INTERNATIONAL PAPER CO /NEW/

The non-GAAP financial measures presented in this Form 10-Q 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 financial measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry. Investors are cautioned not to place undue reliance on any non-GAAP financial measures presented in this Form 10-Q.

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 these non-GAAP financial measures, viewed alongside 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 (a GAAP measure) 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 is the most directly comparable GAAP measure. Management uses this non-GAAP financial measure to focus on on-going operations and believes this measure is useful to investors to perform meaningful comparisons of past and present consolidated operating results from continuing operations. The Company believes that adjusted EBITDA from continuing operations, viewed alongside the most directly comparable GAAP measure, provides for a more complete analysis of the Company's 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 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) (non-GAAP) 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) (non-GAAP)

(a) For the three months ended September 30, 2026, this amount includes a tax benefit of $78 million related to the settlement of tax audits and a tax benefit of $38 million for a capital loss valuation adjustment related to the sale of our Global Cellulose Fibers business. This amount also includes tax expense of $4 million on the non-operating pension income and a tax benefit of $9 million associated with special items. The three months ended September 30, 2025 includes a tax benefit of $62 million related to capital losses associated with the sale of our Global Cellulose Fibers business. This amount also includes tax expense of $1 million on the non-operating pension income and a tax benefit of $87 million associated with special items. The three months ended June 30, 2026 includes tax expense of $4 million on the non-operating pension income and tax benefit of $12 million associated with special items.

Reconciliation of Earnings (loss) from continuing operations to Adjusted operating earnings (loss) on a per share basis (non-GAAP)

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

Reconciliation of Cash provided by operations to Free cash flow (non-GAAP)

Reconciliation of Income tax provision (benefit) to Operational tax provision (benefit) (non-GAAP) and the reported effective income tax rate to the operational effective tax rate (non-GAAP)

Effects of Net Special Items Expense (Income)

Details of net special items expense (income) included in continuing operations for the three months ended are as follows: