New York | 13-0872805 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation of organization) | Identification No.) |
6400 Poplar Avenue, Memphis, TN | 38197 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Emerging growth company | ¨ |
PAGE NO. | ||
Condensed Consolidated Statement of Operations - Three Months and Nine Months Ended September 30, 2018 and 2017 | ||
Condensed Consolidated Statement of Comprehensive Income - Three Months and Nine Months Ended September 30, 2018 and 2017 | ||
Condensed Consolidated Balance Sheet - September 30, 2018 and December 31, 2017 | ||
Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 2018 and 2017 | ||
ITEM 1. | FINANCIAL STATEMENTS |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net Sales | $ | 5,901 | $ | 5,517 | $ | 17,355 | $ | 16,032 | |||||||
Costs and Expenses | |||||||||||||||
Cost of products sold | 3,887 | 3,713 | 11,757 | 11,100 | |||||||||||
Selling and administrative expenses | 405 | 401 | 1,277 | 1,187 | |||||||||||
Depreciation, amortization and cost of timber harvested | 335 | 350 | 990 | 1,004 | |||||||||||
Distribution expenses | 397 | 354 | 1,166 | 1,061 | |||||||||||
Taxes other than payroll and income taxes | 44 | 41 | 130 | 124 | |||||||||||
Restructuring and other charges | — | — | 48 | (16 | ) | ||||||||||
Net (gains) losses on sales and impairments of businesses | 122 | — | 122 | 9 | |||||||||||
Litigation settlement | — | — | — | 354 | |||||||||||
Net bargain purchase gain on acquisition of business | — | — | — | (6 | ) | ||||||||||
Interest expense, net | 133 | 152 | 401 | 431 | |||||||||||
Non-operating pension expense | 25 | 49 | 65 | 133 | |||||||||||
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 553 | 457 | 1,399 | 651 | |||||||||||
Income tax provision (benefit) | 83 | 136 | 302 | 122 | |||||||||||
Equity earnings (loss), net of taxes | 92 | 45 | 257 | 113 | |||||||||||
Earnings (Loss) From Continuing Operations | 562 | 366 | 1,354 | 642 | |||||||||||
Discontinued operations, net of taxes | — | 29 | 345 | 42 | |||||||||||
Net Earnings (Loss) | 562 | 395 | 1,699 | 684 | |||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests | — | — | 3 | — | |||||||||||
Net Earnings (Loss) Attributable to International Paper Company | $ | 562 | $ | 395 | $ | 1,696 | $ | 684 | |||||||
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 1.38 | $ | 0.89 | $ | 3.28 | $ | 1.55 | |||||||
Discontinued operations, net of taxes | — | 0.07 | 0.84 | 0.10 | |||||||||||
Net earnings (loss) | $ | 1.38 | $ | 0.96 | $ | 4.12 | $ | 1.65 | |||||||
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 1.37 | $ | 0.88 | $ | 3.25 | $ | 1.54 | |||||||
Discontinued operations, net of taxes | — | 0.07 | 0.83 | $ | 0.10 | ||||||||||
Net earnings (loss) | $ | 1.37 | $ | 0.95 | $ | 4.08 | $ | 1.64 | |||||||
Average Shares of Common Stock Outstanding – assuming dilution | 411.4 | 417.4 | 416.3 | 417.4 | |||||||||||
Cash Dividends Per Common Share | $ | 0.4750 | $ | 0.4625 | $ | 1.4250 | $ | 1.3875 | |||||||
Amounts Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 562 | $ | 366 | $ | 1,351 | $ | 642 | |||||||
Discontinued operations, net of taxes | — | 29 | 345 | 42 | |||||||||||
Net earnings (loss) | $ | 562 | $ | 395 | $ | 1,696 | $ | 684 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net Earnings (Loss) | $ | 562 | $ | 395 | $ | 1,699 | $ | 684 | |||||||
Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||
Amortization of pension and post-retirement prior service costs and net loss: | |||||||||||||||
U.S. plans | 76 | 59 | 227 | 176 | |||||||||||
Pension and postretirement liability adjustments: | |||||||||||||||
Non-U.S. plans | — | — | — | 1 | |||||||||||
Change in cumulative foreign currency translation adjustment | (87 | ) | 100 | (467 | ) | 234 | |||||||||
Net gains/losses on cash flow hedging derivatives: | |||||||||||||||
Net gains (losses) arising during the period | 1 | 1 | (20 | ) | 9 | ||||||||||
Reclassification adjustment for (gains) losses included in net earnings (loss) | 2 | (2 | ) | 2 | (6 | ) | |||||||||
Total Other Comprehensive Income (Loss), Net of Tax | (8 | ) | 158 | (258 | ) | 414 | |||||||||
Comprehensive Income (Loss) | 554 | 553 | 1,441 | 1,098 | |||||||||||
Net (earnings) loss attributable to noncontrolling interests | — | — | (3 | ) | — | ||||||||||
Other comprehensive (income) loss attributable to noncontrolling interests | 2 | 1 | 4 | (1 | ) | ||||||||||
Comprehensive Income (Loss) Attributable to International Paper Company | $ | 556 | $ | 554 | $ | 1,442 | $ | 1,097 |
September 30, 2018 | December 31, 2017 | ||||||
(unaudited) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and temporary investments | $ | 1,026 | $ | 1,018 | |||
Accounts and notes receivable, net | 3,580 | 3,287 | |||||
Contract assets | 383 | — | |||||
Inventories | 2,130 | 2,313 | |||||
Assets held for sale | — | 1,377 | |||||
Other current assets | 199 | 282 | |||||
Total Current Assets | 7,318 | 8,277 | |||||
Plants, Properties and Equipment, net | 13,088 | 13,265 | |||||
Forestlands | 388 | 448 | |||||
Investments | 1,615 | 390 | |||||
Financial Assets of Special Purpose Entities (Note 15) | 7,065 | 7,051 | |||||
Goodwill | 3,371 | 3,411 | |||||
Deferred Charges and Other Assets | 958 | 1,061 | |||||
Total Assets | $ | 33,803 | $ | 33,903 | |||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Notes payable and current maturities of long-term debt | $ | 555 | $ | 311 | |||
Accounts payable | 2,510 | 2,458 | |||||
Accrued payroll and benefits | 484 | 485 | |||||
Liabilities held for sale | — | 805 | |||||
Other accrued liabilities | 1,054 | 1,043 | |||||
Total Current Liabilities | 4,603 | 5,102 | |||||
Long-Term Debt | 10,700 | 10,846 | |||||
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 15) | 6,296 | 6,291 | |||||
Deferred Income Taxes | 2,512 | 2,291 | |||||
Pension Benefit Obligation | 1,785 | 1,939 | |||||
Postretirement and Postemployment Benefit Obligation | 305 | 326 | |||||
Other Liabilities | 544 | 567 | |||||
Equity | |||||||
Common stock, $1 par value, 2018 – 448.9 shares and 2017 – 448.9 shares | 449 | 449 | |||||
Paid-in capital | 6,256 | 6,206 | |||||
Retained earnings | 7,353 | 6,180 | |||||
Accumulated other comprehensive loss | (4,887 | ) | (4,633 | ) | |||
9,171 | 8,202 | ||||||
Less: Common stock held in treasury, at cost, 2018 – 43.9 shares and 2017 – 36.0 shares | 2,131 | 1,680 | |||||
Total International Paper Shareholders’ Equity | 7,040 | 6,522 | |||||
Noncontrolling interests | 18 | 19 | |||||
Total Equity | 7,058 | 6,541 | |||||
Total Liabilities and Equity | $ | 33,803 | $ | 33,903 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Operating Activities | |||||||
Net earnings (loss) | $ | 1,699 | $ | 684 | |||
Depreciation, amortization and cost of timber harvested | 990 | 1,075 | |||||
Deferred income tax provision (benefit), net | 163 | 295 | |||||
Restructuring and other charges | 48 | (16 | ) | ||||
Pension plan contributions | — | (1,250 | ) | ||||
Net gain on transfer of North American Consumer Packaging business | (488 | ) | — | ||||
Net bargain purchase gain on acquisition of business | — | (6 | ) | ||||
Net (gains) losses on sales and impairments of businesses | 122 | 9 | |||||
Equity method dividends received | 130 | 129 | |||||
Equity (earnings) loss, net | (257 | ) | (113 | ) | |||
Periodic pension expense, net | 172 | 237 | |||||
Other, net | 75 | 92 | |||||
Changes in current assets and liabilities | |||||||
Accounts and notes receivable | (441 | ) | (293 | ) | |||
Contract assets | (20 | ) | — | ||||
Inventories | (120 | ) | (70 | ) | |||
Accounts payable and accrued liabilities | 301 | 5 | |||||
Interest payable | (33 | ) | (11 | ) | |||
Other | 64 | (198 | ) | ||||
Cash Provided By (Used For) Operations | 2,405 | 569 | |||||
Investment Activities | |||||||
Invested in capital projects | (1,286 | ) | (935 | ) | |||
Acquisitions, net of cash acquired | — | (45 | ) | ||||
Net settlement on transfer of North American Consumer Packaging business | (40 | ) | — | ||||
Proceeds from divestitures, net of cash divested | — | 4 | |||||
Proceeds from sale of fixed assets | 12 | 22 | |||||
Other | 4 | (54 | ) | ||||
Cash Provided By (Used For) Investment Activities | (1,310 | ) | (1,008 | ) | |||
Financing Activities | |||||||
Repurchases of common stock and payments of restricted stock tax withholding | (532 | ) | (46 | ) | |||
Issuance of debt | 349 | 1,366 | |||||
Reduction of debt | (242 | ) | (369 | ) | |||
Change in book overdrafts | (33 | ) | 5 | ||||
Dividends paid | (588 | ) | (573 | ) | |||
Debt tender premiums paid | — | (1 | ) | ||||
Other | — | (2 | ) | ||||
Cash Provided By (Used For) Financing Activities | (1,046 | ) | 380 | ||||
Effect of Exchange Rate Changes on Cash | (41 | ) | 24 | ||||
Change in Cash and Temporary Investments | 8 | (35 | ) | ||||
Cash and Temporary Investments | |||||||
Beginning of period | 1,018 | 1,033 | |||||
End of period | $ | 1,026 | $ | 998 |
Condensed Consolidated Statement of Operations | ||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||
In millions | Previously Reported | Impact of Adoption Increase/(Decrease) | As Revised | |||||||||
Cost of products sold | $ | 3,756 | $ | (43 | ) | $ | 3,713 | |||||
Selling and administrative expenses | 407 | (6 | ) | 401 | ||||||||
Non-operating pension expense | — | 49 | 49 | |||||||||
Nine Months Ended September 30, 2017 | ||||||||||||
In millions | Previously Reported | Impact of Adoption Increase/(Decrease) | As Revised | |||||||||
Cost of products sold | $ | 11,214 | $ | (114 | ) | $ | 11,100 | |||||
Selling and administrative expenses | 1,206 | (19 | ) | 1,187 | ||||||||
Non-operating pension expense | — | 133 | 133 |
Condensed Consolidated Statement of Operations | ||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||
In millions, except per share amounts | As Reported | Balances Without Adoption of ASC 606 | Impact of Adoption Increase/(Decrease) | |||||||||
Net sales | $ | 5,901 | $ | 5,898 | $ | 3 | ||||||
Cost of products sold | 3,887 | 3,885 | 2 | |||||||||
Distribution expenses | 397 | 396 | 1 | |||||||||
Income tax provision (benefit), net | 83 | 83 | — | |||||||||
Earnings (loss) from continuing operations | 562 | 562 | — | |||||||||
Net earnings (loss) | 562 | 562 | — | |||||||||
Earnings per share attributable to International Paper Company Shareholders | ||||||||||||
Basic | $ | 1.38 | $ | 1.38 | $ | — | ||||||
Diluted | 1.37 | 1.37 | — | |||||||||
Condensed Consolidated Statement of Operations | ||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||
In millions, except per share amounts | As Reported | Balances Without Adoption of ASC 606 | Impact of Adoption Increase/(Decrease) | |||||||||
Net sales | $ | 17,355 | $ | 17,335 | $ | 20 | ||||||
Cost of products sold | 11,757 | 11,748 | 9 | |||||||||
Distribution expenses | 1,166 | 1,163 | 3 | |||||||||
Income tax provision (benefit), net | 302 | 300 | 2 | |||||||||
Earnings (loss) from continuing operations | 1,354 | 1,348 | 6 | |||||||||
Net earnings (loss) | 1,699 | 1,693 | 6 | |||||||||
Earnings per share attributable to International Paper Company Shareholders | ||||||||||||
Basic | $ | 4.12 | $ | 4.10 | $ | 0.02 | ||||||
Diluted | 4.08 | 4.06 | 0.02 | |||||||||
Condensed Consolidated Balance Sheet | ||||||||||||
September 30, 2018 | ||||||||||||
In millions, except per share amounts | As Reported | Balances Without Adoption of ASC 606 | Impact of Adoption Increase/(Decrease) | |||||||||
Contract assets | $ | 383 | $ | — | $ | 383 | ||||||
Inventories | 2,130 | 2,389 | (259 | ) | ||||||||
Other current assets | 199 | 213 | (14 | ) | ||||||||
Other accrued liabilities | 1,054 | 1,035 | 19 | |||||||||
Deferred income taxes | 2,512 | 2,500 | 12 | |||||||||
Retained earnings | 7,353 | 7,274 | 79 | |||||||||
Condensed Consolidated Statement of Cash Flows | ||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||
In millions, except per share amounts | As Reported | Balances Without Adoption of ASC 606 | Impact of Adoption Increase/(Decrease) | |||||||||
Net earnings (loss) | $ | 1,699 | $ | 1,693 | $ | 6 | ||||||
Deferred income tax provision (benefit), net | 163 | 175 | (12 | ) | ||||||||
Contract assets | (20 | ) | — | (20 | ) | |||||||
Inventories | (120 | ) | (128 | ) | 8 | |||||||
Accounts payable and accrued liabilities | 301 | 298 | 3 | |||||||||
Other | 64 | 49 | 15 |
Three Months Ended September 30, 2018 | ||||||||||||||||||||
In millions | Industrial Packaging | Global Cellulose Fibers | Printing Papers | Corporate and Inter-segment Sales | Total | |||||||||||||||
Primary Geographical Markets (a) | ||||||||||||||||||||
United States | $ | 3,394 | $ | 602 | $ | 482 | $ | 52 | $ | 4,530 | ||||||||||
EMEA | 396 | 77 | 328 | (4 | ) | 797 | ||||||||||||||
Pacific Rim and Asia | 40 | 35 | 62 | 6 | 143 | |||||||||||||||
Americas, other than U.S. | 204 | — | 230 | (3 | ) | 431 | ||||||||||||||
Total | $ | 4,034 | $ | 714 | $ | 1,102 | $ | 51 | $ | 5,901 | ||||||||||
Operating Segments | ||||||||||||||||||||
North American Industrial Packaging | $ | 3,653 | $ | — | $ | — | $ | — | $ | 3,653 | ||||||||||
EMEA Industrial Packaging | 311 | — | — | — | 311 | |||||||||||||||
Brazilian Industrial Packaging | 57 | — | — | — | 57 | |||||||||||||||
European Coated Paperboard | 87 | — | — | — | 87 | |||||||||||||||
Global Cellulose Fibers | — | 714 | — | — | 714 | |||||||||||||||
North American Printing Papers | — | — | 492 | — | 492 | |||||||||||||||
Brazilian Papers | — | — | 255 | — | 255 | |||||||||||||||
European Papers | — | — | 311 | — | 311 | |||||||||||||||
Indian Papers | — | — | 47 | — | 47 | |||||||||||||||
Intra-segment Eliminations | (74 | ) | — | (3 | ) | — | (77 | ) | ||||||||||||
Corporate & Inter-segment Sales | — | — | — | 51 | 51 | |||||||||||||||
Total | $ | 4,034 | $ | 714 | $ | 1,102 | $ | 51 | $ | 5,901 |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||
In millions | Industrial Packaging | Global Cellulose Fibers | Printing Papers | Corporate & Intersegment | Total | |||||||||||||||
Primary Geographical Markets (a) | ||||||||||||||||||||
United States | $ | 9,832 | $ | 1,720 | $ | 1,399 | $ | 163 | $ | 13,114 | ||||||||||
EMEA | 1,275 | 222 | 988 | (13 | ) | 2,472 | ||||||||||||||
Pacific Rim and Asia | 110 | 140 | 185 | 35 | 470 | |||||||||||||||
Americas, other than U.S. | 666 | 1 | 643 | (11 | ) | 1,299 | ||||||||||||||
Total | $ | 11,883 | $ | 2,083 | $ | 3,215 | $ | 174 | $ | 17,355 | ||||||||||
