UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________
FORM 10-K
(Mark One)
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ý☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for |
| | For the fiscal year ended December 31, 2017 |
or
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| | 12/31/2021 |
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| ☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from - to - |
Commission File No. 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
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| New York | | 13-0872805 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
6400 Poplar Avenue
Memphis, Tennessee
(Address of principal executive offices)
38197
(Zip Code)
Registrant’s telephone number, including area code: (901) 419-9000
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| 6400 Poplar Avenue |
| Memphis, | Tennessee |
| (Address of principal executive offices) |
| 38197 |
| (Zip Code) |
| Registrant's telephone number, including area code: | 901 | 419-9000 |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $1 per share par valueShares | IP | New York Stock Exchange |
_____________________________________________________
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerý | | Accelerated filer¨ | | Non-accelerated filer¨ | | Smaller reporting company¨ | | Emerging growth company¨ |
| ☒ | | ☐ | | (Do not check if a smaller reporting company)☐ | | ☐ | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý
The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2017)2021) was approximately $23,247,397,657.$23,888,254,007.
The number of shares outstanding of the Company’s common stock as of February 16, 201811, 2022 was 412,940,532.376,364,434.
Documents incorporated by reference:
Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 20182022 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20172021
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INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017
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| APPENDIX I | | |
| APPENDIX II | | |
International Paper Company (the “Company”"Company" or “International Paper,”"International Paper", which may also be referred to as “we”"we" or “us”"us") is a global producer of renewable fiber-based packaging pulp and paperpulp products with manufacturing operations in North America, Latin America, Europe and North Africa, India and Russia.Africa. We are a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more about us by visiting that site.our website at www.internationalpaper.com.
In the United States, at December 31, 2017,2021, the Company operated 2924 pulp paper and packaging mills, 170163 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at December 31, 20172021 in Canada, Europe, India, North Africa and Latin America included 16four pulp paper and packaging mills, 4737 converting and packaging plants, and two recycling plants. We operate a printing and packaging products distribution business principally through 9six branches in Asia. At December 31, 2017, we owned or managed approximately 329,000 acres of forestland in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions.
For management and financial reporting purposes, our businesses are separated into threetwo segments: Industrial Packaging;Packaging and Global Cellulose Fibers; and Printing Papers.Fibers.
From 20132017 through 2017,2021, International Paper’s capital expendituresspending approximated $6.8$5.5 billion,, excluding mergers and acquisitions. These expenditures reflect our continuing efforts to use our capital strategically
to improve product quality and environmental performance, as well as lower costs, and maintain reliability of operations.operations and strategic capital for capacity expansion. Capital spending in 20172021 was approximately $1.4 billion$549 million and is expected to be approximately $1.5$1.1 billion in 2018.2022. You can find more information about capital expendituresspending on pages 33 to 34 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You can find discussions
Our strategic framework, The IP Way Forward, ensures that our business strategy delivers sustainable outcomes for all of
restructuring chargesour stakeholders – employees, customers, suppliers, communities, governmental and
other special itemsnon-governmental organizations and shareholders – for generations to come. Our approach to sustainability considers our entire value chain, from focusing on
pages 22sourcing raw materials responsibly and
23working safely, to making renewable, recyclable products and providing a market for recovered products. To help inform and prioritize the focus of
Item 7. Management’s Discussionour sustainability strategy, we have engaged with internal and Analysisexternal stakeholders using a variety of Financial Conditionmethods, assessed key issues and Resultsassociated risks and opportunities, and incorporated environmental, social and governance (ESG) considerations into our processes. Additionally, in 2020, we established our Vision 2030 goals with the purpose of Operations.promoting healthy and abundant forests, thriving people and communities, sustainable operations and renewable solutions. Certain of the goals are discussed in more detail below. Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts of other documents filed with the Securities and Exchange Commission (SEC)("SEC"). The SEC permits us to disclose important information by referring to it in that manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and proxy statements, along with all other reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet Web sitewebsite at www.internationalpaper.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our internet address is included herein as an inactive textual reference only. The information contained on or connected to our Web site is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we filed with or furnished to the SEC.
The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.
The Company sells products directly to end users and converters, as well as through agents, resellers and paper distributors.
Sales volumes of major products for 2017, 2016 and 2015 were as follows:
Sales Volumes by Product (a)
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| | | | | | |
| In thousands of short tons (except as noted) | 2017 | 2016 | 2015 |
| Industrial Packaging | | | |
| Corrugated Packaging (c) | 10,413 |
| 10,392 |
| 10,284 |
|
| Containerboard | 3,294 |
| 3,091 |
| 3,110 |
|
| Recycling | 2,257 |
| 2,450 |
| 2,379 |
|
| Saturated Kraft | 181 |
| 182 |
| 156 |
|
| Gypsum/Release Kraft | 229 |
| 200 |
| 171 |
|
| Bleached Kraft | 27 |
| 24 |
| 23 |
|
| EMEA Packaging (c) (d) | 1,518 |
| 1,477 |
| 1,417 |
|
| Asian Box (c) (e) | — |
| 208 |
| 426 |
|
| Brazilian Packaging (c) | 357 |
| 371 |
| 348 |
|
| European Coated Paperboard | 398 |
| 393 |
| 381 |
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| Industrial Packaging | 18,674 |
| 18,788 |
| 18,695 |
|
Global Cellulose Fibers (in thousands of metric tons) (b) | 3,708 |
| 1,870 |
| 1,575 |
|
| Printing Papers | | | |
| U.S. Uncoated Papers | 1,915 |
| 1,872 |
| 1,879 |
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| European and Russian Uncoated Papers | 1,483 |
| 1,536 |
| 1,493 |
|
| Brazilian Uncoated Papers | 1,167 |
| 1,114 |
| 1,125 |
|
| Indian Uncoated Papers | 253 |
| 241 |
| 241 |
|
| Printing Papers | 4,818 |
| 4,763 |
| 4,738 |
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(a) | Includes third-party and inter-segment sales and excludes sales of equity investees. |
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(b) | Includes North American, European and Brazilian volumes and internal sales to mills. Includes sales volumes from the pulp business acquired beginning December 1, 2016. |
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(c) | Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons. |
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(d) | Excludes newsprint sales volumes at Madrid, Spain mill. |
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(e) | Includes sales volumes through the date of sale on June 30, 2016. |
The Company operates its primary research and development center in Loveland, Ohio, as well as several other product development facilities, including the Global Cellulose Fibers technology center in Federal Way, Washington.
We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions, and to process, equipment and product innovations. Activities include product development within the operating divisions; studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials development; mechanical packaging systems, environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and packaging paper products; energy conservation; applications of computer controls to manufacturing operations; innovations and improvement of products; and development of various new products. Our development efforts specifically address product safety as well as the minimization of solid waste. The cost to the Company of its research and development operations was $28 million in 2017, $20 million in 2016, and $27 million in 2015.
We own numerous patents, copyrights, trademarks, trade secrets and other intellectual property rights relating to our products and to the processes for their production. We also license intellectual property rights to and from others where advantageous or necessary. Many of the manufacturing processes are among our trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them as required to support our businesses.
International Paper is subject to extensive federal and state environmental regulation as well as similar regulations internationally. Our continuing objectives include: (1) controlling emissions and discharges from our facilities into the air, water and groundwater to avoid adverse impacts on the environment, and (2) maintaining compliance with applicable laws and regulations. The Company spent $86 million in 2017 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend $71 million in 2018 for environmental capital projects. Capital expenditures for 2019 environmental projects are anticipated to be approximately $87 million. Capital
expenditures for 2020 environmental projects are estimated to be $73 million.
The 2017 spend included costs associated with the U.S. Environmental Protection Agency's (EPA) Boiler MACT (maximum achievable control technology) regulations that require owners of specified boilers to meet revised air emissions standards for certain substances. Several lawsuits were filed to challenge all or portions of the Boiler MACT regulations. On December 23, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded the Boiler MACT regulations to the EPA requiring the agency to revise emission standards for boiler subcategories that had been affected by flawed calculations. The Court determined that the existing MACT standards should remain in place while the revised standards are being developed, but did not establish a deadline for the EPA to complete the rulemaking. The Company has completed its Boiler MACT capital projects to meet the existing regulations. We are not able to project any additional Boiler MACT capital project expenditures as it is uncertain to what extent the EPA will revise Boiler MACT standards that are subject to the remand.
Amendments lowering National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2), nitrogen dioxide (NO2), fine particulate (PM2.5), and ozone have been finalized by the EPA in recent years but to date have not had a material impact on the Company.
In an effort to mitigate the potential climate change impacts from human activities, various international, national and sub-national (regional, state and local) governmental actions have been or may be undertaken. Presently, these efforts have not materially impacted International Paper, but such efforts may have a material impact on the Company in the future.
International Efforts
A successor program to the 1997 Kyoto Protocol, the Paris Agreement, went into effect in November 2016 and continued international efforts and voluntary commitments toward reducing the emissions of greenhouse gases (GHGs). Consistent with this objective, participating countries aim to balance GHG emissions generation and removal in the second half of this century or, in effect, achieve net-zero global GHG emissions.
As part of the Paris Agreement, many countries, including the U.S. and EU member states, established non-binding emissions reduction targets. The U.S. non-binding commitment is for GHG emissions to be 7% below 2005 GHG emissions levels by 2020 and 26% to 28% below by 2025. Other countries in which we do business made similar non-binding commitments. On
August 4, 2017, the U.S. filed official notice to withdraw from the Paris Agreement. Notwithstanding the notice of withdrawal by the U.S., the Company’s voluntary GHG reductions, which are set out in our annual Global Citizenship report, remain roughly in line with the percentages of the U.S. prior target reductions. It is not clear at this time what, if any, further reductions by the Company might be required by the countries in which we operate. Due to this uncertainty, it is not possible at this time to estimate the potential impacts of these agreements on the Company.
To assist member countries in meeting obligations under the Kyoto Protocol, the EU established and continues to operate an Emissions Trading System (EU ETS). Currently, we have two sites directly subject to regulation under Phase III of the EU ETS, one in Poland and one in France. Other sites that we operate in the EU experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the Company, but they could be material to the Company in the future depending on how the Paris Agreement's non-binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the coming years.
U.S. Efforts
In the U.S., the 1997 Kyoto Protocol was not ratified and Congress has not passed GHG legislation. The EPA, however, enacted regulations to: (i) control GHGs from mobile sources by adopting transportation fuel efficiency standards; (ii) control GHG emissions from new Electric Generating Units (EGUs); (iii) require reporting of GHGs from sources of GHGs greater than 25,000 tons per year; (iv) in 2015, require states to develop plans to reduce GHGs from utility EGUs and (v) in 2016 EPA took the first steps in the process of developing emissions standards for existing sources in the oil and gas sector.The 2017 change in leadership of the U.S. executive branch may result in significant revisions to or rescission of the EPA's GHG regulations. It is unclear what impacts, if any, the EPA's GHG regulatory revisions and any other future revisions will have on the Company’s operations.
In 2015, EPA promulgated the Clean Power Plan (CPP) rule to address climate change by reducing carbon dioxide (CO2) and other designated greenhouse gas pollutant emissions from utility EGUs. In response, states were to develop and begin implementing programs to reduce GHGs from EGUs by about 32 percent by the 2022 to 2033 timeframe as compared to 2005 baseline levels. In October 2017, the EPA issued a regulatory action to withdraw the CPP in its entirety. Notwithstanding the withdrawal of the CPP, some states have remained committed to reaching the reduction targets set out in the CPP. These GHG reduction plans,
if implemented, could pose potential cost increases for electricity purchased by the Company. The magnitude of cost increases to the Company, if any, are not possible to estimate reliably at this time.
State, Regional and Local Measures
A few U.S. states have enacted or are considering legal measures to require the reduction of emissions of GHGs by companies and public utilities, primarily through the development of GHG emission inventories or regional GHG cap-and-trade programs. California has already enacted such a program and similar actions are being considered by Oregon. The Company does not have any sites currently subject to California's GHG regulatory plan and since the Oregon program is still being developed, it is too early to know how or if Company owned sites in Oregon may be affected. There may be indirect impacts from changing input costs (such as electricity) at some of our California converting operations but these have yet to manifest themselves in material impacts. Although we are monitoring proposed programs in other states, it is unclear what impacts, if any, state-level GHG rules will have on the Company’s operations. Further state measures are under substantive review as they respond to the withdrawal of the EPA’s CPP.
Summary
Regulation of GHGs continues to evolve in various countries in which we do business. While it is likely that there will be increased governmental action regarding GHGs and climate change, any material impact to the Company is not likely to occur before 2020 and at this time it is not reasonably possible to estimate Company costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct impacts, future legislation and regulation could have indirect impacts on International Paper, such as higher prices for transportation, energy and other inputs, as well as more protracted air permitting processes, causing delays and higher costs to implement capital projects. International Paper has controls and procedures in place to stay informed about developments concerning possible climate change legislation and regulation in the U.S. and in other countries where we operate. We regularly assess whether such legislation or regulation may have a material effect on the Company, its operations or financial condition, and whether we have any related disclosure obligations.
International Paper plays a significant role in responding to the climate change challenge. Our entire business depends upon the sustainability of forests. We transform renewable resources into recyclable products that people depend on every day. This cycle begins with
sourcing renewable fiber from responsibly managed forests, and at the end of use our products are recycled into new products at a higher rate than any other base material. We will continue to lead the world in responsible forest stewardship to ensure healthy and productive forest ecosystems for generations to come. Our efforts to advance sustainable forest management and restore forest landscapes are an important lever for mitigating climate change through carbon storage in forests. Furthermore, we use biomass and manufacturing residuals (rather than fossil fuels) to generate a substantial majority of the manufacturing energy at our mills.
Additional information regarding climate change and International Paper is available in our 2016 Global Citizenship report found on our Internet Web site at www.internationalpaper.com, though this informationwebsite is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.
EMPLOYEES
As of December 31, 2017,2021, we have approximately 56,00038,200 employees, nearly 36,00031,000 of whom are located in the United States. The number of our employees as of December 31, 2021, decreased significantly in comparison to December 31, 2020, as a result of the spin-off of Sylvamo Corporation which we completed on October 1, 2021. Of theour U.S. employees, approximately 25,00021,700 are hourly, with unions representing approximately 15,00013,500 employees. Approximately 12,00010,200 of this number are represented by the United Steelworkers union (USW)("USW").
International Paper, the USW, and several other unions have entered into two master agreements covering various U.S. mills and converting facilities. These master agreements cover several specific items, including wages, select benefit programs, successorship, employment security, and health and safety. Individual facilities continue to have local agreements for other subjects not covered by the master agreements. If local facility agreements are not successfully negotiated at the time of expiration, under the terms of the master agreements the local contracts will automatically renew with the same terms in effect. The master agreements cover the majority of our union represented mills and converting facilities. In addition, International Paper is party to a master agreement with District Council 2, International Brotherhood of Teamsters, covering additional converting facilities.
SAFETY
The safety of our employees remains the primary focus of our leaders. Our goal is to create a 100% injury-free workplace for our employees and contractors. To accomplish this goal, we focus on the IP Way of doing things - we do the right things, in the right ways, for the right reasons, all of the time. Our stated Vision 2030 Goal is to achieve zero serious injuries for employees and contractors. In 2021, 94% of our sites operated without a serious injury to our employees.
Throughout the COVID-19 pandemic, we have remained focused on protecting the health and safety of our employees while meeting the needs of our customers. Most of our manufacturing and converting
facilities were deemed essential and have remained open and operational during the pandemic, and all of our manufacturing and converting facilities are currently operational. The health and safety of our employees and contractors is our most important responsibility as we manage through the COVID-19 pandemic. Each IP facility has a Pandemic Preparedness Plan, including health and safety layers of protection and other measures generally aligned with recommendations of the Centers for Disease Control and Prevention, the World Health Organization and/or local health authority guidance. In addition, we have symptom, exposure and diagnosis reporting policies, and isolation, quarantine and return to work protocols. We have encouraged vaccination and have sponsored on-site vaccination events. We are continuously responding to the changing conditions created by the pandemic and evolving regulations and remain focused on our priority of employee health and safety.
HUMAN CAPITAL MANAGEMENT
The attraction, retention and development of our employees is critical to our success. We accomplish this, in part, by developing the capabilities of our team members through our continuous learning, development and performance management programs. One such program is our REACH (Recruit, Engage, Align College Hires) program through which we recruit and develop early-career engineers and safety professionals for our U.S. mills, preparing them to become future leaders. We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our employees. Our HR Talent Management Team hosts Global New Employee Orientation for all employees. In 2021, 943 new hourly operations and maintenance employees at our mills participated in new hire integration training. We provide continuing education courses that are relevant to our industry and job functions within the Company, including both instructor lead and online training through our MyLearning system. In addition, we have created learning paths for specific positions that are designed to encourage an employee’s advancement and growth within our organization, such as our Global Manufacturing Training Initiative, which provides training services to hourly operations and maintenance employees in our mills in a standardized and structured manner. The IP Leadership Institute offers courses for individual contributors, people leaders and teams. We also offer a peer mentor program and leadership and customer service training to support and develop our employees. Moreover, we offer tuition reimbursement programs for employees who desire to receive additional outside education to prepare for other positions at the
Company, as well as student loan assistance to help employees repay qualified student loans. These resources provide employees with the skills and support they need to achieve their career goals, build management skills and become leaders within our Company.
The labor market for both hourly and salaried workers has recently been very competitive. For additional information regarding risks related to the current competitive labor market, see Item 1A. Risk Factors – WE OPERATE IN A CHALLENGING MARKET FOR TALENT AND MAY FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, INCLUDING KEY MANAGEMENT PERSONNEL.
COMPENSATION AND BENEFITS
We view compensation and benefits as part of how we attract, engage and retain our talented workforce. We do so by rewarding performance while ensuring competitive compensation in our local markets around the world. We continually evaluate our compensation and benefits so that we offer optimal compensation programs and remain a leading employer of choice in the areas in which we operate.
DIVERSITY AND INCLUSION
The Company believes in an inclusive workforce, where diverse backgrounds are represented, engaged and empowered to inspire innovative ideas and decisions. Our stated Vision 2030 goal is to achieve 30% overall representation of women and 50% women in salaried positions, 30% racial and ethnic minority representation in U.S. salaried positions, and to implement regional diversity plans by 2030. To foster a more diverse and inclusive culture, the Company is focused on promoting a culture of diversity and inclusion that leverages the talents of all employees, and implementing practices that attract, recruit and retain diverse top talent. The Company supports employee-led networking groups that are open to all employees and provide a forum to communicate and exchange ideas, build a network of relationships across the Company, and pursue personal and professional development, such as the Women in International Paper Employee Networking Circle (Women in IP), African American Employee Networking Circle (IPMOVE), LGBTQ Employee Networking Circle (IPride) and a Veterans Employee Networking Circle (IPVets). The Company has also been recognized for the diversity of its board of directors. We also conduct diversity and inclusion training and host inclusion forums, mentoring boards and team-level courses which further our goals of diversity and inclusion.
We have a global workforce and have implemented programs around the globe to create diverse, inclusive workplaces. We have increased representation of women engineers in our REACH program by 39% with the Class of 2022, compared with the Class of 2021. Additionally, our overall full-time diversity hiring for the REACH Class 2022 is 52%. Moreover, we have developed a Diversity Acquisition Framework for U.S. Colleges to guide our enterprise diversity efforts as we work towards accomplishing our Vision 2030 goals.
The make-up of our Board of Directors reflects our efforts to seek qualified Board candidates with diverse backgrounds including, but not limited to, such factors as race, gender, and ethnicity. The current composition of our Board, as noted below, reflects those efforts and the importance of diversity to the Board:
•27% women, 27% ethnically diverse,18% African-American
•50% of the Board’s standing committees are chaired by women
•Two women directors and two African-American directors have joined in the last four years
CITIZENSHIP
We encourage our employees to support the communities in which they live and in which the Company operates. Our citizenship efforts extend across the globe and support social and educational needs. To that end, in 2021 we invested more than $23 million to address critical needs in the communities in which we work and live. Our Vision 2030 goal is to strengthen the resilience of our communities and improve the lives of 100 million people in our communities, including through supporting education, reducing hunger, promoting health and wellness and supporting disaster relief. We are proud to have been named among the world’s most ethical companies by Ethisphere for 15 consecutive years.
The pulp and packaging sectors are large and fragmented, and the areas into which we sell our principal products are very competitive. Our products compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.
Many factors influence the Company’s competitive position, including price, cost, product quality and services. You can find more information about the
The Company sells products directly to end users and converters, as well as through agents, resellers and distributors.
Sales volumes of major products for 2021, 2020 and 2019 were as follows:
SALES VOLUMES BY PRODUCT (a)
| | | | | | | | | | | |
| In thousands of short tons (except as noted) | 2021 | 2020 | 2019 |
| Industrial Packaging | | | |
| Corrugated Packaging (b) | 10,787 | | 10,671 | | 10,454 | |
| Containerboard | 2,893 | | 3,097 | | 2,909 | |
| Recycling | 2,223 | | 2,181 | | 2,388 | |
| Saturated Kraft | 186 | | 158 | | 174 | |
| Gypsum/Release Kraft | 234 | | 209 | | 199 | |
| EMEA Packaging (b) | 1,546 | | 1,627 | | 1,538 | |
| Brazilian Packaging (b) | — | | 271 | | 366 | |
| Industrial Packaging | 17,869 | | 18,214 | | 18,028 | |
Global Cellulose Fibers (in thousands of metric tons) (c) | 2,970 | | 3,159 | | 3,122 | |
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(a)Includes third-party and inter-segment sales and excludes sales of equity investees. Excludes volumes of businesses conveyed to Sylvamo Corporation.
(b)Volumes for corrugated box sales reflect consumed tons sold ("CTS"). Board sales by these businesses reflect invoiced tons.
(c) Includes North American volumes and internal sales to mills.
