UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended ~~September~~June 30, ~~2016~~2017

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

For the Transition Period From to

_________________________________________

Commission File Number 1-3157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)



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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of ~~October~~July 28, ~~2016~~2017 was ~~411,213,412~~412,915,093.

Table of Contents

INDEX



		PAGE NO.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statement of Operations - Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	1

	Condensed Consolidated Statement of Comprehensive Income - Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	2

	Condensed Consolidated Balance Sheet - ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016	3

	Condensed Consolidated Statement of Cash Flows - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	4

	Condensed Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2625

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

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

Item 6.	Exhibits	43

Signatures		44

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net Sales	$	5,266		$	5,691		$	15,698		$	16,922		$	5,772		$	5,322		$	11,283		$	10,432
Costs and Expenses
Cost of products sold	3,622			3,891			11,345			11,703			4,105			4,112			8,045			7,723
Selling and administrative expenses	380			417			1,142			1,226			422			386			844			762
Depreciation, amortization and cost of timber harvested	314			329			899			980			357			301			702			585
Distribution expenses	353			334			1,012			1,058			390			339			769			659
Taxes other than payroll and income taxes	41			39			123			127			43			41			88			82
Restructuring and other charges	46			25			47			219			(16		)	—			(16		)	1
Net (gains) losses on sales and impairments of businesses	5			186			70			186			9			28			9			65
Litigation settlement													354			—			354			—
Net bargain purchase gain on acquisition of business													—			—			(6		)	—
Interest expense, net	132			141			384			422			137			129			279			252
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	373			329			676			1,001			(29		)	(14		)	215			303
Income tax provision (benefit)	107			106			139			346			(89		)	(9		)	(6		)	32
Equity earnings (loss), net of taxes	43			(13		)	151			84			20			45			68			108
Earnings (Loss) From Continuing Operations	309			210			688			739			80			40			289			379
Discontinued operations, net of taxes	—			—			(5		)	—			—			—			—			(5		)
Net Earnings (Loss)	309			210			683			739			80			40			289			374
Less: Net earnings (loss) attributable to noncontrolling interests	(3		)	(10		)	(3		)	(21		)	—			—			—			—
Net Earnings (Loss) Attributable to International Paper Company	$	312		$	220		$	686		$	760		$	80		$	40		$	289		$	374
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.76		$	0.53		$	1.68		$	1.81		$	0.19		$	0.10		$	0.70		$	0.92
Discontinued operations, net of taxes	—			—			(0.01		)	—			—			—			—			(0.01		)
Net earnings (loss)	$	0.76		$	0.53		$	1.67		$	1.81		$	0.19		$	0.10		$	0.70		$	0.91
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.75		$	0.53		$	1.66		$	1.80		$	0.19		$	0.10		$	0.69		$	0.91
Discontinued operations, net of taxes	—			—			(0.01		)	—			—			—			—			(0.01		)
Net earnings (loss)	$	0.75		$	0.53		$	1.65		$	1.80		$	0.19		$	0.10		$	0.69		$	0.90
Average Shares of Common Stock Outstanding – assuming dilution	415.3			417.5			415.5			421.9			416.4			414.7			416.7			415.1
Cash Dividends Per Common Share	$	0.4400		$	0.4000		$	1.3200		$	1.2000		$	0.4625		$	0.4400		$	0.9250		$	0.8800
Amounts Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	312		$	220		$	691		$	760		$	80		$	40		$	289		$	379
Discontinued operations, net of taxes	—			—			(5		)	—			—			—			—			(5		)
Net earnings (loss)	$	312		$	220		$	686		$	760		$	80		$	40		$	289		$	374

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

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(In millions)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net Earnings (Loss)	$	309		$	210		$	683		$	739		$	80		$	40		$	289		$	374
Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans	72			72			471			215			60			335			117			399
Pension and postretirement liability adjustments:
U.S. plans	(53		)	14			(598		)	14			—			(545		)	—			(545		)
Non-U.S. plans	—			—			17			(2		)	2			—			1			17
Change in cumulative foreign currency translation adjustment	3			(562		)	373			(955		)	(14		)	134			134			370
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period	5			(8		)	(5		)	(2		)	(1		)	(14		)	8			(10		)
Reclassification adjustment for (gains) losses included in net earnings (loss)	(3		)	7			(7		)	12			(2		)	(3		)	(4		)	(4		)
Total Other Comprehensive Income (Loss), Net of Tax	24			(477		)	251			(718		)	45			(93		)	256			227
Comprehensive Income (Loss)	333			(267		)	934			21			125			(53		)	545			601
Net (earnings) loss attributable to noncontrolling interests	3			10			3			21			—			—			—			—
Other comprehensive (income) loss attributable to noncontrolling interests	(1		)	5			(1		)	6			(1		)	1			(2		)	—
Comprehensive Income (Loss) Attributable to International Paper Company	$	335		$	(252	)	$	936		$	48		$	124		$	(52	)	$	543		$	601

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

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Balance Sheet

(In millions)


	September 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
	(unaudited)						(unaudited)
Assets
Current Assets
Cash and temporary investments	$	2,562		$	1,050		$	1,041		$	1,033
Accounts and notes receivable, net	2,807			2,675			3,283			3,001
Inventories	2,222			2,228			2,361			2,438
Deferred income tax assets	287			312
Other current assets	225			212			552			198
Total Current Assets	8,103			6,477			7,237			6,670
Plants, Properties and Equipment, net	12,205			11,980			14,040			13,990
Forestlands	447			366			451			456
Investments	325			228			325			360
Financial Assets of Special Purpose Entities (Note 13)	7,028			7,014			7,042			7,033
Goodwill	3,362			3,335			3,409			3,364
Deferred Charges and Other Assets	1,131			1,131			1,373			1,220
Total Assets	$	32,601		$	30,531		$	33,877		$	33,093
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	78		$	426		$	824		$	239
Accounts payable	2,031			2,078			2,362			2,309
Accrued payroll and benefits	394			434			409			430
Other accrued liabilities	1,038			986			1,407			1,091
Total Current Liabilities	3,541			3,924			5,002			4,069
Long-Term Debt	10,823			8,844			10,392			11,075
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 13)	6,282			6,277			6,287			6,284
Deferred Income Taxes	3,273			3,231			3,499			3,127
Pension Benefit Obligation	3,709			3,548			3,357			3,400
Postretirement and Postemployment Benefit Obligation	320			364			318			330
Other Liabilities	424			434			457			449
Equity
Common stock, $1 par value, 2016 – 448.9 shares and 2015 – 448.9 shares	449			449
Common stock, $1 par value, 2017 – 448.9 shares and 2016 – 448.9 shares							449			449
Paid-in capital	6,180			6,243			6,168			6,189
Retained earnings	4,793			4,649			4,717			4,818
Accumulated other comprehensive loss	(5,458		)	(5,708		)	(5,108		)	(5,362		)
	5,964			5,633			6,226			6,094
Less: Common stock held in treasury, at cost, 2016 – 37.716 shares and 2015 – 36.776 shares	1,755			1,749
Less: Common stock held in treasury, at cost, 2017 – 36.0 shares and 2016 – 37.7 shares							1,681			1,753
Total Shareholders’ Equity	4,209			3,884			4,545			4,341
Noncontrolling interests	20			25			20			18
Total Equity	4,229			3,909			4,565			4,359
Total Liabilities and Equity	$	32,601		$	30,531		$	33,877		$	33,093

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

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In millions)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2016			2015			2017			2016
Operating Activities
Net earnings (loss)	$	683		$	739		$	289		$	374
Depreciation, amortization and cost of timber harvested	899			980			702			585
Deferred income tax provision (benefit), net	45			101			304			22
Restructuring and other charges	47			219			(16		)	1
Litigation settlement							354			—
Pension plan contributions	(750		)	(750		)	—			(250		)
Net bargain purchase gain on acquisition of business							(6		)	—
Net (gains) losses on sales and impairments of businesses	70			186			9			65
Ilim dividends received							127			58
Equity (earnings) loss, net	(151		)	(84		)	(68		)	(108		)
Periodic pension expense, net	718			350			158			624
Other, net	125			132			73			65
Changes in current assets and liabilities
Accounts and notes receivable	(83		)	(166		)	(230		)	(86		)
Inventories	(6		)	(221		)	21			48
Accounts payable and accrued liabilities	(37		)	77			(110		)	(76		)
Interest payable	24			24			(1		)	13
Other	(18		)	3			(328		)	(110		)
Cash Provided By (Used For) Operations	1,566			1,590			1,278			1,225
Investment Activities
Invested in capital projects	(903		)	(998		)	(664		)	(637		)
Acquisitions, net of cash acquired	(56		)	—			(44		)	(61		)
Proceeds from divestitures, net of cash divested	105			—			—			101
Investment in Special Purpose Entities	—			(198		)
Proceeds from sale of fixed assets	13			32			17			11
Other	(130		)	(35		)	(39		)	(106		)
Cash Provided By (Used For) Investment Activities	(971		)	(1,199		)	(730		)	(692		)
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding	(132		)	(505		)	(46		)	(132		)
Issuance of common stock	—			2
Issuance of debt	3,447			2,440			132			1,204
Reduction of debt	(1,855		)	(2,202		)	(248		)	(1,070		)
Change in book overdrafts	(5		)	15			(6		)	6
Dividends paid	(543		)	(503		)	(382		)	(362		)
Debt tender premiums paid	(31		)	(211		)
Other	(3		)	—
Cash Provided By (Used For) Financing Activities	878			(964		)	(550		)	(354		)
Cash Included in Assets Held for Sale	—			(143		)	(4		)	—
Effect of Exchange Rate Changes on Cash	39			(61		)	14			25
Change in Cash and Temporary Investments	1,512			(777		)	8			204
Cash and Temporary Investments
Beginning of period	1,050			1,881			1,033			1,050
End of period	$	2,562		$	1,104		$	1,041		$	1,254

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

INTERNATIONAL PAPER COMPANY

Condensed Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited ~~consolidated~~ financial statements have been prepared in conformity with accounting principles generally accepted in the United States and in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments that are necessary for the fair presentation of International Paper Company’s (International Paper’s, the Company’s or our) financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed herein, such adjustments are of a normal, recurring nature. Results for the first ~~nine~~six months of the year may not necessarily be indicative of full year results. It is suggested that these ~~consolidated~~ financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 and the Company's Current Report on Form 8-K dated July 31, 2017 (collectively the "2016 10-K"), both of which have previously been filed with the Securities and Exchange Commission. The Current Report on Form 8-K dated July 31, 2017 was filed to retrospectively adjust portions of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, to reflect the adoption of the required guidance in ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." In addition, as a result of an internal reorganization in the 2017 first quarter, the net sales and operating profits for the Asian Distribution operations are included in the results of the businesses that manufacture the products, and as such, prior year amounts have been reclassified to conform with the presentation in 2017.

During the fourth quarter of 2016, the Company finalized the purchase of Weyerhaeuser's pulp business (see Note 7). Subsequent to the acquisition, the Company began reporting Global Cellulose Fibers as a separate reportable 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' segment and included in the new Global Cellulose Fibers business segment for all prior periods to conform with current year presentation.

NOTE 2 - RECENT ACCOUNTING DEVELOPMENTS

~~Cash Flow Classification~~

Retirement Benefits

In ~~August 2016,~~March 2017, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ASU ~~2016-15, "Classification~~2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of ~~Certain Cash Receipts~~Net Periodic Pension Cost and ~~Cash Payments (a consensus~~Net Periodic Postretirement Benefit Cost." Under this new guidance, employers will present the service costs component of the ~~Emerging Issues Task Force)." The primary purpose~~net periodic benefit cost in the 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 items(s) that includes the service cost and outside of any subtotal of operating income. In addition, disclosure of the ~~ASU is~~line(s) used to ~~reduce~~present the ~~diversity in practice that has resulted from~~other components of net periodic benefit cost will be required if the ~~lack of consistent principles~~components are not presented separately in the ~~classification of certain cash receipts and payments in the statement of cash flows. The ASU's amendments add or clarify~~income statement. This guidance on eight cash flow issues, including; (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods ~~with~~within those ~~years~~years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is currently evaluating the provisions of this guidance; however, we expect the adoption of ASU 2017-07 to result in a change in our adjusted operating profit, which will be 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. We expect to adopt the provisions of this guidance on January 1, 2018 using the retrospective method and ~~must be applied retrospectively~~do not anticipate a material change to ~~all periods presented but may~~our 2017 adjusted operating profit or non-operating pension expense when they are recast to reflect the standard. We also do not expect ASU 2017-07 to have a material 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 ~~from~~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 ~~earliest date practicable if retrospective application would be impracticable.~~provisions of this guidance.

Accounting Changes

In January 2017, the FASB issued ASU 2017-03, "Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings." This guidance addresses the additional qualitative disclosures that a registrant is expected to provide when it cannot reasonably estimate the impact that ASUs 2014-09, 2016-02 and 2016-13 will have in applying SAB Topic 11.M. The Company is currently evaluating the provisions of this guidance.

Business Combinations

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." Under the new guidance, an entity must first determine whether substantially all of the fair value of the gross assets acquired is concentrated in 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 a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance.

Variable Interest Entities

In October 2016, the FASB issued ASU 2016-17, "Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control." Under consolidation guidance in ASU 2015-02 issued by the FASB in 2015, a single decision maker was required 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. This guidance is effective for annual reporting periods beginning after December 15, 2016, 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 adopted this ASU in the first quarter of 2017 with no 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 the provisions of this guidance; however, we do not anticipate it having a material impact on the financial statements.

Stock Compensation

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting." This guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under this guidance, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the provisions of this guidance.

In March 2016, the FASB issued ASU 2016-09, ~~"Improvements~~"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 ~~replacing~~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~~does not 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 iswas 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~~adopted the provisions of this ~~guidance.~~

~~Investments - Equity Method and Joint Ventures~~

~~In March 2016, the FASB issued~~ ASU ~~2016-07, "Simplifying the Transition to the Equity Method of Accounting." The amendments~~ in the ~~ASU eliminate~~first quarter of 2017 with no material impact on 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, uponfinancial statements.

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 is currently evaluating the provisions of this guidance.Leases

~~Derivatives and Hedging~~

Also in March 2016, the FASB issued ASU 2016-05, "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 is currently evaluating the provisions of this guidance.

~~Leases~~

In February 2016, the FASB issued ASU 2016-02, ~~"Leases.~~"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 ~~is currently evaluating the provisions of this guidance.~~

~~Classification of Deferred Taxes~~

In November 2015, the FASB issued ASU 2015-17, "Balance Classification of Deferred Taxes." This ASU requires entities 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 must be presented as a single noncurrent amount. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. The initial application of the requirements of this guidance will be included in our 2017 first quarter Form 10-Q.

~~Business Combinations~~

In September 2015, the FASB issued ASU 2015-16, "Business Combinations - Simplifying the Accounting for Measurement Period Adjustments." This ASU provides that an acquirer 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 face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized at the acquisition date. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. This ASU must be applied prospectively to adjustments to provisional amounts that occur after the effective date. The application of the requirements of this guidance did not have a material effect on the consolidated financial statements.

~~Inventory~~

In July 2015, the FASB issued ASU 2015-11, "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 measure using LIFO or the retail inventory method. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the provisions of this guidance.

~~Cloud Computing Arrangements~~

In April 2015, the FASB issued ASU 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." This ASU provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. A reporting entity can electexpects to adopt ~~the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The application of the requirements of~~ this guidance ~~did not have a material effect 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 is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years; however, early adoption is allowed. A reporting entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The application of the requirements of this guidance did not have a material effect on the consolidated financial statements.

~~Consolidation~~

In February 2015, the FASB issued ASU 2015-02, "Consolidation," which amends the requirements for consolidation and significantly changes the consolidation analysis required. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. A reporting entity may apply the amendments in this update using a modified retrospective transition approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The application of the requirements of this guidance did not have a material effect on the consolidated financial statements.

~~Share-Based Payment~~

~~In June 2014, the FASB issued ASU 2014-12, "Accounting~~ for Share-Based Payments When the Terms of an Award Provide That Performance Target Could Be Achieved After the Requisite Service Period." This guidance provides that entities should treat performance targets that can be metleases existing at, or entered into after, the requisite service period of a share-based payment award as performance conditions that affect vesting. As such, an entity should not record compensation expense related to an award for which transfer to the employee is contingent on the entity's satisfaction of a performance target until it becomes probable that the performance target will be met. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest ~~annual~~comparative period presented in the financial ~~statements~~statements. We expect to recognize a liability and corresponding asset associated with in-scope operating and finance leases but are still in the process of determining those amounts and the processes required to ~~all new or modified awards thereafter. The application of the requirements of this guidance did not have a material effect~~account for leasing activity on ~~the consolidated financial statements.~~an ongoing basis.

Revenue Recognition

In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers," which amends certain aspects of the new revenue standard, ASU 2014-09. This guidance clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. This ASU has the same effective date as the new revenue standard, ASU 2014-09, and entities are required to adopt this ASU by using the same transition method used to adopt the new revenue standard. The Company is currently evaluating the provisions of this guidance.

In May 2016, the FASB issued ASU 2016-11, "Revenue Recognition and Derivatives and Hedging," which rescinds certain SEC guidance from the FASB's Accounting Standards Codification in response to announcements made by the SEC staff at the EITF’s March 3, 2016, meeting. Specifically, the ASU supersedes SEC observer comments on the following topics. Upon the adoption of ASU 2014-09: (a) Revenue and expense recognition for freight services in process (ASC 605-20-S99-2); (b) Accounting for shipping and handling fees and costs (ASC 605-45-S99-1); (c) Accounting for consideration given by a vendor to a customer (ASC 605-50-S99-1); and (d) Accounting for gas-balancing arrangements (ASC 932-10-S99-5), and upon the adoption of ASU 2014-16: Determining the nature of a host contract related to a hybrid financial instrument issued in the form of a share under ASC 815 (ASC 815-10-S99-3). The Company is currently evaluating the provisions of this guidance.

In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers." The amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This ASU has the same effective date as the new revenue standard, ASU 2014-09, and entities are required to adopt this ASU by using the same transition method used to adopt the new revenue standard. The Company is currently evaluating the provisions of this guidance.

In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers." This guidance amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. This ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. This ASU has the same effective date as the new revenue standard, ASU 2014-09, and entities are required to adopt this ASU by using the same transition method used to adopt the new revenue standard. The Company is currently evaluating the provisions of this guidance.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ~~The~~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. ~~Early adoption will be permitted~~The FASB has continued to clarify this guidance in various updates during 2015, 2016 and 2017, all of which, have the same effective date as the original guidance.

We are currently evaluating the impact of ASU 2014-09 and all related ASU's on our financial statements. During the second quarter of 2017, we finalized our plan to adopt the new revenue guidance effective January 1, 2018 using the modified retrospective transition method. The Company's transition team, including representatives from all of our business segments, continues to review and analyze the impact of the ~~original effective date~~standard on our revenue contracts. Surveys were developed and reviews of customer contracts have been performed in ~~ASU 2014-09.~~order to 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 and contract reviews indicate that the adoption of the standard may require acceleration of revenue for products produced by the Company without an alternative future use and where the Company would have a legally enforceable right of payment for production of products completed to date. The Company is ~~currently~~continuing to evaluate the terms of its revenue contracts, including evaluating the ~~provisions~~materiality of ~~this guidance.~~the potential impact to the financial statements. In addition, the Company continues to assess the impact of required disclosures around revenue recognition in the notes to the financial statements and any necessary policy and process changes, in preparation for adoption. The Company does not expect that the adoption of the other elements of the standard will result in a material impact on its financial statements.

