10-K 1 ip10-k123117.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _____________________________________________________ 
FORM 10-K
(Mark One)
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2017
or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from                         to                        
Commission File No. 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
New York
 
13-0872805
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
6400 Poplar Avenue
Memphis, Tennessee
(Address of principal executive offices)
38197
(Zip Code)
Registrant’s telephone number, including area code: (901) 419-9000
_____________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common Stock, $1 per share par value
  
New York Stock Exchange
_____________________________________________________ 
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨    No ý
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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
Emerging growth company ¨
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ¨   No ý
The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2017) was approximately $23,247,397,657.
The number of shares outstanding of the Company’s common stock as of February 16, 2018 was 412,940,532.
Documents incorporated by reference:
Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 2018 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

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INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 1A.
ITEM 1B.
ITEM 2.
 
 
 
ITEM 3.
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 5.
ITEM 6.
ITEM 7.
 
 
 
 
 
 
 
 
 
 
 








INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017

ITEM 7A.
ITEM 8.
 
 
 
 
 
 
 
 
 
ITEM 9.
ITEM 9A.
ITEM 9B.
 
 
 
PART III.
 
 
 
 
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
 
 
PART IV.
 
 
 
 
ITEM 15.
 
 
 
APPENDIX I
APPENDIX II



International Paper Company (the “Company” or “International Paper,” which may also be referred to as “we” or “us”) is a global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa, India and Russia. We are a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more about us by visiting that site.
In the United States, at December 31, 2017, the Company operated 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at December 31, 2017 in Canada, Europe, India, North Africa, Latin America included 16 pulp, paper and packaging mills, 47 converting and packaging plants, and two recycling plants. We operate a printing and packaging products distribution business principally through 9 branches in Asia. At December 31, 2017, we owned or managed approximately 329,000 acres of forestland in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions.
For management and financial reporting purposes, our businesses are separated into three segments: Industrial Packaging; Global Cellulose Fibers; and Printing Papers.
A description of these business segments can be found on pages 23 and 24 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s 50% equity interest in Ilim Holding S.A. ("Ilim") is also a separate reportable industry segment.
From 2013 through 2017, International Paper’s capital expenditures approximated $6.8 billion, excluding mergers and acquisitions. These expenditures reflect our continuing efforts to use our capital strategically to improve product quality and environmental performance, as well as lower costs and maintain reliability of operations. Capital spending in 2017 was approximately $1.4 billion and is expected to be approximately $1.5 billion in 2018. You can find more information about capital expenditures on page 28 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
You can find discussions of restructuring charges and other special items on pages 22 and 23 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with all other reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet Web site at www.internationalpaper.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on or connected to our Web site is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we filed with or furnished to the SEC.
The financial information concerning segments is set forth in Note 19 Financial Information by Industry Segment and Geographic Area on pages 78 through 80 of Item 8. Financial Statements and Supplementary Data.
The financial information concerning international and U.S. operations and export sales is set forth in Note 19 Financial Information by Industry Segment and Geographic Area on page 80 of Item 8. Financial Statements and Supplementary Data.
The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.



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Many factors influence the Company’s competitive position, including price, cost, product quality and services. You can find more information about the impact of these factors on operating profits on pages 20 through 27 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can find information about the Company’s manufacturing capacities on page A-4 of Appendix II.

 
The Company sells products directly to end users and converters, as well as through agents, resellers and paper distributors.
The Company’s principal products are described on pages 23 and 24 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Sales volumes of major products for 2017, 2016 and 2015 were as follows:
Sales Volumes by Product (a)
 
In thousands of short tons (except as noted)
2017
2016
2015
Industrial Packaging
 
 
 
Corrugated Packaging (c)
10,413

10,392

10,284

Containerboard
3,294

3,091

3,110

Recycling
2,257

2,450

2,379

Saturated Kraft
181

182

156

Gypsum/Release Kraft
229

200

171

Bleached Kraft
27

24

23

EMEA Packaging (c) (d)
1,518

1,477

1,417

Asian Box (c) (e)

208

426

Brazilian Packaging (c)
357

371

348

European Coated Paperboard
398

393

381

Industrial Packaging
18,674

18,788

18,695

Global Cellulose Fibers (in thousands of metric tons) (b)
3,708

1,870

1,575

Printing Papers
 
 
 
U.S. Uncoated Papers
1,915

1,872

1,879

European and Russian Uncoated Papers
1,483

1,536

1,493

Brazilian Uncoated Papers
1,167

1,114

1,125

Indian Uncoated Papers
253

241

241

Printing Papers
4,818

4,763

4,738


(a)
Includes third-party and inter-segment sales and excludes sales of equity investees.
(b)
Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired beginning December 1, 2016.
(c)
Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons.
(d)
Excludes newsprint sales volumes at Madrid, Spain mill.
(e)
Includes sales volumes through the date of sale on June 30, 2016.


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The Company operates its primary research and development center in Loveland, Ohio, as well as several other product development facilities, including the Global Cellulose Fibers technology center in Federal Way, Washington.
We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions, and to process, equipment and product innovations. Activities include product development within the operating divisions; studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials development; mechanical packaging systems, environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and packaging paper products; energy conservation; applications of computer controls to manufacturing operations; innovations and improvement of products; and development of various new products. Our development efforts specifically address product safety as well as the minimization of solid waste. The cost to the Company of its research and development operations was $28 million in 2017, $20 million in 2016, and $27 million in 2015.
We own numerous patents, copyrights, trademarks, trade secrets and other intellectual property rights relating to our products and to the processes for their production. We also license intellectual property rights to and from others where advantageous or necessary. Many of the manufacturing processes are among our trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them as required to support our businesses.

International Paper is subject to extensive federal and state environmental regulation as well as similar regulations internationally. Our continuing objectives include: (1) controlling emissions and discharges from our facilities into the air, water and groundwater to avoid adverse impacts on the environment, and (2) maintaining compliance with applicable laws and regulations. The Company spent $86 million in 2017 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend $71 million in 2018 for environmental capital projects. Capital expenditures for 2019 environmental projects are anticipated to be approximately $87 million. Capital
 
expenditures for 2020 environmental projects are estimated to be $73 million.

The 2017 spend included costs associated with the U.S. Environmental Protection Agency's (EPA) Boiler MACT (maximum achievable control technology) regulations that require owners of specified boilers to meet revised air emissions standards for certain substances. Several lawsuits were filed to challenge all or portions of the Boiler MACT regulations. On December 23, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded the Boiler MACT regulations to the EPA requiring the agency to revise emission standards for boiler subcategories that had been affected by flawed calculations. The Court determined that the existing MACT standards should remain in place while the revised standards are being developed, but did not establish a deadline for the EPA to complete the rulemaking. The Company has completed its Boiler MACT capital projects to meet the existing regulations. We are not able to project any additional Boiler MACT capital project expenditures as it is uncertain to what extent the EPA will revise Boiler MACT standards that are subject to the remand.

Amendments lowering National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2), nitrogen dioxide (NO2), fine particulate (PM2.5), and ozone have been finalized by the EPA in recent years but to date have not had a material impact on the Company.


In an effort to mitigate the potential climate change impacts from human activities, various international, national and sub-national (regional, state and local) governmental actions have been or may be undertaken. Presently, these efforts have not materially impacted International Paper, but such efforts may have a material impact on the Company in the future.

International Efforts

A successor program to the 1997 Kyoto Protocol, the Paris Agreement, went into effect in November 2016 and continued international efforts and voluntary commitments toward reducing the emissions of greenhouse gases (GHGs). Consistent with this objective, participating countries aim to balance GHG emissions generation and removal in the second half of this century or, in effect, achieve net-zero global GHG emissions.

As part of the Paris Agreement, many countries, including the U.S. and EU member states, established non-binding emissions reduction targets. The U.S. non-binding commitment is for GHG emissions to be 7% below 2005 GHG emissions levels by 2020 and 26% to 28% below by 2025. Other countries in which we do business made similar non-binding commitments. On

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August 4, 2017, the U.S. filed official notice to withdraw from the Paris Agreement. Notwithstanding the notice of withdrawal by the U.S., the Company’s voluntary GHG reductions, which are set out in our annual Global Citizenship report, remain roughly in line with the percentages of the U.S. prior target reductions. It is not clear at this time what, if any, further reductions by the Company might be required by the countries in which we operate. Due to this uncertainty, it is not possible at this time to estimate the potential impacts of these agreements on the Company.
To assist member countries in meeting obligations under the Kyoto Protocol, the EU established and continues to operate an Emissions Trading System (EU ETS). Currently, we have two sites directly subject to regulation under Phase III of the EU ETS, one in Poland and one in France. Other sites that we operate in the EU experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the Company, but they could be material to the Company in the future depending on how the Paris Agreement's non-binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the coming years.
U.S. Efforts
In the U.S., the 1997 Kyoto Protocol was not ratified and Congress has not passed GHG legislation. The EPA, however, enacted regulations to: (i) control GHGs from mobile sources by adopting transportation fuel efficiency standards; (ii) control GHG emissions from new Electric Generating Units (EGUs); (iii) require reporting of GHGs from sources of GHGs greater than 25,000 tons per year; (iv) in 2015, require states to develop plans to reduce GHGs from utility EGUs and (v) in 2016 EPA took the first steps in the process of developing emissions standards for existing sources in the oil and gas sector. The 2017 change in leadership of the U.S. executive branch may result in significant revisions to or rescission of the EPA's GHG regulations. It is unclear what impacts, if any, the EPA's GHG regulatory revisions and any other future revisions will have on the Company’s operations.

