New York | 13-0872805 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation of organization) | Identification No.) |
6400 Poplar Avenue, Memphis, TN | 38197 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Emerging growth company | ¨ |
PAGE NO. | ||
Condensed Consolidated Statement of Operations - Three Months and Nine Months Ended September 30, 2017 and 2016 | ||
Condensed Consolidated Statement of Comprehensive Income - Three Months and Nine Months Ended September 30, 2017 and 2016 | ||
Condensed Consolidated Balance Sheet - September 30, 2017 and December 31, 2016 | ||
Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 2017 and 2016 | ||
ITEM 1. | FINANCIAL STATEMENTS |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Sales | $ | 5,913 | $ | 5,266 | $ | 17,196 | $ | 15,698 | |||||||
Costs and Expenses | |||||||||||||||
Cost of products sold | 4,024 | 3,622 | 12,069 | 11,345 | |||||||||||
Selling and administrative expenses | 431 | 380 | 1,275 | 1,142 | |||||||||||
Depreciation, amortization and cost of timber harvested | 373 | 314 | 1,075 | 899 | |||||||||||
Distribution expenses | 386 | 353 | 1,155 | 1,012 | |||||||||||
Taxes other than payroll and income taxes | 44 | 41 | 132 | 123 | |||||||||||
Restructuring and other charges | — | 46 | (16 | ) | 47 | ||||||||||
Net (gains) losses on sales and impairments of businesses | — | 5 | 9 | 70 | |||||||||||
Litigation settlement | — | — | 354 | — | |||||||||||
Net bargain purchase gain on acquisition of business | — | — | (6 | ) | — | ||||||||||
Interest expense, net | 152 | 132 | 431 | 384 | |||||||||||
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 503 | 373 | 718 | 676 | |||||||||||
Income tax provision (benefit) | 153 | 107 | 147 | 139 | |||||||||||
Equity earnings (loss), net of taxes | 45 | 43 | 113 | 151 | |||||||||||
Earnings (Loss) From Continuing Operations | 395 | 309 | 684 | 688 | |||||||||||
Discontinued operations, net of taxes | — | — | — | (5 | ) | ||||||||||
Net Earnings (Loss) | 395 | 309 | 684 | 683 | |||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests | — | (3 | ) | — | (3 | ) | |||||||||
Net Earnings (Loss) Attributable to International Paper Company | $ | 395 | $ | 312 | $ | 684 | $ | 686 | |||||||
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 0.96 | $ | 0.76 | $ | 1.65 | $ | 1.68 | |||||||
Discontinued operations, net of taxes | — | — | — | (0.01 | ) | ||||||||||
Net earnings (loss) | $ | 0.96 | $ | 0.76 | $ | 1.65 | $ | 1.67 | |||||||
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 0.95 | $ | 0.75 | $ | 1.64 | $ | 1.66 | |||||||
Discontinued operations, net of taxes | — | — | — | (0.01 | ) | ||||||||||
Net earnings (loss) | $ | 0.95 | $ | 0.75 | $ | 1.64 | $ | 1.65 | |||||||
Average Shares of Common Stock Outstanding – assuming dilution | 417.4 | 415.3 | 417.4 | 415.5 | |||||||||||
Cash Dividends Per Common Share | $ | 0.4625 | $ | 0.4400 | $ | 1.3875 | $ | 1.3200 | |||||||
Amounts Attributable to International Paper Company Common Shareholders | |||||||||||||||
Earnings (loss) from continuing operations | $ | 395 | $ | 312 | $ | 684 | $ | 691 | |||||||
Discontinued operations, net of taxes | — | — | — | (5 | ) | ||||||||||
Net earnings (loss) | $ | 395 | $ | 312 | $ | 684 | $ | 686 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Earnings (Loss) | $ | 395 | $ | 309 | $ | 684 | $ | 683 | |||||||
Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||
Amortization of pension and post-retirement prior service costs and net loss: | |||||||||||||||
U.S. plans | 59 | 72 | 176 | 471 | |||||||||||
Pension and postretirement liability adjustments: | |||||||||||||||
U.S. plans | — | (53 | ) | — | (598 | ) | |||||||||
Non-U.S. plans | — | — | 1 | 17 | |||||||||||
Change in cumulative foreign currency translation adjustment | 100 | 3 | 234 | 373 | |||||||||||
Net gains/losses on cash flow hedging derivatives: | |||||||||||||||
Net gains (losses) arising during the period | 1 | 5 | 9 | (5 | ) | ||||||||||
Reclassification adjustment for (gains) losses included in net earnings (loss) | (2 | ) | (3 | ) | (6 | ) | (7 | ) | |||||||
Total Other Comprehensive Income (Loss), Net of Tax | 158 | 24 | 414 | 251 | |||||||||||
Comprehensive Income (Loss) | 553 | 333 | 1,098 | 934 | |||||||||||
Net (earnings) loss attributable to noncontrolling interests | — | 3 | — | 3 | |||||||||||
Other comprehensive (income) loss attributable to noncontrolling interests | 1 | (1 | ) | (1 | ) | (1 | ) | ||||||||
Comprehensive Income (Loss) Attributable to International Paper Company | $ | 554 | $ | 335 | $ | 1,097 | $ | 936 |
September 30, 2017 | December 31, 2016 | ||||||
(unaudited) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and temporary investments | $ | 998 | $ | 1,033 | |||
Accounts and notes receivable, net | 3,343 | 3,001 | |||||
Inventories | 2,465 | 2,438 | |||||
Other current assets | 405 | 198 | |||||
Total Current Assets | 7,211 | 6,670 | |||||
Plants, Properties and Equipment, net | 14,065 | 13,990 | |||||
Forestlands | 468 | 456 | |||||
Investments | 336 | 360 | |||||
Financial Assets of Special Purpose Entities (Note 13) | 7,047 | 7,033 | |||||
Goodwill | 3,420 | 3,364 | |||||
Deferred Charges and Other Assets | 1,266 | 1,220 | |||||
Total Assets | $ | 33,813 | $ | 33,093 | |||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Notes payable and current maturities of long-term debt | $ | 958 | $ | 239 | |||
Accounts payable | 2,408 | 2,309 | |||||
Accrued payroll and benefits | 447 | 430 | |||||
Other accrued liabilities | 1,056 | 1,091 | |||||
Total Current Liabilities | 4,869 | 4,069 | |||||
Long-Term Debt | 11,373 | 11,075 | |||||
Nonrecourse Financial Liabilities of Special Purpose Entities (Note 13) | 6,289 | 6,284 | |||||
Deferred Income Taxes | 3,505 | 3,127 | |||||
Pension Benefit Obligation | 2,069 | 3,400 | |||||
Postretirement and Postemployment Benefit Obligation | 315 | 330 | |||||
Other Liabilities | 460 | 449 | |||||
Equity | |||||||
Common stock, $1 par value, 2017 – 448.9 shares and 2016 – 448.9 shares | 449 | 449 | |||||
Paid-in capital | 6,176 | 6,189 | |||||
Retained earnings | 4,918 | 4,818 | |||||
Accumulated other comprehensive loss | (4,949 | ) | (5,362 | ) | |||
6,594 | 6,094 | ||||||
Less: Common stock held in treasury, at cost, 2017 – 36.0 shares and 2016 – 37.7 shares | 1,680 | 1,753 | |||||
Total International Paper Shareholders’ Equity | 4,914 | 4,341 | |||||
Noncontrolling interests | 19 | 18 | |||||
Total Equity | 4,933 | 4,359 | |||||
Total Liabilities and Equity | $ | 33,813 | $ | 33,093 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Operating Activities | |||||||
Net earnings (loss) | $ | 684 | $ | 683 | |||
Depreciation, amortization and cost of timber harvested | 1,075 | 899 | |||||
Deferred income tax provision (benefit), net | 295 | 45 | |||||
Restructuring and other charges | (16 | ) | 47 | ||||
Pension plan contributions | (1,250 | ) | (750 | ) | |||
Net bargain purchase gain on acquisition of business | (6 | ) | — | ||||
Net (gains) losses on sales and impairments of businesses | 9 | 70 | |||||
Ilim dividends received | 129 | 58 | |||||
Equity (earnings) loss, net | (113 | ) | (151 | ) | |||
Periodic pension expense, net | 237 | 718 | |||||
Other, net | 92 | 67 | |||||
Changes in current assets and liabilities | |||||||
Accounts and notes receivable | (293 | ) | (83 | ) | |||
Inventories | (70 | ) | (6 | ) | |||
Accounts payable and accrued liabilities | 5 | (37 | ) | ||||
Interest payable | (11 | ) | 24 | ||||
Other | (198 | ) | (18 | ) | |||
Cash Provided By (Used For) Operations | 569 | 1,566 | |||||
Investment Activities | |||||||
Invested in capital projects | (935 | ) | (903 | ) | |||
Acquisitions, net of cash acquired | (45 | ) | (56 | ) | |||
Proceeds from divestitures, net of cash divested | 4 | 105 | |||||
Proceeds from sale of fixed assets | 22 | 13 | |||||
Other | (54 | ) | (130 | ) | |||
Cash Provided By (Used For) Investment Activities | (1,008 | ) | (971 | ) | |||
Financing Activities | |||||||
Repurchases of common stock and payments of restricted stock tax withholding | (46 | ) | (132 | ) | |||
Issuance of debt | 1,366 | 3,447 | |||||
Reduction of debt | (369 | ) | (1,855 | ) | |||
Change in book overdrafts | 5 | (5 | ) | ||||
Dividends paid | (573 | ) | (543 | ) | |||
Debt tender premiums paid | (1 | ) | (31 | ) | |||
Other | (2 | ) | (3 | ) | |||
Cash Provided By (Used For) Financing Activities | 380 | 878 | |||||
Effect of Exchange Rate Changes on Cash | 24 | 39 | |||||
Change in Cash and Temporary Investments | (35 | ) | 1,512 | ||||
Cash and Temporary Investments | |||||||
Beginning of period | 1,033 | 1,050 | |||||
End of period | $ | 998 | $ | 2,562 |
Nine Months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
In millions, except per share amounts | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||
Balance, January 1 | $ | 4,341 | $ | 18 | $ | 4,359 | $ | 3,884 | $ | 25 | $ | 3,909 | |||||||||||
Issuance of stock for various plans, net | 130 | — | 130 | 100 | — | 100 | |||||||||||||||||
Repurchase of stock | (46 | ) | — | (46 | ) | (132 | ) | — | (132 | ) | |||||||||||||
Common stock dividends ($1.3875 per share in 2017 and $1.3200 per share in 2016) | (584 | ) | — | (584 | ) | (550 | ) | — | (550 | ) | |||||||||||||
Transactions of equity method investees | (24 | ) | — | (24 | ) | (37 | ) | — | (37 | ) | |||||||||||||
Divestiture of noncontrolling interests | — | — | — | — | (3 | ) | (3 | ) | |||||||||||||||
Other | — | — | — | 8 | — | 8 | |||||||||||||||||
Comprehensive income (loss) | 1,097 | 1 | 1,098 | 936 | (2 | ) | 934 | ||||||||||||||||
Ending Balance, September 30 | $ | 4,914 | $ | 19 | $ | 4,933 | $ | 4,209 | $ | 20 | $ | 4,229 |
In millions | Defined Benefit Pension and Postretirement Items (a) | Change in Cumulative Foreign Currency Translation Adjustments (a) | Net Gains and Losses on Cash Flow Hedging Derivatives (a) | Total (a) | ||||||||||||
Balance, July 1, 2017 | $ | (2,954 | ) | $ | (2,155 | ) | $ | 1 | $ | (5,108 | ) | |||||
Other comprehensive income (loss) before reclassifications | — | 101 | 1 | 102 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | 59 | (1 | ) | (2 | ) | 56 | ||||||||||
Net Current Period Other Comprehensive Income (Loss) | 59 | 100 | (1 | ) | 158 | |||||||||||
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | — | 1 | — | 1 | ||||||||||||
Balance, September 30, 2017 | $ | (2,895 | ) | $ | (2,054 | ) | $ | — | $ | (4,949 | ) |
(a) | All amounts are net of tax. |
In millions | Defined Benefit Pension and Postretirement Items (a) | Change in Cumulative Foreign Currency Translation Adjustments (a) | Net Gains and Losses on Cash Flow Hedging Derivatives (a) | Total (a) | ||||||||||||
Balance, July 1, 2016 | $ | (3,298 | ) | $ | (2,179 | ) | $ | (4 | ) | $ | (5,481 | ) | ||||
Other comprehensive income (loss) before reclassifications | (53 | ) | 3 | 5 | (45 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | 72 | — | (3 | ) | 69 | |||||||||||
Net Current Period Other Comprehensive Income (Loss) | 19 | 3 | 2 | 24 | ||||||||||||
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | — | (1 | ) | — | (1 | ) | ||||||||||
Balance, September 30, 2016 | $ | (3,279 | ) | $ | (2,177 | ) | $ | (2 | ) | $ | (5,458 | ) |
(a) | All amounts are net of tax. |
In millions | Defined Benefit Pension and Postretirement Items (a) | Change in Cumulative Foreign Currency Translation Adjustments (a) | Net Gains and Losses on Cash Flow Hedging Derivatives (a) | Total (a) | ||||||||||||
Balance, January 1, 2017 | $ | (3,072 | ) | $ | (2,287 | ) | $ | (3 | ) | $ | (5,362 | ) | ||||
Other comprehensive income (loss) before reclassifications | 1 | 235 | 9 | 245 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | 176 | (1 | ) | (6 | ) | 169 | ||||||||||
Net Current Period Other Comprehensive Income | 177 | 234 | 3 | 414 | ||||||||||||
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | — | (1 | ) | — | (1 | ) | ||||||||||
Balance, September 30, 2017 | $ | (2,895 | ) | $ | (2,054 | ) | $ | — | $ | (4,949 | ) |
(a) | All amounts are net of tax. |
In millions | Defined Benefit Pension and Postretirement Items (a) | Change in Cumulative Foreign Currency Translation Adjustments (a) | Net Gains and Losses on Cash Flow Hedging Derivatives (a) | Total (a) | ||||||||||||
Balance, January 1, 2016 | $ | (3,169 | ) | $ | (2,549 | ) | $ | 10 | $ | (5,708 | ) | |||||
Other comprehensive income (loss) before reclassifications | (581 | ) | 376 | (5 | ) | (210 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income | 471 | (3 | ) | (7 | ) | 461 | ||||||||||
Net Current Period Other Comprehensive Income | (110 | ) | 373 | (12 | ) | 251 | ||||||||||
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | — | (1 | ) | — | (1 | ) | ||||||||||
Balance, September 30, 2016 | $ | (3,279 | ) | $ | (2,177 | ) | $ | (2 | ) | $ | (5,458 | ) |
(a) | All amounts are net of tax. |
Details About Accumulated Other Comprehensive Income Components | Amounts Reclassified from Accumulated Other Comprehensive Income | Location of Amount Reclassified from AOCI | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||
In millions: | |||||||||||||||||||
Defined benefit pension and postretirement items: | |||||||||||||||||||
Prior-service costs | $ | (6 | ) | $ | (9 | ) | $ | (19 | ) | $ | (27 | ) | (a) | Cost of products sold | |||||
Actuarial gains (losses) | (89 | ) | (108 | ) | (266 | ) | (739 | ) | (a) | Cost of products sold | |||||||||
Total pre-tax amount | (95 | ) | (117 | ) | (285 | ) | (766 | ) | |||||||||||
Tax (expense) benefit | 36 | 45 | 109 | 295 | |||||||||||||||
Net of tax | (59 | ) | (72 | ) | (176 | ) | (471 | ) | |||||||||||
Change in cumulative foreign currency translation adjustments: | |||||||||||||||||||
Business acquisitions/divestitures | 1 | — | 1 | 3 | Net (gains) losses on sales and impairments of businesses | ||||||||||||||
Tax (expense)/benefit | — | — | — | — | |||||||||||||||
Net of tax | 1 | — | 1 | 3 | |||||||||||||||
Net gains and losses on cash flow hedging derivatives: | |||||||||||||||||||
Foreign exchange contracts | 3 | 5 | 8 | 10 | (b) | Cost of products sold | |||||||||||||
Total pre-tax amount | 3 | 5 | 8 | 10 | |||||||||||||||
Tax (expense)/benefit | (1 | ) | (2 | ) | (2 | ) | (3 | ) | |||||||||||
Net of tax | 2 | 3 | 6 | 7 | |||||||||||||||
Total reclassifications for the period | $ | (56 | ) | $ | (69 | ) | $ | (169 | ) | $ | (461 | ) |
(a) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for additional details). |
(b) | This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 15 for additional details). |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions, except per share amounts | 2017 | 2016 | 2017 | 2016 | |||||||||||
Earnings (loss) from continuing operations | $ | 395 | $ | 312 | $ | 684 | $ | 691 | |||||||
Effect of dilutive securities | — | — | — | — | |||||||||||
Earnings (loss) from continuing operations – assuming dilution | $ | 395 | $ | 312 | $ | 684 | $ | 691 | |||||||
Average common shares outstanding | 412.9 | 411.2 | 412.6 | 411.0 | |||||||||||
Effect of dilutive securities | |||||||||||||||
Restricted stock performance share plan | 4.5 | 4.1 | 4.8 | 4.5 | |||||||||||
Average common shares outstanding – assuming dilution | 417.4 | 415.3 | 417.4 | 415.5 | |||||||||||
Basic earnings (loss) from continuing operations per common share | $ | 0.96 | $ | 0.76 | $ | 1.65 | $ | 1.68 | |||||||
Diluted earnings (loss) from continuing operations per common share | $ | 0.95 | $ | 0.75 | $ | 1.64 | $ | 1.66 |
In millions | Three Months Ended June 30, 2017 | ||
Gain on sale of investment in ArborGen | $ | (14 | ) |
Other | (2 | ) | |
Total | $ | (16 | ) |
In millions | Three Months Ended September 30, 2016 | ||
Early debt extinguishment costs | $ | 29 | |
India packaging evaluation write-off | 17 | ||
Total | $ | 46 |
In millions | Three Months Ended March 31, 2016 | ||
Gain on sale of investment in Arizona Chemical | $ | (8 | ) |
Riegelwood mill conversion costs | 9 | ||
Total | $ | 1 |
In millions | |||
Cash and temporary investments | $ | 12 | |
Accounts and notes receivable | 195 | ||
Inventory | 238 | ||
Other current assets | 11 | ||
Plants, properties and equipment | 1,711 | ||
Goodwill | 52 | ||
Other intangible assets | 212 | ||
Deferred charges and other assets | 6 | ||
Total assets acquired | 2,437 | ||
Accounts payable and accrued liabilities | 114 | ||
Long-term debt | 104 | ||
Other long-term liabilities | 28 | ||
Total liabilities assumed | 246 | ||
Net assets acquired | $ | 2,191 |
In millions | Estimated Fair Value | Average Remaining Useful Life | |||
Asset Class: | (at acquisition date) | ||||
Customer relationships and lists | $ | 95 | 24 years | ||
Trade names, patents, trademarks and developed technology | 113 | 8 years | |||
Other | 4 | 10 years | |||
Total | $ | 212 |
In millions | September 30, 2017 | December 31, 2016 | |||||
Accounts and notes receivable, net: | |||||||
Trade | $ | 3,098 | $ | 2,759 | |||
Other | 245 | 242 | |||||
Total | $ | 3,343 | $ | 3,001 |
In millions | September 30, 2017 | December 31, 2016 | |||||
Raw materials | $ | 275 | $ | 296 | |||
Finished pulp, paper and packaging | 1,453 | 1,381 | |||||
Operating supplies | 646 | 661 | |||||
Other | 91 | 100 | |||||
Total | $ | 2,465 | $ | 2,438 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Interest expense | $ | 198 | $ | 181 | $ | 571 | $ | 513 | |||||||
Interest income | 46 | 49 | 140 | 129 | |||||||||||
Capitalized interest costs | 6 | 7 | 18 | 21 |
In millions | Industrial Packaging | Global Cellulose Fibers | Printing Papers | Consumer Packaging | Total | ||||||||||||||
Balance as of January 1, 2017 | |||||||||||||||||||
Goodwill | $ | 3,316 | $ | 19 | $ | 2,143 | $ | 1,664 | $ | 7,142 | |||||||||
Accumulated impairment losses (a) | (237 | ) | — | (1,877 | ) | (1,664 | ) | (3,778 | ) | ||||||||||
3,079 | 19 | 266 | — | 3,364 | |||||||||||||||
Reclassifications and other (b) | 5 | — | 14 | — | 19 | ||||||||||||||
Additions/reductions | 5 | (c) | 33 | (d) | (1 | ) | — | 37 | |||||||||||
Balance as of September 30, 2017 | |||||||||||||||||||
Goodwill | 3,326 | 52 | 2,156 | 1,664 | 7,198 | ||||||||||||||
Accumulated impairment losses (a) | (237 | ) | — | (1,877 | ) | (1,664 | ) | (3,778 | ) | ||||||||||
Total | $ | 3,089 | $ | 52 | $ | 279 | $ | — | $ | 3,420 |
(a) | Represents accumulated goodwill impairment charges since the adoption of ASC 350, “Intangibles – Goodwill and Other” in 2002. |
(b) | Represents the effects of foreign currency translations and reclassifications. |
(c) | Reflects the acquisition of the newly acquired Moroccan box plant. |
(d) | Represents purchase price adjustments related to the the newly acquired pulp business. |
September 30, 2017 | December 31, 2016 | ||||||||||||||
In millions | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
Customer relationships and lists | $ | 612 | $ | 242 | $ | 605 | $ | 211 | |||||||
Non-compete agreements | 71 | 71 | 69 | 64 | |||||||||||
Tradenames, patents and trademarks, and developed technology | 173 | 69 | 173 | 56 | |||||||||||
Land and water rights | 8 | 2 | 10 | 2 | |||||||||||
Software | 23 | 22 | 21 | 20 | |||||||||||
Other | 50 | 38 | 48 | 26 | |||||||||||
Total | $ | 937 | $ | 444 | $ | 926 | $ | 379 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Amortization expense related to intangible assets | $ | 27 | $ | 14 | $ | 60 | $ | 39 |
In millions | Unrecognized Tax Benefits | Accrued Estimated Interest and Tax Penalties | |||||
Balance at December 31, 2016 | $ | (98 | ) | $ | (22 | ) | |
Activity for three months ended March 31, 2017 | (2 | ) | 2 | ||||
Activity for the three months ended June 30, 2017 | (42 | ) | 1 | ||||
Activity for the three months ended September 30, 2017 | 1 | — | |||||
Balance at September 30, 2017 | $ | (141 | ) | $ | (19 | ) |
• | In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site, and (ii) demanding reimbursement of EPA past costs related to this portion of the site 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 for this portion of the site. The Company responded to the unilateral administrative order agreeing to comply with the order subject to its sufficient cause defenses. |
• | In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs 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, agreeing to comply with the order subject to its sufficient cause defenses. |
• | In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill. The record of decision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in late December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Revenue (a) | $ | 24 | $ | 24 | $ | 71 | $ | 71 | |||||||
Expense (a) | 32 | 32 | 96 | 96 | |||||||||||
Cash receipts (b) | 48 | 47 | 95 | 76 | |||||||||||
Cash payments (c) | 64 | 64 | 128 | 98 |
(a) | The revenue and expense are included in Interest expense, net in the accompanying statement of operations. |
(b) | The cash receipts are interest received on the Financial assets of special purpose entities. |
(c) | The cash payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Revenue (a) | $ | 12 | $ | 8 | $ | 35 | $ | 26 | |||||||
Expense (b) | 13 | 10 | 36 | 26 | |||||||||||
Cash receipts (c) | 7 | 4 | 19 | 10 | |||||||||||
Cash payments (d) | 10 | 7 | 28 | 19 |
(a) | The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $5 million and $14 million for the three and nine months ended September 30, 2017 and 2016, respectively, of accretion income for the amortization of the purchase accounting adjustment on the Financial assets of special purpose entities. |
(b) | The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately $2 million and $5 million for the three and nine months ended September 30, 2017 and 2016, respectively, of accretion expense for the amortization of the purchase accounting adjustment on the Nonrecourse financial liabilities of special purpose entities. |
(c) | The cash receipts are interest received on the Financial assets of special purpose entities. |
(d) | The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities. |
In millions | September 30, 2017 | December 31, 2016 | ||||||
Derivatives in Cash Flow Hedging Relationships: | ||||||||
Foreign exchange contracts (a) | $ | 348 | $ | 275 | ||||
Derivatives Not Designated as Hedging Instruments: | ||||||||
Electricity contract | 12 | 6 | ||||||
Foreign exchange contracts | 11 | 24 |
(a) | These contracts had maturities of two years or less as of September 30, 2017. |
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Foreign exchange contracts | $ | 1 | $ | 5 | $ | 9 | $ | 6 | |||||||
Interest rate contracts | — | — | — | (11 | ) | ||||||||||
Total | $ | 1 | $ | 5 | $ | 9 | $ | (5 | ) |
Gain (Loss) Reclassified from AOCI (Effective Portion) | Location of Gain (Loss) Reclassified from AOCI (Effective Portion) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Derivatives in Cash Flow Hedging Relationships: | ||||||||||||||||
Foreign exchange contracts | $ | 2 | $ | 3 | $ | 6 | $ | 7 | Cost of products sold | |||||||
Total | $ | 2 | $ | 3 | $ | 6 | $ | 7 |
Gain (Loss) Recognized | Location of Gain (Loss) In Statement of Operations | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||
Electricity contract | $ | (8 | ) | $ | — | $ | (10 | ) | $ | — | Cost of products sold | |||||
Foreign exchange contracts | — | — | — | — | Cost of products sold | |||||||||||
Interest rate contracts | — | 2 | — | 5 | Interest expense, net | |||||||||||
Total | $ | (8 | ) | $ | 2 | $ | (10 | ) | $ | 5 |
2017 | 2016 | ||||||||||||||||||||||
In millions | Issued | Terminated | Undesignated | Issued | Terminated | Undesignated | |||||||||||||||||
Third Quarter | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Second Quarter | — | — | — | — | — | — | |||||||||||||||||
First Quarter | — | — | — | — | 55 | — | |||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 55 | $ | — |
Assets | Liabilities | |||||||||||||||
In millions | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Foreign exchange contracts – cash flow | $ | 9 | (a) | $ | 3 | (b) | $ | 3 | (c) | $ | 4 | (e) | ||||
