SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, ~~2016~~2017



¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to



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

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Title of each class		Name of each exchange on which registered
Common Stock, $1 per share par value		New York Stock Exchange

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Large accelerated filer xý	Accelerated filer¨	Non-accelerated filer¨	Smaller reporting company¨	Emerging growth company ¨
		(Do not check if a smaller reporting company)

INTERNATIONAL PAPER COMPANY

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, ~~2016~~2017

INTERNATIONAL PAPER COMPANY

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, ~~2016~~2017

PART I.

ITEM 1. BUSINESS

GENERAL

International Paper Company (the “Company” or “International Paper,” which may also be referred to as “we” or “us”) is a global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa, ~~Asia~~India and Russia. We are a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more about us by visiting that site.

In the United States, at December 31, ~~2016~~2017, the Company operated 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at December 31, ~~2016~~2017 in Canada, Europe, ~~Asia,~~India, North Africa, ~~India,~~ Latin America included 1716 pulp, paper and packaging mills, 6847 converting and packaging plants, and two recycling plants. We operate a printing and packaging products distribution business principally through 129 branches in Asia. At December 31, ~~2016~~2017, we owned or managed approximately 329,000 acres of forestland in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions.

For management and financial reporting purposes, our businesses are separated into ~~four~~three segments: Industrial Packaging; Global Cellulose Fibers; and Printing Papers; and Consumer Packaging. Subsequent to the acquisition of the Weyerhaeuser pulp business in December 2016, the Company began reporting the Global Cellulose Fibers business as a separate busines segment due to the increased materiality of the results of this business. This segment includes the Company's legacy pulp business and the newly acquired pulp business. As such, amounts related to the legacy pulp business have been reclassified out of the Printing Papers business segment and into the new Global Cellulose Fibers business segment for all prior periods.Papers.

A description of these business segments can be found on pages 2423 and 2524 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s 50% equity interest in Ilim Holding S.A. ("Ilim") is also a separate reportable industry segment.

From ~~2012~~2013 through ~~2016,~~2017, International Paper’s capital expenditures approximated $6.8 billion, excluding mergers and acquisitions. These expenditures reflect

our continuing efforts to use our capital strategically to improve product quality and environmental performance, as well as lower costs and maintain reliability of operations. Capital spending in ~~2016~~2017 was approximately ~~$1.3~~$1.4 billion and is expected to be approximately $1.5 billion in ~~2017~~2018. You can find more information about capital expenditures on ~~pages 30 and 31~~page 28 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Discussions of acquisitions can be found on page 3128 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You can find discussions of restructuring charges and other special items on pages 2322 and 2423 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with all other reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet Web site at www.internationalpaper.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on or connected to our Web site is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we filed with or furnished to the SEC.

FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS

The financial information concerning segments is set forth in Note 19 Financial Information by Industry Segment and Geographic Area on pages 7978 through 8180 of Item 8. Financial Statements and Supplementary Data.

FINANCIAL INFORMATION ABOUT INTERNATIONAL AND U.S. OPERATIONS

The financial information concerning international and U.S. operations and export sales is set forth in Note 19 Financial Information by Industry Segment and Geographic Area on page 8180 of Item 8. Financial Statements and Supplementary Data.

COMPETITION AND COSTS

The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products

compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.

Many factors influence the Company’s competitive position, including price, cost, product quality and services. You can find more information about the impact of these factors on operating profits on pages 1820 through 3027 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can find information about the Company’s manufacturing capacities on page A-4 of Appendix II.

MARKETING AND DISTRIBUTION

The Company sells products directly to end users and converters, as well as through agents, resellers and paper distributors.

DESCRIPTION OF PRINCIPAL PRODUCTS

The Company’s principal products are described on pages 2423 and 2524 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Sales volumes of major products for ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 were as follows:

Sales Volumes by Product ~~(1)~~(a)

In thousands of short tons (except as noted) 2016 2015 2014
Industrial Packaging
North American Corrugated Packaging (3) 10,392
10,284
10,355
North American Containerboard 3,091
3,110
3,035
North American Recycling 2,402
2,379
2,459
North American Saturated Kraft 182
156
186
North American Gypsum/Release Kraft 200
171
168
North American Bleached Kraft 24
23
26
EMEA Industrial Packaging (3) (4) 1,477
1,417
1,379
Asian Box (3) (5) 208
426
407
Brazilian Packaging 371
348
362
Industrial Packaging 18,347
18,314
18,377
Cellulose Fibers (in thousands of metric tons) (2)
1,870
1,575
1,612
Printing Papers
U.S. Uncoated Papers 1,872
1,879
1,968
European and Russian Uncoated Papers 1,536
1,493
1,531
Brazilian Uncoated Papers 1,114
1,125
1,141
Indian Uncoated Papers 241
241
231
Uncoated Papers 4,763
4,738
4,871
Consumer Packaging
North American Consumer Packaging 1,189
1,425
1,486
European and Russian Coated Paperboard 393
381
354
Asian Coated Paperboard (6) —
958
1,358
Consumer Packaging 1,582
2,764
3,198



In thousands of short tons (except as noted)	2017	2016	2015
Industrial Packaging
Corrugated Packaging (c)	10,413	10,392	10,284
Containerboard	3,294	3,091	3,110
Recycling	2,257	2,450	2,379
Saturated Kraft	181	182	156
Gypsum/Release Kraft	229	200	171
Bleached Kraft	27	24	23
EMEA Packaging (c) (d)	1,518	1,477	1,417
Asian Box (c) (e)	—	208	426
Brazilian Packaging (c)	357	371	348
European Coated Paperboard	398	393	381
Industrial Packaging	18,674	18,788	18,695
Global Cellulose Fibers (in thousands of metric tons) (b)	3,708	1,870	1,575
Printing Papers
U.S. Uncoated Papers	1,915	1,872	1,879
European and Russian Uncoated Papers	1,483	1,536	1,493
Brazilian Uncoated Papers	1,167	1,114	1,125
Indian Uncoated Papers	253	241	241
Printing Papers	4,818	4,763	4,738

RESEARCH AND DEVELOPMENT

The Company operates its primary research and development center in Loveland, Ohio, as well as several other product development facilities, including the Global Cellulose Fibers technology center in Federal Way, ~~Washington that was acquired in 2016. Additionally, the Company has an interest in ArborGen, Inc., a joint venture with certain other forest products companies.~~Washington.

We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions, and to process, equipment and product innovations. Activities include product development within the operating divisions; studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials development; mechanical packaging systems, environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and packaging paper products; energy conservation; applications of computer controls to manufacturing operations; innovations and improvement of products; and development of various new products. Our development efforts specifically address product safety as well as the minimization of solid waste. The cost to the Company of its research and development operations was $28 million in 2017, $20 million in 2016, and $27 million in 2015~~, and~~ ~~$16 million~~ in ~~2014~~.

We own numerous patents, copyrights, trademarks, trade secrets and other intellectual property rights relating to our products and to the processes for their production. We also license intellectual property rights to and from others where advantageous or necessary. Many of the manufacturing processes are among our trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them as required to support our businesses.

ENVIRONMENTAL PROTECTION

International Paper is subject to extensive federal and state environmental regulation as well as similar regulations internationally. Our continuing objectives include: (1) controlling emissions and discharges from our facilities into the air, water and groundwater to avoid adverse impacts on the environment, and (2) maintaining compliance with applicable laws and regulations. The Company spent ~~$83~~$86 million in ~~2016~~2017 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. ~~The 2016~~We expect to spend $71 million in 2018 for environmental capital projects. Capital expenditures for 2019 environmental projects are anticipated to be approximately $87 million. Capital

expenditures for 2020 environmental projects are estimated to be $73 million.

The 2017 spend includedcosts associated with the U.S. Environmental Protection ~~Agency’s~~Agency's (EPA) Boiler MACT (maximum achievable control technology)regulations. We expect to spend $111 million in 2017 for environmental capital projects. Capital expenditures for 2018 environmental projects are anticipated to be approximately $54 million. Capital expenditures for 2019 environmental projects are estimated to be $51 million. On January 31, 2013, EPA issued the final suite of Boiler MACT regulations. These regulations that require owners of specified boilers to meet revised air emissions standards for certain substances. Several lawsuits ~~have been~~were filed to challenge all or portions of the Boiler MACT regulations. On December 23, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded the Boiler MACT regulations to the EPA requiring the agency to revise emission standards for boiler subcategories that had been affected by flawed calculations. The Court determined that the existing MACT standards should remain in place while the revised standards are being developed, but did not establish a deadline for the EPA to complete the rulemaking. ~~As such, the projected capital expenditures for environmental projects represent our current best estimate of future expenditures with the recognition that the~~The Company has completed its Boiler MACT ~~regulations could change~~capital projects to meet the existing regulations. We are not able to project any additional Boiler MACT capital project expenditures as ~~a result of new, revised standards.~~it is uncertain to what extent the EPA will revise Boiler MACT standards that are subject to the remand.

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

CLIMATE CHANGE

Climate change refers to any significant change in the measure of the earth’s climatic conditions such as temperature, precipitation, or winds that persist for decades or longer. Climate change can be caused by natural factors, such as changes in the sun’s intensity and ocean circulation, and human activities can also affect the composition of the earth’s atmosphere, such as from the burning of fossil fuels. In an effort to mitigate the potential of climate change impacts from human activities, various international, national and sub-national (regional, state and local) governmental actions have been or may be undertaken. Presently, these efforts have not materially impacted International Paper, but such efforts may have a material impact on the Company in the future.

International Efforts

A successor program to the 1997 Kyoto Protocol, the Paris Agreement, went into effect in November 2016 ~~which~~and continued international efforts and voluntary commitments toward reducing ~~Greenhouse gasses~~the emissions of greenhouse gases (GHGs). Consistent with this objective, participating

countries aim to balance GHG emissions generation and removal in the second half of this century or, in effect, achieve a net-zero global GHG emissions.

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

August 4, 2017, the U.S. filed official notice to withdraw from the Paris Agreement. Notwithstanding the notice of withdrawal by the U.S., the Company’s voluntary GHG reductions, which are set out in ~~the~~our annual Global ~~Reporting Initiative (GRI)~~Citizenship report, ~~are~~remain roughly in line with the percentages of the U.S. prior target reductions. It is not clear at this time what, if any, further reductions by the Company might be required by the countries in which we operate. Due to this uncertainty, it is not possible at this time to estimate the potential impacts of these agreements on the Company.

To assist member countries in meeting obligations under the Kyoto Protocol, the EU established and continues to operate an Emissions Trading System (EU ETS). Currently, we have two sites directly subject to regulation under Phase III of the EU ETS, one in Poland and one in France. Other sites that we operate in the EU experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the Company, but they could be material to the Company in the future depending on how the Paris ~~Agreement~~Agreement's non-binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the coming years.

~~National~~U.S. Efforts

In the U.S., the 1997 Kyoto Protocol was not ratified and Congress has not passed GHG legislation. The EPA, however, ~~has~~ enacted regulations to: (i) control GHGs from mobile sources by adopting transportation fuel efficiency standards; (ii) control GHG emissions from new Electric Generating Units (EGUs),; (iii) require reporting of GHGs from sources of GHGs greater than 25,000 tons per ~~year,~~year; (iv) in 2015, require states to develop plans to reduce GHGs from utility ~~electric generating units (EGUs)~~EGUs and (v) in 2016 EPA took the first steps in the process of developing emissions standards for existing sources in the oil and gas sector. The ~~EPA has not yet identified~~2017 change in leadership of the ~~pulp and paper industry~~U.S. executive branch may result in significant revisions to or rescission of the ~~sectors to be covered by new standards. However, we anticipate that at some future time pulp and paper sources may be subject to new~~EPA's GHG ~~NSPS rules.~~regulations. It is unclear what impacts, if any, the EPA's GHG regulatory revisions and any other future ~~GHG NSPS rules~~revisions will have on the Company’s operations.

In 2015, EPA promulgated the Clean Power Plan (CPP) rule to address climate change by reducing carbon dioxide (CO2) and other designated greenhouse gas pollutant emissions from utility EGUs. In response,

states ~~are~~were to develop and begin implementing programs to reduce GHGs from EGUs by about 32 percent by the 2022 to 2033 timeframe as compared to 2005 baseline levels. In October 2017, the EPA issued a regulatory action to withdraw the CPP in its entirety. Notwithstanding the withdrawal of the CPP, some states have remained committed to reaching the reduction targets set out in the CPP. These GHG reduction plans,

if implemented, could pose potential cost increases for electricity purchased by the Company. The magnitude of cost increases to the Company, if any, are not possible to estimate reliably at this time. Adding to the uncertainty, states and some industry parties have filed lawsuits challenging the rule, and on February 9, 2016, the U.S. Supreme Court granted a stay of the Clean Power Plan. The stay will remain in effect until final disposition of the case, and as such, the rule’s potential impact on the Company remains unclear.

State, Regional and Local Measures

A few U.S. states have enacted or are considering legal measures to require the reduction of emissions of GHGs by companies and public utilities, primarily through the development of GHG emission inventories or regional GHG cap-and-trade programs. California has already enacted such a program and similar actions are being considered by Oregon. The Company does not have any sites currently subject to California's GHG regulatory plan and since the Oregon program is still being developed, it is too early to know how or if Company owned sites in Oregon may be affected. There may be indirect impacts from changing input costs (such as electricity) at some of our California converting operations but these have yet to manifest themselves in material impacts. Although we are monitoring proposed programs in other states, it is unclear what impacts, if any, state-level GHG rules will have on the Company’s operations. Further state measures are under substantive review as they respond to the withdrawal of the EPA’s 2015 Clean Power Plan and develop an implementation plan over the next 1 to 3 years. The CPP allows significant flexibility in how states develop their plans, so the uncertainty regarding potential impacts will remain high until more specificity is reached and individual power companies develop their compliance strategies.CPP.

Summary

Regulation of GHGs continues to evolve in various countries in which we do business. While it is likely that there will be increased governmental action regarding GHGs and climate change, any material impact to the ~~company~~Company is not likely to occur before 2020 and at this time it is not reasonably possible to estimate Company costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct impacts, future legislation and regulation could have indirect impacts on International Paper, such as higher prices for transportation, energy and other inputs, as well as more protracted air permitting processes,

causing delays and higher costs to implement capital projects. International Paper has controls and procedures in place to stay informed about developments concerning possible climate change legislation and regulation in the U.S. and in other countries where we operate. We regularly assess whether such legislation or regulation may have a material effect on the Company, its operations or financial condition, and whether we have any related disclosure obligations.

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

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

Additional information regarding climate change and International Paper is available in our ~~2015~~2016 Global ~~Reporting Initiative (GRI)~~Citizenship report found on our Internet Web site at ~~http://www.internationalpaper.com/docs/default-source/english/sustainability/2015-gri-report.pdf?sfvrsn=26~~www.internationalpaper.com, though this information is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

EMPLOYEES

As of December 31, ~~2016~~2017, we have approximately ~~55,000~~56,000 employees, nearly 36,000 of whom are located in the United States. Of the U.S. employees, approximately 25,000 are hourly, with unions representing approximately 15,000 employees. Approximately ~~11,500~~12,000 of this number are represented by the United Steelworkers union (USW).

International Paper, the USW, and several other unions have entered into two master agreements covering various mills and converting facilities. These master agreements cover several specific items, including wages, select benefit programs, successorship, employment security, and health and safety. Individual facilities continue to have local agreements for other subjects not covered by the master agreements. If local facility agreements are not successfully negotiated at the time of expiration, under the terms of the master agreements the local contracts will automatically renew with the same terms in effect. The ~~mill~~ master ~~agreement covers 19~~agreements cover the majority of our ~~U.S. pulp, paper,~~union represented mills and ~~packaging mills; the converting agreement includes 61 of our~~ converting facilities. In addition, International Paper is party to a master agreement with District Council 2, International Brotherhood of Teamsters, covering 13 additional converting facilities.

During 2016, local labor agreements were negotiated at four mills and 13 converting facilities. Two of these were locations not covered by a master agreement. In 2017, local labor agreements are scheduled to be negotiated at 24 facilities, including seven mills and 17 converting facilities. 23 of these agreements will automatically renew under the terms of the applicable master agreement if new agreements are not reached.

EXECUTIVE OFFICERS OF THE REGISTRANT

Mark S. Sutton, ~~55,~~56, chairman (since January 1, 2015) & chief executive officer (since November 1, 2014). Mr. Sutton previously served as president & chief operating officer from June 1, 2014 to October 31, 2014, senior vice president - industrial packaging from November 2011 to May 31, 2014, senior vice president - printing and communications papers of the Americas

from 2010 until 2011, senior vice president - supply chain from 2008 to 2009, vice president - supply chain from 2007 until 2008, and vice president - strategic planning from 2005 until 2007. Mr. Sutton joined International Paper in 1984. Mr. Sutton serves on the board of directors of The Kroger Company. He is a member of The Business Council and the Business Roundtable and serves on the American Forest & Paper Association board of directors and the international advisory board of the Moscow School of Management - Skolkovo. He was appointed chairman of the U.S. Russian Business Council and was also appointed to the U.S. Section of the U.S.-Brazil CEO Forum. He also serves on the board of directors of Memphis Tomorrow and board of governors for New Memphis Institute. Mr. Sutton has been a director since June 1, 2014.

W. Michael Amick, Jr., ~~53,~~54, senior vice president - paper the Americas & India since January 1, 2017. Mr. Amick previously served as senior vice president - North American papers & consumer packaging from July 2016 until December 2016, senior vice president - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president - president, IP India, from August 2012 to October 2014, and vice president and general manager for the coated paperboard business from 2010 to 2012. Mr. Amick joined International Paper in 1990.

C. Cato Ealy, ~~60,~~61, senior vice president - corporate development since 2003. Mr. Ealy is a director of Ilim Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ealy joined International Paper in 1992.

~~William P. Hoel,~~ 60, senior vice president since January 2017. Mr. Hoel previously served as senior vice president - Container The Americas from February 2012 until December 2016, vice president, Container The Americas, from 2005 until 2012, senior vice president, corporate sales and marketing, from 2004 until 2005, and vice president, Wood Products, from 2000 until 2004. Mr. Hoel joined International Paper in 1983.

Tommy S. Joseph, ~~57,~~58, senior vice president - manufacturing, technology, EH&S and global sourcing since January 2010. Mr. Joseph previously

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

~~Thomas G. Kadien,~~Glenn R. Landau, ~~60,~~49, senior vice president ~~- human resources, government relations~~ & ~~global citizenship~~chief financial officer since ~~November 1, 2014.~~February 22, 2017. Mr. ~~Kadien~~Landau previously served as senior vice president - ~~consumer packaging and IP Asia~~finance from January ~~2010~~1, 2017 to October 31, 2014, and senior vice president and president - xpedx from 2005 until 2009. Mr. Kadien serves on the board of directors of The Sherwin-Williams Company. Mr. Kadien joined International Paper in 1978.

~~Glenn R. Landau,~~ ~~48, senior vice president - finance since January 1, 2017. Mr. Landau previously served as~~February 22, 2017, senior vice president - president, IP Latin America from November 2014 through December 2016, vice president - president IP Latin America from 2013 to October 2014, vice president - investor relations from 2011 to 2013, and vice president and general manager, containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory

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

Timothy S. Nicholls, ~~55,~~56, senior vice president - industrial packaging the Americas since January 1, 2017. Mr. Nicholls previously served as senior vice president - industrial packaging from November 2014 through December 2016, senior vice president - printing and communications papers of the Americas from November 2011 through October 2014, senior vice president and chief financial officer from 2007 until 2011, vice president and executive project leader of IP Europe during 2007, and vice president and chief financial officer - IP Europe from 2005 until 2007. Mr. Nicholls joined International Paper in 1991.

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

Jean-Michel Ribieras, ~~54,~~55, senior vice president - global cellulose fibers since July 2016. Mr. Ribieras previously served as senior vice president - president, IP Europe, Middle East, Africa & Russia from 2013 until June 2016, and president - IP Latin America from 2009 until 2013. Mr. Ribieras ~~is a director of Ilim Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ribieras~~ joined International Paper in 1993.

~~Carol L. Roberts,~~ 57, senior vice president & chief financial officer since November 2011. Ms. Roberts previously served as senior vice president - industrial packaging from 2008 until 2011 and senior vice president - IP packaging solutions from 2005 until 2008. Ms. Roberts serves on the board of directors of

~~Alcoa Corp., VF Corporation, the Yale University Presidents Advisory Council, and the local governing board of the University of Memphis. Ms. Roberts joined International Paper in 1981.~~

Sharon R. Ryan, ~~57,~~58, senior vice president, general counsel & corporate secretary since November 2011. Ms. Ryan previously served as vice president, acting general counsel & corporate secretary from May 2011 until November 2011, vice president from March 2011 until May 2011, associate general counsel, chief ethics and compliance officer from 2009 until 2011, and associate general counsel from 2006 until 2009. Ms. Ryan joined International Paper in 1988.

John V. Sims, ~~54,~~55, senior vice president - president, IP Europe, Middle East, Africa & Russia since July 2016. Mr. Sims previously served as vice president and general manager, European papers from March 2016 until June 2016, vice president & general manager, North American papers from 2013 until February 2016, and vice president, finance and strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Sims joined International Paper in 1994.

Catherine I. Slater, ~~53,~~54, senior vice president since January 2018. Ms. Slater previously served as senior vice president - consumer packaging ~~since~~from December ~~2016.~~

2016 to December 2017. Ms. Slater joined International Paper from Weyerhaeuser Company in December 2016, effective with the completion of the acquisition of Weyerhaeuser’s cellulose fibers business, which she previously led. Ms. Slater’s 24-year career with Weyerhaeuser included leadership roles in manufacturing, printing papers, consumer products, wood products ~~distribution~~ and the cellulose fibers business.

Gregory T. Wanta, ~~51,~~52, senior vice president - North American container since ~~December~~November 2016. Mr. Wanta has served in a variety of roles of increasing responsibility in manufacturing and commercial leadership roles in specialty papers, coated paperboard, printing papers, foodservice and industrial packaging, including vice president, central region, Container the Americas, from January 2012 through ~~November~~October 2016. Mr. Wanta joined International Paper in 1991.

RAW MATERIALS

Raw materials essential to our businesses include wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain chemicals, including caustic soda and starch. Information concerning fiber supply purchase agreements that were entered into in connection with the Company’s 2006 Transformation Plan, the 2008

acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business, and the 2016 acquisition of Weyerhaeuser's pulp business is presented in ~~Note 11 Commitments and Contingent Liabilities~~on page ~~61 of~~ ~~Item 8. Financial Statements and Supplementary Data~~.30.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K (including the exhibits hereto) that are not historical in nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the

impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) ~~changes in our estimates for the costs and insurance coverage associated with the recent incident at our Pensacola, Florida mill and for the time required to resume full operations at the mill; (vi)~~ whether we experience a material disruption at one of our ~~other~~ manufacturing facilities; ~~(vii)~~(vi) risks inherent in conducting business through a joint venture; ~~(viii) the failure to realize the expected synergies~~ and ~~cost-savings from our purchase of the cellulose fibers business of Weyerhaeuser Company; and (ix)~~(vii) our ability to achieve the benefits we expect from all ~~other~~ acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail below in “Item 1A. Risk Factors.” We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1A. RISK FACTORS

In addition to the risks and uncertainties discussed elsewhere in this Annual Report on Form 10-K (particularly in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), or in the Company’s other filings with the Securities and Exchange Commission, the following are some important factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statement.

RISKS RELATING TO INDUSTRY CONDITIONS

CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR PROFITABILITY. We rely heavily on the use of certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda and starch), energy sources (principally natural gas, coal and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies based upon availability and source. In addition, the increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may cause an occasional tightening in the supply of recycled fiber. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may continue to fluctuate in the future. Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials, energy sources and transportation sources.

THE INDUSTRIES IN WHICH WE OPERATE EXPERIENCE BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES. FLUCTUATIONS IN THE PRICES OF, AND THE DEMAND FOR, OUR PRODUCTS COULD MATERIALLY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND

CASH FLOWS. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions. The length and magnitude of these cycles have varied over time and by product. In addition, changes in consumer preferences may increase or decrease the demand for our ~~fiber-based products and non-fiber substitutes.~~products. These consumer preferences affect the prices of our products. Consequently, our ~~operating cash flow is~~financial results are sensitive to changes in the pricing and demand for our products.

COMPETITION IN THE UNITED STATES AND INTERNATIONALLY COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate in a competitive environment, both in the United States and internationally, in all of our operating segments. Product innovations, manufacturing and operating efficiencies, and marketing, distribution and pricing strategies

pursued or achieved by competitors could negatively impact our financial results.

RISKS RELATING TO MARKET AND ECONOMIC FACTORS

ADVERSE DEVELOPMENTS IN GENERAL BUSINESS AND ECONOMIC CONDITIONS COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General economic conditions may adversely affect industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels and consumer confidence, all of which impact demand for our products. In addition, volatility in the capital and credit markets, which impacts interest rates, currency exchange rates and the availability of credit, could have a material adverse effect on our business, financial condition and our results of operations.

THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, ~~2016~~2017, International Paper had approximately ~~$11.3~~$11.2 billion of outstanding indebtedness. The level of our indebtedness could have important consequences to our financial condition, operating results and business, including the following:

it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, dividends, share repurchases, debt service requirements, acquisitions and general corporate or other purposes;

a portion of our cash flows from operations will be dedicated to payments on indebtedness and will not be available for other purposes, including

operations, capital expenditures and future business opportunities;

the debt service requirements of our indebtedness could make it more difficult for us to satisfy other obligations;

our indebtedness that is subject to variable rates of interest exposes us to increased debt service obligations in the event of increased interest rates;

it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and

it may increase our vulnerability to a downturn in general economic conditions or in our business, and may make us unable to carry out capital spending that is important to our growth.

In addition, we are subject to agreements that require meeting and maintaining certain financial ratios and covenants. A significant or prolonged downturn in general business and economic conditions may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives.

CHANGES IN CREDIT RATINGS ISSUED BY NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULD ADVERSELY AFFECT OUR COST OF FINANCING AND HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR SECURITIES. Maintaining an investment-grade credit rating is an important element of our financial strategy, and a downgrade of the Company’s ratings below investment grade may limit our access to the capital markets, have an adverse effect on the market price of our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability position. The Company’s desire to maintain its investment grade rating may cause the Company to take certain actions designed to improve its cash flow, including sale of assets, suspension or reduction of our dividend and reductions in capital expenditures and working capital.

Under the terms of the agreements governing approximately ~~$2.3~~$1.4 billion of our debt as of December 31, ~~2016~~2017, the applicable interest rate on such debt may increase upon each downgrade in our credit rating below investment grade. As a result, a downgrade in our credit rating below investment grade may lead to an increase in our interest expense. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment,

circumstances so warrant. Any such downgrade of our credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur.

DOWNGRADES IN THE CREDIT RATINGS OF BANKS ISSUING CERTAIN LETTERS OF CREDIT WILL INCREASE OUR COST OF MAINTAINING CERTAIN INDEBTEDNESS AND MAY RESULT IN THE ACCELERATION OF DEFERRED TAXES. We are subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes delivered to Temple-Inland in connection with Temple-Inland's 2007 sales of forestlands may be downgraded below a required rating. Since 2007, certain banks have fallen below the required ratings threshold and were successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing uncertainty in the banking environment, a number of

the letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified replacement banks remains limited. The downgrade of one or more of these banks may subject the Company to additional costs of securing a replacement letter-of-credit bank or could result in an acceleration of payments of up to ~~$831~~$538 million in deferred income taxes if replacement banks cannot be obtained. The deferred taxes are currently recorded in the Company's consolidated financial statements. See Note 12, Variable Interest Entities, on pages 6463 through ~~66,~~64, and Note 10, Income Taxes, on pages 5957 through ~~61,~~60, in Item 8. Financial Statements and Supplementary Data for further information.

OUR PENSION AND HEALTH CARE COSTS ARE SUBJECT TO NUMEROUS FACTORS WHICH COULD CAUSE THESE COSTS TO CHANGE. We have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to July 1, 2004 and substantially all hourly and union employees regardless of hire date. We provide retiree health care benefits to certain former U.S. hourly employees, as well as financial assistance towards the cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and changes in the number of retirees may result in increased pension costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected rates of return on plan assets could increase pension costs. Health care reform under the Patient Protection and Affordable Care Act of 2010, and modifications thereto, could also increase costs with respect to medical coverage of the Company’s full-time employees. Significant changes in any of these factors may adversely impact our cash flows, financial condition and results of operations.

OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE

REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record a liability associated with our pension plans equal to the excess of the benefit obligation over the fair value of plan assets. The benefit liability recorded under the provisions of Accounting Standards Codification (ASC) 715, “Compensation – Retirement Benefits,” at December 31, ~~2016~~2017 was ~~$3.4~~$2.0 billion. The amount and timing of future contributions will depend upon a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.

CHANGES IN INTERNATIONAL CONDITIONS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected by risks related to the countries outside the United States in which we have manufacturing facilities or sell our products. Specifically, Russia, Brazil, Poland, India, and Turkey, where we have substantial manufacturing facilities, are countries that are exposed to economic and political instability in their respective regions of the world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalization or any change in social, political or labor conditions in any of these countries or regions could negatively affect our financial results. Trade protection measures in favor of local producers of competing products, including governmental subsidies, tax benefits and other measures giving local producers a competitive advantage over International Paper, may also adversely impact our operating results and business prospects in these countries. Likewise, disruption in existing trade agreements (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) could have a negative effect on our business and results of operations by restricting the free flow of goods and services across borders. In addition, our international operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including the imposition of civil or criminal sanctions and the prosecution of executives overseeing our international operations.

RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS

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

For example, we have incurred, and expect that we will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and

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

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

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

RESULTS OF LEGAL PROCEEDINGS COULD HAVE A MATERIAL EFFECT ON OUR CONSOLIDATED FINANCIAL STATEMENTS. The costs and other effects of pending litigation against us cannot be determined with certainty. Although we do not believe that the outcome of any pending or threatened lawsuits or claims will have a material effect on our business or consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will be as expected.

RISKS RELATING TO OUR OPERATIONS

MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate our facilities in compliance with applicable rules and regulations and take measures to minimize the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:

fires, floods, earthquakes, hurricanes or other catastrophes;

the effect of a drought or reduced rainfall on its water supply;

the effect of other severe weather conditions on equipment and facilities;

terrorism or threats of terrorism;

domestic and international laws and regulations applicable to our Company and our business partners, including joint venture partners, around the world;

unscheduled maintenance outages;

prolonged power failures;

an equipment failure;

a chemical spill or release;

explosion of a boiler or other equipment;

damage or disruptions caused by third parties operating on or adjacent to one of our manufacturing facilities;

disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

widespread outbreak of an illness or any other communicable disease, or any other public health crisis;

labor difficulties; and

other operational problems.

Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned expenditures. If one of these machines or facilities were to incur significant downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on our business and financial results.

For example, on January 22, 2017, we experienced significant structural damage to the largest pulp digester as well as the power house at our Pensacola pulp and paper mill in Cantonment, Florida. We restarted the power house and resumed partial operations producing fluff pulp at the mill using a series of small batch digesters within a couple weeks. Repairing the damaged digester will take more time, however, and we know that we will not be able to resume full operations producing containerboard at the mill during the first quarter of 2017.

WE ARE SUBJECT TO INFORMATION TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, EMPLOYEE AND VENDOR INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business operations rely upon secure information technology systems for data capture, processing, storage and reporting. Despite careful security and controls design,

implementation, updating and independent third party verification, our information technology systems, and those of our third party providers, could become subject to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, application and data breaches could result in operational disruptions or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with International Paper. Access to internal applications required to plan our operations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of intellectual property or trade secrets, and inappropriate disclosure of confidential company, employee, customer or vendor information, could stem from such incidents. Any of these operational disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity and could have a material effect on our business.

CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operations in Russia are carried on by a joint venture, Ilim. In joint ventures, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information and making decisions. In joint ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co-owners, so we receive only our portion of those benefits.

WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM ACQUISITIONS, JOINT VENTURES, DIVESTITURES AND OTHER CORPORATE TRANSACTIONS. Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to accomplish prudent acquisitions, joint ventures, divestitures and other corporate transactions and to realize the benefits we expect from such transactions, and we are subject to the risk that we may not achieve the expected benefits. Among the benefits we expect from potential as well as completed acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher strategic value on such businesses and assets

than does International Paper.

On ~~December~~January 1, ~~2016,~~2018, for example, we completed a transaction transferring our ~~acquisition~~North American Consumer Packaging business to Graphic Packaging in exchange for, among other things, an equity interest in the combined business of ~~Weyerhaeuser's pulp business.~~20.5%, as of immediately following the closing, and the assumption by the combined business of $660 million of indebtedness that we incurred prior to closing of the transaction. The success of the ~~acquisition~~transaction will depend, in part, on ~~our ability to realize~~ the anticipated synergies, cost savings and growth opportunities from integrating the acquired business with our existing businesses. The integration process may be complex, costly and time-consuming, and we may not accomplish the integrationfinancial performance of ~~the business smoothly, successfully or within the anticipated costs or timeframe. Potential integration risks include, among other things, our ability to successfully implement our business plan for~~ the combined business and ~~retain key customers, suppliers~~on the ability of the combined business to realize anticipated growth opportunities, cost savings and ~~employees.~~other synergies. The success of the combined business in realizing these growth opportunities, cost savings and other synergies, and the timing of this realization, will depend on the successful integration of our North American Consumer Packaging business with Graphic Packaging's business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

FORESTLANDS

As of December 31, ~~2016~~,2017, the Company owned or managed approximately 329,000 acres of forestlands in Brazil, and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. All owned lands in Brazil are independently third-party certified for sustainable forestry under the Brazilian National Forest Certification Program (CERFLOR) and the Forest Stewardship Council (FSC).

MILLS AND PLANTS

A listing of our production facilities by segment, the vast majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference.

The Company’s facilities are in good operating condition and are suited for the purposes for which they are presently being used. We continue to study the economics of modernization or adopting other alternatives for higher cost facilities.

CAPITAL INVESTMENTS AND DISPOSITIONS

Given the size, scope and complexity of our business interests, we continually examine and evaluate a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. You can find a discussion about the level of planned capital investments for ~~2017~~2018 on page ~~31 and 32,~~28, and dispositions and restructuring activities as of December 31, ~~2016~~,2017, on pages 2321 and 2422 of Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations, and on ~~page 54~~pages 51 and pages ~~56 and 57~~53 through 55 of Item 8. Financial Statements and Supplementary Data.

ITEM 3. LEGAL PROCEEDINGS

Information concerning the Company’s legal proceedings is set forth in Note 11 Commitments and Contingencies on pages 6160 through 63 of Item 8. Financial Statements and Supplementary Data.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Dividend per share data on the Company’s common stock and the high and low sales prices for the Company’s common stock for each of the four quarters in ~~2016~~2017 and ~~2015~~2016 are set forth on page 8381 of Item 8. Financial Statements and Supplementary Data. As of

the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Stock Exchange. As of February ~~17, 2017~~16, 2018, there were approximately ~~12,311~~11,766 record holders of common stock of the Company.

The table below presents information regarding the Company’s purchase of its equity securities for the time periods presented.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares (or Units) Purchased as Part of Publicly Announced Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
October 1, 2016 - October 31, 2016 —

$—
—
$0.933
November 1, 2016 - November 30, 2016 9,096
45.03
—
0.933
December 1, 2016 - December 31, 2016 2,642
52.29
—
0.933
Total 11,738



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
October 1, 2017 - October 31, 2017	78	$	56.82	—	$	0.933
November 1, 2017 - November 30, 2017	—	—		—	0.933
December 1, 2017 - December 31, 2017	5,257	56.96		—	0.933
Total	5,335

PERFORMANCE GRAPH

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

The following graph compares a $100 investment in Company stock on December 31, ~~2011~~2012 with a $100 investment in our Return on Invested Capital (ROIC) Peer Group and the S&P 500 also made at market close on December 31, ~~2011.~~2012. The graph portrays total return, ~~2011–2016,~~2012–2017, assuming reinvestment of dividends.

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

Note 2: Returns are calculated in $USD.

FIVE-YEAR FINANCIAL SUMMARY (a)

FINANCIAL GLOSSARY

Current ratio—

current assets divided by current liabilities.

Total debt to capital ratio—

long-term debt plus notes payable and current maturities of long-term debt divided by long-term debt, notes payable and current maturities of long-term debt and total shareholders’ equity.

Return on shareholders’ equity—

net earnings attributable to International Paper Company divided by average shareholders’ equity (computed monthly).

FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY


(a)	All periods presented have been restated to reflect the North American Consumer Packaging business, xpedx business, and the Temple-Inland Building Products business as discontinued operations (excluding cash flow related items) and prior period amounts have been adjusted to conform with current year presentation, if applicable.

~~2016:~~

2017:

(b) Includes the following charges (gains):

2016
In millions Before Tax After Tax
Riegelwood mill conversion costs $ 9
$ 6
India Packaging evaluation write-off 17
11
Write-off of certain regulatory pre-engineering costs 8
5
Early debt extinguishment costs 29
18
Costs associated with the newly acquired pulp business 31
21
Asia Box impairment / restructuring 70
58
Gain on sale of investment in Arizona Chemical (8 ) (5 )
Turkey mill closure
7
6
Amortization of Weyerhaeuser inventory fair value step-up 19
11
Total special items $ 182
$ 131
Non-operating pension expense 610
375
Total $ 792
$ 506



	2017
In millions	Before Tax			After Tax
Gain on sale of investment in ArborGen	$	(14	)	$	(9	)
Costs associated with the pulp business acquired in 2016	33			20
Amortization of Weyerhaeuser inventory fair value step-up	14			8
Holmen bargain purchase gain	(6		)	(6		)
Abandoned property removal	20			13
Kleen Products settlement	354			219
Asia Foodservice sale	9			4
Brazil Packaging wood supply accelerated amortization	10			7
Debt extinguishment costs	83			51
Interest income on income tax refund claims	(5		)	(3		)
Other items	(2		)	(2		)
Total special items	$	496		$	302
Non-operating pension expense	484			298
Total	$	980		$	600

(c) Includes ~~a pre-tax charge~~the operating earnings of ~~$8 million ($5 million after taxes)~~the North American Consumer Packaging business for ~~a legal settlement associated with~~ the ~~xpedx business.~~full year. Also includes the following charges (gains):



	2017
In millions	Before Tax		After Tax
North American Consumer Packaging transaction costs	$	17	$	10
Non-operating pension expense	45		28
Total	$	62	$	38

(d) Includes the following tax expenses (benefits):

In millions 2016
Cash pension contribution $ 23
U.S. Federal audit (14 )
Brazil goodwill (57 )
International legal entity restructuring (6 )
Luxembourg tax rate change 31
Total $ (23 )



In millions	2017
International legal entity restructuring	$	34
Income tax refund claims	(113		)
Cash pension contribution	38
International Tax Law Change	9
Tax benefit of Tax Cuts and Jobs Act	(1,222		)
Tax impact of other special items	$	(1,254	)

~~2015:~~

2016:

(e) Includes the following charges (gains):

2015
In millions Before Tax After Tax
Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated Bristols brand $ 8
$ 4
Timber monetization restructuring 16
10
Early debt extinguishment costs 207
133
IP-Sun JV impairment 174
180
Legal reserve adjustment 15
9
Refund and state tax credits (4 ) (2 )
Impairment of Orsa goodwill and trade name intangible 137
137
Other items 6
5
Total special items $ 559
$ 476
Non-operating pension expense 258
157
Total $ 817
$ 633



	2016
In millions	Before Tax			After Tax
Riegelwood mill conversion costs	$	9		$	6
India Packaging evaluation write-off	17			11
Write-off of certain regulatory pre-engineering costs	8			5
Early debt extinguishment costs	29			18
Costs associated with the newly acquired pulp business	31			21
Asia Box impairment / restructuring	70			58
Gain on sale of investment in Arizona Chemical	(8		)	(5		)
Turkey mill closure	7			6
Amortization of Weyerhaeuser inventory fair value step-up	19			11
Total special items	$	182		$	131
Non-operating pension expense	610			375
Total	$	792		$	506

(f) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following charges (gains):



	2016
In millions	Before Tax		After Tax
xpedx legal settlement	$	8	$	5
Total	$	8	$	5

(g) Includes the following tax expenses (benefits):

In millions 2015
IP-Sun JV impairment $ (67 )
Cash pension contribution 23
Other items 7
Total $ (37 )



In millions	2016
Cash pension contribution	$	23
U.S. Federal audit	(14		)
Brazil goodwill	(57		)
International legal entity restructuring	(6		)
Luxembourg tax rate change	31
Tax impact of other special items	$	(23	)

2015:

(h) Includes the following charges (gains):



	2015
In millions	Before Tax			After Tax
Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated Bristols brand	$	8		$	4
Timber monetization restructuring	16			10
Early debt extinguishment costs	207			133
IP-Sun JV impairment	174			180
Legal reserve adjustment	15			9
Refund and state tax credits	(4		)	(2		)
Impairment of Orsa goodwill and trade name intangible	137			137
Other items	6			5
Total special items	$	559		$	476
Non-operating pension expense	258			157
Total	$	817		$	633

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

(j) Includes the following tax expenses (benefits):



In millions	2015
IP-Sun JV impairment	$	(67	)
Cash pension contribution	23
Other items	7
Tax impact of other special items	$	(37	)

2014:

~~(g)~~(k) Includes the following charges (gains):



	2014
In millions	Before Tax			After Tax
Temple-Inland integration	$	16		$	10
Courtland mill shutdown	554			338
Early debt extinguishment costs	276			169
India legal contingency resolution	(20		)	(20		)
Multi-employer pension plan withdrawal liability	35			21
Foreign tax amnesty program	32			17
Asia Industrial Packaging goodwill impairment	100			100
Loss on sale by investee and impairment of investment	47			36
Other items	12			9
Total special items	$	1,052		$	680
Non-operating pension expense	212			129
Total	$	1,264		$	809

~~(h)~~

(l) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business prior to the spin-off and the following charges (gains):



	2014
In millions	Before Tax		After Tax
xpedx spinoff	$	24	$	16
Building Products divestiture	16		9
xpedx restructuring	1		(1		)
Total	$	41	$	24

~~(i)~~

(m) Includes the following tax expenses (benefits):


In millions	2014			2014
State legislative tax change	$	10		$	10
Internal restructuring	(90		)	(90		)
Other items	(1		)	(1		)
Total	$	(81	)
Tax impact of other special items				$	(81	)

2013:

~~(j)~~(n) Includes the following charges (gains):


	2013						2013
In millions	Before Tax			After Tax			Before Tax			After Tax
Temple-Inland integration	$	62		$	38		$	62		$	38
Courtland mill shutdown	118			72			118			72
Early debt extinguishment costs	25			16			25			16
Insurance reimbursement related to legal settlement	(30		)	(19		)	(30		)	(19		)
Shut down of paper machine at Augusta mill	45			28
India Papers tradename and goodwill impairment	127			122			127			122
Fair value adjustment of company airplanes	9			5			9			5
Cass Lake environmental reserve	6			4			6			4
Bargain purchase adjustment - Turkey	(13		)	(13		)	(13		)	(13		)
Other items	(5		)	2			(5		)	2
Total	$	344		$	255
Total special items							$	299		$	227
Non-operating pension expense	323			197			323			197
Total	$	667		$	452		$	622		$	424

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

(p) Includes the following tax expenses (benefits):



In millions	2013
Settlement of U.S. federal tax audits	$	(744	)
Income tax reserve release	(31		)
Other items	1
Tax impact of other special items	$	(774	)

In millions 2013
Settlement of U.S. federal tax audits $ (744 )
Income tax reserve release (31 )
Other items 1
Total $ (774 )

~~2012:~~

~~(m) Includes the following charges (gains):~~

Table of Contents

2012
In millions Before Tax After Tax
Temple-Inland integration $ 164
$ 105
Early debt extinguishment costs 48
30
EMEA packaging business restructuring 17
12
Temple-Inland inventory fair value adjustment 20
12
Hueneme mill long-lived asset fair value adjustment 62
38
Containerboard mill divestitures 29
55
Other (5 ) (5 )
Total $ 335
$ 247
Non-operating pension expense 159
113
Total $ 494
$ 360

~~(n) Includes the operating earnings of the xpedx business and the Temple-Inland Building Products business for the full year. Also includes the following charges (gains):~~

2012
In millions Before Tax After Tax
Building Products divestiture $ 15
$ 9
xpedx restructuring 44
28
Total $ 59
$ 37

~~(o) Includes the following tax expenses (benefits):~~

In millions 2012
Internal restructuring $ 14
Deferred tax asset adjustment related to Medicare Part D reimbursement 5
Other 6
Total $ 25

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

~~Diluted~~International Paper delivered a year of strong performance in 2017, driven by excellent commercial execution across our businesses. Our Global Cellulose Fibers business is on track to achieve the estimated transaction synergies. We continued to grow value for our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth consecutive year. We made substantial progress in further strengthening our portfolio during 2017. We accelerated strategic investments for growth in the Industrial Packaging business, providing the Company with the flexibility we need around capacity, products and geography to support our customers. In addition, the Company made an important strategic move to transfer the North American Consumer Packaging business, which included the North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. This strategic move enables us to focus on growing value in our core businesses and establish a 20.5% ownership interest in the subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Finally, we generated strong free cash flow which enabled us to increase our annual dividend for the sixth consecutive year.

Our 2017 results reflect significant pricing and mix improvement, which accelerated throughout the year. The improvement in price and mix was primarily driven by price realization on price increases announced in prior quarters in our North American Industrial Packaging and Global Cellulose Fibers businesses. Operations were negatively impacted by hurricanes and the Pensacola event earlier in the year; however, 2017 was a lower maintenance outage year. Input costs were higher compared to 2016, driven by significantly higher recovered fiber costs, as well as, higher energy and transportation costs during the latter part of the year. Our Ilim joint venture delivered solid operational and financial results, driven by pricing and strong volume, and provided more than $130 million in cash dividends to International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associated with the impact of the December 2017 enactment of the Tax Cuts and Jobs Act.

Looking ahead to the 2018 first quarter, overall industry conditions are expected to remain strong, and we should continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect higher export price realization in our North American Industrial Packaging business and improved pricing in our Printing Papers segment, as price increases

implemented in 2017 are realized. We also expect 2018 first quarter sales volumes for North American Industrial Packaging and Brazil Papers to be down due to seasonally lower demand. Our North American mill operations have been affected by the severe cold weather experienced at the beginning of 2018 which is expected to impact operating costs. Costs will be higher in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due to a heavy outage quarter, as 70% of the Company outages are planned during the first half of 2018. Input costs are expected to increase across our businesses, driven by higher wood, energy and transportation costs. Additionally, we expect equity earnings ~~(loss) attributable~~for Ilim to ~~common shareholders were $904~~be sequentially higher, driven by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes.

Looking to full year 2018, our focus will be on value creation in our growth businesses. We anticipate another year of strong growth, driven by a continued strong outlook in our core businesses and the full-year price flow through of the 2017 increases. We continue to see healthy demand and solid fundamentals across our portfolio. We expect higher maintenance outage expenses due to the calendar impact of mills on an eighteen-month cycle and extended outages at several of our mills, as we position them for longer maintenance cycle schedules in the future. We are planning for $1.5 billion in capital expenditures in 2018, including approximately $500 million ~~($2.18 per share)~~that will be invested in ~~2016, compared~~strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the positive cash tax impact associated with ~~$938 million ($2.23 per share)~~tax reform. Our Ilim joint venture is well positioned for another strong year of performance, and we will start to see the benefits of our investment in ~~2015~~ ~~and $555 million ($1.29 per share)~~Graphic Packaging. All in, ~~2014~~. we expect another year of strong cash generation enabling us to continue to allocate capital to grow value for our shareholders.

Adjusted Operating Earnings ~~is a~~and Adjusted Operating Earnings Per Share are non-GAAP ~~measure~~measures and isare defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. ~~International Paper generated Adjusted Operating Earnings Attributable to Common Shareholders of $1.4 billion ($3.35 per share) in~~ ~~2016, compared with $1.5 billion ($3.65 per share) in~~ ~~2015, and $1.3 billion ($3.00 per share) in~~ ~~2014~~ ~~(see reconciliation on page 19).~~

Despite a tough global environment, International Paper delivered another year of solid performance, with continued strong cash flow generation and a return on invested capital in excess of our cost of capital. During 2016, we took steps to further strengthen our portfolio. We completed the acquisition of Weyerhaeuser’s pulp business, which we have combined with IP’s legacy pulp business to form our new Global Cellulose Fibers business. We also completed the conversion of a machine at the Riegelwood, North Carolina mill to produce fluff pulp, which coupled with the newly acquired pulp business, gives the Company the capacity to grow both fluff and high-value specialty pulp products. In addition, we also acquired a top-quartile mill asset in Madrid, which we will convert in the second half of 2017 to produce recycled containerboard to support our EMEA Industrial Packaging business. Finally, we were able to return cash to our shareholders in the form of a 5% increase in the annual dividend, making it the fifth consecutive year of a dividend increase.

Our 2016 results reflect margin pressure across most of our businesses throughout the year along with escalating input costs, primarily natural gas and OCC, in the later portion of the year. Full-year 2016 earnings were impacted by price erosion and weaker mix across many of our businesses, in particular, our North American Industrial Packaging business which experienced lower export pricing and the impact of early 2016 pricing index changes to boxes. Volume was positive compared to 2015, primarily driven by increased North American box demand. Manufacturing operations, despite solid performance across our mill systems, were negatively impacted by the Riegelwood conversion and ramp up, Hurricane Matthew, and inventory valuation charges associated with the October containerboard price increase. We did see signs of strengthening in some of our key markets in the second half of the year, which enabled us to announce and implement price increases

~~across various businesses that will benefit us in 2017. Our Ilim joint venture had another solid year in 2016, experiencing strong demand which led to record full-year production.~~

Looking ahead to the 2017 first quarter, we expect sales volumes for North American Industrial Packaging to be slightly higher despite seasonally lower daily shipments due to four more shipping days. Sales volumes for Global Cellulose Fibers will be higher due to the full-quarter impact of the newly acquired pulp business. In addition, sales volumes for EMEA Industrial Packaging, North American Printing Papers and North American Consumer Packaging are also expected to be seasonally higher. Pricing is expected to increase for both North American Industrial Packaging and Brazilian Industrial Packaging, reflecting the continuing implementation of box price increases announced in 2016. Pricing for both North American Printing Papers and North American Consumer Packaging is expected to be lower due to market pressures. Planned maintenance outages are expected to increase due to a heavy outage quarter, including a significant outage currently underway at the Global Cellulose Fibers Port Wentworth mill. Input costs are expected to increase primarily for our North American operations, largely driven by natural gas, wood and OCC. Additionally, we expect the results of Ilim to be sequentially lower, primarily due to seasonally lower volumes and seasonally higher input costs.

Looking to full year 2017, we are encouraged by an improving economic climate and are eager to begin the integration of our newly acquired pulp business, driving the anticipated synergies to the bottom line. We expect higher earnings in our North American Industrial Packaging business through benefits from the previously announced price increase, growing demand from our customers and improvement initiatives. We also expect to improve margins with continued strong operations and extensive cost reduction efforts across many of our other businesses. Additionally, we are on track for our planned conversion of the Madrid mill in the second half of the year, which will enable a better offering for our customers and earnings improvement for our EMEA Industrial Packaging business. Finally, with the strong cash flow that we expect from all of these initiatives, we will continue to allocate capital to create value with a near-term focus on debt reduction and returning value to our shareholders.

~~Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures.~~ Diluted earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most direct comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of items considered by management to be unusual, from the earnings reported under GAAP, non-operating pension expense (includes all U.S. pension costs, excluding service costs and prior service costs), and

discontinued operations. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses this measure to focus on on-going operations, and believes that it is useful to investors

because it enables them to perform meaningful comparisons of past and present operating results. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations.

Diluted earnings (loss) attributable to common shareholders were $0.53 in the 2016 fourth quarter, compared with $0.75 in the 2016 third quarter and $0.43 in the 2015 fourth quarter. Adjusted Operating Earnings attributable to common shareholders of $303 million ($0.73 per share) in the 2016 fourth quarter were lower than both the $380 million ($0.91 per share) in the 2016 third quarter and the $361 million ($0.87 per share) in the 2015 fourth quarter.

The following are reconciliations of Diluted earnings (loss) attributable to common shareholders to Adjusted operating earnings attributable to common shareholders.


	2016			2015			2014			2017			2016			2015
Diluted Earnings (Loss) Attributable to Shareholders	$	904		$	938		$	555		$	2,144		$	904		$	938
Add back - Discontinued operations (gain) loss	5			—			13			(34		)	(102		)	(85		)
Diluted Earnings (Loss) from Continuing Operations	909			938			568			2,110			802			853
Add back - Non-operating pension (income) expense	610			258			212			484			610			258
Add back - Net special items expense (income)	182			559			1,052			496			182			559
Income tax effect - Non-operating pension and special items expense	(309		)	(221		)	(536		)	(1,634		)	(309		)	(221		)
Adjusted Operating Earnings (Loss) Attributable to Shareholders	$	1,392		$	1,534		$	1,296		$	1,456		$	1,285		$	1,449


	2016			2015			2014			2017			2016			2015
Diluted Earnings (Loss) Per Share Attributable to Shareholders	$	2.18		$	2.23		$	1.29		$	5.13		$	2.18		$	2.23
Add back - Discontinued operations (gain) loss per share	0.01			—			0.02			(0.08		)	(0.25		)	(0.20		)
Diluted Earnings (Loss) Per Share from Continuing Operations	2.19			2.23			1.31			5.05			1.93			2.03
Add back - Non-operating pension (income) expense	1.47			0.61			0.49			1.16			1.47			0.61
Add back - Net special items expense (income)	0.44			1.33			2.44			1.19			0.44			1.33
Income tax effect - Non-operating pension and special items expense	(0.75		)	(0.52		)	(1.24		)	(3.91		)	(0.75		)	(0.52		)
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders	$	3.35		$	3.65		$	3.00		$	3.49		$	3.09		$	3.45


	Three Months Ended December 31, 2016		Three Months Ended September 30, 2016			Three Months Ended December 31, 2015			Three Months Ended December 31, 2017			Three Months Ended September 30, 2017			Three Months Ended December 31, 2016
Diluted Earnings (Loss) Attributable to Shareholders	$	218	$	312		$	178		$	1,460		$	395		$	218
Add back - Discontinued operations (gain) loss	—		—			—			8			(29		)	(24		)
Diluted Earnings (Loss) from Continuing Operations	218		312			178			1,468			366			194
Add back - Non-operating pension (income) expense	37		42			60			386			33			37
Add back - Net special items expense (income)	45		66			158			106			23			45
Income tax effect - Non-operating pension and special items expense	3		(40		)	(35		)	(1,430		)	(2		)	3
Adjusted Operating Earnings (Loss) Attributable to Shareholders	$	303	$	380		$	361		$	530		$	420		$	279

Free Cash Flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that Free Cash Flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, repay debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables

investors to perform meaningful comparisons between

past and present periods.

The Company generated Free Cash Flow of ~~$1.9~~approximately $2.0 billion ~~generated~~, $1.9 billion and $1.8 billion in 2017, 2016 ~~was higher than the $1.8 billion generated in~~ and 2015 ~~but lower than the $2.1 billion generated in 2014 (see reconciliation on page 30).~~, respectively. The following are reconciliations of free cash flow to cash provided by operations:

Free Cash Flow of $467 million generated in the 2016 fourth quarter was lower than the $575 million generated in the 2016 third quarter and the $501 million generated in the 2015 fourth quarter (see reconciliation on page 30).



In millions	2017			2016			2015
Cash provided by operations	$	1,757		$	2,478		$	2,580
Adjustments:
Cash invested in capital projects	(1,391		)	(1,348		)	(1,487		)
Cash contribution to pension plan	1,250			750			750
Cash payment for Kleen Settlement	354			—			—
Free Cash Flow	$	1,970		$	1,880		$	1,843



In millions	Three Months Ended December 31, 2017			Three Months Ended September 30, 2017			Three Months Ended December 31, 2016
Cash provided by operations	$	1,188		$	(709	)	$	912
Adjustments:
Cash invested in capital projects	(456		)	(271		)	(445		)
Cash contribution to pension plan	—			1,250			—
Cash payment for Kleen Settlement	—			354			—
Free Cash Flow	$	732		$	624		$	467

Results of Operations

Business Segment Operating Profits are used by International Paper’s management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business Segment Operating Profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding corporate items and corporate special items. Business Segment Operating Profits are defined by the Securities and Exchange Commission as a non-GAAP financial measure, and are not GAAP alternatives to net income or any other operating measure prescribed by accounting principles generally accepted in the United States.

International Paper operates in ~~four~~three segments: Industrial Packaging, Global Cellulose Fibers and Printing ~~Papers~~Papers. During 2017, as a result of the transfer of the North American Coated Paperboard business and the associated reclassification of this business to Discontinued Operations, the remaining sales and operating profits previously reported in the Consumer ~~Packaging.~~

Packaging segment have been reclassified for segment reporting for all periods presented. The European Coated Paperboard business is now included in the Industrial Packaging segment and sales and earnings historically included in the Consumer Packaging segment associated with previously divested businesses are now included in Corporate items.

The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to International Paper Company to its total Business Segment Operating Profit:


In millions	2016			2015			2014			2017			2016			2015
Earnings (Loss) From Continuing Operations Attributable to International Paper Company	$	909		$	938		$	568		$	2,110		$	802		$	853
Add back (deduct)
Income tax provision (benefit)	247			466			123			(1,085		)	193			417
Equity (earnings) loss, net of taxes	(198		)	(117		)	200			(177		)	(198		)	(117		)
Noncontrolling interests, net of taxes	(2		)	(21		)	(19		)	—			(2		)	(21		)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	956			1,266			872			848			795			1,132
Interest expense, net	520			555			601			572			520			555
Noncontrolling interests/equity earnings included in operations	1			8			2			(2		)	1			8
Corporate items	69			36			51			91			121			96
Corporate special items (income) expense	46			238			320			76			55			422
Non-operating pension expense	610			258			212			484			610			258
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	$	2,202		$	2,361		$	2,058
										$	2,069		$	2,102		$	2,471
Business Segment Operating Profit
Industrial Packaging	$	1,651		$	1,853		$	1,896		$	1,547		$	1,741		$	1,938
Global Cellulose Fibers	(180		)	68			61			65			(179		)	68
Printing Papers	540			465			(77		)	457			540			465
Consumer Packaging	191			(25		)	178
Total Business Segment Operating Profit	$	2,202		$	2,361		$	2,058
Business Segment Operating Profit										$	2,069		$	2,102		$	2,471

Business Segment Operating Profits in ~~2016~~2017 included a net loss from special items of ~~$136~~$425 million compared with ~~$321~~$127 million in ~~2015~~2016 and ~~$732~~$137 million in ~~2014.~~2015. Operationally, compared with ~~2015,~~2016, the benefits from higher average sales price realizations and mix ($605 million), higher sales volumes ($6233 million), lower maintenance outage costs ($~~14 million), lower input costs ($82~~55 million) and the incremental operating earnings from the ~~newly acquired~~ pulp business acquired in late 2016 ($17117 million) were offset by ~~lower average sales price realizations and mix ($443 million),~~ higher operating costs ($62172 million), higher input costs ($362 million) and higher other costs ($1411 million).

Corporate items includes operating profits (losses) of previously divested businesses of $0 million in 2017, ($2) million in 2016 and ($62) million in 2015.

The principal changes in operating profit by business segment were as follows:

Industrial Packaging’s profits of ~~$1.7~~$1.5 billion were ~~$202~~$194 million lower than in ~~2015~~2016 as the benefits of higher ~~sales volumes, lower maintenance outage costs and lower input costs were more than offset by lower~~ average sales price realizations and mix and higher sales volumes were partially offset by higher operating costs, higher maintenance outage costs, higher input costs and higher other costs. In addition, operating profits in 2017 included a charge of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, charges of $14 million for the removal of abandoned property at our mills, a charge of $10 million for the accelerated amortization of an intangible asset in Brazil and a gain of $6 million for a net bargain purchase gain associated with the 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain. In 2016, operating profits included a charge of $70 million for impairment and other costs associated with the sale of our corrugated packaging business in Asia and a charge of $7 million related to the closure of a mill in Turkey. ~~In 2015, operating profits included a goodwill and trade name impairment charge of $137 million related to our Brazil Packaging business.~~

Global Cellulose Fibers' operating ~~loss~~profit of ~~$180~~$65 million was ~~$248~~$244 million ~~unfavorable~~favorable versus ~~2015~~2016 as the benefits of higher sales volumes, lower input costs, lower other costs and the earnings from the newly acquired business were more than offset by lower average sales price realizations and mix, higher operating costs and higher maintenance outage costs. The operating loss in 2016 included $31 million of costs associated with the acquisition of the pulp business and a charge of $19 million to amortize the newly acquired pulp business inventory fair value adjustment.

~~Printing Papers’ profits of $540 million represented a $75 million increase in operating profits from 2015. The benefits from higher sales volumes,~~ higher average sales price realizations and mix, lower operating costs, lower maintenance outage costs and lower input costs were partially offset by higher other costs. Operating profits in 2017 included $33 million of costs associated with the acquisition and integration of the pulp business acquired in late 2016 from Weyerhaeuser, a charge of $14 million for the amortization of the remaining inventory fair value adjustment associated with that acquisition and a charge of $4 million for the removal of abandoned property at our mills. Results for 2017 also reflect the transaction synergies associated with the Weyerhaeuser acquisition. In 2016, the operating loss included $31 million of costs associated with the acquisition of the pulp business and $19 million

for the amortization of the inventory fair value adjustment associated with that acquisition.

~~Consumer Packaging’s operating profit~~

Printing Papers’ profits of ~~$191~~$457 million represented a ~~$216~~$83 million ~~increase~~decrease in operating profits from ~~2015.~~2016. The benefits from ~~lower operating costs,~~higher sales volumes, lower maintenance outage costs

and lower ~~input~~other costs were ~~partially~~more than offset by ~~lower sales volumes,~~ lower average sales price realizations and mix, higher operating costs and higher ~~other~~input costs. ~~In addition, operating~~Operating profits in ~~2016~~2017 included ~~a charge~~charges of $9 million related to the conversion of our Riegelwood mill to 100% pulp production. In 2015, operating losses included an asset impairment charge of $174 million related to the sale of our 55% equity share of the IP-Sun JV in Asia, a net cost of $8 million related to costs for our Riegelwood mill conversion, net of proceeds from the sale of the Carolina Coated Bristols brand, and $2 million for the removal of ~~sheet plant closure costs.~~abandoned property at our mills.

Liquidity and Capital Resources

For the year ended December 31, ~~2016,~~2017, International Paper generated ~~$2.5~~$1.8 billion of cash flow from operations compared with $2.5 billion in 2016 and $2.6 billion in ~~2015 and $3.1 billion in 2014.~~2015. Cash flow from operations included ~~$750 million,~~$1.25 billion, $750 million and ~~$353~~$750 million of cash pension contributions in 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively. Capital spending for ~~2016~~2017 totaled ~~$1.3~~$1.4 billion, or ~~110%~~98% of depreciation and amortization expense. ~~Net increases in debt totaled $1.9 billion, the proceeds from which were primarily used to fund the acquisition of the Weyerhaeuser pulp business.~~ Our liquidity position remains strong, supported by approximately $2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt continues to be an important element in our overall financial strategy.

We expect strong cash generation again in ~~2017~~2018, including the benefits of U.S. tax reform, and will continue our balanced use of cash through the payment of dividends, reducing total debt and making investments for future growth.

Capital spending for ~~2017~~2018 is targeted at $1.5 billion, or about ~~107%~~111% of depreciation and amortization.

Legal

See Note 11 Commitments and Contingent Liabilities on pages 6160 through 63 of Item 8. Financial Statements and Supplementary Data for a discussion of legal matters.

RESULTS OF OPERATIONS

While the operating results for International Paper’s various business segments are driven by a number of business-specific factors, changes in International Paper’s operating results are closely tied to changes in general economic conditions in North America, Europe, Russia, Latin America, ~~Asia,~~India, North Africa and the Middle East. Factors that impact the demand for our products include industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels, and movements in currency exchange rates.

Product prices are affected by general economic trends, inventory levels, currency exchange rate movements and

worldwide capacity utilization. In addition to these revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include changes in raw material costs, principally wood, recycled fiber and chemical costs; energy costs; freight costs; salary and benefits costs, including pensions; and manufacturing conversion costs.

The following is a discussion of International Paper’s results of operations for the year ended December 31, ~~2016~~2017, and the major factors affecting these results compared to ~~2015~~2016 and ~~2014~~2015.

For the year ended December 31, ~~2016,~~2017, International Paper reported net sales of ~~$21.1~~$21.7 billion, compared with ~~$22.4~~$19.5 billion in ~~2015~~2016 and ~~$23.6~~$20.7 billion in ~~2014.~~2015. International net sales (including U.S. exports) totaled ~~$7.2~~$8.4 billion or ~~34%~~39% of total sales in ~~2016.~~2017. This compares with international net sales of ~~$7.8~~$6.9 billion in ~~2015~~2016 and ~~$9.3~~$7.6 billion in ~~2014.~~2015.

Full year ~~2016~~2017 net earnings attributable to International Paper Company totaled ~~$904 million~~$2.1 billion ($~~2.18~~5.13 per diluted share), compared with net earnings of $904 million ($2.18 per diluted share) in 2016 and $938 million ($2.23 per diluted share) in ~~2015 and $555 million ($1.29 per share) in 2014.~~2015. Amounts in ~~2016 and 2014~~all periods include the results of discontinued operations.

Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 2016 ~~2015~~ and ~~2014~~2015 were as follows:


In millions	2016			2015			2014			2017			2016			2015
Earnings from continuing operations attributable to International Paper Company	$	909	(a)	$	938	(b)	$	568	(c)	$	2,110	(a)	$	802	(b)	$	853	(c)

(a) Includes $952 million of net special items income which included a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cut and Jobs Act and $298 million of non-operating pension expense which included a pre-tax charge of $376 million ($232 million after taxes) for a settlement accounting charge associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees.

(b) Includes $108 million of net special items charges and $375 million of non-operating pension expense which included a pre-tax charge of $439 million ($270 million after taxes) for a settlement accounting charge associated with payments under a term-vested lump sum buyout.

~~(b)~~(c) Includes $439 million of net special items charges and $157 million of non-operating pension expense.

~~(c) Includes $599 million of net special items gains and $129 million of non-operating pension expense in 2014.~~

Compared with ~~2015,~~2016, the benefits from higher sales volumes, higher average sales price realizations and mix, lower maintenance outage ~~costs, lower input~~ costs, incremental earnings from the acquisition of Weyerhaeuser's pulp business, lower ~~interest expense~~other costs, and lower tax expense were partially offset by ~~lower average sales price realizations and mix,~~ higher operating costs, higher input costs and higher ~~corporate and other costs.~~net interest expense. In addition, ~~2016~~2017 results

included ~~higher~~lower equity earnings, net of taxes,

relating to the Company’s investment in Ilim Holding, SA.

See Business Segment Results on pages 2524 through 3027 for a discussion of the impact of these factors by segment.

Discontinued Operations

2017:

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

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

2016:

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

2015:

~~There were no~~In 2015, discontinued operations ~~in 2015.~~

~~2014:~~

In 2014, $24 million of net income adjustments were recorded relating to discontinued businesses, including $16 million of costs associated with the spin-off of the xpedx business and $9 million of costs associated with the divestiture of the Temple-Inland Building Products business. Also included ~~are~~ the operating earnings of the ~~xpedx business prior to the spin-off on July 1, 2014.~~North American Consumer Packaging business.

Income Taxes

A net income tax benefit of $1.1 billion was recorded for 2017, including a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million related to international investment restructuring and a tax expense of $38 million associated with a cash pension contribution. Excluding these items, a $194 million net tax benefit for other special items and a $186 million tax benefit related to non-operating pension expense, the tax provision was $549 million, or 30% of pre-tax earnings before equity earnings.

A net income tax provision of ~~$247~~$193 million was recorded for 2016 including tax benefits of $63 million related to legal entity restructurings, a tax expense of $31 million associated with a tax rate change in Luxembourg, a tax expense of $23 million associated with ~~the~~a $750 million ~~of 2016~~ cash pension ~~contributions,~~contribution, and a tax benefit of $14 million related to the closure of a federal tax audit. Excluding these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non-operating pension expense, the tax provision was ~~$556~~$502 million, or 32% of pre-tax earnings before equity earnings.

A net income tax provision of ~~$466~~$417 million was recorded for 2015 including a tax benefit of $62 million related to internal restructurings, a tax expense of $23 million for the tax impact of ~~the 2015~~a cash pension contribution of $750 million and a $2 million tax expense for other

items. Excluding these items, an $83 million net tax benefit for other special items and a $101 million tax benefit related to non-operating pension expense, the tax provision was ~~$687~~$638 million, or 33% ~~of pre-tax earnings before equity earnings.~~

A net income tax provision of $123 million was recorded for 2014 including a tax benefit of $90 million related to internal restructurings and a net $9 million tax expense for other items. Excluding these items, a $372 million net tax benefit for other special items and a $83 million tax benefit related to non-operating pension expense, the tax provision was $659 million, or 31% of pre-tax earnings before equity earnings.

Equity Earnings, Net of Taxes

Equity earnings, net of taxes in 2017, 2016 ~~2015~~ and ~~2014~~2015 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia (see page ~~29 and 30)~~27).

Interest Expense and Noncontrolling Interest

Net corporate interest expense totaled $572 million in 2017, $520 million in 2016 and $555 million in ~~2015 and $601~~2015. Net interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The increase in ~~2014.~~2017 compared with 2016 is due to higher average outstanding debt. The decrease in 2016 compared with 2015 ~~is due to lower average interest rates. The decrease in 2015 compared with 2014 also~~ reflects lower average interest rates.

~~Net~~There were no net earnings attributable to noncontrolling interests ~~totaled~~in 2017, compared with a loss of $2 million in 2016 ~~compared with~~and a loss of $21 million in ~~2015 and a loss of $19 million in 2014.~~2015. The decrease ~~in 2016~~from 2015 reflects the sale of our equity share of the IP-Sun JV in 2015. ~~The decrease in 2015 compared with 2014 also reflects the sale of our interest in the IP-Sun JV and lower earnings for the joint venture in China prior to its divestiture.~~

Special Items

Restructuring and Other Charges

International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to determine if an impairment of the assets have occurred. In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset impairment charges and severance costs. It is possible

that additional charges and costs will be incurred in future periods in our core businesses should such triggering events occur.

During 2017, 2016 ~~2015~~ and ~~2014,~~2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 million ~~and $846 million~~ were ~~recorded in the business segments.~~recorded. Details of these charges are as follows:


Restructuring and Other
In millions	2016				2015			2014			2017			2016				2015
Business Segments
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand	$	9		(a)	$	8	(a)	$	—
Turkey mill closure	7			(b)	—			—			$	—		$	7		(a)	$	—
Courtland mill shutdown	—				—			554		(c)
Other items	—				2		(a)	15		(d)
	16				10			569			—			7				—
Corporate
Early debt extinguishment costs (see Note 13)	$	29			207			276			$	83		$	29			$	207
Gain on sale of investment in ArborGen											(14		)	—				—
India Packaging business evaluation write-off	17				—			—			—			17				—
Gain on sale of investment in Arizona Chemical	(8		)		—			—			—			(8		)		—
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand											—			9				8
Timber monetization restructuring	—				16			—			—			—				16
Legal liability reserve adjustment	—				15			—			—			—				15
Other Items	—				4			1			(2		)	—				6
	38				242			277			67			47				252
Total	$	54			$	252		$	846		$	67		$	54			$	252

(a) ~~Recorded in the Consumer Packaging business segment.~~

~~(b)~~ Recorded in the Industrial Packaging business segment.

~~(c) Recorded in the Printing Papers business segment.~~

~~(d) Recorded in the Industrial Packaging business segment ($7 million) and Consumer Packaging business segment ($8 million).~~

Other Corporate Special Items

In addition, other corporate special items totaling $0 million, $8 million ~~$4 million~~ and ~~$43~~$(4) million were recorded in 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively. Details of these charges were as follows:


Other Corporate Items
In millions	2016		2015			2014			2017		2016		2015
Write-off of certain regulatory pre-engineering costs	$	8	$	—		$	—		$	—	$	8	$	—
Sale of investment by ASG and impairment of that investment	—		—			47
Other	—		(4		)	(4		)	—		—		(4		)
Total	$	8	$	(4	)	$	43		$	—	$	8	$	(4	)

Impairments of Goodwill

No goodwill impairment charges were recorded in 2017 or 2016.

In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its Brazil Packaging business and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.

In the fourth quarter of 2014, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its Asia Industrial Packaging business using expected discounted future cash flows and determined that due to a change in the strategic outlook, all of the goodwill of this business, totaling $100 million, should be written off. The decline in the fair value of the Asia Industrial Packaging business and resulting impairment charge was due to a change in the strategic outlook for the business.

Net Losses on Sales and Impairments of Businesses

Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre-tax loss of $174 million in ~~2015 and a pre-tax loss of $38 million in 2014.~~2015. See Note 7 Divestitures ~~/ Spinoff~~ on pages ~~56 and 57~~53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion.

~~Business Segment Operating Profits~~

Business segment operating profits of $2.2 billion in 2016 decreased from $2.4 billion in 2015. The benefits from higher sales volumes ($62 million), higher maintenance outage costs ($14 million), lower input costs ($82 million) and the incremental operating

earnings from the newly acquired pulp business ($17 million) were more than offset by lower average sales price realizations and mix ($443 million), higher operating costs ($62 million) and higher other costs ($14 million). Special items were a $136 million net loss in 2016 compared with a net loss of $321 million in 2015.

~~Market-related downtime in 2016 increased to approximately 448,000 tons from approximately 440,000 tons in 2015.~~

DESCRIPTION OF BUSINESS SEGMENTS

International Paper’s business segments discussed below are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the forest products industry.

Industrial Packaging

International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into corrugated boxes and other packaging by our ~~166 U.S.~~178 North American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and

white paper through our 18 recycling plants. In EMEA, our operations include ~~two~~one recycled fiber containerboard ~~mills~~mill in Morocco and ~~Turkey and 26~~27 container plants in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we ~~intend to convert~~are in the process of converting to a recycled containerboard ~~mill during 2017.~~mill. In Brazil our operations include three containerboard mills and four box plants. Our container plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives.

~~Global Cellulose Fibers~~

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

~~Printing Papers~~

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

~~Consumer Packaging~~

~~International Paper is one of the world’s largest producers of solid bleached sulfate board with annual U.S. production capacity of about 1.2 million tons . Our coated paperboard business~~ produces high quality coated paperboard for a variety of packaging ~~and foodservice~~ end ~~uses. Our~~ ~~Everest®, Fortress®, and~~ ~~Starcote®~~ ~~brands are used in packaging applications for everyday products such as food, cosmetics, pharmaceuticals and tobacco products. Our U.S. capacity is supplemented by about 395,000~~uses with 431,000 tons of capacity at our mills ~~producing coated board~~ in Poland and Russia.

~~Our Foodservice business produces cups, lids, food containers and plates through three domestic plants and four international facilities.~~

~~Ilim Holding S.A.~~

In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.4 million tons. Ilim has exclusive harvesting rights on timberland and forest areas exceeding 14.9 million acres (6.0 million hectares).

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

~~BUSINESS SEGMENT RESULTS~~

The following tables present net sales and operating profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items.

~~Industrial Packaging~~

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

Industrial Packaging
In millions 2016 2015 2014
Net Sales $ 14,191
$ 14,484
$ 14,944
Operating Profit (Loss) $ 1,651
$ 1,853
$ 1,896
Turkey mill closure 7
—
—
Asia Packaging restructuring and impairment 70
—
7
Brazil Packaging goodwill and trade name impairment —
137
—
Temple-Inland acquisition —
—
16
Multi-employer pension withdrawal liability —
—
35
Box plant closures —
—
(5 )
EMEA Packaging restructuring —
—
5
Turkey acquisition —
—
1
Brazil Packaging integration costs —
—
(1 )
Asia Packaging goodwill impairment —
—
100
Operating Profit Before Special Items $ 1,728
$ 1,990
$ 2,054

~~Industrial Packaging~~net sales for 2016 decreased 2% to $14.2 billion compared with $14.5 billion in 2015, and 5% compared with $14.9 billion in 2014. Operating profits in 2016 were 11% lower than in 2015 and 13% lower than in 2014. Comparing 2016 with 2015, benefits from higher sales volumes ($61 million), lower maintenance outage costs ($15 million) and lower input costs ($42 million) were offset by lower average sales price realizations and mix ($278 million), higher operating costs ($101 million) and higher other costs ($1 million). In addition, special items were an expense of $77 million in 2016 compared with $137 million in 2015.

North American Industrial Packaging
In millions 2016 2015 2014
Net Sales $ 12,227
$ 12,541
$ 12,663
Operating Profit (Loss) $ 1,757
$ 2,009
$ 1,986
Temple-Inland acquisition —
—
16
Multi-employer pension withdrawal liability —
—
35
Box plant closures —
—
(5 )
Operating Profit Before Special Items $ 1,757
$ 2,009
$ 2,032

~~North American Industrial Packaging's~~sales volumes increased in 2016 compared with 2015 reflecting higher box shipments and higher shipments of containerboard to export markets. In 2016, the business took about 914,000 tons of total downtime of which about 445,000 were economic downtime and 469,000 were maintenance downtime. The business took about 814,000 tons of total downtime in 2015 of which 363,000 were economic downtime and 451,000 were maintenance downtime. Average sales price realizations were significantly lower for containerboard due to pricing pressures in export markets. Average sales prices for boxes were lower primarily due to contract de-escalators that were triggered in the first quarter by a decrease in a key containerboard price index. Input costs for wood, energy and freight fuel surcharges were lower, but for recycled fiber were higher. Planned maintenance downtime costs were $16 million lower in 2016 than in 2015.

Looking ahead to the first quarter of 2017, compared with the fourth quarter of 2016, sales volumes for boxes are expected to be slightly higher despite seasonally lower daily shipments due to four more shipping days. Shipments of containerboard to export markets are expected to decrease. Average sales price realizations should increase, reflecting the continuing implementation of the box price increase announced in the fourth quarter of 2016. Input costs are expected to be higher for recycled fiber, energy and wood. Planned maintenance downtime spending is expected to be about $57 million higher. Operating costs are expected to improve. In addition, the Company is evaluating the financial impact of the digester incident that occurred on January 22, 2017 at the Pensacola mill. It is currently estimated that the total impact will be in excess of $50 million, but that property damage and business interruption insurance will cover a significant portion of the costs. The timing of these costs and potential insurance recoveries is unknown.

EMEA Industrial Packaging
In millions 2016 2015 2014
Net Sales $ 1,227
$ 1,114
$ 1,307
Operating Profit (Loss) $ 15
$ 13
$ 25
Turkey Mill Closure 7
—
—
EMEA Packaging restructuring —
—
5
Turkey acquisition —
—
1
Operating Profit Before Special Items $ 22
$ 13
$ 31

~~EMEA Industrial Packaging's~~ sales volumes in 2016 were higher than in 2015 reflecting improved market demand in the Eurozone and recovery from the prior year labor strikes in Turkey. Average sales margins improved due to sales price increases and material cost decreases. Input costs for energy were lower, but operations were negatively impacted by foreign exchange rates, primarily in Turkey. Operating earnings in 2015 included a gain of $4 million related to the change in ownership of our OCC collection operations in Turkey.

Entering the first quarter of 2017, compared with the fourth quarter of 2016 sales volumes are expected to be slightly lower. Average sales margins are expected to be slightly lower. Input costs for energy should be flat, but operating costs are expected to be lower.

On June 30, 2016 the Company completed the acquisition of Holmen Paper's newsprint mill in Madrid, Spain. Under the terms of the agreement, International Paper purchased the Madrid newsprint mill as well as associated recycling operations and a 50% ownership interest in a cogeneration facility. The Company intends to convert the mill to produce recycled containerboard in 2017 with an expected capacity of 419,000 tons. Once completed, the converted mill will support the Company's corrugated packaging business in EMEA.

Brazilian Industrial Packaging
In millions 2016 2015 2014
Net Sales $ 232
$ 228
$ 349
Operating Profit (Loss) $ (43 ) $ (163 ) $ (3 )
Brazil Packaging goodwill and trade name impairment —
137
—
Brazil Packaging integration costs —
—
(1 )
Operating Profit Before Special Items $ (43 ) $ (26 ) $ (4 )

~~Brazilian Industrial Packaging's~~ ~~2016 sales volumes decreased~~compared with 2015 for boxes and sheets due to overall weak economic conditions, but increased for containerboard. Average sales price realizations were higher. Input costs increased, primarily for recycled fiber. Operating costs were higher largely due to the effects of inflation. Planned maintenance downtime costs were $1 million higher in 2016 compared with 2015.

Looking ahead to the first quarter of 2017, compared with the fourth quarter of 2016 sales volumes are expected to be lower for containerboard and sheets, but higher for boxes. Average sales margins should improve reflecting a sales price increase for boxes. Input costs are expected to be slightly lower, but offset by higher operating costs. Planned maintenance downtime costs are expected to be $1 million higher.

Asian Industrial Packaging
In millions 2016 2015 2014
Net Sales $ 505
$ 601
$ 625
Operating Profit (Loss) $ (78 ) $ (6 ) $ (112 )
Asia Packaging restructuring and impairment 70
—
7
Asia Packaging goodwill impairment —
—
100
Operating Profit Before Special Items $ (8 ) $ (6 ) $ (5 )

~~Asian Industrial Packaging's~~ ~~sales volumes in the first half of 2016 for boxes were higher than the comparable period in 2015, but average sales margins were lower due to competitive pressures and weak economic conditions.~~

~~On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. See~~ ~~Note 7 Divestitures / Spinoff~~ ~~on pages 56 and 57 of~~ ~~Item 8. Financial Statements and Supplementary Data~~ ~~for further discussion of the sale of this business. Net sales and operating profits beginning with the third quarter of 2016 reflect the results of the distribution operations of the business.~~

Global Cellulose Fibers

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

Printing Papers

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

Ilim Holding S.A.

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

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

BUSINESS SEGMENT RESULTS

Industrial Packaging



Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	15,077		$	14,226	$	14,559
Operating Profit (Loss)	$	1,547		$	1,741	$	1,938
Asia Packaging restructuring and impairment	—			70		—
Holmen mill bargain purchase gain	(6		)	—		—
Kleen Products anti-trust settlement	354			—		—
Brazil Packaging Wood Supply Accelerated Amortization	10			—		—
Turkey mill closure	—			7		—
Brazil Packaging goodwill and trade name impairment	—			—		137
Other	14			—		—
Operating Profit Before Special Items	$	1,919		$	1,818	$	2,075

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



North American Industrial Packaging
In millions	2017		2016		2015
Net Sales (a)	$	13,329	$	12,450	$	12,618
Operating Profit (Loss)	$	1,504	$	1,757	$	2,009
Kleen Products anti-trust settlement	354		—		—
Other	14		—		—
Operating Profit Before Special Items	$	1,872	$	1,757	$	2,009

(a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016.

North American Industrial Packaging'ssales volumes increased in 2017 compared with 2016 reflecting higher box shipments and higher shipments of containerboard to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were maintenance downtime. The business took about 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were maintenance downtime. Average sales prices for boxes and average sales price realizations for containerboard in export markets were significantly higher. Input costs were significantly higher, primarily for recycled fiber, but also for energy, chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were $5 million higher in 2017 than in 2016.

Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes for boxes are expected to be seasonally lower despite two more shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales price realizations should reflect the continuing realization of containerboard export price increases. Input costs are expected to be higher for wood, energy and chemicals. Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather conditions in the 2018 first quarter.



EMEA Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	1,334		$	1,227	$	1,114
Operating Profit (Loss)	$	6		$	15	$	13
Holmen mill net bargain purchase gain	(6		)	—		—
Turkey Mill Closure	—			7		—
Operating Profit Before Special Items	$	—		$	22	$	13

EMEA Industrial Packaging's sales volumes in 2017 were higher than in 2016 reflecting improved market demand, particularly in Morocco and Turkey while sales volumes in the Eurozone were negatively impacted by poor weather conditions. Average sales margins improved due to sales price increases and a more favorable mix that more than offset higher containerboard costs and the impact of unfavorable currency translation. Input costs for energy were higher and operating costs were negatively impacted by inflation.

Entering the first quarter of 2018, compared with the fourth quarter of 2017 sales volumes are expected to be slightly lower. Average sales margins are expected to be lower due to continuing higher containerboard prices. Operating costs will be higher due to the the conversion of the Madrid mill.



Brazilian Industrial Packaging
In millions	2017			2016			2015
Net Sales	$	251		$	232		$	228
Operating Profit (Loss)	$	(35	)	$	(43	)	$	(163	)
Brazil Packaging goodwill and trade name impairment	10			—			137
Operating Profit Before Special Items	$	(25	)	$	(43	)	$	(26	)

Brazilian Industrial Packaging's sales volumes in 2017 increasedcompared with 2016 for boxes and containerboard, reflecting improving economic conditions. Average sales price realizations were also higher. Input costs decreased, primarily for recycled fiber and wood. Operating costs were higher largely due to the effects of inflation. Planned maintenance downtime costs were $1 million lower in 2017 compared with 2016.

Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected to be higher for boxes, but lower for containerboard and sheets. Average sales margins should improve, reflecting a sales price increase for boxes. Input costs are expected to be flat, but operating costs will be higher due to other costs. Planned maintenance downtime costs are expected to be $1 million higher.



European Coated Paperboard
In millions	2017		2016		2015
Net Sales	$	335	$	327	$	319
Operating Profit (Loss)	$	72	$	93	$	87

European Coated Paperboard's sales volumes in 2017 compared with 2016 increased in Europe, but decreased in Russia. Average sales price realizations were lower in Russia while in Europe average sales margins increased reflecting higher average sales prices and a more favorable mix. Input costs for wood, energy and purchased pulp were higher. Planned maintenance downtime costs were $3 million lower in 2017.

Looking forward to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected to increase in Europe, but expected to be seasonally lower in Russia. Average sales price realizations are expected to be higher in both Europe and Russia. Input costs are expected to be lower. Planned maintenance outage costs are expected to be $5 million higher in the first quarter of 2018 due to a planned outage at the Kwidzyn mill.



Asian Industrial Packaging
In millions	2017		2016			2015
Net Sales	$	—	$	133		$	280
Operating Profit (Loss)	$	—	$	(81	)	$	(8	)
Asia Packaging restructuring and impairment	—		70			—
Operating Profit Before Special Items	$	—	$	(11	)	$	(8	)

On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data for further discussion of the sale of this business.

Global Cellulose Fibers

Demand for Cellulose Fibers products is closely correlated with changes in demand for absorbent hygiene products and is further affected by changes in currency rates that can benefit or hurt producers in different geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.


Global Cellulose Fibers
In millions	2016			2015		2014		2017		2016			2015
Net Sales	$	1,092		$	975	$	1,046	$	2,551	$	1,092		$	975
Operating Profit (Loss)	$	(180	)	$	68	$	61	$	65	$	(179	)	$	68
Acquisition costs	31			—		—		33		31			—
Inventory fair value step-up amortization	19			—		—		14		19			—
Other								4		—			—
Operating Profit Before Special Items	$	(130	)	$	68	$	61	$	116	$	(129	)	$	68

Global Cellulose Fibers results ~~for 2016~~ include the net sales ~~of $111 million~~ and an operating ~~loss of $(21) million (including $38 million of special items)~~profit associated with

the ~~newly acquired~~ pulp business acquired from Weyerhaeuser from the date of acquisition

on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 5451 through 5653 of Item 8. Financial Statements and Supplementary Data for additional information about the acquisition.

Net sales for ~~2016~~2017 increased ~~12%~~ to ~~$1.1~~$2.6 billion compared with $1.1 billion in 2016 and $975 million in ~~2015 and 4% compared with $1.0 billion in 2014.~~2015. Operating profits in ~~2016~~2017 were significantly higher than in 2016 and 4% lower than in ~~both 2015 and 2014.~~2015. Comparing 2017 with 2016 ~~with 2015,~~for the legacy business, benefits from higher ~~sales volumes ($10 million), lower input costs ($6 million), and lower other costs ($1 million) were offset by lower~~ average sales price realizations and mix ($3661 million), ~~higher operating costs ($59 million) and higher~~lower planned maintenance downtime costs ($3839 million), lower input costs ($5 million), lower operating costs ($1 million) and lower other costs ($6 million) were offset by lower sales volumes ($5 million). ~~In addition, special items expense~~The incremental operating profits from the acquired business were $117 million in ~~2016 was $50 million.~~2017.

~~Sales volumes for~~For the legacy business, sales volumes were ~~higher for both fluff and market pulp.~~lower. Average sales margins ~~decreased,~~increased, reflecting ~~lower~~higher sales price realizations for both fluff pulp and softwood market pulp and ~~an unfavorable mix resulting from the Riegelwood conversion and ramp-up. In Europe and Russia, average sales margins decreased due to competitive pressures.~~a favorable product mix. Input costs were slightly lower. Planned maintenance downtime costs were ~~$38~~$39 million ~~higher~~lower in ~~2016~~2017 primarily ~~related~~due to the ~~Riegelwood mill. Operating costs were higher due to~~non-recurrence of the 2016 costs associated with the conversion of the Riegelwood mill ~~conversion.~~to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europe and Russia, average sales margins increased significantly and planned maintenance downtime costs were $3 million lower than in 2016.

Entering the first quarter of ~~2017,~~2018, sales volumes will be ~~higher~~lower due to ~~the full-quarter impact of the acquisition.~~capacity constraints resulting from planned maintenance downtime. Average sales price realizations are expected to be stable and product mix ~~will continue~~should be favorable. Operating costs are expected to be ~~challenged~~higher, partly due to the ~~ramp-up of the Riegelwood mill.~~severe winter weather experienced in January. Input costs are expected to increase ~~primarily~~ for ~~wood.~~energy, wood and chemicals. Planned maintenance downtime costs should be ~~$47~~$52 million higher than in the fourth quarter of ~~2016 due to~~2017. In addition, a ~~large outage and capital investment project to upgrade the recovery boiler, turbine and power system at our Port Wentworth mill.~~fourth-quarter favorable inventory valuation adjustment will not repeat.

Printing Papers

Demand for Printing Papers products is closely correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated cut-size products, with changes in white-collar employment levels that affect the usage of copy and laser printer paper. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.


Printing Papers
In millions	2016		2015		2014			2017		2016		2015
Net Sales	$	4,058	$	4,056	$	4,674		$	4,157	$	4,058	$	4,056
Operating Profit (Loss)	$	540	$	465	$	(77	)	$	457	$	540	$	465
Courtland mill closure	—		—		554
Brazil tax amnesty	—		—		32
India legal contingency	—		—		(20		)
Other								2		—		—
Operating Profit Before Special Items	$	540	$	465	$	489		$	459	$	540	$	465

Printing Papers net sales for ~~2016~~2017 of ~~$4.1~~$4.2 billion ~~were even~~increased 2% compared with $4.1 billion in ~~2015, but decreased 13% compared with $4.7 billion in 2014.~~both 2016 and 2015. Operating profits in ~~2016~~2017 were ~~16% higher~~15% lower than in ~~2015~~2016 and ~~significantly higher~~2%lower than in ~~2014.~~2015. Comparing ~~2016~~2017 with ~~2015,~~2016, benefits from higher sales volumes ($1125 million), ~~higher~~lower planned maintenance downtime costs ($15 million) and lower other costs ($12 million) were more than offset by lower average sales price realizations and mix ($2561 million), ~~lower~~higher operating costs ($~~20 million), lower planned maintenance downtime costs ($23~~31 million) and ~~lower~~higher input costs ($~~4 million) were partly offset by higher other costs ($8~~41 million).


North American Printing Papers
In millions	2016		2015		2014			2017		2016		2015
Net Sales	$	1,890	$	1,942	$	2,055		$	1,833	$	1,890	$	1,942
Operating Profit (Loss)	$	236	$	179	$	(398	)	$	132	$	236	$	179
Courtland mill closure	—		—		554
Other								2		—		—
Operating Profit Before Special Items	$	236	$	179	$	156		$	134	$	236	$	179

North American Printing Papers' sales volumes for ~~2016~~2017 were ~~unchanged from 2015.~~higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially offset by lower ~~mainly for wood.~~wood costs. Planned maintenance downtime costs were ~~$24~~$12 million ~~lower~~higher in ~~2016. Manufacturing operating~~2017. Operating costs ~~also improved.~~were lower.

Entering the first quarter of ~~2017,~~2018, sales volumes are expected to be seasonally higher. Average sales margins should ~~decrease reflecting lower average sales price realizations partially offset by a more favorable geographic mix. Input~~be relatively flat. Operating costs are expected to be higher, ~~primarily for energy.~~partly due to the severe winter weather experienced in January. Input costs should be higher. Planned maintenance downtime costs ~~are expected to be~~will increase by about ~~$23~~$22 million ~~higher with outages scheduled~~ in the ~~2017~~2018 first quarter.

Brazilian Papers' sales volumes for uncoated freesheet paper in ~~2016~~2017 were ~~lower~~higher compared with ~~2015 under weak~~2016 reflecting improving economic conditions. Average sales price realizations ~~improved~~increased primarily for domestic

uncoated freesheet paper due to the realization of price increases implemented in ~~the first half of 2016. Sales prices to~~2016, while export ~~markets decreased.~~sales price realizations also increased. Raw material costs ~~increased~~decreased for ~~energy, wood,~~pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were ~~higher~~lower than in ~~2015, largely due to inflation.~~2016. Planned maintenance downtime costs were $1$4 million lower.

Looking ahead to ~~2017,~~2018, compared with the fourth quarter of ~~2016~~2017, sales volumes for uncoated freesheet paper in the first quarter are expected to be seasonally weaker in both domestic and export markets. Average sales price realizations should increase due to the implementation of ~~a domestic~~ sales price ~~increase for~~increases in both ~~cutsize~~domestic and ~~offset paper.~~export markets. Input costs are expected to be slightly higher for wood, chemicals and energy. Planned maintenance downtime costs are expected to be $5 million higher in the first quarter of 2018.


European Papers
In millions	2016		2015		2014		2017		2016		2015
Net Sales	$	1,109	$	1,064	$	1,321	$	1,187	$	1,109	$	1,064
Operating Profit (Loss)	$	142	$	111	$	136	$	136	$	142	$	111

European Papers' sales volumes for uncoated freesheet paper in ~~2016~~2017 were ~~higher~~lower in ~~both~~ Russia and about flat in Europe compared with ~~2015.~~2016. Average sales price realizations improved for uncoated freesheet paper following price increases implemented in ~~2015 in Europe and in the first quarter of 2016 in Russia.~~2017. Input costs were ~~lower~~higher for wood, energy, chemicals and ~~chemicals in Europe, but were higher in Russia.~~purchased pulp. Planned maintenance downtime costs were $4$22 million lower in ~~2016~~2017 than in ~~2015.~~2016.

Entering ~~2017,~~2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be ~~seasonally weaker in Russia but higher in Europe.~~stable. Average sales price realizations are expected to be ~~stable with price increases implemented~~slightly lower in ~~certain markets.~~Russia, but higher in Europe. Input costs should be slightly ~~lower.~~lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 should be ~~$15~~$8 million ~~lower~~higher than in the fourth quarter of ~~2016.~~2017.


Indian Papers
In millions	2016			2015			2014			2017			2016			2015
Net Sales	$	167		$	172		$	178		$	189		$	167		$	172
Operating Profit (Loss)	$	(11	)	$	(11	)	$	8		$	(5	)	$	(11	)	$	(11	)
India legal contingency	—			—			(20		)
Operating Profit Before Special Items	$	(11	)	$	(11	)	$	(12	)

Indian Papers' average sales price realizations in ~~2016~~2017 were ~~slightly~~ higher than in ~~2015.~~2016. Sales volumes ~~were flat.~~also increased. Input costs were lower for wood, ~~and chemicals.~~partially offset by higher chemical costs. Operating costs were higher in ~~2016,~~2017, while planned maintenance downtime costs were even with ~~2015.~~2016. Looking ahead to the first quarter of ~~2017,~~2018, sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to ~~be stable.~~increase.

~~Consumer Packaging~~

Demand and pricing for Consumer Packaging products correlate closely with consumer spending and general economic activity. In addition to prices and volumes, major factors affecting the profitability of Consumer Packaging are raw material and energy costs, freight costs, manufacturing efficiency and product mix.

Consumer Packaging
In millions 2016 2015 2014
Net Sales $ 1,955
$ 2,940
$ 3,403
Operating Profit (Loss) $ 191
$ (25 ) $ 178
Riegelwood conversion costs net of proceeds from the sale of the Carolina coated bristols brand 9
8
—
Asia Coated Paperboard goodwill and PP&E impairment —
174
—
NA Coated Paperboard sheet plant closures —
2
8
Operating Profit Before Special Items $ 200
$ 159
$ 186

~~Consumer Packaging~~net sales in 2016 decreased 34% to $2.0 billion from $2.9 billion in 2015, and decreased 43% from $3.4 billion in 2014. Operating profits increased significantly from 2015 and increased 7% from 2014. Comparing 2016 with 2015, benefits from lower operating costs ($78 million), lower planned maintenance downtime costs ($13 million) and lower input costs ($30 million) were partially offset by lower sales volumes ($20 million), lower average sales price realizations and mix ($56 million), and higher other costs ($4 million). In addition, special items expense was $9 million in 2016 and $184 million in 2015.

North American Consumer Packaging
In millions 2016 2015 2014
Net Sales $ 1,628
$ 1,939
$ 1,993
Operating Profit (Loss) $ 98
$ 81
$ 92
Riegelwood conversion costs net of proceeds from the sale of the Carolina coated bristols brand 9
8
—
NA Coated Paperboard sheet plant closures —
2
8
Operating Profit Before Special Items $ 107
$ 91
$ 100

~~North American Consumer Packaging~~ coated paperboard sales volumes in 2016 were lower than in 2015 primarily due to our exit from the coated bristols market. Average sales price realizations decreased year over year due to competitive pressures. Input costs decreased for wood, chemicals and energy. Planned maintenance downtime costs were $11 million lower in 2016. Operating costs decreased, reflecting the impact of cost savings initiatives and lower depreciation expense.

~~Foodservice sales volumes decreased slightly in 2016 compared with 2015. Average sales margins~~

~~decreased due to lower sales price realizations partially offset by lower resin costs and a more favorable mix. Operating costs were higher, while distribution costs were lower.~~

Looking ahead to the first quarter of 2017, Coated Paperboard sales volumes are expected to be seasonally higher than in the fourth quarter of 2016. Average sales price realizations are expected to be lower due to market pressures. Input costs are expected to be higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance downtime costs should be $11 million lower with no maintenance outages scheduled in the first quarter. Foodservice sales volumes are expected to be seasonally lower. Sales margins are expected to continue under pressure, partially offset by lower operating costs.

European Consumer Packaging
In millions 2016 2015 2014
Net Sales $ 327
$ 319
$ 365
Operating Profit (Loss) $ 93
$ 87
$ 91

~~European Consumer Packaging's~~ sales volumes in 2016 compared with 2015 increased in both Europe and Russia. Average sales price realizations were higher in Russia. In Europe average sales margins decreased reflecting lower average sales prices. Input cost, primarily for wood and energy were lower in Europe, but were higher in Russia. Planned maintenance downtime costs were $2 million lower in 2016.

Looking forward to the first quarter of 2017, compared with the fourth quarter of 2016, sales volumes are expected to increase. Average sales price realizations are expected to be flat in both Europe and Russia. Input costs are expected to be higher.

Asian Consumer Packaging
In millions 2016 2015 2014
Net Sales $ —
$ 682
$ 1,045
Operating Profit (Loss) $ —
$ (193 ) $ (5 )
Asia Coated Paperboard goodwill and PP&E impairment —
174
—
Operating Profit Before Special Items $ —
$ (19 ) $ (5 )

~~The Company sold its 55% equity share in IP Asia Coated Paperboard (IP-Sun JV) in October 2015. See~~ ~~Note 7 Divestitures / Spinoff~~ ~~on pages 56 and 57 of~~ ~~Item 8. Financial Statements and Supplementary Data~~ ~~for further discussion of the sale of the IP Sun JV. Net sales and operating profits presented below include results through September 30, 2015.~~

Equity Earnings, Net of Taxes – Ilim Holding S.A.

International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting.

The Company recorded equity earnings, net of taxes, related to Ilim of $183 million in 2017 compared with earnings of $199 million in 2016 ~~compared with a loss~~and earnings of $131 million in ~~2015 and a loss of $194 million in 2014.~~2015. Operating results recorded in ~~2016~~2017 included an after-tax ~~non-cash~~noncash foreign exchange gain of $15 million compared with an after-tax foreign exchange gain of $25 million ~~compared with~~in 2016 and an after-tax foreign exchange loss of $75 million in 2015 ~~and an after-tax foreign exchange loss of $269 million in 2014~~ primarily on the remeasurement of Ilim's U.S. ~~dollar-denominated~~dollar denominated net debt.

Sales volumes for the joint venture ~~increased~~decreased year over year for shipments to China of softwood pulp and linerboard, but ~~decreased for~~were partially offset by increased sales of hardwood ~~pulp.~~pulp to China. Sales volumes in the ~~domestic~~ Russian market ~~increased~~decreased for softwood pulp and hardwood pulp, ~~and paper,~~ but ~~decreased~~increased for linerboard. Average sales price realizations were ~~lower~~higher in ~~2016~~2017 for sales of softwood pulp, ~~and~~ hardwood pulp ~~to export markets~~ and linerboard to ~~the Russian domestic market, but were partially offset by higher average~~China and other export markets. Average sales price realizations in Russian markets increased year over year for ~~sales of paper to export and domestic Russian markets.~~all products. Input costs also increased ~~year-over-year~~in 2017 for wood, ~~chemicals~~energy and ~~energy. Maintenance outage~~fuel. Distribution costs were ~~also~~ higher in ~~2016.~~2017. The Company received cash dividends from the joint venture of ~~$60~~$133 million in 2017, $58 million in 2016, and $35 million in ~~2015 and $56 million in 2014.~~2015.

Entering the first quarter of ~~2017,~~2018, sales volumes are expected to be ~~seasonally~~ lower than in the fourth quarter of ~~2016~~2017 due to ~~the January holidays in China and~~ the seasonal slowdown in ~~Russia.~~Russia and export markets. Average sales price realizations are expected to increase for ~~exported~~ hardwood pulp, softwood pulp and ~~for sales of paper in the domestic Russian market. Average sales price realizations for~~ linerboard ~~in the Russian domestic market~~to China. Input costs are expected to be ~~lower. Distribution~~lower, while distribution costs ~~and input costs for energy~~ are projected to ~~be higher.~~increase.

LIQUIDITY AND CAPITAL RESOURCES

Overview

A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our major products. While changes in key cash operating costs, such as energy, raw material and transportation costs, do have an effect on operating cash generation, we believe that our focus on pricing and cost controls has improved our cash flow generation over an operating cycle.

Cash uses during ~~2016~~2017 were primarily focused on working capital requirements, capital spending, debt reductions, pension contributions, ~~the acquisitions of the Weyerhaeuser pulp business and the mill asset in Madrid,~~ and returning cash to shareholders.

Cash Provided by Operating Activities

Cash provided by operations, including discontinued operations, totaled$1.8 billion in 2017 compared with $2.5 billion infor 2016 ~~compared with~~and $2.6 billion for 2015 ~~and~~ ~~$3.1 billion~~ ~~for~~ ~~2014~~. Cash ~~provided~~used by working capital components ~~accounts~~(accounts receivable and inventory less accounts payable and accrued liabilities, interest payable and ~~other~~other) totaled$402 million in 2017, compared with cash provided by working capital components of $71 million in 2016~~, compared with~~ and a cash use for working capital components of $222 million in 2015 ~~and a cash use of~~ ~~$158 million~~. The increase in ~~2014~~.

~~The Company generated Free Cash Flow of approximately~~ ~~$1.9 billion~~, ~~$1.8 billion~~ ~~and~~ ~~$2.1 billion~~2017 working capital is largely due to growth in ~~2016~~, ~~2015~~ ~~and~~ ~~2014, respectively. The following are reconciliations of free cash flow~~receivables primarily tied to ~~cash provided by operations:~~year-over-year price increases.

In millions 2016 2015 2014
Cash provided by operations $ 2,478
$ 2,580
$ 3,077
Adjustments:
Cash invested in capital projects (1,348 ) (1,487 ) (1,366 )
Cash contribution to pension plan 750
750
353
Free Cash Flow $ 1,880
$ 1,843
$ 2,064

In millions Three Months Ended December 31, 2016 Three Months Ended September 30, 2016 Three Months Ended December 31, 2015
Cash provided by operations $ 912
$ 341
$ 990
Adjustments:
Cash invested in capital projects (445 ) (266 ) (489 )
Cash contribution to pension plan —
500
—
Free Cash Flow $ 467
$ 575
$ 501

Investment Activities

~~Investment~~Including discontinued operations, investment activities in 2017 decreased from 2016 ~~were up from~~ ~~2015~~ ~~reflecting~~as 2016 included the purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging business of $108 million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries on pages 6463 through 6664 of Item 8. Financial Statements and Supplementary Data). ~~In addition, 2014 investment activity includes the receipt of approximately $400 million in connection with the spin-off of the xpedx distribution business.~~ The Company maintains an average capital spending target around depreciation orand amortization levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 billion in 2017, or 98% of depreciation and amortization, compared with $1.3 billion in

2016, or 110% of depreciation and amortization, ~~compared with~~and $1.5 billion in ~~2015~~, or 115% of depreciation and amortization ~~and~~ ~~$1.4 billion, or~~ ~~97%~~ ~~of depreciation and amortization~~ in ~~2014~~2015. Across our businesses, capital spending as a percentage of depreciation and amortization ranged from ~~37.3%~~37.5% to ~~161.1%~~107.0% in ~~2016~~2017.

The following table shows capital spending for operations by business segment for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015., excluding amounts related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015.


In millions	2016		2015		2014		2017		2016		2015
Industrial Packaging	$	816	$	858	$	754	$	836	$	832	$	871
Global Cellulose Fibers	174		129		75		188		174		129
Printing Papers	215		232		243		235		215		232
Consumer Packaging	124		216		233
Subtotal	1,329		1,435		1,305		1,259		1,221		1,232
Corporate and other	19		52		61		21		20		78
Capital Spending	$	1,348	$	1,487	$	1,366	$	1,280	$	1,241	$	1,310

Capital expenditures in ~~2017~~2018 are currently expected to be about $1.5 billion, or ~~107%~~111% of depreciation and amortization.

Acquisitions and Joint Ventures

See Note 6 Acquisitions and Joint Ventures on pages 5451 through 5653 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's acquisitions.

Financing Activities

Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015 were as follows:


In millions	2016		2015		2014		2017		2016		2015
Debt reductions (a)	$	266	$	2,151	$	1,625	$	993	$	266	$	2,151
Pre-tax early debt extinguishment costs (b)	29		207		276		83		29		207

million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale in the accompanying consolidated balance sheet.

In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of December 31, 2017 and 2016, the Company had $180 million and $165 million, respectively, outstanding under this commercial paper program.

Other financing activities during 2017 included the net issuance of approximately 1.7 million shares of treasury stock, including restricted stock withholding. Payments of restricted stock withholding taxes totaled $47.0 million.

In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth quarter.

2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion.

outstanding (see Note 14 Derivatives and Hedging Activities on pages 6765 through 7069 of Item 8. Financial Statements and Supplementary Data). During 2016, the amortization of deferred gains on previously terminated swaps had no impact on the weighted average cost of long-term recourse debt. The inclusion of the offsetting interest income from short-term investments reduced the effective rate from 5.3% to 4.8%.

In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047, the proceeds from which were primarily used to fund the acquisition of Weyerhaeuser's pulp business. In addition, the Company repaid approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt repayments, including the $31 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2016.

In ~~June~~December 2016, International Paper entered into a ~~commercial paper program with~~new $1.5 billion contractually committed credit facility that expires in December 2021 and has a ~~borrowing capacity~~facility fee of $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of December 31, 2016, the Company had $165 million outstanding under this program.0.15% payable annually.

Other financing activities during 2016 included the net repurchase of approximately 0.9 million shares of treasury stock, including restricted stock withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $132.3 million, including $100.1 million related to shares repurchased under the Company's share repurchase program.

In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth quarter.

2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million.

During 2015, the Company restructured the timber monetization which resulted in the use of $630 million in cash to pay down a portion of the third party bank loans and refinance the loans on nonrecourse terms. (see Note 12 Variable Interest Entities on pages 6463 through 6664 of Item 8. Financial Statements and Supplementary Data).

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 6765 through 7069 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 5.1%.

In 2015, International Paper issued $700 million of 3.80% senior unsecured notes with a maturity date in 2026, $600 million of 5.00% senior unsecured notes with a maturity date in 2035, and $700 million of 5.15% senior unsecured notes with a maturity date in 2046. The proceeds from this borrowing were used to repay approximately $1.0 billion of notes with interest rates ranging from 4.75% to 9.38% and original maturities from 2018 to 2022, along with $211 million of cash premiums associated with the debt repayments. Additionally, the proceeds from this borrowing were used to make a $750 million voluntary cash contribution to the Company's pension plan. Pre-tax early debt retirement costs of $207 million related to the debt repayments, including the $211 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of

operations for the twelve months ended December 31, 2015.

Other financing activities during 2015 included the net repurchase of approximately 8.0 million shares of treasury stock, including restricted stock withholding, and the issuance of 62,000 shares of common stock for various plans, including stock option exercises that generated approximately $2.4 million of cash. Repurchases of common stock and payments of restricted stock withholding taxes totaled $604.6 million, including $522.6 million related to shares repurchased under the Company's share repurchase program.

In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth quarter.

~~2014:~~ ~~Financing activities during 2014 included debt issuances of $2.0 billion and retirements of $2.1 billion, for a net~~ ~~decrease~~ ~~of $113 million.~~

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2014, International Paper had interest rate swaps with a total

~~notional amount of $230 million and maturities in 2018 (see~~ ~~Note 14 Derivatives and Hedging Activities~~ ~~on pages 67 through 70 of~~ ~~Item 8. Financial Statements and Supplementary Data~~). During 2014, existing swaps and the amortization of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 6.8% to an effective rate of 6.7%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 6.3%.

During the second quarter of 2014, International Paper issued $800 million of 3.65% senior unsecured notes with a maturity date in 2024 and $800 million of 4.80% senior unsecured notes with a maturity date in 2044. The proceeds from this borrowing were used to repay approximately $960 million of notes with interest rates ranging from 7.95% to 9.38% and original maturities from 2018 to 2019. Pre-tax early debt retirement costs of $262 million related to these debt repayments, including $258 million of cash premiums, are included in Restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2014.

Other financing activities during 2014 included the net repurchase of approximately 17.9 million shares of treasury stock, including restricted stock withholding, and the issuance of 1.6 million shares of common stock for various plans, including stock options exercises that generated approximately $66 million of cash. Repurchases of common stock and payments of restricted stock withholding taxes totaled $1.06 billion, including $983 million related to shares repurchased under the Company's share repurchase program.

~~In September 2014, International Paper announced that the quarterly dividend would be increased from $0.35 per share to $0.40 per share, effective for the 2014 fourth quarter.~~

Variable Interest Entities

Information concerning variable interest entities is set forth in Note 12 Variable Interest Entities on pages 6463 through 6664 of Item 8. Financial Statements and Supplementary Data for discussion.

Liquidity and Capital Resources Outlook for ~~2017~~2018

Capital Expenditures and Long-Term Debt

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during ~~2017~~2018 ~~through~~with current cash balances and cash from operations. Additionally, the Company has existing credit facilities totaling $2.1 billion available at December 31, ~~2016.~~2017.

~~The Company’s financial covenants require the maintenance of a minimum net worth of $9 billion and~~

a total debt-to-capital ratio of less than 60%. Net worth is defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any cumulative goodwill impairment charges. The calculation also excludes accumulated other comprehensive income/loss and Nonrecourse Financial Liabilities of Special Purpose Entities. The total debt-to-capital ratio is defined as total debt divided by the sum of total debt plus net worth. The Company was in compliance with all its debt covenants at ~~December 31, 2016~~ ~~and was well below the thresholds stipulated under the covenants as defined in the credit agreements.~~

The Company will continue to rely upon debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. The Company was in compliance with all its debt covenants at December 31, 2017 and was well below the thresholds stipulated under the covenants as defined in the credit agreements.

Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At December 31, ~~2016~~2017, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively.

Contractual obligations for future payments under existing debt and lease commitments and purchase obligations at December 31, ~~2016~~2017, were as follows:


In millions	2017		2018		2019		2020		2021		Thereafter		2018		2019		2020		2021		2022		Thereafter
Maturities of long-term debt (a)	$	239	$	690	$	433	$	179	$	612	$	9,161	$	311	$	126	$	164	$	440	$	956	$	9,160
Lease obligations	119		91		69		51		38		125		130		102		77		53		37		141
Purchase obligations (b)	3,165		635		525		495		460		2,332		3,415		680		583		523		463		2,197
Total (c)	$	3,523	$	1,416	$	1,027	$	725	$	1,110	$	11,618	$	3,856	$	908	$	824	$	1,016	$	1,456	$	11,498


(a)	Total debt includes scheduled principal payments only.

(b)

Includes $2$1.6 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes ~~$1.1~~$1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business.


(c)	Not included in the above table due to the uncertainty ~~as to~~of the amount and timing of the payment are unrecognized tax benefits of approximately ~~$77~~$134 million.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, ~~2016~~2017, to be ~~indefinitely~~permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax legislation, the Company is evaluating this assertion (see Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). As of December 31, ~~2016~~2017, the amount of cash associated with ~~indefinitely~~permanently reinvested foreign earnings was approximately ~~$620~~$590 million. We do not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising

in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Pension Obligations and Funding

At December 31, ~~2016~~2017, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $~~3.4~~1.9 billion higher than the fair value of plan assets. Approximately ~~$3.0~~$1.5 billion of this amount relates to plans that are subject to minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding requirements differs from the calculation of the present value of plan benefits(the projected benefit obligation) for accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding method selected by the Company, and the timing of its implementation, as

well as on actual demographic data and the targeted funding level. The Company continually reassesses the amount and timing of any discretionary contributions and elected to make contributions totaling $~~750~~1,250 million and $750 million for ~~both~~the years ended December 31, ~~2016~~2017 and ~~2015~~2016., respectively. At this time, we do not expect to have any required contributions to our plans in ~~2017~~2018, although the Company may elect to make future voluntary contributions. The timing and amount of future contributions, which could be material, will depend on a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.

During the fourth quarter of 2017, the Company entered into an agreement with The Prudential Insurance Company of America to purchase a group annuity contract and transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit obligations. The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction, at the end of 2017, Prudential assumed responsibility for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension settlement charge of $376 million before tax in the fourth quarter of 2017. In addition, large payments from the non-qualified pension plan also required a remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was also recognized in the fourth quarter of 2017.

During the first quarter of 2016, International Paper announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement accounting, the Company recognized non-cash settlement charges of $3 million in both the third and fourth quarters of 2016.

Ilim Holding S.A. Shareholder’s Agreement

In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, International Paper entered into a shareholder’s agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement. If these or any other deadlock procedures under the shareholder's agreement are commenced, although it is not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price for its partners' 50% interests would be approximately $1.5 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholder’s agreement.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

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

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include the accounting for contingencies, impairment or disposal of long-lived assets and goodwill, pensions and postretirement benefit obligations, stock options and income taxes. The Company has discussed the selection of critical accounting policies and the effect of significant estimates with the Audit and Finance Committee of the Company’s Board of Directors.

~~Contingent Liabilities~~Income Taxes

~~Accruals~~A net income tax benefit of $1.1 billion was recorded for ~~contingent liabilities,~~2017, including ~~legal and environmental matters, are recorded when it is probable that~~ a ~~liability has been incurred or an asset impaired and~~provisional net tax benefit of $1.2 billion related to the ~~amount~~enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million related to international investment restructuring and a tax expense of $38 million associated with a cash pension contribution. Excluding these items, a $194 million net tax benefit for other special items and a $186 million tax benefit related to non-operating pension expense, the tax provision was $549 million, or 30% of pre-tax earnings before equity earnings.

A net income tax provision of $193 million was recorded for 2016 including tax benefits of $63 million related to legal entity restructurings, a tax expense of $31 million associated with a tax rate change in Luxembourg, a tax expense of $23 million associated with a $750 million cash pension contribution, and a tax benefit of $14 million related to the closure of a federal tax audit. Excluding these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non-operating pension expense, the tax provision was $502 million, or 32% of pre-tax earnings before equity earnings.

A net income tax provision of $417 million was recorded for 2015 including a tax benefit of $62 million related to internal restructurings, a tax expense of $23 million for the tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items. Excluding these items, an $83 million net tax benefit for other special items and a $101 million tax benefit related to non-operating pension expense, the tax provision was $638 million, or 33% of pre-tax earnings before equity earnings.

Equity Earnings, Net of Taxes

Equity earnings, net of taxes in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia (see page 27).

Interest Expense and Noncontrolling Interest

Net corporate interest expense totaled $572 million in 2017, $520 million in 2016 and $555 million in 2015. Net interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The increase in 2017 compared with 2016 is due to higher average outstanding debt. The decrease in 2016 compared with 2015 reflects lower average interest rates.

There were no net earnings attributable to noncontrolling interests in 2017, compared with a loss ~~can be reasonably~~of $2 million in 2016 and a loss of $21 million in 2015. The decrease from 2015 reflects the sale of our equity share of the IP-Sun JV in 2015.

~~estimated. Liabilities accrued~~Special Items

Restructuring and Other Charges

International Paper continually evaluates its operations for ~~legal matters require judgments regarding projected~~improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility and ~~range~~record the corresponding charge, or (c) evaluate the expected recovery of loss based on historical experience and recommendations of legal counsel. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs.

~~Impairment of Long-Lived Assets and Goodwill~~

An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through cash flows from future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the ~~asset may not be recoverable through future operations. Additionally, testing for possible~~facility to determine if an impairment of ~~goodwill~~the assets have occurred. In recent years, this policy has led to the shutdown of a number of facilities and ~~intangible~~the recording of significant asset ~~balances is required annually. The amount and timing of any~~ impairment charges ~~based on these assessments require the estimation of future cash flows~~ and ~~the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices~~severance costs. It is possible that additional charges and ~~volumes, operating, raw material, energy and freight~~ costs ~~and various other projected operating economic factors. As these key factors change~~will be incurred in future periods in our core businesses should such triggering events occur.

During 2017, 2016 and 2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 million were recorded. Details of these charges are as follows:



Restructuring and Other
In millions	2017			2016				2015
Business Segments
Turkey mill closure	$	—		$	7		(a)	$	—
	—			7				—
Corporate
Early debt extinguishment costs (see Note 13)	$	83		$	29			$	207
Gain on sale of investment in ArborGen	(14		)	—				—
India Packaging business evaluation write-off	—			17				—
Gain on sale of investment in Arizona Chemical	—			(8		)		—
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand	—			9				8
Timber monetization restructuring	—			—				16
Legal liability reserve adjustment	—			—				15
Other Items	(2		)	—				6
	67			47				252
Total	$	67		$	54			$	252

(a) Recorded in the ~~Company will update its impairment analyses to reflect its latest estimates and projections.~~Industrial Packaging business segment.