Operating Segments | ||||||||||||||||||||
North American Industrial Packaging | $ | 10,604 | $ | — | $ | — | $ | — | $ | 10,604 | ||||||||||
EMEA Industrial Packaging | 1,017 | — | — | — | 1,017 | |||||||||||||||
Brazilian Industrial Packaging | 175 | — | — | — | 175 | |||||||||||||||
European Coated Paperboard | 265 | — | — | — | 265 | |||||||||||||||
Global Cellulose Fibers | — | 2,083 | — | — | 2,083 | |||||||||||||||
North American Printing Papers | — | — | 1,443 | — | 1,443 | |||||||||||||||
Brazilian Papers | — | — | 706 | — | 706 | |||||||||||||||
European Papers | — | — | 932 | — | 932 | |||||||||||||||
Indian Papers | — | — | 150 | — | 150 | |||||||||||||||
Intra-segment Eliminations | (178 | ) | — | (16 | ) | — | (194 | ) | ||||||||||||
Corporate & Inter-segment Sales | — | — | — | 174 | 174 | |||||||||||||||
Total | $ | 11,883 | $ | 2,083 | $ | 3,215 | $ | 174 | $ | 17,355 |
In millions | Contract Assets (Short-Term) | Contract Liabilities (Short-Term) | ||||||
Beginning Balance - January 1, 2018 | $ | 366 | $ | 53 | ||||
Ending Balance - September 30, 2018 | 383 | 25 | ||||||
Increase / (Decrease) | $ | 17 | $ | (28 | ) |
Nine Months Ended September 30, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
In millions, except per share amounts | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||
Balance, January 1 | $ | 6,522 | $ | 19 | $ | 6,541 | $ | 4,341 | $ | 18 | $ | 4,359 | |||||||||||
Adoption of ASC 606 revenue from contracts with customers | 73 | — | 73 | — | — | — | |||||||||||||||||
Issuance of stock for various plans, net | 112 | — | 112 | 130 | — | 130 | |||||||||||||||||
Repurchase of stock | (532 | ) | — | (532 | ) | (46 | ) | — | (46 | ) | |||||||||||||
Common stock dividends ($1.4250 per share in 2018 and $1.3875 per share in 2017) | (596 | ) | — | (596 | ) | (584 | ) | — | (584 | ) | |||||||||||||
Transactions of equity method investees | 19 | — | 19 | (24 | ) | — | (24 | ) | |||||||||||||||
Comprehensive income (loss) | 1,442 | (1 | ) | 1,441 | 1,097 | 1 | 1,098 | ||||||||||||||||
Ending Balance, September 30 | $ | 7,040 | $ | 18 | $ | 7,058 | $ | 4,914 | $ | 19 | $ | 4,933 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Defined Benefit Pension and Postretirement Adjustments | ||||||||||||||||
Balance at beginning of period | $ | (2,376 | ) | $ | (2,954 | ) | $ | (2,527 | ) | $ | (3,072 | ) | ||||
Other comprehensive income (loss) before reclassifications | — | — | — | 1 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | 76 | 59 | 227 | 176 | ||||||||||||
Balance at end of period | (2,300 | ) | (2,895 | ) | (2,300 | ) | (2,895 | ) | ||||||||
Change in Cumulative Foreign Currency Translation Adjustments | ||||||||||||||||
Balance at beginning of period | (2,489 | ) | (2,155 | ) | (2,111 | ) | (2,287 | ) | ||||||||
Other comprehensive income (loss) before reclassifications | (87 | ) | 101 | (469 | ) | 235 | ||||||||||
Amounts reclassified from accumulated other comprehensive income | — | (1 | ) | 2 | (1 | ) | ||||||||||
Other comprehensive income (loss) attributable to noncontrolling interest | 2 | 1 | 4 | (1 | ) | |||||||||||
Balance at end of period | (2,574 | ) | (2,054 | ) | (2,574 | ) | (2,054 | ) | ||||||||
Net Gains and Losses on Cash Flow Hedging Derivatives | ||||||||||||||||
Balance at beginning of period | (16 | ) | 1 | 5 | (3 | ) | ||||||||||
Other comprehensive income (loss) before reclassifications | 1 | 1 | (20 | ) | 9 | |||||||||||
Amounts reclassified from accumulated other comprehensive income | 2 | (2 | ) | 2 | (6 | ) | ||||||||||
Balance at end of period | (13 | ) | — | (13 | ) | — | ||||||||||
Total Accumulated Other Comprehensive Income (Loss) at End of Period | $ | (4,887 | ) | $ | (4,949 | ) | $ | (4,887 | ) | $ | (4,949 | ) |
In millions: | Amounts Reclassified from Accumulated Other Comprehensive Income | Location of Amount Reclassified from AOCI | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Defined benefit pension and postretirement items: | |||||||||||||||||||
Prior-service costs | $ | (4 | ) | $ | (6 | ) | (11 | ) | (19 | ) | (a) | Non-operating pension expense | |||||||
Actuarial gains (losses) | (97 | ) | (89 | ) | (291 | ) | (266 | ) | (a) | Non-operating pension expense | |||||||||
Total pre-tax amount | (101 | ) | (95 | ) | (302 | ) | (285 | ) | |||||||||||
Tax (expense) benefit | 25 | 36 | 75 | 109 | |||||||||||||||
Net of tax | (76 | ) | (59 | ) | (227 | ) | (176 | ) | |||||||||||
Change in cumulative foreign currency translation adjustments: | |||||||||||||||||||
Business acquisitions/divestitures | — | 1 | (2 | ) | 1 | (b) | Discontinued operations, net of taxes | ||||||||||||
Tax (expense) benefit | — | — | — | — | |||||||||||||||
Net of tax | — | 1 | (2 | ) | 1 | ||||||||||||||
Net gains and losses on cash flow hedging derivatives: | |||||||||||||||||||
Foreign exchange contracts | (3 | ) | 3 | (3 | ) | 8 | (c) | Cost of products sold | |||||||||||
Total pre-tax amount | (3 | ) | 3 | (3 | ) | 8 | |||||||||||||
Tax (expense)/benefit | 1 | (1 | ) | 1 | (2 | ) | |||||||||||||
Net of tax | (2 | ) | 2 | (2 | ) | 6 | |||||||||||||
Total reclassifications for the period | $ | (78 | ) | $ | (56 | ) | $ | (231 | ) | $ | (169 | ) |
(a) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 18 for additional details). |
(b) | Amounts for the three and nine months ended September 30, 2017 were reclassed to Net (gains) losses on sales and impairment of businesses. |
(c) | This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 17 for additional details). |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions, except per share amounts | 2018 | 2017 | 2018 | 2017 | |||||||||||
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders | $ | 562 | $ | 366 | $ | 1,351 | $ | 642 | |||||||
Weighted average common shares outstanding | 407.4 | 412.9 | 411.4 | 412.6 | |||||||||||
Effect of dilutive securities | |||||||||||||||
Restricted stock performance share plan | 4.0 | 4.5 | 4.9 | 4.8 | |||||||||||
Weighted average common shares outstanding – assuming dilution | 411.4 | 417.4 | 416.3 | 417.4 | |||||||||||
Basic earnings (loss) per share from continuing operations | $ | 1.38 | $ | 0.89 | $ | 3.28 | $ | 1.55 | |||||||
Diluted earnings (loss) per common share from continuing operations | $ | 1.37 | $ | 0.88 | $ | 3.25 | $ | 1.54 |
In millions | June 30, 2017 | ||
Cash and temporary investments | $ | 1 | |
Accounts and notes receivable | 7 | ||
Inventory | 3 | ||
Plants, properties and equipment | 31 | ||
Goodwill | 4 | ||
Other intangible assets | 5 | ||
Deferred charges and other assets | 4 | ||
Total assets acquired | 55 | ||
Accounts payable and accrued liabilities | 4 | ||
Long-term debt | 11 | ||
Other long-term liabilities | 2 | ||
Total liabilities assumed | 17 | ||
Net assets acquired | $ | 38 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net Sales | $ | — | $ | 397 | $ | — | $ | 1,165 | |||||||
Costs and Expenses | |||||||||||||||
Cost of products sold | — | 268 | — | 855 | |||||||||||
Selling and administrative expenses | — | 24 | 25 | 69 | |||||||||||
Depreciation, amortization and cost of timber harvested | — | 24 | — | 72 | |||||||||||
Distribution expenses | — | 32 | — | 94 | |||||||||||
Taxes other than payroll and income taxes | — | 3 | — | 8 | |||||||||||
(Gain) loss on transfer of business | — | — | (488 | ) | — | ||||||||||
Earnings (Loss) Before Income Taxes and Equity Earnings | — | 46 | 463 | 67 | |||||||||||
Income tax provision (benefit) | — | 17 | 118 | 25 | |||||||||||
Discontinued Operations, Net of Taxes | $ | — | $ | 29 | $ | 345 | $ | 42 |
In millions | September 30, 2018 | December 31, 2017 | |||||
Accounts and notes receivable, net: | |||||||
Trade | $ | 3,333 | $ | 3,017 | |||
Other | 247 | 270 | |||||
Total | $ | 3,580 | $ | 3,287 |
In millions | September 30, 2018 | December 31, 2017 | |||||
Raw materials | $ | 287 | $ | 274 | |||
Finished pulp, paper and packaging | 1,109 | 1,337 | |||||
Operating supplies | 609 | 615 | |||||
Other | 125 | 87 | |||||
Total | $ | 2,130 | $ | 2,313 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Interest expense | $ | 184 | $ | 198 | $ | 547 | $ | 571 | |||||||
Interest income | 51 | 46 | 146 | 140 | |||||||||||
Capitalized interest costs | 9 | 6 | 26 | 18 |
In millions | September 30, 2018 | ||
Current assets | $ | 1,943 | |
Noncurrent assets | 5,347 | ||
Current liabilities | 1,143 | ||
Noncurrent liabilities | 3,150 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
In millions | 2018 | 2018 | |||||
Net sales | $ | 1,530 | $ | 4,515 | |||
Gross profit | 256 | 714 | |||||
Income from continuing operations | 135 | 278 | |||||
Net income | 135 | 278 |
In millions | September 30, 2018 | December 31, 2017 | |||||
Current assets | $ | 741 | $ | 689 | |||
Noncurrent assets | 1,702 | 1,696 | |||||
Current liabilities | 393 | 1,039 | |||||
Noncurrent liabilities | 1,460 | 972 | |||||
Noncontrolling interests | 17 | 6 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net sales | $ | 655 | $ | 523 | $ | 2,030 | $ | 1,518 | |||||||
Gross profit | 376 | 252 | 1,152 | 715 | |||||||||||
Income from continuing operations | 149 | 99 | 454 | 249 | |||||||||||
Net income | 143 | 95 | 438 | 237 |
In millions | Industrial Packaging | Global Cellulose Fibers | Printing Papers | Total | |||||||||||
Balance as of January 1, 2018 | |||||||||||||||
Goodwill | $ | 3,382 | $ | 52 | $ | 2,150 | $ | 5,584 | |||||||
Accumulated impairment losses (a) | (296 | ) | — | (1,877 | ) | (2,173 | ) | ||||||||
3,086 | 52 | 273 | 3,411 | ||||||||||||
Currency translation and other (b) | — | — | (38 | ) | (38 | ) | |||||||||
Additions/reductions | (2 | ) | (c) | — | — | (2 | ) | ||||||||
Balance as of September 30, 2018 | |||||||||||||||
Goodwill | 3,380 | 52 | 2,112 | 5,544 | |||||||||||
Accumulated impairment losses (a) | (296 | ) | — | (1,877 | ) | (2,173 | ) | ||||||||
Total | $ | 3,084 | $ | 52 | $ | 235 | $ | 3,371 |
(a) | Represents accumulated goodwill impairment charges since the adoption of ASC 350, "Intangibles-Goodwill and Other" in 2002. |
(b) | Represents the effects of foreign currency translations and reclassifications. |
September 30, 2018 | December 31, 2017 | ||||||||||||||||||||||
In millions | Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets | Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets | |||||||||||||||||
Customer relationships and lists | $ | 540 | $ | 238 | $ | 302 | $ | 610 | $ | 247 | $ | 363 | |||||||||||
Non-compete agreements | 65 | 65 | — | 72 | 72 | — | |||||||||||||||||
Tradenames, patents and trademarks, and developed technology | 173 | 85 | 88 | 172 | 72 | 100 | |||||||||||||||||
Land and water rights | 8 | 2 | 6 | 8 | 2 | 6 | |||||||||||||||||
Software | 27 | 25 | 2 | 24 | 23 | 1 | |||||||||||||||||
Other | 36 | 28 | 8 | 38 | 26 | 12 | |||||||||||||||||
Total | $ | 849 | $ | 443 | $ | 406 | $ | 924 | $ | 442 | $ | 482 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Amortization expense related to intangible assets | $ | 15 | $ | 27 | $ | 44 | $ | 60 |
• | In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site known as Operable Unit 5, Area 1, and (ii) demanding reimbursement of EPA past costs totaling $37 million, including $19 million in past costs previously demanded by the EPA. The Company responded to the special notice letter. In December 2016, the EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy. The Company responded to the unilateral administrative order, agreeing to comply with the order subject to its sufficient cause defenses. |
• | In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) of PCB-contaminated sediments from a different portion of the site. The Company responded to the unilateral administrative order and agreed along with two other parties to comply with the order subject to its sufficient cause defenses. |
• | In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in late December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Revenue (a) | $ | 24 | $ | 24 | $ | 71 | $ | 71 | |||||||
Expense (a) | 32 | 32 | 96 | 96 | |||||||||||
Cash receipts (b) | 48 | 48 | 95 | 95 | |||||||||||
Cash payments (c) | 64 | 64 | 128 | 128 |
(a) | The revenue and expense are included in Interest expense, net in the accompanying statement of operations. |
(b) | The cash receipts are interest received on the Financial assets of special purpose entities. |
(c) | The cash payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Revenue (a) | $ | 19 | $ | 12 | $ | 52 | $ | 35 | |||||||
Expense (b) | 18 | 13 | 48 | 36 | |||||||||||
Cash receipts (c) | 15 | 7 | 34 | 19 | |||||||||||
Cash payments (d) | 16 | 10 | 40 | 28 |
(a) | The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $5 million and $14 million for both of the three and nine months ended September 30, 2018 and 2017, respectively, of accretion income for the amortization of the basis difference adjustment on the Financial assets of special purpose entities. |
(b) | The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately $2 million and $5 million for both of the three and nine months ended September 30, 2018 and 2017, respectively, of accretion expense for the amortization of the basis difference adjustment on the Nonrecourse financial liabilities of special purpose entities. |
(c) | The cash receipts are interest received on the Financial assets of special purpose entities. |
(d) | The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities. |
In millions | September 30, 2018 | December 31, 2017 | |||||
Derivatives in Cash Flow Hedging Relationships: | |||||||
Foreign exchange contracts (a) | $ | 432 | $ | 329 | |||
Derivatives Not Designated as Hedging Instruments: | |||||||
Electricity contract | 8 | 13 | |||||
Foreign exchange contracts | 9 | 10 |
(a) | These contracts had maturities of two years or less as of September 30, 2018. |
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Foreign exchange contracts | $ | 1 | $ | 1 | $ | (18 | ) | $ | 9 | ||||||
Interest rate contracts | — | — | (2 | ) | — | ||||||||||
Total | $ | 1 | $ | 1 | $ | (20 | ) | $ | 9 |
Gain (Loss) Reclassified from AOCI (Effective Portion) | Location of Gain (Loss) Reclassified from AOCI (Effective Portion) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||
Foreign exchange contracts | $ | (2 | ) | $ | 2 | $ | (2 | ) | $ | 6 | Cost of products sold | ||||||
Total | $ | (2 | ) | $ | 2 | $ | (2 | ) | $ | 6 |
Gain (Loss) Recognized | Location of Gain (Loss) In Statement of Operations | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||
Electricity contract | $ | 2 | $ | (8 | ) | $ | 1 | $ | (10 | ) | Cost of products sold | ||||||
Foreign exchange contracts | 3 | — | 4 | — | Cost of products sold | ||||||||||||
Total | $ | 5 | $ | (8 | ) | $ | 5 | $ | (10 | ) |
Assets | Liabilities | |||||||||||||||
In millions | September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | ||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Foreign exchange contracts – cash flow | $ | 2 | (a) | $ | 11 | (b) | $ | 21 | (c) | $ | 1 | (d) | ||||
Total derivatives designated as hedging instruments | 2 | 11 | 21 | 1 | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Electricity contract | — | — | 3 | (d) | 8 | (e) | ||||||||||
Foreign exchange contracts | 1 | (a) | — | — | — | |||||||||||
Total derivatives not designated as hedging instruments | 1 | — | 3 | 8 | ||||||||||||
Total derivatives | $ | 3 | $ | 11 | $ | 24 | $ | 9 |
(a) | Included in Other current assets in the accompanying consolidated balance sheet. |
(b) | Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying balance sheet. |
(c) | Includes $16 million recorded in Other accrued liabilities and $5 million recorded in Other liabilities in the accompanying consolidated balance sheet. |
(d) | Included in Other accrued liabilities in the accompanying balance sheet. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Service cost | $ | 40 | $ | 39 | $ | 119 | $ | 118 | |||||||
Interest cost | 118 | 138 | 356 | 415 | |||||||||||
Expected return on plan assets | (200 | ) | (192 | ) | (600 | ) | (577 | ) | |||||||
Actuarial loss | 95 | 87 | 285 | 260 | |||||||||||
Amortization of prior service cost | 4 | 7 | 12 | 21 | |||||||||||
Net periodic pension expense | $ | 57 | $ | 79 | $ | 172 | $ | 237 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Total stock-based compensation expense (selling and administrative) | $ | 35 | $ | 37 | $ | 102 | $ | 116 | |||||||
Income tax benefits related to stock-based compensation | (6 | ) | (2 | ) | 16 | 43 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Industrial Packaging | $ | 4,034 | $ | 3,822 | $ | 11,883 | $ | 11,184 | |||||||
Global Cellulose Fibers | 714 | 654 | 2,083 | 1,830 | |||||||||||
Printing Papers | 1,102 | 1,039 | 3,215 | 3,051 | |||||||||||
Corporate and Intersegment Sales | 51 | 2 | 174 | (33 | ) | ||||||||||
Net Sales | $ | 5,901 | $ | 5,517 | $ | 17,355 | $ | 16,032 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Industrial Packaging | $ | 472 | $ | 490 | $ | 1,446 | $ | 938 | |||||||
Global Cellulose Fibers | 83 | 49 | 160 | (14 | ) | ||||||||||
Printing Papers | 183 | 135 | 341 | 321 | |||||||||||
Business Segment Operating Profits | 738 | 674 | 1,947 | 1,245 | |||||||||||
Earnings (loss) from continuing operations before income taxes and equity earnings | 553 | 457 | $ | 1,399 | $ | 651 | |||||||||
Interest expense, net | 133 | 152 | 401 | 431 | |||||||||||
Noncontrolling interests/equity earnings adjustment | (2 | ) | — | (7 | ) | (1 | ) | ||||||||
Corporate items, net | 20 | 32 | 59 | 73 | |||||||||||
Corporate special items, net | 9 | — | 30 | (7 | ) | ||||||||||
Non-operating pension expense | 25 | 33 | 65 | 98 | |||||||||||
Business Segment Operating Profits | $ | 738 | $ | 674 | $ | 1,947 | $ | 1,245 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended September 30, | Three Months Ended June 30, | ||||||||||
In millions | 2018 | 2017 | 2018 | ||||||||
Earnings (Loss) Attributable to Shareholders | $ | 562 | $ | 395 | $ | 405 | |||||
Less - Discontinued operations (gain) loss | — | (29 | ) | 23 | |||||||
Earnings (Loss) from Continuing Operations | 562 | 366 | 428 | ||||||||
Add Back - Non-operating pension (income) expense | 25 | 33 | 36 | ||||||||
Add Back - Net special items expense (income) | 142 | 23 | 47 | ||||||||
Income tax effect - Non-operating pension and special items expense | (88 | ) | (2 | ) | (13 | ) | |||||
Adjusted Operating Earnings (Loss) Attributable to Shareholders | $ | 641 | $ | 420 | $ | 498 |
Three Months Ended September 30, | Three Months Ended June 30, | ||||||||||
2018 | 2017 | 2018 | |||||||||
Diluted Earnings (Loss) Per Share Attributable to Shareholders | $ | 1.37 | $ | 0.95 | $ | 0.97 | |||||
Less - Discontinued operations (gain) loss per share | — | (0.07 | ) | 0.05 | |||||||
Diluted Earnings (Loss) Per Share from Continuing Operations | 1.37 | 0.88 | 1.02 | ||||||||
Add Back - Non-operating pension (income) expense per share | 0.06 | 0.08 | 0.09 | ||||||||
Add Back - Net special items expense (income) per share | 0.34 | 0.05 | 0.11 | ||||||||
Income tax effect per share - Non-operating pension and special items expense | (0.21 | ) | — | (0.03 | ) | ||||||
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $ | 1.56 | $ | 1.01 | $ | 1.19 |
Nine Months Ended September 30, | |||||||
In millions | 2018 | 2017 | |||||
Cash provided by operations | $ | 2,405 | $ | 569 | |||
Adjustments: | |||||||
Cash invested in capital projects | (1,286 | ) | (935 | ) | |||
Cash contribution to pension plan | — | 1,250 | |||||
Cash payment for Kleen settlement | — | 354 | |||||
Free Cash Flow | $ | 1,119 | $ | 1,238 |
Three Months Ended | |||||||||||
September 30, | June 30, | ||||||||||
In millions | 2018 | 2017 | 2018 | ||||||||
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company | $ | 562 | $ | 366 | $ | 428 | |||||
Add back (deduct): | |||||||||||
Income tax provision (benefit) | 83 | 136 | 130 | ||||||||
Equity (earnings) loss, net of taxes | (92 | ) | (45 | ) | (70 | ) | |||||
Noncontrolling interests, net of taxes | — | — | 2 | ||||||||
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 553 | 457 | 490 | ||||||||
Interest expense, net | 133 | 152 | 133 | ||||||||
Noncontrolling interests / equity earnings included in operations | (2 | ) | — | (4 | ) | ||||||
Corporate items | 20 | 32 | 30 | ||||||||
Corporate special items (income) expense | 9 | — | 12 | ||||||||
Non-operating pension expense | 25 | 33 | 36 | ||||||||
Adjusted Operating Profit | $ | 738 | $ | 674 | $ | 697 | |||||
Business Segment Operating Profit: | |||||||||||
Industrial Packaging | $ | 472 | $ | 490 | $ | 537 | |||||
Global Cellulose Fibers | 83 | 49 | 66 | ||||||||
Printing Papers | 183 | 135 | 94 | ||||||||
Total Business Segment Operating Profit | $ | 738 | $ | 674 | $ | 697 |
Three Months Ended September 30, 2018 | Three Months Ended June 30, 2018 | Three Months Ended September 30, 2017 | ||||
Economic-related downtime | — | — | — | |||
Maintenance downtime | 197,000 | 265,000 | 93,000 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
In thousands of short tons (except as noted) | 2018 | 2017 | 2018 | 2017 | |||||||
Industrial Packaging | |||||||||||
Corrugated Packaging (c) | 2,666 | 2,599 | 7,969 | 7,784 | |||||||
Containerboard | 853 | 828 | 2,436 | 2,438 | |||||||
Recycling | 566 | 544 | 1,700 | 1,684 | |||||||
Saturated Kraft | 51 | 45 | 149 | 132 | |||||||
Gypsum/Release Kraft | 56 | 54 | 176 | 165 | |||||||
Bleached Kraft | 8 | 7 | 24 | 20 | |||||||
EMEA Packaging (c) (d) | 329 | 350 | 1,113 | 1,124 | |||||||
Brazilian Packaging (c) | 92 | 93 | 263 | 266 | |||||||
European Coated Paperboard | 98 | 103 | 284 | 296 | |||||||
Industrial Packaging | 4,719 | 4,623 | 14,114 | 13,909 | |||||||
Global Cellulose Fibers (in thousands of metric tons) (b) | 886 | 933 | 2,665 | 2,706 | |||||||
Printing Papers | |||||||||||
U.S. Uncoated Papers | 461 | 497 | 1,415 | 1,451 | |||||||
European and Russian Uncoated Papers | 363 | 365 | 1,066 | 1,104 | |||||||
Brazilian Uncoated Papers | 293 | 280 | 818 | 832 | |||||||
Indian Uncoated Papers | 62 | 58 | 195 | 186 | |||||||
Printing Papers | 1,179 | 1,200 | 3,494 | 3,573 |
(a) | Sales volumes include third party and inter-segment sales and exclude sales of equity investees. |
(b) | Includes North American, European and Brazilian volumes and internal sales to mills. |
(c) | Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons. |
(d) | Excludes newsprint sales volumes at the Madrid, Spain mill through the third quarter of 2017. |
Three Months Ended | ||||||||||||||||||||||||
September 30, | June 30, | |||||||||||||||||||||||
2018 | 2017 | 2018 | ||||||||||||||||||||||
In millions | Before Tax | After Tax | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||||||||
Business Segments | ||||||||||||||||||||||||
EMEA Packaging optimization | $ | — | $ | — | $ | — | $ | — | $ | 26 | $ | 18 | ||||||||||||
Abandoned property removal | 6 | 4 | 7 | 4 | 9 | 7 | ||||||||||||||||||
Riverdale mill conversion | 5 | 4 | — | — | — | — | ||||||||||||||||||
Brazil Packaging impairment | 122 | 81 | — | — | — | — | ||||||||||||||||||
Brazil Packaging wood supply accelerated amortization | — | — | 10 | 7 | — | — | ||||||||||||||||||
Weyerhaeuser pulp business integration costs | — | — | 6 | 4 | — | — | ||||||||||||||||||
Business Segments Total | 133 | 89 | 23 | 15 | 35 | 25 | ||||||||||||||||||
Corporate | ||||||||||||||||||||||||
Smurfit-Kappa acquisition proposal costs | — | — | — | — | 12 | 9 | ||||||||||||||||||
Environmental remediation reserve adjustment | 9 | 7 | — | — | — | — | ||||||||||||||||||
Corporate Total | 9 | 7 | — | — | 12 | 9 | ||||||||||||||||||
Total special items | 142 | 96 | 23 | 15 | 47 | 34 | ||||||||||||||||||
Non-operating pension expense | 25 | 19 | 33 | 20 | 36 | 27 | ||||||||||||||||||
Total special items and non-operating pension expense | $ | 167 | $ | 115 | $ | 56 | $ | 35 | $ | 83 | $ | 61 |
Three Months Ended | ||||||||||||
September 30, | June 30, | |||||||||||
In millions | 2018 | 2017 | 2018 | |||||||||
State income tax legislative changes | $ | — | $ | — | $ | 9 | ||||||
International legal entity restructuring | — | 19 | — | |||||||||
Tax benefits from Tax Cuts and Jobs Act | (36 | ) | — | — | ||||||||
Total | $ | (36 | ) | $ | 19 | $ | 9 |
Nine Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
In millions | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||
Business Segments | ||||||||||||||||
EMEA Packaging optimization | $ | 48 | $ | 35 | $ | — | $ | — | ||||||||
Abandoned property removal | 24 | 18 | 14 | 9 | ||||||||||||
Riverdale mill conversion | 5 | 4 | — | — | ||||||||||||
Brazil Packaging impairment | 122 | 81 | — | — | ||||||||||||
Kleen Products anti-trust class action lawsuit settlement | — | — | 354 | 219 | ||||||||||||
Weyerhaeuser pulp business acquisition inventory fair value step-up amortization | — | — | 14 | 8 | ||||||||||||
Weyerhaeuser pulp business acquisition and integration costs | — | — | 15 | 9 | ||||||||||||
Holmen mill bargain purchase gain | — | — | (6 | ) | (6 | ) | ||||||||||
Brazil Packaging wood supply accelerated amortization | — | — | 10 | 7 | ||||||||||||
Business Segments Total | 199 | 138 | 401 | 246 | ||||||||||||
Corporate | ||||||||||||||||
Smurfit-Kappa acquisition proposal costs | 12 | 9 | — | — | ||||||||||||
India Packaging business evaluation write-off | — | — | (2 | ) | (2 | ) | ||||||||||
Legal settlement | 9 | 7 | — | — | ||||||||||||
Environmental remediation reserve adjustment | 9 | 7 | — | — | ||||||||||||
Gain of sale of investment in ArborGen | — | — | (14 | ) | (9 | ) | ||||||||||
Foodservice Asia impairment | — | — | 9 | 4 | ||||||||||||
Interest income related to income tax refund claim | — | — | (4 | ) | (2 | ) | ||||||||||
Corporate Total | 30 | 23 | (11 | ) | (9 | ) | ||||||||||
Total special items | 229 | 161 | 390 | 237 | ||||||||||||
Non-operating pension expense | 65 | 49 | 98 | 60 | ||||||||||||
Total special items and non-operating pension expense | $ | 294 | $ | 210 | $ | 488 | $ | 297 |
Nine Months Ended | ||||||||
September 30, | ||||||||
In millions | 2018 | 2017 | ||||||
Income tax refund claims | $ | — | $ | (85 | ) | |||
State income tax legislative changes | 9 | — | ||||||
Tax benefits from Tax Cuts and Jobs Act | (36 | ) | — | |||||
Pension contribution return to accrual | — | 38 | ||||||
International investment restructuring | — | 34 | ||||||
Total | $ | (27 | ) | $ | (13 | ) |
Total Industrial Packaging | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 4,034 | $ | 4,022 | $ | 11,883 | $ | 3,822 | $ | 3,785 | $ | 11,184 | |||||||||||
Operating Profit | $ | 472 | $ | 537 | $ | 1,446 | $ | 490 | $ | 64 | $ | 938 | |||||||||||
Holmen mill bargain purchase gain | — | — | — | — | — | (6 | ) | ||||||||||||||||
Kleen Products anti-trust settlement | — | — | — | — | 354 | 354 | |||||||||||||||||
Abandoned property removal | 4 | 6 | 15 | 5 | 3 | 9 | |||||||||||||||||
EMEA Packaging optimization | — | 26 | 48 | — | — | — | |||||||||||||||||
Brazil Packaging impairment | 122 | — | 122 | — | $ | — | $ | — | |||||||||||||||
Brazil Packaging wood supply accelerated amortization | — | — | — | 10 | — | 10 | |||||||||||||||||
Operating Profit Before Special Items | $ | 598 | $ | 569 | $ | 1,631 | $ | 505 | $ | 421 | $ | 1,305 |
North American Industrial Packaging | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales (a) | $ | 3,653 | $ | 3,582 | $ | 10,604 | $ | 3,383 | $ | 3,336 | $ | 9,874 | |||||||||||
Operating Profit | $ | 618 | $ | 574 | $ | 1,651 | $ | 487 | $ | 51 | $ | 899 | |||||||||||
Kleen Products anti-trust settlement | — | — | — | — | 354 | 354 | |||||||||||||||||
Abandoned property removal | 4 | 6 | 15 | 5 | 3 | 9 | |||||||||||||||||
Operating Profit Before Special Items | $ | 622 | $ | 580 | $ | 1,666 | $ | 492 | $ | 408 | $ | 1,262 |
(a) | Includes intra-segment sales of $74 million and $50 million for the three months ended September 30, 2018 and 2017, respectively; $46 million and $31 million for the three months ended June 30, 2018 and 2017, respectively; and $178 million and $113 million for the nine months ended September 30, 2018 and 2017, respectively. |
EMEA Industrial Packaging | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 311 | $ | 344 | $ | 1,017 | $ | 333 | $ | 341 | $ | 991 | |||||||||||
Operating Profit | $ | (37 | ) | $ | (43 | ) | $ | (114 | ) | $ | (5 | ) | $ | 5 | $ | 14 | |||||||
EMEA Packaging optimization | — | 26 | 48 | — | — | — | |||||||||||||||||
Holmen mill net bargain purchase gain | — | — | — | — | — | (6 | ) | ||||||||||||||||
Operating Profit Before Special Items | $ | (37 | ) | $ | (17 | ) | $ | (66 | ) | $ | (5 | ) | $ | 5 | $ | 8 |
Brazilian Industrial Packaging | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 57 | $ | 56 | $ | 175 | $ | 68 | $ | 60 | $ | 187 | |||||||||||
Operating Profit | $ | (127 | ) | $ | (11 | ) | $ | (146 | ) | $ | (13 | ) | $ | (6 | ) | $ | (29 | ) | |||||
Brazil Packaging impairment | 122 | — | 122 | — | — | — | |||||||||||||||||
Brazil Packaging wood supply accelerated amortization | — | — | — | 10 | — | 10 | |||||||||||||||||
Operating Profit Before Special Items | $ | (5 | ) | $ | (11 | ) | $ | (24 | ) | $ | (3 | ) | $ | (6 | ) | $ | (19 | ) |
European Coated Paperboard | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 87 | $ | 86 | $ | 265 | $ | 88 | $ | 79 | $ | 245 | |||||||||||
Operating Profit | $ | 18 | $ | 17 | $ | 55 | $ | 21 | $ | 14 | $ | 54 |
Total Global Cellulose Fibers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 714 | $ | 692 | $ | 2,083 | $ | 654 | $ | 612 | $ | 1,830 | |||||||||||
Operating Profit | $ | 83 | $ | 66 | $ | 160 | $ | 49 | $ | 7 | $ | (14 | ) | ||||||||||
Acquisition and integration costs | — | — | — | 6 | 5 | 15 | |||||||||||||||||
Inventory fair value step-up amortization | — | — | — | — | — | 14 | |||||||||||||||||
Abandoned property removal | 2 | 3 | 9 | 2 | — | 3 | |||||||||||||||||
Operating Profit Before Special Items | $ | 85 | $ | 69 | $ | 169 | $ | 57 | $ | 12 | $ | 18 |
Total Printing Papers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 1,102 | $ | 1,060 | $ | 3,215 | $ | 1,039 | $ | 1,017 | $ | 3,051 | |||||||||||
Operating Profit | $ | 183 | $ | 94 | $ | 341 | $ | 135 | $ | 86 | $ | 321 | |||||||||||
Abandoned property removal | — | — | — | — | 2 | 2 | |||||||||||||||||
Riverdale mill conversion | 5 | — | 5 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 188 | $ | 94 | $ | 346 | $ | 135 | $ | 88 | $ | 323 |
North American Papers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 492 | $ | 493 | $ | 1,443 | $ | 470 | $ | 446 | $ | 1,384 | |||||||||||
Operating Profit | $ | 59 | $ | 25 | $ | 85 | $ | 54 | $ | 19 | $ | 106 | |||||||||||
Abandoned property removal | — | — | — | — | 2 | 2 | |||||||||||||||||
Riverdale mill conversion | 5 | — | 5 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 64 | $ | 25 | $ | 90 | $ | 54 | $ | 21 | $ | 108 |
European Papers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 311 | $ | 302 | $ | 932 | $ | 292 | $ | 299 | $ | 865 | |||||||||||
Operating Profit | $ | 46 | $ | 15 | $ | 82 | $ | 38 | $ | 26 | $ | 93 |
Brazilian Papers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales (a) | $ | 255 | $ | 222 | $ | 706 | $ | 239 | $ | 232 | $ | 685 | |||||||||||
Operating Profit | $ | 75 | $ | 49 | $ | 164 | $ | 46 | $ | 43 | $ | 128 |
(a) | Includes intra-segment sales of $3 million and $6 million for the three months ended September 30, 2018 and 2017, respectively; $8 million and $7 million for the three months ended June 30, 2018 and 2017, respectively; and $16 million and $22 million for the nine months ended September 30, 2018 and 2017, respectively. |
Indian Papers | 2018 | 2017 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 47 | $ | 51 | $ | 150 | $ | 44 | $ | 47 | $ | 139 | |||||||||||
Operating Profit | $ | 3 | $ | 5 | $ | 10 | $ | (3 | ) | $ | (2 | ) | $ | (6 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Early debt reductions (a) | $ | 75 | $ | 95 | $ | 79 | $ | 122 | |||||||
Pre-tax early debt extinguishment costs | 1 | 2 | 1 | 2 |
(a) | Reductions related to notes with interest rates ranging from 3.00% to 7.00% with original maturities from 2022 to 2032 and from 4.63% to 6.63% with original maturities from 2018 to 2031 for the three months ended September 30, 2018 and 2017, respectfully, and from 3.00% to 7.00% with original maturities from 2022 to 2032 and from 1.57% to 6.63% with original maturities from 2018 to 2031for the nine months ended September 30, 2018 and 2017, respectively. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions) | ||||
July 1, 2018 - July 31, 2018 | 71,805 | $51.96 | 69,394 | $0.629 | ||||
August 1, 2018 - August 31, 2018 | 2,431,910 | 52.27 | 2,422,856 | 0.503 | ||||
September 1, 2018 - September 30, 2018 | 1,350,668 | 51.68 | 1,349,679 | 0.433 | ||||
Total | 3,854,383 |
ITEM 6. | EXHIBITS |
10.1 | ||
10.2 | ||
10.3 | ||
11 | ||
12 | ||
31.1 | ||
31.2 | ||
32 | ||
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE | XBRL Extension Presentation Linkbase. |
INTERNATIONAL PAPER COMPANY (Registrant) | ||
November 2, 2018 | By | /s/ Tim S. Nicholls |
Tim S. Nicholls | ||
Senior Vice President and Chief Financial Officer | ||
November 2, 2018 | By | /s/ Vincent P. Bonnot |
Vincent P. Bonnot | ||
Vice President – Finance and Controller |
1. | GAC Issuance and GAC Issuance True-Up Premium. Prudential agrees to issue the Contract as follows: |
a. | Specimen GAC Form Issuance. On the Scheduled GAC Issuance Date, subject to Prudential’s receipt of the Premium Due Date Transfers and any GAC Issuance True-Up Premium due to Prudential and subject to the terms of paragraphs 1.b. and 1.c., Prudential irrevocably agrees to issue the Contract with an effective date that is the Premium Due Date, and in accordance with the Contract, irrevocably commits to make payments owed to Payees under the Contract on and after the Annuity Start Date; provided that, if the parties are unable to complete the takeover of administration services regarding payments under the Contract pursuant to paragraph 6 prior to the Annuity Start Date, Prudential shall make a bulk payment to the Plan Trust (or in such other manner as the parties agree) equal to the Aggregate Monthly Payment (as defined in the Contract) for each month until administration is transferred to Prudential pursuant to paragraph 6. The Contract will be in substantially the form of the specimen group annuity contract (the “Specimen GAC Form”) attached hereto as Schedule 1 unless a Modified GAC Form is issued pursuant to and in accordance with paragraph 2. |
b. | Form of Annuities and Payments under the Contract. The type, description and forms of annuities (e.g., single life annuity, joint and survivor annuity), payments under the Contract and other terms of the Contract will be consistent with the terms of Prudential’s proposal dated June 7, 2018 and September 21, 2018 (the “Proposal”) as updated to reflect (i) any modifications contemplated in Prudential’s Final Annuity Quote Sheet dated September 25, 2018 (the “Final Annuity Quote Sheet”) and (ii) any modifications mutually agreed to between the parties after the Commitment Agreement Date and before the 35th Business Day prior to the Scheduled GAC Issuance Date. Subject to Prudential’s receipt of the Premium Due Date Transfers, Prudential will make payments to Payees commencing on December 31, 2018 in accordance with the Proposal and the Final Annuity Quote Sheet until the Contract has been issued and, for the avoidance of doubt, will make such payments even if the Contract has not been |
c. | Necessary Data. As a condition to Prudential’s issuing the Contract, the Company will deliver or cause to be delivered to Prudential the data necessary for Prudential to prepare the annuity exhibit and the information necessary for Prudential to draft provisions of the Contract and administer the payments thereunder. If there are any delays in the delivery of the foregoing information based on the delivery dates set forth in Schedule 7 or such other delivery dates as may be designated by Prudential, Prudential may refer any Payee who contacts Prudential to the Company Contact for assistance and Prudential may, in its sole discretion, delay the mailing of Welcome Kits and annuity certificates. The annuity exhibit will not include any Payee for which Prudential has not been provided each of the following: (i) name, (ii) gender, (iii) date of birth and (iv) social security or federal taxpayer identification number. |
d. | GAC Issuance True-Up Premium. Schedule 8 provides a description of the methodologies and procedures by which Prudential will calculate the GAC Issuance True-Up Premium. Prudential and the Company will cooperate in good faith so that Prudential can calculate the GAC Issuance True-Up Premium, subject to the following acknowledgements, limitations and conditions: |
i. | GAC Issuance Data. To the extent that the Company discovers or has any Removed Lives or Data Corrections after the Commitment Agreement Date and prior to the date that is 35 Business Days prior to the Scheduled GAC Issuance Date (the “GAC Issuance Data Notice Date”), the Company will provide written notice of such Removed Life or Data Correction as promptly as reasonably practicable to Prudential. Prudential will only be responsible for incorporating into the calculation of the GAC Issuance True-Up Premium those Data Corrections and Removed Lives that have been notified to Prudential by the Company on or prior to the GAC Issuance Data Notice Date together with any other Removed Lives and Data Corrections identified by Prudential (the “GAC Issuance Data”). Such incorporation is subject to Prudential’s agreement with such Removed Lives or Data Corrections and any limitations on incorporating such Data Corrections and Removed Lives into the GAC Issuance True-Up Premium set forth in Schedule 8. |
ii. | GAC Issuance Annuity Exhibit. Twenty Business Days prior to the Scheduled GAC Issuance Date, Prudential will deliver to the Company a proposed annuity exhibit utilizing and consistent with the Base File and the GAC Issuance Data. Fifteen Business Days prior to the Scheduled GAC Issuance Date, the Company will respond to Prudential with any questions on the annuity exhibit. Prudential and the Company will cooperate in good faith to resolve any discrepancies on or prior to the eleventh Business Day prior to the Scheduled GAC Issuance Date and Prudential will reflect in the annuity exhibit any changes that have been agreed to on or prior to such eleventh Business Day. The annuity exhibit will not include any Payee for which Prudential has not been provided each of the following: (1) name, (2) gender, (3) date of birth and (4) social security or federal taxpayer identification number. Notwithstanding the foregoing, if the (1) name, (2) gender, (3) date of birth or (4) social security or federal taxpayer identification number for a Payee that is provided in accordance with this paragraph 1.d.ii is determined to be incorrect after |
iii. | GAC Issuance True-Up Premium. Eight Business Days prior to the Scheduled GAC Issuance Date, Prudential will send the calculation of the GAC Issuance True-Up Premium to the Company for review [***]. Five Business Days prior to the Scheduled GAC Issuance Date, the Company will respond to Prudential with any questions on the GAC Issuance True-Up Premium. If the Company and Prudential cannot resolve any dispute with respect to the GAC Issuance True-Up Premium on or prior to the date that is three Business Days prior to the Scheduled GAC Issuance Date, then Prudential’s determination will control for purposes of the GAC Issuance True-Up Premium but the Company may immediately commence an arbitration dispute pursuant to Schedule 4 with respect to the GAC Issuance True-Up Premium. |
iv. | GAC Issuance True-Up Premium Payment. The GAC Issuance True-Up Premium will be paid on the Scheduled GAC Issuance Date as follows: (A) if the GAC Issuance True-Up Premium is a positive number, then the Independent Fiduciary will irrevocably direct the Plan Trustee to pay to Prudential an amount, in Cash, equal to the GAC Issuance True-Up Premium or (B) if the GAC Issuance True-Up Premium is a negative number, then Prudential will pay to the Plan Trust an amount, in Cash, equal to the absolute value of the GAC Issuance True-Up Premium. |
2. | Negotiation of Modified GAC Form. After the Commitment Agreement Date, Prudential, the Company and the Independent Fiduciary will each use commercially reasonable efforts to revise the Specimen GAC Form to reflect such revisions that were mutually agreed to by the parties prior to the Commitment Agreement Date and will use commercially reasonable efforts to negotiate any additional revisions to the Specimen GAC Form (the “Modified GAC Form”) and related forms of annuity certificates, subject to the following acknowledgements, limitations and conditions: |
a. | Regulatory Approvals. Prudential will use commercially reasonable efforts to obtain regulatory approvals, to the extent required by applicable law, of the Modified GAC Form prior to the date that is 90 Business Days after the Commitment Agreement Date (the “Modified GAC Deadline Date”) and in the event that any approval, to the extent required by applicable law, is not granted, or if the Contract is disapproved, Prudential, the Independent Fiduciary and the Company will cooperate in good faith to mutually agree on modifications to the Contract to address the requests of the Tennessee Department of Commerce and Insurance, if any, and, to the extent possible, to preserve the provisions included in the Modified GAC Form. Prudential will use commercially reasonable efforts to obtain regulatory approvals, to the extent required by applicable law, of customized annuity certificates prior to the annuity certificate mailing date set forth in paragraph 5.b. |
b. | Modified GAC Form Issuance. If, in accordance with paragraph 2.a., the negotiation of the Modified GAC Form and the receipt of any related regulatory approvals for all negotiated changes to the Specimen GAC Form are completed by the Modified GAC Deadline Date, then, subject to Prudential’s receipt of the Premium Due Date Transfers and any GAC Issuance True-Up Premium due to Prudential, (i) if Prudential |
3. | Premium Due Date Transfers. The Independent Fiduciary will irrevocably direct the Plan Trustee to pay Prudential [***]. (the “Premium Amount”) on the Premium Due Date by paying an amount in Cash equal to the Premium Amount (such payment, the “Premium Due Date Transfer”). Notwithstanding anything to the contrary in this Commitment Agreement, Prudential, the Company and the Independent Fiduciary each agree and acknowledge that the Premium Amount will be paid entirely in Cash [***]. |
a. | Schedule 2 Updates. On the second Business Day after the Commitment Agreement Date, Prudential will deliver to the Company an updated Schedule 2 that reflects the [***] of each [***]. If the Company and Prudential cannot resolve any dispute with respect to any such information on or prior to the Premium Due Date, then [***] may immediately commence an arbitration dispute pursuant to Schedule 4 with respect to any such information. On the Premium Due Date, Prudential will, if needed, update Schedule 2 to reflect the removal of [***]. Prudential will, if needed, further update Schedule 2 to reflect the removal of [***] and is returned to the Plan Trust in accordance therewith. |
