Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JuneSeptember 30, 2019
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              to             
 _________________________________________
Commission File Number 001-03157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
 
New York13-0872805
(State or other jurisdiction of(I.R.S. Employer
incorporation of organization)Identification No.)
  
6400 Poplar AvenueMemphis,TN38197
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (901419-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesIPNew York Stock Exchange
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒   No  ¨
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company
If an 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 Exchange Act).    Yes  ¨    No  ☐
The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of July 26,October 25, 2019 was 392,836,359392,116,473.


Table of Contents

INDEX
 
  PAGE NO.
  
   
 
   
 Condensed Consolidated Statement of Operations - Three Months and SixNine Months Ended JuneSeptember 30, 2019 and 2018
   
 Condensed Consolidated Statement of Comprehensive Income - Three Months and SixNine Months Ended JuneSeptember 30, 2019 and 2018
   
 Condensed Consolidated Balance Sheet - JuneSeptember 30, 2019 and December 31, 2018
   
 Condensed Consolidated Statement of Cash Flows - SixNine Months Ended JuneSeptember 30, 2019 and 2018
   
 
   
   
   
   
  
   
   
   
   
  


Table of Contents

PART I. FINANCIAL INFORMATION
 
ITEM 1.
INTERNATIONAL PAPER COMPANY
Condensed Consolidated Statement of Operations
(Unaudited)
(In millions, except per share amounts) 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2019 2018 2019 20182019 2018 2019 2018
Net Sales$5,667
 $5,833
 $11,310
 $11,454
$5,568
 $5,901
 $16,878
 $17,355
Costs and Expenses              
Cost of products sold3,901
 3,922
 7,830
 7,870
3,772
 3,887
 11,602
 11,757
Selling and administrative expenses402
 451
 815
 872
387
 405
 1,202
 1,277
Depreciation, amortization and cost of timber harvested321
 330
 636
 655
327
 335
 963
 990
Distribution expenses384
 403
 773
 769
395
 397
 1,168
 1,166
Taxes other than payroll and income taxes43
 42
 86
 86
42
 44
 128
 130
Restructuring and other charges, net
 26
 
 48
21
 
 21
 48
Net (gains) losses on sales and impairments of businesses152
 
 145
 
8
 122
 153
 122
Antitrust fines32
 
 32
 
Interest expense, net122
 133
 255
 268
123
 133
 378
 401
Non-operating pension expense8
 36
 18
 40
9
 25
 27
 65
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings334
 490
 752
 846
452
 553
 1,204
 1,399
Income tax provision (benefit)128
 130
 234
 219
137
 83
 371
 302
Equity earnings (loss), net of taxes80
 70
 194
 165
27
 92
 221
 257
Earnings (Loss) From Continuing Operations286
 430
 712
 792
342
 562
 1,054
 1,354
Discontinued operations, net of taxes
 (23) 
 345

 
 
 345
Net Earnings (Loss)286
 407
 712
 1,137
342
 562
 1,054
 1,699
Less: Net earnings (loss) attributable to noncontrolling interests(6) 2
 (4) 3
(2) 
 (6) 3
Net Earnings (Loss) Attributable to International Paper Company$292
 $405
 $716
 $1,134
$344
 $562
 $1,060
 $1,696
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders              
Earnings (loss) from continuing operations$0.74
 $1.03
 $1.80
 $1.91
$0.88
 $1.38
 $2.67
 $3.28
Discontinued operations, net of taxes
 (0.05) 
 0.83

 
 
 0.84
Net earnings (loss)$0.74
 $0.98
 $1.80
 $2.74
$0.88
 $1.38
 $2.67
 $4.12
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders              
Earnings (loss) from continuing operations$0.73
 $1.02
 $1.78
 $1.88
$0.87
 $1.37
 $2.65
 $3.25
Discontinued operations, net of taxes
 (0.05) 
 0.83

 
 
 0.83
Net earnings (loss)$0.73
 $0.97
 $1.78
 $2.71
$0.87
 $1.37
 $2.65
 $4.08
Average Shares of Common Stock Outstanding – assuming dilution398.2
 417.7
 401.4
 418.8
395.4
 411.4
 399.6
 416.3
The accompanying notes are an integral part of these condensed financial statements.

INTERNATIONAL PAPER COMPANY
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
(In millions)
 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2019 2018 2019 20182019 2018 2019 2018
Net Earnings (Loss)$286
 $407
 $712
 $1,137
$342
 $562
 $1,054
 $1,699
Other Comprehensive Income (Loss), Net of Tax:              
Amortization of pension and post-retirement prior service costs and net loss:              
U.S. plans40
 85
 81
 151
41
 76
 122
 227
Change in cumulative foreign currency translation adjustment61
 (422) 73
 (380)(179) (87) (106) (467)
Net gains/losses on cash flow hedging derivatives:              
Net gains (losses) arising during the period4
 (18) 4
 (21)(10) 1
 (6) (20)
Reclassification adjustment for (gains) losses included in net earnings (loss)
 2
 1
 
4
 2
 5
 2
Total Other Comprehensive Income (Loss), Net of Tax105
 (353) 159
 (250)(144) (8) 15
 (258)
Comprehensive Income (Loss)391
 54
 871
 887
198
 554
 1,069
 1,441
Net (earnings) loss attributable to noncontrolling interests6
 (2) 4
 (3)2
 
 6
 (3)
Other comprehensive (income) loss attributable to noncontrolling interests
 2
 
 2

 2
 
 4
Comprehensive Income (Loss) Attributable to International Paper Company$397
 $54
 $875
 $886
$200
 $556
 $1,075
 $1,442
The accompanying notes are an integral part of these condensed financial statements.

INTERNATIONAL PAPER COMPANY
Condensed Consolidated Balance Sheet
(In millions)
June 30,
2019
 December 31,
2018
September 30,
2019
 December 31,
2018
(unaudited)  (unaudited)  
Assets      
Current Assets      
Cash and temporary investments$787
 $589
$697
 $589
Accounts and notes receivable, net3,477
 3,521
3,305
 3,521
Contract assets399
 395
388
 395
Inventories2,224
 2,241
2,194
 2,241
Assets held for sale286
 
278
 
Other current assets215
 250
189
 250
Total Current Assets7,388
 6,996
7,051
 6,996
Plants, Properties and Equipment, net12,962
 13,067
12,845
 13,067
Forestlands405
 402
378
 402
Investments1,646
 1,648
1,651
 1,648
Financial Assets of Variable Interest Entities (Note 16)7,079
 7,070
7,084
 7,070
Goodwill3,441
 3,374
3,412
 3,374
Right of Use Assets408
 
425
 
Deferred Charges and Other Assets1,018
 1,019
1,002
 1,019
Total Assets$34,347
 $33,576
$33,848
 $33,576
Liabilities and Equity      
Current Liabilities      
Notes payable and current maturities of long-term debt$676
 $639
$402
 $639
Accounts payable2,498
 2,413
2,349
 2,413
Accrued payroll and benefits404
 535
442
 535
Liabilities held for sale250
 
248
 
Other current liabilities1,221
 1,107
1,288
 1,107
Total Current Liabilities5,049
 4,694
4,729
 4,694
Long-Term Debt10,050
 10,015
9,957
 10,015
Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)6,302
 6,298
6,303
 6,298
Deferred Income Taxes2,624
 2,600
2,643
 2,600
Pension Benefit Obligation1,694
 1,762
1,653
 1,762
Postretirement and Postemployment Benefit Obligation257
 264
248
 264
Long-Term Lease Obligations281
 
292
 
Other Liabilities591
 560
567
 560
Equity      
Common stock, $1 par value, 2019 – 448.9 shares and 2018 – 448.9 shares449
 449
449
 449
Paid-in capital6,229
 6,280
6,261
 6,280
Retained earnings8,302
 7,465
8,447
 7,465
Accumulated other comprehensive loss(4,870) (4,500)(5,014) (4,500)
10,110
 9,694
10,143
 9,694
Less: Common stock held in treasury, at cost, 2019 – 55.0 shares and 2018 – 48.3 shares2,628
 2,332
Less: Common stock held in treasury, at cost, 2019 – 56.8 shares and 2018 – 48.3 shares2,702
 2,332
Total International Paper Shareholders’ Equity7,482
 7,362
7,441
 7,362
Noncontrolling interests17
 21
15
 21
Total Equity7,499
 7,383
7,456
 7,383
Total Liabilities and Equity$34,347
 $33,576
$33,848
 $33,576
The accompanying notes are an integral part of these condensed financial statements.

INTERNATIONAL PAPER COMPANY
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
Nine Months Ended
September 30,
2019 20182019 2018
Operating Activities      
Net earnings (loss)$712
 $1,137
$1,054
 $1,699
Depreciation, amortization and cost of timber harvested636
 655
963
 990
Deferred income tax provision (benefit), net50
 196
68
 163
Restructuring and other charges, net
 48
21
 48
Net gain on transfer of North American Consumer Packaging business
 (488)
 (488)
Net (gains) losses on sales and impairments of businesses145
 
153
 122
Antitrust fines32
 
Equity method dividends received251
 122
260
 130
Equity (earnings) losses, net(194) (165)(221) (257)
Periodic pension expense, net47
 115
70
 172
Other, net55
 57
106
 75
Changes in current assets and liabilities      
Accounts and notes receivable48
 (333)168
 (441)
Contract assets(4) (17)6
 (20)
Inventories48
 (26)(9) (120)
Accounts payable and accrued liabilities2
 142
(11) 301
Interest payable1
 2
(31) (33)
Other3
 19
53
 64
Cash Provided By (Used For) Operations1,800
 1,464
2,682
 2,405
Investment Activities      
Invested in capital projects(628) (929)(913) (1,286)
Acquisitions, net of cash acquired(99) 
(99) 
Net settlement on transfer of North American Consumer Packaging business
 (40)
 (40)
Proceeds from divestitures, net of cash divested17
 
17
 
Proceeds from sale of fixed assets4
 2
15
 12
Other(9) 3
(14) 4
Cash Provided By (Used For) Investment Activities(715) (964)(994) (1,310)
Financing Activities      
Repurchases of common stock and payments of restricted stock tax withholding(460) (331)(535) (532)
Issuance of debt444
 411
381
 349
Reduction of debt(452) (73)(772) (242)
Change in book overdrafts(14) (24)(29) (33)
Dividends paid(398) (393)(595) (588)
Net debt tender premiums paid4
 
Other3
 
Cash Provided By (Used For) Financing Activities(876) (410)(1,547) (1,046)
Cash Included in Assets Held for Sale(21) 
(19) 
Effect of Exchange Rate Changes on Cash10
 (35)(14) (41)
Change in Cash and Temporary Investments198
 55
108
 8
Cash and Temporary Investments      
Beginning of period589
 1,018
589
 1,018
End of period$787
 $1,073
$697
 $1,026

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

INTERNATIONAL PAPER COMPANY
Condensed Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States and in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments that are necessary for the fair presentation of International Paper Company’s (International Paper’s, the Company’s or our) financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed herein, such adjustments are of a normal, recurring nature. Results for the first sixnine months of the year may not necessarily be indicative of full year results. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which have previously been filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING DEVELOPMENTS

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The Company adopted the provisions of this guidance effective January 1, 2019, using the modified retrospective optional transition method. Therefore, the standard was applied beginning January 1, 2019 and prior periods were not restated. The adoption of the standard did not result in a cumulative-effect adjustment to the opening balance of Retained earnings. The Company elected the package of practical expedients and implemented internal controls and system functionality to enable the preparation of financial information upon adoption.
The adoption of the new standard resulted in the recognition of a right of use asset and short-term and long-term liabilities recorded on the Company's consolidated balance sheet related to operating leases. Accounting for finance leases remained substantially unchanged. In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows.

Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This guidance gives entities the option to reclassify stranded tax effects caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. As a result, the Company adopted this guidance effective January 1, 2019, and recorded a net increase to opening Retained earnings and a decrease to opening Accumulated other comprehensive income of $529 million, due to the cumulative impact of adopting the new guidance.

Recently Issued Accounting Pronouncements Not Yet Adopted

Intangibles

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this guidance. This guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This guidance eliminates the requirement to calculate the implied fair value of goodwill under Step 2 of today's goodwill impairment test to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. This guidance should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2019, for any impairment test performed in 2020. Early adoption is

permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company plans to early adopt this guidance in the fourth quarter of 2019 in conjunction with our annual evaluation for possible goodwill impairment which is currently evaluatingperformed in addition to interim evaluations when management believes that it is more likely than not, that events or circumstances have occurred that would result in the provisionsimpairment of this guidance; however, we do not anticipate adoption having a material impact on the financial statements.reporting unit's goodwill.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This guidance replaces the current incurred loss impairment method with a method that reflects expected credit losses. This guidance is effective for annual reporting periods beginning after December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted. This guidance should be applied using the modified-retrospective approach. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief." The amendments in this Update provide entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. The amendments also decrease costs for some financial statement preparers while providing financial statement users with decision-useful information. For entities that have not yet adopted the amendments in Update 2016-13, the effective date and transition methodology for the amendments in this Update are the same as in Update 2016-13. The Company is currently evaluating the provisions of this guidance and plans to adopt this guidance and the related amendments on its effective date of January 1, 2020, by recognizing theany cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings.

Pension Plan Disclosures

In July 2018, the FASB issued ASU 2018-09, "Codification Improvements," which included amendments to Subtopic 962-325. This disclosure guidance pertains to the presentation of certain types of investments and is effective for annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the provisions of this guidance and its potential impact on our 2019 annual Form 10-K disclosures and presentation related to pension plan assets.

NOTE 3 - REVENUE RECOGNITION

Generally, the Company recognizes revenue on a point-in-time basis when the customer takes title to the goods and assumes the risks and rewards for the goods. For customized goods where the Company has a legally enforceable right to payment for the goods, the Company recognizes revenue over time which, generally, is as the goods are produced.

Disaggregated Revenue

A geographic disaggregation of revenues across our company segmentation in the following tables provideprovides information to assist in evaluating the nature, timing and uncertainty of revenue and cash flows and how they may be impacted by economic factors.
 Three Months Ended June 30, 2019 Three Months Ended September 30, 2019
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate and Inter-segment Sales Total Industrial Packaging Global Cellulose Fibers Printing Papers Corporate and Inter-segment Sales Total
Primary Geographical Markets (a)                    
United States $3,205
 $551
 $474
 $58
 $4,288
 $3,180
 $535
 $486
 $56
 $4,257
EMEA 420
 64
 341
 (5) 820
 415
 62
 315
 (1) 791
Pacific Rim and Asia 12
 46
 61
 2
 121
 20
 27
 47
 3
 97
Americas, other than U.S. 227
 
 212
 (1) 438
 205
 
 223
 (5) 423
Total $3,864
 $661
 $1,088
 $54
 $5,667
 $3,820
 $624
 $1,071
 $53
 $5,568
                    
Operating Segments                    
North American Industrial Packaging $3,414
 $
 $
 $
 $3,414
 $3,368
 $
 $
 $
 $3,368
EMEA Industrial Packaging 331
 
 
 
 331
 324
 
 
 
 324
Brazilian Industrial Packaging 58
 
 
 
 58
 61
 
 
 
 61
European Coated Paperboard 92
 
 
 
 92
 92
 
 
 
 92
Global Cellulose Fibers 
 661
 
 
 661
 
 624
 
 
 624
North American Printing Papers 
 
 486
 
 486
 
 
 492
 
 492
Brazilian Papers 
 
 240
 
 240
 
 
 247
 
 247
European Papers 
 
 321
 
 321
 
 
 299
 
 299
Indian Papers 
 
 53
 
 53
 
 
 38
 
 38
Intra-segment Eliminations (31) 
 (12) 
 (43) (25) 
 (5) 
 (30)
Corporate & Inter-segment Sales 

 
 

 54
 54
 

 
 
 53
 53
Total $3,864
 $661
 $1,088
 $54
 $5,667
 $3,820
 $624
 $1,071
 $53
 $5,568



(a) Net sales are attributed to countries based on the location of the seller.

 Six Months Ended June 30, 2019 Nine Months Ended September 30, 2019
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate and Inter-segment Sales Total Industrial Packaging Global Cellulose Fibers Printing Papers Corporate and Inter-segment Sales Total
Primary Geographical Markets (a)                    
United States $6,351
 $1,121
 $962
 $118
 $8,552
 $9,531
 $1,656
 $1,448
 $174
 $12,809
EMEA 848
 145
 671
 (7) 1,657
 1,263
 207
 986
 (8) 2,448
Pacific Rim and Asia 30
 84
 120
 6
 240
 50
 111
 167
 9
 337
Americas, other than U.S. 467
 
 400
 (6) 861
 672
 
 623
 (11) 1,284
Total $7,696
 $1,350
 $2,153
 $111
 $11,310
 $11,516
 $1,974
 $3,224
 $164
 $16,878
                    
Operating Segments                    
North American Industrial Packaging $6,790
 $
 $
 $
 $6,790
 $10,158
 $
 $
 $
 $10,158
EMEA Industrial Packaging 670
 
 
 
 670
 994
 
 
 
 994
Brazilian Industrial Packaging 115
 
 
 
 115
 176
 
 
 
 176
European Coated Paperboard 183
 
 
 
 183
 275
 
 
 
 275
Global Cellulose Fibers 
 1,350
 
 
 1,350
 
 1,974
 
 
 1,974
North American Printing Papers 
 
 982
 
 982
 
 
 1,474
 
 1,474
Brazilian Papers 
 
 455
 
 455
 
 
 702
 
 702
European Papers 
 
 630
 
 630
 
 
 929
 
 929
Indian Papers 
 
 106
 
 106
 
 
 144
 
 144
Intra-segment Eliminations (62) 
 (20) 
 (82) (87) 
 (25) 
 (112)
Corporate & Inter-segment Sales 

 
 
 111
 111
 

 
 
 164
 164
Total $7,696
 $1,350
 $2,153
 $111
 $11,310
 $11,516
 $1,974
 $3,224
 $164
 $16,878

(a) Net sales are attributed to countries based on the location of the seller.