Under the provisions of Accounting Standards Codification (ASC) 350, “Intangibles – Goodwill and Other,” the testing of goodwill for possible impairment is a two-step process. In the first step, the fair value of the Company’s reporting units is compared with their carrying value, including goodwill. If fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a reporting unit is below the carrying value, then step two is performed to measure the amount of the goodwill impairment loss for the reporting unit. This analysis requires the determination of the fair value of all of the individual assets and liabilities of the reporting unit, including any currently unrecognized intangible assets, as if the reporting unit had been purchased on the analysis date. Once these fair values have been determined, the implied fair value of the unit’s goodwill is calculated as the excess, if any, of the fair value of the reporting unit determined in step one over the fair value of the net assets determined in step two. The carrying value of goodwill is then reduced to this implied value, or to zero if the fair value of the assets exceeds the fair value of the reporting unit, through a goodwill impairment charge.

~~The impairment analysis requires a number of judgments by management. In calculating the estimated fair value of its reporting units in step one,~~

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the Company uses the projected future cash flows to be generated by each unit, discounted using the estimated discount rate for each reporting unit. These calculations require many estimates, including discount rates, future growth rates, and cost and pricing trends for each reporting unit. Subsequent changes in economic and operating conditions can affect these assumptions and could result in additional interim testing and goodwill impairment charges in future periods. Upon completion, the resulting estimated fair values are then analyzed for reasonableness by comparing them to earnings multiples for historic industry business transactions, and by comparing the sum of the reporting unit fair values andOther Corporate Special Items

In addition, other corporate ~~assets~~special items totaling $0 million, $8 million and ~~liabilities divided by diluted common shares outstanding to the Company’s market price per share on the analysis date.~~$(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges were as follows:



Other Corporate Items
In millions	2017		2016		2015
Write-off of certain regulatory pre-engineering costs	$	—	$	8	$	—
Other	—		—		(4		)
Total	$	—	$	8	$	(4	)

Impairments of Goodwill

No goodwill impairment charges were recorded in 2017 or 2016.

In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its Brazil Packaging business ~~using the discounted future cash flows~~ and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.

Net Losses on Sales and Impairments of Businesses

Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre-tax loss of $174 million in 2015. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion.

DESCRIPTION OF BUSINESS SEGMENTS

Industrial Packaging

International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into corrugated boxes and other packaging by our 178 North American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and

white paper through our 18 recycling plants. In EMEA, our operations include one recycled fiber containerboard mill in Morocco and 27 container plants in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we are in the process of converting to a recycled containerboard mill. In Brazil our operations include three containerboard mills and four box plants. Our container plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives.

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

Global Cellulose Fibers

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

Printing Papers

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

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Ilim Holding S.A.

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

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

BUSINESS SEGMENT RESULTS

Industrial Packaging



Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	15,077		$	14,226	$	14,559
Operating Profit (Loss)	$	1,547		$	1,741	$	1,938
Asia Packaging restructuring and impairment	—			70		—
Holmen mill bargain purchase gain	(6		)	—		—
Kleen Products anti-trust settlement	354			—		—
Brazil Packaging Wood Supply Accelerated Amortization	10			—		—
Turkey mill closure	—			7		—
Brazil Packaging goodwill and trade name impairment	—			—		137
Other	14			—		—
Operating Profit Before Special Items	$	1,919		$	1,818	$	2,075



North American Industrial Packaging
In millions	2017		2016		2015
Net Sales (a)	$	13,329	$	12,450	$	12,618
Operating Profit (Loss)	$	1,504	$	1,757	$	2,009
Kleen Products anti-trust settlement	354		—		—
Other	14		—		—
Operating Profit Before Special Items	$	1,872	$	1,757	$	2,009

(a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016.

Looking ahead to the first quarter of 2018, compared with the fourth quarter of ~~2014,~~2017, sales volumes for boxes are expected to be seasonally lower despite two more shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales price realizations should reflect the continuing realization of containerboard export price increases. Input costs are expected to be higher for wood, energy and chemicals. Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather conditions in the 2018 first quarter.

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EMEA Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	1,334		$	1,227	$	1,114
Operating Profit (Loss)	$	6		$	15	$	13
Holmen mill net bargain purchase gain	(6		)	—		—
Turkey Mill Closure	—			7		—
Operating Profit Before Special Items	$	—		$	22	$	13



Brazilian Industrial Packaging
In millions	2017			2016			2015
Net Sales	$	251		$	232		$	228
Operating Profit (Loss)	$	(35	)	$	(43	)	$	(163	)
Brazil Packaging goodwill and trade name impairment	10			—			137
Operating Profit Before Special Items	$	(25	)	$	(43	)	$	(26	)



European Coated Paperboard
In millions	2017		2016		2015
Net Sales	$	335	$	327	$	319
Operating Profit (Loss)	$	72	$	93	$	87



Asian Industrial Packaging
In millions	2017		2016			2015
Net Sales	$	—	$	133		$	280
Operating Profit (Loss)	$	—	$	(81	)	$	(8	)
Asia Packaging restructuring and impairment	—		70			—
Operating Profit Before Special Items	$	—	$	(11	)	$	(8	)

Global Cellulose Fibers



Global Cellulose Fibers
In millions	2017		2016			2015
Net Sales	$	2,551	$	1,092		$	975
Operating Profit (Loss)	$	65	$	(179	)	$	68
Acquisition costs	33		31			—
Inventory fair value step-up amortization	14		19			—
Other	4		—			—
Operating Profit Before Special Items	$	116	$	(129	)	$	68

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

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on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for additional information about the acquisition.

Net sales for 2017 increased to $2.6 billion compared with $1.1 billion in 2016 and $975 million in 2015. Operating profits in 2017 were significantly higher than in 2016 and 4% lower than in2015. Comparing 2017 with 2016 for the legacy business, benefits from higher average sales price realizations and mix ($61 million), lower planned maintenance downtime costs ($39 million), lower input costs ($5 million), lower operating costs ($1 million) and lower other costs ($6 million) were offset by lower sales volumes ($5 million). The incremental operating profits from the acquired business were $117 million in 2017.

For the legacy business, sales volumes were lower. Average sales margins increased, reflecting higher sales price realizations for both fluff pulp and softwood market pulp and a favorable product mix. Input costs were slightly lower. Planned maintenance downtime costs were $39 million lower in 2017 primarily due to the non-recurrence of the 2016 costs associated with the conversion of the Riegelwood mill to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europe and Russia, average sales margins increased significantly and planned maintenance downtime costs were $3 million lower than in 2016.

Entering the first quarter of 2018, sales volumes will be lower due to capacity constraints resulting from planned maintenance downtime. Average sales price realizations are expected to be stable and product mix should be favorable. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime costs should be $52 million higher than in the fourth quarter of 2017. In addition, a fourth-quarter favorable inventory valuation adjustment will not repeat.

Printing Papers



Printing Papers
In millions	2017		2016		2015
Net Sales	$	4,157	$	4,058	$	4,056
Operating Profit (Loss)	$	457	$	540	$	465
Other	2		—		—
Operating Profit Before Special Items	$	459	$	540	$	465

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



North American Printing Papers
In millions	2017		2016		2015
Net Sales	$	1,833	$	1,890	$	1,942
Operating Profit (Loss)	$	132	$	236	$	179
Other	2		—		—
Operating Profit Before Special Items	$	134	$	236	$	179

North American Printing Papers' sales volumes for 2017 were higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. Operating costs were lower.

Entering the first quarter of 2018, sales volumes are expected to be seasonally higher. Average sales margins should be relatively flat. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs should be higher. Planned maintenance downtime costs will increase by about $22 million in the 2018 first quarter.



Brazilian Papers
In millions	2017		2016		2015
Net Sales (a)	$	972	$	897	$	878
Operating Profit (Loss)	$	194	$	173	$	186

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

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Brazilian Papers' sales volumes for uncoated freesheet paper in 2017 were higher compared with 2016 reflecting improving economic conditions. Average sales price realizations increased primarily for domestic uncoated freesheet paper due to the realization of price increases implemented in 2016, while export sales price realizations also increased. Raw material costs decreased for pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were lower than in 2016. Planned maintenance downtime costs were $4 million lower.

Looking ahead to 2018, compared with the fourth quarter of 2017, sales volumes for uncoated freesheet paper in the first quarter are expected to be seasonally weaker in both domestic and export markets. Average sales price realizations should increase due to the implementation of sales price increases in both domestic and export markets. Input costs are expected to be slightly higher for wood, chemicals and energy. Planned maintenance downtime costs are expected to be $5 million higher in the first quarter of 2018.



European Papers
In millions	2017		2016		2015
Net Sales	$	1,187	$	1,109	$	1,064
Operating Profit (Loss)	$	136	$	142	$	111

European Papers' sales volumes for uncoated freesheet paper in 2017 were lower in Russia and about flat in Europe compared with 2016. Average sales price realizations improved for uncoated freesheet paper following price increases implemented in 2017. Input costs were higher for wood, energy, chemicals and purchased pulp. Planned maintenance downtime costs were $22 million lower in 2017 than in 2016.

Entering 2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be stable. Average sales price realizations are expected to be slightly lower in Russia, but higher in Europe. Input costs should be slightly lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 should be $8 million higher than in the fourth quarter of 2017.



Indian Papers
In millions	2017			2016			2015
Net Sales	$	189		$	167		$	172
Operating Profit (Loss)	$	(5	)	$	(11	)	$	(11	)

Indian Papers' average sales price realizations in 2017 were higher than in 2016. Sales volumes also increased. Input costs were lower for wood, partially offset by higher chemical costs. Operating costs were higher in 2017, while planned maintenance downtime costs were even with 2016. Looking ahead to the first quarter of 2018, sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to increase.

Equity Earnings, Net of Taxes – Ilim Holding S.A.

International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

Overview

Cash uses during 2017 were primarily focused on working capital requirements, capital spending, debt reductions, pension contributions, and returning cash to shareholders.

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Cash Provided by Operating Activities

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

Investment Activities

Including discontinued operations, investment activities in 2017 decreased from 2016 as 2016 included the purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging business of $108 million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 million of cash in conjunction with the ~~annual testing~~timber monetization restructuring (see Note 12 Variable Interest Entities and Preferred Securities of ~~its reporting units for possible goodwill impairments, the~~Subsidiaries on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data). The Company ~~calculated the estimated fair value of its Asia Industrial Packaging business using the discounted future cash flows~~maintains an average capital spending target around depreciation and determined that all of the goodwill in this business, totaling $100 million, should be written off. The decline in the fair value of the Asia Industrial Packaging business and resulting impairment charge wasamortization levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 billion in 2017, or 98% of depreciation and amortization, compared with $1.3 billion in 2016, or 110% of depreciation and amortization, and $1.5 billion, or 115% of depreciation and amortization in 2015. Across our businesses, capital spending as a ~~change~~percentage of depreciation and amortization ranged from 37.5% to 107.0% in ~~the strategic outlook~~2017.

The following table shows capital spending for operations by business segment for the ~~business.~~years ended December 31, 2017, 2016 and 2015, excluding amounts related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015.

~~Pension~~



In millions	2017		2016		2015
Industrial Packaging	$	836	$	832	$	871
Global Cellulose Fibers	188		174		129
Printing Papers	235		215		232
Subtotal	1,259		1,221		1,232
Corporate and other	21		20		78
Capital Spending	$	1,280	$	1,241	$	1,310

Capital expenditures in 2018 are currently expected to be about $1.5 billion, or 111% of depreciation and ~~Postretirement Benefit Obligations~~

The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with International Paper’s consulting actuary, and are dependent upon various assumptions including the expected long-term rate of return on plan assets, discount rates, projected future compensation increases, health care cost trend rates and mortality rates.

The calculations of pension and postretirement benefit obligations and expenses require decisions about a number of key assumptions that can significantly affect liability and expense amounts, including the expected long-term rate of return on plan assets, the discountamortization.

Acquisitions and Joint Ventures

See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's acquisitions.

Financing Activities

Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were as follows:



In millions	2017		2016		2015
Debt reductions (a)	$	993	$	266	$	2,151
Pre-tax early debt extinguishment costs (b)	83		29		207


(a)	Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities).


(b)	Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.

2017: Financing activities during 2017 included debt issuances of $1.9 billion and retirements of $1.4 billion for a net increase of $483 million.

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2017, International Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2017, the inclusion of the offsetting interest income from short-term investments reduced the effective interest rate from 5.0% to 4.7%.

In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination of available cash and other borrowings, were used to ~~calculate plan liabilities,~~make a $1.25 billion voluntary cash contribution to the ~~projected~~Company's pension plan. In December 2017, International Paper received $660 million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2017. The $660

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million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale in the accompanying consolidated balance sheet.

In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth quarter.

2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion.

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2016, International Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2016, the amortization of deferred gains on previously terminated swaps had no impact on the weighted average cost of long-term recourse debt. The inclusion of the offsetting interest income from short-term investments reduced the effective rate from 5.3% to 4.8%.

In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047, the proceeds from which were primarily used to fund the acquisition of Weyerhaeuser's pulp business. In addition, the Company repaid approximately $266 million of notes with an interest rate of ~~future compensation increases~~7.95% and ~~health care~~an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt repayments, including the $31 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2016.

In December 2016, International Paper entered into a new $1.5 billion contractually committed credit facility that expires in December 2021 and has a facility fee of 0.15% payable annually.

In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth quarter.

2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million.

During 2015, the Company restructured the timber monetization which resulted in the use of $630 million in cash to pay down a portion of the third party bank loans and refinance the loans on nonrecourse terms. (see Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data).

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps decreased the weighted average cost ~~trend rates.~~of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 5.1%.

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operations for the twelve months ended December 31, 2015.

In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth quarter.

Variable Interest Entities

~~Benefit obligations~~Information concerning variable interest entities is set forth in Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and ~~fair values~~Supplementary Data for discussion.

Liquidity and Capital Resources Outlook for 2018

Capital Expenditures and Long-Term Debt

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during 2018 with current cash balances and cash from operations. Additionally, the Company has existing credit facilities totaling $2.1 billion available at December 31, 2017.

The Company will continue to rely upon debt and capital markets for the majority of ~~plan assets as~~any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. The Company was in compliance with all its debt covenants at December 31, ~~2016~~2017 and was well below the thresholds stipulated under the covenants as defined in the credit agreements.

Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At December 31, 2017, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively.

Contractual obligations for ~~International Paper’s pension~~future payments under existing debt and ~~postretirement plans~~lease commitments and purchase obligations at December 31, 2017, were as follows:

In millions Benefit
Obligation Fair Value of
Plan Assets
U.S. qualified pension $ 13,307
$ 10,312
U.S. nonqualified pension 376
—
U.S. postretirement 280
—
Non-U.S. pension 219
153
Non-U.S. postretirement 23
—

~~The table below shows assumptions used by International Paper to calculate U.S. pension obligations for the years shown:~~

2016 2015 2014
Discount rate 4.10 % 4.40 % 4.10 %
Rate of compensation increase 3.75 % 3.75 % 3.75 %

~~Additionally, health care cost trend rates used in the calculation of U.S. postretirement obligations for the years shown were:~~

2016 2015
Health care cost trend rate assumed for next year 6.50 % 7.00 %
Rate that the cost trend rate gradually declines to 5.00 % 5.00 %
Year that the rate reaches the rate it is assumed to remain 2022
2022

International Paper determines these actuarial assumptions, after consultation with our actuaries, on December 31 of each year to calculate liability information as of that date and pension and postretirement expense for the following year. The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. The discount rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high quality corporate bonds.

~~The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the year ended December 31, 2016 was 7.75%.~~

~~Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional~~ ~~0.25%~~ ~~would decrease (increase)~~ ~~2017~~ ~~pension expense by approximately~~ ~~$26 million, while a (decrease) increase of~~ ~~0.25%~~ ~~in the discount rate would (increase) decrease pension expense by approximately~~ ~~$33 million. The effect on net postretirement benefit cost from a~~ 1%

~~increase or decrease in the annual health care cost trend rate would be approximately~~ ~~$1 million~~.

~~Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were:~~

Year Return Year Return
2016 7.1 % 2011 2.5 %
2015 1.3 % 2010 15.1 %
2014 6.4 % 2009 23.8 %
2013 14.1 % 2008 (23.6 )%
2012 14.1 % 2007 9.6 %

The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple-Inland asset returns. International Paper and Temple-Inland assets were combined in October 2014. The annualized time-weighted rate of return earned on U.S. pension plan assets was ~~8.5%~~ ~~and~~ ~~6.3%~~ for the past five and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from 2006 – 2016.

ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains and losses in subsequent years. The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost for the U.S. pension plans over the next fiscal year are ~~$341 million~~ ~~and~~ ~~$28 million, respectively.~~

~~Net periodic pension and postretirement plan expenses, calculated for all of International Paper’s plans, were as follows:~~

In millions 2016
2015
2014
2013
2012
Pension expense

U.S. plans (non-cash) $ 809
$ 461
$ 387
$ 545
$ 342
Non-U.S. plans 4
6
—
5
3
Postretirement expense

U.S. plans 13
8
7
(1 ) (4 )
Non-U.S. plans 1
5
7
7
1
Net expense $ 827
$ 480
$ 401
$ 556
$ 342

~~The increase in~~ ~~2016~~ U.S. pension expense principally reflects a decrease in the discount rate and a large settlement charge in 2016 related to the optional lump sum payout partially offset by a higher return on assets and lower amortization of actuarial losses.

~~Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as in~~ ~~2016, projected future net periodic pension and postretirement plan expenses would be as follows:~~

In millions 2018 (1) 2017 (1)
Pension expense
U.S. plans (non-cash) $ 252
$ 310
Non-U.S. plans 3
4
Postretirement expense
U.S. plans 15
18
Non-U.S. plans 1
1
Net expense $ 271
$ 333



In millions	2018		2019		2020		2021		2022		Thereafter
Maturities of long-term debt (a)	$	311	$	126	$	164	$	440	$	956	$	9,160
Lease obligations	130		102		77		53		37		141
Purchase obligations (b)	3,415		680		583		523		463		2,197
Total (c)	$	3,856	$	908	$	824	$	1,016	$	1,456	$	11,498


~~(1)~~(a)	~~Based on assumptions~~Total debt includes scheduled principal payments only.

(b)

Includes $1.6 billion relating to fiber supply agreements entered into at ~~December 31, 2016.~~the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes $1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business.


(c)	Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits of approximately $134 million.

~~The~~We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017, to be permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax legislation, the Company ~~estimates that it will record net pension expense~~is evaluating this assertion (see Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). As of December 31, 2017, the amount of cash associated with permanently reinvested foreign earnings was approximately $590 million. We do not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Pension Obligations and Funding

At ~~$310 million~~December 31, 2017, the projected benefit obligation for ~~its~~the Company’s U.S. defined benefit plans indetermined under U.S. GAAP was approximately ~~2017~~$1.9 billion~~, with~~ higher than the decrease from expense of $809 million in 2016 mainly related to no expected settlement charges in 2017 and an increase in the assumed discount rate to 4.10% in 2017 from 4.05% in 2016, partially offset by a lower return on asset assumption of 7.50% in 2017, down from 7.75% in 2016.

~~The market~~fair value of plan ~~assets for International Paper’s U.S. qualified pension plan at~~ ~~December 31, 2016~~ ~~totaled approximately~~ ~~$10.3~~assets. Approximately $1.5 billion~~, consisting~~ of ~~approximately~~ ~~51%~~ ~~equity securities,~~ ~~27%~~ ~~debt securities,~~ ~~10%~~ ~~real estate and~~ ~~12%~~ ~~other assets. Plan assets include an immaterial~~this amount relates to plans that are subject to minimum funding requirements. Under current IRS funding rules, the calculation of ~~International Paper common stock.~~

~~The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal~~minimum funding requirements ~~plus any additional amounts that~~differs from the ~~Company may determine to be appropriate~~

~~considering the funded status~~calculation of the present value of plan ~~tax deductibility,~~ benefits(the ~~cash flows generated~~projected benefit obligation) for accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding method selected by the Company, and ~~other factors.~~the timing of its implementation, as

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well as on actual demographic data and the targeted funding level. The Company continually reassesses the amount and timing of any discretionary contributions and ~~could elect~~elected to make ~~voluntary~~ contributions ~~in the future. There are no required contributions to the U.S. qualified plan in 2017. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled~~totaling $211,250 million and $750 million for the ~~year~~years ended December 31, 2017 and 2016., respectively. At this time, we do not expect to have any required contributions to our plans in 2018, although the Company may elect to make future voluntary contributions. The timing and amount of future contributions, which could be material, will depend on a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.

Ilim Holding S.A. Shareholder’s Agreement

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

Income Taxes

Equity Earnings, Net of Taxes

Equity earnings, net of taxes in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia (see page 27).

Interest Expense and Noncontrolling Interest

There were no net earnings attributable to noncontrolling interests in 2017, compared with a loss of $2 million in 2016 and a loss of $21 million in 2015. The decrease from 2015 reflects the sale of our equity share of the IP-Sun JV in 2015.

Special Items

Restructuring and Other Charges

During 2017, 2016 and 2015, pre-tax restructuring and other charges totaling $67 million, $54 million and $252 million were recorded. Details of these charges are as follows:



Restructuring and Other
In millions	2017			2016				2015
Business Segments
Turkey mill closure	$	—		$	7		(a)	$	—
	—			7				—
Corporate
Early debt extinguishment costs (see Note 13)	$	83		$	29			$	207
Gain on sale of investment in ArborGen	(14		)	—				—
India Packaging business evaluation write-off	—			17				—
Gain on sale of investment in Arizona Chemical	—			(8		)		—
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand	—			9				8
Timber monetization restructuring	—			—				16
Legal liability reserve adjustment	—			—				15
Other Items	(2		)	—				6
	67			47				252
Total	$	67		$	54			$	252

(a) Recorded in the Industrial Packaging business segment.

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Other Corporate Special Items

In addition, other corporate special items totaling $0 million, $8 million and $(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges were as follows:



Other Corporate Items
In millions	2017		2016		2015
Write-off of certain regulatory pre-engineering costs	$	—	$	8	$	—
Other	—		—		(4		)
Total	$	—	$	8	$	(4	)

Impairments of Goodwill

No goodwill impairment charges were recorded in 2017 or 2016.

Net Losses on Sales and Impairments of Businesses

Net losses on sales and impairments of businesses included in special items totaled a pre-tax loss of $9 million in 2017, a pre-tax loss of $70 million in 2016 and a pre-tax loss of $174 million in 2015. See Note 7 Divestitures on pages 53 through 55 of Item 8. Financial Statements and Supplementary Data) for further discussion.

DESCRIPTION OF BUSINESS SEGMENTS

Industrial Packaging

International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into corrugated boxes and other packaging by our 178 North American container plants. Additionally, we recycle approximately one million tons of OCC and mixed and

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

Global Cellulose Fibers

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

Printing Papers

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

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Ilim Holding S.A.

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

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

BUSINESS SEGMENT RESULTS

Industrial Packaging



Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	15,077		$	14,226	$	14,559
Operating Profit (Loss)	$	1,547		$	1,741	$	1,938
Asia Packaging restructuring and impairment	—			70		—
Holmen mill bargain purchase gain	(6		)	—		—
Kleen Products anti-trust settlement	354			—		—
Brazil Packaging Wood Supply Accelerated Amortization	10			—		—
Turkey mill closure	—			7		—
Brazil Packaging goodwill and trade name impairment	—			—		137
Other	14			—		—
Operating Profit Before Special Items	$	1,919		$	1,818	$	2,075



North American Industrial Packaging
In millions	2017		2016		2015
Net Sales (a)	$	13,329	$	12,450	$	12,618
Operating Profit (Loss)	$	1,504	$	1,757	$	2,009
Kleen Products anti-trust settlement	354		—		—
Other	14		—		—
Operating Profit Before Special Items	$	1,872	$	1,757	$	2,009

(a) Includes intra-segment sales of $172 million for 2017 and $143 million for 2016.

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EMEA Industrial Packaging
In millions	2017			2016		2015
Net Sales	$	1,334		$	1,227	$	1,114
Operating Profit (Loss)	$	6		$	15	$	13
Holmen mill net bargain purchase gain	(6		)	—		—
Turkey Mill Closure	—			7		—
Operating Profit Before Special Items	$	—		$	22	$	13



Brazilian Industrial Packaging
In millions	2017			2016			2015
Net Sales	$	251		$	232		$	228
Operating Profit (Loss)	$	(35	)	$	(43	)	$	(163	)
Brazil Packaging goodwill and trade name impairment	10			—			137
Operating Profit Before Special Items	$	(25	)	$	(43	)	$	(26	)



European Coated Paperboard
In millions	2017		2016		2015
Net Sales	$	335	$	327	$	319
Operating Profit (Loss)	$	72	$	93	$	87



Asian Industrial Packaging
In millions	2017		2016			2015
Net Sales	$	—	$	133		$	280
Operating Profit (Loss)	$	—	$	(81	)	$	(8	)
Asia Packaging restructuring and impairment	—		70			—
Operating Profit Before Special Items	$	—	$	(11	)	$	(8	)

Global Cellulose Fibers



Global Cellulose Fibers
In millions	2017		2016			2015
Net Sales	$	2,551	$	1,092		$	975
Operating Profit (Loss)	$	65	$	(179	)	$	68
Acquisition costs	33		31			—
Inventory fair value step-up amortization	14		19			—
Other	4		—			—
Operating Profit Before Special Items	$	116	$	(129	)	$	68

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

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on December 1, 2016. See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for additional information about the acquisition.

Printing Papers



Printing Papers
In millions	2017		2016		2015
Net Sales	$	4,157	$	4,058	$	4,056
Operating Profit (Loss)	$	457	$	540	$	465
Other	2		—		—
Operating Profit Before Special Items	$	459	$	540	$	465



North American Printing Papers
In millions	2017		2016		2015
Net Sales	$	1,833	$	1,890	$	1,942
Operating Profit (Loss)	$	132	$	236	$	179
Other	2		—		—
Operating Profit Before Special Items	$	134	$	236	$	179



Brazilian Papers
In millions	2017		2016		2015
Net Sales (a)	$	972	$	897	$	878
Operating Profit (Loss)	$	194	$	173	$	186

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

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European Papers
In millions	2017		2016		2015
Net Sales	$	1,187	$	1,109	$	1,064
Operating Profit (Loss)	$	136	$	142	$	111



Indian Papers
In millions	2017			2016			2015
Net Sales	$	189		$	167		$	172
Operating Profit (Loss)	$	(5	)	$	(11	)	$	(11	)

Equity Earnings, Net of Taxes – Ilim Holding S.A.

International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Cash uses during 2017 were primarily focused on working capital requirements, capital spending, debt reductions, pension contributions, and returning cash to shareholders.

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Cash Provided by Operating Activities

Investment Activities

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

The following table shows capital spending for operations by business segment for the years ended December 31, 2017, 2016 and 2015, excluding amounts related to discontinued operations of $111 million in 2017, $107 million in 2016 and $177 million in 2015.



In millions	2017		2016		2015
Industrial Packaging	$	836	$	832	$	871
Global Cellulose Fibers	188		174		129
Printing Papers	235		215		232
Subtotal	1,259		1,221		1,232
Corporate and other	21		20		78
Capital Spending	$	1,280	$	1,241	$	1,310

Capital expenditures in 2018 are currently expected to be about $1.5 billion, or 111% of depreciation and amortization.

Acquisitions and Joint Ventures

See Note 6 Acquisitions and Joint Ventures on pages 51 through 53 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's acquisitions.

Financing Activities

Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were as follows:



In millions	2017		2016		2015
Debt reductions (a)	$	993	$	266	$	2,151
Pre-tax early debt extinguishment costs (b)	83		29		207


(a)	Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities).


(b)	Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.

2017: Financing activities during 2017 included debt issuances of $1.9 billion and retirements of $1.4 billion for a net increase of $483 million.

In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination of available cash and other borrowings, were used to make a $1.25 billion voluntary cash contribution to the Company's pension plan. In December 2017, International Paper received $660 million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2017. The $660

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million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale in the accompanying consolidated balance sheet.

In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth quarter.

2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion.

In December 2016, International Paper entered into a new $1.5 billion contractually committed credit facility that expires in December 2021 and has a facility fee of 0.15% payable annually.

In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth quarter.

2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million.

During 2015, the Company restructured the timber monetization which resulted in the use of $630 million in cash to pay down a portion of the third party bank loans and refinance the loans on nonrecourse terms. (see Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data).

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 5.1%.

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operations for the twelve months ended December 31, 2015.

In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth quarter.

Variable Interest Entities

Information concerning variable interest entities is set forth in Note 12 Variable Interest Entities on pages 63 through 64 of Item 8. Financial Statements and Supplementary Data for discussion.

Liquidity and Capital Resources Outlook for 2018

Capital Expenditures and Long-Term Debt

Contractual obligations for future payments under existing debt and lease commitments and purchase obligations at December 31, 2017, were as follows:



In millions	2018		2019		2020		2021		2022		Thereafter
Maturities of long-term debt (a)	$	311	$	126	$	164	$	440	$	956	$	9,160
Lease obligations	130		102		77		53		37		141
Purchase obligations (b)	3,415		680		583		523		463		2,197
Total (c)	$	3,856	$	908	$	824	$	1,016	$	1,456	$	11,498


(a)	Total debt includes scheduled principal payments only.


(b)	Includes $1.6 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes $1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business.


(c)	Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits of approximately $134 million.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017, to be permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax legislation, the Company is evaluating this assertion (see Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). As of December 31, 2017, the amount of cash associated with permanently reinvested foreign earnings was approximately $590 million. We do not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Pension Obligations and Funding

At December 31, 2017, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $1.9 billion higher than the fair value of plan assets. Approximately $1.5 billion of this amount relates to plans that are subject to minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding requirements differs from the calculation of the present value of plan benefits(the projected benefit obligation) for accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding method selected by the Company, and the timing of its implementation, as

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well as on actual demographic data and the targeted funding level. The Company continually reassesses the amount and timing of any discretionary contributions and elected to make contributions totaling $1,250 million and $750 million for the years ended December 31, 2017 and 2016, respectively. At this time, we do not expect to have any required contributions to our plans in 2018, although the Company may elect to make future voluntary contributions. The timing and amount of future contributions, which could be material, will depend on a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.

Ilim Holding S.A. Shareholder’s Agreement

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

Contingent Liabilities

Accruals for contingent liabilities, including legal, and environmental matters, are recorded when it is probable that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments

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regarding projected outcomes and range of loss based on historical experience and recommendations of legal counsel. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs.

We calculate our workers' compensation reserves based on estimated actuarially calculated development factors. The workers' compensation reserves are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. While we believe that our assumptions are appropriate, the ultimate settlement of workers' compensation reserves may differ significantly from amounts we have accrued in our consolidated financial statements.

Impairment of Long-Lived Assets and Goodwill

An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through cash flows from future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of goodwill and intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes, operating, raw material, energy and freight costs, and various other projected operating economic factors. As these key factors change in future periods, the Company will update its impairment analyses to reflect its latest estimates and projections.

ASU 2011-08, "Intangibles - Goodwill and Other," allows entities testing goodwill for impairment the option of performing a qualitative ("Step 0") assessment before calculating the fair value of a reporting unit for the goodwill impairment test. If a Step 0 assessment is performed, an entity is no longer required to calculate the fair value of a reporting unit unless the entity determines that, based on that Step 0 assessment, it is more likely than not that its fair value is less than its carrying value.

The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units. The results of this assessment indicated that it is not more likely than not

that the fair values of the Company's reporting units were less than the carrying values of the reporting units.

In addition, the Company considered whether there were any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units below their carrying amounts and necessitate another goodwill impairment test. In consideration of all relevant factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017.

No goodwill impairment charges were recorded in 2017 or 2016.

In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for goodwill impairment, the Company calculated the estimated fair value of its Brazil Packaging business using the discounted future cash flows and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.

Pension and Postretirement Benefit Obligations

Benefit obligations and fair values of plan assets as of December 31, 2017, for International Paper’s pension and postretirement plans were as follows:



In millions	Benefit Obligation		Fair Value of Plan Assets
U.S. qualified pension	$	12,895	$	11,368
U.S. nonqualified pension	369		—
U.S. postretirement	270		—
Non-U.S. pension	247		176
Non-U.S. postretirement	25		—

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The table below shows assumptions used by International Paper to calculate U.S. pension obligations for the years shown:



	2017		2016		2015
Discount rate	3.60	%	4.10	%	4.40	%
Rate of compensation increase	3.75	%	3.75	%	3.75	%

Additionally, health care cost trend rates and other assumptions used in the calculation of U.S. postretirement obligations for the years shown were:



	2017		2016
Discount rate	3.50	%	4.00	%
Health care cost trend rate assumed for next year	6.50	%	6.50	%
Rate that the cost trend rate gradually declines to	5.00	%	5.00	%
Year that the rate reaches the rate it is assumed to remain	2022		2022

The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the year ended December 31, 2017 was 7.50%.

Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) 2018 pension expense by approximately $27 million, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease pension expense by approximately $35 million. The effect on net postretirement benefit cost from a 1% increase or decrease in the annual health care cost trend rate would be approximately $1 million.

Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were:



Year	Return		Year	Return
2017	19.3	%	2012	14.1	%
2016	7.1	%	2011	2.5	%
2015	1.3	%	2010	15.1	%
2014	6.4	%	2009	23.8	%
2013	14.1	%	2008	(23.6	)%

The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple-Inland asset returns. International Paper and Temple-

Inland assets were combined in October 2014. The annualized time-weighted rate of return earned on U.S. pension plan assets was 9.4% and 7.2% for the past five and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from 2007 – 2017.

Net periodic pension and postretirement plan expenses, calculated for all of International Paper’s plans, were as follows:



In millions	2017		2016		2015		2014		2013
Pension expense
U.S. plans (non-cash)	$	717	$	809		$461		$387		$545
Non-U.S. plans	5		4		6		—		5
Postretirement expense
U.S. plans	17		13		8		7		(1		)
Non-U.S. plans	1		1		5		7		7
Net expense	$	740	$	827		$480		$401		$556

The decrease in 2017 U.S. pension expense reflects lower settlement losses and lower actuarial losses partially offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit charges.

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Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as of December 31, 2017, projected future net periodic pension and postretirement plan expenses would be as follows:



In millions	2019		2018
Pension expense
U.S. plans (non-cash)	$	30	$	167
Non-U.S. plans	5		4
Postretirement expense
U.S. plans	14		16
Non-U.S. plans	1		1
Net expense	$	50	$	188

The Company estimates that it will record net pension expense of approximately $167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 million in 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated with the North American Consumer Packaging business and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a higher expected return on assets associated with the increased pension asset balance.

The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 2017 totaled approximately $11.4 billion, consisting of approximately 49% equity securities, 36% debt securities, 10% real estate and 5% other assets.

The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions and could elect to make voluntary contributions in the future. There are no required contributions to the U.S. qualified plan in 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $40 million for the year ended December 31, 2017.

Income Taxes

International Paper records its global tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income

tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering technical merits of the position based on

specific tax regulations and facts of each matter. Changes to recorded liabilities are only made when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, change in tax laws, or a recent court case that addresses the matter.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.

While International Paper believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.

The Company’s effective income tax rates, before equity earnings and discontinued operations, were ~~26%~~(128)%, ~~37%~~24% and ~~14%~~37% for ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. The income tax benefit in 2017 was primarily driven by the recent U.S. tax legislation in December 2017 (see Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). These effective tax rates include the tax effects of certain special items that can significantly affect the effective income tax rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate computed after excluding these special items may provide a better estimate of the rate that might be expected in future years if no additional special items were to ~~occur in those years.~~occur. However, as a result of recent U.S. tax legislation, which includes a reduction of the U.S. income tax rate from 35% to 21%, we will have a lower worldwide effective income tax rate going forward. Excluding these special items, the effective income tax rate for ~~2016~~2017 was ~~32%~~30% of pre-tax earnings compared with 32% in 2016 and 33% in 2015 ~~and~~ ~~31%~~ in ~~2014~~. We estimate that the ~~2017~~2018 effective income tax rate will

be approximately ~~33%~~25-27% based on expected earnings and business conditions.

Business Combinations

The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business Combinations", as amended. We allocate the total ~~purchase price~~consideration of the assets acquired and liabilities assumed based on their estimated fair value as of the business combination date. In developing estimates of fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such

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as customer lists and developed technology involves judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated statements of earnings. Subsequent actual results of the underlying business activity supporting the specifically identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives in future periods.

RECENT ACCOUNTING DEVELOPMENTS

~~There were no new accounting pronouncements issued or effective during the fiscal year which have had or are expected to have a material impact on the Company’s consolidated financial statements.~~ See Note 2 Recent Accounting Developments on pages 4948 through 5249 of Item 8. Financial Statements and Supplementary Data for a discussion of new accounting pronouncements.

LEGAL PROCEEDINGS

Information concerning the Company’s environmental and legal proceedings is set forth in Note 11 Commitments and Contingencies on pages 6160 through 63 of Item 8. Financial Statements and Supplementary Data.

EFFECT OF INFLATION

While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general inflation have had minimal impact on our operating results in each of the last three years. Sales prices and volumes are more strongly influenced by economic supply and demand factors in specific markets and by exchange rate fluctuations than by inflationary factors.

FOREIGN CURRENCY EFFECTS

International Paper has operations in a number of countries. Its operations in those countries also export to, and compete with, imports from other regions. As such, currency movements can have a number of direct and indirect impacts on the Company’s financial statements. Direct impacts include the translation of international operations’ local currency financial statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing of products that are traded internationally). In general, a weaker U.S. dollar and stronger local currency is beneficial to International Paper. The currencies that have the most impact are the Euro, the Brazilian real, the Polish zloty and the Russian ruble.

MARKET RISK

We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending programs and for general corporate purposes. Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. Information related to International Paper’s debt obligations is included in Note 13 Debt and Lines of Credit on pages 6664 and 6765 of Item 8. Financial Statements and Supplementary Data. A discussion of derivatives and hedging activities is included in Note 14 Derivatives and Hedging Activities on pages 6765 through 7069 of Item 8. Financial Statements and Supplementary Data.

The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity prices.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations and investments in marketable securities. We invest in investment-grade securities of financial institutions and money market mutual funds with a minimum rating of AAA and limit exposure to any one issuer or fund. Our investments in marketable securities at December 31, ~~2016~~2017 and ~~2015~~2016 are stated at cost, which approximates market due to their short-term nature. Our interest rate

risk exposure related to these investments was not material.

We issue fixed and floating rate debt in a proportion that management deems appropriate based on current and projected market conditions. Derivative instruments, such as, interest rate swaps, may be used to execute this strategy. At December 31, ~~2016~~2017 and ~~2015~~2016, the ~~net~~ fair value of the net liability of financial instruments with exposure to interest rate risk was approximately $~~11.3~~11.1 billion and $~~9.3~~11.3 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $~~623~~679 million and $~~565~~623 million at December 31, ~~2016~~2017 and ~~2015~~2016, respectively.

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Commodity Price Risk

The objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations in the price of commodities. Commodity swap or forward purchase contracts may be used to manage risks associated with market fluctuations in energy prices. The net fair value of such outstanding energy hedge ~~contracts~~contract at December 31, ~~2016~~2017 and ~~2015~~2016 was approximately a $2$8 million and a $72 million liability, respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would have been approximately $1 million at December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

Foreign Currency Risk

International Paper transacts business in many currencies and is also subject to currency exchange rate risk through investments and businesses owned and operated in foreign countries. Our objective in managing the associated foreign currency risks is to minimize the effect of adverse exchange rate fluctuations on our after-tax cash flows. We address these risks on a limited basis by entering into cross-currency and interest rate swaps, or foreign exchange contracts. At December 31, ~~2016~~2017 and ~~2015~~2016, the net fair value of financial instruments with exposure to foreign currency risk was approximately a $1$10 million ~~liability~~asset and a $41 million ~~asset,~~liability, respectively. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would have been approximately $2329 million and $3023 million at December 31, ~~2016~~2017 and ~~2015~~2016, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the preceding discussion and Note 14 Derivatives and Hedging Activities on pages 6765 through 7069 of Item 8. Financial Statements and Supplementary Data.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT ON:

Financial Statements

The management of International Paper Company is responsible for the preparation of the consolidated financial statements in this annual report and for establishing and maintaining adequate internal controls over financial reporting. The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances to present fairly the Company’s consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements.

As can be expected in a complex and dynamic business environment, some financial statement amounts are based on estimates and judgments. Even though estimates and judgments are used, measures have been taken to provide reasonable assurance of the integrity and reliability of the financial information contained in this annual report. We have formed a Disclosure Committee to oversee this process.