NOTE 3 - EQUITY

A summary of the changes in equity for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 is provided below:


	Nine Months Ended September 30,																		Six Months Ended June 30,
	2016									2015									2017								2016
In millions, except per share amounts	Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests		Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, January 1	$	3,884		$	25		$	3,909		$	5,115		$	148		$	5,263		$	4,341		$	18	$	4,359		$	3,884		$	25		$	3,909
Issuance of stock for various plans, net	100			—			100			204			—			204			94			—		94			73			—			73
Repurchase of stock	(132		)	—			(132		)	(505		)	—			(505		)	(46		)	—		(46		)	(132		)	—			(132		)
Common stock dividends ($1.32 per share in 2016 and $1.20 per share in 2015)	(550		)	—			(550		)	(513		)	—			(513		)
Common stock dividends ($.9250 per share in 2017 and $.8800 per share in 2016)																			(390		)	—		(390		)	(366		)	—			(366		)
Transactions of equity method investees	(37		)	—			(37		)	—			—			—			3			—		3			(36		)	—			(36		)
Divestiture of noncontrolling interests	—			(3		)	(3		)	—			—			—			—			—		—			—			(3		)	(3		)
Other	8			—			8			—			—			—
Comprehensive income (loss)	936			(2		)	934			48			(27		)	21			543			2		545			601			—			601
Ending Balance, September 30	$	4,209		$	20		$	4,229		$	4,349		$	121		$	4,470
Ending Balance, June 30																			$	4,545		$	20	$	4,565		$	4,024		$	22		$	4,046

NOTE 4 - OTHER COMPREHENSIVE INCOME

The following table presents changes in AOCI for the three-month period ended ~~September~~June 30, ~~2016:~~2017:


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)			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, July 1, 2016	$	(3,298	)	$	(2,179	)	$	(4	)	$	(5,481	)
Balance, April 1, 2017													$	(3,016	)	$	(2,140	)	$	4		$	(5,152	)
Other comprehensive income (loss) before reclassifications	(53		)	3			5			(45		)	2			(14		)	(1		)	(13		)
Amounts reclassified from accumulated other comprehensive income	72			—			(3		)	69			60			—			(2		)	58
Net Current Period Other Comprehensive Income (Loss)	19			3			2			24			62			(14		)	(3		)	45
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest	—			(1		)	—			(1		)	—			(1		)	—			(1		)
Balance, September 30, 2016	$	(3,279	)	$	(2,177	)	$	(2	)	$	(5,458	)
Balance, June 30, 2017													$	(2,954	)	$	(2,155	)	$	1		$	(5,108	)


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

The following table presents changes in AOCI for the three-month period ended ~~September 30, 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, July 1, 2015 $ (2,993 ) $ (1,905 ) $ 12
$ (4,886 )
Other comprehensive income (loss) before reclassifications 14
(562 ) (8 ) (556 )
Amounts reclassified from accumulated other comprehensive income 72
—
7
79
Net Current Period Other Comprehensive Income (Loss) 86
(562 ) (1 ) (477 )
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest —
5
—
5
Balance, September 30, 2015 $ (2,907 ) $ (2,462 ) $ 11
$ (5,358 )


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

~~The following table presents changes in AOCI for the nine-month period ended September~~June 30, 2016:


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)			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, January 1, 2016	$	(3,169	)	$	(2,549	)	$	10		$	(5,708	)
Balance, April 1, 2016													$	(3,088	)	$	(2,314	)	$	13		$	(5,389	)
Other comprehensive income (loss) before reclassifications	(581		)	376			(5		)	(210		)	(545		)	137			(14		)	(422		)
Amounts reclassified from accumulated other comprehensive income	471			(3		)	(7		)	461			335			(3		)	(3		)	329
Net Current Period Other Comprehensive Income (Loss)	(110		)	373			(12		)	251			(210		)	134			(17		)	(93		)
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest	—			(1		)	—			(1		)	—			1			—			1
Balance, September 30, 2016	$	(3,279	)	$	(2,177	)	$	(2	)	$	(5,458	)
Balance, June 30, 2016													$	(3,298	)	$	(2,179	)	$	(4	)	$	(5,481	)


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

The following table presents changes in AOCI for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2015:~~2017:


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)			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, January 1, 2015	$	(3,134	)	$	(1,513	)	$	1		$	(4,646	)
Balance, January 1, 2017													$	(3,072	)	$	(2,287	)	$	(3	)	$	(5,362	)
Other comprehensive income (loss) before reclassifications	12			(955		)	(2		)	(945		)	1			134			8			143
Amounts reclassified from accumulated other comprehensive income	215			—			12			227			117			—			(4		)	113
Net Current Period Other Comprehensive Income (Loss)	227			(955		)	10			(718		)
Net Current Period Other Comprehensive Income													118			134			4			256
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest	—			6			—			6			—			(2		)	—			(2		)
Balance, September 30, 2015	$	(2,907	)	$	(2,462	)	$	11		$	(5,358	)
Balance, June 30, 2017													$	(2,954	)	$	(2,155	)	$	1		$	(5,108	)


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

The following table presents changes in AOCI for the six-month period ended June 30, 2016:



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, January 1, 2016	$	(3,169	)	$	(2,549	)	$	10		$	(5,708	)
Other comprehensive income (loss) before reclassifications	(528		)	373			(10		)	(165		)
Amounts reclassified from accumulated other comprehensive income	399			(3		)	(4		)	392
Net Current Period Other Comprehensive Income	(129		)	370			(14		)	227
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest	—			—			—			—
Balance, June 30, 2016	$	(3,298	)	$	(2,179	)	$	(4	)	$	(5,481	)


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

The following table presents details of the reclassifications out of AOCI for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015:~~2016:


Details About Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income (a)													Location of Amount Reclassified from AOCI	Amounts Reclassified from Accumulated Other Comprehensive Income (a)													Location of Amount Reclassified from AOCI
	Three Months Ended September 30,						Nine Months Ended September 30,								Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015					2017			2016			2017			2016
In millions:
Defined benefit pension and postretirement items:
Prior-service costs	$	(9	)	$	(9	)	$	(27	)	$	(25	)	(b)	Cost of products sold	$	(7	)	$	(9	)	$	(13	)	$	(18	)	(b)	Cost of products sold
Actuarial gains (losses)	(108		)	(108		)	(739		)	(326		)	(b)	Cost of products sold	(90		)	(536		)	(177		)	(631		)	(b)	Cost of products sold
Total pre-tax amount	(117		)	(117		)	(766		)	(351		)			(97		)	(545		)	(190		)	(649		)
Tax (expense) benefit	45			45			295			136					37			210			73			250
Net of tax	(72		)	(72		)	(471		)	(215		)			(60		)	(335		)	(117		)	(399		)

Business acquisition/divestitures	—			—			3			—				Net (gains) losses on sales and impairments of businesses
Change in cumulative foreign currency translation adjustments:
Business acquisitions/divestitures															—			3			—			3				Net (gains) losses on sales and impairments of businesses
Tax (expense)/benefit	—			—			—			—					—			—			—			—
Net of tax	—			—			3			—					—			3			—			3

Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts	5			(12		)	10			(19		)	(c)	Cost of products sold	2			4			5			5			(c)	Cost of products sold
Total pre-tax amount	5			(12		)	10			(19		)			2			4			5			5
Tax (expense)/benefit	(2		)	5			(3		)	7					—			(1		)	(1		)	(1		)
Net of tax	3			(7		)	7			(12		)			2			3			4			4
Total reclassifications for the period	$	(69	)	$	(79	)	$	(461	)	$	(227	)			$	(58	)	$	(329	)	$	(113	)	$	(392	)


(a)	Amounts in parentheses indicate debits to earnings/loss.


(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for additional details).


(c)	This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 15 for additional details).

NOTE 5 - EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per common share are computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per common share are computed assuming that all potentially dilutive securities were converted into common shares. A reconciliation of the amounts included in the computation of earnings (loss) per common share, and diluted earnings (loss) per common share is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
In millions, except per share amounts	2016		2015		2016		2015		2017		2016		2017		2016
Earnings (loss) from continuing operations	$	312	$	220	$	691	$	760	$	80	$	40	$	289	$	379
Effect of dilutive securities	—		—		—		—		—		—		—		—
Earnings (loss) from continuing operations – assuming dilution	$	312	$	220	$	691	$	760	$	80	$	40	$	289	$	379
Average common shares outstanding	411.2		415.1		411.0		418.7		412.9		411.2		412.5		411.0
Effect of dilutive securities
Restricted stock performance share plan	4.1		2.4		4.5		3.2		3.5		3.5		4.2		4.1
Average common shares outstanding – assuming dilution	415.3		417.5		415.5		421.9		416.4		414.7		416.7		415.1
Basic earnings (loss) from continuing operations per common share	$	0.76	$	0.53	$	1.68	$	1.81	$	0.19	$	0.10	$	0.70	$	0.92
Diluted earnings (loss) from continuing operations per common share	$	0.75	$	0.53	$	1.66	$	1.80	$	0.19	$	0.10	$	0.69	$	0.91

NOTE 6 - RESTRUCTURING AND OTHER CHARGES

~~2016:~~ 2017:During the three months ended ~~September~~June 30, ~~2016,~~2017, restructuring and other charges totaling ~~$46~~a $16 million benefit before taxes were recorded. Details of these charges were as follows:


	Three Months Ended September 30, 2016
In millions			Three Months Ended June 30, 2017
Early debt extinguishment costs	$	29
India packaging evaluation write-off	17
Gain on sale of investment in ArborGen			$	(14	)
Other			(2		)
Total	$	46	$	(16	)

~~During~~There were no restructuring and other charges recorded during the three months ended March 31, 2017.

2016: There were no restructuring and other charges recorded during the three months ended June 30, ~~2016, no restructuring and other charges were recorded.~~2016.

During the three months ended March 31, 2016, restructuring and other charges totaling $1 million before taxes were recorded. Details of these charges were as follows:


	Three Months Ended March 31, 2016
In millions				Three Months Ended March 31, 2016
Gain on sale of investment in Arizona Chemical	$	(8	)	$	(8	)
Riegelwood mill conversion costs	9			9
Total	$	1		$	1

~~2015:~~ ~~During the three months ended September 30, 2015, restructuring and other charges totaling~~ ~~$25 million~~ ~~before taxes were recorded. Details of these charges were as follows:~~

Three Months Ended
September 30, 2015
In millions
Timber monetization restructuring $ 17
Sales of Carolina Coated Bristols brand net of Riegelwood mill conversion costs 7
Other 1
Total $ 25

~~During the three months ended June 30, 2015, restructuring and other charges totaling $194 million before taxes were recorded. Details of these charges were as follows:~~

Three Months Ended
June 30, 2015
In millions
Early debt extinguishment costs $ 207
Sales of Carolina Coated Bristols brand net of Riegelwood mill conversion costs (14 )
Other 1
Total $ 194

~~During the three months ended March 31, 2015, no restructuring and other charges were recorded.~~

NOTE 7 - ACQUISITIONS

Tangier, Morocco Facility

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), subject to certain closing and post-closing adjustments. Approximately 80% of the purchase price has been preliminarily allocated to property, plant and equipment. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date.

Weyerhaeuser Pulp Business

On ~~May~~December 1, 2016, the Company ~~entered into a definitive agreement to~~finalized the purchase ~~the~~of Weyerhaeuser Company's pulp business ~~of Weyerhaeuser Company~~ for approximately $2.2 billion in cash, subject to certain adjustments, including a reduction for the amount of debt being assumed, which was approximately $88 million as of September 30, 2016. Because the transaction is a purchase of assets, International Paper expects to realize a tax benefit with an estimated net present value of approximately $300 million.post-closing adjustments. Under the terms of the agreement, International Paper ~~will acquire~~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 financial statements beginning with the date of acquisition.

The following table summarizes the preliminary allocation of the purchase price 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	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

Due to the timing of the completion of the acquisition, the purchase price allocation is ~~expected~~preliminary and could be revised as a result of additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, ~~close in~~ the ~~fourth~~completion of independent appraisals and valuations related to inventory, property, plant and equipment and intangible assets. While we do not anticipate these changes to the purchase price allocation to be significant, the purchase price allocation will not be finalized until the end of the measurement period of up to one year from the acquisition date.

In connection with the purchase price allocation, inventories were written up by $33 million to their estimated fair value. During the first quarter of ~~2016, subject~~2017, $14 million before taxes ($8 million after taxes) were expensed to Cost of products sold as the ~~satisfaction of certain closing conditions, primarily~~related inventory was sold.

The identifiable intangible assets acquired in connection with the ~~receipt of regulatory approvals. On August 4, 2016, the Company learned that the U.S. Department of Justice had completed its investigation~~acquisition of the ~~transaction without taking any action, but regulatory approval is still needed in other jurisdictions.~~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

Holmen Paper Newsprint Mill

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 the mill during the second half of 2017 to produce recycled containerboard with an expected capacity of ~~380,000 metric tonnes.~~419,000 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 the June 30, 2016 exchange rate). The ~~measurement period adjustments recognized~~purchase price allocation was completed in the ~~third~~first quarter of ~~2016 were to reallocate the purchase price from property, plant and equipment to the specific asset and liability balance sheet line items.~~2017. Approximately $60 million of the purchase price was allocated to property, plant and equipment, $14 million to current assets (primarily cash and accounts receivable), $7$14 million to equity method investments, $1$5 million to long-term assets, $9 million to short-term liabilities and ~~$14~~$16 million to long-term liabilities related to a supply contract entered into

with the seller. The ~~initial valuation amounts are not considered completed as of September 30, 2016 as~~final purchase price allocation indicated that the ~~final allocation~~sum of the cash consideration paid is less than the fair value of the underlying assets by $9 million, resulting in a bargain purchase ~~price to~~gain being recorded on this transaction. Additionally, the ~~mill, recycling operations and the cogeneration facility businesses are yet to be determined. The amount of revenue and earnings recognized since the acquisition date are $41 million and a net loss of~~supply contract estimated losses were increased by $3 million ~~respectively, for~~in the ~~three months ended September 30, 2016. Proforma information related~~first quarter of 2017 based on actual operating results since acquisition. The resulting net $6 million gain was recorded to ~~the~~Net bargain purchase gain on acquisition of business in 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 resultsaccompanying statement of operations.

NOTE 8 - DIVESTITURES / SPINOFF

Other Divestitures and Impairments

~~2016:~~2017: On ~~March 14, 2016,~~June 29, 2017, the Company announced that it had entered into a definitive agreement to sell its foodservice business in China to Huhtamaki Hong Kong Limited. Under the terms of the transaction, International Paper will receive approximately RMB 50 million (approximately $7 million using the June 30, 2017 exchange rate). The transaction is expected to be completed in the third quarter of 2017, subject to satisfaction of closing conditions, including obtaining required governmental approvals. A determination was made that the current book value of the asset group exceeded its estimated fair value of $7 million, which is the agreed upon purchase price. As a result, a pre-tax charge of $9 million was recorded during the second quarter of 2017, in the Company's Consumer Packaging segment, to write down the long-lived assets of this business to their estimated fair value. Amounts related to this business included in the Company's statement of operations were immaterial for both the three months and six months ended June 30, 2017.

2016: On June 30, 2016, the Company completed the previously announced sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. Under the terms of the transaction and after post-closing adjustments, International Paper ~~is to receive~~received a total of approximately RMB ~~1 billion~~957 million (approximately ~~$149~~$144 million at the June 30, 2016 exchange rate), ~~subject to post-closing adjustments and other payments, including~~which included the buyer's assumption of the liability for outstanding loans of approximately $55 million which are payable up to three years from the closing of the sale. In the first quarter of 2017, a $5 million payment was received on the remaining outstanding loans and as of June 30, 2017, the remaining payments to be received related to the assumed loans totaled $9 million.

Subsequent to the announced agreement in March 2016, a determination was made that the current book value of the asset group exceeded its estimated fair value of ~~$149~~$155 million which was the agreed upon selling price, less costs incurred to sell. As a result, a ~~combined~~ pre-tax charge of $41 million was recorded during the ~~first and second quarters of~~six months ended June 30, 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 in the 2016 second quarter for severance that was contingent upon the sale of this ~~business and a pre-tax charge of $5 million in the third quarter of 2016, resulting from post-closing adjustments. The sale of this business was completed on June 30, 2016.~~

In the third quarter of 2016, post-closing adjustments were finalized which resulted in a reduction to the total cash to be received of RMB 43 million (approximately $7 million at the September 30, 2016 exchange rate). Remaining payments to be received total $17 million and are payable up to three years from the closing of the sale.

business. The amount of pre-tax losses related to the IP Asia Packaging business included in the Company's ~~consolidated~~ statement of operations were $7$32 million and ~~$80~~$73 million for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively, and $2 million and $7 million for three months and nine months ended September 30, 2015, respectively.~~

~~2015:~~ The Company announced on October 8, 2015 that it had signed a definitive agreement with the Company's Chinese coated board joint venture partner, Shandong Sun Holding Group Co., Ltd., to sell its 55% interest in the IP Asia Coated Paperboard (IP-Sun JV) business within the Company's Consumer Packaging segment for RMB 149 million (approximately USD $23 million). A determination was made that the current book value of the asset group exceeded its estimated fair value of $23 million, which is the agreed upon selling price. As a result, a pre-tax charge of $186 million was recorded during the three

months ended September 30, 2015 in the Company's Consumer Packaging segment to write down the long-lived assets of this business to their estimated fair value. The amount of pre-tax losses related to the IP-Sun JV included in the Company's consolidated statement of operations for the three months and nine months ended September 30, 2015 were $208 million and $238 million, respectively. The 2015 losses include the third quarter pre-tax impairment charge of $186 million ($125 million after taxes). 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 three months and nine months ended September 30, 2015 were $9 million and $19 million, respectively. The sale of this business was finalized on October 13, 2015.2016.

NOTE 9 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Temporary Investments

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled ~~$2.1 billion~~$753 million and ~~$738~~$757 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

Accounts and Notes Receivable


In millions	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Accounts and notes receivable, net:
Trade	$	2,594	$	2,480	$	2,996	$	2,759
Other	213		195		287		242
Total	$	2,807	$	2,675	$	3,283	$	3,001

The allowance for doubtful accounts was ~~$72~~$71 million and $70 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

Inventories


In millions	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Raw materials	$	303	$	339	$	294	$	296
Finished pulp, paper and packaging	1,192		1,248		1,351		1,381
Operating supplies	609		563		624		661
Other	118		78		92		100
Total	$	2,222	$	2,228	$	2,361	$	2,438

Depreciation

Accumulated depreciation was ~~$21.5~~$22.3 billion and ~~$20.7~~$21.6 billion at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. Depreciation expense was ~~$294~~$332 million and ~~$309~~$284 million for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$845~~$656 million and ~~$919~~$551 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Interest

Interest payments made during the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015~~ were ~~$511~~$387 million and ~~$471~~$333 million, respectively.

Amounts related to interest were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016		2015		2016		2015		2017		2016		2017		2016
Interest expense ~~(a)~~	$	181	$	158	$	513	$	481	$	186	$	172	$	373	$	332
Interest income ~~(a)~~	49		17		129		59		49		43		94		80
Capitalized interest costs	7		5		21		19		6		7		12		14


~~(a)~~	Interest expense and interest income exclude approximately $7 million and $25 million for the three months and nine months ended September 30, 2015, related to investments in and borrowings from variable interest entities for which the Company had a legal right of offset (see Note 13).

