INTERNATIONAL PAPER CO /NEW/

The non-GAAP financial measures presented in this Form 10-K as referenced below 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 utilize identical calculations, the Company's

presentation of non-GAAP measures in this Form 10-K may not be comparable to similarly titled measures

disclosed by other companies, including companies in the same industry as the Company. Users are cautioned not

to place undue reliance on any non-GAAP financial measures presented in this Form 10-K.

Below are the Company’s key non‑GAAP financial measures and their definitions:

Adjusted operating earnings (loss) and adjusted operating earnings (loss) per shareare defined as earnings

(loss) from continuing operations (a GAAP measure) excluding net special items and non-operating pension

expense (income). Earnings (loss) from continuing operations and diluted earnings (loss) from continuing operations

per share are the most directly comparable GAAP measures. The Company calculates adjusted operating earnings

(loss) by excluding the after-tax effect of non-operating pension expense (income) and net special items, as

described in greater detail below, from earnings (loss) from continuing operations reported under GAAP. Adjusted

operating earnings (loss) per share is calculated by dividing adjusted operating earnings (loss) by diluted average

shares of common stock outstanding. Management uses these non-GAAP financial measures to focus on ongoing

operations and believes that such non-GAAP financial measures are useful to investors in assessing the operational

performance of the Company and enabling investors to perform meaningful comparisons of past and present

consolidated operating results from continuing operations. The Company believes that using these non-GAAP

financial measures, along with the most directly comparable GAAP measures, provides for a more complete

analysis of the Company's results of operations.

Adjusted EBITDA from continuing operations is defined as earnings (loss) from continuing operations before

income taxes and equity earnings (loss), interest expense, net, net special items, non-operating pension expense

(income) and depreciation and amortization. Earnings (loss) from continuing operations before income taxes and

equity earnings (loss) is the most directly comparable GAAP measure. Beginning in 2025, management is also

using this measure to focus on on-going operations and believes this measure is useful to investors. This change

reflects investor feedback and management's view that Adjusted EBITDA from continuing operations provides a

meaningful measure of the operating performance of the Company and helps enable investors to perform

meaningful comparisons of past and present consolidated operating results from continuing operations.

Free cash flow is defined as cash provided by (used for) operations less capital expenditures, and the most directly

comparable GAAP measure is cash provided by (used for) operations. Management utilizes this measure in

connection with managing our business and 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.

Operational income tax provision and operational effective income tax rate are calculated by adjusting the

earnings (loss) from continuing operations before income taxes and equity earnings (loss), income tax provision

(benefit) and rate to exclude net special items and non-operating pension expense (income). The most directly

comparable GAAP measures are the reported income tax provision and effective income tax rate, respectively.

Management believes that this presentation provides useful information to investors by providing a meaningful

comparison of the income tax rate between past and present periods.

Below are reconciliations of the non‑GAAP financial measures noted above to their most directly

comparable GAAP measures:

Non-operating pension expense (income) represents amortization of prior service cost, amortization of actuarial

gains/losses, expected return on assets and interest cost. The Company excludes these amounts from our adjusted

operating earnings (loss) as the Company does not believe these items reflect ongoing operations. These particular

pension cost elements are not directly attributable to current employee service. The Company includes service cost

in our non-GAAP measure as it is directly attributable to employee service, and the corresponding employees’ other

compensation elements, in connection with ongoing operations.

See Effects of Special Items Expense (Income) for additional detail regarding the net special items expense

(income) referenced in the tables below.

Reconciliation of Earnings (loss) from continuing operations to Adjusted operating earnings (loss)

(a) For the year ended December 31, 2025, this amount includes tax benefits of $271 million related to the EMEA goodwill impairment and $62

million related to capital losses associated with the announced agreement to sell our GCF business. This amount also includes tax expense of $3

million on the non-operating pension income and a tax benefit of $157 million associated with other special items. For the year ended December

31, 2024, this amount includes a tax benefit of $416 million related to internal legal entity restructuring. This amount also includes tax expense of

$10 million on the non-operating pension income and a tax benefit of $41 million associated with other special items.

Reconciliation of Earnings (loss) from continuing operations to Adjusted operating earnings (loss) on a per

share basis

Reconciliation of Earnings (loss) from continuing operations to Adjusted EBITDA from continuing

operations

Reconciliation of Cash provided by operations to Free cash flow

Reconciliation of Income tax provision (benefit) to Operational tax provision (benefit) and the reported

effective income tax rate to the operational effective tax rate

Effects of Net Special Items Expense (Income)

Pre-tax special items included in continuing operations totaling$3.24 billion and$235 million were recorded in 2025

and 2024, respectively. Details of these charges were as follows:

(a) Non-cash goodwill impairment related to the Company's PS EMEA business segment recorded in impairment of goodwill.

(b) Severance and other costs associated with the Company's 80/20 approach which includes the realignment of resources and mill strategic

actions recorded primarily in restructuring and other charges, net.

(c) Transaction related costs that the Company believes are not reflective of the Company's underlying operations. 2025 includes $29 million

recorded in cost of products sold, $158 million recorded in selling and administrative expenses and $50 million recorded in taxes other than

payroll and income taxes. 2024 includes $123 million recorded in selling and administrative expenses.

(d) Includes a charge related to the sale of the Company's kraft paper bag business and a net gain related to the sale of five European box plants

in Mortagne, Saint-Amand and Cabourg (France), Ovar (Portugal) and Bilbao (Spain) to satisfy regulatory commitments in connection with the

DS Smith combination.

(e) Includes gains on assets sales related to our permanently closed Courtland, Alabama paper mill and Orange, Texas containerboard mill and

charges associated with the sale of the Company's aircraft and other assets.

(f) Environmental remediation adjustments associated with remediation work at sites that have been closed/divested that the Company believes

are not reflective of the Company's underlying operations recorded in cost of products sold.

(g) The Company's cost for third-party damages associated with a warehouse fire in Morocco recorded in cost of products sold.

(h) Settlement associated with an Italian antitrust matter initially recorded as a special item in 2019 recorded in cost of products sold.

(i) Legal reserve adjustment associated with a previously discontinued business recorded in cost of products sold.

(j) Interest income on tax overpayments in prior years associated with the settlement of certain tax audits recorded in interest expense, net.