 Three Months Ended June 30, 2018 Three Months Ended September 30, 2018
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate & Intersegment Total Industrial Packaging Global Cellulose Fibers Printing Papers Corporate & Intersegment Total
Primary Geographical Markets (a)
                    
United States $3,336
 $573
 $477
 $53
 $4,439
 $3,394
 $602
 $482
 $52
 $4,530
EMEA 427
 70
 324
 (4) 817
 396
 77
 328
 (4) 797
Pacific Rim and Asia 36
 48
 59
 13
 156
 40
 35
 62
 6
 143
Americas, other than U.S. 223
 1
 200
 (3) 421
 204
 
 230
 (3) 431
Total $4,022
 $692
 $1,060
 $59
 $5,833
 $4,034
 $714
 $1,102
 $51
 $5,901
                    
Operating Segments                    
North American Industrial Packaging $3,582
 $
 $
 $
 $3,582
 $3,653
 $
 $
 $
 $3,653
EMEA Industrial Packaging 344
 
 
 
 344
 311
 
 
 ���
 311
Brazilian Industrial Packaging 56
 
 
 
 56
 57
 
 
 
 57
European Coated Paperboard 86
 
 
 
 86
 87
 
 
 
 87
Global Cellulose Fibers 
 692
 
 
 692
 
 714
 
 
 714
North American Printing Papers 
 
 493
 
 493
 
 
 492
 
 492
Brazilian Papers 
 
 222
 
 222
 
 
 255
 
 255
European Papers 
 
 302
 
 302
 
 
 311
 
 311
Indian Papers 
 
 51
 
 51
 
 
 47
 
 47
Intra-segment Eliminations (46) 
 (8) 
 (54) (74) 
 (3) 
 (77)
Corporate & Inter-segment Sales 
 
 
 59
 59
 
 
 
 51
 51
Total $4,022
 $692
 $1,060
 $59
 $5,833
 $4,034
 $714
 $1,102
 $51
 $5,901

(a) Net sales are attributed to countries based on the location of the seller.


 Six Months Ended June 30, 2018 Nine Months Ended September 30, 2018
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate & Intersegment Total Industrial Packaging Global Cellulose Fibers Printing Papers Corporate & Intersegment Total
Primary Geographical Markets (a)
                    
United States $6,438
 $1,118
 $917
 $111
 $8,584
 $9,832
 $1,720
 $1,399
 $163
 $13,114
EMEA 879
 145
 660
 (9) 1,675
 1,275
 222
 988
 (13) 2,472
Pacific Rim and Asia 70
 105
 123
 29
 327
 110
 140
 185
 35
 470
Americas, other than U.S. 462
 1
 413
 (8) 868
 666
 1
 643
 (11) 1,299
Total $7,849
 $1,369
 $2,113
 $123
 $11,454
 $11,883
 $2,083
 $3,215
 $174
 $17,355
                    
Operating Segments                    
North American Industrial Packaging $6,951
 $
 $
 $
 $6,951
 $10,604
 $
 $
 $
 $10,604
EMEA Industrial Packaging 706
 
 
 
 706
 1,017
 
 
 
 1,017
Brazilian Industrial Packaging 118
 
 
 
 118
 175
 
 
 
 175
European Coated Paperboard 178
 
 
 
 178
 265
 
 
 
 265
Global Cellulose Fibers 
 1,369
 
 
 1,369
 
 2,083
 
 
 2,083
North American Printing Papers 
 
 951
 
 951
 
 
 1,443
 
 1,443
Brazilian Papers 
 
 451
 
 451
 
 
 706
 
 706
European Papers 
 
 621
 
 621
 
 
 932
 
 932
Indian Papers 
 
 103
 
 103
 
 
 150
 
 150
Intra-segment Eliminations (104) 
 (13) 
 (117) (178) 
 (16) 
 (194)
Corporate & Inter-segment Sales 
 
 
 123
 123
 
 
 
 174
 174
Total $7,849
 $1,369
 $2,113
 $123
 $11,454
 $11,883
 $2,083
 $3,215
 $174
 $17,355

(a) Net sales are attributed to countries based on the location of the seller.

Revenue Contract Balances

The opening and closing balances of the Company's contract assets and current contract liabilities are as follows:
In millions Contract Assets (Short-Term) Contract Liabilities (Short-Term) Contract Assets (Short-Term) Contract Liabilities (Short-Term)
Beginning Balance - January 1, 2019 $395
 $56
 $395
 $56
Ending Balance - June 30, 2019 399
 40
Ending Balance -September 30, 2019 388
 28
Increase / (Decrease) $4
 $(16) $(7) $(28)


A contract asset is created when the Company recognizes revenue on its customized products prior to having an unconditional right to payment from the customer, which generally does not occur until title and risk of loss passes to the customer.

A contract liability is created when customers prepay for goods prior to the Company transferring those goods to the customer. The contract liability is reduced once control of the goods is transferred to the customer. The majority of our customer prepayments are received during the fourth quarter each year for goods that will be transferred to customers over the following twelve months.

The difference between the opening and closing balances of the Company's contract assets and contract liabilities primarily results from the difference between the price and quantity at comparable points in time for goods for which we have an unconditional right to payment or receive pre-payment from the customer, respectively.

NOTE 4 - EQUITY

A summary of the changes in equity for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018 is provided below:
Three Months Ended June 30, 2019Three Months Ended September 30, 2019
In millions, except per share amountsCommon Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 Common Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Balance, April 1$449
 $6,159
 $8,211
$(4,975) $2,398
 $7,446
 $23
 $7,469
 
Balance, July 1$449
 $6,229
 $8,302
$(4,870) $2,628
 $7,482
 $17
 $7,499
 
Issuance of stock for various plans, net
 34
 

 (1) 35
 
 35
 
 32
 

 (1) 33
 
 33
 
Repurchase of stock
 
 

 231
 (231) 
 (231) 
 
 

 75
 (75) 
 (75) 
Common stock dividends
($.5000 per share)

 
 (201)
 
 (201) 
 (201) 
Common stock dividends
($0.5000 per share)

 
 (199)
 
 (199) 
 (199) 
Transactions of equity method investees
 36
 

 
 36
 
 36
 
 
 

 
 
 
 
 
Comprehensive income (loss)
 
 292
105
 
 397
 (6) 391
 
 
 344
(144) 
 200
 (2) 198
 
Ending Balance, June 30$449
 $6,229
 $8,302
$(4,870) $2,628
 $7,482
 $17
 $7,499
 
Ending Balance, September 30$449
 $6,261
 $8,447
$(5,014) $2,702
 $7,441
 $15
 $7,456
 


Six Months Ended June 30, 2019Nine Months Ended September 30, 2019
In millions, except per share amountsCommon Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 Common Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Balance, January 1$449
 $6,280
 $7,465
$(4,500) $2,332
 $7,362
 $21
 $7,383
 $449
 $6,280
 $7,465
$(4,500) $2,332
 $7,362
 $21
 $7,383
 
Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform
 
 529
(529) 
 
 
 
 
 
 529
(529) 
 
 
 
 
Issuance of stock for various plans, net
 (84) 

 (164) 80
 
 80
 
 (52) 

 (165) 113
 
 113
 
Repurchase of stock
 
 

 460
 (460) 
 (460) 
 
 

 535
 (535) 
 (535) 
Common stock dividends
($1.0000 per share)

 
 (408)
 
 (408) 
 (408) 
Common stock dividends
($1.5000 per share)

 
 (607)
 
 (607) 
 (607) 
Transactions of equity method investees
 33
 

 
 33
 
 33
 
 33
 

 
 33
 
 33
 
Comprehensive income (loss)
 
 716
159
 
 875
 (4) 871
 
 
 1,060
15
 
 1,075
 (6) 1,069
 
Ending Balance, June 30$449
 $6,229
 $8,302
$(4,870) $2,628
 $7,482
 $17
 $7,499
 
Ending Balance, September 30$449
 $6,261
 $8,447
$(5,014) $2,702
 $7,441
 $15
 $7,456
 



Three Months Ended June 30, 2018Three Months Ended September 30, 2018
In millions, except per share amountsCommon Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 Common Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Balance, April 1$449
 $6,175
 $6,783
$(4,530) $1,632
 $7,245
 $20
 $7,265
 
Balance, July 1$449
 $6,219
 $6,988
$(4,881) $1,931
 $6,844
 $20
 $6,864
 
Issuance of stock for various plans, net
 36
 

 (1) 37
 
 37
 
 36
 

 (1) 37
 
 37
 
Repurchase of stock
 
 

 300
 (300) 
 (300) 
 
 

 201
 (201) 
 (201) 
Common stock dividends ($.4750 per share)
 
 (200)
 
 (200) 
 (200) 
Common stock dividends ($0.4750 per share)
 
 (197)
 
 (197) 
 (197) 
Transactions of equity method investees
 8
 

 
 8
 
 8
 
 1
 

 
 1
 
 1
 
Comprehensive income (loss)
 
 405
(351) 
 54
 
 54
 
 
 562
(6) 
 556
 (2) 554
 
Ending Balance, June 30$449
 $6,219
 $6,988
$(4,881) $1,931
 $6,844
 $20
 $6,864
 
Ending Balance, September 30$449
 $6,256
 $7,353
$(4,887) $2,131
 $7,040
 $18
 $7,058
 


Six Months Ended June 30, 2018Nine Months Ended September 30, 2018
In millions, except per share amountsCommon Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 Common Stock Issued Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Treasury Stock 
Total
International
Paper
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Balance, January 1$449
 $6,206
 $6,180
$(4,633) $1,680
 $6,522
 $19
 $6,541
 $449
 $6,206
 $6,180
$(4,633) $1,680
 $6,522
 $19
 $6,541
 
Adoption of ASC 606 revenue from contracts with customers
 
 73

 
 73
 
 73
 
 
 73

 
 73
 
 73
 
Issuance of stock for various plans, net
 (5) 

 (80) 75
 
 75
 
 31
 

 (81) 112
 
 112
 
Repurchase of stock
 
 

 331
 (331) 
 (331) 
 
 

 532
 (532) 
 (532) 
Common stock dividends ($.9500 per share)
 
 (399)
 
 (399) 
 (399) 
Common stock dividends ($1.4250 per share)
 
 (596)
 
 (596) 
 (596) 
Transactions of equity method investees
 18
 

 
 18
 
 18
 
 19
 

 
 19
 
 19
 
Comprehensive income (loss)
 
 1,134
(248) 
 886
 1
 887
 
 
 1,696
(254) 
 1,442
 (1) 1,441
 
Ending Balance, June 30$449
 $6,219
 $6,988
$(4,881) $1,931
 $6,844
 $20
 $6,864
 
Ending Balance, September 30$449
 $6,256
 $7,353
$(4,887) $2,131
 $7,040
 $18
 $7,058
 


NOTE 5 - OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income (AOCI) for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018:
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions 2019 2018 2019 2018 2019 2018 2019 2018
Defined Benefit Pension and Postretirement Adjustments                
Balance at beginning of period $(2,402) $(2,461) $(1,916) $(2,527) $(2,362) $(2,376) $(1,916) $(2,527)
Reclassification of stranded tax effects 
 
 (527) 
 
 
 (527) 
Amounts reclassified from accumulated other comprehensive income 40
 85
 81
 151
 41
 76
 122
 227
Balance at end of period (2,362) (2,376) (2,362) (2,376) (2,321) (2,300) (2,321) (2,300)
Change in Cumulative Foreign Currency Translation Adjustments                
Balance at beginning of period (2,569) (2,069) (2,581) (2,111) (2,508) (2,489) (2,581) (2,111)
Other comprehensive income (loss) before reclassifications 61
 (422) 69
 (382) (179) (87) (110) (469)
Amounts reclassified from accumulated other comprehensive income 
 
 4
 2
 
 
 4
 2
Other comprehensive income (loss) attributable to noncontrolling interest 
 2
 
 2
 
 2
 
 4
Balance at end of period (2,508) (2,489) (2,508) (2,489) (2,687) (2,574) (2,687) (2,574)
Net Gains and Losses on Cash Flow Hedging Derivatives                
Balance at beginning of period (4) 
 (3) 5
 
 (16) (3) 5
Other comprehensive income (loss) before reclassifications 4
 (18) 4
 (21) (10) 1
 (6) (20)
Reclassification of stranded tax effects 
 
 (2) 
 
 
 (2) 
Amounts reclassified from accumulated other comprehensive income 
 2
 1
 
 4
 2
 5
 2
Balance at end of period 
 (16) 
 (16) (6) (13) (6) (13)
Total Accumulated Other Comprehensive Income (Loss) at End of Period $(4,870) $(4,881) $(4,870) $(4,881) $(5,014) $(4,887) $(5,014) $(4,887)



The following table presents details of the reclassifications out of AOCI for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018:
In millions: Amounts Reclassified from Accumulated Other Comprehensive IncomeLocation of Amount Reclassified from AOCI Amounts Reclassified from Accumulated Other Comprehensive IncomeLocation of Amount Reclassified from AOCI
Three Months Ended
June 30,
 Six Months Ended
June 30,
   Three Months Ended
September 30,
 Nine Months Ended
September 30,
  
2019 2018 2019 2018  2019 2018 2019 2018 
Defined benefit pension and postretirement items:                  
Prior-service costs $(3) $(3) $(6) $(7) (a)Non-operating pension expense $(4) $(4) $(10) $(11) (a)Non-operating pension expense
Actuarial gains (losses) (50) (110) (102) (194) (a)Non-operating pension expense (50) (97) (152) (291) (a)Non-operating pension expense
Total pre-tax amount (53) (113) (108) (201)  (54) (101) (162) (302) 
Tax (expense) benefit 13
 28
 27
 50
  13
 25
 40
 75
 
Net of tax (40) (85) (81) (151)  (41) (76) (122) (227) 
Reclassification of stranded tax effects 
 
 527
 
 
Retained Earnings 
 
 527
 
 
Retained Earnings
Total, net of tax (40) (85) 446
 (151)  (41) (76) 405
 (227) 
                  
Change in cumulative foreign currency translation adjustments:                  
Business acquisitions/divestitures 
 
 (4) (2) (b)Cost of products sold 
 
 (4) (2) (b)Cost of products sold
Tax (expense) benefit 
 
 
 
  
 
 
 
 
Net of tax 
 
 (4) (2)   
 
 (4) (2)  
                  
Net gains and losses on cash flow hedging derivatives:                  
Foreign exchange contracts 
 (4) (1) (1) (c)Cost of products sold (6) (3) (7) (3) (c)Cost of products sold
Total pre-tax amount 
 (4) (1) (1)  (6) (3) (7) (3) 
Tax (expense)/benefit 
 2
 
 1
  2
 1
 2
 1
 
Net of tax 
 (2) (1) 
  (4) (2) (5) (2) 
Reclassification of stranded tax effects 
 
 2
 
 
Retained Earnings 
 
 2
 
 
Retained Earnings
Total, net of tax 
 (2) 1
 
  (4) (2) (3) (2) 
Total reclassifications for the period $(40) $(87) $443
 $(153)  $(45) $(78) $398
 $(231) 


(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19 for additional details).
(b)Amounts for the three months and sixnine months ended JuneSeptember 30, 2018 were reclassified to Discontinued operations, net of taxes.
(c)
This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 18 for additional details).
NOTE 6 - EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities were converted into common shares. There are no adjustments required to be made to net income for purposes of computing basic and diluted earnings per share. A reconciliation of the amounts included in the computation of basic earnings (loss) per share from continuing operations, and diluted earnings (loss) per share from continuing operations is as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions, except per share amounts2019 2018 2019 20182019 2018 2019 2018
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders$292
 $428
 $716
 $789
$344
 $562
 $1,060
 $1,351
Weighted average common shares outstanding396.1
 413.2
 398.3
 413.4
392.6
 407.4
 396.3
 411.4
Effect of dilutive securities              
Restricted performance share plan2.1
 4.5
 3.1
 5.4
2.8
 4.0
 3.3
 4.9
Weighted average common shares outstanding – assuming dilution398.2
 417.7
 401.4
 418.8
395.4
 411.4
 399.6
 416.3
Basic earnings (loss) per share from continuing operations$0.74
 $1.03
 $1.80
 $1.91
$0.88
 $1.38
 $2.67
 $3.28
Diluted earnings (loss) per share from continuing operations$0.73
 $1.02
 $1.78
 $1.88
$0.87
 $1.37
 $2.65
 $3.25


NOTE 7 - RESTRUCTURING AND OTHER CHARGES, NET

2019: During the three months ended September 30, 2019, the Company recorded an $11 million pre-tax charge in Corporate, a $6 million pre-tax charge in the Printing Papers segment, and a $4 million pre-tax charge in the Global Cellulose Fibers segment for severance related to an overhead cost reduction initiative. The majority of the severance is expected to be paid over the next twelve months.
There were no restructuring and other charges recorded during the three months and six months ended June 30, 2019.

