 22 161 161 — — 8 8 8 8 Long-term liabilities held for sale Long-term liabilities held for sale 659 (a) 659 (a) Total Liabilities Held for Sale Total Liabilities Held for Sale $ $ 805 805 $ $ 169 169 (a) As a result of the January 1, 2018 transfer of the North American (a) As a result of the January 1, 2018 transfer of the North American Consumer Packaging business, these amounts have been Consumer Packaging business, these amounts have been included in current assets held for sale of $1.4 billion and current included in current assets held for sale of $1.4 billion and current liabilities held for sale of $805 million in the accompanying liabilities held for sale of $805 million in the accompanying consolidated balance sheet as of December 31, 2017. consolidated balance sheet as of December 31, 2017. Total cash provided by operations related to the North Total cash provided by operations related to the North American Consumer Packaging business of $207 American Consumer Packaging business of $207 million, $268 million and $197 million for 2017, 2016 and million, $268 million and $197 million for 2017, 2016 and 2015, respectively, is included in Cash Provided By 2015, respectively, is included in Cash Provided By (Used For) Operations in the consolidated statement of (Used For) Operations in the consolidated statement of cash flows. Total cash used for investing activities cash flows. Total cash used for investing activities related to the North American Consumer Packaging related to the North American Consumer Packaging business of $111 million, $114 million and $178 million business of $111 million, $114 million and $178 million for 2017, 2016 and 2015, respectively, is included in for 2017, 2016 and 2015, respectively, is included in Cash Provided By (Used For) Investing Activities in the Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows. consolidated statement of cash flows. OTHER DIVESTITURES AND IMPAIRMENTS OTHER DIVESTITURES AND IMPAIRMENTS 2017: On September 7, 2017, the Company completed 2017: On September 7, 2017, the Company completed the sale of its foodservice business in China to the sale of its foodservice business in China to Huhtamaki Hong Kong Limited. Proceeds received Huhtamaki Hong Kong Limited. Proceeds received totaled approximately RMB 129 million ($18 million totaled approximately RMB 129 million ($18 million using the September 30, 2017 exchange rate). Under using the September 30, 2017 exchange rate). Under the terms of the transaction, and after post-closing the terms of the transaction, and after post-closing adjustments, adjustments, International International Paper Paper received received approximately RMB 49 million in exchange for its approximately RMB 49 million in exchange for its ownership interest in two China foodservice entities and ownership interest in two China foodservice entities and RMB 80 million for the sale of notes receivable from the RMB 80 million for the sale of notes receivable from the acquired entities. acquired entities. Subsequent to the announced agreement in June 2017, Subsequent to the announced agreement in June 2017, a determination was made that the current book value a determination was made that the current book value of the asset group exceeded its estimated fair value of of the asset group exceeded its estimated fair value of $7 million, which was the agreed upon selling price. As $7 million, which was the agreed upon selling price. As a result, a pre-tax charge of $9 million was recorded a result, a pre-tax charge of $9 million was recorded during the second quarter of 2017, to write down the during the second quarter of 2017, to write down the long-lived assets of this business to their estimated fair long-lived assets of this business to their estimated fair value. Amounts related to this business included in the value. Amounts related to this business included in the 53 53 54 54 On an unaudited pro forma basis, assuming the On an unaudited pro forma basis, assuming the acquisition of the newly acquired pulp business had acquisition of the newly acquired pulp business had closed January 1, 2015, the consolidated results would closed January 1, 2015, the consolidated results would have reflected Net sales of $20.8 billion and $22.2 billion have reflected Net sales of $20.8 billion and $22.2 billion and Earnings (loss) from continuing operations before and Earnings (loss) from continuing operations before income taxes and equity earnings of $942 million and income taxes and equity earnings of $942 million and $1.3 billion for the years ended December 31, 2016 and $1.3 billion for the years ended December 31, 2016 and 2015, respectively. 2015, respectively. The 2016 pro forma information includes adjustments The 2016 pro forma information includes adjustments for additional amortization expense on identifiable for additional amortization expense on identifiable intangible assets of $18 million and eliminating the write- intangible assets of $18 million and eliminating the write- off of the estimated fair value of inventory of $19 million off of the estimated fair value of inventory of $19 million and non-recurring integration costs associated with the and non-recurring integration costs associated with the acquisition of $30 million, including $12 million of deal acquisition of $30 million, including $12 million of deal costs. costs. The 2015 pro forma information includes adjustments The 2015 pro forma information includes adjustments for additional amortization expense on identifiable for additional amortization expense on identifiable intangible assets of $18 million, non-recurring intangible assets of $18 million, non-recurring integration costs associated with the acquisition of $30 integration costs associated with the acquisition of $30 million, and incremental expense of $33 million million, and incremental expense of $33 million associated with the write-off of the estimated fair value associated with the write-off of the estimated fair value of inventory. of inventory. The unaudited pro The unaudited pro forma consolidated forma consolidated financial financial information was prepared for comparative purposes information was prepared for comparative purposes only and includes certain adjustments, as noted above. only and includes certain adjustments, as noted above. They do not reflect the effect of costs or synergies that They do not reflect the effect of costs or synergies that would have been expected to result from the integration would have been expected to result from the integration of the acquisition. The pro forma information does not of the acquisition. The pro forma information does not purport to represent International Paper's actual results purport to represent International Paper's actual results of operations as if the transaction described above of operations as if the transaction described above would have occurred as of January 1, 2015, nor is it would have occurred as of January 1, 2015, nor is it necessarily an indicator of future results. necessarily an indicator of future results. HOLMEN PAPER NEWSPRINT MILL HOLMEN PAPER NEWSPRINT MILL 2016: On June 30, 2016, the Company completed the 2016: On June 30, 2016, the Company completed the previously announced acquisition of Holmen Paper's previously announced acquisition of Holmen Paper's newsprint mill in Madrid, Spain. Under the terms of the newsprint mill in Madrid, Spain. Under the terms of the acquisition agreement, International Paper purchased acquisition agreement, International Paper purchased the Madrid newsprint mill, as well as, associated the Madrid newsprint mill, as well as, associated recycling operations and a 50% ownership interest in a recycling operations and a 50% ownership interest in a cogeneration facility. The Company is in the process of cogeneration facility. The Company is in the process of converting the mill to produce recycled containerboard converting the mill to produce recycled containerboard with an expected capacity of 440,000 tons. Once with an expected capacity of 440,000 tons. Once completed, completed, the converted mill will support the converted mill will support the the Company's corrugated packaging business in EMEA. Company's corrugated packaging business in EMEA. The Company's aggregate purchase price for the mill, The Company's aggregate purchase price for the mill, recycling operations and 50% ownership of the recycling operations and 50% ownership of the cogeneration facility was €53 million (approximately $59 cogeneration facility was €53 million (approximately $59 million using June 30, 2016 exchange rate). The million using June 30, 2016 exchange rate). The assignment of fair value to assets acquired and liabilities assignment of fair value to assets acquired and liabilities assumed was completed in the first quarter of 2017 and assumed was completed in the first quarter of 2017 and is presented in the table below. is presented in the table below. In millions In millions Current assets Current assets Equity method investments Equity method investments Plants, properties and equipment Plants, properties and equipment Other long-term assets Other long-term assets Total assets acquired Total assets acquired Short-term liabilities Short-term liabilities Long-term liabilities Long-term liabilities Total liabilities assumed Total liabilities assumed Net assets acquired Net assets acquired $ $ $ $ June 30, 2016 June 30, 2016 14 14 14 14 60 60 5 5 93 93 9 9 16 16 25 25 68 68 The final fair values assigned indicated that the sum of The final fair values assigned indicated that the sum of the cash consideration paid was less than the fair value the cash consideration paid was less than the fair value of the underlying net assets, after adjustments, by $6 of the underlying net assets, after adjustments, by $6 million, resulting in a bargain purchase gain being million, resulting in a bargain purchase gain being recorded on this transaction. The amount of revenue recorded on this transaction. The amount of revenue and earnings recognized since the acquisition date are and earnings recognized since the acquisition date are $90 million and a net loss of $2 million, respectively, for $90 million and a net loss of $2 million, respectively, for the year ended December 31, 2016. Pro forma the year ended December 31, 2016. Pro forma information related to the acquisition of the Holmen information related to the acquisition of the Holmen businesses has not been included as it is impractical to businesses has not been included as it is impractical to obtain the information due to the lack of availability of obtain the information due to the lack of availability of financial data and does not have a material effect on the financial data and does not have a material effect on the Company's consolidated results of operations. Company's consolidated results of operations. The Company has accounted for the above acquisitions The Company has accounted for the above acquisitions under ASC 805, "Business Combinations" and the under ASC 805, "Business Combinations" and the results of operations have been included in International results of operations have been included in International Paper's financial statements beginning with the dates Paper's financial statements beginning with the dates of acquisition. of acquisition. NOTE 7 DIVESTITURES NOTE 7 DIVESTITURES DISCONTINUED OPERATIONS DISCONTINUED OPERATIONS 2017: On January 1, 2018, the Company completed the 2017: On January 1, 2018, the Company completed the previously announced transfer of its North American previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging businesses, to a subsidiary of Graphic Packaging Holding Company in exchange for a 20.5% ownership Holding Company in exchange for a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined Company that holds the assets of the combined business. As part of the transaction, International Paper business. As part of the transaction, International Paper also received $660 million in cash proceeds from a new also received $660 million in cash proceeds from a new loan entered into on December 8, 2017, which the loan entered into on December 8, 2017, which the Company used to pay down existing debt. The loan was Company used to pay down existing debt. The loan was subsequently assumed by Graphic Packaging subsequently assumed by Graphic Packaging International, LLC on the transaction closing date and International, LLC on the transaction closing date and is classified as Liabilities held is classified as Liabilities held for sale for sale in in the the accompanying consolidated balance sheet as of accompanying consolidated balance sheet as of December 31, 2017. International Paper will account for December 31, 2017. International Paper will account for its ownership interest in the combined business under its ownership interest in the combined business under the equity method. The Company has not finalized the the equity method. The Company has not finalized the fair value of its investment in the combined business, fair value of its investment in the combined business, but expects to record a gain on the transfer in the first but expects to record a gain on the transfer in the first quarter of 2018. quarter of 2018. The North American Consumer Packaging business The North American Consumer Packaging business was historically presented in the Company's Consumer was historically presented in the Company's Consumer Packaging segment. For further discussion of the Packaging segment. For further discussion of the transaction's impact to segment reporting, see Note 19. transaction's impact to segment reporting, see Note 19. tax, tax, included included All current and historical operating results for North All current and historical operating results for North in American Consumer Packaging are in American Consumer Packaging are the Discontinued operations, net of the Discontinued operations, net of accompanying consolidated statement of operations. accompanying consolidated statement of operations. The following summarizes the major classes of line The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes items comprising Earnings (Loss) Before Income Taxes to Discontinued and Equity Earnings reconciled and Equity Earnings reconciled to Discontinued Operations, net of tax, related to the transfer of the North Operations, net of tax, related to the transfer of the North American Consumer Packaging business for all periods American Consumer Packaging business for all periods presented in the consolidated statement of operations: presented in the consolidated statement of operations: in in In millions In millions Net Sales Net Sales Costs and Expenses Costs and Expenses Cost of products sold Cost of products sold Selling and administrative Selling and administrative expenses expenses Depreciation, amortization Depreciation, amortization and cost of timber harvested and cost of timber harvested Distribution expenses Distribution expenses Taxes other than payroll and Taxes other than payroll and income taxes income taxes Interest expense, net Interest expense, net Earnings (Loss) Before Earnings (Loss) Before Income Taxes and Equity Income Taxes and Equity Earnings Earnings Income tax provision Income tax provision (benefit) (benefit) Discontinued Operations, Discontinued Operations, Net of Taxes Net of Taxes 2017 2017 2016 2016 2015 2015 $ $ 1,559 $ 1,559 $ 1,584 $ 1,584 $ 1,690 1,690 1,179 1,179 1,095 1,095 1,155 1,155 110 110 80 80 126 126 11 11 1 1 52 52 18 18 91 91 103 103 124 124 10 10 — — 161 161 54 54 $ $ 34 $ 34 $ 107 $ 107 $ 106 106 127 127 158 158 10 10 — — 134 134 49 49 85 85 long-term long-term liabilities held liabilities held All current and historical assets and liabilities of North All current and historical assets and liabilities of North American Consumer Packaging are classified as American Consumer Packaging are classified as current and long-term assets held for sale and current current and long-term assets held for sale and current and the and the accompanying consolidated balance sheet. The accompanying consolidated balance sheet. The following summarizes the major classes of assets and following summarizes the major classes of assets and liabilities of North American Consumer Packaging liabilities of North American Consumer Packaging reconciled to total Assets held for sale and total reconciled to total Assets held for sale and total Liabilities held the accompanying for sale for sale Liabilities held the accompanying consolidated balance sheet: consolidated balance sheet: for sale for sale in in in in 53 53 54 54 In millions In millions Accounts and notes receivable Accounts and notes receivable $ $ Inventories Inventories Other current assets Other current assets Current assets held for sale Current assets held for sale Plants, properties and equipment Plants, properties and equipment Deferred charges and other assets Deferred charges and other assets 2017 2017 143 143 185 185 3 3 331 331 1,021 1,021 25 25 $ $ 2016 2016 149 149 205 205 7 7 361 361 987 987 31 31 Long-term assets held for sale Long-term assets held for sale 1,046 (a) 1,046 (a) 1,018 1,018 Total Assets Held for Sale Total Assets Held for Sale Accounts payable Accounts payable Accrued payroll and benefits Accrued payroll and benefits Other accrued liabilities Other accrued liabilities Current liabilities held for sale Current liabilities held for sale Long-term debt Long-term debt Other liabilities Other liabilities $ 1,377 $ 1,377 $ $ 104 104 $ 1,379 $ 1,379 $ $ 110 110 25 25 17 17 146 146 651 651 8 8 29 29 22 22 161 161 — — 8 8 8 8 Long-term liabilities held for sale Long-term liabilities held for sale 659 (a) 659 (a) Total Liabilities Held for Sale Total Liabilities Held for Sale $ $ 805 805 $ $ 169 169 (a) As a result of the January 1, 2018 transfer of the North American (a) As a result of the January 1, 2018 transfer of the North American Consumer Packaging business, these amounts have been Consumer Packaging business, these amounts have been included in current assets held for sale of $1.4 billion and current included in current assets held for sale of $1.4 billion and current liabilities held for sale of $805 million in the accompanying liabilities held for sale of $805 million in the accompanying consolidated balance sheet as of December 31, 2017. consolidated balance sheet as of December 31, 2017. Total cash provided by operations related to the North Total cash provided by operations related to the North American Consumer Packaging business of $207 American Consumer Packaging business of $207 million, $268 million and $197 million for 2017, 2016 and million, $268 million and $197 million for 2017, 2016 and 2015, respectively, is included in Cash Provided By 2015, respectively, is included in Cash Provided By (Used For) Operations in the consolidated statement of (Used For) Operations in the consolidated statement of cash flows. Total cash used for investing activities cash flows. Total cash used for investing activities related to the North American Consumer Packaging related to the North American Consumer Packaging business of $111 million, $114 million and $178 million business of $111 million, $114 million and $178 million for 2017, 2016 and 2015, respectively, is included in for 2017, 2016 and 2015, respectively, is included in Cash Provided By (Used For) Investing Activities in the Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows. consolidated statement of cash flows. OTHER DIVESTITURES AND IMPAIRMENTS OTHER DIVESTITURES AND IMPAIRMENTS 2017: On September 7, 2017, the Company completed 2017: On September 7, 2017, the Company completed the sale of its foodservice business in China to the sale of its foodservice business in China to Huhtamaki Hong Kong Limited. Proceeds received Huhtamaki Hong Kong Limited. Proceeds received totaled approximately RMB 129 million ($18 million totaled approximately RMB 129 million ($18 million using the September 30, 2017 exchange rate). Under using the September 30, 2017 exchange rate). Under the terms of the transaction, and after post-closing the terms of the transaction, and after post-closing received adjustments, received adjustments, approximately RMB 49 million in exchange for its approximately RMB 49 million in exchange for its ownership interest in two China foodservice entities and ownership interest in two China foodservice entities and RMB 80 million for the sale of notes receivable from the RMB 80 million for the sale of notes receivable from the acquired entities. acquired entities. International International Paper Paper Subsequent to the announced agreement in June 2017, Subsequent to the announced agreement in June 2017, a determination was made that the current book value a determination was made that the current book value of the asset group exceeded its estimated fair value of of the asset group exceeded its estimated fair value of $7 million, which was the agreed upon selling price. As $7 million, which was the agreed upon selling price. As a result, a pre-tax charge of $9 million was recorded a result, a pre-tax charge of $9 million was recorded during the second quarter of 2017, to write down the during the second quarter of 2017, to write down the long-lived assets of this business to their estimated fair long-lived assets of this business to their estimated fair value. Amounts related to this business included in the value. Amounts related to this business included in the Company's statement of operations were immaterial for Company's statement of operations were immaterial for all periods presented. all periods presented. 2016: On June 30, 2016, the Company completed the 2016: On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. Under the terms of Investment Partnership Enterprise. Under the terms of the transaction and after post-closing adjustments, the transaction and after post-closing adjustments, International Paper received a total of approximately International Paper received a total of approximately RMB 957 million (approximately $144 million at the June RMB 957 million (approximately $144 million at the June 30, 2016 exchange rate), which included the buyer's 30, 2016 exchange rate), which included the buyer's assumption of a liability for outstanding loans of assumption of a liability for outstanding loans of approximately $55 million which are payable up to three approximately $55 million which are payable up to three years from the closing of the sale. The remaining years from the closing of the sale. The remaining to balance of to balance of International Paper as of December 31, 2017, totaled International Paper as of December 31, 2017, totaled $9 million. $9 million. the outstanding the outstanding loans payable loans payable Based on the final sales price, a determination was Based on the final sales price, a determination was made that the current book value of the asset group was made that the current book value of the asset group was not recoverable. As a result, a pre-tax charge of $46 not recoverable. As a result, a pre-tax charge of $46 million was recorded during 2016 in the Company's million was recorded during 2016 in the Company's Industrial Packaging segment to write down the long- Industrial Packaging segment to write down the long- lived assets of this business to their estimated fair value. lived assets of this business to their estimated fair value. In addition, the Company recorded a pre-tax charge of In addition, the Company recorded a pre-tax charge of $24 million for severance that was contingent upon the $24 million for severance that was contingent upon the sale of this business. The 2016 net loss totaling $70 sale of this business. The 2016 net loss totaling $70 million related to the impairment and severance of IP million related to the impairment and severance of IP Asia Packaging is included in Net (gains) losses on sales Asia Packaging is included in Net (gains) losses on sales and impairments of businesses in the accompanying and impairments of businesses in the accompanying consolidated statement of operations. consolidated statement of operations. The amount of pre-tax losses related to the IP Asia The amount of pre-tax losses related to the IP Asia Packaging business the Company's the Company's included included Packaging business consolidated statement of operations were $83 million, consolidated statement of operations were $83 million, and $8 million for years ended December 31, 2016 and and $8 million for years ended December 31, 2016 and 2015. 2015. in in 2015: On October 13, 2015, the Company finalized the 2015: On October 13, 2015, the Company finalized the sale of its 55% interest in IP Asia Coated Paperboard sale of its 55% interest in IP Asia Coated Paperboard (IP-Sun JV) business to its Chinese coated board joint (IP-Sun JV) business to its Chinese coated board joint venture partner, Shandong Sun Holding Group Co., Ltd. venture partner, Shandong Sun Holding Group Co., Ltd. for RMB 149 million (approximately USD $23 million). for RMB 149 million (approximately USD $23 million). During the third quarter of 2015, a determination was During the third quarter of 2015, a determination was made that the current book value of the asset group was made that the current book value of the asset group was not recoverable. As a result, the net pre-tax impairment not recoverable. As a result, the net pre-tax impairment charge of $174 million ($113 million after taxes) was charge of $174 million ($113 million after taxes) was recorded to write down the long-lived assets of this recorded to write down the long-lived assets of this business to its estimated fair value. The impairment business to its estimated fair value. The impairment charge is included in Net (gains) losses on sales and charge is included in Net (gains) losses on sales and impairments of businesses in the accompanying impairments of businesses in the accompanying consolidated statement of operations. The amount of consolidated statement of operations. The amount of pre-tax losses related to noncontrolling interest of the pre-tax losses related to noncontrolling interest of the IP-Sun JV included in the Company's consolidated IP-Sun JV included in the Company's consolidated statement of operations for the year ended December statement of operations for the year ended December 31, 2015 was $19 million. The amount of pre-tax losses 31, 2015 was $19 million. The amount of pre-tax losses related to the IP-Sun JV included in the Company's related to the IP-Sun JV included in the Company's consolidated statement of operations for the year ended consolidated statement of operations for the year ended December 31, 2015 was $226 million. December 31, 2015 was $226 million. INTEREST INTEREST ASSET RETIREMENT OBLIGATIONS ASSET RETIREMENT OBLIGATIONS Interest payments of $782 million, $682 million and $680 Interest payments of $782 million, $682 million and $680 million were made during the years ended December million were made during the years ended December 31, 2017, 2016 and 2015, respectively. 31, 2017, 2016 and 2015, respectively. At December 31, 2017 and December 31, 2016, we had At December 31, 2017 and December 31, 2016, we had recorded liabilities of $86 million and $83 million, recorded liabilities of $86 million and $83 million, respectively, related to asset retirement obligations. respectively, related to asset retirement obligations. The following table presents changes in the goodwill balances as allocated to each business segment for the years ended The following table presents changes in the goodwill balances as allocated to each business segment for the years ended Amounts related to interest were as follows: Amounts related to interest were as follows: In millions In millions Interest expense (a) Interest expense (a) Interest income (a) Interest income (a) Capitalized interest costs Capitalized interest costs 2017 2017 2016 2016 2015 2015 $ $ 758 $ 758 $ 695 $ 695 $ 644 644 186 186 25 25 175 175 28 28 89 89 25 25 (a) (a) Interest expense and interest income exclude approximately Interest expense and interest income exclude approximately $25 million in 2015 related to investments in and borrowings $25 million in 2015 related to investments in and borrowings from variable interest entities for which the Company has a from variable interest entities for which the Company has a legal right of offset (see Note 12). legal right of offset (see Note 12). NOTE 9 GOODWILL AND OTHER INTANGIBLES NOTE 9 GOODWILL AND OTHER INTANGIBLES GOODWILL GOODWILL December 31, 2017 and 2016: December 31, 2017 and 2016: Balance as of December 31, 2015 Balance as of December 31, 2015 In millions In millions Goodwill Goodwill Accumulated impairment losses Accumulated impairment losses Reclassifications and other (a) Reclassifications and other (a) Additions/reductions Additions/reductions Impairment loss Impairment loss Balance as of December 31, 2016 Balance as of December 31, 2016 Goodwill Goodwill Accumulated impairment losses Accumulated impairment losses Reclassifications and other (a) Reclassifications and other (a) Additions/reductions Additions/reductions Impairment loss Impairment loss Balance as of December 31, 2017 Balance as of December 31, 2017 Goodwill Goodwill Total Total Accumulated impairment losses Accumulated impairment losses Industrial Industrial Packaging Packaging Global Global Cellulose Cellulose Fibers Fibers Printing Printing Papers Papers Total Total $ $ 3,384 3,384 $ $ $ $ 2,124 2,124 $ $ 5,508 5,508 (296) (296) 3,088 3,088 (4) (4) (5) (b) (5) (b) — — 3,375 3,375 (296) (296) 3,079 3,079 3 3 — — 3,382 3,382 (296) (296) — — — — 19 (c) 19 (c) — — — — — — 19 19 — — 19 19 — — — — 52 52 — — (1,877) (1,877) 247 247 33 33 (14) (d) (14) (d) — — 2,143 2,143 (1,877) (1,877) 266 266 8 8 (1) (1) — — 2,150 2,150 (1,877) (1,877) (2,173) (2,173) 3,335 3,335 29 29 — — — — 11 11 36 36 — — 5,537 5,537 (2,173) (2,173) 3,364 3,364 5,584 5,584 (2,173) (2,173) 4 (e) 4 (e) 33 (c) 33 (c) $ $ 3,086 3,086 $ $ 52 52 $ $ 273 273 $ $ 3,411 3,411 (a) Represents the effects of foreign currency translations and reclassifications. (a) Represents the effects of foreign currency translations and reclassifications. (b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S. (b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S. (c) Reflects the acquisition and purchase price adjustments of the newly acquired pulp business. (c) Reflects the acquisition and purchase price adjustments of the newly acquired pulp business. (d) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil. (d) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil. (e) Reflects the acquisition of the newly acquired Moroccan box plant. (e) Reflects the acquisition of the newly acquired Moroccan box plant. NOTE 8 SUPPLEMENTARY FINANCIAL NOTE 8 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION STATEMENT INFORMATION TEMPORARY INVESTMENTS TEMPORARY INVESTMENTS Temporary investments with an original maturity of three Temporary investments with an original maturity of three months or less are treated as cash equivalents and are months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $661 stated at cost. Temporary investments totaled $661 million and $757 million at December 31, 2017 and 2016, million and $757 million at December 31, 2017 and 2016, respectively. respectively. ACCOUNTS AND NOTES RECEIVABLE ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable, net of allowances, by Accounts and notes receivable, net of allowances, by classification were: classification were: In millions at December 31 In millions at December 31 Accounts and notes receivable: Accounts and notes receivable: 2017 2017 2016 2016 Trade Trade Other Other Total Total $ 3,017 $ 2,612 $ 3,017 $ 2,612 240 240 $ 3,287 $ 2,852 $ 3,287 $ 2,852 270 270 INVENTORIES INVENTORIES In millions at December 31 In millions at December 31 Raw materials Raw materials Finished pulp, paper and packaging products Finished pulp, paper and packaging products Operating supplies Operating supplies Other Other Inventories Inventories 2017 2017 2016 2016 $ $ 274 $ 274 $ 286 286 1,231 1,231 616 616 100 100 $ 2,313 $ 2,233 $ 2,313 $ 2,233 1,337 1,337 615 615 87 87 International Paper’s U.S. International Paper’s U.S. The last-in, first-out inventory method is used to value The last-in, first-out inventory method is used to value inventories. most of inventories. most of Approximately 71% of total raw materials and finished Approximately 71% of total raw materials and finished products inventories were valued using this method. products inventories were valued using this method. The last-in, first-out inventory reserve was $293 million The last-in, first-out inventory reserve was $293 million and $290 million at December 31, 2017 and 2016, and $290 million at December 31, 2017 and 2016, respectively. respectively. PLANTS, PROPERTIES AND EQUIPMENT PLANTS, PROPERTIES AND EQUIPMENT In millions at December 31 In millions at December 31 Pulp, paper and packaging facilities Pulp, paper and packaging facilities Other properties and equipment Other properties and equipment Gross cost Gross cost Less: Accumulated depreciation Less: Accumulated depreciation Plants, properties and equipment, net Plants, properties and equipment, net $ 32,523 $ 30,943 $ 32,523 $ 30,943 1,308 1,308 32,251 32,251 19,248 19,248 $ 13,265 $ 13,003 $ 13,265 $ 13,003 1,291 1,291 33,814 33,814 20,549 20,549 2017 2017 2016 2016 Annual straight-line depreciable lives generally are, for Annual straight-line depreciable lives generally are, for buildings - 20 to 40 years, and for machinery and buildings - 20 to 40 years, and for machinery and equipment - 3 to 20 years. Depreciation expense was equipment - 3 to 20 years. Depreciation expense was $1.2 billion, $1.0 billion and $1.1 billion for the years $1.2 billion, $1.0 billion and $1.1 billion for the years ended December 31, 2017, 2016 and 2015, ended December 31, 2017, 2016 and 2015, respectively. Cost of products sold excludes respectively. Cost of products sold excludes depreciation and amortization expense. depreciation and amortization expense. 55 55 56 56 Company's statement of operations were immaterial for Company's statement of operations were immaterial for all periods presented. all periods presented. 2016: On June 30, 2016, the Company completed the 2016: On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. Under the terms of Investment Partnership Enterprise. Under the terms of the transaction and after post-closing adjustments, the transaction and after post-closing adjustments, International Paper received a total of approximately International Paper received a total of approximately RMB 957 million (approximately $144 million at the June RMB 957 million (approximately $144 million at the June 30, 2016 exchange rate), which included the buyer's 30, 2016 exchange rate), which included the buyer's assumption of a liability for outstanding loans of assumption of a liability for outstanding loans of approximately $55 million which are payable up to three approximately $55 million which are payable up to three years from the closing of the sale. The remaining years from the closing of the sale. The remaining balance of balance of the outstanding the outstanding loans payable loans payable to to International Paper as of December 31, 2017, totaled International Paper as of December 31, 2017, totaled $9 million. $9 million. Based on the final sales price, a determination was Based on the final sales price, a determination was made that the current book value of the asset group was made that the current book value of the asset group was not recoverable. As a result, a pre-tax charge of $46 not recoverable. As a result, a pre-tax charge of $46 million was recorded during 2016 in the Company's million was recorded during 2016 in the Company's Industrial Packaging segment to write down the long- Industrial Packaging segment to write down the long- lived assets of this business to their estimated fair value. lived assets of this business to their estimated fair value. In addition, the Company recorded a pre-tax charge of In addition, the Company recorded a pre-tax charge of $24 million for severance that was contingent upon the $24 million for severance that was contingent upon the sale of this business. The 2016 net loss totaling $70 sale of this business. The 2016 net loss totaling $70 million related to the impairment and severance of IP million related to the impairment and severance of IP Asia Packaging is included in Net (gains) losses on sales Asia Packaging is included in Net (gains) losses on sales and impairments of businesses in the accompanying and impairments of businesses in the accompanying consolidated statement of operations. consolidated statement of operations. The amount of pre-tax losses related to the IP Asia The amount of pre-tax losses related to the IP Asia Packaging business Packaging business included included in in the Company's the Company's consolidated statement of operations were $83 million, consolidated statement of operations were $83 million, and $8 million for years ended December 31, 2016 and and $8 million for years ended December 31, 2016 and 2015. 2015. 2015: On October 13, 2015, the Company finalized the 2015: On October 13, 2015, the Company finalized the sale of its 55% interest in IP Asia Coated Paperboard sale of its 55% interest in IP Asia Coated Paperboard (IP-Sun JV) business to its Chinese coated board joint (IP-Sun JV) business to its Chinese coated board joint venture partner, Shandong Sun Holding Group Co., Ltd. venture partner, Shandong Sun Holding Group Co., Ltd. for RMB 149 million (approximately USD $23 million). for RMB 149 million (approximately USD $23 million). During the third quarter of 2015, a determination was During the third quarter of 2015, a determination was made that the current book value of the asset group was made that the current book value of the asset group was not recoverable. As a result, the net pre-tax impairment not recoverable. As a result, the net pre-tax impairment charge of $174 million ($113 million after taxes) was charge of $174 million ($113 million after taxes) was recorded to write down the long-lived assets of this recorded to write down the long-lived assets of this business to its estimated fair value. The impairment business to its estimated fair value. The impairment charge is included in Net (gains) losses on sales and charge is included in Net (gains) losses on sales and impairments of businesses in the accompanying impairments of businesses in the accompanying consolidated statement of operations. The amount of consolidated statement of operations. The amount of pre-tax losses related to noncontrolling interest of the pre-tax losses related to noncontrolling interest of the IP-Sun JV included in the Company's consolidated IP-Sun JV included in the Company's consolidated statement of operations for the year ended December statement of operations for the year ended December 31, 2015 was $19 million. The amount of pre-tax losses 31, 2015 was $19 million. The amount of pre-tax losses related to the IP-Sun JV included in the Company's related to the IP-Sun JV included in the Company's consolidated statement of operations for the year ended consolidated statement of operations for the year ended December 31, 2015 was $226 million. December 31, 2015 was $226 million. NOTE 8 SUPPLEMENTARY FINANCIAL NOTE 8 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION STATEMENT INFORMATION TEMPORARY INVESTMENTS TEMPORARY INVESTMENTS Temporary investments with an original maturity of three Temporary investments with an original maturity of three months or less are treated as cash equivalents and are months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $661 stated at cost. Temporary investments totaled $661 million and $757 million at December 31, 2017 and 2016, million and $757 million at December 31, 2017 and 2016, respectively. respectively. ACCOUNTS AND NOTES RECEIVABLE ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable, net of allowances, by Accounts and notes receivable, net of allowances, by classification were: classification were: In millions at December 31 In millions at December 31 Accounts and notes receivable: Accounts and notes receivable: Trade Trade Other Other Total Total INVENTORIES INVENTORIES In millions at December 31 In millions at December 31 Raw materials Raw materials Finished pulp, paper and packaging products Finished pulp, paper and packaging products Operating supplies Operating supplies Other Other Inventories Inventories 2017 2017 2016 2016 $ 3,017 $ 2,612 $ 3,017 $ 2,612 240 270 $ 3,287 $ 2,852 270 240 $ 3,287 $ 2,852 $ $ 2017 2016 2017 274 $ 2016 286 274 $ 1,337 1,337 615 615 87 286 1,231 1,231 616 616 100 $ 2,313 $ 2,233 100 87 $ 2,313 $ 2,233 The last-in, first-out inventory method is used to value The last-in, first-out inventory method is used to value International Paper’s U.S. inventories. most of most of Approximately 71% of total raw materials and finished International Paper’s U.S. inventories. Approximately 71% of total raw materials and finished products inventories were valued using this method. products inventories were valued using this method. The last-in, first-out inventory reserve was $293 million The last-in, first-out inventory reserve was $293 million and $290 million at December 31, 2017 and 2016, and $290 million at December 31, 2017 and 2016, respectively. respectively. PLANTS, PROPERTIES AND EQUIPMENT PLANTS, PROPERTIES AND EQUIPMENT In millions at December 31 In millions at December 31 Pulp, paper and packaging facilities Pulp, paper and packaging facilities Other properties and equipment Other properties and equipment Gross cost Gross cost Less: Accumulated depreciation Less: Accumulated depreciation Plants, properties and equipment, net Plants, properties and equipment, net 2017 2016 2017 $ 32,523 $ 30,943 2016 $ 32,523 $ 30,943 1,308 1,291 1,291 33,814 33,814 20,549 1,308 32,251 32,251 19,248 20,549 $ 13,265 $ 13,003 19,248 $ 13,265 $ 13,003 Annual straight-line depreciable lives generally are, for Annual straight-line depreciable lives generally are, for buildings - 20 to 40 years, and for machinery and buildings - 20 to 40 years, and for machinery and equipment - 3 to 20 years. Depreciation expense was equipment - 3 to 20 years. Depreciation expense was $1.2 billion, $1.0 billion and $1.1 billion for the years $1.2 billion, $1.0 billion and $1.1 billion for the years ended December 31, 2017, 2016 and 2015, ended December 31, 2017, 2016 and 2015, respectively. Cost of products sold excludes respectively. Cost of products sold excludes depreciation and amortization expense. depreciation and amortization expense. INTEREST INTEREST ASSET RETIREMENT OBLIGATIONS ASSET RETIREMENT OBLIGATIONS Interest payments of $782 million, $682 million and $680 Interest payments of $782 million, $682 million and $680 million were made during the years ended December million were made during the years ended December 31, 2017, 2016 and 2015, respectively. 31, 2017, 2016 and 2015, respectively. At December 31, 2017 and December 31, 2016, we had At December 31, 2017 and December 31, 2016, we had recorded liabilities of $86 million and $83 million, recorded liabilities of $86 million and $83 million, respectively, related to asset retirement obligations. respectively, related to asset retirement obligations. Amounts related to interest were as follows: Amounts related to interest were as follows: In millions In millions Interest expense (a) Interest expense (a) Interest income (a) Interest income (a) Capitalized interest costs Capitalized interest costs 2017 2017 2016 2016 2015 2015 $ $ 758 $ 758 $ 695 $ 695 $ 644 644 186 186 25 25 175 175 28 28 89 89 25 25 (a) (a) Interest expense and interest income exclude approximately Interest expense and interest income exclude approximately $25 million in 2015 related to investments in and borrowings $25 million in 2015 related to investments in and borrowings from variable interest entities for which the Company has a from variable interest entities for which the Company has a legal right of offset (see Note 12). legal right of offset (see Note 12). NOTE 9 GOODWILL AND OTHER INTANGIBLES NOTE 9 GOODWILL AND OTHER INTANGIBLES GOODWILL GOODWILL The following table presents changes in the goodwill balances as allocated to each business segment for the years ended The following table presents changes in the goodwill balances as allocated to each business segment for the years ended December 31, 2017 and 2016: December 31, 2017 and 2016: In millions In millions Balance as of December 31, 2015 Balance as of December 31, 2015 Goodwill Goodwill Accumulated impairment losses Accumulated impairment losses Reclassifications and other (a) Reclassifications and other (a) Additions/reductions Additions/reductions Impairment loss Impairment loss Balance as of December 31, 2016 Balance as of December 31, 2016 Goodwill Goodwill Accumulated impairment losses Accumulated impairment losses Reclassifications and other (a) Reclassifications and other (a) Additions/reductions Additions/reductions Impairment loss Impairment loss Balance as of December 31, 2017 Balance as of December 31, 2017 Goodwill Goodwill Accumulated impairment losses Accumulated impairment losses Total Total Industrial Industrial Packaging Packaging Global Global Cellulose Cellulose Fibers Fibers Printing Printing Papers Papers Total Total $ $ 3,384 3,384 $ $ (296) (296) 3,088 3,088 (4) (4) (5) (b) (5) (b) — — 3,375 3,375 (296) (296) 3,079 3,079 3 3 4 (e) 4 (e) — — 3,382 3,382 (296) (296) — — — — — — — — 19 (c) 19 (c) — — 19 19 — — 19 19 — — 33 (c) 33 (c) — — 52 52 — — $ $ 2,124 2,124 $ $ 5,508 5,508 (1,877) (1,877) 247 247 33 33 (14) (d) (14) (d) — — 2,143 2,143 (1,877) (1,877) 266 266 8 8 (1) (1) — — 2,150 2,150 (1,877) (1,877) (2,173) (2,173) 3,335 3,335 29 29 — — — — 5,537 5,537 (2,173) (2,173) 3,364 3,364 11 11 36 36 — — 5,584 5,584 (2,173) (2,173) $ $ 3,086 3,086 $ $ 52 52 $ $ 273 273 $ $ 3,411 3,411 (a) Represents the effects of foreign currency translations and reclassifications. (a) Represents the effects of foreign currency translations and reclassifications. (b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S. (b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S. (c) Reflects the acquisition and purchase price adjustments of the newly acquired pulp business. (c) Reflects the acquisition and purchase price adjustments of the newly acquired pulp business. (d) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil. (d) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil. (e) Reflects the acquisition of the newly acquired Moroccan box plant. (e) Reflects the acquisition of the newly acquired Moroccan box plant. 55 55 56 56 OTHER INTANGIBLES OTHER INTANGIBLES Identifiable intangible assets comprised the following: Identifiable intangible assets comprised the following: Our accounting for the following elements of the Tax Act Our accounting for the following elements of the Tax Act and, accordingly deferred income taxes were not and, accordingly deferred income taxes were not is incomplete. However, we were able to make is incomplete. However, we were able to make provided for such basis differences which totaled provided for such basis differences which totaled reasonable estimates of those elements and, therefore, reasonable estimates of those elements and, therefore, approximately $5.9 billion at December 31, 2016. While approximately $5.9 billion at December 31, 2016. While In millions at December 31 In millions at December 31 Customer relationships and lists Customer relationships and lists Non-compete agreements Non-compete agreements Tradenames, patents and trademarks, and Tradenames, patents and trademarks, and developed technology developed technology Land and water rights Land and water rights Software Software Other Other Total Total 2017 2017 2016 2016 Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Net Net Intangible Intangible Assets Assets Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Net Intangible Net Intangible Assets Assets $ $ $ $ 610 $ 610 $ 72 72 172 172 8 8 24 24 38 38 924 $ 924 $ 247 $ 247 $ 72 72 72 72 2 2 23 23 26 26 442 $ 442 $ 363 $ 363 $ — — 100 100 6 6 1 1 12 12 482 $ 482 $ 605 $ 605 $ 69 69 173 173 10 10 21 21 48 48 926 $ 926 $ 211 $ 211 $ 64 64 56 56 2 2 20 20 26 26 379 $ 379 $ 394 394 5 5 117 117 8 8 1 1 22 22 547 547 The Company recognized the following amounts as amortization expense related to intangible assets: The Company recognized the following amounts as amortization expense related to intangible assets: In millions In millions Amortization expense related to intangible assets Amortization expense related to intangible assets 2017 2017 2016 2016 2015 2015 $ $ 77 $ 77 $ 54 $ 54 $ 60 60 Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows: 2018 – $55 million, 2019 – $52 million, 2020 – $51 million, 2021 – $51 million, 2022 – $49 million, and is as follows: 2018 – $55 million, 2019 – $52 million, 2020 – $51 million, 2021 – $51 million, 2022 – $49 million, and cumulatively thereafter – $217 million. cumulatively thereafter – $217 million. NOTE 10 INCOME TAXES NOTE 10 INCOME TAXES The components of International Paper’s earnings from The components of International Paper’s earnings from continuing operations before income taxes and equity continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows: earnings by taxing jurisdiction were as follows: In millions In millions Earnings (loss) Earnings (loss) U.S. U.S. Non-U.S. Non-U.S. 2017 2017 2016 2016 2015 2015 $ $ 297 $ 297 $ 411 $ 1,013 411 $ 1,013 551 551 384 384 119 119 Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes operations before income taxes and equity earnings and equity earnings $ $ 848 $ 848 $ 795 $ 1,132 795 $ 1,132 On December 22, 2017, the U.S. government enacted On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act makes broad and complex changes to the U.S. tax code, makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible activities; and (8) creating new limitations on deductible interest expense and executive compensation. interest expense and executive compensation. The Securities Exchange Commission staff issued Staff The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be company cannot determine a provisional estimate to be included in the financial statements, it should continue included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the tax laws that were in effect immediately before the enactment of the Tax Act. enactment of the Tax Act. In connection with our initial analysis of the impact of In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional net tax the Tax Act, we have recorded a provisional net tax benefit of $1.22 billion in the period ending December benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition taxes of $1.454 billion and an expense for the Transition Tax of $231 million. For various reasons that are Tax of $231 million. For various reasons that are discussed more fully below, we have not completed our discussed more fully below, we have not completed our accounting for the income tax effects of the Tax Act. accounting for the income tax effects of the Tax Act. recorded provisional adjustments as follows: recorded provisional adjustments as follows: Reduction of U.S. federal corporate tax rate: The Tax Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21%, effective Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain of our deferred tax assets January 1, 2018. For certain of our deferred tax assets and liabilities, we have recorded a provisional net and liabilities, we have recorded a provisional net decrease of $1.451 billion with a corresponding decrease of $1.451 billion with a corresponding adjustment to deferred income tax benefit in the same adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected of the reduction in the corporate rate, it may be affected by other analysis related to the Tax Act, including but by other analysis related to the Tax Act, including but not limited to, the state tax effect of adjustments made not limited to, the state tax effect of adjustments made to federal temporary differences. to federal temporary differences. Deemed Repatriation Transition Tax: This is a tax on Deemed Repatriation Transition Tax: This is a tax on previously untaxed accumulated and current earnings previously untaxed accumulated and current earnings and profits (“E&P”) of foreign subsidiaries. To determine and profits (“E&P”) of foreign subsidiaries. To determine the amount of the transition tax, we must determine, in the amount of the transition tax, we must determine, in addition to other factors, the amount of post-1986 E&P addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation Tax and recorded a provisional Transition Tax obligation of $231 million. The provisional amount of current tax of $231 million. The provisional amount of current tax liability related to the Transition Tax recorded in Other liability related to the Transition Tax recorded in Other accrued liabilities is $17 million. However, we are accrued liabilities is $17 million. However, we are continuing to gather additional information, which may continuing to gather additional information, which may result in our ability to more precisely compute the result in our ability to more precisely compute the amount of the Transition Tax. amount of the Transition Tax. Valuation Allowances: The Company has assessed Valuation Allowances: The Company has assessed whether its U.S. state and local income tax valuation whether its U.S. state and local income tax valuation allowance analysis is affected by various aspects of the allowance analysis is affected by various aspects of the Tax Act (e.g. deemed repatriation of foreign income, Tax Act (e.g. deemed repatriation of foreign income, acceleration of cost recovery). Since, as discussed acceleration of cost recovery). Since, as discussed herein, the Company has recorded provisional amounts herein, the Company has recorded provisional amounts related to elements of the Tax Act, any corresponding related to elements of the Tax Act, any corresponding determination of the need for or change in a valuation determination of the need for or change in a valuation allowance is also provisional. For certain of our state allowance is also provisional. For certain of our state deferred tax assets, we have recorded a net $3 million deferred tax assets, we have recorded a net $3 million provisional decrease provisional decrease in in the the recorded valuation recorded valuation allowance with a corresponding adjustment to deferred allowance with a corresponding adjustment to deferred income tax benefit in the same amount for the year income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the Tax Act on a reasonable estimate of the impact of the Tax Act on state attributes, the resolution of, or changes from, other state attributes, the resolution of, or changes from, other factors noted herein may result in changes in our factors noted herein may result in changes in our recorded valuation allowance. recorded valuation allowance. The Tax Act may impact decisions surrounding the The Tax Act may impact decisions surrounding the Company’s permanent reinvestment assertions related Company’s permanent reinvestment assertions related to its foreign investments and could have an impact on to its foreign investments and could have an impact on the Company’s accounting for untaxed outside basis the Company’s accounting for untaxed outside basis differences. We previously considered the earnings in differences. We previously considered the earnings in our non-U.S. subsidiaries to be permanently reinvested, our non-U.S. subsidiaries to be permanently reinvested, the transition tax resulted in a reduction in these basis the transition tax resulted in a reduction in these basis differences, an actual repatriation from our non-U.S. differences, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional taxes, subsidiaries could still be subject to additional taxes, including, but not limited to, foreign withholding taxes including, but not limited to, foreign withholding taxes and U.S. state income taxes. In light of the Tax Act, the and U.S. state income taxes. In light of the Tax Act, the Company is evaluating its global cash management and Company is evaluating its global cash management and non-U.S. repatriation strategy but we have yet to non-U.S. repatriation strategy but we have yet to determine whether we plan to change our prior determine whether we plan to change our prior assertion. Accordingly, we have not recorded any assertion. Accordingly, we have not recorded any deferred taxes attributable to our investments in our non- deferred taxes attributable to our investments in our non- U.S. subsidiaries. U.S. subsidiaries. These estimates may change materially due to, among These estimates may change materially due to, among other things, further clarification of existing guidance that other things, further clarification of existing guidance that may be issued by U.S. taxing authorities or regulatory may be issued by U.S. taxing authorities or regulatory bodies and/or changes bodies and/or changes in in interpretations and interpretations and assumptions we have preliminarily made. We will assumptions we have preliminarily made. We will continue to analyze the Tax Act to finalize its financial continue to analyze the Tax Act to finalize its financial statement impact, including the mandatory deemed statement impact, including the mandatory deemed repatriation of foreign earnings, re-measurement of repatriation of foreign earnings, re-measurement of deferred taxes and all other provisions of the legislation deferred taxes and all other provisions of the legislation and will record the effects of any changes to provisional and will record the effects of any changes to provisional amounts in the period we can complete our analysis or amounts in the period we can complete our analysis or are first able to make a reasonable estimate, but no later are first able to make a reasonable estimate, but no later than December 2018. than December 2018. The provision (benefit) for income taxes from continuing The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows: jurisdiction was as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Current tax provision (benefit) Current tax provision (benefit) U.S. federal U.S. federal U.S. state and local U.S. state and local Non-U.S. Non-U.S. Deferred tax provision (benefit) Deferred tax provision (benefit) U.S. federal U.S. federal U.S. state and local U.S. state and local Non-U.S. Non-U.S. $ $ (73) $ (73) $ (7) $ (7) $ (23) (23) 112 112 (12) (12) 76 76 $ $ 16 $ 16 $ 57 $ 57 $ $ (1,150) $ $ (1,150) $ 134 $ 134 $ 9 9 40 40 $ (1,101) $ $ (1,101) $ 27 27 (25) (25) 136 $ 136 $ 193 $ 193 $ 35 35 3 3 111 111 149 149 306 306 32 32 (70) (70) 268 268 417 417 Income tax provision (benefit) Income tax provision (benefit) $ (1,085) $ $ (1,085) $ The Company’s deferred income tax provision (benefit) The Company’s deferred income tax provision (benefit) includes a $1.459 billion benefit, a $18 million provision includes a $1.459 billion benefit, a $18 million provision and a $3 million provision for 2017, 2016 and 2015, and a $3 million provision for 2017, 2016 and 2015, respectively, for the effect of various changes in non- respectively, for the effect of various changes in non- U.S. and U.S. federal and state tax rates. U.S. and U.S. federal and state tax rates. International Paper made income tax payments, net of International Paper made income tax payments, net of refunds, of $7 million, $90 million and $149 million in refunds, of $7 million, $90 million and $149 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. 57 57 58 58 OTHER INTANGIBLES OTHER INTANGIBLES Identifiable intangible assets comprised the following: Identifiable intangible assets comprised the following: 2017 2017 2016 2016 Gross Gross Carrying Carrying Amount Amount $ $ Accumulated Accumulated Amortization Amortization Net Net Intangible Intangible Assets Assets Gross Gross Carrying Carrying Amount Amount 247 $ 247 $ 363 $ 363 $ Accumulated Accumulated Amortization Amortization Net Intangible Net Intangible Assets Assets 211 $ 211 $ 394 394 610 $ 610 $ 72 72 172 172 8 8 24 24 38 38 72 72 72 72 2 2 23 23 26 26 — — 100 100 6 6 1 1 12 12 605 $ 605 $ 69 69 173 173 10 10 21 21 48 48 64 64 56 56 2 2 20 20 26 26 $ $ 924 $ 924 $ 442 $ 442 $ 482 $ 482 $ 926 $ 926 $ 379 $ 379 $ 117 117 5 5 8 8 1 1 22 22 547 547 In millions at December 31 In millions at December 31 Customer relationships and lists Customer relationships and lists Non-compete agreements Non-compete agreements Tradenames, patents and trademarks, and Tradenames, patents and trademarks, and developed technology developed technology Land and water rights Land and water rights Software Software Other Other Total Total In millions In millions The Company recognized the following amounts as amortization expense related to intangible assets: The Company recognized the following amounts as amortization expense related to intangible assets: Amortization expense related to intangible assets Amortization expense related to intangible assets 2017 2017 2016 2016 2015 2015 $ $ 77 $ 77 $ 54 $ 54 $ 60 60 Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows: 2018 – $55 million, 2019 – $52 million, 2020 – $51 million, 2021 – $51 million, 2022 – $49 million, and is as follows: 2018 – $55 million, 2019 – $52 million, 2020 – $51 million, 2021 – $51 million, 2022 – $49 million, and cumulatively thereafter – $217 million. cumulatively thereafter – $217 million. NOTE 10 INCOME TAXES NOTE 10 INCOME TAXES The components of International Paper’s earnings from The components of International Paper’s earnings from continuing operations before income taxes and equity continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows: earnings by taxing jurisdiction were as follows: In millions In millions Earnings (loss) Earnings (loss) U.S. U.S. Non-U.S. Non-U.S. 2017 2017 2016 2016 2015 2015 $ $ 297 $ 297 $ 411 $ 1,013 411 $ 1,013 551 551 384 384 119 119 Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes operations before income taxes and equity earnings and equity earnings $ $ 848 $ 848 $ 795 $ 1,132 795 $ 1,132 On December 22, 2017, the U.S. government enacted On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act makes broad and complex changes to the U.S. tax code, makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible activities; and (8) creating new limitations on deductible interest expense and executive compensation. interest expense and executive compensation. The Securities Exchange Commission staff issued Staff The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be company cannot determine a provisional estimate to be included in the financial statements, it should continue included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the tax laws that were in effect immediately before the enactment of the Tax Act. enactment of the Tax Act. In connection with our initial analysis of the impact of In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional net tax the Tax Act, we have recorded a provisional net tax benefit of $1.22 billion in the period ending December benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition taxes of $1.454 billion and an expense for the Transition Tax of $231 million. For various reasons that are Tax of $231 million. For various reasons that are discussed more fully below, we have not completed our discussed more fully below, we have not completed our accounting for the income tax effects of the Tax Act. accounting for the income tax effects of the Tax Act. Our accounting for the following elements of the Tax Act Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make is incomplete. However, we were able to make reasonable estimates of those elements and, therefore, reasonable estimates of those elements and, therefore, recorded provisional adjustments as follows: recorded provisional adjustments as follows: Reduction of U.S. federal corporate tax rate: The Tax Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21%, effective Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain of our deferred tax assets January 1, 2018. For certain of our deferred tax assets and liabilities, we have recorded a provisional net and liabilities, we have recorded a provisional net decrease of $1.451 billion with a corresponding decrease of $1.451 billion with a corresponding adjustment to deferred income tax benefit in the same adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected of the reduction in the corporate rate, it may be affected by other analysis related to the Tax Act, including but by other analysis related to the Tax Act, including but not limited to, the state tax effect of adjustments made not limited to, the state tax effect of adjustments made to federal temporary differences. to federal temporary differences. Deemed Repatriation Transition Tax: This is a tax on Deemed Repatriation Transition Tax: This is a tax on previously untaxed accumulated and current earnings previously untaxed accumulated and current earnings and profits (“E&P”) of foreign subsidiaries. To determine and profits (“E&P”) of foreign subsidiaries. To determine the amount of the transition tax, we must determine, in the amount of the transition tax, we must determine, in addition to other factors, the amount of post-1986 E&P addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation Tax and recorded a provisional Transition Tax obligation of $231 million. The provisional amount of current tax of $231 million. The provisional amount of current tax liability related to the Transition Tax recorded in Other liability related to the Transition Tax recorded in Other accrued liabilities is $17 million. However, we are accrued liabilities is $17 million. However, we are continuing to gather additional information, which may continuing to gather additional information, which may result in our ability to more precisely compute the result in our ability to more precisely compute the amount of the Transition Tax. amount of the Transition Tax. and, accordingly deferred income taxes were not and, accordingly deferred income taxes were not provided for such basis differences which totaled provided for such basis differences which totaled approximately $5.9 billion at December 31, 2016. While approximately $5.9 billion at December 31, 2016. While the transition tax resulted in a reduction in these basis the transition tax resulted in a reduction in these basis differences, an actual repatriation from our non-U.S. differences, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional taxes, subsidiaries could still be subject to additional taxes, including, but not limited to, foreign withholding taxes including, but not limited to, foreign withholding taxes and U.S. state income taxes. In light of the Tax Act, the and U.S. state income taxes. In light of the Tax Act, the Company is evaluating its global cash management and Company is evaluating its global cash management and non-U.S. repatriation strategy but we have yet to non-U.S. repatriation strategy but we have yet to determine whether we plan to change our prior determine whether we plan to change our prior assertion. Accordingly, we have not recorded any assertion. Accordingly, we have not recorded any deferred taxes attributable to our investments in our non- deferred taxes attributable to our investments in our non- U.S. subsidiaries. U.S. subsidiaries. in in These estimates may change materially due to, among These estimates may change materially due to, among other things, further clarification of existing guidance that other things, further clarification of existing guidance that may be issued by U.S. taxing authorities or regulatory may be issued by U.S. taxing authorities or regulatory interpretations and bodies and/or changes bodies and/or changes interpretations and assumptions we have preliminarily made. We will assumptions we have preliminarily made. We will continue to analyze the Tax Act to finalize its financial continue to analyze the Tax Act to finalize its financial statement impact, including the mandatory deemed statement impact, including the mandatory deemed repatriation of foreign earnings, re-measurement of repatriation of foreign earnings, re-measurement of deferred taxes and all other provisions of the legislation deferred taxes and all other provisions of the legislation and will record the effects of any changes to provisional and will record the effects of any changes to provisional amounts in the period we can complete our analysis or amounts in the period we can complete our analysis or are first able to make a reasonable estimate, but no later are first able to make a reasonable estimate, but no later than December 2018. than December 2018. The provision (benefit) for income taxes from continuing The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows: jurisdiction was as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Valuation Allowances: The Company has assessed Valuation Allowances: The Company has assessed whether its U.S. state and local income tax valuation whether its U.S. state and local income tax valuation allowance analysis is affected by various aspects of the allowance analysis is affected by various aspects of the Tax Act (e.g. deemed repatriation of foreign income, Tax Act (e.g. deemed repatriation of foreign income, acceleration of cost recovery). Since, as discussed acceleration of cost recovery). Since, as discussed herein, the Company has recorded provisional amounts herein, the Company has recorded provisional amounts related to elements of the Tax Act, any corresponding related to elements of the Tax Act, any corresponding determination of the need for or change in a valuation determination of the need for or change in a valuation allowance is also provisional. For certain of our state allowance is also provisional. For certain of our state deferred tax assets, we have recorded a net $3 million deferred tax assets, we have recorded a net $3 million recorded valuation provisional decrease recorded valuation provisional decrease allowance with a corresponding adjustment to deferred allowance with a corresponding adjustment to deferred income tax benefit in the same amount for the year income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the Tax Act on a reasonable estimate of the impact of the Tax Act on state attributes, the resolution of, or changes from, other state attributes, the resolution of, or changes from, other factors noted herein may result in changes in our factors noted herein may result in changes in our recorded valuation allowance. recorded valuation allowance. the the in in 57 57 58 58 The Tax Act may impact decisions surrounding the The Tax Act may impact decisions surrounding the Company’s permanent reinvestment assertions related Company’s permanent reinvestment assertions related to its foreign investments and could have an impact on to its foreign investments and could have an impact on the Company’s accounting for untaxed outside basis the Company’s accounting for untaxed outside basis differences. We previously considered the earnings in differences. We previously considered the earnings in our non-U.S. subsidiaries to be permanently reinvested, our non-U.S. subsidiaries to be permanently reinvested, Current tax provision (benefit) Current tax provision (benefit) U.S. federal U.S. federal U.S. state and local U.S. state and local Non-U.S. Non-U.S. Deferred tax provision (benefit) Deferred tax provision (benefit) U.S. federal U.S. federal U.S. state and local U.S. state and local Non-U.S. Non-U.S. $ $ (73) $ (73) $ (7) $ (7) $ (23) (23) 112 112 (12) (12) 76 76 $ $ 16 $ 16 $ 57 $ 57 $ $ (1,150) $ $ (1,150) $ 134 $ 134 $ 9 9 40 40 $ (1,101) $ $ (1,101) $ 27 27 (25) (25) 136 $ 136 $ 193 $ 193 $ 35 35 3 3 111 111 149 149 306 306 32 32 (70) (70) 268 268 417 417 Income tax provision (benefit) Income tax provision (benefit) $ (1,085) $ $ (1,085) $ The Company’s deferred income tax provision (benefit) The Company’s deferred income tax provision (benefit) includes a $1.459 billion benefit, a $18 million provision includes a $1.459 billion benefit, a $18 million provision and a $3 million provision for 2017, 2016 and 2015, and a $3 million provision for 2017, 2016 and 2015, respectively, for the effect of various changes in non- respectively, for the effect of various changes in non- U.S. and U.S. federal and state tax rates. U.S. and U.S. federal and state tax rates. International Paper made income tax payments, net of International Paper made income tax payments, net of refunds, of $7 million, $90 million and $149 million in refunds, of $7 million, $90 million and $149 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. (a) The net change in the total valuation allowance for the years (a) The net change in the total valuation allowance for the years ended December 31, 2017 and 2016 was an increase of $26 ended December 31, 2017 and 2016 was an increase of $26 million and a decrease of $27 million, respectively. million and a decrease of $27 million, respectively. Deferred income tax assets and liabilities are recorded Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and the captions Deferred charges and other assets and Deferred income taxes. There was a decrease in Deferred income taxes. There was a decrease in deferred income tax assets principally relating to the deferred income tax assets principally relating to the U.S. tax rate change, the impact of changes in qualified U.S. tax rate change, the impact of changes in qualified pension liabilities, and the utilization of tax credits and pension liabilities, and the utilization of tax credits and net operating loss carryforwards. Deferred tax liabilities net operating loss carryforwards. Deferred tax liabilities decreased primarily due to the U.S. tax rate change decreased primarily due to the U.S. tax rate change offset by tax greater than book depreciation. Of the $1.5 offset by tax greater than book depreciation. Of the $1.5 billion installment sales, and billion installment sales, and investment in subsidiary deferred tax liability, $884 investment in subsidiary deferred tax liability, $884 million is attributable to an investment in subsidiary and million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of relates to a 2006 International Paper installment sale of forestlands and $538 million is attributable to a 2007 forestlands and $538 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note Temple-Inland installment sale of forestlands (see Note 12). 