b. | [***]. On and as of the Business Day prior to the Premium Due Date, Prudential will provide to the Company [***] in the form of Schedule 5 [***]. Prior to the Premium Due Date, the Company will confirm to Prudential in writing that such information is accurate and complete or will provide any additions, deletions or corrections to such information. If the Company and Prudential have a dispute with respect to any such information and cannot resolve such dispute on or prior to the Business Day prior to the Premium Due Date, then [***] may immediately commence an arbitration dispute pursuant to Schedule 4 with respect to any such information. |
c. | [***]. By written notice to the other party on or before [***] following the Premium Due Date, the Company or Prudential may identify [***] and the parties will work in good faith [***] following the receipt of such notice to agree on which, if any, [***]. If the parties agree that an asset is [***] within [***] following the receipt of such notice, then, on or before the date that is [***] following such agreement, the Independent Fiduciary will irrevocably direct the Plan Trustee to promptly pay or cause to be paid to Prudential an amount, in Cash, equal to [***], and, simultaneously with receipt of such payment, Prudential will return [***] to the Plan Trust together with any [***]. |
d. | Additional Actions with respect to Assets. The Independent Fiduciary will irrevocably direct the Plan Trustee to promptly give all notices that are required, under applicable law and the terms of [***], in connection with the sale, assignment, transfer and delivery of [***] on the Premium Due Date. The Independent Fiduciary will irrevocably direct the Plan Trustee to and Prudential will promptly execute, deliver, record or file or cause to be executed, delivered, recorded or filed any and all releases, affidavits, |
e. | [***]. [***]. |
f. | Available Assets. The Company will cause the Plan Trust to have sufficient Cash or other assets (whether by means of a Cash contribution or otherwise) to enable the Plan Trustee to pay all amounts that it is directed to pay to Prudential by the Independent Fiduciary pursuant to this Commitment Agreement. |
4. | Public Announcements. |
a. | Press Releases. The Company and Prudential have the right to issue a transaction announcement or press release regarding the transactions contemplated by this Commitment Agreement, a copy of which will be provided to the other party for review no less than two Business Days prior to the issuance thereof, and the party issuing the transaction announcement or press release will consider in good faith any comments made by the other party; provided, however, that, if the Company has not issued a transaction announcement or press release, Prudential will not issue a transaction announcement or press release without the prior written consent of the Company; provided, further, that nothing contained in this paragraph 4.a. will prevent Prudential from communicating with Payees, including through communications posted to Prudential’s website. |
b. | SEC Filings. If the Company concludes that disclosure of this Commitment Agreement is required by the rules of the Securities and Exchange Commission (“SEC”), (i) the Company will, in good faith, consider whether to make an application with the SEC for confidential treatment of information that the Company concludes is competitively sensitive from the perspective of the Company and (ii) the Company will provide Prudential with a copy of any material correspondence (written or oral) with the SEC regarding any such application for confidential treatment, and the Company and Prudential will otherwise reasonably cooperate in connection with any such application. |
c. | No Insurer Communications. From the Commitment Agreement Date until the issuance of any annuity certificate by Prudential to an annuitant, other than as provided for in this Commitment Agreement, without the Company’s prior written consent, (i) Prudential will cause the employees of its retirement services business unit not to initiate any contact or communication with any participant or beneficiary of the Plan in connection with any transactions other than those transactions contemplated by this Commitment Agreement and (ii) Prudential will not, and will cause all of its affiliates not to, provide any of their respective insurance agents, wholesalers, retailers or other representatives with any contact information of such participants and beneficiaries of the Plan obtained from the Company or any of its representatives in connection with the transactions contemplated by this Commitment Agreement, except for those representatives of Prudential or any of their respective affiliates who need to know such information for purposes of the transactions contemplated by this Commitment Agreement and agree to comply with the requirements of this Commitment Agreement. However, this paragraph 4.c. will not restrict employees of Prudential’s retirement services business unit from contacting any participant or |
5. | Welcome Kits and Annuity Certificates. |
a. | Welcome Kits. Beginning on December 12, 2018, Prudential will mail a welcome kit to each annuitant under the Contract (the “Welcome Kit”). Prudential will send a preliminary draft of the Welcome Kit to the Company and the Independent Fiduciary as soon as practicable and Prudential will consider in good faith any comments made by the Company or the Independent Fiduciary on the “Frequently Asked Questions” section of the Welcome Kit on or before the fifth Business Day after it receives the preliminary draft of the Welcome Kit from Prudential. |
b. | Annuity Certificates. Prudential will mail an annuity certificate to each applicable Payee on or before the later of (i) 20 Business Days after the Contract is issued and (ii) 120 Business Days after the date on which the Welcome Kit is mailed to Payees, in each case, subject to receiving regulatory approvals for any such annuity certificate, if needed. To the extent that any changes are made to the forms of annuity certificates or the related benefit terms after the Company, the Independent Fiduciary and Prudential have agreed on the forms of annuity certificates to be filed and the related benefit terms, the mailing of an annuity certificate to each applicable Payee shall be extended by the number of days elapsed since the Company, the Independent Fiduciary and Prudential had first agreed on the forms of such annuity certificates and the related benefit terms. Each annuity certificate will include a statement informing a Payee of his or her right to obtain a copy of the Contract (redacted to exclude information concerning other annuitants) and the right to enforce all provisions of the Contract. The rights of a Payee are not conditioned on the issuance of the annuity certificates, and any delay in issuing a certificate shall not have any effect on the date as of which the Payee has enforceable rights against Prudential. |
6. | Administration and Transfer. |
a. | Administrative Transition. The Company will provide or cause to be provided to Prudential the information needed to administer the payments under the Contract and will complete or cause to be completed all processes set forth in Schedule 7. The Company and Prudential will use commercially reasonable efforts to take or cause to be taken all actions and do or cause to be done all things necessary to coordinate the takeover by Prudential of all administration responsibilities necessary to effectively provide recordkeeping and administration services regarding payments under the Contract commencing on December 31, 2018. The Company will provide Prudential with final census data in good order on or before October 22, 2018 in order for Prudential to provide recordkeeping and administration |
b. | Call Center and Company Contact. Prudential will maintain, at its cost and expense, a toll-free phone number and/or a website (the “Call Center”) which will be available starting from December 12, 2018 for Payees to contact Prudential with questions related to the Contract and the annuity certificates. For a period of five years following the Premium Due Date, the Company will maintain, at its cost and expense, a point of contact (the “Company Contact”) to which Prudential may refer Payees who pose questions related to their Plan benefits. In the event that a Payee contacts the Company with questions related to the Contract and the annuity certificates, the Company may refer the Payee to the Call Center. In the event that a Payee contacts Prudential with questions related to their Plan benefits, Prudential may refer the Payee to the Company Contact. |
7. | [***]; Termination. |
a. | [***]. In the event (1) the Independent Fiduciary breaches its obligation to irrevocably direct the Plan Trustee to pay the Premium Due Date Transfers in accordance with paragraph 3, (2) the Premium Due Date Transfers are not transferred to and received by Prudential in accordance with paragraph 3 (due to failure of the Plan Trustee to pay the Premium Due Date Transfers or otherwise) or (3) the condition to closing set forth in paragraph 9.b.ii is not satisfied, the Company will promptly pay Prudential [***]. [***]. |
b. | Termination. This Commitment Agreement (i) may be terminated at Prudential’s option if the Premium Due Date Transfers have not occurred in accordance with this Commitment Agreement on the Premium Due Date, or (ii) will be terminated upon the payment of [***]. If this Commitment Agreement is terminated pursuant to the preceding sentence, all rights and obligations of the parties under this Commitment Agreement will terminate and will become null and void except that this paragraph 7 ([***]; Termination), paragraph 10 (Definitions), Schedule 9 ([***]), and paragraph 12 (Miscellaneous) will survive any such termination and no party will otherwise have any liability to any other party under this Commitment Agreement. However, nothing in this paragraph 7 will relieve any party from liability for any fraud or willful and material breach of this Commitment Agreement. |
8. | Representations and Warranties. |
a. | Prudential Representations and Warranties. Prudential hereby represents and warrants to the Company and the Independent Fiduciary as of the Commitment Agreement Date and as of the Premium Due Date that: |
i. | Due Organization, Good Standing and Corporate Power. Prudential is a life insurance company, duly organized, validly existing and in good standing under the laws of the State of New Jersey. Prudential is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its performance of its obligations in the Commitment Agreement and the Ancillary Agreements makes such qualification or licensing necessary, except in such jurisdictions where the failure to be in good standing or so qualified or licensed would not be material. Prudential has all requisite power and authority to enter into and carry out its obligations under this Commitment Agreement and the Ancillary Agreements and to consummate the transactions contemplated to be undertaken by Prudential in this Commitment Agreement and the Ancillary Agreements. |
ii. | Authorization of Commitment Agreement and Enforceability. Prudential has received all necessary corporate approvals and no other action on the part of Prudential is necessary to authorize the execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated to be undertaken by Prudential in this Commitment Agreement and the Ancillary Agreements. This Commitment Agreement and the Ancillary Agreements have been (or will be) duly executed and delivered by Prudential, and each is (or when executed will be) a valid and binding obligation of Prudential, enforceable against Prudential in accordance with its terms, subject to the applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (“Enforceability Exceptions”). |
iii. | No Conflict. The execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements by Prudential, and the consummation by Prudential of the transactions contemplated to be undertaken by Prudential in this Commitment Agreement do not (1) violate or conflict with any provision of its certificates or articles of incorporation, bylaws, code of regulations, or the comparable governing documents, (2) except for the filings and approvals of state insurance governmental authorities in the states listed on Schedule 11, violate or conflict with any law or order of any governmental authority applicable to Prudential, (3) require any governmental or governmental agency approval other than any filing made or approval received as of the Commitment Agreement Date and filings with and approvals of state insurance governmental authorities in the states listed on Schedule 11 or (4) require any consent of or other action by any person under, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, or cause or permit termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit under, any provision of any contract to which Prudential is a party, except where the occurrence of any of the foregoing would not have a material adverse effect on Prudential’s ability to consummate the transactions and perform its obligations contemplated by this Commitment Agreement. No filing or approval is required to issue the annuity certificates in accordance with the Contract, other than any filing made or approval received as of the Commitment Agreement Date and filings with and approvals of state insurance governmental authorities in the states listed on Schedule 11. |
iv. | Compliance with Laws. The business of insurance conducted by Prudential has been and is being conducted in material compliance with applicable laws, and none of the licenses, permits or governmental approvals required for the continued conduct of the business of Prudential as such business is currently being conducted will lapse, terminate, expire or otherwise be impaired as a result of the consummation of the transactions contemplated to be undertaken by Prudential in this Commitment Agreement, except as, in either case, would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Prudential to perform its obligations under this Commitment Agreement. |
v. | Accuracy of Information. To Prudential’s Knowledge (x) all material information provided by Prudential to the Company or the Independent Fiduciary (other than any component incorporated into the calculation of the Premium Amount or the GAC Issuance True-Up Premium not calculated, determined or provided by Prudential, including the Base File, and any information provided by Prudential based on any such component) in connection with the transactions contemplated by this Commitment Agreement was, as of the date indicated on such information, true and correct in all material respects and (y) no change has occurred since the date indicated on such information that Prudential has not publicly disclosed or disclosed to the recipient of such information that would cause such information, taken as a whole, to be materially false or misleading. |
vi. | Relationship to the Plan. Prudential is not (1) a trustee of the Plan (other than a non-discretionary trustee who does not render investment advice with respect to any assets of the Plan), (2) a Plan administrator (within the meaning of ERISA § 3(16)(A) and the Code § 414(g)) with respect to the Plan or) or (3) an employer any of whose employees are covered by the Plan. Schedule 6 sets forth a true and complete list of (x) Prudential and Prudential’s affiliates that are investment managers within the meaning of ERISA § 3(38)(B) and (y) without duplication of clause (x), Prudential and Prudential’s affiliates that are registered as investment advisers under the Investment Advisers Act of 1940; provided, however, that solely with respect to the representation and warranty as to Schedule 6 to be made by Prudential on and as of the Premium Due Date, Prudential may update Schedule 6 through the Premium Due Date by providing a written update to the Company so that the information included therein is current on and as of the Premium Due Date. |
vii. | No Post-Closing Liability. Following receipt by Prudential of the Premium Due Date Transfers, the Plan, the Company and the Independent Fiduciary and their respective affiliates and representatives will not have any liability to pay any annuity payment under the Contract. |
viii. | The Contract. The Contract, when executed, will be duly executed and delivered by Prudential and will be a valid and binding obligation of Prudential and enforceable against Prudential by the Company and each Payee in accordance with its terms, subject to the Enforceability Exceptions. At all times, the right to a benefit and all other provisions under the Contract, in accordance with the Contract’s terms, will be enforceable by the sole choice of the Payee to whom such benefit is owed under the Contract, subject to the Enforceability Exceptions. In the event that the Company, as the contract holder, ceases to exist, notifies Prudential that it will |
ix. | Litigation. As of the Commitment Agreement Date, there is no action pending or, to Prudential’s Knowledge, threatened against Prudential that in any manner challenges or seeks to prevent, enjoin or materially alter or delay the transactions contemplated by this Commitment Agreement or that could reasonably be expected to materially impair or restrict Prudential’s ability to consummate the transactions contemplated by this Commitment Agreement and to perform its obligations hereunder. |
x. | No Commissions. No fees, commissions or payments are or will be owed by Prudential to any individual or entity in connection with the transactions contemplated in this Commitment Agreement and the Ancillary Agreements for which any other party, or its respective affiliates or representatives, could be liable. |
xi. | RBC Ratio. As of the Commitment Agreement Date, Prudential’s most recent Projected RBC Ratio is [***] and, to Prudential’s Knowledge, no event (including a change to financial market metrics) has occurred between the date of Prudential’s most recent Projected RBC Ratio and the Commitment Agreement Date that would be expected to cause Prudential’s Projected RBC Ratio, calculated as of part of its next scheduled forecast, to [***]. |
xii. | [***]. [***]. [***]. [***]. [***]. |
b. | Company Representations and Warranties. The Company hereby represents and warrants to Prudential and the Independent Fiduciary as of the Commitment Agreement Date and as of the Premium Due Date that: |
i. | Due Organization, Good Standing and Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its performance of its obligations in the Commitment Agreement and the Ancillary Agreements to which it is a party makes such qualification or licensing necessary, except in such jurisdictions where the failure to be in good standing or so qualified or licensed would not be material. The Company has all requisite power and authority to enter into and carry out its obligations under this Commitment Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated to be undertaken by the Company in this Commitment Agreement and the Ancillary Agreements. |
ii. | Authorization of Commitment Agreement and Enforceability. The Company has received all necessary corporate approvals and no other action on the part of the Company is necessary to authorize the execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated to be undertaken by the Company in this Commitment Agreement and the Ancillary Agreements to which |
iii. | No Conflict. The execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements to which it is a party by the Company, and the consummation by the Company of the transactions contemplated to be undertaken by the Company in this Commitment Agreement do not (1) violate or conflict with any provision of the Plan and any documents and instruments governing the Plan as contemplated under ERISA § 404(a)(1)(D) (the “Plan Governing Documents”), the certificates or articles of incorporation, bylaws, code of regulations, or the comparable governing documents of the Company, (2) violate or conflict with any law or order of any governmental authority applicable to the Company or the Plan Governing Documents, (3) require any governmental or governmental agency approval or (4) require any consent of or other action by any person under, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, or cause or permit termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit under, any provision of any contract to which the Company is a party, except where the occurrence of any of the foregoing would not have a material adverse effect on the Company’s ability to consummate the transactions and perform its obligations contemplated by this Commitment Agreement. |
iv. | Accuracy of Information. Notwithstanding anything to the contrary in the Company NDA, to the Company’s Knowledge, (1) the mortality experience data file provided by or on behalf of the Company to Prudential identified on Schedule 10 did not contain any misstatements or omissions that were, in the aggregate, material, and (2) the data in respect of benefit amounts, forms of annuities, date of birth, date of death, state of residence, gender and status (beneficiary in pay or participant), in each case, with respect to the Payees that was furnished by or on behalf of the Company to Prudential, was not generated using any materially incorrect systematic assumptions or material omissions. |
v. | Compliance with ERISA. The Plan and Plan Trust are maintained under and subject to ERISA and, to the Company’s Knowledge, are in compliance with ERISA in all material respects. To the Company’s Knowledge, no event has occurred that is reasonably likely to result in the Plan losing its status as qualified by the Code for preferential tax treatment under Code §§ 401(a) and 501(a). All Plan amendments necessary to effect the transactions contemplated by this Commitment Agreement and the Ancillary Agreements have been duly executed and, to the extent that they require authorization by the Company, have been, or will be by the Premium Due Date, duly authorized and made by the Company. |
vi. | Plan Investments. Neither Prudential nor any of Prudential’s affiliates is a fiduciary of the Plan who either (A) has or exercises any discretionary authority or control with respect to the investment of Plan Assets that are or will be involved in the transactions contemplated by the Commitment Agreement or the Ancillary Agreements or (B) renders investment advice (within the |
vii. | Independent Fiduciary. The Independent Fiduciary has been duly appointed as independent fiduciary of the Plan with respect to the purchase of one or more group annuity contracts to (1) be the sole fiduciary responsible for selecting one or more insurers to provide annuities in accordance and compliance with the ERISA Requirements, (2) determine whether the transactions contemplated by this Commitment Agreement and the Ancillary Agreements satisfy ERISA, (3) represent the interests of the Plan and its participants and beneficiaries in connection with the negotiation of a commitment agreement and, to the extent set forth in the IF Engagement Letter, the terms of any agreements with Prudential, including the Contract and the annuity certificates, (4) direct the Plan Trustee on behalf of the Plan to transfer the Premium Due Date Transfers in connection with the consummation of the transactions contemplated by this Commitment Agreement and any amounts required pursuant to paragraphs 1.d.iv. and 3.c. and (5) take all other actions on behalf of the Plan necessary to effectuate the foregoing to the extent set forth in the IF Engagement Letter. |
viii. | Plan Trustee is Directed Trustee. The Plan Trustee has been duly appointed as the directed trustee of the Plan Trust and is obligated to follow the Independent Fiduciary’s directions to effectuate and consummate the transactions contemplated by this Commitment Agreement and the IF Engagement Letter. |
ix. | Litigation. There is no action pending or, to the Company’s Knowledge, threatened against the Company, the Plan or the Independent Fiduciary that in any manner challenges or seeks to prevent, enjoin or materially alter or delay the transactions contemplated by this Commitment Agreement or that could reasonably be expected to materially impair or restrict such party’s ability to consummate the transactions contemplated by this Commitment Agreement and to perform its obligations hereunder. |
x. | No Commissions. No fees, commissions or payments are or will be owed by the Company to any individual or entity in connection with the transactions contemplated in this Commitment Agreement and the Ancillary Agreements for which any other party, or its respective affiliates or representatives, could be liable. |
c. | Independent Fiduciary Representations and Warranties. The Independent Fiduciary hereby represents and warrants to the Company and Prudential as of the Commitment Agreement Date and as of the Premium Due Date and, with respect to paragraph 8.c.v.4 only, as of any other date on which the Plan Trustee pays Cash or assets to Prudential in connection with the transactions contemplated by this Commitment Agreement or the Contract, that: |
i. | Due Organization, Good Standing and Corporate Power. The Independent Fiduciary is a trust company, duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. The Independent Fiduciary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its performance of its obligations in the Commitment Agreement and the Ancillary Agreements to which it is a party makes such qualification or licensing necessary, except in such jurisdictions where the failure to be in good standing or so qualified or licensed would not be material. The Independent Fiduciary has all requisite power and authority to enter into and carry out its obligations under this Commitment Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated to be undertaken by the Independent Fiduciary in this Commitment Agreement and the Ancillary Agreements. |
ii. | Authorization of Commitment Agreement and Enforceability. The Independent Fiduciary has received all necessary corporate approvals and no other action on the part of the Independent Fiduciary is necessary to authorize the execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated to be undertaken by the Independent Fiduciary in this Commitment Agreement and the Ancillary Agreements to which it is a party. This Commitment Agreement and the Ancillary Agreements to which it is a party have been duly executed and delivered by the Independent Fiduciary and each is (or when executed will be) a valid and binding obligation of the Independent Fiduciary, enforceable against the Independent Fiduciary, in accordance with its terms, subject to the Enforceability Exceptions. |
iii. | No Conflict. The execution, delivery and performance of this Commitment Agreement and the Ancillary Agreements to which it is a party by the Independent Fiduciary, and the consummation by the Independent Fiduciary of the transactions contemplated to be undertaken by the Independent Fiduciary in this Commitment Agreement do not (1) violate or conflict with any provision of its certificates or articles of incorporation, bylaws, code of regulations, or the comparable governing documents, (2) violate or conflict with any law or order of any governmental authority applicable to the Independent Fiduciary, (3) require any governmental or governmental agency approval, (4) violate or conflict with any law or order of any governmental authority applicable to any provision of the Plan Governing Documents or (5) require any consent of or other action by any person under, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, or cause or permit termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit under, any provision of any contract to which the Independent Fiduciary is a party, except where the occurrence of any of the foregoing would not have a material adverse effect on the Independent Fiduciary’s ability to consummate the transactions and perform its obligations contemplated by this Commitment Agreement. |
iv. | Independent Fiduciary Compliance with ERISA. |
