International Paper : 2nd Quarter 2021 Reconciliation of Non-GAAP Financial Measures

International Paper Company

Reconciliation of Non-GAAP Financial Measures

This presentation includes certain non-U.S. GAAP financial measures. The calculation of these measures, and a reconciliation to previously reported comparable measures calculated in accordance with U.S. generally accepted accounting principles (GAAP) is shown below. The Company believes that this information, when used in conjunction with information presented in accordance with U.S. GAAP, can facilitate a better understanding of the impact of various factors and trends on the Company's financial condition and results of operations. Management also uses these non‐U.S. GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's performance. These non‐GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, our presentation of non‐U.S. GAAP financial measures may not be comparable to similarly titled measures disclosed by other companies, including companies in our industry. This information should be used in conjunction with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and subsequently publicly filed financial reports.

INTERNATIONAL PAPER COMPANY

Reconciliation of Net Earnings (Loss) Attributable to International Paper Company to Adjusted Operating Earnings

Preliminary and Unaudited

(In millions, except per share amounts)

	Three Months Ended		Three Months Ended		Six Months Ended
		June 30,				March 31,			June 30,
	2021			2020			2021			2021		2020
Net Earnings (Loss) Attributable to International Paper Company	$	432	$	266	$	349	$	781	$	125
Add back: Non-operating pension expense (income)		(39)			(11)			(40)			(79)			(16)
Add back: Net special items expense (income)		28			50			(10)			18			422
Adjusted Operating Earnings	$	421		$	305		$	299		$	720		$	531
	Three Months Ended		Three Months Ended		Six Months Ended
		June 30,				March 31,			June 30,
	2021			2020			2021			2021		2020
Diluted Earnings per Common Share as Reported	$	1.09	$	0.67	$	0.88	$	1.96	$	0.32
Add back: Non-operating pension expense (income)		(0.10)			(0.03)			(0.10)			(0.19)			(0.04)
Add back: Net special items expense (income)		0.07			0.13			(0.02)			0.04			1.07
Adjusted Operating Earnings per Share	$	1.06		$	0.77		$	0.76		$	1.81		$	1.35

Notes:

The Company calculates Adjusted Operating Earnings (non-GAAP) by excluding the after-tax effect of non-operating pension expense (income) and items considered by management to be unusual (net special items) as reflected in the Consolidated Statement of Operations and related notes from the earnings reported under U.S. generally accepted accounting principles ("GAAP"). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. The Company believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure.

Since diluted earnings per share are computed independently for each period, six-month per share amounts may not equal the sum of respective quarters.

INTERNATIONAL PAPER COMPANY

Reconciliation of Cash Provided by Operations to Free Cash Flow

Preliminary and Unaudited

(In millions)

		Three Months Ended		Three Months Ended
		June 30,					March 31,			Twelve Months Ended December 31,
		2021			2020				2021			2020			2019				2018
Cash Provided By (Used For) Operating Activities	$	766		$	890			$	512		$	3,063		$	3,610			$	3,226
Adjustments:
Cash invested in capital projects, net of insurance recoveries		(133)			(252)				(89)			(751)			(1,276)				(1,572)
Free Cash Flow	$	633		$	638			$	423		$	2,312		$	2,334			$	1,654

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

The non-GAAP financial measures presented in this release have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company's presentation of non-GAAP measures in this release may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as International Paper.

Management believes certain non-U.S. GAAP financial measures, when used in conjunction with information presented in accordance with U.S. GAAP, can facilitate a better understanding of the impact of various factors and trends on the Company's financial condition and results of operations. Management also uses these non-U.S. GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's performance.

International Paper Company

Calculation of EBITDA before Special Items

	2020	2021	2021		2021	2021	2021
$ Millions		Full Year		1st Quarter		2nd Quarter	3rd Quarter		4th Quarter		Year to Date
Earnings (Loss) from Continuing Operations Before
Income Taxes and Equity Earnings	650	399	432		-	-	831
Interest Expense, Net	444	92	57		-	-	149
Special Items	764	(17)	50		-	-	33
Non-operating pension expense (income)		(41)		(53)		(52)		-		-		(105)
EBIT before Special Items	1,817	421	487		-	-	908
Depreciation, amortization and cost of timber
harvested		1,286		309		306		-		-		615
EBITDA before Special Items	3,103	730	793		-	-		1,523
Annualized EBITDA before Special Items		3,103		2,920		3,172		-		-		3,046
Annualized Net Sales	20,580	21,452	22,464		-	-	21,958
Adjusted EBITDA Margin		15.1%		13.6%		14.1%		-		-		13.9%

Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin are all "non-GAAP financial measures" presented as supplemental measures of our performance and the most directly comparable GAAP measures for Adjusted EBIT and Adjusted EBITDA are operating income and net income, respectively. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provide additional meaningful information in evaluating the Company's performance over time, and that other companies use these and/or similar measures for similar purposes. However, Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. In addition, in evaluating Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future we will incur expenses such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

International Paper Company

Calculation of EBITDA before Special Items

	2019	2020	2020	2020	2020	2020
$ Millions		Full Year		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter	Year to Date
Earnings (Loss) from Continuing Operations Before
Income Taxes and Equity Earnings	1,604	(16)	261	282	123	650
Interest Expense, Net	491	117	116	112	99	444
Special Items	420	385	68	110	201	764
Non-operating pension expense (income)		36		(6)		(14)		(11)		(10)		(41)
EBIT before Special Items	2,551	480	431	493	413	1,817
Depreciation, amortization and cost of timber
harvested		1,301		322		312		320		332		1,286
EBITDA before Special Items	3,852	802	743	813	745		3,103
Annualized EBITDA before Special Items		3,852		3,208		2,972		3,252		2,980		3,103
Annualized Net Sales	22,376	21,408	19,464	20,492	20,956	20,580
Adjusted EBITDA Margin		17.2%		15.0%		15.3%		15.9%		14.2%		15.1%

Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin are all "non-GAAP financial measures" presented as supplemental measures of our performance and the most directly comparable GAAP measures for Adjusted EBIT and Adjusted EBITDA are operating income and net income, respectively. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provide additional meaningful information in evaluating the Company's performance over time, and that other companies use these and/or similar measures for similar purposes. However, Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. In addition, in evaluating Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future we will incur expenses such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.