The accompanying consolidated financial statements have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During its audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the board of directors and all committees of the board. Management believes that all representations made to the independent auditors during their audits were valid and appropriate.

Internal Control Over Financial Reporting

The management of International Paper Company is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. All internal control systems have inherent limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is

~~system is~~ supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.

The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, ~~2016~~2017. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, ~~2016~~2017, the Company’s internal control over financial reporting was effective.

The Company completed the acquisition of Holmen Paper’s newsprint mill in Madrid, Spain as well as associated recycling operations and 50% ownership in a cogeneration facility in June 2016. Due to the timing of the acquisition we have excluded the Holmen operations from our evaluation of the effectiveness of internal control over financial reporting. For the period ended December 31, 2016, sales and assets for the former Holmen operations represented approximately 0.4% of net sales and 0.3% of total assets.

The Company completed the acquisition of Weyerhaeuser’s pulp business in December 2016. Due to the timing of the acquisition we have excluded the former Weyerhaeuser pulp business from our evaluation of the effectiveness of internal control over financial reporting. For the period ended December 31, 2016, sales and assets for the former Weyerhaeuser pulp business represented approximately 0.5% of net sales and 6.5% of total assets.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting. The report appears on pages 4139 and ~~42.~~40.

Internal Control Environment And Board Of Directors Oversight

Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, which have been distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and an office of ethics and business

practice. The internal control system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout International Paper, and an extensive program of internal audits with management follow-up.

The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which consists of independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of

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the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, ~~2016~~2017, including critical accounting policies and significant management judgments, with management and the independent auditors. The Committee’s report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement.

MARK S. SUTTON

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

~~CAROL L. ROBERTS~~GLENN R. LANDAU

SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ~~ON CONSOLIDATED FINANCIAL STATEMENTS~~

To the Board of Directors and Shareholders of International Paper Company:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of International Paper Company and subsidiaries (the "Company") as of December 31, ~~2016~~2017 and ~~2015, and~~2016, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, ~~2016. Our audits also included~~2017, and the ~~financial statement~~related notes and the schedule listed in the Index at Item ~~15.~~ 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements ~~and financial statement schedule~~ are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements ~~and financial statement schedule~~ based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement. An audit includes~~misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the

financial statements. ~~An audit~~Our audits also ~~includes assessing~~included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial ~~statement presentation.~~statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of International Paper Company and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in ~~Internal Control - Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway~~

~~Commission, and our report dated February 22, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.~~

/s/ Deloitte & Touche LLP

Memphis, Tennessee

February 22, ~~2017~~2018

We have served as the Company's auditor since 2002.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of International Paper Company:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of International Paper Company and subsidiaries (the "Company") as of December 31, ~~2016,~~2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. ~~As described~~In our opinion, the Company maintained, in ~~the Report of Management on Internal Control over Financial Reporting, management excluded from its assessment the~~all material respects, effective internal control over financial reporting as of ~~Holmen Paper’s newsprint mill~~December 31, 2017, based on the criteria established in ~~Madrid, Spain as well as~~Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the ~~associated recycling operations and a 50% a ownership~~Treadway Commission.

We have also audited, in ~~a cogeneration facility (collectively Holmen) and Weyerhaeuser’s pulp business, which were acquired on June 30, 2016 and December 1, 2016 respectively. Holmen constitutes 0.4%~~accordance with the standards of ~~net sales and 0.3% of total assets of~~the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement ~~amounts~~schedule as of and for the year ended December 31, ~~2016. The former Weyerhaeuser pulp business constitutes 0.5% of net sales and 6.5% of total assets~~2017 of the ~~consolidated~~Company and our report dated February 22, 2018 expressed an unqualified opinion on those financial statements and financial statement ~~amounts as of and~~schedule.

Basis for ~~the year ended December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting at Holmen or Weyerhaeuser pulp business.~~ Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is

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to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material

respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

~~We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements~~

and financial statement schedule as of and for the year ended December 31, 2016 of the Company and our report dated February 22, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ Deloitte & Touche LLP

Memphis, Tennessee

February 22, ~~2017~~2018

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CONSOLIDATED STATEMENT OF OPERATIONS


In millions, except per share amounts, for the years ended December 31	2016			2015			2014			2017			2016			2015
NET SALES	$	21,079		$	22,365		$	23,617		$	21,743		$	19,495		$	20,675
COSTS AND EXPENSES
Cost of products sold	15,152			15,468			16,254			15,300			14,057			14,313
Selling and administrative expenses	1,575			1,645			1,793			1,653			1,484			1,539
Depreciation, amortization and cost of timber harvested	1,227			1,294			1,406			1,343			1,124			1,167
Distribution expenses	1,361			1,406			1,521			1,434			1,237			1,248
Taxes other than payroll and income taxes	164			168			180			169			154			158
Restructuring and other charges	54			252			846			67			54			252
Impairment of goodwill and other intangibles	—			137			100			—			—			137
Net (gains) losses on sales and impairments of businesses	70			174			38			9			70			174
Litigation settlement										354			—			—
Net bargain purchase gain on acquisition of business										(6		)	—			—
Interest expense, net	520			555			607			572			520			555
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES)	956			1,266			872			848			795			1,132
Income tax provision (benefit)	247			466			123			(1,085		)	193			417
Equity earnings (loss), net of taxes	198			117			(200		)	177			198			117
EARNINGS (LOSS) FROM CONTINUING OPERATIONS	907			917			549			2,110			800			832
Discontinued operations, net of taxes	(5		)	—			(13		)	34			102			85
NET EARNINGS (LOSS)	902			917			536			2,144			902			917
Less: Net earnings (loss) attributable to noncontrolling interests	(2		)	(21		)	(19		)	—			(2		)	(21		)
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY	$	904		$	938		$	555		$	2,144		$	904		$	938
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	2.21		$	2.25		$	1.33		$	5.11		$	1.95		$	2.05
Discontinued operations, net of taxes	(0.01		)	—			(0.03		)	0.08			0.25			0.20
Net earnings (loss)	$	2.20		$	2.25		$	1.30		$	5.19		$	2.20		$	2.25
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	2.19		$	2.23		$	1.31		$	5.05		$	1.93		$	2.03
Discontinued operations, net of taxes	(0.01		)	—			(0.02		)	0.08			0.25			0.20
Net earnings (loss)	$	2.18		$	2.23		$	1.29		$	5.13		$	2.18		$	2.23
AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	909		$	938		$	568		$	2,110		$	802		$	853
Discontinued operations, net of taxes	(5		)	—			(13		)	34			102			85
Net earnings (loss)	$	904		$	938		$	555		$	2,144		$	904		$	938

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

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)


In millions for the years ended December 31	2016			2015			2014			2017			2016			2015
NET EARNINGS (LOSS)	$	902		$	917		$	536		$	2,144		$	902		$	917
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $343, $186 and $154)	545			296			242
U.S. plans (less tax of $280, $343 and $186)										486			545			296
Pension and postretirement liability adjustments:
U.S. plans (less tax of $283, $206 and $798)	(451		)	(329		)	(1,253		)
Non-U.S. plans (less tax of $4, $0 and $5)	3			(2		)	(18		)
U.S. plans (less tax of $69, $283 and $206)										56			(451		)	(329		)
Non-U.S. plans (less tax of $1, $4 and $0)										3			3			(2		)
Change in cumulative foreign currency translation adjustment	260			(1,042		)	(876		)	177			260			(1,042		)
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $3, $3 and $3)	(6		)	(3		)	10
Reclassification adjustment for (gains) losses included in net earnings (less tax of $3, $8 and $1)	(7		)	12			(4		)
Net gains (losses) arising during the period (less tax of $4, $3 and $3)										15			(6		)	(3		)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8)										(7		)	(7		)	12
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX	344			(1,068		)	(1,899		)	730			344			(1,068		)
Comprehensive Income (Loss)	1,246			(151		)	(1,363		)	2,874			1,246			(151		)
Net (Earnings) Loss Attributable to Noncontrolling Interests	2			21			19			—			2			21
Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests	2			6			12			(1		)	2			6
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY	$	1,250		$	(124	)	$	(1,332	)	$	2,873		$	1,250		$	(124	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

International Paper (the Company) is a global paper and packaging company with primary markets and manufacturing operations in North America, Europe, Latin America, ~~Russia, Asia,~~North Africa, India and ~~the Middle East.~~Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions.

FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require the use of management’s estimates. Actual results could differ from management’s estimates. Prior-period amounts have been adjusted to conform with current year presentation.

~~During the fourth quarter of 2016,~~On January 1, 2018, the Company ~~finalized~~completed the previously announced transfer of its ~~purchase~~North American Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of ~~Weyerhaeuser's pulp~~Graphic Packaging Holding Company. The Company received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. As a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American Consumer Packaging business ~~(see Note 6). Subsequent to the acquisition, the Company began reporting Global Cellulose Fibers~~ as a separate business segment in the fourth quarter of 2016 due to the increased materiality of the results of this business. This segment includes the Company's legacy pulp business and the newly acquired pulp business. As such, amounts related to the legacy pulp business have been reclassified out of the Printing Papers' business segment and included in the new Global Cellulose Fibers business segmentdiscontinued operation. See Note 7 for ~~all prior periods to conform with current year presentation.~~further discussion.

CONSOLIDATION

The consolidated financial statements include the accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled subsidiaries. All significant intercompany balances and transactions are eliminated.

Investments in affiliated companies where the Company has significant influence over their operations are accounted for by the equity method. International Paper’s share of affiliates’ results of operations totaled earnings (loss) of $177 million, $198 million and $117 million in 2017, 2016 and ~~$(200) million in 2016,~~ 2015, ~~and 2014,~~ respectively.

REVENUE RECOGNITION

Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership.

Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales

transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer.

SHIPPING AND HANDLING COSTS

Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution expenses in the consolidated statement of operations. When shipping and handling costs are included in the sales price charged for our products, they are recognized in net sales.

ANNUAL MAINTENANCE COSTS

Costs for repair and maintenance activities are expensed in the month that the related activity is performed under the direct expense method of accounting.

TEMPORARY INVESTMENTS

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost, which approximates market value.

INVENTORIES

Inventories are valued at the lower of cost or market value and include all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products, are generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or average cost methods.

PLANTS, PROPERTIES AND EQUIPMENT

Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for pulp and paper mills, and the straight-line method is used for other plants and equipment. ~~Annual straight-line depreciation rates generally are, for buildings —~~ ~~2.50%~~ to ~~5.00%, and for machinery and equipment —~~ 5% to ~~33%~~.

~~FORESTLANDS~~

At ~~December 31, 2016, International Paper and its subsidiaries owned or managed approximately~~ ~~329,000~~ ~~acres of forestlands in Brazil, and through~~

licenses and forest management agreements, had harvesting rights on government-owned forestlands in Russia. Costs attributable to timber are expensed as trees are cut. The rate charged is determined annually based on the relationship of incurred costs to estimated current merchantable volume.

GOODWILL

~~Goodwill relating to a single business reporting unit is included as an asset of the applicable segment. For goodwill impairment testing, this goodwill is allocated to reporting units.~~ Annual testing for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim testing performed when management believes that it is more likely than not events or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill.

The Company has the option to assess goodwill for impairment by first performing a qualitative ("Step 0") assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its

carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amounts, then the two-step goodwill impairment test is not required to be performed. If the company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company does not elect the option to perform an initial qualitative assessment, the Company performs the two-step goodwill impairment test. In performing this testing, the Company estimates the fair value of its reporting units using the projected future cash flows to be generated by each unit, discounted for each reporting unit. These estimated fair values are then analyzed for reasonableness by comparing them to historic market transactions for businesses in the industry, and by comparing the sum of the reporting unit fair values and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s traded stock price on the testing date. For reporting units whose recorded value of net assets plus goodwill is in excess of their estimated fair values, the fair values of the individual assets and liabilities of the respective reporting units are then determined to calculate the amount of any goodwill impairment charge ~~required.~~required, if any.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair value.

INCOME TAXES

International Paper uses the asset and liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences

attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are remeasured to

reflect new tax rates in the periods rate changes are enacted.

International Paper records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering the technical merits of the position based on specific tax regulations and the facts of each matter. Changes to recorded liabilities are made only when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, a change in tax laws, or a recent court case that addresses the matter.

While the judgments and estimates made by the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by consultation with outside consultants, historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual resolution of these matters may differ from recorded estimated amounts, resulting in ~~charges or credits~~adjustments that could materially affect future financial statements.

ENVIRONMENTAL REMEDIATION COSTS

Costs associated with environmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably ~~determinable.~~estimable.

TRANSLATION OF FINANCIAL STATEMENTS

Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive loss.

NOTE 2 RECENT ACCOUNTING DEVELOPMENTS

Other than as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the consolidated financial statements.

~~VARIABLE INTEREST ENTITIES~~COMPREHENSIVE INCOME

In ~~October 2016,~~February 2018, the FASB issued ASU ~~2016-17, "Consolidation~~2018-02, "Income Statement - Reporting Comprehensive Income (Topic ~~810)~~220): ~~Interests Held through Related Parties That Are under Common Control.~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ~~Under consolidation~~This guidance ~~in ASU 2015-02 issued~~gives entities the option to reclassify stranded tax effects caused by the ~~FASB in 2015, a single decision maker was required~~newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to consider an indirect interest held by a related party under common control in its entirety. Under the new guidance, the single decision maker will consider that indirect interest on a proportionate basis.retained earnings. This guidance is effective for annual reporting periods beginning after December 15, ~~2016,~~2018, and interim periods within those years. ~~This guidance should be applied retrospectively to all relevant prior periods beginning with the fiscal years in which ASU 2015-02 was initially applied. Early adoption is permitted.~~ The Company is currently evaluating the provisions of this guidance.

DERIVATIVES AND HEDGING

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The objective of this new guidance is the improvement of the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition to that main objective, the amendments in this guidance make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted the provisions of this guidance effective January 1, 2018, with no material impact on the financial statements.

RETIREMENT BENEFITS

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Costs and Net Periodic Postretirement Benefit Cost." Under this new guidance, employers will ~~adopt this ASU~~present the service costs component of the net periodic benefit cost in the ~~first quarter~~same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the Line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, disclosure of the Line(s) used to present the other components of net periodic benefit cost will be required if the components are not presented separately in the income statement. This guidance is effective for

annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted as of the beginning of an annual period for which financial statement (interim or annual) have not been issued or made available for issuance. The Company adopted the provisions of the guidance on January 1, 2018, using the retrospective method. The adoption resulted in a change in our adjusted operating profit (used to measure the earnings performance of the Company's business segments), which is offset by a corresponding change in non-operating pension expense to reflect the impact of presenting the amortization of the prior service cost component of net periodic pension expense outside of operating income. This guidance had no impact on our statements of financial position or cash flows.

INTANGIBLES

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

INCOME TAXES

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs rather than defer the income tax effects which is current practice. This new guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The guidance requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Early adoption is permitted. The Company ~~is currently evaluating~~does not expect that the ~~provisions~~adoption of this ~~guidance.~~standard will result in a material impact on the financial statements.

STOCK COMPENSATION

In ~~November 2015,~~May 2017, the FASB issued ASU ~~2015-17, Income Taxes~~2017-09, Compensation - Stock Compensation (Topic ~~740)~~718): ~~"Balance Classification~~"Scope of ~~Deferred Taxes.~~Modification Accounting." This ~~ASU requires entities~~guidance

clarifies when changes to ~~offset all deferred tax assets and liabilities (and valuation allowances) for each tax-paying jurisdiction within each tax-paying component. The net deferred tax~~the terms or conditions of a share-based payment award must be ~~presented~~accounted for as ~~a single noncurrent amount.~~modifications. Under this guidance, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This ~~ASU~~guidance is effective for annual reporting periods beginning after December 15, ~~2016,~~2017, and interim periods within those years. Early adoption is ~~permitted.~~permitted, including in any interim period. The Company ~~is currently evaluating~~adopted the provisions of this guidance ~~and will adopt this ASU in the first quarter of 2017.~~

~~CASH FLOW CLASSIFICATION~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): "Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)." This ASU adds or clarifies guidance on ~~the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for annual reporting~~

periods beginning after December 15, 2017, and interim periods with those years and must be applied retrospectively to all periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. The Company early adopted this guidance during 2016January 1, 2018, with no material impact on the ~~consolidated financial statements.~~

~~STOCK COMPENSATION~~

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): "Improvements to Employee Share-Based Payment Accounting." Under this new guidance, all excess tax benefits and tax deficiencies will be recognized in the income statement as they occur and will therefore impact the Company's effective tax rate. This guidance replaces current guidance which requires tax benefits that exceed compensation costs (windfalls) to be recognized in equity. The new guidance will also change the cash flow presentation of excess tax benefits, classifying them as operating inflows rather than financing activities as they are currently classified. In addition, the new guidance will allow companies to provide net settlement of stock-based compensation to cover tax withholding as long as the net settlement doesn't exceed the maximum individual statutory tax rate in the employee's tax jurisdiction. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods with those years. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance.

~~INVESTMENTS - EQUITY METHOD AND JOINT VENTURES~~

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): "Simplifying the Transition to the Equity Method of Accounting." The amendments in the ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in

the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and should be applied prospectively upon the effective date. Early adoption is permitted. The Company early adopted this guidance during 2016 with no material impact on the consolidated financial statements.

~~DERIVATIVES AND HEDGING~~

Also in March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships." The amendments in this ASU apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years, and allows for the amendments to be applied on either a prospective basis or a modified retrospective basis. The Company early adopted this guidance during 2016 with no material impact on the consolidated financial statements.

LEASES

In February 2016, the FASB issued ASU 2016-02, Leases Topic (842): "Leases." This ASU will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting will remain substantially similar to current U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, and mandates a modified retrospective transition method for all entities. The Company expects to adopt this guidance using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We expect to recognize a liability

and corresponding asset associated with in-scope operating and finance leases but we are still in the process of determining those amounts and the processes required to account for leasing activity on an ongoing basis.

BUSINESS COMBINATIONS

In ~~September 2015,~~January 2017, the FASB issued ASU ~~2015-16,~~2017-01, "Business Combinations (Topic 805) - ~~Simplifying~~Clarifying the ~~Accounting for Measurement Period Adjustments.~~Definition of a Business." ~~This ASU provides that~~Under the new guidance, an ~~acquirer~~entity must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU also requires acquirers to present separately on the facefirst determine whether substantially all of the ~~income statement, or disclose in the notes, the portion~~fair value of the ~~amount recorded~~gross assets acquired is concentrated in ~~current-period earnings by line item~~a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If this threshold is not met, the entity then evaluates whether the set meets the requirement that ~~would have been recorded in previous reporting periods if the adjustment~~a business include, at a minimum, an input and a substantive process that together significantly contribute to the ~~provisional amounts had been recognized at the acquisition date. The Company adopted this~~ability to create outputs. This guidance ~~during 2016 with no material impact on the consolidated financial statements.~~

~~INVENTORY~~

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): "Simplifying the Measurement of Inventory." This ASU provides that entities should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This ASU is effective for annual reporting periods beginning after December 15, ~~2016,~~2017, and interim periods within those years. Early adoption is permitted. The Company ~~early~~ adopted the provisions of this guidance ~~during 2016~~on January 1, 2018 with no material impact on the ~~consolidated~~ financial statements.

~~FAIR VALUE MEASUREMENT~~

In May 2015, the FASB issued ASU 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance eliminates the existing requirement to categorize within the fair value hierarchy investments whose fair values are measured at net asset value (NAV) using the practical expedient in ASC 820. Instead entities are required to disclose the fair values of such investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table and the amounts reported on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those years and should be applied retrospectively. The

~~Company adopted the provisions of this guidance in 2016 with no material impact on the consolidated financial statements.~~

~~DEBT ISSUANCE COSTS~~

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30: Simplifying the Presentation of Debt Issuance Costs)," which simplifies the balance sheet presentation of the costs for issuing debt. This ASU was effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. The application of the requirements of this guidance did not have a material effect on the consolidated financial statements.

REVENUE RECOGNITION

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This guidance replaces most existing revenue recognition guidance and provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This ASU was effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and permits the use of either the retrospective or cumulative effect transition method; however, in August 2015, the FASB issued ASU 2015-14 which defers the effective date by one year making the guidance effective for annual reporting periods beginning after December 15, 2017. The FASB has continued to clarify this guidance in various updates during 2015 and 2016, all of which, have the same effective date as the original guidance.

We ~~are currently evaluating~~have evaluated the impact of ASU 2014-09 and all related ~~ASU's~~ASUs on our consolidated financial statements. ~~We plan~~The Company's transition team, including representatives from all of our business segments, has finalized its review and analysis of the impact of the standard on our revenue contracts. Surveys were developed and reviews of customer contracts were performed in order to ~~adopt~~gather information and identify areas of the Company's business where potential differences could result in applying the requirements of the new standard to its revenue contracts. The results of the surveys, contract reviews and legal analysis indicate that the adoption of the standard will require acceleration of revenue for products produced by the Company without an alternative future use and where the Company has a legally enforceable right of payment for production of products completed to date. The Company adopted the new revenue guidance effective January 1, 2018, using the ~~full~~modified retrospective transition method. ~~The Company does~~Due to the repetitive nature of our sales, we do not expect the impact of this acceleration to significantly alter our reported sales over time. In addition, we do not expect the net impact of adoption to have a material impact on ~~its~~our consolidated ~~financial statements to be material and we anticipate the primary~~results.

~~impact to be the additional required disclosures around revenue recognition in the notes to the consolidated financial statements.~~

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NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities ~~including “in-the-money” stock options,~~ were converted into common shares.

There are no adjustments required to be made to net income for purposes of computing basic and diluted EPS.

A reconciliation of the amounts included in the computation of basic earnings (loss) per share from

continuing operations, and diluted earnings (loss) per share from continuing operations is as follows:

In millions, except per share amounts 2016 2015 2014
Earnings (loss) from continuing operations $ 909
$ 938
$ 568
Effect of dilutive securities —
—
—
Earnings (loss) from continuing operations – assuming dilution $ 909
$ 938
$ 568
Average common shares outstanding 411.1
417.4
427.7
Effect of dilutive securities:
Restricted performance share plan 4.5
3.2
4.2
Stock options (a) —
—
0.1
Average common shares outstanding – assuming dilution 415.6
420.6
432.0
Basic earnings (loss) per share from continuing operations $ 2.21
$ 2.25
$ 1.33
Diluted earnings (loss) per share from continuing operations $ 2.19
$ 2.23
$ 1.31



In millions, except per share amounts	2017		2016		2015
Earnings (loss) from continuing operations attributable to International Paper common shareholders	$	2,110	$	802	$	853
Weighted average common shares outstanding	412.7		411.1		417.4
Effect of dilutive securities:
Restricted performance share plan	5.0		4.5		3.2
Weighted average common shares outstanding – assuming dilution	417.7		415.6		420.6
Basic earnings (loss) per share from continuing operations	$	5.11	$	1.95	$	2.05
Diluted earnings (loss) per share from continuing operations	$	5.05	$	1.93	$	2.03


~~(a)~~	Options to purchase shares were not included in the computation of diluted common shares outstanding if their exercise price exceeded the average market price of the Company’s common stock for each respective reporting date.

NOTE 4 OTHER COMPREHENSIVE INCOME

The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the ~~year~~years ended December ~~31, 2016:~~31:


In millions	Defined Benefit Pension and Postretirement Items (a)			Change in Cumulative Foreign Currency Translation Adjustments (a)			Net Gains and Losses on Cash Flow Hedging Derivatives (a)			Total (a)			2017			2016			2015
Balance as of December 31, 2015	$	(3,169	)	$	(2,549	)	$	10		$	(5,708	)
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period													$	(3,072	)	$	(3,169	)	$	(3,134	)
Other comprehensive income (loss) before reclassifications	(448		)	263			(6		)	(191		)	59			(448		)	(331		)
Amounts reclassified from accumulated other comprehensive income	545			(3		)	(7		)	535			486			545			296
Net Current Period Other Comprehensive Income	97			260			(13		)	344
Balance at end of period													(2,527		)	(3,072		)	(3,169		)
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period													(2,287		)	(2,549		)	(1,513		)
Other comprehensive income (loss) before reclassifications													178			263			(1,002		)
Amounts reclassified from accumulated other comprehensive income													(1		)	(3		)	(40		)
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest	—			2			—			2			(1		)	2			6
Balance as of December 31, 2016	$	(3,072	)	$	(2,287	)	$	(3	)	$	(5,362	)
Balance at end of period													(2,111		)	(2,287		)	(2,549		)
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period													(3		)	10			1
Other comprehensive income (loss) before reclassifications													15			(6		)	(3		)
Amounts reclassified from accumulated other comprehensive income													(7		)	(7		)	12
Balance at end of period													5			(3		)	10
Total Accumulated Other Comprehensive Income (Loss) at End of Period													$	(4,633	)	$	(5,362	)	$	(5,708	)

~~(a) All amounts are net~~

Table of ~~tax. Amounts in parentheses indicate debits to AOCI.~~Contents

~~The following table presents changes in AOCI for the year ended December 31, 2015:~~

In millions Defined Benefit Pension and Postretirement Items (a) Change in Cumulative Foreign Currency Translation Adjustments (a) Net Gains and Losses on Cash Flow Hedging Derivatives (a) Total (a)
Balance as of December 31, 2014 $ (3,134 ) $ (1,513 ) $ 1
$ (4,646 )
Other comprehensive income (loss) before reclassifications (331 ) (1,002 ) (3 ) (1,336 )
Amounts reclassified from accumulated other comprehensive income 296
(40 ) 12
268
Net Current Period Other Comprehensive Income (35 ) (1,042 ) 9
(1,068 )
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest
—
6
—
6
Balance as of December 31, 2015 $ (3,169 ) $ (2,549 ) $ 10
$ (5,708 )

~~(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.~~

~~The following table presents changes in AOCI for the year ended December 31, 2014:~~

In millions Defined Benefit Pension and Postretirement Items (a) Change in Cumulative Foreign Currency Translation Adjustments (a) Net Gains and Losses on Cash Flow Hedging Derivatives (a) Total (a)
Balance as of December 31, 2013 $ (2,105 ) $ (649 ) $ (5 ) $ (2,759 )
Other comprehensive income (loss) before reclassifications (1,271 ) (863 ) 10
(2,124 )
Amounts reclassified from accumulated other comprehensive income 242
(13 ) (4 ) 225
Net Current Period Other Comprehensive Income (1,029 ) (876 ) 6
(1,899 )
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest —
12
—
12
Balance as of December 31, 2014 $ (3,134 ) $ (1,513 ) $ 1
$ (4,646 )

~~(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.~~

~~The following table presents details of the reclassifications~~Reclassifications out of AOCI for the three years ~~ended:~~ended December 31 were as follows:


Details About Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income (a)										Location of Amount Reclassified from AOCI
	2016			2015			2014
												Amount Reclassified from Accumulated Other Comprehensive Income										Location of Amount Reclassified from AOCI
												2017			2016			2015
In millions
Defined benefit pension and postretirement items:
Prior-service costs	$	(37	)	$	(33	)	$	(17	)	(b)	Cost of products sold	$	(33	)	$	(37	)	$	(33	)	(a)	Cost of products sold
Actuarial gains/(losses)	(851		)	(449		)	(379		)	(b)	Cost of products sold	(733		)	(851		)	(449		)	(a)	Cost of products sold
Total pre-tax amount	(888		)	(482		)	(396		)			(766		)	(888		)	(482		)
Tax (expense)/benefit	343			186			154					280			343			186
Net of tax	(545		)	(296		)	(242		)			(486		)	(545		)	(296		)
Change in cumulative foreign currency translation adjustments:
Business acquisition/divestiture	3			40			13				Net (gains) losses on sales and impairments of businesses or Retained earnings
Business acquisitions/divestiture												1			3			40				Net (gains) losses on sales and impairments of businesses
Tax (expense)/benefit	—			—			—					—			—			—
Net of tax	3			40			13					1			3			40
Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts	10			(20		)	3			(c)	Cost of products sold	9			10			(20		)	(b)	Cost of products sold
Total pre-tax amount	10			(20		)	3					9			10			(20		)
Tax (expense)/benefit	(3		)	8			1					(2		)	(3		)	8
Net of tax	7			(12		)	4					7			7			(12		)
Total reclassifications for the period	$	(535	)	$	(268	)	$	(225	)
Total reclassifications for the period, net of tax												$	(478	)	$	(535	)	$	(268	)

NOTE 5 RESTRUCTURING CHARGES AND OTHER ITEMS

2017: During 2017, restructuring and other charges totaling $67 million before taxes were recorded. These charges included:



In millions	2017
Early debt extinguishment costs (see Note 13)	$	83
Gain on sale of investment in ArborGen	(14		)
Other	(2		)
Total	$	67

2016: During 2016, total restructuring and other charges of $54 million before taxes were recorded. These charges included:



In millions	2016
Early debt extinguishment costs (see Note 13)	$	29
India packaging evaluation write-off	17
Gain on sale of investment in Arizona Chemical	(8		)
Riegelwood mill conversion costs (a)	9
Turkey mill closure (b)	7
Total	$	54


(a)	Includes $3 million of accelerated depreciation, $3 million of inventory write-off charges and $3 million of other charges.


(b)	Includes $4 million of accelerated depreciation and $3 million of severance charges which is related to 85 employees.

2015: During 2015, total restructuring and other charges of $252 million before taxes were recorded. These charges included:



In millions	2015
Early debt extinguishment costs (see Note 13)	$	207
Timber monetization restructuring	16
Legal liability reserve adjustment	15
Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand (a)	8
Other	6
Total	$	252


(a)	Includes $5 million of severance charges, which is related to 69 employees, $24 million of accelerated depreciation, sale proceeds of $22 million and $1 million of other charges.

~~2014:~~ ~~During 2014, total restructuring and other charges of $846 million before taxes were recorded. These charges included:~~

In millions 2014
Early debt extinguishment costs (see Note 13) $ 276
Courtland mill shutdown (a) 554
Other (b) 16
Total $ 846

(a) Includes $464 million of accelerated depreciation, $24 million of inventory impairment charges, $26 million of severance charges related to 49 employees and $40 million of other charges which are recorded in the Printing Papers segment.

~~(b) Includes $15 million of severance charges related to 908 employees.~~

NOTE 6 ACQUISITIONS AND JOINT VENTURES

TANGIER, MOROCCO FACILITY

2017: On June 30, 2017, the Company completed the acquisition of Europac's Tangier, Morocco facility, a corrugated packaging facility, for €40 million (approximately $46 million using the June 30, 2017 exchange rate). After working capital and other post-

close adjustments, final consideration exchanged was €33 million (approximately $38 million using the June 30, 2017 exchange rate).

The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of June 30, 2017:



In millions	June 30, 2017
Cash and temporary investments	$	1
Accounts and notes receivable	7
Inventory	3
Plants, properties and equipment	32
Goodwill	4
Other intangible assets	5
Deferred charges and other assets	4
Total assets acquired	56
Accounts payable and accrued liabilities	5
Long-term debt	11
Other long-term liabilities	2
Total liabilities assumed	18
Net assets acquired	$	38

Adjustments, if any, to provisional amounts will be finalized within the measurement period of up to one year from the acquisition date. Since the date of acquisition, Net sales of $6 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $(1) million from the acquired business have been included in the Company's consolidated statement of operations for the year ended December 31, 2017. Pro forma information related to the acquisition of the Europac business has not been included as it is impractical to obtain the information due to the lack of availability of financial data and does not have a material effect on the Company's consolidated results of operations.

WEYERHAEUSER PULP BUSINESS

2016: On December 1, 2016, the Company finalized the purchase of Weyerhaeuser's pulp business for approximately $2.2 billion in cash, subject to post-closing adjustments. Under the terms of the agreement, International Paper acquired four fluff pulp mills, one northern bleached softwood kraft mill and two converting facilities of modified fiber, located in the United States, Canada and Poland.

The Company is accounting for the acquisition under ASC 805, "Business Combinations" and the newly acquired pulp business's results of operations have been included in International Paper's consolidated financial statements beginning with the date of acquisition.

~~The~~ following table summarizes the ~~preliminary allocation of the purchase price~~final fair values assigned to ~~the fair value of~~ assets and liabilities acquired as of December 1, ~~2016.~~

In millions
Cash and temporary investments $ 12
Accounts and notes receivable 195
Inventory 254
Other current assets 11
Plants, properties and equipment 1,711
Goodwill 19
Other intangible assets 212
Deferred charges and other assets 6
Total assets acquired 2,420
Accounts payable and accrued liabilities 111
Long-term debt 104
Other long-term liabilities 22
Total liabilities assumed 237
Net assets acquired $ 2,183

Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to inventory, property, plant and equipment and intangible assets. These changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date.

2016:



In millions	December 1, 2016
Cash and temporary investments	$	12
Accounts and notes receivable	195
Inventory	238
Other current assets	11
Plants, properties and equipment	1,711
Goodwill	52
Other intangible assets	212
Deferred charges and other assets	6
Total assets acquired	2,437
Accounts payable and accrued liabilities	114
Long-term debt	104
Other long-term liabilities	28
Total liabilities assumed	246
Net assets acquired	$	2,191

In connection with the ~~purchase price~~ allocation of fair value, inventories were written up by $33 million to their estimated fair value. During ~~December~~2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 million after taxes), respectively, were expensed to Cost of products sold as the related inventory was sold.

Since the date of acquisition, Net sales of $111 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $(21) million from the acquired business ~~have been~~are included in the Company's consolidated statement of ~~operations.~~operations for the year ended December 31, 2016. Additionally, Selling and administrative expenses for 2016 include $28 million in charges before taxes ($18 million after taxes) for integration costs associated with the acquisition.

The identifiable intangible assets acquired in connection with the acquisition of the Weyerhaeuser pulp business included the following:



In millions	Estimated Fair Value		Average Remaining Useful Life
Asset Class:			(at acquisition date)
Customer relationships and lists	$	95	24 years
Trade names, patents, trademarks and developed technology	113		8 years
Other	4		10 years
Total	$	212

Table of Contents

On an unaudited pro forma basis, assuming the acquisition of the newly acquired pulp business had closed January 1, 2015, the consolidated results would have reflected Net sales of ~~$22.4~~$20.8 billion and ~~$23.9~~$22.2 billion and Earnings (loss) from continuing operations before income taxes and equity earnings of ~~$1.1 billion~~$942 million and ~~$1.4~~$1.3 billion for the years ended December 31, 2016 and 2015, respectively.

The 2016 pro forma information includes adjustments for additional amortization expense on identifiable intangible assets of $18 million and eliminating the write-off of the estimated fair value of inventory of $19 million and non-recurring integration costs associated with the acquisition of $30 ~~million.~~million, including $12 million of deal costs.

The 2015 pro forma information includes adjustments for additional amortization expense on identifiable intangible assets of $18 million, non-recurring integration costs associated with the acquisition of $30 million, and incremental expense of $33 million associated with the write-off of the estimated fair value of inventory.

The unaudited pro forma consolidated financial information was prepared for comparative purposes only and includes certain adjustments, as noted above. ~~The adjustments are estimates based on currently~~

~~available information and actual amounts may have differed materially from these estimates.~~ They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to represent International Paper's actual results of operations as if the transaction described above would have occurred as of January 1, 2015, nor is it necessarily an indicator of future results.

HOLMEN PAPER NEWSPRINT MILL

2016: On June 30, 2016, the Company completed the previously announced acquisition of Holmen Paper's newsprint mill in Madrid, Spain. Under the terms of the acquisition agreement, International Paper purchased the Madrid newsprint mill, as well as, associated recycling operations and a 50% ownership interest in a cogeneration facility. The Company ~~intends to convert~~is in the ~~mill during~~process of converting the ~~second half of 2017~~mill to produce recycled containerboard with an expected capacity of ~~419,000~~440,000 tons. Once completed, the converted mill will support the Company's corrugated packaging business in EMEA.

The Company's ~~aggregated~~aggregate purchase price for the mill, recycling operations and 50% ownership of the cogeneration facility was €53 million (approximately $59 million using June 30, 2016 exchange rate). The ~~measurement period adjustments recognized~~assignment of fair value to assets acquired and liabilities assumed was completed in the ~~third~~first quarter of 2017 and ~~fourth quarters of 2016 were to reallocate~~is presented in the ~~purchase price from property, plant and equipment to~~table below.



In millions	June 30, 2016
Current assets	$	14
Equity method investments	14
Plants, properties and equipment	60
Other long-term assets	5
Total assets acquired	93
Short-term liabilities	9
Long-term liabilities	16
Total liabilities assumed	25
Net assets acquired	$	68

The final fair values assigned indicated that the ~~specific asset and liability balance sheet line items. Approximately $60 million~~sum of the ~~purchase price~~cash consideration paid was allocated to property, plant and equipment, $14 million to current assets (primarily cash and accounts receivable), $7 million to equity method investments, $3 million to long-term assets, $9 million to short-term liabilities and $16 million to long-term liabilities related to a supply contract entered into withless than the ~~seller. The initial valuation amounts are not considered complete as of December 31, 2016 as tax implications~~fair value of the ~~valuation amounts are still~~underlying net assets, after adjustments, by $6 million, resulting in a bargain purchase gain being ~~considered, however, their impacts are not expected to be material to the Company.~~recorded on this transaction. The amount of revenue and earnings recognized since the acquisition date are $90 million and a net loss of $2 million, respectively, for the year ended December 31, 2016. Pro forma information related to the acquisition of the Holmen businesses has not been included as it is impractical to obtain the information due to the lack of availability of financial data and does not have a material effect on the Company's consolidated results of operations.

~~ORSA~~The Company has accounted for the above acquisitions under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the dates of acquisition.

~~2014:~~ ~~On April 8, 2014, the Company acquired the remaining 25% of shares of Orsa International Paper Embalangens S.A. (Orsa IP) from its joint venture partner, Jari Celulose, Papel e Embalagens S.A. (Jari),~~

a Grupo Jari company, for approximately $127 million, of which $105 million was paid in cash with the remaining $22 million held back pending satisfaction of certain indemnification obligations by Jari. An additional $11 million, which was not included in the purchase price, was placed in an escrow account pending resolution of certain open matters. During 2014, these open matters were successfully resolved, which resulted in $9 million paid out of escrow to Jari and correspondingly added to the final purchase consideration. The remaining $2 million was released back to the Company. As a result of this transaction, the Company reversed the $168 million of Redeemable noncontrolling interest included on the March 31, 2014 consolidated balance sheet. The net difference between the Redeemable noncontrolling interest balance plus $14 million of currency translation adjustment reclassified out of Other comprehensive income less the 25% purchase price was reflected as an increase to Retained earnings on the consolidated balance sheet.

In the fourth quarter of 2016, International Paper released the amount held back for indemnification obligations, net of certain claims. Cash of $10 million was paid to Jari, which included $3 million of accrued interest. The remaining unpaid balance of $12 million was reversed in the third quarter of 2016 with $8 million recorded to Retained earnings as a final purchase price adjustment, and $3 million to interest expense.

NOTE 7 DIVESTITURES ~~/ SPINOFF~~

DISCONTINUED OPERATIONS

~~2014:~~ 2017:On ~~July~~January 1, ~~2014,~~2018, the Company completed the previously announced transfer of its North American Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company in exchange for a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. As part of the transaction, International Paper ~~completed~~also received $660 million in cash proceeds from a new loan entered into on December 8, 2017, which the ~~spinoff~~Company used to pay down existing debt. The loan was subsequently assumed by Graphic Packaging International, LLC on the transaction closing date and is classified as Liabilities held for sale in the accompanying consolidated balance sheet as of its distribution business, xpedx, which subsequently merged with Unisource Worldwide, Inc., with the combined companies now operating as Veritiv Corporation (Veritiv). The xpedx business had historically represented the Company's Distribution reportable segment.

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December 31, 2017. International Paper will account for its ownership interest in the combined business under the equity method. The ~~spinoff~~Company has not finalized the fair value of its investment in the combined business, but expects to record a gain on the transfer in the first quarter of 2018.

The North American Consumer Packaging business was ~~accomplished by~~historically presented in the ~~contribution~~Company's Consumer Packaging segment. For further discussion of the ~~xpedx business~~transaction's impact to Veritiv and the distribution of 8,160,000 shares of Veritiv common stock on a pro-rata basis to International Paper shareholders. International Paper received a payment of approximately $411 million, financed with new debt in Veritiv's capital structure.segment reporting, see Note 19.

All current and historical operating results for ~~xpedx~~North American Consumer Packaging are included in Discontinued operations, net of tax, in the accompanying consolidated statement of operations. The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued Operations, net of tax, related to the ~~xpedx spinoff~~transfer of the North American Consumer Packaging business for

all periods presented in the consolidated statement of operations:


In millions	2014			2017		2016		2015
Net Sales	$	2,604		$	1,559	$	1,584	$	1,690
Costs and Expenses
Cost of products sold	2,309			1,179		1,095		1,155
Selling and administrative expenses	191			110		91		106
Depreciation, amortization and cost of timber harvested	9			80		103		127
Distribution expenses	69			126		124		158
Restructuring and other charges	25
Impairment of goodwill and other intangibles	—
Other, net	3
Taxes other than payroll and income taxes				11		10		10
Interest expense, net				1		—		—
Earnings (Loss) Before Income Taxes and Equity Earnings	(2		)	52		161		134
Income tax provision (benefit)	(1		)	18		54		49
Discontinued Operations, Net of Taxes (a)	$	(1	)
Discontinued Operations, Net of Taxes				$	34	$	107	$	85

All current and historical assets and liabilities of North American Consumer Packaging are classified as current and long-term assets held for sale and current and long-term liabilities held for sale in the accompanying consolidated balance sheet. The following summarizes the major classes of assets and liabilities of North American Consumer Packaging reconciled to total Assets held for sale and total Liabilities held for sale in the accompanying consolidated balance sheet:



In millions	2017			2016
Accounts and notes receivable	$	143		$	149
Inventories	185			205
Other current assets	3			7
Current assets held for sale	331			361
Plants, properties and equipment	1,021			987
Deferred charges and other assets	25			31
Long-term assets held for sale	1,046		(a)	1,018
Total Assets Held for Sale	$	1,377		$	1,379
Accounts payable	$	104		$	110
Accrued payroll and benefits	25			29
Other accrued liabilities	17			22
Current liabilities held for sale	146			161
Long-term debt	651			—
Other liabilities	8			8
Long-term liabilities held for sale	659		(a)	8
Total Liabilities Held for Sale	$	805		$	169

(a) ~~These~~As a result of the January 1, 2018 transfer of the North American Consumer Packaging business, these amounts ~~along with those disclosed below related to the Temple-Inland Building Products divestitures, are~~have been included in ~~Discontinued operations, net~~current assets held for sale of ~~tax,~~$1.4 billion and current liabilities held for sale of $805 million in the accompanying consolidated ~~statement~~balance sheet as of ~~operations.~~December 31, 2017.

Total cash provided by operations related to ~~xpedx~~the North American Consumer Packaging business of ~~$29~~$207 million, $268 million and $197 million for ~~2014~~2017, 2016 and 2015, respectively, is included in Cash Provided By (Used For) Operations in the consolidated statement of cash flows. Total cash ~~provided by (used for)~~used for investing activities related to ~~xpedx~~the North American Consumer Packaging business of $3$111 million, $114 million and $178 million for ~~2014~~2017, 2016 and 2015, respectively, is included in Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows.

OTHER DIVESTITURES AND IMPAIRMENTS

2017: On September 7, 2017, the Company completed the sale of its foodservice business in China to Huhtamaki Hong Kong Limited. Proceeds received totaled approximately RMB 129 million ($18 million using the September 30, 2017 exchange rate). Under the terms of the transaction, and after post-closing adjustments, International Paper received approximately RMB 49 million in exchange for its ownership interest in two China foodservice entities and RMB 80 million for the sale of notes receivable from the acquired entities.

Subsequent to the announced agreement in June 2017, a determination was made that the current book value of the asset group exceeded its estimated fair value of $7 million, which was the agreed upon selling price. As a result, a pre-tax charge of $9 million was recorded during the second quarter of 2017, to write down the long-lived assets of this business to their estimated fair value. Amounts related to this business included in the

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Company's statement of operations were immaterial for all periods presented.

2016: On ~~March 14,~~June 30, 2016, the Company ~~announced that it had entered into a definitive agreement to sell~~completed the sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. ~~The sale of this business was completed on June 30, 2016.~~ Under the terms of the transaction and after post-closing adjustments, International Paper received a total of approximately RMB 957 million (approximately $144 million at the June 30, 2016 exchange rate), which included the buyer's assumption of a liability for outstanding loans of approximately $55 million which are payable up to three years from the closing of the sale. The remaining balance of the outstanding loans payable to International Paper as of December 31, 2017, totaled $9 million.

Based on the final sales price, a determination was made that the current book value of the asset group was not recoverable. As a result, a ~~combined~~ pre-tax charge of $46 million was recorded during 2016 in the Company's Industrial Packaging segment to write down the long-lived assets of this business to their estimated fair value. In addition, the Company recorded a pre-tax charge of $24 million for severance that was contingent upon the sale of this business. The 2016 net loss totaling $70 million related to the impairment and severance of IP Asia Packaging is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

The final purchase price payment of RMB 20 million (approximately $3 million at the December 31, 2016 exchange rate) was received in the fourth quarter of 2016. The remaining payments to be received relate to the assumed loans which total $14 million and are payable up to three years from the closing of the sale.

The amount of pre-tax losses related to the IP Asia Packaging business included in the Company's consolidated statement of operations were $83 million, ~~$8 million~~ and ~~$70~~$8 million for years ended December 31, 2016 ~~2015~~ and ~~2014, respectively.~~2015.

2015: On October 13, 2015, the Company finalized the sale of its 55% interest in IP Asia Coated Paperboard (IP-Sun JV) business ~~within the Company's Consumer Packaging segment,~~ to its Chinese coated board joint venture partner, Shandong Sun Holding Group Co., Ltd. for RMB 149 million (approximately USD $23 million). During the third quarter of 2015, a determination was made that the current book value of the asset group was not recoverable. As a result, the net pre-tax impairment charge of $174 million ($113 million after taxes) was recorded to write down the long-lived assets of this business to ~~their~~its estimated fair value. The impairment charge is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations. The amount of pre-tax losses related to noncontrolling interest of the IP-Sun JV included in the Company's consolidated statement of operations for the ~~years~~year ended December 31, 2015 ~~and 2014 were~~was $19 ~~million and $12 million, respectively.~~million. The amount of pre-tax losses related to the IP-Sun JV included in the Company's consolidated statement of operations for the ~~years~~year ended December 31, 2015 ~~and 2014 were~~was $226 ~~million and $51 million, respectively.~~million.

~~2014:~~ During 2014, the Company recorded a net pre-tax charge of $47 million ($36 million after taxes) for the loss on the sale of a business by our equity method investee, ASG (formerly referred to as AGI-Shorewood), and the subsequent partial impairment of this ASG investment.

The 2014 net loss totaling $38 million, including the ASG impairment discussed above, related to other divestitures and impairments is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

NOTE 8 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

TEMPORARY INVESTMENTS

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled ~~$757~~$661 million and ~~$738~~$757 million at December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable, net of allowances, by classification were:


In millions at December 31	2016		2015		2017		2016
Accounts and notes receivable:
Trade	$	2,759	$	2,480	$	3,017	$	2,612
Other	242		195		270		240
Total	$	3,001	$	2,675	$	3,287	$	2,852

INVENTORIES


In millions at December 31	2016		2015		2017		2016
Raw materials	$	296	$	339	$	274	$	286
Finished pulp, paper and packaging products	1,381		1,248		1,337		1,231
Operating supplies	661		563		615		616
Other	100		78		87		100
Inventories	$	2,438	$	2,228	$	2,313	$	2,233

The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories. Approximately ~~79%~~71% of total raw materials and finished products inventories were valued using this method. If

~~the first-in,~~The last-in, first-out ~~method had been used, it would have increased total~~ inventory ~~balances by approximately $376~~reserve was $293 million and ~~$345~~$290 million at December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

PLANTS, PROPERTIES AND EQUIPMENT


In millions at December 31	2016		2015		2017		2016
Pulp, paper and packaging facilities	$	34,259	$	31,466	$	32,523	$	30,943
Other properties and equipment	1,311		1,242		1,291		1,308
Gross cost	35,570		32,708		33,814		32,251
Less: Accumulated depreciation	21,580		20,728		20,549		19,248
Plants, properties and equipment, net	$	13,990	$	11,980	$	13,265	$	13,003

Annual straight-line depreciable lives generally are, for buildings - 20 to 40 years, and for machinery and equipment - 3 to 20 years. Depreciation expense was $1.2 billion, ~~$1.2~~$1.0 billion and ~~$1.3~~$1.1 billion for the years ended December 31, 2017, 2016 and 2015, respectively. Cost of products sold excludes depreciation and ~~2014, respectively.~~amortization expense.

INTEREST

Interest payments of $782 million, $682 million ~~$680 million~~ and ~~$718~~$680 million were made during the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively.

Amounts related to interest were as follows:


In millions	2016		2015		2014		2017		2016		2015
Interest expense (a)	$	695	$	644	$	677	$	758	$	695	$	644
Interest income (a)	175		89		70		186		175		89
Capitalized interest costs	28		25		23		25		28		25


(a)	Interest expense and interest income exclude approximately ~~$25~~$25 million ~~and~~ ~~$38 million~~ in 2015 ~~and~~ ~~2014, respectively,~~ related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset (see Note 12).

ASSET RETIREMENT OBLIGATIONS

At December 31, 2017 and December 31, 2016, we had recorded liabilities of $86 million and $83 million, respectively, related to asset retirement obligations.

The following ~~tables present~~table presents changes in the goodwill balances as allocated to each business segment for the years ended December 31, ~~2016~~2017 and ~~2015:~~2016:

In millions
Industrial
Packaging
Global Cellulose Fibers

Printing
Papers

Consumer
Packaging
Total
Balance as of January 1, 2015
Goodwill
$3,396

$—

$2,234

$1,784

$7,414
Accumulated impairment losses (a) (100 )    —
(1,877 ) (1,664 ) (3,641 )
3,296
   —
357
   120
3,773
Reclassifications and other (b) (70 ) —
(95 ) (3 ) (168 )
Additions/reductions (1 ) —
(15 ) (c) (117 ) (d) (133 )
Impairment loss (137 ) (e) —
—
—
(137 )
Balance as of December 31, 2015
Goodwill 3,325
   —
2,124
   1,664
7,113
Accumulated impairment losses (a) (237 )    —
(1,877 ) (1,664 ) (3,778 )
Total
$3,088

$—

$247

$—

$3,335

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OTHER INTANGIBLES

Identifiable intangible assets comprised the following:


	2016				2015				2017						2016
In millions at December 31	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Customer relationships and lists	$	605	$	211	$	495	$	166	$	610	$	247	$	363	$	605	$	211	$	394
Non-compete agreements	69		64		69		56		72		72		—		69		64		5
Tradenames, patents and trademarks, and developed technology	173		56		61		54		172		72		100		173		56		117
Land and water rights	10		2		33		6		8		2		6		10		2		8
Software	21		20		22		20		24		23		1		21		20		1
Other	48		26		46		29		38		26		12		48		26		22
Total	$	926	$	379	$	726	$	331	$	924	$	442	$	482	$	926	$	379	$	547

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


In millions	2016		2015		2014		2017		2016		2015
Amortization expense related to intangible assets	$	54	$	60	$	73	$	77	$	54	$	60

Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows: ~~2017~~2018 – ~~$60~~$55 million,, ~~2018~~ 2019 – ~~$53~~$52 million,, ~~2019~~ 2020 – ~~$51~~$51 million,, ~~2020~~ 2021 – ~~$51~~$51 million,, ~~2021~~ 2022 – ~~$51~~$49 million,, and cumulatively thereafter – ~~$275 million~~.$217 million.

NOTE 10 INCOME TAXES

The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows:

In millions 2016 2015 2014
Earnings (loss)
U.S. $ 573
$ 1,147
$ 565
Non-U.S. 383
119
307
Earnings (loss) from continuing operations before income taxes and equity earnings $ 956
$ 1,266
$ 872



In millions	2017		2016		2015
Earnings (loss)
U.S.	$	297	$	411	$	1,013
Non-U.S.	551		384		119
Earnings (loss) from continuing operations before income taxes and equity earnings	$	848	$	795	$	1,132

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations ondeductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional net tax benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition Tax of $231 million. For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of the Tax Act.

Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable estimates of those elements and, therefore, recorded provisional adjustments as follows:

Reduction of U.S. federal corporate tax rate:The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain of our deferred tax assets and liabilities, we have recorded a provisional net decrease of $1.451 billion with a corresponding adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analysis related to the Tax Act, including but not limited to, the state tax effect of adjustments made to federal temporary differences.

Deemed Repatriation Transition Tax: This is atax on previously untaxed accumulated and current earnings and profits (“E&P”) of foreign subsidiaries. To determine the amount of the transition tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $231 million. The provisional amount of current tax liability related to the Transition Tax recorded in Other accrued liabilities is $17 million. However, we are continuing to gather additional information, which may result in our ability to more precisely compute the amount of the Transition Tax.

Valuation Allowances: The Company has assessed whether its U.S. state and local income tax valuation allowance analysis is affected by various aspects of the Tax Act (e.g. deemed repatriation of foreign income, acceleration of cost recovery). Since, as discussed herein, the Company has recorded provisional amounts related to elements of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. For certain of our state deferred tax assets, we have recorded a net $3 million provisional decrease in the recorded valuation allowance with a corresponding adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the Tax Act on state attributes, the resolution of, or changes from, other factors noted herein may result in changes in our recorded valuation allowance.

The Tax Act may impact decisions surrounding the Company’s permanent reinvestment assertions related to its foreign investments and could have an impact on the Company’s accounting for untaxed outside basis differences. We previously considered the earnings in our non-U.S. subsidiaries to be permanently reinvested,

and, accordingly deferred income taxes were not provided for such basis differences which totaled approximately $5.9 billion at December 31, 2016. While the transition tax resulted in a reduction in these basis differences, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional taxes, including, but not limited to, foreign withholding taxes and U.S. state income taxes. In light of the Tax Act, the Company is evaluating its global cash management and non-U.S. repatriation strategy but we have yet to determine whether we plan to change our prior assertion. Accordingly, we have not recorded any deferred taxes attributable to our investments in our non-U.S. subsidiaries.

These estimates may change materially due to, among other things, further clarification of existing guidance that may be issued by U.S. taxing authorities or regulatory bodies and/or changes in interpretations and assumptions we have preliminarily made. We will continue to analyze the Tax Act to finalize its financial statement impact, including the mandatory deemed repatriation of foreign earnings, re-measurement of deferred taxes and all other provisions of the legislation and will record the effects of any changes to provisional amounts in the period we can complete our analysis or are first able to make a reasonable estimate, but no later than December 2018.

The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows:


In millions	2016			2015			2014			2017			2016			2015
Current tax provision (benefit)
U.S. federal	$	35		$	62		$	175		$	(73	)	$	(7	)	$	35
U.S. state and local	—			12			9			(23		)	(12		)	3
Non-U.S.	76			111			74			112			76			111
	$	111		$	185		$	258		$	16		$	57		$	149
Deferred tax provision (benefit)
U.S. federal	$	138		$	321		$	(67	)	$	(1,150	)	$	134		$	306
U.S. state and local	23			30			5			9			27			32
Non-U.S.	(25		)	(70		)	(73		)	40			(25		)	(70		)
	$	136		$	281		$	(135	)	$	(1,101	)	$	136		$	268
Income tax provision (benefit)	$	247		$	466		$	123		$	(1,085	)	$	193		$	417

The Company’s deferred income tax provision (benefit) includes a $1.459 billion benefit, a $18 million provision and a $3 million provision for 2017, 2016 and ~~a $13 million benefit for 2016,~~ 2015, ~~and 2014,~~ respectively, for the effect of various changes in non-U.S. and U.S. federal and state tax rates.

International Paper made income tax payments, net of refunds, of $7 million, $90 million and $149 million in 2017, 2016 and ~~$172 million in 2016,~~ 2015, ~~and 2014,~~ respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:

In millions 2016 2015 2014
Earnings (loss) from continuing
operations before income taxes
and equity earnings $ 956
$ 1,266
$ 872
Statutory U.S. income tax rate 35 % 35 % 35 %
Tax expense (benefit) using statutory U.S. income tax rate 335
443
305
State and local income taxes 15
27
10
Tax rate and permanent differences on non-U.S. earnings (27 ) (44 ) (72 )
Net U.S. tax on non-U.S. dividends 21
12
16
Tax benefit on manufacturing activities (12 ) (14 ) (46 )
Non-deductible business expenses 9
8
7
Non-deductible impairments —
109
35
Sale of non-strategic assets 12
(61 ) —
Tax audits (14 ) —
—
Subsidiary liquidation (63 ) —
(85 )
Retirement plan dividends (6 ) (5 ) (5 )
Tax credits (28 ) (15 ) (34 )
Other, net 5
6
(8 )
Income tax provision (benefit) $ 247
$ 466
$ 123
Effective income tax rate 26 % 37 % 14 %



In millions	2017			2016			2015
Earnings (loss) from continuing operations before income taxes and equity earnings	$	848		$	795		$	1,132
Statutory U.S. income tax rate	35		%	35		%	35		%
Tax expense (benefit) using statutory U.S. income tax rate	297			278			396
State and local income taxes	(7		)	8			20
Tax rate and permanent differences on non-U.S. earnings	(36		)	(26		)	(44		)
Net U.S. tax on non-U.S. dividends	44			21			12
Tax expense (benefit) on manufacturing activities	23			(10		)	(12		)
Non-deductible business expenses	7			9			8
Non-deductible impairments	—			—			109
Sale of non-strategic assets	—			12			(61		)
Tax audits	—			(14		)	—
U.S. federal tax rate change	(1,451		)	—			—
Foreign tax credits	(96		)	(11		)	—
Subsidiary liquidation	—			(63		)	—
Deemed repatriation, net of foreign tax credits	231			—			—
General business and other tax credits	(86		)	(15		)	(15		)
Other, net	(11		)	4			4
Income tax provision (benefit)	$	(1,085	)	$	193		$	417
Effective income tax rate	(128		)%	24		%	37		%

The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, ~~2016~~2017 and ~~2015,~~2016, were as follows:


In millions	2016			2015			2017			2016
Deferred income tax assets:
Postretirement benefit accruals	$	165		$	172		$	102		$	165
Pension obligations	1,344			1,403			516			1,344
Alternative minimum and other tax credits	270			283			416			270
Net operating and capital loss carryforwards	662			732			665			662
Compensation reserves	257			265			174			257
Other	251			244			139			251
Gross deferred income tax assets	2,949			3,099			2,012			2,949
Less: valuation allowance(a)	(403		)	(430		)	(429		)	(403		)
Net deferred income tax asset	$	2,546		$	2,669		$	1,583		$	2,546
Deferred income tax liabilities:
Intangibles	$	(231	)	$	(271	)	$	(139	)	$	(231	)
Plants, properties and equipment	(2,828		)	(2,727		)	(2,000		)	(2,828		)
Forestlands, related installment sales, and investment in subsidiary	(2,260		)	(2,253		)	(1,454		)	(2,260		)
Gross deferred income tax liabilities	$	(5,319	)	$	(5,251	)	$	(3,593	)	$	(5,319	)
Net deferred income tax liability	$	(2,773	)	$	(2,582	)	$	(2,010	)	$	(2,773	)

(a) The net change in the total valuation allowance for the years ended December 31, 2017 and 2016 was an increase of $26 million and a decrease of $27 million, respectively.

Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred ~~income tax assets, Deferred~~ charges and other assets ~~Other accrued liabilities,~~ and Deferred income taxes. There iswas a decrease in deferred income tax assets principally relating to the U.S. tax rate change, the impact of changes in qualified pension liabilities, and the utilization of tax credits and net operating loss carryforwards. Deferred tax liabilities ~~increased~~decreased primarily due to the U.S. tax rate change offset by tax greater than book depreciation. Of the ~~$2.3~~$1.5 billion forestlands, related installment sales, and investment in subsidiary deferred tax liability, ~~$1.4 billion~~$884 million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of forestlands and ~~$831~~$538 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 12). ~~Certain tax attributes reflected on our tax returns as filed differ from those reflected in the deferred income tax accounts due to uncertain tax benefits.~~

The valuation allowance for deferred income tax assets as of December 31, 2016, 2015 and 2014 was $403 million, $430 million and $415 million, respectively. The net change in the total valuation allowance for the years ended December 31, 2016 and 2015 was a decrease of $27 million and an increase of $15 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015 is as follows:


In millions	2016			2015			2014			2017			2016			2015
Balance at January 1	$	(150	)	$	(158	)	$	(161	)	$	(98	)	$	(150	)	$	(158	)
(Additions) reductions based on tax positions related to current year	(4		)	(6		)	(15		)	(54		)	(4		)	(6		)
Additions for tax positions of prior years	(3		)	(6		)	(1		)	(40		)	(3		)	(6		)
Reductions for tax positions of prior years	33			7			9			4			33			7
Settlements	19			2			—			6			19			2
Expiration of statutes of limitations	5			4			2			1			5			4
Currency translation adjustment	2			7			8			(7		)	2			7
Balance at December 31	$	(98	)	$	(150	)	$	(158	)	$	(188	)	$	(98	)	$	(150	)

~~Included in~~If the ~~balance~~Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at December 31, 2017, 2016 and 2015 ~~and 2014 are $0 million, $1 million and $1 million, respectively, for tax positions for which~~would benefit the ultimate benefits are highly certain, but for which there is uncertainty about the timing of such benefits. However, except for the possible effect of any penalties, any disallowance that would change the timing of these benefits would not affect the annual effective tax ~~rate, but would accelerate the payment of cash to the taxing authority to an earlier period.~~rate.

The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately ~~$22~~$17 million and ~~$34~~$22 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years ~~2003~~2006 through ~~2015~~2016 remain open and subject to examination by the relevant

tax authorities. The Company is typically engaged in various tax examinations at any given time, both in the United States and overseas. Pending audit settlements and the expiration of statute of limitations could reduce the uncertain tax positions by $5 million during the next twelve months. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.

~~Included~~International Paper uses the flow-through method to account for investment tax credits earned on eligible open-loop biomass facilities and combined heat and power system expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense in the ~~Company’s 2016, 2015 and 2014 income~~year they are earned rather than a reduction in the asset basis. The Company recorded a tax ~~provision (benefit) are $(74)~~benefit of $68 million ~~$(121) million and $(453) million, respectively,~~during 2017 related to ~~special items. The components of the net provisions related to special items were as follows:~~

In millions 2016 2015 2014
Special items $ (51 ) $ (84 ) $ (372 )
Tax-related adjustments:
Return to accrual 23
23
—
Internal restructurings (63 ) (62 ) (90 )
Settlement of tax audits and legislative changes (14 ) —
10
Tax rate changes 23
—
—
Other tax adjustments 8
2
(1 )
Income tax provision (benefit) related to special items $ (74 ) $ (121 ) $ (453 )
Investment Tax Credits earned in tax years 2013-2017.

The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards:

In millions 2017
Through
2026 2027
Through
2036 Indefinite Total
U.S. federal and non-U.S. NOLs $ 67
$ 9
$ 455
$ 531
State taxing jurisdiction NOLs 139
52
—
191
U.S. federal, non-
U.S. and state tax credit carryforwards 176
21
183
380
U.S. federal and state capital loss carryforwards 22
—
—
22
Total $ 404
$ 82
$ 638
$ 1,124

Deferred income taxes are not provided for temporary differences of approximately $5.9 billion, $5.7 billion and $5.2 billion as of December 31, 2016, 2015 and 2014, respectively, representing earnings of non-U.S. subsidiaries intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences is not practicable.



In millions	2018 Through 2027		2028 Through 2037		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	65	$	2	$	432	$	499
State taxing jurisdiction NOLs	147		68		—		215
U.S. federal, non- U.S. and state tax credit carryforwards	199		18		269		486
U.S. federal and state capital loss carryforwards	2		—		—		2
Total	$	413	$	88	$	701	$	1,202

NOTE 11 COMMITMENTS AND CONTINGENT LIABILITIES

~~PURCHASE COMMITMENTS AND~~ OPERATING LEASES

Certain property, machinery and equipment are leased under cancelable and non-cancelable agreements.

Unconditional purchase obligations have been entered into in the ordinary course of business, principally for capital projects and the purchase of certain pulpwood, logs, wood chips, raw materials, energy and services, including fiber supply agreements to purchase pulpwood that were entered into concurrently with the Company’s 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of

~~Weyerhaeuser Company’s Containerboard, Packaging and Recycling business and the 2016 acquisition of Weyerhaeuser's pulp business.~~

At December 31, ~~2016~~2017, total future minimum commitments under existing non-cancelable operating leases ~~and purchase obligations~~ were as follows:


In millions	2017		2018		2019		2020		2021		Thereafter		2018		2019		2020		2021		2022		Thereafter
Lease obligations	$	119	$	91	$	69	$	51	$	38	$	125	$	130	$	102	$	77	$	53	$	37	$	141
Purchase obligations (a)	3,165		635		525		495		460		2,332
Total	$	3,284	$	726	$	594	$	546	$	498	$	2,457

~~(a)~~

Includes $2.0 billion relating to fiber supply agreements entered into at the time of the Company’s 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes $1.1 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business.

Rent expense was $~~161~~157 million, $~~170~~150 million and $~~154~~157 million for ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

GUARANTEES

In connection with sales of businesses, property, equipment, forestlands and other assets, International Paper commonly makes representations and warranties relating to such businesses or assets, and may agree to indemnify buyers with respect to tax and environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for such matters are determined to be probable and subject to reasonable estimation, accrued liabilities are recorded at the time of sale as a cost of the transaction.

ENVIRONMENTAL AND LEGAL PROCEEDINGS

Environmental

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

Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability

associated with these matters to be approximately ~~$134~~$128 million ($141 million undiscounted) in the aggregate as of December 31, ~~2016.~~2017. Other than as described ~~above,~~below, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.

Cass Lake: One of the matters included above arises out of a closed wood-treating facility located in Cass Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an estimated cost of $46 million. The overall remediation reserve for the site is currently ~~$50~~$47 million to address the selection of an alternative for the soil remediation component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final soil remedy decision would be delayed. In March 2016, the EPA issued a proposed plan concerning clean-up standards at a portion of the site, the estimated cost of which is included within the ~~$50 million~~ reserve referenced above. In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other ~~potentially responsible parties~~

PRPs of their intent to perform a Natural Resource Damage Assessment. It is premature to predict the outcome of the assessment or to estimate a loss or range of loss, if any, which may be incurred.

Kalamazoo River: The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis.

In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site, 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, EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy. The unilateral administrative order has not yet become effective and the Company is evaluating its response.

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.

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

The Company was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the site. The suit seeks contribution under CERCLA for costs purportedly expended by plaintiffs ($79 million as of the filing of the complaint) and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan. The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, including that of the Company, was the subject of a second trial, which was concluded in late 2015. A decision has not been rendered and it is unclear to what extent the Court will address responsibility for future costs in that decision. We are unable to predict the outcome or estimate our

maximum reasonably possible loss. However, we do not believe that any material loss is probable.

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

On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform this ~~stage, it is premature to predict~~work. While the ~~outcome or~~EPA’s selected remedy was accompanied by a cost estimate ~~our maximum reasonably possible loss with respect to this site. However,~~of approximately $115

million, we do not believe that ~~any material loss~~estimate provides a reasonable basis for accrual under GAAP because the estimate was based on a technological method for performing the work that we believe is ~~probable.~~

~~In December 2011, Harris County, Texas filed~~not feasible. On October 25, 2017, the PRPs received a ~~suit against~~letter from the EPA inviting participation in the remedial design component of the EPA’s selected remedy for the site, and the Company ~~seeking civil penalties with regard~~plans to participate in this remedial design process to determine if and how the remedy can be accomplished. We expect this process will include additional studies to determine feasible alternatives and costs to complete this final remedy, and we have accrued reasonably estimable costs related to this process. Subsequent to the ~~alleged discharge~~issuance of ~~dioxin into~~ the ~~San Jacinto River from~~ROD, there have been several meetings between the ~~San Jacinto River Superfund Site. In November 2014, International Paper secured a zero liability jury verdict~~EPA and the ~~Texas Court~~PRPs, and the Company anticipates working with the EPA and other PRPs to develop the remedial design, including adaptive management techniques and a predesign investigation expected to commence in the first quarter of ~~Appeals affirmed in 2016. Harris County did~~2018. The objectives of the predesign investigation include filling data gaps (including but not ~~seek~~limited to ~~appeal, nor file for an extension, before the Supreme Court of Texas~~post-Hurricane Harvey technical data generated prior to the ~~filing deadline.~~ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if the excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts to infrastructure in the vicinity. The Company has identified a number of concerns and uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. Because of ongoing questions regarding cost effectiveness, technical feasibility, timing and other technical data, it is uncertain how the ROD will be implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are currently unable to determine any adjustment to our immaterial recorded liability. It remains reasonably possible that additional losses could be material as the remedial design process with the EPA continues over the coming quarters.

International Paper and MIMC/WMI are also defending aan additional lawsuit related to the ~~San Jacinto River Superfund Site~~site brought by approximately ~~400~~600 individuals who allege property damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, ifin any, which may be incurred.

Antitrust

Containerboard: In September 2010, eight containerboard producers, including International Paper and Temple-Inland, were named as defendants in a purported class action complaint that alleged a civil violation of Section 1 of the Sherman Act. The suit is captioned ~~Kleen Products LLC v. International Paper Co. (N.D. Ill.)~~. The complaint alleges that the defendants, beginning in February 2004 through November 2010, conspired to limit the supply and thereby increase prices of containerboard products. The class is all persons who purchased containerboard products directly from any defendant for use or delivery in the United States during the period February 2004 to November 2010. The complaint seeks to recover unspecified treble damages and attorneys' fees on behalf of the purported class. Four similar complaints were filed and have been consolidated in the Northern District of Illinois. In March 2015, the District Court certified a class of direct purchasers of containerboard products; in June 2015, the United States Court of

Appeals for the Seventh Circuit granted the defendants' petition to appeal, and on August 4, 2016, affirmed the District Court's decision on all counts. We will continue to aggressively defend this case, including challenges to class certification. Likewise, in June 2016, a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporation of America (W.D. Wis.), was filed in federal court in ~~Wisconsin.~~Wisconsin against ten defendants, including the Company, Temple-Inland and Weyerhaeuser Company. The Ashley Furniture lawsuit closely tracks the allegations found in the now-settled Kleen Products ~~complaint~~

litigation, alleging a practically identical civil violation of Section 1 of the Sherman Act (in particular, that defendants conspired to limit the supply and thereby increase prices of containerboard products), but also asserts Wisconsin state antitrust claims. ~~Moreover, in~~In January 2011, International Paper was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee alleging that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the state court action seek certification of a class of Tennessee indirect purchasers of containerboard products, damages and costs, including attorneys' fees. No class certification materials have been filed to date in the Tennessee action.

The Company disputes the allegations made in the Ashley Furniture and Tennessee lawsuits and is vigorously defending ~~each action. However,~~each. At this time, however, because the~~Kleen Products~~ ~~action is in the pretrial motions stage and the Tennessee and~~ ~~Ashley Furniture~~ actions are in a preliminary stage, we are unable to predict an outcome or estimate a range of reasonably possible loss.

~~Tax~~Contract

~~On October 16, 2015, the~~Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Paper Company was ~~notified~~filed in state court in Texas. The Signature lawsuit arises out of ~~a $110~~approximately $1 million ~~tax assessment issued by the state of Sao Paulo, Brazil for tax years 2011 through 2013. The assessment pertains to~~ in disputed invoices ~~issued by the Company~~ related to the ~~sale~~installation of ~~paper~~new equipment at the Company's Orange, Texas mill. In addition to the ~~editorial segment, which is exempt~~invoices in dispute, Signature and its president allege consequential damages arising from the ~~payment~~Company's nonpayment of ~~ICMS value-added tax. This assessment is~~those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the ~~preliminary stage.~~jury returned a verdict awarding approximately $125 million in damages to the plaintiffs. The ~~Company does~~Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The judgment will not ~~believe that a material loss is probable. During the second quarter of 2016,~~be final until post-trial motions are decided, and the Company ~~received a favorable first instance judgment vacating the State's assessment. The Company anticipates that the State~~ will appeal the ~~judgment.~~final judgment thereafter. The Company has numerous and strong bases for appeal, and we believe we will prevail on appeal. Because post-trial proceedings are in a preliminary stage, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial.

General

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor and employment, contracts, sales of property, intellectual property and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of these

lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature) will not have a material effect on its consolidated financial statements.

NOTE 12 VARIABLE INTEREST ENTITIES

In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the Timber Notes) totaling approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their maturity ~~which was originally August 2016,~~ are supported by irrevocable letters of credit obtained by the buyers of the forestlands.

During 2006, International Paper contributed the Timber Notes to newly formed special purpose entities (the Borrower Entities) in exchange for Class A and Class B interests in these entities. Subsequently, International Paper contributed its ~~$200 million~~ ~~Class A interests in the Borrower Entities, along with approximately~~ ~~$400 million~~ of International Paper promissory notes, to other newly formed special purpose entities (the Investor Entities, and together with the Borrower Entities, the Entities) in exchange for Class A and Class B interests in these entities, and simultaneously sold its Class A interest in the Investor Entities to a third party investor. As a result, at December 31, 2006, International Paper held Class B interests in the Borrower Entities and Class B interests in the Investor Entities valued at approximately ~~$5.0 billion~~.

~~Following the 2006 sale of forestlands and creation of the Entities discussed above, the~~The Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the Timber ~~Notes. Also during 2006,~~Notes through the ~~Entities acquired approximately~~ ~~$4.8 billion~~creation of ~~International Paper debt obligations for cash, resulting in a total of approximately~~ ~~$5.2 billion~~ ~~of International Paper debt obligations held by the Entities at December 31, 2006.~~newly formed special purposes entities (the Entities). The various agreements entered into in connection with these transactions provided that International Paper had, and intended to effect, a legal right to offset its obligation under these debt instruments with its investments in the Entities and despite the offset treatment, these remained debt obligations of International Paper. The use of the Entities facilitated the monetization of the credit enhanced Timber Notes in a cost effective manner by increasing borrowing capacity and lowering the interest rate, while providing for the offset accounting treatment described above. Additionally, the monetization structure preserved the $1.4 billion tax deferral that resulted from the 2006 forestlands sales. As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured to be $884 million.

During 2015, International Paper initiated a series of actions in order to extend the 2006 monetization structure and maintain the long-term nature of the ~~$1.4 billion~~$884 million deferred tax liability. ~~First,~~ International Paper acquired the Class A interests in the Investor Entities from a third party for $198 million in cash. As a result, International Paper became the owner of all of the Class

A and Class B interests in the Entities and became the primary beneficiary of the Entities. The assets and liabilities of the Entities, primarily consisting of the Timber Notes and third party bank loans, were recorded at fair value as of the acquisition date of the Class A interests.

~~Subsequent to purchasing~~ The Entities, with assets and liabilities primarily consisting of the ~~Class A interests in the Investor Entities, International Paper~~Timber Notes and third-party bank loans, were restructured ~~the Entities,~~ which resulted in the formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015 Financing Entities). As part of the restructuring, the Timber Notes held by the Borrower Entities, subject to the third party bank loans, were contributed to the 2015 Financing Entities along with approximately $150 million in International Paper debt obligations, approximately $600 million in cash and approximately $130 million in demand loans from International Paper, and certain Entities were liquidated. As a result of these transactions, International Paper began consolidating the 2015 Financing Entities during the third quarter of 2015. Also, during the third quarter of 2015, the 2015 Financing Entities used $630 million in cash to pay down a portion of the third party bank loans and refinanced approximately $4.2 billion of those loans on nonrecourse terms (the 2015 Refinance Loans).

During the fourth quarter of 2015, International Paper extended the maturity date on the Timber Notes for an additional 5five years. The Timber Notes are shown in Financial assets of special purpose entities on the accompanying consolidated balance sheet and mature in August 2021 unless extended for an additional 5five years. These notes are supported by approximately $4.8 billion of irrevocable letters of credit. In addition, the Company extinguished the 2015 Refinance Loans scheduled to mature in May 2016 and entered into new

nonrecourse third party bank loans totaling approximately $4.2 billion (the Extension Loans). Provisions of loan agreements related to approximately $1.1 billion of the Extension Loans require the bank issuing letters of credit supporting the Timber Notes pledged as collateral to maintain a credit rating at or above a specified threshold. In the event the credit rating of the letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days with letters of credit from a qualifying financial institution. The Extension Loans are shown in Nonrecourse financial liabilities of special purpose entities on the accompanying consolidated balance sheet and mature in the fourth quarter of 2020. The extinguishment of the 2015 Refinance Loans of approximately ~~$4.2~~$4.2 billion and the issuance of the Extension Loans of approximately $4.2 billion are shown as part of reductions of debt and issuances of debt, respectively, in the financing activities of the consolidated statement of cash ~~flows.~~flows for the year ended December 31, 2015.

The Extension Loans are nonrecourse to the Company, and are secured by approximately $4.8 billion of Timber Notes, the irrevocable letters of credit supporting the Timber Notes and approximately $150 million of International Paper debt obligations. The $150 million of International Paper debt obligations are eliminated in the consolidation of the 2015 Financing Entities and are not reflected in the Company’s consolidated balance sheet.

The ~~purchase of the Class A interests and subsequent restructuring described above facilitated the refinancing and extensions of the third party bank loans on nonrecourse terms. The~~ transactions described in these paragraphs result in continued long-term classification of the ~~$1.4 billion~~$884 million deferred tax liability ~~recognized in connection with~~related to the 2006 forestlands sale.

As of December 31, ~~2016~~2017 and ~~2015,~~2016, the fair value of the Timber Notes was $4.8 billion and $4.7 billion, ~~for both the years ended 2016 and 2015,~~respectively, and the fair value of the Extension Loans was $4.3 billion for both the years ended ~~2016~~2017 and ~~2015.~~2016. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14.

Activity between the Company and the 2015 Financing Entities (the Entities prior to the purchase of the Class A interest discussed above) was as follows:


In millions	2016		2015		2014		2017		2016		2015
Revenue (a)	$	95	$	43	$	38	$	95	$	95	$	43
Expense (a)	128		81		72		128		128		81
Cash receipts (b)	77		21		22		95		77		21
Cash payments (c)	98		71		73		128		98		71

(a)

The net expense related to the Company’s interest in the Entities is included in the accompanying consolidated statement of operations, as International Paper has and intends to effect its legal right to offset as discussed above. After formation of the 2015 Financing Entities, the revenue and ~~expense are included in Interest expense, net in the accompanying consolidated statement of operations.~~

expense are included in Interest expense, net in the accompanying consolidated statement of operations.


(b)	The cash receipts are equity distributions from the Entities to International Paper prior to the formation of the 2015 Financing Entities. After formation of the 2015 Financing Entities, cash receipts are interest received on the Financial assets of special purpose entities.


(c)	The cash payments are interest payments on the associated debt obligations discussed above. After formation of the 2015 Financing Entities, the payments represent interest paid on Nonrecourse financial liabilities of special purpose entities.

In connection with the acquisition of Temple-Inland in February 2012, two special purpose entities became wholly-owned subsidiaries of International Paper.

The use of the two wholly-owned special purpose entities discussed below preserved the $831 million tax deferral that resulted from the 2007 Temple-Inland timberlands sales. ~~The Company recognized an $831 million~~

As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes, this deferred tax liability ~~in connection with the 2007 sales,~~was remeasured to be $538 million, which will be settled with the maturity of the notes in 2027.

In October 2007, Temple-Inland sold 1.55 million acres of timberland for $2.4 billion. The total consideration consisted almost entirely of notes due in 2027 issued by the buyer of the timberland, which Temple-Inland contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are shown in Financial assets of special purpose entities in the accompanying consolidated balance sheet and are supported by $2.4 billion of irrevocable letters of credit issued by three banks, which are required to maintain minimum credit ratings on their long-term debt. ~~In the third quarter of 2012, International Paper completed its preliminary analysis of the acquisition date fair value of the notes and determined it to be~~ ~~$2.1 billion~~. As of December 31, ~~2016~~2017 and ~~2015,~~2016, the fair value of the notes was $~~2.2~~2.3 billion and $~~2.1~~2.2 billion, respectively. These notes are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14.

