Press Release Details

International Paper Reports Third Quarter 2020 Results

10/29/2020

MEMPHIS, Tenn., Oct. 29, 2020 /PRNewswire/ -- International Paper (NYSE: IP) today reported third quarter 2020 financial results.

THIRD QUARTER 2020 HIGHLIGHTS

  • Third quarter net earnings (loss) attributable to International Paper of $204 million ($0.52 per diluted share), compared with $266 million ($0.67 per diluted share) in the second quarter of 2020 and $344 million ($0.87 per diluted share) in the third quarter of 2019
  • Third quarter adjusted operating earnings* (non-GAAP) of $280 million ($0.71 per diluted share) compared with $305 million ($0.77 per diluted share) in the second quarter of 2020 and $431 million ($1.09 per diluted share) in the third quarter of 2019
  • Third quarter cash provided by operations of $735 million and year-to-date of $2.3 billion compared with $2.7 billion year-to-date in the same period of 2019
  • Third quarter debt reduction of $760 million, bringing year-to-date 2020 to $1.1 billion

"International Paper once again delivered solid results and generated strong cash from operations in a dynamic environment," said Mark Sutton, Chairman and Chief Executive Officer. "Our performance continues to demonstrate the strength of our customer solutions and the scale and flexibility of our system. As we enter the fourth quarter, we see continued momentum in demand for corrugated packaging, and we will again leverage the commercial and operating strengths of International Paper with a focus on cash generation and maintaining a strong balance sheet."

Sutton added, "The health and safety of our employees remains our most important responsibility. I appreciate the dedication of our team members to safely produce and deliver the products people depend on every day."

Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS




Third
Quarter
2020


Second
Quarter
2020


Third
Quarter
2019

Net Earnings (Loss) Attributable to International Paper


$

0.52



$

0.67



$

0.87


Add Back – Non-Operating Pension Expense (Income)


(0.02)



(0.03)



0.02


Add Back – Net Special Items Expense (Income)


0.21



0.13



0.20


Adjusted Operating Earnings*


$

0.71



$

0.77



$

1.09



*

Adjusted operating earnings (non-GAAP) is defined as net earnings attributable to International Paper Company (GAAP) excluding net special items and non-operating pension expense (income). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. For discussion of net special items and non-operating pension expense (income), see the disclosure under Effects of Net Special Items and Consolidated Statement of Operations and related notes included later in this release.

 

Select Financial Measures


(In millions)


Third
Quarter
2020


Second
Quarter
2020


Third
Quarter
2019


Net Sales


$

5,123



$

4,866



$

5,568



Net Earnings (Loss) Attributable to International Paper


204



266



344



Business Segment Operating Profit


473



428



701



Adjusted Operating Earnings


280



305



431



Cash Provided By (Used For) Operations


735



890



882



Free Cash Flow*


616



638



597




*

Free cash flow is a non-GAAP financial measure. A reconciliation of free cash flow to the most comparable GAAP measure, cash provided by (used for) operations, and disclosure regarding why we believe that free cash flow provides useful information to investors, is included later in this release.

SEGMENT INFORMATION
Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses and is calculated as set forth in footnote (i) below under "Sales and Earnings by Business Segment." Third quarter 2020 net sales by business segment and operating profit (loss) by business segment compared with the second quarter of 2020 and the third quarter of 2019 are as follows:

Business Segment Results


(In millions)


Third
Quarter
2020


Second
Quarter
2020


Third
Quarter
2019

Net Sales by Business Segment







Industrial Packaging


$

3,768



$

3,633



$

3,820


Global Cellulose Fibers


564



605



624


Printing Papers


743



583



1,071


Corporate and Inter-segment Sales


48



45



53


Net Sales


$

5,123



$

4,866



$

5,568


Operating Profit (Loss) by Business Segment







Industrial Packaging


$

469



$

449



$

535


Global Cellulose Fibers


(59)



(10)



4


Printing Papers


63



(11)