1. | The Independent Fiduciary meets the requirements of, and in the transactions contemplated by this Commitment Agreement and the Ancillary Agreements is acting as, an “investment manager” under ERISA § 3(38), and further constitutes a “qualified professional asset manager” under the U.S. Department of Labor Prohibited Transaction Class Exemption 84-14 solely with respect to the transfer of assets to Prudential in connection with the transactions contemplated by this Commitment Agreement and the Ancillary Agreements (but not the selection of such assets or the management of such assets prior to the transfer). |
2. | The Independent Fiduciary has accepted, and has not rescinded or terminated, its designation as the sole fiduciary of the Plan with authority to select one or more insurers to issue one or more group annuity contracts in the IF Engagement Letter (a true and correct copy of which has been provided to Prudential, except that the fees to be paid to the Independent Fiduciary and indemnification provisions have been redacted), and the Independent Fiduciary reaffirms its fiduciary status as set forth in the IF Engagement Letter. |
3. | The Independent Fiduciary has accepted, and has not rescinded or terminated, appointment as independent fiduciary of the Plan with respect to the purchase of one or more group annuity contracts to (a) be the designated fiduciary responsible for selecting one or more insurers to provide annuities in accordance and compliance with the ERISA Requirements, (b) determine whether the transactions contemplated by this Commitment Agreement and the Ancillary Agreements satisfy ERISA, (c) represent the interests of the Plan and its participants and beneficiaries in connection with the negotiation of a commitment agreement and, to the extent set forth in the IF Engagement Letter, the terms of any agreements with Prudential, including the Contract and the annuity certificates, (d) direct the Plan Trustee on behalf of the Plan to transfer the Premium Due Date Transfers in connection with the consummation of the transactions contemplated by this Commitment Agreement and any amounts required pursuant to paragraphs 1.d.iv. and 3.c. and (e) take all other actions on behalf of the Plan necessary to effectuate the foregoing to the extent set forth in the IF Engagement Letter. |
4. | The Independent Fiduciary is fully qualified and has the requisite expertise together with its reliance on its consultant, Mercer Health and Benefits LLC, and its counsel, K&L Gates LLP, to serve as an independent fiduciary in connection with the transactions contemplated by this Commitment Agreement and the Ancillary Agreements, and it is independent of the Company and Prudential within the meaning of 29 C.F.R. § 2570.31(j). The Independent Fiduciary has ensured that it has established commercially reasonable ethical walls between its personnel working on the transactions contemplated in the Commitment Agreement and the Ancillary Agreements and its personnel working on other matters involving the Company, Prudential or any of their respective affiliates. |
v. | ERISA Related Determinations. |
1. | The Independent Fiduciary has selected Prudential to issue the Contract as set forth in this Commitment Agreement and such selection, the transactions contemplated by this Commitment Agreement, the Plan’s use of assets for the purchase of the Contract as contemplated by this |
2. | The transactions contemplated by this Commitment Agreement and the purchase of the Contract do not result in a Non-Exempt Prohibited Transaction, provided that the representations in paragraphs 8.a.vi and 8.b.vi are true and correct in all material respects as of the Premium Due Date. |
3. | The Plan Trust (I) will receive no less than “adequate consideration” for the Transferred Assets and (II) will pay no more than “adequate consideration” for the Contract, in each case within the meaning of “adequate consideration” under ERISA § 408(b)(17)(B) and Code § 4975(f)(10). |
4. | The Independent Fiduciary is responsible for exercising independent judgment in evaluating any transactions that the Plan engages in with Prudential (including purchase of the Contract). The Independent Fiduciary understands that Prudential did not undertake and is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any transactions that the Plan engages in with Prudential. |
5. | The Independent Fiduciary has provided and will continue to provide the services described in Section 2 of the IF Engagement Letter prudently and for the exclusive benefit and in the sole interest of the Plan and its participants and beneficiaries. |
vi. | No Commissions. No fees, commissions or payments are or will be owed by the Independent Fiduciary to any individual or entity in connection with the transactions contemplated in this Commitment Agreement and the Ancillary Agreements for which any other party, or its respective affiliates or representatives, could be liable. |
9. | Conditions to Closing. The parties’ obligations to consummate the transactions contemplated by this Commitment Agreement in connection with the Premium Due Date Transfers, including the Independent Fiduciary’s obligation to direct the Plan Trustee to consummate the transactions contemplated by this Commitment Agreement, are subject to the conditions that: |
a. | the Independent Fiduciary will have confirmed that the transactions contemplated by this Commitment Agreement continue to satisfy the ERISA Requirements because an Independent Fiduciary MAC has not occurred or, if an Independent Fiduciary MAC has occurred, it is not continuing on the Premium Due Date; and |
b. | no court or government agency has taken any action after the Commitment Agreement Date that would (i) cause the consummation of the transactions contemplated by this Commitment Agreement to violate the law or (ii) cause the Plan to fail to remain qualified under Code Section 401(a); provided that, if the condition to closing set forth in this paragraph 9.b.ii is not satisfied, the [***] shall be payable in accordance with paragraph 7. |
10. | Definitions. For purposes of this Commitment Agreement, the following defined terms will have the following meanings: |
a. | “AAA” is defined in Schedule 4. |
b. | “Ancillary Agreements” means, collectively, the Contract and the Plan Trustee Agreement. |
c. | “Annuity Start Date” means December 31, 2018. |
d. | “Annual Benefit” is defined in Schedule 8. |
e. | “Approved Firm” is defined in Schedule 4. |
f. | [***]. |
g. | [***]. |
h. | “Authorized Persons” is defined in paragraph 12.d. |
i. | [***]. |
j. | “Base File” means the data file titled [***], provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 3:24 p.m. eastern time on August 28, 2018. |
k. | “Business Day” means any day other than a Saturday, a Sunday or a day on which banks located in New York, New York are authorized or required by law to close. |
l. | “Call Center” is defined in paragraph 6.b. |
m. | “Cash” means a wire transfer, through the Federal Reserve System, of currency of the United States of America. |
n. | “Check Register” is defined in Schedule 7. |
o. | “Code” means the Internal Revenue Code of 1986 and the applicable Treasury Regulations issued thereunder. |
p. | “Commitment Agreement” is defined in the preamble. |
q. | “Commitment Agreement Date” is defined in the preamble. |
r. | “Company” is defined in the preamble. |
s. | “Company Contact” is defined in paragraph 6.b. |
t. | “Company Indemnified Party” is defined in paragraph 11. |
u. | “Company NDA” is defined in paragraph 12.c. |
v. | “Confidential Information” has the meaning ascribed to such term in the Company NDA. |
w. | “Contract” is defined in the preamble. |
x. | “Corridor Breach” is defined in Schedule 8. |
y. | “Cut-Off Time” means 1:00 p.m. eastern time on the Premium Due Date. |
z. | “Data Corrections” is defined in Schedule 8. |
aa. | “Data Correction Adjustment” is defined in Schedule 8. |
bb. | “Data Load File” is defined in Schedule 7. |
cc. | “Data Load File Sign-Off” is defined in Schedule 7. |
dd. | “Deleted Lives” is defined in Schedule 8. |
ee. | “Deleted Lives Percentage” is defined in Schedule 8. |
ff. | [***]. |
gg. | “Enforceability Exceptions” is defined in paragraph 8.a.ii. |
hh. | “ERISA” means Employee Retirement Income Security Act of 1974, as amended, and any federal agency regulations promulgated thereunder that are currently in effect and applicable. |
ii. | “ERISA Requirements” means all of the applicable requirements of ERISA and applicable guidance promulgated thereunder, including Interpretive Bulletin 95-1. |
jj. | [***]. [***]. |
kk. | “Final Annuity Quote Sheet” is defined in paragraph 1.b. |
ll. | “Final Production Data File” is defined in Schedule 7. |
mm. | “GAC Issuance Data” is defined in paragraph 1.d.i. |
nn. | “GAC Issuance Data Notice Date” is defined in paragraph 1.d.i. |
oo. | “GAC Issuance True-Up Premium” is defined in Schedule 8. |
pp. | [***]. |
qq. | [***]. |
rr. | “IF Engagement Letter” means the engagement agreement between the Fiduciary Review Committee of the Retirement Plan of International Paper Company and the Independent Fiduciary dated August 3, 2018. |
ss. | “IFID NDA” is defined in paragraph 12.c. |
tt. | “Independent Fiduciary” is defined in the preamble. |
uu. | “Independent Fiduciary MAC” means (i) the occurrence of a material adverse change, as determined in the Independent Fiduciary’s sole discretion, in or directly affecting Prudential after the Commitment Agreement Date that would cause the selection of Prudential and the purchase of the Contract to fail to satisfy the ERISA Requirements, or (ii) the occurrence of a change in ERISA Requirements after the Commitment Agreement Date that would cause the selection of Prudential and the Plan’s purchase of the Contract to fail to satisfy ERISA Requirements. |
vv. | [***] |
ww. | [***]. [***]. |
xx. | “Knowledge” means actual knowledge after making appropriate inquiry. |
yy. | “Liability Baseline Value” is defined in Schedule 8. |
zz. | [***]. |
[[. | [***]. |
aaa. | [***]. |
bbb. | “Modified GAC Deadline Date” is defined in paragraph 2.a. |
ccc. | “Modified GAC Form” is defined in paragraph 2. |
ddd. | “Mortalities” is defined in Schedule 8. |
eee. | “Mortality Corrections” is defined in Schedule 8. |
fff. | “NAIC” is defined in Schedule 12. |
ggg. | “NDA” is defined in paragraph 12.c. |
hhh. | “New Lives” is defined in Schedule 8. |
iii. | “New Lives Percentage” is defined in Schedule 8. |
jjj. | “Non-Exempt Prohibited Transaction” means a transaction prohibited by ERISA § 406 or Code § 4975, for which no statutory exemption or U.S. Department of Labor class exemption is available. |
kkk. | “Payee” means any payee under the Contract, including annuitants, contingent annuitants, alternate payees and beneficiaries, as applicable. |
lll. | [***]. |
mmm. | “Plan” is defined in the preamble. |
nnn. | “Plan Asset” means an asset of the Plan within the meaning of ERISA. |
ooo. | “Plan Governing Documents” is defined in paragraph 8.b.iii. |
ppp. | “Plan Trust” means International Paper Company Retirement Plans Master Trust. |
qqq. | “Plan Trustee” means State Street Bank and Trust Company. |
rrr. | “Plan Trustee Agreement” means the agreement, dated as of the date hereof, among Prudential, the Plan Trustee and the Independent Fiduciary. |
sss. | “Preliminary Production Data File” is defined in Schedule 7. |
ttt. | “Premium Amount” is defined in paragraph 3. |
uuu. | “Premium Due Date” means five Business Days following the Commitment Agreement Date. |
vvv. | “Premium Due Date Transfers” is defined in paragraph 3. |
www. | “Projected RBC Ratio” means the projection of the RBC Ratio as of [***], as calculated under the method set forth on Schedule 12. |
xxx. | “Proposal” is defined in paragraph 1.b. |
yyy. | “Prudential” is defined in the preamble. |
zzz. | “RBC Ratio” means the company action level risk-based capital ratio of Prudential [***]. |
[[[. | [***] . |
aaaa. | [***]. |
bbbb. | “Relevant Percentage” is defined in Schedule 8. |
cccc. | “Removed Lives” is defined in Schedule 8. |
dddd. | [***]. |
eeee. | “Scaled GAAP PBO” is defined in Schedule 8. |
ffff. | [***]. |
gggg. | “Scheduled GAC Issuance Date” means on or before April 18, 2019 or, if applicable, and, if later, by the date that is five Business Days following the final resolution of any arbitration disputes in accordance with Schedule 4. |
hhhh. | “SEC” is defined in paragraph 4.b. |
iiii. | “Specimen GAC Form” is defined in paragraph 1.a. |
jjjj. | [***]. [***]. |
kkkk. | [***]. |
llll. | [***]. |
mmmm. | “Update File” is defined in Schedule 7. |
nnnn. | “Welcome Kit” is defined in paragraph 5.a. |
11. | Indemnification. |
12. | Miscellaneous. |
a. | This Commitment Agreement, together with the Schedules to this Commitment Agreement, which are incorporated by reference and made a part of this Commitment Agreement as if fully set forth herein, constitutes the sole and entire agreement of the parties to this Commitment Agreement with respect to the subject matter contained herein and therein. The parties each hereby acknowledge that they jointly and equally participated in the drafting of this Commitment Agreement and all other agreements contemplated hereby, and no presumption will be made that any provision of this Commitment Agreement will be construed against any party by reason of such role in the drafting of this Commitment Agreement or any other agreement contemplated hereby. No amendment of any of the provisions hereof shall be effective unless set forth in writing and signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Commitment Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. Except to the extent expressly provided in this Commitment Agreement, nothing in this Commitment Agreement shall confer any rights or remedies upon any person other than the parties hereto. |
b. | This Commitment Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction). Any legal suit, action, or proceeding arising out of or relating |