As responsible stewards of people and communities, natural resources and capital, stewardship is one of the Company's core values. Its Vision 2030 Goals provide a framework to build a better future for people, the planet and the company in the areas of healthy and abundant forests, thriving people and communities, sustainable operations and renewable solutions. Through these efforts and more, the Company tackles the toughest issues in the value chain to improve its environmental footprint and promote the long-term sustainability of natural capital.
As part of its business, the Company is subject to extensive and increasingly stringent federal, state local, and international laws and regulations governing the protection of the environment. For example, Company manufacturing processes involve discharges to water, air emissions, water intake and waste handling and disposal activities, all of which are subject to a variety of environmental laws and regulations, along with requirements of environmental
permits or analogous authorizations issued by various governmental authorities. In addition, new environmental laws or regulations impacting our facilities around the world are routinely passed or proposed. Our continuing objectives include: (1) controlling emissions and discharges from our facilities to avoid adverse impacts on the environment, and (2) maintaining compliance with applicable laws and regulations. The Company spent approximately $34 million in 2021 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend $37 million in 2022 for environmental capital projects. Capital expenditures on environmental projects for 2023 and 2024, respectively, are anticipated to be approximately $45 million and $35 million. It is possible that our capital expenditure assumptions and project completion dates may change, and our projections are subject to change due to items such as the finalization of ongoing engineering projects or changes in environmental laws and regulations.
The Company has completed capital projects to meet the U.S. Environmental Protection Agency's ("EPA") maximum achievable control technology ("MACT") and risk and technology review ("RTR") regulations that require owners of specified pulp and paper process equipment and boilers to meet new air emissions standards for certain substances. As portions of these MACT and RTR regulations have been remanded to EPA for further consideration it is not clear at this time what, if any, additional capital project expenditures might result from resolution of the open issues.
The Company has been named as a potentially responsible party ("PRP") in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). Many of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities on the balance sheet. For additional information regarding certain remediation actions, see Note 14 Commitments and Contingent Liabilities of Item 8. Financial Statements and Supplementary Data on pages 70 through 74. For additional information regarding risks associated with environmental matters, see Item 1A. Risk Factors – WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, REGULATIONS AND OTHER GOVERNMENTAL REQUIREMENTS THAT MAY CHANGE IN SIGNIFICANT WAYS, AND THE COST OF COMPLIANCE WITH SUCH REQUIREMENTS COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.
The Company recognizes the impacts of climate change on people and our planet. In order to manage climate-related risks, we are taking actions throughout our value chain to help advance a low-carbon economy. We also intend to align our annual sustainability reporting with the recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) beginning with the 2022 reporting cycle (based upon data from 2021).
We transform renewable resources into recyclable products that people depend on every day. This cycle begins with sourcing renewable fiber from responsibly
managed forests and recycled raw materials to create our products. We then use a circular manufacturing process that makes the most of resources and byproducts, while reducing the environmental impacts of our operations. At the end of use, the majority of our low-carbon products are recycled into new products at a higher rate than any other base material. We work to advance the shift to a low-carbon, circular economy by designing products that are 100% reusable, recyclable or compostable.
Through improvements in operations, equipment, energy efficiency and fuel diversity, we have achieved significant company-wide reductions in Scope 1 and Scope 2 greenhouse gas (GHG) emissions. For example, we reduced our GHG emissions by approximately 20% between 2010 and 2020. Moreover, as part of our Vision 2030 goals, we have targeted incremental reductions of 35% in our Scope 1, 2, and 3 GHG emissions in comparison to 2019 levels. In December 2021, the Science Based Targets initiative (SBTi) approved these targets as consistent with levels required to meet the goals of the Paris Agreement, an agreement signed among over 170 countries, which became effective in November 2016 and to which the United States formally rejoined in February 2021. We intend to continue to evaluate and implement projects as we pursue this Vision 2030 GHG goal. This includes ongoing energy efficiency efforts and capital projects to phase out our most carbon intensive fuel sources (Scope 1) as well as developing GHG reduction strategies for our energy sourcing (Scope 2) and broader supply chain footprint (Scope 3).
We use carbon-neutral biomass and manufacturing residuals (rather than fossil fuels) to generate a majority of the manufacturing energy at our mills. We believe our efforts to advance sustainable forest management and restore forest landscapes are an important lever for mitigating climate change through carbon storage in forests.
INTERNATIONAL EFFORTS
The Paris Agreement went into effect in November 2016 and compels international efforts and voluntary commitments toward reducing the emissions of GHGs. Consistent with this objective, participating countries aim to balance GHG emissions generation and sequestration in the second half of this century or, in effect, achieve net-zero global GHG emissions.
To assist member countries in meeting GHG reduction obligations, the EU operates an Emissions Trading System ("EU ETS"). Our operations in the EU experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to
the Company, but they could be material to the Company in the future depending on how the Paris Agreement's non-binding commitments or allocation of and market prices for GHG credits under existing rules evolve over the coming years.
U.S. EFFORTS, INCLUDING STATE, REGIONAL AND LOCAL MEASURES
Responses to climate change may result in regulatory risks as new laws and regulations aimed at reducing GHG emissions come into effect. The EPA manages regulations to: (i) control GHGs from mobile sources by adopting transportation fuel efficiency standards; (ii) control GHG emissions from new Electric Generating Units ("EGUs"); (iii) control emissions from new oil and gas processing operations and (iv) require reporting of GHGs from sources of GHGs greater than 25,000 tons per year.
Several U.S. states, including states in which we operate facilities, have enacted or are considering legal measures to require the reduction of emissions of GHGs by companies and public utilities. California, New York and Virginia have already enacted such programs, although these regulations have not had, and are not expected to have a material impact on the Company. We monitor proposed programs in other states as well; however, it is unclear what impacts, if any, future state-level GHG rules will have on the Company’s operations.
SUMMARY
Regulation related to GHGs and climate change continues to evolve in the areas of the world in which we do business. However, while it is likely that there will be increased governmental action regarding GHGs and climate change in the future, it is unclear what actions will be taken and when such actions will occur and at this time it is not reasonably possible to estimate the Company’s costs of compliance with rules that have not yet been adopted or implemented and may not be adopted or implemented in the future. In addition to possible direct impacts, future legislation and regulation could have indirect impacts on the Company, such as higher prices for transportation, energy and other inputs, as well as more protracted air permitting processes, causing delays and higher costs to implement capital projects. The Company has controls and procedures in place to track GHG emissions from our facilities, as well as to stay informed about developments concerning possible climate-related laws, regulations, accords, and policies in the U.S. and in other jurisdictions where we operate. We regularly assess whether such developments may have a material effect on the Company, its operations or financial condition, and whether we have any related disclosure obligations.
Moreover, compliance with legal requirements related to GHGs and/or climate change which are currently in effect or may be enacted in the future may require future expenditures to meet GHG emission reduction obligations. These obligations may include carbon taxes, the requirement to purchase GHG credits or the need to acquire carbon offsets. We may also incur significant expenditures in relation to our efforts to meet our internal targets or goals with respect to GHGs and climate change, including our Vision 2030 goal on GHGs as set forth above. Furthermore, in connection with complying with legal requirements and/or our efforts to meet our internal targets and goals, we have made and expect to continue to make capital and other investments to displace traditional fossil fuels, such as fuel oil and coal, with lower carbon alternatives, such as biomass and natural gas. Currently, these efforts and obligations have not materially impacted the Company but such efforts and obligations may have a material impact on the Company in the future.
We believe global citizenship is a key element of corporate governance promoted by our Board of Directors and senior management. The Public Policy and Environment Committee of the Board has overall responsibility for global citizenship at the Company. This Committee reviews and assesses environmental sustainability (including climate change), public policy, legal, health and safety and technology issues. The Company’s Governance Committee also has oversight of certain public policy and sustainability matters.
For additional information regarding risks associated with climate change, see Item 1A. Risk Factors – WE ARE SUBJECT TO PHYSICAL, OPERATIONAL, TRANSITIONAL AND FINANCIAL RISKS ASSOCIATED WITH CLIMATE CHANGE AND GLOBAL, REGIONAL AND LOCAL WEATHER CONDITIONS AS WELL AS BY LEGAL, REGULATORY AND MARKET RESPONSES TO CLIMATE CHANGE.
Additional information regarding climate change and the Company is available in our 2020 Global Citizenship Report, and will be available in our upcoming 2021 Global Citizenship Report to be filed later in 2022, both of which can or will be found on our website at www.internationalpaper.com. The information contained in such reports is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC. Any targets or goals with respect to ESG matters discussed herein or in our global citizenship reports as noted above are forward-looking statements and may be aspirational. These targets or goals are not guarantees of future results, and involve assumptions
and known and unknown risks and uncertainties, some of which are beyond our control.
Mark S. Sutton, 56, 60, chairman (since January 1, 2015) & chief executive officer (since November 1, 2014). Mr. Sutton previously served as president & chief operating officer from June 1, 2014 to October 31, 2014, senior vice president - industrial packaging from November 2011 to May 31, 2014, senior vice president - printing and communications papers of the Americas
from 2010 until 2011, senior vice president - supply chain from 2008 to 2009, vice president - supply chain from 2007 until 2008, and vice president - strategic planning from 2005 until 2007. Mr. Sutton joined International Paper in 1984. Mr. Sutton serves on the board of directors of The Kroger Company. He is a member of The Business Council and the Business Roundtable and serves on the American Forest & Paper Association board of directors and the international advisory board of the Moscow School of Management - Skolkovo. He was appointed chairman of the U.S. Russian Business Council and was also appointed to the U.S. Section of the U.S.-Brazil CEO Forum. He also serves on the board of directors offor Memphis Tomorrow and board of governors for New Memphis Institute. Mr. Sutton has been a director since June 1, 2014.
W. Michael Amick, Jr., 54,Clay R. Ellis, 51, senior vice president - paper the Americas & Indiaenterprise operational excellence since January 1, 2017.December 2019. Mr. AmickEllis previously served as vice president - manufacturing, global cellulose fibers from 2016 to December 2019, vice president of pulp from 2014 to 2016, and vice president manufacturing, North American papers from 2012 to 2014. Mr. Ellis joined International Paper in 1992.
W. Thomas Hamic, 56, senior vice president - global cellulose fibers and enterprise commercial excellence since September 2020. Mr. Hamic previously served as senior vice president - North American papers & consumer packagingcontainerboard and enterprise commercial excellence from July 2016December 2019 until December 2016, senior vice president - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president - president, IP India, from August 2012 to October 2014, andSeptember 2020. Mr. Hamic has also previously served as vice president and general manager for- containerboard & recycling, North American containerfrom June 2015 until December 2019. Mr. Hamic became vice president and general manager of the coated paperboard business from 2010south area in container of the Americas in 2009, and he was appointed to 2012.the role of vice president, industrial packaging group’s finance & strategy in 2010. Mr. AmickHamic joined International Paper in 1990.1991.
C. Cato Ealy, 61, senior vice president - corporate development since 2003. Mr. Ealy is a director of Ilim Holding S.A., a Swiss holding company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Ealy joined International Paper in 1992.
TommyTimothy S. Joseph, 58, senior vice president - manufacturing, technology, EH&S and global sourcing since January 2010. Mr. Joseph previously served as senior vice president - manufacturing, technology, EH&S from February 2009 until December 2009, and vice president - technology from 2005 until February 2009. Mr. Joseph is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Joseph joined International Paper in 1983.
Glenn R. Landau, 49,Nicholls, 60, senior vice president & chief financial officer since February 22, 2017. Mr. Landau previously served as senior vice president - finance from January 1, 2017 to February 22, 2017, senior vice president - president, IP Latin America from November 2014 through December 2016, vice president - president IP Latin America from 2013 to October 2014, vice president - investor relations from 2011 to 2013, and vice president and general manager, containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory
Mutual Insurance Company (FM Global). Mr. Landau joined International Paper in 1991.
Timothy S. Nicholls, 56, senior vice president - industrial packaging the Americas since January 1, 2017.June 2018. Mr. Nicholls previously served as senior vice president - industrial packaging the Americas from January 2017 through June 2018, senior vice president - industrial packaging from November 2014 through
December 2016, senior vice president - printing and communications papers of the Americas from November 2011 through October 2014, senior vice president and chief financial officer from 2007 until 2011, vice president and executive project leader of IP Europe during 2007, and vice president and chief financial officer - IP Europe from 2005 until 2007. Mr. Nicholls joined International Paper in 1991.1999.
Thomas J. Plath, 54, 58, senior vice president - human resources and global citizenship since March 1, 2017. Mr. Plath previously served as vice president - human resources, global businesses from November 2014 through February 2017, and vice president - HR manufacturing, technology, EH&S and global supply chain from April 2013 to November 2014. Mr. Plath joined International Paper in 1991.
Jean-Michel Ribieras, 55,James P. Royalty, Jr., 52, senior vice president - global cellulose fibers since July 2016. Mr. Ribieras previously served as senior viceand president, - president, IP Europe, the Middle East, Africa &and Russia since December 2019. Most recently, Mr. Royalty served as vice president, corporate development and disruptive technologies from September 2018 until December 2019, vice president, strategic projects from 2017 until 2018, vice president, investor relations from 2013 until June 2016,2017, vice president and president - IP Latin America from 2009 untilgeneral manager, container the Americas in 2008 to 2013. Mr. RibierasRoyalty joined International Paper in 1993.1991.
Sharon R. Ryan, 58, 62, senior vice president, general counsel & corporate secretary since November 2011. Ms. Ryan previously served as vice president, acting general counsel & corporate secretary from May 2011 until November 2011, vice president from March 2011 until May 2011, associate general counsel, chief ethics and compliance officer from 2009 until 2011, and associate general counsel from 2006 until 2009. Ms. Ryan joined International Paper in 1988.
John V. Sims, 55, senior vice president - president, IP Europe, Middle East, Africa & Russia since July 2016. Mr. Sims previously served as vice president and general manager, European papers from March 2016 until June 2016, vice president & general manager, North American papers from 2013 until February 2016, and vice president, finance and strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a director of Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. Sims joined International Paper in 1994.
Catherine I. Slater, 54, senior vice president since January 2018. Ms. Slater previously served as senior vice president - consumer packaging from December
2016 to December 2017. Ms. Slater joined International Paper from Weyerhaeuser Company in December 2016, effective with the completion of the acquisition of Weyerhaeuser’s cellulose fibers business, which she previously led. Ms. Slater’s 24-year career with Weyerhaeuser included leadership roles in manufacturing, printing papers, consumer products, wood products and the cellulose fibers business.
Gregory T. Wanta, 52, 56, senior vice president - North American container since NovemberDecember 2016. Mr. Wanta has served in a variety of roles of increasing responsibility in manufacturing and commercial leadership roles in specialty papers, coated paperboard, printing papers, foodservice and industrial packaging, including vice president, central region, Container the Americas, from January 2012 through October 2016. Mr. Wanta joined International Paper in 1991.
Raw materials essential to our businesses include wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain chemicals, including caustic soda, starch and starch. Information
adhesives. For further information concerning fiber supply purchase agreements, that were entered into in connection with the Company’s 2006 Transformation Plan, the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business, and the 2016 acquisition of Weyerhaeuser's pulp business is presented in onsee page 30.34.
Certain statements in this Annual Report on Form 10-K (including the exhibits hereto) that are not historical in nature may be considered “forward-looking” statements“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,”Words such as “expects”, “anticipates”, “believes”, “estimates” and words of a similar nature.expressions identify forward-looking statements. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, whichand are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) developments related to the COVID-19 pandemic, including the severity, magnitude and duration of the pandemic, the spread of new variants of the virus (including potential variants that may be more resistant to currently available vaccines and treatment), the effectiveness, acceptance and availability of vaccines, booster shots and medications, and associated levels of vaccination impacts of actions that may be taken by governmental authorities and private businesses in response to the pandemic, including vaccine mandates, impacts of the pandemic on global and domestic economic conditions, including with respect to commercial activity, our customers and business partners, consumer preferences and demand, supply chain shortages and disruptions, inflationary pressures and disruptions in the credit, capital or financial markets; (ii) risks with respect to climate change and global, regional, and local weather conditions, as well as risks related to our ability to meet targets and goals with respect to climate change and the emission of GHGs and other environmental, social and governance matters, (iii) the level of our indebtedness and changes in interest rates; (ii)(iv) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy sources and transportation costs,sources, the availability of labor and competitive labor market conditions, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii)products (including any such changes resulting from the COVID-19 pandemic); (v) domestic and global economic conditions and political changes, including but not limited to the
impairment of financial institutions, changes in currency exchange rates, trade protectionist policies, downgrades in our credit ratings, and/or the credit ratings of banks issuing certain letters of credit, issued by recognized credit rating organizations,organizations; (vi) the amount of our future pension funding obligation, changes in tax lawsobligations, and pension and health carehealthcare costs; (iv)(vii) unanticipated expenditures or
other adverse developments related to the cost of compliance with existing and new environmental, tax, labor and employment, privacy, anti-bribery and anti-corruption, and other U.S. and non-U.S. governmental laws and regulations and to actual or potential litigation; (v) whether we experience a(including new legal requirements arising from the COVID-19 pandemic); (viii) any material disruption at oneany of our manufacturing facilities; (vi)facilities or other adverse impact on our operations due to severe weather, natural disasters, climate change or other causes; (ix) risks inherent in conducting business through a joint venture; and (vii)ventures; (x) our ability to achieve the benefits we expectexpected from, alland other risks associated with, acquisitions, joint ventures, divestitures, spin-offs and restructurings.other corporate transactions, (xi) cybersecurity and information technology risks; (xii) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (xiii) our exposure to claims from Sylvamo Corporation under our agreements with Sylvamo Corporation; (xiv) our failure to realize the anticipated benefits of the spin-off of Sylvamo Corporation and the qualification of such spin-off as a tax-free transaction for U.S. federal income tax purposes; and (xv) our ability to attract and retain qualified personnel. These and other factors that could cause or contribute to actual results differing materially from such forward lookingforward-looking statements are discussedcan be found in greater detail below in “Item 1A. Risk Factors.” We undertakeour press releases and SEC filings. In addition, other risks and uncertainties not presently known to the Company or that we currently believe to be immaterial could affect the accuracy of any forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
The Company faces risks in the normal course of business and through global, regional, and local events that could have an adverse impact on its reputation, operations, and financial performance. The Board of Directors exercises oversight of the Company’s enterprise risk management program, which includes strategic, operational and financial matters, as well as compliance and legal risks. The Audit and Finance Committee coordinates the risk oversight role exercised by the Board’s standing committees and management, and it receives updates on the risk management processes twice per year.
Company’s actual results to differ materially from those projected in any forward-looking statement. If any of the events or circumstances described in any of the following risk factors occurs, our business, results of operations and/or financial condition could be materially and adversely affected, and our actual results may differ materially from those contemplated in any forward-looking statements we make in any public disclosures.
RISKS RELATED TO THE COVID-19 PANDEMIC
THE COVID-19 PANDEMIC HAS HAD AN ADVERSE EFFECT ON PORTIONS OF OUR BUSINESS, AND MAY HAVE MATERIAL ADVERSE EFFECTS ON OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS, PARTICULARLY IF PUBLIC HEALTH AND/OR GLOBAL ECONOMIC CONDITIONS ASSOCIATED WITH COVID-19 PERSIST OR DETERIORATE. During 2021, there continued to be a large number of COVID-19 cases and deaths in the United States and throughout the world, and restrictive measures, including mask and vaccine requirements, were implemented or reinstituted by various governmental authorities and private businesses. Economic recovery in the United States and various other regions of the world has continued but may be threatened by the continued adverse public health impacts of COVID-19 and other factors.
Most of our manufacturing and converting facilities have remained open and operational during the pandemic, and at the current time our manufacturing and converting facilities are generally operational. While we have been able to manage through the worst of the pandemic to date, there remain many unknowns about the future phases of the pandemic. Any significant disruption in operations at one or more of our mills, plants or other facilities as a result of the COVID-19 pandemic could have an adverse effect on our business or operations.
Our operations have recently experienced and may continue to experience, supply chain constraints and disruptions, higher supply chain costs and a constrained transportation environment due in part to the impacts of COVID-19. Moreover, due to the competitive labor market, we have experienced and may continue to experience, a shortage of labor for certain positions and increased labor costs.
In addition to these higher costs, other potential negative impacts on our business, include, but are not limited to, the following:
•We rely on a global workforce, and we take measures to protect the health and safety of our employees, customers and others with whom we do business, while continuing to effectively manage our employees and maintain business operations. During the pandemic, we have taken additional measures and incurred additional expenses to protect the health and safety of our employees to comply with applicable government requirements and safety guidance. Our business operations may be disrupted if a significant portion of our workforce is unable to work safely and effectively due to illness, quarantines, vaccine or test mandates, government actions, or other restrictions or measures enacted in response to the pandemic.
•A significant number of our employees as well as customers and others with whom we do business, continue to work remotely in response to the COVID-19 pandemic. Our business operations may be disrupted if a significant portion of our workforce or certain business operations are negatively impacted as a result of remote work arrangements, including due to increased cyber risks or other disruption to our technology infrastructure.
While we are closely monitoring the impact of the pandemic on all aspects of our business, the extent of the impact on our results of operations, cash flow, liquidity, and financial performance, as well as our ability to execute near-term and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and which we cannot predict or control, and some of which we are not currently aware, including, but not limited to: (a) the duration, severity and scope of the pandemic, including the potential for additional variants (including potential variants that may be more resistant to currently available vaccines), waves, increases and spikes in the number of COVID-19 cases in various areas from time to time; (b) governmental and public health directives and/or actions taken by our customers, vendors and other private businesses generally, including vaccine, testing and mask requirements, to contain and combat the outbreak, including the duration, degree and effectiveness of such requirements, as well as the easing, removal and potential reinstitution of such requirements; (c) the availability, acceptance, effectiveness and administration of medical treatments, vaccines and booster shots for COVID-19; (d) the extent and duration of the pandemic’s impact on economic conditions and social activity, including with respect to
inflationary pressures, supply chain shortages and disruptions, consumer confidence, discretionary spending and preferences, labor market conditions, labor and healthcare costs, and unemployment rates, any of which may adversely impact our business; and (e) any temporary reduction in our workforce, closures of our offices and facilities and our ability to adequately staff and maintain our operations.