162


Total Business Segment Operating Profit


$

473



$

428



$

701


Industrial Packaging operating profits in the third quarter of 2020 were $469 million compared with $449 million in the second quarter of 2020. In North America, earnings increased reflecting higher sales volumes for boxes, lower economic downtime and lower recycled fiber costs. Operating costs increased, driven by multiple weather events impacting our mill system and seasonality in our box plants. Planned maintenance outage expenses were also higher. Earnings benefited in both the third and second quarter of 2020 from insurance recoveries related to the Rome fire and Bogalusa recovery boiler event. In Europe, earnings decreased driven by lower seasonal margins reflecting an unfavorable product mix and increased planned maintenance outage expenses at our Madrid, Spain mill. Sales volumes improved, as the impacts of the COVID-19 pandemic showed some recovery in all regions at the end of the third quarter, partially offset by seasonally lower volumes in Morocco. Operating costs were lower, driven by solid operational performance and cost management.

Global Cellulose Fibers operating profits (losses) in the third quarter of 2020 were $(59) million compared with $(10) million in the second quarter of 2020. The third quarter was impacted by higher planned maintenance outage expenses and economic downtime. Average sales prices were higher. Sales volumes were seasonally lower and reflect slower COVID-19 pandemic related consumer demand. Operating costs were lower driven by seasonality and favorable one-time items in the third quarter of 2020. Input costs were higher, primarily for wood and energy.

Printing Papers operating profits (losses) in the third quarter of 2020 were $63 million compared with $(11) million in the second quarter of 2020. In North America, earnings increased driven by higher sales volumes and lower economic downtime reflecting signs of recovery from the unprecedented demand impact of the COVID-19 pandemic. Average sales margins were slightly lower, reflecting an unfavorable mix. Operating and input costs were stable. Planned maintenance outage expenses were also lower. In Brazil, earnings increased due to higher sales volumes and lower economic downtime reflecting signs of recovery from the demand impacts of the COVID-19 pandemic. These benefits were partially offset by lower average sales margins primarily driven by lower export sales prices and an unfavorable geographic mix. In Europe and Russia, earnings improved but continue to be impacted by the COVID-19 pandemic. Sales volumes increased in Russia and were stable in Europe. Economic downtime was lower. Average sales margins decreased, reflecting lower sales prices and an unfavorable mix. Operating costs were lower, partially offset by higher maintenance outage costs.

EQUITY METHOD INVESTMENTS
Ilim joint venture equity earnings (loss) were $(33) million in the third quarter of 2020 compared with $63 million in the second quarter of 2020. Operationally, earnings decreased primarily driven by higher planned maintenance outage expenses. Lower export and domestic sales prices for hardwood pulp, softwood pulp and paper were mostly offset by higher sales volumes to China. The Company recognized a non-cash after-tax foreign exchange loss of $55 million in the third quarter of 2020 ($0.14 per diluted share), compared with a gain of $34 million in the second quarter of 2020 ($0.09 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

Graphic Packaging equity earnings on our 14.8% ownership position were $11 million in the third quarter of 2020, compared with $11 million in the second quarter of 2020.

CORPORATE EXPENSES
Corporate expenses (income) were $(20) million for the third quarter of 2020, compared with $(3) million in the second quarter of 2020.

EFFECTIVE TAX RATE
The reported effective tax rate for the third quarter of 2020 was 18%, compared to a 2020 second quarter reported effective tax rate of 26%. Excluding net special items and non-operating pension expense, the operational effective tax rate for the third quarter of 2020 was 19%, compared with 26% for the second quarter of 2020. Both the reported and operational effective tax rates are lower in the third quarter as a result of tax benefits recognized after the finalization of the 2019 U.S. Federal income tax return.  The tax benefits recorded in the third quarter are primarily related to increased U.S. research and development tax credits and lower than estimated U.S. income taxes on foreign earnings.

EFFECTS OF NET SPECIAL ITEMS
Net special items in the third quarter of 2020 amount to a net after-tax charge of $83 million ($0.21 per diluted share) compared with $50 million ($0.13 per diluted share) in the second quarter of 2020 and $80 million ($0.20 per diluted share) in the third quarter of 2019.  Net special items in all periods include the following charges (gains):



Third Quarter 2020


Second Quarter 2020


Third Quarter 2019

(In millions)


Before Tax


After Tax


Before Tax


After Tax


Before Tax


After Tax

 Restructuring and other charges, net:













Debt extinguishment costs


$

105



$

79



$

18



$

13



$



$


Overhead cost reduction initiative










21



16


Total restructuring and other charges, net


105



79



18



13



21



16


Environmental remediation reserve adjustment


7



6







15



11


Brazil Packaging impairment


(4)



(2)



8



6






Asbestos litigation reserve adjustment (a)






43



33






Abandoned property removal






5



4



13



10


Gain on sale of portion of investment in India






(6)



(6)






Italian antitrust fine










32



32


Litigation reserves










22



17


India Papers impairment










6



6


Gain on sale of previously closed Oregon mill site










(9)



(7)


Multi-employer pension plan exit liability adjustment










(7)



(6)


Other


1









1



1


 Total net special items


$

109



$

83



$

68



$

50



$

94



$

80



(a)

During the quarter ended June 30, 2020, we adjusted our estimated net liability associated with asbestos-related litigation concerning products sold by Champion International Corporation prior to our acquisition of Champion in 2000 to revise the time horizon associated with anticipated future claims to forty years. This adjustment of $43 million, which increased this net liability to $75 million, was not material to the quarter or any period.

EARNINGS WEBCAST
The company will host a webcast today to discuss earnings and current market conditions, beginning at 10 a.m. ET (9 a.m. CT). All interested parties are invited to listen to the webcast via the company's website at internationalpaper.com by clicking on the Performance tab and going to the Presentations and Events/Webcasts page. A replay of the webcast will also be on the website beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper third quarter earnings call. The conference ID number is 1379114. Participants should call in no later than 9:45 a.m. ET (8:45 a.m. CT).  An audio-only replay will be available for ninety days following the call.  To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056 or (800) 585-8367, and when prompted for the conference ID, enter 1379114.

About International Paper
International Paper (NYSE: IP) is a leading global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa and Russia. We produce corrugated packaging products that protect and promote goods, and enable world-wide commerce; pulp for diapers, tissue and other personal hygiene products that promote health and wellness; and papers that facilitate education and communication. We are headquartered in Memphis, Tenn., employ more than 50,000 colleagues and serve more than 25,000 customers in 150 countries. Net sales for 2019 were $22 billion. For more information about International Paper, our products and global citizenship efforts, please visit internationalpaper.com.

Certain statements in this press release that are not historical in nature may be considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects", "anticipates", "believes", "estimates" and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) developments related to the COVID-19 pandemic, including the severity, magnitude and duration of the pandemic, the development, availability and effectiveness of treatments and vaccines, negative global economic conditions arising from the pandemic, impacts of governments' responses to the pandemic on our operations, impacts of the pandemic on commercial activity, our customers and business partners and consumer preferences and demand, supply chain disruptions, and disruptions in the credit or financial markets; (ii) the level of indebtedness and changes in interest rates; (iii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition International Paper faces, cyclicality and changes in consumer preferences, demand and pricing for International Paper products (including changes resulting from the COVID-19 pandemic); (iv) domestic and global economic conditions and political changes, changes in currency exchange rates, trade protectionist policies, downgrades in International Paper's credit ratings, and/or the credit ratings of banks issuing certain letters of credit, issued by recognized credit rating organizations, (v) the amount of International Paper's future pension funding obligations,  and pension and health care costs; (vi) unanticipated expenditures or other adverse developments related to the cost of compliance with existing and new environmental, tax, labor and employment, privacy, and other U.S. and non-U.S. governmental laws and regulations (including new legal requirements arising from the COVID-19 pandemic); (vii) any material disruption at any of International Paper's manufacturing facilities due to severe weather, natural disasters or other causes (including as the result of the COVID-19 pandemic); (viii) risks inherent in conducting business through joint ventures; (ix) International Paper's ability to achieve the benefits expected from, and other risks associated with, acquisitions, joint ventures, divestitures and other corporate transactions, (x) information technology risks, and (xi) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters.  These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements can be found in International Paper's press releases and U.S. Securities and Exchange Commission filings.  In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

INTERNATIONAL PAPER COMPANY
Consolidated Statement of Operations
Preliminary and Unaudited
(In millions, except per share amounts)






Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,




2020


2019


2020


2020


2019



Net Sales

$   5,123


$     5,568


$                           4,866


$  15,341


$   16,878



Costs and Expenses












        Cost of products sold

3,541

(a)

3,772

(h)

3,427

(a)

10,714

(a)

11,602

(h)


Selling and administrative expenses

360

(b)

387


332


1,110

(b)

1,202



Depreciation, amortization and cost of timber harvested    

320


327

(i)

312


955

(c)

963

(i)


Distribution expenses

377


395


365


1,149


1,168



Taxes other than payroll and income taxes

44


42


41


129


128



Restructuring and other charges, net

105

(d)

21

(j)

18

(d)

131

(d)

21

(j)


Antitrust fines


32

(k)



32

(k)


Net (gains) losses on sales and impairments of businesses

(5)

(e)

8

(l)

8

(e)

347

(e)

153

(l)


Net (gains) losses on sales of equity method investments

(2)




(35)

(f)



Interest expense, net

112

(g)

123


116


345

(g)

378

(m)


Non-operating pension expense (income)

(11)


9


(14)


(31)


27



Earnings (Loss) Before Income Taxes and Equity Earnings

282


452


261


527


1,204



Income tax provision (benefit)

50


137


67


211


371

(n)


Equity earnings (loss), net of taxes

(28)


27


72


13


221



Net Earnings (Loss)

204


342


266


329


1,054



Less: Net earnings (loss) attributable to noncontrolling interests


(2)

(o)



(6)

(o)


Net Earnings (Loss) Attributable to International Paper Company

$      204


$        344


$                              266


$        329


$     1,060



Basic Earnings Per Common Share Attributable to International Paper
Common Shareholders












Net earnings (loss)

$     0.52


$       0.88


$                             0.67


$       0.84


$       2.67



Diluted Earnings Per Common Share Attributable to International Paper
Common Shareholders












Net earnings (loss)

$     0.52


$       0.87


$                             0.67


$       0.83


$       2.65



Average Shares of Common Stock Outstanding - Diluted

394.6


395.4


393.1


394.5


399.6














The accompanying notes are an integral part of this consolidated statement of operations.










(a)

Includes pre-tax charges of $7 million ($6 million after taxes) and $48 million ($37 million after taxes) for the three months and nine months ended September 30, 2020, respectively, for environmental remediation reserve adjustments, a pre-tax charge of $43 million ($33 million after taxes) for the three months ended June 30, 2020 and the nine months ended September 30, 2020 for an asbestos litigation reserve adjustment, pre-tax charges of $5 million ($4 million after taxes) and $14 million ($11 million after taxes) for the three months ended June 30, 2020 and the nine months ended September 30, 2020, respectively, for the removal of abandoned property at our mills, a gain of $6 million (before and after taxes) for the three months ended June 30, 2020 and the nine months ended September 30, 2020 on the sale of our investment in India, a charge of $17 million (before and after taxes) for the nine months ended September 30, 2020 for the fair value adjustment of our investment in India and pre-tax income of $2 million ($1 million after taxes) for the nine months ended September 30, 2020 for the accrual of a foreign value-added tax refund. 



(b)

Includes a pre-tax charge of $3 million ($2 million after taxes) for the three months and nine months ended September 30, 2020 for other costs.



(c)

Includes a charge of $1 million (before and after taxes) for the nine months ended September 30, 2020 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.



(d)

Includes pre-tax charges of $105 million ($79 million after taxes), $18 million ($13 million after taxes) and $131 million ($98 million after taxes) for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30 2020, respectively, for debt extinguishment costs.



(e)

Includes a pre-tax gain of $6 million ($4 million after taxes) and pre-tax losses of $5 million ($3 million after taxes) and $19 million ($12 million after taxes) for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, respectively, for the impairment of the net assets of our Brazil Packaging business, a loss of $2 million (before and after taxes), $3 million (before and after taxes) and $329 million (before and after taxes) for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the assets and liabilities of our Brazil Packaging business as held for sale and a gain of $1 million (before and after taxes) for the three months and nine months ended September 30, 2020 for other items.



(f)

Includes a pre-tax gain of $33 million ($25 million after taxes) for the nine months ended September 30, 2020 related to the monetization of approximately 19% of our equity investment in Graphic Packaging.



(g)

Includes income of $1 million (before and after taxes) for the nine months ended September 30, 2020 for interest income associated with the accrual of a foreign value-added tax refund and income of $1 million (before and after taxes) for the three months and nine months ended September 30, 2020 for other interest income.



(h)

Includes a pre-tax charge of $22 million ($17 million after taxes) for the three months and nine months ended September 30, 2019 for litigation reserves, a pre-tax charge of $15 million ($11 million after taxes) for the three months and nine months ended September 30, 2019 for an environmental remediation reserve adjustment, pre-tax charges of $13 million ($10 million after taxes) and $35 million ($26 million after taxes) for the three months and nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills, pre-tax income of $7 million ($6 million after taxes) and a pre-tax charge of $9 million ($6 million after taxes) for the three months and nine months ended September 30, 2019, respectively, for costs associated with a multi-employer pension plan exit liability and a pre-tax gain of $9 million ($7 million after taxes) for the three months and nine months ended September 30, 2019 for the sale of a previously closed Oregon mill site.



(i)

Includes charges of $1 million (before and after taxes) and $3 million (before and after taxes) for the three months and nine months ended September 30, 2019, respectively, for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.



(j)

Includes a pre-tax charge of $21 million ($16 million after taxes) for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.



(k)

Includes a charge of $32 million (before and after taxes) for the three months and nine months ended September 30, 2019 related to an Italian antitrust fine.



(l)

Includes losses of $2 million (before and after taxes) and $97 million (before and after taxes) for the three months and nine months ended September 30, 2019, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the assets and liabilities of our India Papers business as held for sale, a loss of $6 million (before and after taxes) and a pre-tax loss of $63 million ($61 million after taxes) for the three months and nine months ended September 30, 2019, respectively, for the impairment of the net assets of our India Papers business and a pre-tax gain of $7 million ($6 million after taxes) for the nine months ended September 30, 2019 related to the sale of a box plant in our EMEA Packaging business.



(m)

Includes a charge of $1 million (before and after taxes) for the nine months ended September 30, 2019 for interest expense associated with foreign tax audits.



(n)

Includes tax expense of $9 million for the nine months ended September 30, 2019 related to a tax rate change in Luxembourg, tax expense of $3 million for the nine months ended September 30, 2019 related to foreign tax audits and a tax benefit of $3 million for the nine months ended September 30, 2019 related to state income tax legislative changes.



(o)

Includes the allocation of loss to noncontrolling interest of $2 million (before and after taxes) and $9 million (before and after taxes) for the three months and nine months ended September 30 2019, respectively, associated with the impairment of the net assets of our India Papers business.

 


INTERNATIONAL PAPER COMPANY
Reconciliation of Net Earnings (Loss) Attributable to International Paper Company to Adjusted Operating Earnings
Preliminary and Unaudited
(In millions, except per share amounts)





Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,



2020


2019


2020


2020


2019


Net Earnings (Loss) Attributable to International Paper Company

$      204


$        344


$                               266


$     329


$   1,060


Add back: Non-operating pension expense (income)

(7)


7


(11)


(23)


21


Add back: Net special items expense (income)

83


80


50


505


257


Adjusted Operating Earnings

$      280


$        431


$                               305


$     811


$   1,338














Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,



2020


2019


2020


2020


2019


Diluted Earnings per Common Share as Reported

$     0.52


$       0.87


$                              0.67


$    0.83


$     2.65


Add back: Non-operating pension expense (income)

(0.02)


0.02


(0.03)


(0.05)


0.05


Add back: Net special items expense (income)

0.21


0.20


0.13


1.28


0.65


Adjusted Operating Earnings per Share

$     0.71


$       1.09


$                              0.77


$    2.06


$     3.35












Notes:

















The Company calculates Adjusted Operating Earnings (non-GAAP) by excluding the after-tax effect of non-operating pension expense (income) and items considered by management to be unusual (net special items) as reflected in the Consolidated Statement of Operations and related notes included in this release 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 consolidated 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 (loss) attributable to International Paper is the most directly comparable GAAP measure.




Since diluted earnings per share are computed independently for each period, nine-month per share amounts may not equal the sum of respective quarters.

 

INTERNATIONAL PAPER COMPANY
Sales and Earnings by Business Segment
Preliminary and Unaudited
(In millions)



Net Sales by Business Segment













Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,




2020


2019


2020


2020


2019



Industrial Packaging

$    3,768


$      3,820


$                               3,633


$   11,220


$ 11,516



Global Cellulose Fibers

564


624


605


1,737


1,974



Printing Papers

743


1,071


583


2,234


3,224



Corporate and Inter-segment Sales

48


53


45


150


164



Net Sales

$    5,123


$      5,568


$                               4,866


$   15,341


$ 16,878















Operating Profit by Business Segment













Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,




2020


2019


2020


2020


2019



Industrial Packaging

$       469


$         535


$                                  449


$     1,388


$   1,471



Global Cellulose Fibers

(59)


4


(10)


(123)


39



Printing Papers

63


162


(11)


148


420



Total Business Segment Operating Profit

$       473


$         701


$                                  428


$     1,413


$   1,930















Earnings (Loss) Before Income Taxes and Equity Earnings

$       282


$         452


$                                  261


$        527


$   1,204



Interest expense, net

112

(a)

123


116


345

(a)

378

(d)


Noncontrolling interest adjustment (h)


2

(e)



4

(e)


Corporate expenses, net

(20)


21


(3)


9


45



Corporate net special items

108

(b)

48

(f)

54

(b)

195

(b)

48

(f)


Business net special items

2

(c)

46

(g)

14

(c)

368

(c)

224

(g)


Non-operating pension expense (income)

(11)


9


(14)


(31)


27



Business Segment Operating Profit (i)

$       473


$         701


$                                  428


$     1,413


$   1,930



Equity Earnings (Loss) in Ilim S.A., Net of Taxes

$        (33)


$           18


$                                    63


$           (5)


$      186



Equity Earnings (Loss) in Graphic Packaging International Partners,
LLC

$          11


$           10


$                                    11


$           29


$        37














(a)

Includes income of $1 million for the nine months ended September 30, 2020 for interest income associated with the accrual of a foreign value-added tax refund and income of $1 million for the three months and nine months ended September 30, 2020 for other interest income.



(b)

Includes charges of $105 million, $18 million and $131 million for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, respectively, for debt extinguishment costs, a charge of $43 million for the three months ended June 30, 2020 and the nine months ended September 30, 2020 for an asbestos litigation reserve adjustment, a charge of $41 million for the nine months ended September 30, 2020 for an environmental remediation reserve adjustment, a charge of $17 million for the nine months ended September 30, 2020 for the fair value adjustment of our investment in India, a gain of $33 million for the nine months ended September 30, 2020 related to the monetization of approximately 19% of our equity investment in Graphic Packaging, a gain of $6 million for the three months ended June 30 2020 and the nine months ended September 30, 2020 on the sale of our investment in India, income of $1 million for the three months ended June 30, 2020 and the nine months ended September 30, 2020 related to the impairment of the net assets of our Brazil Packaging business and a charge of $3 million for the three months and nine months ended September 30, 2020 for other costs.



(c)

Related to Industrial Packaging, includes a gain of $6 million and charges of $6 million and $20 million for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, respectively, for the impairment of the net assets of our Brazil Packaging business, losses of $2 million, $3 million and $329 million for the three months ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the assets and liabilities of our Brazil Packaging business as held for sale, charges of $3 million and $9 million for the three months ended June 30, 2020 and the nine months ended September 30, 2020, respectively, for the removal of abandoned property at our mills, income of $2 million for the nine months ended September 30, 2020 for the accrual of a foreign value-added tax refund and a charge of $1 million for the three months and nine months ended September 30, 2020 for other costs.




Related to Global Cellulose Fibers, includes charges of $2 million and $5 million for the three months ended June 30, 2020 and the nine months ended September 30, 2020, respectively, for the removal of abandoned property at our mills.




Related to Printing Papers, includes a charge of $7 million for the three months and nine months ended September 30, 2020 for an environmental remediation reserve adjustment, a charge of $1 million for the nine months ended September 30, 2020 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production and income of $2 million for the three months and nine months ended September 30, 2020 for other items.



