INTERNATIONAL PAPER CO /NEW/

The following summarizes our results of operations for third quarter of 2026 compared with the third quarter of 2025 and the second 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 September 30, 2026 Compared to the Three Months Ended September 30, 2025

The decrease compared to the third 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 $24 million compared to the third quarter of 2025. Third quarter 2026 cost of products sold was impacted by lower manufacturing and other costs of $98 million, partially offset by higher raw materials and operating materials of $39 million compared to the third quarter of 2025. Net special items of $34 million for the third quarter of 2025 were included in cost of products sold.

Selling and administrative expenses increased by $65 million compared to the third quarter of 2025. Third 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 third quarter of 2025. Net special items charges of $67 million and $15 million in the third quarter of 2026 and 2025, respectively, are included in selling and administrative expenses.

Depreciation and amortization decreased by $573 million compared to the third quarter of 2025. Depreciation expense includes accelerated depreciation of $33 million and $675 million in the third quarter of 2026 and 2025, respectively.

Distribution expenses increased by $35 million compared to the third quarter of 2025. Distribution expense was impacted by higher freight expense, partially offset by lower warehousing and distribution expense in the third quarter of 2026 compared to the third quarter of 2025.

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

Interest expense, net increased by $11 million compared to the third quarter of 2025, primarily due to higher interest costs associated with debt borrowings.

A net income tax benefit from continuing operations of $97 million was recorded in the third quarter of 2026 and the reported effective income tax rate was 8%. Excluding a $125 million net tax benefit for other special items and $4 million tax expense related to non-operating pension income, the operational tax provision (non-GAAP) for the third quarter of 2026 was $24 million, or 11% of pre-tax earnings before equity earnings.

A net income tax benefit from continuing operations of $250 million was recorded for the third quarter of 2025 and the reported effective income tax rate was 37%. Excluding a $149 million net tax benefit for other special items and $1 million tax expense to non-operating pension income, the operational tax benefit (non-GAAP) for the third quarter of 2025 was $102 million, or 31% 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, Net of Tax

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 third quarter of 2025 includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $39 million and $1.0 billion for the third quarter of 2026 and 2025, respectively.

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

The increase in the third quarter of 2026 compared to the second quarter of 2026 was primarily driven by higher sales prices, partially offset 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 $81 million compared to the second quarter of 2026. The decrease compared to the second quarter of 2026 was driven by lower maintenance and other costs of $177 million, as well as decreases in raw materials and operating materials of $11 million, partially offset by increases in fuel and utility expense of $108 million.

Selling and administrative expenses decreased by $6 million compared to the second quarter of 2026. Compared to the second quarter of 2026, there were decreases in employee compensation and benefit costs and other expenses. Net special items charges of $67 million and $56 million in the third quarter of 2026 and second quarter of 2026, respectively, are included in selling and administrative expenses.

Depreciation and amortization increased by $38 million compared to the second quarter of 2026. Depreciation expense includes accelerated depreciation of $33 million in the third quarter of 2026 compared to $23 million in the second quarter of 2026 associated with our site closures. Third quarter 2026 depreciation expense includes two additional months of depreciation expense compared to the second quarter of 2026 for the NORPAC mill and additional box system investments.

Distribution expenses increased by $36 million compared to the second quarter of 2026. The increase compared to the second quarter of 2026 was primarily driven by higher freight expense.

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

Interest expense, net increased by $9 million compared to the second quarter of 2026, primarily reflecting lower interest income earned on average cash balances and higher interest expense associated with short-term borrowings.

A net income tax benefit from continuing operations of $15 million was recorded for 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.

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).

Nine Months Ended September 30, 2026 Compared to the Nine Months Ended September 30, 2025

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

Net sales increased by $544 million compared to the nine months ended September 30, 2025, primarily due to higher sales prices, partially offset by lower sales volumes. Nine months of DS Smith activity is included in 2026 ($6.2 billion) compared to eight months in 2025 ($5.7 billion).

Cost of products sold increased by $337 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($4.5 billion) compared to eight months in 2025 ($4.2 billion). For IP legacy, there were increases in raw materials and operating materials of $111 million and decreases in maintenance and manufacturing costs of $114 million. Net special items of $36 million were included in cost of products sold for the nine months ended September 30, 2025.

Selling and administrative expenses increased by $127 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($370 million) compared to eight months in 2025 ($315 million). For IP legacy, compared to the nine months ended September 30, 2025, there were increases in professional service fees as well as employee benefit costs. Net special items charges of $137 million and $148 million for the nine months ended September 30, 2026 and 2025, respectively, are included in selling and administrative expenses.

Depreciation and amortization decreased by $547 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($795 million) compared to eight months in 2025 ($860 million). Depreciation expense includes accelerated depreciation of $72 million for the nine months ended September 30, 2026 compared to $872 million for the nine months ended September 30, 2025 associated with our site closures.

Distribution expenses increased by $138 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($673 million) compared to eight months in 2025 ($605 million). For IP legacy, the increase compared to the nine months ended September 30, 2025 was primarily driven by higher freight and warehousing expense.

Taxes other than payroll and income taxes decreased by $44 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($27 million) compared to eight months in 2025 ($25 million). Net special items charges of $50 million are included in taxes other than payroll and income taxes in the nine months ended September 30, 2025 for a UK stamp tax associated with the DS Smith combination.

Restructuring charges, net

Restructuring charges, net of $41 million and $464 million were included in net special items expense (income) for the nine months ended September 30, 2026 and 2025, respectively, for severance and other costs related to our mill closures and 80/20 strategic actions.

Impairment of goodwill

Impairment of goodwill of $1.38 billion was included in net special items expense (income) for the nine months ended September 30, 2026 for the non-cash impairment of goodwill in our PS EMEA business.

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 nine months ended September 30, 2026 related to the completed sale of our box plant in Chile.

Net (gains) losses on sales and impairments of businesses were included in net special items expense (income) for the nine months ended September 30, 2025 related to a charge of $16 million for the impairment of our kraft paper bag business and a gain of $51 million 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.

Net (gains) losses on sales and impairments of assets

Net (gains) losses on sales and impairments of assets were included in net special items expense (income) for the nine months ended September 30, 2026 related to a gain of $30 million for the sale of assets at our permanently closed Compton, California box plant and a charge of $7 million for other items.

Net (gains) losses on sales and impairments of assets were included in net special items expense (income) for the nine months ended September 30, 2025 related to a charge of $15 million related to the impairment of subsequently sold aircraft assets, a gain of $62 million for asset sales related to our permanently closed Orange, Texas containerboard mill and a gain of $5 million related to miscellaneous land sales and other items.

Interest expense, net decreased by $18 million compared to the nine months ended September 30, 2025. Nine months of DS Smith activity is included in 2026 ($109 million) compared to eight months in 2025 ($99 million). For IP legacy, interest expense, net decreased primarily due to higher capitalized interest. Net special items interest income of $11 million is included in interest expense, net in the nine months ended September 30, 2026.

A net income tax benefit from continuing operations of $95 million was recorded for the nine months ended September 30, 2026 and the reported effective income tax rate was 8%. Excluding a $144 million net tax benefit for other special items and $12 million tax expense related to non-operating pension income, the operational tax provision (non-GAAP) for the nine months ended September 30, 2026 was $37 million, or 11% of pre-tax earnings before equity earnings.

A net income tax benefit from continuing operations of $242 million was recorded for the nine months ended September 30, 2025 and the reported effective income tax rate was 34%. Excluding a $188 million net tax benefit for other special items and $1 million tax expense related to non-operating pension income, the operational tax benefit (non-GAAP) for the nine months ended September 30, 2025 was $55 million, or 50% 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, Net of Tax

Discontinued operations for the nine months ended September 30, 2026 and the nine months ended September 30, 2025 includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $42 million and non-operating pension expense of $19 million for the nine months ended September 30, 2026 compared to net special items expense of $1.0 billion for the nine months ended September 30, 2025.