Total derivatives designated as hedging instruments | 9 | 3 | 3 | 4 | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Electricity contract | — | — | 8 | (d) | 2 | (e) | ||||||||||
Total derivatives not designated as hedging instruments | — | — | 8 | 2 | ||||||||||||
Total derivatives | $ | 9 | $ | 3 | $ | 11 | $ | 6 |
(a) | Includes $8 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying balance sheet. |
(b) | Included in Other current assets in the accompanying balance sheet. |
(c) | Includes $2 million recorded in Other accrued liabilities and $1 million recorded in Other liabilities in the accompanying consolidated balance sheet. |
(d) | Includes $4 million recorded in Other accrued liabilities and $4 million recorded in Other liabilities in the accompanying consolidated balance sheet. |
(e) | Included in Other accrued liabilities in the accompanying balance sheet. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Service cost | $ | 39 | $ | 41 | $ | 118 | $ | 114 | |||||||
Interest cost | 138 | 135 | 415 | 449 | |||||||||||
Expected return on plan assets | (192 | ) | (199 | ) | (577 | ) | (611 | ) | |||||||
Actuarial loss | 87 | 103 | 260 | 293 | |||||||||||
Amortization of prior service cost | 7 | 11 | 21 | 31 | |||||||||||
Settlement | — | 3 | — | 442 | |||||||||||
Net periodic pension expense | $ | 79 | $ | 94 | $ | 237 | $ | 718 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Total stock-based compensation expense (selling and administrative) | $ | 38 | $ | 33 | $ | 120 | $ | 100 | |||||||
Income tax benefits related to stock-based compensation | (2 | ) | — | 45 | 33 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Industrial Packaging | $ | 3,734 | $ | 3,491 | $ | 10,939 | $ | 10,422 | ||||||||
Global Cellulose Fibers | 654 | 242 | 1,830 | 713 | ||||||||||||
Printing Papers | 1,039 | 1,019 | 3,051 | 3,003 | ||||||||||||
Consumer Packaging | 491 | 494 | 1,431 | 1,490 | ||||||||||||
Corporate and Intersegment Sales | (5 | ) | 20 | (55 | ) | 70 | ||||||||||
Net Sales | $ | 5,913 | $ | 5,266 | $ | 17,196 | $ | 15,698 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Industrial Packaging | $ | 469 | (a) | $ | 423 | (f) | $ | 884 | (a) | $ | 1,277 | (f) | ||||
Global Cellulose Fibers | 49 | (b) | (38 | ) | (g) | (14 | ) | (b) | (109 | ) | (g) | |||||
Printing Papers | 135 | 167 | 321 | (c) | 419 | |||||||||||
Consumer Packaging | 54 | 61 | 73 | (d) | 150 | (h) | ||||||||||
Business Segment Operating Profits | 707 | 613 | 1,264 | 1,737 | ||||||||||||
Earnings (loss) from continuing operations before income taxes and equity earnings | 503 | 373 | 718 | 676 | ||||||||||||
Interest expense, net | 152 | 132 | 431 | (e) | 384 | |||||||||||
Noncontrolling interests/equity earnings adjustment (j) | — | 1 | (1 | ) | 1 | |||||||||||
Corporate items, net | 19 | 11 | 34 | 57 | ||||||||||||
Special items, net | — | 54 | (16 | ) | 46 | |||||||||||
Non-operating pension expense | 33 | 42 | 98 | 573 | (i) | |||||||||||
$ | 707 | $ | 613 | $ | 1,264 | $ | 1,737 |
(a) | Includes a charge of $354 million for the nine months ended September 30, 2017 related to the agreement to settle the Kleen Products anti-trust class action lawsuit, a charge of $10 million for the three months and nine months ended September 30, 2017 for the accelerated amortization of an intangible asset in Brazil, a gain of $6 million for the nine months ended September 30, 2017 for a net bargain purchase gain associated with the June 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain, and charges of $5 million and $9 million for the three months and nine months ended September 30, 2017, respectively, for other items. |
(b) | Includes charges of $6 million and $15 million for the three months and nine months ended September 30, 2017, respectively, for costs associated with the acquisition of the pulp business acquired in December 2016, a charge of $14 million for the nine months ended September 30, 2017 for the amortization of the inventory fair value step-up for that business and charges of $2 million and $3 million for the three months and nine months ended September 30, 2017, respectively, for other items. |
(c) | Includes a charge of $2 million for the nine months ended September 30, 2017 for other items. |
(d) | Includes a charge of $9 million for the nine months ended September 30, 2017 for the impairment of the assets of our Foodservice business in Asia. |
(e) | Includes a gain of $4 million for the nine months ended September 30, 2017 for interest income associated with an income tax refund claim. |
(f) | Includes charges of $5 million and $70 million for the three months and nine months ended September 30, 2016, respectively, for the impairment of the assets of our corrugated packaging business in Asia and costs associated with the sale of that business. |
(g) | Includes charges of $7 million and $12 million for the three months and nine months ended September 30, 2016, respectively, for costs associated with the agreement to purchase the Weyerhaeuser pulp business. |
(h) | Includes a charge of $9 million for the nine months ended September 30, 2016 for costs associated with the Riegelwood conversion to 100% pulp production. |
(i) | Includes a charge of $439 million for the nine months ended September 30, 2016 for a settlement accounting charge associated with term-vested lump sum payments. |
(j) | Operating profits for business segments include each segment's percentage share of the profits of subsidiaries included in that segment that are less than wholly owned. The pre-tax noncontrolling interest and equity earnings for these subsidiaries are adjusted here to present consolidated earnings before income taxes and equity earnings. |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended September 30, | Three Months Ended June 30, | ||||||||||
2017 | 2016 | 2017 | |||||||||
Diluted Earnings (Loss) Attributable to Shareholders | $ | 395 | $ | 312 | $ | 80 | |||||
Add back - Discontinued operations (gain) loss | — | — | — | ||||||||
Diluted Earnings (Loss) from Continuing Operations | 395 | 312 | 80 | ||||||||
Add Back - Non-operating pension (income) expense | 33 | 43 | 34 | ||||||||
Add Back - Net special items expense (income) | 23 | 65 | 353 | ||||||||
Income tax effect - Non-operating pension and special items expense | (2 | ) | (40 | ) | (197 | ) | |||||
Adjusted Operating Earnings (Loss) Attributable to Shareholders | $ | 449 | $ | 380 | $ | 270 |
Three Months Ended September 30, | Three Months Ended June 30, | ||||||||||
2017 | 2016 | 2017 | |||||||||
Diluted Earnings (Loss) Per Share Attributable to Shareholders | $ | 0.95 | $ | 0.75 | $ | 0.19 | |||||
Add Back - Discontinued operations (gain) loss per share | — | — | — | ||||||||
Diluted Earnings (Loss) Per Share from Continuing Operations | 0.95 | 0.75 | 0.19 | ||||||||
Add Back - Non-operating pension (income) expense per share | 0.08 | 0.10 | 0.08 | ||||||||
Add Back - Net special items expense (income) per share | 0.05 | 0.16 | 0.85 | ||||||||
Income tax effect per share - Non-operating pension and special items expense | — | (0.10 | ) | (0.47 | ) | ||||||
Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $ | 1.08 | $ | 0.91 | $ | 0.65 |
Three Months Ended | |||||||||||
September 30 | June 30, | ||||||||||
In millions | 2017 | 2016 | 2017 | ||||||||
Earnings (Loss) From Continuing Operations Attributable to International Paper Company | $ | 395 | $ | 312 | $ | 80 | |||||
Add back (deduct): | |||||||||||
Income tax provision (benefit) | 153 | 107 | (89 | ) | |||||||
Equity (earnings) loss, net of taxes | (45 | ) | (43 | ) | (20 | ) | |||||
Noncontrolling interests, net of taxes | — | (3 | ) | — | |||||||
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 503 | 373 | (29 | ) | |||||||
Interest expense, net | 152 | 132 | 137 | ||||||||
Noncontrolling interests / equity earnings included in operations | — | 1 | (1 | ) | |||||||
Corporate items | 19 | 11 | 4 | ||||||||
Special items (income) expense | — | 54 | (16 | ) | |||||||
Non-operating pension expense | 33 | 42 | 34 | ||||||||
Adjusted Operating Profit | $ | 707 | $ | 613 | $ | 129 | |||||
Business Segment Operating Profit: | |||||||||||
Industrial Packaging | $ | 469 | $ | 423 | $ | 50 | |||||
Global Cellulose Fibers | 49 | (38 | ) | 7 | |||||||
Printing Papers | 135 | 167 | 86 | ||||||||
Consumer Packaging | 54 | 61 | (14 | ) | |||||||
Total Business Segment Operating Profit | $ | 707 | $ | 613 | $ | 129 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
In thousands of short tons (except as noted) | 2017 | 2016 | 2017 | 2016 | |||||||
Industrial Packaging | |||||||||||
North American Corrugated Packaging (c) | 2,599 | 2,640 | 7,784 | 7,801 | |||||||
North American Containerboard | 828 | 801 | 2,438 | 2,311 | |||||||
North American Recycling | 924 | 977 | 2,799 | 2,873 | |||||||
North American Saturated Kraft | 45 | 51 | 132 | 142 | |||||||
North American Gypsum/Release Kraft | 54 | 49 | 165 | 142 | |||||||
North American Bleached Kraft | 7 | 7 | 20 | 18 | |||||||
EMEA Industrial Packaging (c) (d) | 350 | 344 | 1,124 | 1,091 | |||||||
Asian Box (c) (e) | — | — | — | 208 | |||||||
Brazilian Packaging (c) | 93 | 93 | 266 | 254 | |||||||
Industrial Packaging | 4,900 | 4,962 | 14,728 | 14,840 | |||||||
Cellulose Fibers (in thousands of metric tons) (b) | 933 | 415 | 2,706 | 1,233 | |||||||
Printing Papers | |||||||||||
North American Uncoated Papers | 497 | 467 | 1,451 | 1,402 | |||||||
EMEA and Russian Uncoated Papers | 365 | 358 | 1,104 | 1,120 | |||||||
Brazilian Uncoated Papers | 280 | 274 | 832 | 800 | |||||||
Indian Uncoated Papers | 58 | 51 | 186 | 175 | |||||||
Uncoated Papers | 1,200 | 1,150 | 3,573 | 3,497 | |||||||
Consumer Packaging | |||||||||||
North American Consumer Packaging | 296 | 301 | 876 | 915 | |||||||
EMEA Coated Paperboard | 103 | 105 | 296 | 298 | |||||||
Consumer Packaging | 399 | 406 | 1,172 | 1,213 |
(a) | Sales volumes include third party and inter-segment sales and exclude sales of equity investees. |
(b) | Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired beginning December 1, 2016. |
(c) | Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons. |
(d) | Excludes newsprint sales volumes at the Madrid, Spain mill. |
(e) | Includes sales volumes through the date of sale on June 30, 2016. |
Three Months Ended | ||||||||||||||||||||||||
September 30 | June 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | ||||||||||||||||||||||
In millions | Before Tax | After Tax | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||||||||
Business Segments | ||||||||||||||||||||||||
Kleen Products anti-trust class action lawsuit settlement | $ | — | $ | — | $ | — | $ | — | $ | 354 | $ | 219 | ||||||||||||
Weyerhaeuser pulp business integration costs | 6 | 4 | 7 | 4 | 5 | 3 | ||||||||||||||||||
Asia Packaging restructuring and impairment | — | — | 5 | 4 | — | — | ||||||||||||||||||
Foodservice Asia impairment | — | — | — | — | 9 | 4 | ||||||||||||||||||
Brazil intangible asset accelerated amortization | 10 | 7 | — | — | — | — | ||||||||||||||||||
Abandoned property | 7 | 4 | — | — | 5 | 3 | ||||||||||||||||||
Business Segments Total | 23 | 15 | 12 | 8 | 373 | 229 | ||||||||||||||||||
Corporate | ||||||||||||||||||||||||
Debt extinguishment | — | — | 29 | 18 | — | — | ||||||||||||||||||
Write-off of certain regulatory pre-engineering costs | — | — | 8 | 5 | — | — | ||||||||||||||||||
India Packaging business evaluation write-off | — | — | 17 | 11 | (2 | ) | (2 | ) | ||||||||||||||||
Gain on sale of investment in ArborGen | — | — | — | — | (14 | ) | (9 | ) | ||||||||||||||||
Interest income related to income tax refund claim | — | — | — | — | (4 | ) | (2 | ) | ||||||||||||||||
Corporate Total | — | — | 54 | 34 | (20 | ) | (13 | ) | ||||||||||||||||
Total special items | 23 | 15 | 66 | 42 | 353 | 216 | ||||||||||||||||||
Non-operating pension expense | 33 | 20 | 42 | 26 | 34 | 21 | ||||||||||||||||||
Total | $ | 56 | $ | 35 | $ | 108 | $ | 68 | $ | 387 | $ | 237 |
Three Months Ended | ||||||||||||
September 30 | June 30, | |||||||||||
In millions | 2017 | 2016 | 2017 | |||||||||
Income tax refund claims | $ | — | $ | — | $ | (85 | ) | |||||
Pension contribution return to accrual | — | — | 38 | |||||||||
International investment restructuring | 19 | — | — | |||||||||
Total | $ | 19 | $ | — | $ | (47 | ) |
Nine Months Ended | ||||||||||||||||
September 30 | ||||||||||||||||
2017 | 2016 | |||||||||||||||
In millions | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||
Business Segments | ||||||||||||||||
Kleen Products anti-trust class action lawsuit settlement | $ | 354 | $ | 219 | $ | — | $ | — | ||||||||
Pulp business acquisition inventory fair value step-up amortization | 14 | 8 | — | — | ||||||||||||
Weyerhaeuser pulp business integration costs | 15 | 9 | 12 | 7 | ||||||||||||
Holmen mill net bargain purchase gain | (6 | ) | (6 | ) | — | — | ||||||||||
Riegelwood mill conversion costs | — | — | 9 | 6 | ||||||||||||
Asia Packaging restructuring and impairment | — | — | 70 | 58 | ||||||||||||
Foodservice Asia impairment | 9 | 4 | — | — | ||||||||||||
Abandoned property | 14 | 9 | — | — | ||||||||||||
Brazil Packaging Intangible Asset Accelerated Amortization | 10 | 7 | — | — | ||||||||||||
Business Segments Total | 410 | 250 | 91 | 71 | ||||||||||||
Corporate | ||||||||||||||||
Debt extinguishment | — | — | 29 | 18 | ||||||||||||
Write-off of certain regulatory pre-engineering costs | — | — | 8 | 5 | ||||||||||||
Gain on sale of investment in Arizona Chemical | — | — | (8 | ) | (5 | ) | ||||||||||
India Packaging business evaluation write-off | (2 | ) | (2 | ) | 17 | 11 | ||||||||||
Gain on sale of investment in ArborGen | (14 | ) | (9 | ) | — | — | ||||||||||
Interest income related to income tax refund claim | (4 | ) | (2 | ) | — | — | ||||||||||
Corporate Total | (20 | ) | (13 | ) | 46 | 29 | ||||||||||
Total special items | 390 | 237 | 137 | 100 | ||||||||||||
Non-operating pension expense | 98 | 60 | 573 | 352 | ||||||||||||
Total | $ | 488 | $ | 297 | $ | 710 | $ | 452 |
Nine Months Ended | ||||||||
September 30 | ||||||||
In millions | 2017 | 2016 | ||||||
Income tax refund claims | $ | (85 | ) | $ | — | |||
Pension contribution return to accrual | 38 | 23 | ||||||
International investment restructuring | 34 | (63 | ) | |||||
Federal income tax audit closure | — | (14 | ) | |||||
Total | $ | (13 | ) | $ | (54 | ) |
Total Industrial Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 3,734 | $ | 3,706 | $ | 10,939 | $ | 3,491 | $ | 3,520 | $ | 10,422 | |||||||||||
Operating Profit | $ | 469 | $ | 50 | $ | 884 | $ | 423 | $ | 458 | $ | 1,277 | |||||||||||
Asia Packaging restructuring and impairment | — | — | — | 5 | 28 | 70 | |||||||||||||||||
Holmen mill bargain purchase gain | — | — | (6 | ) | — | — | — | ||||||||||||||||
Kleen Products anti-trust settlement | — | 354 | 354 | — | — | — | |||||||||||||||||
Brazil Intangible Asset Accelerated Amortization | 10 | — | 10 | — | — | — | |||||||||||||||||
Other | 5 | 3 | 9 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 484 | $ | 407 | $ | 1,251 | $ | 428 | $ | 486 | $ | 1,347 |
North American Industrial Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales (a) | $ | 3,383 | $ | 3,336 | $ | 9,874 | $ | 3,151 | $ | 3,138 | $ | 9,344 | |||||||||||
Operating Profit | $ | 487 | $ | 51 | $ | 899 | $ | 439 | $ | 496 | $ | 1,373 | |||||||||||
Kleen Products anti-trust settlement | — | 354 | 354 | — | — | — | |||||||||||||||||
Other | 5 | 3 | 9 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 492 | $ | 408 | $ | 1,262 | $ | 439 | $ | 496 | $ | 1,373 |
(a) | Includes intra-segment sales of $50 million and $35 million for the three months ended September 30, 2017 and 2016, respectively, $31 million and $32 million for the three months ended June 30, 2017 and 2016, respectively, and $113 million and $112 million for the nine months ended September 30, 2017 and 2016, respectively. |
EMEA Industrial Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 333 | $ | 341 | $ | 991 | $ | 313 | $ | 295 | $ | 902 | |||||||||||
Operating Profit | $ | (5 | ) | $ | 5 | $ | 14 | $ | — | $ | 6 | $ | 13 | ||||||||||
Holmen mill net bargain purchase gain | — | — | (6 | ) | — | — | — | ||||||||||||||||
Operating Profit Before Special Items | $ | (5 | ) | $ | 5 | $ | 8 | $ | — | $ | 6 | $ | 13 |
Brazilian Industrial Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 68 | $ | 60 | $ | 187 | $ | 62 | $ | 51 | $ | 155 | |||||||||||
Operating Profit | $ | (13 | ) | $ | (6 | ) | $ | (29 | ) | $ | (9 | ) | $ | (12 | ) | $ | (29 | ) | |||||
Brazil Intangible Asset Accelerated Amortization | 10 | — | 10 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | (3 | ) | $ | (6 | ) | $ | (19 | ) | $ | (9 | ) | $ | (12 | ) | $ | (29 | ) |
Asian Industrial Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | — | $ | — | $ | — | $ | — | $ | 68 | $ | 133 | |||||||||||
Operating Profit | $ | — | $ | — | $ | — | $ | (7 | ) | $ | (32 | ) | $ | (80 | ) | ||||||||
Asia Packaging Restructuring and Impairment | — | — | — | 5 | 28 | 70 | |||||||||||||||||
Operating Profit Before Special Items | $ | — | $ | — | $ | — | $ | (2 | ) | $ | (4 | ) | $ | (10 | ) |
Total Global Cellulose Fibers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 654 | $ | 612 | $ | 1,830 | $ | 242 | $ | 259 | $ | 713 | |||||||||||
Operating Profit | $ | 49 | $ | 7 | $ | (14 | ) | $ | (38 | ) | $ | (21 | ) | $ | (109 | ) | |||||||
Acquisition costs | 6 | 5 | 15 | 7 | 5 | 12 | |||||||||||||||||
Inventory fair value step-up amortization | — | — | 14 | — | — | — | |||||||||||||||||
Other | 2 | — | 3 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 57 | $ | 12 | $ | 18 | $ | (31 | ) | $ | (16 | ) | $ | (97 | ) |
Total Printing Papers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 1,039 | $ | 1,017 | $ | 3,051 | $ | 1,019 | $ | 1,012 | $ | 3,003 | |||||||||||
Operating Profit | $ | 135 | $ | 86 | $ | 321 | $ | 167 | $ | 117 | $ | 419 | |||||||||||
Other | — | 2 | 2 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 135 | $ | 88 | $ | 323 | $ | 167 | $ | 117 | $ | 419 |
North American Papers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 470 | $ | 446 | $ | 1,384 | $ | 477 | $ | 466 | $ | 1,425 | |||||||||||
Operating Profit | $ | 54 | $ | 19 | $ | 106 | $ | 81 | $ | 51 | $ | 193 | |||||||||||
Other | — | 2 | 2 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 54 | $ | 21 | $ | 108 | $ | 81 | $ | 51 | $ | 193 |
European Papers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 292 | $ | 299 | $ | 865 | $ | 278 | $ | 288 | $ | 825 | |||||||||||
Operating Profit | $ | 38 | $ | 26 | $ | 93 | $ | 40 | $ | 34 | $ | 114 |
Brazilian Papers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales (a) | $ | 239 | $ | 232 | $ | 685 | $ | 229 | $ | 219 | $ | 637 | |||||||||||
Operating Profit | $ | 46 | $ | 43 | $ | 128 | $ | 54 | $ | 34 | $ | 123 |
(a) | Includes intra-segment sales of $6 million and $0 million for the three months ended September 30, 2017 and 2016, respectively, $7 million and $3 million for the three months ended June 30, 2017 and 2016, respectively, and $22 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively. |
Indian Papers | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 44 | $ | 47 | $ | 139 | $ | 35 | $ | 42 | $ | 120 | |||||||||||
Operating Profit | $ | (3 | ) | $ | (2 | ) | $ | (6 | ) | $ | (8 | ) | $ | (2 | ) | $ | (11 | ) |
Total Consumer Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 491 | $ | 474 | $ | 1,431 | $ | 494 | $ | 501 | $ | 1,490 | |||||||||||
Operating Profit | $ | 54 | $ | (14 | ) | $ | 73 | $ | 61 | $ | 73 | $ | 150 | ||||||||||
Riegelwood mill conversion costs | — | — | — | — | — | 9 | |||||||||||||||||
Foodservice Asia asset impairment | — | 9 | 9 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 54 | $ | (5 | ) | $ | 82 | $ | 61 | $ | 73 | $ | 159 |
North American Consumer Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 403 | $ | 395 | $ | 1,186 | $ | 407 | $ | 416 | $ | 1,241 | |||||||||||
Operating Profit | $ | 33 | $ | (28 | ) | $ | 19 | $ | 39 | $ | 48 | $ | 77 | ||||||||||
Riegelwood mill conversion costs | — | — | — | — | — | 9 | |||||||||||||||||
Foodservice Asia asset impairment | — | 9 | 9 | — | — | — | |||||||||||||||||
Operating Profit Before Special Items | $ | 33 | $ | (19 | ) | $ | 28 | $ | 39 | $ | 48 | $ | 86 |
European Consumer Packaging | 2017 | 2016 | |||||||||||||||||||||
In millions | 3rd Quarter | 2nd Quarter | Nine Months | 3rd Quarter | 2nd Quarter | Nine Months | |||||||||||||||||
Sales | $ | 88 | $ | 79 | $ | 245 | $ | 87 | $ | 85 | $ | 249 | |||||||||||
Operating Profit | $ | 21 | $ | 14 | $ | 54 | $ | 22 | $ | 25 | $ | 73 |
Nine Months Ended September 30, | |||||||
In millions | 2017 | 2016 | |||||
Cash provided by operations | $ | 569 | $ | 1,566 | |||
Adjustments: | |||||||
Cash invested in capital projects | (935 | ) | (903 | ) | |||
Cash contribution to pension plan | 1,250 | 750 | |||||
Cash payment for Kleen settlement | 354 | — | |||||
Free Cash Flow | $ | 1,238 | $ | 1,413 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Early debt reductions (a) | $ | 95 | $ | 266 | $ | 122 | $ | 266 | |||||||
Pre-tax early debt extinguishment costs | 2 | 29 | 2 | 29 |
(a) | Reductions related to notes with interest rates ranging from 4.63% to 6.63% with original maturities from 2018 to 2031 and from 1.57% to 6.63% with original maturities from 2018 to 2031 for the three and nine months ended September 30, 2017, and 7.95% with an original maturity in 2018 for the three and nine months ended September 30, 2016. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | |||||
July 1, 2017 - July 31, 2017 | 646 | $ | 56.41 | — | $0.933 | ||||
August 1, 2017 - August 31, 2017 | — | — | — | 0.933 | |||||
September 1, 2017 - September 30, 2017 | 173 | 56.82 | — | 0.933 | |||||
Total | 819 |
ITEM 6. | EXHIBITS |
10.1 | ||
11 | ||
12 | ||
31.1 | ||
31.2 | ||
32 | ||
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE | XBRL Extension Presentation Linkbase. |
* | Confidential treatment has been requested for certain information pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
INTERNATIONAL PAPER COMPANY (Registrant) | ||
November 3, 2017 | By | /s/ Glenn R. Landau |
Glenn R. Landau | ||
Senior Vice President and Chief Financial Officer | ||
November 3, 2017 | By | /s/ Vincent P. Bonnot |
Vincent P. Bonnot | ||
Vice President – Finance and Controller |
1. | GAC Issuance and GAC Issuance True-Up Premium. Prudential agrees to issue the Contract as follows: |
a. | Specimen GAC Form Issuance. On the Scheduled GAC Issuance Date, subject to Prudential’s receipt of the Premium Due Date Transfers and any GAC Issuance True-Up Premium due to Prudential and subject to the terms of paragraphs 1.b. and 1.c., Prudential will issue the Contract with an effective date that is the Premium Due Date. The Contract will be in substantially the form of the specimen group annuity contract (the “Specimen GAC Form”) attached hereto as Schedule 1 unless a Modified GAC Form is issued pursuant to and in accordance with paragraph 2. |
b. | Form of Annuities and Payments under the Contract. The type, description and forms of annuities (e.g., single life annuity, joint and survivor annuity), payments under the Contract and other terms of the Contract will be consistent with the terms of Prudential’s proposal dated June 16, 2017 and September 22, 2017 (the “Proposal”) as updated to reflect (i) any modifications contemplated in Prudential’s Final Annuity Quote Sheet dated September 26, 2017 (the “Final Annuity Quote Sheet”) and (ii) any modifications mutually agreed to between the parties after the Commitment Agreement Date and before the 35th Business Day prior to the Scheduled GAC Issuance Date. Subject to Prudential’s receipt of the Premium Due Date Transfers, Prudential will cooperate with the Company to make payments to Payees commencing on December 31, 2017 in accordance with the Proposal and the Final Annuity Quote Sheet until the Contract has been issued. The original annuity exhibit to the Contract will be consistent with the payees (including annuitants, contingent annuitants, alternate payees and beneficiaries) on Tab “Data Group 2” of the Base File. |