In 2015, EPA promulgated the Clean Power Plan (CPP) rule to address climate change by reducing carbon dioxide (CO2) and other designated greenhouse gas pollutant emissions from utility EGUs. In response, states were to develop and begin implementing programs to reduce GHGs from EGUs by about 32 percent by the 2022 to 2033 timeframe as compared to 2005 baseline levels. In October 2017, the EPA issued a regulatory action to withdraw the CPP in its entirety. Notwithstanding the withdrawal of the CPP, some states have remained committed to reaching the reduction targets set out in the CPP. These GHG reduction plans,
 
if implemented, could pose potential cost increases for electricity purchased by the Company. The magnitude of cost increases to the Company, if any, are not possible to estimate reliably at this time.
State, Regional and Local Measures

A few U.S. states have enacted or are considering legal measures to require the reduction of emissions of GHGs by companies and public utilities, primarily through the development of GHG emission inventories or regional GHG cap-and-trade programs. California has already enacted such a program and similar actions are being considered by Oregon. The Company does not have any sites currently subject to California's GHG regulatory plan and since the Oregon program is still being developed, it is too early to know how or if Company owned sites in Oregon may be affected. There may be indirect impacts from changing input costs (such as electricity) at some of our California converting operations but these have yet to manifest themselves in material impacts. Although we are monitoring proposed programs in other states, it is unclear what impacts, if any, state-level GHG rules will have on the Company’s operations. Further state measures are under substantive review as they respond to the withdrawal of the EPA’s CPP.

Summary

Regulation of GHGs continues to evolve in various countries in which we do business. While it is likely that there will be increased governmental action regarding GHGs and climate change, any material impact to the Company is not likely to occur before 2020 and at this time it is not reasonably possible to estimate Company costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct impacts, future legislation and regulation could have indirect impacts on International Paper, such as higher prices for transportation, energy and other inputs, as well as more protracted air permitting processes, causing delays and higher costs to implement capital projects. International Paper has controls and procedures in place to stay informed about developments concerning possible climate change legislation and regulation in the U.S. and in other countries where we operate. We regularly assess whether such legislation or regulation may have a material effect on the Company, its operations or financial condition, and whether we have any related disclosure obligations.

International Paper plays a significant role in responding to the climate change challenge. Our entire business depends upon the sustainability of forests. We transform renewable resources into recyclable products that people depend on every day. This cycle begins with

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sourcing renewable fiber from responsibly managed forests, and at the end of use our products are recycled into new products at a higher rate than any other base material. We will continue to lead the world in responsible forest stewardship to ensure healthy and productive forest ecosystems for generations to come. Our efforts to advance sustainable forest management and restore forest landscapes are an important lever for mitigating climate change through carbon storage in forests. Furthermore, we use biomass and manufacturing residuals (rather than fossil fuels) to generate a substantial majority of the manufacturing energy at our mills.

Additional information regarding climate change and International Paper is available in our 2016 Global Citizenship report found on our Internet Web site at www.internationalpaper.com, though this information is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

As of December 31, 2017, we have approximately 56,000 employees, nearly 36,000 of whom are located in the United States. Of the U.S. employees, approximately 25,000 are hourly, with unions representing approximately 15,000 employees. Approximately 12,000 of this number are represented by the United Steelworkers union (USW).
International Paper, the USW, and several other unions have entered into two master agreements covering various mills and converting facilities. These master agreements cover several specific items, including wages, select benefit programs, successorship, employment security, and health and safety. Individual facilities continue to have local agreements for other subjects not covered by the master agreements. If local facility agreements are not successfully negotiated at the time of expiration, under the terms of the master agreements the local contracts will automatically renew with the same terms in effect. The master agreements cover the majority of our union represented mills and converting facilities. In addition, International Paper is party to a master agreement with District Council 2, International Brotherhood of Teamsters, covering additional converting facilities.


Mark S. Sutton, 56, chairman (since January 1, 2015) & chief executive officer (since November 1, 2014). Mr. Sutton previously served as president & chief operating officer from June 1, 2014 to October 31, 2014, senior vice president - industrial packaging from November 2011 to May 31, 2014, senior vice president - printing and communications papers of the Americas
 
from 2010 until 2011, senior vice president - supply chain from 2008 to 2009, vice president - supply chain from 2007 until 2008, and vice president - strategic planning from 2005 until 2007. Mr. Sutton joined International Paper in 1984. Mr. Sutton serves on the board of directors of The Kroger Company. He is a member of The Business Council and the Business Roundtable and serves on the American Forest & Paper Association board of directors and the international advisory board of the Moscow School of Management - Skolkovo. He was appointed chairman of the U.S. Russian Business Council and was also appointed to the U.S. Section of the U.S.-Brazil CEO Forum. He also serves on the board of directors of Memphis Tomorrow and board of governors for New Memphis Institute. Mr. Sutton has been a director since June 1, 2014.

W. Michael Amick, Jr., 54, senior vice president - paper the Americas & India since January 1, 2017. Mr. Amick previously served as senior vice president - North American papers & consumer packaging from July 2016 until December 2016, senior vice president - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president - president, IP India, from August 2012 to October 2014, and vice president and general manager for the coated paperboard business from 2010 to 2012. Mr. Amick joined International Paper in 1990.

C. Cato Ealy, 61, senior vice president - corporate development since 2003. Mr. Ealy is a director of Ilim Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ealy joined International Paper in 1992.

Tommy S. Joseph, 58, senior vice president - manufacturing, technology, EH&S and global sourcing since January 2010. Mr. Joseph previously served as senior vice president - manufacturing, technology, EH&S from February 2009 until December 2009, and vice president - technology from 2005 until February 2009. Mr. Joseph is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Joseph joined International Paper in 1983.

Glenn R. Landau, 49, senior vice president & chief financial officer since February 22, 2017. Mr. Landau previously served as senior vice president - finance from January 1, 2017 to February 22, 2017, senior vice president - president, IP Latin America from November 2014 through December 2016, vice president - president IP Latin America from 2013 to October 2014, vice president - investor relations from 2011 to 2013, and vice president and general manager, containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory

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Mutual Insurance Company (FM Global). Mr. Landau joined International Paper in 1991.

Timothy S. Nicholls, 56, senior vice president - industrial packaging the Americas since January 1, 2017. Mr. Nicholls previously served as senior vice president - industrial packaging from November 2014 through December 2016, senior vice president - printing and communications papers of the Americas from November 2011 through October 2014, senior vice president and chief financial officer from 2007 until 2011, vice president and executive project leader of IP Europe during 2007, and vice president and chief financial officer - IP Europe from 2005 until 2007. Mr. Nicholls joined International Paper in 1991.

Thomas J. Plath, 54, senior vice president - human resources and global citizenship since March 1, 2017. Mr. Plath previously served as vice president - human resources, global businesses from November 2014 through February 2017, and vice president - HR manufacturing, technology, EH&S and global supply chain from April 2013 to November 2014. Mr. Plath joined International Paper in 1991.

Jean-Michel Ribieras, 55, senior vice president - global cellulose fibers since July 2016. Mr. Ribieras previously served as senior vice president - president, IP Europe, Middle East, Africa & Russia from 2013 until June 2016, and president - IP Latin America from 2009 until 2013. Mr. Ribieras joined International Paper in 1993.

Sharon R. Ryan, 58, senior vice president, general counsel & corporate secretary since November 2011. Ms. Ryan previously served as vice president, acting general counsel & corporate secretary from May 2011 until November 2011, vice president from March 2011 until May 2011, associate general counsel, chief ethics and compliance officer from 2009 until 2011, and associate general counsel from 2006 until 2009. Ms. Ryan joined International Paper in 1988.

John V. Sims, 55, senior vice president - president, IP Europe, Middle East, Africa & Russia since July 2016. Mr. Sims previously served as vice president and general manager, European papers from March 2016 until June 2016, vice president & general manager, North American papers from 2013 until February 2016, and vice president, finance and strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Sims joined International Paper in 1994.

Catherine I. Slater, 54, senior vice president since January 2018. Ms. Slater previously served as senior vice president - consumer packaging from December
 
2016 to December 2017. Ms. Slater joined International Paper from Weyerhaeuser Company in December 2016, effective with the completion of the acquisition of Weyerhaeuser’s cellulose fibers business, which she previously led. Ms. Slater’s 24-year career with Weyerhaeuser included leadership roles in manufacturing, printing papers, consumer products, wood products and the cellulose fibers business.

Gregory T. Wanta, 52, senior vice president - North American container since November 2016. Mr. Wanta has served in a variety of roles of increasing responsibility in manufacturing and commercial leadership roles in specialty papers, coated paperboard, printing papers, foodservice and industrial packaging, including vice president, central region, Container the Americas, from January 2012 through October 2016. Mr. Wanta joined International Paper in 1991.

Raw materials essential to our businesses include wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain chemicals, including caustic soda and starch. Information concerning fiber supply purchase agreements that were entered into in connection with the Company’s 2006 Transformation Plan, the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business, and the 2016 acquisition of Weyerhaeuser's pulp business is presented in on page 30.

Certain statements in this Annual Report on Form 10-K (including the exhibits hereto) 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 the

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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 a joint venture; and (vii) our ability to achieve the benefits we expect from all acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail below in “Item 1A. Risk Factors.” We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to the risks and uncertainties discussed elsewhere in this Annual Report on Form 10-K (particularly in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), or in the Company’s other filings with the Securities and Exchange Commission, the following are some important factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statement.
RISKS RELATING TO INDUSTRY CONDITIONS
CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR PROFITABILITY. We rely heavily on the use of certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda and starch), energy sources (principally natural gas, coal and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies based upon availability and source. In addition, the increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may cause an occasional tightening in the supply of recycled fiber. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may continue to fluctuate in the future. Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials, energy sources and transportation sources.
THE INDUSTRIES IN WHICH WE OPERATE EXPERIENCE BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES. FLUCTUATIONS IN THE PRICES OF, AND THE DEMAND FOR, OUR PRODUCTS COULD MATERIALLY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
 
CASH FLOWS. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions. The length and magnitude of these cycles have varied over time and by product. In addition, changes in consumer preferences may increase or decrease the demand for our products. These consumer preferences affect the prices of our products. Consequently, our financial results are sensitive to changes in the pricing and demand for our products.
COMPETITION IN THE UNITED STATES AND INTERNATIONALLY COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate in a competitive environment, both in the United States and internationally, in all of our operating segments. Product innovations, manufacturing and operating efficiencies, and marketing, distribution and pricing strategies pursued or achieved by competitors could negatively impact our financial results.
RISKS RELATING TO MARKET AND ECONOMIC FACTORS
ADVERSE DEVELOPMENTS IN GENERAL BUSINESS AND ECONOMIC CONDITIONS COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General economic conditions may adversely affect industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels and consumer confidence, all of which impact demand for our products. In addition, volatility in the capital and credit markets, which impacts interest rates, currency exchange rates and the availability of credit, could have a material adverse effect on our business, financial condition and our results of operations.
THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, 2017, International Paper had approximately $11.2 billion of outstanding indebtedness. The level of our indebtedness could have important consequences to our financial condition, operating results and business, including the following:
it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, dividends, share repurchases, debt service requirements, acquisitions and general corporate or other purposes;
a portion of our cash flows from operations will be dedicated to payments on indebtedness and will not be available for other purposes, including

7


operations, capital expenditures and future business opportunities;
the debt service requirements of our indebtedness could make it more difficult for us to satisfy other obligations;
our indebtedness that is subject to variable rates of interest exposes us to increased debt service obligations in the event of increased interest rates;
it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and
it may increase our vulnerability to a downturn in general economic conditions or in our business, and may make us unable to carry out capital spending that is important to our growth.
In addition, we are subject to agreements that require meeting and maintaining certain financial ratios and covenants. A significant or prolonged downturn in general business and economic conditions may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives.
CHANGES IN CREDIT RATINGS ISSUED BY NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULD ADVERSELY AFFECT OUR COST OF FINANCING AND HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR SECURITIES. Maintaining an investment-grade credit rating is an important element of our financial strategy, and a downgrade of the Company’s ratings below investment grade may limit our access to the capital markets, have an adverse effect on the market price of our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability position. The Company’s desire to maintain its investment grade rating may cause the Company to take certain actions designed to improve its cash flow, including sale of assets, suspension or reduction of our dividend and reductions in capital expenditures and working capital.
Under the terms of the agreements governing approximately $1.4 billion of our debt as of December 31, 2017, the applicable interest rate on such debt may increase upon each downgrade in our credit rating below investment grade. As a result, a downgrade in our credit rating below investment grade may lead to an increase in our interest expense. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment,
 
circumstances so warrant. Any such downgrade of our credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur.
DOWNGRADES IN THE CREDIT RATINGS OF BANKS ISSUING CERTAIN LETTERS OF CREDIT WILL INCREASE OUR COST OF MAINTAINING CERTAIN INDEBTEDNESS AND MAY RESULT IN THE ACCELERATION OF DEFERRED TAXES. We are subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes delivered to Temple-Inland in connection with Temple-Inland's 2007 sales of forestlands may be downgraded below a required rating. Since 2007, certain banks have fallen below the required ratings threshold and were successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing uncertainty in the banking environment, a number of the letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified replacement banks remains limited. The downgrade of one or more of these banks may subject the Company to additional costs of securing a replacement letter-of-credit bank or could result in an acceleration of payments of up to $538 million in deferred income taxes if replacement banks cannot be obtained. The deferred taxes are currently recorded in the Company's consolidated financial statements. See Note 12, Variable Interest Entities, on pages 63 through 64, and Note 10, Income Taxes, on pages 57 through 60, in Item 8. Financial Statements and Supplementary Data for further information.
OUR PENSION AND HEALTH CARE COSTS ARE SUBJECT TO NUMEROUS FACTORS WHICH COULD CAUSE THESE COSTS TO CHANGE. We have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to July 1, 2004 and substantially all hourly and union employees regardless of hire date. We provide retiree health care benefits to certain former U.S. hourly employees, as well as financial assistance towards the cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and changes in the number of retirees may result in increased pension costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected rates of return on plan assets could increase pension costs.  
OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE

8


REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record a liability associated with our pension plans equal to the excess of the benefit obligation over the fair value of plan assets. The benefit liability recorded under the provisions of Accounting Standards Codification (ASC) 715, “Compensation – Retirement Benefits,” at December 31, 2017 was $2.0 billion. The amount and timing of future contributions will depend upon a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.
CHANGES IN INTERNATIONAL CONDITIONS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected by risks related to the countries outside the United States in which we have manufacturing facilities or sell our products. Specifically, Russia, Brazil, Poland, India, and Turkey, where we have substantial manufacturing facilities, are countries that are exposed to economic and political instability in their respective regions of the world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalization or any change in social, political or labor conditions in any of these countries or regions could negatively affect our financial results. Trade protection measures in favor of local producers of competing products, including governmental subsidies, tax benefits and other measures giving local producers a competitive advantage over International Paper, may also adversely impact our operating results and business prospects in these countries. Likewise, disruption in existing trade agreements (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) could have a negative effect on our business and results of operations by restricting the free flow of goods and services across borders. In addition, our international operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including the imposition of civil or criminal sanctions and the prosecution of executives overseeing our international operations.
 
RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS

WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, REGULATIONS AND OTHER GOVERNMENT REQUIREMENTS THAT MAY CHANGE IN SIGNIFICANT WAYS, AND THE COST OF COMPLIANCE WITH SUCH REQUIREMENTS COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operations are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and other government requirements -- including, among others, those relating to the environment, health and safety, labor and employment, data privacy, tax and health care. There can be no assurance that laws, regulations and government requirements will not be changed, applied or interpreted in ways that will require us to modify our operations and objectives or affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs.

For example, we have incurred, and expect that we will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations. There can be no assurance that future remediation requirements and compliance with existing and new laws and requirements, including with global climate change laws and regulations, will not require significant expenditures, or that existing reserves for specific matters will be adequate to cover future costs. We could also incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), natural resource damages claims, cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.

As another example, we are subject to a number of labor and employment laws and regulations that could significantly increase our operating costs and reduce our operational flexibility. Additionally, changing privacy laws in the United States, Europe and elsewhere, including the adoption of the European Union of the General Data Protection Regulation (GDPR), which will become effective May 2018, creates new individual privacy rights and imposes increased obligations on companies handling personal data. Compliance with the stringent rules under GDPR will require an extensive review of our global data processing systems, which is ongoing. A failure to comply with GDPR could result in fines up to 20 million Euros or 4% of annual global revenues, whichever is higher.

9


As a final example, in December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code. For a discussion of the immediate and potential impacts to the Company of the Tax Act and the uncertainties around the Company's current estimates of such impacts, see Note 10, Income Taxes.

RESULTS OF LEGAL PROCEEDINGS COULD HAVE A MATERIAL EFFECT ON OUR CONSOLIDATED FINANCIAL STATEMENTS. The costs and other effects of pending litigation against us cannot be determined with certainty. Although we do not believe that the outcome of any pending or threatened lawsuits or claims will have a material effect on our business or consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will be as expected.
RISKS RELATING TO OUR OPERATIONS
MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate our facilities in compliance with applicable rules and regulations and take measures to minimize the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
fires, floods, earthquakes, hurricanes or other catastrophes;
the effect of a drought or reduced rainfall on its water supply;
the effect of other severe weather conditions on equipment and facilities;
terrorism or threats of terrorism;
domestic and international laws and regulations applicable to our Company and our business partners, including joint venture partners, around the world;
unscheduled maintenance outages;
prolonged power failures;
an equipment failure;
a chemical spill or release;

 
explosion of a boiler or other equipment;
damage or disruptions caused by third parties operating on or adjacent to one of our manufacturing facilities;
disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
labor difficulties; and
other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned expenditures. If one of these machines or facilities were to incur significant downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on our business and financial results.
WE ARE SUBJECT TO INFORMATION TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, EMPLOYEE AND VENDOR INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business operations rely upon secure information technology systems for data capture, processing, storage and reporting. Despite careful security and controls design, implementation, updating and independent third party verification, our information technology systems, and those of our third party providers, could become subject to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, application and data breaches could result in operational disruptions or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with International Paper. Access to internal applications required to plan our operations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of intellectual property or trade secrets, and inappropriate disclosure of confidential company, employee, customer or vendor information, could stem from such incidents. Any of these operational disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity and could have a material effect on our business.


10


CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operations in Russia are carried on by a joint venture, Ilim. In joint ventures, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information and making decisions. In joint ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co-owners, so we receive only our portion of those benefits.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM ACQUISITIONS, JOINT VENTURES, DIVESTITURES AND OTHER CORPORATE TRANSACTIONS. Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to accomplish prudent acquisitions, joint ventures, divestitures and other corporate transactions and to realize the benefits we expect from such transactions, and we are subject to the risk that we may not achieve the expected benefits. Among the benefits we expect from potential as well as completed acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher strategic value on such businesses and assets than does International Paper.
On January 1, 2018, for example, we completed a transaction transferring our North American Consumer Packaging business to Graphic Packaging in exchange for, among other things, an equity interest in the combined business of 20.5%, as of immediately following the closing, and the assumption by the combined business of $660 million of indebtedness that we incurred prior to closing of the transaction. The success of the transaction will depend, in part, on the financial performance of the combined business and on the ability of the combined business to realize anticipated growth opportunities, cost savings and other synergies. The success of the combined business in realizing these growth opportunities, cost savings and other synergies, and the timing of this realization, will depend on the successful integration of our North American Consumer Packaging business with Graphic Packaging's business.

