INTERNATIONAL PAPER CO /NEW/ (Form: 10-Q, Received: 05/03/2019 16:46:39)

Three Months Ended March 31, 2019

Three Months Ended March 31, 2018

Three Months Ended December 31, 2018

Economic-related downtime

Maintenance downtime

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

_________________________________________

Commission File Number 1-3157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)



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

6400 Poplar Avenue, Memphis, TN	38197
(Address of principal executive offices)	(Zip Code)

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

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



Title of each class	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 ý 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 ý 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	ý	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 ý

The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of April 26, 2019 was 397,333,976 .

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INDEX



		PAGE NO.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2019 and 2018	1

	Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2019 and 2018	2

	Condensed Consolidated Balance Sheet - March 31, 2019 and December 31, 2018	3

	Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2019 and 2018	4

	Condensed Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6.	Exhibits	43

Signatures		44

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PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)



	Three Months Ended March 31,
	2019			2018
Net Sales	$	5,643		$	5,621
Costs and Expenses
Cost of products sold	3,929			3,948
Selling and administrative expenses	413			421
Depreciation, amortization and cost of timber harvested	315			325
Distribution expenses	389			366
Taxes other than payroll and income taxes	43			44
Restructuring and other charges, net	—			22
Net (gains) losses on sales and impairments of businesses	(7		)	—
Interest expense, net	133			135
Non-operating pension expense	10			4
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	418			356
Income tax provision (benefit)	106			89
Equity earnings (loss), net of taxes	114			95
Earnings (Loss) From Continuing Operations	426			362
Discontinued operations, net of taxes	—			368
Net Earnings (Loss)	426			730
Less: Net earnings (loss) attributable to noncontrolling interests	2			1
Net Earnings (Loss) Attributable to International Paper Company	$	424		$	729
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	1.06		$	0.87
Discontinued operations, net of taxes	—			0.89
Net earnings (loss)	$	1.06		$	1.76
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	1.05		$	0.86
Discontinued operations, net of taxes	—			0.88
Net earnings (loss)	$	1.05		$	1.74
Average Shares of Common Stock Outstanding – assuming dilution	403.2			418.2
Cash Dividends Per Common Share	$	0.5000		$	0.4750
Amounts Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	424		$	361
Discontinued operations, net of taxes	—			368
Net earnings (loss)	$	424		$	729

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(In millions)



	Three Months Ended March 31,
	2019			2018
Net Earnings (Loss)	$	426		$	730
Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans	41			66
Change in cumulative foreign currency translation adjustment	12			42
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period	—			(3		)
Reclassification adjustment for (gains) losses included in net earnings (loss)	1			(2		)
Total Other Comprehensive Income (Loss), Net of Tax	54			103
Comprehensive Income (Loss)	480			833
Net (earnings) loss attributable to noncontrolling interests	(2		)	(1		)
Other comprehensive (income) loss attributable to noncontrolling interests	—			—
Comprehensive Income (Loss) Attributable to International Paper Company	$	478		$	832

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Balance Sheet

(In millions)



	March 31, 2019			December 31, 2018
	(unaudited)
Assets
Current Assets
Cash and temporary investments	$	641		$	589
Accounts and notes receivable, net	3,493			3,521
Contract assets	410			395
Inventories	2,301			2,241
Other current assets	217			250
Total Current Assets	7,062			6,996
Plants, Properties and Equipment, net	13,071			13,067
Forestlands	401			402
Investments	1,770			1,648
Financial Assets of Special Purpose Entities (Note 15)	7,074			7,070
Goodwill	3,393			3,374
Right of Use Assets	415			—
Deferred Charges and Other Assets	992			1,019
Total Assets	$	34,178		$	33,576
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	809		$	639
Accounts payable	2,518			2,413
Accrued payroll and benefits	354			535
Other current liabilities	1,272			1,107
Total Current Liabilities	4,953			4,694
Long-Term Debt	9,965			10,015
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 15)	6,300			6,298
Deferred Income Taxes	2,634			2,600
Pension Benefit Obligation	1,727			1,762
Postretirement and Postemployment Benefit Obligation	260			264
Long-term Lease Obligations	281			—
Other Liabilities	589			560
Equity
Common stock, $1 par value, 2019 – 448.9 shares and 2018 – 448.9 shares	449			449
Paid-in capital	6,159			6,280
Retained earnings	8,211			7,465
Accumulated other comprehensive loss	(4,975		)	(4,500		)
	9,844			9,694
Less: Common stock held in treasury, at cost, 2019 – 49.9 shares and 2018 – 48.3 shares	2,398			2,332
Total International Paper Shareholders’ Equity	7,446			7,362
Noncontrolling interests	23			21
Total Equity	7,469			7,383
Total Liabilities and Equity	$	34,178		$	33,576

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In millions)



	Three Months Ended March 31,
	2019			2018
Operating Activities
Net earnings (loss)	$	426		$	730
Depreciation, amortization and cost of timber harvested	315			325
Deferred income tax provision (benefit), net	22			157
Restructuring and other charges, net	—			22
Net gain on transfer of North American Consumer Packaging business	—			(516		)
Net (gains) losses on sales and impairments of businesses	(7		)	—
Equity method dividends received	6			116
Equity (earnings) losses, net	(114		)	(95		)
Periodic pension expense, net	26			42
Other, net	46			14
Changes in current assets and liabilities
Accounts and notes receivable	26			(122		)
Contract assets	(15		)	(22		)
Inventories	(22		)	21
Accounts payable and accrued liabilities	34			11
Interest payable	(25		)	(34		)
Other	15			14
Cash Provided By (Used For) Operations	733			663
Investment Activities
Invested in capital projects	(293		)	(489		)
Acquisitions, net of cash acquired	(17		)	—
Net settlement on transfer of North American Consumer Packaging business	—			1
Proceeds from divestitures, net of cash divested	17			—
Proceeds from sale of fixed assets	3			1
Other	(4		)	(2		)
Cash Provided By (Used For) Investment Activities	(294		)	(489		)
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding	(229		)	(31		)
Issuance of debt	208			223
Reduction of debt	(142		)	(34		)
Change in book overdrafts	(25		)	(17		)
Dividends paid	(201		)	(197		)
Cash Provided By (Used For) Financing Activities	(389		)	(56		)
Effect of Exchange Rate Changes on Cash	2			5
Change in Cash and Temporary Investments	52			123
Cash and Temporary Investments
Beginning of period	589			1,018
End of period	$	641		$	1,141

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

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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 three months of the year may not necessarily be indicative of full year results. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 , which have previously been filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING DEVELOPMENTS

Intangibles

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

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This guidance eliminates the requirement to calculate the implied fair value of goodwill under Step 2 of today's goodwill impairment test to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. This guidance should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2019, for any impairment test performed in 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the provisions of this guidance; however, we do not anticipate adoption having a material impact on the financial statements.

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.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This guidance replaces the current incurred loss impairment method with a method that reflects expected credit losses. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. This guidance should be applied using the modified-retrospective approach. 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 the cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings.

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

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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.

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 provide 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 March 31, 2019
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate and Inter-segment Sales			Total
Primary Geographical Markets (a)
United States	$	3,146		$	570	$	488		$	60		$	4,264
EMEA	428			81		330			(2		)	837
Pacific Rim and Asia	18			38		59			4			119
Americas, other than U.S.	240			—		188			(5		)	423
Total	$	3,832		$	689	$	1,065		$	57		$	5,643

Operating Segments
North American Industrial Packaging	$	3,376		$	—	$	—		$	—		$	3,376
EMEA Industrial Packaging	339			—		—			—			339
Brazilian Industrial Packaging	57			—		—			—			57
European Coated Paperboard	91			—		—			—			91
Global Cellulose Fibers	—			689		—			—			689
North American Printing Papers	—			—		496			—			496
Brazilian Papers	—			—		215			—			215
European Papers	—			—		309			—			309
Indian Papers	—			—		53			—			53
Intra-segment Eliminations	(31		)	—		(8		)	—			(39		)
Corporate & Inter-segment Sales	—			—		—			57			57
Total	$	3,832		$	689	$	1,065		$	57		$	5,643

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

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	Three Months Ended March 31, 2018
In millions	Industrial Packaging			Global Cellulose Fibers		Printing Papers			Corporate & Intersegment			Total
Primary Geographical Markets (a)
United States	$	3,102		$	545	$	440		$	58		$	4,145
EMEA	452			75		336			(5		)	858
Pacific Rim and Asia	34			57		64			16			171
Americas, other than U.S.	239			—		213			(5		)	447
Total	$	3,827		$	677	$	1,053		$	64		$	5,621

Operating Segments
North American Industrial Packaging	$	3,369		$	—	$	—		$	—		$	3,369
EMEA Industrial Packaging	362			—		—			—			362
Brazilian Industrial Packaging	62			—		—			—			62
European Coated Paperboard	92			—		—			—			92
Global Cellulose Fibers	—			677		—			—			677
North American Printing Papers	—			—		458			—			458
Brazilian Papers	—			—		229			—			229
European Papers	—			—		319			—			319
Indian Papers	—			—		52			—			52
Intra-segment Eliminations	(58		)	—		(5		)	—			(63		)
Corporate & Inter-segment Sales	—			—		—			64			64
Total	$	3,827		$	677	$	1,053		$	64		$	5,621

(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 - March 31, 2019	410		53
Increase / (Decrease)	$	15	$	(3	)

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

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

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

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NOTE 4 - EQUITY

A summary of the changes in equity for the three months ended March 31, 2019 and 2018 is provided below:



Three Months Ended March 31, 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	—		(118		)	—			—			(163		)	45			—		45
Repurchase of stock	—		—			—			—			229			(229		)	—		(229		)
Common stock dividends ($.5000 per share)	—		—			(207		)	—			—			(207		)	—		(207		)
Transactions of equity method investees	—		(3		)	—			—			—			(3		)	—		(3		)
Comprehensive income (loss)	—		—			424			54			—			478			2		480
Ending Balance, March 31	$	449	$	6,159		$	8,211		$	(4,975	)	$	2,398		$	7,446		$	23	$	7,469



Three Months Ended March 31, 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	—		(41		)	—			—			(79		)	38			—		38
Repurchase of stock	—		—			—			—			31			(31		)	—		(31		)
Common stock dividends ($.4750 per share)	—		—			(199		)	—			—			(199		)	—		(199		)
Transactions of equity method investees	—		10			—			—			—			10			—		10
Comprehensive income (loss)	—		—			729			103			—			832			1		833
Ending Balance, March 31	$	449	$	6,175		$	6,783		$	(4,530	)	$	1,632		$	7,245		$	20	$	7,265

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NOTE 5 - OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income (AOCI) for the three months ended March 31, 2019 and 2018 :



	Three Months Ended March 31,
In millions	2019			2018
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period	$	(1,916	)	$	(2,527	)
Reclassification of stranded tax effects	(527		)	—
Amounts reclassified from accumulated other comprehensive income	41			66
Balance at end of period	(2,402		)	(2,461		)
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period	(2,581		)	(2,111		)
Other comprehensive income (loss) before reclassifications	8			40
Amounts reclassified from accumulated other comprehensive income	4			2
Other comprehensive income (loss) attributable to noncontrolling interest	—			—
Balance at end of period	(2,569		)	(2,069		)
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period	(3		)	5
Other comprehensive income (loss) before reclassifications	—			(3		)
Reclassification of stranded tax effects	(2		)	—
Amounts reclassified from accumulated other comprehensive income	1			(2		)
Balance at end of period	(4		)	—
Total Accumulated Other Comprehensive Income (Loss) at End of Period	$	(4,975	)	$	(4,530	)

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The following table presents details of the reclassifications out of AOCI for the three months ended March 31, 2019 and 2018 :



In millions:	Amounts Reclassified from Accumulated Other Comprehensive Income							Location of Amount Reclassified from AOCI
	Three Months Ended March 31,
	2019			2018
Defined benefit pension and postretirement items:
Prior-service costs	$	(3	)	$	(4	)	(a)	Non-operating pension expense
Actuarial gains (losses)	(52		)	(84		)	(a)	Non-operating pension expense
Total pre-tax amount	(55		)	(88		)
Tax (expense) benefit	14			22
Net of tax	(41		)	(66		)
Reclassification of stranded tax effects	527			—				Retained Earnings
Total, net of tax	486			(66		)

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

Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts	(1		)	3			(c)	Cost of products sold
Total pre-tax amount	(1		)	3
Tax (expense)/benefit	—			(1		)
Net of tax	(1		)	2
Reclassification of stranded tax effects	2			—				Retained Earnings
Total, net of tax	1			2
Total reclassifications for the period	$	483		$	(66	)


(a)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 18 for additional details).


(b)	Amount for the three months ended March 31, 2018 was reclassified to Discontinued operations, net of taxes.


(c)	This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 17 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 March 31,
In millions, except per share amounts	2019		2018
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders	$	424	$	361
Weighted average common shares outstanding	400.5		413.5
Effect of dilutive securities
Restricted performance share plan	2.7		4.7
Weighted average common shares outstanding – assuming dilution	403.2		418.2
Basic earnings (loss) per share from continuing operations	$	1.06	$	0.87
Diluted earnings (loss) per share from continuing operations	$	1.05	$	0.86

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NOTE 7 - RESTRUCTURING AND OTHER CHARGES, NET

2019: During the three months ended March 31, 2019, there were no restructuring and other charges, net.

2018 : 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 - DIVESTITURES AND IMPAIRMENTS

Discontinued Operations

The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued operations, net of tax, related to the transfer of the North American Consumer Packaging business for all periods presented in the consolidated statement of operations:




In millions	Three Months Ended March 31, 2018
Net Sales	$	—
Costs and Expenses
Selling and administrative expenses	23
(Gain) loss on transfer of business	(516		)
Earnings (Loss) Before Income Taxes and Equity Earnings	493
Income tax provision (benefit)	125
Discontinued Operations, Net of Taxes	$	368

Total cash used for operations related to the North American Consumer Packaging business of $(23) million for the three months ended March 31, 2018 is included in Cash Provided By (Used For) Operations in the consolidated statement of cash flows. Total cash provided by investing activities related to the North American Consumer Packaging business of $1 million for the three months ended March 31, 2018 , is included in Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows.

NOTE 9 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Temporary Investments

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $449 million and $402 million at March 31, 2019 and December 31, 2018 , respectively.

Accounts and Notes Receivable



In millions	March 31, 2019		December 31, 2018
Accounts and notes receivable, net:
Trade	$	3,186	$	3,249
Other	307		272
Total	$	3,493	$	3,521

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The allowance for doubtful accounts was $82 million and $81 million at March 31, 2019 and December 31, 2018 , respectively.

Inventories



In millions	March 31, 2019		December 31, 2018
Raw materials	$	266	$	260
Finished pulp, paper and packaging	1,282		1,241
Operating supplies	637		641
Other	116		99
Total	$	2,301	$	2,241

Plants, Properties and Equipment

Accumulated depreciation was $20.5 billion at March 31, 2019 and December 31, 2018 . Depreciation expense was $297 million and $306 million for the three months ended March 31, 2019 and 2018 , respectively.

Non-cash additions to plants, property and equipment included within accounts payable were $114 million and $135 million at March 31, 2019 and December 31, 2018, respectively.

Interest

Interest payments made during the three months ended March 31, 2019 and 2018 were $214 million and $223 million , respectively.

Amounts related to interest were as follows:



	Three Months Ended March 31,
In millions	2019		2018
Interest expense	$	184	$	180
Interest income	51		45
Capitalized interest costs	5		8

Asset Retirement Obligations

The Company had recorded liabilities of $90 million and $86 million related to asset retirement obligations at March 31, 2019 and December 31, 2018 , respectively.

NOTE 10 - LEASES

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

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

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Components of Lease Expense



In millions	March 31, 2019
Operating lease costs	$	39
Variable lease costs	22
Short-term lease costs	11
Finance lease cost
Amortization of lease assets	2
Interest on lease liabilities	1
Total lease cost, net	$	75

Supplemental Balance Sheet Information Related to Leases



In millions	Classification	March 31, 2019
Assets
Operating lease assets	Right-of-use assets	$	415
Finance lease assets	Plants, properties and equipment, net (a)	104
Total leased assets		$	519
Liabilities
Current
Operating	Other current liabilities	$	137
Finance	Notes payable and current maturities of long-term debt	9
Noncurrent
Operating	Long-term lease obligations	281
Finance	Long-term debt	90
Total lease liabilities		$	517


(a)	Finance leases are recorded net of accumulated amortization of $33 million .