c. | Necessary Data. As a condition to Prudential’s issuing the Contract, the Company will deliver or cause to be delivered to Prudential the data necessary for Prudential to prepare the annuity exhibit and the information necessary for Prudential to draft provisions of the Contract and administer the payments thereunder. If there are any delays in the delivery of the foregoing information based on the delivery dates set forth in Schedule 7 or such other delivery dates as may be designated by Prudential, Prudential may refer any Payee who contacts Prudential to the Company Contact for assistance and Prudential may, in its sole discretion, delay the mailing of Welcome Kits and annuity certificates. The annuity exhibit will not include any Payee for which Prudential has not been provided each of the following: (i) name, (ii) gender, (iii) date of birth and (iv) social security or federal taxpayer identification number. |
d. | Accuracy of Information. On and as of the Commitment Agreement Date and on and as of the date on which the Contract is issued, the Company represents and warrants to Prudential that, to the Company’s Knowledge and notwithstanding anything to the contrary in the Non-Disclosure Agreement, (i) the mortality experience data file provided by or on behalf of the Company to Prudential identified on Schedule 10 did not contain any misstatements or omissions that were, in the aggregate, material, and (ii) the data in respect of benefit amounts, date of birth, date of death, state of residence, gender, and status (beneficiary in pay or participant), in each case, with respect to the Payees that was furnished by or on behalf of the Company to Prudential, was not generated using any materially incorrect systematic assumptions or material omissions. |
e. | GAC Issuance True-Up Premium. Schedule 8 provides a description of the methodologies and procedures by which Prudential will calculate the GAC Issuance True-Up Premium. Prudential and the Company will cooperate in good faith so that Prudential can calculate the GAC Issuance True-Up Premium, subject to the following acknowledgements, limitations and conditions: |
i. | GAC Issuance Data. To the extent that the Company discovers or has any Removed Lives or Data Corrections after the Commitment Agreement Date and prior to the date that is 35 Business Days prior to the Scheduled GAC Issuance Date (the “GAC Issuance Data Notice Date”), the Company will provide written notice of such Removed Life or Data Correction as promptly as reasonably practicable to Prudential. Prudential will only be responsible for incorporating into the calculation of the GAC Issuance True-Up Premium those Data Corrections and Removed Lives that have been notified to Prudential by the Company on or prior to the GAC Issuance Data Notice Date together with any other Removed Lives and Data Corrections identified by Prudential (the “GAC Issuance Data”). Such incorporation is subject to Prudential’s agreement with such Removed Lives or Data Corrections and any limitations on incorporating such Data Corrections and Removed Lives into the GAC Issuance True-Up Premium set forth in Schedule 8. |
ii. | GAC Issuance Annuity Exhibit. Twenty Business Days prior to the Scheduled GAC Issuance Date, Prudential will deliver to the Company a proposed annuity exhibit utilizing and consistent with the Base File and the GAC Issuance Data. Fifteen Business Days prior to the Scheduled GAC Issuance Date, the Company will respond to Prudential with any questions on the annuity exhibit. Prudential and the Company will cooperate in good faith to resolve any discrepancies on or prior to the eleventh Business Day prior to the Scheduled GAC Issuance Date and Prudential will reflect in the annuity exhibit any changes that have been agreed to on or prior to such eleventh Business Day. The annuity exhibit will not include any Payee for which Prudential has not been provided each of the following: (1) name, (2) gender, (3) date of birth and (4) social security or federal taxpayer identification number. |
iii. | GAC Issuance True-Up Premium. Eight Business Days prior to the Scheduled GAC Issuance Date, Prudential will send the calculation of the GAC Issuance True-Up Premium to the Company for review. Five Business Days prior to the Scheduled GAC Issuance Date, the Company will respond to Prudential with any questions on the GAC Issuance True-Up Premium. If the Company and Prudential cannot resolve any dispute with respect to the GAC Issuance True-Up Premium on or prior to the date that is three Business Days prior to the Scheduled GAC Issuance Date, then Prudential’s determination will control for purposes of the GAC Issuance True-Up Premium but the Company may immediately commence an arbitration dispute pursuant to Schedule 4 with respect to the GAC Issuance True-Up Premium. |
iv. | GAC Issuance True-Up Premium Payment. The GAC Issuance True-Up Premium will be paid on the Scheduled GAC Issuance Date as follows: (A) if the GAC Issuance True-Up Premium |
2. | Negotiation of Modified GAC Form. After the Commitment Agreement Date, Prudential and the Company will each use commercially reasonable efforts to negotiate revisions to the Specimen GAC Form (the “Modified GAC Form”) and related forms of annuity certificates, subject to the following acknowledgements, limitations and conditions: |
a. | Regulatory Approvals. Prudential will consider in good faith any revisions to the Specimen GAC Form, or any annuity certificate, that would require obtaining regulatory approval. If Prudential agrees in accordance with the prior sentence to seek any such regulatory approval, then (i) Prudential will use commercially reasonable efforts to obtain regulatory approvals of the Modified GAC Form prior to the date that is 90 Business Days after the Commitment Agreement Date (the “Modified GAC Deadline Date”) and (ii) Prudential will use commercially reasonable efforts to obtain regulatory approvals of customized annuity certificates prior to the annuity certificate mailing date set forth in paragraph 5.b. |
b. | Modified GAC Form Issuance. If, in accordance with paragraph 2.a., the negotiation of the Modified GAC Form and the receipt of any related regulatory approvals for all negotiated changes to the Specimen GAC Form are completed by the Modified GAC Deadline Date, then, subject to Prudential’s receipt of the Premium Due Date Transfers and any GAC Issuance True-Up Premium due to Prudential, (i) if Prudential has not previously issued the Contract in the form of the Specimen GAC Form, Prudential will issue the Contract using the Modified GAC Form in lieu of the Specimen GAC Form, subject to and in accordance with paragraphs 1.a., 1.b. and 1.c., or (ii) if Prudential has previously issued the Contract in the form of the Specimen GAC Form subject to and in accordance with paragraphs 1.a., 1.b. and 1.c., Prudential will amend and restate the Contract so that its terms are replaced by the Modified GAC Form (or applicable provisions thereof). Such Contract will have an effective date that is the Premium Due Date. |
3. | Premium Due Date Transfers. The Company agrees to pay Prudential the Premium Amount specified in Schedule 11 on the Premium Due Date by: |
(x) | assigning, transferring and delivering to Prudential, by the Cut-Off Time, all rights, title and interests in and to each Eligible Asset, and |
(y) | paying to Prudential an amount in Cash equal to [***]. |
a. | Schedule 2 Updates. On the second Business Day after the Commitment Agreement Date, Prudential will deliver to the Company an updated Schedule 2 that reflects the Asset Market Value of each Schedule 2 Asset [***]. If the Company and Prudential cannot resolve any dispute with respect to any |
b. | [***]. On and as of the Business Day prior to the Premium Due Date, Prudential will provide to the Company [***] in the form of Schedule 5 [***]. Prior to the Premium Due Date, the Company will confirm to Prudential in writing that such information is accurate and complete or will provide any additions, deletions or corrections to such information. If the Company and Prudential have a dispute with respect to any such information and cannot resolve such dispute on or prior to the Business Day prior to the Premium Due Date, then Prudential’s [***] information will control for purposes of the Premium Due Date Transfers but the Company may immediately commence an arbitration dispute pursuant to Schedule 4 with respect to any such information. |
c. | [***]. By written notice to the other party on or before the fifth Business Day following the Premium Due Date, the Company or Prudential may identify [***] and the parties will work in good faith for seven Business Days following the receipt of such notice to agree on which, if any, [***]. If the parties agree that an asset is an Ineligible Asset within such seven Business Days following the receipt of such notice, then, on or before the date that is three Business Days following such agreement, the Company will promptly pay or cause to be paid to Prudential an amount, in Cash, equal to [***], and, simultaneously with receipt of such payment from the Company, Prudential will return [***] to the Plan Trust together with any Interim Asset Cash Flows associated [***]. |
d. | Additional Actions with respect to Assets. The Company will promptly give or cause to be given all notices that are required, under applicable law and the terms of each Eligible Asset, in connection with the sale, assignment, transfer and delivery of the Eligible Assets on the Premium Due Date. The Company and Prudential will promptly execute, deliver, record or file or cause to be executed, delivered, recorded or filed any and all releases, affidavits, waivers, notices or other documents that the Company or Prudential may reasonably request in order to implement the transfer of the Eligible Assets to Prudential. |
e. | Plan Investments and ERISA Related Determinations. On and as of the Commitment Agreement Date, the Premium Due Date, and any other date on which the Company or Plan Trust pays cash or assets to Prudential in connection with the transactions contemplated by this Commitment Agreement or the Contract, the Company represents and warrants to Prudential that: |
i. | there are no commingled investment vehicles that hold Plan Assets, the units of which are or will be Plan Assets involved in the transactions contemplated by this Commitment Agreement. No Plan Assets that are or will be involved in the transactions contemplated by this Commitment Agreement are or will be managed by any investment manager listed on Schedule 6, and no investment advisor listed on Schedule 6 renders or will render investment advice (within the meaning of ERISA § 3(21)(A)(ii)) with respect to those assets, |
ii. | the transactions contemplated by this Commitment Agreement and the purchase of the Contract do not result in a Non-Exempt Prohibited Transaction, |
iii. | the Plan Trust (A) will receive no less than “adequate consideration” for the Transferred Assets that are transferred in connection with the transactions contemplated by this Commitment Agreement and (B) will pay no more than “adequate consideration” for the Contract, in each case |
iv. | the Company is a fiduciary of the Plan under ERISA with respect to any transactions that the Plan engages in with Prudential (including purchase of the Contract) and is responsible for exercising independent judgment in evaluating those transactions. The Company is not an affiliate of Prudential and does not have a financial interest, ownership interest or other relationship, agreement or understanding with Prudential that would limit or might otherwise affect its ability to exercise its best judgment as a fiduciary. The Company holds, or has under management or control, total assets of at least $50 million, as described in 29 C.F.R. Sec. 2510.3-21 (c)(1)(i)(E) (as amended from time to time). The Company understands that Prudential is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any transactions that the Plan engages in with Prudential (including purchase of the Contract) and that the Company is exercising independent judgment in evaluating the proposal. |