(d)

Includes a charge of $1 million for the nine months ended September 30, 2019 for interest expense associated with foreign tax audits. 



(e)

Includes the allocation of loss to noncontrolling interest of $2 million and $9 million for the three months and nine months ended September 30, 2019, respectively, associated with the impairment of the net assets of our India Papers business.



(f)

Includes a charge of $22 million for the three months and nine months ended September 30, 2019 for litigation reserves, a charge of $15 million for the three months and nine months ended September 30, 2019 for an environmental remediation reserve adjustment and a charge of $11 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.



(g)

Related to Industrial Packaging, includes a charge of $32 million for the three months and nine months ended September 30, 2019 related to an Italian antitrust fine, charges of $9 million and $25 million for the three months and nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills, income of $7 million and a charge of $9 million for the three months and nine months ended September 30, 2019, respectively, for costs associated with a multi-employer pension plan exit liability, a gain of $9 million for the three months and nine months ended September 30, 2019 on the sale of a previously closed Oregon mill site and a gain of $7 million for the nine months ended September 30, 2019 related to the sale of a box plant in our EMEA Packaging business.




Related to Global Cellulose Fibers, includes charges of $3 million and $8 million for the three months and nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills and a charge of $4 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.




Related to Printing Papers, includes losses of $2 million and $97 million for the three months and nine months ended September 30, 2019, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the assets and liabilities of our India Papers business as held for sale, losses of $6 million and $63 million, partially offset by the allocation of loss to noncontrolling interest of $2 million and $9 million for the three months and nine months ended September 30, 2019, respectively, for the impairment of the net assets of our India Papers business, a charge of $6 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative, charges of $1 million and $3 million for the three months and nine months ended September 30, 2019, respectively, for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production and charges of $1 million and $2 million for the three months and nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills.



(h)

Operating profits for business segments include each segment's percentage share of the profits of subsidiaries included in that segment that are less than wholly owned. The pre-tax noncontrolling interest for these subsidiaries is adjusted here to present consolidated earnings before income taxes and equity earnings.



(i)

As set forth in the chart above, business segment operating profit is defined as earnings (loss) before income taxes and equity earnings, but including the impact of noncontrolling interests, and excluding interest expense, net, corporate expenses, net, corporate net special items, business net special items and non-operating pension expense. Business segment operating profit is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280.

 

INTERNATIONAL PAPER COMPANY
Sales Volume by Product (a)
Preliminary and Unaudited



International Paper Consolidated












Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,



2020


2019


2020


2020


2019


Industrial Packaging (In thousands of short tons)











Corrugated Packaging (b)

2,705


2,651


2,571


7,900


7,810


Containerboard

760


736


783


2,370


2,140


Recycling

460


556


512


1,388


1,790


Saturated Kraft

36


47


39


123


140


Gypsum /Release Kraft

50


49


48


154


149


Bleached Kraft

7


5


8


22


17


EMEA Packaging (b)

374


375


375


1,190


1,124


Brazilian Packaging  (b)

98


96


83


271


272


European Coated Paperboard

102


106


95


308


312


Industrial Packaging

4,592


4,621


4,514


13,726


13,754


Global Cellulose Fibers (In thousands of metric tons) (c)

886


878


965


2,752


2,606


Printing Papers (In thousands of short tons)











U.S. Uncoated Papers

336


451


247


998


1,340


European & Russian Uncoated Papers

298


352


271


929


1,073


Brazilian Uncoated Papers

208


301


150


598


828


Indian Uncoated Papers


49




183


Printing Papers

842


1,153


668


2,525


3,424












(a)

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



(b)

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



(c)

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

 

INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
Preliminary and Unaudited
(In millions)