Lease Term and Discount Rate



In millions	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	10.15 years
Finance leases	11.93 years
Weighted average discount rate
Operating leases	3.28	%
Finance leases	4.55	%

Supplemental Cash Flow Information Related to Leases



In millions	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases	$	(35	)
Financing cash flows related to finance leases	(2		)

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Maturity of Lease Liabilities



	March 31, 2019
In millions	Operating Leases		Financing Leases		Total
2019 (remainder of year)	$	111	$	11	$	122
2020	117		14		131
2021	78		12		90
2022	47		11		58
2023	26		11		37
Thereafter	100		76		176
Total lease payments	479		135		614
Less: Interest (a)	61		36		97
Present value of lease liabilities	$	418	$	99	$	517


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

At December 31, 2018, total future minimum commitments under existing non-cancelable operating leases were as follows:



In millions	2019		2020		2021		2022		2023		Thereafter
Lease obligations	$	160	$	125	$	77	$	49	$	28	$	118

NOTE 11 - EQUITY METHOD INVESTMENTS

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

Graphic Packaging International Partners, LLC

On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging International Partners, LLC (GPIP), a subsidiary of Graphic Packaging Holding Company, in exchange for a 20.5% ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC (GPI), a wholly-owned subsidiary of GPIP that holds the assets of the combined business. The Company recorded equity earnings of $13 million and $2 million for the three months ended March 31, 2019 and 2018 , respectively. The Company received cash dividends from GPIP of $6 million during the first three months of 2019 . The Company's investment in GPIP was $1.1 billion at both March 31, 2019 and December 31, 2018 , which was $568 million and $562 million , respectively, more than the Company's proportionate share of the entity's underlying net assets. The difference primarily relates to the basis difference between the fair value of our investment and the underlying net assets and is generally amortized in equity earnings over a period consistent with the underlying long-lived assets. The Company is party to various agreements with GPI under which it sells fiber and other products to GPI. Sales under these agreements were $69 million and $60 million for the three months ended March 31, 2019 and 2018 , respectively.

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

Balance Sheet



In millions	March 31, 2019		December 31, 2018
Current assets	$	1,831	$	1,757
Noncurrent assets	5,450		5,292
Current liabilities	995		1,148
Noncurrent liabilities	3,528		3,156

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Income Statement



	Three Months Ended March 31,
In millions	2019		2018
Net sales	$	1,506	$	1,476
Gross profit	266		223
Income from continuing operations	95		62
Net income	95		62

Ilim S.A.

The Company has a 50% equity interest in Ilim S.A. (Ilim), which has subsidiaries whose primary operations are in Russia. The Company recorded equity earnings (losses), net of taxes, of $101 million and $92 million for the three months ended March 31, 2019 and 2018 , respectively. The Company received cash dividends from the joint venture of $116 million during the first three months of 2018 . At March 31, 2019 and December 31, 2018 , the Company's investment in Ilim was $594 million and $478 million , respectively, which was $150 million and $145 million , respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to currency translation adjustments and the basis difference between the fair value of our investment at acquisition and the underlying net assets. The Company is party to a joint marketing agreement with JSC Ilim Group, a subsidiary of Ilim, under which the Company purchases, markets and sells paper produced by JSC Ilim Group. Purchases under this agreement were $53 million for each of the three months ended March 31, 2019 and 2018 .

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

Balance Sheet



In millions	March 31, 2019		December 31, 2018
Current assets	$	1,136	$	981
Noncurrent assets	2,019		1,710
Current liabilities	706		545
Noncurrent liabilities	1,542		1,470
Noncontrolling interests	18		11

Income Statement



	Three Months Ended March 31,
In millions	2019		2018
Net sales	$	620	$	677
Gross profit	336		375
Income from continuing operations	205		189
Net income	199		183

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NOTE 12 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the three -months ended March 31, 2019 :



In millions	Industrial Packaging				Global Cellulose Fibers		Printing Papers			Total
Balance as of January 1, 2019
Goodwill	$	3,379			$	52	$	2,116		$	5,547
Accumulated impairment losses (a)	(296		)		—		(1,877		)	(2,173		)
	3,083				52		239			3,374
Currency translation and other (b)	—				—		(2		)	(2		)
Additions/reductions	21			(c)	—		—			21
Balance as of March 31, 2019
Goodwill	3,400				52		2,114			5,566
Accumulated impairment losses (a)	(296		)		—		(1,877		)	(2,173		)
Total	$	3,104			$	52	$	237		$	3,393


(a)	Represents accumulated goodwill impairment charges since the adoption of ASC 350, "Intangibles-Goodwill and Other" in 2002.


(b)	Represents the effects of foreign currency translations and reclassifications.

Other Intangibles

Identifiable intangible assets comprised the following:



	March 31, 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	$	253	$	288	$	542	$	247	$	295
Non-compete agreements	68		68		—		67		67		—
Tradenames, patents and trademarks, and developed technology	173		93		80		174		90		84
Land and water rights	8		2		6		8		2		6
Software	26		25		1		26		25		1
Other	31		24		7		30		23		7
Total	$	847	$	465	$	382	$	847	$	454	$	393

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



	Three Months Ended March 31,
In millions	2019		2018
Amortization expense related to intangible assets	$	12	$	14

NOTE 13 - INCOME TAXES

International Paper received a net income tax refund of $51 million for the three months ended March 31, 2019 compared to payments, net of refunds, of $20 million for the three months ended March 31, 2018 .

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 $28 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

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reduction to income tax expense in the year they are earned rather than a reduction in the asset basis. The Company recorded a tax benefit of $6 million for each of the three months ended March 31, 2019 and 2018 , respectively.

The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by International Paper do Brasil Ltda., a wholly-owned subsidiary of the Company. The Company received assessments for the tax years 2007-2015 totaling approximately $158 million in tax, and $401 million in interest and penalties as of March 31, 2019 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received an unfavorable decision in October 2018 from the Brazilian Administrative Council of Tax Appeals. The Company intends to further appeal the matter in the Brazilian federal courts in 2019; however, this tax litigation matter may take many years to resolve. The Company believes that it has appropriately evaluated the transaction underlying these assessments, and has concluded based on Brazilian tax law, that its position would be sustained. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Environmental

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

Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these matters to be approximately $132 million ( $142 million undiscounted) in the aggregate as of March 31, 2019 . Other than as described below, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.

Cass Lake: One of the matters included above arises out of a closed wood-treating facility located in Cass Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an estimated cost of $46 million . The overall remediation reserve for the site is currently $49 million to address the selection of an alternative for the soil remediation component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final soil remedy decision would be delayed. In March 2016, the EPA issued a proposed plan concerning clean-up standards at a portion of the site, the estimated cost of which is included within the 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.

•

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


•	In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) of PCB-contaminated sediments from a different portion of the site. The Company responded to the unilateral administrative order and agreed along with two other parties to comply with the order subject to its sufficient cause defenses.

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•

In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design.

The Company’s CERCLA liability has not been finally determined with respect to these or any other portions of the site, and except as noted above, the Company has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any material loss is probable.

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

The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, including that of the Company, was the subject of a second trial, which was concluded in late 2015. In June 2018, the Court issued its Final Judgment and Order, which fixed the past cost amount at approximately $50 million (plus interest to be determined) and allocated to the Company a 15% share of responsibility for those past costs. The Court did not address responsibility for future costs in its decision. In July 2018, the Company and each of the other parties filed notices appealing the Final Judgment and prior orders incorporated into that Judgment. As to future remediation costs, we remain unable to estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any material loss is probable.

Harris County: International Paper and McGinnis Industrial Maintenance Corporation (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the costs of these activities. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the removal of the contaminated material currently protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP.

On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform this work. While the EPA’s selected remedy was accompanied by a cost estimate of approximately $115 million , we do not believe that estimate provides a reasonable basis for accrual under GAAP because the estimate was based on a technological method for performing the work that we believe is not feasible. Subsequent to the issuance of the ROD, there have been numerous meetings between the EPA and the PRPs, and the Company continues to work with the EPA and MIMC/WMI to develop the remedial design.

To this end, in April 2018, the PRPs entered into an Administrative Order on Consent (AOC) with the EPA, agreeing to work together to develop the remedial design over the subsequent 29 months . The AOC does not include any agreement to perform waste removal or other construction activity at the site. Rather, it involves adaptive management techniques and a pre-design investigation, the objectives of which include filling data gaps (including but not limited to post-Hurricane Harvey technical data generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if an excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts of remediation activities to infrastructure in the vicinity.

The Company has identified a number of concerns and uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. The Company has determined, however, that even if the ROD cannot be implemented, a sheet pile "engineered barrier" can be constructed, which would enhance the

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existing remedy and could also be used should the ROD be determined to be feasible and implementable. In the third quarter of 2018, we increased our recorded liability accordingly to reflect the estimated cost of constructing this barrier. Because of ongoing questions regarding cost effectiveness, technical feasibility, timing and other technical data, however, it is uncertain how the ROD will be implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are currently unable to determine any further adjustment to our immaterial recorded liability. It remains reasonably possible that additional losses could be material as the remedial design process with the EPA continues over the coming quarters.

International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by approximately 600 individuals who allege property damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, if any, which may be incurred.

Antitrust

Containerboard: In June 2016, a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporation of America (W.D. Wis.) , was filed in federal court in Wisconsin against ten defendants, including the Company, Temple-Inland and Weyerhaeuser Company. The Ashley Furniture lawsuit alleged a civil violation of Section 1 of the Sherman Act (in particular, that defendants conspired to limit the supply and thereby increase prices of containerboard products), and also asserted Wisconsin state antitrust claims. In January 2019, the parties filed a stipulation to dismiss the Ashley Furniture lawsuit with prejudice, and the case is now closed. The Company made no payment in consideration for the dismissal.

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

Contract

Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Paper Company was filed in state court in Texas. The Signature lawsuit arises out of approximately $1 million in disputed invoices related to the installation of new equipment at the Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its president allege consequential damages arising from the Company's nonpayment of those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the plaintiffs. The Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The Company has appealed this judgment. The Company has presented in its briefing numerous and strong bases for appeal, and we believe we will prevail on appeal. Because the appellate proceedings are ongoing, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial.

General

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor and employment, contracts, sales of property, intellectual property, tax, antitrust and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of these other lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature) will not have a material effect on its consolidated financial statements. See Note 13 for details regarding a tax matter.

NOTE 15 - VARIABLE INTEREST ENTITIES

Variable Interest Entities

As of March 31, 2019 , the fair value of the Timber Notes and Extension Loans is $4.77 billion and $4.24 billion , respectively, for the 2015 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 16 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

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



	Three Months Ended March 31,
In millions	2019		2018
Revenue (a)	$	24	$	24
Expense (a)	32		32
Cash receipts (b)	47		47
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.

As of March 31, 2019 , the fair value of the Timber Notes and Extension Loans is $2.22 billion and $2.07 billion , respectively, for the 2007 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

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



	Three Months Ended March 31,
In millions	2019		2018
Revenue (a)	$	21	$	15
Expense (b)	21		14
Cash receipts (c)	16		9
Cash payments (d)	18		12


(a)	The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $5 million for each of the three months ended March 31, 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 for each of the three months ended March 31, 2019 and 2018 , respectively, of accretion expense for the amortization of the basis difference adjustment on the Nonrecourse financial liabilities of special purpose entities.


(c)	The cash receipts are interest received on the Financial assets of special purpose entities.


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

NOTE 16 - DEBT

In June 2018, the borrowing capacity of International Paper's commercial paper program was increased from $750 million to $1.0 billion . Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. As of March 31, 2019 , the Company had $530 million of borrowings outstanding under the program at a weighted average interest rate of 2.73% .

International Paper also has up to $600 million of uncommitted financings based on eligible receivable balances under a receivables securitization program that expires in December 2019 . At March 31, 2019 , $100 million was outstanding at a weighted-average interest rate of 3.32% under the receivables securitization program.

At March 31, 2019 , the fair value of International Paper’s $10.8 billion of debt was approximately $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 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

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NOTE 17 - 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	March 31, 2019		December 31, 2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (a)	$	403	$	407
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	700		700
Derivatives Not Designated as Hedging Instruments:
Electricity contract	3		8
Foreign exchange contracts	11		19


(a)	These contracts had maturities of two years or less as of March 31, 2019 .

The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments:



	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended March 31,
In millions	2019		2018
Interest rate contracts	$	—	$	(3	)
Total	$	—	$	(3	)

During the next 12 months, the amount of the March 31, 2019 AOCI balance, after tax, that is expected to be reclassified to earnings is a loss of $2 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 March 31,
In millions	2019			2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	(1	)	$	2	Cost of products sold
Total	$	(1	)	$	2

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	Gain (Loss) Recognized						Location of Gain (Loss) In Statement of Operations
	Three Months Ended March 31,
In millions	2019			2018
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	12		$	—		Interest expense, net
Debt	(12		)	—			Interest expense, net
Total	$	—		$	—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	$	4		$	(2	)	Cost of products sold
Total	$	4		$	(2	)

Fair Value Measurements

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

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

Fair Value Measurements

Level 2 – Significant Other Observable Inputs



	Assets						Liabilities
In millions	March 31, 2019			December 31, 2018			March 31, 2019			December 31, 2018
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow	$	3		$	3		$	8		$	10
Interest rate contracts - fair value	29			16			—			—
Total derivatives designated as hedging instruments	32		(a)	19		(b)	8		(c)	10		(c)
Derivatives not designated as hedging instruments
Electricity contract	—			—			3			4
Foreign exchange contracts	—			—			—			1
Total derivatives not designated as hedging instruments	—			—			3		(c)	5		(c)
Total derivatives	$	32		$	19		$	11		$	15


(a)	Includes $2 million recorded in Other current assets and $30 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 balance sheet.


(c)	Included in Other current liabilities in the accompanying balance sheet.

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

NOTE 18 - RETIREMENT PLANS

International Paper sponsors and maintains the Retirement Plan of International Paper Company (the Pension Plan), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union employees who work at a participating business unit regardless of hire date. These employees generally are eligible to participate in the Pension Plan upon attaining 21 years of age and completing one year of eligibility service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004, are not eligible for the Pension Plan, but receive a company

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contribution to their Retirement Savings Account under the International Paper Company Salaried Savings Plan; however, salaried employees hired by Temple Inland prior to March 1, 2007 or Weyerhaeuser Company's Cellulose Fibers division prior to December 1, 2011 also participate in the Pension Plan.

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

Effective January 1, 2019, the Company froze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the SERP plan. This change does not affect benefits accrued through December 31, 2018. For service after December 31, 2018, employees affected by the freeze will instead receive a company contribution to their individual Retirement Savings Account.

Net periodic pension expense for our qualified and nonqualified U.S. defined benefit plans comprised the following:



	Three Months Ended March 31,
In millions	2019			2018
Service cost	$	18		$	38
Interest cost	110			118
Expected return on plan assets	(157		)	(200		)
Actuarial loss	51			82
Amortization of prior service cost	4			4
Net periodic pension expense	$	26		$	42

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

The Company’s funding policy for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company made no voluntary cash contributions to the qualified pension plan in the first three months of 2019 or 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $5 million for the three months ended March 31, 2019 .

NOTE 19 - 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 March 31, 2019 , 10.4 million shares were available for grant under the ICP.

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



	Three Months Ended March 31,
In millions	2019		2018
Total stock-based compensation expense (selling and administrative)	$	27	$	31
Income tax benefits related to stock-based compensation	34		22

At March 31, 2019 , $185 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 2.1 years.

Performance Share Plan

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

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NOTE 20 - BUSINESS SEGMENT INFORMATION

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

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

Sales by business segment for the three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
In millions	2019		2018
Industrial Packaging	$	3,832	$	3,827
Global Cellulose Fibers	689		677
Printing Papers	1,065		1,053
Corporate and Intersegment Sales	57		64
Net Sales	$	5,643	$	5,621

Operating profit by business segment for the three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
In millions	2019			2018
Industrial Packaging	$	404		$	437
Global Cellulose Fibers	32			11
Printing Papers	143			64
Business Segment Operating Profits	579			512

Earnings (loss) from continuing operations before income taxes and equity earnings	418			356
Interest expense, net	133			135
Noncontrolling interests/equity earnings adjustment	(3		)	(1		)
Corporate expenses, net	21			9
Corporate special items, net	—			9
Non-operating pension expense	10			4
Business Segment Operating Profits	$	579		$	512

NOTE 21 - SUBSEQUENT EVENT

On April 16, 2019, International Paper signed agreements to acquire DS Smith's French subsidiary, DS Smith Packaging Normandie, with two converting sites in Saint-Armand and Cabourg, and the former Europac Ovar box plant in Portugal for approximately €63 million (approximately $71 million at current exchange rates), subject to post-closing adjustments. The transaction is subject to customary closing conditions, including regulatory approvals.

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

EXECUTIVE SUMMARY

Net earnings (loss) attributable to International Paper common shareholders were $424 million ( $1.05 per diluted share) in the first quarter of 2019 , compared with $316 million ( $0.78 per diluted share) in the fourth quarter of 2018 and $729 million ( $1.74 per diluted share) in the first quarter of 2018 . Adjusted Operating Earnings is a non-GAAP measure and is defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. International Paper generated Adjusted Operating Earnings Attributable to International Paper Common Shareholders of $447 million ( $1.11 per diluted share) in the first quarter of 2019 , compared with $670 million ( $1.65 per diluted share) in the fourth quarter of 2018 and $395 million ( $0.94 per diluted share) in the first quarter 2018 .

International Paper delivered solid earnings and strong cash generation in the first quarter. Demand in North American corrugated packaging was lower seasonally as expected and export shipments for containerboard and absorbent pulp were weak, as customers drew down inventories. Operational performance was strong and we managed costs well by leveraging the strength and flexibility of our system in a heavy downtime quarter in North America. Our equity earnings were $114 million, which includes $101 million from our Ilim joint venture and $13 million from our ownership interest in Graphic Packaging. Overall, the Company performed well in a lower demand quarter to deliver meaningful year-over-year growth in cash from operations and free cash flow.

Price and mix were stable in the first quarter with higher average prices in our North American corrugated packaging offset by lower export prices for containerboard and absorbent fibers, as well as weaker mix in Latin America papers. Volume decreased primarily due to lower seasonal demand in North American corrugated packaging and Brazil Papers, as well as lower export containerboard and absorbent pulp shipments due to customer destocking in the first quarter. Operations and costs were impacted by economic downtime in our North American Packaging and Global Cellulose Fibers businesses as we managed our production to meet our customers’ needs. Mill performance was strong - we managed costs well and optimized our system while managing economic downtime and higher planned maintenance outages in the quarter. Input costs were favorable versus the prior quarter, with lower recovered fiber costs largely offsetting higher wood fiber costs. Energy costs were also lower and distribution costs moderated in the first quarter. Our Ilim joint venture delivered solid commercial and operational performance. Ilim equity earnings also benefited from a non-cash, foreign exchange gain on Ilim’s U.S. dollar denominated net debt. International Paper generated strong cash from operations and free cash flow in the first quarter. The Company returned $381 million, representing about 87% of free cash flow, to our shareholders through dividends of $201 million and share repurchases of $180 million in the quarter.

Looking ahead to the second quarter 2019, we expect stronger seasonal demand across our businesses as we execute our highest planned maintenance outage quarter of the year. In Industrial Packaging we expect stronger seasonal demand for corrugated packaging in North America and Europe, while export containerboard volume is expected to recover slowly as customer destocking continues in the second quarter. In Global Cellulose Fibers, North American Papers and Brazil Papers we expect stronger seasonal demand. Price and mix in North American Industrial Packaging and Global Cellulose Fibers are expected to negatively impact earnings, while in North American Papers we expect to realize benefits from recent price increases. Operations and costs are expected to improve in the second quarter driven mostly by improved fixed cost absorption in North American Packaging and improved operations in European Packaging. The Company expects to complete the highest planned maintenance outage quarter of the year in the second quarter and across the system will have completed 75% of planned maintenance outages, representing about $400 million, during the first half of 2019. Finally, for our Ilim joint venture we expect lower equity earnings due mostly to higher planned maintenance outages in the second quarter.

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

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The following are reconciliations of Earnings (loss) attributable to shareholders to Adjusted Operating Earnings (Loss) attributable to shareholders.



	Three Months Ended March 31,						Three Months Ended December 31,
In millions	2019			2018			2018
Earnings (Loss) Attributable to Shareholders	$	424		$	729		$	316
Less - Discontinued operations (gain) loss	—			(368		)	—
Earnings (Loss) from Continuing Operations	424			361			316
Add Back - Non-operating pension expense (income)	10			4			429
Add Back - Net special items expense (income)	21			40			(15		)
Income tax effect - Non-operating pension and special items expense	(8		)	(10		)	(60		)
Adjusted Operating Earnings (Loss) Attributable to Shareholders	$	447		$	395		$	670



	Three Months Ended March 31,						Three Months Ended December 31,
	2019			2018			2018
Diluted Earnings (Loss) Per Share Attributable to Shareholders	$	1.05		$	1.74		$	0.78
Less - Discontinued operations (gain) loss per share	—			(0.88		)	—
Diluted Earnings (Loss) Per Share from Continuing Operations	1.05			0.86			0.78
Add Back - Non-operating pension expense (income) per share	0.02			0.01			1.05
Add Back - Net special items expense (income) per share	0.05			0.09			(0.04		)
Income tax effect per share - Non-operating pension and special items expense	(0.01		)	(0.02		)	(0.14		)
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders	$	1.11		$	0.94		$	1.65

The Company generated free cash flow of approximately $440 million and $174 million in the first three months of 2019 and 2018 , respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

The following is a reconciliation of cash provided by operations to free cash flow:



	Three Months Ended March 31,
In millions	2019			2018
Cash provided by operations	$	733		$	663
Adjustments:
Cash invested in capital projects	(293		)	(489		)
Free Cash Flow	$	440		$	174

RESULTS OF OPERATIONS

For the first quarter of 2019 , International Paper Company reported net sales of $5.6 billion , compared with $6.0 billion in the fourth quarter of 2018 and $5.6 billion in the first quarter of 2018 .

Net earnings attributable to International Paper totaled $424 million , or $1.05 per diluted share, in the 2019 first quarter. This compared with $316 million , or $0.78 per diluted share, in the fourth quarter of 2018 and $729 million , or $1.74 per diluted share, in the first quarter of 2018 .

Earnings from continuing operations attributable to International Paper Company were $424 million in the first quarter of 2019 , $316 million in the fourth quarter of 2018 and $361 million in the first quarter of 2018 .

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Compared with the fourth quarter of 2018 , earnings benefited from lower raw material and freight costs ( $9 million ), lower net interest expense ( $1 million ), lower tax expense ( $2 million ) and lower non-operating pension expense ( $314 million ). These benefits were offset by lower average sales prices and an unfavorable mix ( $5 million ), lower sales volumes ( $70 million ), higher operating costs ( $110 million ), higher mill maintenance outage costs ( $75 million ) and higher corporate and other items ( $10 million ). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim Holding S.A., Graphic Packaging International Partners, LLC, and other investments were $35 million higher than in the fourth quarter of 2018 . Net special items in the first quarter of 2019 were a loss of $15 million compared with a loss of $32 million in the fourth quarter of 2018 .

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Compared with the first quarter of 2018 , the first quarter of 2019 reflects higher average sales prices, net of an unfavorable mix ($ 183 million ), lower mill maintenance outage costs ( $48 million ) and lower net interest expense ( $2 million ). These benefits were offset by lower sales volumes ( $21 million ), higher operating costs ( $114 million ), higher raw material and freight costs ( $54 million ), higher corporate and other costs ( $8 million ), higher tax expense ( $3 million ) and higher non-operating pension expense ( $5 million ). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim Holding S.A., Graphic Packaging International Partners, LLC, and other investments were $19 million higher in the first quarter of 2019 than in the first quarter of 2018 . Net special items in the first quarter of 2019 were a loss of $15 million compared with a loss of $31 million in the first quarter of 2018 .

Business Segment Operating Profits are used by International Paper's management to measure the earnings performance of its businesses. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides a more complete analysis of the results of operations by quarter. Business Segment Operating Profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding interest expense, net, corporate expenses, net, corporate special items, net and non-operating pension expense.

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

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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
	March 31,						December 31,
In millions	2019			2018			2018
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company	$	424		$	361		$	316
Add back (deduct):
Income tax provision (benefit)	106			89			143
Equity (earnings) loss, net of taxes	(114		)	(95		)	(79		)
Noncontrolling interests, net of taxes	2			1			2
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	418			356			382
Interest expense, net	133			135			135
Noncontrolling interests / equity earnings included in operations	(3		)	(1		)	(3		)
Corporate expenses, net	21			9			8
Corporate special items (income) expense	—			9			(21		)
Non-operating pension expense	10			4			429
Adjusted Operating Profit	$	579		$	512		$	930
Business Segment Operating Profit:
Industrial Packaging	$	404		$	437		$	647
Global Cellulose Fibers	32			11			91
Printing Papers	143			64			192
Total Business Segment Operating Profit	$	579		$	512		$	930

Business Segment Operating Profit

Total business segment operating profits were $579 million in the first quarter of 2019 , $930 million in the fourth quarter of 2018 and $512 million in the first quarter of 2018 .

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Compared with the fourth quarter of 2018 , operating profits benefited from lower raw material and freight costs ( $12 million ). These benefits were offset by lower average sales prices and an unfavorable mix ( $7 million ), lower sales volumes ( $94 million ), higher operating costs ( $147 million ) and higher mill outage costs ( $100 million ). Special items were a loss of $21 million in the first quarter of 2019 compared with a loss of $6 million in the fourth quarter of 2018 .

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Compared with the first quarter of 2018 , operating profits in the current quarter benefited from higher average sales prices net of an unfavorable mix ($ 244 million ) and lower mill outage costs ( $64 million ). These benefits were offset by lower sales volumes ( $28 million ), higher operating costs ( $151 million ) and higher raw material and freight costs ($ 72 million ). Special items were a loss of $21 million in the first quarter of 2019 compared with a loss of $31 million in the first quarter of 2018 .

Economic downtime results from the amount of production required to meet our customer demand. Planned maintenance downtime is taken periodically throughout the year. The following table details planned maintenance and economic-related downtime (in tons):

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Sales Volumes by Product (a)

Sales volumes of major products for the three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
In thousands of short tons (except as noted)	2019	2018
Industrial Packaging
Corrugated Packaging (c)	2,535	2,579
Containerboard	697	783
Recycling	609	537
Saturated Kraft	41	46
Gypsum/Release Kraft	51	53
Bleached Kraft	7	7
EMEA Packaging (c)	370	397
Brazilian Packaging (c)	85	86
European Coated Paperboard	104	96
Industrial Packaging	4,499	4,584
Global Cellulose Fibers (in thousands of metric tons) (b)	859	895
Printing Papers
U.S. Uncoated Papers	448	470
European and Russian Uncoated Papers	354	361
Brazilian Uncoated Papers	244	260
Indian Uncoated Papers	68	67
Printing Papers	1,114	1,158


(a)	Sales volumes include third party and inter-segment sales and exclude sales of equity investees.


(b)	Includes North American, European and Brazilian volumes and internal sales to mills.


(c)	Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons.

Discontinued Operations

See discussion in Note 8 - Divestitures and Impairments in the Condensed Notes to the Consolidated Financial Statements.

Income Taxes

An income tax provision of $106 million was recorded for the first quarter of 2019 and the reported effective income tax rate was 25% . Excluding a benefit of $6 million related to the tax effects of special items and a benefit of $2 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25% for the quarter.

An income tax provision of $143 million was recorded for the fourth quarter of 2018 and the reported effective income tax rate was 37% . Excluding an expense of $47 million related to the tax effects of special items and a benefit of $107 million related to the tax effects of non-operating pension expense, the effective income tax rate was 26% for the quarter.

An income tax provision of $89 million was recorded for the first quarter of 2018 and the reported effective income tax rate was 25% . Excluding a benefit of $9 million related to the tax effects of special items and a benefit of $1 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25% for the quarter.

Interest Expense

Net interest expense was $133 million in the first quarter of 2019 compared with $135 million in both the fourth quarter and the first quarter of 2018 .

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Effects of Special Items and Non-Operating Pension Expense

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



	Three Months Ended
	March 31,										December 31,
	2019						2018				2018
In millions	Before Tax			After Tax			Before Tax		After Tax		Before Tax			After Tax
Business Segments
Multi-employer pension plan exit liability	$	16		$	12		$	—	$	—	$	—		$	—
Gain on sale of EMEA Packaging box plant	(7		)	(6		)	—		—		—			—
EMEA Packaging optimization	—			—			22		17		(1		)	(1		)
Abandoned property removal	11			8			9		7		8			6
Riverdale mill conversion	1			1			—		—		4			3
Litigation settlement recovery	—			—			—		—		(5		)	(4		)
Business Segments Total	21			15			31		24		6			4
Corporate
Legal settlement	—			—			9		7		—			—
Debt extinguishment costs	—			—			—		—		10			7
Gain on sale of investment in Liaison Technologies	—			—			—		—		(31		)	(23		)
Corporate Total	—			—			9		7		(21		)	(16		)
Total special items	21			15			40		31		(15		)	(12		)
Non-operating pension expense	10			8			4		3		429			322
Total special items and non-operating pension expense	$	31		$	23		$	44	$	34	$	414		$	310

Special items include the following tax expenses (benefits):



	Three Months Ended
	March 31,				December 31,
In millions	2019		2018		2018
International investment restructuring	$	—	$	—	$	19
Foreign tax audits	—		—		25
Total	$	—	$	—	$	44

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

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Industrial Packaging



Total Industrial Packaging	2019			2018
In millions	1st Quarter			1st Quarter		4th Quarter
Sales	$	3,832		$	3,827	$	4,017
Operating Profit	$	404		$	437	$	647
Multi-employer pension plan exit liability	16			—		—
Gain on sale of EMEA Packaging box plant	(7		)	—		—
EMEA Packaging optimization	—			22		(1		)
Litigation settlement recovery	—			—		(5		)
Abandoned property removal	8			5		5
Operating Profit Before Special Items	$	421		$	464	$	646

Industrial Packaging net sales for the first quarter of 2019 were 5% lower than in the fourth quarter of 2018 and were about even with the first quarter of 2018 . Operating profit before special items was 35% lower in the first quarter of 2019 than in the fourth quarter of 2018 and 9% lower than in the first quarter of 2018 .



North American Industrial Packaging	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales (a)	$	3,376	$	3,369	$	3,583
Operating Profit	$	395	$	459	$	641
Multi-employer pension plan exit liability	16		—		—
Litigation settlement recovery	—		—		(5		)
Abandoned property removal	8		5		5
Operating Profit Before Special Items	$	419	$	464	$	641


(a)	Includes intra-segment sales of $31 million, $58 million and $55 million for the three months ended March 31, 2019, March 31, 2018 and December 31, 2018, respectively.

North American Industrial Packaging sales volumes in the first quarter of 2019 were lower for boxes and export containerboard than in the fourth quarter of 2018 , reflecting lower seasonal demand and weaker box shipments, as well as lower export containerboard shipments as customer destocking progressed in the quarter. Total maintenance and economic downtime was 498,000 tons higher in the first quarter of 2019, which comprises an increase of 88,000 tons for planned maintenance downtime and 410,000 tons for economic downtime. Economic downtime was driven by lower volumes as we managed production to meet our customers' needs, as well as the significant reduction of in-transit inventory from our mills to our box plants, as we were able to manage our system with lower inventories due to improved velocity in our supply chain. Average sales margins were slightly higher, reflecting higher average sales prices for boxes and a favorable mix, largely offset by lower prices for export containerboard. Manufacturing performance was strong and we managed variable costs well to mitigate the impact of unabsorbed fixed costs related to economic downtime in the quarter. Input costs were slightly favorable, primarily for recycled fiber and freight, offset by higher wood costs. Planned maintenance downtime costs were $86 million higher in the first quarter of 2019 compared with the fourth quarter of 2018 .

Compared with the first quarter of 2018 , sales volumes were lower in the first quarter of 2019 for boxes and containerboard. Total maintenance and economic downtime was 339,000 tons higher in the first quarter of 2019, which comprises a decrease of 71,000 tons for planned maintenance downtime and 410,000 tons for economic downtime. Average sales prices for boxes were higher, due to carryover of the Spring 2018 sales price increase. Export containerboard prices were slightly lower. Input costs for recycled fiber were lower, but were more than offset by higher costs for wood, freight and energy. Planned maintenance downtime costs were $9 million lower in the first quarter of 2019 compared with the first quarter of 2018 . Manufacturing costs were lower, but were more than offset by other operating and distribution costs.