f. | Relationship to the Plan. On and as of the Commitment Agreement Date and the Premium Due Date, Prudential represents and warrants to the Company that Schedule 6 sets forth a true and complete list of (i) Prudential and Prudential’s affiliates that are investment managers within the meaning of ERISA § 3(38) and (ii) without duplication of clause (i), Prudential and Prudential’s affiliates that are registered as investment advisers under the Investment Advisers Act of 1940; provided, however, that solely with respect to the representation and warranty on and as of the Premium Due Date, Prudential may update Schedule 6 through the Premium Due Date by providing a written update to the Company so that the information included therein is current on and as of the Premium Due Date. |
g. | Risk of Loss on Transferred Assets; Gains on Transferred Assets. Prudential acknowledges and agrees that, if the Premium Due Date Transfers occur, then, from and after the Commitment Agreement Date, Prudential bears any and all risks associated with each Transferred Asset. |
4. | Public Announcements. |
a. | Press Releases. The Company and Prudential have the right to issue a transaction announcement or press release regarding the transactions contemplated by this Commitment Agreement, a copy of which will be provided to the other party for review no less than two days prior to the issuance thereof, and the party issuing the transaction announcement or press release will consider in good faith any comments made by the other party; provided, however, that, if the Company has not issued a transaction announcement or press release, Prudential will not issue a transaction announcement or press release without the prior written consent of the Company; provided, further, that nothing contained in this paragraph 4.a. will prevent Prudential from communicating with Payees, including through communications posted to Prudential’s website. |
b. | SEC Filings. If the Company concludes that disclosure of this Commitment Agreement is required by the rules of the Securities and Exchange Commission (“SEC”), (i) the Company will, in good faith, consider whether to make an application with the SEC for confidential treatment of information that the Company concludes is competitively sensitive from the perspective of the Company, and (ii) the Company will provide Prudential with a copy of any material correspondence (written or oral) with the SEC regarding any such application for confidential treatment, and the Company and Prudential will otherwise reasonably cooperate in connection with any such application. |
5. | Welcome Kits and Annuity Certificates. |
a. | Welcome Kits. Beginning on December 11, 2017, Prudential will mail a welcome kit to each annuitant under the Contract (the “Welcome Kit”). Prudential will send a preliminary draft of the Welcome Kit to the Company as soon as practicable and Prudential will consider in good faith any comments made by the Company on or before the fifth Business Day after it receives the preliminary draft of the Welcome Kit from Prudential. |
b. | Annuity Certificates. Prudential will mail an annuity certificate to each applicable Payee on or before the later of (i) 20 Business Days after the Contract is issued and (ii) 120 Business Days after the date on which the Welcome Kit is mailed to Payees, in each case, subject to receiving regulatory approvals for any such annuity certificate, if needed. To the extent that any changes are made to the forms of annuity certificates or the related benefit terms after the Company and Prudential have agreed on the forms of annuity certificates to be filed and the related benefit terms, the mailing of an annuity certificate to each applicable Payee shall be extended by the number of days elapsed since the Company and Prudential had first agreed on the forms of such annuity certificates and the related benefit terms. |
6. | Administration and Transfer. |
a. | Administrative Transition. The Company will provide or cause to be provided to Prudential the information needed to administer the payments under the Contract and will complete or cause to be completed all processes set forth in Schedule 7. The Company and Prudential will use commercially reasonable efforts to take or cause to be taken all actions and do or cause to be done all things necessary to coordinate the takeover by Prudential of all administration responsibilities necessary to effectively provide recordkeeping and administration services regarding payments under the Contract commencing on December 31, 2017. The Company will provide Prudential with final census data in good order on or before October 20, 2017 in order for Prudential to provide recordkeeping and administration services regarding payments under the Contract commencing on December 31, 2017. The Company agrees to cooperate with Prudential in the takeover of such recordkeeping and administration services, including ensuring that any third-party service provider provides Prudential with any information or records relating to the Plan benefits and the Payees in its possession. The Company will make subject matter experts available to promptly address any questions Prudential may have regarding the benefit provisions, including but not limited to forms of annuity, eligibility conditions, administrative practices and calculation methodology. |
b. | Call Center and Company Contact. Prudential will maintain, at its cost and expense, a toll-free phone number and/or a website (the “Call Center”) which will be available starting from December 11, 2017 for Payees to contact Prudential with questions related to the Contract and the annuity certificates. For a period of five years following the Premium Due Date, the Company will maintain, at its cost and expense, a point of contact (the “Company Contact”) to which Prudential may refer Payees who pose questions related to their Plan benefits. In the event that a Payee contacts the Company with questions related to the Contract and the annuity certificates, the Company may refer the Payee to the Call Center. In the event that a Payee contacts Prudential with questions related to their Plan benefits, Prudential may refer the Payee to the Company Contact. |
7. | [***]; Termination. |
a. | [***]. In the event the Company breaches its obligation to pay the Premium Due Date Transfers in accordance with paragraph 3 or the Premium Due Date Transfers are not transferred to and received by Prudential in accordance with paragraph 3, the Company will promptly pay [***] in accordance with Schedule 9 [***]. [***]. |
b. | Termination. This Commitment Agreement may be terminated (i) at Prudential’s option if the Premium Due Date Transfers have not occurred in accordance with this Commitment Agreement on or prior to the Premium Due Date, or (ii) upon the payment of [***]. If this Commitment Agreement is terminated pursuant to the preceding sentence, all rights and obligations of the parties under this Commitment Agreement will terminate and will become null and void except that this paragraph 7 ([***]; Termination), paragraph 9 (Definitions), Schedule 9 ([***]), and paragraph 10 (Miscellaneous) will survive any such termination and no party will otherwise have any liability to any other party under this Commitment Agreement. However, nothing in this paragraph 7 will relieve any party from liability for any fraud or willful and material breach of this Commitment Agreement. |
8. | No Commissions. On and as of the Commitment Agreement Date and the Premium Due Date, the Company represents and warrants that no fees, commissions or payments are or will be owed by the Company to any individual or entity in connection with the transactions contemplated by this Commitment Agreement and all other agreements it contemplates for which any other party, or its respective affiliates or representatives, could be liable. |
9. | Definitions. For purposes of this Commitment Agreement, the following defined terms will have the following meanings: |
a. | “AAA” is defined in Schedule 4. |
b. | “Annuity Start Date” means December 31, 2017. |
c. | “Annual Benefit” is defined in Schedule 8. |
d. | “Approved Firm” is defined in Schedule 4. |
e. | “Asset Eligibility Criteria” means the Asset Eligibility Criteria set forth on Schedule 3. |
f. | “Asset Market Value” means (i) the close-of-market Fair Market Value of a Schedule 2 Asset as of the close of business on the Business Day prior to the Commitment Agreement Date, plus (ii) accrued interest on such Schedule 2 Asset as of the close of business on the Business Day prior to the Commitment Agreement Date. [***]. |
g. | “Barclays” means Barclays Capital Inc. |
h. | “Base File” means the data file titled “[***]”, provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 9:06 p.m. eastern daylight time on September 6, 2017. |
i. | “Business Day” means any day other than a Saturday, a Sunday or a day on which banks located in New York, New York are authorized or required by law to close. |
j. | “Call Center” is defined in paragraph 6.b. |
k. | “Cash” means a wire transfer, through the Federal Reserve System, of currency of the United States of America. |
l. | “Check Register” is defined in Schedule 7. |
m. | “Code” means the Internal Revenue Code of 1986 and the applicable Treasury Regulations issued thereunder. |
n. | “Commitment Agreement” is defined in the preamble. |
o. | “Commitment Agreement Date” is defined in the preamble. |
p. | “Company” is defined in the preamble. |
q. | “Company Contact” is defined in paragraph 6.b. |
r. | “Confidential Information” has the meaning ascribed to such term in the Non-Disclosure Agreement. |
s. | “Contract” is defined in the preamble. |
t. | “Corridor Breach” is defined in Schedule 8. |
u. | “Cut-Off Time” means 1:00 p.m. eastern daylight time on the Premium Due Date. |
v. | “Data Corrections” is defined in Schedule 8. |
w. | “Data Correction Adjustment” is defined in Schedule 8. |
x. | “Data Load File” is defined in Schedule 7. |
y. | “Data Load File Sign-Off” is defined in Schedule 7. |
z. | “Deleted Lives” is defined in Schedule 8. |
aa. | “Deleted Lives Percentage” is defined in Schedule 8. |
bb. | “Eligible Asset” means a Schedule 2 Asset that meets the Asset Eligibility Criteria as of the Commitment Agreement Date and to which the Company or Plan Trust has valid title, free and clear of all Liens, other than Permitted Liens on the Premium Due Date at the time of transfer. |
cc. | “ERISA” means Employee Retirement Income Security Act of 1974, as amended, and any federal agency regulations promulgated thereunder that are currently in effect and applicable. |
dd. | “Fair Market Value” means the fair market value as of the applicable date for a Schedule 2 Asset in an amount equal to the fair market value as of such date for such Schedule 2 Asset as indicated (i) by the primary pricing source set forth in the table below that corresponds to the applicable asset class of such Schedule 2 Asset, (ii) if such primary pricing source is not available or no fair market value is indicated by such primary pricing source for such Schedule 2 Asset, by the secondary pricing source set forth in the table below that corresponds to the applicable asset class of such Schedule 2 Asset, or (iii) if neither such primary nor secondary pricing source is available or no fair market value is indicated by either such source for such Schedule 2 Asset, by the tertiary pricing source, if any, set forth in the table below that corresponds to the applicable asset class of such Schedule 2 Asset. For any applicable pricing source, the Mid Price will be used. |
Asset Class | Primary Pricing Source | Secondary Pricing Source | Tertiary Pricing Source | |||
