INTERNATIONAL PAPER CO /NEW/

The following summarizes our results of operations for second quarter of 2026 compared with the second quarter of 2025 and the first quarter of 2026:

(a) Refer to special items discussion on page 34

Refer to the Effects of Net Special Items Expense (Income) section on page 34 for details of net special items expense (income) discussed below.

Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025

The decrease compared to the second quarter of 2025 was primarily driven by lower sales volumes. Additional details on net sales are provided in the Business Segment Operating Results section below.

Cost of products sold decreased by $78 million compared to the second quarter of 2025. Second quarter 2026 cost of products sold was impacted by lower raw materials, operating materials and other costs of $254 million, partially offset by higher fuel and utility expense of $162 million compared to the second quarter of 2025.

Selling and administrative expenses increased by $39 million compared to the second quarter of 2025. Second quarter 2026 selling and administrative expenses were impacted by increases in professional service fees, offset by decreases in employee compensation and benefit costs compared to the second quarter of 2025. Net special items charges of $56 million and $32 million in the second quarter of 2026 and 2025, respectively, are included in selling and administrative expenses.

Depreciation and amortization increased by $57 million compared to the second quarter of 2025. Depreciation expense includes accelerated depreciation of $23 million in the second quarter of 2026. Depreciation and amortization expense in the second quarter of 2026 is higher compared to the second quarter of 2025 primarily due to the finalization of acquisition accounting of DS Smith in the second half of 2025.

Distribution expenses increased by $7 million compared to the second quarter of 2025. Distribution expense was impacted by higher warehousing expense in the second quarter of 2026 compared to the second quarter of 2025.

Taxes other than payroll and income taxes remained relatively flat in the second quarter of 2026 compared to the second quarter of 2025.

Interest expense, net decreased by $21 million compared to the second quarter of 2025, primarily reflecting higher interest income earned on increased average cash balances and higher capitalized interest.

A net income tax benefit from continuing operations of $15 million was recorded in the second quarter of 2026 and the reported effective income tax rate was 58%. Excluding a $12 million net tax benefit for other special items and $4 million tax expense related to non-operating pension income, the operational tax benefit (non-GAAP) for the second quarter of 2026 was $7 million, or (58)% of pre-tax earnings before equity earnings.

A net income tax provision from continuing operations of $40 million was recorded for the second quarter of 2025 and the reported effective income tax rate was 34%. Excluding $3 million net tax expense for other special items and $1 million tax expense to non-operating pension income, the operational tax provision (non-GAAP) for the second quarter of 2025 was $36 million, or 27% of pre-tax earnings before equity earnings.

Refer to "Non-GAAP Financial Measures" for a reconciliation of the net income tax provision (benefit) (GAAP) to the operational income tax provision (benefit) (non-GAAP) and the reported effective income tax rate (GAAP) to the operational effective income tax rate (non-GAAP).

On January 23, 2026, the Company completed the sale of its GCF business to AIP. See Note 9 - Divestitures of Condensed Notes to Consolidated Financial Statements for further details.

Discontinued operations for the second quarter of 2025 includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $15 million for the second quarter 2025.

Three Months Ended June 30, 2026 Compared to the Three Months Ended March 31, 2026

The increase in the second quarter of 2026 compared to the first quarter of 2026 was primarily driven by higher sales prices. Additional details on net sales are provided in the Business Segment Operating Results section below.

Cost of products sold increased by $100 million compared to the first quarter of 2026. The increase compared to the first quarter of 2026 was driven by higher maintenance and other costs of $129 million as well as increases in raw materials and operating materials of $37 million, partially offset by decreases in fuel and utility expense of $66 million.

Selling and administrative expenses increased by $54 million compared to the first quarter of 2026. Compared to the first quarter of 2026, there were increases in administrative and other expenses offset by incentive compensation and medical costs. Net special items charges of $56 million and $14 million in the second quarter of 2026 and first quarter of 2026, respectively, are included in selling and administrative expenses.

Depreciation and amortization remained relatively flat compared to the first quarter of 2026. Depreciation expense includes accelerated depreciation of $23 million in the second quarter of 2026 compared to $16 million in the first quarter of 2026 associated with our site closures.

Distribution expenses increased by $10 million compared to the first quarter of 2026. The increase compared to the first quarter of 2026 was primarily driven by higher freight expense.

Taxes other than payroll and income taxes were relatively flat in the second quarter of 2026 compared to the first quarter of 2026.

Interest expense, net increased by $11 million compared to the first quarter of 2026. Net special items interest income of $11 million is included in interest expense, net in the first quarter of 2026.