In December 2007, Temple-Inland's two wholly-owned special purpose entities borrowed $2.1 billion shown in Nonrecourse financial liabilities of special purpose entities. The loans are repayable in 2027 and are secured only by the $2.4 billion of notes and the irrevocable letters of credit securing the notes and are nonrecourse to us. The loan agreements provide that if a credit rating of any of the banks issuing the letters of credit is downgraded below the specified threshold, the letters of credit issued by that bank must be replaced within 30 days with letters of credit from another qualifying financial institution. ~~In the third quarter of 2012, International Paper completed its preliminary analysis of the acquisition date fair value of the borrowings and determined it to be~~ ~~$2.0 billion~~. As of December 31, ~~2016~~2017 and ~~2015,~~2016, the fair value of this debt was $2.1 billion for both the years ended 2017 and ~~$2.0 billion, respectively.~~2016. This debt is classified as Level 2 within the fair value hierarchy, which is further defined in Note 14.

Activity between the Company and the 2007 financing entities was as follows:


In millions	2016		2015		2014		2017		2016		2015
Revenue (a)	$	37	$	27	$	26	$	49	$	37	$	27
Expense (b)	37		27		25		48		37		27
Cash receipts (c)	15		7		7		28		15		7
Cash payments (d)	27		18		18		39		27		18


(a)	The revenue is included in Interest expense, net in the accompanying consolidated statement of operations and includes approximately $19 million for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively, of accretion income for the amortization of the purchase accounting adjustment on the Financial assets of special purpose entities.


~~(b)~~	~~The expense is included in Interest expense, net in the accompanying consolidated statement of operations and includes approximately $7 million for the years ended~~

(b) The expense is included in Interest expense, net in the accompanying consolidated statement of operations and includes approximately $7 million for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively, of accretion expense for the amortization of the purchase accounting 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.~~

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

NOTE 13 DEBT AND LINES OF CREDIT

In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination of available cash and other borrowings, were used to make a $1.25 billion voluntary cash contribution to the Company's pension plan. In December 2017, International Paper received $660 million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are included in Restructuring and other charges in the accompanying consolidated statement of operations for the year ended December 31, 2017. The $660 million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale at December 31, 2017, in the accompanying consolidated balance sheet.

In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047. In addition, the Company repaid approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt repayments, including $31 million of cash premiums, are included in ~~restructuring~~Restructuring and other charges in the

accompanying consolidated statement of operations for the ~~twelve months~~year ended December 31, 2016.

In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of December 31, ~~2016,~~2017, the Company had ~~$165~~$180 million outstanding under this program.

In 2015, International Paper issued $700 million of 3.80% senior unsecured notes with a maturity date in 2026, $600 million of 5.00% senior unsecured notes with a maturity date in 2035, and $700 million of 5.15% senior unsecured notes with a maturity date in 2046. The proceeds from this borrowing were used to repay approximately $1.0 billion of notes with interest rates ranging from 4.75% to 9.38% and original maturities from 2018 to 2022, along with $211 million of cash premiums associated with the debt repayments. Additionally, the proceeds from this borrowing were used to make a $750 million voluntary cash contribution to the Company's pension plan. Pre-tax early debt retirement costs of $207 million related to these debt repayments, including the $211 million of cash premiums, are included in Restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2015.

Amounts related to early debt extinguishment during the years ended December 31, ~~2016,~~2017, ~~2015~~2016 and ~~2014~~2015 were as follows:


In millions	2016		2015		2014		2017		2016		2015
Debt reductions (a)	$	266	$	2,151	$	1,625	$	993	$	266	$	2,151
Pre-tax early debt extinguishment costs (b)	29		207		276		83		29		207


(a)	Reductions related to notes with interest rates ranging from ~~2.00%~~1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, ~~2016,~~2017, ~~2015~~2016 and ~~2014~~2015. Includes the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities).


(b)	Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.

A summary of long-term debt follows:


In millions at December 31	2016		2015		2017			2016
9 3/8% note – due 2019					$	—		$	295
8.7% note – due 2038	$	264	$	264	264			264
9 3/8% note – due 2019	295		295
7.95% debenture – due 2018	382		648		—			382
7.5% note – due 2021	598		603		409			598
7.3% note – due 2039	721		721		721			721
6 7/8% notes – due 2023 – 2029	131		131		131			131
6.65% note – due 2037	4		4		4			4
6 5/8% note – due 2018					—			72
6.4% to 7.75% debentures due 2025 – 2027	142		142		143			142
6 5/8% note – due 2018	72		185
6.0% note – due 2041	585		585		585			585
5.25% note – due 2016	—		261
5.00% to 5.15% notes – due 2035 – 2046	1,280		1,280		1,281			1,280
4.8% note - due 2044	796		796
4.8% note – due 2044					796			796
4.75% note – due 2022	810		817		817			810
3.00% to 4.40% notes – due 2024 – 2047	3,786		1,490
Floating rate notes – due 2016 – 2025 (a)	763		438
Environmental and industrial development bonds – due 2016 – 2035 (b)	681		594
Short-term notes (c)	—		5
Other (d)	4		11
Total (e)	11,314		9,270
3.00% to 4.40% notes – due 2024 – 2048					4,775			3,786
Floating rate notes – due 2017 – 2025 (a)					650			763
Environmental and industrial development bonds – due 2017 – 2035 (b)					585			681
Other (c)					(4		)	4
Total (d)					11,157			11,314
Less: current maturities	239		426		311			239
Long-term debt	$	11,075	$	8,844	$	10,846		$	11,075


(d)	~~Includes~~ ~~$2 million~~ ~~at December 31, 2016 and~~ ~~$8 million~~ ~~at December 31, 2015 related to the unamortized gain on interest rate swap unwinds (see~~ ~~Note 14 Derivatives and Hedging Instruments~~).


~~(e)~~	The fair market value was approximately $12.3 billion at December 31, 2017 and $12.0 billion at December 31, ~~2016 and~~ ~~$9.9 billion~~ ~~at December 31, 2015.~~2016.

Total maturities of long-term debt over the next five years are ~~2017~~ – ~~$239 million~~; 2018 – $~~690~~311 million; 2019 – $~~433~~126 million; 2020 – $~~179~~164 million; ~~and~~ 2021 – $~~612~~440 million; and 2022 – $956 million.

At December 31, ~~2016,~~2017, International Paper’s credit facilities (the Agreements) totaled $2.1 billion. The Agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The

Agreements include a $1.5 billion contractually committed bank facility that expires in December 2021 and has a facility fee of 0.15% payable annually. The liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivables balances ~~(approximately~~ ~~$600 million~~ ~~available as of December 31, 2016)~~ under a receivables securitization program that expires in December ~~2017.~~2018. At December 31, ~~2016,~~2017, there were no borrowings under either the bank facility or receivables securitization program.

~~Maintaining an investment grade credit rating~~The Company’s financial covenants require the maintenance of a minimum net worth of $9 billion and a total debt-to-capital ratio of less than 60%. Net worth is ~~an important element~~defined as the sum of ~~International Paper’s financing strategy. At~~common stock, paid-in capital and retained earnings, less treasury stock plus any cumulative goodwill impairment charges. The calculation also excludes accumulated other comprehensive income/loss and Nonrecourse Financial Liabilities of Special Purpose Entities. The total debt-to-capital ratio is defined as total debt divided by the sum of total debt plus net worth. As of December 31, ~~2016, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively.~~2017, we were in compliance with our debt covenants.

NOTE 14 DERIVATIVES AND HEDGING ACTIVITIES

International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet the hedge accounting criteria, International Paper, at inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying exposure.

INTEREST RATE RISK MANAGEMENT

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.

Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense. For cash flow hedges, the effective portion of the changes in the fair value of the hedging instrument is reported in Accumulated other comprehensive income (“AOCI”) and reclassified into interest expense over the life of the underlying debt. The ineffective portion for both cash flow and fair value hedges, which is not material for any year presented, is immediately recognized in earnings.

FOREIGN CURRENCY RISK MANAGEMENT

We manufacture and sell our products and finance operations in a number of countries throughout the

world and, as a result, are exposed to movements in foreign currency exchange rates. The purpose of our foreign currency hedging program is to manage the volatility associated with the changes in exchange rates.

To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and currency swaps. Contracts that qualify are designated as cash flow hedges of certain forecasted transactions denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion,

which is not material for any year presented, is immediately recognized in earnings.

The change in value of certain non-qualifying instruments used to manage foreign exchange exposure of intercompany financing transactions and certain balance sheet items subject to revaluation is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure.

COMMODITY RISK MANAGEMENT

Certain raw materials used in our production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility in earnings due to price fluctuations, we may utilize swap contracts or forward purchase contracts.

Derivative instruments are reported in the consolidated balance sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale ("NPNS") exception under GAAP and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized on the balance sheet.

Contracts that qualify are designated as cash flow hedges of forecasted commodity purchases. The effective portion of the changes in fair value for these instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transactions affect earnings. The ineffective and non-qualifying portions, which are not material for any year presented, are immediately recognized in earnings.

The change in the fair value of certain non-qualifying instruments used to reduce commodity price volatility is immediately recognized in earnings.

The notional amounts of qualifying and non-qualifying instruments used in hedging transactions were as follows:


In millions	December 31, 2016	December 31, 2015	December 31, 2017	December 31, 2016
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (a)	275	290	329	275
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	—	17
Derivatives Not Designated as Hedging Instruments:
Electricity contract	6	16	13	6
Foreign exchange contracts	24	35	10	24
Interest rate contracts	—	38


(a)	These contracts had maturities of two years or less as of December 31, ~~2016~~2017.

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


	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)								Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
In millions	2016			2015			2014		2017		2016			2015
Foreign exchange contracts	$	4		$	(3	)	$	10	$	15	$	4		$	(3	)
Interest rate contracts	(10		)	—			—		—		(10		)	—
Total	$	(6	)	$	(3	)	$	10	$	15	$	(6	)	$	(3	)

During the next 12 months, the amount of the December 31, ~~2016~~2017 AOCI balance, after tax, that is expected to be reclassified to earnings is ~~an immaterial loss.~~a gain of $6 million.

The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions were as follows:

Location of Gain (Loss)

in Consolidated Statement of

~~The following activity is related to~~In 2016, fully effective interest rate swaps designated as fair value ~~hedges:~~

~~Note:~~ ~~There was no activity in the third and fourth quarters in either 2016 or 2015.~~

Fair Value Measurements

International Paper’s financial assets and liabilities that are recorded at fair value consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, options and other financial instruments that

are used to hedge exposures to interest rate, commodity and currency risks. For these financial instruments, fair value is determined at each balance sheet date using an income approach.

The guidance for fair value measurements and disclosures sets out a fair value hierarchy that groups fair value measurement inputs into the following three classifications:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

Transfers between levels are recognized at the end of the reporting period. All of International Paper’s derivative fair value measurements use Level 2 inputs.

Below is a description of the valuation calculation and the inputs used for each class of contract:

Interest Rate Contracts

Interest rate contracts are valued using swap curves obtained from an independent market data provider.

The market value of each contract is the sum of the fair value of all future interest payments between the contract counterparties, discounted to present value. The fair value of the future interest payments is determined by comparing the contract rate to the derived forward interest rate and present valued using the appropriate derived interest rate curve.

Foreign Exchange Contracts

Foreign currency forward and option contracts are valued using standard valuation models. Significant inputs used in these standard valuation models are foreign currency forward and interest rate curves and a volatility measurement. The fair value of each contract is present valued using the applicable interest rate. All

significant inputs are readily available in public markets, or can be derived from observable market transactions.

Electricity Contract

The electricity contract is valued using the Mid-C index forward curve obtained from the Intercontinental Exchange. The market value of the contract is the sum of the fair value of all future purchase payments between the contract counterparties, discounted to present value. The fair value of the future purchase payments is determined by comparing the contract price to the forward price and present valued using International Paper's cost of capital.

Since the volume and level of activity of the markets that each of the above contracts are traded in has been normal, the fair value calculations have not been adjusted for inactive markets or disorderly transactions.

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

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

Credit-Risk-Related Contingent Features

International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with the majority of our banks. Certain of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the collateral threshold is generally $15 million.

If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the Company would be required to post collateral for all of its derivatives in a net liability position, although no derivatives would terminate. As of December 31, 2017, there were no derivative instruments containing credit-risk-related contingent features in a net liability position. The fair ~~values~~value of derivative instruments containing credit-risk-related contingent features in a net liability position ~~were~~ ~~$3 million~~ ~~and $1~~was $3 million as of December 31, ~~2016 and December 31, 2015, respectively.~~2016. The Company was

not required to post any collateral as of December 31, ~~2016~~2017 or ~~2015~~2016.

NOTE 15 CAPITAL STOCK

The authorized capital stock at both December 31, ~~2016~~2017 and ~~2015~~2016, consisted of 990,850,000 shares of common stock, $1 par value; 400,000 shares of cumulative $4 preferred stock, without par value (stated value $100 per share); and 8,750,000 shares of serial preferred stock, $1 par value. The serial preferred stock is issuable in one or more series by the Board of Directors without further shareholder action.

The following is a rollforward of shares of common stock for the three years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015:


	Common Stock			Common Stock
In thousands	Issued	Treasury		Issued	Treasury
Balance at January 1, 2014	447,222	10,868
Issuance of stock for various plans, net	1,632	(4,668	)
Repurchase of stock	—	22,534
Balance at December 31, 2014	448,854	28,734
Balance at January 1, 2015				448,854	28,734
Issuance of stock for various plans, net	62	(4,230	)	62	(4,230	)
Repurchase of stock	—	12,272		—	12,272
Balance at December 31, 2015	448,916	36,776		448,916	36,776
Issuance of stock for various plans, net	—	(2,745	)	—	(2,745	)
Repurchase of stock	—	3,640		—	3,640
Balance at December 31, 2016	448,916	37,671		448,916	37,671
Issuance of stock for various plans, net				—	(2,577	)
Repurchase of stock				—	881
Balance at December 31, 2017				448,916	35,975

NOTE 16 RETIREMENT PLANS

International Paper sponsors and maintains the Retirement Plan of International Paper Company (the “Pension Plan”), a tax-qualified defined benefit pension

plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union employees who work at a participating business unit regardless of hire date. These employees generally are

eligible to participate in the Pension Plan upon attaining

21 years of age and completing one year of eligibility service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004 are not eligible to participate in the Pension Plan, but receive a company contribution to their individual savings plan accounts (see Other U.S. Plans); however, salaried employees hired by Temple Inland prior to March 1, 2007 or Weyerhaeuser Company's Cellulose Fibers division prior to December 1, 2011 also participate in the Pension Plan. The Pension Plan provides defined pension benefits based on years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees).

The Company also has three unfunded nonqualified defined benefit pension plans: a Pension Restoration Plan available to employees hired prior to July 1, 2004 that provides retirement benefits based on eligible compensation in excess of limits set by the Internal Revenue Service, and two supplemental retirement plans for senior managers (SERP), which is an alternative retirement plan for salaried employees who are senior vice presidents and above or who are designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent of benefits paid, which totaled $2140 million, $6221 million and $3862 million in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively, and which are expected to be $3830 million in ~~2017~~2018.

The Company will freeze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the two SERP plans for all service on or after January 1, 2019. This change will not affect benefits accrued through December 31, 2018. For service after this date, employees affected by the freeze will receive Retirement Savings Account contributions as described later in this Note 16.

Many non-U.S. employees are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes.

OBLIGATIONS AND FUNDED STATUS

The following table shows the changes in the benefit obligation and plan assets for ~~2016~~2017 and ~~2015~~2016, and the plans’ funded status.


	2016						2015						2017						2016
In millions	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Change in projected benefit obligation:
Benefit obligation, January 1	$	14,438		$	204		$	14,741		$	233		$	13,683		$	219		$	14,438		$	204
Service cost	158			4			161			6			160			4			158			4
Interest cost	580			9			597			10			536			9			580			9
Settlements	(1,222		)	(2		)	(43		)	(12		)	(1,295		)	(4		)	(1,222		)	(2		)
Actuarial loss (gain)	495			35			(254		)	(1		)	913			2			495			35
Acquisitions	1			—			—			—			—			5			1			—
Divestitures													33			—			—			—
Plan amendments	—			(1		)	—			—			3			—			—			(1		)
Benefits paid	(767		)	(9		)	(764		)	(7		)	(769		)	(8		)	(767		)	(9		)
Effect of foreign currency exchange rate movements	—			(21		)	—			(25		)	—			20			—			(21		)
Benefit obligation, December 31	$	13,683		$	219		$	14,438		$	204		$	13,264		$	247		$	13,683		$	219
Change in plan assets:
Fair value of plan assets, January 1	$	10,923		$	155		$	10,918		$	180		$	10,312		$	153		$	10,923		$	155
Actual return on plan assets	607			17			(1		)	4			1,830			10			607			17
Company contributions	771			8			813			9			1,290			10			771			8
Benefits paid	(767		)	(9		)	(764		)	(7		)	(769		)	(8		)	(767		)	(9		)
Settlements	(1,222		)	(2		)	(43		)	(12		)	(1,295		)	(4		)	(1,222		)	(2		)
Other													—			3			—			—
Effect of foreign currency exchange rate movements	—			(16		)	—			(19		)	—			12			—			(16		)
Fair value of plan assets, December 31	$	10,312		$	153		$	10,923		$	155		$	11,368		$	176		$	10,312		$	153
Funded status, December 31	$	(3,371	)	$	(66	)	$	(3,515	)	$	(49	)	$	(1,896	)	$	(71	)	$	(3,371	)	$	(66	)
Amounts recognized in the consolidated balance sheet:
Non-current asset	$	—		$	6		$	—		$	7		$	—		$	5		$	—		$	6
Current liability	(40		)	(3		)	(22		)	(2		)	(30		)	(3		)	(40		)	(3		)
Non-current liability	(3,331		)	(69		)	(3,493		)	(54		)	(1,866		)	(73		)	(3,331		)	(69		)
	$	(3,371	)	$	(66	)	$	(3,515	)	$	(49	)	$	(1,896	)	$	(71	)	$	(3,371	)	$	(66	)



Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax):
Prior service cost	$	88	$	(1	)	$	125	$	—
Net actuarial loss	3,893		67			4,757		61
	$	3,981	$	66		$	4,882	$	61

Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax):
Prior service cost $ 125
$ —
$ 166
$ —
Net actuarial loss 4,757
61
4,899
42
$ 4,882
$ 61
$ 5,065
$ 42

The components of the $~~183~~901 million and $195 million change related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during ~~2016~~2017 consisted of:


In millions	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Current year actuarial (gain) loss	$	703		$	27		$	(143	)	$	2
Amortization of actuarial loss	(400		)	(1		)	(339		)	(2		)
Current year prior service cost	—			(1		)	3			—
Amortization of prior service cost	(41		)	—			(28		)	—
Settlements	(445		)	—			(383		)	(1		)
Curtailments							(11		)	—
Effect of foreign currency exchange rate movements	—			(6		)	—			6
	$	(183	)	$	19		$	(901	)	$	5

The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for the U.S. plans was $(184) million, $626 million and $505 million in 2017, 2016 and 2015, respectively. The portion of the change in funded status for the non-U.S. plans was $10 million, $23 million, and $8 million in 2017, 2016 and 2015, respectively.

The accumulated benefit obligation at December 31, ~~2016~~2017 and ~~2015~~2016 was $~~13.5~~13.2 billion and $~~14.3~~13.5 billion, respectively, for our U.S. defined benefit plans and ~~$205~~$230 million and $~~189~~205 million, respectively, at December 31, ~~2016~~2017 and ~~2015~~2016 for our non-U.S. defined benefit plans.

The following table summarizes information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, ~~2016~~2017 and ~~2015~~2016:


	2016				2015				2017				2016
In millions	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Projected benefit obligation	$	13,683	$	190	$	14,438	$	182	$	13,264	$	215	$	13,683	$	190
Accumulated benefit obligation	13,535		177		14,282		168		13,161		200		13,535		177
Fair value of plan assets	10,312		118		10,923		126		11,368		139		10,312		118

ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets and other assumption changes. These net gains and losses are recognized prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains in subsequent years. The estimated net loss and prior service cost that will be amortized from AOCI into net periodic pension cost for the U.S. plans during the next

fiscal year are expected to be $~~341~~327 million and $2817 million, respectively.

NET PERIODIC PENSION EXPENSE

Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from the investment of plan assets using an estimated long-term rate of return.

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


	2016						2015						2014						2017						2016						2015
In millions	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Service cost	$	158		$	4		$	161		$	6		$	145		$	5		$	160		$	4		$	158		$	4		$	161		$	6
Interest cost	580			9			597			10			600			13			536			9			580			9			597			10
Expected return on plan assets	(815		)	(10		)	(783		)	(11		)	(762		)	(14		)	(774		)	(11		)	(815		)	(10		)	(783		)	(11		)
Actuarial loss / (gain)	400			1			428			1			374			—			339			2			400			1			428			1
Amortization of prior service cost	41			—			43			—			30			—			28			—			41			—			43			—
Curtailment loss / (gain)(a)	—			—			—			—			—			(4		)	23			—			—			—			—			—
Settlement loss	445			—			15			—			—			—			383			1			445			—			15			—
Net periodic pension expense (a)	$	809		$	4		$	461		$	6		$	387		$	—
Special termination benefits (a)																			22			—			—			—			—			—
Net periodic pension expense																			$	717		$	5		$	809		$	4		$	461		$	6

(a) ~~Excludes $1 million~~Recorded in ~~curtailments~~Discontinued operations in ~~2014 related~~the consolidated statement of operations.

The decrease in 2017 pension expense reflects lower settlement losses and lower actuarial losses partially offset by lower asset returns due to the ~~pension freeze remeasurement that were recorded in restructuring~~annuity purchase as well as curtailment and ~~other~~special termination benefit charges.

On September 26, 2017, the Company entered into an agreement with The ~~increase~~Prudential Insurance Company of America to purchase a group annuity contract and transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit obligations, subject to customary closing conditions. The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction,

at the end of 2017, Prudential assumed responsibility for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries receiving less than $450 in ~~2016~~monthly benefit payments from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension ~~expense reflects a decrease~~settlement charge of $376 million before tax in the ~~discount rate~~fourth quarter of 2017. In addition, large payments from ~~4.10% in 2015 to~~the non-qualified pension plan also required a ~~weighted average~~remeasurement as of ~~4.05% in 2016 (4.40% from January 1, 2016 to June 30, 2016, 3.80% from July 1, 2016 to September 30, 2016 and 3.60% from~~ October ~~1, 2016 to December 31, 2016 for the qualified plan)~~2, 2017 and a ~~$445 million~~non-cash settlement charge of $7 million was also recognized in ~~2016 related to~~ the ~~previously announced optional lump sum payout partially offset by higher asset returns and lower actuarial losses.~~fourth quarter of 2017.

~~As previously disclosed, in~~In the first quarter of 2016 International Paper announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted in a

plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement accounting, the Company recognized non-cash settlement charges of $3 million in both the third and fourth quarters of 2016.

ASSUMPTIONS

International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements for employers’ accounting for pensions. These assumptions are used to calculate benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation as of December 31, ~~2016~~2017 was also the discount rate used to determine net pension expense for the ~~2017~~2018 year).

Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit plans are presented in the following table:

The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes.

Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio

is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption was determined from a universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate pension expense for ~~2017~~,2018, the Company will use an expected long-term rate of return on plan assets of 7.50% for the Retirement Plan of International Paper,

a discount rate of ~~4.10%~~3.60% and an assumed rate of compensation increase of 3.75%. The Company estimates that it will record net pension expense of

approximately ~~$310~~$167 million for its U.S. defined benefit plans in 2018, compared to expense of $717 million in 2017. The 2017, expense includes $45 million of curtailment and special pension benefits associated with the ~~decrease from expense~~North American Consumer Packaging business and $383 million of ~~$809 million~~ in ~~2016~~ ~~mainly related to no expected~~settlement accounting charges. Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in ~~2017~~net pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and ~~an increase in the discount rate to~~ ~~4.10%~~ in ~~2017~~ ~~from~~ ~~4.05%~~ in ~~2016, partially offset by~~ a ~~reduction in the~~higher expected return on assets associated with the increased pension asset ~~assumption to 7.50% in 2017 from 7.75% in 2016.~~balance.

For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.

The following illustrates the effect on pension expense for ~~2017~~2018 of a 25 basis point decrease in the above assumptions:


In millions	2017			2018
Expense/(Income):
Discount rate	$	33		$	35
Expected long-term rate of return on plan assets	26			27
Rate of compensation increase	(1		)	(1		)

PLAN ASSETS

International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk.

The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. Investments are diversified across classes and within each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic reviews are made of investment policy objectives and investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed income securities.

International Paper’s U.S. pension allocations by type of fund at December 31, and target allocations were as follows:


Asset Class	2016		2015		Target Allocations	2017		2016		Target Allocations
Equity accounts	51	%	48	%	43% - 54%	49	%	51	%	42% - 53%
Fixed income accounts	27	%	33	%	25% - 35%	36	%	27	%	32% - 44%
Real estate accounts	10	%	10	%	7% - 13%	10	%	10	%	7% - 13%
Other	12	%	9	%	8% - 17%	5	%	12	%	3% - 8%
Total	100	%	100	%		100	%	100	%

The fair values of International Paper’s pension plan assets at December 31, ~~2016~~2017 and ~~2015~~2016 by asset class are shown below. Plan assets included an immaterial amount of International Paper common stock at December 31, ~~2016~~ ~~and~~ ~~2015~~.2016. Hedge funds disclosed in the following table are allocated equally between equity and fixed income accounts for target allocation purposes.


Fair Value Measurement at December 31, 2016
Fair Value Measurement at December 31, 2017											Fair Value Measurement at December 31, 2017
Asset Class	Total			Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total			Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	2,208		$	1,380	$	828	$	—		$	1,291		$	1,291	$	—		$	—
Equities – international	2,575			1,806		769		—			2,132			2,119		13			—
Corporate bonds	1,018			—		1,018		—			1,177			—		1,177			—
Government securities	870			—		870		—			2,778			—		2,778			—
Mortgage backed securities	41			—		40		1			1			—		—			1
Other fixed income	245			—		234		11			(802		)	—		(814		)	12
Commodities	324			—		324		—			—			—		—			—
Derivatives											8			—		(8		)	16
Cash and cash equivalents											397			397		—			—
Other investments:
Equities - domestic											708
Equities - international											866
Corporate bonds											66
Other fixed income											232
Hedge funds	—			—		—		—			927
Private equity	—			—		—		—			481
Real estate	—			—		—		—			1,106
Derivatives	(71		)	—		—		(71		)
Cash and cash equivalents	322			322		—		—
Other investments: (a)
Hedge funds	891
Private equity	472
Real estate	1,015
Risk parity funds	402
Total Investments	$	10,312		$	3,508	$	4,083	$	(59	)	$	11,368		$	3,807	$	3,146		$	29

Fair Value Measurement at December 31, 2015
Asset Class Total Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1) Significant
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
In millions
Equities – domestic $ 2,150
$ 1,382
$ 768
$ —
Equities – international 2,563
1,818
745
—
Corporate bonds 1,286
—
1,286
—
Government securities 518
—
518
—
Mortgage backed securities 217
—
217
—
Other fixed income 275
—
265
10
Commodities 118
—
118
—
Hedge funds —
—
—
—
Private equity —
—
—
—
Real estate —
—
—
—
Derivatives (19 ) —
1
(20 )
Cash and cash equivalents 975
975
—
—
Other investments: (a)
  Hedge funds 894

  Private equity 492

  Real estate 1,094

  Risk parity funds 360

Total Investments $ 10,923
$ 4,175
$ 3,918
$ (10 )

(a) In accordance with accounting guidance ASU 2015-07, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of changes in the plan's benefit obligations and fair value of plan assets above. This has been restated from prior year.



Fair Value Measurement at December 31, 2016
Asset Class	Total			Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	2,208		$	1,380	$	828	$	—
Equities – international	2,575			1,806		769		—
Corporate bonds	1,018			—		1,018		—
Government securities	870			—		870		—
Mortgage backed securities	41			—		40		1
Other fixed income	245			—		234		11
Commodities	324			—		324		—
Derivatives	(71		)	—		—		(71		)
Cash and cash equivalents	322			322		—		—
Other investments:
Hedge funds	891
Private equity	472
Real estate	1,015
Risk parity funds	402
Total Investments	$	10,312		$	3,508	$	4,083	$	(59	)

In accordance with accounting standards, the following investments are measured at NAV and are not classified in the fair value hierarchy. Some of the investments have

redemption limitations, restrictions, and notice requirements which are further explained below.


Other Investments at December 31, 2016
Other Investments at December 31, 2017							Other Investments at December 31, 2017
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
Equities - domestic							$	708	$	—	Daily to monthly	1-5 days
Equities - international							866		—		Daily to monthly	1-5 days
Corporate bonds							66		—		Daily to monthly	1-5 days
Other fixed income							232		—		Daily to monthly	1-5 days
Hedge funds	$	891	$	—	Daily to annually	1 - 100 days	927		—		Daily to annually	1 - 100 days
Private equity	472		226		None		481		262		None
Real estate	1,015		224		Quarterly	45 - 60 days	1,106		121		Quarterly	45 - 60 days
Risk parity funds	402		—		Monthly	5 - 15 days
Total	$	2,780	$	450			$	4,386	$	383


Other Investments at December 31, 2015
Other Investments at December 31, 2016							Other Investments at December 31, 2016
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
Hedge funds	$	894	$	—	Daily to annually	1 - 100 days	$	891	$	—	Daily to annually	1 - 100 days
Private equity	492		102		None		472		226		None
Real estate	1,094		59		Quarterly	45 - 60 days	1,015		224		Quarterly	45 - 60 days
Risk parity funds	360		—		Monthly	5 - 15 days	402		—		Monthly	5 - 15 days
Total	$	2,840	$	161			$	2,780	$	450

Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded.

Fixed income consists of government securities, mortgage-backed securities, corporate bonds and common collective funds. Government securities are valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.

~~Commodities consist of commodity-linked notes and commodity-linked derivatives. Commodities are valued at closing prices determined by calculation agents for outstanding transactions.~~

Hedge funds are investment structures for managing private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a wide range of different securities and derivative instruments. These investments are made through funds-of-funds (commingled, multi-manager fund structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each fund’s third-party administrator based upon the valuation of the underlying securities and instruments

and primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held. Funds-of-funds are valued based upon the net asset values of the underlying investments in hedge funds.

Private equity consists of interests in partnerships that invest in U.S. and non-U.S. debt and equity securities. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interest cash flows.

Real estate includes commercial properties, land and timberland, and generally includes, but is not limited to, retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the fund manager and are based on valuation of the

underlying investments which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.

~~Risk Parity Funds~~Derivative investments such as futures, forward contracts, options and swaps are ~~defined as engineered beta exposure~~used to a wide range of asset classes and risk premia, including equity, interest rates, credit, and commodities. Risk parity funds seek to provide high risk-adjusted returns while providing a high level of diversification relative to a traditional equity/fixed income portfolio. These funds seek to achieve this objective with the use of modest leverage applied to lower-risk, more diverse asset classes. Investments in Risk parity funds are valued using monthly reported net asset values. Also included in these funds are related derivative instruments whichhelp manage risks. Derivatives are generally employed as an asset class substitutes (such as when employed in a portable alpha strategy), for managing asset/liability mismatches, or bona fide hedging or other appropriate risk management purposes.Derivative instruments are generally valued by the investment managers or in certain instances by third-party pricing sources.

The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, ~~2016~~2017.

FUNDING AND CASH FLOWS

The Company’s funding policy for the Pension Plan is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash

flow generated by the Company, and other factors. The

Company continually reassesses the amount and

timing of any discretionary contributions. Contributions to the qualified plan totaling $~~750 million~~1.25 billion, $750 million and $~~353~~750 million were made by the Company in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. Generally, International Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required.

At December 31, ~~2016~~2017, projected future pension benefit payments, excluding any termination benefits, were as follows:


In millions
2017	$	800
2018	788		$	708
2019	796		709
2020	804		718
2021	812		727
2022 – 2026	4,137
2022			735
2023-2027			3,763

OTHER U.S. PLANS

International Paper sponsors the International Paper Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are

tax-qualified defined contribution 401(k) savings plans. Substantially all U.S. salaried and certain hourly employees are eligible to participate and may make elective deferrals to such plans to save for retirement. International Paper makes matching contributions to participant accounts on a specified percentage of employee deferrals as determined by the provisions of each plan. For eligible employees hired after June 30,

2004, the Company makes Retirement Savings Account contributions equal to a percentage of an eligible employee’s pay.

The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make deferrals and receive company matching contributions (and Retirement Savings Account contributions) when their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company ~~matching~~ contributions are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time benefits become due and payable.

Company ~~matching~~ contributions to the plans totaled approximately $~~106~~117 million, $~~100~~106 million and $~~112~~100 million for the plan years ending in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

NOTE 17 POSTRETIREMENT BENEFITS

U.S. POSTRETIREMENT BENEFITS

International Paper provides certain retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees. These employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. International Paper does not fund these benefits prior to payment and has the right to modify or terminate certain of these plans in the future.

In addition to the U.S. plan, certain Brazilian and Moroccan employees are eligible for retiree health care and life insurance benefits.

The components of postretirement benefit expense in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 were as follows:


In millions	2016						2015						2014						2017						2016						2015
	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Service cost	$	1		$	—		$	1		$	1		$	1		$	1		$	1		$	—		$	1		$	—		$	1		$	1
Interest cost	11			3			11			5			14			6			11			2			11			3			11			5
Actuarial loss	5			2			6			1			5			1			8			3			5			2			6			1
Amortization of prior service credits	(4		)	(4		)	(10		)	(2		)	(13		)	(1		)	(3		)	(4		)	(4		)	(4		)	(10		)	(2		)
Net postretirement (benefit) expense	$	13		$	1		$	8		$	5		$	7		$	7		$	17		$	1		$	13		$	1		$	8		$	5

The discount rates used to determine net U.S. and non-U.S. postretirement benefit cost for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 were as follows:

2016 2015 2014
U.S.
Plans Non-
U.S.
Plans U.S.
Plans Non-
U.S.
Plans U.S.
Plans Non-
U.S.
Plans
Discount rate 4.20 % 12.23 % 3.90 % 11.52 % 4.50 % 11.94 %



	2017				2016				2015
	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Discount rate	4.00	%	10.53	%	4.20	%	12.23	%	3.90	%	11.52	%

The weighted average assumptions used to determine the benefit obligation at December 31, ~~2016~~2017 and ~~2015~~2016 were as follows:

A 1% increase in the assumed annual health care cost trend rate would have increased the U.S. and non-U.S. accumulated postretirement benefit obligations at December 31, ~~2016~~2017 by approximately $1312 million and $5$6 million, respectively. A 1% decrease in the annual trend rate would have decreased the U.S. and non-U.S. accumulated postretirement benefit obligation at December 31, ~~2016~~2017 by approximately $1110 million and $4 million, respectively. The effect on net postretirement benefit cost from a 1% increase or decrease would be

approximately $1 million for both U.S. and non-U.S. plans.

The plans are only funded in an amount equal to benefits paid. The following table presents the changes in benefit obligation and plan assets for ~~2016~~2017 and ~~2015~~2016:


In millions	2016						2015						2017						2016
	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Change in projected benefit obligation:
Benefit obligation, January 1	$	275		$	45		$	306		$	59		$	280		$	23		$	275		$	45
Service cost	1			—			1			1			1			—			1			—
Interest cost	11			3			11			5			11			2			11			3
Participants’ contributions	5			—			12			—			5			—			5			—
Actuarial (gain) loss	31			5			—			(1		)	14			2			31			5
Plan amendments	—			(35		)	—			1			—			—			—			(35		)
Benefits paid	(44		)	(1		)	(57		)	(1		)	(42		)	(2		)	(44		)	(1		)
Less: Federal subsidy	1			—			2			—			1			—			1			—
Currency Impact	—			6			—			(19		)	—			—			—			6
Benefit obligation, December 31	$	280		$	23		$	275		$	45		$	270		$	25		$	280		$	23
Change in plan assets:
Fair value of plan assets, January 1	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Company contributions	39			1			45			1			37			2			39			1
Participants’ contributions	5			—			12			—			5			—			5			—
Benefits paid	(44		)	(1		)	(57		)	(1		)	(42		)	(2		)	(44		)	(1		)
Fair value of plan assets, December 31	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Funded status, December 31	$	(280	)	$	(23	)	$	(275	)	$	(45	)	$	(270	)	$	(25	)	$	(280	)	$	(23	)
Amounts recognized in the consolidated balance sheet under ASC 715:
Current liability	$	(29	)	$	(2	)	$	(29	)	$	(2	)	$	(28	)	$	(1	)	$	(29	)	$	(2	)
Non-current liability	(251		)	(21		)	(246		)	(43		)	(242		)	(24		)	(251		)	(21		)
	$	(280	)	$	(23	)	$	(275	)	$	(45	)	$	(270	)	$	(25	)	$	(280	)	$	(23	)
Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax):
Net actuarial loss (gain)	$	68		$	21		$	42		$	15		$	74		$	19		$	68		$	21
Prior service credit	(8		)	(34		)	(12		)	(2		)	(6		)	(30		)	(8		)	(34		)
	$	60		$	(13	)	$	30		$	13		$	68		$	(11	)	$	60		$	(13	)

The non-current portion of the liability is included with the postemployment liability in the accompanying consolidated balance sheet under Postretirement and postemployment benefit obligation.

The components of the $308 million and ~~($26)~~$2 million ~~increase and decrease~~change in the amounts recognized in OCI during ~~2016~~2017 for U.S. and non-U.S. plans, respectively, consisted of:


In millions	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Current year actuarial loss	$	31		$	5		$	14		$	1
Amortization of actuarial (loss) gain	(5		)	(2		)	(8		)	(3		)
Current year prior service cost	—			(34		)	—			—
Amortization of prior service credit	4			4			2			4
Currency impact	—			1			—			—
	$	30		$	(26	)	$	8		$	2

The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for the U.S. plans was $4225 million, $1742 million and $3317 million in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. The portion of the change in funded status for the non-U.S. plans was $3 million, $(25) million, ~~$0 million,~~ and ~~$14~~$0 million in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

The estimated amounts of net loss and prior service credit that will be amortized from OCI into net U.S. postretirement benefit cost in ~~2017~~2018 are expected to be $8 million and $(2) million, respectively. The estimated amounts for non-U.S. plans in ~~2017~~2018 are expected to be $32 million and $(4) million, respectively.

At December 31, ~~2016~~2017, estimated total future postretirement benefit payments, net of participant contributions and estimated future Medicare Part D subsidy receipts, were as follows:


In millions	Benefit Payments		Subsidy Receipts		Benefit Payments		Benefit Payments		Subsidy Receipts		Benefit Payments
	U.S. Plans				Non- U.S. Plans		U.S. Plans				Non- U.S. Plans
2017	$	31	$	2	$	2
2018	29		1		2		$	29	$	1	$	1
2019	27		1		1		27		1		1
2020	26		1		1		25		1		1
2021	24		1		—		24		1		—
2022 – 2026	99		6		3
2022							22		1		—
2023 – 2027							91		5		4

NOTE 18 INCENTIVE PLANS

International Paper currently has an Incentive Compensation Plan (ICP) which, upon the approval by the Company’s shareholders in May 2009, replaced the Company’s Long-Term Incentive Compensation Plan (LTICP). The ICP authorizes grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards, and cash-based awards at the discretion

of the Management Development and Compensation Committee of the Board of Directors (the Committee) that administers the ICP. Additionally, restricted stock, which may be deferred into RSU’s, may be awarded under a Restricted Stock and Deferred Compensation Plan for Non-Employee Directors.

~~STOCK OPTION PROGRAM~~

The Company has discontinued the issuance of stock options for all eligible U.S. and non-U.S. employees. In the United States, the stock option program was replaced with a performance-based restricted share program to more closely tie long-term incentive compensation to Company performance on two key performance drivers: return on invested capital (ROIC) and total shareholder return (TSR). All outstanding options expired on March 15, 2015.

~~The following summarizes the status of the Stock Option Program and the changes during the three years ending~~ ~~December 31, 2016~~:

Options
(a)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(years)
Aggregate
Intrinsic
Value
(thousands)
Outstanding at December 31, 2013 1,752,789

$39.80
0.67
$16,175
Granted 3,247
49.13

Exercised (1,634,858 ) 39.80

Expired (49,286 ) 41.50

Outstanding at December 31, 2014 71,892
39.03
0.18 1,046
Granted —
—

Exercised (62,477 ) 39.05

Expired (9,415 ) 38.92

Outstanding at December 31, 2015 —
—
0.00 —
Granted —
—

Exercised —
—

Expired —
—

Outstanding at December 31, 2016 —

$—
0.00
$—


~~(a)~~	~~The table includes options outstanding under an acquired company plan under which options may no longer be granted.~~

PERFORMANCE SHARE PLAN

Under the Performance Share Plan (PSP), contingent awards of International Paper common stock are granted by the Committee. The PSP awards are earned ~~evenly~~ over a three-year period. PSP awards are earned based on the achievement of defined performance rankings of ROIC and TSR compared to ROIC and TSR peer groups of companies. Awards are weighted 75% for ROIC and 25% for TSR for all participants except for officers for whom the awards are weighted 50% for ROIC and 50% for TSR. The ROIC component of the PSP awards is valued at the closing stock price on the day prior to the grant date. As the ROIC component contains a performance condition, compensation expense, net of estimated forfeitures, is

recorded over the requisite service period based on the most probable number of awards expected to vest. The TSR component of the PSP awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the award, a risk-free rate, expected dividends, and the expected volatility for the Company and its competitors. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the Company’s historical volatility over the expected term.

PSP grants are made in performance-based restricted stock units. The 2012 PSP awards issued to certain members of senior management were accounted for as liability awards, which were remeasured at fair value at each balance sheet date. The valuation of these PSP liability awards was computed based on the same methodology as the PSP equity awards. On December 8, 2014, IP eliminated the election for executives to withhold more than the minimum tax withholding for the 2013 and 2014 grants making them equity awards.

The following table sets forth the assumptions used to determine compensation cost for the market condition component of the PSP plan:



	Twelve Months Ended December 31, ~~2016~~2017
Expected volatility	~~22.36%-30.84%~~22.75%-23.39%
Risk-free interest rate	~~0.67%-1.31%~~1.10%-1.47%

The following summarizes PSP activity for the three years ending December 31, ~~2016~~2017:


	Share/Units		Weighted Average Grant Date Fair Value		Share/Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	8,117,489			$31.20
Granted	3,682,663		46.82
Shares issued	(4,025,111	)	37.18
Forfeited	(499,107	)	43.10
Outstanding at December 31, 2014	7,275,934		34.98		7,275,934			$34.98
Granted	1,863,623		53.25		1,863,623		53.25
Shares issued	(2,959,160	)	37.09		(2,959,160	)	37.09
Forfeited	(322,664	)	53.97		(322,664	)	53.97
Outstanding at December 31, 2015	5,857,733		38.69		5,857,733		38.69
Granted	2,617,982		37.26		2,617,982		37.26
Shares issued	(2,316,085	)	43.82		(2,316,085	)	43.82
Forfeited	(209,500	)	43.61		(209,500	)	43.61
Outstanding at December 31, 2016	5,950,130			$35.89	5,950,130		35.89
Granted					2,163,912		51.78
Shares issued					(1,876,134	)	51.00
Forfeited					(438,024	)	45.96
Outstanding at December 31, 2017					5,799,884			$36.17

RESTRICTED STOCK AWARD PROGRAMS

The service-based Restricted Stock Award program (RSA), designed for recruitment, retention and special

recognition purposes, provides for awards of restricted stock to key employees.

The following summarizes the activity of the RSA program for the three years ending December 31, ~~2016~~2017:


	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	112,374			$36.24
Granted	89,500		48.19
Shares issued	(83,275	)	33.78
Forfeited	(4,000	)	45.88
Outstanding at December 31, 2014	114,599		47.03		114,599			$47.03
Granted	36,300		50.06		36,300		50.06
Shares issued	(27,365	)	45.35		(27,365	)	45.35
Forfeited	(3,166	)	50.04		(3,166	)	50.04
Outstanding at December 31, 2015	120,368		48.24		120,368		48.24
Granted	117,881		42.81		117,881		42.81
Shares issued	(59,418	)	47.14		(59,418	)	47.14
Forfeited	(9,500	)	39.36		(9,500	)	39.36
Outstanding at December 31, 2016	169,331			$45.34	169,331		45.34
Granted					63,319		57.24
Shares issued					(59,650	)	47.90
Forfeited					(6,700	)	53.53
Outstanding at December 31, 2017					166,300			$48.63

At December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 a total of ~~14.3~~13.2 million, ~~16.2~~14.3 million and ~~16.3~~16.2 million shares, respectively, were available for grant under the ICP.

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


In millions	2016		2015		2014		2017		2016		2015
Total stock-based compensation expense (included in selling and administrative expense)	$	129	$	114	$	118	$	147	$	124	$	107
Income tax benefits related to stock-based compensation	34		88		92		45		34		88

At December 31, ~~2016~~2017, $9486 million of compensation cost, net of estimated forfeitures, related to unvested

restricted performance shares, executive continuity awards and restricted stock attributable to future performance had not yet been recognized. This amount will be recognized in expense over a weighted-average period of ~~1.6~~1.8 years.

NOTE 19 FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA

International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers and Printing Papers, ~~and Consumer Packaging,~~ are consistent with the internal structure used to manage these businesses. See the Description of Industry Segments in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of the types of products and services from which each reportable segment derives its revenues. ~~Subsequent to the acquisition of the Weyerhaeuser pulp business in December 2016,~~On January 1, 2018, the Company ~~began reporting~~completed the ~~Global Cellulose Fibers~~previously announced transfer of its North American Consumer Packaging business, which includes its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. The North American Consumer Packaging business was historically presented in the Company's Consumer Packaging segment; however, as a result of this transfer, all current and prior year amounts have been adjusted to reflect the North American Consumer Packaging business as a ~~separate~~

discontinued operation. In addition, after the announced transfer during the fourth quarter of 2017, the chief operating decision maker began evaluating the European Coated Paperboard business, previously presented in the Company's Consumer Packaging business segment, ~~due to the increased materiality~~as part of the ~~results of this business. This segment includes the Company's legacy pulp~~Industrial Packaging business ~~and the newly acquired pulp business.~~segment. As such, amounts related to the ~~legacy pulp~~European Coated Paperboard business have been ~~reclassified out of~~presented in the ~~Printing Papers business segment and into the new Global Cellulose Fibers~~Industrial Packaging business segment for all ~~prior periods.~~periods presented. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry.

Business segment operating profits are used by International Paper’s management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding corporate items and corporate special items. Business segment operating profits are defined by the Securities and Exchange Commission as a non-GAAP financial measure, and are not GAAP alternatives to net income or any other operating measure prescribed by accounting principles generally accepted in the United States.

External sales by major product is determined by aggregating sales from each segment based on similar products or services. External sales are defined as those that are made to parties outside International Paper’s consolidated group, whereas sales by segment in the Net Sales table are determined using a management approach and include intersegment sales.

The Company also holds a 50% interest in Ilim that is a separate reportable industry segment. The Company recorded equity earnings (losses), net of taxes, of $~~199~~183 million, $~~131~~199 million, and $~~(194)~~131 million in ~~2016~~2017, ~~2015~~2016, and ~~2014~~2015, respectively, for Ilim. Equity earnings (losses) includes an after-tax foreign exchange gain (loss) of $15 million, $25 million, and $(75) million in 2017, 2016 and ~~$(269) million in 2016,~~ 2015, ~~and 2014,~~ respectively, primarily on the remeasurement of U.S. dollar-denominated net debt.

Summarized financial information for Ilim which is accounted for under the equity method is presented in the following ~~table.~~tables. The audited U.S. GAAP financial statements for Ilim are included in Exhibit 99.1 to this Form 10-K.

Balance Sheet


In millions	2016		2015		2017		2016
Current assets	$	774	$	455	$	689	$	774
Noncurrent assets	1,351		968		1,696		1,351
Current liabilities	406		665		1,039		402
Noncurrent liabilities	1,422		715		972		1,426
Noncontrolling interests	22		21		6		22

Income Statement


In millions	2016		2015		2014			2017		2016		2015
Net sales	$	1,927	$	1,931	$	2,138		$	2,150	$	1,927	$	1,931
Gross profit	957		971		772			1,047		957		971
Income from continuing operations	419		254		(387		)	379		419		254
Net income attributable to Ilim	391		237		(360		)	362		391		237

At December 31, ~~2016~~2017 and ~~2015,~~2016, the Company's investment in Ilim, which is recorded in Investments in the consolidated balance sheet, was ~~$302~~$338 million and ~~$172~~$302 million, respectively, which was ~~$164~~$154 million and ~~$161~~$164 million, respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to purchase price fair value adjustments and currency translation adjustments. The Company is party to a joint marketing agreement with Ilim, under which the Company purchases, markets and sells paper produced by Ilim. Purchases under this agreement were ~~$170~~$205 million, $170 million and ~~$200~~$170 million for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively.

INFORMATION BY BUSINESS SEGMENT

Net Sales


In millions	2016			2015			2014			2017			2016		2015
Industrial Packaging	$	14,191		$	14,484		$	14,944		$	15,077		$	14,226	$	14,559
Global Cellulose Fibers	1,092			975			1,046			2,551			1,092		975
Printing Papers	4,058			4,056			4,674			4,157			4,058		4,056
Consumer Packaging	1,954			2,940			3,403
Corporate and Intersegment Sales	(216		)	(90		)	(450		)
Corporate and Intersegment Sales (a)										(42		)	119		1,085
Net Sales	$	21,079		$	22,365		$	23,617		$	21,743		$	19,495	$	20,675

Operating Profit

In millions 2016 2015 2014
Industrial Packaging $ 1,651
$ 1,853
$ 1,896
Global Cellulose Fibers (180 ) 68
61
Printing Papers 540
465
(77 )
Consumer Packaging 191
(25 ) 178
Operating Profit 2,202
2,361
2,058

Earnings (loss) from continuing operations before income taxes and equity earnings 956
1,266
872
Interest expense, net 520
555
601
Noncontrolling interests / equity earnings adjustment (a) 1
8
2
Corporate items, net 69
36
51
Corporate special items, net 46
238
320
Non-operating pension expense 610
258
212
Adjusted Operating Profit $ 2,202
$ 2,361
$ 2,058



In millions	2017			2016			2015
Industrial Packaging	$	1,547		$	1,741		$	1,938
Global Cellulose Fibers	65			(179		)	68
Printing Papers	457			540			465
Business Segment Operating Profit	2,069			2,102			2,471

Earnings (loss) from continuing operations before income taxes and equity earnings	848			795			1,132
Interest expense, net	572			520			555
Noncontrolling interests / equity earnings adjustment (b)	(2		)	1			8
Corporate items, net (a)	91			121			96
Corporate special items, net (a)	76			55			422
Non-operating pension expense	484			610			258
	$	2,069		$	2,102		$	2,471

Restructuring and Other Charges


In millions	2016		2015		2014		2017		2016		2015
Industrial Packaging	$	7	$	—	$	7	$	—	$	7	$	—
Global Cellulose Fibers	—		—		—		—		—		—
Printing Papers	—		—		554		—		—		—
Consumer Packaging	9		10		8
Corporate	38		242		277
Corporate (c)							67		47		252
Restructuring and Other Charges	$	54	$	252	$	846	$	67	$	54	$	252

Assets


In millions	2016		2015		2017		2016
Industrial Packaging	$	14,565	$	14,483	$	15,354	$	14,707
Global Cellulose Fibers	3,789		983		3,913		3,845
Printing Papers	3,958		3,713		4,054		3,965
Consumer Packaging	1,736		2,115
Corporate and other (b)	9,297		9,237
Corporate and other (d)					10,582		10,576
Assets	$	33,345	$	30,531	$	33,903	$	33,093

Depreciation, Amortization and Cost of Timber Harvested ~~(c)~~(f)


In millions	2016		2015		2014		2017		2016		2015
Industrial Packaging	$	715	$	725	$	775	$	781	$	730	$	739
Global Cellulose Fibers	108		73		76		261		108		73
Printing Papers	232		234		291		245		232		234
Consumer Packaging	121		215		223
Corporate	51		47		41
Corporate (g)							56		54		121
Depreciation and Amortization	$	1,227	$	1,294	$	1,406	$	1,343	$	1,124	$	1,167

External Sales By Major Product



In millions	2017		2016		2015
Industrial Packaging	$	14,946	$	14,142	$	14,496
Global Cellulose Fibers	2,524		1,090		986
Printing Papers	4,142		4,062		4,082
Other (h)	131		201		1,111
Net Sales	$	21,743	$	19,495	$	20,675

In millions 2016 2015 2014
Industrial Packaging $ 14,095
$ 14,421
$ 14,837
Global Cellulose Fibers 934
873
947
Printing Papers 4,028
4,046
4,413
Consumer Packaging 1,934
2,907
3,307
Other 88
118
113
Net Sales $ 21,079
$ 22,365
$ 23,617

INFORMATION BY GEOGRAPHIC AREA

Net Sales ~~(d)~~(i)


In millions	2016		2015		2014		2017		2016		2015
United States ~~(e)~~(j)	$	15,918	$	16,554	$	16,645	$	16,247	$	14,363	$	14,875
EMEA	2,862		2,770		3,273		3,129		2,852		2,759
Pacific Rim and Asia	718		1,501		1,951		625		699		1,501
Americas, other than U.S.	1,581		1,540		1,748		1,742		1,581		1,540
Net Sales	$	21,079	$	22,365	$	23,617	$	21,743	$	19,495	$	20,675

Long-Lived Assets ~~(f)~~(k)


In millions	2016		2015		2017		2016
United States	$	11,158	$	9,683	$	10,545	$	10,532
EMEA	1,004		827		1,302		1,009
Pacific Rim and Asia	246		353		236		246
Americas, other than U.S.	1,663		1,085		1,630		1,672
Corporate	375		398
Long-Lived Assets	$	14,446	$	12,346	$	13,713	$	13,459


(a)	Includes sales of $15 million in 2017, $42 million in 2016 and $931 million in 2015, operating profits (losses) of $0 million in 2017, $(2) million in 2016 and $(62) million in 2015, and corporate special items expense of $9 million in 2017, $9 million in 2016 and $184 million in 2015, from previously divested businesses.


(b)	Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax noncontrolling interests and equity earnings for these subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings.


~~(b)~~(c)	Includes corporate expenses and expenses of $9 million in 2017, $9 million in 2016 and $10 million in 2015, from previously divested businesses.


(d)	Includes corporate assets, assets of businesses held for sale and assets of previously divested businesses.


(e)	Includes corporate assets and assets of previously divested businesses ~~held for sale.~~of $0 million in 2017, $1 million in 2016 and $26 million in 2015.


~~(c)~~(f)	Excludes accelerated depreciation related to the closure and/or repurposing of mills.


~~(d)~~(g)	Includes $1 million in 2017, $2 million in 2016 and $74 million in 2015 from previously divested businesses.


(h)	Includes $15 million in 2017, $42 million in 2016, and $930 million in 2015 from previously divested businesses.


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


~~(e)~~(j)	Export sales to unaffiliated customers were $~~2.0~~2.9 billion in 2017, $1.8 billion in 2016, and $~~2.0~~1.8 billion in 2015 ~~and~~ ~~$2.3 billion~~ in ~~2014~~.


~~(f)~~(k)	Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net.

~~NOTE 20 SUBSEQUENT EVENT~~

On January 22, 2017, International Paper Company experienced significant structural damage to the largest pulp digester as well as the power house at its Pensacola pulp and paper mill in Cantonment, Florida. We estimate that repairing the damaged digester may take approximately three months. While we have property damage and business interruption insurance

~~for these types of events, we expect the costs associated with this event to be in excess of deductibles. The timing of these costs and potential insurance recoveries is unknown.~~

Note: Since basic and diluted earnings per share are computed independently for each period and category, full year per share amounts may not equal the sum of the four quarters. In addition, the unaudited selected consolidated financial data are derived from our audited consolidated financial statements and have been revised to reflect discontinued operations.

Footnotes to Interim Financial Results


(a)	Includes the following pre-tax charges (gains):

2016
In millions Q1
Q2 Q3 Q4
Riegelwood mill conversion costs $ 9
$ —
$ —
$ —
India Packaging evaluation write-off —
—
17
—
Early debt extinguishment costs —
—
29
—
Write-off of certain regulatory pre-engineering costs —
—
8
—
Costs associated with the newly acquired pulp business —
5
7
19
Asia Box impairment / restructuring 37
28
5
—
Gain on sale of investment in Arizona Chemical (8 ) —
—
—
Turkey mill closure
—
—
—
7
Amortization of Weyerhaeuser inventory fair value step-up —
—
—
19
Total $ 38
$ 33
$ 66
$ 45



	2017
In millions	Q1			Q2			Q3		Q4
Gain on sale of investment in ArborGen	$	—		$	(14	)	$	—	$	—
Costs associated with the pulp business acquired in 2016	4			5			6		18
Amortization of Weyerhaeuser inventory fair value step-up	14			—			—		—
Holmen bargain purchase gain	(6		)	—			—		—
Abandoned property removal	2			5			7		6
Kleen Products settlement	—			354			—		—
Asia Foodservice sale	—			9			—		—
Brazil Packaging wood supply accelerated amortization	—			—			10		—
Debt extinguishment costs	—			—			—		83
Interest income on income tax refund claims	—			(4		)	—		(1		)
Other items	—			(2		)	—		—
Non-operating pension expense	31			34			33		386
Total	$	45		$	387		$	56	$	492

(b) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following pre-tax charges (gains):



	2017
In millions	Q1		Q2		Q3		Q4
North American Consumer Packaging transaction costs	$	—	$	—	$	—	$	17
Non-operating pension expense	—		—		—		45
Total	$	—	$	—	$	—	$	62



	2017
In millions	Q1			Q2			Q3			Q4
International legal entity restructuring	$	15		$	—		$	19		$	—
Income tax refund claims	—			(85		)	—			(28		)
Cash pension contribution	—			38			—			—
International Tax Law Change	—			—			—			9
Tax benefit of Tax Cuts and Jobs Act	—			—			—			(1,222		)
Tax impact of other special items	(8		)	(137		)	(8		)	(41		)
Total	$	7		$	(184	)	$	11		$	(1,282	)

(d) Includes the following pre-tax charges (gains):



	2016
In millions	Q1			Q2		Q3		Q4
Riegelwood mill conversion costs	$	9		$	—	$	—	$	—
India Packaging evaluation write-off	—			—		17		—
Early debt extinguishment costs	—			—		29		—
Write-off of certain regulatory pre-engineering costs	—			—		8		—
Costs associated with the newly acquired pulp business	—			5		7		19
Asia Box impairment / restructuring	37			28		5		—
Gain on sale of investment in Arizona Chemical	(8		)	—		—		—
Turkey mill closure	—			—		—		7
Amortization of Weyerhaeuser inventory fair value step-up	—			—		—		19
Non-operating pension expense	44			487		42		37
Total	$	82		$	520	$	108	$	82

(e) Includes the operating earnings of the North American Consumer Packaging business for the full year and a pre-tax charge of $8 million for a legal settlement associated with the xpedx business.

~~(c)~~(f) Includes the following tax expenses (benefits):



	2016
In millions	Q1			Q2			Q3			Q4
Cash pension contribution	$	—		$	23		$	—		$	—
U.S. Federal audit	(14		)	—			—			—
Brazil goodwill	(57		)	—			—			—
International legal entity restructuring	—			(6		)	—			—
Luxembourg tax rate change	—			—			—			31
Tax impact of other special items	(3		)	(10		)	(24		)	(14		)
Total	$	(74	)	$	7		$	(24	)	$	17

2016
Q1 Q2 Q3 Q4
Cash pension contribution $ —
$ 23
$ —
$ —
U.S. Federal audit (14 ) —
—
—
Brazil goodwill (57 ) —
—
—
International legal entity restructuring —
(6 ) —
—
Luxembourg tax rate change —
—
—
31
Tax impact of other special items (3 ) (10 ) (24 ) (14 )
Total $ (74 ) $ 7
$ (24 ) $ 17



PART I.		1

ITEM 1.	BUSINESS.	1
	General	1
	Financial Information Concerning Industry Segments	1
	Financial Information About International and U.S. Operations	1
	Competition and Costs	1
	Marketing and Distribution	2
	Description of Principal Products	2
	Sales Volumes by Product	2
	Research and Development	3
	Environmental Protection	3
	Climate Change	3
	Employees	5
	Executive Officers of the Registrant	5
	Raw Materials	6
	Forward-looking Statements	76
ITEM 1A.	RISK FACTORS.	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS.	11
ITEM 2.	PROPERTIES.	11
	Forestlands	11
	Mills and Plants	11
	Capital Investments and Dispositions	11
ITEM 3.	LEGAL PROCEEDINGS.	1211
ITEM 4.	MINE SAFETY DISCLOSURES.	1211

PART II.		12

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	12
ITEM 6.	SELECTED FINANCIAL DATA.	14
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1817
	Executive Summary	1817
	Results of Operations	2120
	Description of Industry Segments	2423
	Industry Segment Results	2524
	Liquidity and Capital Resources	3027
	Critical Accounting Policies and Significant Accounting Estimates	3431
	Recent Accounting Developments	3735
	Legal Proceedings	3735
	Effect of Inflation	3735
	Foreign Currency Effects	3835
	Market Risk	3835



ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	3836
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	3937
	Report of Management on Financial Statements, Internal Control over Financial Reporting and Internal Control Environment and Board of Directors Oversight	3937
	Reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm	4139
	Consolidated Statement of Operations	4341
	Consolidated Statement of Comprehensive Income	4442
	Consolidated Balance Sheet	4543
	Consolidated Statement of Cash Flows	4644
	Consolidated Statement of Changes in Equity	4745
	Notes to Consolidated Financial Statements	4846
	Interim Financial Results (Unaudited)	8381
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	8583
ITEM 9A.	CONTROLS AND PROCEDURES.	8583
ITEM 9B.	OTHER INFORMATION.	8684

PART III.		8684

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	8684
ITEM 11.	EXECUTIVE COMPENSATION.	8784
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	8784
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	8784
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.	8785

PART IV.		8785

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.	8785
	Additional Financial Data	8785
	Schedule II – Valuation and Qualifying Accounts	9089
	SIGNATURES	9190
APPENDIX I	~~2016~~2017 LISTING OF FACILITIES	A-1
APPENDIX II	~~2016~~2017 CAPACITY INFORMATION	A-4


Dollar amounts in millions, except per share amounts and stock prices	2016				2015				2014				2013				2012				2017				2016				2015				2014				2013
RESULTS OF OPERATIONS
Net sales	$	21,079			$	22,365			$	23,617			$	23,483			$	21,852			$	21,743			$	19,495			$	20,675			$	21,889			$	21,244
Costs and expenses, excluding interest	19,603				20,544				22,138				21,643				20,214				20,323				18,180				18,988				20,548				19,540
Earnings (loss) from continuing operations before income taxes and equity earnings	956			^(b)	1,266			^(e)	872			^(g)	1,228			^(j)	967			^(m)	848			^(b)	795			^(e)	1,132			^(h)	734			^(k)	1,092			⁽ⁿ⁾
Equity earnings (loss), net of taxes	198				117				(200		)		(39		)		61				177				198				117				(200		)		(39		)
Discontinued operations, net of taxes	(5		)	^(c)	—				(13		)	^(h)	(309		)	^(k)	77			⁽ⁿ⁾	34			^(c)	102			^(f)	85			⁽ⁱ⁾	77			^(l)	(215		)	^(o)
Net earnings (loss)	902			^(b-d)	917			^(e-f)	536			^(g-i)	1,378			^(j-l)	799			^(m-o)	2,144			^(b-d)	902			^(e-g)	917			^(h-j)	536			^(k-m)	1,378			^(n-p)
Noncontrolling interests, net of taxes	(2		)		(21		)		(19		)		(17		)		5				—				(2		)		(21		)		(19		)		(17		)
Net earnings (loss) attributable to International Paper Company	904			^(b-d)	938			^(e-f)	555			^(g-i)	1,395			^(j-l)	794			^(m-o)	2,144			^(b-d)	904			^(e-g)	938			^(h-j)	555			^(k-m)	1,395			^(n-p)
FINANCIAL POSITION
Current assets less current liabilities	$	2,897			$	2,553			$	3,050			$	3,898			$	3,907			$	3,175			$	2,601			$	2,244			$	2,719			$	3,597
Plants, properties and equipment, net	13,990				11,980				12,728				13,672				13,949				13,265				13,003				11,000				11,794				12,745
Forestlands	456				366				507				557				622				448				456				366				507				557
Total assets	33,345				30,531				28,637				31,488				32,106				33,903				33,093				30,271				28,369				31,242
Notes payable and current maturities of long-term debt	239				426				742				661				444				311				239				426				742				661
Long-term debt	11,075				8,844				8,584				8,787				9,649				10,846				11,075				8,844				8,584				8,787
Total shareholders’ equity	4,341				3,884				5,115				8,105				6,304				6,522				4,341				3,884				5,115				8,105
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	2.21			$	2.25			$	1.33			$	3.85			$	1.65			$	5.11			$	1.95			$	2.05			$	1.12			$	3.63
Discontinued operations	(0.01		)		—				(0.03		)		(0.70		)		0.17				0.08				0.25				0.20				0.18				(0.48		)
Net earnings (loss)	2.20				2.25				1.30				3.15				1.82				5.19				2.20				2.25				1.30				3.15
DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	2.19			$	2.23			$	1.31			$	3.80			$	1.63			$	5.05			$	1.93			$	2.03			$	1.10			$	3.59
Discontinued operations	(0.01		)		—				(0.02		)		(0.69		)		0.17				0.08				0.25				0.20				0.19				(0.48		)
Net earnings (loss)	2.18				2.23				1.29				3.11				1.80				5.13				2.18				2.23				1.29				3.11
Cash dividends	1.783				1.640				1.450				1.250				1.088				1.863				1.783				1.640				1.450				1.250
Total shareholders’ equity	10.56				9.43				12.18				18.57				14.33				15.79				10.56				9.43				12.18				18.57
COMMON STOCK PRICES
High	$	54.68			$	57.90			$	55.73			$	50.33			$	39.88			$	58.96			$	54.68			$	57.90			$	55.73			$	50.33
Low	32.50				36.76				44.24				39.47				27.29				49.60				32.50				36.76				44.24				39.47
Year-end	53.06				37.70				53.58				49.03				39.84				57.94				53.06				37.70				53.58				49.03
FINANCIAL RATIOS
Current ratio	1.7				1.7				1.6				1.8				1.8				1.6				1.6				1.6				1.5				1.7
Total debt to capital ratio	0.72				0.70				0.65				0.54				0.62				0.63				0.72				0.70				0.65				0.54
Return on shareholders’ equity	22.1		%	^(b-d)	20.0		%	^(e-f)	7.7		%	^(g-i)	20.2		%	^(j-l)	11.6		%	^(m-o)	43.9		%		22.1		%		20.0		%		7.7		%		20.2		%
CAPITAL EXPENDITURES	$	1,348			$	1,487			$	1,366				$1,198				$1,383			$	1,391			$	1,348			$	1,487				$1,366				$1,198
NUMBER OF EMPLOYEES	55,000				56,000				58,000				64,000				65,000				56,000				55,000				56,000				58,000				64,000


~~(1)~~(a)	Includes third-party and inter-segment sales and excludes sales of equity investees.


~~(2)~~(b)	Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the ~~newly acquired~~ pulp business acquired beginning December 1, 2016.


~~(3)~~(c)	Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons.


~~(4)~~(d)	Excludes newsprint sales volumes at Madrid, Spain mill.


~~(5)~~(e)	Includes sales volumes through the date of sale on June 30, 2016.


~~(6)~~	~~Includes sales volumes through the date of sale in October 2015.~~



North American Consumer Packaging
In millions	2016		2015		2014
Net Sales	$	1,628	$	1,939	$	1,993
Operating Profit (Loss)	$	98	$	81	$	92
Riegelwood conversion costs net of proceeds from the sale of the Carolina coated bristols brand	9		8		—
NA Coated Paperboard sheet plant closures	—		2		8
Operating Profit Before Special Items	$	107	$	91	$	100



European Consumer Packaging
In millions	2016		2015		2014
Net Sales	$	327	$	319	$	365
Operating Profit (Loss)	$	93	$	87	$	91



Asian Consumer Packaging
In millions	2016		2015			2014
Net Sales	$	—	$	682		$	1,045
Operating Profit (Loss)	$	—	$	(193	)	$	(5	)
Asia Coated Paperboard goodwill and PP&E impairment	—		174			—
Operating Profit Before Special Items	$	—	$	(19	)	$	(5	)



In millions	2018 (1)		2017 (1)
Pension expense
U.S. plans (non-cash)	$	252	$	310
Non-U.S. plans	3		4
Postretirement expense
U.S. plans	15		18
Non-U.S. plans	1		1
Net expense	$	271	$	333


In millions, except per share amounts, at December 31	2016			2015			2017			2016
ASSETS
Current Assets
Cash and temporary investments	$	1,033		$	1,050		$	1,018		$	1,033
Accounts and notes receivable, less allowances of $70 in 2016 and $70 in 2015	3,001			2,675
Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016							3,287			2,852
Inventories	2,438			2,228			2,313			2,233
Deferred income tax assets	299			312
Assets held for sale							1,377			361
Other current assets	198			212			282			191
Total Current Assets	6,969			6,477			8,277			6,670
Plants, Properties and Equipment, net	13,990			11,980			13,265			13,003
Forestlands	456			366			448			456
Investments	360			228			390			360
Financial Assets of Special Purpose Entities (Note 12)	7,033			7,014			7,051			7,033
Long-Term Assets Held for Sale							—			1,018
Goodwill	3,364			3,335			3,411			3,364
Deferred Charges and Other Assets	1,173			1,131			1,061			1,189
TOTAL ASSETS	$	33,345		$	30,531		$	33,903		$	33,093
LIABILITIES AND EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt	$	239		$	426		$	311		$	239
Accounts payable	2,309			2,078			2,458			2,199
Accrued payroll and benefits	430			434			485			401
Liabilities held for sale							805			161
Other accrued liabilities	1,094			986			1,043			1,069
Total Current Liabilities	4,072			3,924			5,102			4,069
Long-Term Liabilities Held for Sale							—			8
Long-Term Debt	11,075			8,844			10,846			11,075
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12)	6,284			6,277			6,291			6,284
Deferred Income Taxes	3,376			3,231			2,291			3,127
Pension Benefit Obligation	3,400			3,548			1,939			3,400
Postretirement and Postemployment Benefit Obligation	330			364			326			330
Other Liabilities	449			434			567			441
Commitments and Contingent Liabilities (Note 11)
Equity
Common stock $1 par value, 2016 - 448.9 shares & 2015 – 448.9 shares	449			449
Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares							449			449
Paid-in capital	6,189			6,243			6,206			6,189
Retained earnings	4,818			4,649			6,180			4,818
Accumulated other comprehensive loss	(5,362		)	(5,708		)	(4,633		)	(5,362		)
	6,094			5,633			8,202			6,094
Less: Common stock held in treasury, at cost, 2016 – 37.671 shares and 2015 – 36.776 shares	1,753			1,749
Total Shareholders’ Equity	4,341			3,884
Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares							1,680			1,753
Total International Paper Shareholders’ Equity							6,522			4,341
Noncontrolling interests	18			25			19			18
Total Equity	4,359			3,909			6,541			4,359
TOTAL LIABILITIES AND EQUITY	$	33,345		$	30,531		$	33,903		$	33,093


In millions	Common Stock Issued		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity			Common Stock Issued		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
BALANCE, JANUARY 1, 2014	$	447	$	6,463		$	4,446		$	(2,759	)	$	492		$	8,105		$	179		$	8,284
Issuance of stock for various plans, net	2		69			—			—			(212		)	283			—			283
Repurchase of stock	—		—			—			—			1,062			(1,062		)	—			(1,062		)
xpedx spinoff	—		(287		)	—			—			—			(287		)	—			(287		)
Dividends	—		—			(633		)	—			—			(633		)	—			(633		)
Acquisition of redeemable noncontrolling interests	—		—			46			—			—			46			—			46
Remeasurement of redeemable noncontrolling interest	—		—			(5		)	—			—			(5		)	—			(5		)
Comprehensive income (loss)	—		—			555			(1,887		)	—			(1,332		)	(31		)	(1,363		)
BALANCE, DECEMBER 31, 2014	449		6,245			4,409			(4,646		)	1,342			5,115			148			5,263
BALANCE, JANUARY 1, 2015																								$	449	$	6,245		$	4,409		$	(4,646	)	$	1,342		$	5,115		$	148		$	5,263
Issuance of stock for various plans, net	—		35			—			—			(198		)	233			—			233			—		35			—			—			(198		)	233			—			233
Repurchase of stock	—		—			—			—			605			(605		)	—			(605		)	—		—			—			—			605			(605		)	—			(605		)
Dividends	—		—			(698		)	—			—			(698		)	—			(698		)	—		—			(698		)	—			—			(698		)	—			(698		)
Transactions of equity method investees	—		(37		)	—			—			—			(37		)	—			(37		)	—		(37		)	—			—			—			(37		)	—			(37		)
Divestiture of noncontrolling interests	—		—			—			—			—			—			(96		)	(96		)	—		—			—			—			—			—			(96		)	(96		)
Comprehensive income (loss)	—		—			938			(1,062		)	—			(124		)	(27		)	(151		)	—		—			938			(1,062		)	—			(124		)	(27		)	(151		)
BALANCE, DECEMBER 31, 2015	449		6,243			4,649			(5,708		)	1,749			3,884			25			3,909			449		6,243			4,649			(5,708		)	1,749			3,884			25			3,909
Issuance of stock for various plans, net	—		(6		)	—			—			(128		)	122			—			122			—		(6		)	—			—			(128		)	122			—			122
Repurchase of stock	—		—			—			—			132			(132		)	—			(132		)	—		—			—			—			132			(132		)	—			(132		)
Dividends	—		—			(743		)	—			—			(743		)	—			(743		)	—		—			(743		)	—			—			(743		)	—			(743		)
Transactions of equity method investees	—		(48		)	—			—			—			(48		)	—			(48		)	—		(48		)	—			—			—			(48		)	—			(48		)
Divestiture of noncontrolling interests	—		—			—			—			—			—			(3		)	(3		)	—		—			—			—			—			—			(3		)	(3		)
Other	—		—			8			—			—			8			—			8			—		—			8			—			—			8			—			8
Comprehensive income (loss)	—		—			904			346			—			1,250			(4		)	1,246			—		—			904			346			—			1,250			(4		)	1,246
BALANCE, DECEMBER 31, 2016	$	449	$	6,189		$	4,818		$	(5,362	)	$	1,753		$	4,341		$	18		$	4,359		449		6,189			4,818			(5,362		)	1,753			4,341			18			4,359
Issuance of stock for various plans, net																								—		42			—			—			(120		)	162			—			162
Repurchase of stock																								—		—			—			—			47			(47		)	—			(47		)
Dividends																								—		—			(782		)	—			—			(782		)	—			(782		)
Transactions of equity method investees																								—		(25		)	—			—			—			(25		)	—			(25		)
Comprehensive income (loss)																								—		—			2,144			729			—			2,873			1			2,874
BALANCE, DECEMBER 31, 2017																								$	449	$	6,206		$	6,180		$	(4,633	)	$	1,680		$	6,522		$	19		$	6,541


In millions	Industrial Packaging				Global Cellulose Fibers			Printing Papers				Consumer Packaging			Total			Industrial Packaging				Global Cellulose Fibers			Printing Papers				Total
Balance as of January 1, 2016
Balance as of December 31, 2015
Goodwill		$3,325				$—			$2,124				$1,664			$7,113		$	3,384			$	—		$	2,124			$	5,508
Accumulated impairment losses ~~(a)~~	(237		)		—			(1,877		)		(1,664		)	(3,778		)	(296		)		—			(1,877		)		(2,173		)
	3,088				—			247				—			3,335			3,088				—			247				3,335
Reclassifications and other ~~(b)~~(a)	(4		)		—			33				—			29			(4		)		—			33				29
Additions/reductions	(5		)	(c)	19		(d)	(14		)	(e)	—			—			(5		)	(b)	19		(c)	(14		)	(d)	—
Impairment loss	—				—			—				—			—			—				—			—				—
Balance as of December 31, 2016
Goodwill	3,316				19			2,143				1,664			7,142			3,375				19			2,143				5,537
Accumulated impairment losses ~~(a)~~	(237		)		—			(1,877		)		(1,664		)	(3,778		)	(296		)		—			(1,877		)		(2,173		)
																		3,079				19			266				3,364
Reclassifications and other (a)																		3				—			8				11
Additions/reductions																		4			(e)	33		(c)	(1		)		36
Impairment loss																		—				—			—				—
Balance as of December 31, 2017
Goodwill																		3,382				52			2,150				5,584
Accumulated impairment losses																		(296		)		—			(1,877		)		(2,173		)
Total		$3,079				$19			$266				$—			$3,364		$	3,086			$	52		$	273			$	3,411


(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.


~~(c)~~(b)	Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S.


~~(d)~~(c)	Reflects the acquisition and purchase price adjustments of the newly acquired pulp business.


~~(e)~~	~~Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.~~


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


~~(c)~~(d)	Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.


~~(d)~~	~~Reduction due to the sale and de-consolidation of Shandong Sun joint venture in Asia.~~


(e)	Reflects ~~a charge for goodwill impairment related to our Brazil Industrial Packaging business.~~the acquisition of the newly acquired Moroccan box plant.



In millions	2017 Through 2026		2027 Through 2036		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	67	$	9	$	455	$	531
State taxing jurisdiction NOLs	139		52		—		191
U.S. federal, non- U.S. and state tax credit carryforwards	176		21		183		380
U.S. federal and state capital loss carryforwards	22		—		—		22
Total	$	404	$	82	$	638	$	1,124


(a)	The weighted average interest rate on these notes was 2.6% in 2017 and 2.2% in 2016 ~~and~~ ~~2.9%~~ in ~~2015~~.


(c)	~~The weighted average interest rate was~~Includes ~~2.2%~~ in ~~2015. Includes~~$570 million atand $69 million of debt issuance costs as of December 31, ~~2015 related to non-U.S. denominated borrowings with a weighted average interest rate of~~ ~~2.2%~~ in ~~2015~~.2017 and 2016, respectively.


	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)							Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)								Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
In millions	2016		2015			2014			2017			2016		2015
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	7	$	(12	)	$	4	Cost of products sold	$	8		$	7	$	(12	)	Cost of products sold
Interest rate contracts									(1		)	—		—			Interest expense, net
Total	$	7	$	(12	)	$	4		$	7		$	7	$	(12	)


	Gain (Loss) Recognized in Income											Location of Gain (Loss) in Consolidated Statement of Operations	Gain (Loss) Recognized in Income											Location of Gain (Loss) in Consolidated Statement of Operations
In millions	2016			2015				2014					2017				2016			2015
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	—		$	3			$	1			Interest expense, net	$	—			$	—		$	3			Interest expense, net
Debt	—			(3		)		(1		)		Interest expense, net	—				—			(3		)		Interest expense, net
Total	$	—		$	—			$	—				$	—			$	—		$	—
Derivatives Not Designated as Hedging Instruments:
Electricity Contracts	$	—		$	(7	)		$	(2	)		Cost of products sold	$	(10	)		$	—		$	(7	)		Cost of products sold
Foreign exchange contracts	—			(4		)		(1		)		Cost of products sold	—				—			(4		)		Cost of products sold
Interest rate contracts	5		(a)	13			(b)	12			(c)	Interest expense, net	1			(a)	5		(b)	13			(c)	Interest expense, net
Total	$	5		$	2			$	9				$	(9	)		$	5		$	2


(a)	Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges.


(b)	Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges.


~~(b)~~(c)	Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges.