|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
In millions, except per share amounts
|
Common Stock Issued
|
|
Paid-in Capital
|
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Total
International
Paper
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Balance, April 1
|
$
|
449
|
|
|
$
|
6,159
|
|
|
$
|
8,211
|
|
$
|
(4,975
|
)
|
|
$
|
2,398
|
|
|
$
|
7,446
|
|
|
$
|
23
|
|
|
$
|
7,469
|
|
|
|
Issuance of stock for various plans, net
|
—
|
|
|
34
|
|
|
—
|
|
—
|
|
|
(1
|
)
|
|
35
|
|
|
—
|
|
|
35
|
|
|
|
Repurchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
231
|
|
|
(231
|
)
|
|
—
|
|
|
(231
|
)
|
|
|
Common stock dividends
($.5000 per share)
|
—
|
|
|
—
|
|
|
(201
|
)
|
—
|
|
|
—
|
|
|
(201
|
)
|
|
—
|
|
|
(201
|
)
|
|
|
Transactions of equity method investees
|
—
|
|
|
36
|
|
|
—
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
|
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
292
|
|
105
|
|
|
—
|
|
|
397
|
|
|
(6
|
)
|
|
391
|
|
|
|
Ending Balance, June 30
|
$
|
449
|
|
|
$
|
6,229
|
|
|
$
|
8,302
|
|
$
|
(4,870
|
)
|
|
$
|
2,628
|
|
|
$
|
7,482
|
|
|
$
|
17
|
|
|
$
|
7,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
In millions, except per share amounts
|
Common Stock Issued
|
|
Paid-in Capital
|
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Total
International
Paper
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Balance, January 1
|
$
|
449
|
|
|
$
|
6,280
|
|
|
$
|
7,465
|
|
$
|
(4,500
|
)
|
|
$
|
2,332
|
|
|
$
|
7,362
|
|
|
$
|
21
|
|
|
$
|
7,383
|
|
|
|
Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform
|
—
|
|
|
—
|
|
|
529
|
|
(529
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Issuance of stock for various plans, net
|
—
|
|
|
(84
|
)
|
|
—
|
|
—
|
|
|
(164
|
)
|
|
80
|
|
|
—
|
|
|
80
|
|
|
|
Repurchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
460
|
|
|
(460
|
)
|
|
—
|
|
|
(460
|
)
|
|
|
Common stock dividends
($1.0000 per share)
|
—
|
|
|
—
|
|
|
(408
|
)
|
—
|
|
|
—
|
|
|
(408
|
)
|
|
—
|
|
|
(408
|
)
|
|
|
Transactions of equity method investees
|
—
|
|
|
33
|
|
|
—
|
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
716
|
|
159
|
|
|
—
|
|
|
875
|
|
|
(4
|
)
|
|
871
|
|
|
|
Ending Balance, June 30
|
$
|
449
|
|
|
$
|
6,229
|
|
|
$
|
8,302
|
|
$
|
(4,870
|
)
|
|
$
|
2,628
|
|
|
$
|
7,482
|
|
|
$
|
17
|
|
|
$
|
7,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
In millions, except per share amounts
|
Common Stock Issued
|
|
Paid-in Capital
|
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Total
International
Paper
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Balance, April 1
|
$
|
449
|
|
|
$
|
6,175
|
|
|
$
|
6,783
|
|
$
|
(4,530
|
)
|
|
$
|
1,632
|
|
|
$
|
7,245
|
|
|
$
|
20
|
|
|
$
|
7,265
|
|
|
|
Issuance of stock for various plans, net
|
—
|
|
|
36
|
|
|
—
|
|
—
|
|
|
(1
|
)
|
|
37
|
|
|
—
|
|
|
37
|
|
|
|
Repurchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
|
(300
|
)
|
|
|
Common stock dividends ($.4750 per share)
|
—
|
|
|
—
|
|
|
(200
|
)
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
—
|
|
|
(200
|
)
|
|
|
Transactions of equity method investees
|
—
|
|
|
8
|
|
|
—
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
405
|
|
(351
|
)
|
|
—
|
|
|
54
|
|
|
—
|
|
|
54
|
|
|
|
Ending Balance, June 30
|
$
|
449
|
|
|
$
|
6,219
|
|
|
$
|
6,988
|
|
$
|
(4,881
|
)
|
|
$
|
1,931
|
|
|
$
|
6,844
|
|
|
$
|
20
|
|
|
$
|
6,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
In millions, except per share amounts
|
Common Stock Issued
|
|
Paid-in Capital
|
|
Retained Earnings
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Total
International
Paper
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Balance, January 1
|
$
|
449
|
|
|
$
|
6,206
|
|
|
$
|
6,180
|
|
$
|
(4,633
|
)
|
|
$
|
1,680
|
|
|
$
|
6,522
|
|
|
$
|
19
|
|
|
$
|
6,541
|
|
|
|
Adoption of ASC 606 revenue from contracts with customers
|
—
|
|
|
—
|
|
|
73
|
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
73
|
|
|
|
Issuance of stock for various plans, net
|
—
|
|
|
(5
|
)
|
|
—
|
|
—
|
|
|
(80
|
)
|
|
75
|
|
|
—
|
|
|
75
|
|
|
|
Repurchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
331
|
|
|
(331
|
)
|
|
—
|
|
|
(331
|
)
|
|
|
Common stock dividends ($.9500 per share)
|
—
|
|
|
—
|
|
|
(399
|
)
|
—
|
|
|
—
|
|
|
(399
|
)
|
|
—
|
|
|
(399
|
)
|
|
|
Transactions of equity method investees
|
—
|
|
|
18
|
|
|
—
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
1,134
|
|
(248
|
)
|
|
—
|
|
|
886
|
|
|
1
|
|
|
887
|
|
|
|
Ending Balance, June 30
|
$
|
449
|
|
|
$
|
6,219
|
|
|
$
|
6,988
|
|
$
|
(4,881
|
)
|
|
$
|
1,931
|
|
|
$
|
6,844
|
|
|
$
|
20
|
|
|
$
|
6,864
|
|
|
The following table presents changes in accumulated other comprehensive income (AOCI) for the
three
months and
six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Defined Benefit Pension and Postretirement Adjustments
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2,402
|
)
|
|
$
|
(2,461
|
)
|
|
$
|
(1,916
|
)
|
|
$
|
(2,527
|
)
|
|
Reclassification of stranded tax effects
|
|
—
|
|
|
—
|
|
|
(527
|
)
|
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
40
|
|
|
85
|
|
|
81
|
|
|
151
|
|
|
Balance at end of period
|
|
(2,362
|
)
|
|
(2,376
|
)
|
|
(2,362
|
)
|
|
(2,376
|
)
|
|
Change in Cumulative Foreign Currency Translation Adjustments
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(2,569
|
)
|
|
(2,069
|
)
|
|
(2,581
|
)
|
|
(2,111
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
61
|
|
|
(422
|
)
|
|
69
|
|
|
(382
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
4
|
|
|
2
|
|
|
Other comprehensive income (loss) attributable to noncontrolling interest
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Balance at end of period
|
|
(2,508
|
)
|
|
(2,489
|
)
|
|
(2,508
|
)
|
|
(2,489
|
)
|
|
Net Gains and Losses on Cash Flow Hedging Derivatives
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(4
|
)
|
|
—
|
|
|
(3
|
)
|
|
5
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
4
|
|
|
(18
|
)
|
|
4
|
|
|
(21
|
)
|
|
Reclassification of stranded tax effects
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
Balance at end of period
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
|
Total Accumulated Other Comprehensive Income (Loss) at End of Period
|
|
$
|
(4,870
|
)
|
|
$
|
(4,881
|
)
|
|
$
|
(4,870
|
)
|
|
$
|
(4,881
|
)
|
The following table presents details of the reclassifications out of AOCI for the
three
months and
six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions:
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
Location of Amount Reclassified from AOCI
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
Defined benefit pension and postretirement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-service costs
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
|
(a)
|
Non-operating pension expense
|
|
Actuarial gains (losses)
|
|
(50
|
)
|
|
(110
|
)
|
|
(102
|
)
|
|
(194
|
)
|
|
(a)
|
Non-operating pension expense
|
|
Total pre-tax amount
|
|
(53
|
)
|
|
(113
|
)
|
|
(108
|
)
|
|
(201
|
)
|
|
|
|
|
Tax (expense) benefit
|
|
13
|
|
|
28
|
|
|
27
|
|
|
50
|
|
|
|
|
|
Net of tax
|
|
(40
|
)
|
|
(85
|
)
|
|
(81
|
)
|
|
(151
|
)
|
|
|
|
|
Reclassification of stranded tax effects
|
|
—
|
|
|
—
|
|
|
527
|
|
|
—
|
|
|
|
Retained Earnings
|
|
Total, net of tax
|
|
(40
|
)
|
|
(85
|
)
|
|
446
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cumulative foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions/divestitures
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(2
|
)
|
|
(b)
|
Cost of products sold
|
|
Tax (expense) benefit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Net of tax
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains and losses on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
—
|
|
|
(4
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(c)
|
Cost of products sold
|
|
Total pre-tax amount
|
|
—
|
|
|
(4
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
Tax (expense)/benefit
|
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
|
|
|
Net of tax
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
Reclassification of stranded tax effects
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
|
Retained Earnings
|
|
Total, net of tax
|
|
—
|
|
|
(2
|
)
|
|
1
|
|
|
—
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(40
|
)
|
|
$
|
(87
|
)
|
|
$
|
443
|
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
(a)
|
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see
Note 19
for additional details).
|
|
|
|
|
(b)
|
Amounts for the three months and six months ended June 30, 2018 were reclassified to Discontinued operations, net of taxes.
|
|
|
|
|
(c)
|
This accumulated other comprehensive income component is included in our derivatives and hedging activities (see
Note 18
for additional details).
|
Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities were converted into common shares. There are no adjustments required to be made to net income for purposes of computing basic and diluted earnings per share. A reconciliation of the amounts included in the computation of basic earnings (loss) per share from continuing operations, and diluted earnings (loss) per share from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions, except per share amounts
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders
|
$
|
292
|
|
|
$
|
428
|
|
|
$
|
716
|
|
|
$
|
789
|
|
|
Weighted average common shares outstanding
|
396.1
|
|
|
413.2
|
|
|
398.3
|
|
|
413.4
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Restricted performance share plan
|
2.1
|
|
|
4.5
|
|
|
3.1
|
|
|
5.4
|
|
|
Weighted average common shares outstanding – assuming dilution
|
398.2
|
|
|
417.7
|
|
|
401.4
|
|
|
418.8
|
|
|
Basic earnings (loss) per share from continuing operations
|
$
|
0.74
|
|
|
$
|
1.03
|
|
|
$
|
1.80
|
|
|
$
|
1.91
|
|
|
Diluted earnings (loss) per share from continuing operations
|
$
|
0.73
|
|
|
$
|
1.02
|
|
|
$
|
1.78
|
|
|
$
|
1.88
|
|
2019:
There were no restructuring and other charges recorded during the three months and six months ended June 30, 2019.
2018
:
During the three months ended June 30, 2018, the Company recorded a
$26 million
pre-tax charge, in the Industrial Packaging segment, related to approximately
$12 million
of severance,
$6 million
in accelerated depreciation,
$2 million
in accelerated amortization, and
$6 million
in other charges in conjunction with the optimization of our EMEA Packaging business.
During the three months ended March 31, 2018, the Company recorded a
$22 million
pre-tax charge, in the Industrial Packaging segment, primarily related to severance charges in conjunction with the optimization of our EMEA Packaging business.
On June 28, 2019, the Company closed on the previously announced acquisition of two packaging businesses located in Portugal (Ovar) and France (Torigni and Cabourg) from DS Smith Packaging. The total purchase consideration, inclusive of working capital adjustments, was approximately
€73 million
(approximately
$83 million
at current exchange rates), subject to post-closing adjustments.