Entering the second quarter of 2019 , sales volumes for boxes are expected to be seasonally higher. Containerboard export shipments are also expected to increase. Input costs are projected to be lower, primarily for wood and recycled fiber. Planned maintenance downtime costs should be $30 million higher in the second quarter of 2019 than in the first quarter of 2019.

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EMEA Industrial Packaging	2019			2018
In millions	1st Quarter			1st Quarter			4th Quarter
Sales	$	339		$	362		$	338
Operating Profit	$	(8	)	$	(34	)	$	(6	)
Gain on sale of EMEA Packaging box plant	(7		)	—			—
EMEA Packaging optimization	—			22			(1		)
Operating Profit Before Special Items	$	(15	)	$	(12	)	$	(7	)

EMEA Industrial Packaging sales volumes for boxes in the first quarter of 2019 were lower than in the fourth quarter of 2018 primarily due to lower seasonal demand in Europe, as well as a weaker economic environment in Turkey and Italy, which was partly offset by stronger seasonal demand in Morocco. Average sales margins were lower in Turkey reflecting weaker economic conditions, while margins improved in the Eurozone as containerboard prices decreased and box prices remained stable. Manufacturing operations improved as we begin to see the benefits of our box system optimization initiatives. Earnings were negatively affected by unfavorable foreign currency impacts in Turkey.

Compared with the first quarter of 2018 , sales volumes in the first quarter of 2019 were lower, primarily due to the recession in Turkey. Average sales margins for boxes improved, reflecting sales price increases during 2018 and lower containerboard costs. Operating costs were unfavorably impacted by inflation, particularly in Turkey.

Looking ahead to the second quarter of 2019 , sales volumes for boxes are expected to be stable. Average sales margins should improve reflecting further materialization of both prior box price increases and recent containerboard cost reduction. Operating costs for the box business should be lower as the benefits of optimization initiatives continue to be realized.



Brazilian Industrial Packaging	2019			2018
In millions	1st Quarter			1st Quarter			4th Quarter
Sales	$	57		$	62		$	57
Operating Profit	$	(5	)	$	(8	)	$	(5	)

Brazilian Industrial Packaging sales volumes in the first quarter of 2019 compared with the fourth quarter of 2018 were lower for boxes but increased for containerboard. Average sales margins improved reflecting higher sales prices for boxes and containerboard. There were no planned maintenance downtime costs in either the first quarter of 2019 or the fourth quarter of 2018. Input costs were higher for wood and energy, though lower for recycled fiber.

Compared with the first quarter of 2018 , sales volumes in the first quarter of 2019 were flat as higher volumes for boxes were offset by lower containerboard volumes. Average sales prices increased for boxes and containerboard. Operating costs were lower, but were partially offset by higher input costs for recycled fiber, energy and wood.

Looking ahead to the second quarter of 2019 , sales volumes for boxes and containerboard are expected to be higher. Average sales margins are expected to be higher due to favorable product mix. Input costs are projected to be lower for recycled fiber.



European Coated Paperboard	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	91	$	92	$	94
Operating Profit	$	22	$	20	$	17

European Coated Paperboard sales volumes in the first quarter of 2019 compared with the fourth quarter of 2018 were lower in both Europe and Russia. Average sales margins improved in both regions due to increased sales prices, net of an unfavorable geographic mix in Europe. In Europe, input costs were lower for energy and purchased fiber, partially offset by higher wood costs. In Russia, input costs were lower, primarily for wood and energy. There were no planned maintenance outage costs in either the first quarter of 2019 or the fourth quarter of 2018. Mill operating costs were lower, reflecting the benefits of savings initiatives. Earnings were negatively affected by unfavorable foreign currency impacts, primarily in Russia.

Compared with the first quarter of 2018 , sales volumes increased in Europe, partially due to the impact of production constraints related to the Kwidzyn fire and planned maintenance outages in the first quarter of 2018. Sales volumes were flat in Russia. Average sales margins decreased in Europe due to an unfavorable mix, though improved in Russia reflecting higher average sales prices and a favorable mix. Input costs for energy and chemicals increased in both Europe and Russia, and in Europe wood and purchased fiber prices also increased. In Russia, wood costs were lower. Planned maintenance downtime costs in the first quarter of 2019 were $4 million lower than in the first quarter of 2018. Mill operating costs were lower in Europe, but higher in Russia.

Entering the second quarter of 2019 , sales volumes are expected to be lower in both Europe and Russia. Average sales margins are expected to improve in Europe due to realization of prior price increases and a favorable mix. In Russia, average sales

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margins are expected to be stable. Input costs are expected to increase in both regions, primarily for wood. Planned maintenance downtime costs should be $7 million higher in the second quarter of 2019 than in the first quarter of 2019 with outages scheduled at the Kwidzyn and Svetogorsk mills.

Global Cellulose Fibers



Total Global Cellulose Fibers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	689	$	677	$	736
Operating Profit	$	32	$	11	$	91
Abandoned property removal	3		4		2
Operating Profit Before Special Items	$	35	$	15	$	93

Global Cellulose Fibers net sales were 6% lower in the first quarter of 2019 than in the fourth quarter of 2018 and 2% higher than in the first quarter of 2018 . Operating profit before special items was 62% lower in the first quarter of 2019 than in the fourth quarter of 2018 and 133% higher than in the first quarter of 2018 .

Sales volumes in the first quarter of 2019 compared with the fourth quarter of 2018 were lower driven by continued weaker demand for softwood pulp due to high customer inventories, particularly in China, as well as the impact from lower fluff pulp volume resulting from our customer mix initiatives. Total maintenance and economic downtime was 84,000 tons higher in the first quarter of 2019, which comprises an increase of 10,000 tons for maintenance downtime and 74,000 tons for economic downtime. Average sales margins decreased reflecting lower market pulp sales prices and an unfavorable product mix. Average sales prices for fluff pulp increased. Input costs were stable. Operating costs were unfavorable reflecting inflation, seasonally colder weather and economic downtime. Planned maintenance downtime costs in the first quarter of 2019 were $11 million higher than in the fourth quarter of 2018 . In Europe and Russia, sales volumes were higher. Average sales prices were lower in both regions. There were no planned maintenance outages in either the first quarter of 2019 or the fourth quarter of 2018 in Europe and Russia. Input costs were favorable in both regions, primarily due to favorable energy costs in Europe and lower wood costs in Russia. Manufacturing and other operating costs were favorable in Europe. but were higher in Russia.

Compared with the first quarter of 2018 , sales volumes in the first quarter of 2019 were down driven by weaker global demand. Total maintenance and economic downtime was 31,000 tons higher in the first quarter of 2019, which comprises a decrease of 43,000 tons for maintenance downtime and 74,000 tons for economic downtime. Average sales prices improved significantly across all product lines reflecting the realization of prior price increases. Product mix was unfavorable. Input costs were higher, primarily for softwood. Planned maintenance downtime costs in the first quarter of 2019 were $22 million lower than in the first quarter of 2018. Operating costs were higher, largely due to distribution costs. In Europe and Russia, sales volumes increased significantly. Average sales margins were lower, reflecting lower average sales prices and an unfavorable mix. Planned maintenance downtime costs in the first quarter of 2019 were $3 million lower than in the first quarter of 2018 in Europe and Russia. Input costs were higher, primarily for wood and energy in Europe and energy in Russia. Manufacturing and other operating costs were favorable in Europe and flat in Russia.

Entering the second quarter of 2019 , sales volumes are expected to increase. Average sales margins should reflect the continuing effects of prior price decreases resulting from commercial conditions unfavorably impacted by slower growth in developing markets, tariff uncertainty and regional economic conditions. Input costs are expected to be favorable. Planned maintenance downtime costs in the second quarter of 2019 should be $29 million higher than in the first quarter of 2019. In Europe and Russia, sales volumes are expected to be lower in Europe and relatively flat in Russia as demand softens. Average sales margins are expected to be lower in Europe, primarily due to an unfavorable mix, and stable in Russia. Planned maintenance downtime costs in the second quarter of 2019 should be $3 million higher than in the first quarter of 2019 in Europe and Russia with outages scheduled at the Kwidzyn and Svetogorsk mills.

Printing Papers



Total Printing Papers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	1,065	$	1,053	$	1,160
Operating Profit	$	143	$	64	$	192
Abandoned property removal	—		—		1
Riverdale mill conversion	1		—		4
Operating Profit Before Special Items	$	144	$	64	$	197

Printing Papers net sales for the first quarter of 2019 were 8% lower than in the fourth quarter of 2018 and 1% higher than in the first quarter of 2018 . Operating profit before special items in the first quarter of 2019 was 27% lower than in the fourth

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quarter of 2018 and 125% higher than in the first quarter of 2018 . Overall, our Papers business performed well, with strong results in North America and Europe, while Brazil managed through its slowest seasonal demand quarter and was impacted by weaker geographic mix on exports.



North American Papers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	496	$	458	$	513
Operating Profit	$	56	$	1	$	75
Abandoned property removal	—		—		1
Riverdale mill conversion	1		—		4
Operating Profit Before Special Items	$	57	$	1	$	80

North American Papers sales volumes in the first quarter of 2019 were lower than in the fourth quarter of 2018 for uncoated freesheet paper. Price and mix were favorable, benefiting from the realization of recent price increases, as well as improved customer mix. Input costs were lower despite higher wood costs. Operating costs were higher, primarily due to seasonal manufacturing mix and inflation. Planned maintenance downtime costs were $3 million higher in the first quarter of 2019 , compared with the fourth quarter of 2018 .

Compared with the first quarter of 2018 , sales volumes in the first quarter of 2019 were lower. Average sales prices were significantly higher reflecting the impact of price increases in 2018. Average sales margins were favorably affected by an improved product and geographic mix, partially offset by an unfavorable mill sourcing mix. Input costs increased, primarily for wood. Planned maintenance downtime costs were $14 million lower than in the first quarter of 2018.

Entering the second quarter of 2019 , sales volumes are expected to be higher for uncoated freesheet paper. Average sales prices for uncoated freesheet paper should reflect continuing realization of sales price increases from the first quarter. Input costs are expected to be favorable, while operating costs are expected to be higher. Planned maintenance downtime costs should be $24 million higher in the second quarter.



European Papers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	309	$	319	$	320
Operating Profit	$	47	$	21	$	47

European Papers sales volumes for uncoated freesheet paper in the first quarter of 2019 compared with the fourth quarter of 2018 were higher in Europe, but lower in Russia. Average sales margins for uncoated freesheet paper increased in both regions due to the realization of sales price increases for cut-size paper. Input costs were lower for energy, but higher for wood in Europe. In Russia, input costs were lower for wood and energy, but higher for chemicals. There were no planned maintenance outages in either the first quarter of 2019 or the fourth quarter of 2018. Operating costs were lower reflecting the benefits of manufacturing initiatives implemented at the mills.

Sales volumes for uncoated freesheet paper in the first quarter of 2019 compared with the first quarter of 2018 were higher in both Europe and Russia mainly due to timing. Average sales prices for uncoated freesheet paper increased significantly in both regions reflecting increases implemented in late 2018 and in 2019. Input costs, primarily for energy and chemicals in Russia and for purchased pulp, wood, chemicals and energy in Europe, were higher. Planned maintenance downtime costs were $8 million lower than in the first quarter of 2018. Earnings were negatively affected by unfavorable foreign currency impacts, primarily in Russia.

Looking forward to the second quarter of 2019 , sales volumes for uncoated freesheet paper are expected to be lower in Europe, but increase in Russia. In Europe, average sales margins are expected to be lower. In Russia, average sales margins should reflect the continuing realization of prior price increases. Input costs are expected to increase, primarily for wood and chemicals in Europe, and wood, energy and chemicals in Russia. Manufacturing operating costs are expected to be higher. Planned maintenance downtime costs should be $17 million higher in the second quarter with outages scheduled at the Kwidzyn and Svetogorsk mills.



Brazilian Papers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales (a)	$	215	$	229	$	272
Operating Profit	$	33	$	40	$	63


(a)	Includes intra-segment sales of $8 million, $5 million and $(3) million for the three months ended March 31, 2019, March 31, 2018 and December 31, 2018, respectively.

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Brazilian Papers sales volumes in the first quarter of 2019 compared with the fourth quarter of 2018 were lower due to normal seasonality in both domestic and export markets, higher supply availability and customer inventory levels in other Latin American markets. Despite higher domestic sales prices, average sales margins were lower, reflecting a seasonally unfavorable geographic mix and an increase in the tariff on rolls shipped to Mexico. Input costs were slightly favorable. There were no planned maintenance outage costs in either the first quarter of 2019 or the fourth quarter of 2018. Operating costs were slightly higher.

Compared with the first quarter of 2018 , sales volumes for uncoated freesheet paper in the first quarter of 2019 were lower for both domestic and export markets, reflecting a planned reduction in domestic cutsize distributor inventory levels and higher supply availability and customer inventory levels in other Latin American export markets. Average sales margins improved due to higher average sales prices, both domestically and abroad, net of an unfavorable geographic mix and the tariff in Mexico. Input costs were higher, primarily for purchased pulp, wood, chemicals and energy, while operating costs were lower. Planned maintenance outage expenses were $3 million lower in the first quarter of 2019 compared with the first quarter of 2018.

Entering the second quarter of 2019 , sales volumes for uncoated freesheet paper are expected to be seasonally stronger in the domestic and Latin American export markets. Average sales margins are expected to increase for domestic markets as first quarter 2019 price increases continue to be realized. However, export sales margins are expected to be lower due to competitive pressure. Input costs are expected to increase, primarily for wood. Planned maintenance outage expenses are expected to be $3 million higher.



Indian Papers	2019		2018
In millions	1st Quarter		1st Quarter		4th Quarter
Sales	$	53	$	52	$	52
Operating Profit	$	7	$	2	$	7

Indian Papers sales volumes in the first quarter of 2019 compared with the fourth quarter of 2018 were flat due to continued strong demand. Improved sales margins were due to higher average sales prices and a more favorable mix. Manufacturing operating costs were higher due to the impact of a planned maintenance outage at the Rajahmundry mill and a labor strike at the Kadiam mill. Input costs were favorable. The first quarter of 2019 benefited from favorable foreign currency impacts.

Compared with the first quarter of 2018 , sales volumes in the first quarter of 2019 were slightly higher. Average sales prices improved reflecting the impact of 2018 sale price increases. Operating costs were lower, reflecting improved mill productivity, while input costs were higher for fiber and chemicals.

Looking ahead to the second quarter of 2019 , sales volumes are expected to be lower due to production constraints associated with the planned annual outage at the Kadiam mill. Input costs are expected to be higher, primarily for chemicals.

Equity Earnings, Net of Taxes – Ilim

Since October 2007, International Paper and Ilim Holding S.A. (Ilim) have operated a 50:50 joint venture in Russia. Ilim is a separate reportable industry segment. The Company recorded equity earnings, net of taxes, of $101 million in the first quarter of 2019, compared with $67 million in the fourth quarter of 2018 and $92 million in the first quarter of 2018. In the first quarter of 2019, the after-tax foreign exchange impact primarily on the remeasurement of U.S. dollar-denominated net debt was a gain of $21 million compared with a loss of $19 million in the fourth quarter of 2018.

Compared with the fourth quarter of 2018, sales volumes in the first quarter of 2019 were 2% lower, primarily for sales of hardwood pulp in China and containerboard in Russia, partially offset by higher sales of softwood pulp in China and other export markets. Average sales price realizations were lower in China and other export markets, mainly for containerboard, softwood pulp and hardwood pulp. In the first quarter of 2019, input costs were relatively flat.

Compared with the first quarter of 2018, sales volumes in the first quarter of 2019 increased overall by 2%, primarily for sales of softwood pulp and paper in Russia and other export markets that is partly offset by decreased sales of containerboard in Russia and other export markets. Average sales price realizations were lower for softwood pulp and hardwood pulp in China and other export markets. Input costs, primarily for wood, fuel and chemicals were higher. Distribution costs were also higher. An after-tax foreign exchange loss of $0.4 million primarily on the remeasurement of U.S. dollar denominated net debt was recorded in the first quarter of 2018.

Looking forward to the second quarter of 2019, sales volumes are expected to be lower. Average sales margins should reflect the continuing effects of prior price decreases, primarily for containerboard in China. Input costs are expected to be seasonally higher. A planned maintenance mill outage is scheduled at the Koryazhma mill.

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Equity Earnings – GPI

International Paper recorded equity earnings of $13 million on its 20.5% ownership position in GPI in the first quarter of 2019 compared with $10 million in the fourth quarter of 2018 and $2 million in the first quarter of 2018.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $733 million for the first three months of 2019 , compared with $663 million for the comparable 2018 three -month period. Cash provided by working capital components totaled $13 million for the first three months of 2019 compared to cash used by working capital components of $132 million for the comparable 2018 three -month period.

Investments in capital projects totaled $293 million in the first three months of 2019 compared to $489 million in the first three months of 2018 . Full-year 2019 capital spending is currently expected to be approximately $1.4 billion, or about 104% of depreciation and amortization, including approximately $400 million of strategic investments.

Financing activities for the first three months of 2019 included a $66 million net increase in debt versus a $189 million net increase in debt during the comparable 2018 three -month period.

Amounts related to early debt extinguishment during the three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
In millions	2019			2018
Early debt reductions (a)	$	94		$	—
Pre-tax early debt extinguishment costs	(1		)	—


(a)	Reductions related to notes with interest rates ranging from 3.00% to 9.50% with original maturities from 2024 to 2033 for the three months ended March 31, 2019 .

At March 31, 2019 , contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in Note 10 - Leases ) by calendar year were as follows: $790 million in 2019 ; $103 million in 2020 ; $447 million in 2021 ; $491 million in 2022 ; $352 million in 2023 ; and $8.6 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At March 31, 2019 , the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings during the current quarter under the Company's commercial paper program.

At March 31, 2019 , International Paper’s credit agreements totaled $2.1 billion , which management believes are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The liquidity facilities include a $1.5 billion contractually committed bank credit agreement that expires in December 2021 and has a facility fee of 0.15% per annum payable quarterly. The liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivable balances under a receivables securitization program that expires in December 2019. At March 31, 2019 , $100 million at a weighted average rate of 3.32% was outstanding under the receivables securitization program. There were no outstanding borrowings under the credit facility at March 31, 2019.

In June 2018, the borrowing capacity of the commercial paper program was increased from $750 million to $1.0 billion . Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of March 31, 2019 , the Company had $530 million of borrowings outstanding under this program at a weighted average interest rate of 2.73% .

During the first three months of 2019 , International Paper used 3.4 million shares of treasury stock for various incentive plans. International Paper also acquired 5.0 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $229 million , including $180 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 62.0 million shares at an average price of $47.55, for a total of approximately $2.9 billion, as of March 31, 2019 .

During the first three months of 2018 , International Paper used approximately 1.7 million shares of treasury stock for various incentive plans. International Paper also acquired 0.5 million shares of treasury stock for the payment of restricted stock tax

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withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $31 million . Cash dividend payments related to common stock totaled $201 million and $197 million for the first three months of 2019 and 2018 , respectively. Dividends were $0.5000 per share and $0.4750 per share for the first three months in 2019 and 2018 , respectively.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during the remainder of 2019 with current cash balances and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

Ilim Holding S.A. Shareholders’ Agreement

In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture (Ilim), International Paper entered into a shareholder’s agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement. If these or any other deadlock procedures under the shareholder's agreement are commenced, although it is not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price for its partners' 50% interests would be approximately $2.4 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholder’s agreement.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions and income taxes.

The Company has included in its 2018 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first three months of 2019 .

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to trade protection measures, the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through joint ventures; (vii) our ability to achieve the benefits we expect from strategic acquisitions, divestitures, restructurings and capital investments, and (viii) other factors you can find in our press releases and filings with the Securities and Exchange Commission, including the risk factors identified in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as updated in Item 1A of Part II of this Quarterly Report on Form 10-Q ("Risk Factors").

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We undertake no 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

Information relating to quantitative and qualitative disclosures about market risk is shown on page 35 of International Paper’s 2018 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2018 .


ITEM 4.	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 March 31, 2019 (the end of the period covered by this report).

Changes in Internal Control over Financial Reporting:

Although the new lease standard did not have a material impact on our consolidated financial statements, we did implement changes to our processes and internal controls related to leases. These included the development of new policies based on the new lease standard, new training, ongoing contract reviews, and gathering of information in order to account for our leases and provide the required disclosures under the new standard.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION


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 14 of the Condensed Notes to the Consolidated Financial Statements in this Form 10-Q.

Additionally, in March 2019, the Company received a proposed environmental penalty of $142,607 from the Georgia Environmental Protection Division (EPD) arising from an exceedance of a hydrogen chloride air emission limit at the Company’s mill in Rome, Georgia. The exceedance was disclosed by the Company to EPD in August 2018 and resulted from malfunctioning pollution control equipment. The Company promptly fixed the malfunctioning equipment and is not contesting the penalty.


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 (Part I, Item 1A).

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

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.



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)
January 1, 2019 - January 31, 2019	376,054	$41.55	373,678	$2.22
February1, 2019 - February 28, 2019	2,087,105	46.36	1,053,224	2.17
March 1, 2019 - March 31, 2019	2,551,764	45.79	2,519,637	2.05
Total	5,014,923

(a) 1,068,384 shares were acquired from employees from share withholdings to pay income taxes under the Company's restricted stock programs. The remainder were purchased under a share repurchase program that was approved by our Board of Directors and announced on July 8, 2014 and October 9, 2018. Through this program, which does not have an expiration date, we were authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $3.5 billion of shares of our common stock. As of March 31, 2019, approximately $2.05 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.

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ITEM 6. EXHIBITS



10.1		Amended and Restated 2009 Incentive Compensation Plan (corrected version of previously filed exhibit).*

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.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Extension Presentation Linkbase.

* Management contract or compensatory plan or arrangement.

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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)

May 3, 2019	By	/s/ Tim S. Nicholls
		Tim S. Nicholls
		Senior Vice President and Chief Financial Officer

May 3, 2019	By	/s/ Vincent P. Bonnot
		Vincent P. Bonnot
		Vice President – Finance and Controller

Exhibit 10.1

INTERNATIONAL PAPER COMPANY

AMENDED AND RESTATED

2009 INCENTIVE COMPENSATION PLAN

INTERNATIONAL PAPER COMPANY

AMENDED AND RESTATED

2009 INCENTIVE COMPENSATION PLAN

ARTICLE 1 PURPOSE............................................................................1


1.1	General.....................................................................1

ARTICLE 2 DEFINITIONS..........................................................1


2.1	Definitions................................................................1

ARTICLE 3 EFFECTIVE TERM OF PLAN................................9


3.1	Effective Date..........................................................9


3.2	Termination of Plan.................................................9

ARTICLE 4 ADMINISTRATION................................................9


4.1	Committee...............................................................9


4.2	Actions and Interpretations by the Committee........9


4.3	Authority of Committee.........................................10


4.4	Delegation..............................................................11

ARTICLE 5 SHARES SUBJECT TO THE PLAN.....................12


5.1	Number of Shares..................................................12


5.2	Share Counting......................................................12


5.3	Stock Distributed...................................................13


5.4	Limitation on Awards............................................13

ARTICLE 6 ELIGIBILITY.........................................................14


6.1	General...................................................................14

ARTICLE 7 STOCK OPTIONS.................................................14


7.1	General...................................................................14


7.2	Incentive Stock Options.........................................15

ARTICLE 8 STOCK APPRECIATION RIGHTS.......................15


8.1	Grant of Stock Appreciation Rights.......................15

ARTICLE 9 RESTRICTED STOCK, RESTRICTED STOCK UNITS AND DEFERRED STOCK UNITS......................16


9.1	Grant of Restricted Stock, Restricted Stock Units and Deferred Stock Units.......................................16


9.2	Issuance and Restrictions.......................................16


9.3	Forfeiture................................................................17


9.4	Delivery of Restricted Stock..................................17

ARTICLE 10 PERFORMANCE AWARDS.................................17


10.1	Grant of Performance Awards................................17


10.2	Performance Goals.................................................18

ARTICLE 11 QUALIFIED STOCK-BASED AWARDS...........18


11.1	Options and Stock Appreciation Rights.................18


11.2	Other Awards..........................................................18


11.3	Performance Goals.................................................19


11.4	Inclusions and Exclusions from Performance Criteria...................................................................20


11.5	Certification of Performance Goals.......................20


11.6	Award Limits..........................................................20

ARTICLE 12 DIVIDEND EQUIVALENTS...............................21


12.1	Grant of Dividend Equivalents..............................21

ARTICLE 13 STOCK OR OTHER STOCK-BASED AWARDS...........................................................................21


13.1	Grant of Stock or Other Stock-Based Awards.......21

ARTICLE 14 PROVISIONS APPLICABLE TO AWARDS......21


14.1	Award Certificates..................................................21


14.2	Form of Payment of Awards..................................21


14.3	Limits on Transfer..................................................22


14.4	Beneficiaries..........................................................22


14.5	Stock Trading Restrictions.....................................22


14.6	Treatment upon Death or Disability.......................22


14.7	Effect of a Change in Control – Awards Granted Before February 11, 2014......................................23


14.8	Effect of a Change in Control – Awards Granted On or After February 11, 2014.....................................24


14.9	Acceleration for Any Other Reason.......................27


14.10	Forfeiture Events....................................................27


14.11	Substitute Awards..................................................27

ARTICLE 15 CHANGES IN CAPITAL STRUCTURE.............27


15.1	Mandatory Adjustments.........................................28


15.2	Discretionary Adjustments.....................................28


15.3	General...................................................................28

ARTICLE 16 AMENDMENT, MODIFICATION AND TERMINATION................................................................29


16.1	Amendment, Modification and Termination..........29


16.2	Awards Previously Granted...................................29


16.3	Compliance Amendments......................................30

ARTICLE 17 GENERAL PROVISIONS...................................31


17.1	Rights of Participants.............................................31


17.2	Withholding...........................................................31


17.3	Impact of Restatement of Financial Statements Upon Previous Awards...........................................32


17.4	Special Provisions Related to Section 409A of the Code.......................................................................32


17.5	Unfunded Status of Awards....................................35


17.6	Relationship to Other Benefits...............................35


17.7	Expenses................................................................35


17.8	Titles and Headings................................................35


17.9	Gender and Number...............................................35


17.10	Fractional Shares....................................................35


17.11	Government and Other Regulations.......................35


17.12	Governing Law.......................................................36


17.13	Severability............................................................36


17.14	No Limitations on Rights of Company..................37


17.15	Indemnification......................................................37

INTERNATIONAL PAPER COMPANY

AMENDED AND RESTATED

2009 INCENTIVE COMPENSATION PLAN

ARTICLE 1

PURPOSE

1.1. GENERAL . The purpose of the International Paper Company Amended and Restated 2009 Incentive Compensation Plan (the “Plan”) is to provide incentive for non-employee directors and designated employees of International Paper Company, a New York corporation (the “Company”), or any Affiliate, to improve the performance of the Company on a long-term basis, and to attract and retain certain persons in the employ of the Company. Accordingly, the Plan permits the grant of incentive awards from time to time to directors of the Company and selected designated employees of the Company and its Affiliates.

ARTICLE 2

DEFINITIONS

2.1. DEFINITIONS . The following words and phrases shall have the following meanings:


(a)	“ Affiliate ” means (i) any Subsidiary or Parent, or (ii) an entity that directly or through one or more intermediaries controls, is controlled by or is under common control with, the Company, as determined by the Committee.


(b)	“ Award ” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Unit Award, Dividend Equivalent Award, Other Stock-Based Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan.

(c)

“ Award Certificate ” means a written document, in such form as the Committee prescribes from time to time, setting forth the terms and conditions of an Award. Award Certificates may be in the form of individual award agreements or certificates or a program document describing the terms and provisions of an Award or series of Awards under the Plan. The Committee may provide for the use of electronic, internet or other non-paper Award Certificates.


(d)	“ Beneficial Owner ” shall have the meaning given such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.


(e)	“ Board ” means the Board of Directors of the Company.

(f)

“ Cause ” as a reason for a Participant’s termination of employment shall have the meaning assigned such term in the employment, severance or similar agreement, if any, between such Participant and the Company or an Affiliate, provided, however that if there is no such employment, severance or similar agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, “Cause” shall include but is not limited to misconduct or other activity detrimental to the business interest or reputation of the Company or continued unsatisfactory job performance without making reasonable efforts to improve. Examples include insubordination, protracted or repeated absence from work without permission, illegal activity, disorderly conduct, etc.


(g)	“ Change in Control ” means and includes the occurrence of any one of the following events:

(1) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as those terms are used in Section 13(d)(3) of the Exchange Act) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of the Company’s voting stock representing 30% or more of the voting power of the Company’s outstanding voting stock, provided, however , that an employee of the Company or any of its subsidiaries for whom shares are held under an employee stock ownership, employee retirement, employee savings or similar plan and whose shares are voted in accordance with the instructions of such employee shall not be a member of a “group”(as that term is used in Section 13(d)(3) of the Exchange Act) solely because such employee’s shares are held by a trustee under said plan;

(2) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (the " Board ") cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election, by the Company's shareowners of each new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period;

(3) the Company consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the Company’s outstanding voting stock or voting stock of such

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other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Company’s voting stock outstanding immediately prior to such transaction constitutes, or is converted into or exchanged for, voting stock representing more than 50% of the voting power of the voting stock of the surviving person immediately after giving effect to such transaction;

(4) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any “person” or “group” (as those terms are used in Section 13(d)(3) of the Exchange Act) other than to the Company or one of its subsidiaries; or

(5) the shareowners of the Company approve a complete liquidation or dissolution of the Company.


(h)	“ Code ” means the Internal Revenue Code of 1986, as amended from time to time. For purposes of this Plan, references to sections of the Code shall be deemed to include references to any applicable regulations thereunder and any successor or similar provision.


(i)	“ Committee ” means the Management Development and Compensation Committee of the Board described in Article 4.


(j)	“ Company ” means International Paper Company, a New York corporation, or any successor corporation.

(k)

“ Continuous Service ” means the absence of any interruption or termination of service as an employee, officer, or director of the Company or any Affiliate, as applicable; provided, however, that for purposes of an Incentive Stock Option “Continuous Service” means the absence of any interruption or termination of service as an employee of the Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations. Continuous Service shall not be considered interrupted in the following cases: (i) a Participant transfers employment between the Company and an Affiliate or between Affiliates, or (ii) in the discretion of the Committee as specified at or prior to such occurrence, in the case of a spin-off, sale or disposition of the Participant’s employer from the Company or any Affiliate, (iii) a Participant transfers from being an employee of the Company or an Affiliate to being a director of the Company or of an Affiliate, or vice versa, or (iv) any leave of absence authorized in

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writing by the Company prior to its commencement; provided, however, that for purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-qualified Stock Option. Whether military, government or other service or other leave of absence shall constitute a termination of Continuous Service shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive; provided, however, that for purposes of any Award that is subject to Code Section 409A, the determination of a leave of absence must comply with the requirements of a “bona fide leave of absence” as provided in Treas. Reg. Section 1.409A-1(h).


(l)	“ Covered Employee ” means a covered employee as defined in Code Section 162(m)(3).


(m)	“ Deferred Stock Unit ” means a right granted to a Participant under Article 9 to receive Shares of Stock (or the equivalent value in cash or other property if the Committee so provides) at a future time as determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections.

(n)

“ Disability ” of a Participant means that the Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Participant’s employer. If the determination of Disability relates to an Incentive Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the Code. In the event of a dispute, the determination whether a Participant has incurred a Disability will be made by the Committee and may be supported by the advice of a physician competent in the area to which such Disability relates.

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(o)	“ Dividend Equivalent ” means a right granted to a Participant under Article 12.


(p)	“ Effective Date ” has the meaning assigned such term in Section 3.1.


(q)	“ Eligible Participant ” means Non-Employee Directors and designated employees of the Company or any Affiliate.


(r)	“ Exchange ” means any national securities exchange on which the Stock may from time to time be listed or traded.


(s)	“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

(t)

“ Fair Market Value ,” on any date, means (i) if the Stock is listed on a securities exchange, the closing stock price on such date (or, in the absence of reported sales on such date, on the immediately preceding date on which sales were reported), or (ii) if the Stock is not listed on a securities exchange, the mean between the bid and offered prices as quoted by the applicable interdealer quotation system for such date, provided that if the Stock is not quoted on an interdealer quotation system or if it is determined that the fair market value is not properly reflected by such quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A.


(u)	“ Full-Value Award ” means an Award other than in the form of an Option or SAR, and which is settled by the issuance of Stock (or at the discretion of the Committee, settled in cash valued by reference to Stock value).

(v)

“ Good Reason ” (or a similar term denoting constructive termination) has the meaning, if any, assigned such term in the employment, severance or similar agreement, if any, between a Participant and the Company or an Affiliate, provided, however that if there is no such employment, severance or similar agreement in which such term is defined, “Good Reason” shall have the meaning, if any, given such term in the applicable Award Certificate. If not defined in any such document, the term “Good Reason” as used herein shall not apply to a particular Award.


(w)	“ Grant Date ” of an Award means the first date on which all necessary corporate action has been taken to approve the grant of the Award as provided in the Plan, or such later date as is determined and specified

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as part of that authorization process. Notice of the grant shall be provided to the grantee within a reasonable time after the Grant Date.


(x)	“ Incentive Stock Option ” means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.


(y)	“ Independent Directors ” means those members of the Board of Directors who qualify at any given time as “independent” directors under the applicable rules of each Exchange on which the Shares are listed, “non-employee” directors under Rule 16b-3 of the Exchange Act, and “outside” directors under Section 162(m) of the Code.


(z)	“ Non-Employee Director ” means a director of the Company who is not a common law employee of the Company or an Affiliate.


(aa)	“ Non-qualified Stock Option ” means an Option that is not an Incentive Stock Option.


(ab)	“ Non-Segmented Performance Award ” means a Performance Award that is not a Segmented Performance Award.


(ac)	“ Option ” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-qualified Stock Option.


(ad)	“ Other Stock-Based Award ” means a right granted to a Participant under Article 13 that relates to or is valued by reference to Stock or other Awards relating to Stock.


(ae)	“ Parent ” means a corporation, limited liability company, partnership or other entity which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have the meaning set forth in Section 424(e) of the Code.

(af)

“ Participant ” means an Eligible Participant who has been granted an Award under the Plan; provided that in the case of the death of a Participant, the term “Participant” refers to a beneficiary designated pursuant to Section 14.4 or the legal guardian or other legal representative acting in a fiduciary capacity on behalf of the Participant under applicable state law and court supervision.

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(ag)	“ Performance Award ” means any award granted under the Plan pursuant to Article 10.


(ah)	“ Person ” means any individual, entity or group, within the meaning of Section 3(a)(9) of the Exchange Act and as used in Section 13(d)(3) or 14(d)(2) of the Exchange Act.


(ai)	“ Plan ” means the International Paper Company Amended and Restated 2009 Incentive Compensation Plan, as it may be amended from time to time.


(aj)	“ Qualified Performance-Based Award ” means an Award that is either (i) intended to qualify for the Section 162(m) Exemption and is made subject to performance goals based on Qualified Business Criteria as set forth in Section 11.2, or (ii) an Option or SAR having an exercise price equal to or greater than the Fair Market Value of the underlying Stock as of the Grant Date.


(ak)	“ Qualified Business Criteria ” means one or more of the Business Criteria listed in Section 11.2 upon which performance goals for certain Qualified Performance-Based Awards may be established by the Committee.


(al)	“ Restricted Stock Award ” means Stock granted to a Participant under Article 9 that is subject to certain restrictions and to risk of forfeiture.


(am)	“ Restricted Stock Unit Award ” means the right granted to a Participant under Article 9 to receive shares of Stock (or the equivalent value in cash or other property if the Committee so provides) in the future, which right is subject to certain restrictions and to risk of forfeiture.

(an)

“ Retirement ” means a Participant’s termination of employment with the Company or an Affiliate after reaching at least age 55 with 10 years of service, age 61 with 20 years of service, age 62 with 10 years of service, or age 65. In the case of a Participant who is a Non-Employee Director, “Retirement” means retirement from the Board after reaching the age specified for mandatory retirement from the Board.


(ao)	“ Securities Act ” means the Securities Act of 1933, as amended from time to time.


(ap)	“ Section 162(m) Exemption ” means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code

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that is set forth in Section 162(m)(4)(C) of the Code or any successor provision thereto.


(aq)	“ Segmented Performance Award ” means a Performance Award that provides for two or more segments within an overall performance period and in which performance achievement is measured separately for each individual segment and a portion of the award is deemed earned and “banked” pending the final assessment of performance

over the full performance period.


(ar)	“ Shares ” means shares of the Company’s Stock. If there has been an adjustment or substitution with respect to the Shares (whether or not pursuant to Article 15), the term “Shares” shall also include any shares of stock or other securities that are substituted for Shares or into which Shares are adjusted.


(as)	“ Stock ” means the $1.00 par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 15.


(at)	“ Stock Appreciation Right ” or “ SAR ” means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a Share as of the date of exercise of the SAR over the base price of the SAR, all as determined pursuant to Article 8.


(au)	“ Subsidiary ” means any corporation, limited liability company, partnership or other entity of which 50% or more of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.


(av)	“ Surviving Entity ” means the entity resulting from a Change in Control (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets or stock either directly or through one or more subsidiaries).

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ARTICLE 3

EFFECTIVE TERM OF PLAN

3.1. EFFECTIVE DATE . The Plan shall be effective as of the date it is approved by both the Board and the shareowners of the Company (the “Effective Date”).

3.2. TERMINATION OF PLAN . Unless earlier terminated as provided herein, the Plan shall continue in effect until the date of the 2024 annual shareowners’ meeting or, if the shareowners approve an amendment to the Plan that increases the number of Shares subject to the Plan, the tenth anniversary of the date of such approval. The termination of the Plan shall not affect the validity of any Award outstanding on the date of termination, which shall continue to be governed by the applicable terms and conditions of this Plan. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten (10) years after the earlier of (a) adoption of this Plan by the Board, or (b) the Effective Date.

ARTICLE 4

ADMINISTRATION

4.1. COMMITTEE . The Plan shall be administered by a Committee appointed by the Board (which Committee shall consist of at least two directors) or, at the discretion of the Board from time to time, the Plan may be administered by the Board. Unless and until changed by the Board, the Management Development and Compensation Committee of the Board is designated as the Committee to administer the Plan. It is intended that the Committee be composed solely of two or more Independent Directors and that any such members of the Committee who do not so qualify shall abstain from participating in any decision to make or administer Awards that are made to Eligible Participants who at the time of consideration for such Award (i) are persons subject to the short-swing profit rules of Section 16 of the Exchange Act, or (ii) are reasonably anticipated to become Covered Employees during the term of the Award. However, a Committee member’s failure to qualify as an Independent Director or failure to abstain from such action shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time in the discretion of, the Board. The Board may reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers and protections of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.

4.2. ACTION AND INTERPRETATIONS BY THE COMMITTEE. For purposes of administering the Plan, the Committee may from time to time adopt rules, regulations, guidelines and procedures for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the Plan, as the Committee

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may deem appropriate. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it deems necessary to carry out the intent of the Plan. The Committee’s interpretation of the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s or an Affiliate’s independent certified public accountants, Company counsel or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee will be liable for any good faith determination, act or omission in connection with the Plan or any Award.

4.3. AUTHORITY OF COMMITTEE . Except as provided in Section 4.1 hereof, the Committee has the exclusive power, authority and discretion to:


(a)	Grant Awards;


(b)	Delegate the granting Awards as specified in Section 4.4;


(c)	Designate Participants;


(d)	Determine the type or types of Awards to be granted to each Participant;


(e)	Determine the number of Awards to be granted and the number of Shares or dollar amount to which an Award will relate;


(f)	Determine the terms and conditions of any Award granted under the Plan;


(g)	Prescribe the form of each Award Certificate, which need not be identical for each Participant;


(h)	Decide all other matters that must be determined in connection with an Award;


(i)	Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem necessary or advisable to administer the Plan;


(j)	Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan;


(k)	Amend the Plan or any Award Certificate as provided herein; and

(l)

Adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of the United States or any non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order to assure the viability of the benefits of Awards granted to participants located in the United States or such other jurisdictions and to meet the objectives of the Plan.

Notwithstanding the foregoing, grants of Awards to Non-Employee Directors hereunder shall be made only in accordance with the terms, conditions and parameters of a

- 10 -

plan, program or policy for the compensation of Non-Employee Directors as in effect from time to time that is approved and administered by a committee of the Board consisting solely of Independent Directors, and the Committee may not make other discretionary grants hereunder to Non-Employee Directors.

4.4. DELEGATION.

(a)

Administrative Duties . The Committee may delegate to one or more of its members or to one or more officers of the Company or an Affiliate or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan.

(b)

Special Committee . The Board may, by resolution, expressly delegate to a special committee, consisting of one or more directors who may but need not be officers of the Company, the authority, within specified parameters as to the number and terms of Awards, to (i) designate employees of the Company or any of its Affiliates to be recipients of Awards under the Plan, and (ii) to determine the number of such Awards to be received by any such Participants; provided, however, that such delegation of duties and responsibilities to an officer of the Company may not be made with respect to the grant of Awards to eligible participants (a) who are subject to Section 16(a) of the Exchange Act at the Grant Date, or (b) who as of the Grant Date are reasonably anticipated to be become Covered Employees during the term of the Award. The acts of such delegates shall be treated hereunder as acts of the Board and such delegates shall report regularly to the Board and the Committee regarding the delegated duties and responsibilities and any Awards so granted.

(c)

Other Delegation . The Board may, by resolution, expressly delegate to the Senior Vice President, Human Resources and Communications, the authority, within specified parameters as to the number and terms of Awards, to (i) designate employees of the Company or any of its Affiliates to be recipients of Awards under the Plan, and (ii) to determine the number of such Awards to be received by any such Participants; provided, however, that such delegation of duties and responsibilities may not be made with respect to the grant of Awards to eligible participants who are Senior Vice President of the Company and above. The acts of such delegate shall be treated hereunder as acts of the Board and such delegate shall report regularly to the Committee regarding the delegated duties and responsibilities and any Awards so granted.

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ARTICLE 5

SHARES SUBJECT TO THE PLAN

5.1. NUMBER OF SHARES . Subject to adjustment as provided in Sections 5.2 and 15.1, the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the Plan shall be 15,400,000, plus a number of additional Shares underlying awards outstanding as of the Effective Date under the Company’s Long-Term Incentive Compensation Plan, as amended and restated February 7, 2005, that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason. The maximum number of Shares that may be issued upon exercise of Incentive Stock Options granted under the Plan shall be 15,400,000.

5.2. SHARE COUNTING . Shares covered by an Award shall be subtracted from the Plan share reserve as of the Grant Date, but shall be added back to the Plan share reserve in accordance with this Section 5.2.


(a)	To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for any reason, any unissued or forfeited Shares subject to the Award shall be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.


(b)	Shares subject to Awards settled in cash shall be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.


(c)	Shares withheld from an Award or delivered by a Participant to satisfy

minimum tax withholding requirements shall be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.


(d)	If the exercise price of an Option is satisfied by delivering Shares to the Company (by either actual delivery or attestation), only the number of Shares issued to the Participant in excess of the Shares tendered (by delivery or attestation) shall be debited from the number of Shares remaining available for issuance pursuant to Awards granted under the Plan.

(e)

To the extent that the full number of Shares subject to an Option or SAR is not issued upon exercise of the Option or SAR for any reason, including by reason of net-settlement of the Award, only the number of Shares issued and delivered upon exercise of the Option or SAR shall be considered for purposes of determining the number of Shares remaining available for issuance pursuant to Awards granted under the Plan.

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(f)	To the extent that the full number of Shares subject to a Performance Award is not issued by reason of failure to achieve maximum performance goals, the unissued Shares originally subject to the Performance Award will be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.


(g)	Substitute Awards granted pursuant to Section 14.11 shall not count against the Shares otherwise available for issuance under the Plan under Section 5.1.

(h)

Subject to applicable Exchange requirements, shares available under a shareowner-approved plan of a company acquired by the Company (as appropriately adjusted to Shares to reflect the transaction) may be issued under the Plan pursuant to Awards granted to individuals who were not employees of the Company or its Affiliates immediately before such transaction and will not count against the maximum share limitation specified in Section 5.1.

5.3. STOCK DISTRIBUTED . Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.

5.4. LIMITATION ON AWARDS . Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 15.1):


(a)	Options . The maximum aggregate number of Shares subject to Options granted under the Plan in any 12-month period to any one Participant shall be 1,200,000.


(b)	SARs . The maximum number of Shares subject to Stock Appreciation Rights granted under the Plan in any 12-month period to any one Participant shall be 1,200,000.


(c)	Restricted Stock or Restricted Stock Units . The maximum aggregate number of Shares underlying of Awards of Restricted Stock or Restricted Stock Units under the Plan in any 12-month period to any one Participant shall be 660,000.


(d)	Other Stock-Based Awards . The maximum aggregate grant with respect to Other Stock-Based Awards under the Plan in any 12-month period to any one Participant shall be 660,000 Shares.

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(e)

Performance Awards . With respect to any one 12-month period (i) the maximum amount that may be paid to any one Participant for Performance Awards payable in cash or property other than Shares shall be $10,000,000, and (ii) the maximum number of Shares that may be paid to any one Participant for Performance Awards payable in Stock shall be 660,000 Shares. For purposes of applying these limits in the case of multi‑year performance periods, the amount of cash or property or number of Shares deemed paid with respect to any one 12-month period is the total amount payable or Shares earned for the performance period divided by the number of 12-month periods in the performance period.

ARTICLE 6

ELIGIBILITY

6.1. GENERAL . Awards may be granted only to Eligible Participants. Eligible Participants who are service providers to an Affiliate may be granted Options or SARs under this Plan only if the Affiliate qualifies as an “eligible issuer of service recipient stock” within the meaning of §1.409A-1(b)(5)(iii)(E) of the final regulations under Code Section 409A.

ARTICLE 7

STOCK OPTIONS

7.1. GENERAL . The Committee is authorized to grant Options to Participants on the following terms and conditions:


(a)	Exercise Price . The exercise price per Share under an Option shall be determined by the Committee, provided that the exercise price for any Option (other than an Option issued as a substitute Award pursuant to Section 14.11) shall not be less than the Fair Market Value as of the Grant Date.


(b)	Prohibition on Repricing . Except as otherwise provided in Section 15.1, the exercise price of an Option may not be reduced, directly or indirectly by cancellation and regrant or otherwise, without the prior approval of the shareowners of the Company.


(c)	Time and Conditions of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part, subject to Section 7.1(e). The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised or vested.


(d)	Payment . The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, and

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the methods by which Shares shall be delivered or deemed to be delivered to Participants. As determined by the Committee at or after the Grant Date, payment of the exercise price of an Option may be made, in whole or in part, in the form of (i) cash or cash equivalents, (ii) delivery (by either actual delivery or attestation) of previously-acquired Shares based on the Fair Market Value of the Shares on the date the Option is exercised, (iii) withholding of Shares from the Option based on the Fair Market Value of the Shares on the date the Option is exercised, (iv) broker-assisted market sales, or (iv) any other “cashless exercise” arrangement.


(e)	Exercise Term . Except for Non-qualified Stock Options granted to Participants outside the United States, no Option granted under the Plan shall be exercisable for more than ten years from the Grant Date.


(f)	No Deferral Feature . No Option shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the Option.


(g)	No Dividend Equivalents . No Option shall provide for Dividend Equivalents.

7.2. INCENTIVE STOCK OPTIONS . Incentive Stock Options may be granted to only to Eligible Participants who are employees of the Company or a Parent or Subsidiary as defined in Section 424(e) and (f) of the Code. The terms of any Incentive Stock Options granted under the Plan must comply with the requirements of Section 422 of the Code. If all of the requirements of Section 422 of the Code are not met, the Option shall automatically become a Non-qualified Stock Option.

ARTICLE 8

STOCK APPRECIATION RIGHTS

8.1. GRANT OF STOCK APPRECIATION RIGHTS . The Committee is authorized to grant Stock Appreciation Rights (“SARs”) to Participants on the following terms and conditions:


(a)	Right to Payment . Upon the exercise of a SAR, the Participant to whom it is granted has the right to receive, for each Share with respect to which the SAR is being exercised, the excess, if any, of:

(1) The Fair Market Value of one Share on the date of exercise; over

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(2) The base price of the SAR as determined by the Committee and set forth in the Award Certificate, which shall not be less than the Fair Market Value of one Share on the Grant Date.


(b)	Prohibition on Repricing . Except as otherwise provided in Section 15.1, the base price of a SAR may not be reduced, directly or indirectly by cancellation and regrant or otherwise, without the prior approval of the shareowners of the Company.


(c)	Time and Conditions of Exercise . Except for SARs granted to Participants outside the United States, no SAR shall be exercisable for more than ten years from the Grant Date.


(d)	No Deferral Feature . No SAR shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the SAR.


(e)	No Dividend Equivalents . No SAR shall provide for Dividend Equivalents.


(f)	Other Terms . All SARs shall be evidenced by an Award Certificate. Subject to the limitations of this Article 8, the terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any SAR shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Certificate.

ARTICLE 9

RESTRICTED STOCK, RESTRICTED STOCK UNITS

AND DEFERRED STOCK UNITS

9.1. GRANT OF RESTRICTED STOCK, RESTRICTED STOCK UNITS AND DEFERRED STOCK UNITS . The Committee is authorized to make Awards of Restricted Stock, Restricted Stock Units or Deferred Stock Units to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. An Award of Restricted Stock, Restricted Stock Units or Deferred Stock Units shall be evidenced by an Award Certificate setting forth the terms, conditions, and restrictions applicable to the Award.

9.2. ISSUANCE AND RESTRICTIONS . Restricted Stock, Restricted Stock Units or Deferred Stock Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as

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otherwise provided in an Award Certificate or any special Plan document governing an Award, the Participant shall have all of the rights of a shareowner with respect to the Restricted Stock, and the Participant shall have none of the rights of a shareowner with respect to Restricted Stock Units or Deferred Stock Units until such time as Shares of Stock are paid in settlement of the Restricted Stock Units or Deferred Stock Units. Unless otherwise provided in the applicable Award Certificate, Awards of Restricted Stock will be entitled to full dividend rights and any dividends paid thereon will be paid or distributed to the holder no later than the end of the calendar year in which the dividends are paid to shareowners or, if later, the 15th day of the third month following the date the dividends are paid to shareowners.

9.3. FORFEITURE . Subject to the terms of the Award Certificate and except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of Continuous Service during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock, Restricted Stock Units or Deferred Stock Units that are at that time subject to restrictions shall be forfeited.

9.4. DELIVERY OF RESTRICTED STOCK . Shares of Restricted Stock shall be delivered to the Participant on the Grant Date either by book-entry registration or by delivering to the Participant, or a custodian or escrow agent (including, without limitation, the Company or one or more of its employees) designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If physical certificates representing shares of Restricted Stock are registered in the name of the Participant, such certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.

ARTICLE 10

PERFORMANCE AWARDS

10.1. GRANT OF PERFORMANCE AWARDS . The Committee is authorized to grant any Award under this Plan, including cash-settled Awards, with performance-based vesting criteria, on such terms and conditions as may be selected by the Committee. Any such Awards with performance-based vesting criteria are referred to herein as Performance Awards. The Committee shall have the complete discretion to determine the number of Performance Awards granted to each Participant, subject to Section 5.4, and to designate the provisions of such Performance Awards as provided in Section 4.3. All Performance Awards shall be evidenced by an Award Certificate or a written program established by the Committee, pursuant to which Performance Awards are awarded under the Plan under uniform terms, conditions and restrictions set forth in such written program. All Dividend Equivalents credited on Performance Shares during a performance period shall be reinvested in additional Performance Shares, which shall be allocated to the same performance period and shall be subject to being earned by the Participant on the same basis as the original

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Award. Once a Performance Award has been settled in Stock, any dividends on such Shares shall be paid in the same form and at the same time as to other shareowners.

10.2. PERFORMANCE GOALS . The Committee may establish performance goals for Performance Awards which may be based on any criteria selected by the Committee. Such performance goals may be described in terms of Company-wide objectives or in terms of objectives that relate to the performance of the Participant, an Affiliate or a division, region, department or function within the Company or an Affiliate. If the Committee determines that events or circumstances render the performance goals to be unsuitable, the Committee may modify such performance goals in whole or in part, as the Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different business unit or function during a performance period, the Committee may determine that the performance goals or performance period are no longer appropriate and may (i) adjust, change or eliminate the performance goals or the applicable performance period as it deems appropriate to make such goals and period comparable to the initial goals and period, or (ii) make a cash payment to the participant in an amount determined by the Committee. The foregoing two sentences shall not apply with respect to a Performance Award that is intended to be a Qualified Performance-Based Award under Article 11 if the recipient of the Performance Award (a) was a Covered Employee on the date of the proposed modification, adjustment, change or elimination of the performance goals or performance period, or (b) in the reasonable judgment of the Committee, may be a Covered Employee on the date the Performance Award is expected to be paid.

ARTICLE 11

QUALIFIED PERFORMANCE-BASED AWARDS

11.1. OPTIONS AND STOCK APPRECIATION RIGHTS . The provisions of the Plan are intended to ensure that all Options and Stock Appreciation Rights granted hereunder to any Covered Employee shall qualify for the Section 162(m) Exemption.

11.2. OTHER AWARDS . When granting any other Award, the Committee may designate such Award as a Qualified Performance-Based Award, based upon a determination that the recipient is or may be a Covered Employee with respect to such Award, and the Committee wishes such Award to qualify for the Section 162(m) Exemption. If an Award is so designated, the Committee shall establish performance goals for such Award within the time period prescribed by Section 162(m) of the Code based on one or more of the following Qualified Business Criteria, which may be expressed in terms of Company-wide objectives or in terms of objectives that relate to the performance of an Affiliate or a division, region, department or function within the Company or an Affiliate:


(a)	Revenue


(b)	Sales


(c)	Profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures)

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(d)	Earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures)


(e)	Net income (before or after taxes, operating income or other income measures)


(f)	Cash (cash flow, cash generation or other cash measures)


(g)	Stock price or performance


(h)	Total shareholder return (stock price appreciation plus reinvested dividends divided by beginning share price)


(i)	Economic value added


(j)	Return measures (including, but not limited to, return on assets, income, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales);


(k)	Market share


(l)	Improvements in capital structure


(m)	Expenses (expense management, expense ratio, expense efficiency ratios or other expense measures)


(n)	Business expansion or consolidation (acquisitions and divestitures)


(o)	Internal rate of return or increase in net present value


(p)	Working capital targets relating to inventory and/or accounts receivable


(q)	Safety standards


(r)	Productivity measures


(s)	Cost reduction measures


(t)	Strategic plan development and implementation

Performance goals with respect to the foregoing Qualified Business Criteria may be specified in absolute terms, on an adjusted basis, in percentages, or in terms of growth from period to period or growth rates over time, as well as measured relative to the performance of a group of comparator companies, or a published or special index, or a stock market index, that the Committee deems appropriate. Any member of a comparator group or an index that ceases to exist during a measurement period shall be disregarded for the entire measurement period. Performance Goals need not be based upon an increase or positive result under a business criterion and could include, for example, the maintenance of the status quo or the limitation of economic losses (measured, in each case, by reference to a specific business criterion). Performance measures may but need not be determinable in conformance with generally accepted accounting principles.

11.3. PERFORMANCE GOALS . Each Qualified Performance-Based Award (other than a market-priced Option or SAR) shall be earned, vested and

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payable (as applicable) only upon the achievement of performance goals established by the Committee based upon one or more of the Qualified Business Criteria, together with the satisfaction of any other conditions, such as continued employment, as the Committee may determine to be appropriate; provided, however, that the Committee may provide, either in connection with the grant thereof or by amendment thereafter, that achievement of such performance goals will be waived, in whole or in part, upon (i) the termination of employment of a Participant by reason of death or Disability, or (ii) the occurrence of a Change in Control. Performance periods established by the Committee for any such Qualified Performance-Based Award may be as short as three months and may be any longer period. In addition, the Committee has the right, in connection with the grant of a Qualified Performance-Based Award, to exercise negative discretion to determine that the portion of such Award actually earned, vested and/or payable (as applicable) shall be less than the portion that would be earned, vested and/or payable based solely upon application of the applicable performance goals.

11.4. INCLUSIONS AND EXCLUSIONS FROM PERFORMANCE CRITERIA . The Committee may provide in any Qualified Performance-Based Award, at the time the performance goals are established, that any evaluation of performance shall exclude or otherwise objectively adjust for any specified circumstance or event that occurs during a performance period, including by way of example but without limitation the following: (a) asset write-downs or impairment charges; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (d) accruals for reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in then-current Accounting Principles; (f) extraordinary nonrecurring items as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareowners for the applicable year; (g) acquisitions or divestitures; and (h) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.

11.5. CERTIFICATION OF PERFORMANCE GOALS . Any payment of a Qualified Performance-Based Award granted with performance goals pursuant to Section 11.3 above shall be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were satisfied. Except as specifically provided in Section 11.3, no Qualified Performance-Based Award held by a Covered Employee or by an employee who in the reasonable judgment of the Committee may be a Covered Employee on the date of payment, may be amended, nor may the Committee exercise any discretionary authority it may otherwise have under the Plan with respect to a Qualified Performance-Based Award under the Plan, in any manner to waive the achievement of the applicable performance goal based on Qualified Business Criteria or to increase the amount payable pursuant thereto or the value thereof, or otherwise in a manner that would cause the Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.

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11.6. AWARD LIMITS . Section 5.4 sets forth, with respect to any one 12-month period, (i) the maximum number of Shares with respect to which time-vesting Options or SARs may be granted to any one Participant, (ii) the maximum amount that may be paid to any one Participant for Performance Awards payable in cash or property other than Shares, and (iii) the maximum number of Shares that may be paid to any one Participant for Performance Awards payable in Stock.

ARTICLE 12

DIVIDEND EQUIVALENTS

12.1. GRANT OF DIVIDEND EQUIVALENTS . The Committee is authorized to grant Dividend Equivalents with respect to Full-Value Awards granted hereunder, subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to ordinary cash dividends or distributions with respect to all or a portion of the number of Shares subject to a Full-Value Award, as determined by the Committee. The Committee may provide that Dividend Equivalents (i) will be deemed to have been reinvested in additional Shares or otherwise reinvested, or (ii) except in the case of Performance Awards, will be paid or distributed to the Participant as accrued (in which case, such Dividend Equivalents must be paid or distributed no later than the 15 ^th day of the 3 ^rd month following the later of (i) the calendar year in which the corresponding dividends were paid to shareowners, or (ii) the first calendar year in which the Participant’s right to such Dividends Equivalents is no longer subject to a substantial risk of forfeiture.

ARTICLE 13

STOCK OR OTHER STOCK-BASED AWARDS

13.1. GRANT OF STOCK OR OTHER STOCK-BASED AWARDS . The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation Shares awarded purely as a “bonus” and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, and Awards valued by reference to book value of Shares or the value of securities of or the performance of specified Parents or Subsidiaries. The Committee shall determine the terms and conditions of such Awards.

ARTICLE 14

PROVISIONS APPLICABLE TO AWARDS

14.1. AWARD CERTIFICATES . Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the Committee.

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14.2. FORM OF PAYMENT FOR AWARDS . At the discretion of the Committee, payment of Awards may be made in cash, Stock, a combination of cash and Stock, or any other form of property as the Committee shall determine. In addition, payment of Awards may include such terms, conditions, restrictions and/or limitations, if any, as the Committee deems appropriate, including, in the case of Awards paid in the form of Stock, restrictions on transfer and forfeiture provisions. Further, payment of Awards may be made in the form of a lump sum, or in installments, as determined by the Committee.

14.3. LIMITS ON TRANSFER . No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. No unexercised or restricted Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Committee may (but need not) permit other transfers (other than transfers for value) where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, state or federal tax or securities laws applicable to transferable Awards.

14.4. BENEFICIARIES . Notwithstanding Section 14.3, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, any payment due to the Participant shall be made to the Participant’s estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Company.

14.5. STOCK TRADING RESTRICTIONS . All Stock issuable under the Plan is subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions applicable to the Stock.

14.6. TREATMENT UPON DEATH OR DISABILITY . Except as otherwise provided in the Award Certificate or any special Plan document governing an Award, upon the termination of a person’s Continuous Service by reason of death or Disability:

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(a)	all of that Participant’s outstanding Options and SARs shall become fully exercisable, and shall thereafter remain exercisable for a period of one (1) year or until the earlier expiration of the original term of the Option or SAR;


(b)	all time-based vesting restrictions on that Participant’s outstanding Awards shall lapse as of the date of termination; and


(c)	the payout opportunities attainable under all of that Participant’s outstanding Performance Awards shall be prorated based upon the number of months employed during each measurement period and shall be paid at the end of the Award period based on actual Company performance.

To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Non-qualified Stock Options.

14.7. EFFECT OF A CHANGE IN CONTROL – AWARDS GRANTED BEFORE FEBRUARY 11, 2014 . The provisions of this Section 14.7 shall apply in the case of a Change in Control with respect to Awards granted under the Plan before February 11, 2014, unless otherwise provided in the Award Certificate or any special Plan document or separate agreement with a Participant governing an Award. In the event of a Change in Control:


(a)	Options . All Incentive Stock Options and Non-qualified Stock Options shall be immediately exercisable, and all service-based restrictions on Shares issued pursuant to the exercise of such Options shall be immediately removed.


(b)	Stock Appreciation Rights . All service-based restrictions shall be immediately removed with respect to SARs.


(c)	Full-Value Awards . All service-based restrictions shall be immediately removed with respect to Restricted Stock, Restricted Stock Units and Deferred Stock Units.

(d)

Performance Awards . All service-based restrictions shall be immediately removed with respect to all earned Performance Awards, (ii) a pro rata portion of each outstanding Performance Award that would have been earned were Company performance to reach the target goals established by the Committee for each uncompleted Award period shall be deemed earned (based on the number of months of the total Award period which have been completed prior to the Change in Control), and all restrictions shall be immediately removed with respect to that number of shares, and (iii) the remaining portion of each Performance Award shall be forfeited.

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14.8. EFFECT OF A CHANGE IN CONTROL – AWARDS GRANTED ON OR AFTER FEBRUARY 11, 2014. The provisions of this Section 14.8 shall apply in the case of a Change in Control with respect to Awards granted under the Plan on or after February 11, 2014, unless otherwise provided in the Award Certificate or any special Plan document or separate agreement with a Participant governing an Award.

(a)

Awards Assumed or Substituted by Surviving Entity . With respect to Awards assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with a Change in Control in a manner approved by the Committee or the Board: if within two years after the effective date of the Change in Control, a Participant’s employment is terminated without Cause or the Participant resigns for Good Reason, then


(i)	all of that Participant’s outstanding Options or SARs shall become fully vested and exercisable as of the employment termination date and shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate;


(ii)	all time-based vesting restrictions on that Participant’s outstanding Awards shall lapse as of the employment termination date; and


(iii)	the level of performance achievement under all of that Participant’s Performance Awards that were outstanding immediately prior to effective time of the Change in Control shall be calculated as follows:

(A) Segmented Performance Awards :


1.	The portion of the Award that had been “banked” prior to the employment termination date based on the assessment of performance for a completed segment shall be fully vested as of the employment termination date; and


2.	The portion of the Award that relates to any segment that had not been completed, or for which performance had not been assessed, prior to the employment termination date shall vest as of the employment termination date based on the assumed achievement of performance at the “target” level.


3.	In either such case, the vested portion of the Award shall be paid within sixty (60) days following the employment termination date (unless a later date is required by Section 17.4 hereof).

(B) Non-Segmented Performance Awards :

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1.	Where less than one year had elapsed between the beginning of the applicable performance period and the employment termination date, a Non-Segmented Performance Award shall vest as of the employment termination date based on the assumed achievement of performance at the “target” level; and


2.	Where one year or more has elapsed between the beginning of the applicable performance period and the employment termination date, a Non-Segmented Award shall vest based upon the level of actual Company performance measured through the end of the year immediately preceding the employment termination date.


3.	In either such case, the vested portion of the Award shall be paid within sixty (60) days following the employment termination date (unless a later date is required by Section 17.4 hereof).


(b)	Awards not Assumed or Substituted by Surviving Entity . Upon the occurrence of a Change in Control, and except with respect to any Awards assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee or the Board:


(i)	outstanding Options or SARs shall become fully vested and exercisable as of the date of the Change in Control and shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate;


(ii)	time-based vesting restrictions on outstanding Awards shall lapse as of the date of the Change in Control; and


(iii)	the level of performance achievement under outstanding Performance Awards shall be calculated as follows:

(A) Segmented Performance Awards :


1.	The portion of the Award that had been “banked” prior to the Change in Control based on the assessment of performance for a completed segment shall be fully vested as of the date of the Change in Control; and


2.	The portion of the Award that relates to any segment that had not been completed, or for which performance had not been

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assessed, prior to the Change in Control shall vest as of the date of the Change in Control based on the assumed achievement of performance at the “target” level.


3.	In either such case, the vested portion of the Award shall be paid within sixty (60) days following the Change in Control (unless a later date is required by Section 17.4 hereof).

(B) Non-Segmented Performance Awards :


1.	Where less than one year has elapsed between the beginning of the applicable performance period and the Change in Control, a Non-Segmented Performance Award shall vest as of the date of the Change in Control based on the assumed achievement of performance at the “target” level; and


2.	Where one year or more has elapsed between the beginning of the applicable performance period and the Change in Control, a Non-Segmented Award shall vest as of the date of the Change in Control based upon the level of actual Company performance measured through the date of the Change in Control.


3.	In either such case, the vested portion of the Award shall be paid within sixty (60) days following the Change in Control (unless a later date is required by Section 17.4 hereof).

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14.9. ACCELERATION FOR ANY OTHER REASON . Regardless of whether an event has occurred as described in Sections 14.6, 14.7 or 14.8 above, and subject to Article 11 as to Qualified Performance-Based Awards, the Committee may in its sole discretion at any time determine that all or a portion of a Participant’s Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully or partially exercisable, that all or a part of the time-based vesting restrictions on all or a portion of the outstanding Awards shall lapse, and/or that any performance-based criteria with respect to any Awards shall be deemed to be wholly or partially satisfied, in each case, as of such date as the Committee may, in its sole discretion, declare. The Committee may discriminate among Participants and among Awards granted to a Participant in exercising its discretion pursuant to this Section 14.9. Notwithstanding anything in the Plan, including this Section 14.9, the Committee may not accelerate the payment of any Award if such acceleration would violate Section 409A(a)(3) of the Code.

14.10. FORFEITURE EVENTS . Awards under the Plan shall be subject to any compensation recoupment policy that the Company may adopt from time to time that is applicable by its terms to the Participant. In addition, the Committee may specify in an Award Certificate that the Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award.

Such events may include, but shall not be limited to, voluntary termination prior to Retirement eligibility, termination of employment for Cause, violation of a Non-Compete Agreement, Non-Solicitation Agreement or Confidentiality Agreement, failure by a participant in the Company’s Unfunded Supplemental Retirement Plan for Senior Managers (“SERP”) to submit notice of retirement one year in advance of the effective date of his or her retirement (except in the event of death, Disability or waiver by the Committee), or other conduct by the Participant that is detrimental to the business interest or reputation of the Company or any Affiliate or any act that is determined by the Senior Vice President, Human Resources and Communications, to be a deliberate disregard of the Company’s rules.

14.11. SUBSTITUTE AWARDS . The Committee may grant Awards under the Plan in substitution for stock and stock-based awards held by employees of another entity who become employees of the Company or an Affiliate as a result of a merger or consolidation of the former employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or stock of the former employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.

ARTICLE 15

CHANGES IN CAPITAL STRUCTURE

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15.1. MANDATORY ADJUSTMENTS . In the event of a nonreciprocal transaction between the Company and its shareowners that causes the per-share value of the Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend), the authorization limits under Section 5.1 and 5.4 shall be adjusted proportionately, and the Committee shall make such adjustments to the Plan and Awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. Action by the Committee may include: (i) adjustment of the number and kind of shares that may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Awards or the measure to be used to determine the amount of the benefit payable on an Award; and (iv) any other adjustments that the Committee determines to be equitable. Notwithstanding the foregoing, the Committee shall not make any adjustments to outstanding Options or SARs that would constitute a modification or substitution of the stock right under Treas. Reg. Section 1.409A-1(b)(5)(v) that would be treated as the grant of a new stock right or change in the form of payment for purposes of Code Section 409A. Without limiting the foregoing, in the event of a subdivision of the outstanding Stock (stock-split), a declaration of a dividend payable in Shares, or a combination or consolidation of the outstanding Stock into a lesser number of Shares, the authorization limits under Sections 5.1 and 5.4 shall automatically be adjusted proportionately, and the Shares then subject to each Award shall automatically, without the necessity for any additional action by the Committee, be adjusted proportionately without any change in the aggregate purchase price therefor.

15.2 DISCRETIONARY ADJUSTMENTS . Upon the occurrence or in anticipation of any corporate event or transaction involving the Company (including, without limitation, any merger, reorganization, recapitalization, combination or exchange of shares, or any transaction described in Section 15.1), the Committee may, in its sole discretion, provide (i) that Awards will be settled in cash rather than Stock, (ii) that Awards will become immediately vested and exercisable (in whole or in part) and will expire after a designated period of time to the extent not then exercised, (iii) that Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding Awards may be settled by payment in cash or cash equivalents equal to the excess of the Fair Market Value of the underlying Stock, as of a specified date associated with the transaction, over the exercise or base price of the Award, (v) that performance targets and performance periods for Performance Awards will be modified, consistent with Code Section 162(m) where applicable, or (vi) any combination of the foregoing. The Committee’s determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated.

15.3 GENERAL . Any discretionary adjustments made pursuant to this Article 15 shall be subject to the provisions of Section 16.2. To the extent that any adjustments made pursuant to this Article 15 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options shall be deemed to be Non-qualified Stock Options.

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ARTICLE 16

AMENDMENT, MODIFICATION AND TERMINATION

16.1. AMENDMENT, MODIFICATION AND TERMINATION . The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without shareowner approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board or the Committee, either (i) materially increase the number of Shares available under the Plan, (ii) expand the types of awards under the Plan, (iii) materially expand the class of participants eligible to participate in the Plan, (iv) materially extend the term of the Plan, or (v) otherwise constitute a material change requiring shareowner approval under applicable laws, policies or regulations or the applicable listing or other requirements of an Exchange, then such amendment shall be subject to shareowner approval; and provided, further, that the Board or Committee may condition any other amendment or modification on the approval of shareowners of the Company for any reason, including by reason of such approval being necessary or deemed advisable (i) to comply with the listing or other requirements of an Exchange, or (ii) to satisfy any other tax, securities or other applicable laws, policies or regulations.

16.2. AWARDS PREVIOUSLY GRANTED . At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however:

(a)

Awards issued under another Company plan prior to the approval by the Company’s shareowners of this Plan at the 2009 annual meeting of shareowners ( e.g. , under the Company’s Long-Term Incentive Compensation Plan, as amended and restated as of February 7, 2005), shall continue to be subject to the terms of such prior plan and the instruments evidencing such awards, unless otherwise specified in the Award Certificate.

(b)

Subject to the terms of the applicable Award Certificate, no amendment, modification or termination shall, without the Participant’s consent, reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination (with the per-share value of an Option or SAR for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment or termination over the exercise or base price of such Award);


(c)	The original term of an Option or SAR may not be extended without the prior approval of the shareowners of the Company;


(d)	Except as otherwise provided in Section 15.1, the exercise price of an Option or base price of a SAR may not be reduced, directly or

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indirectly, without the prior approval of the shareowners of the Company; and

(e)

No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Participant affected thereby. An outstanding Award shall not be deemed to be “adversely affected” by a Plan amendment if such amendment would not reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment (with the per-share value of an Option or SAR for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment over the exercise or base price of such Award).

16.3. COMPLIANCE AMENDMENTS . Notwithstanding anything in the Plan or in any Award Certificate to the contrary, the Board may amend the Plan or an Award Certificate, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or Award Certificate to any present or future law relating to plans of this or similar nature (including, but not limited to, Section 409A of the Code), and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 16.3 to any Award granted under the Plan without further consideration or action.

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ARTICLE 17

GENERAL PROVISIONS

17.1. RIGHTS OF PARTICIPANTS .

(a)

No Participant or any Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company, its Affiliates nor the Committee is obligated to treat Participants or Eligible Participants uniformly, and determinations made under the Plan may be made by the Committee selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or not such Eligible Participants are similarly situated).

(b)

Nothing in the Plan, any Award Certificate or any other document or statement made with respect to the Plan, shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or status as an officer, or any Participant’s service as a director, at any time, nor confer upon any Participant any right to continue as an employee, officer, or director of the Company or any Affiliate, whether for the duration of a Participant’s Award or otherwise.


(c)	Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company or any Affiliate and, accordingly, subject to Article 16, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company or an of its Affiliates.


(d)	No Award gives a Participant any of the rights of a shareowner of the Company unless and until Shares are in fact issued to such person in connection with such Award.

17.2. WITHHOLDING . The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation in the United States and any social tax obligations for any non-U.S. jurisdiction) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Plan. The obligations of the Company under the Plan will be conditioned on such payment or arrangements and the Company or such Affiliate will, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. Unless otherwise determined by the Committee at the time the Award is granted or thereafter, any such withholding requirement may be satisfied, in whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the

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Committee establishes. All such elections shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. For certain Participants designated by the Company, the Company shall also have the authority and the right to deduct or withhold additional amounts to satisfy federal, state or local taxes up to a maximum amount of 85% of the Award at the election of the Participant.

17.3. IMPACT OF RESTATEMENT OF FINANCIAL STATEMENTS UPON PREVIOUS AWARDS . If any of the Company’s financial statements are required to be restated, resulting from errors, omissions, or fraud, the Committee may (in its sole discretion, but acting in good faith) direct that the Company recover all or a portion of any such Award made to any, all or any class of Participants with respect to any fiscal year of the Company the financial results of which are negatively affected by such restatement. The amount to be recovered from any Participant shall be the amount by which the affected Award(s) exceeded the amount that would have been payable to such Participant had the financial statements been initially filed as restated, or any greater or lesser amount (including, but not limited to, the entire award) that the Committee shall determine. The Committee may determine to recover different amounts from different Participants or different classes of Participants on such bases as it shall deem appropriate. In no event shall the amount to be recovered by the Company be less than the amount required to be repaid or recovered as a matter of law. The Committee shall determine whether the Company shall effect any such recovery (i) by seeking repayment from the Participant, (ii) by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the Company or any of its affiliates, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Company’s otherwise applicable compensation practices, or (iv) by any combination of the foregoing.

17.4. SPECIAL PROVISIONS RELATED TO SECTION 409A OF THE CODE .

(a)

General . It is intended that the payments and benefits provided under the Plan and any Award shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Code. The Plan and all Award Certificates shall be construed in a manner that effects such intent. Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Affiliates nor their respective directors, officers, employees or advisers (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.


(b)	Definitional Restrictions . Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation”

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for purposes of Section 409A of the Code (“ Non-Exempt Deferred Compensation ”) would otherwise be payable or distributable, or a different form of payment (e.g., lump sum or installment) of such Non-Exempt Deferred Compensation would be effected, under the Plan or any Award Certificate by reason of the occurrence of a Change in Control, or the Participant’s Disability or separation from service, such Non-Exempt Deferred Compensation will not be payable or distributable to the Participant, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control, Disability or separation from service meet any description or definition of “change in control event”, “disability” or “separation from service”, as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not affect the dollar amount or prohibit the vesting of such Non-Exempt Deferred Compensation upon a Change in Control, Disability or separation from service, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, or the application of a different form of payment, such payment or distribution shall be made at the time and in the form that would have applied absent the non-409A-conforming event.

(c)

Allocation among Possible Exemptions . If any one or more Awards granted under the Plan to a Participant could qualify for any separation pay exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in the aggregate exceed the dollar limit permitted for the separation pay exemptions, the Company (acting through the Committee or the Head of Human Resources) shall determine which Awards or portions thereof will be subject to such exemptions.

(d)

Six-Month Delay in Certain Circumstances . Notwithstanding anything in the Plan or in any Award Certificate to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Plan or any Award Certificate by reason of a Participant’s separation from service during a period in which the Participant is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Committee under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):

(i) the amount of such non-exempt deferred compensation that would otherwise be payable during the six-month period immediately following the Participant’s separation from service will be

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accumulated through and paid or provided on the first day of the seventh month following the Participant’s separation from service (or, if the Participant dies during such period, within 30 days after the Participant's death) (in either case, the “Required Delay Period”); and

(ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

For purposes of this Plan, the term “ Specified Employee ” has the meaning given such term in Code Section 409A and the final regulations thereunder, provided, however , that, as permitted in such final regulations, the Company’s Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or any committee of the Board, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Plan.

(e)

Installment Payments . If, pursuant to an Award, a Participant is entitled to a series of installment payments, such Participant’s right to the series of installment payments shall be treated as a right to a series of separate payments and not to a single payment. For purposes of the preceding sentence, the term “series of installment payments” has the meaning provided in Treas. Reg. Section 1.409A-2(b)(2)(iii) (or any successor thereto).

(f)

Timing of Release of Claims . Whenever an Award conditions a payment or benefit on the Participant’s execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within 60 days after the date of termination of the Participant’s employment; failing which such payment or benefit shall be forfeited. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection (c) above, (i) if such 60-day period begins and ends in a single calendar year, the Company may make or commence payment at any time during such period at its discretion, and (ii) if such 60-day period begins in one calendar year and ends in the next calendar year, the payment shall be made or commence during the second such calendar year (or any later date specified for such payment under the applicable Award), even if such signing and non-revocation of the release occur during the first such calendar year

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included within such 60-day period. In other words, a Participant is not permitted to influence the calendar year of payment based on the timing of signing the release.


(g)	Permitted Acceleration . The Company shall have the sole authority to make any accelerated distribution permissible under Treas. Reg. Section 1.409A-3(j)(4) to Participants of deferred amounts, provided that such distribution(s) meets the requirements of Treas. Reg. Section 1.409A-3(j)(4).

17.5. UNFUNDED STATUS OF AWARDS . The Plan is intended to be an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate. This Plan is not intended to be subject to ERISA.

17.6. RELATIONSHIP TO OTHER BENEFITS . No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such other plan.

17.7. EXPENSES . The expenses of administering the Plan shall be borne by the Company and its Affiliates.

17.8. TITLES AND HEADINGS . The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

17.9. GENDER AND NUMBER . Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine and any feminine term used herein also shall include the masculine; the plural shall include the singular and the singular shall include the plural.

17.10. FRACTIONAL SHARES . No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down.

17.11. GOVERNMENT AND OTHER REGULATIONS .

(a)

Notwithstanding any other provision of the Plan, no Participant who acquires Shares pursuant to the Plan may, during any period of time that such Participant is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the Securities Act), sell such Shares, unless such offer and sale is made (i) pursuant to an effective registration

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statement under the Securities Act, which is current and includes the Shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the Securities Act, such as that set forth in Rule 144 promulgated under the Securities Act.

(b)

Notwithstanding any other provision of the Plan, if at any time the Committee shall determine that the registration, listing or qualification of the Shares covered by an Award upon any Exchange or under any foreign, federal, state or local law or practice, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no Shares may be purchased, delivered or received pursuant to such Award unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares pursuant to an Award shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. The Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to the Committee’s determination that all related requirements have been fulfilled. The Company shall in no event be obligated to register any securities pursuant to the Securities Act or applicable state or foreign law or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement.

17.12. GOVERNING LAW. To the extent not governed by federal law, the Plan and all Award Certificates shall be construed in accordance with and governed by the laws of the State of New York.

17.13. SEVERABILITY. In the event that any provision of this Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability will not be construed as rendering any other provisions contained herein as invalid or unenforceable, and all such other provisions will be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein.

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17.14. NO LIMITATIONS ON RIGHTS OF COMPANY . The grant of any Award shall not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The Plan shall not restrict the authority of the Company, for proper corporate purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Affiliate will transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant and specified by the Committee pursuant to the provisions of the Plan.

17.15. INDEMNIFICATION . Each person who is or shall have been a member of the Committee, or of the Board, or an officer of the Company to whom authority was delegated in accordance with Article 4 shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s charter or bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

The foregoing is hereby acknowledged as being the International Paper Company Amended and Restated 2009 Incentive Compensation Plan, as originally adopted by the Board on February 9, 2009 and approved by the Company’s shareowners on May 11, 2009, and as adopted in amended and restate form by the Board on February 11, 2014.

INTERNATIONAL PAPER COMPANY

By: /s/ Paul J. Karre

Its: Senior Vice President, Human Resources and Communications

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Exhibit 31.1

CERTIFICATION

I, Mark S. Sutton, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of International Paper Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 3, 2019

/s/ Mark S. Sutton

Mark S. Sutton

Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Tim S. Nicholls, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of International Paper Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 3, 2019

/s/ Tim S. Nicholls

Tim S. Nicholls

Senior Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report of International Paper Company (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2019 for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Mark S. Sutton, Chief Executive Officer of the Company, and Tim S. Nicholls, Chief Financial Officer of the Company, each certify that, to the best of his or her knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark S. Sutton

Mark S. Sutton

Chairman of the Board and Chief Executive Officer

May 3, 2019

/s/ Tim S. Nicholls

Tim S. Nicholls

Senior Vice President and Chief Financial Officer

May 3, 2019