12). forestlands, related forestlands, related A reconciliation of the beginning and ending amount of A reconciliation of the beginning and ending amount of the years ended unrecognized the years ended unrecognized December 31, 2017, 2016 and 2015 is as follows: December 31, 2017, 2016 and 2015 is as follows: tax benefits tax benefits for for In millions In millions 2017 2017 2016 2016 2015 2015 Balance at January 1 Balance at January 1 $ $ (98) $ (98) $ (150) $ (150) $ (158) (158) (Additions) reductions based on (Additions) reductions based on tax positions related to current tax positions related to current year year Additions for tax positions of prior Additions for tax positions of prior years years Reductions for tax positions of Reductions for tax positions of prior years prior years Settlements Settlements Expiration of statutes of Expiration of statutes of limitations limitations (54) (54) (40) (40) 4 4 6 6 1 1 (7) (7) (4) (4) (3) (3) 33 33 19 19 5 5 2 2 (6) (6) (6) (6) 7 7 2 2 4 4 7 7 A reconciliation of income tax expense using the A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual statutory U.S. income tax rate compared with the actual income tax provision follows: income tax provision follows: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes operations before income taxes and equity earnings and equity earnings $ $ 848 848 $ 795 $ 795 $ 1,132 $ 1,132 Statutory U.S. income tax rate Statutory U.S. income tax rate 35 % 35 % 35% 35% 35% 35% Tax expense (benefit) using Tax expense (benefit) using statutory U.S. income tax rate statutory U.S. income tax rate State and local income taxes State and local income taxes Tax rate and permanent Tax rate and permanent differences on non-U.S. earnings differences on non-U.S. earnings Net U.S. tax on non-U.S. Net U.S. tax on non-U.S. dividends dividends Tax expense (benefit) on Tax expense (benefit) on manufacturing activities manufacturing activities Non-deductible business Non-deductible business expenses expenses Non-deductible impairments Non-deductible impairments Sale of non-strategic assets Sale of non-strategic assets Tax audits Tax audits 297 297 (7) (7) (36) (36) 44 44 23 23 7 7 — — — — — — U.S. federal tax rate change U.S. federal tax rate change (1,451) (1,451) Foreign tax credits Foreign tax credits Subsidiary liquidation Subsidiary liquidation Deemed repatriation, net of Deemed repatriation, net of foreign tax credits foreign tax credits General business and other tax General business and other tax credits credits Other, net Other, net (96) (96) — — 231 231 (86) (86) (11) (11) 278 278 8 8 396 396 20 20 (26) (26) (44) (44) 21 21 12 12 (10) (10) (12) (12) 9 9 — — 12 12 (14) (14) — — (11) (11) (63) (63) — — (15) (15) 4 4 8 8 109 109 (61) (61) — — — — — — — — — — (15) (15) 4 4 Income tax provision (benefit) Income tax provision (benefit) $(1,085) $(1,085) $ 193 $ 193 $ 417 $ 417 Effective income tax rate Effective income tax rate (128)% (128)% 24% 24% 37% 37% The tax effects of significant temporary differences, The tax effects of significant temporary differences, representing deferred income tax assets and liabilities representing deferred income tax assets and liabilities at December 31, 2017 and 2016, were as follows: at December 31, 2017 and 2016, were as follows: In millions In millions Deferred income tax assets: Deferred income tax assets: Postretirement benefit accruals Postretirement benefit accruals $ $ 102 $ 102 $ 165 165 Pension obligations Pension obligations Alternative minimum and other tax Alternative minimum and other tax credits credits Net operating and capital loss Net operating and capital loss carryforwards carryforwards Compensation reserves Compensation reserves Other Other Gross deferred income tax assets Gross deferred income tax assets Less: valuation allowance (a) Less: valuation allowance (a) Net deferred income tax asset Net deferred income tax asset Deferred income tax liabilities: Deferred income tax liabilities: Intangibles Intangibles Plants, properties and equipment Plants, properties and equipment Forestlands, related installment sales, Forestlands, related installment sales, and investment in subsidiary and investment in subsidiary 516 516 416 416 665 665 174 174 139 139 1,344 1,344 270 270 662 662 257 257 251 251 $ $ $ $ 2,012 2,012 (429) (429) 2,949 2,949 (403) (403) 1,583 $ 1,583 $ 2,546 2,546 (139) $ (139) $ (231) (231) (2,000) (2,000) (2,828) (2,828) (1,454) (1,454) (2,260) (2,260) Gross deferred income tax liabilities Gross deferred income tax liabilities $ (3,593) $ (5,319) $ (3,593) $ (5,319) Net deferred income tax liability Net deferred income tax liability $ (2,010) $ (2,773) $ (2,010) $ (2,773) 2017 2017 2016 2016 Currency translation adjustment Currency translation adjustment Balance at December 31 Balance at December 31 $ $ (188) $ (188) $ (98) $ (98) $ (150) (150) If the Company were to prevail on the unrecognized tax If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at benefits recorded, substantially all of the balances at December 31, 2017, 2016 and 2015 would benefit the December 31, 2017, 2016 and 2015 would benefit the effective tax rate. effective tax rate. The Company accrues interest on unrecognized tax The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income if incurred, are recognized as a component of income tax expense. The Company had approximately $17 tax expense. The Company had approximately $17 million and $22 million accrued for the payment of million and $22 million accrued for the payment of estimated interest and penalties associated with estimated interest and penalties associated with unrecognized tax benefits at December 31, 2017 and unrecognized tax benefits at December 31, 2017 and 2016, respectively. 2016, respectively. The major jurisdictions where the Company files income The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years 2006 through 2016 and Russia. Generally, tax years 2006 through 2016 remain open and subject to examination by the relevant remain open and subject to examination by the relevant 59 59 60 60 tax authorities. The Company is typically engaged in tax authorities. The Company is typically engaged in GUARANTEES GUARANTEES various tax examinations at any given time, both in the various tax examinations at any given time, both in the United States and overseas. Pending audit settlements United States and overseas. Pending audit settlements and the expiration of statute of limitations could reduce and the expiration of statute of limitations could reduce the uncertain tax positions by $5 million during the next the uncertain tax positions by $5 million during the next twelve months. While the Company believes that it is twelve months. While the Company believes that it is adequately accrued for possible audit adjustments, the adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be final resolution of these examinations cannot be determined at this time and could result in final determined at this time and could result in final settlements that differ from current estimates. settlements that differ from current estimates. International Paper uses the flow-through method to International Paper uses the flow-through method to account for investment tax credits earned on eligible account for investment tax credits earned on eligible open-loop biomass facilities and combined heat and open-loop biomass facilities and combined heat and power system expenditures. Under this method, the power system expenditures. Under this method, the investment tax credits are recognized as a reduction to investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather income tax expense in the year they are earned rather than a reduction in the asset basis. The Company than a reduction in the asset basis. The Company recorded a tax benefit of $68 million during 2017 related recorded a tax benefit of $68 million during 2017 related to to Investment Tax Credits earned Investment Tax Credits earned in in tax years tax years 2013-2017. 2013-2017. The following details the scheduled expiration dates of The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit the Company’s net operating loss and income tax credit carryforwards: carryforwards: In millions In millions U.S. federal and U.S. federal and non-U.S. NOLs non-U.S. NOLs State taxing State taxing jurisdiction NOLs jurisdiction NOLs U.S. federal, non- U.S. federal, non- U.S. and state tax U.S. and state tax credit carryforwards credit carryforwards U.S. federal and U.S. federal and state capital loss state capital loss carryforwards carryforwards 2028 2028 Through Through Through Through 2018 2018 2027 2027 2037 2037 Indefinite Indefinite Total Total $ $ 65 $ 65 $ 2 $ 2 $ 432 $ 432 $ 499 499 147 147 199 199 2 2 68 68 18 18 — — — — 215 215 269 269 486 486 — — 2 2 Total Total $ $ 413 $ 413 $ 88 $ 88 $ 701 $ 701 $ 1,202 1,202 NOTE 11 COMMITMENTS AND CONTINGENT NOTE 11 COMMITMENTS AND CONTINGENT LIABILITIES LIABILITIES OPERATING LEASES OPERATING LEASES leases were as follows: leases were as follows: In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 Thereafter 2022 Thereafter Lease Lease obligations obligations $ $ 130 $ 102 $ 130 $ 102 $ 77 $ 77 $ 53 $ 53 $ 37 $ 37 $ 141 141 Rent expense was $157 million, $150 million and $157 Rent expense was $157 million, $150 million and $157 million for 2017, 2016 and 2015, respectively. million for 2017, 2016 and 2015, respectively. In connection with sales of businesses, property, In connection with sales of businesses, property, equipment, forestlands and other assets, International equipment, forestlands and other assets, International Paper commonly makes representations and warranties Paper commonly makes representations and warranties relating to such businesses or assets, and may agree relating to such businesses or assets, and may agree to to indemnify buyers with indemnify buyers with respect respect to to tax and tax and environmental liabilities, breaches of representations environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for and warranties, and other matters. Where liabilities for such matters are determined to be probable and subject such matters are determined to be probable and subject to reasonable estimation, accrued to reasonable estimation, accrued liabilities are liabilities are recorded at the time of sale as a cost of the transaction. recorded at the time of sale as a cost of the transaction. ENVIRONMENTAL AND LEGAL PROCEEDINGS ENVIRONMENTAL AND LEGAL PROCEEDINGS Environmental Environmental International Paper has been named as a potentially International Paper has been named as a potentially responsible party (PRP) in environmental remediation responsible party (PRP) in environmental remediation actions under various federal and state laws, including actions under various federal and state laws, including the Comprehensive Environmental Response, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Many of Compensation and Liability Act (CERCLA). Many of these proceedings involve the cleanup of hazardous these proceedings involve the cleanup of hazardous substances at large commercial landfills that received substances at large commercial landfills that received waste from many different sources. While joint and waste from many different sources. While joint and several liability is authorized under CERCLA and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet. facilities, and recorded as liabilities in the balance sheet. Remediation costs are recorded in the consolidated Remediation costs are recorded in the consolidated financial statements when they become probable and financial statements when they become probable and reasonably estimable. reasonably estimable. International Paper has International Paper has estimated the probable liability associated with these estimated the probable liability associated with these matters to be approximately $128 million ($141 million matters to be approximately $128 million ($141 million undiscounted) in the aggregate as of December 31, undiscounted) in the aggregate as of December 31, 2017. Other than as described below, completion of 2017. Other than as described below, completion of required remedial actions is not expected to have a required remedial actions is not expected to have a material effect on our consolidated financial statements. material effect on our consolidated financial statements. Cass Lake: One of the matters included above arises Cass Lake: One of the matters included above arises out of a closed wood-treating facility located in Cass out of a closed wood-treating facility located in Cass Environmental Protection Agency (EPA) selected and Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an published a proposed soil remedy at the site with an the selection of an alternative for the soil remediation the selection of an alternative for the soil remediation component of the overall site remedy, which includes component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final EPA released a public statement indicating that the final soil remedy decision would be delayed. In March 2016, soil remedy decision would be delayed. In March 2016, the EPA issued a proposed plan concerning clean-up the EPA issued a proposed plan concerning clean-up standards at a portion of the site, the estimated cost of standards at a portion of the site, the estimated cost of which is included within the reserve referenced above. which is included within the reserve referenced above. In October 2012, the Natural Resource Trustees for this In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other site provided notice to International Paper and other Certain property, machinery and equipment are leased Certain property, machinery and equipment are leased Lake, Minnesota. In June 2011, the United States Lake, Minnesota. In June 2011, the United States under cancelable and non-cancelable agreements. under cancelable and non-cancelable agreements. At December 31, 2017, At December 31, 2017, total total future minimum future minimum estimated cost of $46 million. The overall remediation estimated cost of $46 million. The overall remediation commitments under existing non-cancelable operating commitments under existing non-cancelable operating reserve for the site is currently $47 million to address reserve for the site is currently $47 million to address Investment Tax Credits earned Investment Tax Credits earned International Paper uses the flow-through method to International Paper uses the flow-through method to account for investment tax credits earned on eligible account for investment tax credits earned on eligible open-loop biomass facilities and combined heat and open-loop biomass facilities and combined heat and power system expenditures. Under this method, the power system expenditures. Under this method, the investment tax credits are recognized as a reduction to investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather income tax expense in the year they are earned rather than a reduction in the asset basis. The Company than a reduction in the asset basis. The Company recorded a tax benefit of $68 million during 2017 related recorded a tax benefit of $68 million during 2017 related tax years to tax years to 2013-2017. 2013-2017. tax authorities. The Company is typically engaged in tax authorities. The Company is typically engaged in various tax examinations at any given time, both in the various tax examinations at any given time, both in the United States and overseas. Pending audit settlements United States and overseas. Pending audit settlements and the expiration of statute of limitations could reduce and the expiration of statute of limitations could reduce the uncertain tax positions by $5 million during the next the uncertain tax positions by $5 million during the next twelve months. While the Company believes that it is twelve months. While the Company believes that it is adequately accrued for possible audit adjustments, the adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be final resolution of these examinations cannot be determined at this time and could result in final determined at this time and could result in final settlements that differ from current estimates. settlements that differ from current estimates. A reconciliation of income tax expense using the A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual statutory U.S. income tax rate compared with the actual income tax provision follows: income tax provision follows: In millions In millions 2017 2017 2016 2016 2015 2015 Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes operations before income taxes and equity earnings and equity earnings $ $ 848 848 $ 795 $ 795 $ 1,132 $ 1,132 Statutory U.S. income tax rate Statutory U.S. income tax rate 35 % 35 % 35% 35% 35% 35% Tax expense (benefit) using Tax expense (benefit) using statutory U.S. income tax rate statutory U.S. income tax rate State and local income taxes State and local income taxes Tax rate and permanent Tax rate and permanent differences on non-U.S. earnings differences on non-U.S. earnings Net U.S. tax on non-U.S. Net U.S. tax on non-U.S. dividends dividends Tax expense (benefit) on Tax expense (benefit) on manufacturing activities manufacturing activities Non-deductible business Non-deductible business expenses expenses Non-deductible impairments Non-deductible impairments Sale of non-strategic assets Sale of non-strategic assets Tax audits Tax audits Foreign tax credits Foreign tax credits Subsidiary liquidation Subsidiary liquidation Deemed repatriation, net of Deemed repatriation, net of foreign tax credits foreign tax credits General business and other tax General business and other tax credits credits Other, net Other, net 297 297 (7) (7) (36) (36) 44 44 23 23 7 7 — — — — — — (96) (96) — — 231 231 (86) (86) (11) (11) 278 278 8 8 396 396 20 20 (26) (26) (44) (44) 21 21 12 12 (10) (10) (12) (12) 9 9 — — 12 12 (14) (14) — — (11) (11) (63) (63) — — (15) (15) 4 4 8 8 109 109 (61) (61) — — — — — — — — — — (15) (15) 4 4 U.S. federal tax rate change U.S. federal tax rate change (1,451) (1,451) Income tax provision (benefit) Income tax provision (benefit) $(1,085) $(1,085) $ 193 $ 193 $ 417 $ 417 Effective income tax rate Effective income tax rate (128)% (128)% 24% 24% 37% 37% The tax effects of significant temporary differences, The tax effects of significant temporary differences, representing deferred income tax assets and liabilities representing deferred income tax assets and liabilities at December 31, 2017 and 2016, were as follows: at December 31, 2017 and 2016, were as follows: Postretirement benefit accruals Postretirement benefit accruals $ $ 102 $ 102 $ 165 165 In millions In millions Deferred income tax assets: Deferred income tax assets: Pension obligations Pension obligations Alternative minimum and other tax Alternative minimum and other tax credits credits Net operating and capital loss Net operating and capital loss carryforwards carryforwards Compensation reserves Compensation reserves Other Other Gross deferred income tax assets Gross deferred income tax assets Less: valuation allowance (a) Less: valuation allowance (a) Net deferred income tax asset Net deferred income tax asset Deferred income tax liabilities: Deferred income tax liabilities: Intangibles Intangibles Plants, properties and equipment Plants, properties and equipment Forestlands, related installment sales, Forestlands, related installment sales, and investment in subsidiary and investment in subsidiary 516 516 416 416 665 665 174 174 139 139 270 270 662 662 257 257 251 251 $ $ $ $ 2,012 2,012 (429) (429) 2,949 2,949 (403) (403) 1,583 $ 1,583 $ 2,546 2,546 (139) $ (139) $ (231) (231) (2,000) (2,000) (2,828) (2,828) (1,454) (1,454) (2,260) (2,260) Gross deferred income tax liabilities Gross deferred income tax liabilities $ (3,593) $ (5,319) $ (3,593) $ (5,319) Net deferred income tax liability Net deferred income tax liability $ (2,010) $ (2,773) $ (2,010) $ (2,773) (a) The net change in the total valuation allowance for the years (a) The net change in the total valuation allowance for the years ended December 31, 2017 and 2016 was an increase of $26 ended December 31, 2017 and 2016 was an increase of $26 million and a decrease of $27 million, respectively. million and a decrease of $27 million, respectively. Deferred income tax assets and liabilities are recorded Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and the captions Deferred charges and other assets and Deferred income taxes. There was a decrease in Deferred income taxes. There was a decrease in deferred income tax assets principally relating to the deferred income tax assets principally relating to the U.S. tax rate change, the impact of changes in qualified U.S. tax rate change, the impact of changes in qualified pension liabilities, and the utilization of tax credits and pension liabilities, and the utilization of tax credits and net operating loss carryforwards. Deferred tax liabilities net operating loss carryforwards. Deferred tax liabilities decreased primarily due to the U.S. tax rate change decreased primarily due to the U.S. tax rate change offset by tax greater than book depreciation. Of the $1.5 offset by tax greater than book depreciation. Of the $1.5 billion billion forestlands, related forestlands, related installment sales, and installment sales, and investment in subsidiary deferred tax liability, $884 investment in subsidiary deferred tax liability, $884 million is attributable to an investment in subsidiary and million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of relates to a 2006 International Paper installment sale of forestlands and $538 million is attributable to a 2007 forestlands and $538 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note Temple-Inland installment sale of forestlands (see Note 12). 12). A reconciliation of the beginning and ending amount of A reconciliation of the beginning and ending amount of unrecognized unrecognized tax benefits tax benefits for for the years ended the years ended December 31, 2017, 2016 and 2015 is as follows: December 31, 2017, 2016 and 2015 is as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Balance at January 1 Balance at January 1 $ $ (98) $ (98) $ (150) $ (150) $ (158) (158) (Additions) reductions based on (Additions) reductions based on tax positions related to current tax positions related to current Additions for tax positions of prior Additions for tax positions of prior Reductions for tax positions of Reductions for tax positions of year year years years prior years prior years Settlements Settlements Expiration of statutes of Expiration of statutes of limitations limitations (54) (54) (40) (40) 4 4 6 6 1 1 (7) (7) (4) (4) (3) (3) 33 33 19 19 5 5 2 2 (6) (6) (6) (6) 7 7 2 2 4 4 7 7 2017 2017 2016 2016 Currency translation adjustment Currency translation adjustment Balance at December 31 Balance at December 31 $ $ (188) $ (188) $ (98) $ (98) $ (150) (150) 1,344 1,344 If the Company were to prevail on the unrecognized tax If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at benefits recorded, substantially all of the balances at December 31, 2017, 2016 and 2015 would benefit the December 31, 2017, 2016 and 2015 would benefit the effective tax rate. effective tax rate. The Company accrues interest on unrecognized tax The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income if incurred, are recognized as a component of income tax expense. The Company had approximately $17 tax expense. The Company had approximately $17 million and $22 million accrued for the payment of million and $22 million accrued for the payment of estimated estimated interest and penalties associated with interest and penalties associated with unrecognized tax benefits at December 31, 2017 and unrecognized tax benefits at December 31, 2017 and 2016, respectively. 2016, respectively. The major jurisdictions where the Company files income The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years 2006 through 2016 and Russia. Generally, tax years 2006 through 2016 remain open and subject to examination by the relevant remain open and subject to examination by the relevant The following details the scheduled expiration dates of The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit the Company’s net operating loss and income tax credit carryforwards: carryforwards: In millions In millions U.S. federal and U.S. federal and non-U.S. NOLs non-U.S. NOLs State taxing State taxing jurisdiction NOLs jurisdiction NOLs U.S. federal, non- U.S. federal, non- U.S. and state tax U.S. and state tax credit carryforwards credit carryforwards U.S. federal and U.S. federal and state capital loss state capital loss carryforwards carryforwards 2018 2018 Through Through 2027 2027 2028 2028 Through Through 2037 2037 Indefinite Indefinite Total Total $ $ 65 $ 65 $ 2 $ 2 $ 432 $ 432 $ 499 499 147 147 199 199 2 2 68 68 18 18 — — — — 215 215 269 269 486 486 — — 2 2 Total Total $ $ 413 $ 413 $ 88 $ 88 $ 701 $ 701 $ 1,202 1,202 NOTE 11 COMMITMENTS AND CONTINGENT NOTE 11 COMMITMENTS AND CONTINGENT LIABILITIES LIABILITIES OPERATING LEASES OPERATING LEASES Certain property, machinery and equipment are leased Certain property, machinery and equipment are leased under cancelable and non-cancelable agreements. under cancelable and non-cancelable agreements. At December 31, 2017, future minimum future minimum At December 31, 2017, commitments under existing non-cancelable operating commitments under existing non-cancelable operating leases were as follows: leases were as follows: total total In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 Thereafter 2022 Thereafter Lease Lease obligations obligations $ $ 130 $ 102 $ 130 $ 102 $ 77 $ 77 $ 53 $ 53 $ 37 $ 37 $ 141 141 Rent expense was $157 million, $150 million and $157 Rent expense was $157 million, $150 million and $157 million for 2017, 2016 and 2015, respectively. million for 2017, 2016 and 2015, respectively. 59 59 60 60 in in GUARANTEES GUARANTEES indemnify buyers with indemnify buyers with In connection with sales of businesses, property, In connection with sales of businesses, property, equipment, forestlands and other assets, International equipment, forestlands and other assets, International Paper commonly makes representations and warranties Paper commonly makes representations and warranties relating to such businesses or assets, and may agree relating to such businesses or assets, and may agree tax and to tax and to environmental liabilities, breaches of representations environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for and warranties, and other matters. Where liabilities for such matters are determined to be probable and subject such matters are determined to be probable and subject to reasonable estimation, accrued liabilities are to reasonable estimation, accrued liabilities are recorded at the time of sale as a cost of the transaction. recorded at the time of sale as a cost of the transaction. respect respect to to ENVIRONMENTAL AND LEGAL PROCEEDINGS ENVIRONMENTAL AND LEGAL PROCEEDINGS Environmental Environmental International Paper has been named as a potentially International Paper has been named as a potentially responsible party (PRP) in environmental remediation responsible party (PRP) in environmental remediation actions under various federal and state laws, including actions under various federal and state laws, including the Comprehensive Environmental Response, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Many of Compensation and Liability Act (CERCLA). Many of these proceedings involve the cleanup of hazardous these proceedings involve the cleanup of hazardous substances at large commercial landfills that received substances at large commercial landfills that received waste from many different sources. While joint and waste from many different sources. While joint and several liability is authorized under CERCLA and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet. facilities, and recorded as liabilities in the balance sheet. Remediation costs are recorded in the consolidated Remediation costs are recorded in the consolidated financial statements when they become probable and financial statements when they become probable and International Paper has reasonably estimable. reasonably estimable. International Paper has estimated the probable liability associated with these estimated the probable liability associated with these matters to be approximately $128 million ($141 million matters to be approximately $128 million ($141 million undiscounted) in the aggregate as of December 31, undiscounted) in the aggregate as of December 31, 2017. Other than as described below, completion of 2017. Other than as described below, completion of required remedial actions is not expected to have a required remedial actions is not expected to have a material effect on our consolidated financial statements. material effect on our consolidated financial statements. Cass Lake: One of the matters included above arises Cass Lake: One of the matters included above arises out of a closed wood-treating facility located in Cass out of a closed wood-treating facility located in Cass Lake, Minnesota. In June 2011, the United States Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an published a proposed soil remedy at the site with an estimated cost of $46 million. The overall remediation estimated cost of $46 million. The overall remediation reserve for the site is currently $47 million to address reserve for the site is currently $47 million to address the selection of an alternative for the soil remediation the selection of an alternative for the soil remediation component of the overall site remedy, which includes component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final EPA released a public statement indicating that the final soil remedy decision would be delayed. In March 2016, soil remedy decision would be delayed. In March 2016, the EPA issued a proposed plan concerning clean-up the EPA issued a proposed plan concerning clean-up standards at a portion of the site, the estimated cost of standards at a portion of the site, the estimated cost of which is included within the reserve referenced above. which is included within the reserve referenced above. In October 2012, the Natural Resource Trustees for this In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other site provided notice to International Paper and other PRPs of their intent to perform a Natural Resource PRPs of their intent to perform a Natural Resource Damage Assessment. It is premature to predict the Damage Assessment. It is premature to predict the outcome of the assessment or to estimate a loss or outcome of the assessment or to estimate a loss or range of loss, if any, which may be incurred. range of loss, if any, which may be incurred. Kalamazoo River: The Company is a PRP with respect Kalamazoo River: The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis. Company is a successor in interest to St. Regis. • In March 2016, the Company and other PRPs • In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a inviting participation in implementing a remedy for a portion of the site, and (ii) demanding reimbursement portion of the site, and (ii) demanding reimbursement of EPA past costs totaling $37 million, including $19 of EPA past costs totaling $37 million, including $19 million in past costs previously demanded by the million in past costs previously demanded by the EPA. The Company responded to the special notice EPA. The Company responded to the special notice letter. In December 2016, EPA issued a unilateral letter. In December 2016, EPA issued a unilateral administrative order to the Company and other PRPs administrative order to the Company and other PRPs to perform the remedy. The unilateral administrative to perform the remedy. The unilateral administrative order has not yet become effective and the Company order has not yet become effective and the Company is evaluating its response. is evaluating its response. • In April 2016, the EPA issued a separate unilateral • In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) other PRPs for a time-critical removal action (TCRA) of PCB-contaminated sediments from a different of PCB-contaminated sediments from a different portion of the site. The Company responded to the portion of the site. The Company responded to the unilateral administrative order and agreed along with unilateral administrative order and agreed along with two other parties to comply with the order subject to two other parties to comply with the order subject to its sufficient cause defenses. its sufficient cause defenses. • In October 2016, the Company and another PRP • In October 2016, the Company and another PRP received a special notice letter from the EPA inviting received a special notice letter from the EPA inviting participation in the remedial design component of the participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the September 2016. The Company responded to the Allied Paper Mill special notice letter in late Allied Paper Mill special notice letter in late December 2016. December 2016. The Company’s CERCLA liability has not been finally The Company’s CERCLA liability has not been finally determined with respect to these or any other portions determined with respect to these or any other portions of the site, and except as noted above, the Company of the site, and except as noted above, the Company has declined to perform any work or reimburse the EPA has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss with or estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any respect to this site. However, we do not believe that any material loss is probable. material loss is probable. The Company was named as a defendant by Georgia- The Company was named as a defendant by Georgia- Pacific Consumer Products LP, Fort James Corporation Pacific Consumer Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the site. The suit recovery action for alleged pollution at the site. The suit seeks contribution under CERCLA for costs purportedly seeks contribution under CERCLA for costs purportedly expended by plaintiffs ($79 million as of the filing of the expended by plaintiffs ($79 million as of the filing of the complaint) and for future remediation costs. The suit complaint) and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from contaminated solids and paper residuals resulting from paper de-inking and recycling. NCR Corporation and paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan. to the District Court for the Western District of Michigan. The trial of the initial liability phase took place in February The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, any, for past or future costs. The parties’ responsibility, including that of the Company, was the subject of a including that of the Company, was the subject of a second trial, which was concluded in late 2015. A second trial, which was concluded in late 2015. A decision has not been rendered and it is unclear to what decision has not been rendered and it is unclear to what extent the Court will address responsibility for future extent the Court will address responsibility for future costs in that decision. We are unable to predict the costs in that decision. We are unable to predict the outcome or estimate our maximum reasonably possible outcome or estimate our maximum reasonably possible loss. However, we do not believe that any material loss loss. However, we do not believe that any material loss is probable. is probable. Harris County: International Paper and McGinnis Harris County: International Paper and McGinnis Industrial Maintenance Corporation (MIMC), a Industrial Maintenance Corporation (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the participating in the activities at the site and share the costs of these activities. In September 2016, the EPA costs of these activities. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the site, which identified the preferred remedy as the removal of the contaminated material currently removal of the contaminated material currently protected by an armored cap. In addition, the EPA protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP. 2017, the PRPs submitted comments on the PRAP. On October 11, 2017, the EPA issued a Record of On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both removal and relocation of the waste material from both the northern and southern impoundments. The EPA did the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform not specify the methods or practices needed to perform this work. While the EPA’s selected remedy was this work. While the EPA’s selected remedy was accompanied by a cost estimate of approximately $115 accompanied by a cost estimate of approximately $115 million, we do not believe that estimate provides a million, we do not believe that estimate provides a litigation, alleging a practically identical civil violation of litigation, alleging a practically identical civil violation of reasonable basis for accrual under GAAP because the reasonable basis for accrual under GAAP because the Section 1 of the Sherman Act (in particular, that Section 1 of the Sherman Act (in particular, that estimate was based on a technological method for estimate was based on a technological method for defendants conspired to limit the supply and thereby defendants conspired to limit the supply and thereby performing the work that we believe is not feasible. On performing the work that we believe is not feasible. On increase prices of containerboard products), but also increase prices of containerboard products), but also October 25, 2017, the PRPs received a letter from the October 25, 2017, the PRPs received a letter from the asserts Wisconsin state antitrust claims. In January asserts Wisconsin state antitrust claims. In January EPA inviting participation in the remedial design EPA inviting participation in the remedial design 2011, International Paper was named as a defendant in 2011, International Paper was named as a defendant in component of the EPA’s selected remedy for the site, component of the EPA’s selected remedy for the site, a lawsuit filed in state court in Cocke County, Tennessee a lawsuit filed in state court in Cocke County, Tennessee and the Company plans to participate in this remedial and the Company plans to participate in this remedial alleging that International Paper violated Tennessee law alleging that International Paper violated Tennessee law design process to determine if and how the remedy can design process to determine if and how the remedy can by conspiring to limit the supply and fix the prices of by conspiring to limit the supply and fix the prices of be accomplished. We expect this process will include be accomplished. We expect this process will include containerboard from mid-2005 to the present. Plaintiffs containerboard from mid-2005 to the present. Plaintiffs additional studies to determine feasible alternatives and additional studies to determine feasible alternatives and in the state court action seek certification of a class of in the state court action seek certification of a class of costs to complete this final remedy, and we have costs to complete this final remedy, and we have Tennessee Tennessee indirect purchasers of containerboard indirect purchasers of containerboard accrued reasonably estimable costs related to this accrued reasonably estimable costs related to this products, damages and costs, including attorneys' fees. products, damages and costs, including attorneys' fees. process. Subsequent to the issuance of the ROD, there process. Subsequent to the issuance of the ROD, there No class certification materials have been filed to date No class certification materials have been filed to date have been several meetings between the EPA and the have been several meetings between the EPA and the in the Tennessee action. in the Tennessee action. PRPs, and the Company anticipates working with the PRPs, and the Company anticipates working with the EPA and other PRPs to develop the remedial design, EPA and other PRPs to develop the remedial design, The Company disputes the allegations made in the The Company disputes the allegations made in the including adaptive management techniques and a including adaptive management techniques and a Ashley Furniture and Tennessee lawsuits and is Ashley Furniture and Tennessee lawsuits and is predesign investigation expected to commence in the predesign investigation expected to commence in the vigorously defending each. At this time, however, vigorously defending each. At this time, however, first quarter of 2018. The objectives of the predesign first quarter of 2018. The objectives of the predesign because the actions are in a preliminary stage, we are because the actions are in a preliminary stage, we are investigation include filling data gaps (including but not investigation include filling data gaps (including but not unable to predict an outcome or estimate a range of unable to predict an outcome or estimate a range of limited limited to post-Hurricane Harvey to post-Hurricane Harvey technical data technical data reasonably possible loss. reasonably possible loss. generated prior to the ROD and not incorporated into generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of the selected remedy), refining areas and volumes of materials to be addressed, determining if the excavation materials to be addressed, determining if the excavation remedy is able to be implemented in a manner protective remedy is able to be implemented in a manner protective of human health and the environment, and investigating of human health and the environment, and investigating potential impacts to infrastructure in the vicinity. The potential impacts to infrastructure in the vicinity. The Company has identified a number of concerns and Company has identified a number of concerns and uncertainties regarding the remedy described in the uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. and time required to implement the selected remedy. Because of ongoing questions Because of ongoing questions regarding cost regarding cost effectiveness, technical feasibility, timing and other effectiveness, technical feasibility, timing and other technical data, it is uncertain how the ROD will be technical data, it is uncertain how the ROD will be implemented. Consequently, while additional losses are implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are probable as a result of the selected remedy, we are currently unable to determine any adjustment to our currently unable to determine any adjustment to our immaterial recorded liability. It remains reasonably immaterial recorded liability. It remains reasonably possible that additional losses could be material as the possible that additional losses could be material as the remedial design process with the EPA continues over remedial design process with the EPA continues over the coming quarters. the coming quarters. International Paper and MIMC/WMI are also defending International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by an additional lawsuit related to the site brought by approximately 600 individuals who allege property approximately 600 individuals who allege property damage and personal injury. Because this case is still damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, in any, outcome or to estimate a loss or range of loss, in any, which may be incurred. which may be incurred. Antitrust Antitrust Containerboard: In June 2016, a lawsuit captioned Containerboard: In June 2016, a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporation Ashley Furniture Indus., Inc. v. Packaging Corporation of America (W.D. Wis.), was filed in federal court in of America (W.D. Wis.), was filed in federal court in Wisconsin against Wisconsin against ten defendants, ten defendants, including including the the Company, Temple-Inland and Weyerhaeuser Company. Company, Temple-Inland and Weyerhaeuser Company. The Ashley Furniture The Ashley Furniture lawsuit closely lawsuit closely tracks tracks the the allegations found in the now-settled Kleen Products allegations found in the now-settled Kleen Products Contract Contract Signature: In August 2014, a lawsuit captioned Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Signature Industrial Services LLC et al. v. International Paper Company was filed in state court in Texas. The Paper Company was filed in state court in Texas. The Signature lawsuit arises out of approximately $1 million Signature lawsuit arises out of approximately $1 million in disputed invoices related to the installation of new in disputed invoices related to the installation of new equipment at the Company's Orange, Texas mill. In equipment at the Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its addition to the invoices in dispute, Signature and its president allege consequential damages arising from president allege consequential damages arising from the Company's nonpayment of those invoices. The the Company's nonpayment of those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the awarding approximately $125 million in damages to the plaintiffs. The Court issued a judgment on December plaintiffs. The Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post- costs and pre-judgment interest, and awarding post- judgment interest. The judgment will not be final until judgment interest. The judgment will not be final until post-trial motions are decided, and the Company will post-trial motions are decided, and the Company will appeal the final judgment thereafter. The Company has appeal the final judgment thereafter. The Company has numerous and strong bases for appeal, and we believe numerous and strong bases for appeal, and we believe we will prevail on appeal. Because post-trial we will prevail on appeal. Because post-trial proceedings are in a preliminary stage, we are unable proceedings are in a preliminary stage, we are unable to estimate a range of reasonably possible loss, but we to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial. expect the amount of any loss to be immaterial. General General The Company is involved in various other inquiries, The Company is involved in various other inquiries, administrative proceedings and litigation relating to administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor environmental and safety matters, personal injury, labor and employment, contracts, sales of property, and employment, contracts, sales of property, intellectual property and other matters, some of which intellectual property and other matters, some of which allege substantial monetary damages. While any allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of these the Company believes that the outcome of any of these 61 61 62 62 PRPs of their intent to perform a Natural Resource PRPs of their intent to perform a Natural Resource The Company was named as a defendant by Georgia- The Company was named as a defendant by Georgia- Damage Assessment. It is premature to predict the Damage Assessment. It is premature to predict the Pacific Consumer Products LP, Fort James Corporation Pacific Consumer Products LP, Fort James Corporation outcome of the assessment or to estimate a loss or outcome of the assessment or to estimate a loss or and Georgia Pacific LLC in a contribution and cost and Georgia Pacific LLC in a contribution and cost range of loss, if any, which may be incurred. range of loss, if any, which may be incurred. Kalamazoo River: The Company is a PRP with respect Kalamazoo River: The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis. Company is a successor in interest to St. Regis. recovery action for alleged pollution at the site. The suit recovery action for alleged pollution at the site. The suit seeks contribution under CERCLA for costs purportedly seeks contribution under CERCLA for costs purportedly expended by plaintiffs ($79 million as of the filing of the expended by plaintiffs ($79 million as of the filing of the complaint) and for future remediation costs. The suit complaint) and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from contaminated solids and paper residuals resulting from paper de-inking and recycling. NCR Corporation and paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan. to the District Court for the Western District of Michigan. • In March 2016, the Company and other PRPs • In March 2016, the Company and other PRPs The trial of the initial liability phase took place in February The trial of the initial liability phase took place in February received a special notice letter from the EPA (i) received a special notice letter from the EPA (i) 2013. Weyerhaeuser conceded prior to trial that it was 2013. Weyerhaeuser conceded prior to trial that it was inviting participation in implementing a remedy for a inviting participation in implementing a remedy for a a liable party with respect to the site. In September 2013, a liable party with respect to the site. In September 2013, portion of the site, and (ii) demanding reimbursement portion of the site, and (ii) demanding reimbursement an opinion and order was issued in the suit. The order an opinion and order was issued in the suit. The order of EPA past costs totaling $37 million, including $19 of EPA past costs totaling $37 million, including $19 concluded that the Company (as the successor to St. concluded that the Company (as the successor to St. million in past costs previously demanded by the million in past costs previously demanded by the Regis) was not an “operator,” but was an “owner,” of the Regis) was not an “operator,” but was an “owner,” of the EPA. The Company responded to the special notice EPA. The Company responded to the special notice mill at issue during a portion of the relevant period and mill at issue during a portion of the relevant period and letter. In December 2016, EPA issued a unilateral letter. In December 2016, EPA issued a unilateral is therefore liable under CERCLA. The order also is therefore liable under CERCLA. The order also administrative order to the Company and other PRPs administrative order to the Company and other PRPs determined that NCR is a liable party as an "arranger determined that NCR is a liable party as an "arranger to perform the remedy. The unilateral administrative to perform the remedy. The unilateral administrative for disposal" of PCBs in waste paper that was de-inked for disposal" of PCBs in waste paper that was de-inked order has not yet become effective and the Company order has not yet become effective and the Company and recycled by mills along the Kalamazoo River. The and recycled by mills along the Kalamazoo River. The is evaluating its response. is evaluating its response. order did not address the Company's responsibility, if order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, any, for past or future costs. The parties’ responsibility, • In April 2016, the EPA issued a separate unilateral • In April 2016, the EPA issued a separate unilateral including that of the Company, was the subject of a including that of the Company, was the subject of a administrative order to the Company and certain administrative order to the Company and certain second trial, which was concluded in late 2015. A second trial, which was concluded in late 2015. A other PRPs for a time-critical removal action (TCRA) other PRPs for a time-critical removal action (TCRA) decision has not been rendered and it is unclear to what decision has not been rendered and it is unclear to what of PCB-contaminated sediments from a different of PCB-contaminated sediments from a different extent the Court will address responsibility for future extent the Court will address responsibility for future portion of the site. The Company responded to the portion of the site. The Company responded to the costs in that decision. We are unable to predict the costs in that decision. We are unable to predict the unilateral administrative order and agreed along with unilateral administrative order and agreed along with outcome or estimate our maximum reasonably possible outcome or estimate our maximum reasonably possible two other parties to comply with the order subject to two other parties to comply with the order subject to loss. However, we do not believe that any material loss loss. However, we do not believe that any material loss its sufficient cause defenses. its sufficient cause defenses. is probable. is probable. • In October 2016, the Company and another PRP • In October 2016, the Company and another PRP received a special notice letter from the EPA inviting received a special notice letter from the EPA inviting participation in the remedial design component of the participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the September 2016. The Company responded to the Allied Paper Mill special notice letter in late Allied Paper Mill special notice letter in late December 2016. December 2016. The Company’s CERCLA liability has not been finally The Company’s CERCLA liability has not been finally determined with respect to these or any other portions determined with respect to these or any other portions of the site, and except as noted above, the Company of the site, and except as noted above, the Company has declined to perform any work or reimburse the EPA has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss with or estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any respect to this site. However, we do not believe that any material loss is probable. material loss is probable. Harris County: International Paper and McGinnis Harris County: International Paper and McGinnis Industrial Maintenance Corporation Industrial Maintenance Corporation (MIMC), a (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the participating in the activities at the site and share the costs of these activities. In September 2016, the EPA costs of these activities. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the site, which identified the preferred remedy as the removal of removal of the contaminated material currently the contaminated material currently protected by an armored cap. In addition, the EPA protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP. 2017, the PRPs submitted comments on the PRAP. On October 11, 2017, the EPA issued a Record of On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both removal and relocation of the waste material from both the northern and southern impoundments. The EPA did the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform not specify the methods or practices needed to perform this work. While the EPA’s selected remedy was this work. While the EPA’s selected remedy was accompanied by a cost estimate of approximately $115 accompanied by a cost estimate of approximately $115 million, we do not believe that estimate provides a million, we do not believe that estimate provides a reasonable basis for accrual under GAAP because the reasonable basis for accrual under GAAP because the estimate was based on a technological method for estimate was based on a technological method for performing the work that we believe is not feasible. On performing the work that we believe is not feasible. On October 25, 2017, the PRPs received a letter from the October 25, 2017, the PRPs received a letter from the EPA inviting participation in the remedial design EPA inviting participation in the remedial design component of the EPA’s selected remedy for the site, component of the EPA’s selected remedy for the site, and the Company plans to participate in this remedial and the Company plans to participate in this remedial design process to determine if and how the remedy can design process to determine if and how the remedy can be accomplished. We expect this process will include be accomplished. We expect this process will include additional studies to determine feasible alternatives and additional studies to determine feasible alternatives and costs to complete this final remedy, and we have costs to complete this final remedy, and we have accrued reasonably estimable costs related to this accrued reasonably estimable costs related to this process. Subsequent to the issuance of the ROD, there process. Subsequent to the issuance of the ROD, there have been several meetings between the EPA and the have been several meetings between the EPA and the PRPs, and the Company anticipates working with the PRPs, and the Company anticipates working with the EPA and other PRPs to develop the remedial design, EPA and other PRPs to develop the remedial design, including adaptive management techniques and a including adaptive management techniques and a predesign investigation expected to commence in the predesign investigation expected to commence in the first quarter of 2018. The objectives of the predesign first quarter of 2018. The objectives of the predesign investigation include filling data gaps (including but not investigation include filling data gaps (including but not limited technical data limited technical data generated prior to the ROD and not incorporated into generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of the selected remedy), refining areas and volumes of materials to be addressed, determining if the excavation materials to be addressed, determining if the excavation remedy is able to be implemented in a manner protective remedy is able to be implemented in a manner protective of human health and the environment, and investigating of human health and the environment, and investigating potential impacts to infrastructure in the vicinity. The potential impacts to infrastructure in the vicinity. The Company has identified a number of concerns and Company has identified a number of concerns and uncertainties regarding the remedy described in the uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. and time required to implement the selected remedy. Because of ongoing questions regarding cost regarding cost Because of ongoing questions effectiveness, technical feasibility, timing and other effectiveness, technical feasibility, timing and other technical data, it is uncertain how the ROD will be technical data, it is uncertain how the ROD will be implemented. Consequently, while additional losses are implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are probable as a result of the selected remedy, we are currently unable to determine any adjustment to our currently unable to determine any adjustment to our immaterial recorded liability. It remains reasonably immaterial recorded liability. It remains reasonably possible that additional losses could be material as the possible that additional losses could be material as the remedial design process with the EPA continues over remedial design process with the EPA continues over the coming quarters. the coming quarters. to post-Hurricane Harvey to post-Hurricane Harvey International Paper and MIMC/WMI are also defending International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by an additional lawsuit related to the site brought by approximately 600 individuals who allege property approximately 600 individuals who allege property damage and personal injury. Because this case is still damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, in any, outcome or to estimate a loss or range of loss, in any, which may be incurred. which may be incurred. Antitrust Antitrust Containerboard: In June 2016, a lawsuit captioned Containerboard: In June 2016, a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporation Ashley Furniture Indus., Inc. v. Packaging Corporation of America (W.D. Wis.), was filed in federal court in of America (W.D. Wis.), was filed in federal court in Wisconsin against the Wisconsin against the Company, Temple-Inland and Weyerhaeuser Company. Company, Temple-Inland and Weyerhaeuser Company. The Ashley Furniture the the The Ashley Furniture allegations found in the now-settled Kleen Products allegations found in the now-settled Kleen Products ten defendants, ten defendants, lawsuit closely lawsuit closely including including tracks tracks litigation, alleging a practically identical civil violation of litigation, alleging a practically identical civil violation of Section 1 of the Sherman Act (in particular, that Section 1 of the Sherman Act (in particular, that defendants conspired to limit the supply and thereby defendants conspired to limit the supply and thereby increase prices of containerboard products), but also increase prices of containerboard products), but also asserts Wisconsin state antitrust claims. In January asserts Wisconsin state antitrust claims. In January 2011, International Paper was named as a defendant in 2011, International Paper was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee a lawsuit filed in state court in Cocke County, Tennessee alleging that International Paper violated Tennessee law alleging that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs containerboard from mid-2005 to the present. Plaintiffs in the state court action seek certification of a class of in the state court action seek certification of a class of Tennessee indirect purchasers of containerboard indirect purchasers of containerboard Tennessee products, damages and costs, including attorneys' fees. products, damages and costs, including attorneys' fees. No class certification materials have been filed to date No class certification materials have been filed to date in the Tennessee action. in the Tennessee action. The Company disputes the allegations made in the The Company disputes the allegations made in the Ashley Furniture and Tennessee lawsuits and is Ashley Furniture and Tennessee lawsuits and is vigorously defending each. At this time, however, vigorously defending each. At this time, however, because the actions are in a preliminary stage, we are because the actions are in a preliminary stage, we are unable to predict an outcome or estimate a range of unable to predict an outcome or estimate a range of reasonably possible loss. reasonably possible loss. Contract Contract Signature: In August 2014, a lawsuit captioned Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Signature Industrial Services LLC et al. v. International Paper Company was filed in state court in Texas. The Paper Company was filed in state court in Texas. The Signature lawsuit arises out of approximately $1 million Signature lawsuit arises out of approximately $1 million in disputed invoices related to the installation of new in disputed invoices related to the installation of new equipment at the Company's Orange, Texas mill. In equipment at the Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its addition to the invoices in dispute, Signature and its president allege consequential damages arising from president allege consequential damages arising from the Company's nonpayment of those invoices. The the Company's nonpayment of those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the awarding approximately $125 million in damages to the plaintiffs. The Court issued a judgment on December plaintiffs. The Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post- costs and pre-judgment interest, and awarding post- judgment interest. The judgment will not be final until judgment interest. The judgment will not be final until post-trial motions are decided, and the Company will post-trial motions are decided, and the Company will appeal the final judgment thereafter. The Company has appeal the final judgment thereafter. The Company has numerous and strong bases for appeal, and we believe numerous and strong bases for appeal, and we believe we will prevail on appeal. Because post-trial we will prevail on appeal. Because post-trial proceedings are in a preliminary stage, we are unable proceedings are in a preliminary stage, we are unable to estimate a range of reasonably possible loss, but we to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial. expect the amount of any loss to be immaterial. General General The Company is involved in various other inquiries, The Company is involved in various other inquiries, administrative proceedings and litigation relating to administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor environmental and safety matters, personal injury, labor and employment, contracts, sales of property, and employment, contracts, sales of property, intellectual property and other matters, some of which intellectual property and other matters, some of which allege substantial monetary damages. While any allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of these the Company believes that the outcome of any of these 61 61 62 62 lawsuits or claims that are pending or threatened or all lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be of them combined (other than those that cannot be assessed due to their preliminary nature) will not have assessed due to their preliminary nature) will not have a material effect on financial financial a material effect on statements. statements. its consolidated its consolidated NOTE 12 VARIABLE INTEREST ENTITIES NOTE 12 VARIABLE INTEREST ENTITIES forestlands, forestlands, In connection with the 2006 sale of approximately 5.6 In connection with the 2006 sale of approximately 5.6 million acres of International Paper million acres of International Paper received installment notes (the Timber Notes) totaling received installment notes (the Timber Notes) totaling approximately $4.8 billion. The Timber Notes, which do approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their maturity are not require principal payments prior to their maturity are supported by irrevocable letters of credit obtained by the supported by irrevocable letters of credit obtained by the buyers of the forestlands. buyers of the forestlands. The Timber Notes were used as collateral for borrowings The Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the from third party lenders, which effectively monetized the Timber Notes through the creation of newly formed Timber Notes through the creation of newly formed (the Entities). The special purposes entities (the Entities). The special purposes entities monetization structure preserved the $1.4 billion tax monetization structure preserved the $1.4 billion tax deferral that resulted from the 2006 forestlands sales. deferral that resulted from the 2006 forestlands sales. As a result of tax reform legislation in the fourth quarter As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes, this of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured to be $884 million. deferred tax liability was remeasured to be $884 million. tax tax During 2015, International Paper initiated a series of During 2015, International Paper initiated a series of actions in order to extend the 2006 monetization actions in order to extend the 2006 monetization structure and maintain the long-term nature of the $884 structure and maintain the long-term nature of the $884 million deferred International Paper liability. million deferred International Paper liability. acquired the Class A interests in the Investor Entities acquired the Class A interests in the Investor Entities from a third party for $198 million in cash. As a result, from a third party for $198 million in cash. As a result, International Paper became the owner of all of the Class International Paper became the owner of all of the Class A and Class B interests in the Entities and became the A and Class B interests in the Entities and became the primary beneficiary of the Entities. The assets and primary beneficiary of the Entities. The assets and liabilities of the Entities, primarily consisting of the liabilities of the Entities, primarily consisting of the Timber Notes and third party bank loans, were recorded Timber Notes and third party bank loans, were recorded at fair value as of the acquisition date of the Class A at fair value as of the acquisition date of the Class A interests. The Entities, with assets and liabilities interests. The Entities, with assets and liabilities primarily consisting of the Timber Notes and third-party primarily consisting of the Timber Notes and third-party bank loans, were restructured which resulted in the bank loans, were restructured which resulted in the formation of wholly-owned, bankruptcy-remote special formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015 Financing Entities) during the purpose entities (the 2015 Financing Entities) during the third quarter of 2015. Also, during the third quarter of third quarter of 2015. Also, during the third quarter of 2015, the 2015 Financing Entities used $630 million in 2015, the 2015 Financing Entities used $630 million in cash to pay down a portion of the third party bank loans cash to pay down a portion of the third party bank loans and refinanced approximately $4.2 billion of those loans and refinanced approximately $4.2 billion of those loans on nonrecourse terms (the 2015 Refinance Loans). on nonrecourse terms (the 2015 Refinance Loans). During the fourth quarter of 2015, International Paper During the fourth quarter of 2015, International Paper extended the maturity date on the Timber Notes for an extended the maturity date on the Timber Notes for an additional five years. The Timber Notes are shown in additional five years. The Timber Notes are shown in Financial assets of special purpose entities on the Financial assets of special purpose entities on the accompanying consolidated balance sheet and mature accompanying consolidated balance sheet and mature in August 2021 unless extended for an additional five in August 2021 unless extended for an additional five years. These notes are supported by approximately years. These notes are supported by approximately $4.8 billion of irrevocable letters of credit. In addition, $4.8 billion of irrevocable letters of credit. In addition, the Company extinguished the 2015 Refinance Loans the Company extinguished the 2015 Refinance Loans scheduled to mature in May 2016 and entered into new scheduled to mature in May 2016 and entered into new loans loans third party bank third party bank nonrecourse totaling totaling nonrecourse approximately $4.2 billion (the Extension Loans). approximately $4.2 billion (the Extension Loans). Provisions of loan agreements related to approximately Provisions of loan agreements related to approximately $1.1 billion of the Extension Loans require the bank $1.1 billion of the Extension Loans require the bank issuing letters of credit supporting the Timber Notes issuing letters of credit supporting the Timber Notes pledged as collateral to maintain a credit rating at or pledged as collateral to maintain a credit rating at or above a specified threshold. In the event the credit rating above a specified threshold. In the event the credit rating of the letter of credit bank is downgraded below the of the letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced specified threshold, the letters of credit must be replaced within 60 days with letters of credit from a qualifying within 60 days with letters of credit from a qualifying financial institution. The Extension Loans are shown in financial institution. The Extension Loans are shown in Nonrecourse financial liabilities of special purpose Nonrecourse financial liabilities of special purpose entities on the accompanying consolidated balance entities on the accompanying consolidated balance sheet and mature in the fourth quarter of 2020. The sheet and mature in the fourth quarter of 2020. The extinguishment of the 2015 Refinance Loans of extinguishment of the 2015 Refinance Loans of approximately $4.2 billion and the issuance of the approximately $4.2 billion and the issuance of the Extension Loans of approximately $4.2 billion are shown Extension Loans of approximately $4.2 billion are shown as part of reductions of debt and issuances of debt, as part of reductions of debt and issuances of debt, the respectively, respectively, the consolidated statement of cash flows for the year ended consolidated statement of cash flows for the year ended December 31, 2015. December 31, 2015. financing activities of financing activities of the the in in The Extension Loans are nonrecourse to the Company, The Extension Loans are nonrecourse to the Company, and are secured by approximately $4.8 billion of Timber and are secured by approximately $4.8 billion of Timber Notes, the irrevocable letters of credit supporting the Notes, the irrevocable letters of credit supporting the Timber Notes and approximately $150 million of Timber Notes and approximately $150 million of International Paper debt obligations. The $150 million International Paper debt obligations. The $150 million of International Paper debt obligations are eliminated in of International Paper debt obligations are eliminated in the consolidation of the 2015 Financing Entities and are the consolidation of the 2015 Financing Entities and are not reflected in the Company’s consolidated balance not reflected in the Company’s consolidated balance sheet. sheet. The transactions described in these paragraphs result The transactions described in these paragraphs result in continued long-term classification of the $884 million in continued long-term classification of the $884 million deferred tax liability related to the 2006 forestlands sale. deferred tax liability related to the 2006 forestlands sale. As of December 31, 2017 and 2016, the fair value of the As of December 31, 2017 and 2016, the fair value of the Timber Notes was $4.8 billion and $4.7 billion, Timber Notes was $4.8 billion and $4.7 billion, respectively, and the fair value of the Extension Loans respectively, and the fair value of the Extension Loans was $4.3 billion for both the years ended 2017 and 2016. was $4.3 billion for both the years ended 2017 and 2016. The Timber Notes and Extension Loans are classified The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further as Level 2 within the fair value hierarchy, which is further defined in Note 14. defined in Note 14. Activity between the Company and the 2015 Financing Activity between the Company and the 2015 Financing Entities (the Entities prior to the purchase of the Class Entities (the Entities prior to the purchase of the Class A interest discussed above) was as follows: A interest discussed above) was as follows: In millions In millions Revenue (a) Revenue (a) Expense (a) Expense (a) Cash receipts (b) Cash receipts (b) Cash payments (c) Cash payments (c) 2015 2015 2016 2016 2017 2017 $ 95 $ 95 $ 43 $ 95 $ 95 $ 43 81 81 128 128 21 21 77 77 71 71 98 98 95 95 128 128 128 128 is is (a) The net expense related to the Company’s interest in the (a) The net expense related to the Company’s interest in the Entities the accompanying consolidated Entities the accompanying consolidated statement of operations, as International Paper has and intends statement of operations, as International Paper has and intends to effect its legal right to offset as discussed above. After to effect its legal right to offset as discussed above. After formation of the 2015 Financing Entities, the revenue and formation of the 2015 Financing Entities, the revenue and included included in in expense are included in Interest expense, net in the expense are included in Interest expense, net in the accompanying consolidated statement of operations. accompanying consolidated statement of operations. (b) The cash receipts are equity distributions from the Entities to (b) The cash receipts are equity distributions from the Entities to International Paper prior to the formation of the 2015 Financing International Paper prior to the formation of the 2015 Financing Entities. After formation of the 2015 Financing Entities, cash Entities. After formation of the 2015 Financing Entities, cash receipts are interest received on the Financial assets of special receipts are interest received on the Financial assets of special purpose entities. purpose entities. (c) The cash payments are interest payments on the associated (c) The cash payments are interest payments on the associated debt obligations discussed above. After formation of the 2015 debt obligations discussed above. After formation of the 2015 Financing Entities, the payments represent interest paid on Financing Entities, the payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. Nonrecourse financial liabilities of special purpose entities. In connection with the acquisition of Temple-Inland in In connection with the acquisition of Temple-Inland in February 2012, two special purpose entities became February 2012, two special purpose entities became wholly-owned subsidiaries of International Paper. wholly-owned subsidiaries of International Paper. The use of the two wholly-owned special purpose The use of the two wholly-owned special purpose entities discussed below preserved the $831 million tax entities discussed below preserved the $831 million tax deferral that resulted from the 2007 Temple-Inland deferral that resulted from the 2007 Temple-Inland timberlands sales. As a result of tax reform legislation timberlands sales. As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 in the fourth quarter of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured Income Taxes, this deferred tax liability was remeasured to be $538 million, which will be settled with the maturity to be $538 million, which will be settled with the maturity of the notes in 2027. of the notes in 2027. In October 2007, Temple-Inland sold 1.55 million acres In October 2007, Temple-Inland sold 1.55 million acres of timberland for $2.4 billion. The total consideration of timberland for $2.4 billion. The total consideration consisted almost entirely of notes due in 2027 issued consisted almost entirely of notes due in 2027 issued by the buyer of the timberland, which Temple-Inland by the buyer of the timberland, which Temple-Inland contributed to two wholly-owned, bankruptcy-remote contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are shown in special purpose entities. The notes are shown in Financial assets of special purpose entities in the Financial assets of special purpose entities in the accompanying consolidated balance sheet and are accompanying consolidated balance sheet and are supported by $2.4 billion of irrevocable letters of credit supported by $2.4 billion of irrevocable letters of credit issued by three banks, which are required to maintain issued by three banks, which are required to maintain minimum credit ratings on their long-term debt. As of minimum credit ratings on their long-term debt. As of December 31, 2017 and 2016, the fair value of the notes December 31, 2017 and 2016, the fair value of the notes was $2.3 billion and $2.2 billion, respectively. These was $2.3 billion and $2.2 billion, respectively. These notes are classified as Level 2 within the fair value notes are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14. hierarchy, which is further defined in Note 14. In December 2007, Temple-Inland's two wholly-owned In December 2007, Temple-Inland's two wholly-owned special purpose entities borrowed $2.1 billion shown in special purpose entities borrowed $2.1 billion shown in Nonrecourse financial liabilities of special purpose Nonrecourse financial liabilities of special purpose entities. The loans are repayable in 2027 and are entities. The loans are repayable in 2027 and are secured only by the $2.4 billion of notes and the secured only by the $2.4 billion of notes and the irrevocable letters of credit securing the notes and are irrevocable letters of credit securing the notes and are nonrecourse to us. The loan agreements provide that if nonrecourse to us. The loan agreements provide that if a credit rating of any of the banks issuing the letters of a credit rating of any of the banks issuing the letters of credit is downgraded below the specified threshold, the credit is downgraded below the specified threshold, the letters of credit issued by that bank must be replaced letters of credit issued by that bank must be replaced within 30 days with letters of credit from another within 30 days with letters of credit from another qualifying financial institution. As of December 31, 2017 qualifying financial institution. As of December 31, 2017 and 2016, the fair value of this debt was $2.1 billion for and 2016, the fair value of this debt was $2.1 billion for both the years ended 2017 and 2016. This debt is both the years ended 2017 and 2016. This debt is classified as Level 2 within the fair value hierarchy, which classified as Level 2 within the fair value hierarchy, which is further defined in Note 14. is further defined in Note 14. Activity between the Company and the 2007 financing Activity between the Company and the 2007 financing entities was as follows: entities was as follows: In millions In millions Revenue (a) Revenue (a) Expense (b) Expense (b) Cash receipts (c) Cash receipts (c) Cash payments (d) Cash payments (d) 2017 2017 2016 2016 2015 2015 $ 49 $ 37 $ 27 $ 49 $ 37 $ 27 48 48 28 28 39 39 37 37 15 15 27 27 27 27 7 7 18 18 (a) The revenue is included in Interest expense, net in the (a) The revenue is included in Interest expense, net in the accompanying consolidated statement of operations and accompanying consolidated statement of operations and includes approximately $19 million for the years ended includes approximately $19 million for the years ended December 31, 2017, 2016 and 2015, respectively, of accretion December 31, 2017, 2016 and 2015, respectively, of accretion income for the amortization of the purchase accounting income for the amortization of the purchase accounting adjustment on the Financial assets of special purpose entities. adjustment on the Financial assets of special purpose entities. (b) The expense is included in Interest expense, net in the (b) The expense is included in Interest expense, net in the accompanying consolidated statement of operations and accompanying consolidated statement of operations and includes approximately $7 million for the years ended includes approximately $7 million for the years ended December 31, 2017, 2016 and 2015, respectively, of accretion December 31, 2017, 2016 and 2015, respectively, of accretion expense for the amortization of the purchase accounting expense for the amortization of the purchase accounting adjustment on the Nonrecourse financial liabilities of special adjustment on the Nonrecourse financial liabilities of special (c) The cash receipts are interest received on the Financial assets (c) The cash receipts are interest received on the Financial assets purpose entities. purpose entities. of special purpose entities. of special purpose entities. (d) The cash payments are interest paid on Nonrecourse financial (d) The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities. liabilities of special purpose entities. NOTE 13 DEBT AND LINES OF CREDIT NOTE 13 DEBT AND LINES OF CREDIT In 2017, International Paper issued $1.0 billion of 4.35% In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a The proceeds from this offering, together with a combination of available cash and other borrowings, combination of available cash and other borrowings, were used to make a $1.25 billion voluntary cash were used to make a $1.25 billion voluntary cash contribution contribution to to the Company's pension plan. the Company's pension plan. In In December 2017, International Paper received $660 December 2017, International Paper received $660 million in cash proceeds from a new loan entered into million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are repayments, including $82 million of cash premiums, are included in Restructuring and other charges in the included in Restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the year ended December 31, 2017. The $660 million the year ended December 31, 2017. The $660 million term loan was subsequently assumed by Graphic term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale at December 31, is classified as Liabilities held for sale at December 31, 2017, in the accompanying consolidated balance sheet. 2017, in the accompanying consolidated balance sheet. In 2016, International Paper issued $1.1 billion of 3.00% In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047. In addition, the Company repaid a maturity date in 2047. In addition, the Company repaid approximately $266 million of notes with an interest rate approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt debt retirement costs of $29 million related to the debt repayments, including $31 million of cash premiums, are repayments, including $31 million of cash premiums, are included in Restructuring and other charges in the included in Restructuring and other charges in the 63 63 64 64 lawsuits or claims that are pending or threatened or all lawsuits or claims that are pending or threatened or all nonrecourse nonrecourse third party bank third party bank loans loans totaling totaling of them combined (other than those that cannot be of them combined (other than those that cannot be approximately $4.2 billion (the Extension Loans). approximately $4.2 billion (the Extension Loans). assessed due to their preliminary nature) will not have assessed due to their preliminary nature) will not have Provisions of loan agreements related to approximately Provisions of loan agreements related to approximately a material effect on a material effect on its consolidated its consolidated financial financial $1.1 billion of the Extension Loans require the bank $1.1 billion of the Extension Loans require the bank statements. statements. NOTE 12 VARIABLE INTEREST ENTITIES NOTE 12 VARIABLE INTEREST ENTITIES In connection with the 2006 sale of approximately 5.6 In connection with the 2006 sale of approximately 5.6 million acres of million acres of forestlands, forestlands, International Paper International Paper received installment notes (the Timber Notes) totaling received installment notes (the Timber Notes) totaling approximately $4.8 billion. The Timber Notes, which do approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their maturity are not require principal payments prior to their maturity are supported by irrevocable letters of credit obtained by the supported by irrevocable letters of credit obtained by the buyers of the forestlands. buyers of the forestlands. The Timber Notes were used as collateral for borrowings The Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the from third party lenders, which effectively monetized the Timber Notes through the creation of newly formed Timber Notes through the creation of newly formed special purposes entities special purposes entities (the Entities). The (the Entities). The monetization structure preserved the $1.4 billion tax monetization structure preserved the $1.4 billion tax deferral that resulted from the 2006 forestlands sales. deferral that resulted from the 2006 forestlands sales. As a result of tax reform legislation in the fourth quarter As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes, this of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured to be $884 million. deferred tax liability was remeasured to be $884 million. During 2015, International Paper initiated a series of During 2015, International Paper initiated a series of actions in order to extend the 2006 monetization actions in order to extend the 2006 monetization structure and maintain the long-term nature of the $884 structure and maintain the long-term nature of the $884 million deferred million deferred tax tax liability. liability. International Paper International Paper acquired the Class A interests in the Investor Entities acquired the Class A interests in the Investor Entities from a third party for $198 million in cash. As a result, from a third party for $198 million in cash. As a result, International Paper became the owner of all of the Class International Paper became the owner of all of the Class A and Class B interests in the Entities and became the A and Class B interests in the Entities and became the primary beneficiary of the Entities. The assets and primary beneficiary of the Entities. The assets and liabilities of the Entities, primarily consisting of the liabilities of the Entities, primarily consisting of the Timber Notes and third party bank loans, were recorded Timber Notes and third party bank loans, were recorded at fair value as of the acquisition date of the Class A at fair value as of the acquisition date of the Class A interests. The Entities, with assets and liabilities interests. The Entities, with assets and liabilities primarily consisting of the Timber Notes and third-party primarily consisting of the Timber Notes and third-party bank loans, were restructured which resulted in the bank loans, were restructured which resulted in the formation of wholly-owned, bankruptcy-remote special formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015 Financing Entities) during the purpose entities (the 2015 Financing Entities) during the third quarter of 2015. Also, during the third quarter of third quarter of 2015. Also, during the third quarter of 2015, the 2015 Financing Entities used $630 million in 2015, the 2015 Financing Entities used $630 million in cash to pay down a portion of the third party bank loans cash to pay down a portion of the third party bank loans and refinanced approximately $4.2 billion of those loans and refinanced approximately $4.2 billion of those loans on nonrecourse terms (the 2015 Refinance Loans). on nonrecourse terms (the 2015 Refinance Loans). During the fourth quarter of 2015, International Paper During the fourth quarter of 2015, International Paper extended the maturity date on the Timber Notes for an extended the maturity date on the Timber Notes for an additional five years. The Timber Notes are shown in additional five years. The Timber Notes are shown in Financial assets of special purpose entities on the Financial assets of special purpose entities on the accompanying consolidated balance sheet and mature accompanying consolidated balance sheet and mature in August 2021 unless extended for an additional five in August 2021 unless extended for an additional five years. These notes are supported by approximately years. These notes are supported by approximately $4.8 billion of irrevocable letters of credit. In addition, $4.8 billion of irrevocable letters of credit. In addition, the Company extinguished the 2015 Refinance Loans the Company extinguished the 2015 Refinance Loans scheduled to mature in May 2016 and entered into new scheduled to mature in May 2016 and entered into new issuing letters of credit supporting the Timber Notes issuing letters of credit supporting the Timber Notes pledged as collateral to maintain a credit rating at or pledged as collateral to maintain a credit rating at or above a specified threshold. In the event the credit rating above a specified threshold. In the event the credit rating of the letter of credit bank is downgraded below the of the letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced specified threshold, the letters of credit must be replaced within 60 days with letters of credit from a qualifying within 60 days with letters of credit from a qualifying financial institution. The Extension Loans are shown in financial institution. The Extension Loans are shown in Nonrecourse financial liabilities of special purpose Nonrecourse financial liabilities of special purpose entities on the accompanying consolidated balance entities on the accompanying consolidated balance sheet and mature in the fourth quarter of 2020. The sheet and mature in the fourth quarter of 2020. The extinguishment of the 2015 Refinance Loans of extinguishment of the 2015 Refinance Loans of approximately $4.2 billion and the issuance of the approximately $4.2 billion and the issuance of the Extension Loans of approximately $4.2 billion are shown Extension Loans of approximately $4.2 billion are shown as part of reductions of debt and issuances of debt, as part of reductions of debt and issuances of debt, respectively, respectively, in in the the financing activities of financing activities of the the consolidated statement of cash flows for the year ended consolidated statement of cash flows for the year ended December 31, 2015. December 31, 2015. The Extension Loans are nonrecourse to the Company, The Extension Loans are nonrecourse to the Company, and are secured by approximately $4.8 billion of Timber and are secured by approximately $4.8 billion of Timber Notes, the irrevocable letters of credit supporting the Notes, the irrevocable letters of credit supporting the Timber Notes and approximately $150 million of Timber Notes and approximately $150 million of International Paper debt obligations. The $150 million International Paper debt obligations. The $150 million of International Paper debt obligations are eliminated in of International Paper debt obligations are eliminated in the consolidation of the 2015 Financing Entities and are the consolidation of the 2015 Financing Entities and are not reflected in the Company’s consolidated balance not reflected in the Company’s consolidated balance sheet. sheet. The transactions described in these paragraphs result The transactions described in these paragraphs result in continued long-term classification of the $884 million in continued long-term classification of the $884 million deferred tax liability related to the 2006 forestlands sale. deferred tax liability related to the 2006 forestlands sale. As of December 31, 2017 and 2016, the fair value of the As of December 31, 2017 and 2016, the fair value of the Timber Notes was $4.8 billion and $4.7 billion, Timber Notes was $4.8 billion and $4.7 billion, respectively, and the fair value of the Extension Loans respectively, and the fair value of the Extension Loans was $4.3 billion for both the years ended 2017 and 2016. was $4.3 billion for both the years ended 2017 and 2016. The Timber Notes and Extension Loans are classified The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further as Level 2 within the fair value hierarchy, which is further defined in Note 14. defined in Note 14. Activity between the Company and the 2015 Financing Activity between the Company and the 2015 Financing Entities (the Entities prior to the purchase of the Class Entities (the Entities prior to the purchase of the Class A interest discussed above) was as follows: A interest discussed above) was as follows: In millions In millions Revenue (a) Revenue (a) Expense (a) Expense (a) Cash receipts (b) Cash receipts (b) Cash payments (c) Cash payments (c) 2017 2017 2016 2016 2015 2015 $ 95 $ 95 $ 43 $ 95 $ 95 $ 43 128 128 95 95 128 128 128 128 77 77 98 98 81 81 21 21 71 71 (a) The net expense related to the Company’s interest in the (a) The net expense related to the Company’s interest in the Entities Entities is is included included in in the accompanying consolidated the accompanying consolidated statement of operations, as International Paper has and intends statement of operations, as International Paper has and intends to effect its legal right to offset as discussed above. After to effect its legal right to offset as discussed above. After formation of the 2015 Financing Entities, the revenue and formation of the 2015 Financing Entities, the revenue and expense are included in Interest expense, net in the expense are included in Interest expense, net in the accompanying consolidated statement of operations. accompanying consolidated statement of operations. (b) The cash receipts are equity distributions from the Entities to (b) The cash receipts are equity distributions from the Entities to International Paper prior to the formation of the 2015 Financing International Paper prior to the formation of the 2015 Financing Entities. After formation of the 2015 Financing Entities, cash Entities. After formation of the 2015 Financing Entities, cash receipts are interest received on the Financial assets of special receipts are interest received on the Financial assets of special purpose entities. purpose entities. (c) The cash payments are interest payments on the associated (c) The cash payments are interest payments on the associated debt obligations discussed above. After formation of the 2015 debt obligations discussed above. After formation of the 2015 Financing Entities, the payments represent interest paid on Financing Entities, the payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. Nonrecourse financial liabilities of special purpose entities. In connection with the acquisition of Temple-Inland in In connection with the acquisition of Temple-Inland in February 2012, two special purpose entities became February 2012, two special purpose entities became wholly-owned subsidiaries of International Paper. wholly-owned subsidiaries of International Paper. The use of the two wholly-owned special purpose The use of the two wholly-owned special purpose entities discussed below preserved the $831 million tax entities discussed below preserved the $831 million tax deferral that resulted from the 2007 Temple-Inland deferral that resulted from the 2007 Temple-Inland timberlands sales. As a result of tax reform legislation timberlands sales. As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 in the fourth quarter of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured Income Taxes, this deferred tax liability was remeasured to be $538 million, which will be settled with the maturity to be $538 million, which will be settled with the maturity of the notes in 2027. of the notes in 2027. In October 2007, Temple-Inland sold 1.55 million acres In October 2007, Temple-Inland sold 1.55 million acres of timberland for $2.4 billion. The total consideration of timberland for $2.4 billion. The total consideration consisted almost entirely of notes due in 2027 issued consisted almost entirely of notes due in 2027 issued by the buyer of the timberland, which Temple-Inland by the buyer of the timberland, which Temple-Inland contributed to two wholly-owned, bankruptcy-remote contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are shown in special purpose entities. The notes are shown in Financial assets of special purpose entities in the Financial assets of special purpose entities in the accompanying consolidated balance sheet and are accompanying consolidated balance sheet and are supported by $2.4 billion of irrevocable letters of credit supported by $2.4 billion of irrevocable letters of credit issued by three banks, which are required to maintain issued by three banks, which are required to maintain minimum credit ratings on their long-term debt. As of minimum credit ratings on their long-term debt. As of December 31, 2017 and 2016, the fair value of the notes December 31, 2017 and 2016, the fair value of the notes was $2.3 billion and $2.2 billion, respectively. These was $2.3 billion and $2.2 billion, respectively. These notes are classified as Level 2 within the fair value notes are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14. hierarchy, which is further defined in Note 14. In December 2007, Temple-Inland's two wholly-owned In December 2007, Temple-Inland's two wholly-owned special purpose entities borrowed $2.1 billion shown in special purpose entities borrowed $2.1 billion shown in Nonrecourse financial liabilities of special purpose Nonrecourse financial liabilities of special purpose entities. The loans are repayable in 2027 and are entities. The loans are repayable in 2027 and are secured only by the $2.4 billion of notes and the secured only by the $2.4 billion of notes and the irrevocable letters of credit securing the notes and are irrevocable letters of credit securing the notes and are nonrecourse to us. The loan agreements provide that if nonrecourse to us. The loan agreements provide that if a credit rating of any of the banks issuing the letters of a credit rating of any of the banks issuing the letters of credit is downgraded below the specified threshold, the credit is downgraded below the specified threshold, the letters of credit issued by that bank must be replaced letters of credit issued by that bank must be replaced within 30 days with letters of credit from another within 30 days with letters of credit from another qualifying financial institution. As of December 31, 2017 qualifying financial institution. As of December 31, 2017 and 2016, the fair value of this debt was $2.1 billion for and 2016, the fair value of this debt was $2.1 billion for both the years ended 2017 and 2016. This debt is both the years ended 2017 and 2016. This debt is classified as Level 2 within the fair value hierarchy, which classified as Level 2 within the fair value hierarchy, which is further defined in Note 14. is further defined in Note 14. 63 63 64 64 Activity between the Company and the 2007 financing Activity between the Company and the 2007 financing entities was as follows: entities was as follows: In millions In millions Revenue (a) Revenue (a) Expense (b) Expense (b) Cash receipts (c) Cash receipts (c) Cash payments (d) Cash payments (d) 2015 2015 2016 2016 2017 2017 $ 49 $ 37 $ 27 $ 49 $ 37 $ 27 27 27 37 37 48 48 28 28 39 39 15 15 27 27 7 7 18 18 (a) The revenue is included in Interest expense, net in the (a) The revenue is included in Interest expense, net in the accompanying consolidated statement of operations and accompanying consolidated statement of operations and includes approximately $19 million for the years ended includes approximately $19 million for the years ended December 31, 2017, 2016 and 2015, respectively, of accretion December 31, 2017, 2016 and 2015, respectively, of accretion income for the amortization of the purchase accounting income for the amortization of the purchase accounting adjustment on the Financial assets of special purpose entities. adjustment on the Financial assets of special purpose entities. (b) The expense is included in Interest expense, net in the (b) The expense is included in Interest expense, net in the accompanying consolidated statement of operations and accompanying consolidated statement of operations and includes approximately $7 million for the years ended includes approximately $7 million for the years ended December 31, 2017, 2016 and 2015, respectively, of accretion December 31, 2017, 2016 and 2015, respectively, of accretion expense for the amortization of the purchase accounting expense for the amortization of the purchase accounting adjustment on the Nonrecourse financial liabilities of special adjustment on the Nonrecourse financial liabilities of special purpose entities. purpose entities. (c) The cash receipts are interest received on the Financial assets (c) The cash receipts are interest received on the Financial assets of special purpose entities. of special purpose entities. (d) The cash payments are interest paid on Nonrecourse financial (d) The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities. liabilities of special purpose entities. NOTE 13 DEBT AND LINES OF CREDIT NOTE 13 DEBT AND LINES OF CREDIT to to the Company's pension plan. the Company's pension plan. In 2017, International Paper issued $1.0 billion of 4.35% In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a The proceeds from this offering, together with a combination of available cash and other borrowings, combination of available cash and other borrowings, were used to make a $1.25 billion voluntary cash were used to make a $1.25 billion voluntary cash contribution In contribution In December 2017, International Paper received $660 December 2017, International Paper received $660 million in cash proceeds from a new loan entered into million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are repayments, including $82 million of cash premiums, are included in Restructuring and other charges in the included in Restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the year ended December 31, 2017. The $660 million the year ended December 31, 2017. The $660 million term loan was subsequently assumed by Graphic term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale at December 31, is classified as Liabilities held for sale at December 31, 2017, in the accompanying consolidated balance sheet. 2017, in the accompanying consolidated balance sheet. In 2016, International Paper issued $1.1 billion of 3.00% In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047. In addition, the Company repaid a maturity date in 2047. In addition, the Company repaid approximately $266 million of notes with an interest rate approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt debt retirement costs of $29 million related to the debt repayments, including $31 million of cash premiums, are repayments, including $31 million of cash premiums, are included in Restructuring and other charges in the included in Restructuring and other charges in the accompanying consolidated statement of operations for accompanying consolidated statement of operations for the year ended December 31, 2016. the year ended December 31, 2016. In June 2016, International Paper entered into a In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As be issued either as fixed notes or floating rate notes. As of December 31, 2017, the Company had $180 million of December 31, 2017, the Company had $180 million outstanding under this program. outstanding under this program. Amounts related to early debt extinguishment during the Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were years ended December 31, 2017, 2016 and 2015 were as follows: as follows: In millions In millions Debt reductions (a) Debt reductions (a) 2017 2017 2016 2016 2015 2015 $ $ 993 $ 266 $ 2,151 993 $ 266 $ 2,151 Pre-tax early debt extinguishment Pre-tax early debt extinguishment costs (b) costs (b) 83 83 29 29 207 207 (a) Reductions related to notes with interest rates ranging from (a) Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). 12 Variable Interest Entities). (b) Amounts are included in Restructuring and other charges in (b) Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. the accompanying consolidated statements of operations. A summary of long-term debt follows: A summary of long-term debt follows: In millions at December 31 In millions at December 31 9 3/8% note – due 2019 9 3/8% note – due 2019 8.7% note – due 2038 8.7% note – due 2038 7.95% debenture – due 2018 7.95% debenture – due 2018 7.5% note – due 2021 7.5% note – due 2021 7.3% note – due 2039 7.3% note – due 2039 6 7/8% notes – due 2023 – 2029 6 7/8% notes – due 2023 – 2029 6.65% note – due 2037 6.65% note – due 2037 6 5/8% note – due 2018 6 5/8% note – due 2018 6.4% to 7.75% debentures due 2025 – 2027 6.4% to 7.75% debentures due 2025 – 2027 6.0% note – due 2041 6.0% note – due 2041 2017 2017 2016 2016 $ $ — $ — $ 264 264 — — 409 409 721 721 131 131 4 4 — — 143 143 585 585 295 295 264 264 382 382 598 598 721 721 131 131 4 4 72 72 142 142 585 585 5.00% to 5.15% notes – due 2035 – 2046 5.00% to 5.15% notes – due 2035 – 2046 1,281 1,281 1,280 1,280 4.8% note – due 2044 4.8% note – due 2044 4.75% note – due 2022 4.75% note – due 2022 3.00% to 4.40% notes – due 2024 – 2048 3.00% to 4.40% notes – due 2024 – 2048 Floating rate notes – due 2017 – 2025 (a) Floating rate notes – due 2017 – 2025 (a) Environmental and industrial development Environmental and industrial development bonds – due 2017 – 2035 (b) bonds – due 2017 – 2035 (b) Other (c) Other (c) Total (d) Total (d) Less: current maturities Less: current maturities Long-term debt Long-term debt 796 796 817 817 4,775 4,775 650 650 585 585 (4) (4) 796 796 810 810 3,786 3,786 763 763 681 681 4 4 11,157 11,157 11,314 11,314 311 311 239 239 $ 10,846 $ 11,075 $ 10,846 $ 11,075 (a) The weighted average interest rate on these notes was 2.6% (a) The weighted average interest rate on these notes was 2.6% in 2017 and 2.2% in 2016. in 2017 and 2.2% in 2016. (b) The weighted average interest rate on these bonds was 6.0% (b) The weighted average interest rate on these bonds was 6.0% (c) (c) in 2017 and 5.9% in 2016. in 2017 and 5.9% in 2016. Includes $70 million and $69 million of debt issuance costs as Includes $70 million and $69 million of debt issuance costs as of December 31, 2017 and 2016, respectively. of December 31, 2017 and 2016, respectively. (d) The fair market value was approximately $12.3 billion at (d) The fair market value was approximately $12.3 billion at December 31, 2017 and $12.0 billion at December 31, 2016. December 31, 2017 and $12.0 billion at December 31, 2016. Total maturities of long-term debt over the next five years Total maturities of long-term debt over the next five years are 2018 – $311 million; 2019 – $126 million; 2020 – are 2018 – $311 million; 2019 – $126 million; 2020 – $164 million; 2021 – $440 million; and 2022 – $956 $164 million; 2021 – $440 million; and 2022 – $956 million. million. At December 31, 2017, International Paper’s credit At December 31, 2017, International Paper’s credit facilities (the Agreements) totaled $2.1 billion. The facilities (the Agreements) totaled $2.1 billion. The Agreements generally provide for interest rates at a Agreements generally provide for interest rates at a floating rate index plus a pre-determined margin floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The dependent upon International Paper’s credit rating. The Agreements include a $1.5 billion contractually Agreements include a $1.5 billion contractually committed bank facility that expires in December 2021 committed bank facility that expires in December 2021 and has a facility fee of 0.15% payable annually. The and has a facility fee of 0.15% payable annually. The liquidity facilities also include up to $600 million of liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivables uncommitted financings based on eligible receivables balances under a receivables securitization program balances under a receivables securitization program that expires in December 2018. At December 31, 2017, that expires in December 2018. At December 31, 2017, there were no borrowings under either the bank facility there were no borrowings under either the bank facility or receivables securitization program. or receivables securitization program. financial covenants require financial covenants require the the The Company’s The Company’s maintenance of a minimum net worth of $9 billion and maintenance of a minimum net worth of $9 billion and a total debt-to-capital ratio of less than 60%. Net worth a total debt-to-capital ratio of less than 60%. Net worth is defined as the sum of common stock, paid-in capital is defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any and retained earnings, less treasury stock plus any charges. The cumulative goodwill charges. The cumulative goodwill calculation other other calculation comprehensive income/loss and Nonrecourse Financial comprehensive income/loss and Nonrecourse Financial Liabilities of Special Purpose Entities. The total debt-to- Liabilities of Special Purpose Entities. The total debt-to- capital ratio is defined as total debt divided by the sum capital ratio is defined as total debt divided by the sum of total debt plus net worth. As of December 31, 2017, of total debt plus net worth. As of December 31, 2017, we were in compliance with our debt covenants. we were in compliance with our debt covenants. accumulated accumulated impairment impairment excludes excludes also also NOTE 14 DERIVATIVES AND HEDGING NOTE 14 DERIVATIVES AND HEDGING ACTIVITIES ACTIVITIES International Paper periodically uses derivatives and International Paper periodically uses derivatives and other financial instruments to hedge exposures to other financial instruments to hedge exposures to interest risks. risks. rate, commodity and currency rate, commodity and currency interest International Paper does not hold or issue financial International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet instruments for trading purposes. For hedges that meet the hedge accounting criteria, International Paper, at the hedge accounting criteria, International Paper, at inception, formally designates and documents the inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying a net investment hedge of a specific underlying exposure. exposure. INTEREST RATE RISK MANAGEMENT INTEREST RATE RISK MANAGEMENT Our policy is to manage interest cost using a mixture of Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a variable interest amounts calculated by reference to a notional amount. notional amount. 65 65 66 66 Interest rate swaps that meet specific accounting criteria Interest rate swaps that meet specific accounting criteria Derivative instruments are reported in the consolidated Derivative instruments are reported in the consolidated are accounted for as fair value or cash flow hedges. For are accounted for as fair value or cash flow hedges. For balance sheets at their fair values, unless the derivative balance sheets at their fair values, unless the derivative fair value hedges, the changes in the fair value of both fair value hedges, the changes in the fair value of both instruments qualify for the normal purchase normal sale instruments qualify for the normal purchase normal sale the hedging instruments and the underlying debt the hedging instruments and the underlying debt ("NPNS") exception under GAAP and such exception ("NPNS") exception under GAAP and such exception obligations are immediately recognized in interest obligations are immediately recognized in interest has been elected. If the NPNS exception is elected, the has been elected. If the NPNS exception is elected, the expense. For cash flow hedges, the effective portion of expense. For cash flow hedges, the effective portion of fair values of such contracts are not recognized on the fair values of such contracts are not recognized on the the changes in the fair value of the hedging instrument the changes in the fair value of the hedging instrument balance sheet. balance sheet. is reported in Accumulated other comprehensive is reported in Accumulated other comprehensive income (“AOCI”) and reclassified into interest expense income (“AOCI”) and reclassified into interest expense Contracts that qualify are designated as cash flow Contracts that qualify are designated as cash flow over the life of the underlying debt. The ineffective over the life of the underlying debt. The ineffective hedges of forecasted commodity purchases. The hedges of forecasted commodity purchases. The portion for both cash flow and fair value hedges, which portion for both cash flow and fair value hedges, which effective portion of the changes in fair value for these effective portion of the changes in fair value for these is not material for any year presented, is immediately is not material for any year presented, is immediately instruments is reported in AOCI and reclassified into instruments is reported in AOCI and reclassified into recognized in earnings. recognized in earnings. FOREIGN CURRENCY RISK MANAGEMENT FOREIGN CURRENCY RISK MANAGEMENT We manufacture and sell our products and finance We manufacture and sell our products and finance operations in a number of countries throughout the world operations in a number of countries throughout the world and, as a result, are exposed to movements in foreign and, as a result, are exposed to movements in foreign currency exchange rates. The purpose of our foreign currency exchange rates. The purpose of our foreign currency hedging program is to manage the volatility currency hedging program is to manage the volatility associated with the changes in exchange rates. associated with the changes in exchange rates. To manage this exchange rate risk, we have historically To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and utilized a combination of forward contracts, options and currency swaps. Contracts that qualify are designated currency swaps. Contracts that qualify are designated follows: follows: as cash flow hedges of certain forecasted transactions as cash flow hedges of certain forecasted transactions In millions In millions denominated in foreign currencies. The effective portion denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is of the changes in fair value of these instruments is reported in AOCI and reclassified into earnings in the reported in AOCI and reclassified into earnings in the same financial statement line item and in the same same financial statement line item and in the same period or periods during which the related hedged period or periods during which the related hedged transactions affect earnings. The ineffective portion, transactions affect earnings. The ineffective portion, which is not material for any year presented, is which is not material for any year presented, is immediately recognized in earnings. immediately recognized in earnings. The change The change in value of certain non-qualifying in value of certain non-qualifying instruments used instruments used to manage to manage foreign exchange foreign exchange exposure of intercompany financing transactions and exposure of intercompany financing transactions and certain balance sheet items subject to revaluation is certain balance sheet items subject to revaluation is immediately recognized immediately recognized in earnings, substantially in earnings, substantially offsetting the foreign currency mark-to-market impact of offsetting the foreign currency mark-to-market impact of the related exposure. the related exposure. COMMODITY RISK MANAGEMENT COMMODITY RISK MANAGEMENT Certain raw materials used in our production processes Certain raw materials used in our production processes are subject to price volatility caused by weather, supply are subject to price volatility caused by weather, supply conditions, political and economic variables and other conditions, political and economic variables and other unpredictable factors. To manage the volatility in unpredictable factors. To manage the volatility in earnings due to price fluctuations, we may utilize swap earnings due to price fluctuations, we may utilize swap contracts or forward purchase contracts. contracts or forward purchase contracts. earnings in the same financial statement line item and earnings in the same financial statement line item and in the same period or periods during which the hedged in the same period or periods during which the hedged transactions affect earnings. The ineffective and non- transactions affect earnings. The ineffective and non- qualifying portions, which are not material for any year qualifying portions, which are not material for any year presented, are immediately recognized in earnings. presented, are immediately recognized in earnings. The change in the fair value of certain non-qualifying The change in the fair value of certain non-qualifying instruments used to reduce commodity price volatility is instruments used to reduce commodity price volatility is immediately recognized in earnings. immediately recognized in earnings. The notional amounts of qualifying and non-qualifying The notional amounts of qualifying and non-qualifying instruments used in hedging transactions were as instruments used in hedging transactions were as Derivatives in Cash Flow Derivatives in Cash Flow Hedging Relationships: Hedging Relationships: Foreign exchange contracts Foreign exchange contracts (a) (a) Derivatives Not Designated as Derivatives Not Designated as Hedging Instruments: Hedging Instruments: Electricity contract Electricity contract Foreign exchange contracts Foreign exchange contracts December 31, December 31, December 31, December 31, 2017 2017 2016 2016 329 329 275 275 13 13 10 10 6 6 24 24 (a) These contracts had maturities of two years or less as of (a) These contracts had maturities of two years or less as of December 31, 2017. December 31, 2017. The following table shows gains or losses recognized The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments: in AOCI, net of tax, related to derivative instruments: Gain (Loss) Gain (Loss) Recognized in AOCI on Derivatives Recognized in AOCI on Derivatives (Effective Portion) (Effective Portion) In millions In millions 2017 2017 2016 2016 2015 2015 Foreign exchange Foreign exchange contracts contracts Interest rate contracts Interest rate contracts Total Total $ $ $ $ 15 $ 15 $ — — 15 $ 15 $ 4 $ 4 $ (10) (10) (6) $ (6) $ (3) (3) — — (3) (3) During the next 12 months, the amount of the During the next 12 months, the amount of the December 31, 2017 AOCI balance, after tax, that is December 31, 2017 AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of $6 expected to be reclassified to earnings is a gain of $6 million. million. accompanying consolidated statement of operations for accompanying consolidated statement of operations for the year ended December 31, 2016. the year ended December 31, 2016. In June 2016, International Paper entered into a In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As be issued either as fixed notes or floating rate notes. As of December 31, 2017, the Company had $180 million of December 31, 2017, the Company had $180 million outstanding under this program. outstanding under this program. Amounts related to early debt extinguishment during the Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were years ended December 31, 2017, 2016 and 2015 were as follows: as follows: In millions In millions Debt reductions (a) Debt reductions (a) Pre-tax early debt extinguishment Pre-tax early debt extinguishment costs (b) costs (b) 83 83 29 29 207 207 2017 2017 2016 2016 2015 2015 $ $ 993 $ 266 $ 2,151 993 $ 266 $ 2,151 (a) Reductions related to notes with interest rates ranging from (a) Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). 