Treasuries | IDC | Reuters (EJV) | Barclays | |||
Agencies | IDC | Reuters (EJV) | Barclays | |||
IG Corp | IDC | Reuters (EJV) | Barclays | |||
Emerging Market | IDC | Reuters (EJV) | Barclays | |||
HY | IDC | Reuters (EJV) | Barclays |
ee. | “Final Annuity Quote Sheet” is defined in paragraph 1.b. |
ff. | “Final Production Data File” is defined in Schedule 7. |
gg. | “GAC Issuance Data” is defined in paragraph 1.e.i. |
hh. | “GAC Issuance Data Notice Date” is defined in paragraph 1.e.i. |
ii. | “GAC Issuance True-Up Premium” is defined in Schedule 8. |
jj. | [***]. |
kk. | “IDC” means Interactive Data Corporation. |
ll. | [***]. |
mm. | “Interim Asset Cash Flows” means, with respect to the Transferred Assets, the aggregate amount paid by the issuer of each asset to the record owner as of any day during the period from and including the |
nn. | “Knowledge” means actual knowledge after making appropriate inquiry. |
oo. | “Liability Baseline Value” is defined in Schedule 8. |
pp. | “Lien” means any lien, mortgage, security interest, pledge, deposit, encumbrance, restrictive covenant or other similar restriction. |
qq. | [***] |
rr. | “Mid Price” means, for any applicable pricing source set forth in the definition of Fair Market Value, the mid price as provided by the pricing source. |
ss. | “Modified GAC Deadline Date” is defined in paragraph 2.a. |
tt. | “Modified GAC Form” is defined in paragraph 2. |
uu. | “Mortalities” is defined in Schedule 8. |
vv. | “Mortality Corrections” is defined in Schedule 8. |
ww. | “New Lives” is defined in Schedule 8. |
xx. | “New Lives Percentage” is defined in Schedule 8. |
yy. | “Non-Disclosure Agreement” is defined in paragraph 10.c. |
zz. | “Non-Exempt Prohibited Transaction” means a transaction prohibited by ERISA § 406 or Code § 4975, for which no statutory exemption or U.S. Department of Labor class exemption is available. |
[[. | “Payee” means any payee under the Contract, including annuitants, contingent annuitants, alternate payees and beneficiaries, as applicable. |
aaa. | “Permitted Liens” means: |
i. | any Liens created by operation of law in respect of restrictions on transfer of securities (other than restrictions relating to the transfer of a Transferred Asset on the Premium Due Date in violation of applicable law); or |
ii. | with respect to any Transferred Asset, any transfer restrictions or other limitations on assignment, transfer or the alienability of rights under any indenture, debenture or other similar governing agreement to which such assets are subject (other than restrictions relating to the transfer of such an asset on the Premium Due Date in violation of any such restriction). |
bbb. | “Plan” is defined in the preamble. |
ccc. | “Plan Asset” means an asset of the Plan within the meaning of ERISA. |
ddd. | “Plan Trust” means International Paper Pension Trust. |
eee. | “Preliminary Production Data File” is defined in Schedule 7. |
fff. | “Premium Amount” is defined in Schedule 11. |
ggg. | “Premium Due Date” means five Business Days following the Commitment Agreement Date. |
hhh. | “Premium Due Date Transfers” is defined in paragraph 3. |
iii. | “Proposal” is defined in paragraph 1.b. |
jjj. | “Prudential” is defined in the preamble. |
kkk. | [***]. |
lll. | [***]. |
mmm. | “Relevant Percentage” is defined in Schedule 8. |
nnn. | “Removed Lives” is defined in Schedule 8. |
ooo. | “Reuters (EJV)” means Thomson Reuters Markets, LLC. |
ppp. | “Scaled GAAP PBO” is defined in Schedule 8. |
qqq. | “Schedule 2 Asset” means each asset listed from time to time on Schedule 2 [***]. |
rrr. | “Scheduled GAC Issuance Date” means on or before April 18, 2018 or, if applicable, and, if later, by the date that is five Business Days following the final resolution of any arbitration disputes in accordance with Schedule 4. |
sss. | “SEC” is defined in paragraph 4.b. |
ttt. | “Specimen GAC Form” is defined in paragraph 1.a. |
uuu. | “Transferred Asset” means each Eligible Asset transferred to and received by Prudential by the Cut-Off Time on the Premium Due Date. Until valid title to an Eligible Asset has transferred to Prudential, such asset is not a Transferred Asset. |
vvv. | “Transferred Asset Market Value” means (i) the close-of-market Fair Market Value of a Transferred Asset as of the close of business on the Business Day prior to the Commitment Agreement Date, plus (ii) accrued interest on such Transferred Asset as of the close of business on the Business Day prior to the Commitment Agreement Date. |
www. | “Transferred Asset Valuation” means the sum of the Transferred Asset Market Value for each Transferred Asset. |
xxx. | “Update File” is defined in Schedule 7. |
yyy. | “Welcome Kit” is defined in paragraph 4.b. |
10. | Miscellaneous. |
a. | This Commitment Agreement, together with the Schedules to this Commitment Agreement, which are incorporated by reference and made a part of this Commitment Agreement as if fully set forth herein, constitutes the sole and entire agreement of the parties to this Commitment Agreement with respect to the subject matter contained herein and therein. The parties each hereby acknowledge that they jointly and equally participated in the drafting of this Commitment Agreement and all other agreements contemplated hereby, and no presumption will be made that any provision of this Commitment Agreement will be construed against any party by reason of such role in the drafting of this Commitment Agreement or any other agreement contemplated hereby. No amendment of any of the provisions hereof shall be effective unless set forth in writing and signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Commitment Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. |
b. | This Commitment Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction). Any legal suit, action, or proceeding arising out of or relating to this Commitment Agreement or the transactions contemplated hereby may be instituted in the courts of the State of New York in each case located in the city of New York and County of New York, and each party hereby irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action, or proceeding. The parties agree that irreparable damage would occur if any provisions of this Commitment Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, |
c. | Notwithstanding anything to the contrary in the Mutual Non-Disclosure Agreement, dated as of May 18, 2017, between the Company and Prudential (the “Non-Disclosure Agreement”), the Non-Disclosure Agreement shall continue in full force and effect except that, if the Premium Due Date Transfers are transferred to and received by Prudential, (a) the Non-Disclosure Agreement shall continue indefinitely and shall not be terminated without the mutual written agreement of the Company and Prudential and (b) Prudential will not be required to return or destroy any Confidential Information and will not be restricted in its use or disclosure of any Confidential Information related to Payees, annuity payments under the Contract or the pricing or underwriting of the Contract, received from another party, provided, that Prudential will use such Confidential Information only in compliance with all applicable laws relating to privacy of personally identifying information. |
INTERNATIONAL PAPER COMPANY | THE PRUDENTIAL INSURANCE COMPANY OF AMERICA |
By: _/s/_Errol Harris______________________ | By: _/s/_Margaret G. McDonald____________ |
Print Name: _Errol Harris__________________ | Print Name: _Margaret G. McDonald________ |
Title: _Vice President and Treasurer__________ | Title: _Administrative Vice President_________ |
The Prudential Insurance Company of America Newark, New Jersey | |
Contract-Holder: NAME OF CONTRACT-HOLDER | Plan: NAME OF RETIREMENT PLAN |
Employer: NAME OF EMPLOYER | |
[***]: [***] | Jurisdiction: STATE OF JURISDICTION |
Effective Date: MM DD, YYYY | Contribution Amount as of Effective Date: $XXX,XXX |
Pages Attached: 1-XX, Annuity Exhibits |
NAME OF CONTRACT-HOLDER By: SAMPLE Title: Date: | THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 655 Broad Street Newark, New Jersey 07102-4410 SAMPLE Chairman and Chief Executive Officer SAMPLE Secretary Attest: _____________________________ Date: |
1.1 | Definitions |
1.2 | Agreement to Pay Contribution Amount; Deposit into the Separate Account |
1.3 | Agreement to Make Annuity Payments; Associated Withdrawals from the Separate Account |
1.4 | The Separate Account that Supports this Contract |
1.5 | Investments Held in Separate Account; Insulation of Separate Account Assets |
1.6 | Insulation of Separate Account Assets |
1.7 | Expenses; Establishing Reserves; Withdrawal of Assets from the Separate Account |
1.8 | Process for Making Annuity Payments |
1.9 | Persons Entitled to Enforce this Contract |
(a) | Covered Lives and Contingent Lives. Any Covered Life or Contingent Life shall have the right to enforce his or her right to receive Annuity Payments under this Contract against Prudential in the capacity of an intended third party beneficiary thereof. The rights of a Covered Life or Contingent Life are not diminished if Contract-Holder ceases to exist and no successor is appointed. |
(b) | Contract-Holder and the Plan. Contract-Holder shall have the right to enforce any provision of this Contract against Prudential. Neither Contract-Holder nor the Plan shall have any |
(c) | Prudential. Prudential shall have the right to enforce any provision of this Contract against Contract-Holder. |
1.10 | Termination of Contract |
1.11 | Small Account Conversion |
2.1 | Covered Lives, Contingent Lives, and Beneficiaries |
2.2 | Definitions |
2.3 | Annuity Forms |
(i) | “Period Certain Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Period Certain” Annuity Form. |
(ii) | “Life and Period Certain Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Life and Period Certain” Annuity Form. |
(iii) | “Life Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Life” Annuity Form. |
(iv) | “Joint and Survivor Life Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Joint and Survivor” Annuity Form. |
(v) | “Joint and Survivor Life with Period Certain Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Joint and Survivor with Period Certain” Annuity Form. |
(vi) | “Temporary Annuity” means the following for each Covered Life identified in the Annuity Exhibits as receiving a distribution of a “Temporary Annuity” Form. |
2.4 | No Assignment by Covered Lives and Contingent Lives |
2.5 | Proof of Continued Existence for Life Annuities; Escheatment |
2.6 | Misstatements |
(i) | If the corrected Annuity Payment owed by Prudential in respect of such Covered Life (and, if applicable, Contingent Life) is less than the Annuity Payment calculated using the data misstatement, then such Annuity Payment will be decreased to the amount calculated pursuant to this paragraph. Prudential may reduce future Annuity Payments further by amounts previously overpaid by Prudential. |
(ii) | If the corrected Annuity Payment owed by Prudential in respect of such Covered Life (and, if applicable, Contingent Life) is more than the Annuity Payment calculated using the data misstatement, then such Annuity Payment will be increased to the amount calculated pursuant to this paragraph. Prudential will further pay the amount of the underpayments in one or more Annuity Payments owed by Prudential. |
2.7 | Concerning Designations |
2.8 | Concerning Qualified Domestic Relations Orders |
2.9 | Payments to Representatives |
2.10 | Certificates |
3.1 | Communications |
3.2 | Currency; Payments |
3.3 | Reliance on Records; Correction of Errors |
3.4 | Contract-Holder; Successor |
3.5 | No Implied Waiver |
3.6 | Changes |
(a) | Mutual Agreement. This Contract may be amended at any time by written agreement between Prudential, Employer and Contract-Holder. |
(b) | Law or Regulation. Prudential may change this Contract as it deems necessary or appropriate to satisfy the requirements of any law enacted by (or of any regulation promulgated by) any legislative or governmental authority, body or agency. |