A net income tax provision from continuing operations of $17 million was recorded for the first quarter of 2026 and the reported effective income tax rate was 18%. Excluding a $7 million net tax benefit for other special items and $4 million tax expense related to non-operating pension income, the operational tax provision (benefit) (non-GAAP) for the first quarter of 2026 was $20 million, or 20% of pre-tax earnings before equity earnings.

Refer to "Non-GAAP Financial Measures" for a reconciliation of the net income tax provision (benefit) (GAAP) to the operational income tax provision (benefit) (non-GAAP) and the reported effective income tax rate (GAAP) to the operational effective income tax rate (non-GAAP).

Discontinued operations for the first quarter of 2026 includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $3 million and non-operating pension expense of $19 million for the first quarter 2026.

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

The following summarizes our results of operations for the six months ended June 30, 2026 compared with the six months ended June 30, 2025:

Net sales increased by $569 million compared to the six months ended June 30, 2025, primarily due to higher sales prices. Six months of DS Smith activity is included in 2026 compared to five months in 2025.

Cost of products sold increased by $361 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($3.1 billion) compared to five months in 2025 ($2.6 billion). For IP Legacy, there were decreases in maintenance and other costs of $82 million and increases in raw materials and operating materials of $29 million. Net special items charges of $70 million are included in cost of products sold for the six months ended June 30, 2025.

Selling and administrative expenses increased by $62 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($243 million) compared to five months in 2025 ($203 million). For IP Legacy, compared to the six months ended June 30, 2025, there were increases in professional service fees as well as employee benefit costs. Net special items charges of $70 million and $133 million for the six months ended June 30, 2026 and 2025, respectively, are included in selling and administrative expenses.

Depreciation and amortization increased by $26 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($524 million) compared to five months in 2025 ($320 million). Depreciation expense includes accelerated depreciation of $39 million for the six months ended June 30, 2026 compared to $197 million for the six months ended June 30, 2025 associated with our site closures.

Distribution expenses increased by $103 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($449 million) compared to five months in 2025 ($372 million). For IP Legacy, the increase compared to the six months ended June 30, 2025 was primarily driven by higher freight and warehousing expense.

Taxes other than payroll and income taxes decreased by $45 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($19 million) compared to five months in 2025 ($15 million). Net special items charges of $50 million are included in taxes other than payroll and income taxes in the six months ended June 30, 2025 for a UK stamp tax associated with the DS Smith combination.

Restructuring charges, net

Restructuring charges, net of $32 million and $122 million were included in net special items expense (income) for the six months ended June 30, 2026 and 2025, respectively, for severance and other costs related to our mill closures and 80/20 strategic actions.

Net (gains) losses on sales and impairments of businesses

Net (gains) losses on sales and impairments of businesses of $(11) million were included in net special items expense (income) for the six months ended June 30, 2026 related to the completed sale of our box plant in Chile.

Net (gains) losses on sales and impairments of businesses of $(51) million were included in net special items expense (income) for the six months ended June 30, 2025 related to the completed 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.

Net (gains) losses on sales and impairments of assets

Net (gains) losses on sales and impairments of assets of $(67) million were included in net special items expense (income) for the six months ended June 30, 2025 for asset sales related to our permanently closed Orange, Texas containerboard mill and other items.

Interest expense, net decreased by $29 million compared to the six months ended June 30, 2025. Six months of DS Smith activity is included in 2026 ($71 million) compared to five months in 2025 ($70 million). For IP Legacy, interest expense, net decreased primarily due to higher interest income earned on increased average cash balances and higher capitalized interest. Net special items interest income of $11 million is included in interest expense, net in the six months ended June 30, 2026.

A net income tax provision from continuing operations of $2 million was recorded for the six months ended June 30, 2026 and the reported effective income tax rate was 3%. Excluding a $19 million net tax benefit for other special items and $8 million tax expense related to non-operating pension income, the operational tax provision (benefit) (non-GAAP) for the six months ended June 30, 2026 was $13 million, or 12% of pre-tax earnings before equity earnings.

A net income tax provision from continuing operations of $8 million was recorded for the six months ended June 30, 2025 and the reported effective income tax rate was (21)%. Excluding a $39 million net tax benefit for other special items, the operational tax provision (benefit) (non-GAAP) for the six months ended June 30, 2025 was $47 million, or 22% of pre-tax earnings before equity earnings.

Refer to "Non-GAAP Financial Measures" for a reconciliation of the net income tax provision (benefit) (GAAP) to the operational income tax provision (benefit) (non-GAAP) and the reported effective income tax rate (GAAP) to the operational effective income tax rate (non-GAAP).

Discontinued operations for the six months ended June 30, 2026 and the six months ended June 30, 2025 includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $3 million and non-operating pension expense of $19 million for the six months ended June 30, 2026 compared to net special items expense of $27 million for the six months ended June 30, 2025.