12 Variable Interest Entities). (b) Amounts are included in Restructuring and other charges in (b) Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. the accompanying consolidated statements of operations. A summary of long-term debt follows: A summary of long-term debt follows: 6.4% to 7.75% debentures due 2025 – 2027 6.4% to 7.75% debentures due 2025 – 2027 6.0% note – due 2041 6.0% note – due 2041 5.00% to 5.15% notes – due 2035 – 2046 5.00% to 5.15% notes – due 2035 – 2046 1,281 1,281 1,280 1,280 In millions at December 31 In millions at December 31 9 3/8% note – due 2019 9 3/8% note – due 2019 8.7% note – due 2038 8.7% note – due 2038 7.95% debenture – due 2018 7.95% debenture – due 2018 7.5% note – due 2021 7.5% note – due 2021 7.3% note – due 2039 7.3% note – due 2039 6 7/8% notes – due 2023 – 2029 6 7/8% notes – due 2023 – 2029 6.65% note – due 2037 6.65% note – due 2037 6 5/8% note – due 2018 6 5/8% note – due 2018 4.8% note – due 2044 4.8% note – due 2044 4.75% note – due 2022 4.75% note – due 2022 3.00% to 4.40% notes – due 2024 – 2048 3.00% to 4.40% notes – due 2024 – 2048 Floating rate notes – due 2017 – 2025 (a) Floating rate notes – due 2017 – 2025 (a) Environmental and industrial development Environmental and industrial development bonds – due 2017 – 2035 (b) bonds – due 2017 – 2035 (b) Other (c) Other (c) Total (d) Total (d) Less: current maturities Less: current maturities Long-term debt Long-term debt 2017 2017 2016 2016 $ $ — $ — $ 295 295 264 264 382 382 598 598 721 721 131 131 4 4 72 72 142 142 585 585 796 796 810 810 3,786 3,786 763 763 681 681 4 4 264 264 — — 409 409 721 721 131 131 4 4 — — 143 143 585 585 796 796 817 817 4,775 4,775 650 650 585 585 (4) (4) 11,157 11,157 11,314 11,314 311 311 239 239 $ 10,846 $ 11,075 $ 10,846 $ 11,075 (d) The fair market value was approximately $12.3 billion at (d) The fair market value was approximately $12.3 billion at December 31, 2017 and $12.0 billion at December 31, 2016. December 31, 2017 and $12.0 billion at December 31, 2016. Total maturities of long-term debt over the next five years Total maturities of long-term debt over the next five years are 2018 – $311 million; 2019 – $126 million; 2020 – are 2018 – $311 million; 2019 – $126 million; 2020 – $164 million; 2021 – $440 million; and 2022 – $956 $164 million; 2021 – $440 million; and 2022 – $956 million. million. At December 31, 2017, International Paper’s credit At December 31, 2017, International Paper’s credit facilities (the Agreements) totaled $2.1 billion. The facilities (the Agreements) totaled $2.1 billion. The Agreements generally provide for interest rates at a Agreements generally provide for interest rates at a floating rate index plus a pre-determined margin floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The dependent upon International Paper’s credit rating. The Agreements Agreements include a $1.5 billion contractually include a $1.5 billion contractually committed bank facility that expires in December 2021 committed bank facility that expires in December 2021 and has a facility fee of 0.15% payable annually. The and has a facility fee of 0.15% payable annually. The liquidity facilities also include up to $600 million of liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivables uncommitted financings based on eligible receivables balances under a receivables securitization program balances under a receivables securitization program that expires in December 2018. At December 31, 2017, that expires in December 2018. At December 31, 2017, there were no borrowings under either the bank facility there were no borrowings under either the bank facility or receivables securitization program. or receivables securitization program. The Company’s The Company’s financial covenants require financial covenants require the the maintenance of a minimum net worth of $9 billion and maintenance of a minimum net worth of $9 billion and a total debt-to-capital ratio of less than 60%. Net worth a total debt-to-capital ratio of less than 60%. Net worth is defined as the sum of common stock, paid-in capital is defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any and retained earnings, less treasury stock plus any cumulative goodwill cumulative goodwill impairment impairment charges. The charges. The calculation calculation also also excludes excludes accumulated accumulated other other comprehensive income/loss and Nonrecourse Financial comprehensive income/loss and Nonrecourse Financial Liabilities of Special Purpose Entities. The total debt-to- Liabilities of Special Purpose Entities. The total debt-to- capital ratio is defined as total debt divided by the sum capital ratio is defined as total debt divided by the sum of total debt plus net worth. As of December 31, 2017, of total debt plus net worth. As of December 31, 2017, we were in compliance with our debt covenants. we were in compliance with our debt covenants. NOTE 14 DERIVATIVES AND HEDGING NOTE 14 DERIVATIVES AND HEDGING ACTIVITIES ACTIVITIES International Paper periodically uses derivatives and International Paper periodically uses derivatives and other financial instruments to hedge exposures to other financial instruments to hedge exposures to interest interest rate, commodity and currency rate, commodity and currency risks. risks. International Paper does not hold or issue financial International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet instruments for trading purposes. For hedges that meet the hedge accounting criteria, International Paper, at the hedge accounting criteria, International Paper, at inception, formally designates and documents the inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying a net investment hedge of a specific underlying exposure. exposure. INTEREST RATE RISK MANAGEMENT INTEREST RATE RISK MANAGEMENT Our policy is to manage interest cost using a mixture of Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a variable interest amounts calculated by reference to a (a) The weighted average interest rate on these notes was 2.6% (a) The weighted average interest rate on these notes was 2.6% (b) The weighted average interest rate on these bonds was 6.0% (b) The weighted average interest rate on these bonds was 6.0% in 2017 and 2.2% in 2016. in 2017 and 2.2% in 2016. in 2017 and 5.9% in 2016. in 2017 and 5.9% in 2016. (c) (c) Includes $70 million and $69 million of debt issuance costs as Includes $70 million and $69 million of debt issuance costs as notional amount. notional amount. of December 31, 2017 and 2016, respectively. of December 31, 2017 and 2016, respectively. Interest rate swaps that meet specific accounting criteria Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. For are accounted for as fair value or cash flow hedges. For fair value hedges, the changes in the fair value of both fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt the hedging instruments and the underlying debt obligations are immediately recognized in interest obligations are immediately recognized in interest expense. For cash flow hedges, the effective portion of expense. For cash flow hedges, the effective portion of the changes in the fair value of the hedging instrument the changes in the fair value of the hedging instrument is reported in Accumulated other comprehensive is reported in Accumulated other comprehensive income (“AOCI”) and reclassified into interest expense income (“AOCI”) and reclassified into interest expense over the life of the underlying debt. The ineffective over the life of the underlying debt. The ineffective portion for both cash flow and fair value hedges, which portion for both cash flow and fair value hedges, which is not material for any year presented, is immediately is not material for any year presented, is immediately recognized in earnings. recognized in earnings. FOREIGN CURRENCY RISK MANAGEMENT FOREIGN CURRENCY RISK MANAGEMENT We manufacture and sell our products and finance We manufacture and sell our products and finance operations in a number of countries throughout the world operations in a number of countries throughout the world and, as a result, are exposed to movements in foreign and, as a result, are exposed to movements in foreign currency exchange rates. The purpose of our foreign currency exchange rates. The purpose of our foreign currency hedging program is to manage the volatility currency hedging program is to manage the volatility associated with the changes in exchange rates. associated with the changes in exchange rates. To manage this exchange rate risk, we have historically To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and utilized a combination of forward contracts, options and currency swaps. Contracts that qualify are designated currency swaps. Contracts that qualify are designated as cash flow hedges of certain forecasted transactions as cash flow hedges of certain forecasted transactions denominated in foreign currencies. The effective portion denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is of the changes in fair value of these instruments is reported in AOCI and reclassified into earnings in the reported in AOCI and reclassified into earnings in the same financial statement line item and in the same same financial statement line item and in the same period or periods during which the related hedged period or periods during which the related hedged transactions affect earnings. The ineffective portion, transactions affect earnings. The ineffective portion, which is not material for any year presented, is which is not material for any year presented, is immediately recognized in earnings. immediately recognized in earnings. in value of certain non-qualifying The change in value of certain non-qualifying The change instruments used foreign exchange foreign exchange to manage to manage instruments used exposure of intercompany financing transactions and exposure of intercompany financing transactions and certain balance sheet items subject to revaluation is certain balance sheet items subject to revaluation is in earnings, substantially immediately recognized in earnings, substantially immediately recognized offsetting the foreign currency mark-to-market impact of offsetting the foreign currency mark-to-market impact of the related exposure. the related exposure. COMMODITY RISK MANAGEMENT COMMODITY RISK MANAGEMENT Certain raw materials used in our production processes Certain raw materials used in our production processes are subject to price volatility caused by weather, supply are subject to price volatility caused by weather, supply conditions, political and economic variables and other conditions, political and economic variables and other unpredictable factors. To manage the volatility in unpredictable factors. To manage the volatility in earnings due to price fluctuations, we may utilize swap earnings due to price fluctuations, we may utilize swap contracts or forward purchase contracts. contracts or forward purchase contracts. Derivative instruments are reported in the consolidated Derivative instruments are reported in the consolidated balance sheets at their fair values, unless the derivative balance sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale instruments qualify for the normal purchase normal sale ("NPNS") exception under GAAP and such exception ("NPNS") exception under GAAP and such exception has been elected. If the NPNS exception is elected, the has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized on the fair values of such contracts are not recognized on the balance sheet. balance sheet. Contracts that qualify are designated as cash flow Contracts that qualify are designated as cash flow hedges of forecasted commodity purchases. The hedges of forecasted commodity purchases. The effective portion of the changes in fair value for these effective portion of the changes in fair value for these instruments is reported in AOCI and reclassified into instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and earnings in the same financial statement line item and in the same period or periods during which the hedged in the same period or periods during which the hedged transactions affect earnings. The ineffective and non- transactions affect earnings. The ineffective and non- qualifying portions, which are not material for any year qualifying portions, which are not material for any year presented, are immediately recognized in earnings. presented, are immediately recognized in earnings. The change in the fair value of certain non-qualifying The change in the fair value of certain non-qualifying instruments used to reduce commodity price volatility is instruments used to reduce commodity price volatility is immediately recognized in earnings. immediately recognized in earnings. The notional amounts of qualifying and non-qualifying The notional amounts of qualifying and non-qualifying instruments used in hedging transactions were as instruments used in hedging transactions were as follows: follows: In millions In millions Derivatives in Cash Flow Derivatives in Cash Flow Hedging Relationships: Hedging Relationships: Foreign exchange contracts Foreign exchange contracts (a) (a) Derivatives Not Designated as Derivatives Not Designated as Hedging Instruments: Hedging Instruments: Electricity contract Electricity contract Foreign exchange contracts Foreign exchange contracts December 31, December 31, 2017 2017 December 31, December 31, 2016 2016 329 329 275 275 13 13 10 10 6 6 24 24 (a) These contracts had maturities of two years or less as of (a) These contracts had maturities of two years or less as of December 31, 2017. December 31, 2017. The following table shows gains or losses recognized The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments: in AOCI, net of tax, related to derivative instruments: Gain (Loss) Gain (Loss) Recognized in AOCI on Derivatives Recognized in AOCI on Derivatives (Effective Portion) (Effective Portion) In millions In millions 2017 2017 2016 2016 2015 2015 Foreign exchange Foreign exchange contracts contracts Interest rate contracts Interest rate contracts Total Total $ $ $ $ 15 $ 15 $ — — 15 $ 15 $ 4 $ 4 $ (10) (10) (6) $ (6) $ (3) (3) — — (3) (3) During the next 12 months, the amount of the During the next 12 months, the amount of the December 31, 2017 AOCI balance, after tax, that is December 31, 2017 AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of $6 expected to be reclassified to earnings is a gain of $6 million. million. 65 65 66 66 The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying 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: financial instruments used in hedging transactions were as follows: Interest Rate Contracts Interest Rate Contracts significant inputs are readily available in public markets, significant inputs are readily available in public markets, or can be derived from observable market transactions. or can be derived from observable market transactions. Gain (Loss) Gain (Loss) Reclassified from Reclassified from AOCI AOCI into Income into Income (Effective Portion) (Effective Portion) Location of Gain Location of Gain (Loss) (Loss) Reclassified Reclassified from AOCI from AOCI into Income into Income (Effective Portion) (Effective Portion) In millions In millions 2017 2017 2016 2016 2015 2015 Derivatives in Cash Flow Hedging Relationships: Derivatives in Cash Flow Hedging Relationships: Foreign exchange contracts Foreign exchange contracts Interest rate contracts Interest rate contracts Total Total $ $ $ $ 8 8 (1) (1) 7 7 $ $ $ $ 7 7 — — 7 7 $ (12) $ (12) Cost of products sold Cost of products sold — — Interest expense, net Interest expense, net $ (12) $ (12) derived interest rate curve. derived interest rate curve. Foreign Exchange Contracts Foreign Exchange Contracts In millions In millions 2017 2017 2016 2016 2015 2015 Derivatives in Fair Value Hedging Relationships: Derivatives in Fair Value Hedging Relationships: Gain (Loss) Gain (Loss) Recognized Recognized in Income in Income Location of Gain Location of Gain (Loss) (Loss) in Consolidated in Consolidated Statement of Statement of Operations Operations Interest rate contracts Interest rate contracts Debt Debt Total Total Derivatives Not Designated as Hedging Instruments: Derivatives Not Designated as Hedging Instruments: Electricity Contracts Electricity Contracts Foreign exchange contracts Foreign exchange contracts Interest rate contracts Interest rate contracts Total Total $ — $ — $ — $ — $ $ 3 3 Interest expense, net Interest expense, net — — — — (3) (3) Interest expense, net Interest expense, net $ — $ — $ — $ — $ — $ — $ (10) $ (10) $ — $ — $ $ — — 1 (a) 1 (a) — — $ $ (9) (9) $ $ 5 5 $ $ 2 2 (7) (7) (4) (4) Cost of products sold Cost of products sold Cost of products sold Cost of products sold 5 (b) 5 (b) 13 (c) 13 (c) Interest expense, net Interest expense, net (a) Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges. (a) Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges. (b) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges. (b) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges. (c) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges. (c) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges. In 2016, fully effective interest rate swaps designated In 2016, fully effective interest rate swaps designated as fair value hedges with a notional value of $55 million as fair value hedges with a notional value of $55 million terminated early. The resulting gain was were terminated early. The resulting gain was were immaterial. immaterial. Fair Value Measurements Fair Value Measurements International Paper’s financial assets and liabilities that International Paper’s financial assets and liabilities that are recorded at fair value consist of derivative contracts, are recorded at fair value consist of derivative contracts, including interest rate swaps, foreign currency forward including interest rate swaps, foreign currency forward contracts, options and other financial instruments that contracts, options and other financial instruments that are used to hedge exposures to interest rate, commodity are used to hedge exposures to interest rate, commodity and currency risks. For these financial instruments, fair and currency risks. For these financial instruments, fair value is determined at each balance sheet date using value is determined at each balance sheet date using an income approach. an income approach. for for The guidance fair value measurements and fair value measurements and The guidance disclosures sets out a fair value hierarchy that groups disclosures sets out a fair value hierarchy that groups fair value measurement inputs into the following three fair value measurement inputs into the following three classifications: classifications: Level 1: Quoted market prices in active markets for Level 1: Quoted market prices in active markets for identical assets or liabilities. identical assets or liabilities. Level 2: Observable market-based inputs other than Level 2: Observable market-based inputs other than quoted prices that are quoted prices that are observable for the asset or liability, either directly or observable for the asset or liability, either directly or indirectly. indirectly. included within Level 1 included within Level 1 Level 3: Unobservable inputs for the asset or liability Level 3: Unobservable inputs for the asset or liability reflecting the reporting entity’s own assumptions or reflecting the reporting entity’s own assumptions or external inputs from inactive markets. external inputs from inactive markets. Transfers between levels are recognized at the end of Transfers between levels are recognized at the end of the reporting period. All of International Paper’s the reporting period. All of International Paper’s derivative fair value measurements use Level 2 inputs. derivative fair value measurements use Level 2 inputs. Below is a description of the valuation calculation and Below is a description of the valuation calculation and the inputs used for each class of contract: the inputs used for each class of contract: 67 67 68 68 Interest rate contracts are valued using swap curves Interest rate contracts are valued using swap curves obtained from an independent market data provider. The obtained from an independent market data provider. The market value of each contract is the sum of the fair value market value of each contract is the sum of the fair value Electricity Contract Electricity Contract of all future interest payments between the contract of all future interest payments between the contract The electricity contract is valued using the Mid-C index The electricity contract is valued using the Mid-C index counterparties, discounted to present value. The fair counterparties, discounted to present value. The fair forward curve obtained forward curve obtained from from the the Intercontinental Intercontinental value of the future interest payments is determined by value of the future interest payments is determined by Exchange. The market value of the contract is the sum Exchange. The market value of the contract is the sum comparing the contract rate to the derived forward comparing the contract rate to the derived forward of the fair value of all future purchase payments between of the fair value of all future purchase payments between interest rate and present valued using the appropriate interest rate and present valued using the appropriate the contract counterparties, discounted to present the contract counterparties, discounted to present value. The fair value of the future purchase payments value. The fair value of the future purchase payments is determined by comparing the contract price to the is determined by comparing the contract price to the forward price and present valued using International forward price and present valued using International Paper's cost of capital. Paper's cost of capital. Foreign currency forward and option contracts are Foreign currency forward and option contracts are valued using standard valuation models. Significant valued using standard valuation models. Significant Since the volume and level of activity of the markets that Since the volume and level of activity of the markets that inputs used in these standard valuation models are inputs used in these standard valuation models are each of the above contracts are traded in has been each of the above contracts are traded in has been foreign currency forward and interest rate curves and foreign currency forward and interest rate curves and normal, the fair value calculations have not been normal, the fair value calculations have not been a volatility measurement. The fair value of each contract a volatility measurement. The fair value of each contract adjusted for inactive markets or disorderly transactions. adjusted for inactive markets or disorderly transactions. is present valued using the applicable interest rate. All is present valued using the applicable interest rate. All The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet: The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet: Fair Value Measurements Fair Value Measurements Level 2 – Significant Other Observable Inputs Level 2 – Significant Other Observable Inputs In millions In millions Derivatives designated as hedging instruments Derivatives designated as hedging instruments Foreign exchange contracts – cash flow Foreign exchange contracts – cash flow Total derivatives designated as hedging instruments Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments Derivatives not designated as hedging instruments Total derivatives not designated as hedging Total derivatives not designated as hedging Electricity contract Electricity contract instruments instruments Total derivatives Total derivatives $ $ $ $ Assets Assets Liabilities Liabilities December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2017 2017 2016 2016 2017 2017 2016 2016 11 (a) $ 11 (a) $ 11 11 3 (b) $ 3 (b) $ 3 3 — — — — 11 11 — — — — 3 3 $ $ $ $ 1 (c) $ 1 (c) $ 1 1 8 (d) 8 (d) 8 8 9 9 $ $ 4 (c) 4 (c) 4 4 2 (c) 2 (c) 2 2 6 6 (a) (a) Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet. consolidated balance sheet. Included in Other current assets in the accompanying consolidated balance sheet. Included in Other current assets in the accompanying consolidated balance sheet. Included in Other accrued liabilities in the accompanying consolidated balance sheet. Included in Other accrued liabilities in the accompanying consolidated balance sheet. (b) (b) (c) (c) (d) (d) sheet. sheet. Includes $5 million recorded in Other accrued liabilities and $3 million recorded in Other liabilities in the accompanying consolidated balance Includes $5 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 The above contracts are subject to enforceable master netting arrangements that provide rights of offset with netting arrangements that provide rights of offset with Credit-Risk-Related Contingent Features Credit-Risk-Related Contingent Features each counterparty when amounts are payable on the each counterparty when amounts are payable on the International Paper evaluates credit risk by monitoring International Paper evaluates credit risk by monitoring same date in the same currency or in the case of certain same date in the same currency or in the case of certain its exposure with each counterparty to ensure that its exposure with each counterparty to ensure that specified defaults. Management has made an specified defaults. Management has made an exposure stays within acceptable policy limits. Credit exposure stays within acceptable policy limits. Credit accounting policy election to not offset the fair value of accounting policy election to not offset the fair value of risk is also mitigated by contractual provisions with the risk is also mitigated by contractual provisions with the recognized derivative assets and derivative liabilities in recognized derivative assets and derivative liabilities in majority of our banks. Certain of the contracts include a majority of our banks. Certain of the contracts include a the consolidated balance sheet. The amounts owed to the consolidated balance sheet. The amounts owed to credit support annex that requires the posting of credit support annex that requires the posting of the counterparties and owed to the Company are the counterparties and owed to the Company are collateral by the counterparty or International Paper collateral by the counterparty or International Paper considered immaterial with respect to each counterparty considered immaterial with respect to each counterparty based on each party’s rating and level of exposure. based on each party’s rating and level of exposure. and in the aggregate with all counterparties. and in the aggregate with all counterparties. Based on the Company’s current credit rating, the Based on the Company’s current credit rating, the collateral threshold is generally $15 million. collateral threshold is generally $15 million. the the from from Since the volume and level of activity of the markets that Since the volume and level of activity of the markets that each of the above contracts are traded in has been each of the above contracts are traded in has been normal, the fair value calculations have not been normal, the fair value calculations have not been adjusted for inactive markets or disorderly transactions. adjusted for inactive markets or disorderly transactions. significant inputs are readily available in public markets, significant inputs are readily available in public markets, or can be derived from observable market transactions. or can be derived from observable market transactions. Electricity Contract Electricity Contract The electricity contract is valued using the Mid-C index The electricity contract is valued using the Mid-C index Intercontinental forward curve obtained Intercontinental forward curve obtained Exchange. The market value of the contract is the sum Exchange. The market value of the contract is the sum of the fair value of all future purchase payments between of the fair value of all future purchase payments between the contract counterparties, discounted to present the contract counterparties, discounted to present value. The fair value of the future purchase payments value. The fair value of the future purchase payments is determined by comparing the contract price to the is determined by comparing the contract price to the forward price and present valued using International forward price and present valued using International Paper's cost of capital. Paper's cost of capital. The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying Interest Rate Contracts Interest Rate Contracts financial instruments used in hedging transactions were as follows: financial instruments used in hedging transactions were as follows: Interest rate contracts are valued using swap curves Interest rate contracts are valued using swap curves obtained from an independent market data provider. The obtained from an independent market data provider. The market value of each contract is the sum of the fair value market value of each contract is the sum of the fair value of all future interest payments between the contract of all future interest payments between the contract counterparties, discounted to present value. The fair counterparties, discounted to present value. The fair value of the future interest payments is determined by value of the future interest payments is determined by comparing the contract rate to the derived forward comparing the contract rate to the derived forward interest rate and present valued using the appropriate interest rate and present valued using the appropriate derived interest rate curve. derived interest rate curve. Foreign Exchange Contracts Foreign Exchange Contracts Foreign currency forward and option contracts are Foreign currency forward and option contracts are valued using standard valuation models. Significant valued using standard valuation models. Significant inputs used in these standard valuation models are inputs used in these standard valuation models are foreign currency forward and interest rate curves and foreign currency forward and interest rate curves and a volatility measurement. The fair value of each contract a volatility measurement. The fair value of each contract is present valued using the applicable interest rate. All is present valued using the applicable interest rate. All In millions In millions 2017 2017 2016 2016 2015 2015 Derivatives in Cash Flow Hedging Relationships: Derivatives in Cash Flow Hedging Relationships: Foreign exchange contracts Foreign exchange contracts Interest rate contracts Interest rate contracts Total Total Gain (Loss) Gain (Loss) Reclassified from Reclassified from AOCI AOCI into Income into Income (Effective Portion) (Effective Portion) Location of Gain Location of Gain (Loss) (Loss) Reclassified Reclassified from AOCI from AOCI into Income into Income (Effective Portion) (Effective Portion) $ $ $ $ (1) (1) 8 8 7 7 $ $ $ $ 7 7 — — 7 7 $ (12) $ (12) Cost of products sold Cost of products sold — — Interest expense, net Interest expense, net $ (12) $ (12) Gain (Loss) Gain (Loss) Recognized Recognized in Income in Income Location of Gain Location of Gain (Loss) (Loss) in Consolidated in Consolidated Statement of Statement of Operations Operations $ — $ — $ — $ — $ $ 3 3 Interest expense, net Interest expense, net — — — — (3) (3) Interest expense, net Interest expense, net $ — $ — $ — $ — $ — $ — $ (10) $ (10) $ — $ — $ $ — — 1 (a) 1 (a) — — $ $ (9) (9) $ $ 5 5 $ $ 2 2 (7) (7) (4) (4) Cost of products sold Cost of products sold Cost of products sold Cost of products sold 5 (b) 5 (b) 13 (c) 13 (c) Interest expense, net Interest expense, net In millions In millions 2017 2017 2016 2016 2015 2015 Derivatives in Fair Value Hedging Relationships: Derivatives in Fair Value Hedging Relationships: Interest rate contracts Interest rate contracts Derivatives Not Designated as Hedging Instruments: Derivatives Not Designated as Hedging Instruments: Debt Debt Total Total Total Total Electricity Contracts Electricity Contracts Foreign exchange contracts Foreign exchange contracts Interest rate contracts Interest rate contracts (a) Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges. (a) Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges. (b) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges. (b) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges. (c) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges. (c) Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges. as fair value hedges with a notional value of $55 million as fair value hedges with a notional value of $55 million identical assets or liabilities. identical assets or liabilities. were were terminated early. The resulting gain was terminated early. The resulting gain was immaterial. immaterial. Fair Value Measurements Fair Value Measurements Level 2: Observable market-based inputs other than Level 2: Observable market-based inputs other than quoted prices quoted prices included within Level 1 included within Level 1 that are that are observable for the asset or liability, either directly or observable for the asset or liability, either directly or indirectly. indirectly. International Paper’s financial assets and liabilities that International Paper’s financial assets and liabilities that are recorded at fair value consist of derivative contracts, are recorded at fair value consist of derivative contracts, Level 3: Unobservable inputs for the asset or liability Level 3: Unobservable inputs for the asset or liability including interest rate swaps, foreign currency forward including interest rate swaps, foreign currency forward reflecting the reporting entity’s own assumptions or reflecting the reporting entity’s own assumptions or contracts, options and other financial instruments that contracts, options and other financial instruments that external inputs from inactive markets. external inputs from inactive markets. are used to hedge exposures to interest rate, commodity are used to hedge exposures to interest rate, commodity Transfers between levels are recognized at the end of Transfers between levels are recognized at the end of and currency risks. For these financial instruments, fair and currency risks. For these financial instruments, fair the reporting period. All of International Paper’s the reporting period. All of International Paper’s value is determined at each balance sheet date using value is determined at each balance sheet date using derivative fair value measurements use Level 2 inputs. derivative fair value measurements use Level 2 inputs. Below is a description of the valuation calculation and Below is a description of the valuation calculation and the inputs used for each class of contract: the inputs used for each class of contract: an income approach. an income approach. The guidance The guidance for for fair value measurements and fair value measurements and disclosures sets out a fair value hierarchy that groups disclosures sets out a fair value hierarchy that groups fair value measurement inputs into the following three fair value measurement inputs into the following three classifications: classifications: The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet: The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet: Fair Value Measurements Fair Value Measurements Level 2 – Significant Other Observable Inputs Level 2 – Significant Other Observable Inputs In 2016, fully effective interest rate swaps designated In 2016, fully effective interest rate swaps designated Level 1: Quoted market prices in active markets for Level 1: Quoted market prices in active markets for Electricity contract Electricity contract Total derivatives not designated as hedging Total derivatives not designated as hedging instruments instruments Total derivatives Total derivatives In millions In millions Derivatives designated as hedging instruments Derivatives designated as hedging instruments Foreign exchange contracts – cash flow Foreign exchange contracts – cash flow Total derivatives designated as hedging instruments Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments Derivatives not designated as hedging instruments Assets Assets Liabilities Liabilities December 31, December 31, 2017 2017 December 31, December 31, 2016 2016 December 31, December 31, 2017 2017 December 31, December 31, 2016 2016 $ $ $ $ 11 (a) $ 11 (a) $ 11 11 — — — — 11 11 $ $ 3 (b) $ 3 (b) $ 3 3 — — — — 3 3 $ $ 1 (c) $ 1 (c) $ 1 1 8 (d) 8 (d) 8 8 9 9 $ $ 4 (c) 4 (c) 4 4 2 (c) 2 (c) 2 2 6 6 (a) (a) (b) (b) (c) (c) (d) (d) Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet. consolidated balance sheet. Included in Other current assets in the accompanying consolidated balance sheet. Included in Other current assets in the accompanying consolidated balance sheet. Included in Other accrued liabilities in the accompanying consolidated balance sheet. Included in Other accrued liabilities in the accompanying consolidated balance sheet. Includes $5 million recorded in Other accrued liabilities and $3 million recorded in Other liabilities in the accompanying consolidated balance Includes $5 million recorded in Other accrued liabilities and $3 million recorded in Other liabilities in the accompanying consolidated balance sheet. sheet. The above contracts are subject to enforceable master The above contracts are subject to enforceable master netting arrangements that provide rights of offset with netting arrangements that provide rights of offset with each counterparty when amounts are payable on the each counterparty when amounts are payable on the same date in the same currency or in the case of certain same date in the same currency or in the case of certain specified defaults. Management has made an specified defaults. Management has made an accounting policy election to not offset the fair value of accounting policy election to not offset the fair value of recognized derivative assets and derivative liabilities in recognized derivative assets and derivative liabilities in the consolidated balance sheet. The amounts owed to the consolidated balance sheet. The amounts owed to the counterparties and owed to the Company are the counterparties and owed to the Company are considered immaterial with respect to each counterparty considered immaterial with respect to each counterparty and in the aggregate with all counterparties. and in the aggregate with all counterparties. Credit-Risk-Related Contingent Features Credit-Risk-Related Contingent Features International Paper evaluates credit risk by monitoring International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with the risk is also mitigated by contractual provisions with the majority of our banks. Certain of the contracts include a majority of our banks. Certain of the contracts include a credit support annex that requires the posting of credit support annex that requires the posting of collateral by the counterparty or International Paper collateral by the counterparty or International Paper based on each party’s rating and level of exposure. based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the Based on the Company’s current credit rating, the collateral threshold is generally $15 million. collateral threshold is generally $15 million. 67 67 68 68 If the lower of the Company’s credit rating by Moody’s If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the or S&P were to drop below investment grade, the Company would be required to post collateral for all of Company would be required to post collateral for all of its derivatives in a net liability position, although no its derivatives in a net liability position, although no derivatives would terminate. As of December 31, 2017, derivatives would terminate. As of December 31, 2017, there were no derivative instruments containing credit- there were no derivative instruments containing credit- risk-related contingent features in a net liability position. risk-related contingent features in a net liability position. The fair value of derivative instruments containing The fair value of derivative instruments containing credit-risk-related contingent features in a net liability credit-risk-related contingent features in a net liability position was $3 million as of December 31, 2016. The position was $3 million as of December 31, 2016. The Company was not required to post any collateral as of Company was not required to post any collateral as of December 31, 2017 or 2016. December 31, 2017 or 2016. NOTE 15 CAPITAL STOCK NOTE 15 CAPITAL STOCK The authorized capital stock at both December 31, The authorized capital stock at both December 31, 2017 and 2016, consisted of 990,850,000 shares of 2017 and 2016, consisted of 990,850,000 shares of common stock, $1 par value; 400,000 shares of common stock, $1 par value; 400,000 shares of cumulative $4 preferred stock, without par value (stated cumulative $4 preferred stock, without par value (stated value $100 per share); and 8,750,000 shares of serial value $100 per share); and 8,750,000 shares of serial preferred stock, $1 par value. The serial preferred stock preferred stock, $1 par value. The serial preferred stock is issuable in one or more series by the Board of is issuable in one or more series by the Board of Directors without further shareholder action. Directors without further shareholder action. The following is a rollforward of shares of common stock The following is a rollforward of shares of common stock for the three years ended December 31, 2017, 2016 for the three years ended December 31, 2017, 2016 and 2015: and 2015: In thousands In thousands Balance at January 1, 2015 Balance at January 1, 2015 Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock Balance at December 31, 2015 Balance at December 31, 2015 Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock Common Stock Common Stock Issued Issued 448,854 448,854 Treasury Treasury 28,734 28,734 (4,230) (4,230) 62 62 — 12,272 — 12,272 36,776 36,776 448,916 448,916 — — — — (2,745) (2,745) 3,640 3,640 Balance at December 31, 2016 Balance at December 31, 2016 448,916 448,916 37,671 37,671 Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock — — — — Balance at December 31, 2017 Balance at December 31, 2017 448,916 448,916 (2,577) (2,577) 881 881 35,975 35,975 NOTE 16 RETIREMENT PLANS NOTE 16 RETIREMENT PLANS the the International Paper sponsors and maintains International Paper sponsors and maintains Retirement Plan of International Paper Company (the Retirement Plan of International Paper Company (the “Pension Plan”), a tax-qualified defined benefit pension “Pension Plan”), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union and substantially all other U.S. hourly and union employees who work at a participating business unit employees who work at a participating business unit regardless of hire date. These employees generally are regardless of hire date. These employees generally are eligible to participate in the Pension Plan upon attaining eligible to participate in the Pension Plan upon attaining 21 years of age and completing one year of eligibility 21 years of age and completing one year of eligibility service. U.S. salaried employees and hourly employees service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004 (receiving salaried benefits) hired after June 30, 2004 are not eligible to participate in the Pension Plan, but are not eligible to participate in the Pension Plan, but receive a company contribution to their individual receive a company contribution to their individual savings plan accounts (see Other U.S. Plans); however, savings plan accounts (see Other U.S. Plans); however, salaried employees hired by Temple Inland prior to salaried employees hired by Temple Inland prior to March 1, 2007 or Weyerhaeuser Company's Cellulose March 1, 2007 or Weyerhaeuser Company's Cellulose Fibers division prior to December 1, 2011 also Fibers division prior to December 1, 2011 also participate in the Pension Plan. The Pension Plan participate in the Pension Plan. The Pension Plan provides defined pension benefits based on years of provides defined pension benefits based on years of credited service and either final average earnings credited service and either final average earnings (salaried employees and hourly employees receiving (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit salaried benefits), hourly job rates or specified benefit rates (hourly and union employees). rates (hourly and union employees). The Company also has three unfunded nonqualified The Company also has three unfunded nonqualified defined benefit pension plans: a Pension Restoration defined benefit pension plans: a Pension Restoration Plan available to employees hired prior to July 1, 2004 Plan available to employees hired prior to July 1, 2004 that provides retirement benefits based on eligible that provides retirement benefits based on eligible compensation in excess of limits set by the Internal compensation in excess of limits set by the Internal Revenue Service, and two supplemental retirement Revenue Service, and two supplemental retirement plans for senior managers (SERP), which is an plans for senior managers (SERP), which is an alternative retirement plan for salaried employees who alternative retirement plan for salaried employees who are senior vice presidents and above or who are are senior vice presidents and above or who are designated by the chief executive officer as participants. designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent These nonqualified plans are only funded to the extent of benefits paid, which totaled $40 million, $21 million of benefits paid, which totaled $40 million, $21 million and $62 million in 2017, 2016 and 2015, respectively, and $62 million in 2017, 2016 and 2015, respectively, and which are expected to be $30 million in 2018. and which are expected to be $30 million in 2018. freeze participation, freeze participation, including including The Company will The Company will for salaried credited service and compensation, for salaried credited service and compensation, employees under the Pension Plan, the Pension employees under the Pension Plan, the Pension Restoration Plan and the two SERP plans for all service Restoration Plan and the two SERP plans for all service on or after January 1, 2019. This change will not affect on or after January 1, 2019. This change will not affect benefits accrued through December 31, 2018. For benefits accrued through December 31, 2018. For service after this date, employees affected by the freeze service after this date, employees affected by the freeze will receive Retirement Savings Account contributions will receive Retirement Savings Account contributions as described later in this Note 16. as described later in this Note 16. Many non-U.S. employees are covered by various Many non-U.S. employees are covered by various The components of the $901 million and $5 million The components of the $901 million and $5 million retirement benefit arrangements, some of which are retirement benefit arrangements, some of which are change related to U.S. plans and non-U.S. plans, change related to U.S. plans and non-U.S. plans, considered to be defined benefit pension plans for considered to be defined benefit pension plans for respectively, in the amounts recognized in OCI during respectively, in the amounts recognized in OCI during accounting purposes. accounting purposes. 2017 consisted of: 2017 consisted of: OBLIGATIONS AND FUNDED STATUS OBLIGATIONS AND FUNDED STATUS The following table shows the changes in the benefit The following table shows the changes in the benefit obligation and plan assets for 2017 and 2016, and the obligation and plan assets for 2017 and 2016, and the plans’ funded status. plans’ funded status. In millions In millions obligation: obligation: Change in projected benefit Change in projected benefit Benefit obligation, Benefit obligation, January 1 January 1 Service cost Service cost Interest cost Interest cost Settlements Settlements Actuarial loss (gain) Actuarial loss (gain) Acquisitions Acquisitions Divestitures Divestitures Plan amendments Plan amendments Benefits paid Benefits paid Effect of foreign currency Effect of foreign currency exchange rate movements exchange rate movements Benefit obligation, Benefit obligation, December 31 December 31 Change in plan assets: Change in plan assets: Fair value of plan assets, Fair value of plan assets, January 1 January 1 Actual return on plan Actual return on plan assets assets Company contributions Company contributions Benefits paid Benefits paid Settlements Settlements Other Other Effect of foreign currency Effect of foreign currency exchange rate movements exchange rate movements Fair value of plan Fair value of plan assets, December 31 assets, December 31 Funded status, Funded status, December 31 December 31 Amounts recognized in the Amounts recognized in the consolidated balance sheet: consolidated balance sheet: 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $13,683 $ 219 $14,438 $ 204 $13,683 $ 219 $14,438 $ 204 (1,295) (1,295) (4) (4) (1,222) (1,222) 160 160 536 536 913 913 — — 33 33 3 3 158 158 580 580 495 495 1 1 — — — — 4 4 9 9 2 2 5 5 — — — — (8) (8) (769) (769) (767) (767) — — 20 20 — — (21) (21) $13,264 $ 247 $13,683 $ 219 $13,264 $ 247 $13,683 $ 219 $10,312 $ 153 $10,923 $ 155 $10,312 $ 153 $10,923 $ 155 1,830 1,830 1,290 1,290 (769) (769) (1,295) (1,295) — — — — 10 10 10 10 (8) (8) (4) (4) 3 3 12 12 607 607 771 771 (767) (767) (1,222) (1,222) — — — — $11,368 $ 176 $10,312 $ 153 $11,368 $ 176 $10,312 $ 153 $ (1,896) $ $ (1,896) $ (71) $ (3,371) $ (71) $ (3,371) $ (66) (66) 4 4 9 9 (2) (2) 35 35 — — — — (1) (1) (9) (9) 17 17 8 8 (9) (9) (2) (2) — — (16) (16) 6 6 (3) (3) (69) (69) (66) (66) Non-current asset Non-current asset $ $ — $ — $ Current liability Current liability (30) (30) 5$ 5$ (3) (3) — $ — $ (40) (40) Non-current liability Non-current liability (1,866) (1,866) (73) (73) (3,331) (3,331) $ (1,896) $ $ (1,896) $ (71) $ (3,371) $ (71) $ (3,371) $ Amounts recognized in Amounts recognized in accumulated other accumulated other comprehensive income comprehensive income under ASC 715 (pre-tax): under ASC 715 (pre-tax): Prior service cost Prior service cost Net actuarial loss Net actuarial loss $ $ 88 $ 88 $ (1) $ (1) $ 125 $ — 125 $ — 3,893 3,893 67 67 4,757 4,757 $ 3,981 $ $ 3,981 $ 66 $ 4,882 $ 66 $ 4,882 $ 61 61 61 61 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans In millions In millions Current year actuarial (gain) loss Current year actuarial (gain) loss $ $ Amortization of actuarial loss Amortization of actuarial loss Current year prior service cost Current year prior service cost Amortization of prior service cost Amortization of prior service cost Settlements Settlements Curtailments Curtailments Effect of foreign currency exchange Effect of foreign currency exchange rate movements rate movements (143) $ (143) $ (339) (339) 3 3 (28) (28) (383) (383) (11) (11) — — $ $ (901) $ (901) $ 2 2 (2) (2) — — — — (1) (1) — — 6 6 5 5 The portion of the change in the funded status that was The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for recognized in either net periodic benefit cost or OCI for the U.S. plans was $(184) million, $626 million and $505 the U.S. plans was $(184) million, $626 million and $505 million in 2017, 2016 and 2015, respectively. The portion million in 2017, 2016 and 2015, respectively. The portion of the change in funded status for the non-U.S. plans of the change in funded status for the non-U.S. plans was $10 million, $23 million, and $8 million in 2017, was $10 million, $23 million, and $8 million in 2017, 2016 and 2015, respectively. 2016 and 2015, respectively. The accumulated benefit obligation at December 31, The accumulated benefit obligation at December 31, 2017 and 2016 was $13.2 billion and $13.5 billion, 2017 and 2016 was $13.2 billion and $13.5 billion, respectively, for our U.S. defined benefit plans and $230 respectively, for our U.S. defined benefit plans and $230 million and $205 million, respectively, at December 31, million and $205 million, respectively, at December 31, 2017 and 2016 for our non-U.S. defined benefit plans. 2017 and 2016 for our non-U.S. defined benefit plans. The following table summarizes information for pension The following table summarizes information for pension plans with an accumulated benefit obligation in excess plans with an accumulated benefit obligation in excess of plan assets at December 31, 2017 and 2016: of plan assets at December 31, 2017 and 2016: 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $ 13,264 $ 215 $ 13,683 $ $ 13,264 $ 215 $ 13,683 $ 190 190 13,161 13,161 11,368 11,368 200 200 139 139 13,535 13,535 10,312 10,312 177 177 118 118 In millions In millions Projected benefit Projected benefit obligation obligation Accumulated benefit Accumulated benefit obligation obligation Fair value of plan assets Fair value of plan assets ASC 715, “Compensation – Retirement Benefits” ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the losses, including amounts arising from changes in the estimated projected plan benefit obligation due to estimated projected plan benefit obligation due to changes in the assumed discount rate, differences changes in the assumed discount rate, differences between the actual and expected return on plan assets between the actual and expected return on plan assets and other assumption changes. These net gains and and other assumption changes. These net gains and losses are recognized prospectively over a period that losses are recognized prospectively over a period that approximates the average remaining service period of approximates the average remaining service period of active employees expected to receive benefits under active employees expected to receive benefits under the plans to the extent that they are not offset by gains the plans to the extent that they are not offset by gains in subsequent years. The estimated net loss and prior in subsequent years. The estimated net loss and prior service cost that will be amortized from AOCI into net service cost that will be amortized from AOCI into net periodic pension cost for the U.S. plans during the next periodic pension cost for the U.S. plans during the next 69 69 70 70 If the lower of the Company’s credit rating by Moody’s If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the or S&P were to drop below investment grade, the NOTE 16 RETIREMENT PLANS NOTE 16 RETIREMENT PLANS Company would be required to post collateral for all of Company would be required to post collateral for all of International Paper sponsors and maintains International Paper sponsors and maintains the the its derivatives in a net liability position, although no its derivatives in a net liability position, although no Retirement Plan of International Paper Company (the Retirement Plan of International Paper Company (the derivatives would terminate. As of December 31, 2017, derivatives would terminate. As of December 31, 2017, “Pension Plan”), a tax-qualified defined benefit pension “Pension Plan”), a tax-qualified defined benefit pension there were no derivative instruments containing credit- there were no derivative instruments containing credit- plan that provides retirement benefits to substantially all plan that provides retirement benefits to substantially all risk-related contingent features in a net liability position. risk-related contingent features in a net liability position. U.S. salaried employees and hourly employees U.S. salaried employees and hourly employees The fair value of derivative instruments containing The fair value of derivative instruments containing (receiving salaried benefits) hired prior to July 1, 2004, (receiving salaried benefits) hired prior to July 1, 2004, credit-risk-related contingent features in a net liability credit-risk-related contingent features in a net liability and substantially all other U.S. hourly and union and substantially all other U.S. hourly and union position was $3 million as of December 31, 2016. The position was $3 million as of December 31, 2016. The employees who work at a participating business unit employees who work at a participating business unit Company was not required to post any collateral as of Company was not required to post any collateral as of regardless of hire date. These employees generally are regardless of hire date. These employees generally are December 31, 2017 or 2016. December 31, 2017 or 2016. NOTE 15 CAPITAL STOCK NOTE 15 CAPITAL STOCK eligible to participate in the Pension Plan upon attaining eligible to participate in the Pension Plan upon attaining 21 years of age and completing one year of eligibility 21 years of age and completing one year of eligibility service. U.S. salaried employees and hourly employees service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004 (receiving salaried benefits) hired after June 30, 2004 The authorized capital stock at both December 31, The authorized capital stock at both December 31, are not eligible to participate in the Pension Plan, but are not eligible to participate in the Pension Plan, but 2017 and 2016, consisted of 990,850,000 shares of 2017 and 2016, consisted of 990,850,000 shares of receive a company contribution to their individual receive a company contribution to their individual common stock, $1 par value; 400,000 shares of common stock, $1 par value; 400,000 shares of savings plan accounts (see Other U.S. Plans); however, savings plan accounts (see Other U.S. Plans); however, cumulative $4 preferred stock, without par value (stated cumulative $4 preferred stock, without par value (stated salaried employees hired by Temple Inland prior to salaried employees hired by Temple Inland prior to value $100 per share); and 8,750,000 shares of serial value $100 per share); and 8,750,000 shares of serial March 1, 2007 or Weyerhaeuser Company's Cellulose March 1, 2007 or Weyerhaeuser Company's Cellulose preferred stock, $1 par value. The serial preferred stock preferred stock, $1 par value. The serial preferred stock Fibers division prior to December 1, 2011 also Fibers division prior to December 1, 2011 also is issuable in one or more series by the Board of is issuable in one or more series by the Board of participate in the Pension Plan. The Pension Plan participate in the Pension Plan. The Pension Plan Directors without further shareholder action. Directors without further shareholder action. provides defined pension benefits based on years of provides defined pension benefits based on years of credited service and either final average earnings credited service and either final average earnings The following is a rollforward of shares of common stock The following is a rollforward of shares of common stock (salaried employees and hourly employees receiving (salaried employees and hourly employees receiving for the three years ended December 31, 2017, 2016 for the three years ended December 31, 2017, 2016 salaried benefits), hourly job rates or specified benefit salaried benefits), hourly job rates or specified benefit and 2015: and 2015: rates (hourly and union employees). rates (hourly and union employees). In thousands In thousands Balance at January 1, 2015 Balance at January 1, 2015 Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock Common Stock Common Stock Issued Issued Treasury Treasury 448,854 448,854 28,734 28,734 62 62 (4,230) (4,230) — 12,272 — 12,272 Balance at December 31, 2015 Balance at December 31, 2015 448,916 448,916 36,776 36,776 Balance at December 31, 2016 Balance at December 31, 2016 448,916 448,916 37,671 37,671 Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock Issuance of stock for various plans, net Issuance of stock for various plans, net Repurchase of stock Repurchase of stock — — — — — — — — (2,745) (2,745) 3,640 3,640 (2,577) (2,577) 881 881 Balance at December 31, 2017 Balance at December 31, 2017 448,916 448,916 35,975 35,975 The Company also has three unfunded nonqualified The Company also has three unfunded nonqualified defined benefit pension plans: a Pension Restoration defined benefit pension plans: a Pension Restoration Plan available to employees hired prior to July 1, 2004 Plan available to employees hired prior to July 1, 2004 that provides retirement benefits based on eligible that provides retirement benefits based on eligible compensation in excess of limits set by the Internal compensation in excess of limits set by the Internal Revenue Service, and two supplemental retirement Revenue Service, and two supplemental retirement plans for senior managers (SERP), which is an plans for senior managers (SERP), which is an alternative retirement plan for salaried employees who alternative retirement plan for salaried employees who are senior vice presidents and above or who are are senior vice presidents and above or who are designated by the chief executive officer as participants. designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent These nonqualified plans are only funded to the extent of benefits paid, which totaled $40 million, $21 million of benefits paid, which totaled $40 million, $21 million and $62 million in 2017, 2016 and 2015, respectively, and $62 million in 2017, 2016 and 2015, respectively, and which are expected to be $30 million in 2018. and which are expected to be $30 million in 2018. The Company will The Company will freeze participation, freeze participation, including including credited service and compensation, credited service and compensation, for salaried for salaried employees under the Pension Plan, the Pension employees under the Pension Plan, the Pension Restoration Plan and the two SERP plans for all service Restoration Plan and the two SERP plans for all service on or after January 1, 2019. This change will not affect on or after January 1, 2019. This change will not affect benefits accrued through December 31, 2018. For benefits accrued through December 31, 2018. For service after this date, employees affected by the freeze service after this date, employees affected by the freeze will receive Retirement Savings Account contributions will receive Retirement Savings Account contributions as described later in this Note 16. as described later in this Note 16. Many non-U.S. employees are covered by various Many non-U.S. employees are covered by various retirement benefit arrangements, some of which are retirement benefit arrangements, some of which are considered to be defined benefit pension plans for considered to be defined benefit pension plans for accounting purposes. accounting purposes. The components of the $901 million and $5 million The components of the $901 million and $5 million change related to U.S. plans and non-U.S. plans, change related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during respectively, in the amounts recognized in OCI during 2017 consisted of: 2017 consisted of: OBLIGATIONS AND FUNDED STATUS OBLIGATIONS AND FUNDED STATUS The following table shows the changes in the benefit The following table shows the changes in the benefit obligation and plan assets for 2017 and 2016, and the obligation and plan assets for 2017 and 2016, and the plans’ funded status. plans’ funded status. 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $13,683 $ 219 $14,438 $ 204 $13,683 $ 219 $14,438 $ 204 160 160 536 536 4 4 9 9 158 158 580 580 (1,295) (1,295) (4) (4) (1,222) (1,222) 913 913 — — 33 33 3 3 (769) (769) 2 2 5 5 — — — — (8) (8) 495 495 1 1 — — — — (767) (767) 4 4 9 9 (2) (2) 35 35 — — — — (1) (1) (9) (9) — — 20 20 — — (21) (21) $13,264 $ 247 $13,683 $ 219 $13,264 $ 247 $13,683 $ 219 $10,312 $ 153 $10,923 $ 155 $10,312 $ 153 $10,923 $ 155 1,830 1,830 1,290 1,290 (769) (769) (1,295) (1,295) — — — — 10 10 10 10 (8) (8) (4) (4) 3 3 12 12 607 607 771 771 (767) (767) (1,222) (1,222) — — — — 17 17 8 8 (9) (9) (2) (2) — — (16) (16) $11,368 $ 176 $10,312 $ 153 $11,368 $ 176 $10,312 $ 153 $ (1,896) $ $ (1,896) $ (71) $ (3,371) $ (71) $ (3,371) $ (66) (66) In millions In millions Change in projected benefit Change in projected benefit obligation: obligation: Benefit obligation, Benefit obligation, January 1 January 1 Service cost Service cost Interest cost Interest cost Settlements Settlements Actuarial loss (gain) Actuarial loss (gain) Acquisitions Acquisitions Divestitures Divestitures Plan amendments Plan amendments Benefits paid Benefits paid Effect of foreign currency Effect of foreign currency exchange rate movements exchange rate movements Benefit obligation, Benefit obligation, December 31 December 31 Change in plan assets: Change in plan assets: Fair value of plan assets, Fair value of plan assets, January 1 January 1 Actual return on plan Actual return on plan assets assets Company contributions Company contributions Benefits paid Benefits paid Settlements Settlements Other Other Effect of foreign currency Effect of foreign currency exchange rate movements exchange rate movements Fair value of plan Fair value of plan assets, December 31 assets, December 31 Funded status, Funded status, December 31 December 31 Amounts recognized in the Amounts recognized in the consolidated balance sheet: consolidated balance sheet: Non-current asset Non-current asset $ $ — $ — $ Current liability Current liability (30) (30) 5$ 5$ (3) (3) — $ — $ (40) (40) Non-current liability Non-current liability (1,866) (1,866) (73) (73) (3,331) (3,331) $ (1,896) $ $ (1,896) $ (71) $ (3,371) $ (71) $ (3,371) $ 6 6 (3) (3) (69) (69) (66) (66) Amounts recognized in Amounts recognized in accumulated other accumulated other comprehensive income comprehensive income under ASC 715 (pre-tax): under ASC 715 (pre-tax): Prior service cost Prior service cost Net actuarial loss Net actuarial loss $ $ 88 $ 88 $ (1) $ (1) $ 125 $ — 125 $ — 3,893 3,893 67 67 4,757 4,757 $ 3,981 $ $ 3,981 $ 66 $ 4,882 $ 66 $ 4,882 $ 61 61 61 61 In millions In millions Current year actuarial (gain) loss Current year actuarial (gain) loss $ $ Amortization of actuarial loss Amortization of actuarial loss Current year prior service cost Current year prior service cost Amortization of prior service cost Amortization of prior service cost Settlements Settlements Curtailments Curtailments Effect of foreign currency exchange Effect of foreign currency exchange rate movements rate movements U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans (143) $ (143) $ (339) (339) 3 3 (28) (28) (383) (383) (11) (11) — — $ $ (901) $ (901) $ 2 2 (2) (2) — — — — (1) (1) — — 6 6 5 5 The portion of the change in the funded status that was The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for recognized in either net periodic benefit cost or OCI for the U.S. plans was $(184) million, $626 million and $505 the U.S. plans was $(184) million, $626 million and $505 million in 2017, 2016 and 2015, respectively. The portion million in 2017, 2016 and 2015, respectively. The portion of the change in funded status for the non-U.S. plans of the change in funded status for the non-U.S. plans was $10 million, $23 million, and $8 million in 2017, was $10 million, $23 million, and $8 million in 2017, 2016 and 2015, respectively. 2016 and 2015, respectively. The accumulated benefit obligation at December 31, The accumulated benefit obligation at December 31, 2017 and 2016 was $13.2 billion and $13.5 billion, 2017 and 2016 was $13.2 billion and $13.5 billion, respectively, for our U.S. defined benefit plans and $230 respectively, for our U.S. defined benefit plans and $230 million and $205 million, respectively, at December 31, million and $205 million, respectively, at December 31, 2017 and 2016 for our non-U.S. defined benefit plans. 