The pandemic has had, and we expect the pandemic to continue to have, an adverse effect on portions of our business. Moreover, the pandemic could have a material adverse effect on our business, results of operations, cash flow, liquidity, or financial condition if public health and/or global economic conditions persist or deteriorate.
RISKS RELATED TO CLIMATE AND WEATHER
WE ARE SUBJECT TO PHYSICAL, OPERATIONAL, TRANSITIONAL AND FINANCIAL RISKS ASSOCIATED WITH CLIMATE CHANGE AND GLOBAL, REGIONAL AND LOCAL WEATHER CONDITIONS AS WELL AS BY LEGAL, REGULATORY, AND MARKET RESPONSES TO CLIMATE CHANGE. Climate change impacts, including rising temperatures and the increasing severity and/or frequency of adverse weather conditions, may result in operational impacts on our facilities, supply chain disruptions and increased raw material and other costs. These adverse weather conditions and other physical impacts which may be exacerbated as the result of climate change include floods, hurricanes, tornadoes, earthquakes, hailstorms, wildfires, snow, ice storms, drought, the spread of disease and insect infestations. Climate change may also contribute to the decreased productivity of forests and adverse impacts on the distribution and abundance of species, the spread of disease and insect epidemics, any of which developments could adversely affect timber harvesting. The effects of climate change and global, regional and local weather conditions, including the resulting financial costs, could have a material adverse effect on our results of operations and business.
There has been an increased focus, including from investors, the general public and U.S. and foreign governmental and nongovernmental authorities, regarding environmental, social and governance (ESG) matters, including with respect to climate change, GHG emissions, packaging and waste, sustainable supply chain practices, deforestation, and land, energy and water use. This increased awareness with respect to ESG matters, including climate change, may result in more prescriptive reporting requirements with respect to ESG metrics, an expectation that such metrics will be voluntarily disclosed by companies such as ours, and increased
pressure to make commitments, set targets, or establish goals, and take action to meet them. As the result of this increased focus and our commitment to ESG matters, we have voluntarily provided disclosure and established targets and goals with respect to various ESG matters, including climate change. For example, we have made public commitments regarding our intended reduction of carbon emissions, including our Vision 2030 Goal of reducing Scope 1, 2 and 3 GHG emissions by 35% and establishing science-based targets to reduce those emissions. Meeting these and other ESG targets and goals, have increased and may continue to increase our capital and operational costs. Further, there can be no assurance regarding the extent to which our climate and other ESG targets will be achieved, and the achievement of these targets is subject to various risks and uncertainties, some of which are outside our control. Moreover, there is no assurance that investments made in furtherance of achieving such targets and goals will meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. If we are unable to meet these climate and other ESG targets and goals, this failure could adversely impact our reputation as well as investor, customer and other stakeholder relationships, which could adversely impact our business and results of operations. Moreover, not all of our competitors may seek to establish climate or other ESG targets and goals at a comparable level to ours, which could result in lower supply chain or operating costs for competitors.
Other climate-related business risks that we face include risks related to the transition to a lower-carbon economy, such as increased prices for fuels; the introduction of a carbon tax; increased regulations; and more stringent and/or complex environmental and other permitting requirements. To the extent that climate-related business risks materialize, particularly if we are unprepared for them, we may incur unexpected costs, and our business may be materially and adversely affected.
RISKS RELATING TO INDUSTRY CONDITIONS
CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR PROFITABILITY.We rely heavily on the use of certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda, starch and starch)adhesives), energy sources (principally biomass, natural gas, coalelectricity and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies based upon availability and source. The global supply and demand for recycled fiber may be affected by factors such as trade policies between countries, individual governments' legislation and
regulations, and changes in the global economy. In addition, the increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may cause an occasional tighteningsignificant fluctuations in the supply of recycled fiber.fiber prices. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may continue to fluctuate in the future. The availability of labor and the market price for fuel may affect our costs for third-party transportation. We have recently experienced, and may continue to experience, a significant increase in various costs, including recycled fiber, energy, freight and other supply chain costs. In addition, because our businesses operate in highly competitive industry segments, we may not be able to recoup past or future increases in the costs of any raw materials, energy sources or transportation sources through price increases to our customers. Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials, energy sources and transportation sources.
THE INDUSTRIES IN WHICH WE OPERATE EXPERIENCE BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES.
FLUCTUATIONS IN THE PRICES OF AND THE DEMAND FOR OUR PRODUCTS DUE TO FACTORS SUCH AS ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES COULD MATERIALLY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
CASH FLOWS.FLOWS. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions. The length and magnitude of these cycles have varied over time and by product. In addition, changes in consumer preferences may increase or decrease the demand for our products.fiber-based products and non-fiber substitutes. Moreover, consumer preferences are constantly changing based on, among other factors, cost, convenience and health, environmental and social concerns and perceptions. These consumer preferences may affect the prices of our products. Consequently, our financial results are sensitive to changes in the pricing and demand for our products. In addition, our results may be adversely affected if we fail to anticipate trends that would enable us to offer products that respond to changing customer preferences and technological and regulatory developments.
COMPETITION IN THE UNITED STATES AND INTERNATIONALLY COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate in a competitive environment, both in the United States and internationally, in all of our operating segments. Our products compete with similar products produced by other forest products companies. Product innovations, manufacturing and operating efficiencies, andadditional manufacturing capacity, marketing, distribution and pricing strategies pursued or
achieved by competitors, and the entry of new competitors in to the markets we serve could negatively impact our financial results. In addition, our products also compete, in some instances, with companies in other industries that produce substitutes for wood-fiber products, such as plastics and various types of metal, and customer shifts away from wood-fiber products toward such substitute products may adversely affect our business.
RISKS RELATING TO MARKET AND ECONOMIC FACTORS,
ADVERSE DEVELOPMENTS IN GENERAL BUSINESS AND ECONOMIC CONDITIONS COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.General economic conditions may adversely affect industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels and consumer confidence, all of which impact demand for our products. In addition, volatilityproducts, or otherwise adversely affect our business. We may also be adversely affected by catastrophic or other unforeseen events, including future health epidemics or pandemics, natural disasters, geopolitical events, terrorism, political, financial or social instability, or civil or social unrest. Moreover, negative economic conditions or other adverse developments with respect to our business have resulted in, and may in the future result in impairment charges which could be material. Volatility or uncertainty in the financial, capital and credit markets, which impacts interest rates, currency exchange rates and the availability of credit, could also have a material adverse effect on our business, financial condition and our results of operations.
CHANGES IN INTERNATIONAL CONDITIONS OR OTHER RISKS ARISING FROM CONDUCTING BUSINESS INTERNATIONALLY COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected by risks related to the countries outside the United States in which we have manufacturing facilities or sell our products. These risks, which can vary substantially by country, may include economic or political instability, geopolitical events (such as increasing tensions between Ukraine and Russia), corruption, anti-American sentiment, social and ethnic unrest, the regulatory environment (including the risks of operating in developing or emerging markets in which there are significant uncertainties regarding the interpretation and enforceability of legal requirements), fluctuations in the value of local currency versus the U.S. dollar, repatriating cash from foreign countries to the United States, downturns or changes in economic activity (including in relation to commodity inflation), adverse tax consequences or
rulings, nationalization or any change in social, political or labor conditions in any of these countries or regions impacting matters such as sustainability, environmental regulations and trade policies and agreements, could negatively affect our financial results. Trade protection measures in favor of local producers of competing products, including governmental subsidies, tax benefits and other measures giving local producers a competitive advantage over International Paper, may also adversely impact our operating results and business prospects in these countries. Likewise, disruption in existing trade agreements or increased trade friction between countries (such as in relation to the trade tensions between the United States and China), which can result in tariffs, could have a negative effect on our business and results of operations by restricting the free flow of goods and services across borders.
In addition, our international operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad, and the U.S. Department of Treasury’s Office of Foreign Asset Control and other non-U.S. government entities maintain economic sanctions targeting various countries, persons and entities. Failure to comply with domestic or foreign laws could result in various adverse consequences, including the imposition of civil or criminal sanctions and the prosecution of executives overseeing our international operations.
THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, 2017,2021, International Paper had approximately $11.2$5.6 billion of outstanding indebtedness. The level of our indebtedness could have important consequences to our financial condition, operating results and business, including the following:
•it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, dividends, share repurchases, debt service requirements, acquisitions and general corporate or other purposes;
•a portion of our cash flows from operations will be dedicated to payments on indebtedness and will not be available for other purposes, including
operations, capital
operations, capital expenditures and future business opportunities;
•the debt service requirements of our indebtedness could make it more difficult for us to satisfy other obligations;
our indebtedness that is subject to variable rates of interest exposes us to increased debt service obligations in the event of increased interest rates;
•it may limit our ability to adjust to changing market conditions, including to react to rising interest rates, and place us at a competitive disadvantage compared to our competitors that have less debt; and
•it may increase our vulnerability to a downturn in general economic conditions or in our business, and may make us unable to carry out capital spending that is important to our growth.
In addition, we are subject to agreements governing our indebtedness that require meetingus to meet and maintainingmaintain certain financial ratios and covenants. A significant or prolonged downturn in general business and economic conditions, or other significant adverse developments with respect to our results of operations or financial condition, may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives. Moreover, the restrictions associated with these financial ratios and covenants may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. Additionally, despite these restrictions, we may be able to incur substantial additional indebtedness in the future, which might subject us to additional restrictive covenants that could affect our financial and operational flexibility and otherwise increase the risks associated with our indebtedness as noted above.
Moreover, certain of our variable rate debt uses the London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the interest rate. In March 2021, the U.K. Financial Conduct Authority announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 for sterling, euro, Swiss franc and Japanese yen settings, as well as the one-week and two-month U.S. dollar settings, and immediately after June 30, 2023 for the remaining U.S. dollar settings. In instances where we have not yet incorporated LIBOR-replacement provisions into our variable rate debt provisions that use LIBOR as an interest rate benchmark, we will need to do so before June 30, 2023. The discontinuation and replacement of LIBOR
or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets. Additionally, uncertainty as to the nature of such potential discontinuation and replacement, including that any benchmark may not be the economic equivalent of LIBOR or not achieve market acceptance similar to LIBOR, may negatively impact the cost of our variable rate debt.
CHANGES IN CREDIT RATINGS ISSUED BY NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULDADVERSELY AFFECT OUR COST OF FINANCING AND HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR SECURITIES. Maintaining an investment-grade credit rating is an important element of our financial strategy, and a downgrade of the Company’s ratings below investment grade will likely eliminate our ability to access the commercial paper market, may limit our access to the capital markets, have an adverse effect on the market price of our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability position. The Company’s desire to maintain its investment grade rating may cause the Company to take certain actions designed to improve its cash flow, including sale of assets, suspension or reduction of our dividend and reductions in capital expenditures and working capital.
Under the terms of the agreements governing approximately $1.4$1.0 billion of our debt as of December 31, 2017,2021, the applicable interest rate on such debt may increase upon each downgrade in our credit rating below investment grade. As a result, a downgrade in our credit rating below investment grade may lead to an increase in our interest expense. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment,
circumstances so warrant. Any such downgrade, suspension or withdrawal of our credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur.
DOWNGRADES IN THE CREDIT RATINGS OF BANKS ISSUING CERTAIN LETTERS OF CREDIT WILL INCREASE OUR COST OF MAINTAINING CERTAIN INDEBTEDNESS AND MAY RESULT IN THE ACCELERATION OF DEFERRED TAXES.We are subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes, including those delivered to Temple-Inland in connection with Temple-Inland's
2007 sales of forestlands, may be downgraded below a required rating. Since 2007, certain banks have fallen below the required ratings threshold and were successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing uncertainty in the banking environment, a number of the letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified replacement banks remains limited. The downgrade of one or more of these banks may subject the Company to additional costs of securing a replacement letter-of-credit bank or could result in an acceleration of payments of up to $538$487 million in deferred income taxes if replacement banks cannot be obtained. The deferred taxes are currently recorded in the Company's consolidated financial statements. See Note 12,15, Variable Interest Entities, on pages 6374 through 64,75, and Note 10,13. Income Taxes, on pages 5768 through 60,70, in Item 8. Financial Statements and Supplementary Data for further information.
OUR PENSION AND HEALTH CARE COSTS ARE SUBJECT TO NUMEROUS FACTORS WHICH COULD CAUSE THESE COSTS TO CHANGE. We have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to July 1, 2004 (or later for certain acquired populations, as described in Note 19. Retirement Plans, on pages 80 through 86, in Item 8. Financial Statements and Supplementary Data) and substantially all hourly union and unionnon-union employees regardless of hire date. The Company froze participation under these plans for U.S. salaried employees, including credited service and compensation on or after January 1, 2019; however, the pension freeze does not affect benefits accrued through December 31, 2018. We provide retiree health care benefits to certain former U.S. hourly employees, as well as financial assistance towards the cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns on plan assets, changes in general interest rates and changes in the number of retirees may result in increasedimpact pension costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected rates of return on plan assets could increase pension costs. However, the impact of market fluctuations has been reduced as a result of investments in our pension plan asset portfolio which partially hedge the impact of changes In interest rates on the plan’s funded status. Drivers for fluctuating health costs include unit cost changes, health care utilization by participants, and potential changes in legal requirements and government oversight.
OUR U.S. FUNDED PENSION PLANS ARE CURRENTLY UNDERFUNDED, ANDFULLY FUNDED ON A PROJECTED BENEFIT OBLIGATION BASIS; HOWEVER, THE POSSIBILITY EXISTS THAT OVER TIME WE MAY BE
REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record an asset or a liability associated with our pension plans equal to the surplus of the fair value of plan assets above the benefit obligation or the excess of the benefit obligation over the fair value of plan assets. At December 31, 2021, we had an overfunded pension asset balance. The benefit liabilitysurplus recorded under the provisions of Accounting Standards Codification (ASC)("ASC") 715, “Compensation – Retirement Benefits,” at December 31, 20172021 was $2.0 billion.$242 million. The amount and timing of future contributions, which could be material, will depend upon a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.
CHANGES IN INTERNATIONAL CONDITIONS
RISKS RELATING TO OUR OPERATIONS
MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD ADVERSELY AFFECTNEGATIVELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating resultsFINANCIAL RESULTS.We operate our facilities in compliance with applicable rules and business prospectsregulations and take measures to minimize the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our manufacturing facilities could be substantially affected by risks related to the countries outside the United States in which we haveprevent us from meeting customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing facilities, or sellany of our products. Specifically, Russia, Brazil, Poland, India,machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
•fires, floods, earthquakes, hurricanes or other catastrophes (including adverse weather conditions which may be intensified by climate change);
•the effect of a drought or reduced rainfall on its water supply;
•the effect of other severe weather conditions on equipment and Turkey, where we have substantialfacilities;
•disruption in the supply of raw materials or other manufacturing facilities, are countries that are exposedinputs;
•terrorism or threats of terrorism;
•information system disruptions or failures due to economicany number of causes, including cyber-attacks;
•domestic and political instabilityinternational laws and regulations applicable to our Company and our business partners, including joint venture partners, around the world;
•unscheduled maintenance outages;
•prolonged power failures;
•an equipment failure;
•a chemical spill or release;
•explosion of a boiler or other equipment;
•damage or disruptions caused by third parties operating on or adjacent to one of our manufacturing facilities;
•disruptions in their respective regionsthe transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
•a widespread outbreak of an illness or any other communicable disease, such as the outbreak of the world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalizationCOVID-19 virus, or any changeother public health crisis;
•failure of our third party service providers and business partners to satisfactorily fulfill their commitments and responsibilities in social, politicala timely manner and in accordance with agreed upon terms;
•labor difficulties; and
•other operational problems.
Any such downtime or labor conditions in anyfacility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned expenditures. If one of these countriesmachines or regionsfacilities were to incur significant downtime, our ability to meet our production targets and satisfy customer requirements could negatively affect our financial results. Trade protection measuresbe impaired, resulting in favor of local producers of competing products, including governmental subsidies, tax benefitslower sales and other measures giving local producers a competitive advantage over International Paper, may also adversely impact our operating results and business prospects in these countries. Likewise, disruption in existing trade agreements (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) could havehaving a negative effect on our business and financial results.
CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. We have a 50% equity interest in Ilim S.A., whose primary operations are in Russia. In joint ventures, such as the Ilim joint venture, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information and
making decisions. In joint ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co-owners, so we receive only our portion of those benefits.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM STRATEGIC ACQUISITIONS, JOINT VENTURES, DIVESTITURES, SPIN-OFFS, CAPITAL INVESTMENTS AND OTHER CORPORATE TRANSACTIONS THAT WE HAVE PURSUED OR MAY PURSUE. Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to accomplish prudent acquisitions, joint ventures, divestitures, spin-offs, capital investments and other corporate transactions that we may pursue and to realize the benefits we expect from such transactions. We are subject to the risk that we may not achieve the expected benefits from such transactions. This failure could require us to record an impairment charge for goodwill or other intangible assets, which could lead to decreased assets and reduced net earnings. Among the benefits we expect from potential as well as completed acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher strategic value on such businesses and assets than we do.
Corporate transactions of this nature which we may pursue involve a number of special risks, including with respect to our inability to realize our business goals with respect to such transactions as noted above, the focus of our management’s attention on these transactions and the assimilation of acquired businesses into our operations, the demands on our financial, operational and information technology systems resulting from acquired businesses, and the possibility that we may become responsible for substantial contingent or unanticipated legal liabilities as the result of acquisitions or other corporate transactions.
We believe that the spin-off of Sylvamo Corporation allows us and Sylvamo Corporation to pursue distinct strategies appropriate to our respective markets. However, there can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits of the spin-off. A failure to realize expected benefits of the spin-off could result in a material adverse effect on our business, results of operations by restrictingand financial condition.
We cannot guarantee that Sylvamo Corporation will be successful as a standalone entity. In the free flowevent that Sylvamo Corporation is not successful, it is possible that plaintiffs could assert a variety of goodsclaims against us. Depending on their nature and services across borders.number, such claims could have a material adverse effect on our business, financial condition or results of operations. In addition, we account for certain investments, including our internationalinvestment in Sylvamo Corporation, on a mark-to-market basis and, as a result, changes in the fair value of these investments could significantly impact our reported results.
WE COULD BE EXPOSED TO CLAIMS FROM SYLVAMO CORPORATION UNDER OUR AGREEMENTS WITH SYLVAMO CORPORATION OR OTHERWISE. We have entered into agreements with Sylvamo Corporation and its subsidiaries, including among others a separation and distribution agreement, registration rights agreement, transition services agreement, tax matters agreement, supply and offtake agreements, intellectual property agreements and other commercial arrangements. Our agreements with Sylvamo Corporation or its subsidiaries may not reflect terms that would have resulted from negotiations between unaffiliated parties and, in certain instances, may relate to the continuation of certain business arrangements among us and Sylvamo Corporation in existence prior to the spin-off. Such agreements include, among other things, the parties’ respective indemnification rights and obligations with respect to certain losses relating to specified liabilities as well as certain losses relating to specified information included in certain securities filings, the allocations of assets and liabilities, payment obligations and other obligations between us and Sylvamo Corporation. There can be no assurance that any remedies available under these arrangements will be sufficient to compensate us in the event of a dispute or non-performance. In addition, there can be no assurance that the attention we must pay, and resources we must devote, to our obligations under one or more of these agreements, or the results of any failure to perform those obligations, or successful claim by Sylvamo Corporation that we have failed to perform those obligations or have an indemnification obligation under these agreements, will not have a material impact on our own business performance, results of operations or financial condition.
We will rely on Sylvamo Corporation to satisfy its performance and payment obligations under these agreements entered into in connection with the spin-off. If Sylvamo Corporation fails to satisfy such obligations it could have a material adverse effect on our financial condition and results of operations.
In addition, under the tax matters agreement, we could have significant payment obligations in connection with certain Brazilian tax matters. Under this agreement, we have agreed to pay 60% of the first $300 million of any liability resulting from the resolution of these Brazilian tax matters (with Sylvamo paying the remaining 40% of any such liability) and 100% of any liability resulting from the Brazilian tax matters over $300 million. The assessments for the tax years 2007 - 2015 currently total approximately $106 million in tax and $351 million in interest, penalties and fees as of December 31, 2021 (adjusted for variation in currency exchange rates). See Note 14 Commitments and Contingent Liabilities on pages 70 through 74 of Item 8. Financial Statements and Supplementary Data for further information.
WE OPERATE IN A CHALLENGING MARKET FOR TALENT AND MAY FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, INCLUDING KEY MANAGEMENT PERSONNEL. Our ability to operate and grow our business depends on our ability to attract and retain employees with the skills necessary to operate and maintain our facilities, produce our products and serve our customers. The market for both hourly workers and professional workers has been, and remains, very competitive, particularly for employees with specialized technical and trade experience. For example, due to labor market constraints, we have recently had to increase overtime while we try to hire additional permanent employees. This, along with the current competitive labor market, has led to higher labor costs, particularly at our converting facilities. Moreover, despite our focused efforts to attract and retain employees, including by offering higher levels of compensation in certain instances, we experienced attrition rates within our workforce in 2021 that exceeded historical levels. In addition, we rely on key executive and management personnel to manage our business efficiently and effectively. The loss of key executive and management employees, particularly in a challenging market for attracting and retaining employees, could adversely affect our business.
Moreover, changing demographics and labor work force trends, including remote work expectations for many individuals arising from the COVID-19 pandemic, may make it difficult for us to replace retiring or departing employees. If we fail to attract and retain qualified personnel, or if we continue to experience excessive turnover, we may continue to experience higher labor costs and labor shortages, and our business may be adversely impacted. Moreover, labor shortages may be further exacerbated by COVID-19 vaccination and testing requirements.