2018: There were no restructuring and other charges recorded during the three months ended September 30, 2018.

During the three months ended June 30, 2018, the Company recorded a $26 million pre-tax charge, in the Industrial Packaging segment, related to approximately $12 million of severance, $6 million in accelerated depreciation, $2 million in accelerated amortization, and $6 million in other charges in conjunction with the optimization of our EMEA Packaging business.

During the three months ended March 31, 2018, the Company recorded a $22 million pre-tax charge, in the Industrial Packaging segment, primarily related to severance charges in conjunction with the optimization of our EMEA Packaging business.

NOTE 8 - ACQUISITIONS

On June 28, 2019, the Company closed on the previously announced acquisition of two packaging businesses located in Portugal (Ovar) and France (Torigni and Cabourg) from DS Smith Packaging. The total purchase consideration, inclusive of working capital adjustments, was approximately €73€72 million (approximately $83$82 million at currentJune 30, 2019 exchange rates), subject to post-closing adjustments.

The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of June 30,28, 2019:
In millionsJune 30, 2019 
Cash and temporary investments$1
$1
Accounts and notes receivable23
23
Inventory8
8
Plants, properties and equipment22
28
Goodwill56
48
Right of use assets2
2
Total assets acquired112
110
Accounts payable and accrued liabilities21
20
Other current liabilities1
1
Long-term debt2
2
Postretirement and postemployment benefit obligation3
3
Long-term lease obligations2
2
Total liabilities assumed29
28
Net assets acquired$83
$82


Due toSince the timingdate of acquisition, Net sales of $25 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $2 million from the completionacquired business have been included in the Company's consolidated statement of operations for the acquisition, thethree months ended September 30, 2019.

The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to inventory, property, plant and equipment and acquired intangible assets. Adjustments if any, to provisional amounts will be finalized as new information becomes available, but within the adjustment period of up to one year from the acquisition date.


Pro forma information has not been included as it is impracticable to obtain the information due to the lack of availability of historical U.S. GAAP financial data and thedata. The results of the operations of these businesses do not have a material effect on the Company's consolidated results of operations.

The Company has accounted for the above acquisition under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the date of acquisition.


NOTE 9 - DIVESTITURES AND IMPAIRMENTS

Discontinued Operations

On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and Foodservice businesses, to Graphic Packaging International Partners, LLC (GPIP), a subsidiary of Graphic Packaging Holding Company, in exchange for a 20.5% ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC (GPI), a wholly owned subsidiary of GPIP. International Paper is accounting for its ownership interest in the combined business under the equity method. The Company determined the fair value of its investment in the combined business and recorded a pre-tax gain of $516 million ($385 million after taxes) on the transfer in the first quarter of 2018, subject to final working capital settlement. During the second quarter of 2018, the Company recorded a pre-tax charge of $28 million ($21 million after taxes) to adjust the previously recorded gain on the transfer. 

The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued operations, net of tax, related to the transfer of the North American Consumer Packaging business for all periods presented in the consolidated statement of operations:
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2018 20182018 2018
Net Sales$
 $
$
 $
Costs and Expenses      
Selling and administrative expenses2
 25

 25
(Gain) loss on transfer of business28
 (488)
 (488)
Earnings (Loss) Before Income Taxes and Equity Earnings(30) 463

 463
Income tax provision (benefit)(7) 118

 118
Discontinued Operations, Net of Taxes$(23) $345
$
 $345


Total cash used for operations related to the North American Consumer Packaging business of $25 million for the sixnine months ended JuneSeptember 30, 2018, is included in Cash Provided By (Used For) Operations in the consolidated statement of cash flows. Total cash used for investing activities related to the North American Consumer Packaging business of $40 million for the sixnine months ended JuneSeptember 30, 2018, is included in Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows.

Other Divestitures

On May 29, 2019, the Company announced that it had entered into an agreement with West Coast Paper Mills Limited (WCPM) to sell its controlling interest in International Paper APPM Limited (APPM), an India-based paper business, for ₨275 (Indian Rupees) per share. International Paper currently ownsthen owned approximately 30 million shares, or 75% of the outstanding shares of APPM. The transaction is expected to be completed by the end of the year subject to satisfaction of customary closing conditions, including obtaining required governmental approvals and WCPM's launch of a tender offer. Once this transaction closes, WCPM will be responsible for the operations of APPM, and International Paper will be a passive investor until such time that IP has sold its remaining share in APPM.

In conjunction with the announced agreement in the second quarter of 2019, a determination was made that the current book value of the APPM disposal group exceeded its estimated fair value of $119 million which was based on the agreed upon transaction price. As a result, a preliminary pre-tax charge of $152 million ($150 million after taxes) was recorded during the second quarter of 2019. ThisDuring the third quarter of 2019, the Company recorded an additional charge of $8 million (before and after taxes), which included $95$2 million related to the change in cumulative foreign currency translation loss and a $57$6 million loss related to the write downchange in the book value of the long-lived assets of APPM compared to theirthe estimated fair value. This charge isvalue of the disposal group. These charges are included in the Net (gains) losses on sales and impairments of businesses line item in the accompanying consolidated statement of operations and is included in the results for the Printing Papers segment. A year-to-

date loss of $7$9 million (before and after taxes) has been allocated to the noncontrolling interest related to the impairment of the long-lived assets of APPM.


The transaction closed on October 30, 2019 and the Company retained a passive investment of 20% in APPM. During the fourth quarter of 2019, a final immaterial adjustment to the impairment charge to reflect the difference between the proceeds received from the transaction and the closing book value of the long-lived assets will be recorded. In addition, the Company will record our retained investment at fair value.



At JuneSeptember 30, 2019, all assets and liabilities related to APPM are classified as current assets held for sale and current liabilities held for sale in the accompanying consolidated balance sheet. The following summarizes the major classes of assets and liabilities of APPM reconciled to total Assets held for sale and total Liabilities held for sale in the accompanying consolidated balance sheet:
In millionsJune 30, 2019September 30, 2019
Cash and temporary investments$21
$19
Accounts and notes receivable15
16
Inventories25
23
Other current assets16
19
Plants, properties and equipment199
195
Deferred charges and other assets10
6
Total Assets Held for Sale$286
$278
  
Accounts payable and accrued liabilities$18
$18
Other current liabilities28
22
Deferred income taxes50
47
Other liabilities2
1
Net impairment reserve152
160
Total Liabilities Held for Sale$250
$248


NOTE 10 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Temporary Investments 

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $477$484 million and $402 million at JuneSeptember 30, 2019 and December 31, 2018, respectively.
Accounts and Notes Receivable
In millionsJune 30, 2019 December 31, 2018September 30, 2019 December 31, 2018
Accounts and notes receivable, net:      
Trade$3,170
 $3,249
$3,055
 $3,249
Other307
 272
250
 272
Total$3,477
 $3,521
$3,305
 $3,521


The allowance for doubtful accounts was $85$77 million and $81 million at JuneSeptember 30, 2019 and December 31, 2018, respectively.

Inventories 
In millionsJune 30, 2019 December 31, 2018September 30, 2019 December 31, 2018
Raw materials$263
 $260
$270
 $260
Finished pulp, paper and packaging1,214
 1,241
1,140
 1,241
Operating supplies619
 641
637
 641
Other128
 99
147
 99
Total$2,224
 $2,241
$2,194
 $2,241



Plants, Properties and Equipment  

Accumulated depreciation was $20.6$20.4 billion and $20.5 billion at JuneSeptember 30, 2019 and December 31, 2018, respectively. Depreciation expense was $300$305 million and $309$315 million for the three months ended JuneSeptember 30, 2019 and 2018, respectively, and $597$902 million and $615$930 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.

Non-cash additions to plants, property and equipment included within accounts payable were $101$104 million and $135 million at JuneSeptember 30, 2019 and December 31, 2018, respectively.



Interest

Interest payments made during the sixnine months ended JuneSeptember 30, 2019 and 2018 were $375$591 million and $378$606 million, respectively.

Amounts related to interest were as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Interest expense$177
 $183
 $361
 $363
$177
 $184
 $538
 $547
Interest income55
 50
 106
 95
54
 51
 160
 146
Capitalized interest costs9
 9
 14
 17
7
 9
 21
 26


Asset Retirement Obligations

The Company had recorded liabilities of $95 million and $86 million related to asset retirement obligations at JuneSeptember 30, 2019 and December 31, 2018, respectively.

NOTE 11 - LEASES

International Paper leases various real estate, including certain operating facilities, warehouses, office space and land. The Company also leases material handling equipment, vehicles, and certain other equipment. The Company's leases have remaining lease terms of one year to 97 years. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all of the Company's leases.

Right of use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Effective January 1, 2019, operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs, and maintenance. As the implicit rate is not readily determinable for most of the Company's leases, the Company applies a portfolio approach using an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate, and apply the rate based on the currency of the lease, which is updated on a quarterly basis for measurement of new lease liabilities.


Components of Lease Expense
In millions Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease costs $37
 $76
 $39
 $115
Variable lease costs 15
 37
 16
 53
Short-term lease costs 7
 18
 9
 27
Finance lease cost        
Amortization of lease assets 3
 5
 3
 8
Interest on lease liabilities 1
 2
 1
 3
Total lease cost, net $63
 $138
 $68
 $206







Supplemental Balance Sheet Information Related to Leases
In millions Classification June 30, 2019 Classification September 30, 2019
Assets    
Operating lease assets Right-of-use assets $408
 Right-of-use assets $425
Finance lease assets Plants, properties and equipment, net (a) 103
 Plants, properties and equipment, net (a) 105
Total leased assets $511
 $530
Liabilities    
Current    
Operating Other current liabilities $131
 Other current liabilities $136
Finance Notes payable and current maturities of long-term debt 11
 Notes payable and current maturities of long-term debt 13
Noncurrent    
Operating Long-term lease obligations 281
 Long-term lease obligations 292
Finance Long-term debt 88
 Long-term debt 91
Total lease liabilities $511
 $532

(a)Finance leases are recorded net of accumulated amortization of $34$37 million.

Lease Term and Discount Rate
In millions JuneSeptember 30, 2019
Weighted average remaining lease term (years)  
Operating leases 10.139.8 years
Finance leases 11.7811.3 years
Weighted average discount rate  
Operating leases 3.293.24%
Finance leases 4.594.74%


Supplemental Cash Flow Information Related to Leases
In millions Six Months Ended June 30, 2019 Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities    
Operating cash flows related to operating leases $71
 $110
Operating cash flows related to financing leases 3
Financing cash flows related to finance leases 4
 7









Maturity of Lease Liabilities
 June 30, 2019 September 30, 2019
In millions Operating Leases Financing Leases Total Operating Leases Financing Leases Total
2019 (remainder of year) $76
 $7
 $83
 $39
 $4
 $43
2020 122
 14
 136
 138
 17
 155
2021 83
 13
 96
 97
 15
 112
2022 52
 11
 63
 64
 13
 77
2023 28
 10
 38
 35
 11
 46
2024 13
 10
 23
 18
 10
 28
Thereafter 98
 67
 165
 95
 65
 160
Total lease payments 472
 132
 604
 486
 135
 621
Less: Interest (a) 60
 33
 93
 58
 31
 89
Present value of lease liabilities $412
 $99
 $511
 $428
 $104
 $532

(a)Calculated using the interest rate for each lease.



At December 31, 2018, total future minimum commitments under existing non-cancelable operating leases were as follows:
In millions 2019 2020 2021 2022 2023 Thereafter
Lease obligations $160
 $125
 $77
 $49
 $28
 $118


NOTE 12 - EQUITY METHOD INVESTMENTS

The Company accounts for the following investments in affiliated companies under the equity method of accounting.

Graphic Packaging International Partners, LLC

On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging International Partners, LLC (GPIP), a subsidiary of Graphic Packaging Holding Company, in exchange for a 20.5% ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC (GPI), a wholly-owned subsidiary of GPIP that holds the assets of the combined business. As of September 30, 2019, the Company's ownership interest in GPIP was 21.6%. The Company recorded equity earnings of $14$10 million and $15$19 million for the three months ended JuneSeptember 30, 2019 and 2018, respectively, and $27$37 million and $17$36 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively. The Company received cash dividends from GPIP of $12$20 million and $6$12 million during the first sixnine months of 2019 and 2018, respectively. The Company's investment in GPIP was $1.1 billion at both JuneSeptember 30, 2019 and December 31, 2018, which was $565$534 million and $562 million, respectively, more than the Company's proportionate share of the entity's underlying net assets. The difference primarily relates to the basis difference between the fair value of our investment and the underlying net assets, and is generally amortized in equity earnings over a period consistent with the underlying long-lived assets. The Company is party to various agreements with GPI under which it sells fiber and other products to GPI. Sales under these agreements were $74$69 million and $58$62 million for the three months ended JuneSeptember 30, 2019 and 2018, respectively, and $143$212 million and $118$180 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.

Summarized financial information for GPIP is presented in the following tables:

Balance Sheet
In millionsJune 30, 2019 December 31, 2018September 30, 2019 December 31, 2018
Current assets$1,855
 $1,757
$1,765
 $1,757
Noncurrent assets5,420
 5,292
5,419
 5,292
Current liabilities1,070
 1,148
1,067
 1,148
Noncurrent liabilities3,403
 3,156
3,325
 3,156



Income Statement
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Net sales$1,553
 $1,509
 $3,059
 $2,985
$1,581
 $1,530
 $4,640
 $4,515
Gross profit288
 235
 554
 458
266
 256
 820
 714
Income from continuing operations105
 81
 200
 143
83
 135
 283
 278
Net income105
 81
 200
 143
83
 135
 283
 278


Ilim S.A.

The Company has a 50% equity interest in Ilim S.A. (Ilim), which has subsidiaries whose primary operations are in Russia. The Company recorded equity earnings, (losses), net of taxes, of $67$18 million and $57$74 million for the three months ended JuneSeptember 30, 2019 and 2018, respectively, and $168$186 million and $149$223 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively. The Company received cash dividends from the joint venture of $239 million and $116$118 million during the first sixnine months of 2019 and 2018, respectively. At JuneSeptember 30, 2019 and December 31, 2018, the Company's investment in Ilim was $466$477 million and $478 million, respectively, which was $149$146 million and $145 million, respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to currency translation adjustments and the basis difference between the fair value of our investment at acquisition and the underlying net assets. The Company is party to a joint marketing agreement with JSC Ilim Group, a subsidiary of Ilim, under which the Company purchases, markets and sells paper produced by JSC Ilim Group. Purchases under this agreement were $59$51 million and $56$50 million for the three months

ended JuneSeptember 30, 2019 and 2018, respectively, and $112$162 million and $109$159 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.

Summarized financial information for Ilim is presented in the following tables:

Balance Sheet
In millionsJune 30, 2019 December 31, 2018September 30, 2019 December 31, 2018
Current assets$705
 $981
$749
 $981
Noncurrent assets2,234
 1,710
2,392
 1,710
Current liabilities866
 545
947
 545
Noncurrent liabilities1,417
 1,470
1,509
 1,470
Noncontrolling interests21
 11
22
 11

Income Statement
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Net sales$594
 $698
 $1,213
 $1,375
$479
 $655
 $1,692
 $2,030
Gross profit304
 402
 640
 776
196
 376
 836
 1,152
Income from continuing operations142
 116
 347
 305
41
 149
 388
 454
Net income137
 112
 336
 295
40
 143
 375
 438



NOTE 13 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the six-monthsnine-months ended JuneSeptember 30, 2019: 
In millions
Industrial
Packaging
 Global Cellulose Fibers 
Printing
Papers
 Total
Industrial
Packaging
 Global Cellulose Fibers 
Printing
Papers
 Total
Balance as of January 1, 2019              
Goodwill$3,379
 $52
  $2,116
  $5,547
$3,379
 $52
  $2,116
  $5,547
Accumulated impairment losses(296) 
  (1,877) (2,173)(296) 
  (1,877) (2,173)
3,083
 52
  239
  3,374
3,083
 52
  239
  3,374
Currency translation and other (a)
 
 3
 3
(2) 
 (14) (16)
Goodwill additions/reductions64
(b)
 (112)(c)(48)54
(b)
 (112)(c)(58)
Accumulated impairment loss additions / reductions
 
 112
(c)112

 
 112
(c)112
Balance as of June 30, 2019       
Balance as of September 30, 2019       
Goodwill3,443
 52
  2,007
  5,502
3,431
 52
  1,990
  5,473
Accumulated impairment losses(296) 
  (1,765) (2,061)(296) 
  (1,765) (2,061)
Total$3,147
 $52
  $242
  $3,441
$3,135
 $52
  $225
  $3,412
 
(a)Represents the effects of foreign currency translations.
(b)Reflects the provisional goodwill for the acquisitions of Industrial Packaging box plants in EMEA.
(c)Reflects the reclassification of India goodwill and accumulated impairment losses to held for sale.