2017 and 2016 for our non-U.S. defined benefit plans. The following table summarizes information for pension The following table summarizes information for pension plans with an accumulated benefit obligation in excess plans with an accumulated benefit obligation in excess of plan assets at December 31, 2017 and 2016: of plan assets at December 31, 2017 and 2016: 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $ 13,264 $ 215 $ 13,683 $ $ 13,264 $ 215 $ 13,683 $ 190 190 13,161 13,161 11,368 11,368 200 200 139 139 13,535 13,535 10,312 10,312 177 177 118 118 In millions In millions Projected benefit Projected benefit obligation obligation Accumulated benefit Accumulated benefit obligation obligation Fair value of plan assets Fair value of plan assets ASC 715, “Compensation – Retirement Benefits” ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the losses, including amounts arising from changes in the estimated projected plan benefit obligation due to estimated projected plan benefit obligation due to changes in the assumed discount rate, differences changes in the assumed discount rate, differences between the actual and expected return on plan assets between the actual and expected return on plan assets and other assumption changes. These net gains and and other assumption changes. These net gains and losses are recognized prospectively over a period that losses are recognized prospectively over a period that approximates the average remaining service period of approximates the average remaining service period of active employees expected to receive benefits under active employees expected to receive benefits under the plans to the extent that they are not offset by gains the plans to the extent that they are not offset by gains in subsequent years. The estimated net loss and prior in subsequent years. The estimated net loss and prior service cost that will be amortized from AOCI into net service cost that will be amortized from AOCI into net periodic pension cost for the U.S. plans during the next periodic pension cost for the U.S. plans during the next 69 69 70 70 fiscal year are expected to be $327 million and $17 fiscal year are expected to be $327 million and $17 million, respectively. million, respectively. NET PERIODIC PENSION EXPENSE NET PERIODIC PENSION EXPENSE Service cost is the actuarial present value of benefits Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost rendered by employees during the year. Interest cost represents the increase in the projected benefit represents the increase in the projected benefit obligation, which is a discounted amount, due to the obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets passage of time. The expected return on plan assets reflects the computed amount of current-year earnings reflects the computed amount of current-year earnings from the investment of plan assets using an estimated from the investment of plan assets using an estimated long-term rate of return. long-term rate of return. for qualified and for qualified and Net periodic pension expense Net periodic pension expense nonqualified U.S. and non-U.S. defined benefit plans nonqualified U.S. and non-U.S. defined benefit plans comprised the following: comprised the following: 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans In millions In millions Service cost Service cost $ 160 $ $ 160 $ 4 $ 158 $ 4 $ 158 $ 4 $ 161 $ 4 $ 161 $ Interest cost Interest cost 536 536 9 9 580 580 9 9 597 597 6 6 10 10 Expected return Expected return on plan assets on plan assets Actuarial loss / Actuarial loss / (gain) (gain) Amortization of Amortization of prior service cost prior service cost Curtailment Curtailment loss / (gain) (a) loss / (gain) (a) Settlement loss Settlement loss Special Special termination termination benefits (a) benefits (a) Net periodic Net periodic pension pension expense expense (774) (774) (11) (11) (815) (815) (10) (10) (783) (783) (11) (11) 339 339 2 2 400 400 1 1 428 428 1 1 28 28 23 23 383 383 — — — — 1 1 41 41 — — 445 445 — — — — — — 43 43 — — 15 15 22 22 — — — — — — — — — — — — — — — — $ 717 $ $ 717 $ 5 $ 809 $ 5 $ 809 $ 4 $ 461 $ 4 $ 461 $ 6 6 (a) Recorded in Discontinued operations in the consolidated (a) Recorded in Discontinued operations in the consolidated statement of operations. statement of operations. The decrease in 2017 pension expense reflects lower The decrease in 2017 pension expense reflects lower settlement losses and lower actuarial losses partially settlement losses and lower actuarial losses partially offset by lower asset returns due to the annuity purchase offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit as well as curtailment and special termination benefit charges. charges. On September 26, 2017, the Company entered into an On September 26, 2017, the Company entered into an agreement with The Prudential Insurance Company of agreement with The Prudential Insurance Company of America to purchase a group annuity contract and America to purchase a group annuity contract and transfer approximately $1.3 billion of International transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit Paper's U.S. qualified pension plan projected benefit obligations, subject to customary closing conditions. obligations, subject to customary closing conditions. The transaction closed on October 3, 2017 and was The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction, funded with pension plan assets. Under the transaction, at the end of 2017, Prudential assumed responsibility at the end of 2017, Prudential assumed responsibility for pension benefits and annuity administration for for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries approximately 45,000 retirees or their beneficiaries receiving less than $450 in monthly benefit payments receiving less than $450 in monthly benefit payments from the plan. Settlement accounting rules required a from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension 2017 and the Company recognized a non-cash pension settlement charge of $376 million before tax in the fourth settlement charge of $376 million before tax in the fourth quarter of 2017. In addition, large payments from the quarter of 2017. In addition, large payments from the non-qualified pension plan also required a non-qualified pension plan also required a remeasurement as of October 2, 2017 and a non-cash remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was also recognized in settlement charge of $7 million was also recognized in the fourth quarter of 2017. the fourth quarter of 2017. in in In the first quarter of 2016 International Paper In the first quarter of 2016 International Paper announced a voluntary, limited-time opportunity for announced a voluntary, limited-time opportunity for former employees who are participants the the former employees who are participants Retirement Plan of International Paper Company (the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this payment. The amount of total payments under this program was approximately $1.2 billion, and were made program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules level of payments made, settlement accounting rules applied and resulted in a plan remeasurement as of the applied and resulted in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion accounting, the Company recognized a pro-rata portion loss, after of loss, after of remeasurement, resulting in a $439 million non-cash remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small respectively, due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was lump sum payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement December 31, 2016. As a result of settlement recognized non-cash accounting, recognized non-cash accounting, settlement charges of $3 million in both the third and settlement charges of $3 million in both the third and fourth quarters of 2016. fourth quarters of 2016. the unamortized net actuarial the unamortized net actuarial the Company the Company ASSUMPTIONS ASSUMPTIONS accounting accounting International Paper evaluates its actuarial assumptions International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) annually as of December 31 (the measurement date) and considers changes in these long-term factors based and considers changes in these long-term factors based upon market conditions and the requirements for upon market conditions and the requirements for employers’ pensions. These employers’ pensions. These assumptions are used to calculate benefit obligations assumptions are used to calculate benefit obligations as of December 31 of the current year and pension as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation discount rate used to determine the benefit obligation as of December 31, 2017 was also the discount rate as of December 31, 2017 was also the discount rate used to determine net pension expense for the 2018 used to determine net pension expense for the 2018 year). year). for for Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined 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: benefit plans are presented in the following table: Actuarial assumptions used to determine benefit obligations as of December 31: Actuarial assumptions used to determine benefit obligations as of December 31: Actuarial assumptions used to determine net periodic pension cost for years ended Actuarial assumptions used to determine net periodic pension cost for years ended Discount rate Discount rate Rate of compensation increase Rate of compensation increase December 31: December 31: Discount rate (a) Discount rate (a) Expected long-term rate of return on plan assets Expected long-term rate of return on plan assets Rate of compensation increase Rate of compensation increase 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans 3.60% 3.59% 4.10% 3.88% 4.40% 4.64% 3.60% 3.59% 4.10% 3.88% 4.40% 4.64% 3.75% 4.06% 3.75% 4.20% 3.75% 4.12% 3.75% 4.06% 3.75% 4.20% 3.75% 4.12% 4.03% 3.88% 4.05% 4.72% 4.10% 4.72% 4.03% 3.88% 4.05% 4.72% 4.10% 4.72% 7.50% 6.73% 7.75% 6.55% 7.75% 6.64% 7.50% 6.73% 7.75% 6.55% 7.75% 6.64% 3.75% 4.20% 3.75% 4.03% 3.75% 4.03% 3.75% 4.20% 3.75% 4.03% 3.75% 4.03% (a) Represents the weighted average rate for the U.S. qualified plans in 2017 and 2016 due to the remeasurements. (a) Represents the weighted average rate for the U.S. qualified plans in 2017 and 2016 due to the remeasurements. The expected long-term rate of return on plan assets is The expected long-term rate of return on plan assets is The following illustrates the effect on pension expense The following illustrates the effect on pension expense based on projected rates of return for current and based on projected rates of return for current and for 2018 of a 25 basis point decrease in the above for 2018 of a 25 basis point decrease in the above planned asset classes in the plan’s investment portfolio. planned asset classes in the plan’s investment portfolio. assumptions: assumptions: Projected rates of return are developed through an Projected rates of return are developed through an asset/liability study in which projected returns for each asset/liability study in which projected returns for each of the plan’s asset classes are determined after of the plan’s asset classes are determined after analyzing historical experience and future expectations analyzing historical experience and future expectations of returns and volatility of the various asset classes. of returns and volatility of the various asset classes. Based on the target asset allocation for each asset class, Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is the overall expected rate of return for the portfolio is developed considering the effects of active portfolio developed considering the effects of active portfolio management and expenses paid from plan assets. The management and expenses paid from plan assets. The discount rate assumption was determined from a discount rate assumption was determined from a universe of high quality corporate bonds. A settlement universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate of the plan’s projected benefit payments. To calculate pension expense for 2018, the Company will use an pension expense for 2018, the Company will use an expected long-term rate of return on plan assets of expected long-term rate of return on plan assets of 7.50% for the Retirement Plan of International Paper, a 7.50% for the Retirement Plan of International Paper, a discount rate of 3.60% and an assumed rate of discount rate of 3.60% and an assumed rate of compensation increase of 3.75%. The Company compensation increase of 3.75%. The Company estimates that it will record net pension expense of estimates that it will record net pension expense of approximately $167 million for its U.S. defined benefit approximately $167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 million in plans in 2018, compared to expense of $717 million in 2017. The 2017 expense includes $45 million of 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated curtailment and special pension benefits associated with the North American Consumer Packaging business with the North American Consumer Packaging business and $383 million of settlement accounting charges. and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a interest cost on the reduced pension obligation and a higher expected return on assets associated with the higher expected return on assets associated with the increased pension asset balance. increased pension asset balance. For non-U.S. pension plans, assumptions reflect For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country. economic assumptions applicable to each country. In millions In millions Expense/(Income): Expense/(Income): Discount rate Discount rate PLAN ASSETS PLAN ASSETS Expected long-term rate of return on plan assets Expected long-term rate of return on plan assets Rate of compensation increase Rate of compensation increase 2018 2018 $ $ 35 35 27 27 (1) (1) International Paper’s Board of Directors has appointed International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk. to maximize returns within prudent levels of risk. The Pension Plan maintains a strategic asset allocation The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. policy that designates target allocations by asset class. Investments are diversified across classes and within Investments are diversified across classes and within each class to minimize the risk of large losses. each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic hedging or other risk management purposes. Periodic reviews are made of investment policy objectives and reviews are made of investment policy objectives and investment manager performance. For non-U.S. plans, investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed assets consist principally of common stock and fixed income securities. income securities. International Paper’s U.S. pension allocations by type International Paper’s U.S. pension allocations by type of fund at December 31, and target allocations were as of fund at December 31, and target allocations were as follows: follows: Asset Class Asset Class Equity accounts Equity accounts Fixed income accounts Fixed income accounts Real estate accounts Real estate accounts Other Other Total Total 2017 2017 2016 2016 Target Target Allocations Allocations 42% - 53% 42% - 53% 32% - 44% 32% - 44% 7% - 13% 7% - 13% 3% - 8% 3% - 8% 51% 51% 27% 27% 10% 10% 12% 12% 49% 49% 36% 36% 10% 10% 5% 5% 100% 100% 100% 100% 71 71 72 72 million, respectively. million, respectively. NET PERIODIC PENSION EXPENSE NET PERIODIC PENSION EXPENSE Service cost is the actuarial present value of benefits Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost rendered by employees during the year. Interest cost represents the increase in the projected benefit represents the increase in the projected benefit obligation, which is a discounted amount, due to the obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets passage of time. The expected return on plan assets reflects the computed amount of current-year earnings reflects the computed amount of current-year earnings from the investment of plan assets using an estimated from the investment of plan assets using an estimated long-term rate of return. long-term rate of return. Net periodic pension expense Net periodic pension expense for qualified and for qualified and nonqualified U.S. and non-U.S. defined benefit plans nonqualified U.S. and non-U.S. defined benefit plans comprised the following: comprised the following: 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Service cost Service cost $ 160 $ $ 160 $ 4 $ 158 $ 4 $ 158 $ 4 $ 161 $ 4 $ 161 $ Interest cost Interest cost 536 536 9 9 580 580 9 9 597 597 (774) (774) (11) (11) (815) (815) (10) (10) (783) (783) (11) (11) 339 339 2 2 400 400 1 1 428 428 1 1 28 28 23 23 383 383 — — — — 1 1 41 41 — — 445 445 — — — — — — 43 43 — — 15 15 22 22 — — — — — — — — In millions In millions Expected return Expected return on plan assets on plan assets Actuarial loss / Actuarial loss / (gain) (gain) Amortization of Amortization of prior service cost prior service cost Curtailment Curtailment loss / (gain) (a) loss / (gain) (a) Settlement loss Settlement loss Special Special termination termination benefits (a) benefits (a) Net periodic Net periodic pension pension expense expense $ 717 $ $ 717 $ 5 $ 809 $ 5 $ 809 $ 4 $ 461 $ 4 $ 461 $ 6 6 (a) Recorded in Discontinued operations in the consolidated (a) Recorded in Discontinued operations in the consolidated statement of operations. statement of operations. The decrease in 2017 pension expense reflects lower The decrease in 2017 pension expense reflects lower settlement losses and lower actuarial losses partially settlement losses and lower actuarial losses partially offset by lower asset returns due to the annuity purchase offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit as well as curtailment and special termination benefit charges. charges. On September 26, 2017, the Company entered into an On September 26, 2017, the Company entered into an agreement with The Prudential Insurance Company of agreement with The Prudential Insurance Company of America to purchase a group annuity contract and America to purchase a group annuity contract and transfer approximately $1.3 billion of International transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit Paper's U.S. qualified pension plan projected benefit obligations, subject to customary closing conditions. obligations, subject to customary closing conditions. The transaction closed on October 3, 2017 and was The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction, funded with pension plan assets. Under the transaction, 6 6 10 10 — — — — — — — — for pension benefits and annuity administration for for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries approximately 45,000 retirees or their beneficiaries receiving less than $450 in monthly benefit payments receiving less than $450 in monthly benefit payments from the plan. Settlement accounting rules required a from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension 2017 and the Company recognized a non-cash pension settlement charge of $376 million before tax in the fourth settlement charge of $376 million before tax in the fourth quarter of 2017. In addition, large payments from the quarter of 2017. In addition, large payments from the non-qualified pension plan also non-qualified pension plan also required a required a remeasurement as of October 2, 2017 and a non-cash remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was also recognized in settlement charge of $7 million was also recognized in the fourth quarter of 2017. the fourth quarter of 2017. In the first quarter of 2016 International Paper In the first quarter of 2016 International Paper announced a voluntary, limited-time opportunity for announced a voluntary, limited-time opportunity for former employees who are participants former employees who are participants in in the the Retirement Plan of International Paper Company (the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this payment. The amount of total payments under this program was approximately $1.2 billion, and were made program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules level of payments made, settlement accounting rules applied and resulted in a plan remeasurement as of the applied and resulted in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion accounting, the Company recognized a pro-rata portion of of the unamortized net actuarial the unamortized net actuarial loss, after loss, after remeasurement, resulting in a $439 million non-cash remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small respectively, due to mandatory cash payouts and a small lump sum payout, and lump sum payout, and the Pension Plan was the Pension Plan was subsequently remeasured at September 30, 2016 and subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement December 31, 2016. As a result of settlement accounting, accounting, the Company the Company recognized non-cash recognized non-cash settlement charges of $3 million in both the third and settlement charges of $3 million in both the third and fourth quarters of 2016. fourth quarters of 2016. ASSUMPTIONS ASSUMPTIONS International Paper evaluates its actuarial assumptions International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) annually as of December 31 (the measurement date) and considers changes in these long-term factors based and considers changes in these long-term factors based upon market conditions and the requirements for upon market conditions and the requirements for employers’ employers’ accounting accounting for for pensions. These pensions. These assumptions are used to calculate benefit obligations assumptions are used to calculate benefit obligations as of December 31 of the current year and pension as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation discount rate used to determine the benefit obligation as of December 31, 2017 was also the discount rate as of December 31, 2017 was also the discount rate used to determine net pension expense for the 2018 used to determine net pension expense for the 2018 year). year). fiscal year are expected to be $327 million and $17 fiscal year are expected to be $327 million and $17 at the end of 2017, Prudential assumed responsibility at the end of 2017, Prudential assumed responsibility Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined 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: benefit plans are presented in the following table: Actuarial assumptions used to determine benefit obligations as of December 31: Actuarial assumptions used to determine benefit obligations as of December 31: Discount rate Discount rate Rate of compensation increase Rate of compensation increase Actuarial assumptions used to determine net periodic pension cost for years ended Actuarial assumptions used to determine net periodic pension cost for years ended December 31: December 31: Discount rate (a) Discount rate (a) Expected long-term rate of return on plan assets Expected long-term rate of return on plan assets Rate of compensation increase Rate of compensation increase 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans 3.60% 3.59% 4.10% 3.88% 4.40% 4.64% 3.60% 3.59% 4.10% 3.88% 4.40% 4.64% 3.75% 4.06% 3.75% 4.20% 3.75% 4.12% 3.75% 4.06% 3.75% 4.20% 3.75% 4.12% 4.03% 3.88% 4.05% 4.72% 4.10% 4.72% 4.03% 3.88% 4.05% 4.72% 4.10% 4.72% 7.50% 6.73% 7.75% 6.55% 7.75% 6.64% 7.50% 6.73% 7.75% 6.55% 7.75% 6.64% 3.75% 4.20% 3.75% 4.03% 3.75% 4.03% 3.75% 4.20% 3.75% 4.03% 3.75% 4.03% (a) Represents the weighted average rate for the U.S. qualified plans in 2017 and 2016 due to the remeasurements. (a) Represents the weighted average rate for the U.S. qualified plans in 2017 and 2016 due to the remeasurements. The expected long-term rate of return on plan assets is The expected long-term rate of return on plan assets is based on projected rates of return for current and based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. planned asset classes in the plan’s investment portfolio. Projected rates of return are developed through an Projected rates of return are developed through an asset/liability study in which projected returns for each asset/liability study in which projected returns for each of the plan’s asset classes are determined after of the plan’s asset classes are determined after analyzing historical experience and future expectations analyzing historical experience and future expectations of returns and volatility of the various asset classes. of returns and volatility of the various asset classes. Based on the target asset allocation for each asset class, Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is the overall expected rate of return for the portfolio is developed considering the effects of active portfolio developed considering the effects of active portfolio management and expenses paid from plan assets. The management and expenses paid from plan assets. The discount rate assumption was determined from a discount rate assumption was determined from a universe of high quality corporate bonds. A settlement universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate of the plan’s projected benefit payments. To calculate pension expense for 2018, the Company will use an pension expense for 2018, the Company will use an expected long-term rate of return on plan assets of expected long-term rate of return on plan assets of 7.50% for the Retirement Plan of International Paper, a 7.50% for the Retirement Plan of International Paper, a discount rate of 3.60% and an assumed rate of discount rate of 3.60% and an assumed rate of compensation increase of 3.75%. The Company compensation increase of 3.75%. The Company estimates that it will record net pension expense of estimates that it will record net pension expense of approximately $167 million for its U.S. defined benefit approximately $167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 million in plans in 2018, compared to expense of $717 million in 2017. The 2017 expense includes $45 million of 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated curtailment and special pension benefits associated with the North American Consumer Packaging business with the North American Consumer Packaging business and $383 million of settlement accounting charges. and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a interest cost on the reduced pension obligation and a higher expected return on assets associated with the higher expected return on assets associated with the increased pension asset balance. increased pension asset balance. For non-U.S. pension plans, assumptions reflect For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country. economic assumptions applicable to each country. The following illustrates the effect on pension expense The following illustrates the effect on pension expense for 2018 of a 25 basis point decrease in the above for 2018 of a 25 basis point decrease in the above assumptions: assumptions: In millions In millions Expense/(Income): Expense/(Income): Discount rate Discount rate Expected long-term rate of return on plan assets Expected long-term rate of return on plan assets Rate of compensation increase Rate of compensation increase PLAN ASSETS PLAN ASSETS 2018 2018 $ $ 35 35 27 27 (1) (1) International Paper’s Board of Directors has appointed International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk. to maximize returns within prudent levels of risk. The Pension Plan maintains a strategic asset allocation The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. policy that designates target allocations by asset class. Investments are diversified across classes and within Investments are diversified across classes and within each class to minimize the risk of large losses. each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic hedging or other risk management purposes. Periodic reviews are made of investment policy objectives and reviews are made of investment policy objectives and investment manager performance. For non-U.S. plans, investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed assets consist principally of common stock and fixed income securities. income securities. International Paper’s U.S. pension allocations by type International Paper’s U.S. pension allocations by type of fund at December 31, and target allocations were as of fund at December 31, and target allocations were as follows: follows: Asset Class Asset Class 2017 2017 2016 2016 Equity accounts Equity accounts Fixed income accounts Fixed income accounts Real estate accounts Real estate accounts Other Other Total Total 49% 49% 36% 36% 10% 10% 5% 5% 51% 51% 27% 27% 10% 10% 12% 12% 100% 100% 100% 100% Target Target Allocations Allocations 42% - 53% 42% - 53% 32% - 44% 32% - 44% 7% - 13% 7% - 13% 3% - 8% 3% - 8% 71 71 72 72 The fair values of International Paper’s pension plan The fair values of International Paper’s pension plan assets at December 31, 2017 and 2016 by asset class assets at December 31, 2017 and 2016 by asset class are shown below. Plan assets included an immaterial are shown below. Plan assets included an immaterial amount of International Paper common stock at amount of International Paper common stock at December 31, 2016. Hedge funds disclosed in the December 31, 2016. Hedge funds disclosed in the following table are allocated equally between equity and following table are allocated equally between equity and fixed income accounts for target allocation purposes. fixed income accounts for target allocation purposes. Fair Value Measurement at December 31, 2017 Fair Value Measurement at December 31, 2017 Quoted Quoted Prices Prices in in Active Active Markets Markets For For Identical Identical Assets Assets (Level 1) (Level 1) Total Total Significant Significant Observable Observable Inputs Inputs (Level 2) (Level 2) Significant Significant Unobservable Unobservable Inputs Inputs (Level 3) (Level 3) Asset Class Asset Class In millions In millions — — — — — — — — 1 1 12 12 — — 16 16 — — Equities – domestic Equities – domestic $ 1,291 $ $ 1,291 $ 1,291 $ 1,291 $ — $ — $ 2,119 2,119 — — — — — — — — — — — — 397 397 13 13 1,177 1,177 2,778 2,778 — — (814) (814) — — (8) (8) — — Equities – international Equities – international Corporate bonds Corporate bonds Government securities Government securities Mortgage backed securities Mortgage backed securities Other fixed income Other fixed income Commodities Commodities Derivatives Derivatives Cash and cash equivalents Cash and cash equivalents Other investments: Other investments: Equities - domestic Equities - domestic Equities - international Equities - international Corporate bonds Corporate bonds Other fixed income Other fixed income Hedge funds Hedge funds Private equity Private equity Real estate Real estate 2,132 2,132 1,177 1,177 2,778 2,778 1 1 (802) (802) — — 8 8 397 397 708 708 866 866 66 66 232 232 927 927 481 481 1,106 1,106 Total Investments Total Investments $11,368 $ $11,368 $ 3,807 $ 3,807 $ 3,146 $ 3,146 $ 29 29 Fair Value Measurement at December 31, 2016 Fair Value Measurement at December 31, 2016 Quoted Quoted Prices Prices in in Active Active Markets Markets For For Identical Identical Assets Assets (Level 1) (Level 1) Total Total Significant Significant Observable Observable Inputs Inputs (Level 2) (Level 2) Significant Significant Unobservable Unobservable Inputs Inputs (Level 3) (Level 3) Asset Class Asset Class In millions In millions Equities – domestic Equities – domestic $ 2,208 $ $ 2,208 $ 1,380 $ 1,380 $ 828 $ 828 $ 1,806 1,806 — — — — — — — — — — — — 322 322 769 769 1,018 1,018 870 870 40 40 234 234 324 324 — — — — Equities – international Equities – international Corporate bonds Corporate bonds Government securities Government securities Mortgage backed securities Mortgage backed securities Other fixed income Other fixed income Commodities Commodities Derivatives Derivatives Cash and cash equivalents Cash and cash equivalents Other investments: Other investments: Hedge funds Hedge funds Private equity Private equity Real estate Real estate Risk parity funds Risk parity funds 2,575 2,575 1,018 1,018 870 870 41 41 245 245 324 324 (71) (71) 322 322 891 891 472 472 1,015 1,015 402 402 — — — — — — — — 1 1 11 11 — — (71) (71) — — Total Investments Total Investments $10,312 $ $10,312 $ 3,508 $ 3,508 $ 4,083 $ 4,083 $ (59) (59) In accordance with accounting standards, the following In accordance with accounting standards, the following investments are measured at NAV and are not classified investments are measured at NAV and are not classified in the fair value hierarchy. Some of the investments have in the fair value hierarchy. Some of the investments have limitations, limitations, Total Total $ $ 4,386 $ 4,386 $ 866 866 66 66 232 232 927 927 481 481 1,106 1,106 $ $ 708 $ 708 $ — Daily to monthly — Daily to monthly 1-5 days 1-5 days restrictions, and notice restrictions, and notice Equities - Equities - domestic domestic Equities - Equities - international international Corporate Corporate bonds bonds Other fixed Other fixed income income Hedge funds Hedge funds Private equity Private equity Real estate Real estate redemption redemption requirements which are further explained below. requirements which are further explained below. — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to annually — Daily to annually 1 - 100 days 1 - 100 days None None None None Quarterly Quarterly 45 - 60 days 45 - 60 days 262 262 121 121 383 383 Other Investments at December 31, 2017 Other Investments at December 31, 2017 valued based upon the net asset values of the underlying valued based upon the net asset values of the underlying Investment Investment Fair Value Fair Value Unfunded Unfunded Commitments Commitments Redemption Redemption Frequency Frequency Remediation Remediation Notice Period Notice Period investments in hedge funds. investments in hedge funds. and primarily by applying a market or income valuation and primarily by applying a market or income valuation underlying investments which include inputs such as underlying investments which include inputs such as methodology as appropriate depending on the specific methodology as appropriate depending on the specific cost, discounted cash flows, independent appraisals cost, discounted cash flows, independent appraisals type of security or instrument held. Funds-of-funds are type of security or instrument held. Funds-of-funds are and market based comparable data. and market based comparable data. Derivative Derivative investments such as investments such as futures, futures, forward forward contracts, options and swaps are used to help manage contracts, options and swaps are used to help manage Private equity consists of interests in partnerships that Private equity consists of interests in partnerships that risks. Derivatives are generally employed as an asset risks. Derivatives are generally employed as an asset invest in U.S. and non-U.S. debt and equity securities. invest in U.S. and non-U.S. debt and equity securities. class substitutes (such as when employed in a portable class substitutes (such as when employed in a portable Partnership interests are valued using the most recent Partnership interests are valued using the most recent alpha alpha strategy), strategy), for managing for managing asset/liability asset/liability general partner statement of fair value, updated for any general partner statement of fair value, updated for any mismatches, or bona fide hedging or other appropriate mismatches, or bona fide hedging or other appropriate subsequent partnership interest cash flows. subsequent partnership interest cash flows. risk management purposes. Derivative instruments are risk management purposes. Derivative instruments are generally valued by the investment managers or in generally valued by the investment managers or in Real estate includes commercial properties, land and Real estate includes commercial properties, land and certain instances by third-party pricing sources. certain instances by third-party pricing sources. timberland, and generally includes, but is not limited to, timberland, and generally includes, but is not limited to, retail, office, industrial, multifamily and hotel properties. retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the Real estate fund values are primarily reported by the fund manager and are based on valuation of the fund manager and are based on valuation of the The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, 2017. December 31, 2017. Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) In millions In millions Beginning balance at December 31, 2015 Beginning balance at December 31, 2015 Actual return on plan assets: Actual return on plan assets: Relating to assets still held at the reporting date Relating to assets still held at the reporting date Relating to assets sold during the period Relating to assets sold during the period Purchases, sales and settlements Purchases, sales and settlements Transfers in and/or out of Level 3 Transfers in and/or out of Level 3 Ending balance at December 31, 2016 Ending balance at December 31, 2016 Actual return on plan assets: Actual return on plan assets: Relating to assets still held at the reporting date Relating to assets still held at the reporting date Relating to assets sold during the period Relating to assets sold during the period Purchases, sales and settlements Purchases, sales and settlements Transfers in and/or out of Level 3 Transfers in and/or out of Level 3 Ending balance at December 31, 2017 Ending balance at December 31, 2017 FUNDING AND CASH FLOWS FUNDING AND CASH FLOWS The Company’s funding policy for the Pension Plan is The Company’s funding policy for the Pension Plan is to contribute amounts sufficient to meet legal funding to contribute amounts sufficient to meet legal funding follows: follows: requirements, plus any additional amounts that the requirements, plus any additional amounts that the In millions In millions Company may determine to be appropriate considering Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash the funded status of the plans, tax deductibility, cash flow generated by the Company, and other factors. The flow generated by the Company, and other factors. The Company continually reassesses the amount and Company continually reassesses the amount and timing of any discretionary contributions. Contributions timing of any discretionary contributions. Contributions to the qualified plan totaling $1.25 billion, $750 million to the qualified plan totaling $1.25 billion, $750 million and $750 million were made by the Company in 2017, and $750 million were made by the Company in 2017, 2016 and 2015, respectively. Generally, International 2016 and 2015, respectively. Generally, International Paper’s non-U.S. pension plans are funded using the Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries projected benefit as a target, except in certain countries where funding of benefit plans is not required. where funding of benefit plans is not required. 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023-2027 2023-2027 OTHER U.S. PLANS OTHER U.S. PLANS Mortgage Mortgage backed backed securities securities Other Other fixed fixed income Derivatives income Derivatives Total Total $ $ — $ — $ 10 $ 10 $ (20) $ (20) $ (10) (10) $ $ 1 $ 1 $ 11 $ 11 $ (71) $ (71) $ (59) (59) — — — — 1 1 — — — — — — — — — — 1 1 — — — — — — 1 1 — — — — — — (66) (66) (24) (24) 39 39 — — 94 94 (23) (23) 16 16 — — $ $ (65) (65) (24) (24) 40 40 — — 95 95 (23) (23) 16 16 — — 29 29 708 708 709 709 718 718 727 727 735 735 3,763 3,763 $ $ 1 $ 1 $ 12 $ 12 $ 16 $ 16 $ At December 31, 2017, projected future pension benefit At December 31, 2017, projected future pension benefit payments, excluding any termination benefits, were as payments, excluding any termination benefits, were as International Paper sponsors the International Paper International Paper sponsors the International Paper Company Salaried Savings Plan and the International Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are Paper Company Hourly Savings Plan, both of which are Other Investments at December 31, 2016 Other Investments at December 31, 2016 Investment Investment Fair Value Fair Value Unfunded Unfunded Commitments Commitments Redemption Redemption Frequency Frequency Remediation Remediation Notice Period Notice Period Hedge funds Hedge funds $ $ 891 $ 891 $ — Daily to annually — Daily to annually 1 - 100 days 1 - 100 days Private equity Private equity Real estate Real estate Risk parity Risk parity funds funds 472 472 1,015 1,015 402 402 Total Total $ $ 2,780 $ 2,780 $ 226 226 224 224 — — 450 450 None None None None Quarterly Quarterly 45 - 60 days 45 - 60 days Monthly Monthly 5 - 15 days 5 - 15 days Equity securities consist primarily of publicly traded U.S. Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded companies and international companies. Publicly traded equities are valued at the closing prices reported in the equities are valued at the closing prices reported in the active market in which the individual securities are active market in which the individual securities are traded. traded. Fixed income consists of government securities, Fixed income consists of government securities, mortgage-backed securities, corporate bonds and mortgage-backed securities, corporate bonds and common collective funds. Government securities are common collective funds. Government securities are valued by third-party pricing sources. Mortgage-backed valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on are valued using either the yields currently available on comparable securities of issuers with similar credit comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number the net asset value per share multiplied by the number of shares held as of the measurement date. of shares held as of the measurement date. Hedge funds are investment structures for managing Hedge funds are investment structures for managing private, loosely-regulated investment pools that can private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a pursue a diverse array of investment strategies with a wide range of different securities and derivative wide range of different securities and derivative instruments. These investments are made through instruments. These investments are made through funds-of-funds fund funds-of-funds fund structures) and through direct investments in individual structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each hedge funds. Hedge funds are primarily valued by each fund’s the the fund’s valuation of the underlying securities and instruments valuation of the underlying securities and instruments third-party administrator based upon third-party administrator based upon (commingled, multi-manager (commingled, multi-manager 73 73 74 74 The fair values of International Paper’s pension plan The fair values of International Paper’s pension plan redemption redemption limitations, limitations, restrictions, and notice restrictions, and notice assets at December 31, 2017 and 2016 by asset class assets at December 31, 2017 and 2016 by asset class requirements which are further explained below. requirements which are further explained below. Equities – domestic Equities – domestic $ 1,291 $ $ 1,291 $ 1,291 $ 1,291 $ — $ — $ Equities – international Equities – international 2,119 2,119 Total Total $ $ 4,386 $ 4,386 $ are shown below. Plan assets included an immaterial are shown below. Plan assets included an immaterial amount of International Paper common stock at amount of International Paper common stock at December 31, 2016. Hedge funds disclosed in the December 31, 2016. Hedge funds disclosed in the following table are allocated equally between equity and following table are allocated equally between equity and fixed income accounts for target allocation purposes. fixed income accounts for target allocation purposes. Fair Value Measurement at December 31, 2017 Fair Value Measurement at December 31, 2017 Quoted Quoted Prices Prices in in Active Active Markets Markets For For Identical Identical Assets Assets (Level 1) (Level 1) Significant Significant Observable Observable Significant Significant Unobservable Unobservable Inputs Inputs (Level 2) (Level 2) Inputs Inputs (Level 3) (Level 3) — — — — — — — — — — — — 13 13 1,177 1,177 2,778 2,778 — — (814) (814) — — (8) (8) — — Significant Significant Observable Observable Inputs Inputs (Level 2) (Level 2) Significant Significant Unobservable Unobservable Inputs Inputs (Level 3) (Level 3) Quoted Quoted Prices Prices in in Active Active Markets Markets For For Identical Identical Assets Assets (Level 1) (Level 1) 1,806 1,806 — — — — — — — — — — — — 322 322 769 769 1,018 1,018 870 870 40 40 234 234 324 324 — — — — — — — — — — — — 1 1 12 12 — — 16 16 — — — — — — — — — — 1 1 11 11 — — (71) (71) — — Cash and cash equivalents Cash and cash equivalents 397 397 397 397 Asset Class Asset Class In millions In millions Corporate bonds Corporate bonds Government securities Government securities Mortgage backed securities Mortgage backed securities Other fixed income Other fixed income Commodities Commodities Derivatives Derivatives Other investments: Other investments: Equities - domestic Equities - domestic Equities - international Equities - international Corporate bonds Corporate bonds Other fixed income Other fixed income Hedge funds Hedge funds Private equity Private equity Real estate Real estate Asset Class Asset Class In millions In millions Equities – international Equities – international Corporate bonds Corporate bonds Government securities Government securities Mortgage backed securities Mortgage backed securities Other fixed income Other fixed income Commodities Commodities Derivatives Derivatives Cash and cash equivalents Cash and cash equivalents Other investments: Other investments: Hedge funds Hedge funds Private equity Private equity Real estate Real estate Risk parity funds Risk parity funds Total Total 2,132 2,132 1,177 1,177 2,778 2,778 (802) (802) 1 1 — — 8 8 708 708 866 866 66 66 232 232 927 927 481 481 1,106 1,106 Total Total 2,575 2,575 1,018 1,018 870 870 41 41 245 245 324 324 (71) (71) 322 322 891 891 472 472 1,015 1,015 402 402 Total Investments Total Investments $11,368 $ $11,368 $ 3,807 $ 3,807 $ 3,146 $ 3,146 $ 29 29 Fair Value Measurement at December 31, 2016 Fair Value Measurement at December 31, 2016 Equities – domestic Equities – domestic $ 2,208 $ $ 2,208 $ 1,380 $ 1,380 $ 828 $ 828 $ Total Investments Total Investments $10,312 $ $10,312 $ 3,508 $ 3,508 $ 4,083 $ 4,083 $ (59) (59) In accordance with accounting standards, the following In accordance with accounting standards, the following investments are measured at NAV and are not classified investments are measured at NAV and are not classified in the fair value hierarchy. Some of the investments have in the fair value hierarchy. Some of the investments have 262 262 121 121 383 383 226 226 224 224 — — 450 450 Other Investments at December 31, 2017 Other Investments at December 31, 2017 Investment Investment Fair Value Fair Value Unfunded Unfunded Commitments Commitments Redemption Redemption Frequency Frequency Remediation Remediation Notice Period Notice Period $ $ 708 $ 708 $ — Daily to monthly — Daily to monthly 1-5 days 1-5 days Equities - Equities - domestic domestic Equities - Equities - international international Corporate Corporate bonds bonds Other fixed Other fixed income income Hedge funds Hedge funds Private equity Private equity Real estate Real estate 866 866 66 66 232 232 927 927 481 481 1,106 1,106 — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to monthly — Daily to monthly 1-5 days 1-5 days — Daily to annually — Daily to annually 1 - 100 days 1 - 100 days None None None None Quarterly Quarterly 45 - 60 days 45 - 60 days Other Investments at December 31, 2016 Other Investments at December 31, 2016 Investment Investment Fair Value Fair Value Unfunded Unfunded Commitments Commitments Redemption Redemption Frequency Frequency Remediation Remediation Notice Period Notice Period Hedge funds Hedge funds $ $ 891 $ 891 $ — Daily to annually — Daily to annually 1 - 100 days 1 - 100 days Private equity Private equity Real estate Real estate Risk parity Risk parity funds funds 472 472 1,015 1,015 402 402 Total Total $ $ 2,780 $ 2,780 $ None None None None Quarterly Quarterly 45 - 60 days 45 - 60 days Monthly Monthly 5 - 15 days 5 - 15 days Equity securities consist primarily of publicly traded U.S. Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded companies and international companies. Publicly traded equities are valued at the closing prices reported in the equities are valued at the closing prices reported in the active market in which the individual securities are active market in which the individual securities are traded. traded. Fixed income consists of government securities, Fixed income consists of government securities, mortgage-backed securities, corporate bonds and mortgage-backed securities, corporate bonds and common collective funds. Government securities are common collective funds. Government securities are valued by third-party pricing sources. Mortgage-backed valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on are valued using either the yields currently available on comparable securities of issuers with similar credit comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number the net asset value per share multiplied by the number of shares held as of the measurement date. of shares held as of the measurement date. Hedge funds are investment structures for managing Hedge funds are investment structures for managing private, loosely-regulated investment pools that can private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a pursue a diverse array of investment strategies with a wide range of different securities and derivative wide range of different securities and derivative instruments. These investments are made through instruments. These investments are made through funds-of-funds funds-of-funds (commingled, multi-manager (commingled, multi-manager fund fund structures) and through direct investments in individual structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each hedge funds. Hedge funds are primarily valued by each fund’s fund’s third-party administrator based upon third-party administrator based upon the the valuation of the underlying securities and instruments valuation of the underlying securities and instruments and primarily by applying a market or income valuation and primarily by applying a market or income valuation methodology as appropriate depending on the specific methodology as appropriate depending on the specific type of security or instrument held. Funds-of-funds are type of security or instrument held. Funds-of-funds are valued based upon the net asset values of the underlying valued based upon the net asset values of the underlying investments in hedge funds. investments in hedge funds. Private equity consists of interests in partnerships that Private equity consists of interests in partnerships that invest in U.S. and non-U.S. debt and equity securities. invest in U.S. and non-U.S. debt and equity securities. Partnership interests are valued using the most recent Partnership interests are valued using the most recent general partner statement of fair value, updated for any general partner statement of fair value, updated for any subsequent partnership interest cash flows. subsequent partnership interest cash flows. Real estate includes commercial properties, land and Real estate includes commercial properties, land and timberland, and generally includes, but is not limited to, timberland, and generally includes, but is not limited to, retail, office, industrial, multifamily and hotel properties. retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the Real estate fund values are primarily reported by the fund manager and are based on valuation of the fund manager and are based on valuation of the underlying investments which include inputs such as underlying investments which include inputs such as cost, discounted cash flows, independent appraisals cost, discounted cash flows, independent appraisals and market based comparable data. and market based comparable data. futures, futures, investments such as investments such as Derivative forward forward Derivative contracts, options and swaps are used to help manage contracts, options and swaps are used to help manage risks. Derivatives are generally employed as an asset risks. Derivatives are generally employed as an asset class substitutes (such as when employed in a portable class substitutes (such as when employed in a portable alpha asset/liability alpha asset/liability mismatches, or bona fide hedging or other appropriate mismatches, or bona fide hedging or other appropriate risk management purposes. Derivative instruments are risk management purposes. Derivative instruments are generally valued by the investment managers or in generally valued by the investment managers or in certain instances by third-party pricing sources. certain instances by third-party pricing sources. for managing for managing strategy), strategy), The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, 2017. December 31, 2017. Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) In millions In millions Beginning balance at December 31, 2015 Beginning balance at December 31, 2015 Actual return on plan assets: Actual return on plan assets: Relating to assets still held at the reporting date Relating to assets still held at the reporting date Relating to assets sold during the period Relating to assets sold during the period Purchases, sales and settlements Purchases, sales and settlements Transfers in and/or out of Level 3 Transfers in and/or out of Level 3 Ending balance at December 31, 2016 Ending balance at December 31, 2016 Actual return on plan assets: Actual return on plan assets: Relating to assets still held at the reporting date Relating to assets still held at the reporting date Relating to assets sold during the period Relating to assets sold during the period Purchases, sales and settlements Purchases, sales and settlements Transfers in and/or out of Level 3 Transfers in and/or out of Level 3 Ending balance at December 31, 2017 Ending balance at December 31, 2017 FUNDING AND CASH FLOWS FUNDING AND CASH FLOWS The Company’s funding policy for the Pension Plan is The Company’s funding policy for the Pension Plan is to contribute amounts sufficient to meet legal funding to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the requirements, plus any additional amounts that the Company may determine to be appropriate considering Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash the funded status of the plans, tax deductibility, cash flow generated by the Company, and other factors. The flow generated by the Company, and other factors. The Company continually reassesses the amount and Company continually reassesses the amount and timing of any discretionary contributions. Contributions timing of any discretionary contributions. Contributions to the qualified plan totaling $1.25 billion, $750 million to the qualified plan totaling $1.25 billion, $750 million and $750 million were made by the Company in 2017, and $750 million were made by the Company in 2017, 2016 and 2015, respectively. Generally, International 2016 and 2015, respectively. Generally, International Paper’s non-U.S. pension plans are funded using the Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries projected benefit as a target, except in certain countries where funding of benefit plans is not required. where funding of benefit plans is not required. Mortgage Mortgage backed backed securities securities Other Other fixed fixed income Derivatives income Derivatives Total Total $ $ — $ — $ 10 $ 10 $ (20) $ (20) $ (10) (10) — — — — 1 1 — — 1 1 — — — — — — (66) (66) (24) (24) 39 39 — — (65) (65) (24) (24) 40 40 — — $ $ 1 $ 1 $ 11 $ 11 $ (71) $ (71) $ (59) (59) — — — — — — — — 1 1 — — — — — — 94 94 (23) (23) 16 16 — — $ $ 1 $ 1 $ 12 $ 12 $ 16 $ 16 $ 95 95 (23) (23) 16 16 — — 29 29 At December 31, 2017, projected future pension benefit At December 31, 2017, projected future pension benefit payments, excluding any termination benefits, were as payments, excluding any termination benefits, were as follows: follows: In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023-2027 2023-2027 OTHER U.S. PLANS OTHER U.S. PLANS $ $ 708 708 709 709 718 718 727 727 735 735 3,763 3,763 International Paper sponsors the International Paper International Paper sponsors the International Paper Company Salaried Savings Plan and the International Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are Paper Company Hourly Savings Plan, both of which are 73 73 74 74 tax-qualified defined contribution 401(k) savings plans. tax-qualified defined contribution 401(k) savings plans. Substantially all U.S. salaried and certain hourly Substantially all U.S. salaried and certain hourly employees are eligible to participate and may make employees are eligible to participate and may make elective deferrals to such plans to save for retirement. elective deferrals to such plans to save for retirement. International Paper makes matching contributions to International Paper makes matching contributions to participant accounts on a specified percentage of participant accounts on a specified percentage of employee deferrals as determined by the provisions of employee deferrals as determined by the provisions of each plan. For eligible employees hired after June 30, each plan. For eligible employees hired after June 30, 2004, the Company makes Retirement Savings Account 2004, the Company makes Retirement Savings Account contributions equal to a percentage of an eligible contributions equal to a percentage of an eligible employee’s pay. employee’s pay. The Company also sponsors the International Paper The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make This plan permits eligible employees to continue to make deferrals and receive company matching contributions deferrals and receive company matching contributions (and Retirement Savings Account contributions) when (and Retirement Savings Account contributions) when their contributions to the International Paper Salaried their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company contributions tax law. Participant deferrals and company contributions are not invested in a separate trust, but are paid directly are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time from International Paper’s general assets at the time benefits become due and payable. benefits become due and payable. contributions contributions Company totaled totaled Company approximately $117 million, $106 million and $100 approximately $117 million, $106 million and $100 million for the plan years ending in 2017, 2016 and 2015, million for the plan years ending in 2017, 2016 and 2015, respectively. respectively. the plans the plans to to NOTE 17 POSTRETIREMENT BENEFITS NOTE 17 POSTRETIREMENT BENEFITS U.S. POSTRETIREMENT BENEFITS U.S. POSTRETIREMENT BENEFITS International Paper provides certain retiree health care International Paper provides certain retiree health care and life insurance benefits covering certain U.S. and life insurance benefits covering certain U.S. salaried and hourly employees. These employees are salaried and hourly employees. These employees are generally eligible for benefits upon retirement and generally eligible for benefits upon retirement and completion of a specified number of years of creditable completion of a specified number of years of creditable service. International Paper does not fund these service. International Paper does not fund these benefits prior to payment and has the right to modify or benefits prior to payment and has the right to modify or terminate certain of these plans in the future. terminate certain of these plans in the future. In addition to the U.S. plan, certain Brazilian and In addition to the U.S. plan, certain Brazilian and Moroccan employees are eligible for retiree health care Moroccan employees are eligible for retiree health care and life insurance benefits. and life insurance benefits. The components of postretirement benefit expense in The components of postretirement benefit expense in 2017, 2016 and 2015 were as follows: 2017, 2016 and 2015 were as follows: In millions In millions 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $ $ 1 $ — $ 1 $ — $ 1 $ — $ 1 $ — $ 1 $ 1 $ 11 11 8 8 2 2 3 3 11 11 5 5 3 3 2 2 11 11 6 6 1 1 5 5 1 1 (3) (3) (4) (4) (4) (4) (4) (4) (10) (10) (2) (2) plans. plans. $ $ 17 $ 17 $ 1 $ 1 $ 13 $ 13 $ 1 $ 1 $ 8 $ 8 $ 5 5 Service cost Service cost Interest cost Interest cost Actuarial loss Actuarial loss Amortization of Amortization of prior service prior service credits credits Net Net postretirement postretirement (benefit) (benefit) expense expense International Paper evaluates its actuarial assumptions International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) annually as of December 31 (the measurement date) and considers changes in these long-term factors and considers changes in these long-term factors based upon market conditions and the requirements of based upon market conditions and the requirements of employers’ accounting for postretirement benefits other employers’ accounting for postretirement benefits other than pensions. The discount rate assumption was than pensions. The discount rate assumption was determined based on a hypothetical settlement portfolio determined based on a hypothetical settlement portfolio selected from a universe of high quality corporate selected from a universe of high quality corporate bonds. bonds. The discount rates used to determine net U.S. and non- The discount rates used to determine net U.S. and non- U.S. postretirement benefit cost for the years ended U.S. postretirement benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows: December 31, 2017, 2016 and 2015 were as follows: 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Discount rate Discount rate 4.00% 10.53% 4.20% 12.23% 3.90% 11.52% 4.00% 10.53% 4.20% 12.23% 3.90% 11.52% The weighted average assumptions used to determine The weighted average assumptions used to determine the benefit obligation at December 31, 2017 and 2016 the benefit obligation at December 31, 2017 and 2016 were as follows: were as follows: 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Discount rate Discount rate 3.50% 9.38% 4.00% 10.53% 3.50% 9.38% 4.00% 10.53% Health care cost trend rate Health care cost trend rate assumed for next year assumed for next year Rate that the cost trend rate Rate that the cost trend rate gradually declines to gradually declines to Year that the rate reaches Year that the rate reaches the rate it is assumed to the rate it is assumed to remain remain 6.50% 10.27% 6.50% 10.90% 6.50% 10.27% 6.50% 10.90% 5.00% 5.15% 5.00% 5.81% 5.00% 5.15% 5.00% 5.81% 2022 2022 2028 2028 2022 2022 2027 2027 A 1% increase in the assumed annual health care cost A 1% increase in the assumed annual health care cost The non-current portion of the liability is included with The non-current portion of the liability is included with trend rate would have increased the U.S. and non-U.S. trend rate would have increased the U.S. and non-U.S. the postemployment liability in the accompanying the postemployment liability in the accompanying accumulated postretirement benefit obligations at accumulated postretirement benefit obligations at consolidated balance sheet under Postretirement and consolidated balance sheet under Postretirement and December 31, 2017 by approximately $12 million and December 31, 2017 by approximately $12 million and postemployment benefit obligation. postemployment benefit obligation. $6 million, respectively. A 1% decrease in the annual $6 million, respectively. A 1% decrease in the annual trend rate would have decreased the U.S. and non-U.S. trend rate would have decreased the U.S. and non-U.S. The components of the $8 million and $2 million change The components of the $8 million and $2 million change accumulated postretirement benefit obligation at accumulated postretirement benefit obligation at in the amounts recognized in OCI during 2017 for U.S. in the amounts recognized in OCI during 2017 for U.S. December 31, 2017 by approximately $10 million and December 31, 2017 by approximately $10 million and and non-U.S. plans, respectively, consisted of: and non-U.S. plans, respectively, consisted of: $4 million, respectively. The effect on net postretirement $4 million, respectively. The effect on net postretirement benefit cost from a 1% increase or decrease would be benefit cost from a 1% increase or decrease would be approximately $1 million for both U.S. and non-U.S. approximately $1 million for both U.S. and non-U.S. In millions In millions The plans are only funded in an amount equal to The plans are only funded in an amount equal to benefits paid. The following table presents the changes benefits paid. The following table presents the changes in benefit obligation and plan assets for 2017 and 2016: in benefit obligation and plan assets for 2017 and 2016: In millions In millions 2017 2017 2016 2016 Current year actuarial loss Current year actuarial loss Amortization of actuarial (loss) gain Amortization of actuarial (loss) gain Current year prior service cost Current year prior service cost Amortization of prior service credit Amortization of prior service credit Currency impact Currency impact U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $ $ 14 $ 14 $ (8) (8) — — 2 2 — — $ $ 8 $ 8 $ 1 1 (3) (3) — — 4 4 — — 2 2 Benefit obligation, January 1 Benefit obligation, January 1 $ 280 $ $ 280 $ 23 $ 275 $ 23 $ 275 $ U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans 1 1 11 11 5 5 14 14 — — 1 1 — — — — 2 2 — — 2 2 — — (2) (2) — — — — 11 11 1 1 5 5 31 31 — — 1 1 — — (42) (42) (44) (44) 45 45 — — 3 3 — — 5 5 (35) (35) (1) (1) — — 6 6 $ 270 $ $ 270 $ 25 $ 280 $ 25 $ 280 $ 23 23 $ — $ — $ — $ — $ — $ — $ — $ — 37 37 5 5 (42) (42) 2 2 — — (2) (2) 39 39 5 5 (44) (44) 1 1 — — (1) (1) $ — $ — $ — $ — $ — $ — $ — $ — Change in projected benefit Change in projected benefit obligation: obligation: Service cost Service cost Interest cost Interest cost Participants’ contributions Participants’ contributions Actuarial (gain) loss Actuarial (gain) loss Plan amendments Plan amendments Benefits paid Benefits paid Less: Federal subsidy Less: Federal subsidy Currency Impact Currency Impact Benefit obligation, Benefit obligation, December 31 December 31 Change in plan assets: Change in plan assets: Fair value of plan assets, Fair value of plan assets, January 1 January 1 Company contributions Company contributions Participants’ contributions Participants’ contributions Benefits paid Benefits paid Fair value of plan assets, Fair value of plan assets, December 31 December 31 Amounts recognized in the Amounts recognized in the consolidated balance sheet consolidated balance sheet under ASC 715: under ASC 715: Amounts recognized in Amounts recognized in accumulated other accumulated other comprehensive income under comprehensive income under ASC 715 (pre-tax): ASC 715 (pre-tax): Funded status, December 31 Funded status, December 31 $ (270) $ (25) $ (280) $ (23) $ (270) $ (25) $ (280) $ (23) Current liability Current liability $ (28) $ $ (28) $ (1) $ (29) $ (1) $ (29) $ Non-current liability Non-current liability (242) (242) (24) (24) (251) (251) (2) (2) (21) (21) $ (270) $ (25) $ (280) $ (23) $ (270) $ (25) $ (280) $ (23) 2023 – 2027 2023 – 2027 Prior service credit Prior service credit Net actuarial loss (gain) Net actuarial loss (gain) 74 $ 74 $ 19 $ 19 $ 68 $ 68 $ 21 21 $ $ $ $ (6) (6) (30) (30) (8) (8) (34) (34) 68 $ (11) $ 68 $ (11) $ 60 $ (13) 60 $ (13) The portion of the change in the funded status that was The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for recognized in either net periodic benefit cost or OCI for the U.S. plans was $25 million, $42 million and $17 the U.S. plans was $25 million, $42 million and $17 million in 2017, 2016 and 2015, respectively. The million in 2017, 2016 and 2015, respectively. The portion of the change in funded status for the non-U.S. portion of the change in funded status for the non-U.S. plans was $3 million, $(25) million, and $0 million in plans was $3 million, $(25) million, and $0 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. The estimated amounts of net loss and prior service The estimated amounts of net loss and prior service credit that will be amortized from OCI into net U.S. credit that will be amortized from OCI into net U.S. postretirement benefit cost in 2018 are expected to be postretirement benefit cost in 2018 are expected to be $8 million and $(2) million, respectively. The estimated $8 million and $(2) million, respectively. The estimated amounts for non-U.S. plans in 2018 are expected to be amounts for non-U.S. plans in 2018 are expected to be $2 million and $(4) million, respectively. $2 million and $(4) million, respectively. At December 31, 2017, estimated At December 31, 2017, estimated total total future future postretirement benefit payments, net of participant postretirement benefit payments, net of participant contributions and estimated future Medicare Part D contributions and estimated future Medicare Part D subsidy receipts, were as follows: subsidy receipts, were as follows: In millions In millions 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Benefit Benefit Payments Payments Subsidy Subsidy Receipts Receipts Benefit Benefit Payments Payments U.S. U.S. Plans Plans U.S. U.S. Plans Plans $ $ 29 $ 29 $ 1 $ 1 $ Non- Non- U.S. U.S. Plans Plans 27 27 25 25 24 24 22 22 91 91 1 1 1 1 1 1 1 1 5 5 1 1 1 1 1 1 — — — — 4 4 75 75 76 76 tax-qualified defined contribution 401(k) savings plans. tax-qualified defined contribution 401(k) savings plans. The components of postretirement benefit expense in The components of postretirement benefit expense in Substantially all U.S. salaried and certain hourly Substantially all U.S. salaried and certain hourly 2017, 2016 and 2015 were as follows: 2017, 2016 and 2015 were as follows: employees are eligible to participate and may make employees are eligible to participate and may make elective deferrals to such plans to save for retirement. elective deferrals to such plans to save for retirement. International Paper makes matching contributions to International Paper makes matching contributions to participant accounts on a specified percentage of participant accounts on a specified percentage of employee deferrals as determined by the provisions of employee deferrals as determined by the provisions of each plan. For eligible employees hired after June 30, each plan. For eligible employees hired after June 30, 2004, the Company makes Retirement Savings Account 2004, the Company makes Retirement Savings Account contributions equal to a percentage of an eligible contributions equal to a percentage of an eligible employee’s pay. employee’s pay. The Company also sponsors the International Paper The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make This plan permits eligible employees to continue to make deferrals and receive company matching contributions deferrals and receive company matching contributions (and Retirement Savings Account contributions) when (and Retirement Savings Account contributions) when their contributions to the International Paper Salaried their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company contributions tax law. Participant deferrals and company contributions are not invested in a separate trust, but are paid directly are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time from International Paper’s general assets at the time benefits become due and payable. benefits become due and payable. Company Company contributions contributions to to the plans the plans totaled totaled approximately $117 million, $106 million and $100 approximately $117 million, $106 million and $100 million for the plan years ending in 2017, 2016 and 2015, million for the plan years ending in 2017, 2016 and 2015, respectively. respectively. NOTE 17 POSTRETIREMENT BENEFITS NOTE 17 POSTRETIREMENT BENEFITS U.S. POSTRETIREMENT BENEFITS U.S. POSTRETIREMENT BENEFITS International Paper provides certain retiree health care International Paper provides certain retiree health care and life insurance benefits covering certain U.S. and life insurance benefits covering certain U.S. salaried and hourly employees. These employees are salaried and hourly employees. These employees are generally eligible for benefits upon retirement and generally eligible for benefits upon retirement and completion of a specified number of years of creditable completion of a specified number of years of creditable service. International Paper does not fund these service. International Paper does not fund these benefits prior to payment and has the right to modify or benefits prior to payment and has the right to modify or terminate certain of these plans in the future. terminate certain of these plans in the future. In addition to the U.S. plan, certain Brazilian and In addition to the U.S. plan, certain Brazilian and Moroccan employees are eligible for retiree health care Moroccan employees are eligible for retiree health care and life insurance benefits. and life insurance benefits. In millions In millions 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans $ $ 1 $ — $ 1 $ — $ 1 $ — $ 1 $ — $ 1 $ 1 $ 11 11 8 8 2 2 3 3 11 11 5 5 3 3 2 2 11 11 6 6 1 1 5 5 1 1 (3) (3) (4) (4) (4) (4) (4) (4) (10) (10) (2) (2) Service cost Service cost Interest cost Interest cost Actuarial loss Actuarial loss Amortization of Amortization of prior service prior service credits credits Net Net postretirement postretirement (benefit) (benefit) expense expense $ $ 17 $ 17 $ 1 $ 1 $ 13 $ 13 $ 1 $ 1 $ 8 $ 8 $ 5 5 International Paper evaluates its actuarial assumptions International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) annually as of December 31 (the measurement date) and considers changes in these long-term factors and considers changes in these long-term factors based upon market conditions and the requirements of based upon market conditions and the requirements of employers’ accounting for postretirement benefits other employers’ accounting for postretirement benefits other than pensions. The discount rate assumption was than pensions. The discount rate assumption was determined based on a hypothetical settlement portfolio determined based on a hypothetical settlement portfolio selected from a universe of high quality corporate selected from a universe of high quality corporate bonds. bonds. The discount rates used to determine net U.S. and non- The discount rates used to determine net U.S. and non- U.S. postretirement benefit cost for the years ended U.S. postretirement benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows: December 31, 2017, 2016 and 2015 were as follows: 2017 2017 2016 2016 2015 2015 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Discount rate Discount rate 4.00% 10.53% 4.20% 12.23% 3.90% 11.52% 4.00% 10.53% 4.20% 12.23% 3.90% 11.52% The weighted average assumptions used to determine The weighted average assumptions used to determine the benefit obligation at December 31, 2017 and 2016 the benefit obligation at December 31, 2017 and 2016 were as follows: were as follows: 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Discount rate Discount rate 3.50% 9.38% 4.00% 10.53% 3.50% 9.38% 4.00% 10.53% Health care cost trend rate Health care cost trend rate assumed for next year assumed for next year Rate that the cost trend rate Rate that the cost trend rate gradually declines to gradually declines to Year that the rate reaches Year that the rate reaches the rate it is assumed to the rate it is assumed to remain remain 6.50% 10.27% 6.50% 10.90% 6.50% 10.27% 6.50% 10.90% 5.00% 5.15% 5.00% 5.81% 5.00% 5.15% 5.00% 5.81% 2022 2022 2028 2028 2022 2022 2027 2027 A 1% increase in the assumed annual health care cost A 1% increase in the assumed annual health care cost trend rate would have increased the U.S. and non-U.S. trend rate would have increased the U.S. and non-U.S. accumulated postretirement benefit obligations at accumulated postretirement benefit obligations at December 31, 2017 by approximately $12 million and December 31, 2017 by approximately $12 million and $6 million, respectively. A 1% decrease in the annual $6 million, respectively. A 1% decrease in the annual trend rate would have decreased the U.S. and non-U.S. trend rate would have decreased the U.S. and non-U.S. accumulated postretirement benefit obligation at accumulated postretirement benefit obligation at December 31, 2017 by approximately $10 million and December 31, 2017 by approximately $10 million and $4 million, respectively. The effect on net postretirement $4 million, respectively. The effect on net postretirement benefit cost from a 1% increase or decrease would be benefit cost from a 1% increase or decrease would be approximately $1 million for both U.S. and non-U.S. approximately $1 million for both U.S. and non-U.S. plans. plans. The plans are only funded in an amount equal to The plans are only funded in an amount equal to benefits paid. The following table presents the changes benefits paid. The following table presents the changes in benefit obligation and plan assets for 2017 and 2016: in benefit obligation and plan assets for 2017 and 2016: In millions In millions 2017 2017 2016 2016 U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Change in projected benefit Change in projected benefit obligation: obligation: Benefit obligation, January 1 Benefit obligation, January 1 $ 280 $ $ 280 $ 23 $ 275 $ 23 $ 275 $ Service cost Service cost Interest cost Interest cost Participants’ contributions Participants’ contributions Actuarial (gain) loss Actuarial (gain) loss Plan amendments Plan amendments Benefits paid Benefits paid Less: Federal subsidy Less: Federal subsidy Currency Impact Currency Impact Benefit obligation, Benefit obligation, December 31 December 31 Change in plan assets: Change in plan assets: Fair value of plan assets, Fair value of plan assets, January 1 January 1 Company contributions Company contributions Participants’ contributions Participants’ contributions Benefits paid Benefits paid Fair value of plan assets, Fair value of plan assets, December 31 December 31 1 1 11 11 5 5 14 14 — — (42) (42) 1 1 — — — — 2 2 — — 2 2 — — (2) (2) — — — — 1 1 11 11 5 5 31 31 — — (44) (44) 1 1 — — 45 45 — — 3 3 — — 5 5 (35) (35) (1) (1) — — 6 6 $ 270 $ $ 270 $ 25 $ 280 $ 25 $ 280 $ 23 23 $ — $ — $ — $ — $ — $ — $ — $ — 37 37 5 5 (42) (42) 2 2 — — (2) (2) 39 39 5 5 (44) (44) 1 1 — — (1) (1) $ — $ — $ — $ — $ — $ — $ — $ — Funded status, December 31 Funded status, December 31 $ (270) $ (25) $ (280) $ (23) $ (270) $ (25) $ (280) $ (23) Amounts recognized in the Amounts recognized in the consolidated balance sheet consolidated balance sheet under ASC 715: under ASC 715: Current liability Current liability $ (28) $ $ (28) $ (1) $ (29) $ (1) $ (29) $ Non-current liability Non-current liability (242) (242) (24) (24) (251) (251) (2) (2) (21) (21) $ (270) $ (25) $ (280) $ (23) $ (270) $ (25) $ (280) $ (23) Amounts recognized in Amounts recognized in accumulated other accumulated other comprehensive income under comprehensive income under ASC 715 (pre-tax): ASC 715 (pre-tax): Net actuarial loss (gain) Net actuarial loss (gain) Prior service credit Prior service credit $ $ $ $ 74 $ 74 $ 19 $ 19 $ 68 $ 68 $ 21 21 (6) (6) (30) (30) (8) (8) (34) (34) 68 $ (11) $ 68 $ (11) $ 60 $ (13) 60 $ (13) 75 75 76 76 The non-current portion of the liability is included with The non-current portion of the liability is included with the postemployment liability in the accompanying the postemployment liability in the accompanying consolidated balance sheet under Postretirement and consolidated balance sheet under Postretirement and postemployment benefit obligation. postemployment benefit obligation. The components of the $8 million and $2 million change The components of the $8 million and $2 million change in the amounts recognized in OCI during 2017 for U.S. in the amounts recognized in OCI during 2017 for U.S. and non-U.S. plans, respectively, consisted of: and non-U.S. plans, respectively, consisted of: In millions In millions U.S. U.S. Plans Plans Non- Non- U.S. U.S. Plans Plans Current year actuarial loss Current year actuarial loss $ $ 14 $ 14 $ Amortization of actuarial (loss) gain Amortization of actuarial (loss) gain Current year prior service cost Current year prior service cost Amortization of prior service credit Amortization of prior service credit Currency impact Currency impact (8) (8) — — 2 2 — — $ $ 8 $ 8 $ 1 1 (3) (3) — — 4 4 — — 2 2 The portion of the change in the funded status that was The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for recognized in either net periodic benefit cost or OCI for the U.S. plans was $25 million, $42 million and $17 the U.S. plans was $25 million, $42 million and $17 million in 2017, 2016 and 2015, respectively. The million in 2017, 2016 and 2015, respectively. The portion of the change in funded status for the non-U.S. portion of the change in funded status for the non-U.S. plans was $3 million, $(25) million, and $0 million in plans was $3 million, $(25) million, and $0 million in 2017, 2016 and 2015, respectively. 