In addition, a significant number of our employees are represented by unions. We may not be able to successfully negotiate new union contracts once our current contracts with unions expire without work stoppages or labor difficulties, or we may be unable renegotiate such contracts on favorable terms. We have also experienced work stoppages in the past and may experience them in the future. Moreover, labor organizations may attempt to organize groups of additional employees from time to time, and potential changes in labor laws could make it easier for them to do so. If we experience any extended interruption of operations at any of our facilities as a result of strikes or other work stoppages or if unions are able to organize additional groups of our employees, our operating costs increase and our operational flexibility could be reduced.
WE ARE SUBJECT TO CYBERSECURITY AND INFORMATION TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, EMPLOYEE AND VENDOR INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business operations rely upon securely managed information technology systems for data capture, processing, storage and reporting. We have invested in information technology security initiatives and information technology risk management, as well as business continuity and disaster recovery plans. The development and maintenance of these measures is costly and requires ongoing monitoring, testing and updating as technologies and processes change, and efforts to overcome security measures become increasingly sophisticated.
The current cyber threat environment presents increased risk for all companies, including those in our industry. Like other global companies, our systems are subject to regulation under U.S. lawrecurring attempts by third parties to access information, manipulate data or disrupt our operations, and we have experienced cyber threats and incidents, although none have been material or had a material adverse effect on our business. Despite careful security and controls design, implementation, updating and independent third party verification, our information technology systems, and those of our third party providers or joint venture partners, could become subject to employee error or malfeasance, cyber-attacks, such as ransomware and data theft, by common hackers, criminal groups or nation-state organizations or social activist ("hacktivist") organizations, geopolitical events, natural disasters, failures or impairments of telecommunications networks or other catastrophic events. In addition, the cybersecurity-related threats that we face may remain undetected for an extended
period of time. Network, system, application and data breaches, and other laws related to operations in foreign jurisdictions. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or foreign lawscybersecurity incidents, could result in various adverse consequences,operational disruptions, data loss or manipulation, or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with the impositionCompany. Access to applications required to plan our operations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of civilintellectual property or criminal sanctionstrade secrets, and the prosecutionloss or inappropriate disclosure of executives overseeingconfidential company, employee, customer or vendor information, could stem from such incidents. While we have significant security processes and initiatives in place, we may be unable to detect or prevent a breach or disruption. Any significant cybersecurity incident or operational disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity, cause us to incur legal liability and increased costs to address such events and related security concerns, and have a material effect on our international operations.
business. Additionally, while we have insurance coverage designed to address certain aspects of cyber risks in place, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in connection with such incidents.
RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS
WE ARE SUBJECT TO A WIDE VARIETY OF LAWS, REGULATIONS AND OTHER GOVERNMENT REQUIREMENTS THAT MAY CHANGE IN SIGNIFICANT WAYS, AND THE COST OF COMPLIANCE WITH SUCH REQUIREMENTS COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operations are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and other government requirements -- including, among others, those relating to the environment, health and safety, labor and employment, data privacy, tax, trade and health care. There can be no assurance that laws, regulations and government requirements will not be changed, applied or interpreted in ways that will require us to modify our operations and objectives or affect our returns on investments by restricting existing activities and products, or subjecting themus to escalatingincreased costs.
For example, as part of our business, we are subject to increasingly stringent federal, state, local and international laws governing the protection of the environment. We have incurred and expect that we will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations. In addition, new environmental laws, regulations or
other requirements, including with respect to GHG emissions or climate change, may cause us to incur increased and unexpected compliance costs. Moreover, there has historically been a lack of consistent climate legislation, which has created and continues to create economic and regulatory uncertainty. Our environmental expenditures include, among other areas, those related to air and water quality, waste disposal and the cleanup of contaminated soil and groundwater, including situations where we have been identified as a potentially responsible party. Moreover, we may be directly impacted by, and are working to manage, the risks and costs to us, our customers and our vendors of the effects of climate change, GHGs, and the availability of energy and water resources. These risks include the potentially adverse impact on forestlands, which are a key resource in the production of our products, increased product costs and a change in the types of products that customers purchase. There can be no assurance that future remediation requirements and compliance with existing and new laws and requirements including with global climate change laws and regulations, will not require significant expenditures, or that existing reserves for specific matters will be adequate to cover future costs. We could also incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), natural resource damages claims, cleanup and closure costs, and third-party claims for property damage and personal injury and reputational harm as a result of violations of, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.
As another example,Our global operations subject us to complex and evolving U.S and international data privacy laws and regulations, such as European’s Union General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act ("CPRA"), and China’s Personal Information Protection Law (“PIPL”) which came into effect as of November 1, 2021. These laws require the Company to comply with a range of compliance obligations regarding the handling of personal data. There are significant penalties for non-compliance including monetary fines, disruption of operations and reputational harm. Moreover, other states and governmental authorities around the world have introduced or passed, or are consider enacting, similar legislation which may impose varying standards and requirements on our data collection, use and processing activities.
This increasingly restrictive and evolving regulatory environment at the international, federal and state level related to data privacy and data protection may require changes to our business practices and give rise to significantly expanded compliance burdens, costs and enforcement risks. Moreover, many of these laws and regulations are subject to uncertain application, interpretation or enforcement standards that could result in claims, changes to our business practices, data processing and security systems, penalties, increased operating costs or other impacts on our businesses. These laws often provide for civil penalties for violations, as well as private rights of action for data breaches that may increase data breach litigation. The Company proactively uses internal and external resources to monitor compliance with relevant legislation and continually evaluates and, where necessary, modifies its data processing practices and policies in order to comply with evolving privacy laws. Nevertheless, relevant regulatory authorities could determine that our data handling practices fail to address all the requirements of certain new laws, which could subject us to penalties and/or litigation. In addition, there is no assurance that our security controls over personal data, the training of employees and vendors on data privacy and data security, and the policies, procedures and practices we implemented or may implement in the future will prevent the improper handling of, disclosure of or access to personal data. Improper handling and disclosure of or access to personal data in violation of the GDPR, PIPL, the CCPA and/or of other data privacy and protection laws could harm our reputation, cause loss of consumer confidence, subject us to government enforcement actions (including fines), or result in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines and/or criminal prosecution, all of which could negatively affect our business and operating results.
We are subject to taxes in the U.S. and various foreign jurisdictions, and changes in laws, regulation or interpretation of existing laws and regulations in the U.S. and other jurisdictions where we are subject to a numbertaxation, could increase our taxes and have an adverse effect on our financial results. In addition, the application of labortax law is subject to interpretation and employmentis subject to audit by taxing authorities. Additionally, administrative guidance can be incomplete or vary from legislative intent, and therefore the application of the tax law is uncertain. While we believe the positions reported by the Company comply with relevant tax laws and regulations, thattaxing authorities could significantly increaseinterpret our operating costsapplication of certain laws and reduce our operational flexibility. Additionally, changing privacy lawsregulations differently.
We are currently subject to tax audits in the United States, EuropeU.S. and elsewhere, includingother taxing jurisdictions around the adoptionworld. In some
cases, we have appealed and may continue to appeal, assessments by taxing authorities in the court system. As such, tax controversy matters may result in previously unrecorded tax expenses, accelerated cash tax payments, higher future tax expenses, or the assessment of interest and penalties. For example, the European Union of the General Data Protection Regulation (GDPR), which will become effective May 2018, creates new individual privacy rights and imposes increased obligations on companies handling personal data. Compliance with the stringent rules2015 timber monetization restructuring is currently under GDPR will require an extensive review of our global data processing systems, which is ongoing. A failure to comply with GDPRInternal Revenue Service examination. An unfavorable resolution in such current examination, future administrative procedures, or future tax litigation could result in fines up to 20material, accelerated cash tax payments as a result of all or a portion of the remaining $813 million Euros or 4% of annual global revenues, whichever is higher.
As a final example, in December 2017, the U.S. government enacted comprehensivedeferred tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changesliability relating to the U.S. tax code. For a discussion oftimber monetization becoming payable. See Note 15 Variable Interest Entities for more detail on the immediate and potential impacts to the Company of the Tax Acttimber monetization and the uncertainties around2015 restructuring.
As such, tax controversy matters may result in previously unrecorded tax expenses, higher future tax expenses or the
Company's current estimatesassessment of
such impacts, see Note 10, Income Taxes.interest and penalties.
RESULTS OF LEGAL PROCEEDINGS COULD HAVE A MATERIAL EFFECT ON OUR CONSOLIDATED FINANCIAL STATEMENTS. The costsRESULTS. We are a party to various legal, regulatory and governmental proceedings and other effects of pending litigation against us cannotrelated matters, including with respect to environmental matters. In addition, we are and may become subject to other loss contingencies, both known and unknown, which may relate to past, present and future facts, events, circumstances and occurrences. Should an unfavorable outcome occur in connection with our legal, regulatory or governmental proceedings or other loss contingencies, or if we become subject to any such loss contingencies in the future, there could be determined with certainty. Although we do not believe that the outcome of any pending or threatened lawsuits or claims will have a material effectadverse impact on our businessfinancial results. See Note 14 Commitments and Contingent Liabilities on pages 70 through 74 of Item 8. Financial Statements and Supplementary Data for further information.
IF THE SPIN-OFF OF SYLVAMO CORPORATION WERE TO FAIL TO QUALIFY FOR NON-RECOGNITION TREATMENT FOR U.S. FEDERAL INCOME TAX PURPOSES, THEN INTERNATIONAL PAPER AND OUR SHAREHOLDERS MAY BE SUBJECT TO SIGNIFICANT U.S. FEDERAL INCOME TAXES. The Company received an opinion of tax counseland a private letter ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the qualification of the spin-off ofSylvamo Corporation and certain related transactions as a transaction that is generally tax-free to Sylvamo Corporation, the Company and the shareholders of the Company for U.S. federal income tax purposes. A tax opinion is not binding on the IRS or consolidated financial statements,the courts, and there can be no assurance that the outcomeIRS or a court will not take a contrary position. In addition, the
Company’s tax counsel and the IRS relied on certain representations and covenants delivered by the Company and Sylvamo Corporation in rendering such opinion and private letter ruling. If any lawsuitof the representations or claim will be as expected.
RISKS RELATING TO OUR OPERATIONS
MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate our facilities in compliancecovenants relied upon for the tax opinion or private letter ruling become inaccurate, incomplete or not complied with applicable rules and regulations and take measures to minimizeby the risks of disruption at our facilities. A material disruption at our corporate headquarters or one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing facilities,Company, Sylvamo Corporation or any of our machines within an otherwise operational facility,their respective subsidiaries, the tax opinion may be invalid and the conclusions reached therein could cease operations unexpectedly duebe jeopardized.
If the IRS ultimately determines that the spin-off is taxable, then the spin-off could be treated as a taxable dividend or capital gain to the Company’s shareholders for U.S. federal income tax purposes, and the Company could incur significant U.S. federal income tax liabilities.These income tax liabilities may be indemnifiable by Sylvamo Corporation pursuant to a numbertax matters agreement between the Company and Sylvamo.However, there can be no assurance that Sylvamo would have the resources or liquidity required to indemnify the Company for any such tax liability.
Even if the spin-off otherwise qualifies for non-recognition of events, including:
fires, floods, earthquakes, hurricanesgain or other catastrophes;
loss under Section 355 of the effectCode, the spin-off may be taxable to the Company (but not the shareholders of the Company) pursuant to Section 355(e) of the Code if there is a 50% or more (by vote or value) change in ownership of either the Company or Sylvamo Corporation, directly or indirectly, as part of a droughtplan or reduced rainfallseries of related transactions that include the spin-off. For this purpose, any acquisitions of the Company’s or Sylvamo Corporation’s common stock within two years before or after thespin-off are presumed to be part of such a plan, although the Company or Sylvamo Corporation may be able to rebut that presumption based on its water supply;
the effect of other severe weather conditions on equipmenteither applicable facts and facilities;
terrorismcircumstances or threats of terrorism;
domestic and international laws and regulations applicable to our Company and our business partners, including joint venture partners, around the world;
unscheduled maintenance outages;
prolonged power failures;
an equipment failure;
a chemical spill or release;
explosion of a boiler or other equipment;
damage or disruptions caused by third parties operating on or adjacent to one of our manufacturing facilities;
disruptions“safe harbor” described in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;U.S. tax regulations.
widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
labor difficulties; and
other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned expenditures. If one of these machines or facilities were to incur significant downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on our business and financial results.
WE ARE SUBJECT TO INFORMATION TECHNOLOGY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, EMPLOYEE AND VENDOR INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY USED TO MANAGE OPERATIONS AND OTHER BUSINESS PROCESSES. Our business operations rely upon secure information technology systems for data capture, processing, storage and reporting. Despite careful security and controls design, implementation, updating and independent third party verification, our information technology systems, and those of our third party providers, could become subject to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, application and data breaches could result in operational disruptions or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with International Paper. Access to internal applications required to plan our operations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of intellectual property or trade secrets, and inappropriate disclosure of confidential company, employee, customer or vendor information, could stem from such incidents. Any of these operational disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity and could have a material effect on our business.
CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operations in Russia are carried on by a joint venture, Ilim. In joint ventures, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information and making decisions. In joint ventures, we are required to pay more attention to our relationship with our co-owners as well as with the joint venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co-owners, so we receive only our portion of those benefits.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM ACQUISITIONS, JOINT VENTURES, DIVESTITURES AND OTHER CORPORATE TRANSACTIONS. Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to accomplish prudent acquisitions, joint ventures, divestitures and other corporate transactions and to realize the benefits we expect from such transactions, and we are subject to the risk that we may not achieve the expected benefits. Among the benefits we expect from potential as well as completed acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers who place higher strategic value on such businesses and assets than does International Paper.
On January 1, 2018, for example, we completed a transaction transferring our North American Consumer Packaging business to Graphic Packaging in exchange for, among other things, an equity interest in the combined business of 20.5%, as of immediately following the closing, and the assumption by the combined business of $660 million of indebtedness that we incurred prior to closing of the transaction. The success of the transaction will depend, in part, on the financial performance of the combined business and on the ability of the combined business to realize anticipated growth opportunities, cost savings and other synergies. The success of the combined business in realizing these growth opportunities, cost savings and other synergies, and the timing of this realization, will depend on the successful integration of our North American Consumer Packaging business with Graphic Packaging's business.
As of December 31, 2017, the Company owned or managed approximately 329,000 acres of forestlands in Brazil, and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. All owned lands in Brazil are independently third-party certified for sustainable forestry under the Brazilian National Forest Certification Program (CERFLOR) and the Forest Stewardship Council (FSC).
A listing of our production facilities by segment, the vast majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference. The Company’s facilities are in good operating condition and are suited for the purposes for which they are presently being used. We continue to study the economics of modernization or adopting other alternatives for higher cost facilities.
The Company is not subject to any administrative or judicial proceeding arising under any Federal, State or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that is likely to result in monetary sanctions of $1 million or more.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Stock Exchange.Exchange (NYSE: IP). As of February 16, 2018,11, 2022, there were approximately 11,7668,963 record holders of common stock of the Company.
We pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future, though each quarterly dividend payment is subject to review and approval by our Board of Directors. Our ability to pay dividends is, and in the future may continue to be, limited by the terms of our debt documents.
The table below presents information regarding the Company’s purchasepurchases of its equity securities for the time periods presented.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
| | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions) |
| October 1, 2021 - October 31, 2021 | 2,400 | | $ | 55.92 | | — | | $ | 3.34 | |
| November 1, 2021 - November 30, 2021 | 3,536,155 | | 49.09 | | — | | 3.16 | |
| December 1, 2021 - December 31, 2021 | 5,206,595 | | 46.11 | | — | | 2.92 | |
| Total | 8,745,150 | | | | |
|
| | | | | | | | | | |
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions) |
| October 1, 2017 - October 31, 2017 | 78 |
| $ | 56.82 |
| — |
| $ | 0.933 |
|
| November 1, 2017 - November 30, 2017 | — |
| — |
| — |
| 0.933 |
|
| December 1, 2017 - December 31, 2017 | 5,257 |
| 56.96 |
| — |
| 0.933 |
|
| Total | 5,335 |
| | | |
| |
(a) | 5,335 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs. During these periods, no shares were purchased under our share repurchase program, which was approved by our Board of Directors and announced on July 8, 2014. Through this program, which does not have an expiration date, we were authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $1.5 billion shares of our common stock. As of February 16, 2018, approximately $933 million shares of our common stock remained authorized for purchase under this program. |
(a)12,661 shares were acquired from employees or board members as a result of share withholdings to pay income taxes under the Company's restricted stock program. The remainder were purchased under a share repurchase program. Under current Board authorization that was increased on October 12, 2021, we are authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $3.3 billion of shares of our common stock. This repurchase program does not have an expiration date. As of December 31, 2021, approximately $2.9 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.
PERFORMANCE GRAPH
The performance graph shall not be deemed to be “soliciting material”"soliciting material" or to be “filed”"filed" with the Commission or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act of 1934, as amended.
amended and will not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
The following line graph compares a $100 investment in Company stock on December 31, 20122016 with a $100 investment in our Return on Invested Capital (ROIC) Peer Group and the S&P Composite-500 Stock Index (S&P 500 Index) also made at market close on December 31, 2012.2016. The graph portrays total return, 2012–2017,2016-2021, assuming reinvestment of all dividends.
Note 1:
1)The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, and UPM-Kymmene Corp. MeadWestvaco Corp., and Rock-Tenn Company are included in the ROIC Peer Group results through 2014 and subsequently, after the merger of those companies, WestRock was added to the Peer group beginning in 2015.Company.
Note 2: 2)Returns are calculated in $USD.$USD
FIVE-YEAR FINANCIAL SUMMARY (a)
|
| | | | | | | | | | | | | | | | | | | | |
| Dollar amounts in millions, except per share amounts and stock prices | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| RESULTS OF OPERATIONS | | | | | | | | | | |
| Net sales | $ | 21,743 |
| | $ | 19,495 |
| | $ | 20,675 |
| | $ | 21,889 |
| | $ | 21,244 |
| |
| Costs and expenses, excluding interest | 20,323 |
| | 18,180 |
| | 18,988 |
| | 20,548 |
| | 19,540 |
| |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 848 |
| (b) | 795 |
| (e) | 1,132 |
| (h) | 734 |
| (k) | 1,092 |
| (n) |
| Equity earnings (loss), net of taxes | 177 |
| | 198 |
| | 117 |
| | (200 | ) | | (39 | ) | |
| Discontinued operations, net of taxes | 34 |
| (c) | 102 |
| (f) | 85 |
| (i) | 77 |
| (l) | (215 | ) | (o) |
| Net earnings (loss) | 2,144 |
| (b-d) | 902 |
| (e-g) | 917 |
| (h-j) | 536 |
| (k-m) | 1,378 |
| (n-p) |
| Noncontrolling interests, net of taxes | — |
| | (2 | ) | | (21 | ) | | (19 | ) | | (17 | ) | |
| Net earnings (loss) attributable to International Paper Company | 2,144 |
| (b-d) | 904 |
| (e-g) | 938 |
| (h-j) | 555 |
| (k-m) | 1,395 |
| (n-p) |
| FINANCIAL POSITION | | | | | | | | | | |
| Current assets less current liabilities | $ | 3,175 |
| | $ | 2,601 |
| | $ | 2,244 |
| | $ | 2,719 |
| | $ | 3,597 |
| |
| Plants, properties and equipment, net | 13,265 |
| | 13,003 |
| | 11,000 |
| | 11,794 |
| | 12,745 |
| |
| Forestlands | 448 |
| | 456 |
| | 366 |
| | 507 |
| | 557 |
| |
| Total assets | 33,903 |
| | 33,093 |
| | 30,271 |
| | 28,369 |
| | 31,242 |
| |
| Notes payable and current maturities of long-term debt | 311 |
| | 239 |
| | 426 |
| | 742 |
| | 661 |
| |
| Long-term debt | 10,846 |
| | 11,075 |
| | 8,844 |
| | 8,584 |
| | 8,787 |
| |
| Total shareholders’ equity | 6,522 |
| | 4,341 |
| | 3,884 |
| | 5,115 |
| | 8,105 |
| |
| BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | | | | | | | | |
| Earnings (loss) from continuing operations | $ | 5.11 |
| | $ | 1.95 |
| | $ | 2.05 |
| | $ | 1.12 |
| | $ | 3.63 |
| |
| Discontinued operations | 0.08 |
| | 0.25 |
| | 0.20 |
| | 0.18 |
| | (0.48 | ) | |
| Net earnings (loss) | 5.19 |
| | 2.20 |
| | 2.25 |
| | 1.30 |
| | 3.15 |
| |
| DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | | | | | | | | |
| Earnings (loss) from continuing operations | $ | 5.05 |
| | $ | 1.93 |
| | $ | 2.03 |
| | $ | 1.10 |
| | $ | 3.59 |
| |
| Discontinued operations | 0.08 |
| | 0.25 |
| | 0.20 |
| | 0.19 |
| | (0.48 | ) | |
| Net earnings (loss) | 5.13 |
| | 2.18 |
| | 2.23 |
| | 1.29 |
| | 3.11 |
| |
| Cash dividends | 1.863 |
| | 1.783 |
| | 1.640 |
| | 1.450 |
| | 1.250 |
| |
| Total shareholders’ equity | 15.79 |
| | 10.56 |
| | 9.43 |
| | 12.18 |
| | 18.57 |
| |
| COMMON STOCK PRICES | | | | | | | | | | |
| High | $ | 58.96 |
| | $ | 54.68 |
| | $ | 57.90 |
| | $ | 55.73 |
| | $ | 50.33 |
| |
| Low | 49.60 |
| | 32.50 |
| | 36.76 |
| | 44.24 |
| | 39.47 |
| |
| Year-end | 57.94 |
| | 53.06 |
| | 37.70 |
| | 53.58 |
| | 49.03 |
| |
| FINANCIAL RATIOS | | | | | | | | | | |
| Current ratio | 1.6 |
| | 1.6 |
| | 1.6 |
| | 1.5 |
| | 1.7 |
| |
| Total debt to capital ratio | 0.63 |
| | 0.72 |
| | 0.70 |
| | 0.65 |
| | 0.54 |
| |
| Return on shareholders’ equity | 43.9 | % |
| 22.1 | % |
| 20.0 | % |
| 7.7 | % |
| 20.2 | % |
|
| CAPITAL EXPENDITURES | $ | 1,391 |
| | $ | 1,348 |
| | $ | 1,487 |
| |
| $1,366 |
| |
| $1,198 |
| |
| NUMBER OF EMPLOYEES | 56,000 |
| | 55,000 |
| | 56,000 |
| | 58,000 |
| | 64,000 |
| |
FINANCIAL GLOSSARY
Current ratio—
current assets divided by current liabilities.
Total debt to capital ratio—
long-term debt plus notes payable and current maturities of long-term debt divided by long-term debt, notes payable and current maturities of long-term debt and total shareholders’ equity.
Return on shareholders’ equity—
net earnings attributable to International Paper Company divided by average shareholders’ equity (computed monthly).
FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY
| |
(a) | All periods presented have been restated to reflect the North American Consumer Packaging business, xpedx business, and the Temple-Inland Building Products business as discontinued operations (excluding cash flow related items) and prior period amounts have been adjusted to conform with current year presentation, if applicable. |
2017:
(b) Includes the following charges (gains):
|
| | | | | | | | |
| | | 2017 |
| In millions | | Before Tax | | After Tax |
| Gain on sale of investment in ArborGen | | $ | (14 | ) | | $ | (9 | ) |
| Costs associated with the pulp business acquired in 2016 | | 33 |
| | 20 |
|
| Amortization of Weyerhaeuser inventory fair value step-up | | 14 |
| | 8 |
|
| Holmen bargain purchase gain | | (6 | ) | | (6 | ) |
| Abandoned property removal | | 20 |
| | 13 |
|
| Kleen Products settlement | | 354 |
| | 219 |
|
| Asia Foodservice sale | | 9 |
| | 4 |
|
| Brazil Packaging wood supply accelerated amortization | | 10 |
| | 7 |
|
| Debt extinguishment costs | | 83 |
| | 51 |
|
| Interest income on income tax refund claims | | (5 | ) | | (3 | ) |
| Other items | | (2 | ) | | (2 | ) |
| Total special items | | $ | 496 |
| | $ | 302 |
|
| Non-operating pension expense | | 484 |
| | 298 |
|
| Total | | $ | 980 |
| | $ | 600 |
|
(c) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following charges (gains):
|
| | | | | | | | |
| | | 2017 |
| In millions | | Before Tax | | After Tax |
| North American Consumer Packaging transaction costs | | $ | 17 |
| | $ | 10 |
|
| Non-operating pension expense | | 45 |
| | 28 |
|
| Total | | $ | 62 |
| | $ | 38 |
|
(d) Includes the following tax expenses (benefits):
|
| | | | |
| In millions | | 2017 |
| International legal entity restructuring | | $ | 34 |
|
| Income tax refund claims | | (113 | ) |
| Cash pension contribution | | 38 |
|
| International Tax Law Change | | 9 |
|
| Tax benefit of Tax Cuts and Jobs Act | | (1,222 | ) |
| Tax impact of other special items | | $ | (1,254 | ) |
2016:
(e) Includes the following charges (gains):
|
| | | | | | | | |
| | | 2016 |
| In millions | | Before Tax | | After Tax |
| Riegelwood mill conversion costs | | $ | 9 |
| | $ | 6 |
|
| India Packaging evaluation write-off | | 17 |
| | 11 |
|
| Write-off of certain regulatory pre-engineering costs | | 8 |
| | 5 |
|
| Early debt extinguishment costs | | 29 |
| | 18 |
|
| Costs associated with the newly acquired pulp business | | 31 |
| | 21 |
|
| Asia Box impairment / restructuring | | 70 |
| | 58 |
|
| Gain on sale of investment in Arizona Chemical | | (8 | ) | | (5 | ) |
Turkey mill closure
| | 7 |
| | 6 |
|
| Amortization of Weyerhaeuser inventory fair value step-up | | 19 |
| | 11 |
|
| Total special items | | $ | 182 |
| | $ | 131 |
|
| Non-operating pension expense | | 610 |
| | 375 |
|
| Total | | $ | 792 |
| | $ | 506 |
|
(f) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following charges (gains):
|
| | | | | | | | |
| | | 2016 |
| In millions | | Before Tax | | After Tax |
| xpedx legal settlement | | $ | 8 |
| | $ | 5 |
|
| Total | | $ | 8 |
| | $ | 5 |
|
(g) Includes the following tax expenses (benefits):
|
| | | | |
| In millions | | 2016 |
| Cash pension contribution | | $ | 23 |
|
| U.S. Federal audit | | (14 | ) |
| Brazil goodwill | | (57 | ) |
| International legal entity restructuring | | (6 | ) |
| Luxembourg tax rate change | | 31 |
|
| Tax impact of other special items | | $ | (23 | ) |
2015:
(h) Includes the following charges (gains):
|
| | | | | | | | |
| | | 2015 |
| In millions | | Before Tax | | After Tax |
| Riegelwood mill conversion costs, net of proceeds from sale of the Carolina Coated Bristols brand | | $ | 8 |
| | $ | 4 |
|
| Timber monetization restructuring | | 16 |
| | 10 |
|
| Early debt extinguishment costs | | 207 |
| | 133 |
|
| IP-Sun JV impairment | | 174 |
| | 180 |
|
| Legal reserve adjustment | | 15 |
| | 9 |
|
| Refund and state tax credits | | (4 | ) | | (2 | ) |
| Impairment of Orsa goodwill and trade name intangible | | 137 |
| | 137 |
|
| Other items | | 6 |
| | 5 |
|
| Total special items | | $ | 559 |
| | $ | 476 |
|
| Non-operating pension expense | | 258 |
| | 157 |
|
| Total | | $ | 817 |
| | $ | 633 |
|
(i) Includes the operating earnings of the North American Consumer Packaging business for the full year .
(j) Includes the following tax expenses (benefits):
|
| | | | |
| In millions | | 2015 |
| IP-Sun JV impairment | | $ | (67 | ) |
| Cash pension contribution | | 23 |
|
| Other items | | 7 |
|
| Tax impact of other special items | | $ | (37 | ) |
2014:
(k) Includes the following charges (gains):
|
| | | | | | | | |
| | | 2014 |
| In millions | | Before Tax | | After Tax |
| Temple-Inland integration | | $ | 16 |
| | $ | 10 |
|
| Courtland mill shutdown | | 554 |
| | 338 |
|
| Early debt extinguishment costs | | 276 |
| | 169 |
|
| India legal contingency resolution | | (20 | ) | | (20 | ) |
| Multi-employer pension plan withdrawal liability | | 35 |
| | 21 |
|
| Foreign tax amnesty program | | 32 |
| | 17 |
|
| Asia Industrial Packaging goodwill impairment | | 100 |
| | 100 |
|
| Loss on sale by investee and impairment of investment | | 47 |
| | 36 |
|
| Other items | | 12 |
| | 9 |
|
| Total special items | | $ | 1,052 |
| | $ | 680 |
|
| Non-operating pension expense | | 212 |
| | 129 |
|
| Total | | $ | 1,264 |
| | $ | 809 |
|
(l) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business prior to the spin-off and the following charges (gains):
|
| | | | | | | | |
| | | 2014 |
| In millions | | Before Tax | | After Tax |
| xpedx spinoff | | $ | 24 |
| | $ | 16 |
|
| Building Products divestiture | | 16 |
| | 9 |
|
| xpedx restructuring | | 1 |
| | (1 | ) |
| Total | | $ | 41 |
| | $ | 24 |
|
(m) Includes the following tax expenses (benefits):
|
| | | | |
| In millions | | 2014 |
| State legislative tax change | | $ | 10 |
|
| Internal restructuring | | (90 | ) |
| Other items | | (1 | ) |
| Tax impact of other special items | | $ | (81 | ) |
2013:
(n) Includes the following charges (gains):
|
| | | | | | | | |
| | | 2013 |
| In millions | | Before Tax | | After Tax |
| Temple-Inland integration | | $ | 62 |
| | $ | 38 |
|
| Courtland mill shutdown | | 118 |
| | 72 |
|
| Early debt extinguishment costs | | 25 |
| | 16 |
|
| Insurance reimbursement related to legal settlement | | (30 | ) | | (19 | ) |
| India Papers tradename and goodwill impairment | | 127 |
| | 122 |
|
| Fair value adjustment of company airplanes | | 9 |
| | 5 |
|
| Cass Lake environmental reserve | | 6 |
| | 4 |
|
| Bargain purchase adjustment - Turkey | | (13 | ) | | (13 | ) |
| Other items | | (5 | ) | | 2 |
|
| Total special items | | $ | 299 |
| | $ | 227 |
|
| Non-operating pension expense | | 323 |
| | 197 |
|
| Total | | $ | 622 |
| | $ | 424 |
|
(o) Includes the operating earnings of the North American Consumer Packaging business and the xpedx business for the full year, and the Temple-Inland Building Products business through the date of sale in July 2013. Also includes the following charges (gains):
|
| | | | | | | | |
| | | 2013 |
| In millions | | Before Tax | | After Tax |
| xpedx spinoff | | $ | 22 |
| | $ | 14 |
|
| xpedx goodwill impairment | | 400 |
| | 366 |
|
| Building products divestiture | | 23 |
| | 19 |
|
| Shut down of paper machine at Augusta mill | | 45 |
| | 28 |
|
| xpedx restructuring | | 32 |
| | 19 |
|
| Total | | $ | 522 |
| | $ | 446 |
|
(p) Includes the following tax expenses (benefits):
|
| | | | |
| In millions | | 2013 |
| Settlement of U.S. federal tax audits | | $ | (744 | ) |
| Income tax reserve release | | (31 | ) |
| Other items | | 1 |
|
| Tax impact of other special items | | $ | (774 | ) |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Forward-Looking Statements.”
The following generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussion of historical items in 2019, and year-to-year comparisons between 2020 and 2019, can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 19, 2021, under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Full-year 2021 net earnings attributable to shareholders were $1.8 billion ($4.47 per diluted share) compared with $482 million ($1.22 per diluted share) for full-year 2020.
During 2021, International Paper deliveredgrew revenue and earnings while managing through significant operational and supply chain constraints. We serviced strong customer demand in a yearhighly challenging operating environment due to continued uncertainties associated with COVID-19. For much of 2021, we operated with a sub-optimized system, which limited our ability to capture the full opportunity that comes with a strong performance in 2017, driven by excellent commercial execution across our businesses. Our Global Cellulose Fibers business is on track to achieve the estimated transaction synergies. We continued to grow value for our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth consecutive year.demand backdrop. We made strong progress on price realization from prior increases to mitigate the impact of substantial progress in further strengthening our portfolio during 2017.cost pressure from inputs and distribution. We accelerated strategic investments for growth in the Industrial Packaging business, providing the Company with the flexibility we need around capacity, productsgenerated full-year cash from operations of $2.0 billion and geography to support our customers. In addition, the Company made an important strategic move to transfer the North American Consumer Packaging business, which included the North American Coated Paperboard and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. This strategic move enables us to focus on growing value in our core businesses and establish a 20.5% ownership interest in the subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. Finally, we generated strong free cash flow of $1.5 billion which enabled usincluded approximately $500 million of tax payments associated with various asset monetization transactions completed in 2021, as well as payment of deferred payroll taxes under
the 2020 CARES Act. In 2021, we further strengthened our balance sheet, reducing debt by $2.5 billion. Additionally, our U.S. qualified pension plan has a 105% funded status with a surplus of $600 million as of December 31, 2021. Lastly, we returned $1.6 billion to increaseshareowners, including about $810 million in share repurchases.
In 2021, we announced the Company's Building a Better IP initiative to drive value creation by streamlining and simplifying the Company, increasing efficiency and reducing costs and accelerating profitable growth. To that end, in 2021 we further focused our annual dividend forportfolio around corrugated packaging with the sixth consecutive year.spin-off of the Printing Papers business as a stand-alone public company, Sylvamo Corporation, and we initiated meaningful actions to materially lower our cost structure and accelerate profitable growth, with a commitment to deliver $350 to $430 million of incremental earnings in 2024.
Our 2017
Comparing our 2021 results reflect significant pricing and mix improvement, which accelerated throughout the year. The improvement into 2020, price and mix improved, with strong price realization across all of our business segments and channels. Mix was primarilyalso favorable, driven by price realization on price increases announcedsolid growth in higher-margin, U.S. packaging channels and lower containerboard exports. Volume was essentially flat versus the prior quartersyear as significant operational and supply chain constraints limited our ability to capture the full benefits of a solid demand backdrop. This was particularly the case in the fourth quarter 2021, as volume improved less than we anticipated, primarily due to significant Covid-19 omicron variant related labor and supply chain constraints late in the quarter, especially in our U.S. box system. Our North American Industrial Packaging business operated with depleted inventories throughout much of 2021, which increased costs across our system. Across the Company, supply chain operating costs increased significantly versus 2020, representing more than half of the increase in operations and Global Cellulose Fibers businesses. Operationscosts in 2021. The second half of 2021 was especially challenging due to slow supply chain velocity and poor logistics reliability, putting additional cost pressure on our manufacturing systems. Maintenance outage costs increased as planned, following deferrals we chose to make in 2020. Input costs rose sharply across most categories, with costs increasing throughout 2021, resulting in significantly elevated input cost levels exiting 2021. Interest expense was substantially lower in 2021, benefiting from significant debt reduction in 2020 and 2021. Although corporate expenses were negatively impacted by hurricanes and the Pensacola event earlierlower, there was some offset in the year; however, 2017 was a lower maintenance outage year. Input costs were higher comparedfourth quarter 2021 related to 2016, driven by significantly higher recovered fiber costs, as well as, higher energy and transportation costs duringexpected dis-synergies, following the latter partspin-off of the year. OurPrinting Papers business. Equity earnings improved on strong performance from our Ilim joint venture, delivered solid operational and financial results, drivenpartially offset by pricing and strong volume, and provided more than $130 millionreduced earnings from Graphic Packaging following the final
monetization of our investment in cash dividends to International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associated with the impactfirst half of the December 2017 enactment of the Tax Cuts and Jobs Act.2021.
Looking ahead to the 2018 first quarter overall industry conditions2022, as compared to the fourth quarter 2021, in our Industrial Packaging business, we expect to realize gains related to the August 2021 published price movement. Volume is expected to be lower in the first quarter 2022 on decreased seasonal demand and the impact of the Covid-19 omicron variant on labor availability and supply chains, although we do expect improvement as the first quarter progresses. Operations and costs are expected to remain strong,decrease earnings, including additional costs related to the Prattville mill recovery and we should continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect higher export price realizationstart-up costs, following the failure of the high-density storage tank in our North American Industrial Packaging business and improved pricing in our Printing Papers segment, as price increases
implemented in 2017 are realized. We also expect 2018 firstthe fourth quarter sales volumes for North American Industrial Packaging and Brazil Papers to be down due to seasonally lower demand. Our North American mill operations have been affected by the severe cold weather experienced at the beginning of 2018 which2021 Maintenance outage expense is expected to impact operating costs. Costsbe significantly higher as the first quarter will be higher in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due to a heavyhighest outage quarter as 70%this year, representing about 40% of the Company outages aretotal planned during the first half of 2018.outage costs in 2022. Input costs are expected to increase across our businesses, driven by higher wood,improve on lower recovered fiber and energy and transportation costs. Additionally,In Global Cellulose fibers we expect our price and mix combined to be stable. We expect volume to decrease moderately due to on-going vessel delays. Operations and costs are expected to increase related to higher seasonal costs and the non-repeat of a favorable LIFO benefit in the fourth quarter 2021. Maintenance outage expense is expected to increase as the first quarter 2022 will also be Global Cellulose Fibers highest maintenance outage quarter in 2022. Input costs are expected to be slightly higher due mostly to higher energy costs. Lastly, equity earnings forfrom the Ilim joint venture are expected to be sequentially higher, driven by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes.improve.
Looking to fullfull-year 2022, year, 2018,we expect a solid demand environment for corrugated packaging and pulp, with demand growth normalizing as we recover from the near-term Covid-19 omicron constraints. We also expect to make good progress on our focusBuilding a Better IP initiatives, which will be on value creationramp up as the year progresses. We are well positioned to optimize our containerboard mill and corrugated box system following various disruptions in 2021, which will further improve our operating and distributions costs. With respect to our capital allocation, we are targeting capital expenditures of $1.1 billion. The planned increase is driven primarily by investments in our growth businesses. We anticipate another year of strong growth, driven by a continued strong outlookpackaging business to build out capabilities and capacity in our core businessesbox system to drive profitable growth. Additionally, we are committed to a competitive and the full-year pricesustainable dividend with a payout of 40 to 50% of free cash flow, throughwhich we will continue to review annually as earnings and cash flow grow. With regard to share repurchases, as of the 2017 increases.end of 2021 we had $2.9 billion of available authorizations. We will continue to see healthyexecute on these authorizations in a manner that balances the investment needs of the business and maximizes value for our shareowners.
On March 11, 2020 the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. During 2021, there continued to be a large number of COVID-19 cases and deaths in the United States and throughout the world, and restrictive measures, including masks and vaccine requirements were implemented or reinstituted by various governmental authorities and private businesses. Economic recovery in the United States and various other regions of the world has continued but may be threatened by the continued adverse effects of COVID-19 and other factors. Most of our manufacturing and converting facilities have remained open and operational during the pandemic and at the current time our manufacturing and converting facilities are generally operational. The health and safety of our employees and contractors is our most important responsibility as we manage through the COVID-19 pandemic.We have implemented work-systems across the Company to maintain the health and safety of our employees including social distancing, site cleaning, contract tracing and other measures as recommended by the CDC and WHO.
The pandemic has not had a material impact on demand for our products. However, all of our operations continue to experience higher supply chain costs and solid fundamentals across our portfolio. We expect higher maintenance outage expensesa constrained transportation environment due in part to the impacts of COVID-19. Moreover, due to the calendar impactcompetitive labor market, we have experienced and may continue to experience, a shortage of mills on an eighteen-month cyclelabor for certain positions and extended outages at several of our mills, as we position them for longer maintenance cycle schedules in the future. We are planning for $1.5 billion in capital expenditures in 2018, including approximately $500 million that willincreased labor costs.
There continue to be invested in strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the positive cash tax impactsignificant uncertainties associated with tax reform. Our Ilim joint venture is well positioned for another strong yearthe COVID-19 pandemic, as detailed under RISKS RELATED TO THE COVID-19 PANDEMIC on page 8 to 19 of performance,Item 1A. Risk Factors. The impacts of the pandemic had an adverse effect on our operations in 2021, and we will start to see the benefitscould have a material adverse effect on our financial condition, results of our investment in Graphic Packaging. All in, we expect another year of strongoperations and cash generation enabling us to continue to allocate capital to grow value for our shareholders.flows if public health and/or global economic conditions deteriorate.
Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations(loss) attributable to International Paper (a GAAP measure) excluding discontinued operations, net special items and non-operating pension expense. Dilutedexpense (income). Net earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most directdirectly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of discontinued operations, non-operating pension expense (income) and items considered by management to be unusual (net
special items) from thenet earnings (loss) attributable to shareholders reported under GAAP, non-operating pension expense (includes all U.S. pension costs, excluding service costs and prior service costs), and discontinued operations.GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. 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.results from continuing operations. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations.
The following are reconciliations of Diluted earningsEarnings (loss) attributable to common shareholders to Adjusted operating earnings (loss) attributable to common shareholders.shareholders on a total and per share basis. Additional detail is provided later in this Form 10-K regarding the net special items referenced in the charts below:
| | | | | | | | |
| In millions | 2021 | 2020 |
| Net Earnings (Loss) Attributable to Shareholders | $ | 1,752 | | $ | 482 | |
| Less - Discontinued operations (gain) loss | (630) | | (252) | |
| Earnings (Loss) from Continuing Operations | 1,122 | | 230 | |
| Add back - Non-operating pension expense (income) | (200) | | (41) | |
| Add back - Net special items expense (income) | 371 | | 742 | |
| Income tax effect - Non-operating pension and special items expense | (38) | | (83) | |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | $ | 1,255 | | $ | 848 | |
| | | | | | | | |
| 2021 | 2020 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | $ | 4.47 | | $ | 1.22 | |
| Less - Discontinued operations (gain) loss per share | (1.61) | | (0.64) | |
| Diluted Earnings (Loss) Per Share from Continuing Operations | 2.86 | | 0.58 | |
| Add back - Non-operating pension expense (income) per share | (0.51) | | (0.10) | |
| Add back - Net special items expense (income) per share | 0.94 | | 1.88 | |
| Income tax effect per share - Non-operating pension and special items expense | (0.09) | | (0.22) | |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $ | 3.20 | | $ | 2.14 | |
| | | | | | | | | | | | | | | | | | | | |
| In millions | | Three Months Ended December 31, 2021 | | Three Months Ended September 30, 2021 | | Three Months Ended December 31, 2020 |
| Net Earnings (Loss) Attributable to Shareholders | | $ | 107 | | | $ | 864 | | | $ | 153 | |
| Less - Discontinued operations (gain) loss | | 8 | | | (432) | | | (88) | |
| Earnings (Loss) from Continuing Operations | | 115 | | | 432 | | | 65 | |
| Add back - Non-operating pension expense (income) | | (47) | | | (50) | | | (10) | |
| Add back - Net special items expense (income) | | 295 | | | 49 | | | 188 | |
| Income tax effect - Non-operating pension and special items expense | | (62) | | | — | | | (37) | |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | | $ | 301 | | | $ | 431 | | | $ | 206 | |
|
| | | | | | | | | |
| | 2017 | 2016 | 2015 |
| Diluted Earnings (Loss) Attributable to Shareholders | $ | 2,144 |
| $ | 904 |
| $ | 938 |
|
| Add back - Discontinued operations (gain) loss | (34 | ) | (102 | ) | (85 | ) |
| Diluted Earnings (Loss) from Continuing Operations | 2,110 |
| 802 |
| 853 |
|
| Add back - Non-operating pension (income) expense | 484 |
| 610 |
| 258 |
|
| Add back - Net special items expense (income) | 496 |
| 182 |
| 559 |
|
| Income tax effect - Non-operating pension and special items expense | (1,634 | ) | (309 | ) | (221 | ) |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | $ | 1,456 |
| $ | 1,285 |
| $ | 1,449 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2021 | | Three Months Ended September 30, 2021 | | Three Months Ended December 31, 2020 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | | $ | 0.28 | | | $ | 2.20 | | | $ | 0.39 | |
| Less - Discontinued operations (gain) loss per share | | 0.02 | | | (1.10) | | | (0.22) | |
| Diluted Earnings (Loss) Per Share from Continuing Operations | | 0.30 | | | 1.10 | | | 0.17 | |
| Add back - Non-operating pension expense (income) per share | | (0.12) | | | (0.12) | | | (0.03) | |
| Add back - Net special items expense (income) per share | | 0.77 | | | 0.12 | | | 0.48 | |
| Income tax effect per share - Non-operating pension and special items expense | | (0.17) | | | — | | | (0.09) | |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | | $ | 0.78 | | | $ | 1.10 | | | $ | 0.53 | |
|
| | | | | | | | | |
| | 2017 | 2016 | 2015 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | $ | 5.13 |
| $ | 2.18 |
| $ | 2.23 |
|
| Add back - Discontinued operations (gain) loss per share | (0.08 | ) | (0.25 | ) | (0.20 | ) |
| Diluted Earnings (Loss) Per Share from Continuing Operations | 5.05 |
| 1.93 |
| 2.03 |
|
| Add back - Non-operating pension (income) expense | 1.16 |
| 1.47 |
| 0.61 |
|
| Add back - Net special items expense (income) | 1.19 |
| 0.44 |
| 1.33 |
|
| Income tax effect - Non-operating pension and special items expense | (3.91 | ) | (0.75 | ) | (0.52 | ) |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $ | 3.49 |
| $ | 3.09 |
| $ | 3.45 |
|
|
| | | | | | | | | | | | |
| | | Three Months Ended December 31, 2017 | | Three Months Ended September 30, 2017 | | Three Months Ended December 31, 2016 |
| Diluted Earnings (Loss) Attributable to Shareholders | | $ | 1,460 |
| | $ | 395 |
| | $ | 218 |
|
| Add back - Discontinued operations (gain) loss | | 8 |
| | (29 | ) | | (24 | ) |
| Diluted Earnings (Loss) from Continuing Operations | | 1,468 |
| | 366 |
| | 194 |
|
| Add back - Non-operating pension (income) expense | | 386 |
| | 33 |
| | 37 |
|
| Add back - Net special items expense (income) | | 106 |
| | 23 |
| | 45 |
|
| Income tax effect - Non-operating pension and special items expense | | (1,430 | ) | | (2 | ) | | 3 |
|
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | | $ | 530 |
| | $ | 420 |
| | $ | 279 |
|
|
| | | | | | | | | | | | |
| | | Three Months Ended December 31, 2017 | | Three Months Ended September 30, 2017 | | Three Months Ended December 31, 2016 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | | $ | 3.50 |
| | $ | 0.95 |
| | $ | 0.53 |
|
| Add back - Discontinued operations (gain) loss per share | | 0.02 |
| | (0.07 | ) | | (0.06 | ) |
| Diluted Earnings (Loss) Per Share from Continuing Operations | | 3.52 |
| | 0.88 |
| | 0.47 |
|
| Add back - Non-operating pension (income) expense per share | | 0.92 |
| | 0.08 |
| | 0.09 |
|
| Add back - Net special items expense (income) per share | | 0.25 |
| | 0.05 |
| | 0.11 |
|
| Income tax effect per share - Non-operating pension and special items expense | | (3.42 | ) | | — |
| | — |
|
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | | $ | 1.27 |
| | $ | 1.01 |
| | $ | 0.67 |
|
Cash provided by operations, including discontinued operations, totaled $2.0 billion and $3.1 billion for 2021 and 2020, respectively. The Company generated free cash flow of approximately $1.5 billion in 2021 and $2.3 billion in 2020, respectively. Free Cash Flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management utilizes this measure in connection with managing our business and believes that Free Cash Flowfree 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, repayservice 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 underlying operational performance, we believe that free cash flow also enables
investors to perform meaningful comparisons between past and present periods.
The Company generated Free Cash Flow of approximately $2.0 billion, $1.9 billion and $1.8 billion in 2017, 2016 and 2015, respectively.
The following are reconciliations of free cash flow to cash provided by operations:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 |
| Cash provided by operations | $ | 1,757 |
| $ | 2,478 |
| $ | 2,580 |
| Cash provided by operations | $ | 2,030 | | $ | 3,063 | |
| Adjustments: | | Adjustments: | |
| Cash invested in capital projects | (1,391 | ) | (1,348 | ) | (1,487 | ) | |
| Cash contribution to pension plan | 1,250 |
| 750 |
| 750 |
| |
Cash payment for Kleen Settlement
| 354 |
| — |
| — |
| |
| Cash invested in capital projects, net of insurance recoveries | | Cash invested in capital projects, net of insurance recoveries | (549) | | (751) | |
| Free Cash Flow | $ | 1,970 |
| $ | 1,880 |
| $ | 1,843 |
| Free Cash Flow | $ | 1,481 | | $ | 2,312 | |
| | | In millions | Three Months Ended December 31, 2017 | Three Months Ended September 30, 2017 | Three Months Ended December 31, 2016 | In millions | Three Months Ended December 31, 2021 | Three Months Ended September 30, 2021 | Three Months Ended December 31, 2020 |
| Cash provided by operations | $ | 1,188 |
| $ | (709 | ) | $ | 912 |
| Cash provided by operations | $ | 107 | | $ | 645 | | $ | 789 | |
| Adjustments: | | Adjustments: | |
| Cash invested in capital projects | (456 | ) | (271 | ) | (445 | ) | |
| Cash contribution to pension plan | — |
| 1,250 |
| — |
| |
Cash payment for Kleen Settlement
| — |
| 354 |
| — |
| |
| Cash invested in capital projects, net of insurance recoveries | | Cash invested in capital projects, net of insurance recoveries | (201) | | (126) | | (94) | |
| Free Cash Flow | $ | 732 |
| $ | 624 |
| $ | 467 |
| Free Cash Flow | $ | (94) | | $ | 519 | | $ | 695 | |
Results
The non-GAAP financial measures presented in this Form 10-K as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of Operationsour 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.
RESULTS OF OPERATIONS
Business Segment Operating Profits are used by International Paper’s management to measure the earnings performance of its businesses. 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 operating results. International Paper believes that using this measure allowsinformation, along with net earnings, provides a better understandingmore complete analysis of trends in costs, operating efficiencies, prices and volumes.the results of operations by year. Business Segment Operating Profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, and
excluding interest expense, net, corporate expenses, net, corporate net special items, business net special items and corporate special items.non-operating pension expense. Business Segment Operating Profits are defined byis a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the Securitiesperformance of our business segments and Exchange Commission as a non-GAAPis presented in our financial measure, and are not GAAP alternatives to net income or any other operating measure prescribed by accounting principles generally acceptedstatement footnotes in the United States.accordance with ASC 280.
International Paper operates in threetwo segments: Industrial Packaging and Global Cellulose Fibers and Printing Papers.Fibers. During 2017,2021, as a result of the transferspin-off of the North American Coated Paperboardour Printing Papers business along with certain mixed-use coated paperboard and pulp businesses and the associated reclassification of this businessthese businesses to Discontinued Operations, we no longer have a Printing Paper segment and the remaining sales and operating profits previously reported in the Consumer
Packaging segmentPrinting Papers business have been reclassified for segment reporting for all periods presented. The European Coated Paperboard business is now included in the Industrial Packaging segment and sales and earnings historically included in the Consumer Packaging segment associated with previously divested businesses are now included in Corporate items.
The following table presents a reconciliationcomparison of net earnings (loss) from continuing operations attributable to International Paper Company to its total Business Segment Operating Profit:
| | | | | | | | |
| In millions | 2021 | 2020 |
| Net Earnings (Loss) from Continuing Operations Attributable to International Paper Company | $ | 1,122 | | $ | 230 | |
| Add back (deduct) | | |
| Income tax provision (benefit) | 188 | | 176 | |
| Equity (earnings) loss, net of taxes | (313) | | (77) | |
| Noncontrolling interests, net of taxes | 2 | | — | |
| Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 999 | | 329 | |
| Interest expense, net | 337 | | 446 | |
| Noncontrolling interests included in operations | (5) | | — | |
| Corporate expenses, net | 134 | | 62 | |
| Corporate net special items | 352 | | 262 | |
| Business net special items | 18 | | 481 | |
| Non-operating pension expense (income) | (200) | | (41) | |
| $ | 1,635 | | $ | 1,539 | |
| Business Segment Operating Profit (Loss): | | |
| Industrial Packaging | $ | 1,638 | | $ | 1,757 | |
| Global Cellulose Fibers | (3) | | (218) | |
| | |
| Total Business Segment Operating Profit | $ | 1,635 | | $ | 1,539 | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Earnings (Loss) From Continuing Operations Attributable to International Paper Company | $ | 2,110 |
| $ | 802 |
| $ | 853 |
|
| Add back (deduct) | | | |
| Income tax provision (benefit) | (1,085 | ) | 193 |
| 417 |
|
| Equity (earnings) loss, net of taxes | (177 | ) | (198 | ) | (117 | ) |
| Noncontrolling interests, net of taxes | — |
| (2 | ) | (21 | ) |
| Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 848 |
| 795 |
| 1,132 |
|
| Interest expense, net | 572 |
| 520 |
| 555 |
|
| Noncontrolling interests/equity earnings included in operations | (2 | ) | 1 |
| 8 |
|
| Corporate items | 91 |
| 121 |
| 96 |
|
| Corporate special items (income) expense | 76 |
| 55 |
| 422 |
|
| Non-operating pension expense | 484 |
| 610 |
| 258 |
|
| | $ | 2,069 |
| $ | 2,102 |
| $ | 2,471 |
|
| Business Segment Operating Profit | | | |
| Industrial Packaging | $ | 1,547 |
| $ | 1,741 |
| $ | 1,938 |
|
| Global Cellulose Fibers | 65 |
| (179 | ) | 68 |
|
| Printing Papers | 457 |
| 540 |
| 465 |
|
| Business Segment Operating Profit | $ | 2,069 |
| $ | 2,102 |
| $ | 2,471 |
|
Business Segment Operating ProfitsProfit in 2017 included a net loss from special items of $4252021 was $96 million compared with $127 millionhigher than in 2016 and $137 million in 2015. Operationally, compared with 2016,2020 as the benefits from higher average sales price realizations and mix ($605 million),1.6 billion) and higher sales volumes ($33 million), lower maintenance outage costs ($55 million) and the incremental operating earnings from the pulp business acquired in late 2016 ($1178 million) were partially offset by higher operating costs ($172350 million), higher input costs ($362981 million) and higher othermaintenance outage costs ($11177 million).
Corporate items includes operating profits (losses) of previously divested businesses of $0 million in 2017, ($2) million in 2016 and ($62) million in 2015.
The principal changes in operating profit by business segment were as follows:
•Industrial Packaging’s profitsoperating profit of $1.5$1.6 billion were $194was $119 million lower than in 20162020 as the benefits of higher average sales price, realizations andfavorable mix and higher sales volumes were partiallymore than offset by higher operating costs, higher maintenance outage costs, higher input costs and higher othermaintenance outage costs. In addition, operating profits in 2017 included a charge of $354 million related to the agreement to settle the Kleen Products anti-trust class action lawsuit, charges of $14 million for the removal of abandoned property at our mills, a charge of $10 million for the accelerated amortization of an intangible asset in Brazil and a gain of $6 million for a net bargain purchase gain associated with the 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain. In 2016, operating profits included a charge of $70 million for impairment and other costs associated with the sale of our corrugated packaging business in Asia and a charge of $7 million related to the closure of a mill in Turkey.
•Global Cellulose Fibers' operating profit of $65loss improved $215 million was $244to $3 million favorable versus 2016compared with 2020 as the benefits of higher average sales price, realizationsfavorable mix and mix, lower operating costs, lower maintenance outage costs and lower input costs were partially offset by higher other costs. Operating profits in 2017 included $33 million of costs associated with the acquisition and integration of the pulp business acquired in late 2016 from Weyerhaeuser, a charge of $14 million for the amortization of the remaining inventory fair value adjustment associated with that acquisition and a charge of $4 million for the removal of abandoned property at our mills. Results for 2017 also reflect the transaction synergies associated with the Weyerhaeuser acquisition. In 2016, the operating loss included $31 million of costs associated with the acquisition of the pulp business and $19 million
for the amortization of the inventory fair value adjustment associated with that acquisition.
Printing Papers’ profits of $457 million represented a $83 million decrease in operating profits from 2016. The benefits from higher sales volumes lower maintenance outage costs and lower other costs were more than offset by lower average sales price realizations and mix, higher operating costs, higher input costs and higher inputmaintenance outage costs. Operating profits in 2017 included charges of $2 million for the removal of abandoned property at our mills.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
For the year ended December 31, 2017,Including discontinued operations, International Paper generated $1.8$2.0 billion of cash flow from operations for the year ended December 31, 2021, compared with $2.5$3.1 billion in 2016 and $2.6 billion in 2015. Cash flow from operations included $1.25 billion, $750 million and $750 million of cash pension contributions in 2017, 2016 and 2015, respectively.2020. Capital spending for 20172021 totaled $1.4 billion,$549 million, or 98%45% of depreciation and amortization expense. Our liquidity position remains strong, supported by approximately $2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt continues to be an important element in our overall financial strategy.facilities.
We expect strong cash generation again in 2018, including the benefits of U.S. tax reform, and will continue our balanced use of cash through the payment of dividends, reducing total debt and making investments for future growth.
Capital spending for 2018 is targeted at $1.5 billion, or about 111% of depreciation and amortization.
Legal
While the operating results for International Paper’s various business segments are driven by a number of business-specific factors, changes in International Paper’s operating results are closely tied to changes in general economic conditions in North America, Europe, Russia, Latin America, India, North Africa and the Middle East.
Factors that impact the demand for our products include industrial non-durable goods production, consumer preferences, consumer spending commercial printing and advertising activity, white-collar employment levels, and movements in currency exchange rates.
Product prices are affected by a variety of factors including general economic trends, inventory levels, currency exchange rate movements and
worldwide capacity utilization. In addition to these revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include changes in raw material costs, principally wood, recycledrecovered fiber and chemical costs; energy costs; freight costs; mill outage costs; salary and benefits costs, including pensions; and manufacturing conversion costs.
The following is a discussion of International Paper’s consolidated results of operations for the year ended December 31, 2017,2021, and the major factors affecting these results compared to 2016 and 2015.2020.
For the year ended December 31, 2017,2021, International Paper reported net sales of $21.7$19.4 billion, compared with $19.5$17.6 billion in 2016 and $20.7 billion in 2015.2020. International net sales (including(based on the location of the seller and including U.S. exports) totaled $8.4$5.2 billion or 39%27% of total sales in 2017.2021. This compares with international net sales of $6.9$4.8 billion in 2016 and $7.6 billion in 2015.2020.
Full year 20172021 net earnings attributable to International Paper Company totaled $2.1$1.8 billion ($5.134.47 per diluted share), compared with net earnings of $904$482 million ($2.181.22 per diluted share) in 2016 and $938 million ($2.23 per diluted share) in 2015.2020. Amounts in all periods include the results of discontinued operations.
Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 20162021 and 20152020 were as follows:
| | | In millions | 2017 | | 2016 | | 2015 | | In millions | 2021 | | 2020 | |
| Earnings from continuing operations attributable to International Paper Company | $ | 2,110 |
| (a) | $ | 802 |
| (b) | $ | 853 |
| (c) | Earnings from continuing operations attributable to International Paper Company | $ | 1,122 | | (a) | $ | 230 | | (b) |
(a)Includes $952 million of net special items income which included a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cut and Jobs Act and $298 million of non-operating pension expense which included a pre-tax charge of $376 million ($232 million after taxes) for a settlement accounting charge associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees.
(b) Includes $108$284 million of net special items charges and $375$151 million of non-operating pension expense which included a pre-tax charge of $439 million ($270 million after taxes) for a settlement accounting charge associated with payments under a term-vested lump sum buyout.income.
(c) (b)Includes $439$649 million of net special items charges and $157$31 million of non-operating pension expense.income.
Compared with 2016,2020, the benefits from higher sales volumes, higher average sales price realizations and a favorable mix ($1.2 billion), higher sales volumes ($6 million), lower maintenance outage costs, incremental earnings from the acquisition of Weyerhaeuser's pulp business, lower other costs,net interest expense ($82 million), and lower tax expense ($69 million) were partially offset by higher operating costs ($262 million), higher input costs ($734 million), higher maintenance outage costs ($133 million) and higher net interest expense.corporate and other costs ($51 million). In addition, 20172021 results
included lowerhigher equity earnings, net of taxes, relating to the Company’s investment in Ilim Holding, SA.and other investments, partially offset by lower equity earnings relating to the Company's investment GPIP.
Discontinued OperationsDISCONTINUED OPERATIONS
2017:
On JanuaryOctober 1, 2018,2021, the Company completed the transferpreviously announced spin-off of its Printing Papers business along with certain mixed-use coated paperboard and pulp businesses in North American Consumer Packaging business,America, France and Russia into a standalone, publicly-traded company, Sylvamo Corporation. On August 6, 2021, the Company completed the sale of its Kwidzyn, Poland mill which includes its North American Coated Paperboardincluded the pulp and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. International Paper received a 20.5% ownership interestpaper mill in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business.Kwidzyn and supporting functions. As a result of this transfer,the Sylvamo Corporation spin-off and sale of Kwidzyn, the Company no longer has a Printing Papers business segment, and all current and prior year amountshistorical results have been adjusted to reflect the North American Consumer PackagingKwidzyn and the Printing Papers business and other businesses conveyed to Sylvamo Corporation as a discontinued operation.operations. See Note 78 on pages 5361 through 5563 of Item 8. Financial Statements and SupplementarySupplementary Data for further discussion.
Included in discontinuedDiscontinued operations wereinclude the operating earnings of the North American Consumer Packaging business,businesses noted above. Discontinued operations also includes an after-tax net special items gain of $330 million and charge of $10$7 million for costs associated with the transferin 2021 and an after-tax charge2020, respectively.
Details of $28 million for non-operating pension expenses related to curtailmentthese charges and termination benefits in connection with this same transaction.(gains) were as follows:
2016: | | | | | | | | | | | | | | |
| Special Items in Discontinued Operations | |
| In millions | 2021 | | 2020 | |
| Printing Papers spin-off expenses | $ | 92 | | | $ | 8 | | |
| Environmental remediation reserve adjustment | — | | | 6 | | |
| Gain on sale of Kwidzyn, Poland mill | (344) | | | — | | |
| Gain on sale of La Mirada, CA distribution center | (65) | | | — | | |
| Foreign value-added tax credit (including interest) | (37) | | | — | | |
| Foreign and state taxes related to Printing Papers spin-off | 24 | | | — | | |
| Tax benefit related to settlement of tax audits | — | | | (9) | | |
| Other | — | | | 2 | | |
| Total | $ | (330) | | | $ | 7 | | |
In 2016, discontinued operations included the operating earnings of the North American Consumer Packaging business and an after-tax charge of $5 million expense associated with a legal settlement related to the xpedx business.
2015:
In 2015, discontinued operations included the operating earnings of the North American Consumer Packaging business.
Income TaxesINCOME TAXES
A net income tax benefitprovision from continuing operations of $1.1 billion$188 million was recorded for 2017, including2021. Excluding a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, tax benefits of $113 million related to income tax refund claims, a tax expense of $9 million related to an international tax law change, tax expenses of $34 million related to international investment restructuring and a tax expense of $38 million associated with a cash pension contribution. Excluding these items, a $194$87 million net tax benefit for other special items and a $186$49 million tax benefitexpense related to non-operating pension expense,income, the operational tax provision was $549$226 million, or 30%19% of pre-tax earnings before equity earnings.
A net income tax provision from continuing operations of $193$176 million was recorded for 2016 including tax benefits of $63 million related to legal entity restructurings, a tax expense of $31 million associated with a tax rate change in Luxembourg, a tax expense of $23 million associated with a $750 million cash pension contribution, and a tax benefit of $14 million related to the closure of a federal tax audit. Excluding these items, a $51 million tax benefit for other special items and a $235 million tax benefit related to non-operating pension expense, the tax provision was $502 million, or 32% of pre-tax earnings before equity earnings.
A net income tax provision of $417 million was recorded for 20152020, including a tax benefit of $62$23 million related to internal restructurings,the settlement of tax audits. Excluding this item, a tax expense of $23 million for the tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items. Excluding these items, an $83$70 million net tax benefit for other special items and a $101$10 million tax benefitexpense related to non-operating pension expense,income, the operational tax provision was $638$259 million, or 33%25% of pre-tax earnings before equity earnings.
Equity Earnings, Net of TaxesEQUITY EARNINGS, NET OF TAXES
Equity earnings, net of taxes, in 2017, 2016 and 2015 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A.of $311 millionand $48 million in Russia2021 and 2020, respectively, and from its ownership interest in GPIP of $4 million in 2021 and its then 15.0% ownership interest at December 31, 2020 in GPIP of $40 million. The Company no longer had an ownership interest in GPIP at December 31, 2021 (see page 27)31).
Interest Expense and Noncontrolling InterestINTEREST EXPENSE AND NONCONTROLLING INTEREST
Net corporate interest expense totaled $572$337 million in 2017, $5202021 and $446 million in 2016 and $555 million in 2015. Net interest expense in 2017 includes $5 million of interest income associated with income tax refund claims. The increase in 2017 compared with 2016 is due to higher average outstanding debt.2020. The decrease in 20162021 compared with 2015 reflects2020 was due to lower average interest rates.outstanding debt.
There were no netNet earnings attributable to noncontrolling interests in 2017, compared with a loss ofwere $2 million in 20162021, compared with zero in 2020.
SPECIAL ITEMS
Pre-tax special items included in continuing operations totaling $371 million and a loss$742 million were recorded in 2021 and 2020, respectively. Details of $21these charges were as follows:
| | | | | | | | | | | | | | |
| Special Items | | | | |
| In millions | 2021 | | 2020 | |
| Business Segments | | | | |
| Restructuring and other, net | $ | 25 | | | $ | (1) | | |
| Net (gains) losses on sales and impairments of businesses | (7) | | | 467 | | |
| Abandoned property removal | — | | | 14 | | (a) |
| Riverdale mill conversion accelerated depreciation | — | | | 1 | | (b) |
| Other | 1 | | (c) | — | | |
| 19 | | | 481 | | |
| Corporate | | | | |
| Restructuring and other, net | $ | 484 | | | $ | 196 | | |
| Sylvamo investment fair value adjustment | 32 | | | — | | |
| Real estate - office impairment | 21 | | | — | | |
| Environmental remediation reserve adjustments | 10 | | | 41 | | |
| Asbestos litigation reserve adjustment | — | | | 43 | | |
| India investment | — | | | 11 | | |
| Gain on sale of portion of equity investment in Graphic Packaging | (204) | | | (33) | | |
| Legal reserve adjustment | (5) | | | — | | |
| Net gain on sales and impairments of businesses | — | | | (2) | | |
| Other | 14 | | | 5 | | |
| 352 | | | 261 | | |
| Total | $ | 371 | | | $ | 742 | | |
(a) Includes charges of $9 million recorded in 2015. The decrease from 2015 reflectsthe Industrial Packaging business segment and $5 million recorded in the Global Cellulose Fibers business segment.
(b) Recorded in the Industrial Packaging business segment.
(c) Allocation of income to noncontrolling interest associated with the sale of our equity shareEMEA Packaging business in Turkey.
Net losses on sales and impairments of businesses included in special items totaled a pre-tax gain of $7 million and loss of $465 million in 2021 and 2020, respectively. Details of these (gains) losses were as follows:
| | | | | | | | | | | | | | |
| Net (Gains) Losses on Sales and Impairments of Businesses |
| In millions | 2021 | | 2020 | |
| EMEA Packaging - Turkey | $ | (7) | | | $ | 123 | | |
| Brazil Packaging | — | | | 348 | | |
| | | | |
| | | | |
| | | | |
| Other | — | | | (6) | | (a) |
| Total | $ | (7) | | | $ | 465 | | |
(a) Includes gains of $5 million recorded in the IP-Sun JVIndustrial Packaging business segment and gains of $1 million recorded in 2015.Corporate.
Special Items
International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) realign capacity to operate fewer facilities with the same revenue capability, and(c) close high cost, unprofitable facilities, and (c)(d) reduce costs. Annually, strategic operating plans are developed by each ofAdditionally, the Company is committed to its capital allocation framework to maintain a strong balance sheet including reducing debt to maximize value creation and maintain our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to, among other outcomes, (a) invest additional capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to determine if an impairment of the assets have occurred. In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset impairment charges and severance costs. It is possible that additional charges and costs will be incurred in future periods in our core businesses should such triggering events occur.current investment grade credit rating.
During 2017, 20162021 and 2015,2020, pre-tax restructuring and other charges, net, totaling $67 million, $54$509 million and $252$195 million were recorded. Details of these charges arewere as follows:
|
| | | | | | | | | | | | |
| Restructuring and Other | | | | | | |
| In millions | 2017 | | 2016 | | 2015 | |
| Business Segments | | | | | | |
| Turkey mill closure | $ | — |
| | $ | 7 |
| (a) | $ | — |
| |
| | — |
| | 7 |
| | — |
| |
| Corporate | | | | | | |
| Early debt extinguishment costs (see Note 13) | $ | 83 |
| | $ | 29 |
| | $ | 207 |
| |
| Gain on sale of investment in ArborGen | (14 | ) | | — |
| | — |
| |
| India Packaging business evaluation write-off | — |
| | 17 |
| | — |
| |
| Gain on sale of investment in Arizona Chemical | — |
| | (8 | ) | | — |
| |
| Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand | — |
| | 9 |
| | 8 |
| |
| Timber monetization restructuring | — |
| | — |
| | 16 |
| |
| Legal liability reserve adjustment | — |
| | — |
| | 15 |
| |
| Other Items | (2 | ) | | — |
| | 6 |
| |
| | 67 |
| | 47 |
| | 252 |
| |
| Total | $ | 67 |
| | $ | 54 |
| | $ | 252 |
| |
| | | | | | | | | | | | | | |
| Restructuring and Other, Net | | | | |
| In millions | 2021 | | 2020 | |
| Business Segments | | | | |
| Building a Better IP initiative | $ | 14 | | (a) | $ | — | | |
| EMEA Packaging optimization | 12 | | | — | | |
| Other | (1) | | (b) | (1) | | (b) |
| 25 | | | (1) | | |
| Corporate | | | | |
| Early debt extinguishment costs (see Note 16) | $ | 461 | | | $ | 196 | | |
| Building a Better IP initiative | 15 | | | — | | |
| Other | 8 | | | — | | |
| 484 | | | 196 | | |
| Total | $ | 509 | | | $ | 195 | | |
(a) Includes $11 million recorded in the Industrial Packaging business segment and $3 million recorded in the Global Cellulose Fibers business segment.
(b) Recorded in the Industrial Packaging business segment.
Other Corporate Special Items
In addition, other corporate special items totaling $0 million, $8 million and $(4) million were recorded in 2017, 2016 and 2015, respectively. Details of these charges were as follows:
|
| | | | | | | | | |
| Other Corporate Items | | | |
| In millions | 2017 | 2016 | 2015 |
| Write-off of certain regulatory pre-engineering costs | $ | — |
| $ | 8 |
| $ | — |
|
| Other | — |
| — |
| (4 | ) |
| Total | $ | — |
| $ | 8 |
| $ | (4 | ) |
Impairments of Goodwill
No goodwill impairment charges were recorded in 2017 or 2016.
In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its Brazil Packaging business and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.
Net Losses on Sales and Impairments of Businesses
DESCRIPTION OF BUSINESS SEGMENTS
International Paper’s business segments discussed below are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the forest products industry.
Industrial Packaging
INDUSTRIAL PACKAGING
International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted domestically into corrugated boxespackaging and other packaging by our 178175 North American containercorrugated packaging plants. Additionally, we recycle approximately one million tons of OCC and mixed and
white paper through our 1816 recycling plants. In EMEA, our operations include one recycled fiber containerboard mill in Morocco and 27 container plants in France, Italy, Spain, Morocco and Turkey. During 2016, we acquired a newsprint mill in Spain which we are in the process of converting to a recycled containerboard mill. In Brazil our operations include three containerboard mills and four box plants. Our containercorrugated packaging plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives.
In EMEA, our operations include a recycled fiber containerboard mill in Morocco and one in Spain and 24 corrugated packaging plants in France, Italy, Spain, Morocco and Portugal. On May 31, 2021, the Company completed the sale of its 90.38% ownership interest in Olmuksan International Paper,
also produces high qualitya corrugated packaging business in Turkey, to Mondi Group. As a result of the sale of our Kwidzyn, Poland mill on August 6, 2021 and the completion of the previously announced spin-off of Sylvamo Corporation on October 1, 2021 which included certain mixed-use coated paperboard
for a varietybusinesses, the Coated Paperboard business is no longer reported as part of
packaging end uses with 431,000 tonsthe Industrial Packaging business segment. See Note 8 Divestitures and Impairments of capacity at our mills in PolandBusinesses on pages 61 through 63 of Item 8. Financial Statements and Russia.Supplementary Data.
Global Cellulose FibersGLOBAL CELLULOSE FIBERS
Our cellulose fibers product portfolio includes fluff, market and specialty pulps. OurInternational Paper is the largest producer of fluff pulp which is used to make absorbent hygiene products like baby diapers, feminine care, adult incontinence and other non-woven products, and ourproducts. Our market pulp is used for tissue and paper products. We continue to invest in exploring new innovative uses for our products, such as our specialty pulps, which are used for non-absorbent end uses including textiles, filtration, construction material, paints and coatings, reinforced plastics and more. Our products are made in the United States Canada, France, Poland, and RussiaCanada and are sold around the world. International Paper facilities have annual dried pulp capacity of about 43 million metric tonnes.
Printing Papers
International Paper is onetons. As a result of the world’s largest producerssale of printingour Kwidzyn, Poland mill on August 6, 2021 and writing papers. The primary product in this segmentthe completion of the previously announced spin-off of Sylvamo Corporation on October 1, 2021 which included pulp businesses, EMEA Global Cellulose Fibers is uncoated papers. Thisno longer reported as part of the Global Cellulose Fibers business produces papers for use in copiers, desktopsegment. See Note 8 Divestitures and laser printersImpairments of Businesses on pages 61 through 63 of Item 8. Financial Statements and digital imaging. End use applications include advertising and promotional materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. Uncoated papers also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms and file folders. Uncoated papers are sold under private label and International Paper brand names that include Hammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet, Rey, Pol, and SvetocopySupplementary Data. The mills producing uncoated papers are located in the United States, France, Poland, Russia, Brazil and India. The mills have uncoated paper production capacity of over 4 million tons annually. Brazilian operations function through International Paper do Brasil, Ltda, which owns or manages approximately 329,000 acres of forestlands in Brazil.
Ilim Holding S.A.
In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.43.6 million metric tons. Ilim has exclusive harvesting rights on timberland and forest areas exceeding 16.419.8 million acres (6.6(8.01 million hectares).
ProductsGPIP
On January 1, 2018, the Company completed the transfer of its North American Consumer Packaging business, which included its North American Coated Paperboard and brand designations appearingFoodservice businesses, to Graphic Packaging International Partners, LLC ("GPIP"), a subsidiary of Graphic Packaging Holding Company, in italics are trademarksexchange for a 20.5% ownership interest in GPIP. GPIP subsequently transferred the North American Consumer Packaging business to Graphic Packaging International, LLC ("GPI"), a wholly-owned subsidiary of International Paper or a related company.GPIP that holds the assets of the combined business. The Company has since fully monetized its investment in GPIP with transactions beginning in the first quarter 2020 through the second quarter 2021 and no longer has an ownership interest in GPIP. See Note 11 Equity Method Investments on page 65 through 66 of Item 8. Financial Statements and Supplementary Data for further information.
The following tables present net sales and operating profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items.
Industrial Packaging
INDUSTRIAL PACKAGING
Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, as well as with demand for e-commerce, processed foods, poultry, meat and agricultural products. In addition to prices and volumes, major factors affecting the profitability of Industrial Packaging are raw material and energy costs, freight costs, mill outage costs, manufacturing efficiency and product mix.
|
| | | | | | | | | |
| Industrial Packaging | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 15,077 |
| $ | 14,226 |
| $ | 14,559 |
|
| Operating Profit (Loss) | $ | 1,547 |
| $ | 1,741 |
| $ | 1,938 |
|
| Asia Packaging restructuring and impairment | — |
| 70 |
| — |
|
| Holmen mill bargain purchase gain | (6 | ) | — |
| — |
|
| Kleen Products anti-trust settlement | 354 |
| — |
| — |
|
| Brazil Packaging Wood Supply Accelerated Amortization | 10 |
| — |
| — |
|
| Turkey mill closure | — |
| 7 |
| — |
|
| Brazil Packaging goodwill and trade name impairment | — |
| — |
| 137 |
|
| Other | 14 |
| — |
| — |
|
| Operating Profit Before Special Items | $ | 1,919 |
| $ | 1,818 |
| $ | 2,075 |
|
| | | | | | | | |
| Industrial Packaging | | |
| In millions | 2021 | 2020 |
| Net Sales | $ | 16,326 | | $ | 14,900 | |
| Operating Profit (Loss) | $ | 1,638 | | $ | 1,757 | |
Industrial Packagingnet sales for 20172021 increased 6%10% to $15.1$16.3 billion compared with $14.2$14.9 billion in 2016, and 4% compared with $14.6 billion in 2015.2020. Operating profits in 20172021 were 11%7% lower than in 2016 and 20% lower than in 2015.2020. Comparing 20172021 with 2016,2020, benefits from
higher average sales price realizations and a favorable mix ($593 million)1.2 billion) and higherstable sales volumes ($75 million) were offset by higher operating costs ($245237 million), higher input costs ($890 million) and higher maintenance outage costs ($1142 million), higher input costs ($304 million) and higher other costs ($17 million).
| | | North American Industrial Packaging | North American Industrial Packaging | North American Industrial Packaging | |
| In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 |
| Net Sales (a) | $ | 13,329 |
| $ | 12,450 |
| $ | 12,618 |
| Net Sales (a) | $ | 14,944 | | $ | 13,552 | |
| Operating Profit (Loss) | $ | 1,504 |
| $ | 1,757 |
| $ | 2,009 |
| Operating Profit (Loss) | $ | 1,605 | | $ | 1,722 | |
| Kleen Products anti-trust settlement | 354 |
| — |
| — |
| |
| Other | 14 |
| — |
| — |
| |
| Operating Profit Before Special Items | $ | 1,872 |
| $ | 1,757 |
| $ | 2,009 |
| |
(a) Includes intra-segment sales of $172$126 million for 20172021 and $143$117 million for 2016.2020.
North American Industrial Packaging'ssales volumes increased in 20172021 compared with 2016 reflecting higher box shipments2020 for corrugated boxes driven by strong demand across our customer segments. Domestic containerboard sales volumes also increased. Export containerboard sales volumes were lower. Total maintenance and higher shipments of containerboard to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were maintenance downtime. The business tookwas about 914,00025,000 tons of total downtimehigher in 2016 of which 445,000 were economic downtime and 469,000 were2021 compared with 2020, primarily due to maintenance downtime. Average sales margins were higher reflecting higher prices for both containerboard and boxes and average sales price realizations for containerboarda favorable geographic mix. Operating and distribution costs increased, primarily due to inflation and supply chain and labor constraints related to the Omicron COVID-19 variant. 2021 earnings were impacted by the winter storms in export marketsthe first quarter and the incident at the Prattville mill in the fourth quarter. 2020 earnings include costs related to the Riverdale conversion. Planned maintenance downtime costs were significantly higher.$143 million higher in 2021 than in 2020. Input costs were significantly higher, primarily for recycleddriven by higher wood, recovered fiber but also forand energy chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were $5 million higher in 2017 than in 2016.costs.
Looking ahead to the first quarter of 2018,2022, compared with the fourth quarter of 2017,2021, sales volumes for boxes are expected to be seasonally lower, despite two more shipping days. Shipments of containerboard to export markets are also expected to decrease. Average sales price realizations should reflect the continuing realization of containerboard export price increases. Input costs are expected to be higher for wood, energydriven by seasonality and chemicals. Planned maintenance downtime spending is expected to be about $53 million higher. Operating costs are expected to be negatively impacted by the severe winter weather conditions in the 2018 first quarter.
|
| | | | | | | | | |
| EMEA Industrial Packaging | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 1,334 |
| $ | 1,227 |
| $ | 1,114 |
|
| Operating Profit (Loss) | $ | 6 |
| $ | 15 |
| $ | 13 |
|
| Holmen mill net bargain purchase gain | (6 | ) | — |
| — |
|
| Turkey Mill Closure | — |
| 7 |
| — |
|
| Operating Profit Before Special Items | $ | — |
| $ | 22 |
| $ | 13 |
|
EMEA Industrial Packaging's sales volumes in 2017 were higher than in 2016 reflecting improved market demand, particularly in Moroccocontinued supply chain and Turkey while sales volumes in the Eurozone were negatively impacted by poor weather conditions. Average sales margins improved due to sales price increases and a more favorable mix that more than offset higher containerboard costs and the impact of unfavorable currency translation. Input costs for energy were higher and operating costs were negatively impacted by inflation.
Entering the first quarter of 2018, comparedlabor constraints associated with the fourth quarter of 2017 sales volumes are expected to be slightly lower.Omicron variant. Average sales margins are expected to be lower due to continuing higher containerboard prices.higher. Operating costs will be higher due to the the conversion of the Madrid mill.
|
| | | | | | | | | |
| Brazilian Industrial Packaging | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 251 |
| $ | 232 |
| $ | 228 |
|
| Operating Profit (Loss) | $ | (35 | ) | $ | (43 | ) | $ | (163 | ) |
| Brazil Packaging goodwill and trade name impairment | 10 |
| — |
| 137 |
|
| Operating Profit Before Special Items | $ | (25 | ) | $ | (43 | ) | $ | (26 | ) |
Brazilian Industrial Packaging's sales volumes in 2017 increasedcompared with 2016 for boxes and containerboard, reflecting improving economic conditions. Average sales price realizations were also higher. Input costs decreased, primarily for recycled fiber and wood. Operating costs were higher largely due to the effects of inflation. Planned maintenance downtime costs were $1 million lower in 2017 compared with 2016.
Looking ahead to the first quarter of 2018, compared with the fourth quarter of 2017, sales volumes are expected to be higher for boxes, but lower for containerboard and sheets. Average sales margins should improve, reflecting a sales price increase for boxes. Input costs are expected to be flat, but operatingincrease and include additional costs will be higher duerelated to other costs.the Prattville mill. Planned maintenance downtime costs are expected to be $1$119 million higher. The first quarter of 2022 is expected to be the highest maintenance quarter of the year. Input costs are expected to be lower primarily for recovered fiber and energy.
|
| | | | | | | | | |
| European Coated Paperboard | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 335 |
| $ | 327 |
| $ | 319 |
|
| Operating Profit (Loss) | $ | 72 |
| $ | 93 |
| $ | 87 |
|
| | | | | | | | |
| EMEA Industrial Packaging | | |
| In millions | 2021 | 2020 |
| Net Sales | $ | 1,508 | | $ | 1,317 | |
| Operating Profit (Loss) | $ | 33 | | $ | 38 | |
European Coated Paperboard's EMEA Industrial Packaging'ssales volumes in 2017 compared with 2016 increased2021 were lower than in Europe, but decreased2020 driven by the sale of our EMEA Packaging business in Russia.Turkey in May 2021. Sales volumes improved in the Eurozone and
Morocco reflecting demand recovery from the COVID-19 pandemic. Average sales price realizationsmargins were lower in Russia while in Europe averageall regions driven by higher containerboard costs partially offset by corrugated packaging sales margins increased reflecting higher average sales prices and a more favorable mix. Inputprice recovery. Operating costs for wood, energy and purchased pulp were higher.lower, driven by improvements at the Madrid, Spain mill. Planned maintenance downtimeoutage costs were $3$1 million lower in 2017.2021 compared with 2020. Input costs were significantly higher, primarily driven by energy and fiber costs.
Looking forward toEntering the first quarter of 2018,2022, compared with the fourth quarter of 2017,2021, sales volumes are expected to increase in Europe, but expected to be seasonally lower in Russia.stable. Average sales price realizationsmargins are expected to be higher, in both Europe and Russia. Inputreflecting lower input costs. Operating costs are expected to be lower.higher. Planned maintenance outage costs are expected to be $5$1 million higherlower due to no planned outages in the first quarter of 2018 duequarter. Input costs are expected to a planned outage at the Kwidzyn mill.be higher, primarily for energy.
| | | Asian Industrial Packaging | | |
| Brazilian Industrial Packaging | | Brazilian Industrial Packaging | |
| In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 |
| Net Sales | $ | — |
| $ | 133 |
| $ | 280 |
| Net Sales | $ | — | | $ | 148 | |
| Operating Profit (Loss) | $ | — |
| $ | (81 | ) | $ | (8 | ) | Operating Profit (Loss) | $ | — | | $ | (3) | |
| Asia Packaging restructuring and impairment | — |
| 70 |
| — |
| |
| Operating Profit Before Special Items | $ | — |
| $ | (11 | ) | $ | (8 | ) | |
Global Cellulose FibersGLOBAL CELLULOSE FIBERS
Demand for Cellulose Fibers products is closely correlated with changes in demand for absorbent hygiene products, primarily driven by the demographics and income growth in various geographic regions. It is further affected by changes in currency rates that can benefit or hurt producers in different geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs, mill outage costs, and freight costs.
| | | Global Cellulose Fibers | | Global Cellulose Fibers | |
| In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 |
| Net Sales | $ | 2,551 |
| $ | 1,092 |
| $ | 975 |
| Net Sales | $ | 2,732 | | $ | 2,393 | |
| Operating Profit (Loss) | $ | 65 |
| $ | (179 | ) | $ | 68 |
| Operating Profit (Loss) | $ | (3) | | $ | (218) | |
| Acquisition costs | 33 |
| 31 |
| — |
| |
| Inventory fair value step-up amortization | 14 |
| 19 |
| — |
| |
| Other | 4 |
| — |
| — |
| |
| Operating Profit Before Special Items | $ | 116 |
| $ | (129 | ) | $ | 68 |
| |
Global Cellulose Fibers results include the net sales and operating profit associated with the pulp business acquired from Weyerhaeuser from the date of acquisition
Net sales for 20172021 increased14%to $2.6$2.7 billion, compared with $1.1$2.4 billion in 2016 and $975 million in 2015.2020. Operating profits in 2017 were2021 improved significantly higher than in 2016 and 4% lower than in2015.compared to 2020. Comparing 20172021 with 2016 for the legacy business,2020, benefits from higher average sales price, realizationsfavorable mix and mixsales volumes ($61454 million) were partially offset by higher operating costs ($113 million), lower planned maintenance downtime costs ($39 million), lowerhigher input costs ($591 million), lower operating and higher maintenance outage costs ($135 million).