NOTE 10 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2016:~~2017:


In millions	Industrial Packaging			Printing Papers				Consumer Packaging			Total			Industrial Packaging				Global Cellulose Fibers			Printing Papers			Consumer Packaging			Total
Balance as of January 1, 2016
Balance as of January 1, 2017
Goodwill	$	3,325		$	2,124			$	1,664		$	7,113		$	3,316			$	19		$	2,143		$	1,664		$	7,142
Accumulated impairment losses (a)	(237		)	(1,877		)		(1,664		)	(3,778		)	(237		)		—			(1,877		)	(1,664		)	(3,778		)
	3,088			247				—			3,335			3,079				19			266			—			3,364
Reclassifications and other (b)	(1		)	38				—			37			4				—			4			—			8
Additions/reductions	—			(10		)	(c)	—			(10		)	5			(c)	33		(d)	(1		)	—			37
Balance as of September 30, 2016
Balance as of June 30, 2017
Goodwill	3,324			2,152				1,664			7,140			3,325				52			2,146			1,664			7,187
Accumulated impairment losses (a)	(237		)	(1,877		)		(1,664		)	(3,778		)	(237		)		—			(1,877		)	(1,664		)	(3,778		)
Total	$	3,087		$	275			$	—		$	3,362		$	3,088			$	52		$	269		$	—		$	3,409


(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)	Reflects ~~a reduction from tax benefits generated by~~ the ~~deduction~~acquisition of ~~goodwill amortization for tax purposes in Brazil.~~the newly acquired Moroccan box plant.


(d)	Represents purchase price adjustments related to the the newly acquired pulp business.

Other Intangibles

Identifiable intangible assets comprised the following:


	September 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
In millions	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships and lists	$	512	$	202	$	495	$	166	$	605	$	229	$	605	$	211
Non-compete agreements	70		63		69		56		72		70		69		64
Tradenames, patents and trademarks	60		56		61		54
Tradenames, patents and trademarks, and developed technology									173		65		173		56
Land and water rights	8		2		33		6		8		2		10		2
Software	24		22		22		20		23		21		21		20
Other	46		26		46		29		48		27		48		26
Total	$	720	$	371	$	726	$	331	$	929	$	414	$	926	$	379

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016		2015		2016		2015		2017		2016		2017		2016
Amortization expense related to intangible assets	$	14	$	16	$	39	$	45	$	17	$	13	$	33	$	25

NOTE 11 - INCOME TAXES

International Paper made income tax payments, net of refunds, of ~~$68~~$101 million and ~~$118~~$73 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

The following table presents a rollforward of unrecognized tax benefits and related accrued estimated interest and penalties for the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~2017:

In millions
Unrecognized
Tax Benefits

Accrued Estimated
Interest and Tax
Penalties
Balance at December 31, 2015 $ (150 ) $ (34 )
Activity for three months ended March 31, 2016 26
(1 )
Activity for the three months ended June 30, 2016 20
5
Activity for the three months ended September 30, 2016 6
8
Balance at September 30, 2016 $ (98 ) $ (22 )



In millions	Unrecognized Tax Benefits			Accrued Estimated Interest and Tax Penalties
Balance at December 31, 2016	$	(98	)	$	(22	)
Activity for three months ended March 31, 2017	(2		)	2
Activity for the three months ended June 30, 2017	(42		)	1
Balance at June 30, 2017	$	(142	)	$	(19	)

The Company currently estimates, that as a result of ongoing discussions, pending tax settlements and expirations of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately $5$2 million during the next 12 months.

Included in the Company’s income tax provisions for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, ~~and 2015,~~ are ~~$(91)~~$177 million and ~~$(109)~~$67 million of income tax benefits, respectively, related to special items. The components of the net provision related to special items were as follows:

Nine Months Ended
September 30,
In millions 2016 2015
Special items $ (37 ) $ (70 )
Tax-related adjustments:
Internal restructurings (63 ) (62 )
Return to accrual 23
23
2010-2012 IRS audit closure (14 ) —
Income tax provision (benefit) related to special items $ (91 ) $ (109 )



	Six Months Ended June 30,
In millions	2017			2016
Litigation settlement	$	(135	)	$	—
Other special items	(15		)	(13		)
Restructuring and other charges items	5			—
Tax-related adjustments:
International investment restructurings	15			(63		)
Income tax refund claims	(85		)	—
Return to accrual	38			23
2010-2012 IRS audit closure	—			(14		)
Income tax provision (benefit) related to special items	$	(177	)	$	(67	)

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Environmental ~~Proceedings~~

~~CERCLA and State Actions~~

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 ~~$95~~$131 million in the aggregate at ~~September~~June 30, ~~2016.~~2017. Other than as described above, completion of required remedial actions is not expected to have a material effect on our 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~~$48 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~~$48 million reserve referenced above. In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other potentially responsible parties 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.

~~Other Remediation Costs~~

In addition to the above matters, 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, totaled approximately ~~$40 million as of September 30, 2016. Other than as described above, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.~~

~~Legal Proceedings~~

~~Environmental~~

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 ~~concerning the~~in implementing a remedy for a portion of the site, and (ii) demanding reimbursement of EPA past costs related to this portion of the site totaling $37 million, including $19 million in past costs previously demanded by the EPA. ~~Separately, in April~~The Company responded to the special notice letter. In December 2016, the EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy for this portion of the site. The Company responded to the unilateral administrative order agreeing to comply with the order subject to its sufficient cause defenses.

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

In October ~~26,~~ 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 ~~is evaluating~~responded to the Allied Paper Mill special notice ~~letter.~~ letter in late December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design.

The Company’s CERCLA liability has not been finally determined with respect to these or any other portions of the site, and ~~other than agreeing to perform the unilateral administrative order subject to its sufficient cause defenses,~~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~~discha

rged 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., are PRPs at the San Jacinto River Waste Pits Superfund Site ~~(San~~(the San Jacinto River Superfund Site) in Harris County, Texas. The ~~Company and MIMC~~PRPs have been actively participating in ~~investigation and remediation~~the activities at the ~~site and have undertaken a time-critical removal action to install an armored cap over the northern impoundments.~~site. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the site, which identifies the preferred remedy as the removal of the contaminated material currently protected by ~~the~~an armored cap. In addition, the EPA selected a preferred remedy for the separate southern ~~impoundments~~impoundment that requires offsite disposal. ~~The Company is evaluating~~In January 2017, the ~~PRAP and working with the other stakeholders to prepare~~PRPs submitted comments on the PRAP. At this stage, 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.

In December 2011, Harris County, Texas filed a suit against the Company seeking civil penalties with regard to the alleged discharge of dioxin into the San Jacinto River from waste impoundments that are part of the San Jacinto River Superfund Site.

In November 2014, International Paper secured a zero liability jury verdict. In April 2015, Harris County appealed the verdict, and in October 2016, the appellate court affirmed the trial court’s verdict. The Company is also defending an additional lawsuit related to the San Jacinto River Superfund Site brought by approximately 400 individuals who allege property damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, if any, which may be incurred.

~~Vicksburg:~~ In the first quarter of 2016, the Company received notice from the Mississippi Department of Environmental Quality (MDEQ) of a proposed penalty in excess of $100,000 arising from alleged violations of air emission permitting requirements at the Company’s Vicksburg, Mississippi paper mill. The Company resolved the matter in the third quarter of 2016 and paid a financial penalty of less than $100,000.

Antitrust

Containerboard:In On June 27, 2017, the Company entered into a settlement agreement with the class plaintiffs in the class action lawsuit captionedKleen Products LLC et al. v. International Paper Co. et al. (N.D. Ill.) which was filed in September 2010, ~~eight~~and is pending in the United States District Court for the Northern District of Illinois. Eight containerboard producers, including ~~International Paper~~the Company, Temple-Inland and ~~Temple-Inland,~~Weyerhaeuser Company (the "Released Defendants"), were named as defendants in ~~a purported class action complaint that alleged~~the lawsuit which alleges 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~~In particular, the lawsuit 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 from February 15, 2004, tothrough November 8, 2010. ~~The complaint seeks to recover unspecified treble damages and attorneys' fees on behalf of the purported class. four~~Four similar complaints were filed and ~~have been~~ consolidated in the Northern District of Illinois. In March 2015, the District Court certified a plaintiff class consisting of ~~direct purchasers of~~all persons who purchased containerboard ~~products;~~products directly from the defendant for use or delivery in ~~June 2015,~~ the United States ~~Court~~during the class period.

Under the terms of ~~Appeals for~~ the ~~Seventh Circuit granted the defendants' petition to appeal, and~~settlement agreement, on August ~~4, 2016, affirmed~~1, 2017, the ~~District Court's decision on~~Company paid $354 million into a settlement fund in return for a dismissal of the Released Defendants and release of all ~~counts. We will continue to aggressively defend this case, including~~claims and alleged damages asserted against the possibility of further challenges to class certification. In June 2015, International Paper and Temple-Inland were named as defendants in a lawsuit, later dismissed without prejudice in November 2015, captioned ~~Del Monte Fresh Products N.A., Inc. v. Packaging Corporation of America (S.K. Fl.), in which the Plaintiff asserted substantially similar allegations to those raised~~Released Defendants in the lawsuit or that are related to or arise from the direct purchase of containerboard products from the Released Defendants by the class members from the beginning of time up to preliminary approval of the settlement agreement by the district court, which occurred on July 13, 2017. Any attorneys' fees awarded by the district court and all costs of notice and claims administration will be paid from the settlement fund.

The settlement agreement remains subject to final approval by the district court and provides for a period of time during which class members will be notified of the settlement and given an opportunity to file a claim form to receive a settlement payment, object to the settlement or do nothing. The district court has scheduled a final approval hearing for October 17, 2017, at which time the parties will request final approval of the settlement and at which time any objectors to the settlement will be heard. If the district court gives final approval to the settlement, the release will be effective as to all class members regardless of whether they filed a claim form and received payment.

~~Kleen Products~~ ~~action. Likewise, in~~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 Furniturelawsuit closely tracks the allegations found in theKleen Products ~~Kleen Products~~ complaint, alleging a practically identical civil violation of Section 1 of the Sherman Act, 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~~continues to dispute the allegations made ~~and is vigorously defending each action. However, because the~~ ~~Kleen Products~~ ~~action is~~ in the ~~discovery stage and the Tennessee and~~Ashley Furniture and Tennessee lawsuits and vigorously defend each. At this time, however, because actions are in a preliminary stage, we are unable to predict an outcome or estimate a range of reasonably possible loss.

Contract

Signature:~~Gypsum:~~ In August 2014, a lawsuit captioned ~~Beginning~~Signature Industrial Services LLC et al. v. International Paper Company was filed in ~~late December 2012, certain purchasers~~state court in Texas. The Signature lawsuit arises out of ~~gypsum board filed a number of purported class action complaints alleging civil violations of Section~~ approximately $1 of the Sherman Act against Temple-Inland and a number of other gypsum manufacturers. The complaints were similar and alleged that the gypsum manufacturers conspired or otherwise reached agreements to: (1) raise prices of gypsum board either from 2008 or 2011 through the present; (2) avoid price erosion by ceasing the practice of issuing job quotes; and (3) restrict supply through downtime and limiting order fulfillment. On April 8, 2013, the Judicial Panel on Multidistrict Litigation ordered transfer of all pending casesmillion in disputed invoices related to the ~~U.S. District Court for~~installation of new equipment at the ~~Eastern District~~Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its president allege consequential damages arising from the Company's nonpayment of ~~Pennsylvania for coordinated and consolidated pretrial proceedings,~~those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the plaintiffs. The verdict will not be final until post-trial motions are decided, and the ~~direct purchaser plaintiffs~~Company will appeal the final judgment thereafter. The Company has numerous and ~~indirect purchaser plaintiffs filed their respective amended consolidated complaints~~strong bases for appeal, and we believe the Company will prevail on appeal. Because post-trial proceedings are in ~~June 2013. The amended consolidated complaints alleged~~ a ~~conspiracy or agreement beginning on or before September 2011. The alleged classes were all persons who purchased gypsum board directly or indirectly from~~preliminary stage, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any ~~defendant. The complainants sought~~loss to recover unspecified treble actual damages and attorneys' fees on behalf of the purported classes. In February 2015, we executed a definitive agreement to settle these cases for an immaterial amount, and this settlement received final court approval and was paid in the third quarter of 2015. In March 2015, several homebuilders filed an antitrust action in the United States District Court for the Northern District of California alleging that they purchased gypsum board and making similar allegations to those contained in the above settled proceeding. In June 2016, we settled the homebuilder claims for an immaterial amount and the action has been dismissed.be immaterial.

In addition, in September 2013, similar purported class actions were filed in courts in Quebec, Canada and Ontario, Canada, with each suit alleging violations of the Canadian Competition Act and seeking damages and injunctive relief. In May 2015, we reached an agreement in principle to settle these Canadian cases, as well as a similar action filed in British Columbia, Canada, for an immaterial amount. The executed settlement agreement is proceeding through the normal court approval process.

Tax

On October 16, 2015, the Company was notified of a ~~$92~~$110 million tax assessment issued by the state of Sao Paulo, Brazil (State) for tax years 2011 through 2013. The assessment pertains to invoices issued by the Company related to the sale of paper to the editorial segment, which is exempt from the payment of ICMS value-added tax. This assessment is in the preliminary stage. The Company does not believe that a material loss is probable. During the second quarter of 2016, the Company received a favorable first instance judgment vacating the State's assessment. The Company anticipates that the State will appeal the judgment.

General

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor and employment, ~~personal injury,~~ 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 13 - VARIABLE INTEREST ENTITIES AND PREFERRED SECURITIES OF SUBSIDIARIES

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, 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 Class A interests in the Borrower Entities, along with 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 Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the Timber Notes. Also during 2006, the Entities acquired approximately $4.8 billion 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. 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 obligations 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 tax deferral that resulted from the 2006 forestlands sales.

During 2015, International Paper initiated a series of actions, including acquiring the Class A interests from a third party for $198 million in cash and a restructuring, in order to extend the 2006 monetization structure and maintain the long-term nature of the $1.4 billion deferred tax liability. The restructuring resulted in the formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015 Financing Entities) and International Paper began consolidating the 2015 Financing Entities during the third quarter of 2015. As part of the transactions, International Paper extended the maturity date on the Timber Notes and entered into nonrecourse third party bank loans totaling approximately $4.2 billion (the Extension Loans).

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 five years. These notes are supported by approximately $4.8 billion of irrevocable letters of credit. 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.

In addition, provisions of loan agreements related to approximately $1.1 billion of the Extension Loans require the bank issuing the letters of credit supporting the Timber Notes 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.

As of ~~September~~June 30, ~~2016,~~2017, the fair value of the Timber Notes and Extension Loans is ~~$4.86~~$4.78 billion and ~~$4.40~~$4.31 billion, ~~respectively.~~respectively, for the 2015 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

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:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016		2015		2016		2015		2017		2016		2017		2016
Revenue (a)	$	24	$	9	$	71	$	27	$	23	$	23	$	47	$	47
Expense (a)	32		19		96		56		32		32		64		64
Cash receipts (b)	47		11		76		21		—		—		47		29
Cash payments (c)	64		20		98		56		—		—		64		34

(a)

~~For the three months and nine months ended September 30, 2016, the~~The revenue and expense are included in Interest expense, net in the accompanying ~~consolidated~~ statement of operations. For the three months and nine months ended September 30, 2015, 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.


(b)	~~For the three months and nine months ended September 30, 2016,~~The cash receipts are interest received on the Financial assets of special purpose entities. For the three months and nine months ended September 30, 2015, the cash receipts are equity distributions from the Entities to International Paper prior to the formation of the 2015 Financing Entities.


(c)	~~For the three months and nine months ended September 30, 2016, the~~The cash payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. ~~For the three months and nine months ended September 30, 2015, the cash payments are interest payments on the associated debt obligations of the Entities discussed above.~~

~~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 tax deferral that resulted from the 2007 Temple-Inland timberlands sales. The Company recognized an $840 million deferred tax liability in connection with the 2007 sales, 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~~ ~~$2.38 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 ~~$2.38 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~~$2.09 billion~~. As of ~~September~~June 30, ~~2016~~,2017, the fair value of the ~~notes was~~ ~~$2.15~~Timber Notes and Extension Loans is $2.23 billion~~. These notes~~ and $2.09 billion, respectively, for the 2007 Financing Entities. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14 in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~

~~In December 2007, Temple-Inland’s two wholly-owned special purpose entities borrowed~~ ~~$2.14 billion~~ ~~shown in Nonrecourse financial liabilities of special purpose entities. The loans are repayable in 2027 and are secured only by the~~ ~~$2.38 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 ~~$2.03 billion. As of~~ ~~September 30, 2016, the fair value of this debt was~~ ~~$2.02 billion. This debt is classified as Level 2 within the fair value hierarchy, which is further defined in Note 14 in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.~~2016.

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


	Three Months Ended September 30,				Nine Months Ended September 30,			Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016		2015		2016		2015	2017		2016		2017		2016
Revenue (a)	$	8	$	7	$	26	20	$	10	$	10	$	23	$	18
Expense (b)	10		7		26		20	8		9		23		16
Cash receipts (c)	4		1		10		5	6		4		12		6
Cash payments (d)	7		5		19		13	9		6		18		12

(a)

The revenue is included in Interest expense, net in the accompanying ~~consolidated~~ statement of operations and includes approximately $5$4 million and ~~$14~~$9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, 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 $2$1 million and $5$3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, 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.

NOTE 14 - DEBT

~~Amounts related to early debt extinguishment during the three months and nine months ended September 30, 2016 and 2015 were as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Early debt reductions (a) $ 266
$ 90
$ 266
$ 1,479
Pre-tax early debt extinguishment costs 29
1
29
208


~~(a)~~	Reductions related to notes with an interest rate of 7.95% and original maturity in 2018 for both the three and nine months ended September 30, 2016, and from 4.75% to 5.85% with original maturities from 2019 to 2030 and from 4.70% to 9.38% with original maturities from 2015 to 2030 for the three and nine months ended September 30, 2015, respectively.

In August 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 and other charges in the accompanying consolidated statement of operations.

During the first nine months of 2016, International Paper borrowed and repaid $800 million under a receivable securitization facility at an average rate of 1.20%. The Company had no borrowings outstanding under this program at September 30, 2016.

During the first nine months of 2016, International Paper entered into a $250 million contractually committed bank credit facility that expires on December 31, 2016 and has a facility fee of 0.15% per annum payable quarterly. During the first nine months of 2016, the Company borrowed and repaid $230 million on the bank credit facility and the bank credit facility was terminated during the third quarter of 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 ~~September~~June 30, ~~2016,~~2017, the ~~Company~~company had no$240 million of borrowings outstanding under ~~this~~the program.

~~In September 2015, International Paper borrowed $300 million under a receivable securitization facility at a rate of 0.90%. Subsequent to September~~

At June 30, ~~2015, International Paper fully repaid the $300 million borrowed.~~

In May 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.

At ~~September 30, 2016~~,2017, the fair value of International Paper’s ~~$10.9~~$11.2 billion of debt was approximately ~~$12.2 billion~~.$12.4 billion. The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues. International Paper’s long-term debt is classified as Level 2 within the fair value hierarchy, which is further defined in Note 14 in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~September~~June 30, ~~2016~~,2017, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively.

Subsequent to June 30, 2017, International Paper priced $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. We expect the sale of this debt to close on or about August 9, 2017. The proceeds from this debt issuance, together with a combination of available cash and other borrowings, will be used to make a voluntary pension contribution in the aggregate amount of $1.25 billion by September 15, 2017. In addition, International Paper borrowed approximately $350 million under the commercial paper program. The proceeds from this borrowing, along with cash on hand, were used to pay the amount owed under the Kleen Products LLC et al. v. International Paper Co. et al. (N.D.Ill.) settlement agreement discussed in Note 12.