2017, 2016 and 2015, respectively. The estimated amounts of net loss and prior service The estimated amounts of net loss and prior service credit that will be amortized from OCI into net U.S. credit that will be amortized from OCI into net U.S. postretirement benefit cost in 2018 are expected to be postretirement benefit cost in 2018 are expected to be $8 million and $(2) million, respectively. The estimated $8 million and $(2) million, respectively. The estimated amounts for non-U.S. plans in 2018 are expected to be amounts for non-U.S. plans in 2018 are expected to be $2 million and $(4) million, respectively. $2 million and $(4) million, respectively. At December 31, 2017, estimated future future At December 31, 2017, estimated postretirement benefit payments, net of participant postretirement benefit payments, net of participant contributions and estimated future Medicare Part D contributions and estimated future Medicare Part D subsidy receipts, were as follows: subsidy receipts, were as follows: total total In millions In millions Benefit Benefit Payments Payments Subsidy Subsidy Receipts Receipts Benefit Benefit Payments Payments 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 – 2027 2023 – 2027 U.S. U.S. Plans Plans U.S. U.S. Plans Plans $ $ 29 $ 29 $ 1 $ 1 $ Non- Non- U.S. U.S. Plans Plans 27 27 25 25 24 24 22 22 91 91 1 1 1 1 1 1 1 1 5 5 1 1 1 1 1 1 — — — — 4 4 PERFORMANCE SHARE PLAN PERFORMANCE SHARE PLAN Outstanding at December 31, 2015 Outstanding at December 31, 2015 NOTE 18 INCENTIVE PLANS NOTE 18 INCENTIVE PLANS Incentive International Paper currently has an Incentive International Paper currently has an Compensation Plan (ICP) which, upon the approval by Compensation Plan (ICP) which, upon the approval by the Company’s shareholders in May 2009, replaced the the Company’s shareholders in May 2009, replaced the Company’s Long-Term Incentive Compensation Plan Company’s Long-Term Incentive Compensation Plan (LTICP). The ICP authorizes grants of restricted stock, (LTICP). The ICP authorizes grants of restricted stock, restricted or deferred stock units, performance awards restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards, stock appreciation rights, other stock-based awards, and cash-based awards at the discretion of the and cash-based awards at the discretion of the Management Development and Compensation and Compensation Management Development Committee of the Board of Directors (the Committee) Committee of the Board of Directors (the Committee) that administers the ICP. Additionally, restricted stock, that administers the ICP. Additionally, restricted stock, which may be deferred into RSU’s, may be awarded which may be deferred into RSU’s, may be awarded under a Restricted Stock and Deferred Compensation under a Restricted Stock and Deferred Compensation Plan for Non-Employee Directors. Plan for Non-Employee Directors. Under the Performance Share Plan (PSP), contingent Under the Performance Share Plan (PSP), contingent awards of International Paper common stock are awards of International Paper common stock are granted by the Committee. The PSP awards are earned granted by the Committee. The PSP awards are earned over a three-year period. PSP awards are earned based over a three-year period. PSP awards are earned based on the achievement of defined performance rankings of on the achievement of defined performance rankings of ROIC and TSR compared to ROIC and TSR peer groups ROIC and TSR compared to ROIC and TSR peer groups of companies. Awards are weighted 75% for ROIC and of companies. Awards are weighted 75% for ROIC and 25% for TSR for all participants except for officers for 25% for TSR for all participants except for officers for whom the awards are weighted 50% for ROIC and 50% whom the awards are weighted 50% for ROIC and 50% for TSR. The ROIC component of the PSP awards is for TSR. The ROIC component of the PSP awards is valued at the closing stock price on the day prior to the valued at the closing stock price on the day prior to the grant date. As the ROIC component contains a grant date. As the ROIC component contains a performance condition, compensation expense, net of performance condition, compensation expense, net of estimated forfeitures, is recorded over the requisite estimated forfeitures, is recorded over the requisite service period based on the most probable number of service period based on the most probable number of awards expected to vest. The TSR component of the awards expected to vest. The TSR component of the PSP awards is valued using a Monte Carlo simulation PSP awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the TSR component based on the expected term of the award, a risk-free rate, expected dividends, and the award, a risk-free rate, expected dividends, and the expected volatility for the Company and its competitors. expected volatility for the Company and its competitors. The expected term is estimated based on the vesting The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the Company’s period, and the volatility is based on the Company’s historical volatility over the expected term. PSP grants historical volatility over the expected term. PSP grants are made in performance-based restricted stock units. are made in performance-based restricted stock units. Outstanding at December 31, 2014 Outstanding at December 31, 2014 Granted Granted Shares issued Shares issued Forfeited Forfeited Granted Granted Shares issued Shares issued Forfeited Forfeited Outstanding at December 31, 2016 Outstanding at December 31, 2016 Granted Granted Shares issued Shares issued Forfeited Forfeited Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value $34.98 $34.98 53.25 53.25 37.09 37.09 53.97 53.97 38.69 38.69 37.26 37.26 43.82 43.82 43.61 43.61 35.89 35.89 51.78 51.78 51.00 51.00 45.96 45.96 Share/Units Share/Units 7,275,934 7,275,934 1,863,623 1,863,623 (2,959,160) (2,959,160) (322,664) (322,664) 5,857,733 5,857,733 2,617,982 2,617,982 (2,316,085) (2,316,085) (209,500) (209,500) 5,950,130 5,950,130 2,163,912 2,163,912 (1,876,134) (1,876,134) (438,024) (438,024) The following table sets forth the assumptions used to The following table sets forth the assumptions used to determine compensation cost for the market condition determine compensation cost for the market condition component of the PSP plan: component of the PSP plan: At December 31, 2017, 2016 and 2015 a total of 13.2 At December 31, 2017, 2016 and 2015 a total of 13.2 Business segment operating profits are used by Business segment operating profits are used by million, 14.3 million and 16.2 million shares, million, 14.3 million and 16.2 million shares, International Paper’s management to measure the International Paper’s management to measure the respectively, were available for grant under the ICP. respectively, were available for grant under the ICP. Expected volatility Expected volatility Risk-free interest rate Risk-free interest rate Twelve Months Ended Twelve Months Ended December 31, 2017 December 31, 2017 22.75%-23.39% 22.75%-23.39% 1.10%-1.47% 1.10%-1.47% The following summarizes PSP activity for the three The following summarizes PSP activity for the three years ending December 31, 2017: years ending December 31, 2017: Stock-based compensation expense and related Stock-based compensation expense and related of trends in costs, operating efficiencies, prices and of trends in costs, operating efficiencies, prices and earnings performance of its businesses. Management earnings performance of its businesses. Management believes that this measure allows a better understanding believes that this measure allows a better understanding volumes. Business segment operating profits are volumes. Business segment operating profits are defined as earnings (loss) from continuing operations defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling the impact of equity earnings and noncontrolling interests, excluding corporate items and corporate interests, excluding corporate items and corporate special items. special items. External sales by major product is determined by External sales by major product is determined by aggregating sales from each segment based on similar aggregating sales from each segment based on similar products or services. External sales are defined as those products or services. External sales are defined as those that are made to parties outside International Paper’s that are made to parties outside International Paper’s consolidated group, whereas sales by segment in the consolidated group, whereas sales by segment in the Net Sales table are determined using a management Net Sales table are determined using a management approach and include intersegment sales. approach and include intersegment sales. The Company also holds a 50% interest in Ilim that is a The Company also holds a 50% interest in Ilim that is a separate reportable industry segment. The Company separate reportable industry segment. The Company recorded equity earnings (losses), net of taxes, of $183 recorded equity earnings (losses), net of taxes, of $183 million, $199 million, and $131 million in 2017, 2016, million, $199 million, and $131 million in 2017, 2016, and 2015, respectively, for Ilim. Equity earnings (losses) and 2015, respectively, for Ilim. Equity earnings (losses) includes an after-tax foreign exchange gain (loss) of $15 includes an after-tax foreign exchange gain (loss) of $15 million, $25 million, and $(75) million in 2017, 2016 and million, $25 million, and $(75) million in 2017, 2016 and 2015, respectively, primarily on the remeasurement of 2015, respectively, primarily on the remeasurement of U.S. dollar-denominated net debt. U.S. dollar-denominated net debt. Summarized financial information for Ilim which is Summarized financial information for Ilim which is accounted for under the equity method is presented in accounted for under the equity method is presented in the following tables. The audited U.S. GAAP financial the following tables. The audited U.S. GAAP financial statements for Ilim are included in Exhibit 99.1 to this statements for Ilim are included in Exhibit 99.1 to this Form 10-K. Form 10-K. Balance Sheet Balance Sheet In millions In millions Current assets Current assets Noncurrent assets Noncurrent assets Current liabilities Current liabilities Noncurrent liabilities Noncurrent liabilities Noncontrolling interests Noncontrolling interests Income Statement Income Statement In millions In millions Net sales Net sales Gross profit Gross profit Income from continuing operations Income from continuing operations Net income attributable to Ilim Net income attributable to Ilim 2017 2017 2016 2016 2015 2015 $2,150 $2,150 $1,927 $1,927 $1,931 $1,931 1,047 1,047 379 379 362 362 957 957 419 419 391 391 971 971 254 254 237 237 2017 2017 2016 2016 $ 689 $ 689 $ 774 $ 774 1,696 1,696 1,039 1,039 972 972 6 6 1,351 1,351 402 402 1,426 1,426 22 22 income tax benefits were as follows: income tax benefits were as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Total stock-based compensation Total stock-based compensation expense (included in selling and expense (included in selling and administrative expense) administrative expense) Income tax benefits related to stock- Income tax benefits related to stock- based compensation based compensation $ $ 147 $ 147 $ 124 $ 124 $ 107 107 45 45 34 34 88 88 At December 31, 2017, $86 million of compensation At December 31, 2017, $86 million of compensation cost, net of estimated forfeitures, related to unvested cost, net of estimated forfeitures, related to unvested restricted performance shares, executive continuity restricted performance shares, executive continuity awards and restricted stock attributable to future awards and restricted stock attributable to future performance had not yet been recognized. This amount performance had not yet been recognized. This amount will be recognized in expense over a weighted-average will be recognized in expense over a weighted-average period of 1.8 years. period of 1.8 years. NOTE 19 FINANCIAL INFORMATION BY BUSINESS NOTE 19 FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA SEGMENT AND GEOGRAPHIC AREA International Paper’s business segments, Industrial International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers and Printing Papers, Packaging, Global Cellulose Fibers and Printing Papers, are consistent with the internal structure used to manage are consistent with the internal structure used to manage these businesses. See the Description of Industry these businesses. See the Description of Industry Segments in Part II. Item 7. Management's Discussion Segments in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of and Analysis of Financial Condition and Results of Operations for a description of the types of products and Operations for a description of the types of products and services from which each reportable segment derives its services from which each reportable segment derives its revenues. On January 1, 2018, the Company completed revenues. On January 1, 2018, the Company completed the previously announced transfer of its North American the previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging businesses, to a subsidiary of Graphic Packaging Holding Company. The North American Consumer Holding Company. The North American Consumer Packaging business was historically presented in the Packaging business was historically presented in the Company's Consumer Packaging segment; however, as Company's Consumer Packaging segment; however, as a result of this transfer, all current and prior year amounts a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American have been adjusted to reflect the North American Consumer Packaging business as a discontinued Consumer Packaging business as a discontinued operation. In addition, after the announced transfer operation. In addition, after the announced transfer during the fourth quarter of 2017, the chief operating during the fourth quarter of 2017, the chief operating decision maker began evaluating the European Coated decision maker began evaluating the European Coated Paperboard business, previously presented in the Paperboard business, previously presented in the Company's Consumer Packaging business segment, as Company's Consumer Packaging business segment, as part of the Industrial Packaging business segment. As part of the Industrial Packaging business segment. As such, amounts related such, amounts related to to the European Coated the European Coated Paperboard business have been presented in the Paperboard business have been presented in the Industrial Packaging business segment for all periods Industrial Packaging business segment for all periods presented. All segments are differentiated on a common presented. All segments are differentiated on a common product, common customer basis consistent with the product, common customer basis consistent with the business segmentation generally used in the Forest business segmentation generally used in the Forest Products industry. Products industry. Outstanding at December 31, 2017 Outstanding at December 31, 2017 5,799,884 5,799,884 $36.17 $36.17 RESTRICTED STOCK AWARD PROGRAMS RESTRICTED STOCK AWARD PROGRAMS The service-based Restricted Stock Award program The service-based Restricted Stock Award program (RSA), designed for recruitment, retention and special (RSA), designed for recruitment, retention and special recognition purposes, provides for awards of restricted recognition purposes, provides for awards of restricted stock to key employees. stock to key employees. The following summarizes the activity of the RSA The following summarizes the activity of the RSA program for the three years ending December 31, 2017: program for the three years ending December 31, 2017: Outstanding at December 31, 2014 Outstanding at December 31, 2014 Granted Granted Shares issued Shares issued Forfeited Forfeited Outstanding at December 31, 2015 Outstanding at December 31, 2015 Granted Granted Shares issued Shares issued Forfeited Forfeited Outstanding at December 31, 2016 Outstanding at December 31, 2016 Granted Granted Shares issued Shares issued Forfeited Forfeited Outstanding at December 31, 2017 Outstanding at December 31, 2017 Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value $47.03 $47.03 50.06 50.06 45.35 45.35 50.04 50.04 48.24 48.24 42.81 42.81 47.14 47.14 39.36 39.36 45.34 45.34 57.24 57.24 47.90 47.90 53.53 53.53 $48.63 $48.63 Shares Shares 114,599 114,599 36,300 36,300 (27,365) (27,365) (3,166) (3,166) 120,368 120,368 117,881 117,881 (59,418) (59,418) (9,500) (9,500) 169,331 169,331 63,319 63,319 (59,650) (59,650) (6,700) (6,700) 166,300 166,300 77 77 78 78 NOTE 18 INCENTIVE PLANS NOTE 18 INCENTIVE PLANS The following table sets forth the assumptions used to The following table sets forth the assumptions used to determine compensation cost for the market condition determine compensation cost for the market condition International Paper currently has an International Paper currently has an Incentive Incentive component of the PSP plan: component of the PSP plan: PERFORMANCE SHARE PLAN PERFORMANCE SHARE PLAN Outstanding at December 31, 2015 Outstanding at December 31, 2015 Compensation Plan (ICP) which, upon the approval by Compensation Plan (ICP) which, upon the approval by the Company’s shareholders in May 2009, replaced the the Company’s shareholders in May 2009, replaced the Company’s Long-Term Incentive Compensation Plan Company’s Long-Term Incentive Compensation Plan (LTICP). The ICP authorizes grants of restricted stock, (LTICP). The ICP authorizes grants of restricted stock, restricted or deferred stock units, performance awards restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards, stock appreciation rights, other stock-based awards, and cash-based awards at the discretion of the and cash-based awards at the discretion of the Management Development Management Development and Compensation and Compensation Committee of the Board of Directors (the Committee) Committee of the Board of Directors (the Committee) that administers the ICP. Additionally, restricted stock, that administers the ICP. Additionally, restricted stock, which may be deferred into RSU’s, may be awarded which may be deferred into RSU’s, may be awarded under a Restricted Stock and Deferred Compensation under a Restricted Stock and Deferred Compensation Plan for Non-Employee Directors. Plan for Non-Employee Directors. Under the Performance Share Plan (PSP), contingent Under the Performance Share Plan (PSP), contingent awards of International Paper common stock are awards of International Paper common stock are granted by the Committee. The PSP awards are earned granted by the Committee. The PSP awards are earned over a three-year period. PSP awards are earned based over a three-year period. PSP awards are earned based on the achievement of defined performance rankings of on the achievement of defined performance rankings of ROIC and TSR compared to ROIC and TSR peer groups ROIC and TSR compared to ROIC and TSR peer groups of companies. Awards are weighted 75% for ROIC and of companies. Awards are weighted 75% for ROIC and 25% for TSR for all participants except for officers for 25% for TSR for all participants except for officers for whom the awards are weighted 50% for ROIC and 50% whom the awards are weighted 50% for ROIC and 50% for TSR. The ROIC component of the PSP awards is for TSR. The ROIC component of the PSP awards is valued at the closing stock price on the day prior to the valued at the closing stock price on the day prior to the grant date. As the ROIC component contains a grant date. As the ROIC component contains a performance condition, compensation expense, net of performance condition, compensation expense, net of estimated forfeitures, is recorded over the requisite estimated forfeitures, is recorded over the requisite service period based on the most probable number of service period based on the most probable number of awards expected to vest. The TSR component of the awards expected to vest. The TSR component of the PSP awards is valued using a Monte Carlo simulation PSP awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the TSR component based on the expected term of the award, a risk-free rate, expected dividends, and the award, a risk-free rate, expected dividends, and the expected volatility for the Company and its competitors. expected volatility for the Company and its competitors. The expected term is estimated based on the vesting The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the Company’s period, and the volatility is based on the Company’s historical volatility over the expected term. PSP grants historical volatility over the expected term. PSP grants are made in performance-based restricted stock units. are made in performance-based restricted stock units. Expected volatility Expected volatility Risk-free interest rate Risk-free interest rate Twelve Months Ended Twelve Months Ended December 31, 2017 December 31, 2017 22.75%-23.39% 22.75%-23.39% 1.10%-1.47% 1.10%-1.47% The following summarizes PSP activity for the three The following summarizes PSP activity for the three years ending December 31, 2017: years ending December 31, 2017: Outstanding at December 31, 2014 Outstanding at December 31, 2014 Granted Granted Shares issued Shares issued Forfeited Forfeited Granted Granted Shares issued Shares issued Forfeited Forfeited Granted Granted Shares issued Shares issued Forfeited Forfeited Outstanding at December 31, 2016 Outstanding at December 31, 2016 Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value $34.98 $34.98 53.25 53.25 37.09 37.09 53.97 53.97 38.69 38.69 37.26 37.26 43.82 43.82 43.61 43.61 35.89 35.89 51.78 51.78 51.00 51.00 45.96 45.96 Share/Units Share/Units 7,275,934 7,275,934 1,863,623 1,863,623 (2,959,160) (2,959,160) (322,664) (322,664) 5,857,733 5,857,733 2,617,982 2,617,982 (2,316,085) (2,316,085) (209,500) (209,500) 5,950,130 5,950,130 2,163,912 2,163,912 (1,876,134) (1,876,134) (438,024) (438,024) Outstanding at December 31, 2017 Outstanding at December 31, 2017 5,799,884 5,799,884 $36.17 $36.17 RESTRICTED STOCK AWARD PROGRAMS RESTRICTED STOCK AWARD PROGRAMS The service-based Restricted Stock Award program The service-based Restricted Stock Award program (RSA), designed for recruitment, retention and special (RSA), designed for recruitment, retention and special recognition purposes, provides for awards of restricted recognition purposes, provides for awards of restricted stock to key employees. stock to key employees. The following summarizes the activity of the RSA The following summarizes the activity of the RSA program for the three years ending December 31, 2017: program for the three years ending December 31, 2017: Outstanding at December 31, 2014 Outstanding at December 31, 2014 Outstanding at December 31, 2015 Outstanding at December 31, 2015 Outstanding at December 31, 2016 Outstanding at December 31, 2016 Granted Granted Shares issued Shares issued Forfeited Forfeited Granted Granted Shares issued Shares issued Forfeited Forfeited Granted Granted Shares issued Shares issued Forfeited Forfeited Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value $47.03 $47.03 50.06 50.06 45.35 45.35 50.04 50.04 48.24 48.24 42.81 42.81 47.14 47.14 39.36 39.36 45.34 45.34 57.24 57.24 47.90 47.90 53.53 53.53 Shares Shares 114,599 114,599 36,300 36,300 (27,365) (27,365) (3,166) (3,166) 120,368 120,368 117,881 117,881 (59,418) (59,418) (9,500) (9,500) 169,331 169,331 63,319 63,319 (59,650) (59,650) (6,700) (6,700) Outstanding at December 31, 2017 Outstanding at December 31, 2017 166,300 166,300 $48.63 $48.63 At December 31, 2017, 2016 and 2015 a total of 13.2 At December 31, 2017, 2016 and 2015 a total of 13.2 million, 14.3 million and 16.2 million shares, million, 14.3 million and 16.2 million shares, respectively, were available for grant under the ICP. respectively, were available for grant under the ICP. Stock-based compensation expense and related Stock-based compensation expense and related income tax benefits were as follows: income tax benefits were as follows: In millions In millions 2017 2017 2016 2016 2015 2015 Total stock-based compensation Total stock-based compensation expense (included in selling and expense (included in selling and administrative expense) administrative expense) Income tax benefits related to stock- Income tax benefits related to stock- based compensation based compensation $ $ 147 $ 147 $ 124 $ 124 $ 107 107 45 45 34 34 88 88 At December 31, 2017, $86 million of compensation At December 31, 2017, $86 million of compensation cost, net of estimated forfeitures, related to unvested cost, net of estimated forfeitures, related to unvested restricted performance shares, executive continuity restricted performance shares, executive continuity awards and restricted stock attributable to future awards and restricted stock attributable to future performance had not yet been recognized. This amount performance had not yet been recognized. This amount will be recognized in expense over a weighted-average will be recognized in expense over a weighted-average period of 1.8 years. period of 1.8 years. NOTE 19 FINANCIAL INFORMATION BY BUSINESS NOTE 19 FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA SEGMENT AND GEOGRAPHIC AREA International Paper’s business segments, Industrial International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers and Printing Papers, Packaging, Global Cellulose Fibers and Printing Papers, are consistent with the internal structure used to manage are consistent with the internal structure used to manage these businesses. See the Description of Industry these businesses. See the Description of Industry Segments in Part II. Item 7. Management's Discussion Segments in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of and Analysis of Financial Condition and Results of Operations for a description of the types of products and Operations for a description of the types of products and services from which each reportable segment derives its services from which each reportable segment derives its revenues. On January 1, 2018, the Company completed revenues. On January 1, 2018, the Company completed the previously announced transfer of its North American the previously announced transfer of its North American Consumer Packaging business, which includes its North Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging businesses, to a subsidiary of Graphic Packaging Holding Company. The North American Consumer Holding Company. The North American Consumer Packaging business was historically presented in the Packaging business was historically presented in the Company's Consumer Packaging segment; however, as Company's Consumer Packaging segment; however, as a result of this transfer, all current and prior year amounts a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American have been adjusted to reflect the North American Consumer Packaging business as a discontinued Consumer Packaging business as a discontinued operation. In addition, after the announced transfer operation. In addition, after the announced transfer during the fourth quarter of 2017, the chief operating during the fourth quarter of 2017, the chief operating decision maker began evaluating the European Coated decision maker began evaluating the European Coated Paperboard business, previously presented in the Paperboard business, previously presented in the Company's Consumer Packaging business segment, as Company's Consumer Packaging business segment, as part of the Industrial Packaging business segment. As part of the Industrial Packaging business segment. As such, amounts related the European Coated the European Coated to to such, amounts related Paperboard business have been presented in the Paperboard business have been presented in the Industrial Packaging business segment for all periods Industrial Packaging business segment for all periods presented. All segments are differentiated on a common presented. All segments are differentiated on a common product, common customer basis consistent with the product, common customer basis consistent with the business segmentation generally used in the Forest business segmentation generally used in the Forest Products industry. Products industry. Business segment operating profits are used by Business segment operating profits are used by International Paper’s management to measure the International Paper’s management to measure the earnings performance of its businesses. Management earnings performance of its businesses. Management believes that this measure allows a better understanding believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits are volumes. Business segment operating profits are defined as earnings (loss) from continuing operations defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling the impact of equity earnings and noncontrolling interests, excluding corporate items and corporate interests, excluding corporate items and corporate special items. special items. External sales by major product is determined by External sales by major product is determined by aggregating sales from each segment based on similar aggregating sales from each segment based on similar products or services. External sales are defined as those products or services. External sales are defined as those that are made to parties outside International Paper’s that are made to parties outside International Paper’s consolidated group, whereas sales by segment in the consolidated group, whereas sales by segment in the Net Sales table are determined using a management Net Sales table are determined using a management approach and include intersegment sales. approach and include intersegment sales. The Company also holds a 50% interest in Ilim that is a The Company also holds a 50% interest in Ilim that is a separate reportable industry segment. The Company separate reportable industry segment. The Company recorded equity earnings (losses), net of taxes, of $183 recorded equity earnings (losses), net of taxes, of $183 million, $199 million, and $131 million in 2017, 2016, million, $199 million, and $131 million in 2017, 2016, and 2015, respectively, for Ilim. Equity earnings (losses) and 2015, respectively, for Ilim. Equity earnings (losses) includes an after-tax foreign exchange gain (loss) of $15 includes an after-tax foreign exchange gain (loss) of $15 million, $25 million, and $(75) million in 2017, 2016 and million, $25 million, and $(75) million in 2017, 2016 and 2015, respectively, primarily on the remeasurement of 2015, respectively, primarily on the remeasurement of U.S. dollar-denominated net debt. U.S. dollar-denominated net debt. Summarized financial information for Ilim which is Summarized financial information for Ilim which is accounted for under the equity method is presented in accounted for under the equity method is presented in the following tables. The audited U.S. GAAP financial the following tables. The audited U.S. GAAP financial statements for Ilim are included in Exhibit 99.1 to this statements for Ilim are included in Exhibit 99.1 to this Form 10-K. Form 10-K. Balance Sheet Balance Sheet In millions In millions Current assets Current assets Noncurrent assets Noncurrent assets Current liabilities Current liabilities Noncurrent liabilities Noncurrent liabilities Noncontrolling interests Noncontrolling interests Income Statement Income Statement 2017 2017 2016 2016 $ 689 $ 689 1,696 1,696 1,039 1,039 972 972 6 6 $ 774 $ 774 1,351 1,351 402 402 1,426 1,426 22 22 In millions In millions Net sales Net sales Gross profit Gross profit Income from continuing operations Income from continuing operations Net income attributable to Ilim Net income attributable to Ilim 2017 2017 $2,150 $2,150 1,047 1,047 379 379 362 362 2016 2016 $1,927 $1,927 957 957 419 419 2015 2015 $1,931 $1,931 971 971 254 254 391 391 237 237 77 77 78 78 At December 31, 2017 and 2016, the Company's At December 31, 2017 and 2016, the Company's investment in Ilim, which is recorded in Investments in investment in Ilim, which is recorded in Investments in the consolidated balance sheet, was $338 million and the consolidated balance sheet, was $338 million and $302 million, respectively, which was $154 million and $302 million, respectively, which was $154 million and $164 million, respectively, more than the Company's $164 million, respectively, more than the Company's proportionate share of the joint venture's underlying net proportionate share of the joint venture's underlying net assets. The differences primarily relate to purchase price assets. The differences primarily relate to purchase price fair value adjustments and currency translation translation fair value adjustments and currency adjustments. The Company is party to a joint marketing adjustments. The Company is party to a joint marketing agreement with the Company Ilim, under which agreement with the Company Ilim, under which purchases, markets and sells paper produced by Ilim. purchases, markets and sells paper produced by Ilim. Purchases under this agreement were $205 million, Purchases under this agreement were $205 million, $170 million and $170 million for the years ended $170 million and $170 million for the years ended December 31, 2017, 2016 and 2015, respectively. December 31, 2017, 2016 and 2015, respectively. INFORMATION BY BUSINESS SEGMENT INFORMATION BY BUSINESS SEGMENT Net Sales Net Sales In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate and Intersegment Corporate and Intersegment Sales (a) Sales (a) 2017 2017 $ 15,077 $ 15,077 2,551 2,551 4,157 4,157 2016 2016 $ 14,226 $ 14,226 1,092 1,092 4,058 4,058 2015 2015 $ 14,559 $ 14,559 975 975 4,056 4,056 (42) (42) 119 119 1,085 1,085 Net Sales Net Sales $ 21,743 $ 21,743 $ 19,495 $ 19,495 $ 20,675 $ 20,675 Operating Profit Operating Profit In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ 1,547 1,547 $ $ 1,741 1,741 $ $ 1,938 1,938 Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Business Segment Operating Business Segment Operating Profit Profit 65 65 457 457 (179) (179) 540 540 68 68 465 465 2,069 2,069 2,102 2,102 2,471 2,471 Earnings (loss) from Earnings (loss) from continuing operations before continuing operations before income taxes and equity income taxes and equity earnings earnings Interest expense, net Interest expense, net Noncontrolling interests / Noncontrolling interests / equity earnings adjustment (b) equity earnings adjustment (b) Corporate items, net (a) Corporate items, net (a) Corporate special items, net Corporate special items, net (a) (a) Non-operating pension Non-operating pension expense expense 848 848 572 572 (2) (2) 91 91 76 76 484 484 795 795 520 520 1 1 121 121 55 55 610 610 1,132 1,132 555 555 8 8 96 96 422 422 258 258 $ $ 2,069 2,069 $ $ 2,102 2,102 $ $ 2,471 2,471 Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate (c) Corporate (c) Restructuring and Other Restructuring and Other Charges Charges Assets Assets In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate and other (d) Corporate and other (d) Assets Assets Capital Spending Capital Spending Restructuring and Other Charges Restructuring and Other Charges INFORMATION BY GEOGRAPHIC AREA INFORMATION BY GEOGRAPHIC AREA In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ — $ — $ 7 7 $ $ — — — — 67 67 — — — — 47 47 — — — — — — 252 252 $ $ 67 67 $ $ 54 54 $ $ 252 252 Net Sales Net Sales $ 21,743 $ 21,743 $ 19,495 $ 19,495 $ 20,675 $ 20,675 2017 2017 $ 15,354 $ 15,354 3,913 3,913 4,054 4,054 10,582 10,582 $ 33,903 $ 33,903 2016 2016 $ 14,707 $ 14,707 3,845 3,845 3,965 3,965 10,576 10,576 $ 33,093 $ 33,093 Net Sales (i) Net Sales (i) In millions In millions United States (j) United States (j) EMEA EMEA Pacific Rim and Asia Pacific Rim and Asia Americas, other than U.S. Americas, other than U.S. Long-Lived Assets (k) Long-Lived Assets (k) In millions In millions United States United States EMEA EMEA Pacific Rim and Asia Pacific Rim and Asia Americas, other than U.S. Americas, other than U.S. Long-Lived Assets Long-Lived Assets 2017 2017 2016 2016 2015 2015 $ 16,247 $ 16,247 $ 14,363 $ 14,363 $ 14,875 $ 14,875 3,129 3,129 625 625 1,742 1,742 2,852 2,852 699 699 1,581 1,581 2,759 2,759 1,501 1,501 1,540 1,540 2017 2017 2016 2016 $ 10,545 $ 10,545 $ 10,532 $ 10,532 1,302 1,302 236 236 1,630 1,630 1,009 1,009 246 246 1,672 1,672 $ 13,713 $ 13,713 $ 13,459 $ 13,459 (a) (a) Includes sales of $15 million in 2017, $42 million in 2016 and Includes sales of $15 million in 2017, $42 million in 2016 and $931 million in 2015, operating profits (losses) of $0 million in $931 million in 2015, operating profits (losses) of $0 million in 2017, $(2) million in 2016 and $(62) million in 2015, and 2017, $(2) million in 2016 and $(62) million in 2015, and corporate special items expense of $9 million in 2017, $9 million corporate special items expense of $9 million in 2017, $9 million in 2016 and $184 million in 2015, from previously divested in 2016 and $184 million in 2015, from previously divested businesses. businesses. (b) Operating profits for industry segments include each segment’s (b) Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax segment that are less than wholly-owned. The pre-tax noncontrolling noncontrolling interests and equity earnings interests and equity earnings for for these these subsidiaries is added here to present consolidated earnings from subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings. continuing operations before income taxes and equity earnings. (c) (c) Includes corporate expenses and expenses of $9 million in 2017, Includes corporate expenses and expenses of $9 million in 2017, $9 million in 2016 and $10 million in 2015, from previously $9 million in 2016 and $10 million in 2015, from previously divested businesses. divested businesses. (d) (d) Includes corporate assets, assets of businesses held for sale Includes corporate assets, assets of businesses held for sale and assets of previously divested businesses. and assets of previously divested businesses. (e) (e) Includes corporate assets and assets of previously divested Includes corporate assets and assets of previously divested businesses of $0 million in 2017, $1 million in 2016 and $26 businesses of $0 million in 2017, $1 million in 2016 and $26 (f) Excludes accelerated depreciation related to the closure and/or (f) Excludes accelerated depreciation related to the closure and/or million in 2015. million in 2015. repurposing of mills. repurposing of mills. (g) (g) Includes $1 million in 2017, $2 million in 2016 and $74 million Includes $1 million in 2017, $2 million in 2016 and $74 million in 2015 from previously divested businesses. in 2015 from previously divested businesses. (h) (h) Includes $15 million in 2017, $42 million in 2016, and $930 Includes $15 million in 2017, $42 million in 2016, and $930 million in 2015 from previously divested businesses. million in 2015 from previously divested businesses. (i) Net sales are attributed to countries based on the location of (i) Net sales are attributed to countries based on the location of the seller. the seller. (j) Export sales to unaffiliated customers were $2.9 billion in 2017, (j) Export sales to unaffiliated customers were $2.9 billion in 2017, $1.8 billion in 2016 and $1.8 billion in 2015. $1.8 billion in 2016 and $1.8 billion in 2015. (k) Long-Lived Assets includes Forestlands and Plants, Properties (k) Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net. and Equipment, net. In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Subtotal Subtotal Corporate and other (e) Corporate and other (e) 836 836 188 188 235 235 1,259 1,259 21 21 $ $ $ $ 832 832 174 174 215 215 1,221 1,221 20 20 871 871 129 129 232 232 1,232 1,232 78 78 Capital Spending Capital Spending $ $ 1,280 1,280 $ $ 1,241 1,241 $ $ 1,310 1,310 Depreciation, Amortization and Cost of Timber Depreciation, Amortization and Cost of Timber Harvested (f) Harvested (f) In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate (g) Corporate (g) Depreciation and Depreciation and Amortization Amortization $ $ 781 781 261 261 245 245 56 56 $ $ 730 730 108 108 232 232 54 54 739 739 73 73 234 234 121 121 $ $ 1,343 1,343 $ $ 1,124 1,124 $ $ 1,167 1,167 External Sales By Major Product External Sales By Major Product In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Other (h) Other (h) Net Sales Net Sales 2017 2017 $ 14,946 $ 14,946 2,524 2,524 4,142 4,142 131 131 $ 21,743 $ 21,743 2016 2016 $ 14,142 $ 14,142 1,090 1,090 4,062 4,062 201 201 $ 19,495 $ 19,495 2015 2015 $ 14,496 $ 14,496 986 986 4,082 4,082 1,111 1,111 $ 20,675 $ 20,675 79 79 80 80 (a) (a) Includes sales of $15 million in 2017, $42 million in 2016 and Includes sales of $15 million in 2017, $42 million in 2016 and $931 million in 2015, operating profits (losses) of $0 million in $931 million in 2015, operating profits (losses) of $0 million in 2017, $(2) million in 2016 and $(62) million in 2015, and 2017, $(2) million in 2016 and $(62) million in 2015, and corporate special items expense of $9 million in 2017, $9 million corporate special items expense of $9 million in 2017, $9 million in 2016 and $184 million in 2015, from previously divested in 2016 and $184 million in 2015, from previously divested businesses. businesses. (c) (c) interests and equity earnings interests and equity earnings (b) Operating profits for industry segments include each segment’s (b) Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax segment that are less than wholly-owned. The pre-tax noncontrolling these these noncontrolling subsidiaries is added here to present consolidated earnings from subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings. continuing operations before income taxes and equity earnings. Includes corporate expenses and expenses of $9 million in 2017, Includes corporate expenses and expenses of $9 million in 2017, $9 million in 2016 and $10 million in 2015, from previously $9 million in 2016 and $10 million in 2015, from previously divested businesses. divested businesses. Includes corporate assets, assets of businesses held for sale Includes corporate assets, assets of businesses held for sale and assets of previously divested businesses. and assets of previously divested businesses. Includes corporate assets and assets of previously divested Includes corporate assets and assets of previously divested businesses of $0 million in 2017, $1 million in 2016 and $26 businesses of $0 million in 2017, $1 million in 2016 and $26 million in 2015. million in 2015. (d) (d) (e) (e) for for (f) Excludes accelerated depreciation related to the closure and/or (f) Excludes accelerated depreciation related to the closure and/or (g) (g) (h) (h) repurposing of mills. repurposing of mills. Includes $1 million in 2017, $2 million in 2016 and $74 million Includes $1 million in 2017, $2 million in 2016 and $74 million in 2015 from previously divested businesses. in 2015 from previously divested businesses. Includes $15 million in 2017, $42 million in 2016, and $930 Includes $15 million in 2017, $42 million in 2016, and $930 million in 2015 from previously divested businesses. million in 2015 from previously divested businesses. (i) Net sales are attributed to countries based on the location of (i) Net sales are attributed to countries based on the location of the seller. the seller. (j) Export sales to unaffiliated customers were $2.9 billion in 2017, (j) Export sales to unaffiliated customers were $2.9 billion in 2017, $1.8 billion in 2016 and $1.8 billion in 2015. $1.8 billion in 2016 and $1.8 billion in 2015. (k) Long-Lived Assets includes Forestlands and Plants, Properties (k) Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net. and Equipment, net. INFORMATION BY GEOGRAPHIC AREA INFORMATION BY GEOGRAPHIC AREA Net Sales (i) Net Sales (i) In millions In millions United States (j) United States (j) EMEA EMEA Pacific Rim and Asia Pacific Rim and Asia Americas, other than U.S. Americas, other than U.S. 2017 2017 2016 2016 2015 2015 $ 16,247 $ 16,247 $ 14,363 $ 14,363 $ 14,875 $ 14,875 3,129 3,129 625 625 1,742 1,742 2,852 2,852 699 699 1,581 1,581 2,759 2,759 1,501 1,501 1,540 1,540 Net Sales Net Sales $ 21,743 $ 21,743 $ 19,495 $ 19,495 $ 20,675 $ 20,675 Long-Lived Assets (k) Long-Lived Assets (k) In millions In millions United States United States EMEA EMEA Pacific Rim and Asia Pacific Rim and Asia Americas, other than U.S. Americas, other than U.S. Long-Lived Assets Long-Lived Assets 2017 2017 $ 10,545 $ 10,545 1,302 1,302 236 236 1,630 1,630 $ 13,713 $ 13,713 2016 2016 $ 10,532 $ 10,532 1,009 1,009 246 246 1,672 1,672 $ 13,459 $ 13,459 At December 31, 2017 and 2016, the Company's At December 31, 2017 and 2016, the Company's investment in Ilim, which is recorded in Investments in investment in Ilim, which is recorded in Investments in the consolidated balance sheet, was $338 million and the consolidated balance sheet, was $338 million and $302 million, respectively, which was $154 million and $302 million, respectively, which was $154 million and $164 million, respectively, more than the Company's $164 million, respectively, more than the Company's proportionate share of the joint venture's underlying net proportionate share of the joint venture's underlying net assets. The differences primarily relate to purchase price assets. The differences primarily relate to purchase price fair value adjustments and currency fair value adjustments and currency translation translation adjustments. The Company is party to a joint marketing adjustments. The Company is party to a joint marketing agreement with agreement with Ilim, under which Ilim, under which the Company the Company purchases, markets and sells paper produced by Ilim. purchases, markets and sells paper produced by Ilim. Purchases under this agreement were $205 million, Purchases under this agreement were $205 million, $170 million and $170 million for the years ended $170 million and $170 million for the years ended December 31, 2017, 2016 and 2015, respectively. December 31, 2017, 2016 and 2015, respectively. INFORMATION BY BUSINESS SEGMENT INFORMATION BY BUSINESS SEGMENT Restructuring and Other Charges Restructuring and Other Charges In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ — $ — $ 7 7 $ $ — — — — 67 67 — — — — 47 47 — — — — — — 252 252 $ $ 67 67 $ $ 54 54 $ $ 252 252 Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate (c) Corporate (c) Restructuring and Other Restructuring and Other Charges Charges Assets Assets In millions In millions Industrial Packaging Industrial Packaging Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate and other (d) Corporate and other (d) Assets Assets 2017 2017 2016 2016 $ 15,354 $ 15,354 $ 14,707 $ 14,707 3,913 3,913 4,054 4,054 10,582 10,582 3,845 3,845 3,965 3,965 10,576 10,576 $ 33,903 $ 33,903 $ 33,093 $ 33,093 Net Sales Net Sales In millions In millions Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate and Intersegment Corporate and Intersegment Sales (a) Sales (a) Net Sales Net Sales Operating Profit Operating Profit Industrial Packaging Industrial Packaging $ 15,077 $ 15,077 $ 14,226 $ 14,226 $ 14,559 $ 14,559 2017 2017 2016 2016 2015 2015 Capital Spending Capital Spending 2,551 2,551 4,157 4,157 1,092 1,092 4,058 4,058 975 975 4,056 4,056 In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ $ $ $ $ (42) (42) 119 119 1,085 1,085 $ 21,743 $ 21,743 $ 19,495 $ 19,495 $ 20,675 $ 20,675 Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Subtotal Subtotal Corporate and other (e) Corporate and other (e) 836 836 188 188 235 235 1,259 1,259 21 21 832 832 174 174 215 215 1,221 1,221 20 20 871 871 129 129 232 232 1,232 1,232 78 78 Capital Spending Capital Spending $ $ 1,280 1,280 $ $ 1,241 1,241 $ $ 1,310 1,310 In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ 1,547 1,547 $ $ 1,741 1,741 $ $ 1,938 1,938 Depreciation, Amortization and Cost of Timber Depreciation, Amortization and Cost of Timber Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Business Segment Operating Business Segment Operating Profit Profit 65 65 457 457 (179) (179) 540 540 68 68 465 465 2,069 2,069 2,102 2,102 2,471 2,471 Harvested (f) Harvested (f) Earnings (loss) from Earnings (loss) from continuing operations before continuing operations before income taxes and equity income taxes and equity earnings earnings Interest expense, net Interest expense, net Noncontrolling interests / Noncontrolling interests / equity earnings adjustment (b) equity earnings adjustment (b) Corporate items, net (a) Corporate items, net (a) Corporate special items, net Corporate special items, net (a) (a) Non-operating pension Non-operating pension expense expense 848 848 572 572 (2) (2) 91 91 76 76 484 484 795 795 520 520 1 1 121 121 55 55 610 610 1,132 1,132 555 555 8 8 96 96 422 422 258 258 $ $ 2,069 2,069 $ $ 2,102 2,102 $ $ 2,471 2,471 In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ $ $ $ $ $ Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Corporate (g) Corporate (g) Depreciation and Depreciation and Amortization Amortization 781 781 261 261 245 245 56 56 730 730 108 108 232 232 54 54 739 739 73 73 234 234 121 121 $ $ 1,343 1,343 $ $ 1,124 1,124 $ $ 1,167 1,167 External Sales By Major Product External Sales By Major Product In millions In millions 2017 2017 2016 2016 2015 2015 Industrial Packaging Industrial Packaging $ 14,946 $ 14,946 $ 14,142 $ 14,142 $ 14,496 $ 14,496 Global Cellulose Fibers Global Cellulose Fibers Printing Papers Printing Papers Other (h) Other (h) Net Sales Net Sales 2,524 2,524 4,142 4,142 131 131 1,090 1,090 4,062 4,062 201 201 986 986 4,082 4,082 1,111 1,111 $ 21,743 $ 21,743 $ 19,495 $ 19,495 $ 20,675 $ 20,675 79 79 80 80 INTERIM FINANCIAL RESULTS (UNAUDITED) INTERIM FINANCIAL RESULTS (UNAUDITED) Note: Since basic and diluted earnings per share are computed Note: Since basic and diluted earnings per share are computed (c) Includes the following tax expenses (benefits): (c) Includes the following tax expenses (benefits): In millions, except per share amounts In millions, except per share amounts and stock prices and stock prices 1st 1st Quarter Quarter 2nd 2nd Quarter Quarter 3rd 3rd Quarter Quarter 4th 4th Quarter Quarter Year Year 2017 2017 Net sales Net sales Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes and operations before income taxes and equity earnings equity earnings Gain (loss) from discontinued Gain (loss) from discontinued operations operations Net earnings (loss) attributable to Net earnings (loss) attributable to International Paper Company International Paper Company Basic earnings (loss) per share Basic earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations Gain (loss) from discontinued Gain (loss) from discontinued operations operations Diluted earnings (loss) per share Diluted earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations Gain (loss) from discontinued Gain (loss) from discontinued operations operations $ 5,132 $ 5,132 $ 5,383 $ 5,383 $ 5,517 $ 5,517 $ 5,711 $ 5,711 $ 21,743 $ 21,743 217 (a) 217 (a) (23) (a) (23) (a) 457 (a) 457 (a) 197 (a) 197 (a) 848 (a) 848 (a) 17 (b) 17 (b) (4) (b) (4) (b) 29 (b) 29 (b) (8) (b) (8) (b) 34 (b) 34 (b) 209 (a-c) 209 (a-c) 80 (a-c) 80 (a-c) 395 (a-c) 395 (a-c) 1,460 (a-c) 1,460 (a-c) 2,144 (a-c) 2,144 (a-c) $ $ 0.47 (a) 0.47 (a) $ $ 0.20 (a) 0.20 (a) $ $ 0.89 (a) 0.89 (a) $ $ 3.56 (a) 3.56 (a) $ $ 5.11 (a) 5.11 (a) 4 4 5 5 6 6 18 18 Total Total $ 7 $ 7 $ (184) $ 11 $ (184) $ 11 $(1,282) $(1,282) independently for each period and category, full year per share independently for each period and category, full year per share amounts may not equal the sum of the four quarters. In addition, the amounts may not equal the sum of the four quarters. In addition, the unaudited selected consolidated financial data are derived from our unaudited selected consolidated financial data are derived from our audited consolidated financial statements and have been revised to audited consolidated financial statements and have been revised to reflect discontinued operations. reflect discontinued operations. Footnotes to Interim Financial Results Footnotes to Interim Financial Results (a) (a) Includes the following pre-tax charges (gains): Includes the following pre-tax charges (gains): In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2017 2017 $ — $ (14) $ — $ — $ — $ (14) $ — $ — Gain on sale of investment Gain on sale of investment in ArborGen in ArborGen Costs associated with the Costs associated with the pulp business acquired in pulp business acquired in 2016 2016 Amortization of Amortization of Weyerhaeuser inventory fair Weyerhaeuser inventory fair value step-up value step-up Holmen bargain purchase Holmen bargain purchase gain gain Abandoned property Abandoned property removal removal Asia Foodservice sale Asia Foodservice sale Brazil Packaging wood Brazil Packaging wood supply accelerated supply accelerated amortization amortization Debt extinguishment costs Debt extinguishment costs Interest income on income Interest income on income tax refund claims tax refund claims Other items Other items Non-operating pension Non-operating pension expense expense Total Total 14 14 (6) (6) 2 2 — — — — — — — — — — — — — — 5 5 9 9 — — — — (4) (4) (2) (2) — — — — 7 7 — — — — 10 10 — — — — — — — — — — 6 6 — — — — — — 83 83 (1) (1) — — 31 31 34 34 33 33 386 386 $ 45 $ 45 $ 387 $ 387 $ 56 $ 56 $ 492 $ 492 (b) Includes the operating earnings of the North American Consumer (b) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following pre-tax charges (gains): pre-tax charges (gains): 2017 2017 In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 North American Consumer North American Consumer Packaging transaction costs Packaging transaction costs Non-operating pension Non-operating pension expense expense Total Total $ — $ — $ — $ 17 $ — $ — $ — $ 17 — — — — — — 45 45 $ — $ — $ — $ 62 $ — $ — $ — $ 62 In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2017 2017 International legal entity International legal entity restructuring restructuring Income tax refund Income tax refund claims claims Cash pension Cash pension contribution contribution International Tax Law International Tax Law Change Change Tax benefit of Tax Cuts Tax benefit of Tax Cuts and Jobs Act and Jobs Act Tax impact of other Tax impact of other special items special items $ 15 $ 15 $ — $ 19 $ — $ 19 $ — $ — — — — — — — — — (85) (85) 38 38 — — — — — — — — — — (28) (28) — — 9 9 — (1,222) — (1,222) (8) (8) (137) (137) (8) (8) (41) (41) (d) Includes the following pre-tax charges (gains): (d) Includes the following pre-tax charges (gains): In millions In millions costs costs write-off write-off costs costs costs costs Riegelwood mill conversion Riegelwood mill conversion India Packaging evaluation India Packaging evaluation Early debt extinguishment Early debt extinguishment Write-off of certain Write-off of certain regulatory pre-engineering regulatory pre-engineering Costs associated with the Costs associated with the newly acquired pulp newly acquired pulp business business Asia Box impairment / Asia Box impairment / restructuring restructuring Gain on sale of investment Gain on sale of investment in Arizona Chemical in Arizona Chemical Turkey mill closure Turkey mill closure Amortization of Amortization of Weyerhaeuser inventory fair Weyerhaeuser inventory fair value step-up value step-up Non-operating pension Non-operating pension expense expense Total Total 2016 2016 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 $ $ 9 9 $ — $ — $ — $ — $ — $ — — — — — — — — — 37 37 (8) (8) — — — — 44 44 — — — — — — 5 5 28 28 — — — — — — 487 487 17 17 29 29 8 8 7 7 5 5 — — — — — — 42 42 — — — — — — 19 19 — — — — 7 7 19 19 37 37 $ 82 $ 82 $ 520 $ 520 $ 108 $ 108 $ 82 $ 82 (e) Includes the operating earnings of the North American Consumer (e) Includes the operating earnings of the North American Consumer Packaging business for the full year and a pre-tax charge of $8 Packaging business for the full year and a pre-tax charge of $8 million for a legal settlement associated with the xpedx business. million for a legal settlement associated with the xpedx business. (f) Includes the following tax expenses (benefits): (f) Includes the following tax expenses (benefits): 2016 2016 In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Cash pension contribution Cash pension contribution $ — $ 23 $ — $ 23 $ — $ — $ — $ — U.S. Federal audit U.S. Federal audit Brazil goodwill Brazil goodwill International legal entity International legal entity restructuring restructuring Luxembourg tax rate Luxembourg tax rate Tax impact of other special Tax impact of other special change change items items Total Total (14) (14) (57) (57) — — — — — — — — (6) (6) — — — — — — — — — — — — — — — — 31 31 (3) (3) (10) (10) (24) (24) (14) (14) $ (74) $ $ (74) $ 7 7 $ (24) $ 17 $ (24) $ 17 Net earnings (loss) Net earnings (loss) 0.51 (a-c) 0.51 (a-c) 0.19 (a-c) 0.19 (a-c) 0.96 (a-c) 0.96 (a-c) 3.54 (a-c) 3.54 (a-c) 0.04 (b) 0.04 (b) (0.01) (b) (0.01) (b) 0.07 (b) 0.07 (b) (0.02) (b) (0.02) (b) 0.08 (b) 0.08 (b) 5.19 (a-c) 5.19 (a-c) 0.08 (b) 0.08 (b) 5.13 (a-c) 5.13 (a-c) 0.46 (a) 0.46 (a) 0.20 (a) 0.20 (a) 0.88 (a) 0.88 (a) 3.52 (a) 3.52 (a) 5.05 (a) 5.05 (a) Kleen Products settlement Kleen Products settlement — 354 — 354 Net earnings (loss) Net earnings (loss) 0.50 (a-c) 0.50 (a-c) 0.19 (a-c) 0.19 (a-c) 0.95 (a-c) 0.95 (a-c) 3.50 (a-c) 3.50 (a-c) 0.04 (b) 0.04 (b) (0.01) (b) (0.01) (b) 0.07 (b) 0.07 (b) (0.02) (b) (0.02) (b) Dividends per share of common stock Dividends per share of common stock 0.4625 0.4625 0.4625 0.4625 0.4625 0.4625 0.4750 0.4750 1.8625 1.8625 Common stock prices Common stock prices High High Low Low 2016 2016 Net sales Net sales Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes and operations before income taxes and equity earnings equity earnings Gain (loss) from discontinued operations Gain (loss) from discontinued operations Net earnings (loss) attributable to Net earnings (loss) attributable to International Paper Company