(c) | Absence of Contract-Holder. If Contract-Holder notifies Prudential that it will cease to exist, or cease to perform the duties of Contract-Holder hereunder, and no successor to Contract-Holder is appointed, then this Contract can thereafter be changed at any time by Prudential in its discretion, but subject to the rights of each Covered Life, Contingent Life and Beneficiary to receive Annuity Payments (as provided in Section 1.9). |
3.7 | Entire Contract - Construction |
3.8 | Third Party Beneficiaries |
Covered Life | Social Security Number | Sex | Date of Birth | Covered Life Amount | Guaranteed Number of Payments | Lump Sum Death Benefit |
A | B | C | D | E | F | G | H | I | J |
CUSIP | ISIN | Issuer Name | Coupon | Maturity Date | Par Amount | Full Market Value (USD) | Flat Mid Price | Flat Market Value (USD) | Accrued Interest (Local) |
A | B | C | D | E | F | G | H | I | J |
CUSIP | ISIN | ISSUER NAME | COUPON | MATURITY DATE | PAR AMOUNT | Full Market Value (USD) | Flat Mid Price | Flat Market Value (USD) | Accrued Interest (Local) |
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
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A | B | C | D | E | F | G | H | I | J |
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A | B | C | D | E | F | G | H | I | J |
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] | [***] | [***] | [***] | [***] | ||||
[***] | [***] |
1. | [***]. |
2. | [***]: |
a. | [***], |
b. | [***], |
c. | [***], or |
d. | [***]. |
3. | [***]. |
4. | [***]. |
5. | [***]. |
6. | [***]. |
7. | [***]. |
8. | [***]. |
1. | Rules and Procedures. Any dispute between the parties referenced herein shall be resolved by arbitration conducted by one arbitrator, in accordance with Commercial Arbitration Rules and Expedited Procedures for Large, Complex Commercial Disputes of the American Arbitration Association (“AAA”), as such rules and procedures are in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Company and Prudential. |
2. | Location. The seat of the arbitration shall be New York City, New York, at a mutually agreed upon location, or in the absence of agreement at the New York City offices of the AAA. |
3. | Arbitrator. The Company and Prudential shall jointly engage a mutually agreed upon firm (such firm, the “Approved Firm”), within five Business Days after a dispute notice is delivered by either party to the other party to resolve any arbitration dispute. If the Company and Prudential are unable to engage an Approved Firm within such time period on such terms, then the AAA shall appoint an arbitrator within three Business Days thereafter. |
4. | Damages. The arbitrator shall resolve any arbitration dispute within the range of difference between (a) any amounts or values as calculated or determined by Prudential and (b) any amounts or values as calculated or determined by the Company. The arbitrator will have no authority to award any other damages other than as provided for herein. |
5. | Judgment. Any arbitration award shall be final and binding on the Company and Prudential. The Company and Prudential undertake to carry out any award without delay and waive their respective rights to any form of recourse based on grounds other than personal conflict of interest of the arbitrator that was undisclosed at the time of the arbitrator’s appointment. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the Company or Prudential, as applicable, or their respective assets. |
6. | Costs. The Company and Prudential shall share the fees and disbursements of the arbitrator equally (i.e., on a 50%/50% basis). The Company and Prudential shall each bear their own costs and expenses incurred in connection with prosecuting and/or defending any arbitration dispute. |
7. | [***]. [***]. |
8. | Amended Schedules. If applicable, the Company and Prudential will promptly amend the schedules hereto to reflect any arbitration decision. |
[***] | [***] | ||||||
[***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] |
1. | Jennison Associates LLC |
• | Jennison |
• | Jennison Associates |
2. | Quantitative Management Associates LLC |
• | QMA |
3. | PGIM, Inc. |
• | Prudential Investments |
• | PGIM Investments |
• | Prudential Capital Group |
• | PGIM |
• | PGIM Fixed Income |
• | Prudential Fixed Income |
• | PGIM Institutional Advisory & Solutions |
• | PGIM Real Estate |
• | Prudential Financial, Inc. |
• | PREI |
• | PGIM Real Estate Finance |
• | Prudential Real Estate Investors |
• | Pramerica Real Estate Investors |
• | Prudential Real Estate Fixed Income Investors |
• | PRICOA Capital Group |
• | Prudential Capital Partners |
• | Pramerica Capital Partners |
• | Pramerica Investment Management – Fixed Income |
• | PCG |
• | PRICOA Capital Group Limited |
• | PRICOA Capital Partners |
• | Prudential Capital Energy Partners |
• | PRICOA Capital Energy Partners |
• | Pramerica Capital Energy Partners |
4. | The Prudential Insurance Company of America |
• | Prudential Financial, Inc. |
5. | Prudential Trust Company |
6. | Prudential Retirement Insurance and Annuity Company |
7. | PGIM Limited |
• | PGIM Fixed Income |
• | PGIM Real Estate |
• | PRICOA Capital Group |
• | PGIM Real Estate Finance |
8. | PGIM Fund Management Limited |
• | PGIM Real Estate |
9. | Global Portfolio Strategies, Inc. |
10. | PGIM Investments LLC |
• | Prudential Investments LLC |
11. | Prudential Private Placement Investors, L.P. |
12. | AST Investment Services, Inc. |
13. | Prudential International Investment Advisers, LLC |
14. | Pruco Securities LLC |
• | Prudential Financial Planning Services |
15. | PGIM Real Estate Finance, LLC |
• | PGIM Real Estate Finance |
• | Prudential Agricultural Investments |
• | PRICOA Mortgage Capital Company |
• | Prudential Mortgage Capital Company |
16. | EuroPRISA Management Company S.A. |
17. | PGIM Real Estate Luxembourg S.A. |
18. | Prudential Customer Solutions LLC |
Deliverable | Delivery Date | Action by the Company/Plan | Action by Prudential |
Preliminary Production Data File | September 29, 2017 | Deliver Preliminary Production Data File | Receive and reconcile Preliminary Production Data File to begin data cleanse and data mapping |
Check Register (as of September 30, 2017 and October 1, 2017) | September 29, 2017 | Deliver Check Register | Receive Check Register |
Final Production Data File | October 20, 2017 | Deliver Final Production Data File | Receive Final Production Data File |
Check Register (as of October 31, 2017 and November 1, 2017) | October 20, 2017 | Deliver Check Register | Receive Check Register |
Update File | November 20, 2017 | Deliver Update File | Receive Update File |
Data Load File (related to Final Production Data File) | November 22, 2017 | Receive Data Load File | Deliver Data Load File |
Check Register (as of November 31, 2017 and December 1, 2017) | November 22, 2017 | Deliver Check Register | Receive Check Register |
Data Load File Sign-Off (related to Final Production Data File) | November 30, 2017 | Approve Data Load File | Receive Data Load File Sign-Off |
Update File | December 4, 2017 | Deliver Update File | Receive Update File |
1. | [***]. |
a. | [***], |
b. | [***], |
c. | [***], |
d. | [***], |
e. | [***], |
f. | [***], |
g. | [***], |
h. | [***], |
i. | [***], |
j. | [***], or |
k. | [***], |
2. | [***]. |
3. | [***]. |
a. | [***] |
b. | [***] |
4. | [***]. |
(4A) | [***]; |
(4B) | [***]; |
(4C) | [***]. |
(4D) | [***]. |
5. | [***]. |
(5A) | [***]; |
(5B) | [***]; |
(5C) | [***]. |
(5D) | [***]. |
(5E) | [***]. |
(5F) | [***]. |
(5G) | [***]: |
(i) | [***]. |
(ii) | [***]. |
6. | [***]. |
7. | [***]. |
8. | [***]. |
9. | [***]. |
a. | [***]. |
b. | [***]. |
c. | [***]. |
d. | [***]. |
10. | [***]. [***]. |
a. | “[***]”, provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 3:05 p.m. eastern daylight time on July 24, 2017. |
b. | “[***]”, provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 3:30 p.m. eastern daylight time on August 3, 2017. |
c. | “[***]”, provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 5:30 p.m. eastern daylight time on September 7, 2017. |
d. | “[***]”, provided by the Company to Prudential posted to Willis Towers Watson OnePlace secure website at 8:44 p.m. eastern daylight time on September 13, 2017. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings (loss) from continuing operations | $ | 395 | $ | 312 | $ | 684 | $ | 691 | |||||||
Discontinued operations | — | — | — | (5 | ) | ||||||||||
Net earnings (loss) | 395 | 312 | 684 | 686 | |||||||||||
Effect of dilutive securities | — | — | — | — | |||||||||||
Net earnings - assuming dilution | $ | 395 | $ | 312 | $ | 684 | $ | 686 | |||||||
Average common shares outstanding | 412.9 | 411.2 | 412.6 | 411.0 | |||||||||||
Effect of dilutive securities | |||||||||||||||
Restricted stock performance share plan | 4.5 | 4.1 | 4.8 | 4.5 | |||||||||||
Average common shares outstanding - assuming dilution | 417.4 | 415.3 | 417.4 | 415.5 | |||||||||||
Earnings (loss) per common share from continuing operations | $ | 0.96 | $ | 0.76 | $ | 1.65 | $ | 1.68 | |||||||
Discontinued operations | — | — | — | (0.01 | ) | ||||||||||
Net earnings (loss) per common share | $ | 0.96 | $ | 0.76 | $ | 1.65 | $ | 1.67 | |||||||
Earnings (loss) per common share from continuing operations - assuming dilution | $ | 0.95 | $ | 0.75 | $ | 1.64 | $ | 1.66 | |||||||
Discontinued operations | — | — | — | (0.01 | ) | ||||||||||
Net earnings (loss) per common share - assuming dilution | $ | 0.95 | $ | 0.75 | $ | 1.64 | $ | 1.65 |
(1) | Attributable to International Paper Company common shareholders. |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||
TITLE | 2012 | 2013 | 2014 | 2015 | 2016 | 2016 | 2017 | ||||||||||||||||||||||
(A) | Earnings (loss) from continuing operations before income taxes and equity earnings | $ | 967.0 | $ | 1,228.0 | $ | 872.0 | $ | 1,266.0 | $ | 956.0 | $ | 676.0 | $ | 718.0 | ||||||||||||||
(B) | Noncontrolling interests, net of taxes | (5.0 | ) | 17.0 | 19.0 | 21.0 | 2.0 | 3.0 | — | ||||||||||||||||||||
(C) | Fixed charges excluding capitalized interest | 782.0 | 705.5 | 694.2 | 700.2 | 748.2 | 568.0 | 630.7 | |||||||||||||||||||||
(D) | Amortization of previously capitalized interest | 24.2 | 24.7 | 23.9 | 20.7 | 19.5 | 14.6 | 12.7 | |||||||||||||||||||||
(E) | Distributed income of equity investees | — | — | 56.1 | 35.0 | 59.7 | 58.0 | 131.4 | |||||||||||||||||||||
(F) | Earnings (loss) from continuing operations before income taxes and fixed charges | $ | 1,768.2 | $ | 1,975.2 | $ | 1,665.2 | $ | 2,042.9 | $ | 1,785.4 | $ | 1,319.6 | $ | 1,492.8 | ||||||||||||||
Fixed Charges | |||||||||||||||||||||||||||||
(G) | Interest and amortization of debt expense | $ | 714.7 | $ | 648.3 | $ | 642.9 | $ | 643.5 | $ | 694.5 | $ | 513.8 | $ | 571.2 | ||||||||||||||
(H) | Interest factor attributable to rentals | 61.6 | 56.1 | 51.3 | 56.7 | 53.7 | 54.2 | 59.5 | |||||||||||||||||||||
(I) | Preferred dividends of subsidiaries | 5.7 | 1.1 | — | — | — | — | — | |||||||||||||||||||||
(J) | Capitalized interest | 36.6 | 17.0 | 23.2 | 24.8 | 28.2 | 20.7 | 18.0 | |||||||||||||||||||||
(K) | Total fixed charges | $ | 818.6 | $ | 722.5 | $ | 717.4 | $ | 725.0 | $ | 776.4 | $ | 588.7 | $ | 648.7 | ||||||||||||||
(L) | Ratio of earnings to fixed charges | 2.16 | 2.73 | 2.32 | 2.82 | 2.30 | 2.24 | 2.30 |
1. | I have reviewed this quarterly report on Form 10-Q of International Paper Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
November 3, 2017 |
/s/ Mark S. Sutton |
Mark S. Sutton |
Chairman of the Board and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of International Paper Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
November 3, 2017 |
/s/ Glenn R. Landau |
Glenn R. Landau |
Senior Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mark S. Sutton |
Mark S. Sutton |
Chairman of the Board and Chief Executive Officer |
November 3, 2017 |
/s/ Glenn R. Landau |
Glenn R. Landau |
Senior Vice President and Chief Financial Officer |
November 3, 2017 |