The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of June 30, 2019:
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
Cash and temporary investments
|
$
|
1
|
|
|
Accounts and notes receivable
|
23
|
|
|
Inventory
|
8
|
|
|
Plants, properties and equipment
|
22
|
|
|
Goodwill
|
56
|
|
|
Right of use assets
|
2
|
|
|
Total assets acquired
|
112
|
|
|
Accounts payable and accrued liabilities
|
21
|
|
|
Other current liabilities
|
1
|
|
|
Long-term debt
|
2
|
|
|
Postretirement and postemployment benefit obligation
|
3
|
|
|
Long-term lease obligations
|
2
|
|
|
Total liabilities assumed
|
29
|
|
|
Net assets acquired
|
$
|
83
|
|
Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to inventory, property, plant and equipment and intangible assets. Adjustments, if any, to provisional amounts will be finalized within the adjustment period of up to one year from the acquisition date.
Pro forma information has not been included as it is impracticable to obtain the information due to the lack of availability of historical U.S. GAAP financial data and the results of the operations of these businesses do not have a material effect on the Company's consolidated results of operations.
The Company has accounted for the above acquisition under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the date of acquisition.
Discontinued Operations
On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and Foodservice businesses, to Graphic Packaging International Partners, LLC (GPIP), a subsidiary of Graphic Packaging Holding Company, in exchange for a
20.5%
ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC (GPI), a wholly owned subsidiary of GPIP. International Paper is accounting for its ownership interest in the combined business under the equity method. The Company determined the fair value of its investment in the combined business and recorded a pre-tax gain of
$516 million
(
$385 million
after taxes) on the transfer in the first quarter of 2018, subject to final working capital settlement. During the second quarter of 2018, the Company recorded a pre-tax charge of
$28 million
(
$21 million
after taxes) to adjust the previously recorded gain on the transfer.
The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued operations, net of tax, related to the transfer of the North American Consumer Packaging business for all periods presented in the consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2018
|
|
2018
|
|
Net Sales
|
$
|
—
|
|
|
$
|
—
|
|
|
Costs and Expenses
|
|
|
|
|
Selling and administrative expenses
|
2
|
|
|
25
|
|
|
(Gain) loss on transfer of business
|
28
|
|
|
(488
|
)
|
|
Earnings (Loss) Before Income Taxes and Equity Earnings
|
(30
|
)
|
|
463
|
|
|
Income tax provision (benefit)
|
(7
|
)
|
|
118
|
|
|
Discontinued Operations, Net of Taxes
|
$
|
(23
|
)
|
|
$
|
345
|
|
Total cash used for operations related to the North American Consumer Packaging business of
$25 million
for the six months ended
June 30, 2018
, is included in Cash Provided By (Used For) Operations in the consolidated statement of cash flows. Total cash used for investing activities related to the North American Consumer Packaging business of
$40 million
for the six months ended
June 30, 2018
, is included in Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows.
Other Divestitures
On May, 29, 2019, the Company announced that it had entered into an agreement with West Coast Paper Mills Limited (WCPM) to sell its controlling interest in International Paper APPM Limited (APPM), an India-based paper business, for
₨275
(Indian Rupees) per share. International Paper currently owns approximately
30 million
shares, or
75%
of the outstanding shares of APPM. The transaction is expected to be completed by the end of the year subject to satisfaction of customary closing conditions, including obtaining required governmental approvals and WCPM's launch of a tender offer. Once this transaction closes, WCPM will be responsible for the operations of APPM, and International Paper will be a passive investor until such time that IP has sold its remaining share in APPM.
In conjunction with the announced agreement, a determination was made that the current book value of the APPM disposal group exceeded its estimated fair value of
$119 million
which was based on the agreed upon transaction price. As a result, a preliminary pre-tax charge of
$152 million
(
$150 million
after taxes) was recorded during the second quarter of 2019. This charge included
$95 million
related to the cumulative foreign currency translation loss and a
$57 million
loss related to the write down of the long-lived assets of APPM to their estimated fair value. This charge is included in the Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations and is included in the results for the Printing Papers segment. A loss of
$7 million
(before and after taxes) has been allocated to the noncontrolling interest related to the impairment of the long-lived assets of APPM.
At June 30, 2019, all assets and liabilities related to APPM are classified as current assets held for sale and current liabilities held for sale in the accompanying consolidated balance sheet. The following summarizes the major classes of assets and liabilities of APPM reconciled to total Assets held for sale and total Liabilities held for sale in the accompanying consolidated balance sheet:
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
Cash and temporary investments
|
$
|
21
|
|
|
Accounts and notes receivable
|
15
|
|
|
Inventories
|
25
|
|
|
Other current assets
|
16
|
|
|
Plants, properties and equipment
|
199
|
|
|
Deferred charges and other assets
|
10
|
|
|
Total Assets Held for Sale
|
$
|
286
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
18
|
|
|
Other current liabilities
|
28
|
|
|
Deferred income taxes
|
50
|
|
|
Other liabilities
|
2
|
|
|
Net impairment reserve
|
152
|
|
|
Total Liabilities Held for Sale
|
$
|
250
|
|
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
$477 million
and
$402 million
at
June 30, 2019
and
December 31, 2018
, respectively.
Accounts and Notes Receivable
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
Accounts and notes receivable, net:
|
|
|
|
|
Trade
|
$
|
3,170
|
|
|
$
|
3,249
|
|
|
Other
|
307
|
|
|
272
|
|
|
Total
|
$
|
3,477
|
|
|
$
|
3,521
|
|
The allowance for doubtful accounts was
$85 million
and
$81 million
at
June 30, 2019
and
December 31, 2018
, respectively.
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
Raw materials
|
$
|
263
|
|
|
$
|
260
|
|
|
Finished pulp, paper and packaging
|
1,214
|
|
|
1,241
|
|
|
Operating supplies
|
619
|
|
|
641
|
|
|
Other
|
128
|
|
|
99
|
|
|
Total
|
$
|
2,224
|
|
|
$
|
2,241
|
|
Plants, Properties and Equipment
Accumulated depreciation was
$20.6 billion
and
$20.5 billion
at
June 30, 2019
and
December 31, 2018
, respectively. Depreciation expense was
$300 million
and
$309 million
for the
three
months ended
June 30, 2019
and
2018
, respectively, and
$597 million
and
$615 million
for the
six
months ended
June 30, 2019
and
2018
, respectively.
Non-cash additions to plants, property and equipment included within accounts payable were
$101 million
and
$135 million
at
June 30, 2019
and
December 31, 2018
, respectively.
Interest
Interest payments made during the
six
months ended
June 30, 2019
and
2018
were
$375 million
and
$378 million
, respectively.
Amounts related to interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Interest expense
|
$
|
177
|
|
|
$
|
183
|
|
|
$
|
361
|
|
|
$
|
363
|
|
|
Interest income
|
55
|
|
|
50
|
|
|
106
|
|
|
95
|
|
|
Capitalized interest costs
|
9
|
|
|
9
|
|
|
14
|
|
|
17
|
|
Asset Retirement Obligations
The Company had recorded liabilities of
$95 million
and
$86 million
related to asset retirement obligations at
June 30, 2019
and
December 31, 2018
, respectively.
International Paper leases various real estate, including certain operating facilities, warehouses, office space and land. The Company also leases material handling equipment, vehicles, and certain other equipment. The Company's leases have remaining lease terms of
one year
to
97 years
. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all of the Company's leases.
Right of use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Effective January 1, 2019, operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs, and maintenance. As the implicit rate is not readily determinable for most of the Company's leases, the Company applies a portfolio approach using an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate, and apply the rate based on the currency of the lease, which is updated on a quarterly basis for measurement of new lease liabilities.
Components of Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
Operating lease costs
|
|
$
|
37
|
|
|
$
|
76
|
|
|
Variable lease costs
|
|
15
|
|
|
37
|
|
|
Short-term lease costs
|
|
7
|
|
|
18
|
|
|
Finance lease cost
|
|
|
|
|
|
Amortization of lease assets
|
|
3
|
|
|
5
|
|
|
Interest on lease liabilities
|
|
1
|
|
|
2
|
|
|
Total lease cost, net
|
|
$
|
63
|
|
|
$
|
138
|
|
Supplemental Balance Sheet Information Related to Leases
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Classification
|
|
June 30, 2019
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Right-of-use assets
|
|
$
|
408
|
|
|
Finance lease assets
|
|
Plants, properties and equipment, net (a)
|
|
103
|
|
|
Total leased assets
|
|
|
|
$
|
511
|
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating
|
|
Other current liabilities
|
|
$
|
131
|
|
|
Finance
|
|
Notes payable and current maturities of long-term debt
|
|
11
|
|
|
Noncurrent
|
|
|
|
|
|
Operating
|
|
Long-term lease obligations
|
|
281
|
|
|
Finance
|
|
Long-term debt
|
|
88
|
|
|
Total lease liabilities
|
|
|
|
$
|
511
|
|
|
|
|
|
(a)
|
Finance leases are recorded net of accumulated amortization of
$34 million
.
|
Lease Term and Discount Rate
|
|
|
|
|
|
|
|
In millions
|
|
June 30, 2019
|
|
Weighted average remaining lease term (years)
|
|
|
|
Operating leases
|
|
10.13 years
|
|
|
Finance leases
|
|
11.78 years
|
|
|
Weighted average discount rate
|
|
|
|
Operating leases
|
|
3.29
|
%
|
|
Finance leases
|
|
4.59
|
%
|
Supplemental Cash Flow Information Related to Leases
|
|
|
|
|
|
|
|
|
In millions
|
|
Six Months Ended June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows related to operating leases
|
|
$
|
71
|
|
|
Financing cash flows related to finance leases
|
|
4
|
|
Maturity of Lease Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
In millions
|
|
Operating Leases
|
|
Financing Leases
|
|
Total
|
|
2019 (remainder of year)
|
|
$
|
76
|
|
|
$
|
7
|
|
|
$
|
83
|
|
|
2020
|
|
122
|
|
|
14
|
|
|
136
|
|
|
2021
|
|
83
|
|
|
13
|
|
|
96
|
|
|
2022
|
|
52
|
|
|
11
|
|
|
63
|
|
|
2023
|
|
28
|
|
|
10
|
|
|
38
|
|
|
2024
|
|
13
|
|
|
10
|
|
|
23
|
|
|
Thereafter
|
|
98
|
|
|
67
|
|
|
165
|
|
|
Total lease payments
|
|
472
|
|
|
132
|
|
|
604
|
|
|
Less: Interest (a)
|
|
60
|
|
|
33
|
|
|
93
|
|
|
Present value of lease liabilities
|
|
$
|
412
|
|
|
$
|
99
|
|
|
$
|
511
|
|
|
|
|
|
(a)
|
Calculated using the interest rate for each lease.
|
At December 31, 2018, total future minimum commitments under existing non-cancelable operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Lease obligations
|
|
$
|
160
|
|
|
$
|
125
|
|
|
$
|
77
|
|
|
$
|
49
|
|
|
$
|
28
|
|
|
$
|
118
|
|
The Company accounts for the following investments in affiliated companies under the equity method of accounting.
Graphic Packaging International Partners, LLC
On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging International Partners, LLC (GPIP), a subsidiary of Graphic Packaging Holding Company, in exchange for a
20.5%
ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC (GPI), a wholly-owned subsidiary of GPIP that holds the assets of the combined business. The Company recorded equity earnings of
$14 million
and
$15 million
for the
three
months ended
June 30, 2019
and
2018
, respectively, and
$27 million
and
$17 million
for the
six
months ended
June 30, 2019
and
2018
, respectively. The Company received cash dividends from GPIP of
$12 million
and
$6 million
during the first
six
months of
2019
and
2018
, respectively. The Company's investment in GPIP was
$1.1 billion
at both
June 30, 2019
and
December 31, 2018
, which was
$565 million
and
$562 million
, respectively, more than the Company's proportionate share of the entity's underlying net assets. The difference primarily relates to the basis difference between the fair value of our investment and the underlying net assets, and is generally amortized in equity earnings over a period consistent with the underlying long-lived assets. The Company is party to various agreements with GPI under which it sells fiber and other products to GPI. Sales under these agreements were
$74 million
and
$58 million
for the
three
months ended
June 30, 2019
and
2018
, respectively, and
$143 million
and
$118 million
for the
six
months ended
June 30, 2019
and
2018
, respectively.
Summarized financial information for GPIP is presented in the following tables:
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
Current assets
|
$
|
1,855
|
|
|
$
|
1,757
|
|
|
Noncurrent assets
|
5,420
|
|
|
5,292
|
|
|
Current liabilities
|
1,070
|
|
|
1,148
|
|
|
Noncurrent liabilities
|
3,403
|
|
|
3,156
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
1,553
|
|
|
$
|
1,509
|
|
|
$
|
3,059
|
|
|
$
|
2,985
|
|
|
Gross profit
|
288
|
|
|
235
|
|
|
554
|
|
|
458
|
|
|
Income from continuing operations
|
105
|
|
|
81
|
|
|
200
|
|
|
143
|
|
|
Net income
|
105
|
|
|
81
|
|
|
200
|
|
|
143
|
|
Ilim S.A.
The Company has a
50%
equity interest in Ilim S.A. (Ilim), which has subsidiaries whose primary operations are in Russia. The Company recorded equity earnings (losses), net of taxes, of
$67 million
and
$57 million
for the
three
months ended
June 30, 2019
and
2018
, respectively, and
$168 million
and
$149 million
for the
six
months ended
June 30, 2019
and
2018
, respectively. The Company received cash dividends from the joint venture of
$239 million
and
$116 million
during the first
six
months of
2019
and
2018
, respectively. At
June 30, 2019
and
December 31, 2018
, the Company's investment in Ilim was
$466 million
and
$478 million
, respectively, which was
$149 million
and
$145 million
, respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to currency translation adjustments and the basis difference between the fair value of our investment at acquisition and the underlying net assets. The Company is party to a joint marketing agreement with JSC Ilim Group, a subsidiary of Ilim, under which the Company purchases, markets and sells paper produced by JSC Ilim Group. Purchases under this agreement were
$59 million
and
$56 million
for the
three
months
ended
June 30, 2019
and
2018
, respectively, and
$112 million
and
$109 million
for the
six
months ended
June 30, 2019
and
2018
, respectively.
Summarized financial information for Ilim is presented in the following tables:
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
Current assets
|
$
|
705
|
|
|
$
|
981
|
|
|
Noncurrent assets
|
2,234
|
|
|
1,710
|
|
|
Current liabilities
|
866
|
|
|
545
|
|
|
Noncurrent liabilities
|
1,417
|
|
|
1,470
|
|
|
Noncontrolling interests
|
21
|
|
|
11
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
594
|
|
|
$
|
698
|
|
|
$
|
1,213
|
|
|
$
|
1,375
|
|
|
Gross profit
|
304
|
|
|
402
|
|
|
640
|
|
|
776
|
|
|
Income from continuing operations
|
142
|
|
|
116
|
|
|
347
|
|
|
305
|
|
|
Net income
|
137
|
|
|
112
|
|
|
336
|
|
|
295
|
|
Goodwill
The following table presents changes in goodwill balances as allocated to each business segment for the
six
-months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Industrial
Packaging
|
|
Global Cellulose Fibers
|
|
Printing
Papers
|
|
Total
|
|
Balance as of January 1, 2019
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
3,379
|
|
|
$
|
52
|
|
|
$
|
2,116
|
|
|
$
|
5,547
|
|
|
Accumulated impairment losses
|
(296
|
)
|
|
—
|
|
|
(1,877
|
)
|
|
(2,173
|
)
|
|
|
3,083
|
|
|
52
|
|
|
239
|
|
|
3,374
|
|
|
Currency translation and other (a)
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
Goodwill additions/reductions
|
64
|
|
(b)
|
—
|
|
|
(112
|
)
|
(c)
|
(48
|
)
|
|
Accumulated impairment loss additions / reductions
|
—
|
|
|
—
|
|
|
112
|
|
(c)
|
112
|
|
|
Balance as of June 30, 2019
|
|
|
|
|
|
|
|
|
Goodwill
|
3,443
|
|
|
52
|
|
|
2,007
|
|
|
5,502
|
|
|
Accumulated impairment losses
|
(296
|
)
|
|
—
|
|
|
(1,765
|
)
|
|
(2,061
|
)
|
|
Total
|
$
|
3,147
|
|
|
$
|
52
|
|
|
$
|
242
|
|
|
$
|
3,441
|
|
|
|
|
|
(a)
|
Represents the effects of foreign currency translations.
|
|
|
|
|
(b)
|
Reflects the provisional goodwill for the acquisitions of Industrial Packaging box plants in EMEA.
|
|
|
|
|
(c)
|
Reflects the reclassification of India goodwill and accumulated impairment losses to held for sale.
|
Other Intangibles
Identifiable intangible assets comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
In millions
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Intangible Assets
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Intangible Assets
|
|
Customer relationships and lists
|
$
|
547
|
|
|
$
|
263
|
|
|
$
|
284
|
|
|
$
|
542
|
|
|
$
|
247
|
|
|
$
|
295
|
|
|
Non-compete agreements
|
26
|
|
|
26
|
|
|
—
|
|
|
67
|
|
|
67
|
|
|
—
|
|
|
Tradenames, patents and trademarks, and developed technology
|
173
|
|
|
97
|
|
|
76
|
|
|
174
|
|
|
90
|
|
|
84
|
|
|
Land and water rights
|
8
|
|
|
2
|
|
|
6
|
|
|
8
|
|
|
2
|
|
|
6
|
|
|
Software
|
27
|
|
|
25
|
|
|
2
|
|
|
26
|
|
|
25
|
|
|
1
|
|
|
Other
|
27
|
|
|
21
|
|
|
6
|
|
|
30
|
|
|
23
|
|
|
7
|
|
|
Total
|
$
|
808
|
|
|
$
|
434
|
|
|
$
|
374
|
|
|
$
|
847
|
|
|
$
|
454
|
|
|
$
|
393
|
|
The Company recognized the following amounts as amortization expense related to intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Amortization expense related to intangible assets
|
$
|
13
|
|
|
$
|
15
|
|
|
$
|
25
|
|
|
$
|
29
|
|
International Paper made income tax payments, net of refunds, of
$97 million
and
$112 million
for the
six
months ended
June 30, 2019
and
2018
, respectively.
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
$35 million
during the next 12 months.
International Paper uses the flow-through method to account for investment tax credits earned on eligible open loop-biomass facilities and Combined Heat and Power system expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather than a reduction in the asset basis. The Company recorded a tax benefit of
$6 million
for each of the
six
months ended
June 30, 2019
and
2018
, respectively.
The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by International Paper do Brasil Ltda., a wholly-owned subsidiary of the Company. The Company received assessments for the tax years 2007-2015 totaling approximately
$146 million
in tax, and
$377 million
in interest and penalties as of June 30, 2019 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received an unfavorable decision in October 2018 from the Brazilian Administrative Council of Tax Appeals. The Company has appealed this judgment to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. The Company believes that it has appropriately evaluated the transaction underlying these assessments, and has concluded based on Brazilian tax law, that its position would be sustained. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015.
Environmental
International Paper has been named as a potentially responsible party (PRP) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Many of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet.
Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these matters to be approximately
$132 million
(
$142 million
undiscounted) in the aggregate as of
June 30, 2019
. Other than as described below, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.
Cass Lake:
One of the matters included above arises out of a closed wood-treating facility located in Cass Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an estimated cost of
$46 million
. The overall remediation reserve for the site is currently
$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 June 2019, the EPA issued a revised proposed plan concerning clean-up standards at a portion of the site, the estimated cost of which is included within the reserve referenced above. In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other PRPs of their intent to perform a Natural Resource Damage Assessment. It is premature to predict the outcome of the assessment or to estimate a loss or range of loss, if any, which may be incurred.
Kalamazoo River:
The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis.
|
|
|
|
•
|
In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site known as Operable Unit 5, Area 1, and (ii) demanding reimbursement of EPA past costs totaling
$37 million
, including
$19 million
in past costs previously demanded by the EPA. The Company responded to the special notice letter. In December 2016, the EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy. The Company responded to the unilateral administrative order, agreeing to comply with the order subject to its sufficient cause defenses.
|
|
|
|
|
•
|
In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) of PCB-contaminated sediments from a different portion of the site. The Company responded to the unilateral administrative order and agreed along with two other parties to comply with the order subject to its sufficient cause defenses.
|
|
|
|
|
•
|
In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in 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 except as noted above, the Company has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any material loss is probable.
The Company was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the site. The suit seeks contribution under CERCLA for costs purportedly expended by plaintiffs (
$79 million
as of the filing of the complaint) and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan.
The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if any, for past or future costs. The parties’ responsibility, including that of the Company,
was the subject of a second trial, which was concluded in late 2015. In June 2018, the Court issued its Final Judgment and Order, which fixed the past cost amount at approximately
$50 million
(plus interest to be determined) and allocated to the Company a
15%
share of responsibility for those past costs. The Court did not address responsibility for future costs in its decision.
In July 2018, the Company and each of the other parties filed notices appealing the Final Judgment and prior orders incorporated into that Judgment.
As to future remediation costs, we remain unable to estimate our maximum reasonably possible loss with respect to this site. However, we do not believe that any material loss is probable.
Harris County:
International Paper and McGinnis Industrial Maintenance Corporation (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the costs of these activities. In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the removal of the contaminated material currently protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP.
On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform this work. While the EPA’s selected remedy was accompanied by a cost estimate of approximately
$115 million
, we do not believe that estimate provides a reasonable basis for accrual under GAAP because the estimate was based on a technological method for performing the work that we believe is not feasible. Subsequent to the issuance of the ROD, there have been numerous meetings between the EPA and the PRPs, and the Company continues to work with the EPA and MIMC/WMI to develop the remedial design.
To this end, in April 2018, the PRPs entered into an Administrative Order on Consent (AOC) with the EPA, agreeing to work together to develop the remedial design over the subsequent
29 months
. The AOC does not include any agreement to perform waste removal or other construction activity at the site. Rather, it involves adaptive management techniques and a pre-design investigation, the objectives of which include filling data gaps (including but not limited to post-Hurricane Harvey technical data generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if an excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts of remediation activities to infrastructure in the vicinity.
The Company has identified a number of concerns and uncertainties regarding the remedy described in the ROD and regarding the EPA’s estimates for the costs and time required to implement the selected remedy. The Company has determined, however, that even if the ROD cannot be implemented, a sheet pile "engineered barrier" can be constructed, which would enhance the existing remedy and could also be used should the ROD be determined to be feasible and implementable. In the third quarter of 2018, we increased our recorded liability accordingly to reflect the estimated cost of constructing this barrier. Because of ongoing questions regarding cost effectiveness, technical feasibility, timing and other technical data, however, it is uncertain how the ROD will be implemented. Consequently, while additional losses are probable as a result of the selected remedy, we are currently unable to determine any further adjustment to our immaterial recorded liability. It remains reasonably possible that additional losses could be material as the remedial design process with the EPA continues over the coming quarters.
International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by approximately
600
individuals who allege property damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the outcome or to estimate a loss or range of loss, if any, which may be incurred.
Antitrust
Containerboard:
In January 2011, International Paper was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee alleging that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the state court action seek certification of a class of Tennessee indirect purchasers of containerboard products, damages and costs, including attorneys' fees. No class certification materials have been filed to date in the Tennessee action.
The Company disputes the allegations made in the Tennessee lawsuit and is vigorously defending it. At this time, however, because the action is in a preliminary stage, we are unable to predict an outcome or estimate a range of reasonably possible loss.
Contract
Signature:
In August 2014, a lawsuit captioned
Signature Industrial Services LLC et al. v. International Paper Company
was filed in state court in Texas. The
Signature
lawsuit arises out of approximately
$1 million
in disputed invoices related to the installation of new equipment at the 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 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 Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately
$137 million
in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The Company has appealed this judgment. The Company has presented in its briefing numerous and strong bases for appeal, and we believe we will prevail on appeal. Because the appellate proceedings are ongoing, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial.
General
The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, labor and employment, contracts, sales of property, intellectual property, tax, antitrust 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 other 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. See Note 14 for details regarding a tax matter.
Variable Interest Entities
As of
June 30, 2019
, the fair value of the Timber Notes and Extension Loans is
$4.83 billion
and
$4.27 billion
, 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 16 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Activity between the Company and the 2015 Financing Entities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue (a)
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
47
|
|
|
$
|
47
|
|
|
Expense (a)
|
32
|
|
|
32
|
|
|
64
|
|
|
64
|
|
|
Cash receipts (b)
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
|
Cash payments (c)
|
—
|
|
|
—
|
|
|
64
|
|
|
64
|
|
|
|
|
|
(a)
|
The revenue and expense are included in Interest expense, net in the accompanying statement of operations.
|
|
|
|
|
(b)
|
The cash receipts are interest received on the Financial assets of special purpose entities.
|
|
|
|
|
(c)
|
The cash payments represent interest paid on Nonrecourse financial liabilities of special purpose entities.
|
As of
June 30, 2019
, the fair value of the Timber Notes and Extension Loans is
$2.26 billion
and
$2.10 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 16 in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
Activity between the Company and the 2007 Financing Entities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue (a)
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
42
|
|
|
$
|
33
|
|
|
Expense (b)
|
20
|
|
|
16
|
|
|
41
|
|
|
30
|
|
|
Cash receipts (c)
|
16
|
|
|
10
|
|
|
32
|
|
|
19
|
|
|
Cash payments (d)
|
18
|
|
|
12
|
|
|
36
|
|
|
24
|
|
|
|
|
|
(a)
|
The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately
$4 million
and
$9 million
for
three
and
six
months ended
June 30, 2019
and
2018
, respectively, of accretion income for the amortization of the basis difference adjustment on the Financial assets of special purpose entities.
|
|
|
|
|
(b)
|
The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately
$1 million
and
$3 million
for the
three
and
six
months ended
June 30, 2019
and
2018
, respectively, of accretion expense for the amortization of the basis difference adjustment on the Nonrecourse financial liabilities of special purpose entities.
|
|
|
|
|
(c)
|
The cash receipts are interest received on the Financial assets of special purpose entities.
|
|
|
|
|
(d)
|
The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities.
|
In June 2019, International Paper issued
$200 million
of
3.55%
senior unsecured notes with a maturity date in
2029
. The proceeds from this offering, together with a combination of available cash and other borrowings, were used for general corporate purposes, including repayment of outstanding commercial paper borrowings and other existing indebtedness.
In June 2018, the borrowing capacity of International Paper's commercial paper program was increased from
$750 million
to
$1.0 billion
. 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 or floating rate notes. As of
June 30, 2019
, the Company had
$535 million
of borrowings outstanding under the program at a weighted average interest rate of
2.64%
.
At
June 30, 2019
, the fair value of International Paper’s
$10.7 billion
of debt was approximately
$11.4 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 16 in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
As a multinational company International Paper is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices.
The notional amounts of qualifying and non-qualifying financial instruments used in hedging transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
Foreign exchange contracts (a)
|
$
|
463
|
|
|
$
|
407
|
|
|
Derivatives in Fair Value Hedging Relationships:
|
|
|
|
|
Interest rate contracts
|
700
|
|
|
700
|
|
|
Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
Interest rate contracts
|
475
|
|
|
—
|
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
Electricity contract
|
1
|
|
|
8
|
|
|
Foreign exchange contracts
|
23
|
|
|
19
|
|
|
|
|
|
(a)
|
These contracts had maturities of
two years
or less as of
June 30, 2019
.
|
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)
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Foreign exchange contracts
|
$
|
4
|
|
|
$
|
(18
|
)
|
|
$
|
4
|
|
|
$
|
(18
|
)
|
|
Interest rate contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
Total
|
$
|
4
|
|
|
$
|
(18
|
)
|
|
$
|
4
|
|
|
$
|
(21
|
)
|
During the next 12 months, the amount of the
June 30, 2019
AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of
$2 million
.
The amounts of gains and losses recognized in the 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)
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
Cost of products sold
|
|
Total
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
|
|
Location of Gain (Loss)
In
Statement
of Operations
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
Derivatives in Fair Value Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
Interest expense, net
|
|
Debt
|
(19
|
)
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
Interest expense, net
|
|
Total
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
Electricity contract
|
1
|
|
|
1
|
|
|
5
|
|
|
(1
|
)
|
|
Cost of products sold
|
|
Foreign exchange contracts
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
Total
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
|
Fair Value Measurements
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 balance sheet:
Fair Value Measurements
Level 2 – Significant Other Observable Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
|
In millions
|
June 30, 2019
|
|
December 31, 2018
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts – cash flow
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
10
|
|
|
|
Interest rate contracts - fair value
|
48
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
|
Total derivatives designated as hedging instruments
|
57
|
|
(a)
|
19
|
|
(b)
|
7
|
|
(c)
|
10
|
|
(d)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Electricity contract
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
|
Total derivatives not designated as hedging instruments
|
—
|
|
|
—
|
|
|
1
|
|
(d)
|
5
|
|
(d)
|
|
Total derivatives
|
$
|
57
|
|
|
$
|
19
|
|
|
$
|
8
|
|
|
$
|
15
|
|
|
|
|
|
|
(a)
|
Includes
$7 million
recorded in Other current assets and
$50 million
recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.
|
|
|
|
|
(b)
|
Includes
$2 million
recorded in Other current assets and
$17 million
recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.
|
|
|
|
|
(c)
|
Includes
$6 million
recorded in Other accrued liabilities and
$1 million
recorded in Other liabilities in the accompanying consolidated balance sheet.
|
|
|
|
|
(d)
|
Included in Other current 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 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.
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 Retirement Savings Account under the International Paper Company Salaried Savings Plan; 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).
Effective January 1, 2019, the Company froze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the SERP plan. This change does not affect benefits accrued through December 31, 2018. For service after December 31, 2018, employees affected by the freeze will instead receive a company contribution to their individual Retirement Savings Account.
Net periodic pension expense for our qualified and nonqualified U.S. defined benefit plans comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
$
|
16
|
|
|
$
|
41
|
|
|
$
|
34
|
|
|
$
|
79
|
|
|
Interest cost
|
110
|
|
|
120
|
|
|
220
|
|
|
238
|
|
|
Expected return on plan assets
|
(158
|
)
|
|
(200
|
)
|
|
(315
|
)
|
|
(400
|
)
|
|
Actuarial loss
|
49
|
|
|
108
|
|
|
100
|
|
|
190
|
|
|
Amortization of prior service cost
|
4
|
|
|
4
|
|
|
8
|
|
|
8
|
|
|
Net periodic pension expense
|
$
|
21
|
|
|
$
|
73
|
|
|
$
|
47
|
|
|
$
|
115
|
|
The components of net periodic pension expense other than the Service cost component are included in Non-operating pension expense in the Consolidated Statement of Operations.
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 no voluntary cash contributions to the qualified pension plan in the first six months of 2019 or 2018. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled
$10 million
for the
six
months ended
June 30, 2019
.
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. As of
June 30, 2019
,
9.7 million
shares were available for grant under the ICP.
Stock-based compensation expense and related income tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Total stock-based compensation expense (selling and administrative)
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
63
|
|
|
$
|
67
|
|
|
Income tax benefits related to stock-based compensation
|
(1
|
)
|
|
—
|
|
|
33
|
|
|
22
|
|
At
June 30, 2019
,
$159 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
1.9
years.
Performance Share Plan
During the first
six
months of
2019
, the Company granted
2.4 million
performance units at an average grant date fair value of
$43.49
.
International Paper’s business segments, Industrial Packaging, Global Cellulose Fibers and Printing Papers, 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.
Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding interest expense, net, corporate expenses, net, corporate special items, net and non-operating pension expense.
Sales by business segment for the
three
months and
six
months ended
June 30, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Industrial Packaging
|
$
|
3,864
|
|
|
$
|
4,022
|
|
|
$
|
7,696
|
|
|
$
|
7,849
|
|
|
Global Cellulose Fibers
|
661
|
|
|
692
|
|
|
1,350
|
|
|
1,369
|
|
|
Printing Papers
|
1,088
|
|
|
1,060
|
|
|
2,153
|
|
|
2,113
|
|
|
Corporate and Intersegment Sales
|
54
|
|
|
59
|
|
|
111
|
|
|
123
|
|
|
Net Sales
|
$
|
5,667
|
|
|
$
|
5,833
|
|
|
$
|
11,310
|
|
|
$
|
11,454
|
|
Operating profit by business segment for the
three
months and
six
months ended
June 30, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Industrial Packaging
|
$
|
507
|
|
|
$
|
537
|
|
|
$
|
911
|
|
|
$
|
974
|
|
|
Global Cellulose Fibers
|
(2
|
)
|
|
66
|
|
|
30
|
|
|
77
|
|
|
Printing Papers
|
(33
|
)
|
|
94
|
|
|
110
|
|
|
158
|
|
|
Business Segment Operating Profits
|
472
|
|
|
697
|
|
|
1,051
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes and equity earnings
|
334
|
|
|
490
|
|
|
752
|
|
|
846
|
|
|
Interest expense, net
|
122
|
|
|
133
|
|
|
255
|
|
|
268
|
|
|
Noncontrolling interests/equity earnings adjustment
|
5
|
|
|
(4
|
)
|
|
2
|
|
|
(5
|
)
|
|
Corporate expenses, net
|
3
|
|
|
30
|
|
|
24
|
|
|
39
|
|
|
Corporate special items, net
|
—
|
|
|
12
|
|
|
—
|
|
|
21
|
|
|
Non-operating pension expense
|
8
|
|
|
36
|
|
|
18
|
|
|
40
|
|
|
Business Segment Operating Profits
|
$
|
472
|
|
|
$
|
697
|
|
|
$
|
1,051
|
|
|
$
|
1,209
|
|
EXECUTIVE SUMMARY
Net earnings (loss) attributable to International Paper common shareholders were
$292 million
(
$0.73
per diluted share) in the
second
quarter of
2019
, compared with
$424 million
(
$1.05
per diluted share) in the
first
quarter of
2019
and
$405 million
(
$0.97
per diluted share) in the
second
quarter of
2018
. Adjusted Operating Earnings is a non-GAAP 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 to International Paper Common Shareholders of
$460 million
(
$1.15
per diluted share) in the
second
quarter of
2019
, compared with
$447 million
(
$1.11
per diluted share) in the
first
quarter of
2019
and
$498 million
(
$1.19
per diluted share) in the
second
quarter
2018
.
International Paper delivered solid earnings and strong cash generation in the second quarter of 2019. Our second quarter performance demonstrates our ability to leverage our system flexibility to deliver solid results in a more challenging environment. Box shipments were seasonally stronger versus the first quarter but weaker than expected, with soft demand in certain non-food segments for non-durable goods. Our export containerboard and pulp businesses saw lower volume in the second quarter driven by uneven global demand and high inventory levels. In spite of these challenges, operational performance was strong and we managed costs well across our businesses as we executed our highest maintenance outage quarter of the year. We continued to generate strong cash flows in the second quarter with cash from operations of approximately $1.1 billion and free cash flow of $732 million, including a $239 million cash dividend from our Ilim joint venture. This strong cash flow has enabled us to return about $810 million to shareholders through dividends and share repurchases during the first half of 2019.
Comparing performance with the first quarter of 2019, price and mix were lower in the second quarter mainly due to lower export containerboard and pulp prices, which were partially offset by higher prices in our North American Printing Papers business. Volume increased on seasonally stronger demand in our North American container and Brazil Papers businesses, which was partly offset by lower export containerboard and pulp volume. Operations and cost performance was strong. We ran our system well and managed costs effectively to mitigate the impact of downtime taken in the second quarter. We also successfully executed our highest maintenance outage quarter of the year and have now completed approximately 75% of our planned annual outages of 2019. Input costs were favorable versus the prior quarter, with lower recovered fiber and energy costs across our businesses, as well as lower wood costs, following a steep run up in 2018 and the first quarter of 2019. Our Ilim joint venture delivered solid earnings and operational performance. Ilim equity earnings decreased due to lower average pulp prices and higher planned maintenance outage expenses in the second quarter, as well as lower sequential non-cash, foreign exchange gains on Ilim’s U.S. dollar denominated net debt.
Looking ahead to the third quarter of 2019, across our businesses we expect lower price and mix, improved seasonal volume and export shipments, lower input costs and significantly lower maintenance outages following the heavy first half activity. In Industrial Packaging, we expect lower price and mix due to the impact of prior price index movements and continued export pressure. Volume is expected to improve on seasonally stronger demand in North America and improved export containerboard demand, with inventory destocking progressing as expected in overseas markets. Operations and costs are expected to be unfavorably impacted by higher seasonal labor costs in the North America box system. Maintenance outage expense will be lower, and we anticipate lower input costs for fiber and energy. In Global Cellulose Fibers, we expect lower price and mix due to continued trade and tariff uncertainty and high pulp inventory levels. Operations and costs are also expected to negatively impact earnings in the quarter due to the non-repeat of hurricane-related insurance recovery in the second quarter along with higher unabsorbed fixed costs. Earnings will benefit from lower maintenance outage expense along with lower input costs, primarily wood costs. In Printing Papers, we expect lower price and mix primarily related to export pressure in Latin America and geographic mix. This should be offset by improved volume on seasonally stronger demand in North America and Brazil. Printing Papers will also benefit from lower maintenance outage expenses in the quarter. Finally, in our Ilim joint venture, we expect lower average pulp prices and higher maintenance outage expenses in the third quarter, along with the non-repeat of the foreign exchange gain on Ilim’s U.S. dollar denominated net debt.
Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. Net earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most directly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of non-operating pension expense, items considered by management to be unusual, and discontinued operations from the earnings reported under GAAP. 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 consolidated operating results. The Company believes that using this information, along with the most directly comparable GAAP measure, provides for a more complete analysis of the results of operations.
The following are reconciliations of Earnings (loss) attributable to shareholders to Adjusted Operating Earnings (Loss) attributable to shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Three Months Ended March 31,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
Net Earnings (Loss) Attributable to International Paper Company
|
$
|
292
|
|
|
$
|
405
|
|
|
$
|
424
|
|
|
Less - Discontinued operations (gain) loss
|
—
|
|
|
23
|
|
|
—
|
|
|
Earnings (Loss) from Continuing Operations
|
292
|
|
|
428
|
|
|
424
|
|
|
Add Back - Non-operating pension expense (income)
|
8
|
|
|
36
|
|
|
10
|
|
|
Add Back - Net special items expense (income)
|
158
|
|
|
47
|
|
|
21
|
|
|
Income tax effect - Non-operating pension and special items expense
|
2
|
|
|
(13
|
)
|
|
(8
|
)
|
|
Adjusted Operating Earnings (Loss) Attributable to International Paper Company
|
$
|
460
|
|
|
$
|
498
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
|
$
|
0.73
|
|
|
$
|
0.97
|
|
|
$
|
1.05
|
|
|
Less - Discontinued operations (gain) loss per share
|
—
|
|
|
0.05
|
|
|
—
|
|
|
Diluted Earnings (Loss) Per Share from Continuing Operations
|
0.73
|
|
|
1.02
|
|
|
1.05
|
|
|
Add Back - Non-operating pension expense (income) per share
|
0.02
|
|
|
0.09
|
|
|
0.02
|
|
|
Add Back - Net special items expense (income) per share
|
0.40
|
|
|
0.11
|
|
|
0.05
|
|
|
Income tax effect per share - Non-operating pension and special items expense
|
—
|
|
|
(0.03
|
)
|
|
(0.01
|
)
|
|
Adjusted Operating Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
|
$
|
1.15
|
|
|
$
|
1.19
|
|
|
$
|
1.11
|
|
The Company generated free cash flow of approximately
$1.2 billion
and
$535 million
in the first
six
months of
2019
and
2018
, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
Cash provided by operations
|
$
|
1,800
|
|
|
$
|
1,464
|
|
|
Adjustments:
|
|
|
|
|
Cash invested in capital projects
|
(628
|
)
|
|
(929
|
)
|
|
Free Cash Flow
|
$
|
1,172
|
|
|
$
|
535
|
|
For the
second
quarter of
2019
, International Paper Company reported net sales of
$5.7 billion
, compared with
$5.6 billion
in the
first
quarter of
2019
and
$5.8 billion
in the
second
quarter of
2018
.
Net earnings attributable to International Paper totaled
$292 million
, or
$0.73
per diluted share, in the
2019
second
quarter. This compared with
$424 million
, or
$1.05
per diluted share, in the
first
quarter of
2019
and
$405 million
, or
$0.97
per diluted share, in the
second
quarter of
2018
.
Earnings from continuing operations attributable to International Paper Company were
$292 million
in the
second
quarter of
2019
,
$424 million
in the
first
quarter of
2019
and
$428 million
in the
second
quarter of
2018
.
Compared with the
first
quarter of
2019
, earnings benefited from higher sales volumes (
$17 million
), lower operating costs (
$63 million
), lower raw material and freight costs (
$49 million
), lower corporate and other items (
$14 million
), lower net interest expense (
$9 million
), lower tax expense (
$2 million
) and lower non-operating pension expense (
$2 million
). These benefits were offset by lower average sales prices, net of a favorable mix (
$26 million
), and higher mill maintenance outage costs (
$81 million
). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A., Graphic Packaging International Partners, LLC, and other investments were
$34 million
lower than in the
first
quarter of
2019
. Net special items in the
second
quarter of
2019
were a loss of $162 million compared with a loss of $15 million in the
first
quarter of
2019
.
Compared with the
second
quarter of
2018
, the
second
quarter of
2019
reflects higher average sales prices, net of an unfavorable mix ($
71 million
), lower corporate and other costs (
$20 million
), lower net interest expense (
$9 million
), lower tax expense (
$1 million
) and lower non-operating pension expense (
$21 million
). These benefits were offset by lower sales volumes (
$48 million
), higher operating costs (
$43 million
), higher raw material and freight costs (
$22 million
) and higher mill maintenance outage costs (
$36 million
). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A., Graphic Packaging International Partners, LLC, and other investments were
$10 million
higher in the
second
quarter of
2019
than in the
second
quarter of
2018
. Net special items in the
second
quarter of
2019
were a loss of $162 million compared with a loss of $43 million in the
second
quarter of
2018
.
Business Segment Operating Profits are used by International Paper's management to measure the earnings performance of its businesses. 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 a more complete analysis of the results of operations by quarter. 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, and excluding interest expense, net, corporate expenses, net, corporate special items, net and non-operating pension expense.
International Paper operates in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers.
The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to International Paper Company to its Total Business Segment Operating Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30,
|
|
March 31,
|
|
In millions
|
2019
|
|
2018
|
|
2019
|
|
Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company
|
$
|
292
|
|
|
$
|
428
|
|
|
$
|
424
|
|
|
Add back (deduct):
|
|
|
|
|
|
|
Income tax provision (benefit)
|
128
|
|
|
130
|
|
|
106
|
|
|
Equity (earnings) loss, net of taxes
|
(80
|
)
|
|
(70
|
)
|
|
(114
|
)
|
|
Noncontrolling interests, net of taxes
|
(6
|
)
|
|
2
|
|
|
2
|
|
|
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings
|
334
|
|
|
490
|
|
|
418
|
|
|
Interest expense, net
|
122
|
|
|
133
|
|
|
133
|
|
|
Noncontrolling interests / equity earnings included in operations
|
5
|
|
|
(4
|
)
|
|
(3
|
)
|
|
Corporate expenses, net
|
3
|
|
|
30
|
|
|
21
|
|
|
Corporate special items (income) expense
|
—
|
|
|
12
|
|
|
.
|
|
|
Non-operating pension expense
|
8
|
|
|
36
|
|
|
10
|
|
|
Adjusted Operating Profit
|
$
|
472
|
|
|
$
|
697
|
|
|
$
|
579
|
|
|
Business Segment Operating Profit:
|
|
|
|
|
|
|
Industrial Packaging
|
$
|
507
|
|
|
$
|
537
|
|
|
$
|
404
|
|
|
Global Cellulose Fibers
|
(2
|
)
|
|
66
|
|
|
32
|
|
|
Printing Papers
|
(33
|
)
|
|
94
|
|
|
143
|
|
|
Total Business Segment Operating Profit
|
$
|
472
|
|
|
$
|
697
|
|
|
$
|
579
|
|
Business Segment Operating Profit
Total business segment operating profits were
$472 million
in the
second
quarter of
2019
,
$579 million
in the
first
quarter of
2019
and
$697 million
in the
second
quarter of
2018
.
Compared with the
first
quarter of
2019
, operating profits benefited from higher sales volumes (
$23 million
), lower operating costs (
$85 million
) and lower raw material and freight costs (
$65 million
). These benefits were offset by lower average sales prices, net of a favorable mix (
$35 million
) and higher mill outage costs (
$109 million
). Special items were a loss of $157 million in the
second
quarter of
2019
compared with a loss of $21 million in the
first
quarter of
2019
.
Compared with the
second
quarter of
2018
, operating profits in the current quarter benefited from higher average sales prices net of an unfavorable mix ($
96 million
). These benefits were offset by lower sales volumes (
$64 million
), higher operating costs (
$57 million
), higher raw material and freight costs ($
30 million
) and higher mill outage costs (
$48 million
). Special items were a loss of $157 million in the
second
quarter of
2019
compared with a loss of $35 million in the
second
quarter of
2018
.
Economic downtime results from the amount of production required to meet our customer demand. Planned maintenance downtime is taken periodically throughout the year. The following table details North American planned maintenance and economic-related downtime (in tons):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
Three Months Ended June 30, 2018
|
Three Months Ended March 31, 2019
|
|
Economic-related downtime
|
339
|
|
—
|
|
484
|
|
|
Maintenance downtime
|
303
|
|
207
|
|
156
|
|
Sales Volumes by Product (a)
Sales volumes of major products for the
three
months and
six
months ended
June 30, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
In thousands of short tons (except as noted)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Industrial Packaging
|
|
|
|
|
|
|
|
|
Corrugated Packaging (b)
|
2,624
|
|
|
2,724
|
|
|
5,159
|
|
|
5,303
|
|
|
Containerboard
|
707
|
|
|
800
|
|
|
1,404
|
|
|
1,583
|
|
|
Recycling
|
625
|
|
|
597
|
|
|
1,234
|
|
|
1,134
|
|
|
Saturated Kraft
|
52
|
|
|
52
|
|
|
93
|
|
|
98
|
|
|
Gypsum/Release Kraft
|
49
|
|
|
67
|
|
|
100
|
|
|
120
|
|
|
Bleached Kraft
|
5
|
|
|
9
|
|
|
12
|
|
|
16
|
|
|
EMEA Packaging (b)
|
379
|
|
|
387
|
|
|
749
|
|
|
784
|
|
|
Brazilian Packaging (b)
|
91
|
|
|
85
|
|
|
176
|
|
|
171
|
|
|
European Coated Paperboard
|
102
|
|
|
90
|
|
|
206
|
|
|
186
|
|
|
Industrial Packaging
|
4,634
|
|
|
4,811
|
|
|
9,133
|
|
|
9,395
|
|
|
Global Cellulose Fibers
(in thousands of metric tons)
(c)
|
869
|
|
|
884
|
|
|
1,728
|
|
|
1,779
|
|
|
Printing Papers
|
|
|
|
|
|
|
|
|
U.S. Uncoated Papers
|
441
|
|
|
484
|
|
|
889
|
|
|
954
|
|
|
European and Russian Uncoated Papers
|
367
|
|
|
342
|
|
|
721
|
|
|
703
|
|
|
Brazilian Uncoated Papers
|
283
|
|
|
265
|
|
|
527
|
|
|
525
|
|
|
Indian Uncoated Papers
|
66
|
|
|
66
|
|
|
134
|
|
|
133
|
|
|
Printing Papers
|
1,157
|
|
|
1,157
|
|
|
2,271
|
|
|
2,315
|
|
|
|
|
|
(a)
|
Sales volumes include third party and inter-segment sales and exclude sales of equity investees.
|
|
|
|
|
(b)
|
Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons.
|
|
|
|
|
(c)
|
Includes North American, European and Brazilian volumes and internal sales to mills.
|
Discontinued Operations
Income Taxes
An income tax provision of
$128 million
was recorded for the
second
quarter of
2019
and the reported effective income tax rate was
38%
. Excluding an expense of
$4 million
related to the tax effects of special items and a benefit of
$2 million
related to the tax effects of non-operating pension expense, the effective income tax rate was
25%
for the quarter.
An income tax provision of
$106 million
was recorded for the
first
quarter of
2019
and the reported effective income tax rate was
25%
. Excluding a benefit of
$6 million
related to the tax effects of special items and a benefit of
$2 million
related to the tax effects of non-operating pension expense, the effective income tax rate was
25%
for the quarter.
An income tax provision of
$130 million
was recorded for the
second
quarter of
2018
and the reported effective income tax rate was
27%
. Excluding a benefit of
$4 million
related to the tax effects of special items and a benefit of
$9 million
related to the tax effects of non-operating pension expense, the effective income tax rate was
25%
for the quarter.
Interest Expense
Net interest expense was
$122 million
which includes interest expense of $1 million related to the settlement of foreign tax audits in the
second
quarter of
2019
, compared with
$133 million
in both the
first
quarter of
2019
and the
second
quarter of
2018
.
Effects of Special Items and Non-Operating Pension Expense
Details of special items and non-operating pension expense (income) for the
three
months ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
March 31,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
In millions
|
|
Before Tax
|
|
After Tax
|
|
Before Tax
|
|
After Tax
|
|
Before Tax
|
|
After Tax
|
|
Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
India impairment
|
|
$
|
145
|
|
|
$
|
143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Multi-employer pension plan exit liability
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
12
|
|
|
Gain on sale of EMEA Packaging box plant
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
(6
|
)
|
|
EMEA Packaging optimization
|
|
—
|
|
|
—
|
|
|
26
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
Abandoned property removal
|
|
11
|
|
|
8
|
|
|
9
|
|
|
7
|
|
|
11
|
|
|
8
|
|
|
Riverdale mill conversion
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Business Segments Total
|
|
157
|
|
|
152
|
|
|
35
|
|
|
25
|
|
|
21
|
|
|
15
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smufit-Kappa acquisition proposal costs
|
|
—
|
|
|
—
|
|
|
12
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
Interest expense related to settlement of foreign tax audits
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate Total
|
|
1
|
|
|
1
|
|
|
12
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
Total special items
|
|
158
|
|
|
153
|
|
|
47
|
|
|
34
|
|
|
21
|
|
|
15
|
|
|
Non-operating pension expense
|
|
8
|
|
|
6
|
|
|
36
|
|
|
27
|
|
|
10
|
|
|
8
|
|
|
Total special items and non-operating pension expense
|
|
$
|
166
|
|
|
$
|
159
|
|
|
$
|
83
|
|
|
$
|
61
|
|
|
$
|
31
|
|
|
$
|
23
|
|
Special items include the following tax expenses (benefits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
March 31,
|
|
In millions
|
|
2019
|
|
2018
|
|
2019
|
|
Luxembourg tax law rate change
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State income tax legislative changes
|
|
(3
|
)
|
|
9
|
|
|
—
|
|
|
Settlement of foreign tax audits
|
|
3
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
—
|
|
Details of special items and non-operating pension expense for the six months ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
2018
|
|
In millions
|
|
Before Tax
|
|
After Tax
|
|
Before Tax
|
|
After Tax
|
|
Business Segments
|
|
|
|
|
|
|
|
|
|
India impairment
|
|
$
|
145
|
|
|
$
|
143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Multi-employer pension plan exit liability
|
|
16
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
Gain on sale of EMEA Packaging box plant
|
|
(7
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
EMEA Packaging optimization
|
|
—
|
|
|
—
|
|
|
48
|
|
|
35
|
|
|
Abandoned property removal
|
|
22
|
|
|
16
|
|
|
18
|
|
|
14
|
|
|
Riverdale mill conversion
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Business Segments Total
|
|
178
|
|
|
167
|
|
|
66
|
|
|
49
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Smufit-Kappa acquisition proposal costs
|
|
—
|
|
|
—
|
|
|
12
|
|
|
9
|
|
|
Interest expense related to settlement of foreign tax audits
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Legal settlement
|
|
—
|
|
|
—
|
|
|
9
|
|
|
7
|
|
|
Corporate Total
|
|
1
|
|
|
1
|
|
|
21
|
|
|
16
|
|
|
Total special items
|
|
179
|
|
|
168
|
|
|
87
|
|
|
65
|
|
|
Non-operating pension expense
|
|
18
|
|
|
14
|
|
|
40
|
|
|
30
|
|
|
Total special items and non-operating pension expense
|
|
$
|
197
|
|
|
$
|
182
|
|
|
$
|
127
|
|
|
$
|
95
|
|
Special items include the following tax expenses (benefits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
In millions
|
|
2019
|
|
2018
|
|
Luxembourg tax law rate change
|
|
$
|
9
|
|
|
$
|
—
|
|
|
State income tax legislative changes
|
|
(3
|
)
|
|
9
|
|
|
Settlement of foreign tax audits
|
|
3
|
|
|
—
|
|
|
Total
|
|
$
|
9
|
|
|
$
|
9
|
|
The following tables present net sales and operating profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items.
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 21 - Business Segment Information
in the
Condensed Notes to the Consolidated Financial Statements
for the GAAP reconciliation of segment operating profit.
Industrial Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Industrial Packaging
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
3,864
|
|
|
$
|
3,832
|
|
|
$
|
7,696
|
|
|
$
|
4,022
|
|
|
$
|
3,827
|
|
|
$
|
7,849
|
|
|
Operating Profit
|
$
|
507
|
|
|
$
|
404
|
|
|
$
|
911
|
|
|
$
|
537
|
|
|
$
|
437
|
|
|
$
|
974
|
|
|
Multi-employer pension plan exit liability
|
—
|
|
|
16
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Gain on sale of EMEA Packaging box plant
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
EMEA Packaging optimization
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
22
|
|
|
48
|
|
|
Abandoned property removal
|
8
|
|
|
8
|
|
|
16
|
|
|
6
|
|
|
5
|
|
|
11
|
|
|
Operating Profit Before Special Items
|
$
|
515
|
|
|
$
|
421
|
|
|
$
|
936
|
|
|
$
|
569
|
|
|
$
|
464
|
|
|
$
|
1,033
|
|
Industrial Packaging net sales for the
second
quarter of
2019
were
1%
higher
than in the
first
quarter of
2019
and
4%
lower
than in the
second
quarter of
2018
. Operating profit before special items was
22%
higher
in the
second
quarter of
2019
than in the
first
quarter of
2019
and
9%
lower
than in the
second
quarter of
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Industrial Packaging
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales (a)
|
$
|
3,414
|
|
|
$
|
3,376
|
|
|
$
|
6,790
|
|
|
$
|
3,582
|
|
|
$
|
3,369
|
|
|
$
|
6,951
|
|
|
Operating Profit
|
$
|
507
|
|
|
$
|
395
|
|
|
$
|
902
|
|
|
$
|
574
|
|
|
$
|
459
|
|
|
$
|
1,033
|
|
|
Multi-employer pension plan exit liability
|
—
|
|
|
16
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Abandoned property removal
|
8
|
|
|
8
|
|
|
16
|
|
|
6
|
|
|
5
|
|
|
11
|
|
|
Operating Profit Before Special Items
|
$
|
515
|
|
|
$
|
419
|
|
|
$
|
934
|
|
|
$
|
580
|
|
|
$
|
464
|
|
|
$
|
1,044
|
|
|
|
|
|
(a)
|
Includes intra-segment sales of $31 million and $46 million for the three months ended June 30, 2019 and 2018, respectively; $31 million and $58 million for the three months ended March 31, 2019 and 2018, respectively; and $62 million and $104 million for the six months ended June 30, 2019 and 2018, respectively.
|
North American Industrial Packaging
sales volumes in the
second
quarter of
2019
increased compared to the
first
quarter of
2019
, reflecting seasonally higher shipments for boxes, partially offset by lower export containerboard volumes as customer destocking continued. Total maintenance and economic downtime was 10,000 tons higher in the second quarter of 2019, which comprises an increase of 92,000 tons for planned maintenance downtime and a decrease of 82,000 tons for economic downtime. Economic downtime was driven by lower volumes as we continued to manage production to meet our customers' needs. Average sales margins were lower, driven by lower average sales prices for export containerboard. Manufacturing performance was strong in both our mills and box plants and we continued to manage costs well to mitigate the impact of downtime in the quarter. Planned maintenance downtime costs were $27 million higher in the
second
quarter of
2019
compared with the
first
quarter of
2019
, with 80% of our annual planned outages now complete. Input costs were significantly favorable, primarily for recycled fiber, energy, wood and distribution.
Compared with the
second
quarter of
2018
, sales volumes were lower in the
second
quarter of
2019
for export containerboard and boxes, partially due to one less shipping day in 2019. Total maintenance and economic downtime was 376,000 tons higher in the second quarter of 2019, which comprises an increase of 48,000 tons for planned maintenance downtime and 328,000 tons for economic downtime. Average sales prices for boxes were higher, due to carryover of the Spring 2018 sales price increase. Export containerboard prices were lower, reflecting weaker demand. Manufacturing costs were lower, driven by strong operational performance at our mills. Planned maintenance downtime costs were $9 million higher in the
second
quarter of
2019
compared with the
second
quarter of
2018
. Input costs for recycled fiber and energy were lower, partially offset by higher costs for wood.
Entering the
third
quarter of
2019
, sales volumes for boxes are expected to be higher. Containerboard export shipments are also expected to increase, as demand improves and customers begin to replenish inventory. Average sales prices for boxes and export containerboard are expected to be lower, reflecting the impact of prior index movement, mix and export pressure. Operating costs are expected to be seasonally higher. Planned maintenance downtime costs should be $63 million lower in the third quarter of 2019 than in the
second
quarter of
2019
. Input costs are projected to be lower, primarily for wood.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA Industrial Packaging
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
331
|
|
|
$
|
339
|
|
|
$
|
670
|
|
|
$
|
344
|
|
|
$
|
362
|
|
|
$
|
706
|
|
|
Operating Profit
|
$
|
(7
|
)
|
|
$
|
(8
|
)
|
|
$
|
(15
|
)
|
|
$
|
(43
|
)
|
|
$
|
(34
|
)
|
|
$
|
(77
|
)
|
|
Gain on sale of EMEA Packaging box plant
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
EMEA Packaging optimization
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
22
|
|
|
48
|
|
|
Operating Profit Before Special Items
|
$
|
(7
|
)
|
|
$
|
(15
|
)
|
|
$
|
(22
|
)
|
|
$
|
(17
|
)
|
|
$
|
(12
|
)
|
|
$
|
(29
|
)
|
EMEA Industrial Packaging
sales volumes for boxes in the
second
quarter of
2019
were lower than in the
first
quarter of
2019
primarily due to lower seasonal demand in Morocco. Average sales margins improved in all regions driven by lower containerboard prices and stable box prices. Manufacturing operations improved, reflecting improved performance at the Madrid mill and the benefits of our box system optimization initiatives. Earnings also benefited from the box plant acquisitions completed in the first quarter of 2019. There were no planned maintenance downtime costs in either the
second
quarter of
2019
or the
first
quarter of
2019
. Input costs were stable. Earnings were negatively affected by unfavorable foreign currency impacts in Turkey.
Compared with the
second
quarter of
2018
, sales volumes in the
second
quarter of
2019
were lower, primarily due to the recession in Turkey. Average sales margins for boxes improved, reflecting sales price increases during 2018 and lower containerboard costs. Operating costs benefited from the ramp-up of the Madrid mill. Earnings also benefited from the box plant acquisitions completed in the first quarter of 2019. There were no planned maintenance downtime costs in the
second
quarter of
2018
. Input costs were stable. Earnings were negatively affected by unfavorable foreign currency impacts, primarily in Morocco.
Looking ahead to the
third
quarter of
2019
, sales volumes for boxes are expected to be seasonally lower in Morocco, but stable in the Eurozone and Turkey. Average sales margins should improve in Turkey, partially offset by lower average sales margins in the Eurozone and Morocco. Operating and input costs should be stable. Planned maintenance downtime costs should be $1 million higher in the third quarter of 2019 than in the
second
quarter of
2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian Industrial Packaging
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
58
|
|
|
$
|
57
|
|
|
$
|
115
|
|
|
$
|
56
|
|
|
$
|
62
|
|
|
$
|
118
|
|
|
Operating Profit
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
$
|
(11
|
)
|
|
$
|
(8
|
)
|
|
$
|
(19
|
)
|
Brazilian Industrial Packaging
sales volumes in the
second
quarter of
2019
compared with the
first
quarter of
2019
were higher for both boxes and containerboard due to seasonality. Average sales margins reflected higher sales prices for containerboard, offset by an unfavorable geographic and product mix. There were no planned maintenance outages in either the
second
quarter of
2019
or the
first
quarter of
2019
. Input costs were higher for purchased pulp, energy and recycled fiber, offset by lower distribution costs.
Compared with the
second
quarter of
2018
, sales volumes in the
second
quarter of
2019
were higher for both boxes and containerboard as the second quarter of 2018 included the impact of a nationwide trucker's strike. Average sales prices increased for boxes and containerboard. Operating costs were lower, but were partially offset by higher input costs for recycled fiber, energy and wood. Planned maintenance downtime costs were $1 million lower in the
second
quarter of
2019
than in the
second
quarter of
2018
.
Looking ahead to the
third
quarter of
2019
, sales volumes for boxes and containerboard are expected to be seasonally higher. Average sales margins are expected to be higher, reflecting a favorable geographic mix. Planned maintenance downtime costs should be $2 million higher in the third quarter of 2019 than in the
second
quarter of
2019
. Input costs are projected to be in line with the second quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Coated Paperboard
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
92
|
|
|
$
|
91
|
|
|
$
|
183
|
|
|
$
|
86
|
|
|
$
|
92
|
|
|
$
|
178
|
|
|
Operating Profit
|
$
|
8
|
|
|
$
|
22
|
|
|
$
|
30
|
|
|
$
|
17
|
|
|
$
|
20
|
|
|
$
|
37
|
|
European Coated Paperboard
sales volumes in the
second
quarter of
2019
compared with the
first
quarter of
2019
were flat in both Europe and Russia. Average sales margins improved in Europe driven by a favorable mix. In Russia, average sales margins were stable. Operating costs were higher in both Europe and Russia. Planned maintenance downtime costs were $8 million higher in the
second
quarter of
2019
compared with the
first
quarter of
2019
with outages at the Kwidzyn and Svetogorsk mills. Input costs were favorable in Europe and Russia, primarily for purchased pulp in Europe and wood in Russia.
Compared with the
second
quarter of
2018
, sales volumes increased in Europe, partially due to the impact of production constraints related to the Kwidzyn fire in 2018. Sales volumes were slightly higher in Russia. Average sales margins decreased in Europe due to an unfavorable mix, though improved in Russia, reflecting higher average sales prices and a favorable mix. Operating costs were higher in both Europe and Russia. Planned maintenance downtime costs in the
second
quarter of
2019
were $4 million higher than in the
second
quarter of
2018
. Input costs increased in Europe and Russia, primarily for purchased pulp, wood and energy in Europe and chemicals and energy in Russia.
Entering the
third
quarter of
2019
, sales volumes are expected to be higher in both Europe and Russia. Average sales margins are expected to increase in both regions, reflecting a favorable mix. Operating costs are expected to be higher in Europe, but lower in Russia. Planned maintenance downtime costs should be $8 million lower in the third quarter of 2019 than in the
second
quarter of
2019
. Input costs are expected to be lower in Europe, primarily for purchased pulp and wood, but slightly higher in Russia, primarily for chemicals, wood and energy.
Global Cellulose Fibers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Global Cellulose Fibers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
661
|
|
|
$
|
689
|
|
|
$
|
1,350
|
|
|
$
|
692
|
|
|
$
|
677
|
|
|
$
|
1,369
|
|
|
Operating Profit
|
$
|
(2
|
)
|
|
$
|
32
|
|
|
$
|
30
|
|
|
$
|
66
|
|
|
$
|
11
|
|
|
$
|
77
|
|
|
Abandoned property removal
|
2
|
|
|
3
|
|
|
5
|
|
|
3
|
|
|
4
|
|
|
7
|
|
|
Operating Profit Before Special Items
|
$
|
—
|
|
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
69
|
|
|
$
|
15
|
|
|
$
|
84
|
|
Global Cellulose Fibers
net sales were
4%
lower
in the
second
quarter of
2019
than in the
first
quarter of
2019
and
4%
lower
than in the
second
quarter of
2018
. Operating profit before special items was
100%
lower
in the
second
quarter of
2019
than in the
first
quarter of
2019
and
100%
lower
than in the
second
quarter of
2018
.
Sales volumes in the
second
quarter of
2019
compared with the
first
quarter of
2019
were higher for both fluff and market pulp. Total maintenance and economic downtime was 33,000 tons lower in the
second
quarter of
2019
, which comprises an increase of 32,000 tons for maintenance downtime and a decrease of 65,000 tons for economic downtime. Average sales margins decreased, reflecting lower average pulp prices in a challenging export environment associated with trade and tariff uncertainty and high inventory levels. Operating costs were stable as our mills performed well in a heavy planned maintenance downtime quarter. Planned maintenance downtime costs in the
second
quarter of
2019
were $27 million higher than in the
first
quarter of
2019
. Input costs were favorable, primarily for wood and chemicals. Earnings benefited in the second quarter of 2019 from $10 million of insurance proceeds related to Hurricane Florence. In Europe and Russia, sales volumes were lower. Average sales prices were lower in both regions. Planned maintenance downtime costs in the
second
quarter of
2019
were $4 million higher than in the
first
quarter of
2019
in Europe and Russia, with an outage at the Svetogorsk mill. Manufacturing and other operating costs were favorable in Russia and higher in Europe. Input costs were favorable in Europe, primarily due to energy. Input costs were flat in Russia.
Compared with the
second
quarter of
2018
, sales volumes in the
second
quarter of
2019
were down, driven by weaker global demand. Total maintenance and economic downtime was 34,000 tons higher in the
second
quarter of
2019
, which comprises an increase of 25,000 tons for maintenance downtime and 9,000 tons for economic downtime. Average sales prices were higher for fluff pulp, but lower for market pulp. Product mix was unfavorable. Operating costs were higher, driven by inflation. Planned maintenance downtime costs in the
second
quarter of
2019
were $36 million higher than in the
second
quarter of
2018
. Input costs were higher, primarily for softwood. In Europe and Russia, sales volumes increased. Average sales margins were lower, reflecting lower average sales prices and an unfavorable mix. Operating costs were unfavorable in Europe and flat in Russia. Planned maintenance downtime costs in the
second
quarter of
2019
were $4 million lower than in the
second
quarter of
2018
in Europe and Russia. Input costs were flat in Europe and slightly higher in Russia, primarily for chemicals and energy.
Entering the
third
quarter of
2019
, sales volumes are expected to be flat. Average sales margins are expected to be lower, reflecting the continuing effects of commercial conditions unfavorably impacted by slower growth in developing markets, tariff uncertainty and regional economic conditions. Operating costs are expected to be lower as we continue to focus on efficiencies at our mills. Planned maintenance downtime costs in the third quarter of 2019 should be $48 million lower than in the
second
quarter of
2019
. Input costs are expected to be favorable. In Europe and Russia, sales volumes are expected to be lower in Europe and higher in Russia. Average sales margins are expected to be lower in both regions. Operating costs are expected to be stable in Europe and higher in Russia. Planned maintenance downtime costs in the third quarter of 2019 should be $4 million lower than in the
second
quarter of
2019
in Europe and Russia, as no outages are scheduled.
Printing Papers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Printing Papers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
1,088
|
|
|
$
|
1,065
|
|
|
$
|
2,153
|
|
|
$
|
1,060
|
|
|
$
|
1,053
|
|
|
$
|
2,113
|
|
|
Operating Profit
|
$
|
(33
|
)
|
|
$
|
143
|
|
|
$
|
110
|
|
|
$
|
94
|
|
|
$
|
64
|
|
|
$
|
158
|
|
|
India impairment
|
145
|
|
|
—
|
|
|
145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Abandoned property removal
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Riverdale mill conversion
|
1
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Profit Before Special Items
|
$
|
114
|
|
|
$
|
144
|
|
|
$
|
258
|
|
|
$
|
94
|
|
|
$
|
64
|
|
|
$
|
158
|
|
Printing Papers net sales for the
second
quarter of
2019
were
2%
higher
than in the
first
quarter of
2019
and
3%
higher
than in the
second
quarter of
2018
. Operating profit before special items in the
second
quarter of
2019
was
21%
lower
than in the
first
quarter of
2019
and
21%
higher
than in the
second
quarter of
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Papers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
486
|
|
|
$
|
496
|
|
|
$
|
982
|
|
|
$
|
493
|
|
|
$
|
458
|
|
|
$
|
951
|
|
|
Operating Profit
|
$
|
39
|
|
|
$
|
56
|
|
|
$
|
95
|
|
|
$
|
25
|
|
|
$
|
1
|
|
|
$
|
26
|
|
|
Abandoned property removal
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Riverdale mill conversion
|
1
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Profit Before Special Items
|
$
|
41
|
|
|
$
|
57
|
|
|
$
|
98
|
|
|
$
|
25
|
|
|
$
|
1
|
|
|
$
|
26
|
|
North American Papers
sales volumes in the
second
quarter of
2019
were lower than in the
first
quarter of
2019
for uncoated freesheet paper, primarily driven by softer demand in commercial printing. Average sales prices were favorable, benefiting from the continued realization of price increases, partially offset by an unfavorable geographic mix. Operating costs were flat. Planned maintenance downtime costs were $23 million higher in the
second
quarter of
2019
, compared with the
first
quarter of
2019
, with 60% of planned annual maintenance outages now complete. Input costs were lower, primarily for wood. Earnings benefited in the second quarter of 2019 from $2 million of insurance proceeds related to Hurricane Florence.
Compared with the
second
quarter of
2018
, sales volumes in the
second
quarter of
2019
were lower for uncoated freesheet paper, primarily driven by commercial printing paper. Average sales prices were significantly higher, reflecting the impact of price increases in 2018. Operating costs were unfavorable, driven by inflation. Planned maintenance downtime costs were $7 million higher than in the
second
quarter of
2018
. Input costs increased, primarily for wood, but partially offset by lower distribution costs.
Entering the
third
quarter of
2019
, sales volumes are expected to be higher, driven by increased cutsize volumes and seasonally higher commercial printing paper volumes. Average sales margins are expected to be lower, including the impact of an unfavorable mill sourcing mix. Operating costs are expected to be lower. Planned maintenance downtime costs should be $17 million lower in the third quarter. Input costs are expected to be favorable, primarily for wood.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Papers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
321
|
|
|
$
|
309
|
|
|
$
|
630
|
|
|
$
|
302
|
|
|
$
|
319
|
|
|
$
|
621
|
|
|
Operating Profit
|
$
|
29
|
|
|
$
|
47
|
|
|
$
|
76
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
36
|
|
European Papers
sales volumes for uncoated freesheet paper in the
second
quarter of
2019
compared with the
first
quarter of
2019
were lower in Europe, but higher in Russia. Average sales margins for uncoated freesheet paper increased in Russia, reflecting higher average sales prices and a favorable mix. In Europe, average sales margins were lower. Operating costs were higher in both Europe and Russia. Planned maintenance downtime costs were $20 million higher in the
second
quarter of
2019
compared to the
first
quarter of
2019
, with outages at the Kwidzyn and Svetogorsk mills. Input costs were lower for energy and purchased pulp, but higher for wood in Europe. In Russia, input costs were lower, primarily for wood. Earnings benefited from favorable foreign currency impacts in Russia.
Sales volumes for uncoated freesheet paper in the
second
quarter of
2019
, compared with the
second
quarter of
2018
, were higher in Europe, partially due to the impact of the Kwidzyn fire in 2018. In Russia, sales volumes were lower. Average sales prices for uncoated freesheet paper increased significantly in both regions, reflecting price increases implemented in late 2018 and in 2019. Operating costs were lower in both Europe and Russia. Planned maintenance downtime costs were $2 million higher than in the
second
quarter of
2018
. Input costs, primarily for energy, chemicals and packaging materials in Russia and for purchased pulp, wood and chemicals in Europe, were higher. Earnings were negatively affected by unfavorable foreign currency impacts in both Europe and Russia.
Looking forward to the
third
quarter of
2019
, sales volumes for uncoated freesheet paper are expected to be higher in both Europe and Russia. In Europe, average sales margins are expected to be lower. In Russia, average sales margins will be negatively impacted by an unfavorable mix. Operating costs should be higher in Russia and flat in Europe. Planned maintenance downtime costs should be $20 million lower, as there are no outages scheduled in the third quarter of 2019. Input costs are expected to be stable in Europe and higher in Russia, primarily for wood, chemicals and energy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian Papers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales (a)
|
$
|
240
|
|
|
$
|
215
|
|
|
$
|
455
|
|
|
$
|
222
|
|
|
$
|
229
|
|
|
$
|
451
|
|
|
Operating Profit
|
$
|
37
|
|
|
$
|
33
|
|
|
$
|
70
|
|
|
$
|
49
|
|
|
$
|
40
|
|
|
$
|
89
|
|
|
|
|
|
(a)
|
Includes intra-segment sales of $12 million and $8 million for the three months ended June 30, 2019 and 2018, respectively; $8 million and $5 million for the three months ended March 31, 2019 and 2018, respectively; and $20 million and $13 million for the six months ended June 30, 2019 and 2018, respectively.
|
Brazilian Papers
sales volumes in the
second
quarter of
2019
, compared with the
first
quarter of
2019
, were seasonally higher for cutsize, primarily in export markets. However, domestic demand for offset was weaker than expected due to delays in the government textbook program which began about three months later than normal. Export average sales prices were lower, reflecting higher supply availability, while domestic average sales prices were stable. Operating costs were slightly higher. There were no planned maintenance outages in either the
second
quarter of
2019
or the
first
quarter of
2019
. Input costs were unfavorable, primarily for wood.
Compared with the
second
quarter of
2018
, sales volumes for uncoated freesheet paper in the
second
quarter of
2019
were higher for export markets, but lower for domestic markets, reflecting challenging demand conditions, heavily impacted by the textbook program delays. The second quarter of 2018 included the impact of a nationwide trucker's strike. Average domestic sales prices were higher and geographic and product mix were favorable, offset by lower export sales prices. Operating costs were unfavorable. Planned maintenance outage expenses were $4 million lower in the
second
quarter of
2019
. Input costs were higher, primarily for wood, purchased pulp, chemicals and energy.
Entering the
third
quarter of
2019
, sales volumes for uncoated freesheet paper are expected to be seasonally stronger in the domestic market, partially offset by lower export volumes. Average sales margins are expected to be stable for the domestic market, while export sales margins are expected to be lower. Operating costs should be slightly favorable. Planned maintenance outage expenses are expected to be $3 million higher. Input costs are expected to be slightly unfavorable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indian Papers
|
2019
|
|
2018
|
|
In millions
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
2nd Quarter
|
|
1st Quarter
|
|
Six Months
|
|
Sales
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
106
|
|
|
$
|
51
|
|
|
$
|
52
|
|
|
$
|
103
|
|
|
Operating Profit
|
$
|
(138
|
)
|
|
$
|
7
|
|
|
$
|
(131
|
)
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
7
|
|
|
India Impairment
|
145
|
|
|
—
|
|
|
145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Profit Before Special Items
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
7
|
|
Indian Papers
sales volumes in the
second
quarter of
2019
compared with the
first
quarter of
2019
were flat as strong demand continued. Sales margins improved due to higher average sales prices and a more favorable mix. Operating costs were favorable due to improved mill productivity. Input costs were slightly unfavorable.
Compared with the
second
quarter of
2018
, sales volumes were flat in the
second
quarter of
2019
. Average sales prices improved reflecting the impact of 2018 sale price increases. Operating costs were lower, reflecting improved mill productivity, while input costs were higher, primarily for chemicals.
Looking ahead to the
third
quarter of
2019
, sales volumes are expected to be lower and operating costs are expected to be higher due to production constraints associated with the planned annual outage at the Rajahmundry mill. Average sales margins are expected to be lower. Input costs are expected to be slightly lower.
Equity Earnings, Net of Taxes – Ilim
Since October 2007, International Paper and Ilim S.A. (Ilim) have operated a 50:50 joint venture in Russia. Ilim is a separate reportable industry segment. The Company recorded equity earnings, net of taxes, of
$67 million
in the
second
quarter of
2019
, compared with
$101 million
in the
first
quarter of
2019
and
$57 million
in the
second
quarter of
2018
. In the second quarter of 2019, the after-tax foreign exchange impact primarily on the remeasurement of U.S. dollar-denominated net debt was a gain of $7 million, compared with a gain of $21 million in the first quarter of 2019. The Company received cash dividends from the joint venture of $239 million during the
second
quarter of
2019
.
Compared with the first quarter of 2019, sales volumes in the second quarter of 2019 were 2% lower, primarily for sales of softwood pulp and containerboard in China, partially offset by higher sales of hardwood pulp in China. Average sales price realizations for softwood pulp in China and containerboard in China and in Russia were lower. Following the launch of a modernization program at the Bratsk mill and an outage at the Koryazhma mill in the second quarter of 2019, Ilim incurred mill outage and repair costs that were $10 million higher than in the first quarter of 2019. In addition, input costs for wood were seasonally higher in the second quarter of 2019.
Compared with the second quarter of 2018, sales volumes in the second quarter of 2019 decreased overall by 3%, primarily for sales of softwood pulp and containerboard in China and other export markets, partially offset by higher sales of hardwood pulp in China and Russia. Average sales price realizations were lower for softwood pulp and hardwood pulp in China and other export markets. In contrast, average sales price realizations for softwood pulp, hardwood pulp and containerboard in Russia increased during the second quarter of 2019. Input costs, primarily for wood, fuel and chemicals were higher. Distribution costs were also higher. An after-tax foreign exchange loss of $39 million primarily on the remeasurement of U.S. dollar denominated net debt was recorded in the second quarter of 2018.
Looking forward to the third quarter of 2019, sales volumes are expected to be lower. Average sales margins should reflect the continuing effects of prior price decreases, primarily for softwood pulp, hardwood pulp and containerboard in China and other export markets. Input costs are expected to be relatively flat. A project to upgrade the pulp line at the Ust-Ilimsk mill will be launched during a planned outage in the third quarter. Planned maintenance mill outages are also scheduled in the third quarter at the Bratsk and Koryazhma mills.
Equity Earnings – GPI
International Paper recorded equity earnings of
$14 million
on its
21%
ownership position in GPI in the
second
quarter of
2019
, compared with
$13 million
in the
first
quarter of
2019
and
$15 million
in the
second
quarter of
2018
.
Cash provided by operations totaled
$1.8 billion
for the first
six
months of
2019
, compared with
$1.5 billion
for the comparable
2018
six
-month period. Cash provided by working capital components totaled
$98 million
for the first
six
months of
2019
, compared to cash used by working capital components of
$213 million
for the comparable
2018
six
-month period.
Investments in capital projects totaled
$628 million
in the first
six
months of
2019
, compared to
$929 million
in the first
six
months of
2018
. Full-year
2019
capital spending is currently expected to be approximately $1.4 billion, or about 106% of depreciation and amortization, including approximately $400 million of strategic investments.
Financing activities for the first
six
months of
2019
included an
$8 million
net decrease in debt versus a
$338 million
net increase in debt during the comparable
2018
six
-month period.
Amounts related to early debt extinguishment during the
six
months ended
June 30, 2019
and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
In millions
|
2019
|
|
2018
|
|
Early debt reductions (a)
|
$
|
168
|
|
|
$
|
—
|
|
|
Pre-tax early debt extinguishment (gain) loss, net
|
(2
|
)
|
|
—
|
|
|
|
|
|
(a)
|
Reductions related to notes with interest rates ranging from
3.00%
to
9.50%
with original maturities from
2024
to
2048
for the
six
months ended
June 30, 2019
.
|
At
June 30, 2019
, contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in
Note 11 - Leases
) by calendar year were as follows:
$600 million
in
2019
;
$101 million
in
2020
;
$450 million
in
2021
;
$489 million
in
2022
;
$351 million
in
2023
; and
$8.7 billion
thereafter.
Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At
June 30, 2019
, 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
June 30, 2019
, International Paper’s credit agreements totaled
$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 billion
contractually committed bank credit agreement that expires in December 2021, and has a facility fee of
0.15%
per annum payable quarterly. The liquidity facilities also include up to
$600 million
of uncommitted
financings based on eligible receivable balances under a receivables securitization program that expires in December 2019. At
June 30, 2019
, there were no outstanding borrowings under the credit facility nor under the receivables securitization program.
In June 2018, the borrowing capacity of the commercial paper program was increased from
$750 million
to
$1.0 billion
. 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
June 30, 2019
, the Company had
$535 million
of borrowings outstanding under this program at a weighted average interest rate of
2.64%
.
During the first
six
months of
2019
, International Paper used
3.4 million
shares of treasury stock for various incentive plans. International Paper also acquired
10.1 million
shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled
$460 million
, including
$411 million
related to shares repurchased under the Company's repurchase program. On October 9, 2018, the Company announced an authorization to repurchase $2 billion of the Company's common stock to supplement remaining amounts under prior share repurchase authorizations, bringing total share repurchase authorizations since 2013 to $5.0 billion. The Company will continue to repurchase such shares in open market repurchase transactions. Under the $5.0 billion share repurchase program, the Company has repurchased
67.1 million
shares at an average price of $47.37, for a total of approximately $3.2 billion, as of
June 30, 2019
.
During the first
six
months of
2018
, International Paper used approximately
1.7 million
shares of treasury stock for various incentive plans. International Paper also acquired
5.8 million
shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled
$331 million
. Cash dividend payments related to common stock totaled
$398 million
and
$393 million
for the first
six
months of
2019
and
2018
, respectively. Dividends were
$1.0000
per share and
$0.9500
per share for the first
six
months in
2019
and
2018
, respectively.
International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during the remainder of
2019
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.
Ilim S.A. Shareholders’ Agreement
In October 2007, in connection with the formation of the Ilim S.A. joint venture (Ilim), International Paper entered into a shareholders' agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement. If these or any other deadlock procedures under the shareholders' 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 $2.3 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 shareholders' 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 and income taxes.
The Company has included in its
2018
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
six
months of
2019
.
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 trade protection measures, 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 joint ventures; (vii) our ability to achieve the benefits we expect from strategic acquisitions, divestitures, restructurings and capital investments, and (viii) 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, 2018. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Information relating to quantitative and qualitative disclosures about market risk is shown on page 35 of International Paper’s 2018 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, 2018
.
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
June 30, 2019
(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
June 30, 2019
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, 2018 (Part I, Item 1A).
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
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Period
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Total Number of Shares Purchased (a)
|
Average Price Paid per Share
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Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program
|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions)
|
|
April 1, 2019 - April 30, 2019
|
1,745,340
|
|
$46.36
|
1,744,748
|
|
$1.97
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|
May 1, 2019 - May 31, 2019
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2,680,077
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44.85
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2,678,965
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1.85
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June 1, 2019 - June 30, 2019
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692,773
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43.32
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692,400
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1.82
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Total
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5,118,190
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(a)
2,077
shares were acquired from employees or board members from share withholdings to pay income taxes under the Company's restricted stock programs. The remainder were purchased under a share repurchase program that was approved by our Board of Directors and announced on July 8, 2014 and October 9, 2018. Through this program, which does not have an expiration date, we were authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $3.5 billion of shares of our common stock. As of June 30, 2019, approximately $1.82 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.
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4.1
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31.1
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31.2
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32
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101.INS
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XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
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101.SCH
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XBRL Taxonomy Extension Schema.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase.
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101.PRE
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XBRL Extension Presentation Linkbase.
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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.
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INTERNATIONAL PAPER COMPANY
(Registrant)
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July 31, 2019
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By
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/s/ Tim S. Nicholls
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Tim S. Nicholls
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Senior Vice President and Chief
Financial Officer
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July 31, 2019
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By
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/s/ Vincent P. Bonnot
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Vincent P. Bonnot
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Vice President – Finance and Controller
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