c. | Notwithstanding anything to the contrary in the Mutual Non-Disclosure Agreement, dated as of April 26, 2018, between the Company and Prudential (the “Company NDA”), and the Non-Disclosure Agreement, dated as of August 14. 2018, between Prudential and the Independent Fiduciary (the “IFID NDA” and, together with the Company NDA, the “NDAs” and each an “NDA”), each NDA shall continue in full force and effect except that, if the Premium Due Date Transfers are transferred to and received by Prudential, (a) each NDA shall continue indefinitely and shall not be terminated without the mutual written agreement of (i) the Company and Prudential in the case of the Company NDA and (ii) Prudential and the Independent Fiduciary in the case of the IFID NDA, and (b) with respect to the Company NDA, Prudential will not be required to return or destroy any Confidential Information and will not be restricted in its use or disclosure of any Confidential Information related to Payees, annuity payments under the Contract or the pricing or underwriting of the Contract, received from another party, provided, that Prudential will use such Confidential Information only in compliance with all applicable laws relating to privacy of personally identifying information. |
d. | Prudential will comply, and will ensure that all of its affiliates, agents, and subcontractors comply, with all applicable laws and regulations governing the Confidential Information of all Payees, including those laws relating to privacy, data security and protection and the safeguarding of such information, and its maintenance, disclosure and use. Prudential will maintain administrative, technical and physical safeguards to protect the privacy and security of the confidential information related to Payees. Prudential will comply in all material respects with any internal written policies relating to the confidential information of any Payee as in effect from time to time. Prudential acknowledges that it is solely responsible from and after the Commitment Agreement Date for any Data Breach. For purposes of this paragraph 12.d., “Data Breach” means any act or omission by Prudential or its agents, subcontractors or service providers (“Authorized Persons”) that compromises either the security, confidentiality or integrity of Payee data or the physical, technical, administrative or organizational safeguards put in place by Prudential (or any Authorized Persons) that relate to the protection of the security, confidentiality or integrity of any personally identifying information of any Payee. |
e. | Prudential, the Company and the Independent Fiduciary shall not assign or transfer this Commitment Agreement or any of its rights or obligations hereunder without the prior written consent of the other parties. Any assignment or transfer in violation of this paragraph 12.e. will be null and void from the outset, without any effect whatsoever. |
f. | This Commitment Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. |
INTERNATIONAL PAPER COMPANY | THE PRUDENTIAL INSURANCE COMPANY OF AMERICA |
By: /S/ ERROL HARRIS | By: /S/ MARGARET G. MCDONALD |
Print Name: Errol Harris | Print Name: Margaret G. McDonald |
Title: Vice President & Treasurer | Title: AVP |
STATE STREET GLOBAL ADVISORS TRUST COMPANY, acting solely in its capacity as Independent Fiduciary of the Plan | |
By: /S/ DENISE SISK | |
Print Name: Denise Sisk | |
Title: Managing Director |
Contract-Holder: NAME OF CONTRACT-HOLDER | Plan: NAME OF RETIREMENT PLAN |
Employer: NAME OF EMPLOYER | |
[***] [***] | Jurisdiction: STATE OF JURISDICTION |
Effective Date: MM DD, YYYY Amendment Date: MM DD, YYYY | Contribution Amount as of Effective Date: $XXX,XXX Contribution Adjustment Amount: None, as of MM DD, YYYY Total Contribution Amount as of MM, DD, YYYY: $XXX,XXX |
Pages Attached: 1-XX, Cash and Transferred Assets Exhibit, Cash and Transferred Assets Exhibit Supplement, Annuity Exhibits |
NAME OF CONTRACT-HOLDER | THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 30 Scranton Office Park Scranton, PA 18507-1789 SAMPLE |
By: __ SAMPLE __________ Title: Date: | Chairman and Chief Executive Officer SAMPLE Secretary Attest: _______________________________ Date: |
Covered Life | Social Security Number | Sex | Date of Birth | Covered Life Amount | Guaranteed Number of Payments | Lump Sum Death Benefit |
A | B | C | D | E | F | G | H | I | J |
[***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] |
1. | [***]. |
2. | [***]. [***]: |
a. | [***], |
b. | [***], |
c. | [***], or |
d. | [***]. |
3. | [***]. |
4. | [***]. |
5. | [***]. |
6. | [***]. |
7. | [***]. |
8. | [***]. |
1. | Rules and Procedures. Any dispute between the parties referenced herein shall be resolved by arbitration conducted by one arbitrator, in accordance with Commercial Arbitration Rules and Expedited Procedures for Large, Complex Commercial Disputes of the American Arbitration Association (“AAA”), as such rules and procedures are in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Company, Prudential, and, if a party to such dispute, the Independent Fiduciary. |
2. | Location. The seat of the arbitration shall be New York City, New York, at a mutually agreed upon location, or in the absence of agreement at the New York City offices of the AAA. |
3. | Arbitrator. The Company, Prudential and, if a party to the dispute, the Independent Fiduciary shall jointly engage a mutually agreed upon firm (such firm, the “Approved Firm”), within five Business Days after a dispute notice is delivered by either party to the other party to resolve any arbitration dispute. If the Company, Prudential and, if a party to such dispute, the Independent Fiduciary are unable to engage an Approved Firm within such time period on such terms, then the AAA shall appoint an arbitrator within three Business Days thereafter. |
4. | Damages. The arbitrator shall resolve any arbitration dispute within the range of difference between (a) any amounts or values as calculated or determined by Prudential and (b) any amounts or values as calculated or determined by the Company or, if a party to the dispute, any amounts or values as calculated or determined by the Independent Fiduciary. The arbitrator will have no authority to award any other damages other than as provided for herein. |
5. | Judgment. Any arbitration award shall be final and binding on the Company, Prudential and, if a party to the dispute, the Independent Fiduciary. The Company, Prudential and, if a party to such dispute, the Independent Fiduciary undertake to carry out any award without delay and waive their respective rights to any form of recourse based on grounds other than personal conflict of interest of the arbitrator that was undisclosed at the time of the arbitrator’s appointment. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the Company, Prudential or, if a party to such dispute, the Independent Fiduciary, as applicable, or their respective assets. |
6. | Costs. The Company and Prudential shall share the fees and disbursements of the arbitrator equally (i.e., on a 50%/50% basis). The Company, Prudential and, if a party to the dispute, the Independent Fiduciary shall each bear their own costs and expenses incurred in connection with prosecuting and/or defending any arbitration dispute. |
7. | [***]. [***]. |
8. | Amended Schedules. If applicable, the Company, Prudential and the Independent Fiduciary will promptly amend the schedules hereto to reflect any arbitration decision. |
[***] | [***] | |||||||
[***] | [***] | [***] | ||||||
[***] | [***] | [***] | [***] | [***] | [***] |
1. | Jennison Associates LLC |
• | Jennison |
• | Jennison Associates |
2. | Quantitative Management Associates LLC |
3. | PGIM, Inc. |
• | Prudential Investments |
• | PGIM Investments |
• | Prudential Capital Group |
• | PGIM |
• | PGIM Fixed Income |
• | Prudential Fixed Income |
• | PGIM Institutional Advisory & Solutions |
• | PGIM Real Estate |
• | PGIM Global Partners |
• | Prudential Financial, Inc. |
• | PREI |
• | PGIM Real Estate Finance |
• | Prudential Real Estate Investors |
• | Pramerica Real Estate Investors |
• | Prudential Real Estate Fixed Income Investors |
• | PRICOA Capital Group |
• | Prudential Capital Partners |
• | Pramerica Capital Partners |
• | Pramerica Investment Management – Fixed Income |
• | PCG |
• | PRICOA Capital Group Limited |
• | PRICOA Capital Partners |
• | Prudential Capital Energy Partners |
• | PRICOA Capital Energy Partners |
• | Pramerica Capital Energy Partners |
4. | The Prudential Insurance Company of America |
• | Prudential Financial, Inc. |
5. | Prudential Trust Company |
6. | Prudential Retirement Insurance and Annuity Company |
7. | PGIM Limited |
• | PGIM Fixed Income |
• | PGIM Real Estate |
• | PGIM Real Estate Finance |
• | PRICOA Capital Group |
8. | PGIM Fund Management Limited |
• | PGIM Real Estate |
9. | Global Portfolio Strategies, Inc. |
10. | PGIM Investments LLC |
• | Prudential Investments LLC |
11. | Prudential Private Placement Investors, L.P. |
12. | AST Investment Services, Inc. |
13. | Prudential International Investment Advisers, LLC |
• | PGIM Global Partners |
14. | Pruco Securities LLC |
• | Prudential Financial Planning Services |
15. | PGIM Real Estate Finance, LLC |
• | PGIM Real Estate Finance |
• | Prudential Agricultural Investments |
• | PRICOA Mortgage Capital Company |
• | Prudential Mortgage Capital Company |
16. | PGIM Real Estate Luxembourg S.A. |
17. | Prudential Customer Solutions LLC |
Deliverable | Delivery Date | Action by the Company/Plan | Action by Prudential |
Preliminary Production Data File | September 27, 2018 | Deliver Preliminary Production Data File | Receive and reconcile Preliminary Production Data File to begin data cleanse and data mapping |
Final Production Data File | October 22, 2018 | Deliver Final Production Data File | Receive Final Production Data File |
Check Register October 31, 2018 and November 1, 2018 | October 22, 2018 | Deliver Check Register | Receive Check Register |
Update File | November 14, 2018 | Deliver Update File | Receive Update File |
Data Load File (related to Final Production Data File) | November 26, 2018 | Receive Data Load File | Deliver Data Load File |
Data Load File Sign-Off (related to Final Production Data File) | December 3, 2018 | Approve Data Load File | Receive Data Load File Sign-Off |
Update File | December 3, 2018 | Deliver Update File | Receive Update File |
1. | [***]. |
a. | [***], |
b. | [***], |
c. | [***], |
d. | [***], |
e. | [***], |
f. | [***], |
g. | [***], |
h. | [***], |
i. | [***], |
j. | [***], or |
k. | [***], |
2. | [***]. |
3. | [***]. |
a. | [***] |
b. | [***] |
c. | [***] |
4. | [***]. |
(4A) | [***]; |
(4B) | [***]; |
(4C) | [***]. |
(4D) | [***]. |
5. | [***]. |
(5A) | [***]; |
(5B) | [***]; |
(5C) | [***]. |
(5D) | [***]. [***]. |
(5E) | [***]. |
(5F) | [***]. [***]. |
(5G) | [***]: |
(i) | [***]. |
(ii) | [***]. |
6. | [***]. |
7. | [***]. |
8. | [***]. |
9. | [***]. |
a. | [***]. |
b. | [***]. |
c. | [***]. |
d. | [***]. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Earnings (loss) from continuing operations | $ | 562 | $ | 366 | $ | 1,351 | $ | 642 | |||||||
Discontinued operations | — | 29 | 345 | 42 | |||||||||||
Net earnings (loss) | 562 | 395 | 1,696 | 684 | |||||||||||
Effect of dilutive securities | — | — | — | — | |||||||||||
Net earnings - assuming dilution | $ | 562 | $ | 395 | $ | 1,696 | $ | 684 | |||||||
Average common shares outstanding | 407.4 | 412.9 | 411.4 | 412.6 | |||||||||||
Effect of dilutive securities | |||||||||||||||
Restricted stock performance share plan | 4.0 | 4.5 | 4.9 | 4.8 | |||||||||||
Average common shares outstanding - assuming dilution | 411.4 | 417.4 | 416.3 | 417.4 | |||||||||||
Earnings (loss) per common share from continuing operations | $ | 1.38 | $ | 0.89 | $ | 3.28 | $ | 1.55 | |||||||
Discontinued operations | — | 0.07 | 0.84 | 0.10 | |||||||||||
Net earnings (loss) per common share | $ | 1.38 | $ | 0.96 | $ | 4.12 | $ | 1.65 | |||||||
Earnings (loss) per common share from continuing operations - assuming dilution | $ | 1.37 | $ | 0.88 | $ | 3.25 | $ | 1.54 | |||||||
Discontinued operations | — | 0.07 | 0.83 | 0.10 | |||||||||||
Net earnings (loss) per common share - assuming dilution | $ | 1.37 | $ | 0.95 | $ | 4.08 | $ | 1.64 |
(1) | Attributable to International Paper Company common shareholders. |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||
TITLE | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||||||||
(A) | Earnings (loss) from continuing operations before income taxes and equity earnings | $ | 1,092.0 | $ | 734.0 | $ | 1,132.0 | $ | 795.0 | $ | 848.0 | $ | 651.0 | $ | 1,399.0 | ||||||||||||||
(B) | Noncontrolling interests, net of taxes | 17.0 | 19.0 | 21.0 | 2.0 | — | — | (3.0 | ) | ||||||||||||||||||||
(C) | Fixed charges excluding capitalized interest | 701.1 | 691.0 | 695.9 | 744.5 | 810.2 | 626.2 | 605.7 | |||||||||||||||||||||
(D) | Amortization of previously capitalized interest | 20.4 | 19.3 | 16.0 | 14.7 | 15.2 | 11.2 | 9.7 | |||||||||||||||||||||
(E) | Distributed income of equity investees | — | 56.1 | 35.0 | 59.7 | 136.5 | 131.4 | 130.9 | |||||||||||||||||||||
(F) | Earnings (loss) from continuing operations before income taxes and fixed charges | $ | 1,830.5 | $ | 1,519.4 | $ | 1,899.9 | $ | 1,615.9 | $ | 1,809.9 | $ | 1,419.8 | $ | 2,142.3 | ||||||||||||||
Fixed Charges | |||||||||||||||||||||||||||||
(G) | Interest and amortization of debt expense | $ | 648.3 | $ | 643.1 | $ | 643.5 | $ | 694.5 | $ | 757.9 | $ | 571.2 | $ | 546.9 | ||||||||||||||
(H) | Interest factor attributable to rentals | 52.8 | 47.9 | 52.4 | 50.0 | 52.3 | 55.0 | 58.8 | |||||||||||||||||||||
(I) | Preferred dividends of subsidiaries | 1.1 | — | — | — | — | — | — | |||||||||||||||||||||
(J) | Capitalized interest | 17.0 | 23.0 | 24.8 | 28.2 | 24.8 | 18.0 | 25.5 | |||||||||||||||||||||
(K) | Total fixed charges | $ | 719.2 | $ | 714.0 | $ | 720.7 | $ | 772.7 | $ | 835.0 | $ | 644.2 | $ | 631.2 | ||||||||||||||
(L) | Ratio of earnings to fixed charges | 2.55 | 2.13 | 2.64 | 2.09 | 2.17 | 2.20 | 3.39 |
1. | I have reviewed this quarterly report on Form 10-Q of International Paper Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
November 2, 2018 |
/s/ Mark S. Sutton |
Mark S. Sutton |
Chairman of the Board and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of International Paper Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
November 2, 2018 |
/s/ Tim S. Nicholls |
Tim S. Nicholls |
Senior Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mark S. Sutton |
Mark S. Sutton |
Chairman of the Board and Chief Executive Officer |
November 2, 2018 |
/s/ Tim S. Nicholls |
Tim S. Nicholls |
Senior Vice President and Chief Financial Officer |
November 2, 2018 |
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