International Paper Company Basic earnings (loss) per share Basic earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations $ 58.86 $ 58.86 $ 57.24 $ 57.24 $ 58.95 $ 58.95 $ 58.96 $ 58.96 $ 58.96 $ 58.96 49.62 49.62 49.60 49.60 51.28 51.28 53.10 53.10 49.60 49.60 $ 4,717 $ 4,717 $ 4,914 $ 4,914 $ 4,864 $ 4,864 $ 5,000 $ 5,000 $ 19,495 $ 19,495 307 (d) 307 (d) 4 (e) 4 (e) (76) (d) (76) (d) 40 (e) 40 (e) 320 (d) 320 (d) 34 (e) 34 (e) 244 (d) 244 (d) 24 (e) 24 (e) 795 (d) 795 (d) 102 (e) 102 (e) 334 (d-f) 334 (d-f) 40 (d-f) 40 (d-f) 312 (d-f) 312 (d-f) 218 (d-f) 218 (d-f) 904 (d-f) 904 (d-f) $ $ 0.80 (d) 0.80 (d) $ $ 0.00 (d) 0.00 (d) $ $ 0.68 (d) 0.68 (d) $ $ 0.47 (d) 0.47 (d) $ $ 1.95 (d) 1.95 (d) Gain (loss) from discontinued operations Gain (loss) from discontinued operations 0.01 (e) 0.01 (e) 0.10 (e) 0.10 (e) 0.08 (e) 0.08 (e) 0.06 (e) 0.06 (e) 0.25 (e) 0.25 (e) Net earnings (loss) Net earnings (loss) Diluted earnings (loss) per share Diluted earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations Gain (loss) from discontinued operations Gain (loss) from discontinued operations 0.81 (d-f) 0.81 (d-f) 0.10 (d-f) 0.10 (d-f) 0.76 (d-f) 0.76 (d-f) 0.53 (d-f) 0.53 (d-f) 2.20 (d-f) 2.20 (d-f) 0.80 (d) 0.80 (d) 0.01 (e) 0.01 (e) 0.00 (d) 0.00 (d) 0.10 (e) 0.10 (e) 0.67 (d) 0.67 (d) 0.08 (e) 0.08 (e) 0.47 (d) 0.47 (d) 0.06 (e) 0.06 (e) 1.93 (d) 1.93 (d) 0.25 (e) 0.25 (e) Net earnings (loss) Net earnings (loss) 0.81 (d-f) 0.81 (d-f) 0.10 (d-f) 0.10 (d-f) 0.75 (d-f) 0.75 (d-f) 0.53 (d-f) 0.53 (d-f) 2.18 (d-f) 2.18 (d-f) Dividends per share of common stock Dividends per share of common stock 0.4400 0.4400 0.4400 0.4400 0.4400 0.4400 0.4625 0.4625 1.7825 1.7825 Common stock prices Common stock prices High High Low Low $ 42.09 $ 42.09 $ 44.60 $ 44.60 $ 49.90 $ 49.90 $ 54.68 $ 54.68 $ 54.68 $ 54.68 32.50 32.50 39.24 39.24 41.08 41.08 43.55 43.55 32.50 32.50 81 81 82 82 0.46 (a) 0.46 (a) 0.20 (a) 0.20 (a) 0.88 (a) 0.88 (a) 3.52 (a) 3.52 (a) 5.05 (a) 5.05 (a) Kleen Products settlement Kleen Products settlement — 354 — 354 INTERIM FINANCIAL RESULTS (UNAUDITED) INTERIM FINANCIAL RESULTS (UNAUDITED) In millions, except per share amounts In millions, except per share amounts and stock prices and stock prices 1st 1st Quarter Quarter 2nd 2nd Quarter Quarter 3rd 3rd Quarter Quarter 4th 4th Quarter Quarter Year Year $ 5,132 $ 5,132 $ 5,383 $ 5,383 $ 5,517 $ 5,517 $ 5,711 $ 5,711 $ 21,743 $ 21,743 217 (a) 217 (a) (23) (a) (23) (a) 457 (a) 457 (a) 197 (a) 197 (a) 848 (a) 848 (a) 17 (b) 17 (b) (4) (b) (4) (b) 29 (b) 29 (b) (8) (b) (8) (b) 34 (b) 34 (b) 209 (a-c) 209 (a-c) 80 (a-c) 80 (a-c) 395 (a-c) 395 (a-c) 1,460 (a-c) 1,460 (a-c) 2,144 (a-c) 2,144 (a-c) Note: Since basic and diluted earnings per share are computed Note: Since basic and diluted earnings per share are computed independently for each period and category, full year per share independently for each period and category, full year per share amounts may not equal the sum of the four quarters. In addition, the amounts may not equal the sum of the four quarters. In addition, the unaudited selected consolidated financial data are derived from our unaudited selected consolidated financial data are derived from our audited consolidated financial statements and have been revised to audited consolidated financial statements and have been revised to reflect discontinued operations. reflect discontinued operations. Footnotes to Interim Financial Results Footnotes to Interim Financial Results (a) (a) Includes the following pre-tax charges (gains): Includes the following pre-tax charges (gains): In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2017 2017 0.08 (b) 0.08 (b) 5.19 (a-c) 5.19 (a-c) 0.08 (b) 0.08 (b) 5.13 (a-c) 5.13 (a-c) 2017 2017 Net sales Net sales Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes and operations before income taxes and equity earnings equity earnings Gain (loss) from discontinued Gain (loss) from discontinued operations operations Net earnings (loss) attributable to Net earnings (loss) attributable to International Paper Company International Paper Company Basic earnings (loss) per share Basic earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations operations operations Gain (loss) from discontinued Gain (loss) from discontinued Diluted earnings (loss) per share Diluted earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations operations operations Gain (loss) from discontinued Gain (loss) from discontinued Common stock prices Common stock prices High High Low Low 2016 2016 Net sales Net sales Earnings (loss) from continuing Earnings (loss) from continuing operations before income taxes and operations before income taxes and equity earnings equity earnings Gain (loss) from discontinued operations Gain (loss) from discontinued operations Net earnings (loss) attributable to Net earnings (loss) attributable to International Paper Company International Paper Company Basic earnings (loss) per share Basic earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations Net earnings (loss) Net earnings (loss) Diluted earnings (loss) per share Diluted earnings (loss) per share attributable to International Paper attributable to International Paper Company common shareholders: Company common shareholders: Earnings (loss) from continuing Earnings (loss) from continuing operations operations $ $ 0.47 (a) 0.47 (a) $ $ 0.20 (a) 0.20 (a) $ $ 0.89 (a) 0.89 (a) $ $ 3.56 (a) 3.56 (a) $ $ 5.11 (a) 5.11 (a) Net earnings (loss) Net earnings (loss) 0.51 (a-c) 0.51 (a-c) 0.19 (a-c) 0.19 (a-c) 0.96 (a-c) 0.96 (a-c) 3.54 (a-c) 3.54 (a-c) 0.04 (b) 0.04 (b) (0.01) (b) (0.01) (b) 0.07 (b) 0.07 (b) (0.02) (b) (0.02) (b) Net earnings (loss) Net earnings (loss) 0.50 (a-c) 0.50 (a-c) 0.19 (a-c) 0.19 (a-c) 0.95 (a-c) 0.95 (a-c) 3.50 (a-c) 3.50 (a-c) Dividends per share of common stock Dividends per share of common stock 0.4625 0.4625 0.4625 0.4625 0.4625 0.4625 0.4750 0.4750 1.8625 1.8625 0.04 (b) 0.04 (b) (0.01) (b) (0.01) (b) 0.07 (b) 0.07 (b) (0.02) (b) (0.02) (b) $ 58.86 $ 58.86 $ 57.24 $ 57.24 $ 58.95 $ 58.95 $ 58.96 $ 58.96 $ 58.96 $ 58.96 49.62 49.62 49.60 49.60 51.28 51.28 53.10 53.10 49.60 49.60 $ 4,717 $ 4,717 $ 4,914 $ 4,914 $ 4,864 $ 4,864 $ 5,000 $ 5,000 $ 19,495 $ 19,495 307 (d) 307 (d) 4 (e) 4 (e) (76) (d) (76) (d) 40 (e) 40 (e) 320 (d) 320 (d) 34 (e) 34 (e) 244 (d) 244 (d) 24 (e) 24 (e) 795 (d) 795 (d) 102 (e) 102 (e) 334 (d-f) 334 (d-f) 40 (d-f) 40 (d-f) 312 (d-f) 312 (d-f) 218 (d-f) 218 (d-f) 904 (d-f) 904 (d-f) Gain (loss) from discontinued operations Gain (loss) from discontinued operations 0.01 (e) 0.01 (e) 0.10 (e) 0.10 (e) 0.08 (e) 0.08 (e) 0.06 (e) 0.06 (e) 0.25 (e) 0.25 (e) $ $ 0.80 (d) 0.80 (d) $ $ 0.00 (d) 0.00 (d) $ $ 0.68 (d) 0.68 (d) $ $ 0.47 (d) 0.47 (d) $ $ 1.95 (d) 1.95 (d) 0.81 (d-f) 0.81 (d-f) 0.10 (d-f) 0.10 (d-f) 0.76 (d-f) 0.76 (d-f) 0.53 (d-f) 0.53 (d-f) 2.20 (d-f) 2.20 (d-f) Gain (loss) from discontinued operations Gain (loss) from discontinued operations 0.80 (d) 0.80 (d) 0.01 (e) 0.01 (e) 0.00 (d) 0.00 (d) 0.10 (e) 0.10 (e) 0.67 (d) 0.67 (d) 0.08 (e) 0.08 (e) 0.47 (d) 0.47 (d) 0.06 (e) 0.06 (e) 1.93 (d) 1.93 (d) 0.25 (e) 0.25 (e) Net earnings (loss) Net earnings (loss) 0.81 (d-f) 0.81 (d-f) 0.10 (d-f) 0.10 (d-f) 0.75 (d-f) 0.75 (d-f) 0.53 (d-f) 0.53 (d-f) 2.18 (d-f) 2.18 (d-f) Dividends per share of common stock Dividends per share of common stock 0.4400 0.4400 0.4400 0.4400 0.4400 0.4400 0.4625 0.4625 1.7825 1.7825 Common stock prices Common stock prices High High Low Low $ 42.09 $ 42.09 $ 44.60 $ 44.60 $ 49.90 $ 49.90 $ 54.68 $ 54.68 $ 54.68 $ 54.68 32.50 32.50 39.24 39.24 41.08 41.08 43.55 43.55 32.50 32.50 4 4 5 5 6 6 18 18 Total Total $ 7 $ 7 $ (184) $ 11 $ (184) $ 11 $(1,282) $(1,282) (d) Includes the following pre-tax charges (gains): (d) Includes the following pre-tax charges (gains): Gain on sale of investment Gain on sale of investment in ArborGen in ArborGen Costs associated with the Costs associated with the pulp business acquired in pulp business acquired in 2016 2016 Amortization of Amortization of Weyerhaeuser inventory fair Weyerhaeuser inventory fair value step-up value step-up Holmen bargain purchase Holmen bargain purchase gain gain Abandoned property Abandoned property removal removal Asia Foodservice sale Asia Foodservice sale Brazil Packaging wood Brazil Packaging wood supply accelerated supply accelerated amortization amortization Debt extinguishment costs Debt extinguishment costs Interest income on income Interest income on income tax refund claims tax refund claims Other items Other items Non-operating pension Non-operating pension expense expense Total Total $ — $ (14) $ — $ — $ — $ (14) $ — $ — 14 14 (6) (6) 2 2 — — — — 5 5 — — — — — — — — — — 9 9 — — — — (4) (4) (2) (2) — — — — 7 7 — — — — 10 10 — — — — — — — — — — 6 6 — — — — — — 83 83 (1) (1) — — 31 31 34 34 33 33 386 386 $ 45 $ 45 $ 387 $ 387 $ 56 $ 56 $ 492 $ 492 (c) Includes the following tax expenses (benefits): (c) Includes the following tax expenses (benefits): In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2017 2017 International legal entity International legal entity restructuring restructuring Income tax refund Income tax refund claims claims Cash pension Cash pension contribution contribution International Tax Law International Tax Law Change Change Tax benefit of Tax Cuts Tax benefit of Tax Cuts and Jobs Act and Jobs Act Tax impact of other Tax impact of other special items special items $ 15 $ 15 $ — $ 19 $ — $ 19 $ — $ — — — — — — — — — (85) (85) 38 38 — — — — — — — — — — (28) (28) — — 9 9 — (1,222) — (1,222) (8) (8) (137) (137) (8) (8) (41) (41) In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2016 2016 Riegelwood mill conversion Riegelwood mill conversion costs costs India Packaging evaluation India Packaging evaluation write-off write-off Early debt extinguishment Early debt extinguishment costs costs Write-off of certain Write-off of certain regulatory pre-engineering regulatory pre-engineering costs costs Costs associated with the Costs associated with the newly acquired pulp newly acquired pulp business business Asia Box impairment / Asia Box impairment / restructuring restructuring Gain on sale of investment Gain on sale of investment in Arizona Chemical in Arizona Chemical Turkey mill closure Turkey mill closure Amortization of Amortization of Weyerhaeuser inventory fair Weyerhaeuser inventory fair value step-up value step-up Non-operating pension Non-operating pension expense expense $ $ 9 9 $ — $ — $ — $ — $ — $ — — — — — — — — — 37 37 (8) (8) — — — — 44 44 — — — — — — 5 5 28 28 — — — — — — 487 487 17 17 29 29 8 8 7 7 5 5 — — — — — — 42 42 — — — — — — 19 19 — — — — 7 7 19 19 37 37 Total Total $ 82 $ 82 $ 520 $ 520 $ 108 $ 108 $ 82 $ 82 (e) Includes the operating earnings of the North American Consumer (e) Includes the operating earnings of the North American Consumer Packaging business for the full year and a pre-tax charge of $8 Packaging business for the full year and a pre-tax charge of $8 million for a legal settlement associated with the xpedx business. million for a legal settlement associated with the xpedx business. (f) Includes the following tax expenses (benefits): (f) Includes the following tax expenses (benefits): 2016 2016 In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Cash pension contribution Cash pension contribution $ — $ 23 $ — $ 23 $ — $ — $ — $ — U.S. Federal audit U.S. Federal audit Brazil goodwill Brazil goodwill International legal entity International legal entity restructuring restructuring Luxembourg tax rate Luxembourg tax rate change change Tax impact of other special Tax impact of other special items items Total Total (14) (14) (57) (57) — — — — — — — — (6) (6) — — — — — — — — — — — — — — — — 31 31 (3) (3) (10) (10) (24) (24) (14) (14) $ (74) $ $ (74) $ 7 7 $ (24) $ 17 $ (24) $ 17 (b) Includes the operating earnings of the North American Consumer (b) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following Packaging business for the full year. Also includes the following pre-tax charges (gains): pre-tax charges (gains): 2017 2017 In millions In millions Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 North American Consumer North American Consumer Packaging transaction costs Packaging transaction costs Non-operating pension Non-operating pension expense expense Total Total $ — $ — $ — $ 17 $ — $ — $ — $ 17 — — — — — — 45 45 $ — $ — $ — $ 62 $ — $ — $ — $ 62 81 81 82 82 ITEM 9. CHANGES IN AND DISAGREEMENTS ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE FINANCIAL DISCLOSURE None. None. ITEM 9A. CONTROLS AND PROCEDURES ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES PROCEDURES “Exchange Act”), “Exchange Act”), We maintain disclosure controls and procedures that We maintain disclosure controls and procedures that are designed to ensure that information required to be are designed to ensure that information required to be disclosed by us in the reports we file or submit under disclosed by us in the reports we file or submit under the Securities and Exchange Act of 1934, as amended the Securities and Exchange Act of 1934, as amended recorded, processed, is (the (the recorded, processed, is summarized and reported within the time periods summarized and reported within the time periods specified in the SEC’s rules and forms, and that such specified in the SEC’s rules and forms, and that such information is accumulated and communicated to information is accumulated and communicated to management, including our principal executive officer management, including our principal executive officer and principal financial officer, as appropriate, to allow and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of timely decisions regarding required disclosure. As of December 31, 2017, an evaluation was carried out December 31, 2017, an evaluation was carried out under the supervision and with the participation of the under the supervision and with the participation of the including our principal Company’s management, including our principal Company’s management, executive officer and principal financial officer, of the executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15 under the Exchange Act. as defined by Rule 13a-15 under the Exchange Act. Based upon this evaluation, our principal executive Based upon this evaluation, our principal executive officer and principal financial officer have concluded that officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were the Company’s disclosure controls and procedures were effective as of December 31, 2017. effective as of December 31, 2017. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING FINANCIAL REPORTING Our management is responsible for establishing and Our management is responsible for establishing and maintaining adequate internal control over our financial maintaining adequate internal control over our financial reporting. Internal control over financial reporting is the reporting. Internal control over financial reporting is the process designed by, or under the supervision of, our process designed by, or under the supervision of, our principal executive officer and principal financial officer, principal executive officer and principal financial officer, and effected by our Board of Directors, management and effected by our Board of Directors, management and other personnel, to provide reasonable assurance and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of for external preparation of for external purposes in accordance with accounting principles purposes in accordance with accounting principles generally accepted in the United States (GAAP). Our generally accepted in the United States (GAAP). Our internal control over financial reporting includes those internal control over financial reporting includes those policies and procedures that: policies and procedures that: financial statements financial statements • • • • pertain to the maintenance of records that, in pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; transactions and dispositions of our assets; provide reasonable assurance that transactions provide reasonable assurance that transactions are recorded as necessary to allow for the are recorded as necessary to allow for the preparation of financial statements in accordance preparation of financial statements in accordance with GAAP, and that our receipts and expenditures with GAAP, and that our receipts and expenditures are being made only in accordance with are being made only in accordance with authorizations of our management and directors; authorizations of our management and directors; • • • • assurance assurance reasonable reasonable provide reasonable assurance as to the detection provide reasonable assurance as to the detection of fraud. of fraud. provide regarding regarding provide prevention or timely detection of unauthorized prevention or timely detection of unauthorized acquisition, use or disposition of our assets that acquisition, use or disposition of our assets that could have a material effect on our consolidated could have a material effect on our consolidated financial statements; and financial statements; and employee may report suspected violations of law or our employee may report suspected violations of law or our The Company’s Code of Business Ethics (Code) is The Company’s Code of Business Ethics (Code) is policy; and an office of ethics and business practice. The policy; and an office of ethics and business practice. The applicable to all employees of the Company, including applicable to all employees of the Company, including internal control system further includes careful selection internal control system further includes careful selection the chief executive officer and senior financial officers, the chief executive officer and senior financial officers, and training of supervisory and management personnel, and training of supervisory and management personnel, as well as the Board of Directors. We disclose any as well as the Board of Directors. We disclose any appropriate delegation of authority and division of appropriate delegation of authority and division of amendments to our Code and any waivers from a amendments to our Code and any waivers from a responsibility, dissemination of accounting and responsibility, dissemination of accounting and provision of our Code granted to our directors, chief provision of our Code granted to our directors, chief business policies throughout the Company, and an business policies throughout the Company, and an executive officer and senior financial officers on our executive officer and senior financial officers on our extensive program of internal audits with management extensive program of internal audits with management Internet Web site within four business days following Internet Web site within four business days following follow-up. Our Board of Directors, assisted by the Audit follow-up. Our Board of Directors, assisted by the Audit such amendment or waiver. To date, no waivers of the such amendment or waiver. To date, no waivers of the and Finance Committee, monitors the integrity of our and Finance Committee, monitors the integrity of our Code have been granted. Code have been granted. financial statements and financial reporting procedures, financial statements and financial reporting procedures, the performance of our internal audit function and the performance of our internal audit function and independent auditors, and other matters set forth in its independent auditors, and other matters set forth in its charter. The Committee, which consists of independent charter. The Committee, which consists of independent directors, meets regularly with representatives of directors, meets regularly with representatives of management, and with the independent auditors and management, and with the independent auditors and the Internal Auditor, with and without management the Internal Auditor, with and without management representatives in attendance, to review their activities. representatives in attendance, to review their activities. CHANGES IN INTERNAL CONTROL OVER FINANCIAL CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING REPORTING There have been no changes in our internal control over There have been no changes in our internal control over financial financial reporting during reporting during the quarter ended the quarter ended December 31, 2017, that have materially affected, or December 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal are reasonably likely to materially affect, our internal control over financial reporting. control over financial reporting. ITEM 9B. OTHER INFORMATION ITEM 9B. OTHER INFORMATION None. None. PART III. PART III. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE Information concerning our directors Information concerning our directors is hereby is hereby incorporated by reference to our definitive proxy incorporated by reference to our definitive proxy statement that will be filed with the Securities and statement that will be filed with the Securities and Exchange Commission (SEC) within 120 days of the Exchange Commission (SEC) within 120 days of the close of our fiscal year. The Audit and Finance close of our fiscal year. The Audit and Finance Committee of the Board of Directors has at least one Committee of the Board of Directors has at least one member who is a financial expert, as that term is defined member who is a financial expert, as that term is defined in Item 401(d)(5) of Regulation S-K. Further information in Item 401(d)(5) of Regulation S-K. Further information concerning the composition of the Audit and Finance concerning the composition of the Audit and Finance Committee and our audit committee financial experts Committee and our audit committee financial experts is hereby incorporated by reference to our definitive is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. Information with 120 days of the close of our fiscal year. Information with respect to our executive officers is set forth on pages 5 respect to our executive officers is set forth on pages 5 and 6 in Part I of this Form 10-K under the caption, and 6 in Part I of this Form 10-K under the caption, “Executive Officers of the Registrant.” “Executive Officers of the Registrant.” Executive officers of International Paper are elected to Executive officers of International Paper are elected to hold office until the next annual meeting of the Board hold office until the next annual meeting of the Board of Directors of Directors following following the annual meeting of the annual meeting of shareholders and, until the election of successors, shareholders and, until the election of successors, subject to removal by the Board. subject to removal by the Board. We make available free of charge on our Internet Web We make available free of charge on our Internet Web site at www.internationalpaper.com, and in print to any site at www.internationalpaper.com, and in print to any shareholder who requests shareholder who requests them, our Corporate them, our Corporate Governance Principles, our Code of Business Ethics Governance Principles, our Code of Business Ethics and the Charters of our Audit and Finance Committee, and the Charters of our Audit and Finance Committee, Management Development and Compensation Management Development and Compensation Committee, Governance Committee and Public Policy Committee, Governance Committee and Public Policy and Environment Committee. Requests for copies may and Environment Committee. Requests for copies may be directed to the corporate secretary at our corporate be directed to the corporate secretary at our corporate headquarters. headquarters. Information with respect to compliance with Section 16 Information with respect to compliance with Section 16 (a) of the Securities and Exchange Act and our (a) of the Securities and Exchange Act and our corporate governance is hereby incorporated by corporate governance is hereby incorporated by reference to our definitive proxy statement that will be reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our filed with the SEC within 120 days of the close of our fiscal year. fiscal year. ITEM 11. EXECUTIVE COMPENSATION ITEM 11. EXECUTIVE COMPENSATION Information with respect to the compensation of Information with respect to the compensation of executives and directors of the Company is hereby executives and directors of the Company is hereby incorporated by reference to our definitive proxy incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days statement that will be filed with the SEC within 120 days of the close of our fiscal year. of the close of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS RELATED STOCKHOLDER MATTERS A description of the security ownership of certain A description of the security ownership of certain beneficial owners and management and equity beneficial owners and management and equity compensation plan information is hereby incorporated compensation plan information is hereby incorporated by reference to our definitive proxy statement that will by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our be filed with the SEC within 120 days of the close of our fiscal year. fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE INDEPENDENCE A description of certain relationships and related A description of certain relationships and related transactions is hereby incorporated by reference to our transactions is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. within 120 days of the close of our fiscal year. All internal control systems have inherent limitations, All internal control systems have inherent limitations, including the possibility of circumvention and overriding including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. assurance of achieving the designed control objectives. The Company’s internal control system is supported by The Company’s internal control system is supported by written policies and procedures, contains self- written policies and procedures, contains self- monitoring mechanisms, and is audited by the internal monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by audit function. Appropriate actions are taken by management to correct deficiencies as they are management to correct deficiencies as they are identified. identified. As of December 31, 2017, management has assessed As of December 31, 2017, management has assessed the effectiveness of the Company’s internal control over the effectiveness of the Company’s internal control over financial reporting. In a report included on pages 37 and financial reporting. In a report included on pages 37 and 38, management concluded that the Company’s internal 38, management concluded that the Company’s internal control over financial reporting was effective as of control over financial reporting was effective as of December 31, 2017. December 31, 2017. In making this assessment, we used the criteria In making this assessment, we used the criteria described in “Internal Control – Integrated Framework described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Organizations of the Treadway Commission. Our independent registered public accounting firm, Our independent registered public accounting firm, Deloitte & Touche LLP, with direct access to our Board Deloitte & Touche LLP, with direct access to our Board of Directors through our Audit and Finance Committee, of Directors through our Audit and Finance Committee, has audited the consolidated financial statements has audited the consolidated financial statements prepared by us. Deloitte & Touche LLP has also issued prepared by us. Deloitte & Touche LLP has also issued an attestation report on our internal control over financial an attestation report on our internal control over financial reporting. Their report on the consolidated financial reporting. Their report on the consolidated financial statements and attestation report are included in Part II, statements and attestation report are included in Part II, Item 8 of this Annual Report under the heading Item 8 of this Annual Report under the heading “Financial Statements and Supplementary Data.” “Financial Statements and Supplementary Data.” MANAGEMENT’S PROCESS TO ASSESS THE MANAGEMENT’S PROCESS TO ASSESS THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING REPORTING To comply with the requirements of Section 404 of the To comply with the requirements of Section 404 of the followed a Sarbanes-Oxley Act of 2002, we followed a Sarbanes-Oxley Act of 2002, we comprehensive compliance process across the comprehensive compliance process across the enterprise to evaluate our internal control over financial enterprise to evaluate our internal control over financial reporting, engaging employees at all levels of the reporting, engaging employees at all levels of the organization. Our internal control environment includes organization. Our internal control environment includes an enterprise-wide attitude of integrity and control an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical includes long-standing principles and policies on ethical business conduct that require employees to maintain business conduct that require employees to maintain the highest ethical and legal standards in the conduct the highest ethical and legal standards in the conduct of our business, which have been distributed to all of our business, which have been distributed to all employees; a toll-free telephone helpline whereby any employees; a toll-free telephone helpline whereby any 83 83 84 84 ITEM 9. CHANGES IN AND DISAGREEMENTS ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE FINANCIAL DISCLOSURE None. None. • • provide provide reasonable reasonable assurance assurance regarding regarding prevention or timely detection of unauthorized prevention or timely detection of unauthorized acquisition, use or disposition of our assets that acquisition, use or disposition of our assets that could have a material effect on our consolidated could have a material effect on our consolidated financial statements; and financial statements; and ITEM 9A. CONTROLS AND PROCEDURES ITEM 9A. CONTROLS AND PROCEDURES • • provide reasonable assurance as to the detection provide reasonable assurance as to the detection EVALUATION OF DISCLOSURE CONTROLS AND EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES PROCEDURES We maintain disclosure controls and procedures that We maintain disclosure controls and procedures that are designed to ensure that information required to be are designed to ensure that information required to be disclosed by us in the reports we file or submit under disclosed by us in the reports we file or submit under the Securities and Exchange Act of 1934, as amended the Securities and Exchange Act of 1934, as amended (the (the “Exchange Act”), “Exchange Act”), is is recorded, processed, recorded, processed, summarized and reported within the time periods summarized and reported within the time periods specified in the SEC’s rules and forms, and that such specified in the SEC’s rules and forms, and that such information is accumulated and communicated to information is accumulated and communicated to management, including our principal executive officer management, including our principal executive officer and principal financial officer, as appropriate, to allow and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of timely decisions regarding required disclosure. As of December 31, 2017, an evaluation was carried out December 31, 2017, an evaluation was carried out under the supervision and with the participation of the under the supervision and with the participation of the Company’s management, Company’s management, including our principal including our principal executive officer and principal financial officer, of the executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15 under the Exchange Act. as defined by Rule 13a-15 under the Exchange Act. Based upon this evaluation, our principal executive Based upon this evaluation, our principal executive officer and principal financial officer have concluded that officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were the Company’s disclosure controls and procedures were effective as of December 31, 2017. effective as of December 31, 2017. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING FINANCIAL REPORTING of fraud. of fraud. All internal control systems have inherent limitations, All internal control systems have inherent limitations, including the possibility of circumvention and overriding including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. assurance of achieving the designed control objectives. The Company’s internal control system is supported by The Company’s internal control system is supported by written policies and procedures, contains self- written policies and procedures, contains self- monitoring mechanisms, and is audited by the internal monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by audit function. Appropriate actions are taken by management to correct deficiencies as they are management to correct deficiencies as they are identified. identified. As of December 31, 2017, management has assessed As of December 31, 2017, management has assessed the effectiveness of the Company’s internal control over the effectiveness of the Company’s internal control over financial reporting. In a report included on pages 37 and financial reporting. In a report included on pages 37 and 38, management concluded that the Company’s internal 38, management concluded that the Company’s internal control over financial reporting was effective as of control over financial reporting was effective as of December 31, 2017. December 31, 2017. In making this assessment, we used the criteria In making this assessment, we used the criteria described in “Internal Control – Integrated Framework described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Organizations of the Treadway Commission. Our independent registered public accounting firm, Our independent registered public accounting firm, Deloitte & Touche LLP, with direct access to our Board Deloitte & Touche LLP, with direct access to our Board of Directors through our Audit and Finance Committee, of Directors through our Audit and Finance Committee, Our management is responsible for establishing and Our management is responsible for establishing and has audited the consolidated financial statements has audited the consolidated financial statements maintaining adequate internal control over our financial maintaining adequate internal control over our financial prepared by us. Deloitte & Touche LLP has also issued prepared by us. Deloitte & Touche LLP has also issued reporting. Internal control over financial reporting is the reporting. Internal control over financial reporting is the an attestation report on our internal control over financial an attestation report on our internal control over financial process designed by, or under the supervision of, our process designed by, or under the supervision of, our reporting. Their report on the consolidated financial reporting. Their report on the consolidated financial principal executive officer and principal financial officer, principal executive officer and principal financial officer, statements and attestation report are included in Part II, statements and attestation report are included in Part II, and effected by our Board of Directors, management and effected by our Board of Directors, management Item 8 of this Annual Report under the heading Item 8 of this Annual Report under the heading and other personnel, to provide reasonable assurance and other personnel, to provide reasonable assurance “Financial Statements and Supplementary Data.” “Financial Statements and Supplementary Data.” reasonable detail, accurately and fairly reflect the reasonable detail, accurately and fairly reflect the reporting, engaging employees at all levels of the reporting, engaging employees at all levels of the regarding the reliability of financial reporting and the regarding the reliability of financial reporting and the preparation of preparation of financial statements financial statements for external for external purposes in accordance with accounting principles purposes in accordance with accounting principles generally accepted in the United States (GAAP). Our generally accepted in the United States (GAAP). Our internal control over financial reporting includes those internal control over financial reporting includes those policies and procedures that: policies and procedures that: • • pertain to the maintenance of records that, in pertain to the maintenance of records that, in transactions and dispositions of our assets; transactions and dispositions of our assets; • • provide reasonable assurance that transactions provide reasonable assurance that transactions are recorded as necessary to allow for the are recorded as necessary to allow for the preparation of financial statements in accordance preparation of financial statements in accordance with GAAP, and that our receipts and expenditures with GAAP, and that our receipts and expenditures are being made only are being made only in accordance with in accordance with authorizations of our management and directors; authorizations of our management and directors; MANAGEMENT’S PROCESS TO ASSESS THE MANAGEMENT’S PROCESS TO ASSESS THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING REPORTING To comply with the requirements of Section 404 of the To comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we Sarbanes-Oxley Act of 2002, we followed a followed a comprehensive compliance process across comprehensive compliance process across the the enterprise to evaluate our internal control over financial enterprise to evaluate our internal control over financial organization. Our internal control environment includes organization. Our internal control environment includes an enterprise-wide attitude of integrity and control an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical includes long-standing principles and policies on ethical business conduct that require employees to maintain business conduct that require employees to maintain the highest ethical and legal standards in the conduct the highest ethical and legal standards in the conduct of our business, which have been distributed to all of our business, which have been distributed to all employees; a toll-free telephone helpline whereby any employees; a toll-free telephone helpline whereby any employee may report suspected violations of law or our employee may report suspected violations of law or our policy; and an office of ethics and business practice. The policy; and an office of ethics and business practice. The internal control system further includes careful selection internal control system further includes careful selection and training of supervisory and management personnel, and training of supervisory and management personnel, appropriate delegation of authority and division of appropriate delegation of authority and division of responsibility, dissemination of accounting and responsibility, dissemination of accounting and business policies throughout the Company, and an business policies throughout the Company, and an extensive program of internal audits with management extensive program of internal audits with management follow-up. Our Board of Directors, assisted by the Audit follow-up. Our Board of Directors, assisted by the Audit and Finance Committee, monitors the integrity of our and Finance Committee, monitors the integrity of our financial statements and financial reporting procedures, financial statements and financial reporting procedures, the performance of our internal audit function and the performance of our internal audit function and independent auditors, and other matters set forth in its independent auditors, and other matters set forth in its charter. The Committee, which consists of independent charter. The Committee, which consists of independent directors, meets regularly with representatives of directors, meets regularly with representatives of management, and with the independent auditors and management, and with the independent auditors and the Internal Auditor, with and without management the Internal Auditor, with and without management representatives in attendance, to review their activities. representatives in attendance, to review their activities. CHANGES IN INTERNAL CONTROL OVER FINANCIAL CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING REPORTING reporting during reporting during There have been no changes in our internal control over There have been no changes in our internal control over the quarter ended financial financial the quarter ended December 31, 2017, that have materially affected, or December 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal are reasonably likely to materially affect, our internal control over financial reporting. control over financial reporting. ITEM 9B. OTHER INFORMATION ITEM 9B. OTHER INFORMATION None. None. PART III. PART III. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE Information concerning our directors is hereby is hereby Information concerning our directors incorporated by reference to our definitive proxy incorporated by reference to our definitive proxy statement that will be filed with the Securities and statement that will be filed with the Securities and Exchange Commission (SEC) within 120 days of the Exchange Commission (SEC) within 120 days of the close of our fiscal year. The Audit and Finance close of our fiscal year. The Audit and Finance Committee of the Board of Directors has at least one Committee of the Board of Directors has at least one member who is a financial expert, as that term is defined member who is a financial expert, as that term is defined in Item 401(d)(5) of Regulation S-K. Further information in Item 401(d)(5) of Regulation S-K. Further information concerning the composition of the Audit and Finance concerning the composition of the Audit and Finance Committee and our audit committee financial experts Committee and our audit committee financial experts is hereby incorporated by reference to our definitive is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. Information with 120 days of the close of our fiscal year. Information with respect to our executive officers is set forth on pages 5 respect to our executive officers is set forth on pages 5 and 6 in Part I of this Form 10-K under the caption, and 6 in Part I of this Form 10-K under the caption, “Executive Officers of the Registrant.” “Executive Officers of the Registrant.” Executive officers of International Paper are elected to Executive officers of International Paper are elected to hold office until the next annual meeting of the Board hold office until the next annual meeting of the Board the annual meeting of of Directors of Directors the annual meeting of shareholders and, until the election of successors, shareholders and, until the election of successors, subject to removal by the Board. subject to removal by the Board. following following The Company’s Code of Business Ethics (Code) is The Company’s Code of Business Ethics (Code) is applicable to all employees of the Company, including applicable to all employees of the Company, including the chief executive officer and senior financial officers, the chief executive officer and senior financial officers, as well as the Board of Directors. We disclose any as well as the Board of Directors. We disclose any amendments to our Code and any waivers from a amendments to our Code and any waivers from a provision of our Code granted to our directors, chief provision of our Code granted to our directors, chief executive officer and senior financial officers on our executive officer and senior financial officers on our Internet Web site within four business days following Internet Web site within four business days following such amendment or waiver. To date, no waivers of the such amendment or waiver. To date, no waivers of the Code have been granted. Code have been granted. We make available free of charge on our Internet Web We make available free of charge on our Internet Web site at www.internationalpaper.com, and in print to any site at www.internationalpaper.com, and in print to any shareholder who requests them, our Corporate shareholder who requests them, our Corporate Governance Principles, our Code of Business Ethics Governance Principles, our Code of Business Ethics and the Charters of our Audit and Finance Committee, and the Charters of our Audit and Finance Committee, Management Development and Compensation Management Development and Compensation Committee, Governance Committee and Public Policy Committee, Governance Committee and Public Policy and Environment Committee. Requests for copies may and Environment Committee. Requests for copies may be directed to the corporate secretary at our corporate be directed to the corporate secretary at our corporate headquarters. headquarters. Information with respect to compliance with Section 16 Information with respect to compliance with Section 16 (a) of the Securities and Exchange Act and our (a) of the Securities and Exchange Act and our corporate governance is hereby incorporated by corporate governance is hereby incorporated by reference to our definitive proxy statement that will be reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our filed with the SEC within 120 days of the close of our fiscal year. fiscal year. ITEM 11. EXECUTIVE COMPENSATION ITEM 11. EXECUTIVE COMPENSATION Information with respect to the compensation of Information with respect to the compensation of executives and directors of the Company is hereby executives and directors of the Company is hereby incorporated by reference to our definitive proxy incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days statement that will be filed with the SEC within 120 days of the close of our fiscal year. of the close of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS RELATED STOCKHOLDER MATTERS A description of the security ownership of certain A description of the security ownership of certain beneficial owners and management and equity beneficial owners and management and equity compensation plan information is hereby incorporated compensation plan information is hereby incorporated by reference to our definitive proxy statement that will by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our be filed with the SEC within 120 days of the close of our fiscal year. fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE INDEPENDENCE A description of certain relationships and related A description of certain relationships and related transactions is hereby incorporated by reference to our transactions is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. within 120 days of the close of our fiscal year. 83 83 84 84 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES SERVICES Information with respect to fees paid to, and services Information with respect to fees paid to, and services rendered by, our principal accountant, and our policies rendered by, our principal accountant, and our policies and procedures for pre-approving those services, is and procedures for pre-approving those services, is hereby incorporated by reference to our definitive proxy hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days statement that will be filed with the SEC within 120 days of the close of our fiscal year. of the close of our fiscal year. PART IV. PART IV. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES SCHEDULES (1) Financial Statements – See Item 8. Financial (1) Financial Statements – See Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. the consolidated the consolidated (2) Financial Statement Schedules – The following (2) Financial Statement Schedules – The following additional financial data should be read in additional financial data should be read in financial conjunction with financial conjunction with statements in Item 8. Schedules not included with statements in Item 8. Schedules not included with this additional financial data have been omitted this additional financial data have been omitted because they are not applicable, or the required because they are not applicable, or the required information is shown in the consolidated financial information is shown in the consolidated financial statements or the notes thereto. statements or the notes thereto. Additional Financial Data Additional Financial Data 2017, 2016 and 2015 2017, 2016 and 2015 Consolidated Schedule: Consolidated Schedule: II-Valuation and II-Valuation and Qualifying Accounts. Qualifying Accounts. 89 89 (2.1) Purchase Agreement dated as of May 1, (2.1) Purchase Agreement dated as of May 1, 2016, between Weyerhaeuser NR 2016, between Weyerhaeuser NR Company and International Paper Company Company and International Paper Company (incorporated by reference to Exhibit 2.1 to (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016). 10-Q for the quarter ended June 30, 2016). (2.2) Transaction Agreement, dated October 23, (2.2) Transaction Agreement, dated October 23, 2017, by and among the Company, Graphic 2017, by and among the Company, Graphic Packaging Holding Company, Gazelle Packaging Holding Company, Gazelle Newco LLC and Graphic Packaging Newco LLC and Graphic Packaging by International, International, by reference to Exhibit 2.1 to the Company’s reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed October Current Report on Form 8-K filed October 24, 2017). 24, 2017). (incorporated (incorporated Inc. Inc. (3.1) Restated Certificate of (3.1) Restated Certificate of Paper Paper Incorporation Incorporation of International Company Company of International (incorporated by reference to Exhibit 3.1 to (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8- the Company’s Current Report on Form 8- K dated May 13, 2013). K dated May 13, 2013). (3.2) By-laws of International Paper Company, as (3.2) By-laws of International Paper Company, as amended through February 9, 2016 amended through February 9, 2016 (incorporated by reference to Exhibit 3.1 to (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8- the Company’s Current Report on Form 8- K dated February 8, 2016). K dated February 8, 2016). (4.1) Indenture, dated as of April 12, 1999, (4.1) Indenture, dated as of April 12, 1999, between International Paper and The Bank between International Paper and The Bank of New York, as Trustee (incorporated by of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, Current Report on Form 8-K dated June 29, 2000). 2000). (4.2) Supplemental Indenture (including the form (4.2) Supplemental Indenture (including the form of Notes), dated as of June 4, 2008, between of Notes), dated as of June 4, 2008, between International Paper Company and The Bank International Paper Company and The Bank of New York, as Trustee (incorporated by of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 4, Current Report on Form 8-K dated June 4, 2008). 2008). (4.3) Supplemental Indenture (including the form (4.3) Supplemental Indenture (including the form of Notes), dated as of May 11, 2009, of Notes), dated as of May 11, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon, as trustee The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated May 11, 2009). K dated May 11, 2009). (4.4) Supplemental Indenture (including the form (4.4) Supplemental Indenture (including the form of Notes), dated as of August 10, 2009, of Notes), dated as of August 10, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon, as trustee The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 10, 2009). K dated August 10, 2009). (4.5) Supplemental Indenture (including the form (4.5) Supplemental Indenture (including the form of Notes), dated as of December 7, 2009, of Notes), dated as of December 7, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon Trust The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company's reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated Current Report on Form 8-K dated December 7, 2009). December 7, 2009). (4.6) Supplemental Indenture (including the form (4.6) Supplemental Indenture (including the form of Notes), dated as of November 16, 2011, of Notes), dated as of November 16, 2011, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated November 16, 2011). K dated November 16, 2011). (4.7) Supplemental Indenture (including the form (4.7) Supplemental Indenture (including the form of Notes), dated as of June 10, 2014, of Notes), dated as of June 10, 2014, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated June 10, 2014). K dated June 10, 2014). (4.8) Supplemental Indenture (including the form (4.8) Supplemental Indenture (including the form of Notes), dated as of May 26, 2015, of Notes), dated as of May 26, 2015, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated May 26, 2015). K dated May 26, 2015). (4.9) Supplemental Indenture (including the form (4.9) Supplemental Indenture (including the form (10.10) Amendment No. 2 to the International Paper (10.10) Amendment No. 2 to the International Paper of Notes), dated as of August 11, 2016, of Notes), dated as of August 11, 2016, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 11, 2016). K dated August 11, 2016). (4.10) Supplemental Indenture (including the form (4.10) Supplemental Indenture (including the form of Notes), dated as of August 9, 2017, of Notes), dated as of August 9, 2017, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 9, 2017). K dated August 9, 2017). (4.11) In (4.11) In accordance accordance with with Item 601 Item 601 (b) (4) (iii) (A) of Regulation S-K, certain (b) (4) (iii) (A) of Regulation S-K, certain instruments respecting long-term debt of the instruments respecting long-term debt of the Company have been omitted but will be Company have been omitted but will be furnished to the Commission upon request. furnished to the Commission upon request. (10.1) Amended and Restated 2009 Incentive (10.1) Amended and Restated 2009 Incentive Compensation Plan (ICP) (incorporated by Compensation Plan (ICP) (incorporated by reference to Exhibit 99.1 to the Company's reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated February Current Report on Form 8-K dated February 10, 2014). + 10, 2014). + (10.2) Restricted (10.2) Restricted Stock Stock and and Deferred Deferred Compensation Plan Compensation Plan for Non-Employee for Non-Employee Directors, Amended and Restated as of May Directors, Amended and Restated as of May 10, 2010 (incorporated by reference to 10, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended June 30, 2010). + June 30, 2010). + (10.3) Form of Restricted Stock Award Agreement. (10.3) Form of Restricted Stock Award Agreement. * + * + (10.4) Form of Restricted Stock Unit Award (10.4) Form of Restricted Stock Unit Award Agreement (cash settled). * + Agreement (cash settled). * + (10.5) Form of Restricted Stock Unit Award (10.5) Form of Restricted Stock Unit Award Agreement (stock settled). * + Agreement (stock settled). * + (10.6) Form of Performance Share Plan award (10.6) Form of Performance Share Plan award certificate. * + certificate. * + (10.7) Pension Restoration Plan (10.7) Pension Restoration Plan for Salaried for Salaried Employees (incorporated by reference to Employees (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended March 31, 2009). + March 31, 2009). + (10.8) Unfunded Supplemental Retirement Plan (10.8) Unfunded Supplemental Retirement Plan for Senior Managers, as amended and for Senior Managers, as amended and restated effective January 1, 2008 restated effective January 1, 2008 (incorporated by reference to Exhibit 10.21 (incorporated by reference to Exhibit 10.21 to to the Company’s Annual Report on the Company’s Annual Report on Form 10-K Form 10-K for for the the fiscal year ended fiscal year ended December 31, 2007). + December 31, 2007). + (10.9) Amendment No. 1 to the International Paper (10.9) Amendment No. 1 to the International Paper Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 13, 2008 (incorporated by effective October 13, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October Current Report on Form 8-K dated October 17, 2008). + 17, 2008). + Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 14, 2008 (incorporated by effective October 14, 2008 (incorporated by reference to Exhibit 10.5 to the Company’s reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated October Current Report on Form 8-K dated October 17, 2008). + 17, 2008). + (10.11) Amendment No. 3 to the International Paper (10.11) Amendment No. 3 to the International Paper Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective December 8, 2008 (incorporated effective December 8, 2008 (incorporated by reference by reference to Exhibit 10.20 to Exhibit 10.20 to to the the Company’s Annual Report on Form 10-K for Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). the fiscal year ended December 31, 2008). (10.12) Amendment No. 4 to the International Paper (10.12) Amendment No. 4 to the International Paper Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective January 1, 2009 (incorporated by effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). + quarter ended September 30, 2009). + (10.13) Amendment No. 5 to the International Paper (10.13) Amendment No. 5 to the International Paper Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 31, 2009 (incorporated by effective October 31, 2009 (incorporated by reference to Exhibit 10.17 to the Company’s reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal Annual Report on Form 10-K for the fiscal year ended December 31, 2009). + year ended December 31, 2009). + (10.14) Amendment No. 6 to the International Paper (10.14) Amendment No. 6 to the International Paper Company Company Unfunded Unfunded Supplemental Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective January 1, 2012 (incorporated by effective January 1, 2012 (incorporated by reference to Exhibit 10.21 to the Company's reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal Annual Report on Form 10-K for the fiscal year ended December 31, 2011). + year ended December 31, 2011). + (10.15) Form of Non-Competition Agreement, (10.15) Form of Non-Competition Agreement, entered into by certain Company employees entered into by certain Company employees (including named executive officers) who (including named executive officers) who have received restricted stock (incorporated have received restricted stock (incorporated by reference by reference to Exhibit 10.22 to Exhibit 10.22 to to the the Company’s Annual Report on Form 10-K for Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). the fiscal year ended December 31, 2008). + + + + (10.16) Form of Non-Solicitation Agreement, (10.16) Form of Non-Solicitation Agreement, entered into by certain Company employees entered into by certain Company employees (including named executive officers) who (including named executive officers) who have received restricted stock (incorporated have received restricted stock (incorporated by by reference reference to Exhibit 10.5 to Exhibit 10.5 to to the the Company’s Quarterly Report on Form 10-Q Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). + for the quarter ended March 31, 2006). + (10.17) Form of Change-in-Control Agreement - Tier (10.17) Form of Change-in-Control Agreement - Tier I, for the Chief Executive Officer and all I, for the Chief Executive Officer and all "grandfathered" senior vice presidents "grandfathered" senior vice presidents elected prior to 2012 (all named executive elected prior to 2012 (all named executive officers) officers) - approved September 2013 - approved September 2013 (incorporated by reference to Exhibit 10.1 to (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 10-Q for the quarter ended September 30, 2013). + 2013). + 85 85 86 86 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES SERVICES Information with respect to fees paid to, and services Information with respect to fees paid to, and services rendered by, our principal accountant, and our policies rendered by, our principal accountant, and our policies and procedures for pre-approving those services, is and procedures for pre-approving those services, is hereby incorporated by reference to our definitive proxy hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days statement that will be filed with the SEC within 120 days of the close of our fiscal year. of the close of our fiscal year. PART IV. PART IV. SCHEDULES SCHEDULES ITEM 15. EXHIBITS AND FINANCIAL STATEMENT ITEM 15. EXHIBITS AND FINANCIAL STATEMENT 2008). 2008). (4.9) Supplemental Indenture (including the form (4.9) Supplemental Indenture (including the form of Notes), dated as of August 11, 2016, of Notes), dated as of August 11, 2016, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 11, 2016). K dated August 11, 2016). (4.10) Supplemental Indenture (including the form (4.10) Supplemental Indenture (including the form of Notes), dated as of August 9, 2017, of Notes), dated as of August 9, 2017, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 9, 2017). K dated August 9, 2017). (4.11) In (4.11) In with with accordance accordance Item 601 Item 601 (b) (4) (iii) (A) of Regulation S-K, certain (b) (4) (iii) (A) of Regulation S-K, certain instruments respecting long-term debt of the instruments respecting long-term debt of the Company have been omitted but will be Company have been omitted but will be furnished to the Commission upon request. furnished to the Commission upon request. (10.1) Amended and Restated 2009 Incentive (10.1) Amended and Restated 2009 Incentive Compensation Plan (ICP) (incorporated by Compensation Plan (ICP) (incorporated by reference to Exhibit 99.1 to the Company's reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated February Current Report on Form 8-K dated February 10, 2014). + 10, 2014). + (4.1) Indenture, dated as of April 12, 1999, (4.1) Indenture, dated as of April 12, 1999, between International Paper and The Bank between International Paper and The Bank of New York, as Trustee (incorporated by of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, Current Report on Form 8-K dated June 29, 2000). 2000). (4.2) Supplemental Indenture (including the form (4.2) Supplemental Indenture (including the form of Notes), dated as of June 4, 2008, between of Notes), dated as of June 4, 2008, between International Paper Company and The Bank International Paper Company and The Bank of New York, as Trustee (incorporated by of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 4, Current Report on Form 8-K dated June 4, (4.3) Supplemental Indenture (including the form (4.3) Supplemental Indenture (including the form of Notes), dated as of May 11, 2009, of Notes), dated as of May 11, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon, as trustee The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated May 11, 2009). K dated May 11, 2009). (4.4) Supplemental Indenture (including the form (4.4) Supplemental Indenture (including the form of Notes), dated as of August 10, 2009, of Notes), dated as of August 10, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon, as trustee The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated August 10, 2009). K dated August 10, 2009). (4.5) Supplemental Indenture (including the form (4.5) Supplemental Indenture (including the form of Notes), dated as of December 7, 2009, of Notes), dated as of December 7, 2009, between International Paper Company and between International Paper Company and The Bank of New York Mellon Trust The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company's reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated Current Report on Form 8-K dated December 7, 2009). December 7, 2009). of Notes), dated as of November 16, 2011, of Notes), dated as of November 16, 2011, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated November 16, 2011). K dated November 16, 2011). (4.7) Supplemental Indenture (including the form (4.7) Supplemental Indenture (including the form of Notes), dated as of June 10, 2014, of Notes), dated as of June 10, 2014, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated June 10, 2014). K dated June 10, 2014). (4.8) Supplemental Indenture (including the form (4.8) Supplemental Indenture (including the form of Notes), dated as of May 26, 2015, of Notes), dated as of May 26, 2015, between the Company and The Bank of New between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8- the Company's Current Report on Form 8- K dated May 26, 2015). K dated May 26, 2015). (1) Financial Statements – See Item 8. Financial (1) Financial Statements – See Item 8. Financial Statements and Supplementary Data. Statements and Supplementary Data. (2) Financial Statement Schedules – The following (2) Financial Statement Schedules – The following additional financial data should be read in additional financial data should be read in conjunction with conjunction with the consolidated the consolidated financial financial statements in Item 8. Schedules not included with statements in Item 8. Schedules not included with this additional financial data have been omitted this additional financial data have been omitted because they are not applicable, or the required because they are not applicable, or the required information is shown in the consolidated financial information is shown in the consolidated financial statements or the notes thereto. statements or the notes thereto. Additional Financial Data Additional Financial Data 2017, 2016 and 2015 2017, 2016 and 2015 Consolidated Schedule: Consolidated Schedule: II-Valuation and II-Valuation and Qualifying Accounts. Qualifying Accounts. 89 89 2016, 2016, between Weyerhaeuser NR between Weyerhaeuser NR Company and International Paper Company Company and International Paper Company (incorporated by reference to Exhibit 2.1 to (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016). 10-Q for the quarter ended June 30, 2016). (2.2) Transaction Agreement, dated October 23, (2.2) Transaction Agreement, dated October 23, 2017, by and among the Company, Graphic 2017, by and among the Company, Graphic Packaging Holding Company, Gazelle Packaging Holding Company, Gazelle Newco LLC and Graphic Packaging Newco LLC and Graphic Packaging International, International, Inc. Inc. (incorporated (incorporated by by reference to Exhibit 2.1 to the Company’s reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed October Current Report on Form 8-K filed October 24, 2017). 