 

None.

As of December 31, 2017, the Company owned or managed approximately 329,000 acres of forestlands in Brazil, and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. All owned lands in Brazil are independently third-party certified for sustainable forestry under the Brazilian National Forest Certification Program (CERFLOR) and the Forest Stewardship Council (FSC).
A listing of our production facilities by segment, the vast majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference.
The Company’s facilities are in good operating condition and are suited for the purposes for which they are presently being used. We continue to study the economics of modernization or adopting other alternatives for higher cost facilities.
Given the size, scope and complexity of our business interests, we continually examine and evaluate a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. You can find a discussion about the level of planned capital investments for 2018 on page 28, and dispositions and restructuring activities as of December 31, 2017, on pages 21 and 22 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and on pages 51 and pages 53 through 55 of Item 8. Financial Statements and Supplementary Data.
Information concerning the Company’s legal proceedings is set forth in Note 11 Commitments and Contingencies on pages 60 through 63 of Item  8. Financial Statements and Supplementary Data.
Not applicable.

11


ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Dividend per share data on the Company’s common stock and the high and low sales prices for the Company’s common stock for each of the four quarters in 2017 and 2016 are set forth on page 81 of Item 8. Financial Statements and Supplementary Data. As of
 
the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Stock Exchange. As of February 16, 2018, there were approximately 11,766 record holders of common stock of the Company.
The table below presents information regarding the Company’s purchase of its equity securities for the time periods presented.



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 (or Units) Purchased as Part of Publicly Announced Programs
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
October 1, 2017 - October 31, 2017
78

$
56.82


$
0.933

November 1, 2017 - November 30, 2017



0.933

December 1, 2017 - December 31, 2017
5,257

56.96


0.933

Total
5,335

 
 
 

(a)
5,335 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs. During these periods, no shares were purchased under our share repurchase program, which was approved by our Board of Directors and announced on July 8, 2014. Through this program, which does not have an expiration date, we were authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion shares of our common stock.  As of February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program.























 























12


PERFORMANCE GRAPH
The performance graph shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as amended.

 
The following graph compares a $100 investment in Company stock on December 31, 2012 with a $100 investment in our Return on Invested Capital (ROIC) Peer Group and the S&P 500 also made at market close on December 31, 2012. The graph portrays total return, 2012–2017, assuming reinvestment of dividends.
performancea01.jpg

Note 1: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, and UPM-Kymmene Corp. MeadWestvaco Corp. and Rock-Tenn Company are included in the ROIC Peer Group results through 2014 and subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015.
Note 2: Returns are calculated in $USD.

13


FIVE-YEAR FINANCIAL SUMMARY (a)
Dollar amounts in millions, except per share amounts and stock prices
2017
 
2016
 
2015
 
2014
 
2013
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
 
Net sales
$
21,743

  
$
19,495

  
$
20,675

  
$
21,889

  
$
21,244

  
Costs and expenses, excluding interest
20,323

  
18,180

  
18,988

  
20,548

  
19,540

  
Earnings (loss) from continuing operations before income taxes and equity earnings
848

(b)  
795

(e) 
1,132

(h)  
734

(k) 
1,092

(n)  
Equity earnings (loss), net of taxes
177

  
198

  
117

 
(200
)
  
(39
)
  
Discontinued operations, net of taxes
34

(c)  
102

(f) 
85

(i) 
77

(l) 
(215
)
(o) 
Net earnings (loss)
2,144

(b-d)  
902

(e-g)  
917

(h-j) 
536

(k-m)  
1,378

(n-p)  
Noncontrolling interests, net of taxes

  
(2
)
  
(21
)
  
(19
)
  
(17
)
  
Net earnings (loss) attributable to International Paper Company
2,144

(b-d)  
904

(e-g) 
938

(h-j) 
555

(k-m)  
1,395

(n-p)  
FINANCIAL POSITION
 
 
 
 
 
 
 
 
 
 
Current assets less current liabilities
$
3,175

  
$
2,601

  
$
2,244

  
$
2,719

  
$
3,597

  
Plants, properties and equipment, net
13,265

  
13,003

  
11,000

  
11,794

  
12,745

  
Forestlands
448

  
456

  
366

  
507

  
557

  
Total assets
33,903

  
33,093

  
30,271

  
28,369

  
31,242

  
Notes payable and current maturities of long-term debt
311

  
239

  
426

  
742

  
661

  
Long-term debt
10,846

  
11,075

  
8,844

  
8,584

  
8,787

  
Total shareholders’ equity
6,522

  
4,341

  
3,884

  
5,115

  
8,105

  
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
$
5.11

  
$
1.95

  
$
2.05

  
$
1.12

 
$
3.63

  
Discontinued operations
0.08

  
0.25

  
0.20

  
0.18

 
(0.48
)
 
Net earnings (loss)
5.19

  
2.20

  
2.25

  
1.30

 
3.15

 
DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
$
5.05

  
$
1.93

  
$
2.03

  
$
1.10

 
$
3.59

  
Discontinued operations
0.08

  
0.25

  
0.20

  
0.19

 
(0.48
)
 
Net earnings (loss)
5.13

  
2.18

  
2.23

  
1.29

 
3.11

  
Cash dividends
1.863

  
1.783

  
1.640

  
1.450

  
1.250

  
Total shareholders’ equity
15.79

  
10.56

  
9.43

  
12.18

  
18.57

  
COMMON STOCK PRICES
 
 
 
 
 
 
 
 
 
 
High
$
58.96

  
$
54.68

  
$
57.90

  
$
55.73

  
$
50.33

  
Low
49.60

  
32.50

  
36.76

  
44.24

  
39.47

  
Year-end
57.94

  
53.06

  
37.70

  
53.58

  
49.03

  
FINANCIAL RATIOS
 
 
 
 
 
 
 
 
 
 
Current ratio
1.6

  
1.6

  
1.6

  
1.5

  
1.7

  
Total debt to capital ratio
0.63

  
0.72

  
0.70

  
0.65

  
0.54

  
Return on shareholders’ equity
43.9
%

22.1
%

20.0
%

7.7
%

20.2
%

CAPITAL EXPENDITURES
$
1,391

  
$
1,348

  
$
1,487

  

$1,366

  

$1,198

  
NUMBER OF EMPLOYEES
56,000

  
55,000

  
56,000

  
58,000

  
64,000

  









 










14


FINANCIAL GLOSSARY
Current ratio—
current assets divided by current liabilities.
Total debt to capital ratio—
long-term debt plus notes payable and current maturities of long-term debt divided by long-term debt, notes payable and current maturities of long-term debt and total shareholders’ equity.
Return on shareholders’ equity—
net earnings attributable to International Paper Company divided by average shareholders’ equity (computed monthly).
FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY
 
(a)
All periods presented have been restated to reflect the North American Consumer Packaging business, xpedx business, and the Temple-Inland Building Products business as discontinued operations (excluding cash flow related items) and prior period amounts have been adjusted to conform with current year presentation, if applicable.

2017:
(b) Includes the following charges (gains):
 
 
2017
In millions
 
Before Tax
 
After Tax
Gain on sale of investment in ArborGen
 
$
(14
)
 
$
(9
)
Costs associated with the pulp business acquired in 2016
 
33

 
20

Amortization of Weyerhaeuser inventory fair value step-up
 
14

 
8

Holmen bargain purchase gain
 
(6
)
 
(6
)
Abandoned property removal
 
20

 
13

Kleen Products settlement
 
354

 
219

Asia Foodservice sale
 
9

 
4

Brazil Packaging wood supply accelerated amortization
 
10

 
7

Debt extinguishment costs
 
83

 
51

Interest income on income tax refund claims
 
(5
)
 
(3
)
Other items
 
(2
)
 
(2
)
Total special items
 
$
496

 
$
302

Non-operating pension expense
 
484

 
298

Total
 
$
980

 
$
600


(c) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following charges (gains):
 
 
2017
In millions
 
Before Tax
 
After Tax
North American Consumer Packaging transaction costs
 
$
17

 
$
10

Non-operating pension expense
 
45

 
28

Total
 
$
62

 
$
38






 

(d) Includes the following tax expenses (benefits):
In millions
 
2017
International legal entity restructuring
 
$
34

Income tax refund claims
 
(113
)
Cash pension contribution
 
38

International Tax Law Change
 
9

Tax benefit of Tax Cuts and Jobs Act
 
(1,222
)
Tax impact of other special items
 
$
(1,254
)

2016:
(e) Includes the following charges (gains):
 
 
2016
In millions
 
Before Tax
 
After Tax
Riegelwood mill conversion costs
 
$
9

 
$
6

India Packaging evaluation write-off
 
17

 
11

Write-off of certain regulatory pre-engineering costs
 
8

 
5

Early debt extinguishment costs
 
29

 
18

Costs associated with the newly acquired pulp business
 
31

 
21

Asia Box impairment / restructuring
 
70

 
58

Gain on sale of investment in Arizona Chemical
 
(8
)
 
(5
)
Turkey mill closure
 
7

 
6

Amortization of Weyerhaeuser inventory fair value step-up
 
19

 
11

Total special items
 
$
182

 
$
131

Non-operating pension expense
 
610

 
375

Total
 
$
792

 
$
506


(f) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following charges (gains):
 
 
2016
In millions
 
Before Tax
 
After Tax
xpedx legal settlement
 
$
8

 
$
5

Total
 
$
8

 
$
5


(g) Includes the following tax expenses (benefits):
In millions
 
2016
Cash pension contribution
 
$
23

U.S. Federal audit
 
(14
)
Brazil goodwill
 
(57
)
International legal entity restructuring
 
(6
)
Luxembourg tax rate change
 
31

Tax impact of other special items
 
$
(23
)











15


2015:
(h) Includes the following charges (gains):
 
 
2015
In millions
 
Before Tax
 
After Tax
Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated Bristols brand
 
$
8

 
$
4

Timber monetization restructuring
 
16

 
10

Early debt extinguishment costs
 
207

 
133

IP-Sun JV impairment
 
174

 
180

Legal reserve adjustment
 
15

 
9

Refund and state tax credits
 
(4
)
 
(2
)
Impairment of Orsa goodwill and trade name intangible
 
137

 
137

Other items
 
6

 
5

Total special items
 
$
559

 
$
476

Non-operating pension expense
 
258

 
157

Total
 
$
817

 
$
633


(i) Includes the operating earnings of the North American Consumer Packaging business for the full year .