Other Intangibles

Identifiable intangible assets comprised the following: 
June 30, 2019 December 31, 2018September 30, 2019 December 31, 2018
In millions
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net Intangible Assets 
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net Intangible Assets
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net Intangible Assets 
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net Intangible Assets
Customer relationships and lists$547
 $263
 $284
 $542
 $247
 $295
$541
 $266
 $275
 $542
 $247
 $295
Non-compete agreements26
 26
 
 67
 67
 
26
 26
 
 67
 67
 
Tradenames, patents and trademarks, and developed technology173
 97
 76
 174
 90
 84
173
 101
 72
 174
 90
 84
Land and water rights8
 2
 6
 8
 2
 6
8
 2
 6
 8
 2
 6
Software27
 25
 2
 26
 25
 1
26
 25
 1
 26
 25
 1
Other27
 21
 6
 30
 23
 7
25
 18
 7
 30
 23
 7
Total$808
 $434
 $374
 $847
 $454
 $393
$799
 $438
 $361
 $847
 $454
 $393


The Company recognized the following amounts as amortization expense related to intangible assets: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Amortization expense related to intangible assets$13
 $15
 $25
 $29
$15
 $15
 $40
 $44


NOTE 14 - INCOME TAXES

International Paper made income tax payments, net of refunds, of $97$245 million and $112$195 million for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.

The Company currently estimates, that as a result of ongoing discussions, pending tax settlements and expirations of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately $35$10 million during the next 12 months.

International Paper uses the flow-through method to account for investment tax credits earned on eligible open loop-biomass facilities and Combined Heat and Power system expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather than a reduction in the asset basis. The Company recorded a tax benefit of $8 million and $6 million for each of the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.
The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by International Paper do Brasil Ltda., a wholly-owned subsidiary of the Company. The Company received assessments for the tax years 2007-2015 totaling approximately $146 million in tax, and $377$379 million in interest and penalties as of JuneSeptember 30, 2019 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received an unfavorable decision in October 2018 from the Brazilian Administrative Council of Tax Appeals. The Company has appealed this judgment to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. The Company believes that it has appropriately evaluated the transaction underlying these assessments, and has concluded based on Brazilian tax law, that its position would be sustained. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Environmental

International Paper has been named as a potentially responsible party (PRP) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Many of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet.


Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these matters to be approximately $132$145 million ($142155 million undiscounted) in the aggregate as of JuneSeptember 30, 2019. Other than as described below, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.

Cass Lake: One of the matters included above arises out of a closed wood-treating facility located in Cass Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an estimated cost of $46 million. The overall remediation reserve for the site is currently $48$47 million to address the selection of an alternative for the soil remediation component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final soil remedy decision would be delayed. In June 2019, the EPA issued a revised proposed plan concerning clean-up standards at a portion of the site, the estimated cost of which is included within the reserve referenced above. In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other PRPs of their intent to perform a Natural Resource Damage Assessment. It is premature to predict the outcome of the assessment or to estimate a loss or range of loss, if any, which may be incurred.

Kalamazoo River: The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis.

Operable Unit 5, Area 1: In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site known as Operable Unit 5, Area 1, and (ii) demanding reimbursement of EPA past costs totaling $37 million, including $19 million in past costs previously demanded by the EPA. The Company responded to the special notice letter. In December 2016, the EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy. The Company responded to the unilateral administrative order, agreeing to comply with the order subject to its sufficient cause defenses.

Operable Unit 5, Area 2: In September 2017, the EPA issued a Record of Decision selecting the final remedy for a portion of the site known as Operable Unit 5, Area 2, but has not yet issued a special notice letter for implementing the remedy.

Operable Unit 5, Area 3: In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) of PCB-contaminated banks and sediments from a different portion of the site.site known as Operable Unit 5, Area 3. The Company responded to the unilateral administrative order and agreed along with two other parties to comply with the order subject to its sufficient cause defenses.defenses.The removal work has been completed.

Operable Unit 1: In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill.Mill, which is also known as Operable Unit 1. The recordRecord of decisionDecision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design.

The Company’s CERCLA liability has not been finally determined with respect to these or any other portions of the site, and except as noted above, the Company has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss with respect to this site. However, we do not believeWe have an immaterial recorded liability for future remediation costs at the site that any material loss is probable.are probable and reasonably estimable, and it remains reasonably possible that additional losses could be material.


The Company was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the site. The suit seeks contribution under CERCLA for costs purportedly expended by plaintiffs (
$79 million as of the filing of the complaint) and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan.

The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, including that of the Company,

was the subject of a second trial, which was concluded in late 2015. In June 2018, the Court issued its Final Judgment and Order, which fixed the past cost amount at approximately $50 million (plus interest to be determined) and allocated to the Company a 15% share of responsibility for those past costs. The Court did not address responsibility for future costs in its decision. In July 2018, the Company and each of the other parties filed notices appealing the Final Judgment and prior orders incorporated into that Judgment.As to future remediation costs, we remain unable to estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any material loss is probable.
Harris County: International Paper and McGinnis Industrial Maintenance Corporation (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the costs of these activities. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the removal of the contaminated material currently protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP.
On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform this work. While the EPA’s selected remedy was accompanied by a cost estimate of approximately $115 million, we do not believe that estimate provides a reasonable basis for accrual under GAAP because the estimate was based on a technological method for performing the work that we believe is not feasible. Subsequent to the issuance of the ROD, there have been numerous meetings between the EPA and the PRPs, and the Company continues to work with the EPA and MIMC/WMI to develop the remedial design.
To this end, in April 2018, the PRPs entered into an Administrative Order on Consent (AOC) with the EPA, agreeing to work together to develop the remedial design over the subsequent 29 months. The AOC does not include any agreement to perform waste removal or other construction activity at the site. Rather, it involves adaptive management techniques and a pre-design

investigation, the objectives of which include filling data gaps (including but not limited to post-Hurricane Harvey technical data generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if an excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts of remediation activities to infrastructure in the vicinity. On October 14, 2019, the PRPs received a special notice letter from the EPA (i) inviting participation in implementing the remedy described in the ROD, and (ii) demanding reimbursement of EPA past costs totaling $8 million.  The PRPs are preparing their response to the special notice letter.
The Company has identified a number of concerns and uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. The Company has determined, however, that even if the ROD cannot be implemented, a sheet pile "engineered barrier" can be constructed, which would enhance the existing remedy and could also be used should the ROD be determined to be feasible and implementable. In the third quarter of 2018, we increased our recorded liability accordingly to reflect the estimated cost of constructing this barrier. Because of ongoing questions regarding cost effectiveness, technical feasibility, timing and other technical data, however, it is uncertain how the ROD will be implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are currently unable to determine any further adjustment to our immaterial recorded liability. It remains reasonably possible that additional losses could be material as the remedial design process with the EPA continues over the coming quarters.

International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by approximately 600 individuals who allege property damage and personal injury. Because thisThis case is still in the discovery phase, and it is premature to predict the outcome or to estimate aour maximum reasonably possible loss. However, we do not believe that any material loss or range of loss, if any, which may be incurred.is probable.

Antitrust

Containerboard: In January 2011, International Paper was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee alleging that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the state court action seek certification of a class of Tennessee indirect purchasers of containerboard products, damages and costs, including attorneys' fees. No class certification materials have been filed to date in the Tennessee action. The Company disputes the allegations made in the Tennessee lawsuit and is vigorously defending it. At this time, however, because the action is in a preliminary stage, we are unable to predict an outcome or estimate a range of reasonably possible loss.

Italy: In March 2017, the Italian Competition Authority (ICA) commenced an investigation into the Italian packaging industry to determine whether producers of corrugated sheets and boxes violated the applicable European competition law. In April 2019, the ICA concluded its investigation and issued initial findings alleging that over 30 producers, including our Italian packaging subsidiary (IP Italy), improperly coordinated the production and sale of corrugated sheets and boxes. On August 6, 2019, the ICA issued its decision and assessed IP Italy a fine of €29 million (approximately $32 million at current exchange rates) which was recorded in the third quarter of 2019. This charge is included in the Antitrust fines line item in the accompanying consolidated statement of operations. However, we are vigorously appealing this decision of the ICA to the Italian courts and have numerous and strong bases for our appeal.

Contract

Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Paper Company was filed in state court in Texas. The Signature lawsuit arises out of approximately $1 million in disputed invoices related to the installation of new equipment at the Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its

president allege consequential damages arising from the Company's nonpayment of those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the plaintiffs. The Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The Company has appealed this judgment. The Company has presented in its briefing numerous and strong bases for appeal, and we believe we will prevail on appeal. Because the appellate proceedings are ongoing, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial.

General

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor and employment, contracts, sales of property, intellectual property, tax, antitrust and other

matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of these other lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature) will not have a material effect on its consolidated financial statements. See Note 14 for details regarding a tax matter.

NOTE 16 - VARIABLE INTEREST ENTITIES

Variable Interest Entities

As of JuneSeptember 30, 2019, the fair value of the Timber Notes and Extension Loans is $4.83$4.84 billion and $4.27 billion, respectively, for the 2015 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 16 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Activity between the Company and the 2015 Financing Entities was as follows:
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Revenue (a)$23
 $23
 $47
 $47
$24
 $24
 $71
 $71
Expense (a)32
 32
 64
 64
32
 32
 96
 96
Cash receipts (b)
 
 47
 47
48
 48
 95
 95
Cash payments (c)
 
 64
 64
64
 64
 128
 128
 
(a)The revenue and expense are included in Interest expense, net in the accompanying statement of operations.
(b)The cash receipts are interest received on the Financial assets of special purpose entities.
(c)The cash payments represent interest paid on Nonrecourse financial liabilities of special purpose entities.

As of JuneSeptember 30, 2019, the fair value of the Timber Notes and Extension Loans is $2.26$2.28 billion and $2.10$2.11 billion, respectively, for the 2007 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Activity between the Company and the 2007 Financing Entities was as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Revenue (a)$21
 $18
 $42
 $33
$19
 $19
 $61
 $52
Expense (b)20
 16
 41
 30
19
 18
 60
 48
Cash receipts (c)16
 10
 32
 19
16
 15
 48
 34
Cash payments (d)18
 12
 36
 24
17
 16
 53
 40
 
(a)The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $4$5 million and $9$14 million for three and sixnine months ended JuneSeptember 30, 2019 and 2018, respectively, of accretion income for the amortization of the basis difference adjustment on the Financial assets of special purpose entities.
(b)The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately $1$2 million and $3$5 million for the three and sixnine months ended JuneSeptember 30, 2019 and 2018, respectively, of accretion expense for the amortization of the basis difference adjustment on the Nonrecourse financial liabilities of special purpose entities.
(c)The cash receipts are interest received on the Financial assets of special purpose entities.

(d)The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities.

NOTE 17 - DEBT

In June 2019, International Paper issued $200 million of 3.55% senior unsecured notes with a maturity date in 2029. The proceeds from this offering, together with a combination of available cash and other borrowings, were used for general corporate purposes, including repayment of outstanding commercial paper borrowings and other existing indebtedness.

In June 2018, the borrowing capacity of International Paper's commercial paper program was increased from $750 million to $1.0 billion. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the

date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. As of JuneSeptember 30, 2019, the Company had $535$245 million of borrowings outstanding under the program at a weighted average interest rate of 2.64%2.29%.

At JuneSeptember 30, 2019, the fair value of International Paper’s $10.7$10.4 billion of debt was approximately $11.4 billion. The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues. International Paper’s long-term debt is classified as Level 2 within the fair value hierarchy, which is further defined in Note 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

In October 2019, International Paper issued $127 million of industrial development bonds with interest rates ranging from 1.90% to 2.10% and maturity dates in 2024. The proceeds from this offering will be used to repay other existing industrial development bonds.

NOTE 18 - DERIVATIVES AND HEDGING ACTIVITIES

As a multinational company International Paper is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices.

The notional amounts of qualifying and non-qualifying financial instruments used in hedging transactions were as follows:
In millionsSeptember 30, 2019 December 31, 2018
Derivatives in Cash Flow Hedging Relationships:   
Foreign exchange contracts$570
 $407
Derivatives in Fair Value Hedging Relationships:   
Interest rate contracts700
 700
Derivatives in Net Investment Hedging Relationships:   
Interest rate contracts475
 
Derivatives Not Designated as Hedging Instruments:   
Electricity contract19
 8
Foreign exchange contracts11
 19
In millionsJune 30, 2019 December 31, 2018
Derivatives in Cash Flow Hedging Relationships:   
Foreign exchange contracts (a)$463
 $407
Derivatives in Fair Value Hedging Relationships:   
Interest rate contracts700
 700
Derivatives in Net Investment Hedging Relationships:   
Interest rate contracts475
 
Derivatives Not Designated as Hedging Instruments:   
Electricity contract1
 8
Foreign exchange contracts23
 19


(a)These contracts had maturities of two years or less as of June 30, 2019.

The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments: 
Gain (Loss)
Recognized in
AOCI
on Derivatives
(Effective Portion)
Gain (Loss)
Recognized in
AOCI
on Derivatives
(Effective Portion)
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Derivatives in Cash Flow Hedging Relationships:       
Foreign exchange contracts$4
 $(18) $4
 $(18)$(10) $1
 $(6) $(18)
Interest rate contracts
 
 
 (3)
 
 
 (2)
Total$4
 $(18) $4
 $(21)$(10) $1
 $(6) $(20)
Derivatives in Net Investment Hedging Relationships:       
Interest rate contracts$18
 $
 $15
 $
Total$18
 $
 $15
 $


During the next 12 months, the amount of the JuneSeptember 30, 2019 AOCI balance, after tax, that is expected to be reclassified to earnings is a gainloss of $2$3 million.


The amounts of gains and losses recognized in the statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions were as follows:
Gain (Loss)
Reclassified from
AOCI
(Effective Portion)
 
Location of Gain (Loss)
Reclassified from AOCI
(Effective Portion)
Gain (Loss)
Reclassified from
AOCI
(Effective Portion)
 
Location of Gain (Loss)
Reclassified from AOCI
(Effective Portion)
Three Months Ended
June 30,
 Six Months Ended
June 30,
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  
In millions2019 2018 2019 2018  2019 2018 2019 2018  
Derivatives in Cash Flow Hedging Relationships:                
Foreign exchange contracts$
 $(2) $(1) $
 Cost of products sold$(4) $(2) $(5) $(2) Cost of products sold
Total$
 $(2) $(1) $
 $(4) $(2) $(5) $(2) 

Gain (Loss) Recognized 
Location of Gain (Loss)
In 
Statement
of Operations
Gain (Loss) Recognized 
Location of Gain (Loss)
In 
Statement
of Operations
Three Months Ended
June 30,
 Six Months Ended
June 30,
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  
In millions2019 2018 2019 2018  2019 2018 2019 2018  
Derivatives in Fair Value Hedging Relationships:                
Interest rate contracts$19
 $
 $31
 $
 Interest expense, net$11
 $
 $42
 $
 Interest expense, net
Debt(19) 
 (31) 
 Interest expense, net(11) 
 (42) 
 Interest expense, net
Total
 
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging Instruments:                
Electricity contract1
 1
 5
 (1) Cost of products sold$(5) $2
 $
 $1
 Cost of products sold
Foreign exchange contracts1
 1
 1
 1
 (1) 3
 (2) 4
 Cost of products sold
Total$2
 $2
 $6
 $
 $(6) $5
 $(2) $5
 


Fair Value Measurements

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period.

The following table provides a summary of the impact of our derivative instruments in the balance sheet:

Fair Value Measurements

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period.

The following table provides a summary of the impact of our derivative instruments in the balance sheet:

Fair Value Measurements
Level 2 – Significant Other Observable Inputs
 
Assets Liabilities Assets Liabilities 
In millionsJune 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 
Derivatives designated as hedging instruments                
Foreign exchange contracts – cash flow$9

$3

$7
 $10
 $5

$3

$13
 $10
 
Interest rate contracts - net investment20
 
 
 
 
Interest rate contracts - fair value48
 16
 
 
 59
 16
 
 
 
Total derivatives designated as hedging instruments57
(a) 19
(b)7
(c)10
(d)84

19

13

10

Derivatives not designated as hedging instruments                
Electricity contract





4
 



5

4
 
Foreign exchange contracts


 1
 1
 


 2
 1
 
Total derivatives not designated as hedging instruments
  
 1
(d)5
(d)
  
 7

5

Total derivatives$57
  $19
 $8
 $15
 $84
(a)$19
(b)$20
(c)$15
(d)

 

(a)Includes $7$8 million recorded in Other current assets and $50$76 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.
(b)Includes $2 million recorded in Other current assets and $17 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.
(c)Includes $6$15 million recorded in Other accrued liabilities and $1$5 million recorded in Other liabilities in the accompanying consolidated balance sheet.
(d)Included in Other current liabilities in the accompanying consolidated balance sheet.