NOTE 15 - DERIVATIVES AND HEDGING ACTIVITIES

As a multinational company we are exposed to market risks, such as changes in interest rates, currency exchanges rates and commodity prices.

For detailed information regarding the Company’s hedging activities and related accounting, refer to Note 14 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

The notional amounts of qualifying and non-qualifying financial instruments used in hedging transactions were as follows:


In millions	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (a)	$	260	$	290	$	342	$	275
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	—		17
Derivatives Not Designated as Hedging Instruments:
Electricity contract	6		16		1		6
Foreign exchange contracts	22		35		17		24
Interest rate contracts	—		38


(a)	These contracts had maturities of two years or less as of ~~September~~June 30, ~~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)
	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
In millions	2016		2015			2016			2015			2017			2016			2017		2016
Foreign exchange contracts	$	5	$	(8	)	$	6		$	(2	)	$	(1	)	$	(3	)	$	8	$	1
Interest rate contracts	—		—			(11		)	—			—			(11		)	—		(11		)
Total	$	5	$	(8	)	$	(5	)	$	(2	)	$	(1	)	$	(14	)	$	8	$	(10	)

During the next 12 months, the amount of the ~~September~~June 30, ~~2016~~2017 AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of ~~$1 million~~.$3 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:


	Gain (Loss) Reclassified from AOCI (Effective Portion)										Location of Gain (Loss) Reclassified from AOCI (Effective Portion)	Gain (Loss) Reclassified from AOCI (Effective Portion)								Location of Gain (Loss) Reclassified from AOCI (Effective Portion)
	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016		2015			2016		2015				2017		2016		2017		2016
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	3	$	(7	)	$	7	$	(12	)	Cost of products sold	$	2	$	3	$	4	$	4	Cost of products sold
Total	$	3	$	(7	)	$	7	$	(12	)		$	2	$	3	$	4	$	4


	Gain (Loss) Recognized												Location of Gain (Loss) In Consolidated Statement of Operations	Gain (Loss) Recognized									Location of Gain (Loss) In Statement of Operations
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
In millions	2016			2015			2016		2015					2017		2016		2017			2016
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	—		$	—		$	—	$	3			Interest expense, net
Debt	—			—			—		(3		)		Interest expense, net
Total	$	—		$	—		$	—	$	—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	$	—		$	(7	)	$	—	$	(6	)		Cost of products sold	$	—	$	2	$	(2	)	$	—	Cost of products sold
Foreign exchange contracts	—			(1		)	—		(3		)		Cost of products sold	—		1		—			1		Cost of products sold
Interest rate contracts	2		(a)	2			5		11			(b)	Interest expense, net	—		—		—			2		Interest expense, net
Total	$	2		$	(6	)	$	5	$	2				$	—	$	3	$	(2	)	$	3

~~(a) Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges.~~


~~(b)~~	~~Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges.~~

The following activity is related to fully effective interest rate swaps designated as fair value hedges:


			2016						2015						2017						2016
In millions	Issued		Terminated		Undesignated		Issued		Terminated		Undesignated		Issued		Terminated		Undesignated		Issued		Terminated		Undesignated
Second Quarter	$	—	$	—	$	—	$	—	$	175	$	38	$	—	$	—	$	—	$	—	$	—	$	—
First Quarter	—		55		—		—		—		—		—		—		—		—		55		—
Total	$	—	$	55	$	—	$	—	$	175	$	38	$	—	$	—	$	—	$	—	$	55	$	—

Fair Value Measurements

For a discussion of the Company’s fair value measurement policies under the fair value hierarchy, refer to Note 14 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~.2016.

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

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

Fair Value Measurements

Level 2 – Significant Other Observable Inputs


	Assets						Liabilities						Assets						Liabilities
In millions	September 30, 2016			December 31, 2015			September 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016			June 30, 2017			December 31, 2016
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow	$	6	(a)	$	5	(a)	$	1	(b)	$	1	(b)	$	9	(a)	$	3	(b)	$	4	(c)	$	4	(c)
Total derivatives designated as hedging instruments	$	6		$	5		$	1		$	1		9			3			4			4
Derivatives not designated as hedging instruments
Electricity contract	$	—		$	—		$	3	(b)	$	7	(c)	—			—			1		(c)	2		(c)
Foreign exchange contracts	1		(a)	—			—			—
Total derivatives not designated as hedging instruments	$	1		$	—		$	3		$	7		—			—			1			2
Total derivatives	$	7		$	5		$	4		$	8		$	9		$	3		$	5		$	6


(a)	~~Included~~Includes $7 million recorded in Other current assets and $2 million recorded in Deferred charges and other assets in the accompanying ~~consolidated~~ balance sheet.


(b)	Included in Other ~~accrued liabilities~~current assets in the accompanying ~~consolidated~~ balance sheet.


(c)	~~Includes~~ ~~$4 million~~ ~~recorded~~Included in Other accrued liabilities ~~and~~ ~~$3 million~~ ~~recorded in Other liabilities~~ in the accompanying ~~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

Certain of the Company’s financial instruments used in hedging transactions are governed by standard credit support arrangements with counterparties. 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 September 30, 2016, there were no derivative instruments containing credit-risk-related contingent features in a net liability position.~~ The fair ~~value~~values of derivative instruments containing credit risk-related contingent features in a net liability position ~~was~~were $1 million and $3 million as of June 30, 2017 and December 31, ~~2015.~~2016, respectively. The Company was not required to post any collateral as of ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015~~.2016. For more information on credit-risk-related contingent features, refer to Note 14 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~.2016.

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 for the Pension Plan, but receive a company contribution to their individual savings plan accounts; 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). ~~A detailed discussion of these plans is presented in Note 16 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended~~ ~~December 31, 2015~~.

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. In addition, compensation under the Temple-Inland Retirement Plan and the Temple-Inland Supplemental Executive Retirement Plan (collectively, the Temple Retirement Plans) will also be frozen beginning January 1, 2019. Credited service was previously frozen for the Temple Retirement Plans. This change will not affect benefits accrued through December 31, 2018.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
In millions	2016			2015			2016			2015			2017			2016			2017			2016
Service cost	$	41		$	40		$	114		$	120		$	39		$	36		$	79		$	73
Interest cost	135			149			449			448			139			158			277			314
Expected return on plan assets	(199		)	(196		)	(611		)	(588		)	(193		)	(206		)	(385		)	(412		)
Actuarial loss	103			107			293			322			88			96			173			190
Amortization of prior service cost	11			11			31			33			7			10			14			20
Settlement	3			15			442			15			—			439			—			439
Net periodic pension expense	$	94		$	126		$	718		$	350		$	80		$	533		$	158		$	624

~~As previously disclosed, in~~

In the first quarter of 2016, International Paper ~~announced~~offered a voluntary, limited-time opportunity for former employees who ~~are~~were 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. The discount rate used in the plan remeasurement was 3.80%, down from 4.40% at December 31, 2015. As a result of the plan remeasurement and other year-to-date activity, the difference between the qualified plan liabilities and plan assets grew by $602 million versus the December 31, 2015 difference. 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 lump sum payments in the amount of $8 million were made during the third quarter of 2016 due to mandatory cash payouts and a small lump sum payout project resulting in a settlement charge of $3 million recognized at September 30, 2016. The qualified plan was remeasured at September 30, 2016 using a discount rate of 3.60%, down from 3.80% at June 30, 2016. As a result of the plan remeasurement and other quarterly activity, including the pension plan contributions discussed below, the difference between the qualified plan liabilities and plan assets decreased by $441 million during the third quarter of 2016.

The Company’s funding policy for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company made voluntary cash contributions of $250 million ~~and $500 million~~ to the qualified pension plan in the ~~second and third quarters~~first six months of ~~2016, respectively. The~~2016. No contributions have been made to date in 2017, but the Company ~~made~~intends to make a voluntary cash contribution in the aggregate amount of ~~$750 million~~$1.25 billion to the qualified pension plan ~~in the second quarter of 2015. These contributions were made in line with our strategy of de-risking the pension plan while generating tax benefits and fee savings.~~by September 15, 2017. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$15~~$10 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~.2017.

NOTE 17 - STOCK-BASED COMPENSATION

International Paper has an Incentive Compensation Plan (ICP) which is administered by the Management Development and Compensation Committee of the Board of Directors (the Committee). The ICP authorizes the grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards and cash-based awards at the discretion of the Committee. A detailed discussion of the ICP, including the now discontinued stock option program and executive continuity award program that provided for tandem grants of restricted stock and stock options, is presented in Note 18 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2015~~. As of ~~September~~June 30, ~~2016, 14.3~~2017, 13.0 million shares were available for grant under the ICP.

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


	Three Months Ended September 30,				Nine Months Ended September 30, 2016				Three Months Ended June 30,					Six Months Ended June 30,
In millions	2016		2015		2016		2015		2017			2016		2017		2016
Total stock-based compensation expense (selling and administrative)	$	33	$	27	$	100	$	86	$	39		$	41	$	82	$	67
Income tax benefits related to stock-based compensation	—		—		33		89		(1		)	—		47		33

At ~~September~~June 30, ~~2016~~, ~~$124~~2017, $133 million,, net of estimated forfeitures, of compensation cost related to unvested restricted performance shares, executive continuity awards and restricted stock attributable to future service had not yet been recognized. This amount will be recognized in expense over a weighted-average period of ~~1.7~~1.9 years.

Performance Share Plan

During the first ~~nine~~six months of ~~2016,~~2017, the Company granted ~~2.6~~2.2 million performance units at an average grant date fair value of ~~$37.26.~~$51.78.

NOTE 18 - BUSINESS SEGMENT INFORMATION

International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers, Printing Papers, and Consumer Packaging, 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. Subsequent to the acquisition of the Weyerhaeuser pulp business in December 2016, the Company began reporting the Global Cellulose Fibers business as a separate business 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.

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 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.

The Company also has a 50% equity interest in Ilim Holding S.A. (Ilim) operating in Russia, that is a separate reportable business segment. The Company recorded equity earnings (losses), net of taxes, of ~~$46~~$21 million and ~~$154~~$46 million for the three months ~~and nine months~~ ended ~~September~~June 30, 2017 and 2016, respectively, and ~~$(9)~~$71 million and ~~$97~~$108 million for the ~~three months and nine~~six months ended ~~September~~June 30, ~~2015,~~2017 and 2016, respectively, for Ilim. The Company received cash dividends from the joint venture of $127 million during the first quarter of 2017. At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company's investment in Ilim was ~~$267~~$264 million and ~~$172~~$302 million, respectively, which was ~~$169~~$158 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 ~~$40~~$51 million and ~~$124~~$45 million for the three months ~~and nine months~~ ended ~~September~~June 30, 2017 and 2016, respectively, and ~~$41~~$98 million and ~~$132~~$84 million for the ~~three months and nine~~six months ended ~~September~~June 30, ~~2015,~~2017 and 2016, respectively.

Sales by business segment for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
In millions	2016			2015			2016			2015			2017			2016		2017			2016
Industrial Packaging	$	3,582		$	3,642		$	10,631		$	10,889		$	3,706		$	3,520	$	7,205		$	6,931
Global Cellulose Fibers													612			259		1,176			471
Printing Papers	1,266			1,258			3,721			3,735			1,017			1,012		2,012			1,984
Consumer Packaging	494			809			1,490			2,384			474			501		940			996
Corporate and Intersegment Sales	(76		)	(18		)	(144		)	(86		)	(37		)	30		(50		)	50
Net Sales	$	5,266		$	5,691		$	15,698		$	16,922		$	5,772		$	5,322	$	11,283		$	10,432

Operating profit by business segment for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended June 30,								Six Months Ended June 30,
In millions	2016			2015				2016			2015				2017				2016				2017				2016
Industrial Packaging	$	424	(a)	$	553			$	1,279	(a)	$	1,549			$	50		(a)	$	458		(f)	$	415		(a)	$	854		(f)
Global Cellulose Fibers															7			(b)	(21		)	(g)	(63		)	(b)	(71		)	(g)
Printing Papers	128		(b)	179				309		(b)	389				86			(c)	117				186			(c)	252
Consumer Packaging	61			(153		)	(d)	150		(c)	(60		)	(d)	(14		)	(d)	73				19			(d)	89			(h)
Business Segment Operating Profit	613			579				1,738			1,878				129				627				557				1,124

Earnings (loss) from continuing operations before income taxes and equity earnings	$	373		$	329			$	676		$	1,001			(29		)		(14		)		215				303
Interest expense, net	132			141				384			422				137			(e)	129				279			(e)	252
Noncontrolling interests/equity earnings adjustment (f)	1			6				1			10
Noncontrolling interests/equity earnings adjustment (j)															(1		)		—				(1		)		—
Corporate items, net	11			10				58			27				4				25				15				46
Restructuring and other charges	54			17				46			220
Special items, net															(16		)		—				(16		)		(8		)
Non-operating pension expense	42			76				573		(e)	198				34				487			(i)	65				531			(i)
Adjusted Operating Profit	$	613		$	579			$	1,738		$	1,878			$	129			$	627			$	557			$	1,124
Equity earnings (loss), net of taxes – Ilim	$	46		$	(9	)		$	154		$	97			$	21			$	46			$	71			$	108

(a)

Includes ~~charges~~a charge of ~~$5 million and $70~~$354 million for the three months and ~~nine~~six months ended ~~September~~June 30, 2017, related to the agreement to settle the Kleen Products anti-trust class action lawsuit, a gain of $6 million for the six months ended June 30, 2017, for a net bargain purchase gain associated with the June 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain, and charges of $3 million and $4 million for the three months and six months ended June 30, 2017, respectively, for other items.

(b)

Includes charges of $5 million and $9 million for the three months and six months ended June 30, 2017, respectively, for costs associated with the acquisition of the pulp business acquired in December 2016, a charge of $14 million for the six months ended June 30, 2017, for the amortization of the inventory fair value step-up for that business and a charge of $1 million for the six months ended June 30, 2017, for other items.


(c)	Includes a charge of $2 million for the three months and six months ended June 30, 2017, for other items.


(d)	Includes a charge of $9 million for the three months and six months ended June 30, 2017, for the impairment of the assets of our ~~Asia~~Foodservice business in Asia.


(e)	Includes a gain of $4 million for the three months and six months ended June 30, 2017, for interest income associated with an income tax refund claim.


(f)	Includes charges of $28 million and $65 million for the three months and six months ended June 30, 2016, respectively, for the impairment of the assets of our corrugated packaging business in Asia and costs associated with the sale of ~~the~~that business.


~~(b)~~(g)	Includes ~~charges~~a charge of $7$5 million ~~and $12 million~~ for the three months and ~~nine~~six months ended ~~September~~June 30, 2016, for costs associated with the ~~announced~~ agreement to purchase the Weyerhaeuser ~~Pulp~~pulp business.


~~(c)~~(h)	Includes a charge of $9$9 million for the ~~nine~~six months ended ~~September~~June 30, 2016, for costs associated with the Riegelwood ~~mill~~ conversion to 100% pulp production.

~~(d)~~(i)

Includes a charge of ~~$186~~$439 million for the three months and ~~nine~~six months ended September 30, 2015 for asset write-offs associated with the sale of our 55% equity share in the IP-Sun JV, a net expense of $7 million and a net gain of $7 million for the three months and nine months ended September 30, 2015 related to the sale of the Carolina Coated Bristols brand and costs associated with the Riegelwood mill conversion to 100% pulp production, and charges of $1 million and $2 million for the three months and nine months ended September 30, 2015 for costs associated with the Coated Paperboard sheet plant closures.


~~(e)~~	~~Includes a charge of $439 million for the nine months ended September~~June 30, 2016, for a settlement accounting charge associated with term-vested lump sum payments.


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


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

EXECUTIVE SUMMARY

Diluted earnings (loss) attributable to International Paper common shareholders were ~~$312~~$80 million ($~~0.75~~0.19 per share) in the ~~third~~second quarter of ~~2016,~~2017, compared with $209 million ($0.50 per share) in the first quarter of 2017 and $40 million ($0.10 per share) in the second quarter of ~~2016 and $220 million ($0.53 per share) in the third quarter of 2015.~~2016. Adjusted Operating Earnings (ais a non-GAAP ~~measure)~~measure and is defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. International Paper generated Adjusted Operating Earnings ~~attributable~~Attributable to International Paper ~~common shareholders~~Common Shareholders of ~~$380~~$270 million ($~~0.91~~0.65 per share) in the ~~third~~second quarter of ~~2016,~~2017, compared with 2017 first-quarter earnings of $249 million ($0.60 per share) and 2016 second-quarter earnings of $379 million ($0.92 ~~per share) and 2015 third-quarter earnings of $407 million ($0.97~~ per share).

International Paper delivered solid results in the ~~2016 third~~2017 second quarter ~~highlighted by strong cash flow generation. The 2016 third quarter results for the~~with significant contributions from our North American Industrial Packaging ~~business~~and Global Cellulose Fibers businesses. Key drivers to the 2017 second quarter results were ~~significantly affected by rising input costs along with a less favorable mix and modest price erosion. The lower price and~~ higher input costs offset the benefit of lower planned maintenance outage expense and a lower tax rate. We experienced strong operational performance across the North American, EMEA and Brazil Printing papers businesses.

~~Input costs~~prices in ~~the~~our North American Industrial Packaging and Global Cellulose Fibers businesses along with healthy demand for box and containerboard. We saw positive momentum in our Global Cellulose Fibers business ~~were unfavorable~~with the realization of synergies at a faster than expected rate. The Company also completed the acquisition of Europac's Tangier facility in Morocco which will complement IP's existing EMEA packaging business. Additionally, during the ~~2016 third quarter versus the 2016~~2017 second quarter, ~~primarily from~~the Company settled the Kleen products class action lawsuit and on August 1, 2017 paid $354 million into a settlement fund.

Price was higher ~~recycled fiber and natural gas costs. Volume was relatively flat on a sequential quarter basis across all businesses with the exception of lower volume~~ in ~~the EMEA Industrial Packaging business due to seasonally lower volumes in Morocco. Price and mix were unfavorable in the~~our North American Industrial Packaging business versus 2017 first quarter as we continue to implement and realize recent price increases in North America and export markets. The Global Cellulose Fibers business delivered significantly improved sequential quarter results on record fluff pulp volume and continued price realization. Volumes were seasonally higher relative to the ~~2016 second~~2017 first quarter, particularly in our North American Industrial Packaging business. Operations were overall favorable versus the 2017 first quarter primarily driven by ~~lower containerboard export prices, the flow through of the 2016 first quarter pricing index changes and a less favorable box mix. Mix was also unfavorable~~solid operating performance in ~~the North American Pulp business due to another transitional quarter associated with the converted machine at the Riegelwood mill. Operating costs were sequentially higher in the~~our North American Industrial Packaging ~~business~~and Global Cellulose Fibers businesses. The Company executed a heavy maintenance outage schedule during the 2017 second quarter, with about 75% of the planned outages having now been completed in the first half of the year. Input costs were unfavorable versus the 2017 first quarter primarily due to ~~isolated reliability issues along with additional overtime costs incurred in response to increased box demand. These~~ higher ~~operating~~than expected OCC costs; however these costs were ~~partly~~ offset by ~~improved manufacturing operations in the North American Printing Papers business. The~~lower wood, chemicals and energy costs. Our Ilim joint venture delivered solid results, ~~in the 2016 third quarter tied to strong operational performance.~~

driven primarily by seasonally higher volume and improved pulp pricing; however, results were negatively impacted by non-cash foreign currency movements primarily associated with Ilim's U.S. dollar denominated net debt.

Looking ahead to the ~~2016 fourth~~2017 third quarter, we expect ~~relatively stable volume across most~~to see significant benefits from the implementation of recent price increases in our ~~businesses with some seasonal improvement~~North American Industrial Packaging business. Additionally, we should see further price realization on North American Containerboard exports and benefits from the on-going implementation of price increases in the ~~EMEA Industrial~~North American Consumer Packaging business. Continued benefits from previous fluff pulp price increases are expected to be partially offset by lower seasonal volume and ~~Brazil Printing Papers businesses. While we expect strong daily demand,~~lower softwood pulp prices. Volumes are expected to be stable relative to the 2017 second quarter; however, our North American Industrial Packaging business will be ~~negatively~~ impacted by ~~four~~one less shipping ~~days. We expect favorable pricing in~~day during the 2017 third quarter. The North American Industrial Packaging ~~business associated with the implementation of the containerboard and box price increases communicated to customers in October 2016. Mix~~Business is also expected to be unfavorable in the North American Pulp business as we continue to supply additional tons of softwood market pulp into less-than-favorable market conditions as we work toward qualifying and supplying more fluff pulp out of the new capacity at the Riegelwood mill. Pricing across the rest of our business is expected to be relatively stable with some benefit from ~~the recently implemented price increases in the Brazil Printing Papers business. Operating costs~~better operational performance and lower operating costs. Outage expenses are expected to be ~~higher~~significantly lower in the ~~North American businesses~~2017 third quarter as we have completed a significant portion of 2017 planned maintenance outages in the first half of the year. We anticipate higher input costs in the 2017 third quarter, driven primarily by OCC and energy costs. In our Ilim joint venture, we expect sequentially lower volumes due to the impact associated with Hurricane Matthew. Input costs are expected to be higher in the North American businesses tied to continued higher energy costs. We also expect some inflationary cost pressure in the EMEA Printing Papers business. Planned maintenance outage costs are expected to increase slightly versus the 2016 third quarter. The 2016 fourth quarterseasonality and lower average softwood pulp prices. Our outlook for the Ilim ~~joint venture is expected to be slightly lower than the 2016 third quarter.~~equity earnings also assumes a June 30, 2017 RUB/USD exchange rate on Ilim’s U.S. dollar denominated net debt.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures. Diluted earnings (loss) and Diluted earnings (loss) per share attributable to ~~International Paper Company~~ common shareholders isare the most direct comparable GAAP ~~measure.~~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.

The following are reconciliations of ~~diluted~~Diluted earnings (loss) attributable to ~~International Paper~~ common shareholders to Adjusted Operating Earnings attributable to ~~International Paper Company~~ common shareholders.


	Three Months Ended September 30,						Three Months Ended June 30,			Three Months Ended June 30,						Three Months Ended March 31,
	2016			2015			2016			2017			2016			2017
Diluted Earnings (Loss) Attributable to Shareholders	$	312		$	220		$	40		$	80		$	40		$	209
Add back - Discontinued operations (gain) loss	—			—			—			—			—			—
Diluted Earnings (Loss) from Continuing Operations	312			220			40			80			40			209
Add Back - Non-operating pension (income) expense	43			76			487			34			487			31
Add Back - Net special items expense (income)	65			211			33			353			33			14
Income tax effect - Non-operating pension and special items expense	(40		)	(100		)	(181		)	(197		)	(181		)	(5		)
Adjusted Operating Earnings (Loss) Attributable to Shareholders	$	380		$	407		$	379		$	270		$	379		$	249

The following are reconciliations of diluted earnings (loss) per share attributable to International Paper common shareholders to Adjusted Operating Earnings per share attributable to International Paper Company common shareholders.


	Three Months Ended September 30,						Three Months Ended June 30,			Three Months Ended June 30,						Three Months Ended March 31,
	2016			2015			2016			2017			2016			2017
Diluted Earnings (Loss) Per Share Attributable to Shareholders	$	0.75		$	0.53		$	0.10		$	0.19		$	0.10		$	0.50
Add Back - Discontinued operations (gain) loss per share	—			—			—			—			—			—
Diluted Earnings (Loss) Per Share from Continuing Operations	0.75			0.53			0.10			0.19			0.10			0.50
Add Back - Non-operating pension (income) expense per share	0.10			0.18			1.17			0.08			1.18			0.07
Add Back - Net special items expense (income) per share	0.16			0.50			0.08			0.85			0.08			0.03
Income tax effect per share - Non-operating pension and special items expense	(0.10		)	(0.24		)	(0.43		)	(0.47		)	(0.44		)	—
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders	$	0.91		$	0.97		$	0.92		$	0.65		$	0.92		$	0.60

RESULTS OF OPERATIONS

For the ~~third~~second quarter of ~~2016,~~2017, International Paper Company reported net sales of ~~$5.3~~$5.8 billion, compared with $5.5 billion in the first quarter of 2017 and $5.3 billion in the second quarter of ~~2016 and $5.7 billion in the third quarter of 2015.~~2016.

Net earnings attributable to International Paper totaled ~~$312~~$80 million, or ~~$0.75~~$0.19 per share, in the ~~2016 third~~2017 second quarter. This compared with ~~$220 million, or $0.53 per share, in the third quarter of 2015 and~~ $40 million, or $0.10 per share, in the second quarter of ~~2016.~~2016 and $209 million or $0.50 per share, in the first quarter of 2017.

Earnings from continuing operations attributable to International Paper Company were ~~$312~~$80 million in the ~~third~~second quarter of ~~2016~~2017 compared with ~~$220 million in the third quarter of 2015 and~~ $40 million in the second quarter of ~~2016.~~2016 and $209 million in the first quarter of 2017. Compared with the ~~third~~second quarter of ~~2015,~~2016, the ~~2016 third~~2017 second quarter reflects higher average sales price realizations net of an unfavorable mix ($58 million), higher sales volumes ($83 million), lower ~~raw material~~corporate and ~~freight~~other costs ($1412 million), ~~lower net interest expense~~the operating results for the recently acquired pulp business which was not included in the prior year ($628 million), lower tax expense ($14 million) reflecting a lower estimated tax rate and lower non-operating pension expense ($20278 million). These benefits were offset by ~~lower average sales price realizations and an unfavorable mix ($86 million),~~ higher operating costs ($2661 million), higher raw material and freight costs ($72 million), higher mill maintenance outage costs ($658 million) and higher ~~corporate and other costs~~net interest expense ($58 million). Equity earnings, net of taxes, relating to International Paper’s investment in Ilim Holding S.A. were ~~$54~~$25 million ~~higher~~lower in the ~~2016 third~~2017 second quarter than in ~~the 2015 third quarter. Net special items in the 2016 third quarter were a loss of $42 million compared with a loss of $141 million in the 2015 third quarter.~~

Compared with the second quarter of 2016, earnings benefited from lower mill maintenance outage costs ($40 million), lower corporate and other items ($14 million), lower tax expense ($17 million) reflecting a lower estimated tax rate and lower non-operating pension expense ($273 million). These benefits were offset by lower average sales price realizations and an unfavorable mix ($33 million), lower sales volumes ($1 million), higher operating costs ($7 million), higher raw material and freight costs ($26 million) and higher net interest expense ($3 million). Equity earnings, net of taxes, for Ilim Holding, S.A. were even with the 2016 second quarter. Net special items in the ~~2016 third~~2017 second quarter were a loss of ~~$42~~$169 million compared with a loss of $40 million in the 2016 second quarter.

Compared with the first quarter of 2017, earnings benefited from higher average sales price realizations and a favorable mix ($54 million), higher sales volumes ($25 million), lower operating costs ($17 million), lower corporate and other items ($6 million), lower net interest expense ($1 million), lower tax expense ($2 million) reflecting a lower estimated tax rate and lower non-operating pension expense ($2 million). These benefits were offset by higher raw material and freight costs ($3 million) and higher mill maintenance outage costs ($56 million). Equity earnings, net of taxes, for Ilim Holding, S.A. were $29 million lower than in the 2017 first quarter. Net special items in the 2017 second quarter were a loss of $169 million compared with a loss of $21 million in the 2017 first quarter.

ToBusiness Segment Operating Profits are used by International Paper's management to measure the earnings performance of ~~the Company’s business segments from period to period, International Paper’s management focuses on business segment~~its businesses. Management believes that this measure allows a better understanding of trends in costs, operating ~~profit. This is~~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, ~~net of taxes,~~ excluding ~~interest expense,~~ corporate ~~charges~~items and corporate special ~~items which may include restructuring charges~~items. Business Segment Operating Profits are defined by the Securities and ~~(gains) losses on sales~~Exchange Commission as a non-GAAP financial measure, and ~~impairments of businesses.~~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 segments: Industrial Packaging, Global Cellulose Fibers, Printing Papers and Consumer Packaging.

The following table presents a reconciliation of net earnings attributable to International Paper Company to its total ~~business segment operating profit:~~Business Segment Operating Profit:


	Three Months Ended									Three Months Ended
	September 30						June 30,			June 30						March 31,
In millions	2016			2015			2016			2017			2016			2017
Earnings (Loss) From Continuing Operations Attributable to International Paper Company	$	312		$	220		$	40		$	80		$	40		$	209
Add back (deduct):
Income tax provision (benefit)	107			106			(9		)	(89		)	(9		)	83
Equity (earnings) loss, net of taxes	(43		)	13			(45		)	(20		)	(45		)	(48		)
Noncontrolling interests, net of taxes	(3		)	(10		)	—			—			—			—
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	373			329			(14		)	(29		)	(14		)	244
Interest expense, net	132			141			129			137			129			142
Noncontrolling interests / equity earnings included in operations	1			6			—			(1		)	—			—
Corporate items	11			10			26			4			25			11
Special items (income) expense	54			17			—			(16		)	—			—
Non-operating pension expense	42			76			487			34			487			31
	$	613		$	579		$	628
Adjusted Operating Profit										$	129		$	627		$	428
Business Segment Operating Profit:
Industrial Packaging	$	424		$	553		$	459		$	50		$	458		$	365
Global Cellulose Fibers										7			(21		)	(70		)
Printing Papers	128			179			96			86			117			100
Consumer Packaging	61			(153		)	73			(14		)	73			33
Total Business Segment Operating Profit	$	613		$	579		$	628		$	129		$	627		$	428

Business Segment Operating Profit

Total business segment operating profits of ~~$613~~$129 million in the ~~2016 third~~2017 second quarter were ~~higher than the $579 million in the 2015 third quarter, but~~ lower than the ~~$628~~$627 million in the 2016 second quarter and the $428 million in the 2017 first quarter. Compared with the ~~third~~second quarter of ~~2015,~~2016, operating profits in the current quarter benefited from higher average sales price realizations net of an unfavorable mix ($87 million), higher sales volumes ($124 million) and ~~lower raw material and freight costs~~the operating results for the recently acquired pulp business which are not included in the prior year ($2142 million). These benefits were offset by ~~lower net average sales price realizations and an unfavorable mix ($128 million),~~ higher operating costs ($3892 million), higher raw material and freight costs ($110 million), higher mill outage costs ($987 million) and higher other costs ($62 million). Special items were a loss of ~~$12~~$373 million in the ~~2016 third quarter compared with a loss of $194 million in the 2015 third quarter.~~

~~Compared with the~~2017 second quarter of 2016, operating profits benefited from lower mill outage costs ($61 million) and lower other items ($5 million). These benefits were offset by lower average sales price realizations and an unfavorable mix ($49 million), lower sales volumes ($2 million), higher operating costs ($11 million) and higher raw material and freight costs ($40 million). Special items were a loss of $12 million in the 2016 third quarter compared with a loss of $33 million in the 2016 second quarter.

Compared with the first quarter of 2017, operating profits benefited from higher average sales price realizations and a favorable mix ($78 million), higher sales volumes ($37 million), lower operating costs ($23 million) and lower other items ($6 million). These benefits were offset by higher raw material and freight costs ($4 million) and higher mill outage costs ($80 million). Special items were a loss of $373 million in the 2017 second quarter compared with a loss of $14 million in the 2017 first quarter.

During the ~~2016 third~~2017 second quarter, International Paper took approximately ~~226,000~~291,000 tons of downtime of which none were economic-related compared with approximately 286,000 tons of downtime, which included about 85,000 tons that were economic-related, in the 2016 second quarter. During the 2017 first quarter, International Paper took approximately 242,000 tons of downtime of which approximately 107,000 tons were economic-related compared with approximately 217,000 tons of downtime, which included about 106,000 tons that were economic-related, in the 2015 third quarter. During the 2016 second quarter, International Paper took approximately 286,000 tons of downtime of which approximately 85,00035,000 tons were economic-related. Economic downtime is taken to balance internal supply with our customer demand, while maintenance downtime is taken periodically during the year.

Sales Volumes by Product (a)

Sales volumes of major products for the three months and six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
In thousands of short tons	2016	2015	2016	2015
In thousands of short tons (except as noted)					2017	2016	2017	2016
Industrial Packaging
North American Corrugated Packaging (c)	2,640	2,609	7,801	7,717	2,648	2,642	5,185	5,161
North American Containerboard	801	783	2,311	2,375	797	770	1,610	1,510
North American Recycling	613	588	1,812	1,788	925	968	1,875	1,896
North American Saturated Kraft	51	37	142	112	41	44	87	91
North American Gypsum/Release Kraft	49	46	142	125	58	47	111	93
North American Bleached Kraft	7	6	18	17	6	5	13	11
EMEA Industrial Packaging (c) (d)	344	340	1,091	1,039	400	373	774	747
Asian Box (c) (e)	—	110	208	307	—	105	—	208
Brazilian Packaging (c)	84	89	235	261	87	84	173	161
Industrial Packaging	4,589	4,608	13,760	13,741	4,962	5,038	9,828	9,878
Cellulose Fibers (in thousands of metric tons) (b)					896	451	1,773	818
Printing Papers
U.S. Uncoated Papers	467	485	1,402	1,404
North American Uncoated Papers					465	460	954	935
EMEA and Russian Uncoated Papers	358	364	1,120	1,110	380	389	739	762
Brazilian Uncoated Papers	274	294	800	783	288	272	552	526
Indian Uncoated Papers	51	55	175	182	67	61	128	124
Uncoated Papers	1,150	1,198	3,497	3,479	1,200	1,182	2,373	2,347
Market Pulp (b)	457	446	1,359	1,291
Consumer Packaging
North American Consumer Packaging	301	371	915	1,080	289	306	580	614
EMEA Coated Paperboard	105	96	298	284	94	99	193	193
Asian Coated Paperboard (f)	—	339	—	958
Consumer Packaging	406	806	1,213	2,322	383	405	773	807


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


(b)	Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired beginning December 1, 2016.


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


(d)	Excludes newsprint sales volumes at the Madrid, Spain mill.


(e)	Includes sales volumes through the date of sale on June 30, 2016.


~~(f)~~	~~Includes sales volumes through the date of sale in October 2015.~~

Income Taxes

An income tax ~~provision~~benefit of ~~$107~~$89 million was recorded for the ~~2016 third quarter.~~2017 second quarter and the reported effective income tax rate for continuing operations was 298%. Excluding a benefit of ~~$24~~$184 million related to the tax effects of special items and a benefit of ~~$16~~$13 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 30.0% for the quarter.

An income tax provision of $83 million was recorded for the 2017 first quarter and the reported effective income tax rate for continuing operations was 34%. Excluding an expense of $7 million related to the tax effects of special items and a benefit of $12 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 30.5% for the quarter.

An income tax benefit of $9 million was recorded for the 2016 second ~~quarter.~~quarter and the reported effective income tax rate for continuing operations was 64%. Excluding an expense of $7 million related to the tax effects of special items and a benefit of $188 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 34% for the quarter.

An income tax provision of $106 million was recorded for the 2015 third quarter. Excluding a benefit of $70 million related to the tax effects of special items and a benefit of $30 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 33% for the quarter.

Interest Expense and ~~Corporate Items~~Noncontrolling Interest

Net interest expense for the ~~2016 third~~2017 second quarter was ~~$132~~$137 million which includes interest income of $4 million related to income tax refund claims compared with $142 million in the 2017 first quarter and $129 million in the 2016 second ~~quarter and $141 million in the 2015 third quarter.~~

~~Corporate items, net, were $11 million in the 2016 third quarter compared with $26 million in the 2016 second quarter, and $10 million in the 2015 third~~ quarter.

Effects of Special Items

~~Special items in the third quarter~~Details of 2016 included a pre-tax charge of $46 million ($29 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $29 million ($18 million after taxes) for debt extinguishment costs and a pre-tax charge of $17 million ($11 million after taxes) to write-off costs associated with the India Packaging business evaluation. Special items also included a pre-tax charge of $8 million ($5 million after taxes) for the write-off of certain regulatory pre-engineering costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business and pre-tax charges of $5 million ($4 million after taxes) for costs associated with the sale of our Asia corrugated packaging business.

~~Special~~special items for the ~~nine~~three months ~~ended September 30, 2016 included a pre-tax charge~~are as follows:



	Three Months Ended
	June 30										March 31
	2017						2016				2017
In millions	Before Tax			After Tax			Before Tax		After Tax		Before Tax			After Tax
Business Segments
Kleen Products anti-trust class action lawsuit settlement	$	354		$	219		$	—	$	—	$	—		$	—
Pulp business acquisition inventory fair value step-up amortization	—			—			—		—		14			8
Weyerhaeuser pulp business integration costs	5			3			5		3		4			2
Holmen mill net bargain purchase gain	—			—			—		—		(6		)	(6		)
Asia Packaging restructuring and impairment	—			—			28		20		—			—
Foodservice Asia impairment	9			4			—		—		—			—
Other	5			3			—		—		2			2
Business Segments Total	373			229			33		23		14			6
Corporate
India Packaging business evaluation write-off	(2		)	(2		)	—		—		—			—
Gain on sale of investment in ArborGen	(14		)	(9		)	—		—		—			—
Interest income related to income tax refund claim	(4		)	(2		)	—		—		—			—
Corporate Total	(20		)	(13		)	—		—		—			—
Total special items	353			216			33		23		14			6
Non-operating pension expense	34			21			487		299		31			19
Total	$	387		$	237		$	520	$	322	$	45		$	25

Includes the following tax expenses (benefits):



	Three Months Ended
	June 30						March 31
In millions	2017			2016			2017
Income tax refund claims	$	(85	)	$	—		$	—
Return to accrual	38			23			—
International investment restructuring	—			—			15
International legal entity restructuring	—			(6		)	—
Total	$	(47	)	$	17		$	15

Details of $47 million ($30 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $29 million ($18 million after taxes) for debt extinguishment costs, a pre-tax charge of $17 million ($11 million after taxes) to write-off costs associated with the India Packaging business evaluation, a pre-tax charge of $9 million ($6 million after taxes) related to costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production and a pre-tax gain of $8 million ($5 million after taxes) for the sale of our remaining investment in Arizona Chemical. Special items also included a pre-tax charge of $8 million ($5 million after taxes) for the write-off of certain regulatory pre-engineering costs, pre-tax charges of $12 million ($7 million after taxes) for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business, a pre-tax charge of $36 million ($33 million after taxes) for an impairment of the assets of our Asia Box business, pre-tax charges of $34 million ($25 million after taxes) for costs associated with the sale of our Asia corrugated packaging business, a tax expense of $23 million associated with the 2016 cash pension contributions, a tax benefit of $6 million related to an international legal entity restructuring, a tax benefit of $57 million associated with the legal restructuring of our Brazil Packaging business and a tax benefit of $14 million related to the closure of a U.S. federal income tax audit.

Special items in the third quarter of 2015 included a pre-tax loss of $25 million ($16 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $17 million ($11 million after taxes) related to the restructuring of our 2006 timber monetization, net pre-tax charges of $7 million ($4 million after taxes) related to the sale of the Carolina® Coated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production, and a charge of $1 million (before and after taxes) for other items. Special items also included a pre-tax charge of $186 million ($125 million after taxes) for the impairment of goodwill and other assets of the IP-Sun JV.

~~Special~~special items for the ~~nine~~six months ended September 30, 2015 included a pre-tax loss of $219 million ($141 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $17 million ($11 million after taxes) related toare as follows:



	Six Months Ended
	June 30
	2017						2016
In millions	Before Tax			After Tax			Before Tax			After Tax
Business Segments
Kleen Products anti-trust class action lawsuit settlement	$	354		$	219		$	—		$	—
Pulp business acquisition inventory fair value step-up amortization	14			8			—			—
Weyerhaeuser pulp business integration costs	9			5			5			3
Holmen mill net bargain purchase gain	(6		)	(6		)	—			—
Riegelwood mill conversion costs	—			—			9			6
Asia Packaging restructuring and impairment	—			—			65			54
Foodservice Asia impairment	9			4			—			—
Abandoned property	7			5			—			—
Business Segments Total	387			235			79			63
Corporate
Gain on sale of investment in Arizona Chemical	—			—			(8		)	(5		)
India Packaging business evaluation write-off	(2		)	(2		)	—			—
Gain on sale of investment in ArborGen	(14		)	(9		)	—			—
Interest income related to income tax refund claim	(4		)	(2		)	—			—
Corporate Total	(20		)	(13		)	(8		)	(5		)
Total special items	367			222			71			58
Non-operating pension expense	65			40			531			326
Total	$	432		$	262		$	602		$	384

Includes the restructuring of our 2006 timber monetization, a net pre-tax gain of $7 million ($5 million after taxes) related to the sale of the Carolina® Coated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production, a pre-tax charge of $207 million ($133 million after tax) for premiums paid on a cash tender offer on outstanding debt and a charge of $2 million (before and after taxes) for other items. Special items also included a pre-tax charge of $186 million ($125 million after taxes) for the impairment of goodwill and other assets of the IP-Sun JV, a pre-tax gain of $4 million ($2 million after taxes) related to statefollowing tax ~~credits, a tax expense of $23 million for the tax impact of the 2015 cash pension contribution of $750 million and a tax expense of $5 million for other items.~~expenses (benefits):



	Six Months Ended
	June 30
In millions	2017			2016
Income tax refund claims	$	(85	)	$	—
Return to accrual	38			23
International investment restructuring	15			—
International legal entity restructuring	—			(63		)
Federal income tax audit closure	—			(14		)
Total	$	(32	)	$	(54	)

BUSINESS SEGMENT OPERATING RESULTS

The following ~~presents business~~tables present net sales and operating profit (loss) which is the Company's measure of segment ~~discussions~~profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items. The Company calculates Operating Profit Before Special Items (non-GAAP) by excluding the pre-tax effect of items considered by management to be unusual from the earnings reported under U.S. generally accepted accounting principles (“GAAP”). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure. See Note 18 - Business Segment Information in the Condensed Notes to the Consolidated Financial Statements for the ~~third quarter~~GAAP reconciliation of ~~2016.~~segment operating profit.

Industrial Packaging


	2016						2015
Total Industrial Packaging													2017								2016
In millions	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		2nd Quarter		1st Quarter			Six Months			2nd Quarter		1st Quarter		Six Months
Sales(a)	$	3,582	$	3,597	$	10,631	$	3,642	$	3,694	$	10,889	$	3,706	$	3,499		$	7,205		$	3,520	$	3,411	$	6,931
Operating Profit	424		459		1,279		553		528		1,549		$	50	$	365		$	415		$	458	$	396	$	854
Asia Packaging restructuring and impairment													—		—			—			28		37		65
Holmen mill bargain purchase gain													—		(6		)	(6		)	—		—		—
Kleen Products anti-trust settlement													354		—			354			—		—		—
Other													3		1			4			—		—		—
Operating Profit Before Special Items													$	407	$	360		$	767		$	486	$	433	$	919

Industrial Packaging net sales for the ~~third quarter of 2016 were even with the~~ second quarter of ~~2016 but~~2017 were ~~2% lower~~6% higher than in the ~~third~~first quarter of ~~2015. Operating profits included a charge of $5 million in the third quarter of 2016~~2017 and ~~a charge of $28 million~~were 5% higher than in the second quarter of ~~2016 for costs associated with the sale of our Asia corrugated packaging business. Excluding these~~2016. Operating profit before special items ~~operating profits~~(as shown in the ~~third~~table above) was 13% higher in the second quarter of ~~2016 were 12%~~2017 than in the first quarter of 2017 and 16% lower than in the second quarter of ~~2016 and 22% lower than the third quarter of 2015.~~2016.



North American Industrial Packaging	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	3,336	$	3,155	$	6,491	$	3,138	$	3,055	$	6,193
Operating Profit	$	51	$	361	$	412	$	496	$	438	$	934
Kleen Products anti-trust settlement	354		—		354		—		—		—
Other	3		1		4		—		—		—
Operating Profit Before Special Items	$	408	$	362	$	770	$	496	$	438	$	934


(a)	Includes intra-segment sales of $31 million and $32 million for the three months ended June 30, 2017 and 2016, respectively, and $32 million and $45 million for the three months ended March 31, 2017 and 2016, respectively.

North American Industrial Packaging ~~net~~ sales ~~were $3.1 billion in the third quarter of 2016 compared with $3.1 billion~~volumes for boxes in the second quarter of ~~2016 and $3.2 billion in the third quarter of 2015. Operating profits~~2017 were ~~$439 million in the third quarter of 2016 compared with $496 million in the second quarter of 2016 and $557 million in the third quarter of 2015.~~

~~Sales volumes for boxes in the third quarter of 2016 were slightly lower~~higher than in the ~~second~~first quarter of ~~2016,~~2017 despite one less shipping day, reflecting seasonally ~~weaker market demand with the same number of shipping days.~~stronger demand. Containerboard shipments to ~~both domestic and~~ export markets were also higher. Total maintenance and economic downtime ~~decreased 17,000~~increased 29,000 tons from ~~210,000~~128,000 tons to ~~193,000~~157,000 tons which reflects ~~a decrease~~an increase of ~~39,000~~64,000 tons for maintenance downtime and ~~an increase~~a decrease of ~~22,000~~35,000 tons for economic downtime. Average sales margins for boxes were ~~lower.~~higher due to the realization of box sales price increases. Average sales price realizations for ~~export~~ containerboard also ~~decreased.~~increased in both the domestic and export markets. Input costs were higher for recycled fiber, ~~energy, chemicals and freight,~~ but were partially offset by lower costs for energy, wood and chemicals. Planned maintenance downtime costs were $31 million higher in the 2017 second quarter compared with the 2017 first quarter. Operating costs, including costs associated with the January Pensacola mill digester incident, were lower.

Compared with the second quarter of 2016, sales volumes for boxes were higher in the second quarter of 2017 which included one less shipping day. Sales volumes for containerboard increased in export markets, while domestic shipments were relatively flat. Total maintenance and economic downtime was 53,000 tons lower in the second quarter of 2017 which comprises an increase of 32,000 tons for maintenance downtime and a decrease of 85,000 tons for economic downtime. Average sales margins for boxes increased due to higher average sales price realizations. Average sales price realizations in both domestic and export containerboard markets were higher. Significantly higher input costs for recycled fiber and energy were slightly offset by lower wood costs. Planned maintenance downtime costs were ~~$34~~$22 million ~~lower~~higher in the ~~2016 third~~second quarter of 2017 compared with the ~~2016~~ second ~~quarter.~~quarter of 2016. Operating costs were higher ~~a result~~due to reliability events and spending as well as inventory valuation costs.

Entering the third quarter of ~~mill operations~~2017, sales volumes for boxes are expected to continue to be strong, but will include one less shipping day. Containerboard export and ~~seasonally higher labor~~domestic shipments are expected to be similar to the second quarter. Input costs for recycled fiber, wood and ~~benefit~~energy are expected to rise. Planned maintenance downtime costs should be $53 million lower.



EMEA Industrial Packaging	2017								2016
In millions	2nd Quarter		1st Quarter			Six Months			2nd Quarter		1st Quarter		Six Months
Sales	$	341	$	317		$	658		$	295	$	294	$	589
Operating Profit	$	5	$	14		$	19		$	6	$	7	$	13
Holmen mill net bargain purchase gain	—		(6		)	(6		)	—		—		—
Operating Profit Before Special Items	$	5	$	8		$	13		$	6	$	7	$	13

EMEA Industrial Packaging sales volumes for boxes in the ~~box plants.~~second quarter of 2017 were about even with the first quarter of 2017 as seasonally lower sales in Morocco were offset by a recovery from the first quarter weather-related shortfall in the Euro-

zone. Average sales margins decreased due to higher input costs for board. Input costs for energy were lower, while distribution costs increased due to higher export shipments from Turkey. Operating costs were higher.

Compared with the ~~third~~second quarter of ~~2015,~~2016, sales volumes in the ~~third~~second quarter of ~~2016~~2017 were higher. ~~Sales volumes for containerboard were flat as higher shipments~~Average sales margins improved due to ~~export markets were offset by lower domestic shipments. Total maintenance~~material cost decreases and ~~economic downtime was 43,000 tons higher~~sales price increases in Turkey. Operating costs and distribution costs both increased.

Looking ahead to the third quarter of 2016 which comprises an increase of 14,000 tons for maintenance downtime and an increase of 29,000 tons for economic downtime. Average sales price realizations were significantly lower for containerboard largely due to pricing pressures in export markets. Average sales margins for boxes were also lower. Input costs decreased for wood and freight fuel surcharges, but increased for recycled fiber. Planned maintenance downtime costs were $17 million higher in the third quarter of 2016 compared with the third quarter of 2015. Operating costs were also higher.

~~Entering the fourth quarter of 2016,~~2017, sales volumes are expected to be seasonally ~~lower for boxes with four fewer shipping days. Input costs are expected to be flat. Planned maintenance downtime costs should be $6 million~~ lower. Earnings in the fourth quarter will be impacted by approximately $7 million of costs associated with the effects of Hurricane Matthew. We expect favorable pricing in the North American Industrial Packaging business associated with the implementation of the containerboard and box price increases communicated to customers in October 2016.

~~EMEA Industrial Packaging~~ net sales were $313 million in the third quarter of 2016 compared with $295 million in the second quarter of 2016 and $262 million in the third quarter of 2015. Operating profits were about breakeven in the third quarter of 2016 compared with $6 million in the second quarter of 2016 and $1 million in the third quarter of 2015.

Sales volumes for boxes in the third quarter of 2016 were lower than in the second quarter of 2016 due to seasonally lower demand in Morocco and geopolitical issues in Turkey. Average sales margins increased reflecting continuing decreases in paper costs. Input costs for energy were higher as were operating costs. Operating profits in the second quarter of 2016 were impacted by a $3 million transfer tax expense related to the acquisition of Holmen Paper which did not recur in the third quarter.

Compared with the third quarter of 2015, sales volumes in the third quarter of 2016 were higher, reflecting growing market demand in the Euro-zone and strong demand for boxes in the industrial market in Morocco. Average sales margins were significantly higher due to material cost decreases and favorable mix. Operating costs increased.

~~Looking ahead to the fourth quarter of 2016, sales volumes are expected to be seasonally higher.~~ Average sales margins are expected to continue to ~~increase~~be compressed due to ~~lower paper costs. Lower energy and distribution~~higher material costs, ~~should be more than~~only partially offset by ~~higher operating~~box sales price increases and mix improvement initiatives. Operating costs ~~driven by the volume increase.~~are expected to be lower.



Brazilian Industrial Packaging	2017									2016
In millions	2nd Quarter			1st Quarter			Six Months			2nd Quarter			1st Quarter			Six Months
Sales	$	60		$	59		$	119		$	51		$	42		$	93
Operating Profit	$	(6	)	$	(10	)	$	(16	)	$	(12	)	$	(8	)	$	(20	)

Brazilian Industrial Packaging ~~net~~ sales ~~were $61 million in the third quarter of 2016 compared with $51 million~~volumes in the second quarter of ~~2016 and $55 million in~~2017 compared with the ~~third~~first quarter of ~~2015. Operating profits~~2017 were ~~a loss of $9 million in the third quarter of 2016 compared with a loss of $12 million~~higher for boxes and flat for containerboard. Average sales margins were impacted by higher sales prices for boxes, largely offset by an unfavorable customer/segment mix. Planned maintenance downtime costs in the second quarter of ~~2016 and a loss of $4~~2017 were $2 million ~~in the third quarter of 2015.~~

~~Sales volumes in the third quarter of 2016 were seasonally higher~~lower than in the ~~second~~first quarter of 2016. Average sales margins were slightly lower due to a less favorable product mix. There were no planned maintenance outages in the third quarter of 2016 compared with a cost of $2 million in the second quarter of 2016 related to2017 which included an outage at the Nova Campina mill. Input costs were ~~higher~~lower for recycled fiber.

Compared with the ~~third~~second quarter of ~~2015,~~2016, sales volumes in the ~~third~~second quarter of ~~2016~~2017 were ~~lower~~higher for boxes and ~~sheets due to continued poor~~containerboard, reflecting improving economic ~~conditions, but were higher for containerboard.~~conditions. Average sales price realizations for boxes increased, while input costs, primarily for utilities and recycled fiber, decreased. Operating costs were ~~higher. Manufacturing operating~~lower and planned maintenance downtime costs ~~decreased, but~~ were ~~more~~$2 million lower than ~~offset by higher other costs and inflation.~~in the second quarter of 2016.

Looking ahead to the ~~fourth~~third quarter of ~~2016,~~2017, sales volumes are expected to be seasonally ~~higher.~~higher for boxes. Average sales price realizations are also expected to improve ~~due to~~for both boxes and containerboard and the ~~continuing realization of box sales price increases.~~customer/segment mix should be favorable. Input costs should be ~~higher, primarily for recycled fiber.~~stable.



Asian Industrial Packaging	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter			1st Quarter			Six Months
Sales	$	—	$	—	$	—	$	68		$	65		$	133
Operating Profit	$	—	$	—	$	—	$	(32	)	$	(41	)	$	(73	)
Asia Packaging Restructuring and Impairment	—		—		—		28			37			65
Operating Profit Before Special Items	$	—	$	—	$	—	$	(4	)	$	(4	)	$	(8	)

Asian Industrial Packaging net sales were $109 million in the third quarter of 2016 compared with $165 million in the second quarter of 2016 and $150 million in the third quarter of 2015. Operating profits were a loss of $6 million (a loss of $1 million excluding costs associated with the sale of the corrugated packaging business) in the third quarter of 2016 compared with a loss of $31 million (a loss of $3 million excluding costs associated with the sale of the business) in the second quarter of 2016 and a loss of $1 million in the third quarter of 2015.

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. ~~Net sales and operating profits beginning with~~See Note 8 - Divestitures / Spinoff in the ~~third quarter~~Condensed Notes to the Consolidated Financial Statements for further discussion of ~~2016 reflect~~the sale of this business.

Global Cellulose Fibers



Total Global Cellulose Fibers	2017								2016
In millions	2nd Quarter		1st Quarter			Six Months			2nd Quarter			1st Quarter			Six Months
Sales	$	612	$	564		$	1,176		$	259		$	212		$	471
Operating Profit	$	7	$	(70	)	$	(63	)	$	(21	)	$	(50	)	$	(71	)
Acquisition costs	5		4			9			5			—			5
Inventory fair value step-up amortization	—		14			14			—			—			—
Other	—		1			1			—			—			—
Operating Profit Before Special Items	$	12	$	(51	)	$	(39	)	$	(16	)	$	(50	)	$	(66	)

Global Cellulose Fibers includes the results of the ~~distribution operations of the business.~~

pulp business acquired from Weyerhaeuser beginning in December 2016. See Note 7 - Acquisitions~~Printing Papers~~

2016 2015
In millions 3rd Quarter 2nd Quarter Nine Months 3rd Quarter 2nd Quarter Nine Months
Sales $ 1,266
$ 1,271
$ 3,721
$ 1,258
$ 1,249
$ 3,735
Operating Profit 128
96
309
179
101
389

~~Printing Papers net sales for the third quarter of 2016 were even with the second quarter of 2016 and were 1% higher than~~ in the ~~third quarter~~Condensed Notes to Consolidated Financial Statements for further discussion of ~~2015. Operating profits included a charge of $7 million in the third quarter of 2016 and a charge of $5 million~~this acquisition. Net sales were 9% higher in the second quarter of ~~2016 for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business. Excluding these items, operating profits~~2017 than in the ~~third~~first quarter of ~~2016 were 34%~~2017 and significantly higher than in the second quarter of 2016 ~~and 25% lower than~~due to the acquisition. Operating profit before special items (as shown in the ~~third quarter of 2015.~~

~~North American Printing Papers~~ ~~net sales were $478 million in the third quarter of 2016 compared with $466 million~~table above) was 124% higher in the second quarter of ~~2016 and $500 million~~2017 than in the ~~third~~first quarter of ~~2015. Operating profits were $81 million in the third quarter of 2016 compared with $51 million in the second quarter of 2016~~2017 and ~~$81 million in the third quarter of 2015.~~

~~Sales volumes in the third quarter of 2016 were~~175% higher than in the second quarter of 2016.

Sales volumes in the second quarter of 2017 compared with the first quarter of 2017 increased reflecting solid demand, particularly for fluff pulp. Average sales price realizations also increased. Operating costs were lower as the mills recovered from first-quarter performance issues and the January Pensacola mill digester incident. Input costs were lower. Planned maintenance downtime costs in the second quarter of 2017 were $6 million lower than in the first quarter of 2017. In Europe and Russia, sales volumes were lower, but average sales price realizations were favorable.

Compared with the second quarter of 2016, for the legacy business sales volumes in the second quarter of 2017 were flat. Average sales price realizations improved. Planned maintenance downtime costs in the second quarter of 2017 which included outages at the Riegelwood, Pensacola and Eastover mills were $16 million higher than in the second quarter of 2016 which included outage costs associated with the Riegelwood mill conversion. In Europe and Russia, sales volumes decreased, but average sales margins were favorably impacted by higher sales price realizations and a positive mix.

Entering the third quarter of 2017, sales volumes for the combined business are expected to be stable. Average sales price realizations are expected to reflect the realization of recent price increases. Average sales margins will also benefit from a more favorable product mix. Input costs are expected to be slightly higher. Planned maintenance downtime costs should be $36 million lower in the third quarter of 2017. In Europe and Russia, average sales price realizations are expected to decrease, but sales volumes are expected to increase.

Printing Papers



Total Printing Papers	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	1,017	$	995	$	2,012	$	1,012	$	972	$	1,984
Operating Profit	$	86	$	100	$	186	$	117	$	135	$	252
Other	2		—		2		—		—		—
Operating Profit Before Special Items	$	88	$	100	$	188	$	117	$	135	$	252

Printing Papers net sales for the second quarter of 2017 were 2% higher than in the first quarter of 2017, but were even with the second quarter of 2016. Operating profit before special items (as shown in the table above) in the second quarter of 2017 was 12% lower than in the first quarter of 2017 and 25% lower than in the second quarter of 2016.



North American Papers	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	446	$	468	$	914	$	466	$	482	$	948
Operating Profit	$	19	$	33	$	52	$	51	$	61	$	112
Other	2		—		2		—		—		—
Operating Profit Before Special Items	$	21	$	33	$	54	$	51	$	61	$	112

North American Papers sales volumes in the second quarter of 2017 were lower than in the first quarter of 2017 reflecting weak demand in the commercial printing market. Average sales price realizations for uncoated freesheet paper ~~in the domestic market~~ were ~~flat, but average~~lower due to competitive pressures. Average sales margins were ~~unfavorably~~also negatively impacted by an unfavorable geographic mix. Operating costs were seasonally lower and input costs also decreased. Planned maintenance downtime costs were $11 million higher in the second quarter of 2017 compared with the first quarter of 2017.

Compared with the second quarter of 2016, sales volumes in the second quarter of 2017 were slightly higher primarily due to increased shipments of uncoated freesheet paper to export markets. Average sales price realizations were lower, reflecting weak market conditions. Average sales margins were also impacted by an unfavorable product and mill sourcing mix. Input costs ~~increased for energy and chemicals, partially offset by lower wood costs. Operating~~were flat. Planned maintenance downtime costs ~~were lower. There were no planned maintenance outages~~ in the ~~third~~second quarter of ~~2016, compared with a cost of $26~~2017 were $8 million ~~related to outages at the Ticonderoga, Eastover and Georgetown mills~~higher than in the second quarter of 2016.

~~Compared with~~Entering the third quarter of ~~2015,~~2017, sales volumes are expected to be seasonally higher, while average sales price realizations are expected to decline. Average sales margins should be impacted by a negative geographic mix. Input costs are expected to be steady. Planned maintenance downtime costs should be $33 million lower with no scheduled outages in the third ~~quarter of 2016 were lower reflecting decreased shipments of~~quarter.



European Papers	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	299	$	274	$	573	$	288	$	259	$	547
Operating Profit	$	26	$	29	$	55	$	34	$	40	$	74

European Papers sales volumes for uncoated freesheet paper toin the ~~export market.~~second quarter of 2017 compared with the first quarter of 2017 were higher in Russia and seasonally lower in Europe. Average sales price realizations for uncoated freesheet paper increased in Europe and were ~~lower,~~flat in Russia. Average sales margins benefited from a favorable mix in both regions. Input costs

were higher, primarily for ~~cutsize paper~~wood and ~~rolls. Input~~purchased pulp, partially offset by lower energy costs ~~were higher, but operating~~in Europe and freight costs ~~decreased.~~in Russia. Planned maintenance downtime costs in the ~~third~~second quarter of 2017 were $6 million higher than in the first quarter of 2017. Manufacturing operating costs were higher.

Sales volumes for uncoated freesheet paper in the second quarter of 2017 compared with the second quarter of 2016, were lower in Europe, but higher in Russia. Average sales price realizations for uncoated freesheet paper were flat overall as an increase in Russia was offset by lower prices in Europe. Input costs, primarily for wood and energy, were higher. Planned maintenance downtime costs in the second quarter of 2017 were $1 million lower than in the second quarter of 2016.

Looking forward to the third quarter of ~~2015.~~

~~Entering the fourth quarter of 2016,~~2017, sales volumes ~~are expected to improve~~ for uncoated freesheet paper are expected to increase in ~~the export market.~~Europe, but to be offset by a decrease in Russia. Average sales price realizations are expected to be stable. Input costs ~~should~~are expected to be ~~slightly higher for wood.~~stable in both Europe and Russia. Planned maintenance downtime costs should be ~~$11~~$6 million higher with outages scheduled at the Riverdale and Eastover mills in the fourth quarter. Operating costs are expected to be seasonally higher. Earnings in the fourth quarter will be impacted by approximately $4 million of costs associated with the effects of Hurricane Matthew.

~~European Printing Papers~~ ~~net sales were $306 million~~lower in the third quarter of ~~2016 compared~~2017 with ~~$318~~no outages scheduled.



Brazilian Papers	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales (a)	$	232	$	214	$	446	$	219	$	189	$	408
Operating Profit	$	43	$	39	$	82	$	34	$	35	$	69


(a)	Includes intra-segment sales of $7 million and $3 million for the three months ended June 30, 2017 and 2016, respectively, and $9 million and $1 million for the three months ended March 31, 2017 and 2016, respectively.

Brazilian Papers sales volumes in the second quarter of ~~2016 and $284 million~~2017 increased compared with the first quarter of 2017 reflecting stronger demand for uncoated freesheet paper in the ~~third quarter of 2015. Operating profits~~Latin American export market. Average sales margins were ~~$41 million~~lower as increased sales price realizations in the ~~third quarter of 2016 compared with $36~~export market were more than offset by an unfavorable geographic mix. Input costs were steady. Planned maintenance downtime costs were $3 million higher in the second quarter of ~~2016 and $30 million in~~2017 which included an outage at the ~~third quarter of 2015.~~Mogi Guacu mill.

Compared with the second quarter of 2016, sales volumes for uncoated freesheet paper in the ~~third~~second quarter of ~~2016 were flat in Europe and higher in Russia. Sales volumes for pulp decreased in Europe, but~~2017 increased in ~~Russia.~~other Latin American markets, but were lower in the domestic market. Average sales ~~price realizations for uncoated freesheet paper decreased in Europe and~~margins were ~~stable in Russia. Average sales price realizations for pulp decreased in Europe, but increased in Russia.~~lower due to an unfavorable geographic mix. Input costs were ~~flat.~~lower, primarily for purchased pulp. Planned maintenance ~~downtime~~outage costs were $4 million lower in the ~~third~~second quarter of ~~2016 which included an outage at the Kwidzyn mill were $1 million higher than in~~2017 compared with the second quarter of 2016 which included ~~an outage~~outages at the ~~Svetogorsk mill. Manufacturing operating costs were lower.~~Luiz Antonio and Mogi Guacu mills.

~~Sales volumes for uncoated freesheet paper in~~Entering the third quarter of 2016 were higher compared with the third quarter of 2015 in both Europe and Russia. Average sales price realizations increased for uncoated freesheet paper due to price increases implemented during 2015 and, in Russia, the first quarter of 2016. In Europe, input costs were lower for wood and energy, while in Russia costs for wood and energy were higher. Planned maintenance downtime costs were $5 million lower in the third quarter of 2016 than in the third quarter of 2015.

~~Looking forward to the fourth quarter of 2016,~~2017, sales volumes for uncoated freesheet paper are expected to ~~increase in Europe, and~~ be ~~stable in Russia. Average sales price realizations for uncoated freesheet paper are expected to be stable in both Europe~~

and Russia. However, average sales price realizations for hardwood pulp in Europe are expected to improve. Input costs are expected to increase for energy and purchased fiber in Europe and for wood and freight in Russia. Planned maintenance downtime costs should be $5 millionseasonally higher ~~in the fourth quarter of 2016 which includes an outage scheduled at the Saillat mill.~~

~~Brazilian Printing Papers~~ net sales were $227 million in the third quarter of 2016 compared with $220 million in the second quarter of 2016 and $219 million in the third quarter of 2015. Operating profits were $53 million in the third quarter of 2016, $34 million in the second quarter of 2016 and $56 million in the third quarter of 2015.

~~Sales volumes in the third quarter of 2016 increased compared with the second quarter of 2016 reflecting seasonally stronger demand for uncoated freesheet paper~~ in the domestic market, partially offset by ~~weaker demand in the~~lower shipments to export markets. Average sales price realizations increased slightly in the domestic market, but were lower in export markets. Input costs were lower, primarily for pulp. Planned maintenance downtime costs were $7 million lower in the third quarter of 2016 which included no outages compared with outages at the Mogi Guacu and Luiz Antonio mills in the second quarter of 2016.

Compared with the third quarter of 2015, sales volumes for uncoated freesheet paper in the third quarter of 2016 were lower in both the domestic and other Latin American markets due to weaker demand and competitive pressures. Average sales price realizations were higher reflecting the continued realization of the first-quarter 2016 domestic price increase, although prices to Latin American export markets decreased. Input costs were flat. Planned maintenance downtime costs were $2 million lower than in the third quarter of 2015.

~~Entering the fourth quarter of 2016, sales volumes~~ are expected to be ~~seasonally stronger for uncoated freesheet paper~~higher in the ~~domestic market. Average~~Latin American export market and average sales margins should also benefit from a more favorable geographic mix. Input costs are expected to be higher, particularly for ~~wood.~~virgin fiber and energy. Planned maintenance outage costs should be $1$3 million ~~higher in the fourth quarter with an outage scheduled at the Tres Lagoas mill.~~

~~Indian Printing Papers~~ ~~net sales were $35 million~~lower in the third ~~quarter of 2016 compared with $42 million~~quarter.



Indian Papers	2017									2016
In millions	2nd Quarter			1st Quarter			Six Months			2nd Quarter			1st Quarter			Six Months
Sales	$	47		$	48		$	95		$	42		$	43		$	85
Operating Profit	$	(2	)	$	(1	)	$	(3	)	$	(2	)	$	(1	)	$	(3	)

Indian Papers sales volumes in the second quarter of ~~2016 and $39 million in~~2017 compared with the ~~third~~first quarter of ~~2015. Operating profits~~2017 were lower due to reduced production capacity associated with a ~~loss of $8 million in the third quarter of 2016, a loss of $2 million in the second quarter of 2016~~planned maintenance outage. Average sales price realizations were slightly higher. Input costs were lower, primarily for wood and ~~a loss of $4 million in the third quarter of 2015.~~

were offset by higher operating costs. Compared with the second quarter of 2016, sales volumes in the second quarter of 2017 were flat. Average sales price realizations increased. Both operating costs and input costs were flat.

Looking ahead to the third quarter of ~~2016 were~~2017, sales volumes are expected to be lower ~~reflecting the impact of the~~due seasonally weaker demand and a planned maintenance outage at the Rajahmundry mill. Average sales ~~price realizations increased slightly. Input costs for fiber and chemicals were higher, while operating costs also increased.~~prices should be seasonally lower. Planned maintenance ~~downtime~~outage costs ~~were~~are expected to be $1 million higher than in the second quarter of 2016. Compared with the third quarter of 2015, sales volumes in the third quarter of 2016 were lower. Average sales price realizations increased slightly. Higher operating costs were offset by lower input costs.

~~Looking ahead~~2017 due to the fourth quarter of 2016, sales volumes are expected to be seasonally higher. Average sales margins should be favorably impacted by increased average sales price realizations and an improved mix. Planned maintenance downtime costs should be $1 million lower in the fourth quarter.

~~U.S. Pulp~~ net sales were $220 million in the third quarter of 2016 compared with $225 million in the second quarter of 2016 and $216 million in the third quarter of 2015. Operating profits were a loss of $39 million (a loss of $32 million excluding acquisition-related costs) in the third quarter of 2016 compared with a loss of $23 million (a loss of $18 million excluding acquisition-related costs) in the second quarter of 2016 and a profit of $16 million in the third quarter of 2015.

Sales volumes in the third quarter of 2016 compared with the second quarter of 2016 increased as a result of the ramp-up of production at the Riegelwood mill. Average sales price realizations were flat, but average sales margins were impacted by an unfavorable product mix. Operating costs were lower despite operational issues at two mills. Input costs were higher, primarily for natural gas and chemicals. Planned maintenance downtime costs in the third quarter of 2016 included an outage at the ~~Franklin mill and were $7 million higher than in the second quarter of 2016.~~Rajahmundry mill.

Compared with the third quarter of 2015, sales volumes increased in the third quarter of 2016. Average sales price realizations were significantly lower for fluff pulp and softwood pulp. Input costs increased slightly. Operating costs were higher in the third quarter of 2016 due to costs associated with the Riegelwood mill conversion. Planned maintenance downtime costs were $2 million higher in the third quarter of 2016.

Entering the fourth quarter of 2016, sales volumes are expected to be stable. Average sales margins will reflect a less favorable product mix resulting from the ramp-up of the Riegelwood mill as it continues to produce lower margin softwood pulp while continuing the fluff pulp qualification process. Input costs are expected to be slightly higher. Planned maintenance downtime costs should be $13 million lower in the fourth quarter of 2016 with no outages scheduled. Earnings in the fourth quarter will be impacted by approximately $6 million of costs associated with the effects of Hurricane Matthew.

Consumer Packaging


	2016						2015
Total Consumer Packaging														2017							2016
In millions	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months			2nd Quarter			1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	494	$	501	$	1,490	809		$	797	$	2,384		$	474		$	466	$	940	$	501	$	495	$	996
Operating Profit	61		73		150		(153	)	47		(60		)	$	(14	)	$	33	$	19	$	73	$	16	$	89
Riegelwood mill conversion costs														—			—		—		—		9		9
Foodservice Asia asset impairment														9			—		9		—		—		—
Operating Profit Before Special Items														$	(5	)	$	33	$	28	$	73	$	25	$	98

Consumer Packaging net sales in the ~~third~~second quarter of ~~2016~~2017 were 1%2% higher than in the first quarter of 2017, but 5% lower than in the second quarter of ~~2016 and 39%~~2016. Operating profit before special items (as shown in the table above) was 115% lower in the second quarter of 2017 than in the ~~third~~first quarter of 2015. Operating profits in the third quarter of 2015 included a charge of $186 million for asset write-offs related to the sale of our 55% equity share of the IP-Sun JV, a net loss of $7 million related to the sale of the Carolina Coated Bristols brand2017, and ~~costs associated with the conversion of the Riegelwood mill and an expense of $1 million related to sheet plant closures. Excluding these items, operating profits in the third quarter of 2016 were 16%~~107% lower than in the second quarter of ~~2016, but 49% higher than in the third quarter of 2015.~~2016.



North American Consumer Packaging	2017								2016
In millions	2nd Quarter			1st Quarter		Six Months			2nd Quarter		1st Quarter			Six Months
Sales	$	395		$	388	$	783		$	416	$	418		$	834
Operating Profit	$	(28	)	$	14	$	(14	)	$	48	$	(10	)	$	38
Riegelwood mill conversion costs	—			—		—			—		9			9
Foodservice Asia asset impairment	9			—		9			—		—			—
Operating Profit Before Special Items	$	(19	)	$	14	$	(5	)	$	48	$	(1	)	$	47

North American Consumer Packaging ~~net~~Coated paperboard sales ~~in the third quarter of 2016 were $407 million compared with $416 million~~volumes in the second quarter of ~~2016 and $494 million in~~2017 were flat compared with the ~~third~~first quarter of 2015. Operating profits were $39 million in the third quarter of 2016 compared with $48 million in the second quarter of 2016 and $22 million ($30 million excluding the net loss on the sale of the Carolina Coated Bristols brand and mill conversion costs and sheet plant closure costs) in the third quarter of 2015.

~~Coated Paperboard sales volumes in the third quarter of 2016 were about even with the second quarter of 2016.~~2017. Average sales price realizations were ~~lower, primarily for folding carton board, and average~~slightly higher reflecting the partial realization of an announced sales price increase. Average sales margins were further impacted by ~~an unfavorable~~a more favorable mix. There were no planned maintenance outages in either the third quarter of 2016 or the second quarter of 2016. Higher input costs for energy and chemicals were offset by lower costs for wood. Operating costs increased primarily due to inventory reserve adjustments.

Compared with the third quarter of 2015, sales volumes in the third quarter of 2016 were lower primarily due to the absence of the coated bristols product line. The business took 29,000 tons of market related downtime in the third quarter of 2015 and none in the third quarter of 2016. Average sales price realizations were lower. Average sales margins were also negatively affected by an unfavorable mix. Input costs were lower for wood, chemicals and freight. Planned maintenance downtime costs were $2$33 million ~~lower.~~

~~Foodservice sales volumes in the third quarter of 2016 were~~ higher ~~than~~ in the second quarter of ~~2016. Average sales prices decreased~~2017 with outages at our Augusta and Texarkana mills compared with the first quarter of 2017 which included no outages. Operating costs were higher due to ~~competitive market pressures. Compared with~~reliability issues at our Augusta mill during the third quarter of 2015, sales volumes in the third quarter of 2016 increased slightly. Average sales margins were flat reflecting lower average sales price realizations due to market pressures offset by a more favorable product mix. Freight costs decreased reflecting lower fuel prices and the impact of supply chain initiatives.

~~Looking forward to the fourth quarter of 2016, coated paperboard sales volumes are expected to be seasonally lower. Average sales price realizations are expected to be slightly lower.~~2017 second quarter. Input costs are expected to be flat. Planned maintenance downtime costs should be $12 million higher with an outage scheduled at the Texarkana mill. For Foodservice, sales volumes are expected to be flat while input costs and operating costs are expected to be lower.

~~European Consumer Packaging~~ ~~net sales~~ were $87 million in the third quarter of 2016 compared with $85 million in the second quarter of 2016 and $80 million in the third quarter of 2015. Operating profits in the third quarter of 2016 were $22 million compared with $25 million in the second quarter of 2016 and $20 million in the third quarter of 2015.stable.

Compared with the second quarter of 2016, sales volumes in the second quarter of 2017 were lower primarily due to capacity constraints associated with downtime at the Augusta mill. Average sales price realizations were lower for folding carton board and plate stock. Average sales margins were also negatively affected by an unfavorable mix. Planned maintenance downtime costs were $33 million higher. Operating costs were higher due to performance issues at our Augusta mill, while input costs were flat.

Foodservice sales volumes in the second quarter of 2017 were seasonally higher than in the first quarter of 2017. Average sales margins increased, reflecting higher average sales price realizations and a more favorable product mix, partially offset by higher input costs for polystyrene resin and board. Compared with the second quarter of 2016, sales volumes in the second quarter of 2017 increased slightly. Average sales price realizations were lower due to competitive pressure. Average sales margins were also negatively impacted by higher polystyrene and board input costs.

Looking forward to the third quarter of ~~2016~~2017, coated paperboard sales volumes are expected to be seasonally stronger. Average sales price realizations are expected to increase for cupstock and folding carton board. Input costs are expected to be stable. Planned maintenance downtime costs should be $33 million lower with no scheduled outages in the third quarter. Operating costs are expected to recover. For Foodservice, sales volumes are expected to be seasonally higher while average sales margins will reflect the realization of sales price increases and lower input costs.



European Consumer Packaging	2017						2016
In millions	2nd Quarter		1st Quarter		Six Months		2nd Quarter		1st Quarter		Six Months
Sales	$	79	$	78	$	157	$	85	$	77	$	162
Operating Profit	$	14	$	19	$	33	$	25	$	26	$	51

European Consumer Packaging sales volumes in the second quarter of 2017 compared with the first quarter of 2017 were ~~higher~~lower in Europe, ~~and flat~~but were partially offset by higher volumes in Russia. Average sales margins decreased, reflecting lower sales price realizations and aan unfavorable ~~mix.~~mix in Russia, while sales price realizations and mix were both favorable in Europe. Input costs were ~~flat.~~higher in both Europe and Russia. Planned maintenance downtime costs were $2 million higher in the ~~third~~second quarter of ~~2016 which included~~2017 due to an outage at the ~~Kwidzyn mill were flat compared~~Svetogorsk mill.

Compared with the second quarter of 2016, ~~which had an outage at the Svetogorsk mill.~~

~~Compared with the third quarter of 2015,~~ sales volumes increased in Europe, but decreased in Russia. Average sales margins were lower in Russia due to lower average sales price realizations, but in Europe sales margins reflected higher average sales

price realizations and a more favorable mix. Input costs for energy and wood increased in both Europe and Russia. ~~Average sales price realizations increased in Russia, but decreased in Europe. Input costs for chemicals, energy and wood decreased in Europe, but increased for wood and energy in Russia.~~ Planned maintenance downtime costs were $3$1 million lower in the ~~third~~second quarter of ~~2016 compared with~~2017 than in the second quarter of 2016.

Entering the third quarter of ~~2015.~~

~~Entering the fourth quarter of 2016,~~2017, sales volumes are expected to be ~~lower~~higher in both Europe and ~~slightly higher in~~ Russia. Average sales margins are expected to decrease, reflecting ~~lower~~an unfavorable mix in Russia, although average sales price realizations in ~~both Europe and~~ Russia ~~partially mitigated by a favorable mix in Russia.~~are expected to increase. Planned maintenance downtime costs are expected to be $2 million lower with no scheduled outages ~~scheduled~~ in the ~~fourth~~third quarter. Input costs ~~for wood and energy~~ are expected to be ~~higher.~~

~~Asian Consumer Packaging~~ net sales were $235 million in the third quarter of 2015. Operating profits were a loss of $195 million (a loss of $9 million excluding asset write-off costs) in the third quarter of 2015. The Company sold its 55% equity share in the IP-Sun JV in October 2015.flat.

Equity Earnings, Net of Taxes – Ilim

Since October 2007, International Paper and Ilim Holding S.A. (Ilim) have operated a 50:50 joint venture in Russia. Ilim is a separate reportable ~~industry~~business segment. The Company recorded equity earnings, net of taxes, of ~~$46~~$21 million in the ~~third~~second quarter of ~~2016,~~2017, compared with $50 million in the first quarter of 2017 and $46 million in the second quarter of ~~2016 and a loss of $9 million in~~2016. In the ~~third~~second quarter of ~~2015. In the third quarter of 2016,~~2017, the after-tax foreign exchange impact primarily on the remeasurement of U.S. dollar-denominated net debt was a ~~gain~~loss of $3$18 million compared with a gain of $6$23 million in the first quarter of 2017. Compared with the first quarter of 2017, sales volumes in the second quarter of ~~2016.~~ 2017 were seasonally higher primarily for sales of hardwood pulp in China and sales of containerboard in domestic and other export markets. Average sales price realizations increased, primarily for sales of hardwood and softwood pulp in China and domestic markets and for containerboard in all markets, partially offset by cut-size paper sales in domestic markets. Input costs for wood increased, while operating costs were improved but were offset by planned maintenance outage costs in the second quarter of 2017.

Compared with the second quarter of 2016, sales volumes in the ~~third~~second quarter of ~~2016 were lower,~~2017 increased primarily for sales of hardwood pulp to China, partially offset by decreased sales of softwood pulp to China, and other export ~~markets. Average sales price realizations for sales of softwood pulp to China were relatively flat but were higher in other export markets,~~ and were partially offset by lower hardwood pulp prices to China and lower paper prices in export markets. Input costs for wood, chemicals and distribution decreased. Planned maintenance downtime costs in the third quarter of 2016 were slightly lower for outages at all three mills.

~~Compared with the third quarter of 2015, sales volumes in the third quarter of 2016 increased primarily for sales of softwood pulp to China and hardwood pulp in the Russian~~ domestic ~~market, but were partially offset by decreased sales volumes of hardwood pulp to China and other export~~ markets. Average sales price realizations were ~~lower,~~higher, primarily for ~~export~~ sales of softwood and hardwood pulp ~~partially offset by improved~~in China and in domestic markets and for sales ~~prices for paper~~of containerboard in ~~the Russian domestic market.~~all markets. Input costs ~~for wood, energy~~ and ~~chemicals were higher in the third quarter of 2016 compared with the third quarter of 2015. Operating~~operating costs were ~~lower.~~relatively flat. An after-tax foreign exchange ~~loss~~gain of ~~$65~~$6 million primarily on the remeasurement of U.S. ~~dollar-denominated~~dollar denominated net debt was recorded in the ~~third~~second quarter of ~~2015.~~2016.

Looking forward to the ~~fourth~~third quarter of ~~2016,~~2017, sales volumes are expected to ~~improve.~~decrease. Average sales price realizations are expected to ~~be relatively flat~~decrease compared with the ~~third~~second quarter of ~~2016.~~2017 primarily for export sales of softwood pulp, but higher export prices are expected for sales of hardwood pulp. Input costs are expected to be ~~seasonally higher~~lower primarily for wood, ~~and energy. There are no planned~~partially offset by higher distribution costs. Planned maintenance ~~outages in the fourth quarter, so~~ downtime costs ~~are expected to~~will be ~~about $10 million lower on a 100% pre-tax basis than~~higher in the third ~~quarter.~~quarter of 2017 with outages scheduled at all three mills.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $~~1.6~~1.3 billion for the first ~~nine~~six months of ~~2016~~2017, compared with $~~1.6~~1.2 billion for the comparable ~~2015~~2016 ~~nine~~six-month period. Cash used for working capital components totaled $~~120~~648 million for the first ~~nine~~six months of ~~2016~~2017 compared to $~~283~~211 million for the comparable ~~2015~~2016 ~~nine~~six-month period. The increase to working capital in 2017 reflects income tax receivables primarily driven by the planned pension contribution and the accrued Kleen litigation settlement.

The Company generated free cash flow of approximately $~~1.4 billion~~614 million and ~~$1.3 billion~~$838 million in the first ~~nine~~six months of ~~2016~~2017 and ~~2015~~2016, respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

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


	Nine Months Ended September 30,						Six Months Ended June 30,
In millions	2016			2015			2017			2016
Cash provided by operations	$	1,566		$	1,590		$	1,278		$	1,225
Adjustments:
Cash invested in capital projects	(903		)	(998		)	(664		)	(637		)
Cash contribution to pension plan	750			750			—			250
Free Cash Flow	$	1,413		$	1,342		$	614		$	838

Investments in capital projects totaled $~~903~~664 million in the first ~~nine~~six months of 2017 compared to $637 million in the first six months of 2016 ~~compared to~~ ~~$998 million~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2015~~. Full-year ~~2016~~2017 capital spending is currently expected to be approximately ~~$1.3~~$1.5 billion, or about ~~100%~~107% of depreciation and amortization expense for our current businesses.

Financing activities for the first ~~nine~~six months of ~~2016~~2017 included a ~~$1.6 billion~~$116 million net ~~increase~~decrease in debt versus a ~~$238~~$134 million net increase in debt during the comparable ~~2015 nine-month~~2016 six-month period. ~~During the third quarter of 2016, the Company 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.~~

~~Amounts related to early debt extinguishment during the three months and nine months ended September 30, 2016 and 2015 were as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2016 2015 2016 2015
Early debt reductions (a) $ 266
$ 90
$ 266
$ 1,479
Pre-tax early debt extinguishment costs 29
1
29
208


~~(a)~~	Reductions related to notes with an interest rate of 7.95% and original maturity in 2018 for both the three and nine months ended September 30, 2016, and from 4.75% to 5.85% with original maturities from 2019 to 2030 and from 4.70% to 9.38% with original maturities from 2015 to 2030 for the three and nine months ended September 30, 2015, respectively.

At ~~September~~June 30, ~~2016~~2017, contractual obligations for future payments of debt maturities by calendar year were as follows: $~~29 million~~ ~~in 2016;~~ ~~$58~~279 million in 2017; $~~507~~538 million in 2018; ~~$410 million in 2019;~~ $~~168~~424 million in 2019; $160 million in 2020; $~~641~~633 million in 2021; $920 million in 2022; and $~~9.1~~8.25 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~September~~June 30, ~~2016~~2017, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings during the current quarter under the Company's commercial paper program.

At ~~September~~June 30, ~~2016~~,2017, International Paper’s credit agreements totaled ~~$2.1~~$2.1 billion,, which management believes are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The liquidity facilities include a ~~$1.5~~$1.5 billion contractually committed bank credit agreement that expires in ~~August 2019~~December 2021 and has a facility fee of 0.15% per annum payable quarterly.

~~During the first nine months~~ The liquidity facilities also include up to $600 million of ~~2016, International Paper borrowed and repaid $800~~uncommitted financings based on eligible receivable balances ($600 million available at June 30, 2017) under a ~~receivable~~receivables securitization ~~facility at an average rate of 1.20%. The Company has no borrowings outstanding under this~~ program ~~at September 30, 2016.~~

~~During the first nine months of 2016, International Paper entered into a $250 million contractually committed bank credit facility~~ that expires onin December 31, 2016 and has a facility fee of 0.15% per annum payable quarterly. During the first nine months of 2016, the Company borrowed and repaid $230 million on the bank credit facility and the bank credit facility was terminated during the third quarter of 2016.2017.

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 ~~September~~June 30, ~~2016,~~2017, the Company had no$240 million of borrowings outstanding under this program. ~~The liquidity facilities also include up to~~ ~~$600 million~~ ~~of uncommitted financings based on eligible receivable balances ($600 million~~ ~~available at~~ ~~September 30, 2016) under a receivables securitization program that expires in December 2016.~~

During the first ~~nine~~six months of ~~2016,~~2017, International Paper used ~~2.7~~2.5 million shares of treasury stock for various incentive plans. International Paper also acquired ~~3.6~~0.9 million shares of treasury stock, including shares for the payment of restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled ~~$131.7 million, including $100.1 million related to shares repurchased under the Company's share repurchase program.~~$46 million. In September 2013, the Company announced a share repurchase program to acquire up to $1.5 billion of the Company's common stock ~~over the next two to three years~~ in open market repurchase transactions. In addition, in July 2014, the Company announced that it would acquire up to $1.5 billion of additional shares of the Company's common stock to supplement the $1.5 billion share repurchase program authorized in September 2013 and intends to continue to repurchase such shares in open market repurchase transactions. Under the current repurchase program, the Company has repurchased 44.6 million shares at an average price of $46.40, for a total of approximately $2.1 billion, as of ~~September~~June 30, ~~2016.~~2017.

During the first ~~nine~~six months of ~~2015,~~2016, International Paper ~~issued approximately 62,477 shares of common stock and~~ used approximately ~~4.2~~2.7 million shares of treasury stock for various incentive ~~plans, including stock option exercises that generated approximately $2 million of cash.~~plans. International Paper also acquired ~~9.8~~3.6 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled ~~$504.5~~$131 million, including ~~$422.6~~$100 million related to shares repurchased under the Company's share repurchase program. Cash dividend payments related to common stock totaled ~~$543~~$382 million and ~~$503~~$362 million for the first ~~nine~~six months of ~~2016~~2017 and ~~2015,~~2016, respectively. Dividends were ~~$1.3200~~$0.9250 per share and ~~$1.2000~~$0.8800 per share for the first ~~nine~~six months in 2017 and 2016, ~~and 2015,~~ respectively.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during ~~2016~~2017 with current cash balances and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

Acquisitions

See discussion in Note 7 - Acquisitions in the Condensed Notes to the ~~financial statements.~~Consolidated Financial Statements.

Ilim Holding S.A. Shareholders’ 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 ~~was amended May 7, 2014, to add standstill provisions~~provides that ~~tolled the rights of~~at any time, either the Company ~~and~~or its partners tomay commence ~~certain~~ procedures specified under the deadlock ~~provisions. Unless these standstill provisions are renewed, these rights will be reinstated as of January 1, 2017.~~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 ~~$1.4~~$1.3 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholder’s agreement.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

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

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

The Company has included in its ~~2015~~2016 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first ~~nine~~six months of ~~2016~~2017.

Pension Accounting

Net pension expense totaled approximately $~~718~~158 million for International Paper’s U.S. plans for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, or about ~~$368~~$466 million ~~more~~less than the pension expense for the first ~~nine~~six months of ~~2015~~2016. The ~~increase~~decrease in U.S. plan expense was due to ~~$442~~a $439 million plan settlement accounting ~~charges~~charge in the second ~~and third quarters~~quarter of 2016, and ~~updated demographic assumptions partially offset by~~ lower amortization of unrecognized actuarial ~~losses.~~losses and prior service cost, partially offset by a decrease in the assumed discount rate to 4.10% in 2017 from 4.40% in 2016 (prior to the June 30, 2016 remeasurement discussed below). Net pension expense for non-U.S. plans was about ~~$3 million and $5~~$2 million for the first ~~nine~~six months of ~~2016~~2017 and ~~2015~~2016~~, respectively.~~.

After consultation with our actuaries, International Paper determines key actuarial assumptions on December 31 of each year that are used to calculate liability information as of that date and pension expense for the following year. Key assumptions affecting pension expense include the discount rate, the expected long-term rate of return on plan assets, the projected rate of future compensation increases, and various demographic assumptions including expected mortality. The discount rate assumption is determined based on approximately 500 Aa-rated bonds appropriate to provide the projected benefit payments of the plan. A bond portfolio is selected and a single rate is determined that equates the market value of the bonds purchased to the discounted value of the plan’s benefit payments. 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. At ~~September~~June 30, ~~2016~~2017, the market value of plan assets for International Paper’s U.S. plans totaled approximately $~~10.8~~10.9 billion, consisting of approximately ~~49%~~51% equity securities, ~~31%~~28% fixed income securities, and ~~20%~~21% real estate and other assets. Plan assets did not include International Paper common stock.

~~As previously disclosed, in~~In the first quarter of 2016, International Paper ~~announced~~offered a voluntary, limited-time opportunity for former employees who ~~are~~were 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. The discount rate used in the plan remeasurement was 3.80%, down from 4.40% at December 31, 2015. As a result of the plan remeasurement and other year to date activity, the difference between the qualified plan liabilities and plan assets grew by $602 million versus the December 31, 2015 difference. Additionally, 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 were made during the third quarter of 2016 due to mandatory cash payouts and a small lump sum payout project, and the Pension Plan was subsequently remeasured at September 30, 2016 using a discount rate of 3.60%, down from 3.80% at June 30, 2016. As a result of settlement accounting, the Company recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $3 million non-cash charge to the Company's earnings in the third quarter of 2016. As a result of the plan remeasurement and other quarterly activity, including the pension contributions discussed below, the difference between the qualified plan liabilities and plan assets decreased by $441 million during the third quarter of 2016.

$250 million to the qualified pension plan in the ~~second and third quarters~~first six months of ~~2016, respectively. The~~2016. No contributions have been made to date in 2017, but the Company ~~made~~intends to make a voluntary cash contribution in the aggregate amount of ~~$750 million~~$1.25 billion to the qualified pension plan by September 15, 2017. The U.S. nonqualified plans are only funded to the extent of benefits paid, which totaled $10 million for the six months ended June 30, 2017.

We have implemented in the past, and currently intend to implement, initiatives designed to address the underfunded Pension Plan and future funding needs and to reduce risk in the Pension Plan. Going forward, we intend to make changes in plan asset allocations to emphasize more fixed income investments, re-allocate the plan's fixed income investments to longer duration maturities, expand certain hedging strategies and explore other risk-mitigation actions. There can be no assurances that we will pursue any of these initiatives or that, if pursued, any such initiative would have a material positive impact on the future funding needs of the Pension Plan or actually reduce risk in the Pension Plan. In addition, implementing certain initiatives could result in non-cash charges to the Company's earnings, which could be material, such as the charge we recorded in the second quarter of ~~2015. These contributions were made in line with our strategy of de-risking~~2016 resulting from the ~~pension plan while generating tax benefits and fee savings. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $15 million~~buyout program for ~~the~~ ~~nine~~ ~~months ended September 30, 2016.~~former International Paper employees.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through a joint venture; (vii) the successful closing of the sale of our corrugated box business in China and Southeast Asia within the estimated timeframe; (viii) the receipt of governmental and other approvals and favorable rulings associated with the purchase of the pulp business of Weyerhaeuser Company and the successful fulfillment or waiver of all closing conditions for the transaction without unexpected delays or conditions; (ix) our ability to complete the proposed acquisition of the pulp business of Weyerhaeuser Company; (x) the failure to realize ~~anticipated~~the expected synergies and ~~cost savings~~cost-savings from ~~the acquisition~~our purchase of the pulp business of Weyerhaeuser Company or delay in realization thereof; ~~(xi)~~(viii) our ability to achieve the benefits we expect from all other strategic acquisitions, divestitures and restructurings; and ~~(xii)~~(ix) other factors you can find in our press releases and filings with the Securities and Exchange Commission, including the risk factors identified in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~2016~~, as updated in Item 1A of Part II of this Quarterly Report on Form 10-Q~~ ("Risk Factors"). We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. All financial information and statistical measures regarding our 50/50 Ilim joint venture in Russia (“Ilim”), other than historical International Paper Equity Earnings and dividends received by International Paper, have been prepared by the management of Ilim. Ilim management has indicated that the financial information was prepared in accordance with International Financial Reporting Standards and extracted from Ilim’s financial statements, but International Paper has not verified or audited any of this information. Any projected financial information and statistical measures reflect the current views of Ilim management and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such projections.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosures about market risk is shown on page 3938 of International Paper’s ~~2015~~2016 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, ~~2015~~2016.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported (and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure) within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2016~~2017 (the end of the period covered by this report).

Changes in Internal Control over Financial Reporting:

There have been no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

A discussion of material developments in the Company’s litigation matters occurring in the period covered by this report is found in Note 12 to the financial statements in this Form 10-Q.


ITEM 1A.	RISK FACTORS

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~2016 (Part I, ~~Item 1A), as updated by our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016 (Part II,~~ Item 1A).


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

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
July 1, 2016 - July 31, 2016 2,207
$ 44.28
—
$933
August 1, 2016 - August 31, 2016 —
—
—
933
September 1, 2016 - September 30, 2016 2,591
48.69
—
933
Total 4,798



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
April 1, 2017 - April 30, 2017	—	$	—	—	$0.933
May 1, 2017 - May 31, 2017	1,076	52.54		—	0.933
June 1, 2017 - June 30, 2017	9,637	55.71		—	0.933
Total	10,713

(a) ~~4,798~~10,713 shares were acquired from employees from share withholdings to pay income taxes under the Company's restricted stock programs.


ITEM 6.	EXHIBITS



10.1		Settlement Agreement dated June 27, 2017, by and between International Paper Company, Temple-Inland Inc., n/k/a Temple-Inland LLC, TIN Inc., n/k/a TIN LLC, and Weyerhaeuser Company, and Kleen Products LLC, R.P.R. Enterprises, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Ferraro Foods of North Carolina, LLC, MTM Packaging Solutions of Texas, LLC, RHE Hatco, Inc., and Chandler Packaging, Inc., the plaintiff class representatives, both individually and on behalf of the plaintiff class.

11		Statement of Computation of Per Share Earnings.

12		Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

31.1		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Extension Presentation Linkbase.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	INTERNATIONAL PAPER COMPANY (Registrant)

~~November 3, 2016~~August 4, 2017	By	/s/ ~~Carol L. Roberts~~Glenn R. Landau
		~~Carol L. Roberts~~Glenn R. Landau
		Senior Vice President and Chief Financial Officer

~~November 3, 2016~~August 4, 2017	By	/s/ Vincent P. Bonnot
		Vincent P. Bonnot
		Vice President – Finance and Controller



	Three Months Ended September 30, 2015
In millions
Timber monetization restructuring	$	17
Sales of Carolina Coated Bristols brand net of Riegelwood mill conversion costs	7
Other	1
Total	$	25



	Three Months Ended June 30, 2015
In millions
Early debt extinguishment costs	$	207
Sales of Carolina Coated Bristols brand net of Riegelwood mill conversion costs	(14		)
Other	1
Total	$	194