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 ~~September~~June 30, ~~2019~~2020

☐ 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 York	13-0872805
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)
~~incorporation of organization)~~	~~Identification No.)~~

6400 Poplar Avenue,	Memphis,	TN Tennessee	38197
(Address of ~~principal executive offices)~~Principal Executive Offices)	(Zip Code)

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

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	IP	New 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 ~~October 25, 2019~~July 24, 2020 was 393,092,857.

~~392,116,473~~.

Table of Contents

INDEX


				PAGE NO.
			PART I. FINANCIAL INFORMATION

Item 1.			Financial Statements	~~PAGE NO.~~
			~~PART I. FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~

	Condensed Consolidated Statement of Operations - Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	1

			Condensed Consolidated Statement of Comprehensive Income - Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	2

			Condensed Consolidated Balance Sheet - ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	3

			Condensed Consolidated Statement of Cash Flows - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4

			Condensed Notes to Consolidated Financial Statements	5

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	3028

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	4746

Item 4.			Controls and Procedures	4746

			PART II. OTHER INFORMATION

Item 1.			Legal Proceedings	4847

Item 1A.			Risk Factors	4847

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	4847

Item 6.			Exhibits	49

Signatures					50

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS


~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018		2019			2018			2020		2019		2020		2019
Net Sales	$	5,568		$	5,901	$	16,878		$	17,355	Net Sales	$	4,866	$	5,667	$	10,218	$	11,310
Costs and Expenses											Costs and Expenses
Cost of products sold	3,772			3,887		11,602			11,757		Cost of products sold	3,427		3,901		7,173		7,830
Selling and administrative expenses	387			405		1,202			1,277		Selling and administrative expenses	332		402		750		815
Depreciation, amortization and cost of timber harvested	327			335		963			990		Depreciation, amortization and cost of timber harvested	312		321		635		636
Distribution expenses	395			397		1,168			1,166		Distribution expenses	365		384		772		773
Taxes other than payroll and income taxes	42			44		128			130		Taxes other than payroll and income taxes	41		43		85		86
Restructuring and other charges, net	21			—		21			48		Restructuring and other charges, net	18		—		26		—
Net (gains) losses on sales and impairments of businesses	8			122		153			122		Net (gains) losses on sales and impairments of businesses	8		152		352		145
Antitrust fines	32			—		32			—
Net (gains) losses on sales of equity method investments											Net (gains) losses on sales of equity method investments	—		—		(33)		—
Interest expense, net	123			133		378			401		Interest expense, net	116		122		233		255
Non-operating pension expense	9			25		27			65
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	452			553		1,204			1,399
Non-operating pension expense (income)											Non-operating pension expense (income)	(14)		8		(20)		18
Earnings (Loss) Before Income Taxes and Equity Earnings											Earnings (Loss) Before Income Taxes and Equity Earnings	261		334		245		752
Income tax provision (benefit)	137			83		371			302		Income tax provision (benefit)	67		128		161		234
Equity earnings (loss), net of taxes	27			92		221			257		Equity earnings (loss), net of taxes	72		80		41		194
Earnings (Loss) From Continuing Operations	342			562		1,054			1,354
Discontinued operations, net of taxes	—			—		—			345
Net Earnings (Loss)	342			562		1,054			1,699		Net Earnings (Loss)	266		286		125		712
Less: Net earnings (loss) attributable to noncontrolling interests	(2		)	—		(6		)	3		Less: Net earnings (loss) attributable to noncontrolling interests	—		(6)		—		(4)
Net Earnings (Loss) Attributable to International Paper Company	$	344		$	562	$	1,060		$	1,696	Net Earnings (Loss) Attributable to International Paper Company	$	266	$	292	$	125	$	716
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders											Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.88		$	1.38	$	2.67		$	3.28
Discontinued operations, net of taxes	—			—		—			0.84
Net earnings (loss)	$	0.88		$	1.38	$	2.67		$	4.12	Net earnings (loss)	$	0.67	$	0.74	$	0.32	$	1.80
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders											Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.87		$	1.37	$	2.65		$	3.25
Discontinued operations, net of taxes	—			—		—			0.83
Net earnings (loss)	$	0.87		$	1.37	$	2.65		$	4.08	Net earnings (loss)	$	0.67	$	0.73	$	0.32	$	1.78
Average Shares of Common Stock Outstanding – assuming dilution	395.4			411.4		399.6			416.3		Average Shares of Common Stock Outstanding – assuming dilution	393.1		398.2		394.0		401.4

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

Table of Contents

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(In millions)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Net Earnings (Loss)	$	342		$	562		$	1,054		$	1,699		Net Earnings (Loss)	$	266	$	286	$	125	$	712
Other Comprehensive Income (Loss), Net of Tax:													Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:													Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans	41			76			122			227			U.S. plans	39		40		85		81
Change in cumulative foreign currency translation adjustment	(179		)	(87		)	(106		)	(467		)	Change in cumulative foreign currency translation adjustment	57		61		(487)		73
Net gains/losses on cash flow hedging derivatives:													Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period	(10		)	1			(6		)	(20		)	Net gains (losses) arising during the period	—		4		(30)		4
Reclassification adjustment for (gains) losses included in net earnings (loss)	4			2			5			2			Reclassification adjustment for (gains) losses included in net earnings (loss)	9		—		20		1
Total Other Comprehensive Income (Loss), Net of Tax	(144		)	(8		)	15			(258		)	Total Other Comprehensive Income (Loss), Net of Tax	105		105		(412)		159
Comprehensive Income (Loss)	198			554			1,069			1,441			Comprehensive Income (Loss)	371		391		(287)		871
Net (earnings) loss attributable to noncontrolling interests	2			—			6			(3		)	Net (earnings) loss attributable to noncontrolling interests	—		6		—		4
Other comprehensive (income) loss attributable to noncontrolling interests	—			2			—			4			Other comprehensive (income) loss attributable to noncontrolling interests	1		—		2		—
Comprehensive Income (Loss) Attributable to International Paper Company	$	200		$	556		$	1,075		$	1,442		Comprehensive Income (Loss) Attributable to International Paper Company	$	372	$	397	$	(285)	$	875

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

Table of Contents

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Balance Sheet

(In millions)


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
	(unaudited)							(unaudited)
Assets							Assets
Current Assets							Current Assets
Cash and temporary investments	$	697		$	589		Cash and temporary investments	$	847	$	511
Accounts and notes receivable, net	3,305			3,521			Accounts and notes receivable, net	3,060		3,280
Contract assets	388			395			Contract assets	401		393
Inventories	2,194			2,241			Inventories	2,010		2,208
Assets held for sale	278			—			Assets held for sale	112		—
Other current assets	189			250			Other current assets	169		247
Total Current Assets	7,051			6,996			Total Current Assets	6,599		6,639
Plants, Properties and Equipment, net	12,845			13,067			Plants, Properties and Equipment, net	12,586		13,004
Forestlands	378			402			Forestlands	293		391
Investments	1,651			1,648			Investments	1,407		1,721
Financial Assets of Variable Interest Entities (Note 16)	7,084			7,070			Financial Assets of Variable Interest Entities (Note 16)	7,098		7,088
Goodwill	3,412			3,374			Goodwill	3,304		3,347
Right of Use Assets	425			—			Right of Use Assets	425		434
Deferred Charges and Other Assets	1,002			1,019			Deferred Charges and Other Assets	807		847
Total Assets	$	33,848		$	33,576		Total Assets	$	32,519	$	33,471
Liabilities and Equity							Liabilities and Equity
Current Liabilities							Current Liabilities
Notes payable and current maturities of long-term debt	$	402		$	639		Notes payable and current maturities of long-term debt	$	33	$	168
Current nonrecourse financial liabilities of variable interest entities (Note 16)							Current nonrecourse financial liabilities of variable interest entities (Note 16)	4,220		4,220
Accounts payable	2,349			2,413			Accounts payable	2,206		2,423
Accrued payroll and benefits	442			535			Accrued payroll and benefits	406		466
Liabilities held for sale	248			—			Liabilities held for sale	368		—
Other current liabilities	1,288			1,107			Other current liabilities	1,097		1,369
Total Current Liabilities	4,729			4,694			Total Current Liabilities	8,330		8,646
Long-Term Debt	9,957			10,015			Long-Term Debt	9,432		9,597
Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)	6,303			6,298
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)							Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)	2,089		2,085
Deferred Income Taxes	2,643			2,600			Deferred Income Taxes	2,654		2,633
Pension Benefit Obligation	1,653			1,762			Pension Benefit Obligation	1,472		1,578
Postretirement and Postemployment Benefit Obligation	248			264			Postretirement and Postemployment Benefit Obligation	249		270
Long-Term Lease Obligations	292			—			Long-Term Lease Obligations	294		304
Other Liabilities	567			560			Other Liabilities	939		640
Equity							Equity
Common stock, $1 par value, 2019 – 448.9 shares and 2018 – 448.9 shares	449			449
Common stock, $1 par value, 2020 – 448.9 shares and 2019 – 448.9 shares							Common stock, $1 par value, 2020 – 448.9 shares and 2019 – 448.9 shares	449		449
Paid-in capital	6,261			6,280			Paid-in capital	6,283		6,297
Retained earnings	8,447			7,465			Retained earnings	8,123		8,408
Accumulated other comprehensive loss	(5,014		)	(4,500		)	Accumulated other comprehensive loss	(5,149)		(4,739)
	10,143			9,694				9,706		10,415
Less: Common stock held in treasury, at cost, 2019 – 56.8 shares and 2018 – 48.3 shares	2,702			2,332
Less: Common stock held in treasury, at cost, 2020 – 55.8 shares and 2019 – 56.8 shares							Less: Common stock held in treasury, at cost, 2020 – 55.8 shares and 2019 – 56.8 shares	2,649		2,702
Total International Paper Shareholders’ Equity	7,441			7,362			Total International Paper Shareholders’ Equity	7,057		7,713
Noncontrolling interests	15			21			Noncontrolling interests	3		5
Total Equity	7,456			7,383			Total Equity	7,060		7,718
Total Liabilities and Equity	$	33,848		$	33,576		Total Liabilities and Equity	$	32,519	$	33,471

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

Table of Contents

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In millions)


	Six Months Ended June 30,
	2020		2019
Operating Activities
Net earnings (loss)	$	125	$	712
Depreciation, amortization and cost of timber harvested	635		636
Deferred income tax provision (benefit), net	12		50
Restructuring and other charges, net	26		—
Net (gains) losses on sales and impairments of businesses	352		145
Net (gains) losses on sales of equity method investments	(33)		—
Equity method dividends received	151		251
Equity (earnings) losses, net	(41)		(194)
Periodic pension expense, net	16		47
Other, net	109		55
Changes in current assets and liabilities
Accounts and notes receivable	74		48
Contract assets	(11)		(4)
Inventories	65		48
Accounts payable and accrued liabilities	(37)		2
Interest payable	—		1
Other	96		3
Cash Provided By (Used For) Operations	1,539		1,800
Investment Activities
Invested in capital projects, net of insurance recoveries	(538)		(628)
Acquisitions, net of cash acquired	(64)		(99)
Proceeds from sales of businesses, net of cash divested	—		17
Proceeds from sales of equity method investments	250		—
Proceeds from sale of fixed assets	3		4
Other	15		(9)
Cash Provided By (Used For) Investment Activities	(334)		(715)
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding	(41)		(460)
Issuance of debt	579		444
Reduction of debt	(917)		(452)
Change in book overdrafts	(10)		(14)
Dividends paid	(403)		(398)
Other	(25)		4
Cash Provided By (Used For) Financing Activities	(817)		(876)
Cash Included in Assets Held for Sale	(13)		(21)
Effect of Exchange Rate Changes on Cash	(39)		10
Change in Cash and Temporary Investments	336		198
Cash and Temporary Investments
Beginning of period	511		589
End of period	$	847	$	787

Nine Months Ended
September 30,
2019 2018
Operating Activities
Net earnings (loss) $ 1,054
$ 1,699
Depreciation, amortization and cost of timber harvested 963
990
Deferred income tax provision (benefit), net 68
163
Restructuring and other charges, net 21
48
Net gain on transfer of North American Consumer Packaging business —
(488 )
Net (gains) losses on sales and impairments of businesses 153
122
Antitrust fines 32
—
Equity method dividends received 260
130
Equity (earnings) losses, net (221 ) (257 )
Periodic pension expense, net 70
172
Other, net 106
75
Changes in current assets and liabilities
Accounts and notes receivable 168
(441 )
Contract assets 6
(20 )
Inventories (9 ) (120 )
Accounts payable and accrued liabilities (11 ) 301
Interest payable (31 ) (33 )
Other 53
64
Cash Provided By (Used For) Operations 2,682
2,405
Investment Activities
Invested in capital projects (913 ) (1,286 )
Acquisitions, net of cash acquired (99 ) —
Net settlement on transfer of North American Consumer Packaging business —
(40 )
Proceeds from divestitures, net of cash divested 17
—
Proceeds from sale of fixed assets 15
12
Other (14 ) 4
Cash Provided By (Used For) Investment Activities (994 ) (1,310 )
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding (535 ) (532 )
Issuance of debt 381
349
Reduction of debt (772 ) (242 )
Change in book overdrafts (29 ) (33 )
Dividends paid (595 ) (588 )
Other 3
—
Cash Provided By (Used For) Financing Activities (1,547 ) (1,046 )
Cash Included in Assets Held for Sale (19 ) —
Effect of Exchange Rate Changes on Cash (14 ) (41 )
Change in Cash and Temporary Investments 108
8
Cash and Temporary Investments
Beginning of period 589
1,018
End of period $ 697
$ 1,026

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

Table of Contents

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 ~~nine~~six 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,~~2019, which have previously been filed with the Securities and Exchange Commission.

On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. Governments of countries in which we operate have generally considered forest products and the supply chain on which we depend to be “essential industries” that should remain operational during this pandemic. Accordingly, our manufacturing and converting facilities remain open; however, we have seen a significant negative impact on demand for our printing papers products and demand for our pulp, containerboard and corrugated box products is expected to be unfavorably impacted if the negative economic conditions associated with COVID-19 persist or continue to deteriorate.

There continue to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the various economic reopening plans and the resurgence of the virus in many areas; additional actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact; the extent and duration of social distancing and stay-at-home orders; the possibility of development of a vaccine; and the ongoing impact of COVID-19 on unemployment, economic activity and consumer confidence. As a result, we are unable to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020, but developments related to COVID-19 are significantly adversely affecting our business, and could have a material adverse effect on our financial condition, results of operations and cash flows, particularly if negative global economic conditions persist for a significant period of time or continue to deteriorate.

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 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 performed 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 impairment of a 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. The Company adopted this guidance using the modified retrospective approach on January 1, 2020. As a result of using this approach, the Company recognized a cumulative effect adjustment of $2 million to the opening balance of retained earnings representing the adjustment to our opening allowance for doubtful accounts required to state our trade receivables and contract assets net of their expected credit losses, net of deferred taxes.

Recently Issued Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This guidance provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the provisions of this guidance.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This guidance removes certain exceptions from recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including

Table of Contents

recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance is effective for annual reporting periods beginning after December 15, ~~2019,~~

~~including~~2020, and interim periods within those ~~fiscal~~ years. Early adoption of the amendments 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 amendmentspermitted, including adoption in ~~this Update provide~~any interim period for public business entities ~~with targeted transition relief that is intended to increase comparability of~~for periods for which 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 thatstatements 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.~~been issued. 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 any cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings.guidance.

~~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 provides 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, 2020
In millions	Industrial Packaging		Global Cellulose Fibers		Printing Papers		Corporate and Inter-segment Sales		Total
Primary Geographical Markets (a)
United States	$	3,065	$	534	$	263	$	44	$	3,906
EMEA	379		60		219		(6)		652
Pacific Rim and Asia	16		11		6		7		40
Americas, other than U.S.	173		—		95		—		268
Total	$	3,633	$	605	$	583	$	45	$	4,866

Operating Segments
North American Industrial Packaging	$	3,241	$	—	$	—	$	—	$	3,241
EMEA Industrial Packaging	297		—		—		—		297
Brazilian Industrial Packaging	42		—		—		—		42
European Coated Paperboard	84		—		—		—		84
Global Cellulose Fibers	—		605		—		—		605
North American Printing Papers	—		—		265		—		265
Brazilian Papers	—		—		108		—		108
European Papers	—		—		209		—		209
Indian Papers	—		—		—		—		—
Intra-segment Eliminations	(31)		—		1		—		(30)
Corporate & Inter-segment Sales			—		—		45		45
Total	$	3,633	$	605	$	583	$	45	$	4,866

Three Months Ended September 30, 2019
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate and Inter-segment Sales Total
Primary Geographical Markets (a)
United States $ 3,180
$ 535
$ 486
$ 56
$ 4,257
EMEA 415
62
315
(1 ) 791
Pacific Rim and Asia 20
27
47
3
97
Americas, other than U.S. 205
—
223
(5 ) 423
Total $ 3,820
$ 624
$ 1,071
$ 53
$ 5,568

Operating Segments
North American Industrial Packaging $ 3,368
$ —
$ —
$ —
$ 3,368
EMEA Industrial Packaging 324
—
—
—
324
Brazilian Industrial Packaging 61
—
—
—
61
European Coated Paperboard 92
—
—
—
92
Global Cellulose Fibers —
624
—
—
624
North American Printing Papers —
—
492
—
492
Brazilian Papers —
—
247
—
247
European Papers —
—
299
—
299
Indian Papers —
—
38
—
38
Intra-segment Eliminations (25 ) —
(5 ) —
(30 )
Corporate & Inter-segment Sales

—
—
53
53
Total $ 3,820
$ 624
$ 1,071
$ 53
$ 5,568

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

Table of Contents


	Nine Months Ended September 30, 2019															Six Months Ended June 30, 2020
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate and Inter-segment Sales			Total			In millions	Industrial Packaging		Global Cellulose Fibers		Printing Papers		Corporate and Inter-segment Sales		Total
Primary Geographical Markets (a)															Primary Geographical Markets (a)
United States	$	9,531		$	1,656	$	1,448		$	174		$	12,809		United States	$	6,195	$	1,028	$	707	$	102	$	8,032
EMEA	1,263			207		986			(8		)	2,448			EMEA	819		116		521		(8)		1,448
Pacific Rim and Asia	50			111		167			9			337			Pacific Rim and Asia	28		29		14		10		81
Americas, other than U.S.	672			—		623			(11		)	1,284			Americas, other than U.S.	410		—		249		(2)		657
Total	$	11,516		$	1,974	$	3,224		$	164		$	16,878		Total	$	7,452	$	1,173	$	1,491	$	102	$	10,218

Operating Segments															Operating Segments
North American Industrial Packaging	$	10,158		$	—	$	—		$	—		$	10,158		North American Industrial Packaging	$	6,596	$	—	$	—	$	—	$	6,596
EMEA Industrial Packaging	994			—		—			—			994			EMEA Industrial Packaging	647		—		—		—		647
Brazilian Industrial Packaging	176			—		—			—			176			Brazilian Industrial Packaging	96		—		—		—		96
European Coated Paperboard	275			—		—			—			275			European Coated Paperboard	176		—		—		—		176
Global Cellulose Fibers	—			1,974		—			—			1,974			Global Cellulose Fibers	—		1,173		—		—		1,173
North American Printing Papers	—			—		1,474			—			1,474			North American Printing Papers	—		—		711		—		711
Brazilian Papers	—			—		702			—			702			Brazilian Papers	—		—		284		—		284
European Papers	—			—		929			—			929			European Papers	—		—		496		—		496
Indian Papers	—			—		144			—			144			Indian Papers	—		—		—		—		—
Intra-segment Eliminations	(87		)	—		(25		)	—			(112		)	Intra-segment Eliminations	(63)		—		—		—		(63)
Corporate & Inter-segment Sales				—		—			164			164			Corporate & Inter-segment Sales			—		—		102		102
Total	$	11,516		$	1,974	$	3,224		$	164		$	16,878		Total	$	7,452	$	1,173	$	1,491	$	102	$	10,218

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

Table of Contents


	Three Months Ended September 30, 2018															Three Months Ended June 30, 2019
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate & Intersegment			Total			In millions	Industrial Packaging		Global Cellulose Fibers		Printing Papers		Corporate & Intersegment		Total
Primary Geographical Markets (a)															Primary Geographical Markets (a)
United States	$	3,394		$	602	$	482		$	52		$	4,530		United States	$	3,205	$	551	$	474	$	58	$	4,288
EMEA	396			77		328			(4		)	797			EMEA	420		64		341		(5)		820
Pacific Rim and Asia	40			35		62			6			143			Pacific Rim and Asia	12		46		61		2		121
Americas, other than U.S.	204			—		230			(3		)	431			Americas, other than U.S.	227		—		212		(1)		438
Total	$	4,034		$	714	$	1,102		$	51		$	5,901		Total	$	3,864	$	661	$	1,088	$	54	$	5,667

Operating Segments															Operating Segments
North American Industrial Packaging	$	3,653		$	—	$	—		$	—		$	3,653		North American Industrial Packaging	$	3,414	$	—	$	—	$	—	$	3,414
EMEA Industrial Packaging	311			—		—			��			311			EMEA Industrial Packaging	331		—		—		—		331
Brazilian Industrial Packaging	57			—		—			—			57			Brazilian Industrial Packaging	58		—		—		—		58
European Coated Paperboard	87			—		—			—			87			European Coated Paperboard	92		—		—		—		92
Global Cellulose Fibers	—			714		—			—			714			Global Cellulose Fibers	—		661		—		—		661
North American Printing Papers	—			—		492			—			492			North American Printing Papers	—		—		486		—		486
Brazilian Papers	—			—		255			—			255			Brazilian Papers	—		—		240		—		240
European Papers	—			—		311			—			311			European Papers	—		—		321		—		321
Indian Papers	—			—		47			—			47			Indian Papers	—		—		53		—		53
Intra-segment Eliminations	(74		)	—		(3		)	—			(77		)	Intra-segment Eliminations	(31)		—		(12)		—		(43)
Corporate & Inter-segment Sales	—			—		—			51			51			Corporate & Inter-segment Sales	—		—		—		54		54
Total	$	4,034		$	714	$	1,102		$	51		$	5,901		Total	$	3,864	$	661	$	1,088	$	54	$	5,667

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


	Six Months Ended June 30, 2019
In millions	Industrial Packaging		Global Cellulose Fibers		Printing Papers		Corporate & Intersegment		Total
Primary Geographical Markets (a)
United States	$	6,351	$	1,121	$	962	$	118	$	8,552
EMEA	848		145		671		(7)		1,657
Pacific Rim and Asia	30		84		120		6		240
Americas, other than U.S.	467		—		400		(6)		861
Total	$	7,696	$	1,350	$	2,153	$	111	$	11,310

Operating Segments
North American Industrial Packaging	$	6,790	$	—	$	—	$	—	$	6,790
EMEA Industrial Packaging	670		—		—		—		670
Brazilian Industrial Packaging	115		—		—		—		115
European Coated Paperboard	183		—		—		—		183
Global Cellulose Fibers	—		1,350		—		—		1,350
North American Printing Papers	—		—		982		—		982
Brazilian Papers	—		—		455		—		455
European Papers	—		—		630		—		630
Indian Papers	—		—		106		—		106
Intra-segment Eliminations	(62)		—		(20)		—		(82)
Corporate & Inter-segment Sales	—		—		—		111		111
Total	$	7,696	$	1,350	$	2,153	$	111	$	11,310

Table of Contents

Nine Months Ended September 30, 2018
In millions Industrial Packaging Global Cellulose Fibers Printing Papers Corporate & Intersegment Total
Primary Geographical Markets (a)

United States $ 9,832
$ 1,720
$ 1,399
$ 163
$ 13,114
EMEA 1,275
222
988
(13 ) 2,472
Pacific Rim and Asia 110
140
185
35
470
Americas, other than U.S. 666
1
643
(11 ) 1,299
Total $ 11,883
$ 2,083
$ 3,215
$ 174
$ 17,355

Operating Segments
North American Industrial Packaging $ 10,604
$ —
$ —
$ —
$ 10,604
EMEA Industrial Packaging 1,017
—
—
—
1,017
Brazilian Industrial Packaging 175
—
—
—
175
European Coated Paperboard 265
—
—
—
265
Global Cellulose Fibers —
2,083
—
—
2,083
North American Printing Papers —
—
1,443
—
1,443
Brazilian Papers —
—
706
—
706
European Papers —
—
932
—
932
Indian Papers —
—
150
—
150
Intra-segment Eliminations (178 ) —
(16 ) —
(194 )
Corporate & Inter-segment Sales —
—
—
174
174
Total $ 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)
Beginning Balance - January 1, 2019 $ 395
$ 56
Ending Balance -September 30, 2019 388
28
Increase / (Decrease) $ (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. Contract liabilities of $26 million and $56 million are included in Other current liabilities in the accompanying condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019, respectively.

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~~N OTE 4 - EQUITY

A summary of the changes in equity for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is provided below:


	Three Months Ended June 30, 2020
In millions, except per share amounts	Common Stock Issued		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held In Treasury, At Cost		Total International Paper Shareholders’ Equity		Noncontrolling Interests		Total Equity
Balance, April 1	$	449	$	6,252	$	8,062	$	(5,255)	$	2,651	$	6,857	$	4	$	6,861
Issuance of stock for various plans, net	—		2		—		—		(2)		4		—		4

Common stock dividends ($0.5125 per share)	—		—		(205)		—		—		(205)		—		(205)
Transactions of equity method investees	—		29		—		—		—		29		—		29
Comprehensive income (loss)	—		—		266		106		—		372		(1)		371
Ending Balance, June 30	$	449	$	6,283	$	8,123	$	(5,149)	$	2,649	$	7,057	$	3	$	7,060

Three Months Ended September 30, 2019
In millions, except per share amounts Common Stock Issued Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock
Total
International
Paper
Shareholders’
Equity

Noncontrolling
Interests

Total
Equity

Balance, July 1 $ 449
$ 6,229
$ 8,302
$ (4,870 ) $ 2,628
$ 7,482
$ 17
$ 7,499

Issuance of stock for various plans, net —
32
—
—
(1 ) 33
—
33

Repurchase of stock —
—
—
—
75
(75 ) —
(75 )
Common stock dividends
($0.5000 per share)
—
—
(199 ) —
—
(199 ) —
(199 )
Transactions of equity method investees —
—
—
—
—
—
—
—

Comprehensive income (loss) —
—
344
(144 ) —
200
(2 ) 198

Ending Balance, September 30 $ 449
$ 6,261
$ 8,447
$ (5,014 ) $ 2,702
$ 7,441
$ 15
$ 7,456


	Six Months Ended June 30, 2020
In millions, except per share amounts	Common Stock Issued		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held In Treasury, At Cost		Total International Paper Shareholders’ Equity		Noncontrolling Interests		Total Equity
Balance, January 1	$	449	$	6,297	$	8,408	$	(4,739)	$	2,702	$	7,713	$	5	$	7,718
Adoption of ASU 2016-13 measurement of credit losses on financial instruments	—		—		(2)		—		—		(2)		—		(2)
Issuance of stock for various plans, net	—		(49)		—		—		(94)		45		—		45
Repurchase of stock	—		—		—		—		41		(41)		—		(41)
Common stock dividends ($1.0250 per share)	—		—		(408)		—		—		(408)		—		(408)
Transactions of equity method investees	—		35		—		—		—		35		—		35
Comprehensive income (loss)	—		—		125		(410)		—		(285)		(2)		(287)
Ending Balance, June 30	$	449	$	6,283	$	8,123	$	(5,149)	$	2,649	$	7,057	$	3	$	7,060

Nine Months Ended September 30, 2019
In millions, except per share amounts Common Stock Issued Paid-in Capital Retained Earnings Accumulated 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

Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform —
—
529
(529 ) —
—
—
—

Issuance of stock for various plans, net —
(52 ) —
—
(165 ) 113
—
113

Repurchase of stock —
—
—
—
535
(535 ) —
(535 )
Common stock dividends
($1.5000 per share)
—
—
(607 ) —
—
(607 ) —
(607 )
Transactions of equity method investees —
33
—
—
—
33
—
33

Comprehensive income (loss) —
—
1,060
15
—
1,075
(6 ) 1,069

Ending Balance, September 30 $ 449
$ 6,261
$ 8,447
$ (5,014 ) $ 2,702
$ 7,441
$ 15
$ 7,456

Table of Contents


	Three Months Ended June 30, 2019
In millions, except per share amounts	Common Stock Issued		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held In Treasury, At Cost		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
Issuance of stock for various plans, net	—		34		—		—		(1)		35		—		35
Repurchase of stock	—		—		—		—		231		(231)		—		(231)
Common stock dividends ($0.5000 per share)	—		—		(201)		—		—		(201)		—		(201)
Transactions of equity method investees	—		36		—		—		—		36		—		36
Comprehensive income (loss)	—		—		292		105		—		397		(6)		391
Ending Balance, June 30	$	449	$	6,229	$	8,302	$	(4,870)	$	2,628	$	7,482	$	17	$	7,499

Three Months Ended September 30, 2018
In millions, except per share amounts Common Stock Issued Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock
Total
International
Paper
Shareholders’
Equity

Noncontrolling
Interests

Total
Equity

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

Repurchase of stock —
—
—
—
201
(201 ) —
(201 )
Common stock dividends ($0.4750 per share) —
—
(197 ) —
—
(197 ) —
(197 )
Transactions of equity method investees —
1
—
—
—
1
—
1

Comprehensive income (loss) —
—
562
(6 ) —
556
(2 ) 554

Ending Balance, September 30 $ 449
$ 6,256
$ 7,353
$ (4,887 ) $ 2,131
$ 7,040
$ 18
$ 7,058


	Six Months Ended June 30, 2019
In millions, except per share amounts	Common Stock Issued		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held In Treasury, At Cost		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
Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform	—		—		529		(529)		—		—		—		—
Issuance of stock for various plans, net	—		(84)		—		—		(164)		80		—		80
Repurchase of stock	—		—		—		—		460		(460)		—		(460)
Common stock dividends ($1.0000 per share)	—		—		(408)		—		—		(408)		—		(408)
Transactions of equity method investees	—		33		—		—		—		33		—		33
Comprehensive income (loss)	—		—		716		159		—		875		(4)		871
Ending Balance, June 30	$	449	$	6,229	$	8,302	$	(4,870)	$	2,628	$	7,482	$	17	$	7,499

Nine Months Ended September 30, 2018
In millions, except per share amounts Common Stock Issued Paid-in Capital Retained Earnings Accumulated 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

Adoption of ASC 606 revenue from contracts with customers —
—
73
—
—
73
—
73

Issuance of stock for various plans, net —
31
—
—
(81 ) 112
—
112

Repurchase of stock —
—
—
—
532
(532 ) —
(532 )
Common stock dividends ($1.4250 per share) —
—
(596 ) —
—
(596 ) —
(596 )
Transactions of equity method investees —
19
—
—
—
19
—
19

Comprehensive income (loss) —
—
1,696
(254 ) —
1,442
(1 ) 1,441

Ending Balance, September 30 $ 449
$ 6,256
$ 7,353
$ (4,887 ) $ 2,131
$ 7,040
$ 18
$ 7,058

Table of Contents

~~NOTE~~N OTE 5 - OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income (AOCI) for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period $ (2,362 ) $ (2,376 ) $ (1,916 ) $ (2,527 )
Reclassification of stranded tax effects —
—
(527 ) —
Amounts reclassified from accumulated other comprehensive income 41
76
122
227
Balance at end of period (2,321 ) (2,300 ) (2,321 ) (2,300 )
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period (2,508 ) (2,489 ) (2,581 ) (2,111 )
Other comprehensive income (loss) before reclassifications (179 ) (87 ) (110 ) (469 )
Amounts reclassified from accumulated other comprehensive income —
—
4
2
Other comprehensive income (loss) attributable to noncontrolling interest —
2
—
4
Balance at end of period (2,687 ) (2,574 ) (2,687 ) (2,574 )
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period —
(16 ) (3 ) 5
Other comprehensive income (loss) before reclassifications (10 ) 1
(6 ) (20 )
Reclassification of stranded tax effects —
—
(2 ) —
Amounts reclassified from accumulated other comprehensive income 4
2
5
2
Balance at end of period (6 ) (13 ) (6 ) (13 )
Total Accumulated Other Comprehensive Income (Loss) at End of Period $ (5,014 ) $ (4,887 ) $ (5,014 ) $ (4,887 )


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period	$	(2,231)	$	(2,402)	$	(2,277)	$	(1,916)
Reclassification of stranded tax effects	—		—		—		(527)
Amounts reclassified from accumulated other comprehensive income	39		40		85		81
Balance at end of period	(2,192)		(2,362)		(2,192)		(2,362)
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period	(3,008)		(2,569)		(2,465)		(2,581)
Other comprehensive income (loss) before reclassifications	57		61		(487)		69
Amounts reclassified from accumulated other comprehensive income	—		—		—		4
Other comprehensive income (loss) attributable to noncontrolling interest	1		—		2		—
Balance at end of period	(2,950)		(2,508)		(2,950)		(2,508)
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period	(16)		(4)		3		(3)
Other comprehensive income (loss) before reclassifications	—		4		(30)		4
Reclassification of stranded tax effects	—		—		—		(2)
Amounts reclassified from accumulated other comprehensive income	9		—		20		1
Balance at end of period	(7)		—		(7)		—
Total Accumulated Other Comprehensive Income (Loss) at End of Period	$	(5,149)	$	(4,870)	$	(5,149)	$	(4,870)

Table of Contents

The following table presents details of the reclassifications out of AOCI for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


In millions:	Amounts Reclassified from Accumulated Other Comprehensive Income													Location of Amount Reclassified from AOCI	In millions:	Amounts Reclassified from Accumulated Other Comprehensive Income																Location of Amount Reclassified from AOCI
	Three Months Ended September 30,						Nine Months Ended September 30,											Three Months Ended June 30,									Six Months Ended June 30,				Location of Amount Reclassified from AOCI
	2019			2018			2019			2018								2020			2019			2020			2019			Location of Amount Reclassified from AOCI
Defined benefit pension and postretirement items:															Defined benefit pension and postretirement items:
Prior-service costs	$	(4	)	$	(4	)	$	(10	)	$	(11	)	(a)	Non-operating pension expense	Prior-service costs	$	(5)		$	(3)		$	(10)		$	(6)		(a)	Non-operating pension expense
Actuarial gains (losses)	(50		)	(97		)	(152		)	(291		)	(a)	Non-operating pension expense	Actuarial gains (losses)	(47)			(50)			(103)			(102)			(a)	Non-operating pension expense
Total pre-tax amount	(54		)	(101		)	(162		)	(302		)			Total pre-tax amount	(52)			(53)			(113)			(108)
Tax (expense) benefit	13			25			40			75					Tax (expense) benefit	13			13			28			27
Net of tax	(41		)	(76		)	(122		)	(227		)			Net of tax	(39)			(40)			(85)			(81)
Reclassification of stranded tax effects	—			—			527			—				Retained Earnings	Reclassification of stranded tax effects	—			—			—			527				Retained Earnings
Total, net of tax	(41		)	(76		)	405			(227		)			Total, net of tax	(39)			(40)			(85)			446

Change in cumulative foreign currency translation adjustments:															Change in cumulative foreign currency translation adjustments:
Business acquisitions/divestitures	—			—			(4		)	(2		)	(b)	Cost of products sold	Business acquisitions/divestitures	—			—			—			(4)				Cost of products sold
Tax (expense) benefit	—			—			—			—					Tax (expense) benefit	—			—			—			—
Net of tax	—			—			(4		)	(2		)			Net of tax	—			—			—			(4)

Net gains and losses on cash flow hedging derivatives:															Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts	(6		)	(3		)	(7		)	(3		)	(c)	Cost of products sold	Foreign exchange contracts	(14)			—			(31)			(1)			(b)	Cost of products sold
Total pre-tax amount	(6		)	(3		)	(7		)	(3		)			Total pre-tax amount	(14)			—			(31)			(1)
Tax (expense)/benefit	2			1			2			1					Tax (expense)/benefit	5			—			11			—
Net of tax	(4		)	(2		)	(5		)	(2		)			Net of tax	(9)			—			(20)			(1)
Reclassification of stranded tax effects	—			—			2			—				Retained Earnings	Reclassification of stranded tax effects	—			—			—			2				Retained Earnings
Total, net of tax	(4		)	(2		)	(3		)	(2		)			Total, net of tax	(9)			—			(20)			1
Total reclassifications for the period	$	(45	)	$	(78	)	$	398		$	(231	)			Total reclassifications for the period	$	(48)		$	(40)		$	(105)		$	443


~~(a)~~	(a)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19~~Note 19~~ for additional details).


~~(b)~~	~~Amounts for the three months and nine months ended September 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).~~

(b)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,
In millions, except per share amounts	2020		2019		2020		2019
Earnings (loss) attributable to International Paper Company common shareholders	$	266	$	292	$	125	$	716
Weighted average common shares outstanding	393.1		396.1		392.9		398.3
Effect of dilutive securities
Restricted performance share plan	—		2.1		1.1		3.1
Weighted average common shares outstanding – assuming dilution	393.1		398.2		394.0		401.4
Basic earnings (loss) per share attributable to International Paper Company Common Shareholders	$	0.67	$	0.74	$	0.32	$	1.80
Diluted earnings (loss) per share attributable to International Paper Company Common Shareholders	$	0.67	$	0.73	$	0.32	$	1.78

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions, except per share amounts 2019 2018 2019 2018
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders $ 344
$ 562
$ 1,060
$ 1,351
Weighted average common shares outstanding 392.6
407.4
396.3
411.4
Effect of dilutive securities
Restricted performance share plan 2.8
4.0
3.3
4.9
Weighted average common shares outstanding – assuming dilution 395.4
411.4
399.6
416.3
Basic earnings (loss) per share from continuing operations $ 0.88
$ 1.38
$ 2.67
$ 3.28
Diluted earnings (loss) per share from continuing operations $ 0.87
$ 1.37
$ 2.65
$ 3.25

Table of Contents

NOTE 7 - RESTRUCTURING AND OTHER CHARGES, NET

~~2019:~~

2020: During the three months ended ~~September~~June 30, ~~2019,~~2020, the Company recorded an ~~$11~~$18 million pre-tax charge in Corporate ~~a $6~~related to early debt extinguishment costs.

During the three months ended March 31, 2020, the Company recorded an $8 million pre-tax charge in ~~the Printing Papers segment, and a $4 million pre-tax charge in the Global Cellulose Fibers segment for severance~~Corporate related to ~~an overhead cost reduction initiative. The majority of the severance is expected to be paid over the next twelve months.~~early debt extinguishment costs.

2019:

There were no0 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

2020: In May 2020, the Company increased its noncontrolling interest in an entity that produces corrugated sheets. The equity purchase price was $64 million. The Company is party to various agreements with the entity which includes a containerboard supply agreement. The Company will account for its interest as an equity method investment.

2019: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 ~~€72~~€71 million (approximately ~~$82~~$81 million at June 30, 2019 exchange rates)~~, subject to post-closing adjustments.~~.

The following table summarizes the ~~provisional~~final fair value assigned to assets and liabilities acquired as of June 28, 2019:


In millions
Cash and temporary investments	$	2
Accounts and notes receivable	22
Inventory	8
Plants, properties and equipment	37
Goodwill	27
Intangible assets	14
Right of use assets	3
Deferred charges and other assets	2
Total assets acquired	$	115
Short-term debt	$	2
Accounts payable and accrued liabilities	17
Other current liabilities	5
Deferred income taxes	4
Long-term debt	1
Postretirement and postemployment benefit obligation	3
Long-term lease obligations	2
Total liabilities assumed	34
Net assets acquired	$	81

In millions
Cash and temporary investments $ 1
Accounts and notes receivable 23
Inventory 8
Plants, properties and equipment 28
Goodwill 48
Right of use assets 2
Total assets acquired 110
Accounts payable and accrued liabilities 20
Other current liabilities 1
Long-term debt 2
Postretirement and postemployment benefit obligation 3
Long-term lease obligations 2
Total liabilities assumed 28
Net assets acquired $ 82

Since the date of acquisition, Net sales of $25 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $2 million from the acquired business have been included in the Company's consolidated statement of operations for the three 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 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. The results of the operations of these businesses do not have a material effect on the Company's condensed 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
September 30, Nine Months Ended
September 30,
In millions 2018 2018
Net Sales $ —
$ —
Costs and Expenses
Selling and administrative expenses —
25
(Gain) loss on transfer of business —
(488 )
Earnings (Loss) Before Income Taxes and Equity Earnings —
463
Income tax provision (benefit) —
118
Discontinued Operations, Net of Taxes $ —
$ 345

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

~~Other Divestitures~~

2020:On ~~May~~March 29, ~~2019,~~2020, 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~~Brazilian Industrial Packaging business for ~~₨275 (Indian Rupees) per share.~~R$330 million (approximately $60.3 million using the June 30, 2020 exchange rate), with R$280 to be paid at closing and R$50 one year thereafter, subject to the final working capital adjustments. This business includes 3 containerboard mills and 4 box plants and the agreement follows International ~~Paper then owned approximately 30 million shares, or 75%~~Paper's previously announced strategic review of the ~~outstanding shares~~Brazilian Industrial Packaging business. This transaction is expected to close in the second half of ~~APPM.~~2020, subject to certain closing conditions and regulatory approvals.

Table of Contents

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~~$344 million ($~~150~~337 million after taxes) was recorded during the ~~second~~first quarter of ~~2019.~~2020. During the ~~third~~second quarter, ~~of 2019,~~ the Company recorded an additional charge of $8 million ~~(before and~~($6 million after taxes), which included $2a $5 million ~~related to the change in cumulative foreign currency translation~~ loss ~~and a $6~~($3 million ~~loss~~after taxes) related to the change in the book value of the long-lived assets of ~~APPM~~the Brazilian Industrial Packaging business compared to ~~the~~their estimated fair value ofand a $3 million loss related to the ~~disposal group.~~change in cumulative foreign currency translation loss. These charges are included in ~~the~~ Net (gains) losses on sales and impairments of businesses ~~line item~~ in the accompanying condensed consolidated statement of operations and is included in the results for the ~~Printing Papers~~Industrial Packaging segment. ~~A year-to-~~

~~date loss of $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 ~~September~~June 30, ~~2019,~~2020, all assets and liabilities related to ~~APPM~~the Brazilian Industrial Packaging business are classified as current assets held for sale and current liabilities held for sale in the accompanying condensed consolidated balance sheet.

The following summarizes the major classes of assets and liabilities of ~~APPM~~this business reconciled to total Assets held for sale and total Liabilities held for sale in the accompanying condensed consolidated balance ~~sheet:~~sheet.

In millions September 30, 2019
Cash and temporary investments $ 19
Accounts and notes receivable 16
Inventories 23
Other current assets 19
Plants, properties and equipment 195
Deferred charges and other assets 6
Total Assets Held for Sale $ 278

Accounts payable and accrued liabilities $ 18
Other current liabilities 22
Deferred income taxes 47
Other liabilities 1
Net impairment reserve 160
Total Liabilities Held for Sale $ 248


In millions	June 30, 2020
Cash and temporary investments	$	13
Accounts and notes receivable	35
Inventories	24
Other current assets	1
Plants, properties and equipment (net of impairment)	22
Deferred income taxes	13
Deferred charges and other assets	4
Total Assets Held for Sale	$	112

Accounts payable and accrued liabilities	$	32
Other liabilities	9
Impairment reserve (cumulative foreign currency translation)	327
Total Liabilities Held for Sale	$	368

2019: On October 30, 2019, the Company closed the previously announced sale of its controlling interest in International Paper APPM Limited (APPM) to West Coast Paper Mills (WCPM). During the second quarter of 2020 the Company sold substantially all of its remaining investment and recorded a gain of $6 million. The fair value of the Company's remaining investment at June 30, 2020 is immaterial.

NOTE 10 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Temporary Investments

Temporary investments with an original maturity of three months or less and money market funds with greater than three month maturities but with the right to redeem without notices are treated as cash equivalents and are stated at cost. Temporary investments totaled ~~$484~~$501 million and ~~$402~~$335 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Accounts and Notes Receivable


In millions	June 30, 2020		December 31, 2019
Accounts and notes receivable, net:
Trade	$	2,772	$	3,020
Other	288		260
Total	$	3,060	$	3,280

In millions September 30, 2019 December 31, 2018
Accounts and notes receivable, net:
Trade $ 3,055
$ 3,249
Other 250
272
Total $ 3,305
$ 3,521

The allowance for expected credit losses was $85 million at June 30, 2020 and the allowance for doubtful accounts was ~~$77 million and $81~~$73 million at ~~September 30, 2019 and~~ December 31, ~~2018, respectively.~~2019. Based on the Company's accounting estimates and the facts and circumstances available as of the reporting date, we believe our allowance for expected credit losses is adequate. While we have taken into account certain impacts of COVID-19 in connection with our estimate of the allowance for expected credit losses, it is reasonably possible that additional expected credit losses in excess of such allowance will occur in the coming months as the full extent of the COVID-19 impact becomes more apparent.

Table of Contents

Inventories


In millions	June 30, 2020		December 31, 2019
Raw materials	$	278	$	298
Finished pulp, paper and packaging	1,039		1,192
Operating supplies	641		659
Other	52		59
Total	$	2,010	$	2,208

In millions September 30, 2019 December 31, 2018
Raw materials $ 270
$ 260
Finished pulp, paper and packaging 1,140
1,241
Operating supplies 637
641
Other 147
99
Total $ 2,194
$ 2,241

Plants, Properties and Equipment

Accumulated depreciation was ~~$20.4~~$20.7 billion and $20.5 billion at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Depreciation expense was ~~$305~~$293 million and ~~$315~~$300 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$902~~$602 million and ~~$930~~$597 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Non-cash additions to plants, property and equipment included within accounts payable were ~~$104~~$50 million and ~~$135~~$164 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Amounts invested in capital projects in the accompanying condensed consolidated statement of cash flows are presented net of insurance recoveries of $30 million received during the six months ended June 30, 2020. There were 0 insurance recoveries received during the six months ended June 30, 2019.

Interest

Interest payments made during the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ were ~~$591~~$338 million and ~~$606~~$375 million, respectively.

Amounts related to interest were as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Interest expense $ 177
$ 184
$ 538
$ 547
Interest income 54
51
160
146
Capitalized interest costs 7
9
21
26


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Interest expense	$	156	$	177	$	319	$	361
Interest income	40		55		86		106
Capitalized interest costs	9		9		18		14

Asset Retirement Obligations

The Company had recorded liabilities of ~~$95~~$97 million and ~~$86~~$96 million related to asset retirement obligations at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 9796 years. ~~Leases having a~~Total lease ~~term of twelve months or less are not recorded on the balance sheet~~cost was $67 million 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~~$63 million for the ~~lease~~three months ended June 30, 2020 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~~2019, respectively, and $134 million and $138 million for the ~~lease term~~six months ended June 30, 2020 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.respectively.

~~Components of Lease Expense~~

In millions Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease costs $ 39
$ 115
Variable lease costs 16
53
Short-term lease costs 9
27
Finance lease cost
Amortization of lease assets 3
8
Interest on lease liabilities 1
3
Total lease cost, net $ 68
$ 206

Table of Contents

Supplemental Balance Sheet Information Related to Leases

In millions Classification September 30, 2019
Assets
Operating lease assets Right-of-use assets $ 425
Finance lease assets Plants, properties and equipment, net (a) 105
Total leased assets $ 530
Liabilities
Current
Operating Other current liabilities $ 136
Finance Notes payable and current maturities of long-term debt 13
Noncurrent
Operating Long-term lease obligations 292
Finance Long-term debt 91
Total lease liabilities $ 532


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

~~Lease Term and Discount Rate~~



~~In millions~~	~~September 30, 2019~~
~~Weighted average remaining lease term (years)~~
~~Operating leases~~	~~9.8 years~~
~~Finance leases~~	~~11.3 years~~
~~Weighted average discount rate~~
~~Operating leases~~	~~3.24~~	%
~~Finance leases~~	~~4.74~~	%


In millions	Classification	June 30, 2020		December 31, 2019
Assets
Operating lease assets	Right-of-use assets	$	425	$	434
Finance lease assets	Plants, properties and equipment, net (a)	96		103
Total leased assets		$	521	$	537
Liabilities
Current
Operating	Other current liabilities	$	134	$	134
Finance	Notes payable and current maturities of long-term debt	12		12
Noncurrent
Operating	Long-term lease obligations	294		304
Finance	Long-term debt	84		88
Total lease liabilities		$	524	$	538

~~Supplemental Cash Flow Information Related to Leases~~

In millions Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases $ 110
Operating cash flows related to financing leases 3
Financing cash flows related to finance leases 7

~~Maturity~~(a)Finance leases are recorded net of ~~Lease Liabilities~~

September 30, 2019
In millions Operating Leases Financing Leases Total
2019 (remainder of year) $ 39
$ 4
$ 43
2020 138
17
155
2021 97
15
112
2022 64
13
77
2023 35
11
46
2024 18
10
28
Thereafter 95
65
160
Total lease payments 486
135
621
Less: Interest (a) 58
31
89
Present value of lease liabilities $ 428
$ 104
$ 532


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

Ataccumulated amortization of $46 million and $40 million as of June 30, 2020 and December 31, ~~2018, total future minimum commitments under existing non-cancelable operating leases were as follows:~~2019, respectively.

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~~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~~in exchange for an initial 20.5% ownership interest (79,911,511 units) in Graphic Packaging International Partners, LLC (GPIP)~~, a subsidiary of Graphic Packaging Holding Company,~~ in ~~exchange for a 20.5% ownership interest in GPIP.~~2018. 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. On January 29, 2020, the Company exchanged 15,150,784 units of the aggregate units owned by the Company for an aggregated price of $250 million, resulting in a pre-tax gain of $33 million ($25 million after taxes) which was recorded in the first quarter of 2020. As of ~~September~~June 30, ~~2019,~~2020, the Company's ownership interest in GPIP was ~~21.6%~~18.9%. The Company recorded equity earnings of ~~$10~~$11 million and ~~$19~~$14 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$37~~$18 million and ~~$36~~$27 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company received cash dividends from GPIP of ~~$20~~$10 million and $12 million during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. The Company's investment in GPIP was $929 million and $1.1 billion at ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which was ~~$534~~$460 million and ~~$562~~$529 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 ~~$69~~$60 million and ~~$62~~$74 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$212~~$130 million and ~~$180~~$143 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The Company continues to evaluate its investment in GPI relative to options available to further monetize this investment.

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

Balance Sheet


In millions	June 30, 2020		December 31, 2019
Current assets	$	2,043	$	1,796
Noncurrent assets	5,615		5,482
Current liabilities	1,586		1,178
Noncurrent liabilities	3,459		3,244

Table of Contents

In millions September 30, 2019 December 31, 2018
Current assets $ 1,765
$ 1,757
Noncurrent assets 5,419
5,292
Current liabilities 1,067
1,148
Noncurrent liabilities 3,325
3,156

Income Statement


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Net sales	$	1,611	$	1,553	$	3,210	$	3,059
Gross profit	262		288		583		554
Income from continuing operations	81		105		57		200
Net income	81		105		57		200

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Net sales $ 1,581
$ 1,530
$ 4,640
$ 4,515
Gross profit 266
256
820
714
Income from continuing operations 83
135
283
278
Net income 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, net of taxes, of ~~$18~~$63 million and ~~$74~~$67 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$186~~$28 million and ~~$223~~$168 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company received cash dividends from the joint venture of ~~$239~~$141 million and ~~$118~~$239 million during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company's investment in Ilim was ~~$477~~$386 million and ~~$478~~$508 million, respectively, which was ~~$146~~$131 million and ~~$145~~$136 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 ~~$51~~$39 million and ~~$50~~$59 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$162~~$90 million and ~~$159~~$112 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

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

Balance Sheet


In millions	June 30, 2020		December 31, 2019
Current assets	$	608	$	804
Noncurrent assets	2,676		2,813
Current liabilities	750		1,015
Noncurrent liabilities	2,006		1,844
Noncontrolling interests	17		16

In millions September 30, 2019 December 31, 2018
Current assets $ 749
$ 981
Noncurrent assets 2,392
1,710
Current liabilities 947
545
Noncurrent liabilities 1,509
1,470
Noncontrolling interests 22
11

Income Statement


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Net sales	$	494	$	594	$	976	$	1,213
Gross profit	210		304		405		640
Income from continuing operations	130		142		69		347
Net income	125		137		67		336

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Net sales $ 479
$ 655
$ 1,692
$ 2,030
Gross profit 196
376
836
1,152
Income from continuing operations 41
149
388
454
Net income 40
143
375
438

Table of Contents

NOTE 13 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the ~~nine-months~~six-months ended ~~September~~June 30, ~~2019:~~2020:


In millions	Industrial Packaging				Global Cellulose Fibers		Printing Papers				Total			In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers		Total
Balance as of January 1, 2019
Balance as of January 1, 2020														Balance as of January 1, 2020
Goodwill	$	3,379			$	52	$	2,116			$	5,547		Goodwill	$	3,410		$	52	$	1,998	$	5,460
Accumulated impairment losses	(296		)		—		(1,877		)		(2,173		)	Accumulated impairment losses	(296)			(52)		(1,765)		(2,113)
	3,083				52		239				3,374				3,114			—		233		3,347
Currency translation and other (a)	(2		)		—		(14		)		(16		)	Currency translation and other (a)	(2)			—		(43)		(45)
Goodwill additions/reductions	54			(b)	—		(112		)	(c)	(58		)	Goodwill additions/reductions	2		(b)	—		—		2
Accumulated impairment loss additions / reductions	—				—		112			(c)	112			Accumulated impairment loss additions / reductions	—			—		—		—
Balance as of September 30, 2019
Balance as of June 30, 2020														Balance as of June 30, 2020
Goodwill	3,431				52		1,990				5,473			Goodwill	3,410			52		1,955		5,417
Accumulated impairment losses	(296		)		—		(1,765		)		(2,061		)	Accumulated impairment losses	(296)			(52)		(1,765)		(2,113)
Total	$	3,135			$	52	$	225			$	3,412		Total	$	3,114		$	—	$	190	$	3,304


~~(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.~~

(a)Represents the effects of foreign currency translations.

(b)Reflects the goodwill for the acquisitions of Industrial Packaging box plants in EMEA.

Other Intangibles

Identifiable intangible assets comprised the following:

September 30, 2019 December 31, 2018
In millions
Gross
Carrying
Amount

Accumulated
Amortization
Net Intangible Assets
Gross
Carrying
Amount

Accumulated
Amortization
Net Intangible Assets
Customer relationships and lists $ 541
$ 266
$ 275
$ 542
$ 247
$ 295
Non-compete agreements 26
26
—
67
67
—
Tradenames, patents and trademarks, and developed technology 173
101
72
174
90
84
Land and water rights 8
2
6
8
2
6
Software 26
25
1
26
25
1
Other 25
18
7
30
23
7
Total $ 799
$ 438
$ 361
$ 847
$ 454
$ 393


	June 30, 2020										December 31, 2019
In millions	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Customer relationships and lists	$	534	$	272	$	262	$	560	$	275	$	285
Tradenames, patents and trademarks, and developed technology	170		109		61		170		102		68
Land and water rights	8		2		6		8		2		6
Software	25		24		1		26		25		1
Other	17		10		7		18		10		8
Total	$	754	$	417	$	337	$	782	$	414	$	368

The Company recognized the following amounts as amortization expense related to intangible assets:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Amortization expense related to intangible assets $ 15
$ 15
$ 40
$ 44


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Amortization expense related to intangible assets	$	16	$	13	$	26	$	25

NOTE 14 - INCOME TAXES

International Paper made income tax payments, net of refunds, of ~~$245~~$58 million and ~~$195~~$97 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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 ~~$10~~$68 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

Table of ~~$8 million and $6 million for the nine months ended September 30, 2019 and 2018, respectively.~~Contents

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~~$110 million in tax, and ~~$379~~$350 million in interest, penalties, and ~~penalties~~fees as of ~~September~~June 30, ~~2019~~2020 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received an unfavorable ~~decision~~decisions in October 2018 and November 2019 from the Brazilian Administrative Council of Tax Appeals. The Company has appealed ~~this judgment~~and intends to further appeal these and any future unfavorable administrative judgments 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.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act ("the CARES Act"). The CARES Act provides various types of economic relief for individuals and businesses due to the COVID-19 pandemic, including temporary corporate tax relief. We currently do not believe there to be a material impact to the income tax provision resulting from the CARES Act.

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 ~~$145~~$189 million ($~~155~~198 million undiscounted) in the aggregate as of ~~September~~June 30, ~~2019.~~2020. 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 $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.~~at June 30, 2020. In ~~October 2011, the EPA released a public statement indicating that the final soil remedy decision would be delayed. In June 2019,~~April 2020, the EPA issued a ~~revised proposed~~final 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 millionin 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.

•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 portion of the 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.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, which is also

Table of Contents

known as Operable Unit 1. The Record of Decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design.

As noted below, the Company is involved in allocation/apportionment litigation with regard to the site. In addition, in December 2019, the United States published notice in the Federal Register of a proposed consent decree with NCR Corporation (one of the parties to the allocation/apportionment litigation described below), the State of Michigan and natural resource trustees under with NCR would make payments of more than $100 million and perform work at the Site at an estimated cost of $135.7 million. The public comment period with respect to the proposed consent decree closed in February 2020 and we are awaiting the court's final decision.

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. We have ~~an immaterial~~ recorded a liability for future remediation costs at the site that are probable and reasonably estimable, and it remains reasonably possible that additional losses in excess of this recorded liability 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. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. 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. The proposed consent decree by NCR described above, if entered, would result in the termination of NCR's involvement in the appeal.

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.

OnIn 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~~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~~($105 million for ~~accrual under GAAP because~~ the ~~estimate was based on a technological method~~northern impoundment, and $10 million for ~~performing~~ the ~~work that we believe is not feasible.~~southern impoundment). 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,~~

During the ~~PRPs received~~first quarter of 2020, through a ~~special notice letter from~~series of meetings among the Company, MIMC/WMI, our consultants, the EPA ~~(i) inviting participation~~and the Texas Commission on Environmental Quality (TCEQ), progress was made to resolve key technical issues previously preventing the Company from determining the manner in ~~implementing~~which the selected remedy ~~described~~for the northern impoundment would be feasibly implemented. As a result of these developments, as of June 30, 2020, the Company has reserved the following amounts in relation to remediation at this site: (a) $10 million for the southern impoundment (this reserve was established in the ~~ROD,~~quarter ended December 31, 2019); and ~~(ii) demanding reimbursement~~(b) $55 million for the northern impoundment, which represents the Company's 50% share of ~~EPA past~~our estimate of the low end of the range of probable remediation costs ~~totaling $8 million. The PRPs are preparing their response~~($41 million of this reserve was established in the quarter ended March 31, 2020).

Although key technical issues have been resolved, we still face significant challenges remediating the norther impoundment in a cost-efficient manner and without a release to the ~~special notice letter.~~environment and therefore our discussions with the EPA on the best approach

~~The Company has identified a number~~

Table of ~~concerns and uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs and time required~~ Contents

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.remediation will continue. Because of ongoing questions regarding cost effectiveness, ~~technical feasibility,~~ timing and gathering other technical data, ~~however, it is uncertain how the ROD will be implemented. Consequently, while~~ additional losses in excess or our recorded liability are ~~probable as a result of the selected remedy, we~~possible. We are currently unable to ~~determine~~reasonably estimate 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. This case is stillliability or any loss or range of loss in ~~the discovery phase, and~~excess of such liability; however, we believe it is ~~premature to predict the outcome or to estimate our maximum reasonably possible loss. However, we do not believe that~~unlikely any ~~material loss is probable.~~adjustment would be material.

~~Antitrust~~Asbestos-Related Matters

~~Containerboard:~~ ~~In January 2011, International Paper was~~

We have been named as a defendant in ~~a lawsuit filed~~various asbestos-related personal injury litigation, in both state and federal court, primarily 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~~relation to the ~~present. Plaintiffs in~~prior operations of certain companies previously acquired by 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.Company.

The Company ~~disputes~~regularly conducts a comprehensive legal review of its asbestos liabilities and reviews recent and historical claims data. During the ~~allegations made~~quarter ended June 30, 2020, we adjusted our estimated net liability associated with asbestos-related litigation concerning products sold by Champion International Corporation prior to our acquisition of Champion in 2000 to revise the ~~Tennessee lawsuit and is vigorously defending it. At~~time period associated with anticipated future claims through 2059, a commonly viewed end point when such claims are more predictable. We concluded the adjustment of $43 million to increase this ~~time, however, because the action is~~net liability, which resulted in a ~~preliminary stage, we are unable~~liability of $75 million, net of estimated insurance recoveries, was not material to ~~predict an outcome or estimate a range~~any period. As of June 30, 2020, the Company's total recorded liability with respect to pending and future asbestos-related claims was $114 million, net of estimated insurance recoveries.

While it is reasonably possible ~~loss.~~that the Company may incur losses in excess of its recorded liability with respect to asbestos-related matters, we do not believe additional material losses are probable.

Antitrust

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 and, on April 30, 2020, the Court of Appeals for the Thirteenth District of Texas issued a decision affirming in part and reversing and rendering judgment in favor of the Company in part. The Court affirmed approximately $14.8 million of the judgment. Otherwise, the Court rendered judgment in favor of the Company on the remainder of the jury’s verdict. The Company continues to have strong bases by which to challenge the affirmed portions of the award and has presented ~~in its briefing numerous and strong bases for~~those arguments on appeal ~~and we believe we will prevail on appeal. Because~~to the Supreme Court of Texas. The plaintiffs have also appealed the decision of the appellate ~~proceedings~~court. We do not expect that potential losses, if any, related to this lawsuit will be material.

Taxes Other Than Payroll Taxes

In 2017, the Brazilian Federal Supreme Court decided that the state value-added tax (VAT) should not be included in the basis of federal VAT calculations. In 2018 and 2019, the Brazilian tax authorities published both an internal consultation and a normative ruling with a narrow interpretation of the effects of the case. We have determined that any related federal VAT refunds should be recognized when they are ~~ongoing,~~both probable and reasonably estimable. Based upon the best information available to us, we ~~are unable to estimate a range of reasonably possible loss, but we expect~~have determined that the amount of ~~any loss~~refund that is probable of being realized is limited to ~~be immaterial.~~that determined by the tax authorities' narrow interpretation, for which we have recognized a receivable of $8 million as of June 30, 2020. It is possible that future court decisions and guidance from the tax authorities could expand the scope of the federal VAT refunds.

Table of Contents

General

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, product liability, 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. Assessments of lawsuits and claims can involve a series of complex judgments about future events, can rely heavily on estimates and assumptions, and are otherwise subject to significant uncertainties. As a result, there can be no certainty that the Company will not ultimately incur charges in excess of presently recorded liabilities. The Company believes that loss contingencies arising from pending matters including the matters described herein, will not have a material effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending or threatened legal matters, some of which are beyond the company's control, and the large or indeterminate damages sought in some of these matters, a future adverse ruling, settlement, unfavorable development, or increase in accruals with respect to these matters could result in future charges that could be material to the Company's results of operations or cash flows in any particular reporting period.

NOTE 16 - VARIABLE INTEREST ENTITIES

Variable Interest Entities

As of ~~September~~June 30, ~~2019,~~2020, the fair value of the Timber Notes and Extension Loans ~~is $4.84~~was $4.94 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 1617 in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Activity between the Company and the 2015 Financing Entities was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
In millions	2019		2018		2019		2018		In millions	2020		2019		2020		2019
Revenue (a)	$	24	$	24	$	71	$	71	Revenue (a)	$	23	$	23	$	47	$	47
Expense (a)	32		32		96		96		Expense (a)	32		32		64		64
Cash receipts (b)	48		48		95		95		Cash receipts (b)	—		—		47		47
Cash payments (c)	64		64		128		128		Cash payments (c)	—		—		64		64


~~(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.~~

(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 ~~September~~June 30, ~~2019,~~2020, the fair value of the Timber Notes and Extension Loans ~~is $2.28~~was $2.25 billion and ~~$2.11~~$2.09 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 1617 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Activity between the Company and the 2007 Financing Entities was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
In millions	2019		2018		2019		2018		In millions	2020		2019		2020		2019
Revenue (a)	$	19	$	19	$	61	$	52	Revenue (a)	$	12	$	21	$	28	$	42
Expense (b)	19		18		60		48		Expense (b)	12		20		28		41
Cash receipts (c)	16		15		48		34		Cash receipts (c)	11		16		23		32
Cash payments (d)	17		16		53		40		Cash payments (d)	11		18		26		36


~~(a)~~	The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $5 million and $14 million for three and nine months ended September 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 $2 million and $5 million for the three and nine months ended September 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.~~

(a)The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $4 million and $9 million for the three and six months ended June 30, 2020 and 2019, respectively, of accretion income for the amortization of the basis difference adjustment on the Financial assets of special purpose entities.

Table of Contents

(b)The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately $1 million and $3 million for the three and six months ended June 30, 2020 and 2019, 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~~the Company's commercial paper program ~~was increased from $750 million to~~is $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 ~~September~~June 30, ~~2019,~~2020, the Company had ~~$245 million of~~0 borrowings outstanding under the program.

In March 2020, the Company entered into a $750 million contractually committed 364-day revolving credit agreement with a syndicate of banks and other financial institutions which augments the Company's access to liquidity due to current macroeconomic conditions and supplements the Company's $1.5 billion five-year credit agreement expiring in December 2021. As of June 30, 2020, the Company had 0 borrowings outstanding under either the $750 million revolving credit agreement or the $1.5 billion credit agreement.

In April 2020, the Company's receivable securitization program atwas amended from an uncommitted financing arrangement to a ~~weighted average interest rate~~committed financing arrangement with a borrowing limit up to $550 million based on eligible receivable balances that expires in April 2022. As of ~~2.29%.~~June 30, 2020, the Company had 0 borrowings outstanding under the program.

The Company’s financial covenants require the maintenance of a minimum net worth, as defined in our debt agreements, of $9 billion and a total debt-to-capital ratio of less than 60%. Net worth is defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any cumulative goodwill impairment charges. The calculation also excludes accumulated other comprehensive income/loss and both the current and long-term Nonrecourse Financial Liabilities of Variable Interest Entities. The total debt-to-capital ratio is defined as total debt divided by the sum of total debt plus net worth. As of June 30, 2020, we were in compliance with our debt covenants.

At ~~September~~June 30, ~~2019,~~2020, the fair value of International Paper’s ~~$10.4~~$9.5 billion of debt was approximately ~~$11.4~~$11.2 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 1617 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

In ~~October 2019,~~July 2020, International Paper ~~issued $127~~refinanced $122 million of industrial development bonds ~~with~~that now have interest rates ranging from ~~1.90%~~1.38% to ~~2.10%~~1.60% and maturity dates in ~~2024. The proceeds from this offering will be used to repay other existing industrial development bonds.~~2025.

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 millions September 30, 2019 December 31, 2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts $ 570
$ 407
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts 700
700
Derivatives in Net Investment Hedging Relationships:
Interest rate contracts 475
—
Derivatives Not Designated as Hedging Instruments:
Electricity contract 19
8
Foreign exchange contracts 11
19


In millions	June 30, 2020		December 31, 2019
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	242	$	407
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	—		700
Derivatives in Net Investment Hedging Relationships:
Interest rate contracts	—		475
Foreign exchange contracts	51		—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	1		16
Foreign exchange contracts	—		7

Table of Contents

During the first quarter of 2020, International Paper terminated its interest rate contracts in fair value hedging relationships. These contracts had a notional value of $700 million and an approximate fair value of $85 million at the time of termination. Subsequent to the termination of the interest rate swaps, the fair value basis adjustment is accounted for as a debt premium for the previously hedged debt. International Paper also terminated interest rate contracts in net investment hedging relationships with a notional value of $135 million during the first quarter of 2020. These contracts had an approximate fair value of

$8 million at the time of termination. During the second quarter of 2020, International Paper terminated interest rate contracts in net investment hedging relationships with a notional value of $340 million. These contracts had an approximate fair value of $25 million at the time of termination. Subsequent to the termination of the net investment hedges, the fair value is accounted for in other comprehensive income as cumulative translation adjustment for the previously hedged net investments.

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)
Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts $ (10 ) $ 1
$ (6 ) $ (18 )
Interest rate contracts —
—
—
(2 )
Total $ (10 ) $ 1
$ (6 ) $ (20 )
Derivatives in Net Investment Hedging Relationships:
Interest rate contracts $ 18
$ —
$ 15
$ —
Total $ 18
$ —
$ 15
$ —


	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	—	$	4	$	(30)	$	4

Total	$	—	$	4	$	(30)	$	4
Derivatives in Net Investment Hedging Relationships:
Interest rate contracts	$	4	$	(3)	$	24	$	(3)
Total	$	4	$	(3)	$	24	$	(3)

During the next 12 months, the amount of the ~~September~~June 30, ~~2019~~2020 AOCI balance, after tax, that is expected to be reclassified to earnings is a loss of $3$6 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)
Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts $ (4 ) $ (2 ) $ (5 ) $ (2 ) Cost of products sold
Total $ (4 ) $ (2 ) $ (5 ) $ (2 )

Gain (Loss) Recognized
Location of Gain (Loss)
In
Statement
of Operations
Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts $ 11
$ —
$ 42
$ —
Interest expense, net
Debt (11 ) —
(42 ) —
Interest expense, net
Total —
—
—
—

Derivatives Not Designated as Hedging Instruments:
Electricity contract $ (5 ) $ 2
$ —
$ 1
Cost of products sold
Foreign exchange contracts (1 ) 3
(2 ) 4
Cost of products sold
Total $ (6 ) $ 5
$ (2 ) $ 5


	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,
In millions	2020		2019		2020		2019
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	(9)	$	—	$	(20)	$	(1)	Cost of products sold
Total	$	(9)	$	—	$	(20)	$	(1)

~~Fair Value Measurements~~

Table of Contents

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.


	Gain (Loss) Recognized									Location of Gain (Loss) In Statement of Operations
	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	—	$	19	$	38	$	31	Interest expense, net
Debt	—		(19)		(38)		(31)		Interest expense, net
Total	$	—	$	—	$	—	$	—
Derivatives in Net Investment Hedging Relationships:
Foreign exchange contracts	$	1	$	—	$	1	$	—	Net (gains) losses on sales and impairments of businesses
Total	$	1	$	—	$	1	$	—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	$	—	$	1	$	(3)	$	5	Cost of products sold
Foreign exchange contracts	—		1		—		1		Cost of products sold
Total	$	—	$	2	$	(3)	$	6

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

Fair Value Measurements

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 millions	September 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018			In millions	June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Derivatives designated as hedging instruments													Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow	$	5		$	3		$	13		$	10		Foreign exchange contracts – cash flow	$	2		$	10		$	21		$	4
Foreign exchange contracts- net investment													Foreign exchange contracts- net investment	1			—			—			—
Interest rate contracts - net investment	20			—			—			—			Interest rate contracts - net investment	—			11			—			—
Interest rate contracts - fair value	59			16			—			—			Interest rate contracts - fair value	—			47			—			—
Total derivatives designated as hedging instruments	84			19			13			10			Total derivatives designated as hedging instruments	3			68			21			4
Derivatives not designated as hedging instruments													Derivatives not designated as hedging instruments
Electricity contract	—			—			5			4			Electricity contract	—			—			2			2
Foreign exchange contracts	—			—			2			1			Foreign exchange contracts	—			—			—			1
Total derivatives not designated as hedging instruments	—			—			7			5			Total derivatives not designated as hedging instruments	—			—			2			3
Total derivatives	$	84	(a)	$	19	(b)	$	20	(c)	$	15	(d)	Total derivatives	$	3	(a)	$	68	(b)	$	23	(c)	$	7	(c)


~~(a)~~	~~Includes $8 million recorded in Other current assets and $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 $15 million recorded in Other accrued liabilities and $5 million recorded in Other liabilities in the accompanying consolidated balance sheet.~~


~~(d)~~	~~Included in Other current liabilities in the accompanying consolidated balance sheet.~~

(a)Included in Other current assets in the accompanying consolidated balance sheet.

(b)Includes $14 million recorded in Other current assets and $54 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(c)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

Table of Contents

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 1 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.unit.

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 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
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Service cost $ 17
$ 40
$ 51
$ 119
Interest cost 110
118
330
356
Expected return on plan assets (158 ) (200 ) (473 ) (600 )
Actuarial loss 50
95
150
285
Amortization of prior service cost 4
4
12
12
Net periodic pension expense $ 23
$ 57
$ 70
$ 172


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Service cost	$	23	$	16	$	43	$	34
Interest cost	98		110		196		220
Expected return on plan assets	(167)		(158)		(334)		(315)
Actuarial loss	46		49		101		100
Amortization of prior service cost	5		4		10		8
Net periodic pension expense	$	5	$	21	$	16	$	47

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 no0 voluntary cash contributions to the qualified pension plan in the first ~~nine~~six months of ~~2019~~2020 or ~~2018.~~2019. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$21~~$10 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

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 ~~September~~June 30, ~~2019, 9.8~~2020, 8.4 million shares were available for grant under the ICP.

Stock-based compensation expense and related income tax benefits were as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Total stock-based compensation expense (selling and administrative) $ 31
$ 35
$ 94
$ 102
Income tax benefits related to stock-based compensation (2 ) (6 ) 31
16


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Total stock-based compensation expense (selling and administrative)	$	5	$	36	$	31	$	63
Income tax benefits related to stock-based compensation	—		(1)		17		33

Table of Contents

At ~~September~~June 30, ~~2019, $124~~2020, $92 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 ~~1.8~~1.7 years.

Performance Share Plan

During the first ~~nine~~six months of ~~2019,~~2020, the Company granted ~~2.4~~2.2 million performance units at an average grant date fair value of ~~$43.49.~~$49.15.

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,~~items, net, corporate net special items, business net special items and non-operating pension expense.

In the fourth quarter of 2019, the Company changed its measure of business segment operating profits to exclude items considered by management to be unusual (business net special items) from the normal operations of the business segment. As a result, all prior periods have been restated to reflect the current measure.

~~Sales~~

Net sales by business segment for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Industrial Packaging $ 3,820
$ 4,034
$ 11,516
$ 11,883
Global Cellulose Fibers 624
714
1,974
2,083
Printing Papers 1,071
1,102
3,224
3,215
Corporate and Intersegment Sales 53
51
164
174
Net Sales $ 5,568
$ 5,901
$ 16,878
$ 17,355


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Industrial Packaging	$	3,633	$	3,864	$	7,452	$	7,696
Global Cellulose Fibers	605		661		1,173		1,350
Printing Papers	583		1,088		1,491		2,153
Corporate and Intersegment Sales	45		54		102		111
Net Sales	$	4,866	$	5,667	$	10,218	$	11,310

Operating profit (loss) by business segment for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2019 2018 2019 2018
Industrial Packaging $ 510
$ 472
$ 1,421
$ 1,446
Global Cellulose Fibers (3 ) 83
27
160
Printing Papers 148
183
258
341
Business Segment Operating Profits $ 655
   $ 738
$ 1,706
$ 1,947

Earnings (loss) from continuing operations before income taxes and equity earnings $ 452
$ 553
$ 1,204
   $ 1,399
Interest expense, net 123
133
378
401
Noncontrolling interests/equity earnings adjustment 2
   (2 ) 4
   (7 )
Corporate expenses, net 21
20
45
59
Corporate special items, net 48
9
48
30
Non-operating pension expense 9
25
27
65
Business Segment Operating Profits $ 655
   $ 738
$ 1,706
$ 1,947


	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2020		2019		2020		2019
Industrial Packaging	$	449	$	515	$	919	$	936
Global Cellulose Fibers	(10)		—		(64)		35
Printing Papers	(11)		114		85		258
Business Segment Operating Profits	$	428	$	629	$	940	$	1,229

Earnings (loss) before income taxes and equity earnings	$	261	$	334	$	245	$	752
Interest expense, net	116		122		233		255
Noncontrolling interests adjustment	—		5		—		2
Corporate expenses, net	(3)		3		29		24
Corporate net special items	54		—		87		—
Business net special items	14		157		366		178
Non-operating pension expense (income)	(14)		8		(20)		18
Business Segment Operating Profits	$	428	$	629	$	940	$	1,229

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Table of Contents

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (our "Annual Report"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below or elsewhere in our Annual Report, particularly in "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q and our Annual Report.

EXECUTIVE SUMMARY

Net earnings (loss) attributable to International Paper common shareholders were ~~$344~~$266 million ($~~0.87~~0.67 per diluted share) in the ~~third~~second quarter of ~~2019,~~2020, compared with $(141) million ($(0.36) per diluted share) in the first quarter of 2020 and $292 million ($0.73 per diluted share) in the second quarter of 2019 and $562 million ($1.37 per diluted share) in the third 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.2019. International Paper generated Adjusted Operating Earnings Attributable to International Paper Common Shareholders (a non-GAAP measure defined below) of ~~$431~~$305 million ($~~1.09~~0.77 per diluted share) in the ~~third~~second quarter of ~~2019,~~2020, compared with $226 million ($0.57 per diluted share) in the first quarter of 2020 and $460 million ($1.15 per diluted share) in the second quarter of ~~2019 and $641 million ($1.56 per diluted share) in~~2019.

During the ~~third~~second quarter ~~of 2018.~~

2020, International Paper delivered ~~another quarter of~~ solid earnings and generated strong cash ~~generation in~~from operations while navigating the COVID-19 pandemic and its significant economic impact. Through the first half of 2020, we have generated $1.5 billion of cash from operations and $1 billion of free cash flow through strong commercial and operational performance, as well as outstanding cost management across all our businesses. During the second quarter, we continued to apply cash from operations consistent with our capital allocation framework, to maintain a ~~challenging global environment. These results demonstrate~~strong balance sheet, return cash to shareowners and invest to create value.

Demand and recovery trends vary greatly by business and end-use consumer segment. Overall demand for corrugated packaging and fluff pulp continues to be resilient and outpace the ~~strength and resilience of our cash generation and the flexibility to perform well~~economic backdrop. Our North America box shipments were flat in the ~~face of challenging conditions. Demand~~second quarter compared to last year and we saw strong demand for fluff pulp. However, we’re experiencing a substantial decline in ~~the third quarter of 2019 was mixed with seasonal improvement in the North American packaging business, largely in line~~demand for printing papers across all geographic regions. Against this backdrop, our commercial teams are doing a tremendous job with our ~~expectations, but with lower export containerboard~~customers to ensure we understand and ~~pulp shipments driven by pressure from challenging~~meet their rapidly changing needs. Our manufacturing and supply chain teams continue to leverage the scale and ~~demand conditions. Operational performance was strong and we optimized our system and managed costs well across our three businesses, taking advantage~~flexibility of our system ~~flexibility. Our continued~~to deliver strong ~~cash generation~~operational performance and optimize costs, without incurring any material operational disruptions since the start of the pandemic. We are starting to see some recovery in our markets as economies around the world start to reopen; however, uncertainty regarding the duration and magnitude of the economic impact of COVID-19 persists. We will continue to navigate these uncertain times by staying focused on the health and well-being of our employees, taking care of our customers and ensuring the company has ~~enabled us to return $1.1 billion to shareholders during~~a strong financial foundation through each phase of the ~~first three quarters of 2019 through dividends and share repurchases and reduce debt by $400 million.~~crisis.

Comparing performance ~~with~~in the second quarter ~~of 2019, prices were lower in the third quarter mainly due~~2020 to the ~~impact of prior index movements in North America Packaging~~first quarter 2020, price and ~~Global Cellulose Fibers, as well as the flow through of lower prices for~~mix was overall favorable, primarily driven by improved pricing on export ~~containerboard. Volume was seasonally higher~~containerboard in our North American Industrial Packaging and fluff pulp in our Global Cellulose Fibers businesses, both up from trough level prices. Volumes were lower compared to the first quarter 2020 with resilient demand for corrugated packaging ~~business, along with improved export containerboard volume, while relatively flat across~~and fluff pulp as we stepped down from an initial surge in demand in the ~~rest~~second half of the ~~businesses.~~first quarter. Printing Papers volume was substantially lower as COVID-19 containment efforts continued into the second quarter. Operations and costs were unfavorable although we were able to partially mitigate the impact of the current environment through effective cost management and delivering strong operational performance at our mills and converting facilities. By executing well in these areas, we partly offset the impact of significant economic downtime in our Printing Papers business. Maintenance outage costs were sequentially lower as the second quarter was ~~favorable following~~ the ~~heavy~~lowest maintenance ~~activity~~outage quarter in ~~the 2019 second quarter.~~2020. Input costs were ~~favorable versus~~unfavorable as the ~~prior~~higher recovered fiber costs that we experienced toward the end of the first quarter ~~with~~carried into the second quarter. These higher costs were partly offset by lower wood and ~~recovered fiber~~energy costs. Corporate expense and taxes were favorable compared to the first quarter 2020, reflecting higher one-time costs ~~across our businesses. Our Ilim joint venture delivered solid operational performance, but its~~for each in the prior quarter. Equity earnings were ~~impacted by sequentially lower export pulp prices and higher planned maintenance outage expenses, which also drove lower volume in~~favorable even absent the ~~quarter.~~$34 million non-cash foreign exchange gain primarily associated with foreign currency translation on Ilim’s US dollar denominated net debt.

Looking ahead to the ~~fourth~~third quarter ~~of 2019, overall across~~2020, in our ~~businesses~~Industrial Packaging business, we expect lower price and mix ~~improved seasonal volume and export shipments, lower input costs and significantly lower maintenance outage costs due to completing most of that work in~~on the ~~prior quarters. In Industrial Packaging, we expect lower price and mix tied to the impact~~flow-through of prior price index movements ~~and price flow-through on exports along with the negative mix impact from export volume recovery.~~in North America. Volume is expected to ~~improve on improved demand in North America and continued export volume recovery.~~be stable relative to the second quarter. Operations and costs are expected to be ~~unfavorably~~negatively impacted by higher costs associated with the Riverdale mill start-up, higher seasonal costs in our North American box business and the non-repeat of favorable one-time items infrom the ~~third quarter of 2019.~~second quarter. Maintenance outage expense ~~will~~is expected to be ~~lower~~higher moving from the second quarter low point while input costs ~~should~~are expected to be ~~stable.~~lower driven by lower recovered fiber costs. In our Global Cellulose Fibers business, we expect ~~lower~~ price and mix ~~driven by the impact~~to improve

Table of ~~prior~~Contents

following recent price index movements. Volume is expected to be ~~stable as higher fluff volume is offset by~~sequentially lower ~~softwood volume. Operations~~while operations and costs are expected to ~~be higher~~negatively impact earnings. We expect increased maintenance outage expenses and increased input costs, driven by higher ~~seasonal~~ energy ~~consumption,~~and chemical costs. In our Printing Papers business, we expect price and mix to be down, primarily due to export channels. Volume is expected to improve on initial demand recovery signals. Operations and costs are also expected to improve on better fixed cost absorption. Maintenance outage expenses are expected to increase while input costs are expected to remain stable. In Printing Papers, we expect lower price and mix primarily related to our North America and Latin America businesses as well as unfavorable geographic mix. This should be offset by improved volume on seasonally stronger demand in North America and Brazil. Operations and costs are expected to negatively impact earnings due to higher seasonal energy consumption and the non-repeat of favorable items in the third quarter of 2019. Finally, inLastly for our Ilim joint venture, we expect ~~higher sales volumes,~~ lower ~~input costs and lower maintenance outage expenses~~equity earnings on the non-repeat of the foreign currency gain on US denominated net debt recognized in the second quarter.

There continue to be ~~offset~~significant uncertainties associated with the COVID-19 pandemic, including with respect to the various economic reopening plans and the resurgence of the virus in many areas; additional actions that may be taken by ~~continued price~~governmental authorities and ~~mix pressure.~~private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact; the extent and duration of social distancing and stay-at-home orders; the possibility of development of a vaccine; and the ongoing impact of COVID-19 on unemployment, economic activity and consumer confidence. As a result, we are unable to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020, but developments related to COVID-19 are significantly adversely affecting our business, and could have a material adverse effect on our financial condition, results of operations and cash flows, particularly if negative global economic conditions persist for a significant period of time or continue to deteriorate.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings ~~from continuing operations~~(loss) attributable to International Paper (a GAAP measure) excluding net special items and non-operating pension ~~expense.~~expense (income). 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 (income) and 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
September 30, Three Months Ended June 30,
In millions 2019 2018 2019
Net Earnings (Loss) Attributable to International Paper Company $ 344
$ 562
$ 292
Less - Discontinued operations (gain) loss —
—
—
Earnings (Loss) from Continuing Operations 344
562
292
Add Back - Non-operating pension expense (income) 9
25
8
Add Back - Net special items expense (income) 94
142
158
Income tax effect - Non-operating pension and special items expense (16 ) (88 ) 2
Adjusted Operating Earnings (Loss) Attributable to International Paper Company $ 431
$ 641
$ 460

Three Months Ended
September 30, Three Months Ended June 30,
In millions 2019 2018 2019
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders $ 0.87
$ 1.37
$ 0.73
Less - Discontinued operations (gain) loss per share —
—
—
Diluted Earnings (Loss) Per Share from Continuing Operations 0.87
1.37
0.73
Add Back - Non-operating pension expense (income) per share 0.02
0.06
0.02
Add Back - Net special items expense (income) per share 0.24
0.34
0.40
Income tax effect per share - Non-operating pension and special items expense (0.04 ) (0.21 ) —
Adjusted Operating Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders $ 1.09
$ 1.56
$ 1.15


	Three Months Ended June 30,						Three Months Ended March 31,
In millions	2020		2019		2020
Net Earnings (Loss) Attributable to Shareholders	$	266	$	292	$	(141)
Add Back - Non-operating pension expense (income)	(14)		8		(6)
Add Back - Net special items expense (income)	68		158		384
Income tax effect - Non-operating pension and net special items expense	(15)		2		(11)
Adjusted Operating Earnings (Loss) Attributable to International Paper Company	$	305	$	460	$	226


	Three Months Ended June 30,						Three Months Ended March 31,
In millions	2020		2019		2020
Diluted Earnings (Loss) Per Share Attributable to Shareholders	$	0.67	$	0.73	$	(0.36)
Add Back - Non-operating pension expense (income) per share	(0.04)		0.02		(0.01)
Add Back - Net special items expense (income) per share	0.17		0.40		0.97
Income tax effect per share - Non-operating pension and net special items expense	(0.03)		—		(0.03)
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders	$	0.77	$	1.15	$	0.57

Cash provided by operations totaled ~~$2.7~~$1.5 billion and ~~$2.4~~$1.8 billion for the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. The Company generated free cash flow of approximately ~~$1.8~~$1.0 billion and ~~$1.1~~$1.2 billion in the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management utilizes this measure in connection with managing our business and 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

Table of Contents

for certain items that are not indicative of the Company's ongoing performance, we believe that 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,
In millions	2020		2019
Cash provided by operations	$	1,539	$	1,800
Adjustments:
Cash invested in capital projects	(538)		(628)
Free Cash Flow	$	1,001	$	1,172

The non-GAAP financial measures presented in this Quarter Report on Form 10-Q as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP measures in this Quarterly Report on Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.

Nine Months Ended
September 30,
In millions 2019 2018
Cash provided by operations $ 2,682
$ 2,405
Adjustments:
Cash invested in capital projects (913 ) (1,286 )
Free Cash Flow $ 1,769
$ 1,119

RESULTS OF OPERATIONS

For the ~~third~~second quarter of ~~2019,~~2020, International Paper Company reported net sales of ~~$5.6~~$4.9 billion, compared with $5.4 billion in the first quarter of 2020 and $5.7 billion in the second quarter of ~~2019 and $5.9 billion in the third quarter of 2018.~~2019.

Net earnings (loss) attributable to International Paper totaled ~~$344~~$266 million, or ~~$0.87~~$0.67 per diluted share, in the ~~third~~second quarter of ~~2019.~~2020. This compared with $(141) million, or $(0.36) per diluted share, in the first quarter of 2020 and $292 million, or $0.73 per diluted share, in the second quarter of ~~2019 and $562 million, or $1.37 per diluted share, in the third quarter~~2019.

Table of ~~2018.~~Contents

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 and $562 million in the third quarter of 2018.

Compared with the ~~second~~first quarter of ~~2019,~~2020, earnings benefited from higher average sales ~~volumes~~prices and a favorable mix ($922 million), ~~lower operating costs ($10 million), lower raw material and freight costs ($23 million) and~~ lower mill maintenance outage costs ($~~127~~52 million), lower corporate and other items ($25 million), lower net interest expense ($1 million), lower tax expense ($9 million) and lower non-operating pension expense ($6 million). These benefits were offset by lower ~~average~~ sales ~~prices and an unfavorable mix~~volumes ($~~115~~80 million), higher ~~corporate and other items~~operating costs ($~~14 million), higher net interest expense ($1 million), higher tax expense ($15~~24 million) and higher ~~non-operating pension expense~~raw material and freight costs ($129 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 ~~$53~~$103 million ~~lower~~higher than in the first quarter of 2020. Net special items in the second quarter of ~~2019. Net special items in the third quarter of 2019~~2020 were a loss of ~~$80~~$50 million compared with a loss of ~~$162~~$372 million in the first quarter of 2020.

Compared with the second quarter of ~~2019.~~

~~Compared with~~2019, the ~~third~~second quarter of ~~2018, the third quarter of 2019~~2020 reflects lower raw material and freight costs ($4030 million), lower mill maintenance outage costs ($8137 million), lower corporate and other costs ($4 million), lower net interest expense ($84 million) and lower non-operating pension expense ($1217 million). These benefits were offset by lower average sales prices and an unfavorable mix ($~~130~~221 million), lower sales volumes ($3162 million), higher operating costs ($~~17 million), higher corporate and other costs ($2~~34 million) and higher tax expense ($215 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 ~~$65~~$8 million lower in the ~~third~~second quarter of ~~2019~~2020 than in the ~~third~~second quarter of ~~2018.~~2019. Net special items in the ~~third~~second quarter of ~~2019~~2020 were a loss of ~~$80~~$50 million compared with a loss of ~~$60~~$162 million in the ~~third~~second quarter of ~~2018.~~2019.

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 net special items, business net special items and non-operating pension expense. Business Segment Operating Profits is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280.

International Paper operates in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers.

Table of Contents

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 Ended
	June 30,						March 31,
In millions	2020		2019		2020
Net Earnings (Loss) Attributable to International Paper Company	$	266	$	292	$	(141)
Add back (deduct):
Income tax provision (benefit)	67		128		94
Equity (earnings) loss, net of taxes	(72)		(80)		31
Noncontrolling interests, net of taxes	—		(6)		—
Earnings (Loss) Before Income Taxes and Equity Earnings	261		334		(16)
Interest expense, net	116		122		117
Noncontrolling interests included in operations	—		5		—
Corporate expenses, net	(3)		3		32
Corporate net special items	54		—		33
Business net special items	14		157		352
Non-operating pension expense (income)	(14)		8		(6)
Adjusted Operating Profit	$	428	$	629	$	512
Business Segment Operating Profit (Loss):
Industrial Packaging	$	449	$	515	$	470
Global Cellulose Fibers	(10)		—		(54)
Printing Papers	(11)		114		96
Total Business Segment Operating Profit	$	428	$	629	$	512

Three Months Ended
September 30, June 30,
In millions 2019 2018 2019
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company $ 344
$ 562
$ 292
Add back (deduct):
Income tax provision (benefit) 137
83
128
Equity (earnings) loss, net of taxes (27 ) (92 ) (80 )
Noncontrolling interests, net of taxes (2 ) —
(6 )
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings 452
553
334
Interest expense, net 123
133
122
Noncontrolling interests / equity earnings included in operations 2
(2 ) 5
Corporate expenses, net 21
20
3
Corporate special items (income) expense 48
9
—
Non-operating pension expense 9
25
8
Adjusted Operating Profit $ 655
$ 738
$ 472
Business Segment Operating Profit:
Industrial Packaging $ 510
$ 472
$ 507
Global Cellulose Fibers (3 ) 83
(2 )
Printing Papers 148
183
(33 )
Total Business Segment Operating Profit $ 655
$ 738
$ 472

Table of Contents

Business Segment Operating Profit

Total business segment operating profits were ~~$655 million in the third quarter of 2019, $472~~$428 million in the second quarter of ~~2019 and $738~~2020, $512 million in the ~~third~~first quarter of ~~2018.~~2020 and $629 million in the second quarter of 2019.

Compared with the first quarter of 2020, operating profits benefited from higher average sales prices and a favorable mix ($31 million) and lower mill outage costs ($73 million). These benefits were offset by lower sales volumes ($113 million), higher operating costs ($34 million) and higher raw material and freight costs ($41 million).

Table of Contents

Compared with the second quarter of 2019, operating profits in the current quarter benefited from ~~higher sales volumes ($12 million), lower operating costs ($14 million),~~ lower raw material and freight costs ($3140 million) and lower mill outage costs ($~~169~~183 million). These benefits were offset by lower average sales prices and an unfavorable mix ($~~154 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 the third quarter of 2018, operating profits in the current quarter benefited from lower raw material and freight costs ($52 million) and lower mill outage costs ($11 million). These benefits were offset by lower average sales prices and an unfavorable mix ($170295 million), lower sales volumes ($4183 million) and higher operating costs ($2246 million). ~~Special items were a loss of $46 million in the third quarter of 2019 compared with a loss of $133 million in the third quarter of 2018.~~

~~Economic~~Economic-related 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 thousands of tons	Three Months Ended June 30, 2020	Three Months Ended June 30, 2019	Three Months Ended March 31, 2020
Economic-related downtime	328	339	83
Maintenance downtime	51	303	170

in thousands of tons Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Three Months Ended June 30, 2019
Economic-related downtime 287
—
339
Maintenance downtime 125
197
303

Table of Contents

Sales Volumes by Product (a)

Sales volumes of major products for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended June 30,			Six Months Ended June 30,
In thousands of short tons (except as noted)	2019	2018	2019	2018	In thousands of short tons (except as noted)	2020	2019	2020	2019
Industrial Packaging					Industrial Packaging
Corrugated Packaging (b)	2,651	2,666	7,810	7,969	Corrugated Packaging (b)	2,571	2,624	5,195	5,159
Containerboard	736	853	2,140	2,436	Containerboard	783	707	1,610	1,404
Recycling	556	566	1,790	1,700	Recycling	512	625	928	1,234
Saturated Kraft	47	51	140	149	Saturated Kraft	39	52	87	93
Gypsum/Release Kraft	49	56	149	176	Gypsum/Release Kraft	48	49	104	100
Bleached Kraft	5	8	17	24	Bleached Kraft	8	5	15	12
EMEA Packaging (b)	375	329	1,124	1,113	EMEA Packaging (b)	375	379	816	749
Brazilian Packaging (b)	96	92	272	263	Brazilian Packaging (b)	83	91	173	176
European Coated Paperboard	106	98	312	284	European Coated Paperboard	95	102	206	206
Industrial Packaging	4,621	4,719	13,754	14,114	Industrial Packaging	4,514	4,634	9,134	9,133
Global Cellulose Fibers (in thousands of metric tons) (c)	878	886	2,606	2,665	Global Cellulose Fibers (in thousands of metric tons) (c)	965	869	1,866	1,728
Printing Papers					Printing Papers
U.S. Uncoated Papers	451	461	1,340	1,415	U.S. Uncoated Papers	247	441	662	889
European and Russian Uncoated Papers	352	363	1,073	1,066	European and Russian Uncoated Papers	271	367	631	721
Brazilian Uncoated Papers	301	293	828	818	Brazilian Uncoated Papers	150	283	390	527
Indian Uncoated Papers	49	62	183	195	Indian Uncoated Papers	—	66	—	134
Printing Papers	1,153	1,179	3,424	3,494	Printing Papers	668	1,157	1,683	2,271


~~(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)~~	(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~~$67 million was recorded for the ~~third~~second quarter of ~~2019~~2020 and the reported effective income tax rate was ~~30%~~26%. Excluding a benefit of ~~$14~~$18 million related to the tax effects of net special items and ~~a benefit~~expense of $2$3 million related to the tax effects of non-operating pension expense, the effective income tax rate was ~~27%~~26% for the quarter.

An income tax provision of $94 million was recorded for the first quarter of 2020 and the reported effective income tax rate was (588)%. Excluding an expense of $12 million related to the tax effects of net special items and expense of $1 million related to the tax effects of non-operating pension expense, the effective income tax rate was 29% 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 net 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 $83 million was recorded for the third quarter of 2018 and the reported effective income tax rate was 15%. Excluding a benefit of $82 million related to the tax effects of special items and a benefit of $6 million related to the tax effects of non-operating pension expense, the effective income tax rate was 24% for the quarter.

Interest Expense

Net interest expense was ~~$123~~$116 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 and $133~~2020, compared with $117 million in the ~~third~~first quarter of ~~2018.~~2020 and $122 million in the second quarter of 2019.

Table of Contents

Effects of Net Special Items and Non-Operating Pension Expense

Details of net special items and non-operating pension expense (income) for the three months and six months ended are as follows:


	Three Months Ended
	June 30,																March 31,
	2020							2019								2020
In millions	Before Tax		After Tax			Before Tax		After Tax			Before Tax		After Tax
Business Segments
Brazil Packaging impairment	$	9	$	7	(a)	$	—	$	—		$	344	$	337	(a)
Abandoned property removal	5		4		(b)	11		8		(b)	9		7		(b)
Riverdale mill conversion	—		—			1		1		(c)	1		1		(c)
India impairment	—		—			145		143		(c)	—		—
Foreign value-added tax refund accrual	—		—			—		—			(2)		(1)		(a)
Business Segments Total	14		11			157		152			352		344
Corporate
Asbestos litigation reserve adjustment	43		33			—		—			—		—
Debt extinguishment costs	18		13			—		—			8		6
Gain on sale of portion of investment in India	(6)		(6)			—		—			—		—
India investment fair value adjustment	—		—			—		—			17		17
Environmental remediation reserve adjustment	—		—			—		—			41		31
Gain on sale of portion of equity investment in Graphic Packaging	—		—			—		—			(33)		(25)
Other	(1)		(1)			1		1			(1)		(1)
Corporate Total	54		39			1		1			32		28
Total net special items	68		50			158		153			384		372
Non-operating pension expense (income)	(14)		(11)			8		6			(6)		(5)
Total net special items and non-operating pension expense (income)	$	54	$	39		$	166	$	159		$	378	$	367

Three Months Ended
September 30, June 30,
2019 2018 2019
In millions Before Tax After Tax Before Tax After Tax Before Tax After Tax
Business Segments
India impairment $ 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 (7 ) (6 ) —
—
—
—
Gain on sale of previously closed Oregon mill site (9 ) (7 ) —
—
—
—
Abandoned property removal 13
10
6
4
11
8
Riverdale mill conversion 1
1
5
4
1
1
Business Segments Total 46
44
133
89
157
152
Corporate
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
Corporate Total 48
36
9
7
1
1
Total special items 94
80
142
96
158
153
Non-operating pension expense 9
7
25
19
8
6
Total special items and non-operating pension expense $ 103
$ 87
$ 167
$ 115
$ 166
$ 159

~~Special~~(a) Recorded in the Industrial Packaging segment.

(b) Includes $3 million ($2 million after taxes), $6 million ($5 million after taxes) and $8 million ($6 million after taxes) for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively, recorded in the Industrial Packaging segment; $2 million (before and after taxes), $3 million ($2 million after taxes) and $2 million ($1 million after taxes) for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively, recorded in the Global Cellulose Fibers segment; $1 million (before and after taxes) for the three months ended June 30, 2019, recorded in the Printing Papers segment.