September 30, 2020


December 31, 2019

Assets




Current Assets




Cash and Temporary Investments

$                          678


$                          511

Accounts and Notes Receivable, Net

3,034


3,280

Contract Assets

388


393

Inventories

2,007


2,208

Current Financial Assets of Variable Interest Entities

4,850


Assets Held for Sale

114


Other

217


247

Total Current Assets

11,288


6,639

Plants, Properties and Equipment, Net

12,410


13,004

Forestlands

288


391

Investments

1,100


1,721

Long-Term Financial Assets of Variable Interest Entities

2,252


7,088

Goodwill

3,304


3,347

Right of Use Assets

422


434

Deferred Charges and Other Assets

776


847

Total Assets

$                     31,840


$                     33,471

Liabilities and Equity




Current Liabilities




Notes Payable and Current Maturities of Long-Term Debt

$                          179


$                          168

Current Nonrecourse Financial Liabilities of Variable Interest Entities

4,220


4,220

Accounts Payable and Other Current Liabilities

3,701


4,258

Liabilities Held for Sale

376


Total Current Liabilities

8,476


8,646

Long-Term Debt

8,525


9,597

Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities

2,091


2,085

Deferred Income Taxes

2,639


2,633

Pension Benefit Obligation

1,421


1,578

Postretirement and Postemployment Benefit Obligation

246


270

Long-Term Lease Obligations

290


304

Other Liabilities

1,056


640

Equity




Invested Capital, Net of Treasury Stock

(1,029)


(695)

Retained Earnings

8,122


8,408

Total International Paper Shareholders' Equity

7,093


7,713

Noncontrolling interests

3


5

Total Equity

7,096


7,718

Total Liabilities and Equity

$                     31,840


$                     33,471

 

INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
Preliminary and Unaudited
(In millions)



Nine Months Ended September 30,


2020


2019

Operating Activities




Net earnings (loss)

$                          329


$                        1,054

Depreciation, amortization and cost of timber harvested

955


963

Deferred income tax expense (benefit), net

(5)


68

Restructuring and other charges, net

131


21

Net (gains) losses on sales and impairments of businesses

347


153

Net (gains) losses on sales of equity method investments

(35)


Antitrust fines


32

Equity method dividends received

158


260

Equity (earnings) losses, net

(13)


(221)

Periodic pension expense, net

24


70

Other, net

212


106

Changes in current assets and liabilities




Accounts and notes receivable

96


168

Contract assets

2


6

Inventories

74


(9)

Accounts payable and accrued liabilities


(11)

Interest payable

(26)


(31)

Other

25


53

Cash Provided By (Used For) Operating Activities

2,274


2,682

Investment Activities




Invested in capital projects, net of insurance recoveries

(657)


(913)

Acquisitions, net of cash acquired

(64)


(99)

Proceeds from sales of equity method investments

500


Proceeds from sales of businesses, net of cash divested


17

Proceeds from sale of fixed assets

3


15

Other

18


(14)

Cash Provided By (Used For) Investment Activities

(200)


(994)

Financing Activities




Repurchases of common stock and payments of restricted stock tax withholding

(42)


(535)

Issuance of debt

692


381

Reduction of debt

(1,795)


(772)

Change in book overdrafts

16


(29)

Dividends paid

(605)


(595)

Debt tender premiums paid

(124)


Other

(1)


3

Cash Provided By (Used for) Financing Activities

(1,859)


(1,547)

Cash Included in Assets Held for Sale

(11)


(19)

Effect of Exchange Rate Changes on Cash

(37)


(14)

Change in Cash and Temporary Investments

167


108

Cash and Temporary Investments




Beginning of the period

511


589

End of the period

$                          678


$                           697

 

INTERNATIONAL PAPER COMPANY
Reconciliation of Cash Provided by Operations to Free Cash Flow
Preliminary and Unaudited
(In millions)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2020


2019


2020


2019

Cash Provided By (Used For) Operating Activities

$        735


$        882


$   2,274


$   2,682

Adjustments:








Cash invested in capital projects, net of insurance recoveries

(119)


(285)


(657)


(913)

Free Cash Flow

$        616


$        597


$   1,617


$   1,769









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 non-GAAP financial measures presented in this release have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company's presentation of non-GAAP measures in this release may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as International Paper.


Management believes certain non-U.S. GAAP financial measures, when used in conjunction with information presented in accordance with U.S. GAAP, can facilitate a better understanding of the impact of various factors and trends on the Company's financial condition and results of operations.  Management also uses these non-U.S. GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's performance.

 

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SOURCE International Paper