(j) Includes the following tax expenses (benefits):
In millions
 
2015
IP-Sun JV impairment
 
$
(67
)
Cash pension contribution
 
23

Other items
 
7

Tax impact of other special items
 
$
(37
)

2014:
(k) Includes the following charges (gains):
 
 
2014
In millions
 
Before Tax
 
After Tax
Temple-Inland integration
 
$
16

 
$
10

Courtland mill shutdown
 
554

 
338

Early debt extinguishment costs
 
276

 
169

India legal contingency resolution
 
(20
)
 
(20
)
Multi-employer pension plan withdrawal liability
 
35

 
21

Foreign tax amnesty program
 
32

 
17

Asia Industrial Packaging goodwill impairment
 
100

 
100

Loss on sale by investee and impairment of investment
 
47

 
36

Other items
 
12

 
9

Total special items
 
$
1,052

 
$
680

Non-operating pension expense
 
212

 
129

Total
 
$
1,264

 
$
809








 
(l) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business prior to the spin-off and the following charges (gains):
 
 
2014
In millions
 
Before Tax
 
After Tax
xpedx spinoff
 
$
24

 
$
16

Building Products divestiture
 
16

 
9

xpedx restructuring
 
1

 
(1
)
Total
 
$
41

 
$
24


(m) Includes the following tax expenses (benefits):
In millions
 
2014
State legislative tax change
 
$
10

Internal restructuring
 
(90
)
Other items
 
(1
)
Tax impact of other special items
 
$
(81
)

2013:
(n) Includes the following charges (gains):
 
 
2013
In millions
 
Before Tax
 
After Tax
Temple-Inland integration
 
$
62

 
$
38

Courtland mill shutdown
 
118

 
72

Early debt extinguishment costs
 
25

 
16

Insurance reimbursement related to legal settlement
 
(30
)
 
(19
)
India Papers tradename and goodwill impairment
 
127

 
122

Fair value adjustment of company airplanes
 
9

 
5

Cass Lake environmental reserve
 
6

 
4

Bargain purchase adjustment - Turkey
 
(13
)
 
(13
)
Other items
 
(5
)
 
2

Total special items
 
$
299

 
$
227

Non-operating pension expense
 
323

 
197

Total
 
$
622

 
$
424


(o) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business for the full year, and the Temple-Inland Building Products business through the date of sale in July 2013. Also includes the following charges (gains):
 
 
2013
In millions
 
Before Tax
 
After Tax
xpedx spinoff
 
$
22

 
$
14

xpedx goodwill impairment
 
400

 
366

Building products divestiture
 
23

 
19

Shut down of paper machine at Augusta mill
 
45

 
28

xpedx restructuring
 
32

 
19

Total
 
$
522

 
$
446


(p) Includes the following tax expenses (benefits):
In millions
 
2013
Settlement of U.S. federal tax audits
 
$
(744
)
Income tax reserve release
 
(31
)
Other items
 
1

Tax impact of other special items
 
$
(774
)

16



International Paper delivered a year of strong performance in 2017, driven by excellent commercial execution across our businesses. Our Global Cellulose Fibers business is on track to achieve the estimated transaction synergies. We continued to grow value for our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth consecutive year. We made substantial progress in further strengthening our portfolio during 2017. We accelerated strategic investments for growth in the Industrial Packaging business, providing the Company with the flexibility we need around capacity, products and geography to support our customers. In addition, the Company made an important strategic move to transfer the North American Consumer Packaging business, which included the North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. This strategic move enables us to focus on growing value in our core businesses and establish a 20.5% ownership interest in the subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Finally, we generated strong free cash flow which enabled us to increase our annual dividend for the sixth consecutive year.
Our 2017 results reflect significant pricing and mix improvement, which accelerated throughout the year. The improvement in price and mix was primarily driven by price realization on price increases announced in prior quarters in our North American Industrial Packaging and Global Cellulose Fibers businesses. Operations were negatively impacted by hurricanes and the Pensacola event earlier in the year; however, 2017 was a lower maintenance outage year. Input costs were higher compared to 2016, driven by significantly higher recovered fiber costs, as well as, higher energy and transportation costs during the latter part of the year. Our Ilim joint venture delivered solid operational and financial results, driven by pricing and strong volume, and provided more than $130 million in cash dividends to International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associated with the impact of the December 2017 enactment of the Tax Cuts and Jobs Act.
Looking ahead to the 2018 first quarter, overall industry conditions are expected to remain strong, and we should continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect higher export price realization in our North American Industrial Packaging business and improved pricing in our Printing Papers segment, as price increases
 
implemented in 2017 are realized. We also expect 2018 first quarter sales volumes for North American Industrial Packaging and Brazil Papers to be down due to seasonally lower demand. Our North American mill operations have been affected by the severe cold weather experienced at the beginning of 2018 which is expected to impact operating costs. Costs will be higher in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due to a heavy outage quarter, as 70% of the Company outages are planned during the first half of 2018. Input costs are expected to increase across our businesses, driven by higher wood, energy and transportation costs. Additionally, we expect equity earnings for Ilim to be sequentially higher, driven by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes.
Looking to full year 2018, our focus will be on value creation in our growth businesses. We anticipate another year of strong growth, driven by a continued strong outlook in our core businesses and the full-year price flow through of the 2017 increases. We continue to see healthy demand and solid fundamentals across our portfolio. We expect higher maintenance outage expenses due to the calendar impact of mills on an eighteen-month cycle and extended outages at several of our mills, as we position them for longer maintenance cycle schedules in the future. We are planning for $1.5 billion in capital expenditures in 2018, including approximately $500 million that will be invested in strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the positive cash tax impact associated with tax reform. Our Ilim joint venture is well positioned for another strong year of performance, and we will start to see the benefits of our investment in Graphic Packaging. All in, we expect another year of strong cash generation enabling us to continue to allocate capital to grow value for our shareholders.
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. Diluted 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 items considered by management to be unusual, from the earnings reported under GAAP, non-operating pension expense (includes all U.S. pension costs, excluding service costs and prior service costs), and discontinued operations. 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

17


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 direct comparable GAAP measure, provides for a more complete analysis of the results of operations.
The following are reconciliations of Diluted earnings (loss) attributable to common shareholders to Adjusted operating earnings attributable to common shareholders. 
 
2017
2016
2015
Diluted Earnings (Loss) Attributable to Shareholders
$
2,144

$
904

$
938

Add back - Discontinued operations (gain) loss
(34
)
(102
)
(85
)
Diluted Earnings (Loss) from Continuing Operations
2,110

802

853

Add back - Non-operating pension (income) expense
484

610

258

Add back - Net special items expense (income)
496

182

559

Income tax effect - Non-operating pension and special items expense
(1,634
)
(309
)
(221
)
Adjusted Operating Earnings (Loss) Attributable to Shareholders
$
1,456

$
1,285

$
1,449


 
2017
2016
2015
Diluted Earnings (Loss) Per Share Attributable to Shareholders
$
5.13

$
2.18

$
2.23

Add back - Discontinued operations (gain) loss per share
(0.08
)
(0.25
)
(0.20
)
Diluted Earnings (Loss) Per Share from Continuing Operations
5.05

1.93

2.03

Add back - Non-operating pension (income) expense
1.16

1.47

0.61

Add back - Net special items expense (income)
1.19

0.44

1.33

Income tax effect - Non-operating pension and special items expense
(3.91
)
(0.75
)
(0.52
)
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders
$
3.49

$
3.09

$
3.45


 
 
 
Three Months Ended December 31, 2017
 
Three Months Ended September 30, 2017
 
Three Months Ended December 31, 2016
Diluted Earnings (Loss) Attributable to Shareholders
 
$
1,460

 
$
395

 
$
218

Add back - Discontinued operations (gain) loss
 
8

 
(29
)
 
(24
)
Diluted Earnings (Loss) from Continuing Operations
 
1,468

 
366

 
194

Add back - Non-operating pension (income) expense
 
386

 
33

 
37

Add back - Net special items expense (income)
 
106

 
23

 
45

Income tax effect - Non-operating pension and special items expense
 
(1,430
)
 
(2
)
 
3

Adjusted Operating Earnings (Loss) Attributable to Shareholders
 
$
530

 
$
420

 
$
279

 
 
Three Months Ended December 31, 2017
 
Three Months Ended September 30, 2017
 
Three Months Ended December 31, 2016
Diluted Earnings (Loss) Per Share Attributable to Shareholders
 
$
3.50

 
$
0.95

 
$
0.53

Add back - Discontinued operations (gain) loss per share
 
0.02

 
(0.07
)
 
(0.06
)
Diluted Earnings (Loss) Per Share from Continuing Operations
 
3.52

 
0.88

 
0.47

Add back - Non-operating pension (income) expense per share
 
0.92

 
0.08

 
0.09

Add back - Net special items expense (income) per share
 
0.25

 
0.05

 
0.11

Income tax effect per share - Non-operating pension and special items expense
 
(3.42
)
 

 

Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders
 
$
1.27

 
$
1.01

 
$
0.67

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, repay 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

18


investors to perform meaningful comparisons between past and present periods.
The Company generated Free Cash Flow of approximately $2.0 billion, $1.9 billion and $1.8 billion in 2017, 2016 and 2015, respectively. The following are reconciliations of free cash flow to cash provided by operations: 
In millions
2017
2016
2015
Cash provided by operations
$
1,757

$
2,478

$
2,580

Adjustments:
 
 
 
Cash invested in capital projects
(1,391
)
(1,348
)
(1,487
)
Cash contribution to pension plan
1,250

750

750

Cash payment for Kleen Settlement
354



Free Cash Flow
$
1,970

$
1,880

$
1,843

In millions
Three Months Ended December 31, 2017
Three Months Ended September 30, 2017
Three Months Ended December 31, 2016
Cash provided by operations
$
1,188

$
(709
)
$
912

Adjustments:
 
 
 
Cash invested in capital projects
(456
)
(271
)
(445
)
Cash contribution to pension plan

1,250


Cash payment for Kleen Settlement

354


Free Cash Flow
$
732

$
624

$
467

Results of Operations
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 corporate items and corporate special items. Business Segment Operating Profits are defined by the Securities and Exchange Commission as a non-GAAP financial measure, and are not GAAP alternatives to net income or any other operating measure prescribed by accounting principles generally accepted in the United States.
International Paper operates in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers. During 2017, as a result of the transfer of the North American Coated Paperboard business and the associated reclassification of this business to Discontinued Operations, the remaining sales and operating profits previously reported in the Consumer
 
Packaging segment have been reclassified for segment reporting for all periods presented. The European Coated Paperboard business is now included in the Industrial Packaging segment and sales and earnings historically included in the Consumer Packaging segment associated with previously divested businesses are now included in Corporate items.

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:
 
In millions
2017
2016
2015
Earnings (Loss) From Continuing Operations Attributable to International Paper Company
$
2,110

$
802

$
853

Add back (deduct)
 
 
 
Income tax provision (benefit)
(1,085
)
193

417

Equity (earnings) loss, net of taxes
(177
)
(198
)
(117
)
Noncontrolling interests, net of taxes

(2
)
(21
)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings
848

795

1,132

Interest expense, net
572

520

555

Noncontrolling interests/equity earnings included in operations
(2
)
1

8

Corporate items
91

121

96

Corporate special items (income) expense
76

55

422

Non-operating pension expense
484

610

258

 
$
2,069

$
2,102

$
2,471

Business Segment Operating Profit
 
 
 
Industrial Packaging
$
1,547

$
1,741

$
1,938

Global Cellulose Fibers
65

(179
)
68

Printing Papers
457

540

465

Business Segment Operating Profit
$
2,069

$
2,102

$
2,471

Business Segment Operating Profits in 2017 included a net loss from special items of $425 million compared with $127 million in 2016 and $137 million in 2015. Operationally, compared with 2016, the benefits from higher average sales price realizations and mix ($605 million), higher sales volumes ($33 million), lower maintenance outage costs ($55 million) and the incremental operating earnings from the pulp business acquired in late 2016 ($117 million) were offset by higher operating costs ($172 million), higher input costs ($362 million) and higher other costs ($11 million).
Corporate items includes operating profits (losses) of previously divested businesses of $0 million in 2017, ($2) million in 2016 and ($62) million in 2015.

19


segmentopprofita03.jpg
The principal changes in operating profit by business segment were as follows:
 
Industrial Packaging’s profits of $1.5 billion were $194 million lower than in 2016 as the benefits of higher average sales price realizations and mix and higher sales volumes were partially offset by higher operating costs, higher maintenance outage costs, higher input costs and higher other costs. In addition, operating profits in 2017 included a charge of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, charges of $14 million for the removal of abandoned property at our mills, a charge of $10 million for the accelerated amortization of an intangible asset in Brazil and a gain of $6 million for a net bargain purchase gain associated with the 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain. In 2016, operating profits included a charge of $70 million for impairment and other costs associated with the sale of our corrugated packaging business in Asia and a charge of $7 million related to the closure of a mill in Turkey.
Global Cellulose Fibers' operating profit of $65 million was $244 million favorable versus 2016 as the benefits of higher average sales price realizations and mix, lower operating costs, lower maintenance outage costs and lower input costs were partially offset by higher other costs. Operating profits in 2017 included $33 million of costs associated with the acquisition and integration of the pulp business acquired in late 2016 from Weyerhaeuser, a charge of $14 million for the amortization of the remaining inventory fair value adjustment associated with that acquisition and a charge of $4 million for the removal of abandoned property at our mills. Results for 2017 also reflect the transaction synergies associated with the Weyerhaeuser acquisition. In 2016, the operating loss included $31 million of costs associated with the acquisition of the pulp business and $19 million
 
for the amortization of the inventory fair value adjustment associated with that acquisition.

Printing Papers’ profits of $457 million represented a $83 million decrease in operating profits from 2016. The benefits from higher sales volumes, lower maintenance outage costs and lower other costs were more than offset by lower average sales price realizations and mix, higher operating costs and higher input costs. Operating profits in 2017 included charges of $2 million for the removal of abandoned property at our mills.

Liquidity and Capital Resources
For the year ended December 31, 2017, International Paper generated $1.8 billion of cash flow from operations compared with $2.5 billion in 2016 and $2.6 billion in 2015. Cash flow from operations included $1.25 billion, $750 million and $750 million of cash pension contributions in 2017, 2016 and 2015, respectively. Capital spending for 2017 totaled $1.4 billion, or 98% of depreciation and amortization expense. Our liquidity position remains strong, supported by approximately $2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt continues to be an important element in our overall financial strategy.
We expect strong cash generation again in 2018, including the benefits of U.S. tax reform, and will continue our balanced use of cash through the payment of dividends, reducing total debt and making investments for future growth.
Capital spending for 2018 is targeted at $1.5 billion, or about 111% of depreciation and amortization.
Legal
See Note 11 Commitments and Contingent Liabilities on pages 60 through 63 of Item 8. Financial Statements and Supplementary Data for a discussion of legal matters.
While the operating results for International Paper’s various business segments are driven by a number of business-specific factors, changes in International Paper’s operating results are closely tied to changes in general economic conditions in North America, Europe, Russia, Latin America, India, North Africa and the Middle East. Factors that impact the demand for our products include industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels, and movements in currency exchange rates.
Product prices are affected by general economic trends, inventory levels, currency exchange rate movements and

20


worldwide capacity utilization. In addition to these revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include changes in raw material costs, principally wood, recycled fiber and chemical costs; energy costs; freight costs; salary and benefits costs, including pensions; and manufacturing conversion costs.
The following is a discussion of International Paper’s results of operations for the year ended December 31, 2017, and the major factors affecting these results compared to 2016 and 2015.
For the year ended December 31, 2017, International Paper reported net sales of $21.7 billion, compared with $19.5 billion in 2016 and $20.7 billion in 2015. International net sales (including U.S. exports) totaled $8.4 billion or 39% of total sales in 2017. This compares with international net sales of $6.9 billion in 2016 and $7.6 billion in 2015.
Full year 2017 net earnings attributable to International Paper Company totaled $2.1 billion ($5.13 per diluted share), compared with net earnings of $904 million ($2.18 per diluted share) in 2016 and $938 million ($2.23 per diluted share) in 2015. Amounts in all periods include the results of discontinued operations.
Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 2016 and 2015 were as follows:
In millions
2017
 
2016
 
2015
 
Earnings from continuing operations attributable to International Paper Company
$
2,110

(a)
$
802

(b)
$
853

(c)

(a) Includes $952 million of net special items income which included a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cut and Jobs Act and $298 million of non-operating pension expense which included a pre-tax charge of $376 million ($232 million after taxes) for a settlement accounting charge associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees.
(b) Includes $108 million of net special items charges and $375 million of non-operating pension expense which included a pre-tax charge of $439 million ($270 million after taxes) for a settlement accounting charge associated with payments under a term-vested lump sum buyout.
(c) Includes $439 million of net special items charges and $157 million of non-operating pension expense.
Compared with 2016, the benefits from higher sales volumes, higher average sales price realizations and mix, lower maintenance outage costs, incremental earnings from the acquisition of Weyerhaeuser's pulp business, lower other costs, and lower tax expense were partially offset by higher operating costs, higher input costs and higher net interest expense. In addition, 2017 results
 
included lower equity earnings, net of taxes, relating to the Company’s investment in Ilim Holding, SA.
continuingopsgrapha55.jpg
See Business Segment Results on pages 24 through 27 for a discussion of the impact of these factors by segment.
Discontinued Operations
2017:

On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. International Paper received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. As a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American Consumer Packaging business as a discontinued operation. See Note 7 on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data for further discussion.

Included in discontinued operations were the operating earnings of the North American Consumer Packaging business, an after-tax charge of $10 million for costs associated with the transfer and an after-tax charge of $28 million for non-operating pension expenses related to curtailment charges and termination benefits in connection with this same transaction.
2016:

In 2016, discontinued operations included the operating earnings of the North American Consumer Packaging business and an after-tax charge of $5 million expense associated with a legal settlement related to the xpedx business.
2015:
In 2015, discontinued operations included the operating earnings of the North American Consumer Packaging business.


21


Income Taxes
A net income tax benefit of $1.1 billion was recorded for 2017, including a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million related to international investment restructuring and a tax expense of $38 million associated with a cash pension contribution. Excluding these items, a $194 million net tax benefit for other special items and a $186 million tax benefit related to non-operating pension expense, the tax provision was $549 million, or 30% of pre-tax earnings before equity earnings.
A net income tax provision of $193 million was recorded for 2016 including tax benefits of $63 million related to legal entity restructurings, a tax expense of $31 million associated with a tax rate change in Luxembourg, a tax expense of $23 million associated with a $750 million cash pension contribution, and a tax benefit of $14 million related to the closure of a federal tax audit. Excluding these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non-operating pension expense, the tax provision was $502 million, or 32% of pre-tax earnings before equity earnings.
A net income tax provision of $417 million was recorded for 2015 including a tax benefit of $62 million related to internal restructurings, a tax expense of $23 million for the tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items. Excluding these items, an $83 million net tax benefit for other special items and a $101 million tax benefit related to non-operating pension expense, the tax provision was $638 million, or 33% of pre-tax earnings before equity earnings.
Equity Earnings, Net of Taxes
Equity earnings, net of taxes in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia (see page 27).
Interest Expense and Noncontrolling Interest
Net corporate interest expense totaled $572 million in 2017, $520 million in 2016 and $555 million in 2015. Net interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The increase in 2017 compared with 2016 is due to higher average outstanding debt. The decrease in 2016 compared with 2015 reflects lower average interest rates.
There were no net earnings attributable to noncontrolling interests in 2017, compared with a loss of $2 million in 2016 and a loss of $21 million in 2015. The decrease from 2015 reflects the sale of our equity share of the IP-Sun JV in 2015.
 
Special Items
Restructuring and Other Charges
International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to determine if an impairment of the assets have occurred. In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset impairment charges and severance costs. It is possible that additional charges and costs will be incurred in future periods in our core businesses should such triggering events occur.
During 2017, 2016 and 2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 million were recorded. Details of these charges are as follows:
Restructuring and Other
 
 
 
 
 
 
In millions
2017
 
2016
 
2015
 
Business Segments
 
 
 
 
 
 
Turkey mill closure
$

 
$
7

(a)
$

 
 

 
7

 

 
Corporate
 
 
 
 
 
 
Early debt extinguishment costs (see Note 13)
$
83

 
$
29

 
$
207

 
Gain on sale of investment in ArborGen
(14
)
 

 

 
India Packaging business evaluation write-off

 
17

 

 
Gain on sale of investment in Arizona Chemical

 
(8
)
 

 
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand

 
9

 
8

 
Timber monetization restructuring

 

 
16

 
Legal liability reserve adjustment

 

 
15

 
Other Items
(2
)
 

 
6

 
 
67

 
47

 
252

 
Total
$
67

 
$
54

 
$
252

 

(a) Recorded in the Industrial Packaging business segment.




22


Other Corporate Special Items
In addition, other corporate special items totaling $0 million, $8 million and $(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges were as follows:
Other Corporate Items
 
 
 
In millions
2017
2016
2015
Write-off of certain regulatory pre-engineering costs
$

$
8

$

Other


(4
)
Total
$

$
8

$
(4
)
Impairments of Goodwill

No goodwill impairment charges were recorded in 2017 or 2016.

In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its Brazil Packaging business and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.
Net Losses on Sales and Impairments of Businesses
Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre-tax loss of $174 million in 2015. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion.

DESCRIPTION OF BUSINESS SEGMENTS

International Paper’s business segments discussed below 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.

Industrial Packaging

International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into corrugated boxes and other packaging by our 178 North American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and
 
white paper through our 18 recycling plants. In EMEA, our operations include one recycled fiber containerboard mill in Morocco and 27 container plants in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we are in the process of converting to a recycled containerboard mill. In Brazil our operations include three containerboard mills and four box plants. Our container plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives.

International Paper also produces high quality coated paperboard for a variety of packaging end uses with 431,000 tons of capacity at our mills in Poland and Russia.

Global Cellulose Fibers

Our cellulose fibers product portfolio includes fluff, market and specialty pulps. Our fluff pulp is used to make absorbent hygiene products like baby diapers, feminine care, adult incontinence and other non-woven products, and our market pulp is used for tissue and paper products. We continue to invest in exploring new innovative uses for our products, such as our specialty pulps, which are used for non-absorbent end uses including textiles, filtration, construction material, paints and coatings, reinforced plastics and more. Our products are made in the United States, Canada, France, Poland, and Russia and are sold around the world. International Paper facilities have annual dried pulp capacity of about 4 million metric tonnes.

Printing Papers

International Paper is one of the world’s largest producers of printing and writing papers. The primary product in this segment is uncoated papers. This business produces papers for use in copiers, desktop and laser printers and digital imaging. End use applications include advertising and promotional materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. Uncoated papers also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms and file folders. Uncoated papers are sold under private label and International Paper brand names that include Hammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet, Rey, Pol, and Svetocopy. The mills producing uncoated papers are located in the United States, France, Poland, Russia, Brazil and India. The mills have uncoated paper production capacity of over 4 million tons annually. Brazilian operations function through International Paper do Brasil, Ltda, which owns or manages approximately 329,000 acres of forestlands in Brazil.



23


Ilim Holding S.A.

In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.4 million metric tons. Ilim has exclusive harvesting rights on timberland and forest areas exceeding 16.4 million acres (6.6 million hectares).

Products and brand designations appearing in italics are trademarks of International Paper or a related company.

BUSINESS SEGMENT 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.
Industrial Packaging
Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, as well as with demand for processed foods, poultry, meat and agricultural products. In addition to prices and volumes, major factors affecting the profitability of Industrial Packaging are raw material and energy costs, freight costs, manufacturing efficiency and product mix.
Industrial Packaging
 
 
 
In millions
2017
2016
2015
Net Sales
$
15,077

$
14,226

$
14,559

Operating Profit (Loss)
$
1,547

$
1,741

$
1,938

Asia Packaging restructuring and impairment

70


Holmen mill bargain purchase gain
(6
)


Kleen Products anti-trust settlement
354



Brazil Packaging Wood Supply Accelerated Amortization
10



Turkey mill closure

7


Brazil Packaging goodwill and trade name impairment


137

Other
14



Operating Profit Before Special Items
$
1,919

$
1,818

$
2,075







 
Industrial Packaging net sales for 2017 increased 6% to $15.1 billion compared with $14.2 billion in 2016, and 4% compared with $14.6 billion in 2015. Operating profits in 2017 were 11% lower than in 2016 and 20% lower than in 2015. Comparing 2017 with 2016, benefits from higher average sales price realizations and mix ($593 million) and higher sales volumes ($75 million) were offset by higher operating costs ($245 million), higher maintenance outage costs ($1 million), higher input costs ($304 million) and higher other costs ($17 million).
North American Industrial Packaging
In millions
2017
2016
2015
Net Sales (a)
$
13,329

$
12,450

$
12,618

Operating Profit (Loss)
$
1,504

$
1,757

$
2,009

Kleen Products anti-trust settlement
354



Other
14



Operating Profit Before Special Items
$
1,872

$
1,757

$
2,009


(a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016.
North American Industrial Packaging's sales volumes increased in 2017 compared with 2016 reflecting higher box shipments and higher shipments of containerboard to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were maintenance downtime. The business took about 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were maintenance downtime. Average sales prices for boxes and average sales price realizations for containerboard in export markets were significantly higher. Input costs were significantly higher, primarily for recycled fiber, but also for energy, chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were $5 million higher in 2017 than in 2016.
Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes for boxes are expected to be seasonally lower despite two more shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales price realizations should reflect the continuing realization of containerboard export price increases. Input costs are expected to be higher for wood, energy and chemicals. Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather conditions in the 2018 first quarter.

24


EMEA Industrial Packaging
 
 
 
In millions
2017
2016
2015
Net Sales
$
1,334

$
1,227

$
1,114

Operating Profit (Loss)
$
6

$
15

$
13

Holmen mill net bargain purchase gain
(6
)


Turkey Mill Closure

7


Operating Profit Before Special Items
$

$
22

$
13

EMEA Industrial Packaging's sales volumes in 2017 were higher than in 2016 reflecting improved market demand, particularly in Morocco and Turkey while sales volumes in the Eurozone were negatively impacted by poor weather conditions. Average sales margins improved due to sales price increases and a more favorable mix that more than offset higher containerboard costs and the impact of unfavorable currency translation. Input costs for energy were higher and operating costs were negatively impacted by inflation.
Entering the first quarter of 2018, compared with the fourth quarter of 2017 sales volumes are expected to be slightly lower. Average sales margins are expected to be lower due to continuing higher containerboard prices. Operating costs will be higher due to the the conversion of the Madrid mill.
Brazilian Industrial Packaging
 
 
 
In millions
2017
2016
2015
Net Sales
$
251

$
232

$
228

Operating Profit (Loss)
$
(35
)
$
(43
)
$
(163
)
Brazil Packaging goodwill and trade name impairment
10


137

Operating Profit Before Special Items
$
(25
)
$
(43
)
$
(26
)
Brazilian Industrial Packaging's sales volumes in 2017 increased compared with 2016 for boxes and containerboard, reflecting improving economic conditions. Average sales price realizations were also higher. Input costs decreased, primarily for recycled fiber and wood. Operating costs were higher largely due to the effects of inflation. Planned maintenance downtime costs were $1 million lower in 2017 compared with 2016.
Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected to be higher for boxes, but lower for containerboard and sheets. Average sales margins should improve, reflecting a sales price increase for boxes. Input costs are expected to be flat, but operating costs will be higher due to other costs. Planned maintenance downtime costs are expected to be $1 million higher.
European Coated Paperboard
 
 
 
In millions
2017
2016
2015
Net Sales
$
335

$
327

$
319

Operating Profit (Loss)
$
72

$
93

$
87

 
European Coated Paperboard's sales volumes in 2017 compared with 2016 increased in Europe, but decreased in Russia. Average sales price realizations were lower in Russia while in Europe average sales margins increased reflecting higher average sales prices and a more favorable mix. Input costs for wood, energy and purchased pulp were higher. Planned maintenance downtime costs were $3 million lower in 2017.
Looking forward to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected to increase in Europe, but expected to be seasonally lower in Russia. Average sales price realizations are expected to be higher in both Europe and Russia. Input costs are expected to be lower. Planned maintenance outage costs are expected to be $5 million higher in the first quarter of 2018 due to a planned outage at the Kwidzyn mill.
Asian Industrial Packaging
 
 
 
In millions
2017
2016
2015
Net Sales
$

$
133

$
280

Operating Profit (Loss)
$

$
(81
)
$
(8
)
Asia Packaging restructuring and impairment

70


Operating Profit Before Special Items
$

$
(11
)
$
(8
)
On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data for further discussion of the sale of this business.
Global Cellulose Fibers
Demand for Cellulose Fibers products is closely correlated with changes in demand for absorbent hygiene products and is further affected by changes in currency rates that can benefit or hurt producers in different geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.
Global Cellulose Fibers
 
 
 
In millions
2017
2016
2015
Net Sales
$
2,551

$
1,092

$
975

Operating Profit (Loss)
$
65

$
(179
)
$
68

Acquisition costs
33

31


Inventory fair value step-up amortization
14

19


Other
4



Operating Profit Before Special Items
$
116

$
(129
)
$
68

Global Cellulose Fibers results include the net sales and operating profit associated with the pulp business acquired from Weyerhaeuser from the date of acquisition

25


on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for additional information about the acquisition.
Net sales for 2017 increased to $2.6 billion compared with $1.1 billion in 2016 and $975 million in 2015. Operating profits in 2017 were significantly higher than in 2016 and 4% lower than in 2015. Comparing 2017 with 2016 for the legacy business, benefits from higher average sales price realizations and mix ($61 million), lower planned maintenance downtime costs ($39 million), lower input costs ($5 million), lower operating costs ($1 million) and lower other costs ($6 million) were offset by lower sales volumes ($5 million). The incremental operating profits from the acquired business were $117 million in 2017.
For the legacy business, sales volumes were lower. Average sales margins increased, reflecting higher sales price realizations for both fluff pulp and softwood market pulp and a favorable product mix. Input costs were slightly lower. Planned maintenance downtime costs were $39 million lower in 2017 primarily due to the non-recurrence of the 2016 costs associated with the conversion of the Riegelwood mill to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europe and Russia, average sales margins increased significantly and planned maintenance downtime costs were $3 million lower than in 2016.
Entering the first quarter of 2018, sales volumes will be lower due to capacity constraints resulting from planned maintenance downtime. Average sales price realizations are expected to be stable and product mix should be favorable. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime costs should be $52 million higher than in the fourth quarter of 2017. In addition, a fourth-quarter favorable inventory valuation adjustment will not repeat.
Printing Papers
Demand for Printing Papers products is closely correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated cut-size products, with changes in white-collar employment levels that affect the usage of copy and laser printer paper. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.
 
Printing Papers
 
 
 
In millions
2017
2016
2015
Net Sales
$
4,157

$
4,058

$
4,056

Operating Profit (Loss)
$
457

$
540

$
465

Other
2



Operating Profit Before Special Items
$
459

$
540

$
465

Printing Papers net sales for 2017 of $4.2 billion increased 2% compared with $4.1 billion in both 2016 and 2015. Operating profits in 2017 were 15% lower than in 2016 and 2% lower than in 2015. Comparing 2017 with 2016, benefits from higher sales volumes ($25 million), lower planned maintenance downtime costs ($15 million) and lower other costs ($12 million) were more than offset by lower average sales price realizations and mix ($61 million), higher operating costs ($31 million) and higher input costs ($41 million).
North American Printing Papers
 
 
 
In millions
2017
2016
2015
Net Sales
$
1,833

$
1,890

$
1,942

Operating Profit (Loss)
$
132

$
236

$
179

Other
2



Operating Profit Before Special Items
$
134

$
236

$
179

North American Printing Papers' sales volumes for 2017 were higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. Operating costs were lower.
Entering the first quarter of 2018, sales volumes are expected to be seasonally higher. Average sales margins should be relatively flat. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs should be higher. Planned maintenance downtime costs will increase by about $22 million in the 2018 first quarter.
Brazilian Papers
 
 
 
In millions
2017
2016
2015
Net Sales (a)
$
972

$
897

$
878

Operating Profit (Loss)
$
194

$
173

$
186


(a) Includes intra-segment sales of $24 million for 2017 and $5 million for 2016.






26


Brazilian Papers' sales volumes for uncoated freesheet paper in 2017 were higher compared with 2016 reflecting improving economic conditions. Average sales price realizations increased primarily for domestic uncoated freesheet paper due to the realization of price increases implemented in 2016, while export sales price realizations also increased. Raw material costs decreased for pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were lower than in 2016. Planned maintenance downtime costs were $4 million lower.
Looking ahead to 2018, compared with the fourth quarter of 2017, sales volumes for uncoated freesheet paper in the first quarter are expected to be seasonally weaker in both domestic and export markets. Average sales price realizations should increase due to the implementation of sales price increases in both domestic and export markets. Input costs are expected to be slightly higher for wood, chemicals and energy. Planned maintenance downtime costs are expected to be $5 million higher in the first quarter of 2018.
European Papers
 
 
 
In millions
2017
2016
2015
Net Sales
$
1,187

$
1,109

$
1,064

Operating Profit (Loss)
$
136

$
142

$
111

European Papers' sales volumes for uncoated freesheet paper in 2017 were lower in Russia and about flat in Europe compared with 2016. Average sales price realizations improved for uncoated freesheet paper following price increases implemented in 2017. Input costs were higher for wood, energy, chemicals and purchased pulp. Planned maintenance downtime costs were $22 million lower in 2017 than in 2016.
Entering 2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be stable. Average sales price realizations are expected to be slightly lower in Russia, but higher in Europe. Input costs should be slightly lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 should be $8 million higher than in the fourth quarter of 2017.
Indian Papers
 
 
 
In millions
2017
2016
2015
Net Sales
$
189

$
167

$
172

Operating Profit (Loss)
$
(5
)
$
(11
)
$
(11
)
Indian Papers' average sales price realizations in 2017 were higher than in 2016. Sales volumes also increased. Input costs were lower for wood, partially offset by higher chemical costs. Operating costs were higher in 2017, while planned maintenance downtime costs were even with 2016. Looking ahead to the first quarter of 2018, sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to increase.
 
Equity Earnings, Net of Taxes – Ilim Holding S.A.
International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting.

The Company recorded equity earnings, net of taxes, related to Ilim of $183 million in 2017 compared with earnings of $199 million in 2016 and earnings of $131 million in 2015. Operating results recorded in 2017 included an after-tax noncash foreign exchange gain of $15 million compared with an after-tax foreign exchange gain of $25 million in 2016 and an after-tax foreign exchange loss of $75 million in 2015 primarily on the remeasurement of Ilim's U.S. dollar denominated net debt.

Sales volumes for the joint venture decreased year over year for shipments to China of softwood pulp and linerboard, but were partially offset by increased sales of hardwood pulp to China. Sales volumes in the Russian market decreased for softwood pulp and hardwood pulp, but increased for linerboard. Average sales price realizations were higher in 2017 for sales of softwood pulp, hardwood pulp and linerboard to China and other export markets. Average sales price realizations in Russian markets increased year over year for all products. Input costs also increased in 2017 for wood, energy and fuel. Distribution costs were higher in 2017. The Company received cash dividends from the joint venture of $133 million in 2017, $58 million in 2016, and $35 million in 2015.

Entering the first quarter of 2018, sales volumes are expected to be lower than in the fourth quarter of 2017 due to the seasonal slowdown in Russia and export markets. Average sales price realizations are expected to increase for hardwood pulp, softwood pulp and linerboard to China. Input costs are expected to be lower, while distribution costs are projected to increase.

Overview
A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our major products. While changes in key cash operating costs, such as energy, raw material and transportation costs, do have an effect on operating cash generation, we believe that our focus on pricing and cost controls has improved our cash flow generation over an operating cycle.
Cash uses during 2017 were primarily focused on working capital requirements, capital spending, debt reductions, pension contributions, and returning cash to shareholders.

27


Cash Provided by Operating Activities
Cash provided by operations, including discontinued operations, totaled $1.8 billion in 2017 compared with $2.5 billion for 2016 and $2.6 billion for 2015. Cash used by working capital components (accounts receivable and inventory less accounts payable and accrued liabilities, interest payable and other) totaled $402 million in 2017, compared with cash provided by working capital components of $71 million in 2016 and a cash use for working capital components of $222 million in 2015. The increase in 2017 working capital is largely due to growth in receivables primarily tied to year-over-year price increases.

Investment Activities
Including discontinued operations, investment activities in 2017 decreased from 2016 as 2016 included the purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging business of $108 million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data). The Company maintains an average capital spending target around depreciation and amortization levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 billion in 2017, or 98% of depreciation and amortization, compared with $1.3 billion in 2016, or 110% of depreciation and amortization, and $1.5 billion, or 115% of depreciation and amortization in 2015. Across our businesses, capital spending as a percentage of depreciation and amortization ranged from 37.5% to 107.0% in 2017.
The following table shows capital spending for operations by business segment for the years ended December 31, 2017, 2016 and 2015, excluding amounts related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015. 
In millions
2017
2016
2015
Industrial Packaging
$
836

$
832

$
871

Global Cellulose Fibers
188

174

129

Printing Papers
235

215

232

Subtotal
1,259

1,221

1,232

Corporate and other
21

20

78

Capital Spending
$
1,280