The above contracts are subject to enforceable master netting arrangements that provide rights of offset with each counterparty when amounts are payable on the same date in the same currency or in the case of certain specified defaults. Management has made an accounting policy election to not offset the fair value of recognized derivative assets and derivative liabilities in the balance sheet. The amounts owed to the counterparties and owed to the Company are considered immaterial with respect to each counterparty and in the aggregate with all counterparties.

NOTE 19 - RETIREMENT PLANS

International Paper sponsors and maintains the Retirement Plan of International Paper Company (the Pension Plan), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union employees who work at a participating business unit regardless of hire date. These employees generally are eligible to participate in the Pension Plan upon attaining 21 years of age and completing one1 year of eligibility service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004, are not eligible for the Pension Plan, but receive a company contribution to their Retirement Savings Account under the International Paper Company Salaried Savings Plan; however, salaried employees hired by Temple Inland prior to March 1, 2007 or Weyerhaeuser Company's Cellulose Fibers division prior to December 1, 2011 also participate in the Pension Plan.

The Pension Plan provides defined pension benefits based on years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees).

Effective January 1, 2019, the Company froze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the SERP plan. This change does not affect benefits accrued through December 31, 2018. For service after December 31, 2018, employees affected by the freeze will instead receive a company contribution to their individual Retirement Savings Account.
 
Net periodic pension expense for our qualified and nonqualified U.S. defined benefit plans comprised the following: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Service cost$16
 $41
 $34
 $79
$17
 $40
 $51
 $119
Interest cost110
 120
 220
 238
110
 118
 330
 356
Expected return on plan assets(158) (200) (315) (400)(158) (200) (473) (600)
Actuarial loss49
 108
 100
 190
50
 95
 150
 285
Amortization of prior service cost4
 4
 8
 8
4
 4
 12
 12
Net periodic pension expense$21
 $73
 $47
 $115
$23
 $57
 $70
 $172


The components of net periodic pension expense other than the Service cost component are included in Non-operating pension expense in the Consolidated Statement of Operations.

The Company’s funding policy for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company made no voluntary cash contributions to the qualified pension plan in the first sixnine months of 2019 or 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $10$21 million for the sixnine months ended JuneSeptember 30, 2019.

NOTE 20 - STOCK-BASED COMPENSATION

International Paper has an Incentive Compensation Plan (ICP) which is administered by the Management Development and Compensation Committee of the Board of Directors (the Committee). The ICP authorizes the grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards and cash-based awards at the discretion of the Committee. As of JuneSeptember 30, 2019, 9.79.8 million shares were available for grant under the ICP.

Stock-based compensation expense and related income tax benefits were as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Total stock-based compensation expense (selling and administrative)$36
 $36
 $63
 $67
$31
 $35
 $94
 $102
Income tax benefits related to stock-based compensation(1) 
 33
 22
(2) (6) 31
 16


At JuneSeptember 30, 2019, $159$124 million, net of estimated forfeitures, of compensation cost related to unvested restricted performance shares, executive continuity awards and restricted stock attributable to future service had not yet been recognized. This amount will be recognized in expense over a weighted-average period of 1.91.8 years.

Performance Share Plan

During the first sixnine months of 2019, the Company granted 2.4 million performance units at an average grant date fair value of $43.49.

NOTE 21 - BUSINESS SEGMENT INFORMATION

International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers and Printing Papers, are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry.

Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding interest expense, net, corporate expenses, net, corporate special items, net and non-operating pension expense.

Sales by business segment for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018 were as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Industrial Packaging$3,864
 $4,022
 $7,696
 $7,849
$3,820
 $4,034
 $11,516
 $11,883
Global Cellulose Fibers661
 692
 1,350
 1,369
624
 714
 1,974
 2,083
Printing Papers1,088
 1,060
 2,153
 2,113
1,071
 1,102
 3,224
 3,215
Corporate and Intersegment Sales54
 59
 111
 123
53
 51
 164
 174
Net Sales$5,667
 $5,833
 $11,310
 $11,454
$5,568
 $5,901
 $16,878
 $17,355



Operating profit by business segment for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018 were as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In millions2019 2018 2019 20182019 2018 2019 2018
Industrial Packaging$507
 $537
 $911
 $974
$510
 $472
 $1,421
 $1,446
Global Cellulose Fibers(2) 66
 30
 77
(3) 83
 27
 160
Printing Papers(33) 94
 110
 158
148
 183
 258
 341
Business Segment Operating Profits472
  697
 1,051
 1,209
$655
  $738
 $1,706
 $1,947
              
Earnings (loss) from continuing operations before income taxes and equity earnings334
 490
 752
  846
$452
 $553
 $1,204
  $1,399
Interest expense, net122
 133
 255
 268
123
 133
 378
 401
Noncontrolling interests/equity earnings adjustment5
  (4) 2
  (5)2
  (2) 4
  (7)
Corporate expenses, net3
 30
 24
 39
21
 20
 45
 59
Corporate special items, net
 12
 
 21
48
 9
 48
 30
Non-operating pension expense8
 36
 18
 40
9
 25
 27
 65
Business Segment Operating Profits$472
  $697
 $1,051
 $1,209
$655
  $738
 $1,706
 $1,947



ITEM 2.
EXECUTIVE SUMMARY

Net earnings (loss) attributable to International Paper common shareholders were $344 million ($0.87 per diluted share) in the third quarter of 2019, compared with $292 million ($0.73 per diluted share) in the second quarter of 2019 compared with $424and $562 million ($1.051.37 per diluted share) in the first quarter of 2019 and $405 million ($0.97 per diluted share) in the secondthird quarter of 2018. Adjusted Operating Earnings is a non-GAAP measure and is defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. International Paper generated Adjusted Operating Earnings Attributable to International Paper Common Shareholders of $431 million ($1.09 per diluted share) in the third quarter of 2019, compared with $460 million ($1.15 per diluted share) in the second quarter of 2019 compared with $447and $641 million ($1.111.56 per diluted share) in the firstthird quarter of 2019 and $498 million ($1.19 per diluted share) in the second quarter 2018.

International Paper delivered another quarter of solid earnings and strong cash generation in a challenging global environment. These results demonstrate the secondstrength and resilience of our cash generation and the flexibility to perform well in the face of challenging conditions. Demand in the third quarter of 2019. Our second quarter performance demonstrates2019 was mixed with seasonal improvement in the North American packaging business, largely in line with our ability to leverage our system flexibility to deliver solid results in a more challenging environment. Box shipments were seasonally stronger versus the first quarterexpectations, but weaker than expected, with soft demand in certain non-food segments for non-durable goods. Ourlower export containerboard and pulp businesses saw lower volume in the second quartershipments driven by uneven globalpressure from challenging supply and demand and high inventory levels. In spite of these challenges, operationalconditions. Operational performance was strong and we optimized our system and managed costs well across our three businesses, as we executedtaking advantage of our highest maintenance outage quarter of the year. Wesystem flexibility. Our continued to generate strong cash flows in the second quarter with cash from operations of approximately $1.1 billion and free cash flow of $732 million, including a $239 million cash dividend from our Ilim joint venture. This strong cash flowgeneration has enabled us to return about $810 million$1.1 billion to shareholders during the first three quarters of 2019 through dividends and share repurchases during the first half of 2019.and reduce debt by $400 million.

Comparing performance with the firstsecond quarter of 2019, price and mixprices were lower in the secondthird quarter mainly due to the impact of prior index movements in North America Packaging and Global Cellulose Fibers, as well as the flow through of lower prices for export containerboard and pulp prices, which were partially offset bycontainerboard. Volume was seasonally higher prices in our North American Printing Papers business. Volume increased on seasonally stronger demand in our North American container and Brazil Papers businesses, which was partly offset by lowerpackaging business, along with improved export containerboard and pulp volume.volume, while relatively flat across the rest of the businesses. Operations and cost performance was strong. We ran our system well and managed costs effectively to mitigatefavorable following the impact of downtime takenheavy maintenance activity in the 2019 second quarter. We also successfully executed our highest maintenance outage quarter of the year and have now completed approximately 75% of our planned annual outages of 2019. Input costs were favorable versus the prior quarter, with lower wood and recovered fiber and energy costs across our businesses, as well as lower wood costs, following a steep run up in 2018 and the first quarter of 2019.businesses. Our Ilim joint venture delivered solid operational performance, but its earnings and operational performance. Ilim equity earnings decreased due towere impacted by sequentially lower averageexport pulp prices and higher planned maintenance outage expenses, which also drove lower volume in the second quarter, as well as lower sequential non-cash, foreign exchange gains on Ilim’s U.S. dollar denominated net debt.quarter.

Looking ahead to the thirdfourth quarter of 2019, overall across our businesses we expect lower price and mix, improved seasonal volume and export shipments, lower input costs and significantly lower maintenance outages followingoutage costs due to completing most of that work in the heavy first half activity.prior quarters. In Industrial Packaging, we expect lower price and mix duetied to the impact of prior price index movements and continuedprice flow-through on exports along with the negative mix impact from export pressure.volume recovery. Volume is expected to improve on seasonally strongerimproved demand in North America and improvedcontinued export containerboard demand, with inventory destocking progressing as expected in overseas markets.volume recovery. Operations and costs are expected to be unfavorably impacted by higher seasonal labor coststhe non-repeat of favorable items in the North America box system.third quarter of 2019. Maintenance outage expense will be lower and we anticipate lowerwhile input costs for fiber and energy.should be stable. In Global Cellulose Fibers, we expect lower price and mix duedriven by the impact of prior index movements. Volume is expected to continued trade and tariff uncertainty and high pulp inventory levels.be stable as higher fluff volume is offset by lower softwood volume. Operations and costs are also expected to negatively impact earnings in the quarter due to the non-repeat of hurricane-related insurance recovery in the second quarter along withbe higher unabsorbed fixed costs. Earnings will benefit from lower maintenance outage expense along with lowerdriven by higher seasonal energy consumption, while input costs primarily wood costs.are expected to remain stable. In Printing Papers, we expect lower price and mix primarily related to export pressure inour North America and Latin America andbusinesses as well as unfavorable geographic mix. This should be offset by improved volume on seasonally stronger demand in North America and Brazil. Printing Papers will also benefit from lower maintenance outage expensesOperations and costs are expected to negatively impact earnings due to higher seasonal energy consumption and the non-repeat of favorable items in the quarter.third quarter of 2019. Finally, in our Ilim joint venture, we expect higher sales volumes, lower average pulp pricesinput costs and higherlower maintenance outage expenses in the third quarter, along with the non-repeat of the foreign exchange gain on Ilim’s U.S. dollar denominated net debt.to be offset by continued price and mix pressure.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. Net earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most directly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of non-operating pension expense, items considered by management to be unusual, and discontinued operations from the earnings reported under GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses this measure to focus on on-going operations, and believes that it is useful to

investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. The Company believes that using this information, along with the most directly comparable GAAP measure, provides for a more complete analysis of the results of operations.

The following are reconciliations of Earnings (loss) attributable to shareholders to Adjusted Operating Earnings (Loss) attributable to shareholders.
Three Months Ended
June 30,
 Three Months Ended March 31,Three Months Ended
September 30,
 Three Months Ended June 30,
In millions2019 2018 20192019 2018 2019
Net Earnings (Loss) Attributable to International Paper Company$292
 $405
 $424
$344
 $562
 $292
Less - Discontinued operations (gain) loss
 23
 

 
 
Earnings (Loss) from Continuing Operations292
 428
 424
344
 562
 292
Add Back - Non-operating pension expense (income)8
 36
 10
9
 25
 8
Add Back - Net special items expense (income)158
 47
 21
94
 142
 158
Income tax effect - Non-operating pension and special items expense2
 (13) (8)(16) (88) 2
Adjusted Operating Earnings (Loss) Attributable to International Paper Company$460
 $498
 $447
$431
 $641
 $460
Three Months Ended
June 30,
 Three Months Ended March 31,Three Months Ended
September 30,
 Three Months Ended June 30,
2019 2018 2019
In millions2019 2018 2019
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders$0.73
 $0.97
 $1.05
$0.87
 $1.37
 $0.73
Less - Discontinued operations (gain) loss per share
 0.05
 

 
 
Diluted Earnings (Loss) Per Share from Continuing Operations0.73
 1.02
 1.05
0.87
 1.37
 0.73
Add Back - Non-operating pension expense (income) per share0.02
 0.09
 0.02
0.02
 0.06
 0.02
Add Back - Net special items expense (income) per share0.40
 0.11
 0.05
0.24
 0.34
 0.40
Income tax effect per share - Non-operating pension and special items expense
 (0.03) (0.01)(0.04) (0.21) 
Adjusted Operating Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders$1.15
 $1.19
 $1.11
$1.09
 $1.56
 $1.15

Cash provided by operations totaled $2.7 billion and $2.4 billion for the first nine months of 2019 and 2018, respectively. The Company generated free cash flow of approximately $1.2$1.8 billion and $535 million$1.1 billion in the first sixnine months of 2019 and 2018, respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

The following is a reconciliation of cash provided by operations to free cash flow: 
Six Months Ended
June 30,
Nine Months Ended
September 30,
In millions2019 20182019 2018
Cash provided by operations$1,800
 $1,464
$2,682
 $2,405
Adjustments:      
Cash invested in capital projects(628) (929)(913) (1,286)
Free Cash Flow$1,172
 $535
$1,769
 $1,119

RESULTS OF OPERATIONS
For the secondthird quarter of 2019, International Paper Company reported net sales of $5.7$5.6 billion, compared with $5.6$5.7 billion in the firstsecond quarter of 2019 and $5.8$5.9 billion in the secondthird quarter of 2018.
Net earnings attributable to International Paper totaled $344 million, or $0.87 per diluted share, in the third quarter of 2019. This compared with $292 million, or $0.73 per diluted share, in the second quarter of 2019 second quarter. This compared with $424and $562 million, or $1.05$1.37 per diluted share, in the first quarter of 2019 and $405 million, or $0.97 per diluted share, in the secondthird quarter of 2018.
Earnings from continuing operations attributable to International Paper Company were $344 million in the third quarter of 2019, $292 million in the second quarter of 2019 $424and $562 million in the first quarter of 2019 and $428 million in the secondthird quarter of 2018.

continuingopswaterfallqoqq21.jpg
continuingopswaterfallqoqq32.jpg
Compared with the firstsecond quarter of 2019, earnings benefited from higher sales volumes ($179 million), lower operating costs ($6310 million), lower raw material and freight costs ($49 million), lower corporate and other items ($14 million), lower net interest expense ($9 million), lower tax expense ($223 million) and lower non-operating pension expensemill maintenance outage costs ($2127 million). These benefits were offset by lower average sales prices net of a favorableand an unfavorable mix ($26115 million), higher corporate and other items ($14 million), higher net interest expense ($1 million), higher tax expense ($15 million) and higher mill maintenance outage costsnon-operating pension expense ($811 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A., Graphic Packaging International Partners, LLC, and other investments were $34$53 million lower than in the firstsecond quarter of 2019. Net special items in the secondthird quarter of 2019 were a loss of $162$80 million compared with a loss of $15$162 million in the firstsecond quarter of 2019.

continuingopswaterfallyoyq21.jpgcontinuingopswaterfallyoyq31.jpg

Compared with the secondthird quarter of 2018, the secondthird quarter of 2019 reflects higher average sales prices, net of an unfavorable mixlower raw material and freight costs ($7140 million), lower corporate and othermill maintenance outage costs ($208 million), lower net interest expense ($9 million), lower tax expense ($18 million) and lower non-operating pension expense ($2112 million). These benefits were offset by lower average sales prices and an unfavorable mix ($130 million), lower sales volumes ($4831 million), higher operating costs ($4317 million), higher raw materialcorporate and freightother costs ($222 million) and higher mill maintenance outage coststax expense ($3621 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A., Graphic Packaging International Partners, LLC, and other investments were $10$65 million higherlower in the secondthird quarter of 2019 than in the secondthird quarter of 2018. Net special items in the secondthird quarter of 2019 were a loss of $162$80 million compared with a loss of $43$60 million in the secondthird quarter of 2018.
Business Segment Operating Profits are used by International Paper's management to measure the earnings performance of its businesses. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides a more complete analysis of the results of operations by quarter. Business Segment Operating Profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, and excluding interest expense, net, corporate expenses, net, corporate special items, net and non-operating pension expense.
International Paper operates in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers.