Net special items include the following tax expenses (benefits):


	Three Months Ended
	June 30,						March 31,
In millions	2020		2019		2020
Luxembourg tax law rate change	$	—	$	9	$	—
State income tax legislative changes	—		(3)		—
Settlement of foreign tax audits	—		3		—
Total	$	—	$	9	$	—

Three Months Ended
September 30, June 30,
In millions 2019 2018 2019
Luxembourg tax law rate change $ —
$ —
$ 9
Tax benefits from Tax Cuts and Jobs Act —
(36 ) —
State income tax legislative changes —
—
(3 )
Settlement of foreign tax audits —
—
3
Total $ —
$ (36 ) $ 9

Table of Contents

Details of net special items and non-operating pension expense for the ~~nine~~six months ended are as follows:


	Six Months Ended
	June 30,
	2020									2019
In millions	Before Tax		After Tax			Before Tax		After Tax
Business Segments
Brazil Packaging impairment	$	353	$	344	(a)	$	—	$	—
Abandoned property removal	14		11		(b)	22		16		(b)
Riverdale mill conversion	1		1		(c)	2		2		(c)
Foreign value-added tax refund accrual	(2)		(1)		(a)	—		—
India impairment	—		—			145		143		(c)
Multi-employer pension plan exit liability	—		—			16		12		(a)
Gain on sale of EMEA Packaging box plant	—		—			(7)		(6)		(a)
Business Segments Total	366		355			178		167
Corporate
Asbestos litigation reserve adjustment	43		33			—		—
Debt extinguishment costs	26		19			—		—
Gain on sale of portion of investment in India	(6)		(6)			—		—
India investment fair value adjustment	17		17			—		—
Environmental remediation reserve adjustment	41		31			—		—
Gain on sale of portion of equity investment in Graphic Packaging	(33)		(25)			—		—
Other	(2)		(2)			1		1
Corporate Total	86		67			1		1
Total net special items	452		422			179		168
Non-operating pension expense (income)	(20)		(16)			18		14
Total net special items and non-operating pension expense (income)	$	432	$	406		$	197	$	182

Nine Months Ended
September 30,
2019 2018
In millions Before Tax After Tax Before Tax After Tax
Business Segments
India impairment $ 151
$ 149
$ —
$ —
Brazil Packaging impairment —
—
122
81
Italian antitrust fine 32
32
—
—
Overhead cost reduction initiative 10
8
—
—
Multi-employer pension plan exit liability 9
6
—
—
Gain on sale of previously closed Oregon mill site (9 ) (7 ) —
—
Gain on sale of EMEA Packaging box plant (7 ) (6 ) —
—
EMEA Packaging optimization —
—
48
35
Abandoned property removal 35
26
24
18
Riverdale mill conversion 3
3
5
4
Business Segments Total 224
211
199
138
Corporate
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
—
—
Legal settlement —
—
9
7
Corporate Total 49
37
30
23
Total special items 273
248
229
161
Non-operating pension expense 27
21
65
49
Total special items and non-operating pension expense $ 300
$ 269
$ 294
$ 210

~~Special~~(a) Recorded in the Industrial Packaging segment.

(b) Includes $9 million ($7 million after taxes) and $16 million ($12 million after taxes) for the six months ended June 30, 2020 and June 30, 2019, respectively, recorded in the Industrial Packaging segment; $5 million ($4 after taxes) and $5 million ($3 million after taxes) for the six months ended June 30, 2020 and June 30, 2019, respectively, recorded in the Global Cellulose Fibers segment; and $1 million (before and after taxes) for the six months ended June 30, 2019, recorded in the Printing Papers segment.

Net special items include the following tax expenses (benefits):


	Six Months Ended
	June 30,
In millions	2020		2019
Luxembourg tax law rate change	$	—	$	9
State income tax legislative changes	—		(3)
Settlement of foreign tax audits	—		3
Total	$	—	$	9

Table of Contents

Nine Months Ended
September 30,
In millions 2019 2018
Luxembourg tax law rate change $ 9
$ —
Tax benefits from Tax Cuts and Jobs Act —
(36 )
State income tax legislative changes (3 ) 9
Settlement of foreign tax audits 3
—
Total $ 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 Packaging 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 3,820
$ 3,864
$ 11,516
$ 4,034
$ 4,022
$ 11,883
Operating Profit $ 510
$ 507
$ 1,421
$ 472
$ 537
$ 1,446
Italian antitrust fine 32
—
32
—
—
—
Gain on sale of previously closed Oregon mill site (9 ) —
(9 ) —
—
—
Multi-employer pension plan exit liability (7 ) —
9
—
—
—
Gain on sale of EMEA Packaging box plant —
—
(7 ) —
—
—
Brazil Packaging impairment —
—
—
122
—
122
EMEA Packaging optimization —
—
—
—
26
48
Abandoned property removal 9
8
25
4
6
15
Operating Profit Before Special Items $ 535
$ 515
$ 1,471
$ 598
$ 569
$ 1,631


Total Industrial Packaging	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	3,633	$	3,819	$	7,452	$	3,864	$	3,832	$	7,696
Operating Profit (Loss)	$	449	$	470	$	919	$	515	$	421	$	936

Industrial Packaging net sales for the ~~third~~second quarter of ~~2019~~2020 were 1%5% lower ~~than~~compared with the first quarter of 2020 and 6% lower compared with the second quarter of 2019. Operating profit was 4% lower in the second quarter of ~~2019 and 5% lower than in~~2020 compared with the ~~third~~first quarter of ~~2018. Operating profit before special items was 4% higher in the third quarter of 2019 than in~~2020 and 13% lower compared with the second quarter of 2019.


North American Industrial Packaging	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales (a)	$	3,241	$	3,355	$	6,596	$	3,414	$	3,376	$	6,790
Operating Profit (Loss)	$	434	$	437	$	871	$	515	$	419	$	934

(a)Includes intra-segment sales of $31 million for each of the three months ended June 30, 2020 and 2019; $32 million and $31 million for the three months ended March 31, 2020 and 2019, respectively; and ~~11% lower than in~~$63 million and $62 million for the ~~third quarter of 2018.~~six months ended June 30, 2020 and 2019, respectively.

North American Industrial Packaging 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales (a) $ 3,368
$ 3,414
$ 10,158
$ 3,653
$ 3,582
$ 10,604
Operating Profit $ 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 (7 ) —
9
—
—
—
Abandoned property removal 9
8
25
4
6
15
Operating Profit Before Special Items $ 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; and $87 million and $178 million for the nine months ended September 30, 2019 and 2018, respectively.

North American Industrial Packaging sales volumes in the ~~third~~second quarter of ~~2019 increased~~2020 decreased compared to the first quarter of 2020, reflecting lower shipments for boxes and seasonally lower export containerboard volumes. There was one less shipping day in the second quarter of ~~2019,~~2020 compared with the first quarter of 2020. The COVID-19 pandemic had a mixed impact on box demand reflecting ~~seasonally higher shipments~~strong growth in the eCommerce segment as online shopping has become a major spending channel for ~~boxes~~consumers. The shipping and ~~higher export containerboard volumes as customer inventory levels began to return to normal.~~distribution and chemicals and pharmaceuticals segments were also favorably impacted. Demand for fresh foods, durable and other non-durable segments was negatively impacted by COVID-19 restrictions and a pullback in discretionary spending. Total maintenance and economic downtime was ~~249,000~~about 10,000 tons lower in the ~~third~~second quarter of ~~2019.~~2020 compared with the first quarter of 2020, primarily driven by maintenance downtime. Average sales margins were ~~lower, driven by~~stable as lower average sales prices for boxes ~~and~~was offset by higher export ~~containerboard.~~containerboard prices. Operating costs were ~~seasonally higher for~~lower as both our box plants and ~~our mills continued to perform well.~~mill system performed well and managed costs during the COVID-19 pandemic. Planned maintenance downtime costs were ~~$73~~$34 million lower in the ~~third~~second quarter of ~~2019~~2020 compared with the first quarter of 2020. Input costs were higher, primarily for recovered fiber, partially offset by lower wood, energy and distribution costs. Earnings in the second quarter of 2020 benefited from insurance recoveries related to the Rome fire and Bogalusa recovery boiler event.

Compared with the second quarter of ~~2019. Input costs~~2019, sales volumes were ~~favorable, primarily~~stable in the second quarter of 2020 as lower shipments for ~~recycled fiber and wood, partially~~boxes reflecting the demand impacts of the COVID-19 pandemic, was mostly offset by higher ~~distribution costs.~~

~~Compared with the third quarter of 2018, sales volumes were lower in the third quarter of 2019 for~~ export containerboard ~~and boxes.~~volumes. Total maintenance and economic downtime was ~~120,000~~about 371,000 tons ~~higher~~lower in the ~~third~~second quarter of ~~2019. Box~~2020, primarily driven by economic downtime. Export containerboard and box prices were significantly lower ~~as were export containerboard prices resulting from weaker global demand. Manufacturing~~reflecting prior index movements throughout 2019 and early 2020. Operating costs were ~~stable,~~flat, driven by strong operational performance at our mills offset by inflation. Planned maintenance downtime costs were ~~$18~~$80 million lower in the ~~third~~second quarter of ~~2019~~2020 compared with the second quarter of 2019. Input costs were flat as higher recovered fiber costs were offset by lower wood, energy and distribution costs. Earnings in the second quarter of 2020 benefited from insurance recoveries related to the Rome fire and Bogalusa recovery boiler event.

Entering the third quarter of ~~2018. Input costs were significantly lower, driven by recycled fiber.~~

~~Entering the fourth quarter of 2019,~~2020, sales volumes for boxes are expected to be ~~seasonally higher.~~stable. Demand continues to be mixed reflecting continued strong demand for eCommerce, protein, shipping and distribution and chemicals and pharmaceuticals offset by slower demand for fresh foods and durable and other non-durable goods. Export containerboard ~~shipments~~volumes are ~~also~~ expected to ~~increase, as demand continues to improve.~~be lower. Average sales margins for boxes ~~and export containerboard~~ are expected to be lower, ~~reflecting the impact of prior price index movement, mix and~~slightly offset by higher export ~~pressure.~~containerboard average sales margins. Operating costs are expected to be higher. Planned maintenance downtime costs ~~should~~are expected to be ~~$44~~$36 million ~~lower in the fourth quarter of 2019 than~~higher in the third quarter of ~~2019.~~2020 compared with the second quarter of 2020. Input costs are ~~projected~~expected to be ~~slightly~~ favorable ~~with lower wood costs mostly offset by higher recycled fiber and energy costs.~~

primarily for recovered fiber.

Table of Contents

EMEA Industrial Packaging 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 324
$ 331
$ 994
$ 311
$ 344
$ 1,017
Operating Profit $ (33 ) $ (7 ) $ (48 ) $ (37 ) $ (43 ) $ (114 )
Italian antitrust fine 32
—
32
—
—
—
Gain on sale of EMEA Packaging box plant —
—
(7 ) —
—
—
EMEA Packaging optimization —
—
—
—
26
48
Operating Profit Before Special Items $ (1 ) $ (7 ) $ (23 ) $ (37 ) $ (17 ) $ (66 )


EMEA Industrial Packaging	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	297	$	350	$	647	$	331	$	339	$	670
Operating Profit (Loss)	$	5	$	10	$	15	$	(7)	$	(15)	$	(22)

EMEA Industrial Packaging sales volumes for boxes in the ~~third quarter of 2019 were lower than in the~~ second quarter of ~~2019,~~2020 were lower compared with the first quarter of 2020 in all regions, primarily driven by ~~lower~~the demand impact and restriction of the COVID-19 pandemic particularly in non-essential industry segments. Lower seasonal box demand in Morocco ~~and the economic conditions in Turkey.~~also impacted volumes. Average sales margins improved in all regions driven by ~~lower containerboard prices~~a sales price increase in Turkey and ~~stable box prices.~~an improved mix as the fruit and vegetable segment was less impacted by the COVID-19 pandemic. Operating costs ~~improved,~~were higher reflecting ~~the continued improved performance at the Madrid mill. There were no planned~~higher distribution costs. Planned maintenance downtime costs were $1 million lower in ~~either the third quarter of 2019 or~~ the second quarter of ~~2019.~~2020 compared with the first quarter of 2020. Input costs were stable. Earnings benefited from favorable foreign currency impacts in ~~Turkey.~~Morocco.

Compared with the ~~third~~second quarter of ~~2018,~~2019, sales volumes in the ~~third~~second quarter of ~~2019~~2020 were lower, primarily due to the ~~recession~~impacts of the COVID-19 pandemic partially offset by improved economic conditions in Turkey. Average sales margins improved significantly, reflecting stable sales prices for boxes ~~improved, reflecting sales price increases during 2018~~ and lower containerboard costs. Operating costs ~~significantly~~ improved from the ramp-up of the Madrid ~~mill.~~mill and improved box plant operations. Earnings also benefited from the box plant acquisitions completed in the first half of 2019. There were no planned maintenance downtime ~~costs~~outages in either the ~~third~~second quarter of ~~2018.~~2020 or the second quarter of 2019. Input costs were stable. Earnings were positively affected by favorable foreign currency impacts, primarily in ~~Turkey.~~Morocco.

Looking ahead to the ~~fourth~~third quarter of ~~2019,~~2020, sales volumes for boxes are expected to be seasonally ~~higher~~lower, primarily in ~~Morocco and Turkey, and stable in~~Morocco. Sales volumes will continue to be negatively impacted by the ~~Eurozone.~~COVID-19 pandemic. Average sales margins ~~should improve~~are expected to be lower, primarily driven by mix in ~~Morocco and Turkey, partially offset by lower average sales margins in the Eurozone.~~Morocco. Operating ~~and input~~ costs ~~should~~are expected to be ~~stable. There are no planned~~seasonally higher. Planned maintenance downtime costs are expected to be $3 million higher in the ~~fourth~~third quarter of ~~2019.~~2020 compared with the second quarter of 2020. Input costs are expected to be slightly higher.


Brazilian Industrial Packaging	2019									2018									Brazilian Industrial Packaging	2020										2019
In millions	3nd Quarter			2nd Quarter			Nine Months			3rd Quarter			2nd Quarter			Nine Months			In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	61		$	58		$	176		$	57		$	56		$	175		Sales	$	42	$	54	$	96	$	58	$	57	$	115
Operating Profit	$	(6	)	$	(1	)	$	(12	)	$	(127	)	$	(11	)	$	(146	)
Brazil Packaging impairment	—			—			—			122			—			122
Operating Profit Before Special Items	$	(6	)	$	(1	)	$	(12	)	$	(5	)	$	(11	)	$	(24	)
Operating Profit (Loss)																			Operating Profit (Loss)	$	(2)	$	(1)	$	(3)	$	(1)	$	(5)	$	(6)

Brazilian Industrial Packaging sales volumes in the ~~third~~second quarter of ~~2019~~2020 compared with the first quarter of 2020 were lower for both boxes and containerboard. Seasonally higher volumes were more than offset by the demand impacts of the COVID-19 pandemic primarily for durables and discretionary segments. Average sales margins were stable, reflecting higher sales prices for containerboard and boxes partially offset by an unfavorable product mix. Operating costs were lower. There were no planned maintenance downtime costs in either the second quarter of 2020 or the first quarter of 2020. Input costs were higher for recovered fiber and chemicals.

Compared with the second quarter of 2019, sales volumes in the second quarter of 2020 were higher for boxes ~~and lower for containerboard. Average sales margins reflected higher sales prices for boxes and a favorable product mix, partially~~but were more than offset by lower containerboard prices. Planned maintenance downtime costs were $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.~~volumes. The COVID-19 pandemic negatively impacted volumes. Average sales prices increased for boxes and containerboard. Operating costs were flat. ~~Input costs increased, primarily for recycled fiber and energy. Planned~~There were no planned maintenance downtime costs ~~were $2 million higher~~ in either the ~~third~~second quarter of ~~2019 than in~~2020 or the ~~third~~second quarter of ~~2018.~~2019. Input costs were stable.

Looking ahead to the ~~fourth~~third quarter of ~~2019,~~2020, sales volumes for boxes ~~and containerboard~~ are expected to be seasonally ~~lower.~~higher partially offset by lower containerboard volumes. Average sales margins are expected to be higher, reflecting a favorable mix. Planned maintenance downtime costs ~~should~~are expected to be $2 million ~~lower in the fourth quarter of 2019 than~~higher in the third quarter of ~~2019.~~2020 compared with the second quarter of 2020. Input costs are ~~projected~~expected to be ~~lower~~higher for ~~recycled fiber.~~recovered fiber and energy.


European Coated Paperboard	2019						2018						European Coated Paperboard	2020										2019
In millions	3nd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	92	$	92	$	275	$	87	$	86	$	265	Sales	$	84	$	92	$	176	$	92	$	91	$	183
Operating Profit	$	17	$	8	$	47	$	18	$	17	$	55
Operating Profit (Loss)													Operating Profit (Loss)	$	12	$	24	$	36	$	8	$	22	$	30

European Coated Paperboard sales volumes in the ~~third~~second quarter of ~~2019~~2020 compared with the first quarter of 2020 were lower in both Europe and Russia. Sales volumes in both regions were negatively affected by the COVID-19 pandemic. Average sales margins improved in both regions driven by a favorable mix. Operating costs were lower in Russia but were more than offset by higher operating costs in Europe. Planned maintenance downtime costs were $4 million higher in the second quarter of 2020

Table of Contents

compared with the first quarter of 2020. Input costs were stable in both regions. Earnings were negatively affected by unfavorable foreign currency impacts, primarily in Russia.

Compared with the second quarter of 2019, ~~were flat~~sales volumes decreased in both Europe and ~~Russia.~~Russia reflecting the demand impact of the COVID-19 pandemic. Average sales margins ~~improved~~were higher in Europe driven by a favorable ~~mix. In Russia, average sales margins were slightly lower.~~mix and stable in Russia. Operating costs were lower in Russia but higher in ~~both Europe and Russia. Operating costs in Europe were negatively impacted by recovery boiler issues in Kwidzyn.~~Europe. Planned maintenance downtime costs were $8$4 million lower in the ~~third~~second quarter

of ~~2019~~2020 compared with the second quarter of 2019. Input costs were ~~favorable~~lower in Europe ~~primarily~~ for purchased pulp, ~~and energy.~~energy amd wood. In Russia, input costs were stable. Earnings were benefited from favorable foreign currency impacts ~~primarily~~ in ~~Russia.~~Europe.

~~Compared with~~Entering the third quarter of 2018, sales volumes increased in Europe but were slightly lower in Russia. Average sales margins were flat in Europe but improved in Russia, reflecting a favorable mix. Operating costs were higher in Europe, reflecting the recovery boiler issues in Kwidzyn. In Russia, operating costs were lower. There were no planned maintenance downtime costs in either the third quarter of 2019 or the third quarter of 2018. Input costs were lower in Europe for purchased pulp and energy, slightly 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 fourth quarter of 2019,~~2020, sales volumes are expected to be higher in Russia ~~but lower~~and stable in Europe. Average sales margins are expected to ~~increase~~be stable in both regions. Operating costs are expected to be ~~lower~~higher in Europe ~~as the third quarter was negatively impacted by the recovery boiler issues~~and flat in ~~Kwidzyn. In Russia, operating~~Russia. Planned maintenance downtime costs are expected to be ~~higher. There are no planned maintenance downtime outages~~$3 million higher in the ~~fourth~~third quarter of ~~2019.~~2020 compared with the second quarter of 2020. Input costs are expected to be ~~lower in Europe, primarily for purchased pulp and wood, and~~ stable in ~~Russia.~~both regions.

Global Cellulose Fibers


Total Global Cellulose Fibers	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	605	$	568	$	1,173	$	661	$	689	$	1,350
Operating Profit (Loss)	$	(10)	$	(54)	$	(64)	$	—	$	35	$	35

Total Global Cellulose Fibers 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 624
$ 661
$ 1,974
$ 714
$ 692
$ 2,083
Operating Profit $ (3 ) $ (2 ) $ 27
$ 83
$ 66
$ 160
Overhead cost reduction initiative 4
—
4
—
—
—
Abandoned property removal 3
2
8
2
3
9
Operating Profit Before Special Items $ 4
$ —
$ 39
$ 85
$ 69
$ 169

Global Cellulose Fibers net sales were ~~6% lower~~7% higher in the ~~third~~second quarter of ~~2019~~2020 than in the first quarter of 2020 and 8% lower than in the second quarter of ~~2019~~2019. Operating profit in the second quarter of 2020 improved 81% compared to the first quarter of 2020 and ~~13%~~was lower than in the ~~third quarter of 2018. Operating profit before special items in the third quarter of 2019 was slightly higher than the~~ second quarter of ~~2019 and 95% lower than in the third quarter of 2018.~~2019.

Sales volumes in the ~~third~~second quarter of ~~2019~~2020 compared with the ~~second~~first quarter of ~~2019~~2020 were higher for both fluff ~~pulp, partially offset by lower~~and market pulp ~~volumes.~~reflecting continued strong consumer demand for absorbent hygiene and tissue and towel products partially due to the COVID-19 pandemic. Total maintenance and economic downtime was ~~11,000~~about 40,000 tons ~~higher~~lower in the ~~third~~second quarter of ~~2019.~~2020 compared with the first quarter of 2020 due to maintenance downtime. Average sales margins ~~decreased,~~improved, reflecting ~~lower average pulp prices driven by unfavorable supply/demand conditions associated with historically high industry inventory levels, trade and tariff uncertainty and regional economic conditions.~~flow through of previously announced sales price increases. Operating costs were ~~favorable~~lower as our mills improved reliability and reduced spending to overcome the ~~impact~~uncertainty of ~~Hurricane Dorian.~~the COVID-19 pandemic. Planned maintenance downtime costs in the ~~third quarter of 2019 were $51 million lower than in the~~ second quarter of ~~2019. Earnings benefited $5~~2020 were $29 million inlower compared with the ~~third~~first quarter of ~~2019 and $10 million in the second quarter of 2019 from insurance proceeds related to Hurricane Florence.~~2020. Input costs were stable. Earnings were negatively affected by the non-repeat of a favorable ~~primarily for wood, energy~~inventory valuation adjustment in the first quarter of 2020. In Europe and ~~chemicals. Sales~~Russia, sales volumes were higher, primarily in Russia ~~but lower in Europe.~~driven by the demand impacts of the COVID-19 pandemic. Average sales ~~prices~~margins were ~~lower~~also higher in both regions. Planned maintenance downtime costs in the ~~third quarter of 2019 were $4 million lower than in the~~ second quarter of ~~2019~~2020 were $2 million higher compared with the first quarter of 2020 in Europe and Russia. Operating costs were ~~unfavorable~~favorable in both Europe and ~~flat in~~ Russia. Input costs were ~~stable~~higher in both both regions driven by wood. Earnings were negatively impacted by unfavorable foreign currency impacts in both Europe and Russia.

Compared with the ~~third~~second quarter of ~~2018,~~2019, sales volumes in the ~~third~~second quarter of ~~2019~~2020 were ~~slightly higher.~~higher driven by solid demand going into the COVID-19 pandemic reflecting a strong customer stocking cycle in anticipation of COVID-19 related supply chain issues and commercial wins. Total maintenance and economic downtime was ~~56,000~~about 76,000 tons ~~higher~~lower in the ~~third~~second quarter of ~~2019.~~2020, primarily for maintenance downtime. Average sales prices were significantly lower for both fluff and market pulp. Operating costs were favorable. Planned maintenance downtime costs in the ~~third~~second quarter of ~~2019~~2020 were ~~$10~~$64 million lower ~~than in~~compared with the ~~third~~second quarter of ~~2018.~~2019. Input costs were ~~slightly favorable. Sales~~lower primarily for wood, energy and chemicals. In Europe and Russia, sales volumes increased ~~primarily~~ in ~~Russia.~~both regions driven by the increased demand due to the COVID-19 pandemic. Average sales margins were significantly lower in both regions reflecting lower average sales prices. Operating costs were unfavorable in both Europe and ~~favorable in~~ Russia. ~~There were no planned~~Planned maintenance downtime costs in ~~either~~ the ~~third~~second quarter of ~~2019 or~~2020 were $2 million lower compared with the ~~third~~second quarter of ~~2018~~2019 in Europe and Russia. Input costs were flat in ~~both~~ Europe and ~~Russia.~~higher in Russia primarily for wood. Earnings ~~benefited from favorable~~were negatively impacted by unfavorable foreign currency impacts in Europe, slight offset by ~~unfavorable~~favorable impacts in Russia.

Entering the ~~fourth~~third quarter of ~~2019,~~2020, sales volumes are expected to be ~~flat.~~seasonally lower and include the impact of some destocking due to a more stable supply chain in the COVID-19 pandemic. Average sales margins are expected to be ~~lower,~~higher, reflecting the ~~continuing effects~~flow through of ~~historically high industry inventory levels, slower growth in developing markets, tariff uncertainty, regional economic conditions and expected increases in operating costs.~~previously announced sales price increases. Planned maintenance downtime costs in the ~~fourth quarter of 2019 should be $8 million lower than in the~~ third quarter of ~~2019.~~2020 are expected to be $46 million higher compared with the second quarter of 2020. Input costs are expected to be ~~slightly~~ higher. In Europe and Russia, sales volumes are expected to be stable in Europe and lower in Russia. Average sales margins are expected to be lower in both regions. Operating costs are expected to be ~~stable~~higher in both Europe and ~~higher in~~ Russia. Planned maintenance downtime costs in the ~~fourth quarter of 2019 should be $7 million higher than in the~~ third quarter of ~~2019~~2020 are expected to be flat compared with the second quarter of 2020 in Europe and Russia.

Table of Contents

Printing Papers

Total Printing Papers 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 1,071
$ 1,088
$ 3,224
$ 1,102
$ 1,060
$ 3,215
Operating Profit $ 148
$ (33 ) $ 258
$ 183
$ 94
$ 341
India impairment 6
145
151
—
—
—
Abandoned property removal 1
1
2
—
—
—
Overhead cost reduction initiative 6
—
6
—
—
—
Riverdale mill conversion 1
1
3
5
—
5
Operating Profit Before Special Items $ 162
$ 114
$ 420
$ 188
$ 94
$ 346


Total Printing Papers	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	583	$	908	$	1,491	$	1,088	$	1,065	$	2,153
Operating Profit (Loss)	$	(11)	$	96	$	85	$	114	$	144	$	258

Printing Papers net sales for the ~~third~~second quarter of ~~2019~~2020 were 2%36% lower than in the first quarter of 2020 and 46% lower than in the second quarter of ~~2019 and 3% lower than in the third quarter of 2018.~~2019. Operating profit ~~before special items in the third quarter of 2019 was 42% higher than~~ in the second quarter of ~~2019 and 14%~~2020 was significantly lower ~~than in~~compared with the ~~third~~first quarter of ~~2018.~~2020 and the second quarter of 2019.

North American Papers 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 492
$ 486
$ 1,474
$ 492
$ 493
$ 1,443
Operating Profit $ 69
$ 39
$ 164
$ 59
$ 25
$ 85
Abandoned property removal 1
1
2
—
—
—
Overhead cost reduction initiative 5
—
5
—
—
—
Riverdale mill conversion 1
1
3
5
—
5
Operating Profit Before Special Items $ 76
$ 41
$ 174
$ 64
$ 25
$ 90


North American Papers	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	265	$	446	$	711	$	486	$	496	$	982
Operating Profit (Loss)	$	(23)	$	23	$	—	$	41	$	57	$	98

North American Papers sales volumes in the ~~third quarter of 2019 were higher than in the~~ second quarter of ~~2019~~2020 were significantly lower compared with the first quarter of 2020 across all grades for uncoated freesheet paper ~~primarily~~ driven by ~~increased export volume.~~the unprecedented demand decline due to the COVID-19 pandemic. Total maintenance and economic downtime was ~~8,000~~about 176,000 tons higher in the ~~third~~second quarter of ~~2019.~~2020 compared with the first quarter of 2020 primarily for economic downtime. Average sales margins were ~~unfavorable,~~stable, reflecting ~~an unfavorable geographic~~lower average sales prices offset by a favorable mix. Operating costs were ~~lower.~~lower due to seasonality and strong operations and cost management. Planned maintenance downtime costs were ~~$19~~$24 million lower in the ~~third~~second quarter of 2020, compared with the first quarter of 2020. Input costs were lower, primarily for chemicals, energy and wood.

Compared with the second quarter of 2019, sales volumes in the second quarter of 2020 were significantly lower across all grades for uncoated freesheet paper driven by the demand impact of the COVID-19 pandemic. Total maintenance and economic downtime was about 184,000 tons higher in the second quarter of 2020 compared with the second quarter of 2019 primarily for economic downtime associated with the COVID-19 pandemic. Average sales margins were lower, reflecting lower average sales prices. Operating costs were favorable due to strong mill operations and cost management. Planned maintenance downtime costs were $23 million lower in the second quarter of 2020 compared with the second quarter of 2019. Input costs were ~~lower,~~favorable, primarily for wood.

~~Compared with~~Entering the third quarter of 2018, sales volumes in the third 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 higher, reflecting the impact of price increases in 2018. Operating costs were favorable. Planned maintenance downtime costs were $11 million higher than in the third quarter of 2018. Input costs increased, primarily for wood.

~~Entering the fourth quarter of 2019,~~2020, sales volumes are expected to ~~be higher,~~improve driven by ~~increased export volumes, partially offset by lower cutsize volumes.~~the ease in COVID-19 related restrictions on businesses and schools. Average sales margins are expected to be ~~lower.~~stable. Operating costs are expected to be higher. Planned maintenance downtime costs ~~should~~are expected to be $7 million ~~lower~~higher in the ~~fourth quarter.~~third quarter of 2020. Input costs are expected to be ~~favorable, primarily for wood.~~

stable.


European Papers	2019						2018						European Papers	2020										2019
In millions	3nd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	299	$	321	$	929	$	311	$	302	$	932	Sales	$	209	$	287	$	496	$	321	$	309	$	630
Operating Profit	$	40	$	29	$	116	$	46	$	15	$	82
Overhead cost reduction initiative	1		—		1		—		—		—
Operating Profit Before Special Items	$	41	$	29	$	117	$	46	$	15	$	82
Operating Profit (Loss)													Operating Profit (Loss)	$	13	$	41	$	54	$	29	$	47	$	76

European Papers sales volumes for uncoated freesheet paper in the ~~third~~second quarter of ~~2019~~2020 compared with the first quarter of 2020 were significantly lower in Europe and Russia driven by the unprecedented demand decline due to the COVID-19 pandemic. Earnings in both regions were negatively impacted by economic downtime in the second quarter of ~~2019 were lower in Europe, but higher in Russia. In Europe,~~2020 due to the ~~recovery boiler issues at Kwidzyn negatively impacted volumes.~~COVID-19 demand impact. Average sales margins for uncoated freesheet paper decreased in Europe, ~~and Russia,~~ reflecting lower average sales ~~prices resulting from weaker demand and an unfavorable~~prices. In Russia, average sales margins were higher due to a favorable mix. Operating costs were ~~higher~~lower in Europe ~~reflecting the impact of the recovery boiler issues at Kwidzyn. Operating costs were flat in Russia.~~and Russia driven by strong operations and cost management. Planned maintenance downtime costs were ~~$20~~$8 million ~~lower~~higher in ~~the third quarter of 2019 compared to~~ the second quarter of ~~2019.~~2020 compared to the first quarter of 2020. Input costs were stable in ~~both regions.~~Europe as higher wood and chemical costs were offset by lower energy costs. In Russia, input costs were higher, primarily for wood. Earnings ~~benefited from favorable~~were negatively impacted by unfavorable foreign currency impacts in ~~Europe.~~Russia.

Sales volumes for uncoated freesheet paper in the ~~third~~second quarter of 2020, compared with the second quarter of 2019, ~~compared with the third quarter of 2018,~~ were significantly lower in Europe ~~partially~~and Russia reflecting the negative demand impact of the COVID-19 pandemic. Earnings in both regions were negatively impacted by economic downtime in the second quarter of 2020 due to the ~~impact of the recovery boiler issues at Kwidzyn. In Russia, sales volumes were higher.~~COVID-19 demand impact. Average sales margins for uncoated freesheet paper ~~increased~~were lower in both regions reflecting ~~price increases implemented in late 2018~~lower average sales prices and ~~in 2019, net of~~ an unfavorable mix. Operating costs were ~~higher~~lower in both Europe and ~~slightly lower in~~ Russia. ~~There were no planned~~Planned maintenance downtime costs were $12 million lower in ~~either~~ the ~~third~~second quarter of ~~2019 or~~2020 compared with the ~~third~~second quarter of ~~2018.~~2019. In Europe, input costs were ~~higher~~lower,

Table of Contents

primarily for wood, energy and ~~chemicals, partially offset by lower energy costs.~~chemicals. In Russia, input costs ~~also~~ increased, primarily for ~~chemicals and energy,~~wood. Earnings benefited from favorable foreign currency impacts in Europe, partially offset ~~by lower wood costs. Earnings were negatively affected~~ by unfavorable foreign currency impacts in ~~both Europe and~~ Russia.

Looking forward to the ~~fourth~~third quarter of ~~2019,~~2020, sales volumes for uncoated freesheet paper are expected to be ~~higher~~stable in ~~both~~ Europe and improve in Russia. ~~In Europe, average~~Average sales margins are expected to be ~~lower. In Russia, average sales margins will be negatively impacted by an unfavorable mix.~~lower in both regions. Operating costs ~~should~~are expected to be higher in both Europe and Russia. Planned maintenance downtime costs ~~should~~are expected to be $8 million higher in the ~~fourth quarter.~~third quarter of 2020 compared with the second quarter of 2020. Input costs are expected to be higher in Europe, primarily for energy and stable in ~~Europe~~Russia.


Brazilian Papers	2020										2019
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales (a)	$	108	$	176	$	284	$	240	$	215	$	455
Operating Profit (Loss)	$	(1)	$	32	$	31	$	37	$	33	$	70

(a)Includes intra-segment sales of $(1) million and ~~Russia.~~$12 million for the three months ended June 30, 2020 and 2019, respectively; $1 million and $8 million for the three months ended March 31, 2020 and 2019, respectively; and $0 million and $20 million for the six months ended June 30, 2020 and 2019, respectively.

Brazilian Papers 2019 2018
In millions 3nd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales (a) $ 247
$ 240
$ 702
$ 255
$ 222
$ 706
Operating Profit $ 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; and $25 million and $16 million for the nine months ended September 30, 2019 and 2018, respectively.

Brazilian Papers sales volumes in the ~~third~~second quarter of ~~2019,~~2020, compared with the ~~second~~first quarter of ~~2019,~~2020, were ~~seasonally higher~~significantly lower for both domestic and export shipments of uncoated freesheet ~~partially offset~~paper driven by ~~lower export volumes. Export average~~the unprecedented decline in demand due to the COVID-19 pandemic. Earnings were negatively impacted by economic downtime due to the demand impact of the COVID-19 pandemic. 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~~margins were stable. Operating costs were favorable. Planned maintenance outage downtime costs were $3 million higher in the ~~third~~second quarter of 2020 compared with the first quarter of 2020. Input costs were flat.

Compared with the second quarter of 2019, sales volumes for uncoated freesheet paper in the second quarter of 2020 were significantly lower in both export and domestic markets reflecting the demand impact of the COVID-19 pandemic. Earnings were negatively impacted by economic downtime due to the demand impact of the COVID-19 pandemic. Average sales margins were lower reflecting lower average sales prices and an unfavorable geographic mix. Operating costs were lower. Planned maintenance outage expenses were $3 million higher in the second quarter of 2020 compared with the second quarter of 2019. Input costs were ~~flat.~~lower for virgin fiber and pulp, partially offset by higher chemicals and energy costs.

~~Compared with~~Entering the third quarter of 2018, sales volumes for uncoated freesheet paper in the third quarter of 2019 were slightly higher for export, but lower for the domestic shipments, reflecting challenging demand conditions impacted by a government textbook program delay. Lower export sales prices and an unfavorable geographic and product mix were slightly offset by higher average domestic prices. Operating costs were unfavorable. Planned maintenance outage expenses were $3 million higher in the third quarter of 2019. Input costs were higher, primarily for wood and energy.

~~Entering the fourth quarter of 2019,~~2020, sales volumes for uncoated freesheet paper are expected to ~~be seasonally stronger domestically, partially offset by lower~~improve for both domestic and export ~~volumes.~~shipments as COVID-19 negative demand impact begin to recover. Average sales margins are expected to be ~~stable domestically, while~~lower driven by export ~~sales margins~~markets. Operating costs are expected to be ~~lower. Operating costs should be slightly favorable.~~higher. Planned maintenance outage expenses are expected to be $1 million lower in the ~~fourth quarter.~~third quarter of 2020 compared with the second quarter of 2020. Input costs are expected to be ~~favorable.~~higher.


Indian Papers	2019									2018						Indian Papers	2020										2019
In millions	3nd Quarter			2nd Quarter			Nine Months			3rd Quarter		2nd Quarter		Nine Months		In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	38		$	53		$	144		$	47	$	51	$	150	Sales	$	—	$	—	$	—	$	53	$	53	$	106
Operating Profit	$	(5	)	$	(138	)	$	(136	)	$	3	$	5	$	10
India Impairment	6			145			151			—		—		—
Operating Profit Before Special Items	$	1		$	7		$	15		$	3	$	5	$	10
Operating Profit (Loss)																Operating Profit (Loss)	$	—	$	—	$	—	$	7	$	7	$	14

On May 29, 2019, International Paper announced it had entered into an agreement to sell its controlling interest in its Indian Papers business. The transaction closed on October 30, 2019.

Equity Earnings, Net of Taxes – Ilim

International Paper accounts for its 50% equity interest in Ilim S.A. (Ilim) using the equity method of accounting. Ilim is a separate reportable industry segment whose primary operations are in Russia. The Company recorded equity earnings (loss), net of taxes, of ~~$18~~$63 million in the ~~third~~second quarter of ~~2019,~~2020, compared with $(35) million in the first quarter of 2020 and $67 million in the second quarter of ~~2019 and $74 million in~~2019. In the ~~third~~second quarter of ~~2018. In the third quarter of 2019,~~2020, the after-tax foreign exchange impact primarily on the remeasurement of U.S. dollar-denominated net debt was a ~~loss~~gain of $4$34 million, compared with a ~~gain~~loss of $7$51 million in the first quarter of 2020.

Compared with the first quarter of 2020, sales volumes in the second quarter of ~~2019.~~2020 were 7% higher overall, primarily for sales of softwood pulp in China, other export markets and Russia, and sales of containerboard in China and Russia. Average sales price realizations increased slightly for softwood pulp and hardwood pulp in China and other export markets, but were lower in Russia. Input costs for wood were seasonally higher. Repair and outage costs were also higher.

Compared with the second quarter of 2019, sales volumes in the ~~third~~second quarter of ~~2019 were 9% lower,~~2020 increased overall by 6%, primarily for sales of ~~hardwood~~softwood pulp ~~and containerboard~~ in China and ~~softwood pulp in Russian and~~ other export ~~locations. Average~~markets, partially offset by lower 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 7%, primarily due 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~~China. Sales of containerboard in China and other export ~~locations~~ markets improved. Average sales price realizations for softwood pulp, hardwood pulp

Table of Contents

and containerboard were lower in ~~Russia were lower.~~all regions. Input costs, primarily for wood ~~and chemicals, were higher.~~increased. Distribution costs were ~~also~~ higher. An after-tax foreign exchange ~~loss~~gain of ~~$23~~$7 million primarily on the remeasurement of U.S. dollar denominated net debt was recorded in the ~~third~~second quarter of ~~2018.~~2019.

Looking forward to the ~~fourth~~third quarter of ~~2019,~~2020, sales volumes are expected to be ~~higher following the start-up of the newly upgraded containerboard machine~~lower as maintenance mill outages are scheduled to occur at the Koryzhama and Bratsk ~~mill and~~mills. Based on pricing to date in the ~~recently modernized pulp line at the Ust-Ilimsk mill. Average~~current quarter, average sales ~~margins~~price realizations are projected to ~~decrease~~be relatively flat compared with the ~~third~~second quarter of ~~2019, primarily due to hardwood pulp in China.~~2020. Input costs for wood are expected to ~~decrease. Mill maintenance outage~~be seasonally lower. Distribution costs ~~will be lower as there~~ are ~~no outages scheduled in the fourth quarter of 2019.~~projected to increase.

Equity Earnings – GPIP

International Paper recorded equity earnings of ~~$10~~$11 million in the ~~third~~second quarter of ~~2019,~~2020, compared with $7 million in the first quarter of 2020 and $14 million in the second quarter of ~~2019 and $19 million in the third quarter of 2018.~~2019. As of ~~September~~June 30, ~~2019,~~2020, the Company's ownership interest in GPIP was ~~21.6%~~18.9%.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled ~~$2.7~~$1.5 billion for the first ~~nine~~six months of ~~2019~~,2020, compared with ~~$2.4~~$1.8 billion for the comparable 2019 six-month period.

~~2018nine-month period. Cash provided by working capital components totaled~~ ~~$176 million~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2019, compared to cash used by working capital components of~~ ~~$249 million~~ ~~for the comparable~~ ~~2018~~ ~~nine-month period.~~

Investments in capital projects, net of insurance recoveries, totaled ~~$913~~$538 million in the first ~~nine~~six months of ~~2019~~,2020, compared to ~~$1.3 billion~~$628 million in the first ~~nine~~six months of ~~2018~~.2019. Full-year ~~2019~~2020 capital spending is currently expected to be approximately ~~$1.3 billion, or about 99%~~$800 million, which represents a reduction of approximately $200 million from our initial plan. This represents 63% of depreciation and amortization, including approximately ~~$400~~$300 million of strategic investments.

Financing activities for the first ~~nine~~six months of ~~2019~~2020 included a ~~$391~~$338 million net decrease in debt versus a ~~$107~~$8 million net ~~increase~~decrease in debt during the comparable ~~2018 nine-month~~2019 six-month period.

Amounts related to early debt extinguishment during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
In millions	2019		2018		2019			2018		In millions	2020		2019		2020		2019
Early debt reductions (a)	$	77	$	75	$	245		$	79	Early debt reductions (a)	$	222	$	74	$	294	$	168
Pre-tax early debt extinguishment (gain) loss, net	2		1		(1		)	1		Pre-tax early debt extinguishment (gain) loss, net	18		(1)		26		(2)

~~(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 nine months ended September 30, 2019 and 2018, respectively.

(a)Reductions related to notes with interest rates ranging from 3.00% to 7.50% with original maturities from 2021 to 2027 and from 3.00% to 4.40% with original maturities from 2027 to 2048 for the three months ended June 30, 2020 and 2019, respectively, and from 3.00% to 7.50% with original maturities from 2021 to 2048 and from 3.00% to 9.50% with original maturities from 2024 to 2048 for the six months ended June 30, 2020 and 2019, respectively.

At ~~September~~June 30, ~~2019,~~2020, contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in N~~Note~~ote 11 - Leases of the Condensed Notes to the Consolidated Financial Statements and excluding the timber monetization structures disclosed in Note 16 - Variable Interest Entities of t h e Condensed Notes to the Consolidated Financial Statements) by calendar year were as follows: ~~$298 million in 2019; $97~~$8 million in 2020; ~~$448~~$253 million in 2021; ~~$490~~$227 million in 2022; ~~$354~~$360 million in 2023; $806 million in 2024; and ~~$8.7~~$7.8 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~September~~June 30, ~~2019~~,2020, 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 under the Company's commercial paper program.

At ~~September~~June 30, ~~2019,~~2020, International Paper’s credit agreements totaled ~~$2.1~~$2.8 billion, which ~~management~~is comprised of the $750 million contractually committed revolving credit agreement, the $1.5 billion contractually committed bank credit agreement, and up to $550 million under the receivables securitization program. Management believes these credit agreements 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~~At June 30, 2020, the Company had no borrowings outstanding under either the $750 million revolving credit agreement, the $1.5 billion ~~contractually committed bank~~ credit agreement, ~~that expires~~or the $550 million receivables securitization program. The Company’s credit agreements are not subject to any restrictive covenants other than the financial covenants as disclosed in ~~December 2021~~Note 17 - Debt of the Condensed Notes to the Consolidated Financial S tatements, 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~~the borrowings under athe receivables securitization program ~~that expires~~being limited by eligible receivables. The Company was in ~~December 2019. At~~

~~September~~compliance with all its debt covenants at June 30, ~~2019, there were no outstanding~~2020 and was well below the thresholds stipulated under the covenants as defined in the credit agreements. Further the financial covenants do not restrict any borrowings under the credit ~~facility nor under the receivables securitization program.~~agreements.

Table of Contents

In ~~June 2018,~~addition to the $2.8 billion in credit agreements, International Paper has a commercial paper program with a 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 ~~September~~June 30, ~~2019,~~2020, the Company had ~~$245 million of~~no borrowings outstanding under ~~this program at a weighted average interest rate of 2.29%.~~the program.

~~During the first~~ ~~nine~~ months of 2019, International Paper used 3.4 million shares of treasury stock for various incentive plans. International Paper also acquired 11.9 million shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $535 million, including $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 68.9 million shares at an average price of $47.23, for a total of approximately $3.3 billion, as of September 30, 2019.

During the first nine months of 2018, International Paper used approximately 1.7 million shares of treasury stock for various incentive plans. International Paper also acquired 9.6 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $532 million. Cash dividend payments related to common stock totaled $595 million and $588 million for the first ~~nine~~ ~~months of 2019 and 2018, respectively. Dividends were $1.50 per share and $1.42 per share for the first~~ ~~nine~~ ~~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~~2020 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~~maintain appropriate levels of liquidity to meet our needs while ~~reducing~~managing balance sheet debt and interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. The COVID-19 pandemic has negatively impacted the global economy and created significant volatility and disruption of capital and financial markets. As a result of the current economic environment, management has taken various actions to further strengthen the Company’s liquidity position. In addition to the Company entering into a $750 million revolving credit agreement and the Company amending the receivable securitization program from uncommitted to committed financing, the Company also plans to reduce capital expenditures by approximately $200 million in 2020, has indefinitely suspended the Company’s share repurchase program beginning April 2020, and has been deferring the payment of our payroll taxes as allowed under CARES Act. The CARES Act allows for the deferral of the payment of the employer portion of Social Security taxes accrued between March 27, 2020, and December 31, 2020. Under the CARES Act 50% of the deferred payroll taxes will be paid by December 31, 2021 and the remainder will be paid by December 31, 2022. We believe that these actions provide us with sufficient liquidity to operate in this uncertain environment; however, an extended period of economic disruption could impact our access to additional sources of liquidity.

During the first six months of 2020, International Paper used 2.0 million shares of treasury stock for various incentive plans. International Paper also acquired 1.0 million shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $41 million, including $14 million related to shares repurchased under the Company's repurchase program. The Company has indefinitely suspended its repurchase program beginning April 2020.

During the first six months of 2019, International Paper used approximately 3.4 million shares of treasury stock for various incentive plans. International Paper also acquired 10.1 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $460 million, including $411 million related to shares repurchased under the Company's repurchase program.

Cash dividend payments related to common stock totaled $403 million and $398 million for the first six months of 2020 and 2019, respectively. Dividends were $1.0250 per share and $1.0000 per share for the first six months in 2020 and 2019, respectively.

Our pension plan is currently sufficiently funded and we do not anticipate any required contributions in 2020.

Variable Interest Entities

Information concerning variable interest entities is set forth in Note 15 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. In connection with the 2006 International Paper installment sale of forestlands, we received $4.8 billion of installment notes. These installment notes were used by variable interest entities as collateral for borrowings from third-party lenders. These variable interest entities were restructured in 2015 when the installment notes and third-party loans were extended. The restructured variable interest entities hold installment notes of $4.8 billion that mature in August 2021 (unless extended) and third-party loans of $4.2 billion that mature in the fourth quarter of 2020 (unless extended). These third-party loans are shown in Current nonrecourse financial liabilities of variable interest entities on the accompanying consolidated balance sheet. We are evaluating alternatives for extending the installment notes and refinancing the third-party loans.

Failure to extend, renew or refinance these third-party loans prior to their stated maturity, which we believe is unlikely, could necessitate a disposition of the installment notes to facilitate the $4.2 billion debt payment. We are confident we would be able to dispose of the installment notes, if necessary.

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

Table of Contents

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% interest would be approximately ~~$1.9~~$1.1 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~~2019 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 ~~nine~~six months of 2020.

While we have taken into account certain impacts arising from COVID-19 in connection with the accounting estimates reflected in this Quarterly Report on Form 10-Q, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be affected.

~~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,”~~“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) developments related to the COVID-19 pandemic, including the severity, magnitude and duration of the pandemic, negative global economic conditions arising from the pandemic, impacts of governments’ responses to the pandemic on our operations, impacts of the pandemic on commercial activity, our customers and business partners and consumer preferences and demand, supply chain disruptions, and disruptions in the capital or financial markets; (ii) the level of ~~our~~ indebtedness and changes in interest rates; ~~(ii)~~(iii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition ~~we face,~~International Paper faces, cyclicality and changes in consumer preferences, demand and pricing for ~~our products; (iii)~~International Paper products (including changes resulting from the COVID-19 pandemic); (iv) domestic and global economic conditions and political changes, ~~including but not limited to trade protection measures, the impairment of financial institutions,~~ changes in currency exchange rates, trade protectionist policies, downgrades in International Paper’s credit ratings, and/or the credit ratings of banks issuing certain letters of credit, issued by recognized credit rating ~~organizations,~~organizations; (v) the amount of ~~our~~International Paper’s future pension funding ~~obligation, changes in tax laws~~obligations, and pension and health care costs; ~~(iv)~~(vi) unanticipated expenditures or other adverse developments related to the cost of compliance with existing and new environmental, tax, labor and employment, privacy and other U.S. and non-U.S. governmental laws and regulations ~~and to actual or potential litigation; (v) whether we experience a~~(including new legal requirements arising from the COVID-19 pandemic); (vii) any material disruption at ~~one~~any of ~~our~~International Paper’s manufacturing ~~facilities; (vi)~~facilities (including as the result of the COVID-19 pandemic); (viii) risks inherent in conducting business through joint ventures; ~~(vii) our~~(ix) International Paper’s ability to achieve the benefits ~~we expect~~expected from, ~~strategic~~and other risks associated with, acquisitions, joint ventures, divestitures ~~restructurings~~ and ~~capital investments,~~other corporate transactions, (x) information technology risks, and ~~(viii)~~(xi) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters. These and other factors ~~you~~that could cause or contribute to actual results differing materially from such forward-looking statements can ~~find~~be found in ~~our~~International Paper’s press releases and ~~filings with the~~U.S. Securities and Exchange Commission ~~including~~filings. In addition, other risks and uncertainties not presently known to International Paper or that it currently believes to be immaterial could affect the ~~risk factors identified in Item 1A~~accuracy of ~~Part I~~any forward-looking statements. International Paper undertakes no

Table of ~~the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We undertake no~~ Contents

obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosures about market risk is shown on page 3536 of International Paper’s ~~2018~~2019 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~~2019.

ITEM 4..CONTROLS AND PROCEDURES


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

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 ~~September~~June 30, ~~2019~~2020 (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 ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

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.RISK FACTORS


~~ITEM 1A.~~	~~RISK FACTORS~~

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~~2019 (Part I, Item 1A). other than as discussed below.

The current COVID-19 pandemic is significantly affecting our business, and may have material adverse effects on our business, financial condition, results of operations and cash flows.

The COVID-19 pandemic has resulted in authorities throughout the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, stay-at-home orders, the promotion of social distancing and limitations on business activity, including business closures. These measures and the pandemic are causing significant global economic downturn, disrupting supply chains, significantly increasing unemployment and underemployment levels, and adversely impacting consumer confidence and spending. The continued spread of COVID-19 has also led to significant disruption and volatility in the global capital and financial markets, which increases the cost of capital and may adversely impact our access to such markets. In addition, the negative impacts arising from the pandemic may continue or worsen in the future, amplifying the negative impact on global economic conditions and global financial markets.

Although governments of countries in which we operate have generally considered forest products and the supply chain on which we depend to be “essential industries” that should remain operational during this pandemic, any significant disruption in operations at one or more of our mills, plants, distribution centers or other facilities as a result of the COVID-19 pandemic, including precautionary measures we take or taken by governmental authorities that limits in-person workplace contact at any of our facilities to reduce the potential for employee exposure to COVID-19, could have an adverse effect on our business or operations. If a significant portion of our workforce is unable to work effectively due to measures taken in response to the COVID-19 pandemic such as those described herein, our operations will likely be negatively impacted.

The COVID-19 pandemic is having a significant negative impact on demand for our printing papers products and could accelerate the underlying secular decline in demand for these products. If negative economic conditions with respect to COVID-19 persist or continue to deteriorate, these conditions are expected to impact demand for other products we sell, such as our pulp, containerboard and corrugated box products, which would be more significant to our enterprise as a whole. In addition, the COVID-19 pandemic may cause supply chain disruptions. Conditions related to the pandemic could also limit the ability of our suppliers, customers, third-party service providers, joint venture and other business partners and other counterparties to fulfill their commitments and responsibilities in a timely manner and in accordance with agreed upon terms, as well as limit our ability to perform fully on our contracts. Moreover, we may incur additional costs as the result of the pandemic arising from measures to keep our employees safe and expenditures to enable our office workers to work remotely. Likewise, remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. Finally, if negative economic conditions arising from the pandemic persist and continue to significantly adversely affect economic conditions, this could give rise to an impairment in the value of our tangible or intangible assets, or result in a continued significant decrease in our pension plan assets or also a negative impact to pension plan liabilities.

There continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the various economic reopening plans and the resurgence of the virus in many areas; additional actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact; the extent and duration of social distancing and stay-at-home orders; the possibility of development of a vaccine; and the ongoing impact of COVID-19 on unemployment, economic activity and consumer confidence. As a result, we are unable to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020, but developments related to COVID-19 are significantly adversely affecting our business, and could have a material adverse effect on our financial condition, results of operations and cash flows, particularly if negative global economic conditions persist for a significant period of time or continue to deteriorate.

Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
July 1, 2019 - July 31, 2019 1,329,575
$43.04 1,329,064
$1.76
August 1, 2019 - August 31, 2019 436,700
38.93
436,700
1.75
September 1, 2019 - September 30, 2019 917
40.57
—
1.75
Total 1,767,192


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share	Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
April 1, 2020 - April 30, 2020	302	$43.56	—	$1.73
May 1, 2020 - May 31, 2020	3,156	33.52	—	1.73
June 1, 2020 - June 30, 2020	677	36.82	—	1.73
Total	4,135

(a) ~~1,429~~4,135 shares were acquired from employees or board members as a result of share withholdings to pay income taxes under the Company's restricted stock ~~programs.~~program. The ~~remainder were purchased under a share~~Company has indefinitely suspended its repurchase program ~~that was approved and increased twice by our Board~~beginning April 2020.

Table 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 $5 billion of shares of our common stock. As of September 30, 2019, approximately $1.75 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.Contents

ITEM 6. EXHIBITS


10.1		Amendment No. 16 to the Second Amended and Restated Credit and Security Agreement, dated April 28, 2020, by and among the Corporation, as servicer, Red Bird Receivables, LLC, as borrower, the lenders and co-agents from time to time party thereto, and Mizuho Bank, Ltd., as Administrative Agent (i ncorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 28, 2020).

~~10.1~~31.1		~~Amendment No. 9 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective November 1, 2019.~~

~~31.1~~	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

104		Cover Page Interactive Data File (formatted as Inline XBRL, and contained in Exhibit 101).

Table of Contents

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, 2020			~~INTERNATIONAL PAPER COMPANY~~ ~~(Registrant)~~
By
~~November 1, 2019~~	By	/s/ Tim S. Nicholls
				Tim S. Nicholls
				Senior Vice President and Chief Financial Officer

~~November 1, 2019~~July 31, 2020			By	/s/ Vincent P. Bonnot
				Vincent P. Bonnot
				Vice President – Finance and Controller



	Three Months Ended September 30, 2019
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate and Inter-segment Sales			Total
Primary Geographical Markets (a)
United States	$	3,180		$	535	$	486		$	56		$	4,257
EMEA	415			62		315			(1		)	791
Pacific Rim and Asia	20			27		47			3			97
Americas, other than U.S.	205			—		223			(5		)	423
Total	$	3,820		$	624	$	1,071		$	53		$	5,568

Operating Segments
North American Industrial Packaging	$	3,368		$	—	$	—		$	—		$	3,368
EMEA Industrial Packaging	324			—		—			—			324
Brazilian Industrial Packaging	61			—		—			—			61
European Coated Paperboard	92			—		—			—			92
Global Cellulose Fibers	—			624		—			—			624
North American Printing Papers	—			—		492			—			492
Brazilian Papers	—			—		247			—			247
European Papers	—			—		299			—			299
Indian Papers	—			—		38			—			38
Intra-segment Eliminations	(25		)	—		(5		)	—			(30		)
Corporate & Inter-segment Sales				—		—			53			53
Total	$	3,820		$	624	$	1,071		$	53		$	5,568



	Nine Months Ended September 30, 2018
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate & Intersegment			Total
Primary Geographical Markets (a)
United States	$	9,832		$	1,720	$	1,399		$	163		$	13,114
EMEA	1,275			222		988			(13		)	2,472
Pacific Rim and Asia	110			140		185			35			470
Americas, other than U.S.	666			1		643			(11		)	1,299
Total	$	11,883		$	2,083	$	3,215		$	174		$	17,355

Operating Segments
North American Industrial Packaging	$	10,604		$	—	$	—		$	—		$	10,604
EMEA Industrial Packaging	1,017			—		—			—			1,017
Brazilian Industrial Packaging	175			—		—			—			175
European Coated Paperboard	265			—		—			—			265
Global Cellulose Fibers	—			2,083		—			—			2,083
North American Printing Papers	—			—		1,443			—			1,443
Brazilian Papers	—			—		706			—			706
European Papers	—			—		932			—			932
Indian Papers	—			—		150			—			150
Intra-segment Eliminations	(178		)	—		(16		)	—			(194		)
Corporate & Inter-segment Sales	—			—		—			174			174
Total	$	11,883		$	2,083	$	3,215		$	174		$	17,355



In millions	Contract Assets (Short-Term)			Contract Liabilities (Short-Term)
Beginning Balance - January 1, 2019	$	395		$	56
Ending Balance -September 30, 2019	388			28
Increase / (Decrease)	$	(7	)	$	(28	)



In millions	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases	$	110
Operating cash flows related to financing leases	3
Financing cash flows related to finance leases	7



	September 30, 2019
In millions	Operating Leases		Financing Leases		Total
2019 (remainder of year)	$	39	$	4	$	43
2020	138		17		155
2021	97		15		112
2022	64		13		77
2023	35		11		46
2024	18		10		28
Thereafter	95		65		160
Total lease payments	486		135		621
Less: Interest (a)	58		31		89
Present value of lease liabilities	$	428	$	104	$	532



	Three Months Ended
	September 30,						June 30,
In millions	2019			2018			2019
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company	$	344		$	562		$	292
Add back (deduct):
Income tax provision (benefit)	137			83			128
Equity (earnings) loss, net of taxes	(27		)	(92		)	(80		)
Noncontrolling interests, net of taxes	(2		)	—			(6		)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	452			553			334
Interest expense, net	123			133			122
Noncontrolling interests / equity earnings included in operations	2			(2		)	5
Corporate expenses, net	21			20			3
Corporate special items (income) expense	48			9			—
Non-operating pension expense	9			25			8
Adjusted Operating Profit	$	655		$	738		$	472
Business Segment Operating Profit:
Industrial Packaging	$	510		$	472		$	507
Global Cellulose Fibers	(3		)	83			(2		)
Printing Papers	148			183			(33		)
Total Business Segment Operating Profit	$	655		$	738		$	472



	Nine Months Ended
	September 30,
	2019						2018
In millions	Before Tax			After Tax			Before Tax		After Tax
Business Segments
India impairment	$	151		$	149		$	—	$	—
Brazil Packaging impairment	—			—			122		81
Italian antitrust fine	32			32			—		—
Overhead cost reduction initiative	10			8			—		—
Multi-employer pension plan exit liability	9			6			—		—
Gain on sale of previously closed Oregon mill site	(9		)	(7		)	—		—
Gain on sale of EMEA Packaging box plant	(7		)	(6		)	—		—
EMEA Packaging optimization	—			—			48		35
Abandoned property removal	35			26			24		18
Riverdale mill conversion	3			3			5		4
Business Segments Total	224			211			199		138
Corporate
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			—		—
Legal settlement	—			—			9		7
Corporate Total	49			37			30		23
Total special items	273			248			229		161
Non-operating pension expense	27			21			65		49
Total special items and non-operating pension expense	$	300		$	269		$	294	$	210