24, 2017). (3.1) Restated Certificate of (3.1) Restated Certificate of Incorporation Incorporation of International of International Paper Paper Company Company (incorporated by reference to Exhibit 3.1 to (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8- the Company’s Current Report on Form 8- K dated May 13, 2013). K dated May 13, 2013). (3.2) By-laws of International Paper Company, as (3.2) By-laws of International Paper Company, as amended amended through February 9, 2016 through February 9, 2016 (incorporated by reference to Exhibit 3.1 to (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8- the Company’s Current Report on Form 8- K dated February 8, 2016). K dated February 8, 2016). (2.1) Purchase Agreement dated as of May 1, (2.1) Purchase Agreement dated as of May 1, (4.6) Supplemental Indenture (including the form (4.6) Supplemental Indenture (including the form (10.3) Form of Restricted Stock Award Agreement. (10.3) Form of Restricted Stock Award Agreement. * + * + (10.4) Form of Restricted Stock Unit Award (10.4) Form of Restricted Stock Unit Award Agreement (cash settled). * + Agreement (cash settled). * + (10.5) Form of Restricted Stock Unit Award (10.5) Form of Restricted Stock Unit Award Agreement (stock settled). * + Agreement (stock settled). * + (10.6) Form of Performance Share Plan award (10.6) Form of Performance Share Plan award certificate. * + certificate. * + (10.7) Pension Restoration Plan (10.7) Pension Restoration Plan for Salaried for Salaried Employees (incorporated by reference to Employees (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended March 31, 2009). + March 31, 2009). + (10.8) Unfunded Supplemental Retirement Plan (10.8) Unfunded Supplemental Retirement Plan for Senior Managers, as amended and for Senior Managers, as amended and restated effective January 1, 2008 restated effective January 1, 2008 (incorporated by reference to Exhibit 10.21 (incorporated by reference to Exhibit 10.21 the Company’s Annual Report on to the Company’s Annual Report on to Form 10-K fiscal year ended Form 10-K fiscal year ended December 31, 2007). + December 31, 2007). + Deferred Deferred Stock Stock Compensation Plan for Non-Employee for Non-Employee Compensation Plan Directors, Amended and Restated as of May Directors, Amended and Restated as of May 10, 2010 (incorporated by reference to 10, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended June 30, 2010). + June 30, 2010). + 85 85 86 86 Unfunded Unfunded (10.9) Amendment No. 1 to the International Paper (10.9) Amendment No. 1 to the International Paper Company Supplemental Supplemental Company Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 13, 2008 (incorporated by effective October 13, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October Current Report on Form 8-K dated October 17, 2008). + 17, 2008). + (10.2) Restricted (10.2) Restricted and and the the for for Unfunded Unfunded (10.10) Amendment No. 2 to the International Paper (10.10) Amendment No. 2 to the International Paper Company Supplemental Company Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 14, 2008 (incorporated by effective October 14, 2008 (incorporated by reference to Exhibit 10.5 to the Company’s reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated October Current Report on Form 8-K dated October 17, 2008). + 17, 2008). + Unfunded Unfunded (10.11) Amendment No. 3 to the International Paper (10.11) Amendment No. 3 to the International Paper Company Supplemental Company Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective December 8, 2008 (incorporated effective December 8, 2008 (incorporated the by reference the by reference Company’s Annual Report on Form 10-K for Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). the fiscal year ended December 31, 2008). + + to Exhibit 10.20 to Exhibit 10.20 to to Unfunded Unfunded (10.12) Amendment No. 4 to the International Paper (10.12) Amendment No. 4 to the International Paper Company Supplemental Supplemental Company Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective January 1, 2009 (incorporated by effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). + quarter ended September 30, 2009). + Unfunded Unfunded (10.13) Amendment No. 5 to the International Paper (10.13) Amendment No. 5 to the International Paper Company Supplemental Company Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective October 31, 2009 (incorporated by effective October 31, 2009 (incorporated by reference to Exhibit 10.17 to the Company’s reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal Annual Report on Form 10-K for the fiscal year ended December 31, 2009). + year ended December 31, 2009). + Unfunded Unfunded (10.14) Amendment No. 6 to the International Paper (10.14) Amendment No. 6 to the International Paper Company Supplemental Company Supplemental Retirement Plan for Senior Managers, Retirement Plan for Senior Managers, effective January 1, 2012 (incorporated by effective January 1, 2012 (incorporated by reference to Exhibit 10.21 to the Company's reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal Annual Report on Form 10-K for the fiscal year ended December 31, 2011). + year ended December 31, 2011). + (10.15) Form of Non-Competition Agreement, (10.15) Form of Non-Competition Agreement, entered into by certain Company employees entered into by certain Company employees (including named executive officers) who (including named executive officers) who have received restricted stock (incorporated have received restricted stock (incorporated by reference the by reference the Company’s Annual Report on Form 10-K for Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). the fiscal year ended December 31, 2008). + + to Exhibit 10.22 to Exhibit 10.22 to to (10.16) Form of Non-Solicitation Agreement, (10.16) Form of Non-Solicitation Agreement, entered into by certain Company employees entered into by certain Company employees (including named executive officers) who (including named executive officers) who have received restricted stock (incorporated have received restricted stock (incorporated by the the by Company’s Quarterly Report on Form 10-Q Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). + for the quarter ended March 31, 2006). + to Exhibit 10.5 to Exhibit 10.5 reference reference to to (10.17) Form of Change-in-Control Agreement - Tier (10.17) Form of Change-in-Control Agreement - Tier I, for the Chief Executive Officer and all I, for the Chief Executive Officer and all "grandfathered" senior vice presidents "grandfathered" senior vice presidents elected prior to 2012 (all named executive elected prior to 2012 (all named executive - approved September 2013 officers) officers) - approved September 2013 (incorporated by reference to Exhibit 10.1 to (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 10-Q for the quarter ended September 30, 2013). + 2013). + (10.18) Form of Change-in-Control Agreement - Tier (10.18) Form of Change-in-Control Agreement - Tier II, for all future senior vice presidents and all II, for all future senior vice presidents and all "grandfathered" vice presidents elected "grandfathered" vice presidents elected prior - approved - approved prior September 2013 (incorporated by reference September 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended September 30, 2013). + September 30, 2013). + to February 2008 to February 2008 (10.19) Form of Indemnification Agreement for (10.19) Form of Indemnification Agreement for Directors (incorporated by reference to Directors (incorporated by reference to Exhibit 10.13 to the Company’s Annual Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year Report on Form 10-K for the fiscal year ended December 31, 2003). + ended December 31, 2003). + (10.20) Board Policy on Severance Agreements (10.20) Board Policy on Severance Agreements with Senior Executives (incorporated by with Senior Executives (incorporated by reference to Exhibit 10.1 to the Company’s reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October Current Report on Form 8-K filed on October 18, 2005). + 18, 2005). + (10.21) Board Policy on Change of Control (10.21) Board Policy on Change of Control Agreements (incorporated by reference to Agreements (incorporated by reference to Exhibit 10.2 to the Company’s Current Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, Report on Form 8-K filed on October 18, 2005). + 2005). + (10.22) Time Sharing Agreement, dated October 17, (10.22) Time Sharing Agreement, dated October 17, 2014 (and effective November 1, 2014), by 2014 (and effective November 1, 2014), by and between Mark S. Sutton and and between Mark S. Sutton and International Paper Company (incorporated International Paper Company (incorporated the by by the Company’s Current Report on Form 8-K Company’s Current Report on Form 8-K dated October 14, 2014). + dated October 14, 2014). + to Exhibit 99.1 to Exhibit 99.1 reference reference to to (10.23) Five-Year Credit Agreement dated as of (10.23) Five-Year Credit Agreement dated as of December 12, 2016, among International December 12, 2016, among International Paper Company, JPMorgan Chase Bank, Paper Company, JPMorgan Chase Bank, N.A., individually and as administrative N.A., individually and as administrative agent, and certain lenders (incorporated by agent, and certain lenders (incorporated by reference to Exhibit 99.1 to the Company’s reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed June 6, Current Report on Form 8-K filed June 6, 2017). 2017). (10.24) Settlement Agreement dated June 27, 2017, (10.24) Settlement Agreement dated June 27, 2017, by and between International Paper by and between International Paper Company, Temple-Inland Inc., n/k/a Temple- Company, Temple-Inland Inc., n/k/a Temple- Inland LLC, TIN Inc., n/k/a TIN LLC, and Inland LLC, TIN Inc., n/k/a TIN LLC, and Weyerhaeuser Company, and Kleen Weyerhaeuser Company, and Kleen Products LLC, R.P.R. Enterprises, Inc., Products LLC, R.P.R. Enterprises, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Ferraro Foods of North Carolina, LLC, MTM Ferraro Foods of North Carolina, LLC, MTM Packaging Solutions of Texas, LLC, RHE Packaging Solutions of Texas, LLC, RHE Hatco, Inc., and Chandler Packaging, Inc., Hatco, Inc., and Chandler Packaging, Inc., the plaintiff class representatives, both the plaintiff class representatives, both individually and on behalf of the plaintiff individually and on behalf of the plaintiff class (incorporated by reference to Exhibit class (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, Form 10-Q for the quarter ended June 30, 2017). 2017). (101.INS) XBRL Instance Document * (101.INS) XBRL Instance Document * (101.SCH) XBRL Taxonomy Extension Schema * (101.SCH) XBRL Taxonomy Extension Schema * (101.CAL) XBRL Taxonomy Extension Calculation (101.CAL) XBRL Taxonomy Extension Calculation (101.DEF) XBRL Taxonomy Extension Definition (101.DEF) XBRL Taxonomy Extension Definition (101.LAB) XBRL Taxonomy Extension Label (101.LAB) XBRL Taxonomy Extension Label (101.PRE) XBRL Extension Presentation Linkbase (101.PRE) XBRL Extension Presentation Linkbase Linkbase * Linkbase * Linkbase * Linkbase * Linkbase * Linkbase * * * + Management contract or compensatory plan or arrangement. + Management contract or compensatory plan or arrangement. * Filed herewith * Filed herewith (10.25) Commitment Agreement, dated September (10.25) Commitment Agreement, dated September 26, 2017, between International Paper 26, 2017, between International Paper Company and The Prudential Insurance Company and The Prudential Insurance Company of America, relating the the Company of America, relating Retirement Plan of International Paper Retirement Plan of International Paper Company (incorporated by reference to Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended September 30, 2017). Confidential Confidential September 30, 2017). treatment has been granted for certain treatment has been granted for certain information pursuant to Rule 24b-2 under information pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as the Securities Exchange Act of 1934, as amended. amended. to to (10.26) Credit Agreement, dated December 8, (10.26) Credit Agreement, dated December 8, 2017, by and among the Company, Bank 2017, by and among the Company, Bank of America, N.A. and BNP Paribas of America, N.A. and BNP Paribas (incorporated by reference to Exhibit 10.1 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form to the Company’s Current Report on Form 8-K filed December 12, 2017). 8-K filed December 12, 2017). (11) Statement of Computation of Per Share (11) Statement of Computation of Per Share Earnings. * Earnings. * (12) Computation of Ratio of Earnings to Fixed (12) Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. * Charges and Preferred Stock Dividends. * (21) Subsidiaries and Joint Ventures.* (21) Subsidiaries and Joint Ventures.* (23.1) Consent of Independent Registered Public (23.1) Consent of Independent Registered Public Accounting Firm. * Accounting Firm. * (23.2) Consent of Independent Auditors. * (23.2) Consent of Independent Auditors. * (24) Power of Attorney (contained on (24) Power of Attorney (contained on the the signature page to the Company’s Annual signature page to the Company’s Annual Report on Form 10-K for the year ended Report on Form 10-K for the year ended December 31, 2017). * December 31, 2017). * (31.1) Certification by Mark S. Sutton, Chairman (31.1) Certification by Mark S. Sutton, Chairman and Chief Executive Officer, pursuant to and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of Section 302 of the Sarbanes-Oxley Act of 2002. * 2002. * (31.2) Certification by Glenn R. Landau, Chief (31.2) Certification by Glenn R. Landau, Chief Financial Officer, pursuant to Section 302 of Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * the Sarbanes-Oxley Act of 2002. * (32) Certification pursuant to 18 U.S.C. Section (32) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* of the Sarbanes-Oxley Act of 2002.* (99.1) Audited Financial Statements (99.1) Audited Financial Statements Ilim Ilim Holding S.A. and its subsidiaries as of and Holding S.A. and its subsidiaries as of and for the year ended December 31, 2017 and for the year ended December 31, 2017 and 2016. * 2016. * for for 87 87 88 88 (10.25) Commitment Agreement, dated September (10.25) Commitment Agreement, dated September (101.INS) XBRL Instance Document * (101.INS) XBRL Instance Document * (101.SCH) XBRL Taxonomy Extension Schema * (101.SCH) XBRL Taxonomy Extension Schema * (101.CAL) XBRL Taxonomy Extension Calculation (101.CAL) XBRL Taxonomy Extension Calculation Linkbase * Linkbase * (101.DEF) XBRL Taxonomy Extension Definition (101.DEF) XBRL Taxonomy Extension Definition Linkbase * Linkbase * (101.LAB) XBRL Taxonomy Extension Label (101.LAB) XBRL Taxonomy Extension Label Linkbase * Linkbase * (101.PRE) XBRL Extension Presentation Linkbase (101.PRE) XBRL Extension Presentation Linkbase * * + Management contract or compensatory plan or arrangement. + Management contract or compensatory plan or arrangement. * Filed herewith * Filed herewith (10.18) Form of Change-in-Control Agreement - Tier (10.18) Form of Change-in-Control Agreement - Tier II, for all future senior vice presidents and all II, for all future senior vice presidents and all "grandfathered" vice presidents elected "grandfathered" vice presidents elected prior prior to February 2008 to February 2008 - approved - approved September 2013 (incorporated by reference September 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended September 30, 2013). + September 30, 2013). + (10.19) Form of Indemnification Agreement for (10.19) Form of Indemnification Agreement for Directors (incorporated by reference to Directors (incorporated by reference to Exhibit 10.13 to the Company’s Annual Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year Report on Form 10-K for the fiscal year ended December 31, 2003). + ended December 31, 2003). + (10.20) Board Policy on Severance Agreements (10.20) Board Policy on Severance Agreements with Senior Executives (incorporated by with Senior Executives (incorporated by reference to Exhibit 10.1 to the Company’s reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October Current Report on Form 8-K filed on October 18, 2005). + 18, 2005). + (10.21) Board Policy on Change of Control (10.21) Board Policy on Change of Control Agreements (incorporated by reference to Agreements (incorporated by reference to Exhibit 10.2 to the Company’s Current Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, Report on Form 8-K filed on October 18, 2005). + 2005). + (10.22) Time Sharing Agreement, dated October 17, (10.22) Time Sharing Agreement, dated October 17, 2014 (and effective November 1, 2014), by 2014 (and effective November 1, 2014), by and between Mark S. Sutton and and between Mark S. Sutton and International Paper Company (incorporated International Paper Company (incorporated by by reference reference to Exhibit 99.1 to Exhibit 99.1 to to the the Company’s Current Report on Form 8-K Company’s Current Report on Form 8-K dated October 14, 2014). + dated October 14, 2014). + (10.23) Five-Year Credit Agreement dated as of (10.23) Five-Year Credit Agreement dated as of December 12, 2016, among International December 12, 2016, among International Paper Company, JPMorgan Chase Bank, Paper Company, JPMorgan Chase Bank, N.A., individually and as administrative N.A., individually and as administrative agent, and certain lenders (incorporated by agent, and certain lenders (incorporated by reference to Exhibit 99.1 to the Company’s reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed June 6, Current Report on Form 8-K filed June 6, 2017). 2017). (10.24) Settlement Agreement dated June 27, 2017, (10.24) Settlement Agreement dated June 27, 2017, by and between by and between International Paper International Paper Company, Temple-Inland Inc., n/k/a Temple- Company, Temple-Inland Inc., n/k/a Temple- Inland LLC, TIN Inc., n/k/a TIN LLC, and Inland LLC, TIN Inc., n/k/a TIN LLC, and Weyerhaeuser Company, and Kleen Weyerhaeuser Company, and Kleen Products LLC, R.P.R. Enterprises, Inc., Products LLC, R.P.R. Enterprises, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Ferraro Foods of North Carolina, LLC, MTM Ferraro Foods of North Carolina, LLC, MTM Packaging Solutions of Texas, LLC, RHE Packaging Solutions of Texas, LLC, RHE Hatco, Inc., and Chandler Packaging, Inc., Hatco, Inc., and Chandler Packaging, Inc., the plaintiff class representatives, both the plaintiff class representatives, both individually and on behalf of the plaintiff individually and on behalf of the plaintiff class (incorporated by reference to Exhibit class (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, Form 10-Q for the quarter ended June 30, 2017). 2017). 26, 2017, between International Paper 26, 2017, between International Paper Company and The Prudential Insurance Company and The Prudential Insurance Company of America, relating Company of America, relating to to the the Retirement Plan of International Paper Retirement Plan of International Paper Company (incorporated by reference to Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended Report on Form 10-Q for the quarter ended September 30, 2017). September 30, 2017). Confidential Confidential treatment has been granted for certain treatment has been granted for certain information pursuant to Rule 24b-2 under information pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as the Securities Exchange Act of 1934, as amended. amended. (10.26) Credit Agreement, dated December 8, (10.26) Credit Agreement, dated December 8, 2017, by and among the Company, Bank 2017, by and among the Company, Bank of America, N.A. and BNP Paribas of America, N.A. and BNP Paribas (incorporated by reference to Exhibit 10.1 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form to the Company’s Current Report on Form 8-K filed December 12, 2017). 8-K filed December 12, 2017). (11) Statement of Computation of Per Share (11) Statement of Computation of Per Share Earnings. * Earnings. * (12) Computation of Ratio of Earnings to Fixed (12) Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. * Charges and Preferred Stock Dividends. * (21) Subsidiaries and Joint Ventures.* (21) Subsidiaries and Joint Ventures.* (23.1) Consent of Independent Registered Public (23.1) Consent of Independent Registered Public Accounting Firm. * Accounting Firm. * (23.2) Consent of Independent Auditors. * (23.2) Consent of Independent Auditors. * (24) Power of Attorney (contained on (24) Power of Attorney (contained on the the signature page to the Company’s Annual signature page to the Company’s Annual Report on Form 10-K for the year ended Report on Form 10-K for the year ended December 31, 2017). * December 31, 2017). * (31.1) Certification by Mark S. Sutton, Chairman (31.1) Certification by Mark S. Sutton, Chairman and Chief Executive Officer, pursuant to and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of Section 302 of the Sarbanes-Oxley Act of 2002. * 2002. * (31.2) Certification by Glenn R. Landau, Chief (31.2) Certification by Glenn R. Landau, Chief Financial Officer, pursuant to Section 302 of Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * the Sarbanes-Oxley Act of 2002. * (32) Certification pursuant to 18 U.S.C. Section (32) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* of the Sarbanes-Oxley Act of 2002.* (99.1) Audited Financial Statements (99.1) Audited Financial Statements for for Ilim Ilim Holding S.A. and its subsidiaries as of and Holding S.A. and its subsidiaries as of and for the year ended December 31, 2017 and for the year ended December 31, 2017 and 2016. * 2016. * 87 87 88 88 SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS (In millions) (In millions) For the Year Ended December 31, 2017 For the Year Ended December 31, 2017 Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions from from Reserves Reserves Additions Additions Charged to Charged to Earnings Earnings Balance at Balance at Beginning Beginning of Period of Period Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this 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. report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY SIGNATURES SIGNATURES February 22, 2018 February 22, 2018 Balance at Balance at End of End of Period Period By: By: /S/ SHARON R. RYAN /S/ SHARON R. RYAN Sharon R. Ryan Sharon R. Ryan Senior Vice President, General Counsel Senior Vice President, General Counsel and Corporate Secretary and Corporate Secretary Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: Doubtful accounts – current Doubtful accounts – current Restructuring reserves Restructuring reserves Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: Doubtful accounts – current Doubtful accounts – current Restructuring reserves Restructuring reserves Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: $ $ 70 $ 70 $ 6 6 5 $ 5 $ — — — — — — (2)(a) $ (2)(a) $ (4)(b) (4)(b) 73 73 2 2 For the Year Ended December 31, 2016 For the Year Ended December 31, 2016 Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions from from Reserves Reserves Additions Additions Charged to Charged to Earnings Earnings Balance at Balance at End of End of Period Period Balance at Balance at Beginning Beginning of Period of Period $ $ 70 $ 70 $ 10 10 9 $ 9 $ 3 3 — — — — (9)(a) $ (9)(a) $ (7)(b) (7)(b) 70 70 6 6 For the Year Ended December 31, 2015 For the Year Ended December 31, 2015 Balance at Balance at Beginning Beginning of Period of Period Additions Additions Charged to Charged to Earnings Earnings Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions from from Reserves Reserves Balance at Balance at End of End of Period Period Doubtful accounts – current Doubtful accounts – current $ $ Restructuring reserves Restructuring reserves 82 $ 82 $ 16 16 11 $ 11 $ 5 5 — — — — (23)(a) $ (23)(a) $ (11)(b) (11)(b) 70 70 10 10 (a) (a) (b) (b) Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments. 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. Includes payments and deductions for reversals of previously established reserves that were no longer required. 89 89 90 90 POWER OF ATTORNEY POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints 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 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, 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 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- 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, 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 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. 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 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: persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Signature Title Title Date Date /S/ MARK S. SUTTON /S/ MARK S. SUTTON Mark S. Sutton Mark S. Sutton Chairman of the Board & Chief Chairman of the Board & Chief Executive Officer and Director Executive Officer and Director February 22, 2018 February 22, 2018 /S/ DAVID J. BRONCZEK /S/ DAVID J. BRONCZEK Director Director February 22, 2018 February 22, 2018 /S/ WILLIAM J. BURNS /S/ WILLIAM J. BURNS Director Director February 22, 2018 February 22, 2018 David J. Bronczek David J. Bronczek Willliam J. Burns Willliam J. Burns Christopher M. Connor Christopher M. Connor Ahmet C. Dorduncu Ahmet C. Dorduncu Ilene S. Gordon Ilene S. Gordon Jacqueline C. Hinman Jacqueline C. Hinman Jay L. Johnson Jay L. Johnson /S/ CHRISTOPHER M. CONNOR Director /S/ CHRISTOPHER M. CONNOR Director February 22, 2018 February 22, 2018 /S/ AHMET C. DORDUNCU /S/ AHMET C. DORDUNCU Director Director February 22, 2018 February 22, 2018 /S/ ILENE S. GORDON /S/ ILENE S. GORDON Director Director February 22, 2018 February 22, 2018 /S/ JACQUELINE C. HINMAN /S/ JACQUELINE C. HINMAN Director Director February 22, 2018 February 22, 2018 /S/ JAY L. JOHNSON /S/ JAY L. JOHNSON Director Director February 22, 2018 February 22, 2018 SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS (In millions) (In millions) Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this 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. report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES SIGNATURES For the Year Ended December 31, 2017 For the Year Ended December 31, 2017 Balance at Balance at Beginning Beginning of Period of Period Additions Additions Charged to Charged to Earnings Earnings Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions Balance at Balance at from from Reserves Reserves End of End of Period Period Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: Doubtful accounts – current Doubtful accounts – current $ $ Restructuring reserves Restructuring reserves 70 $ 70 $ 6 6 5 $ 5 $ — — — — — — (2)(a) $ (2)(a) $ (4)(b) (4)(b) 73 73 2 2 For the Year Ended December 31, 2016 For the Year Ended December 31, 2016 Balance at Balance at Beginning Beginning of Period of Period Additions Additions Charged to Charged to Earnings Earnings Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions Balance at Balance at from from Reserves Reserves End of End of Period Period Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: Doubtful accounts – current Doubtful accounts – current $ $ Restructuring reserves Restructuring reserves 70 $ 70 $ 10 10 9 $ 9 $ 3 3 — — — — (9)(a) $ (9)(a) $ (7)(b) (7)(b) 70 70 6 6 For the Year Ended December 31, 2015 For the Year Ended December 31, 2015 Balance at Balance at Beginning Beginning of Period of Period Additions Additions Charged to Charged to Earnings Earnings Additions Additions Charged to Charged to Other Other Accounts Accounts Deductions Deductions from from Reserves Reserves Balance at Balance at End of End of Period Period Description Description Reserves Applied Against Specific Reserves Applied Against Specific Assets Shown on Balance Sheet: Assets Shown on Balance Sheet: Doubtful accounts – current Doubtful accounts – current $ $ Restructuring reserves Restructuring reserves 82 $ 82 $ 16 16 11 $ 11 $ 5 5 — — — — (23)(a) $ (23)(a) $ (11)(b) (11)(b) 70 70 10 10 (a) (a) (b) (b) Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments. 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. Includes payments and deductions for reversals of previously established reserves that were no longer required. INTERNATIONAL PAPER COMPANY INTERNATIONAL PAPER COMPANY By: By: /S/ SHARON R. RYAN /S/ SHARON R. RYAN Sharon R. Ryan Sharon R. Ryan Senior Vice President, General Counsel Senior Vice President, General Counsel and Corporate Secretary and Corporate Secretary POWER OF ATTORNEY POWER OF ATTORNEY February 22, 2018 February 22, 2018 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints 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 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, 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 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- 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, 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 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. 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 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: persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Signature Title Title Date Date /S/ MARK S. SUTTON /S/ MARK S. SUTTON Mark S. Sutton Mark S. Sutton Chairman of the Board & Chief Chairman of the Board & Chief Executive Officer and Director Executive Officer and Director February 22, 2018 February 22, 2018 /S/ DAVID J. BRONCZEK /S/ DAVID J. BRONCZEK Director Director February 22, 2018 February 22, 2018 David J. Bronczek David J. Bronczek /S/ WILLIAM J. BURNS /S/ WILLIAM J. BURNS Director Director February 22, 2018 February 22, 2018 Willliam J. Burns Willliam J. Burns /S/ CHRISTOPHER M. CONNOR Director /S/ CHRISTOPHER M. CONNOR Director February 22, 2018 February 22, 2018 Christopher M. Connor Christopher M. Connor /S/ AHMET C. DORDUNCU /S/ AHMET C. DORDUNCU Director Director February 22, 2018 February 22, 2018 Ahmet C. Dorduncu Ahmet C. Dorduncu /S/ ILENE S. GORDON /S/ ILENE S. GORDON Director Director February 22, 2018 February 22, 2018 Ilene S. Gordon Ilene S. Gordon /S/ JACQUELINE C. HINMAN /S/ JACQUELINE C. HINMAN Director Director February 22, 2018 February 22, 2018 Jacqueline C. Hinman Jacqueline C. Hinman /S/ JAY L. JOHNSON /S/ JAY L. JOHNSON Director Director February 22, 2018 February 22, 2018 Jay L. Johnson Jay L. Johnson 89 89 90 90 /s/ CLINTON A. LEWIS, JR. /s/ CLINTON A. LEWIS, JR. Director Director February 22, 2018 February 22, 2018 Clinton A. Lewis, Jr. Clinton A. Lewis, Jr. 2017 LISTING OF FACILITIES 2017 LISTING OF FACILITIES (all facilities are owned except noted otherwise) (all facilities are owned except noted otherwise) APPENDIX I APPENDIX I /S/ KATHRYN D. SULLIVAN /S/ KATHRYN D. SULLIVAN Director Director February 22, 2018 February 22, 2018 Kathryn D. Sullivan Kathryn D. Sullivan /S/ JOHN L. TOWNSEND III Director /S/ JOHN L. TOWNSEND III Director February 22, 2018 February 22, 2018 Selma, Alabama (Riverdale Mill) Selma, Alabama (Riverdale Mill) Maysville, Kentucky Maysville, Kentucky John L. Townsend III John L. Townsend III /S/ J. STEVEN WHISLER /S/ J. STEVEN WHISLER Director Director February 22, 2018 February 22, 2018 J. Steven Whisler J. Steven Whisler /S/ RAY G. YOUNG /S/ RAY G. YOUNG Director Director February 22, 2018 February 22, 2018 Ray G. Young Ray G. Young /S/ GLENN R. LANDAU /S/ GLENN R. LANDAU Glenn R. Landau Glenn R. Landau Senior Vice President and Chief Senior Vice President and Chief Financial Officer Financial Officer February 22, 2018 February 22, 2018 /S/ VINCENT P. BONNOT /S/ VINCENT P. BONNOT Vice President – Finance and Vice President – Finance and Controller Controller February 22, 2018 February 22, 2018 Vincent P. Bonnot Vincent P. Bonnot PRINTING PAPERS PRINTING PAPERS Uncoated Papers Uncoated Papers U.S.: U.S.: Ticonderoga, New York Ticonderoga, New York Eastover, South Carolina Eastover, South Carolina Georgetown, South Carolina Georgetown, South Carolina Sumter, South Carolina Sumter, South Carolina International: International: Saillat, France Saillat, France Kadiam, India Kadiam, India Rajahmundry, India Rajahmundry, India Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia GLOBAL CELLULOSE FIBERS GLOBAL CELLULOSE FIBERS Pulp Pulp U.S.: U.S.: Flint River, Georgia Flint River, Georgia Port Wentworth, Georgia Port Wentworth, Georgia Columbus, Mississippi Columbus, Mississippi Savannah, Georgia Savannah, Georgia Cayuga, Indiana Cayuga, Indiana Cedar Rapids, Iowa Cedar Rapids, Iowa Henderson, Kentucky Henderson, Kentucky Bogalusa, Louisiana Bogalusa, Louisiana Campti, Louisiana Campti, Louisiana Mansfield, Louisiana Mansfield, Louisiana Vicksburg, Mississippi Vicksburg, Mississippi Valliant, Oklahoma Valliant, Oklahoma Springfield, Oregon Springfield, Oregon Veracruz, Mexico Veracruz, Mexico Kenitra, Morocco Kenitra, Morocco Madrid, Spain Madrid, Spain Corrugated Container Corrugated Container U.S.: U.S.: Bay Minette, Alabama Bay Minette, Alabama Huntsville, Alabama Huntsville, Alabama Conway, Arkansas Conway, Arkansas Tracy, California Tracy, California Golden, Colorado Golden, Colorado Wheat Ridge, Colorado Wheat Ridge, Colorado Putnam, Connecticut Putnam, Connecticut Orlando, Florida Orlando, Florida Plant City, Florida Plant City, Florida Tampa, Florida leased Tampa, Florida leased Columbus, Georgia Columbus, Georgia Forest Park, Georgia Forest Park, Georgia Griffin, Georgia Griffin, Georgia Kennesaw, Georgia leased Kennesaw, Georgia leased Lithonia, Georgia Lithonia, Georgia Savannah, Georgia Savannah, Georgia Belleville, Illinois Belleville, Illinois Carol Stream, Illinois Carol Stream, Illinois Des Plaines, Illinois Des Plaines, Illinois Lincoln, Illinois Lincoln, Illinois Montgomery, Illinois Montgomery, Illinois Northlake, Illinois Northlake, Illinois Rockford, Illinois Rockford, Illinois Butler, Indiana Butler, Indiana Fort Wayne, Indiana Fort Wayne, Indiana Hammond, Indiana Hammond, Indiana Luiz Antônio, São Paulo, Brazil Luiz Antônio, São Paulo, Brazil Orange, Texas Orange, Texas Mogi Guacu, São Paulo, Brazil Mogi Guacu, São Paulo, Brazil Três Lagoas, Mato Grosso do Sul, Brazil Três Lagoas, Mato Grosso do Sul, Brazil International: International: Stone Mountain, Georgia leased Stone Mountain, Georgia leased Franco da Rocha, São Paulo, Brazil Franco da Rocha, São Paulo, Brazil Tucker, Georgia Tucker, Georgia Nova Campina, São Paulo, Brazil Nova Campina, São Paulo, Brazil Aurora, Illinois (3 locations) Aurora, Illinois (3 locations) Paulinia, São Paulo, Brazil Paulinia, São Paulo, Brazil leased leased Bedford Park, Illinois (2 locations) 1 Bedford Park, Illinois (2 locations) 1 Cantonment, Florida (Pensacola Mill) Cantonment, Florida (Pensacola Mill) Decatur, Alabama Decatur, Alabama Dothan, Alabama leased Dothan, Alabama leased Crawfordsville, Indiana Crawfordsville, Indiana New Bern, North Carolina New Bern, North Carolina Fort Smith, Arkansas (2 locations) Fort Smith, Arkansas (2 locations) Indianapolis, Indiana (2 locations) Indianapolis, Indiana (2 locations) Riegelwood, North Carolina Riegelwood, North Carolina Russellville, Arkansas (2 locations) Russellville, Arkansas (2 locations) Saint Anthony, Indiana Saint Anthony, Indiana Eastover, South Carolina Eastover, South Carolina Georgetown, South Carolina Georgetown, South Carolina Franklin, Virginia Franklin, Virginia Tolleson, Arizona Tolleson, Arizona Yuma, Arizona Yuma, Arizona Anaheim, California Anaheim, California Tipton, Indiana Tipton, Indiana Cedar Rapids, Iowa Cedar Rapids, Iowa Waterloo, Iowa Waterloo, Iowa Buena Park, California leased Buena Park, California leased Garden City, Kansas Garden City, Kansas International: International: Camarillo, California Camarillo, California Kansas City, Kansas Kansas City, Kansas Grand Prairie, Albert, Canada Grand Prairie, Albert, Canada Carson, California Carson, California Bowling Green, Kentucky Bowling Green, Kentucky INDUSTRIAL PACKAGING INDUSTRIAL PACKAGING Los Angeles, California Los Angeles, California Gilroy, California (2 locations) Gilroy, California (2 locations) Lafayette, Louisiana Lafayette, Louisiana Cerritos, California leased Cerritos, California leased Compton, California Compton, California Elk Grove, California Elk Grove, California Exeter, California Exeter, California Modesto, California Modesto, California Ontario, California Ontario, California Salinas, California Salinas, California Sanger, California Sanger, California Lexington, Kentucky Lexington, Kentucky Louisville, Kentucky Louisville, Kentucky Walton, Kentucky Walton, Kentucky Bogalusa, Louisiana Bogalusa, Louisiana Shreveport, Louisiana Shreveport, Louisiana Springhill, Louisiana Springhill, Louisiana Auburn, Maine Auburn, Maine Three Rivers, Michigan Three Rivers, Michigan Arden Hills, Minnesota Arden Hills, Minnesota Saillat, France Saillat, France Gdansk, Poland Gdansk, Poland Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia Containerboard Containerboard U.S.: U.S.: Pine Hill, Alabama Pine Hill, Alabama Prattville, Alabama Prattville, Alabama Cantonment, Florida (Pensacola Mill) Cantonment, Florida (Pensacola Mill) locations) locations) Fridley, Minnesota Fridley, Minnesota Rome, Georgia Rome, Georgia Stockton, California Stockton, California Minneapolis, Minnesota leased Minneapolis, Minnesota leased San Leandro, California leased San Leandro, California leased Austin, Minnesota Austin, Minnesota Santa Fe Springs, California (2 Santa Fe Springs, California (2 91 91 A-1 A-1 /S/ JOHN L. TOWNSEND III Director /S/ JOHN L. TOWNSEND III Director February 22, 2018 February 22, 2018 Selma, Alabama (Riverdale Mill) Selma, Alabama (Riverdale Mill) Maysville, Kentucky Maysville, Kentucky 2017 LISTING OF FACILITIES 2017 LISTING OF FACILITIES (all facilities are owned except noted otherwise) (all facilities are owned except noted otherwise) PRINTING PAPERS PRINTING PAPERS Uncoated Papers Uncoated Papers U.S.: U.S.: Savannah, Georgia Savannah, Georgia Cayuga, Indiana Cayuga, Indiana Cedar Rapids, Iowa Cedar Rapids, Iowa Henderson, Kentucky Henderson, Kentucky Ticonderoga, New York Ticonderoga, New York Eastover, South Carolina Eastover, South Carolina Georgetown, South Carolina Georgetown, South Carolina Sumter, South Carolina Sumter, South Carolina International: International: Bogalusa, Louisiana Bogalusa, Louisiana Campti, Louisiana Campti, Louisiana Mansfield, Louisiana Mansfield, Louisiana Vicksburg, Mississippi Vicksburg, Mississippi Valliant, Oklahoma Valliant, Oklahoma Springfield, Oregon Springfield, Oregon Luiz Antônio, São Paulo, Brazil Luiz Antônio, São Paulo, Brazil Orange, Texas Orange, Texas Mogi Guacu, São Paulo, Brazil Mogi Guacu, São Paulo, Brazil APPENDIX I APPENDIX I Tracy, California Tracy, California Golden, Colorado Golden, Colorado Wheat Ridge, Colorado Wheat Ridge, Colorado Putnam, Connecticut Putnam, Connecticut Orlando, Florida Orlando, Florida Plant City, Florida Plant City, Florida Tampa, Florida leased Tampa, Florida leased Columbus, Georgia Columbus, Georgia Forest Park, Georgia Forest Park, Georgia Griffin, Georgia Griffin, Georgia Kennesaw, Georgia leased Kennesaw, Georgia leased Lithonia, Georgia Lithonia, Georgia Savannah, Georgia Savannah, Georgia Três Lagoas, Mato Grosso do Sul, Brazil Três Lagoas, Mato Grosso do Sul, Brazil International: International: Stone Mountain, Georgia leased Stone Mountain, Georgia leased /s/ CLINTON A. LEWIS, JR. /s/ CLINTON A. LEWIS, JR. Director Director February 22, 2018 February 22, 2018 /S/ KATHRYN D. SULLIVAN /S/ KATHRYN D. SULLIVAN Director Director February 22, 2018 February 22, 2018 Clinton A. Lewis, Jr. Clinton A. Lewis, Jr. Kathryn D. Sullivan Kathryn D. Sullivan John L. Townsend III John L. Townsend III J. Steven Whisler J. Steven Whisler Ray G. Young Ray G. Young /S/ GLENN R. LANDAU /S/ GLENN R. LANDAU Glenn R. Landau Glenn R. Landau Vincent P. Bonnot Vincent P. Bonnot /S/ J. STEVEN WHISLER /S/ J. STEVEN WHISLER Director Director February 22, 2018 February 22, 2018 /S/ RAY G. YOUNG /S/ RAY G. YOUNG Director Director February 22, 2018 February 22, 2018 Senior Vice President and Chief Senior Vice President and Chief Financial Officer Financial Officer February 22, 2018 February 22, 2018 /S/ VINCENT P. BONNOT /S/ VINCENT P. BONNOT Vice President – Finance and Vice President – Finance and Controller Controller February 22, 2018 February 22, 2018 Franco da Rocha, São Paulo, Brazil Franco da Rocha, São Paulo, Brazil Tucker, Georgia Tucker, Georgia Nova Campina, São Paulo, Brazil Nova Campina, São Paulo, Brazil Aurora, Illinois (3 locations) Aurora, Illinois (3 locations) Saillat, France Saillat, France Kadiam, India Kadiam, India Rajahmundry, India Rajahmundry, India Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia GLOBAL CELLULOSE FIBERS GLOBAL CELLULOSE FIBERS Pulp Pulp U.S.: U.S.: Paulinia, São Paulo, Brazil Paulinia, São Paulo, Brazil Veracruz, Mexico Veracruz, Mexico Kenitra, Morocco Kenitra, Morocco Madrid, Spain Madrid, Spain Corrugated Container Corrugated Container U.S.: U.S.: Bay Minette, Alabama Bay Minette, Alabama Bedford Park, Illinois (2 locations) 1 Bedford Park, Illinois (2 locations) 1 leased leased Belleville, Illinois Belleville, Illinois Carol Stream, Illinois Carol Stream, Illinois Des Plaines, Illinois Des Plaines, Illinois Lincoln, Illinois Lincoln, Illinois Montgomery, Illinois Montgomery, Illinois Northlake, Illinois Northlake, Illinois Rockford, Illinois Rockford, Illinois Butler, Indiana Butler, Indiana Cantonment, Florida (Pensacola Mill) Cantonment, Florida (Pensacola Mill) Decatur, Alabama Decatur, Alabama Flint River, Georgia Flint River, Georgia Port Wentworth, Georgia Port Wentworth, Georgia Columbus, Mississippi Columbus, Mississippi Dothan, Alabama leased Dothan, Alabama leased Crawfordsville, Indiana Crawfordsville, Indiana Huntsville, Alabama Huntsville, Alabama Conway, Arkansas Conway, Arkansas Fort Wayne, Indiana Fort Wayne, Indiana Hammond, Indiana Hammond, Indiana New Bern, North Carolina New Bern, North Carolina Fort Smith, Arkansas (2 locations) Fort Smith, Arkansas (2 locations) Indianapolis, Indiana (2 locations) Indianapolis, Indiana (2 locations) Riegelwood, North Carolina Riegelwood, North Carolina Russellville, Arkansas (2 locations) Russellville, Arkansas (2 locations) Saint Anthony, Indiana Saint Anthony, Indiana Eastover, South Carolina Eastover, South Carolina Georgetown, South Carolina Georgetown, South Carolina Franklin, Virginia Franklin, Virginia Tolleson, Arizona Tolleson, Arizona Yuma, Arizona Yuma, Arizona Anaheim, California Anaheim, California Tipton, Indiana Tipton, Indiana Cedar Rapids, Iowa Cedar Rapids, Iowa Waterloo, Iowa Waterloo, Iowa Buena Park, California leased Buena Park, California leased Garden City, Kansas Garden City, Kansas International: International: Camarillo, California Camarillo, California Kansas City, Kansas Kansas City, Kansas Grand Prairie, Albert, Canada Grand Prairie, Albert, Canada Carson, California Carson, California Bowling Green, Kentucky Bowling Green, Kentucky Saillat, France Saillat, France Gdansk, Poland Gdansk, Poland Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia Cerritos, California leased Cerritos, California leased Compton, California Compton, California Elk Grove, California Elk Grove, California Exeter, California Exeter, California Lexington, Kentucky Lexington, Kentucky Louisville, Kentucky Louisville, Kentucky Walton, Kentucky Walton, Kentucky Bogalusa, Louisiana Bogalusa, Louisiana Gilroy, California (2 locations) Gilroy, California (2 locations) Lafayette, Louisiana Lafayette, Louisiana INDUSTRIAL PACKAGING INDUSTRIAL PACKAGING Los Angeles, California Los Angeles, California Containerboard Containerboard U.S.: U.S.: Pine Hill, Alabama Pine Hill, Alabama Prattville, Alabama Prattville, Alabama Cantonment, Florida (Pensacola Mill) Cantonment, Florida (Pensacola Mill) Modesto, California Modesto, California Ontario, California Ontario, California Salinas, California Salinas, California Sanger, California Sanger, California Shreveport, Louisiana Shreveport, Louisiana Springhill, Louisiana Springhill, Louisiana Auburn, Maine Auburn, Maine Three Rivers, Michigan Three Rivers, Michigan Arden Hills, Minnesota Arden Hills, Minnesota San Leandro, California leased San Leandro, California leased Austin, Minnesota Austin, Minnesota Santa Fe Springs, California (2 Santa Fe Springs, California (2 locations) locations) Fridley, Minnesota Fridley, Minnesota 91 91 A-1 A-1 Rome, Georgia Rome, Georgia Stockton, California Stockton, California Minneapolis, Minnesota leased Minneapolis, Minnesota leased CONSUMER PACKAGING CONSUMER PACKAGING DISTRIBUTION DISTRIBUTION IP Asia IP Asia International: International: Guangzhou, China Guangzhou, China Hong Kong, China Hong Kong, China Shanghai, China Shanghai, China Japan Japan Korea Korea Singapore Singapore Taiwan Taiwan Thailand Thailand Vietnam Vietnam FOREST PRODUCTS FOREST PRODUCTS Forest Resources Forest Resources International: International: Approximately 329,400 acres Approximately 329,400 acres in Brazil in Brazil Coated Paperboard Coated Paperboard U.S.: U.S.: Augusta, Georgia 2 Augusta, Georgia 2 Prosperity, South Carolina 2 Prosperity, South Carolina 2 Texarkana, Texas 2 Texarkana, Texas 2 International: International: Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia Foodservice Foodservice U.S.: U.S.: Visalia, California 2 Visalia, California 2 Shelbyville, Illinois 2 Shelbyville, Illinois 2 Kenton, Ohio 2 Kenton, Ohio 2 International: International: Shanghai, China 1 Shanghai, China 1 Tianjin, China 1 Tianjin, China 1 Bogota, Colombia Bogota, Colombia Cheshire, England leased 2 Cheshire, England leased 2 1) Sold September 2017 1) Sold September 2017 2) Transferred January 2018 2) Transferred January 2018 Shakopee, Minnesota Shakopee, Minnesota Laurens, South Carolina Laurens, South Carolina Silao, Mexico Silao, Mexico White Bear Lake, Minnesota White Bear Lake, Minnesota Lexington, South Carolina Lexington, South Carolina Villa Nicolas Romero, Mexico Villa Nicolas Romero, Mexico Houston, Mississippi Houston, Mississippi Jackson, Mississippi Jackson, Mississippi Ashland City, Tennessee leased Ashland City, Tennessee leased Zapopan, Mexico Zapopan, Mexico Cleveland, Tennessee Cleveland, Tennessee Agadir, Morocco Agadir, Morocco Magnolia, Mississippi leased Magnolia, Mississippi leased Elizabethton, Tennessee leased Elizabethton, Tennessee leased Casablanca, Morocco Casablanca, Morocco Olive Branch, Mississippi Olive Branch, Mississippi Fenton, Missouri Fenton, Missouri Kansas City, Missouri Kansas City, Missouri Morristown, Tennessee Morristown, Tennessee Murfreesboro, Tennessee Murfreesboro, Tennessee Amarillo, Texas Amarillo, Texas Kenitra, Morocco Kenitra, Morocco Tangier, Morocco Tangier, Morocco Almeria, Spain Almeria, Spain Maryland Heights, Missouri Maryland Heights, Missouri Carrollton, Texas (2 locations) Carrollton, Texas (2 locations) Barcelona, Spain Barcelona, Spain North Kansas City, Missouri leased North Kansas City, Missouri leased Edinburg, Texas Edinburg, Texas St. Joseph, Missouri St. Joseph, Missouri St. Louis, Missouri St. Louis, Missouri Omaha, Nebraska Omaha, Nebraska Barrington, New Jersey Barrington, New Jersey Bellmawr, New Jersey Bellmawr, New Jersey Milltown, New Jersey Milltown, New Jersey Spotswood, New Jersey Spotswood, New Jersey Thorofare, New Jersey Thorofare, New Jersey Binghamton, New York Binghamton, New York Buffalo, New York Buffalo, New York Rochester, New York Rochester, New York Scotia, New York Scotia, New York Utica, New York Utica, New York Bilbao, Spain Bilbao, Spain Gandia, Spain Gandia, Spain El Paso, Texas El Paso, Texas Ft. Worth, Texas leased Ft. Worth, Texas leased Las Palmas, Spain Las Palmas, Spain Grand Prairie, Texas Grand Prairie, Texas Hidalgo, Texas Hidalgo, Texas McAllen, Texas McAllen, Texas Madrid, Spain Madrid, Spain Tenerife, Spain Tenerife, Spain Adana, Turkey Adana, Turkey San Antonio, Texas (2 locations) San Antonio, Texas (2 locations) Bursa. Turkey Bursa. Turkey Sealy, Texas Sealy, Texas Waxahachie, Texas Waxahachie, Texas Lynchburg, Virginia Lynchburg, Virginia Petersburg, Virginia Petersburg, Virginia Richmond, Virginia Richmond, Virginia Corlu, Turkey Corlu, Turkey Corum, Turkey Corum, Turkey Gebze, Turkey Gebze, Turkey Izmir, Turkey Izmir, Turkey Moses Lake, Washington Moses Lake, Washington Olympia, Washington Olympia, Washington Recycling Recycling U.S.: U.S.: Charlotte, North Carolina (2 locations) 1 Charlotte, North Carolina (2 locations) 1 leased leased Lumberton, North Carolina Lumberton, North Carolina Manson, North Carolina Manson, North Carolina Newton, North Carolina Newton, North Carolina Yakima, Washington Yakima, Washington Fond du Lac, Wisconsin Fond du Lac, Wisconsin Manitowoc, Wisconsin Manitowoc, Wisconsin Phoenix, Arizona Phoenix, Arizona Fremont, California Fremont, California Norwalk, California Norwalk, California West Sacramento, California West Sacramento, California Statesville, North Carolina Statesville, North Carolina International: International: Itasca, Illinois Itasca, Illinois Byesville, Ohio Byesville, Ohio Delaware, Ohio Delaware, Ohio Eaton, Ohio Eaton, Ohio Madison, Ohio Madison, Ohio Marion, Ohio Marion, Ohio Marysville, Ohio leased Marysville, Ohio leased Middletown, Ohio Middletown, Ohio Mt. Vernon, Ohio Mt. Vernon, Ohio Newark, Ohio Newark, Ohio Streetsboro, Ohio Streetsboro, Ohio Wooster, Ohio Wooster, Ohio Manaus, Amazonas, Brazil Manaus, Amazonas, Brazil Des Moines, Iowa Des Moines, Iowa Paulinia, São Paulo, Brazil Paulinia, São Paulo, Brazil Wichita, Kansas Wichita, Kansas Rio Verde, Goias, Brazil Rio Verde, Goias, Brazil Roseville, Minnesota Roseville, Minnesota Suzano, São Paulo, Brazil Suzano, São Paulo, Brazil Omaha, Nebraska Omaha, Nebraska Rancagua, Chile Rancagua, Chile Arles, France Arles, France Charlotte, North Carolina Charlotte, North Carolina Beaverton, Oregon Beaverton, Oregon Chalon-sur-Saone, France Chalon-sur-Saone, France Springfield, Oregon leased Springfield, Oregon leased Creil, France Creil, France Carrollton, Texas Carrollton, Texas LePuy, France (Espaly Box Plant) LePuy, France (Espaly Box Plant) Salt Lake City, Utah Salt Lake City, Utah Mortagne, France Mortagne, France Richmond, Virginia Richmond, Virginia Guadeloupe, French West Indies Guadeloupe, French West Indies Kent, Washington Kent, Washington Oklahoma City, Oklahoma Oklahoma City, Oklahoma Beaverton, Oregon (3 locations) Beaverton, Oregon (3 locations) Hillsboro, Oregon Hillsboro, Oregon Portland, Oregon Portland, Oregon Salem, Oregon leased Salem, Oregon leased Bellusco, Italy Bellusco, Italy Catania, Italy Catania, Italy Pomezia, Italy Pomezia, Italy San Felice, Italy San Felice, Italy Apodaco (Monterrey), Mexico Apodaco (Monterrey), Mexico leased leased Biglerville, Pennsylvania (2 locations) Biglerville, Pennsylvania (2 locations) Ixtaczoquitlan, Mexico Ixtaczoquitlan, Mexico Eighty-four, Pennsylvania Eighty-four, Pennsylvania Hazleton, Pennsylvania Hazleton, Pennsylvania Juarez, Mexico leased Juarez, Mexico leased Los Mochis, Mexico Los Mochis, Mexico Kennett Square, Pennsylvania Kennett Square, Pennsylvania Puebla, Mexico leased Puebla, Mexico leased Lancaster, Pennsylvania Lancaster, Pennsylvania Reynosa, Mexico Reynosa, Mexico Mount Carmel, Pennsylvania Mount Carmel, Pennsylvania San Jose Iturbide, Mexico San Jose Iturbide, Mexico Georgetown, South Carolina Georgetown, South Carolina Santa Catarina, Mexico Santa Catarina, Mexico International: International: Monterrey, Mexico leased Monterrey, Mexico leased Xalapa, Veracruz, Mexico leased Xalapa, Veracruz, Mexico leased Bags Bags U.S.: U.S.: Buena Park, California Buena Park, California Beaverton, Oregon Beaverton, Oregon Grand Prairie, Texas Grand Prairie, Texas A-2 A-2 A-3 A-3 CONSUMER PACKAGING CONSUMER PACKAGING DISTRIBUTION DISTRIBUTION IP Asia IP Asia International: International: Guangzhou, China Guangzhou, China Hong Kong, China Hong Kong, China Shanghai, China Shanghai, China Japan Japan Korea Korea Singapore Singapore Taiwan Taiwan Thailand Thailand Vietnam Vietnam FOREST PRODUCTS FOREST PRODUCTS Forest Resources Forest Resources International: International: Approximately 329,400 acres Approximately 329,400 acres in Brazil in Brazil Coated Paperboard Coated Paperboard U.S.: U.S.: Augusta, Georgia 2 Augusta, Georgia 2 Prosperity, South Carolina 2 Prosperity, South Carolina 2 Texarkana, Texas 2 Texarkana, Texas 2 International: International: Kwidzyn, Poland Kwidzyn, Poland Svetogorsk, Russia Svetogorsk, Russia Foodservice Foodservice U.S.: U.S.: Visalia, California 2 Visalia, California 2 Shelbyville, Illinois 2 Shelbyville, Illinois 2 Kenton, Ohio 2 Kenton, Ohio 2 International: International: Shanghai, China 1 Shanghai, China 1 Tianjin, China 1 Tianjin, China 1 Bogota, Colombia Bogota, Colombia Cheshire, England leased 2 Cheshire, England leased 2 1) Sold September 2017 1) Sold September 2017 2) Transferred January 2018 2) Transferred January 2018 Shakopee, Minnesota Shakopee, Minnesota Laurens, South Carolina Laurens, South Carolina Silao, Mexico Silao, Mexico White Bear Lake, Minnesota White Bear Lake, Minnesota Lexington, South Carolina Lexington, South Carolina Villa Nicolas Romero, Mexico Villa Nicolas Romero, Mexico Houston, Mississippi Houston, Mississippi Jackson, Mississippi Jackson, Mississippi Ashland City, Tennessee leased Ashland City, Tennessee leased Zapopan, Mexico Zapopan, Mexico Cleveland, Tennessee Cleveland, Tennessee Agadir, Morocco Agadir, Morocco Magnolia, Mississippi leased Magnolia, Mississippi leased Elizabethton, Tennessee leased Elizabethton, Tennessee leased Casablanca, Morocco Casablanca, Morocco Olive Branch, Mississippi Olive Branch, Mississippi Fenton, Missouri Fenton, Missouri Kansas City, Missouri Kansas City, Missouri Morristown, Tennessee Morristown, Tennessee Murfreesboro, Tennessee Murfreesboro, Tennessee Amarillo, Texas Amarillo, Texas Kenitra, Morocco Kenitra, Morocco Tangier, Morocco Tangier, Morocco Almeria, Spain Almeria, Spain Maryland Heights, Missouri Maryland Heights, Missouri Carrollton, Texas (2 locations) Carrollton, Texas (2 locations) Barcelona, Spain Barcelona, Spain North Kansas City, Missouri leased North Kansas City, Missouri leased Edinburg, Texas Edinburg, Texas Ft. Worth, Texas leased Ft. Worth, Texas leased Las Palmas, Spain Las Palmas, Spain El Paso, Texas El Paso, Texas Grand Prairie, Texas Grand Prairie, Texas Hidalgo, Texas Hidalgo, Texas McAllen, Texas McAllen, Texas Sealy, Texas Sealy, Texas Waxahachie, Texas Waxahachie, Texas Lynchburg, Virginia Lynchburg, Virginia Petersburg, Virginia Petersburg, Virginia Richmond, Virginia Richmond, Virginia Bilbao, Spain Bilbao, Spain Gandia, Spain Gandia, Spain Madrid, Spain Madrid, Spain Tenerife, Spain Tenerife, Spain Adana, Turkey Adana, Turkey Corlu, Turkey Corlu, Turkey Corum, Turkey Corum, Turkey Gebze, Turkey Gebze, Turkey Izmir, Turkey Izmir, Turkey San Antonio, Texas (2 locations) San Antonio, Texas (2 locations) Bursa. Turkey Bursa. Turkey Moses Lake, Washington Moses Lake, Washington Olympia, Washington Olympia, Washington Recycling Recycling U.S.: U.S.: Charlotte, North Carolina (2 locations) 1 Charlotte, North Carolina (2 locations) 1 leased leased Lumberton, North Carolina Lumberton, North Carolina Manson, North Carolina Manson, North Carolina Newton, North Carolina Newton, North Carolina Yakima, Washington Yakima, Washington Fond du Lac, Wisconsin Fond du Lac, Wisconsin Manitowoc, Wisconsin Manitowoc, Wisconsin Phoenix, Arizona Phoenix, Arizona Fremont, California Fremont, California Norwalk, California Norwalk, California West Sacramento, California West Sacramento, California Statesville, North Carolina Statesville, North Carolina International: International: Itasca, Illinois Itasca, Illinois St. Joseph, Missouri St. Joseph, Missouri St. Louis, Missouri St. Louis, Missouri Omaha, Nebraska Omaha, Nebraska Barrington, New Jersey Barrington, New Jersey Bellmawr, New Jersey Bellmawr, New Jersey Milltown, New Jersey Milltown, New Jersey Spotswood, New Jersey Spotswood, New Jersey Thorofare, New Jersey Thorofare, New Jersey Binghamton, New York Binghamton, New York Buffalo, New York Buffalo, New York Rochester, New York Rochester, New York Scotia, New York Scotia, New York Utica, New York Utica, New York Byesville, Ohio Byesville, Ohio Delaware, Ohio Delaware, Ohio Eaton, Ohio Eaton, Ohio Madison, Ohio Madison, Ohio Marion, Ohio Marion, Ohio Marysville, Ohio leased Marysville, Ohio leased Middletown, Ohio Middletown, Ohio Mt. Vernon, Ohio Mt. Vernon, Ohio Newark, Ohio Newark, Ohio Streetsboro, Ohio Streetsboro, Ohio Wooster, Ohio Wooster, Ohio Manaus, Amazonas, Brazil Manaus, Amazonas, Brazil Des Moines, Iowa Des Moines, Iowa Paulinia, São Paulo, Brazil Paulinia, São Paulo, Brazil Wichita, Kansas Wichita, Kansas Rio Verde, Goias, Brazil Rio Verde, Goias, Brazil Roseville, Minnesota Roseville, Minnesota Suzano, São Paulo, Brazil Suzano, São Paulo, Brazil Omaha, Nebraska Omaha, Nebraska Rancagua, Chile Rancagua, Chile Arles, France Arles, France Charlotte, North Carolina Charlotte, North Carolina Beaverton, Oregon Beaverton, Oregon Chalon-sur-Saone, France Chalon-sur-Saone, France Springfield, Oregon leased Springfield, Oregon leased Creil, France Creil, France Carrollton, Texas Carrollton, Texas LePuy, France (Espaly Box Plant) LePuy, France (Espaly Box Plant) Salt Lake City, Utah Salt Lake City, Utah Mortagne, France Mortagne, France Richmond, Virginia Richmond, Virginia Guadeloupe, French West Indies Guadeloupe, French West Indies Kent, Washington Kent, Washington Oklahoma City, Oklahoma Oklahoma City, Oklahoma Beaverton, Oregon (3 locations) Beaverton, Oregon (3 locations) Hillsboro, Oregon Hillsboro, Oregon Portland, Oregon Portland, Oregon Salem, Oregon leased Salem, Oregon leased Bellusco, Italy Bellusco, Italy Catania, Italy Catania, Italy Pomezia, Italy Pomezia, Italy San Felice, Italy San Felice, Italy Apodaco (Monterrey), Mexico Apodaco (Monterrey), Mexico leased leased Biglerville, Pennsylvania (2 locations) Biglerville, Pennsylvania (2 locations) Ixtaczoquitlan, Mexico Ixtaczoquitlan, Mexico Eighty-four, Pennsylvania Eighty-four, Pennsylvania Hazleton, Pennsylvania Hazleton, Pennsylvania Juarez, Mexico leased Juarez, Mexico leased Los Mochis, Mexico Los Mochis, Mexico Kennett Square, Pennsylvania Kennett Square, Pennsylvania Puebla, Mexico leased Puebla, Mexico leased Lancaster, Pennsylvania Lancaster, Pennsylvania Reynosa, Mexico Reynosa, Mexico Mount Carmel, Pennsylvania Mount Carmel, Pennsylvania San Jose Iturbide, Mexico San Jose Iturbide, Mexico Georgetown, South Carolina Georgetown, South Carolina Santa Catarina, Mexico Santa Catarina, Mexico International: International: Monterrey, Mexico leased Monterrey, Mexico leased Xalapa, Veracruz, Mexico leased Xalapa, Veracruz, Mexico leased Bags Bags U.S.: U.S.: Buena Park, California Buena Park, California Beaverton, Oregon Beaverton, Oregon Grand Prairie, Texas Grand Prairie, Texas A-2 A-2 A-3 A-3 2017 CAPACITY INFORMATION APPENDIX II (in thousands of short tons except as noted) U.S. EMEA Americas, other than U.S. India Total Industrial Packaging Containerboard (a) Coated Paperboard Total Industrial Packaging Global Cellulose Fibers Dried Pulp (in thousands of metric tons) Printing Papers Uncoated Freesheet & Bristols (b) Newsprint Total Printing Papers 13,488 — 13,488 45 431 476 363 — 363 2,912 302 535 1,990 — 1,990 1,193 312 1,505 1,135 — 1,135 — — — — 266 — 266 13,896 431 14,327 3,749 4,584 312 4,896 (a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum. (b) In addition to Uncoated Freesheet and Bristols, includes bleached multiwall bag and plate. 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-4 (in thousands of short tons except as noted) U.S. EMEA India Total Americas, other than U.S. 2017 CAPACITY INFORMATION Industrial Packaging Containerboard (a) Coated Paperboard Total Industrial Packaging Global Cellulose Fibers Dried Pulp (in thousands of metric tons) Printing Papers Uncoated Freesheet & Bristols (b) Newsprint Total Printing Papers APPENDIX II 13,488 — 13,488 45 431 476 363 — 363 2,912 302 535 1,990 — 1,990 1,193 312 1,505 1,135 — 1,135 — — — — 266 — 266 13,896 431 14,327 3,749 4,584 312 4,896 (a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum. (b) In addition to Uncoated Freesheet and Bristols, includes bleached multiwall bag and plate. 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-4 INTERNATIONAL PAPER LEADERSHIP As of February 28, 2018 Mark S. Sutton Chairman of the Board and Chief Executive Officer W. Michael Amick, Jr. Senior Vice President Paper The Americas and India C. Cato Ealy Senior Vice President Corporate Development Tommy S. Joseph Senior Vice President Manufacturing, Technology, EHS and Global Sourcing Glenn R. Landau Senior Vice President and Chief Financial Officer Timothy S. Nicholls Senior Vice President Industrial Packaging The Americas Thomas J. Plath Senior Vice President Human Resources and Global Citizenship Jean-Michel Ribiéras Senior Vice President Global Cellulose Fibers 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 International Paper 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 Area North American Container Santiago Arbelaez Vice President Industrial Packaging International Paper Brazil Mark M. Azzarello Vice President Human Resources, Global Compensation and Benefits Greg C. Gibson Vice President and General Manager North American Papers Marcio Bertoldo Vice President Manufacturing Latin America Hans M. Bjorkman Vice President and General Manager 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, Controller and Chief Accounting Officer Eric Chartrain Vice President and General Manager Europe, Middle East and Africa Packaging Thomas A. Cleves Vice President Global Citizenship Kirt Cuevas Vice President Environment, Health and Safety Rodrigo Davoli President International Paper Brazil Vice President and General Manager Latin America Printing Papers Donald P. Devlin Vice President and President International Paper India Clay R. Ellis Vice President Manufacturing Global Cellulose Fibers Roman B. Gallo Vice President Manufacturing Containerboard Gary M. Gavin Vice President West Area North American Container John F. Grover Vice President Enterprise Converting Optimization North American Container Guillermo Gutierrez Vice President Investor Relations William T. Hamic Vice President and General Manager Containerboard and Recycling Errol A. Harris Vice President and Treasurer Russell V. Harris Vice President Manufacturing North American Papers Peter G. Heist Vice President North Area North American Container Robert M. Hunkeler Vice President Trust Investments Chris J. Keuleman Vice President Global Government Relations David A. Liebetreu Vice President Global Sourcing Allison B. Magness Vice President Manufacturing Containerboard Brian N.G. McDonald Vice President Strategic Planning Kevin G. McWilliams Vice President Tax Brett A. Mosley Vice President Manufacturing Containerboard Chris R. Read Vice President Manufacturing Europe, Middle East, Africa and Russia James P. Royalty, Jr. Vice President Strategic Projects A-6 Bathsheba T. Sams Vice President Human Resources Global Cellulose Fibers, International Paper Asia and HR for HR Fred A. Towler Vice President Supply Chain, North American Papers and Supply Chain Operations Keith R. Townsend Vice President and President International Paper Russia Marc Van Lieshout Vice President Corporate Audit Deon Vaughan Vice President Deputy General Counsel, Chief Ethics and Compliance Officer Shiela P. Vinczeller Chief Diversity Officer and Vice President Human Resources, Talent Management and Global Mobility Kent L. Walker Vice President Product Development, Innovation and Customer Technical Service Global Cellulose Fibers Robert W. Wenker Vice President and Chief Information Officer Hunter Whiteley Vice President Manufacturing Enterprise Initiatives Patrick Wilczynski Vice President Technology and Strategic Initiatives 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 February 28, 2018 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 Christopher M. Connor Retired Executive Chairman The Sherwin-Williams Company Ahmet C. Dorduncu Chief Executive Officer Akkök Group Ilene S. Gordon Presiding Director Executive Chairman Ingredion Incorporated Jacqueline C. Hinman Former Chairman, President & Chief Executive Officer CH2M HILL Companies, Ltd. Jay L. Johnson Retired Chairman and Chief Executive Officer General Dynamics Corporation Clinton A. Lewis, Jr. Executive Vice President & President of International Operations Zoetis Inc. Kathryn D. Sullivan Ambassador-at-Large at the Smithsonian National Air and Space Museum John L. Townsend, III Retired Managing Partner and Chief Operating Officer Tiger Management, LLC J. Steven Whisler Retired Chairman and Chief Executive Officer Phelps Dodge Corporation Ray G. Young Executive Vice President and Chief Financial Officer Archer Daniels Midland Company 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 7, 2018. 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 Investor Services P.O. Box 505000 Louisville, KY 40233-5000 USA Overnight mail delivery: Computershare Investor Services 462 South 4th Street, Ste. 1600 Louisville, KY 40202 USA 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. A-7 International Paper Board of Directors Board of Directors Seated left to right Ilene S. Gordon Presiding Director Executive Chairman Ingredion Incorporated Mark S. Sutton Chairman of the Board and Chief Executive Officer International Paper Company David J. Bronczek President and Chief Operating Officer FedEx Corporation Standing left to right Stacey J. Mobley (Retired December 31, 2017) Retired Senior Vice President, Chief Administrative Officer and General Counsel DuPont Ray G. Young Executive Vice President and Chief Financial Officer Archer Daniels Midland Company William J. Burns President The Carnegie Endowment for International Peace J. Steven Whisler Retired Chairman and Chief Executive Officer Phelps Dodge Corporation Clinton A. Lewis, Jr. Executive Vice President and President of International Operations Zoetis Inc. Christopher M. Connor Retired Executive Chairman The Sherwin-Williams Company John L. Townsend, III Retired Managing Partner and Chief Operating Officer Tiger Management LLC William G. Walter (Retired December 31, 2017) Retired Chairman and Chief Executive Officer FMC Corporation Ahmet C. Dorduncu Chief Executive Officer Akkök Group Kathryn D. Sullivan Ambassador-at-Large Smithsonian National Air and Space Museum Jay L. Johnson Retired Chairman and Chief Executive Officer General Dynamics Corporation Jacqueline C. Hinman Former Chairman, President and Chief Executive Officer CH2M HILL Companies, Ltd. Global Headquarters International Paper Company 6400 Poplar Avenue Memphis, TN 38197, U.S.A. Regional Headquarters International Paper Asia 8F, Building A Xuhui Vanke Center 55 Ding An Road Shanghai, 200235, China International Paper Brazil Avenida Engenheiro Luís Carlos Berrini, 105 - 16 andar - São Paulo - SP - Brazil International Paper Europe, Middle East and Africa (EMEA) Chaussée de la Hulpe 166 1170 Brussels, Belgium 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 InternationalPaper.com ©2018 International Paper Company. All rights reserved. Accent, Chamex, Hammermill, International Paper logo, PRO-DESIGN, Rey and SpaceKraft are registered trademarks of International Paper Company or its affiliates. Pol and THRIVE are trademarks of International Paper Company or its affiliates.“World’s Most Ethical Companies” and “Ethisphere” names and marks are registered trademarks of Ethisphere LLC. “FORTUNE and The World’s Most Admired Companies are registered trademarks of Time Inc. and are used under license.” From FORTUNE Magazine, February 1, 2018. ©2018 Time Inc. used under license. FORTUNE and Time 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. and Text Smooth 100lb. 10K printed on Williamsburg Opaque Offset Smooth 50lb.

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