The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to International Paper Company to its Total Business Segment Operating Profit: 
Three Months EndedThree Months Ended
June 30, March 31,September 30, June 30,
In millions2019 2018 20192019 2018 2019
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company$292
 $428
 $424
$344
 $562
 $292
Add back (deduct):          
Income tax provision (benefit)128
 130
 106
137
 83
 128
Equity (earnings) loss, net of taxes(80) (70) (114)(27) (92) (80)
Noncontrolling interests, net of taxes(6) 2
 2
(2) 
 (6)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings334
 490
 418
452
 553
 334
Interest expense, net122
 133
 133
123
 133
 122
Noncontrolling interests / equity earnings included in operations5
 (4) (3)2
 (2) 5
Corporate expenses, net3
 30
 21
21
 20
 3
Corporate special items (income) expense
 12
 .
48
 9
 
Non-operating pension expense8
 36
 10
9
 25
 8
Adjusted Operating Profit$472
 $697
 $579
$655
 $738
 $472
Business Segment Operating Profit:          
Industrial Packaging$507
 $537
 $404
$510
 $472
 $507
Global Cellulose Fibers(2) 66
 32
(3) 83
 (2)
Printing Papers(33) 94
 143
148
 183
 (33)
Total Business Segment Operating Profit$472
 $697
 $579
$655
 $738
 $472


































Business Segment Operating Profit

Total business segment operating profits were $655 million in the third quarter of 2019, $472 million in the second quarter of 2019 $579and $738 million in the first quarter of 2019 and $697 million in the secondthird quarter of 2018.

segmentopswaterfallqoqq219.jpg

segmentopswaterfallqoqq319.jpg
Compared with the firstsecond quarter of 2019, operating profits benefited from higher sales volumes ($2312 million), lower operating costs ($8514 million) and, lower raw material and freight costs ($6531 million) and lower mill outage costs ($169 million). These benefits were offset by lower average sales prices net of a favorableand an unfavorable mix ($35 million) and higher mill outage costs ($109154 million). Special items were a loss of $46 million in the third quarter of 2019 compared with a loss of $157 million in the second quarter of 2019 compared with a loss of $21 million in the first quarter of 2019.





segmentopswaterfallyoyq219.jpgsegmentopswaterfallyoyq319.jpg
Compared with the secondthird quarter of 2018, operating profits in the current quarter benefited from higher average sales prices net of an unfavorable mixlower raw material and freight costs ($9652 million) and lower mill outage costs ($11 million). These benefits were offset by lower average sales prices and an unfavorable mix ($170 million), lower sales volumes ($6441 million), and higher operating costs ($57 million), higher raw material and freight costs ($30 million) and higher mill outage costs ($4822 million). Special items were a loss of $157$46 million in the secondthird quarter of 2019 compared with a loss of $35$133 million in the secondthird quarter of 2018.

Economic downtime results from the amount of production required to meet our customer demand. Planned maintenance downtime is taken periodically throughout the year. The following table details North American planned maintenance and economic-related downtime (in tons):downtime:
Three Months Ended June 30, 2019Three Months Ended June 30, 2018Three Months Ended March 31, 2019
in thousands of tonsThree Months Ended September 30, 2019Three Months Ended September 30, 2018Three Months Ended June 30, 2019
Economic-related downtime339

484
287

339
Maintenance downtime303
207
156
125
197
303


Sales Volumes by Product (a)
Sales volumes of major products for the three months and sixnine months ended JuneSeptember 30, 2019 and 2018 were as follows: 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
In thousands of short tons (except as noted)2019 2018 2019 20182019 2018 2019 2018
Industrial Packaging              
Corrugated Packaging (b)2,624
 2,724
 5,159
 5,303
2,651
 2,666
 7,810
 7,969
Containerboard707
 800
 1,404
 1,583
736
 853
 2,140
 2,436
Recycling625
 597
 1,234
 1,134
556
 566
 1,790
 1,700
Saturated Kraft52
 52
 93
 98
47
 51
 140
 149
Gypsum/Release Kraft49
 67
 100
 120
49
 56
 149
 176
Bleached Kraft5
 9
 12
 16
5
 8
 17
 24
EMEA Packaging (b)379
 387
 749
 784
375
 329
 1,124
 1,113
Brazilian Packaging (b)91
 85
 176
 171
96
 92
 272
 263
European Coated Paperboard102
 90
 206
 186
106
 98
 312
 284
Industrial Packaging4,634
 4,811
 9,133
 9,395
4,621
 4,719
 13,754
 14,114
Global Cellulose Fibers (in thousands of metric tons) (c)
869
 884
 1,728
 1,779
878
 886
 2,606
 2,665
Printing Papers              
U.S. Uncoated Papers441
 484
 889
 954
451
 461
 1,340
 1,415
European and Russian Uncoated Papers367
 342
 721
 703
352
 363
 1,073
 1,066
Brazilian Uncoated Papers283
 265
 527
 525
301
 293
 828
 818
Indian Uncoated Papers66
 66
 134
 133
49
 62
 183
 195
Printing Papers1,157
 1,157
 2,271
 2,315
1,153
 1,179
 3,424
 3,494
 
(a)Sales volumes include third party and inter-segment sales and exclude sales of equity investees.
(b)Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons.
(c)Includes North American, European and Brazilian volumes and internal sales to mills.
Discontinued Operations
See discussion in Note 9 - Divestitures and Impairments in the Condensed Notes to the Consolidated Financial Statements.
Income Taxes
An income tax provision of $137 million was recorded for the third quarter of 2019 and the reported effective income tax rate was 30%. Excluding a benefit of $14 million related to the tax effects of special items and a benefit of $2 million related to the tax effects of non-operating pension expense, the effective income tax rate was 27% for the quarter.
An income tax provision of $128 million was recorded for the second quarter of 2019 and the reported effective income tax rate was 38%. Excluding an expense of $4 million related to the tax effects of special items and a benefit of $2 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25% for the quarter.
An income tax provision of $106$83 million was recorded for the firstthird quarter of 20192018 and the reported effective income tax rate was 25%15%. Excluding a benefit of $6$82 million related to the tax effects of special items and a benefit of $2$6 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25%24% for the quarter.
An income tax provision of $130 million was recorded for the second quarter of 2018 and the reported effective income tax rate was 27%. Excluding a benefit of $4 million related to the tax effects of special items and a benefit of $9 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25% for the quarter.
Interest Expense
Net interest expense was $123 million in the third quarter of 2019, compared with $122 million which includes interest expense of $1 million related to the settlement of foreign tax audits in the second quarter of 2019 compared withand $133 million in both the first quarter of 2019 and the secondthird quarter of 2018.







Effects of Special Items and Non-Operating Pension Expense
Details of special items and non-operating pension expense (income) for the three months ended are as follows:
 Three Months Ended Three Months Ended
 June 30, March 31, September 30, June 30,
 2019 2018 2019 2019 2018 2019
In millions Before Tax After Tax Before Tax After Tax Before Tax After Tax Before Tax After Tax Before Tax After Tax Before Tax After Tax
Business Segments                        
India impairment $145
 $143
 $
 $
 $
 $
 $6
 $6
 $
 $
 $145
 $143
Brazil Packaging impairment 
 
 122
 81
 
 
Italian antitrust fine 32
 32
 
 
 
 
Overhead cost reduction initiative 10
 8
 
 
 
 
Multi-employer pension plan exit liability 
 
 
 
 16
 12
 (7) (6) 
 
 
 
Gain on sale of EMEA Packaging box plant 
 
 
 
 (7) (6)
EMEA Packaging optimization 
 
 26
 18
 
 
Gain on sale of previously closed Oregon mill site (9) (7) 
 
 
 
Abandoned property removal 11
 8
 9
 7
 11
 8
 13
 10
 6
 4
 11
 8
Riverdale mill conversion 1
 1
 
 
 1
 1
 1
 1
 5
 4
 1
 1
Business Segments Total 157
 152
 35
 25
 21
 15
 46
 44
 133
 89
 157
 152
Corporate                        
Smufit-Kappa acquisition proposal costs 
 
 12
 9
 
 
Litigation reserves 22
 17
 
 
 
 
Environmental remediation reserve adjustment 15
 11
 9
 7
 
 
Overhead cost reduction initiative 11
 8
 
 
 
 
Interest expense related to settlement of foreign tax audits 1
 1
 
 
 
 
 
 
 
 
 1
 1
Corporate Total 1
 1
 12
 9
 
 
 48
 36
 9
 7
 1
 1
Total special items 158
 153
 47
 34
 21
 15
 94
 80
 142
 96
 158
 153
Non-operating pension expense 8
 6
 36
 27
 10
 8
 9
 7
 25
 19
 8
 6
Total special items and non-operating pension expense $166
 $159
 $83
 $61
 $31
 $23
 $103
 $87
 $167
 $115
 $166
 $159
Special items include the following tax expenses (benefits):
 Three Months Ended Three Months Ended
 June 30, March 31, September 30, June 30,
In millions 2019 2018 2019 2019 2018 2019
Luxembourg tax law rate change $9
 $
 $
 $
 $
 $9
Tax benefits from Tax Cuts and Jobs Act 
 (36) 
State income tax legislative changes (3) 9
 
 
 
 (3)
Settlement of foreign tax audits 3
 
 
 
 
 3
Total $9
 $9
 $
 $
 $(36) $9

Details of special items and non-operating pension expense for the sixnine months ended are as follows:
 Six Months Ended Nine Months Ended
 June 30, September 30,
 2019 2018 2019 2018
In millions Before Tax After Tax Before Tax After Tax Before Tax After Tax Before Tax After Tax
Business Segments                
India impairment $145
 $143
 $
 $
 $151
 $149
 $
 $
Brazil Packaging impairment 
 
 122
 81
Italian antitrust fine 32
 32
 
 
Overhead cost reduction initiative 10
 8
 
 
Multi-employer pension plan exit liability 16
 12
 
 
 9
 6
 
 
Gain on sale of previously closed Oregon mill site (9) (7) 
 
Gain on sale of EMEA Packaging box plant (7) (6) 
 
 (7) (6) 
 
EMEA Packaging optimization 
 
 48
 35
 
 
 48
 35
Abandoned property removal 22
 16
 18
 14
 35
 26
 24
 18
Riverdale mill conversion 2
 2
 
 
 3
 3
 5
 4
Business Segments Total 178
 167
 66
 49
 224
 211
 199
 138
Corporate                
Smufit-Kappa acquisition proposal costs 
 
 12
 9
Litigation reserves 22
 17
 
 
Environmental remediation reserve adjustment 15
 11
 9
 7
Overhead cost reduction initiative 11
 8
 
 
Smurfit-Kappa acquisition proposal costs 
 
 12
 9
Interest expense related to settlement of foreign tax audits 1
 1
 
 
 1
 1
 
 
Legal settlement 
 
 9
 7
 
 
 9
 7
Corporate Total 1
 1
 21
 16
 49
 37
 30
 23
Total special items 179
 168
 87
 65
 273
 248
 229
 161
Non-operating pension expense 18
 14
 40
 30
 27
 21
 65
 49
Total special items and non-operating pension expense $197
 $182
 $127
 $95
 $300
 $269
 $294
 $210
Special items include the following tax expenses (benefits):
 Six Months Ended Nine Months Ended
 June 30, September 30,
In millions 2019 2018 2019 2018
Luxembourg tax law rate change $9
 $
 $9
 $
Tax benefits from Tax Cuts and Jobs Act 
 (36)
State income tax legislative changes (3) 9
 (3) 9
Settlement of foreign tax audits 3
 
 3
 
Total $9
 $9
 $9
 $(27)
BUSINESS SEGMENT OPERATING RESULTS

The following tables present net sales and operating profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items. The Company calculates Operating Profit Before Special Items (non-GAAP) by excluding the pre-tax effect of items considered by management to be unusual from the earnings reported under U.S. generally accepted accounting principles (GAAP). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure. See Note 21 - Business Segment

Information in the Condensed Notes to the Consolidated Financial Statements for the GAAP reconciliation of segment operating profit.


Industrial Packaging 
Total Industrial Packaging2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$3,864
 $3,832
 $7,696
 $4,022
 $3,827
 $7,849
$3,820
 $3,864
 $11,516
 $4,034
 $4,022
 $11,883
Operating Profit$507
 $404
 $911
 $537
 $437
 $974
$510
 $507
 $1,421
 $472
 $537
 $1,446
Italian antitrust fine32
 
 32
 
 
 
Gain on sale of previously closed Oregon mill site(9) 
 (9) 
 
 
Multi-employer pension plan exit liability
 16
 16
 
 
 
(7) 
 9
 
 
 
Gain on sale of EMEA Packaging box plant
 (7) (7) 
 
 

 
 (7) 
 
 
Brazil Packaging impairment
 
 
 122
 
 122
EMEA Packaging optimization
 
 
 26
 22
 48

 
 
 
 26
 48
Abandoned property removal8
 8
 16
 6
 5
 11
9
 8
 25
 4
 6
 15
Operating Profit Before Special Items$515
 $421
 $936
 $569
 $464
 $1,033
$535
 $515
 $1,471
 $598
 $569
 $1,631
Industrial Packaging net sales for the secondthird quarter of 2019 were 1% higherlower than in the firstsecond quarter of 2019 and 4%5% lower than in the secondthird quarter of 2018. Operating profit before special items was 22%4% higher in the third quarter of 2019 than in the second quarter of 2019 than in the first quarter of 2019 and 9%11% lower than in the secondthird quarter of 2018.
North American Industrial Packaging2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales (a)$3,414
 $3,376
 $6,790
 $3,582
 $3,369
 $6,951
$3,368
 $3,414
 $10,158
 $3,653
 $3,582
 $10,604
Operating Profit$507
 $395
 $902
 $574
 $459
 $1,033
$532
 $507
 $1,434
 $618
 $574
 $1,651
Gain on sale of previously closed Oregon mill site(9) 
 (9) 
 
 
Multi-employer pension plan exit liability
 16
 16
 
 
 
(7) 
 9
 
 
 
Abandoned property removal8
 8
 16
 6
 5
 11
9
 8
 25
 4
 6
 15
Operating Profit Before Special Items$515
 $419
 $934
 $580
 $464
 $1,044
$525
 $515
 $1,459
 $622
 $580
 $1,666

(a)Includes intra-segment sales of $25 million and $74 million for the three months ended September 30, 2019 and 2018, respectively; $31 million and $46 million for the three months ended June 30, 2019 and 2018, respectively; $31and $87 million and $58$178 million for the threenine months ended March 31, 2019 and 2018, respectively; and $62 million and $104 million for the six months ended JuneSeptember 30, 2019 and 2018, respectively.
North American Industrial Packaging sales volumes in the secondthird quarter of 2019 increased compared to the firstsecond quarter of 2019, reflecting seasonally higher shipments for boxes partially offset by lowerand higher export containerboard volumes as customer destocking continued.inventory levels began to return to normal. Total maintenance and economic downtime was 10,000249,000 tons higherlower in the secondthird quarter of 2019, which comprises an increase of 92,000 tons for planned maintenance downtime and a decrease of 82,000 tons for economic downtime. Economic downtime was driven by lower volumes as we continued to manage production to meet our customers' needs.2019. Average sales margins were lower, driven by lower average sales prices for boxes and export containerboard. Manufacturing performance was strong in bothOperating costs were seasonally higher for our mills and box plants and weour mills continued to manage costs well to mitigate the impact of downtime in the quarter.perform well. Planned maintenance downtime costs were $27$73 million higherlower in the secondthird quarter of 2019 compared with the firstsecond quarter of 2019, with 80% of our annual planned outages now complete.2019. Input costs were significantly favorable, primarily for recycled fiber energy,and wood, and distribution.partially offset by higher distribution costs.
Compared with the secondthird quarter of 2018, sales volumes were lower in the secondthird quarter of 2019 for export containerboard and boxes, partially due to one less shipping day in 2019.boxes. Total maintenance and economic downtime was 376,000120,000 tons higher in the secondthird quarter of 2019, which comprises an increase of 48,000 tons for planned maintenance downtime and 328,000 tons for economic downtime. Average sales prices for boxes were higher, due to carryover of the Spring 2018 sales price increase. Export containerboard2019. Box prices were lower reflectingas were export containerboard prices resulting from weaker global demand. Manufacturing costs were lower,stable, driven by strong operational performance at our mills.mills offset by inflation. Planned maintenance downtime costs were $9$18 million higherlower in the secondthird quarter of 2019 compared with the secondthird quarter of 2018. Input costs forwere significantly lower, driven by recycled fiber and energy were lower, partially offset by higher costs for wood.fiber.
Entering the thirdfourth quarter of 2019, sales volumes for boxes are expected to be seasonally higher. Containerboard exportExport containerboard shipments are also expected to increase, as demand improves and customers begincontinues to replenish inventory.improve. Average sales pricesmargins for boxes and export containerboard are expected to be lower, reflecting the impact of prior price index movement, mix and export pressure. Operating costs are expected to be seasonally higher. Planned maintenance downtime costs should be $63$44 million lower in the thirdfourth quarter of 2019 than in the secondthird quarter of 2019. Input costs are projected to be slightly favorable, with lower primarily for wood.wood costs mostly offset by higher recycled fiber and energy costs.

EMEA Industrial Packaging2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$331
 $339
 $670
 $344
 $362
 $706
$324
 $331
 $994
 $311
 $344
 $1,017
Operating Profit$(7) $(8) $(15) $(43) $(34) $(77)$(33) $(7) $(48) $(37) $(43) $(114)
Italian antitrust fine32
 
 32
 
 
 
Gain on sale of EMEA Packaging box plant
 (7) (7) 
 
 

 
 (7) 
 
 
EMEA Packaging optimization
 
 
 26
 22
 48

 
 
 
 26
 48
Operating Profit Before Special Items$(7) $(15) $(22) $(17) $(12) $(29)$(1) $(7) $(23) $(37) $(17) $(66)
EMEA Industrial Packaging sales volumes for boxes in the secondthird quarter of 2019 were lower than in the firstsecond quarter of 2019, primarily due todriven by lower seasonal box demand in Morocco.Morocco and the economic conditions in Turkey. Average sales margins improved in all regions driven by lower containerboard prices and stable box prices. Manufacturing operationsOperating costs improved, reflecting the continued improved performance at the Madrid mill and the benefits of our box system optimization initiatives. Earnings also benefited from the box plant acquisitions completed in the first quarter of 2019.mill. There were no planned maintenance downtime costs in either the secondthird quarter of 2019 or the firstsecond quarter of 2019. Input costs were stable. Earnings were negatively affected by unfavorablebenefited from favorable foreign currency impacts in Turkey.
Compared with the secondthird quarter of 2018, sales volumes in the secondthird quarter of 2019 were lower, primarily due to the recession in Turkey. Average sales margins for boxes improved, reflecting sales price increases during 2018 and lower containerboard costs. Operating costs benefitedsignificantly improved from the ramp-up of the Madrid mill. Earnings also benefited from the box plant acquisitions completed in the first quarterhalf of 2019. There were no planned maintenance downtime costs in the secondthird quarter of 2018. Input costs were stable. Earnings were negativelypositively affected by unfavorablefavorable foreign currency impacts, primarily in Morocco.Turkey.
Looking ahead to the thirdfourth quarter of 2019, sales volumes for boxes are expected to be seasonally lowerhigher in Morocco butand Turkey, and stable in the Eurozone and Turkey.Eurozone. Average sales margins should improve in Morocco and Turkey, partially offset by lower average sales margins in the Eurozone and Morocco.Eurozone. Operating and input costs should be stable. There are no planned maintenance downtime costs in the fourth quarter of 2019.
Brazilian Industrial Packaging2019 2018
In millions3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$61
 $58
 $176
 $57
 $56
 $175
Operating Profit$(6) $(1) $(12) $(127) $(11) $(146)
Brazil Packaging impairment
 
 
 122
 
 122
Operating Profit Before Special Items$(6) $(1) $(12) $(5) $(11) $(24)
Brazilian Industrial Packaging sales volumes in the third quarter of 2019 compared with the second quarter of 2019 were higher for boxes and lower for containerboard. Average sales margins reflected higher sales prices for boxes and a favorable product mix, partially offset by lower containerboard prices. Planned maintenance downtime costs should be $1were $2 million higher in the third quarter of 2019 compared with the second quarter of 2019. Input costs were higher for rollstock, recycled fiber, chemicals and energy.
Compared with the third quarter of 2018, sales volumes in the third quarter of 2019 were higher for both boxes and containerboard. Average sales prices increased for boxes and containerboard. Operating costs were flat. Input costs increased, primarily for recycled fiber and energy. Planned maintenance downtime costs were $2 million higher in the third quarter of 2019 than in the second quarter of 2019.
Brazilian Industrial Packaging2019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months
Sales$58
 $57
 $115
 $56
 $62
 $118
Operating Profit$(1) $(5) $(6) $(11) $(8) $(19)
Brazilian Industrial Packaging sales volumes in the second quarter of 2019 compared with the first quarter of 2019 were higher for both boxes and containerboard due to seasonality. Average sales margins reflected higher sales prices for containerboard, offset by an unfavorable geographic and product mix. There were no planned maintenance outages in either the second quarter of 2019 or the first quarter of 2019. Input costs were higher for purchased pulp, energy and recycled fiber, offset by lower distribution costs.
Compared with the second quarter of 2018, sales volumes in the second quarter of 2019 were higher for both boxes and containerboard as the second quarter of 2018 included the impact of a nationwide trucker's strike. Average sales prices increased for boxes and containerboard. Operating costs were lower, but were partially offset by higher input costs for recycled fiber, energy and wood. Planned maintenance downtime costs were $1 million lower in the second quarter of 2019 than in the secondthird quarter of 2018.
Looking ahead to the thirdfourth quarter of 2019, sales volumes for boxes and containerboard are expected to be seasonally higher.lower. Average sales margins are expected to be higher, reflecting a favorable geographic mix. Planned maintenance downtime costs should be $2 million higherlower in the thirdfourth quarter of 2019 than in the secondthird quarter of 2019. Input costs are projected to be in line with the second quarter.lower for recycled fiber.
European Coated Paperboard2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$92
 $91
 $183
 $86
 $92
 $178
$92
 $92
 $275
 $87
 $86
 $265
Operating Profit$8
 $22
 $30
 $17
 $20
 $37
$17
 $8
 $47
 $18
 $17
 $55
European Coated Paperboard sales volumes in the secondthird quarter of 2019 compared with the firstsecond quarter of 2019 were flat in both Europe and Russia. Average sales margins improved in Europe driven by a favorable mix. In Russia, average sales margins were stable.slightly lower. Operating costs were higher in both Europe and Russia. Operating costs in Europe were negatively impacted by recovery boiler issues in Kwidzyn. Planned maintenance downtime costs were $8 million higherlower in the secondthird quarter

of 2019 compared with the firstsecond quarter of 2019 with outages at the Kwidzyn and Svetogorsk mills.2019. Input costs were favorable in Europe and Russia, primarily for purchased pulp in Europe and woodenergy. In Russia, input costs were stable. Earnings benefited from favorable foreign currency impacts, primarily in Russia.

Compared with the secondthird quarter of 2018, sales volumes increased in Europe partially due to the impact of production constraints related to the Kwidzyn fire in 2018. Sales volumesbut were slightly higherlower in Russia. Average sales margins decreasedwere flat in Europe due to an unfavorable mix, thoughbut improved in Russia, reflecting higher average sales prices and a favorable mix. Operating costs were higher in both Europe, and Russia. Plannedreflecting the recovery boiler issues in Kwidzyn. In Russia, operating costs were lower. There were no planned maintenance downtime costs in either the secondthird quarter of 2019 were $4 million higher than inor the secondthird quarter of 2018. Input costs increasedwere lower in Europe and Russia, primarily for purchased pulp wood and energy, in Europe andslightly offset by higher wood costs. In Russia, input costs were higher for chemicals and energy, offset by lower wood costs. Earnings were negatively affected by unfavorable foreign currency impacts in both Europe and Russia.
Entering the thirdfourth quarter of 2019, sales volumes are expected to be higher in both Europe and Russia.Russia but lower in Europe. Average sales margins are expected to increase in both regions, reflecting a favorable mix.regions. Operating costs are expected to be higherlower in Europe, but lower in Russia. Planned maintenance downtime costs should be $8 million lower inas the third quarter of 2019 thanwas negatively impacted by the recovery boiler issues in Kwidzyn. In Russia, operating costs are expected to be higher. There are no planned maintenance downtime outages in the secondfourth quarter of 2019. Input costs are expected to be lower in Europe, primarily for purchased pulp and wood, but slightly higherand stable in Russia, primarily for chemicals, wood and energy.Russia.
Global Cellulose Fibers
Total Global Cellulose Fibers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$661
 $689
 $1,350
 $692
 $677
 $1,369
$624
 $661
 $1,974
 $714
 $692
 $2,083
Operating Profit$(2) $32
 $30
 $66
 $11
 $77
$(3) $(2) $27
 $83
 $66
 $160
Overhead cost reduction initiative4
 
 4
 
 
 
Abandoned property removal2
 3
 5
 3
 4
 7
3
 2
 8
 2
 3
 9
Operating Profit Before Special Items$
 $35
 $35
 $69
 $15
 $84
$4
 $
 $39
 $85
 $69
 $169
Global Cellulose Fibers net sales were 4%6% lower in the third quarter of 2019 than in the second quarter of 2019 than in the first quarter of 2019 and 4%13% lower than in the secondthird quarter of 2018. Operating profit before special items in the third quarter of 2019 was 100% lower inslightly higher than the second quarter of 2019 than in the first quarter of 2019 and 100%95% lower than in the secondthird quarter of 2018.
Sales volumes in the secondthird quarter of 2019 compared with the firstsecond quarter of 2019 were higher for both fluff andpulp, partially offset by lower market pulp.pulp volumes. Total maintenance and economic downtime was 33,00011,000 tons lowerhigher in the secondthird quarter of 2019, which comprises an increase of 32,000 tons for maintenance downtime and a decrease of 65,000 tons for economic downtime.2019. Average sales margins decreased, reflecting lower average pulp prices in a challenging export environmentdriven by unfavorable supply/demand conditions associated with historically high industry inventory levels, trade and tariff uncertainty and high inventory levels.regional economic conditions. Operating costs were stablefavorable as our mills performed well in a heavy planned maintenance downtime quarter.improved reliability and reduced spending to overcome the impact of Hurricane Dorian. Planned maintenance downtime costs in the third quarter of 2019 were $51 million lower than in the second quarter of 2019. Earnings benefited $5 million in the third quarter of 2019 and $10 million in the second quarter of 2019 were $27 million higher than in the first quarter of 2019.from insurance proceeds related to Hurricane Florence. Input costs were favorable, primarily for wood, energy and chemicals. Earnings benefited in the second quarter of 2019 from $10 million of insurance proceeds related to Hurricane Florence. In Europe and Russia, salesSales volumes were lower.higher in Russia, but lower in Europe. Average sales prices were lower in both regions. Planned maintenance downtime costs in the second quarter of 2019 were $4 million higher than in the first quarter of 2019 in Europe and Russia, with an outage at the Svetogorsk mill. Manufacturing and other operating costs were favorable in Russia and higher in Europe. Input costs were favorable in Europe, primarily due to energy. Input costs were flat in Russia.
Compared with the second quarter of 2018, sales volumes in the second quarter of 2019 were down, driven by weaker global demand. Total maintenance and economic downtime was 34,000 tons higher in the second quarter of 2019, which comprises an increase of 25,000 tons for maintenance downtime and 9,000 tons for economic downtime. Average sales prices were higher for fluff pulp, but lower for market pulp. Product mix was unfavorable. Operating costs were higher, driven by inflation. Planned maintenance downtime costs in the second quarter of 2019 were $36 million higher than in the second quarter of 2018. Input costs were higher, primarily for softwood. In Europe and Russia, sales volumes increased. Average sales margins were lower, reflecting lower average sales prices and an unfavorable mix. Operating costs were unfavorable in Europe and flat in Russia. Planned maintenance downtime costs in the secondthird quarter of 2019 were $4 million lower than in the second quarter of 2019 in Europe and Russia. Operating costs were unfavorable in Europe and flat in Russia. Input costs were stable in both Europe and Russia.
Compared with the third quarter of 2018, sales volumes in the third quarter of 2019 were slightly higher. Total maintenance and economic downtime was 56,000 tons higher in the third quarter of 2019. Average sales prices were lower for both fluff and market pulp. Operating costs were favorable. Planned maintenance downtime costs in the third quarter of 2019 were $10 million lower than in the third quarter of 2018. Input costs were slightly favorable. Sales volumes increased, primarily in Russia. Average sales margins were lower, reflecting lower average sales prices. Operating costs were unfavorable in Europe and favorable in Russia. There were no planned maintenance downtime costs in either the third quarter of 2019 or the third quarter of 2018 in Europe and Russia. Input costs were flat in both Europe and slightly higherRussia. Earnings benefited from favorable foreign currency impacts in Russia, primarily for chemicals and energy.Europe, slight offset by unfavorable impacts in Russia.
Entering the thirdfourth quarter of 2019, sales volumes are expected to be flat. Average sales margins are expected to be lower, reflecting the continuing effects of commercial conditions unfavorably impacted byhistorically high industry inventory levels, slower growth in developing markets, tariff uncertainty, and regional economic conditions. Operating costs areconditions and expected to be lower as we continue to focus on efficiencies at our mills.increases in operating costs. Planned maintenance downtime costs in the thirdfourth quarter of 2019 should be $48$8 million lower than in the secondthird quarter of 2019. Input costs are expected to be favorable.slightly higher. In Europe and Russia, sales volumes are expected to be lowerstable in Europe and higherlower in Russia. Average sales margins are expected to be lower in both regions. Operating costs are expected to be stable in Europe and higher in Russia. Planned maintenance downtime costs in the thirdfourth quarter of 2019 should be $4$7 million lowerhigher than in the secondthird quarter of 2019 in Europe and Russia, as no outages are scheduled.

Russia.


Printing Papers 
Total Printing Papers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$1,088
 $1,065
 $2,153
 $1,060
 $1,053
 $2,113
$1,071
 $1,088
 $3,224
 $1,102
 $1,060
 $3,215
Operating Profit$(33) $143
 $110
 $94
 $64
 $158
$148
 $(33) $258
 $183
 $94
 $341
India impairment145
 
 145
 
 
 
6
 145
 151
 
 
 
Abandoned property removal1
 
 1
 
 
 
1
 1
 2
 
 
 
Overhead cost reduction initiative6
 
 6
 
 
 
Riverdale mill conversion1
 1
 2
 
 
 
1
 1
 3
 5
 
 5
Operating Profit Before Special Items$114
 $144
 $258
 $94
 $64
 $158
$162
 $114
 $420
 $188
 $94
 $346
Printing Papers net sales for the secondthird quarter of 2019 were 2% higherlower than in the firstsecond quarter of 2019 and 3% higherlower than in the secondthird quarter of 2018. Operating profit before special items in the secondthird quarter of 2019 was 21% lower than in the first quarter of 2019 and 21%42% higher than in the second quarter of 2019 and 14% lower than in the third quarter of 2018.
North American Papers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$486
 $496
 $982
 $493
 $458
 $951
$492
 $486
 $1,474
 $492
 $493
 $1,443
Operating Profit$39
 $56
 $95
 $25
 $1
 $26
$69
 $39
 $164
 $59
 $25
 $85
Abandoned property removal1
 
 1
 
 
 
1
 1
 2
 
 
 
Overhead cost reduction initiative5
 
 5
 
 
 
Riverdale mill conversion1
 1
 2
 
 
 
1
 1
 3
 5
 
 5
Operating Profit Before Special Items$41
 $57
 $98
 $25
 $1
 $26
$76
 $41
 $174
 $64
 $25
 $90
North American Papers sales volumes in the secondthird quarter of 2019 were lowerhigher than in the firstsecond quarter of 2019 for uncoated freesheet paper, primarily driven by softer demandincreased export volume. Total maintenance and economic downtime was 8,000 tons higher in commercial printing.the third quarter of 2019. Average sales pricesmargins were favorable, benefiting from the continued realization of price increases, partially offset byunfavorable, reflecting an unfavorable geographic mix. Operating costs were flat.lower. Planned maintenance downtime costs were $23$19 million higherlower in the secondthird quarter of 2019, compared with the firstsecond quarter of 2019, with 60% of planned annual maintenance outages now complete.2019. Input costs were lower, primarily for wood. Earnings benefited in the second quarter of 2019 from $2 million of insurance proceeds related to Hurricane Florence.
Compared with the secondthird quarter of 2018, sales volumes in the secondthird quarter of 2019 were lower for uncoated freesheet paper, primarily driven by weaker demand for commercial printing paper. Total maintenance and economic downtime was 39,000 tons higher in the third quarter of 2019. Average sales prices were significantly higher, reflecting the impact of price increases in 2018. Operating costs were unfavorable, driven by inflation.favorable. Planned maintenance downtime costs were $7$11 million higher than in the secondthird quarter of 2018. Input costs increased, primarily for wood, but partially offset by lower distribution costs.wood.
Entering the thirdfourth quarter of 2019, sales volumes are expected to be higher, driven by increased cutsizeexport volumes, and seasonally higher commercial printing paperpartially offset by lower cutsize volumes. Average sales margins are expected to be lower, including the impact of an unfavorable mill sourcing mix.lower. Operating costs are expected to be lower.higher. Planned maintenance downtime costs should be $17$7 million lower in the thirdfourth quarter. Input costs are expected to be favorable, primarily for wood.
European Papers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$321
 $309
 $630
 $302
 $319
 $621
$299
 $321
 $929
 $311
 $302
 $932
Operating Profit$29
 $47
 $76
 $15
 $21
 $36
$40
 $29
 $116
 $46
 $15
 $82
Overhead cost reduction initiative1
 
 1
 
 
 
Operating Profit Before Special Items$41
 $29
 $117
 $46
 $15
 $82
European Papers sales volumes for uncoated freesheet paper in the secondthird quarter of 2019 compared with the firstsecond quarter of 2019 were lower in Europe, but higher in Russia. In Europe, the recovery boiler issues at Kwidzyn negatively impacted volumes. Average sales margins for uncoated freesheet paper increaseddecreased in Europe and Russia, reflecting higherlower average sales prices resulting from weaker demand and a favorablean unfavorable mix. In Europe, average sales margins were lower. Operating costs were higher in both Europe, andreflecting the impact of the recovery boiler issues at Kwidzyn. Operating costs were flat in Russia. Planned maintenance downtime costs were $20 million higherlower in the secondthird quarter of 2019 compared to the firstsecond quarter of 2019, with outages at the Kwidzyn and Svetogorsk mills.2019. Input costs were lower for energy and purchased pulp, but higher for woodstable in Europe. In Russia, input costs were lower, primarily for wood.both regions. Earnings benefited from favorable foreign currency impacts in Russia.Europe.

Sales volumes for uncoated freesheet paper in the secondthird quarter of 2019, compared with the secondthird quarter of 2018, were higherlower in Europe, partially due to the impact of the Kwidzyn fire in 2018.recovery boiler issues at Kwidzyn. In Russia, sales volumes were lower.higher. Average sales pricesmargins for uncoated freesheet paper increased significantly in both regions, reflecting price increases implemented in late 2018 and in 2019.2019, net of an unfavorable mix. Operating costs were higher in Europe and slightly lower in both Europe and Russia. PlannedThere were no planned maintenance downtime costs were $2 million higher than in either the secondthird quarter of 2019 or the third quarter of 2018. InputIn Europe, input costs primarilywere higher for energy, chemicals and packaging materials in Russia and for purchased pulp, wood and chemicals, in Europe, were higher.partially offset by lower energy costs. In Russia, input costs also increased, primarily for chemicals and energy, partially offset by lower wood costs. Earnings were negatively affected by unfavorable foreign currency impacts in both Europe and Russia.

Looking forward to the thirdfourth quarter of 2019, sales volumes for uncoated freesheet paper are expected to be higher in both Europe and Russia. In Europe, average sales margins are expected to be lower. In Russia, average sales margins will be negatively impacted by an unfavorable mix. Operating costs should be higher in Russiaboth Europe and flat in Europe.Russia. Planned maintenance downtime costs should be $20$8 million lower, as there are no outages scheduledhigher in the third quarter of 2019.fourth quarter. Input costs are expected to be stable in Europe and higher in Russia, primarily for wood, chemicals and energy.Russia.
Brazilian Papers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales (a)$240
 $215
 $455
 $222
 $229
 $451
$247
 $240
 $702
 $255
 $222
 $706
Operating Profit$37
 $33
 $70
 $49
 $40
 $89
$44
 $37
 $114
 $75
 $49
 $164

(a)Includes intra-segment sales of $5 million and $3 million for the three months ended September 30, 2019 and 2018, respectively; $12 million and $8 million for the three months ended June 30, 2019 and 2018, respectively; $8and $25 million and $5$16 million for the threenine months ended March 31, 2019 and 2018, respectively; and $20 million and $13 million for the six months ended JuneSeptember 30, 2019 and 2018, respectively.
Brazilian Papers sales volumes in the secondthird quarter of 2019, compared with the firstsecond quarter of 2019, were seasonally higher for cutsize, primarily indomestic shipments of uncoated freesheet, partially offset by lower export markets. However, domestic demand for offset was weaker than expected due to delays in the government textbook program which began about three months later than normal.volumes. Export average sales prices were lower for both Latin American and other export locations, reflecting higher supply availability in Latin America and softer demand conditions, while domestic average sales prices were stable. Operating costs were slightly higher. Therefavorable. Planned maintenance outage downtime costs were no planned maintenance outages$3 million higher in either the secondthird quarter of 2019, orcompared with the firstsecond quarter of 2019. Input costs were unfavorable, primarily for wood.flat.
Compared with the secondthird quarter of 2018, sales volumes for uncoated freesheet paper in the secondthird quarter of 2019 were slightly higher for export, markets, but lower for the domestic markets,shipments, reflecting challenging demand conditions heavily impacted by thea government textbook program delays. The second quarter of 2018 included the impact of a nationwide trucker's strike. Average domesticdelay. Lower export sales prices were higher and an unfavorable geographic and product mix were favorable,slightly offset by lower export saleshigher average domestic prices. Operating costs were unfavorable. Planned maintenance outage expenses were $4$3 million lowerhigher in the secondthird quarter of 2019. Input costs were higher, primarily for wood purchased pulp, chemicals and energy.
Entering the thirdfourth quarter of 2019, sales volumes for uncoated freesheet paper are expected to be seasonally stronger in the domestic market,domestically, partially offset by lower export volumes. Average sales margins are expected to be stable for the domestic market,domestically, while export sales margins are expected to be lower. Operating costs should be slightly favorable. Planned maintenance outage expenses are expected to be $3$1 million higher.lower in the fourth quarter. Input costs are expected to be slightly unfavorable.favorable.
Indian Papers2019 20182019 2018
In millions2nd Quarter 1st Quarter Six Months 2nd Quarter 1st Quarter Six Months3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales$53
 $53
 $106
 $51
 $52
 $103
$38
 $53
 $144
 $47
 $51
 $150
Operating Profit$(138) $7
 $(131) $5
 $2
 $7
$(5) $(138) $(136) $3
 $5
 $10
India Impairment145
 
 145
 
 
 
6
 145
 151
 
 
 
Operating Profit Before Special Items$7
 $7
 $14
 $5
 $2
 $7
$1
 $7
 $15
 $3
 $5
 $10
On May 29, 2019, International Paper announced it had entered into an agreement to sell its controlling interest in its Indian Papers sales volumes in the second quarter of 2019 compared with the first quarter of 2019 were flat as strong demand continued. Sales margins improved due to higher average sales prices and a more favorable mix. Operating costs were favorable due to improved mill productivity. Input costs were slightly unfavorable.
Compared with the second quarter of 2018, sales volumes were flat in the second quarter of business. The transaction closed on October 30, 2019. Average sales prices improved reflecting the impact of 2018 sale price increases. Operating costs were lower, reflecting improved mill productivity, while input costs were higher, primarily for chemicals.
Looking ahead to the third quarter of 2019, sales volumes are expected to be lower and operating costs are expected to be higher due to production constraints associated with the planned annual outage at the Rajahmundry mill. Average sales margins are expected to be lower. Input costs are expected to be slightly lower.
Equity Earnings, Net of Taxes – Ilim
Since October 2007, International Paper andaccounts for its 50% equity interest in Ilim S.A. (Ilim) have operated a 50:50 joint venture in Russia.using the equity method of accounting. Ilim is a separate reportable industry segment.segment whose primary operations are in Russia. The Company recorded equity earnings, net of taxes, of $18 million in the third quarter of 2019, compared with $67 million in the second quarter of 2019 compared with $101and $74 million in the first quarter of 2019 and $57 million in the secondthird quarter of 2018. In the secondthird quarter of 2019, the after-tax foreign exchange impact primarily on the remeasurement of U.S. dollar-denominated net debt was a gainloss of $7$4 million, compared with a gain of $21$7 million in the first quarter of 2019. The Company received cash dividends from the joint venture of $239 million during the second quarter of 2019.

Compared with the first quarter of 2019, sales volumes in the second quarter of 2019 were 2% lower, primarily for sales of softwood pulp and containerboard in China, partially offset by higher sales of hardwood pulp in China. Average sales price realizations for softwood pulp in China and containerboard in China and in Russia were lower. Following the launch of a modernization program at the Bratsk mill and an outage at the Koryazhma mill in the second quarter of 2019, Ilim incurred mill outage and repair costs that were $10 million higher than in the first quarter of 2019. In addition, input costs for wood were seasonally higher in the second quarter of 2019.
Compared with the second quarter of 2018,2019, sales volumes in the third quarter of 2019 were 9% lower, primarily for sales of hardwood pulp and containerboard in China, and softwood pulp in Russian and other export locations. Average sales price

realizations were lower for softwood pulp, hardwood pulp and containerboard in China, Russia and other export locations. Input costs for wood and fuel, were relatively flat. Outage and repair costs were $10 million higher than in the second quarter of 2019 due to the planned maintenance mill outages at the Bratsk and Ust-Ilimsk mills.
Compared with the third quarter of 2018, sales volumes in the third quarter of 2019 decreased overall by 3%7%, primarily fordue to sales of containerboard in China and Russia and softwood pulp and hardwood pulp in Russian and other export locations. Average sales prices for softwood pulp, hardwood pulp and containerboard in China and other export markets, partially offset by higher sales of hardwood pulp in China and Russia. Average sales price realizations were lower for softwood pulp and hardwood pulp in China and other export markets. In contrast, average sales price realizations for softwood pulp, hardwood pulplocations and containerboard in Russia increased during the second quarter of 2019.were lower. Input costs, primarily for wood fuel and chemicals, were higher. Distribution costs were also higher. An after-tax foreign exchange loss of $39$23 million primarily on the remeasurement of U.S. dollar denominated net debt was recorded in the secondthird quarter of 2018.
Looking forward to the thirdfourth quarter of 2019, sales volumes are expected to be lower.higher following the start-up of the newly upgraded containerboard machine at the Bratsk mill and the recently modernized pulp line at the Ust-Ilimsk mill. Average sales margins should reflectare projected to decrease compared with the continuing effectsthird quarter of prior price decreases,2019, primarily for softwood pulp,due to hardwood pulp and containerboard in China and other export markets.China. Input costs are expected to be relatively flat. A project to upgrade the pulp line at the Ust-Ilimsk milldecrease. Mill maintenance outage costs will be launched during a planned outage in the third quarter. Planned maintenance milllower as there are no outages are also scheduled in the thirdfourth quarter at the Bratsk and Koryazhma mills.of 2019.
Equity Earnings – GPIGPIP
International Paper recorded equity earnings of $10 million in the third quarter of 2019, compared with $14 million on its 21% ownership position in GPI in the second quarter of 2019 compared with $13and $19 million in the firstthird quarter of 2018. As of September 30, 2019, and $15 millionthe Company's ownership interest in the second quarter of 2018.GPIP was 21.6%.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $1.82.7 billion for the first sixnine months of 2019, compared with $1.52.4 billion for the comparable 2018 sixnine-month period. Cash provided by working capital components totaled $98176 million for the first sixnine months of 2019, compared to cash used by working capital components of $213249 million for the comparable 2018 six-monthnine-month period.
Investments in capital projects totaled $628913 million in the first sixnine months of 2019, compared to $929 million1.3 billion in the first sixnine months of 2018. Full-year 2019 capital spending is currently expected to be approximately $1.4$1.3 billion, or about 106%99% of depreciation and amortization, including approximately $400 million of strategic investments.
Financing activities for the first sixnine months of 2019 included an $8a $391 million net decrease in debt versus a $338$107 million net increase in debt during the comparable 2018 six-monthnine-month period.
Amounts related to early debt extinguishment during the sixthree and nine months ended JuneSeptember 30, 2019 and 2018 were as follows:
Six Months Ended
June 30,
Three Months Ended September 30, Nine Months Ended September 30,
In millions2019 20182019 2018 2019 2018
Early debt reductions (a)$168
 $
$77
 $75
 $245
 $79
Pre-tax early debt extinguishment (gain) loss, net(2) 
2
 1
 (1) 1

(a)Reductions related to notes with interest rates ranging from 3.00% to 4.40% with original maturities from 2027 to 2047 and from 3.00% to 7.00% with original maturities from 2022 to 2032 for the three months ended September 30, 2019 and 2018, respectively, and from 3.00% to 9.50% with original maturities from 2024 to 2048 and from 3.00% to 7.00% with original maturities from 2022 to 2032 for the sixnine months ended JuneSeptember 30, 2019.2019 and 2018, respectively.
At JuneSeptember 30, 2019, contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in Note 11 - Leases) by calendar year were as follows: $600$298 million in 2019; $101$97 million in 2020; $450$448 million in 2021; $489$490 million in 2022; $351$354 million in 2023; and $8.7 billion thereafter.
Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At JuneSeptember 30, 2019, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings during the current quarter under the Company's commercial paper program.
At JuneSeptember 30, 2019, International Paper’s credit agreements totaled $2.1 billion, which management believes are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The liquidity facilities include a $1.5 billion contractually committed bank credit agreement that expires in December 2021 and has a facility fee of 0.15% per annum payable quarterly. The liquidity facilities also include up to $600 million of uncommitted

financings based on eligible receivable balances under a receivables securitization program that expires in December 2019. At June

September 30, 2019, there were no outstanding borrowings under the credit facility nor under the receivables securitization program.
In June 2018, the borrowing capacity of the commercial paper program was increased from $750 million to $1.0 billion. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of JuneSeptember 30, 2019, the Company had $535$245 million of borrowings outstanding under this program at a weighted average interest rate of 2.64%2.29%.
During the first sixnine months of 2019, International Paper used 3.4 million shares of treasury stock for various incentive plans. International Paper also acquired 10.111.9 million shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $460$535 million, including $411$486 million related to shares repurchased under the Company's repurchase program. On October 9, 2018, the Company announced an authorization to repurchase $2 billion of the Company's common stock to supplement remaining amounts under prior share repurchase authorizations, bringing total share repurchase authorizations since 2013 to $5.0 billion. The Company will continue to repurchase such shares in open market repurchase transactions. Under the $5.0 billion share repurchase program, the Company has repurchased 67.168.9 million shares at an average price of $47.37,$47.23, for a total of approximately $3.2$3.3 billion, as of JuneSeptember 30, 2019.
During the first sixnine months of 2018, International Paper used approximately 1.7 million shares of treasury stock for various incentive plans. International Paper also acquired 5.89.6 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $331$532 million. Cash dividend payments related to common stock totaled $398$595 million and $393$588 million for the first sixnine months of 2019 and 2018, respectively. Dividends were $1.0000$1.50 per share and $0.9500$1.42 per share for the first sixnine months in 2019 and 2018, respectively.
International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during the remainder of 2019 with current cash balances and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.
Ilim S.A. Shareholders’ Agreement
In October 2007, in connection with the formation of the Ilim S.A. joint venture (Ilim), International Paper entered into a shareholders' agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement. If these or any other deadlock procedures under the shareholders' agreement are commenced, although it is not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price for its partners' 50% interestsinterest would be approximately $2.3$1.9 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholders' agreement.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions and income taxes.
The Company has included in its 2018 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first sixnine months of 2019.



FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to trade protection measures, the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through joint ventures; (vii) our ability to achieve the benefits we expect from strategic acquisitions, divestitures, restructurings and capital investments, and (viii) other factors you can find in our press releases and filings with the Securities and Exchange Commission, including the risk factors identified in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 3.
Information relating to quantitative and qualitative disclosures about market risk is shown on page 35 of International Paper’s 2018 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2018.
ITEM 4.
Evaluation of Disclosure Controls and Procedures:
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported (and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure) within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of JuneSeptember 30, 2019 (the end of the period covered by this report).
Changes in Internal Control over Financial Reporting:
There have been no changes in our internal control over financial reporting during the quarter ended JuneSeptember 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION
 
ITEM 1.
A discussion of material developments in the Company’s litigation matters occurring in the period covered by this report is found in Note 15 of the Condensed Notes to the Consolidated Financial Statements in this Form 10-Q.
ITEM 1A.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (Part I, Item 1A).
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Plan or ProgramMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
April 1, 2019 - April 30, 20191,745,340
$46.361,744,748
$1.97
May 1, 2019 - May 31, 20192,680,077
44.85
2,678,965
1.85
June 1, 2019 - June 30, 2019692,773
43.32
692,400
1.82
Total5,118,190
   
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Plan or ProgramMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
July 1, 2019 - July 31, 20191,329,575
$43.041,329,064
$1.76
August 1, 2019 - August 31, 2019436,700
38.93
436,700
1.75
September 1, 2019 - September 30, 2019917
40.57

1.75
Total1,767,192
   
(a) 2,0771,429 shares were acquired from employees or board members fromas a result of share withholdings to pay income taxes under the Company's restricted stock programs. The remainder were purchased under a share repurchase program that was approved and increased twice by our Board of Directors and announced on September 10, 2013, July 8, 2014 and October 9, 2018. 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 $3.5$5 billion of shares of our common stock. As of JuneSeptember 30, 2019, approximately $1.82$1.75 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.

ITEM 6. EXHIBITS
4.110.1 
   
31.1  
  
31.2  
  
32  
  
101.INS  XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
  
101.SCH  XBRL Taxonomy Extension Schema.
  
101.CAL  XBRL Taxonomy Extension Calculation Linkbase.
  
101.DEF  XBRL Taxonomy Extension Definition Linkbase.
  
101.LAB  XBRL Taxonomy Extension Label Linkbase.
  
101.PRE  XBRL Extension Presentation Linkbase.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
INTERNATIONAL PAPER COMPANY
                        (Registrant)                         
   
July 31,November 1, 2019By/s/ Tim S. Nicholls
  Tim S. Nicholls
  
Senior Vice President and Chief
Financial Officer
   
July 31,November 1, 2019By/s/ Vincent P. Bonnot
  Vincent P. Bonnot
  Vice President – Finance and Controller

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