Sales volumes in 2021 compared with 2020 were lower reflecting the extremely challenging supply chain environment. Total maintenance and economic downtime was about 11,000 tons lower other costs ($6 million) were offset by lower sales volumes ($5 million). The incremental operating profits from the acquired business were $117 million in 2017.
For the legacy business, sales volumes were lower.2021 compared with 2020, primarily due to economic downtime. Average sales margins increased,were higher, reflecting higher sales price realizations for bothaverage fluff pulp and softwood market pulp prices. Operating costs increased, driven by inflation and a favorable product mix.supply chain related mill slowbacks and downtime. Distribution costs were significantly higher driven by global supply chain disruptions causing port congestion and container shortages. Planned maintenance outage costs were $35 million higher in 2021. Input costs were slightly lower. Planned maintenance downtime costs were $39 million lower in 2017 primarily due to the non-recurrence of the 2016 costs associated with the conversion of the Riegelwood mill to 100% fluff pulp production. Operating costs were flat, while input costs were lower. In Europesignificantly higher, driven by wood, energy and Russia, average sales margins increased significantly and planned maintenance downtime costs were $3 million lower than in 2016.chemicals.
Entering the first quarter of 2018,2022, compared with the fourth quarter of 2021, sales volumes will be lower due to capacity constraints resulting from planned maintenance downtime. Average sales price realizations are expected to be stable and product mix shouldflat as solid demand is offset by continuing supply chain constraints. Average sales margins are expected to be favorable.stable. Operating costs are expected to be higher, partly dueseasonally higher. Distribution costs are also expected to the severe winter weather experienced in January. Inputincrease from supply chain constraints. Planned maintenance outage costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime costs should be $52$4 million higher than in the fourth quarter of 2017. In addition, a fourth-quarter favorable inventory valuation adjustment will not repeat.
Printing Papers
Demand for Printing Papers products is closely correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated cut-size products, with changes in white-collar employment levels that affect the usage of copy and laser printer paper. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.
|
| | | | | | | | | |
| Printing Papers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 4,157 |
| $ | 4,058 |
| $ | 4,056 |
|
| Operating Profit (Loss) | $ | 457 |
| $ | 540 |
| $ | 465 |
|
| Other | 2 |
| — |
| — |
|
| Operating Profit Before Special Items | $ | 459 |
| $ | 540 |
| $ | 465 |
|
Printing Papersnet sales for 2017 of $4.2 billion increased 2% compared with $4.1 billion in both 2016 and 2015. Operating profits in 2017 were 15% lower than in 2016 and 2%lowerthan in 2015. Comparing 2017 with 2016, benefits from higher sales volumes ($25 million), lower planned maintenance downtime costs ($15 million) and lower other costs ($12 million) were more than offset by lower average sales price realizations and mix ($61 million), higher operating costs ($31 million) and higher input costs ($41 million).
|
| | | | | | | | | |
| North American Printing Papers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 1,833 |
| $ | 1,890 |
| $ | 1,942 |
|
| Operating Profit (Loss) | $ | 132 |
| $ | 236 |
| $ | 179 |
|
| Other | 2 |
| — |
| — |
|
| Operating Profit Before Special Items | $ | 134 |
| $ | 236 |
| $ | 179 |
|
North American Printing Papers' sales volumes for 2017 were higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls. Average sales margins were also impacted by an unfavorable mix. Input costs were higher for energy and chemicals, partially offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. Operating costs were lower.
Entering the first quarter of 2018, sales volumes are expected to be seasonally higher. Average sales margins should be relatively flat. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs should be higher. Planned maintenance downtime costs will increase by about $22 million in the 2018 first quarter.
|
| | | | | | | | | |
| Brazilian Papers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales (a) | $ | 972 |
| $ | 897 |
| $ | 878 |
|
| Operating Profit (Loss) | $ | 194 |
| $ | 173 |
| $ | 186 |
|
(a) Includes intra-segment sales of $24 million for 2017 and $5 million for 2016.
Brazilian Papers' sales volumes for uncoated freesheet paper in 2017 were higher compared with 2016 reflecting improving economic conditions. Average sales price realizations increased primarily for domestic uncoated freesheet paper due to the realization of price increases implemented in 2016, while export sales price realizations also increased. Raw material costs decreased for pulp, but were partly offset by higher costs for chemicals and virgin fiber. Operating costs were lower than in 2016. Planned maintenance downtime costs were $4 million lower.
Looking ahead to 2018, compared with the fourth quarter of 2017, sales volumes for uncoated freesheet paper in the first quarter are expected to be seasonally weaker in both domestic and export markets. Average sales price realizations should increase due to the implementation of sales price increases in both domestic and export markets.2021. Input costs are expected to be slightlyseasonally higher, primarily for wood, chemicals and energy. Planned maintenance downtime costs are expected to be $5 million higher in the first quarter of 2018.
|
| | | | | | | | | |
| European Papers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 1,187 |
| $ | 1,109 |
| $ | 1,064 |
|
| Operating Profit (Loss) | $ | 136 |
| $ | 142 |
| $ | 111 |
|
European Papers' sales volumes for uncoated freesheet paper in 2017 were lower in Russia and about flat in Europe compared with 2016. Average sales price realizations improved for uncoated freesheet paper following price increases implemented in 2017. Input costs were higher for wood, energy, chemicals and purchased pulp. Planned maintenance downtime costs were $22 million lower in 2017 than in 2016.
Entering 2018, sales volumes for uncoated freesheet paper in the first quarter are expected to be stable. Average sales price realizations are expected to be slightly lower in Russia, but higher in Europe. Input costs should be slightly lower, mainly for wood. Planned maintenance downtime costs in the first quarter of 2018 should be $8 million higher than in the fourth quarter of 2017.
|
| | | | | | | | | |
| Indian Papers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 189 |
| $ | 167 |
| $ | 172 |
|
| Operating Profit (Loss) | $ | (5 | ) | $ | (11 | ) | $ | (11 | ) |
Indian Papers' average sales price realizations in 2017 were higher than in 2016. Sales volumes also increased. Input costs were lower for wood, partially offset by higher chemical costs. Operating costs were higher in 2017, while planned maintenance downtime costs were even with 2016. Looking ahead to the first quarter of 2018, sales volumes are expected to be slightly lower than in the 2017 fourth quarter, but seasonally strong. Average sales price realizations are expected to increase.
Equity Earnings, Net of Taxes – Ilim Holding S.A.EQUITY EARNINGS, NET OF TAXES - ILIM
International Paper accounts for its investment in Ilim, Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting.
The Company recorded equity earnings, net of taxes, related to Ilim of $183$311 million in 20172021, compared with earnings of $199$48 million in 20162020. Foreign exchange gains (losses) included in equity earnings in 2021 were not material and earningsJSC Ilim Group had no U.S. dollar-denominated debt outstanding as of $131 million in 2015.December 31, 2021. Operating results recorded in 20172020 included an after-tax noncash foreign exchange gain of $15 million compared with an after-tax foreign exchange gain of $25 million in 2016 and an after-taxnon-cash foreign exchange loss of $75$50 million, in 2015 primarily on the remeasurement of Ilim's U.S. dollar denominated net debt.
SalesDriven by logistics issues and congestion at the Chinese border, sales volumes for the joint venture decreased year over year for shipments to China of softwood pulp and linerboard, but were partially offset by increased sales of hardwood pulp to China. Sales volumes3% in the Russian market decreased2021, primarily for softwood pulp and hardwood pulp but increased for linerboard.shipments to China, partially offset by higher shipments of softwood pulp and hardwood pulp to Russia and higher shipments of containerboard to China and other export markets. Average sales price realizationsmargins were significantly higher in 2017 for sales of softwood pulp, hardwood pulp and linerboard to China and other export markets. Averagecontainerboard reflecting higher average sales price realizations in Russian markets increased year over year for all products.prices. Input costs also increased in 2017were higher, primarily for wood, energyfuel and fuel.chemicals. Distribution costs were highernegatively impacted by transportation tariffs and inflation. Maintenance and repair expenses were higher. Due to escalating regulations, an environmental reserve
was recorded in 2017.2021 for the Siberian mill sites. The Company received cash dividends from the joint venture of $133$154 million in 2017, $582021 and $141 million in 2016, and $35 million in 2015.
2020.
Entering the first quarter of 2018,2022, sales volumes are expected to be lowerhigher than in the fourth quarter of 2017 due2021, as distribution constraints at the Chinese border are anticipated to be resolved. Based on results to date in the seasonal slowdown in Russiacurrent quarter, average sales margins are expected to decrease for softwood pulp and export markets.hardwood pulp shipped to China. Average sales price realizationsmargins are expected to increase for hardwood pulp, softwood pulp and linerboardshipments of containerboard to China. Input costs are expected to be lower, while distribution costsfor wood are projected to be higher due to seasonality. Distribution costs will increase.
EQUITY EARNINGS - GPIP
International Paper recorded equity earnings of $4 million in 2021 and $40 million in 2020 on its ownership position in GPIP. The Company received cash dividends from the investment of $5 million in 2021 and $20 million in 2020. The Company no longer has an ownership interest in GPIP - see Description of Business Segments on pages 28 and 29 for further detail regarding our ownership interest.
OverviewOVERVIEW
A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our major products. While changes in key operating cash operating costs, such as energy, raw material, energy, mill outage and transportation costs,distribution, do have an effect on operating cash generation, we believe that our focus on pricingcommercial and cost controlsoperational excellence, as well as our ability to tightly manage costs and working capital has improved our cash flow generation over an operating cycle.
Cash usesUse of cash during 2017 were2021 was primarily focused on working capital requirements, capital spending, debt reductions, pension contributions,reduction and returning cash to shareholders.
CASH PROVIDED BY OPERATING ACTIVITIES
Cash Provided by Operating Activities
Cash provided by operations, including discontinued operations, totaled $1.8$2.0 billion in 20172021, compared with $2.5$3.1 billion for 2016 and $2.6 billion for 2015.2020. Cash used by working capital components (accounts receivable, contract assets and inventory less accounts payable and accrued liabilities, interest payable and other) totaled $402$426 million in 2017,2021, compared with cash provided by working capital components of $71$324 million in 2016 and a cash use for working capital components2020.
Cash dividends received from equity investments were $159 million in 2015. The increase2021, compared with $162 million in 2017 working capital is largely due to growth in receivables primarily tied to year-over-year price increases.2020.
Investment ActivitiesINVESTMENT ACTIVITIES
Including discontinued operations, investment activities in 2017 decreased2021 increased from 20162020, as 20162021 included the purchase of Weyerhaeuser's pulp business for $2.2 billion in cash, the purchase of the Holmen business for $57 million in cash, net of cash acquired, and proceeds from the sale of the Asia Packaging businessKwidzyn, Poland mill and the sale of $108our ownership interest in Olmuksan International Paper for $827 million, net of cash divested. In 2015,divested, proceeds from the monetization of our investment activity includes higher capital spending and the use of $198in Graphic Packaging International Partners, LLC (GPIP) for $908 million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries11 Equity Method Investments on pages 63 through 6465 and 66 of Item 8. Financial Statements and Supplementary Data) and proceeds of $4.85 billion from the settlement of the 2015 Financing Entities Timber Notes (see Note 15 Variable Interest Entities on pages 74 and 75 of Item 8. Financial Statements and Supplementary Data). The Company maintains an average capital spending target around depreciation and amortization levels or modestly above due to strategic plans over the course of an economic cycle. Capital spending was $1.4 billion$549 million in 2017,2021, or 98%45% of depreciation and amortization, compared with $1.3 billion$751 million in 2016,2020, or 110%58% of depreciation and amortization, and $1.5 billion, or 115% of depreciation and amortization in 2015. Across our businesses, capitalamortization. Capital spending as a percentage of depreciation and amortization ranged from 37.5% to 107.0%was 31% for Global Cellulose Fibers and 46% for Industrial Packaging in 2017.2021. The following table shows capital spending for operations by business segment for the years ended December 31, 2017, 20162021 and 2015,2020, excluding amounts related to discontinued operations of $111$69 million in 2017, $1072021 and $88 million in 2016 and $177 million2020.
| | | | | | | | |
| In millions | 2021 | 2020 |
| Industrial Packaging | $ | 382 | | $ | 554 | |
| Global Cellulose Fibers | 83 | | 96 | |
| | |
| Subtotal | 465 | | 650 | |
| Corporate and other | 15 | | 13 | |
| Capital Spending | $ | 480 | | $ | 663 | |
Capital spending in 2015.
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Industrial Packaging | $ | 836 |
| $ | 832 |
| $ | 871 |
|
| Global Cellulose Fibers | 188 |
| 174 |
| 129 |
|
| Printing Papers | 235 |
| 215 |
| 232 |
|
| Subtotal | 1,259 |
| 1,221 |
| 1,232 |
|
| Corporate and other | 21 |
| 20 |
| 78 |
|
| Capital Spending | $ | 1,280 |
| $ | 1,241 |
| $ | 1,310 |
|
Capital expenditures in 2018 are currently2022 is expected to be about $1.5approximately $1.1 billion,, or 111%96% of depreciation and amortization.
Acquisitions
Acquisitions and Joint Ventures
FINANCING ACTIVITIES
Including discontinued operations, financing activities during 2021 included debt issuance of $1.5 billion and reductions of $2.5 billion for a net decrease of $1.0 billion. Financing Activitiesactivities during 2020 included debt issuances of $583 million and reductions of $2.3 billion for a net decrease of $1.7 billion.
Amounts related to early debt extinguishment during the years ended December 31, 2017, 20162021 and 20152020 were as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 |
| Debt reductions (a) | $ | 993 |
| $ | 266 |
| $ | 2,151 |
| |
| Early debt reductions (a) | | Early debt reductions (a) | $ | 2,472 | | $ | 1,640 | |
| Pre-tax early debt extinguishment costs (b) | 83 |
| 29 |
| 207 |
| Pre-tax early debt extinguishment costs (b) | 461 | | 196 | |
| |
(a) | Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). |
| |
(b) | Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. |
2017: Financing(a)Reductions related to notes with interest rates ranging from 3.00% to 7.50% with original maturities from 2021 to 2048 for the years ended December 31, 2021 and 2020.
(b)Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.
The Company's early debt reductions in 2021 included debt tenders of $500 million with interest rates ranging from 4.80% to 5.15% and maturity dates ranging from 2035 to 2046, $200 million with an interest rate of 3.55% due in 2029, and $558 million with interest rates ranging from 4.35% to 4.40% and maturity dates ranging from 2047 to 2048. In addition to these debt tenders, the Company had make whole calls of $517 million related to debt with an interest rate 3.80% due in 2026 and $268 million related to debt with an interest rate of 3.00% due in 2027. Finally, the Company had $429 million in open market repurchases related to debt with interest rates ranging from 3.00% to 5.38% and maturity dates ranging from 2027 to 2048. In addition to the early debt reductions, the Company had debt reductions of $37 million in 2021 related primarily to capital leases, debt maturities, and international debt.
The Company had debt issuances in 2021 of $1.5 billion related primarily to Sylvamo debt issuances. In the fourth quarter of 2021, Sylvamo made a $1.4 billion net cash distribution to the Company as part of the spin-off.
Other financing activities during 20172021 included debt issuancesthe net issuance of $approximately 1.9 billionmillion shares of treasury stock. Repurchases of common stock and retirementspayments of $1.4 billionrestricted stock withholding taxes totaled $838.6 million, including $810.9 million related to shares repurchased under the Company's share repurchase program. The Company has repurchased 85.1 million shares at an average price of $47.93, for a total of approximately $4.1 billion, since the repurchase program began in September 2013 through December 31, 2021. The Company paid cash dividends totaling $780 million during 2021.
Other financing activities during 2020 included the net increaseissuance of $483approximately one million. shares of treasury stock. Repurchases of common stock and payments of restricted stock withholding taxes totaled $42 million, including $14 million related to shares repurchased under the Company's share repurchase
program. The Company paid cash dividends totaling $806 million during 2020.
Interest Rate Swaps
Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk, International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt. During 2020, International Paper terminated its interest rate swaps with a notional amount of $700 million and maturities ranging from 2024 to 2026 with an approximate fair value of $85 million. Subsequent to the termination of the interest rate swaps, the fair value basis adjustment is amortized to earnings as interest income over the same period as a debt and managepremium on the previously hedged debt. The Company had no outstanding interest expense. Atrate swaps for the years ended December 31, 2017, International Paper had no interest rate swap contracts outstanding2021 and 2020 (see Note 1417 Derivatives and Hedging Activities on pages 6576 through 6979 of Item 8. Financial Statements and Supplementary Data). During 2017, the inclusion of the offsetting interest income from short-term investments reduced the effective interest rate from 5.0% to 4.7%.
In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination of available cash and other borrowings, were used to make a $1.25 billion voluntary cash contribution to the Company's pension plan. In December 2017, International Paper received $660 million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92% to 9.38% and original maturities from 2018 to 2021. Pre-tax early debt retirement costs of $83 million related to the debt repayments, including $82 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2017. The $660
million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018 and is classified as Liabilities held for sale in the accompanying consolidated balance sheet.
In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of $750 million. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of December 31, 2017 and 2016, the Company had $180 million and $165 million, respectively, outstanding under this commercial paper program.
Other financing activities during 2017 included the net issuance of approximately 1.7 million shares of treasury stock, including restricted stock withholding. Payments of restricted stock withholding taxes totaled $47.0 million.
In October 2017, International Paper announced that the quarterly dividend would be increased from $0.4625 per share to $0.4750 per share, effective for the 2017 fourth quarter.
2016: Financing activities during 2016 included debt issuances of $3.8 billion and retirements of $1.9 billion for a net increase of $1.9 billion.
International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2016, International Paper had no interest rate swap contracts outstanding (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2016, the amortization of deferred gains on previously terminated swaps had no impact on the weighted average cost of long-term recourse debt. The inclusion of the offsetting interest income from short-term investments reduced the effective rate from 5.3% to 4.8%.
In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047, the proceeds from which were primarily used to fund the acquisition of Weyerhaeuser's pulp business. In addition, the Company repaid approximately $266 million of notes with an interest rate of 7.95% and an original maturity of 2018. Pre-tax early debt retirement costs of $29 million related to the debt repayments, including the $31 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of operations for the twelve months ended December 31, 2016.
In December 2016, International Paper entered into a new $1.5 billion contractually committed credit facility that expires in December 2021 and has a facility fee of 0.15% payable annually.
Other financing activities during 2016 included the net repurchase of approximately 0.9 million shares of treasury stock, including restricted stock withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $132.3 million, including $100.1 million related to shares repurchased under the Company's share repurchase program.
In October 2016, International Paper announced that the quarterly dividend would be increased from $0.44 per share to $0.46 per share, effective for the 2016 fourth quarter.
2015: Financing activities during 2015 included debt issuances of $6.9 billion and retirements of $6.9 billion for a net decrease of $74 million.
International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2015, International Paper had interest rate swaps with a total notional amount of $17 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through 69 of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and the amortization of deferred gains on previously terminated swaps decreased the weighted average cost of debt from 5.9% to an effective rate of 5.8%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 5.1%.
In 2015, International Paper issued $700 million of 3.80% senior unsecured notes with a maturity date in 2026, $600 million of 5.00% senior unsecured notes with a maturity date in 2035, and $700 million of 5.15% senior unsecured notes with a maturity date in 2046. The proceeds from this borrowing were used to repay approximately $1.0 billion of notes with interest rates ranging from 4.75% to 9.38% and original maturities from 2018 to 2022, along with $211 million of cash premiums associated with the debt repayments. Additionally, the proceeds from this borrowing were used to make a $750 million voluntary cash contribution to the Company's pension plan. Pre-tax early debt retirement costs of $207 million related to the debt repayments, including the $211 million of cash premiums, are included in restructuring and other charges in the accompanying consolidated statement of
operations for the twelve months ended December 31, 2015.
Other financing activities during 2015 included the net repurchase of approximately 8.0 million shares of treasury stock, including restricted stock withholding, and the issuance of 62,000 shares of common stock for various plans, including stock option exercises that generated approximately $2.4 million of cash. Repurchases of common stock and payments of restricted stock withholding taxes totaled $604.6 million, including $522.6 million related to shares repurchased under the Company's share repurchase program.
In October 2015, International Paper announced that the quarterly dividend would be increased from $0.40 per share to $0.44 per share, effective for the 2015 fourth quarter.
Variable Interest Entities
Information concerning variable interest entities is set forth in Note 1215 Variable Interest Entities on pages 6374 through 6475 of Item 8. Financial Statements and Supplementary Data. In connection with the 2006 International Paper installment sale of forestlands, we received $4.8 billion of installment notes. These installment notes were used by variable interest entities as collateral for discussion.borrowings from third-party lenders. These variable interest entities were restructured in 2015 when the installment notes and third-party loans were extended. The restructured variable interest entities held installment notes of $4.8 billion and third-party loans of $4.2 billion which both matured in August 2021. We settled the third-party loans at their maturity with the proceeds from the installment notes. This resulted in cash proceeds of approximately $630 million representing our equity in the variable interest entities. Maturity of the installment notes and termination of the monetization structure also resulted in a $72 million tax liability that was paid in the fourth quarter of 2021. As of December 31, 2021, the Company's remaining deferred tax liability associated with the 2015 Financing Entities was $813 million. The nature and timing of the income tax due related to these transactions is currently under review by the Internal Revenue Service. LiquidityLIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2022
We expect another year of solid cash generation in 2022. Furthermore, we intend to continue to make choices for the use of cash that are consistent with our capital allocation framework to drive long-term
value creation. These include maintaining a strong balance sheet and Capital Resources Outlookinvestment grade credit rating, returning meaningful cash to shareholders through dividends and share repurchases and making organic investments to maintain our world-class system and strengthen our packaging business.
Our share repurchase program most recently approved by our Board of Directors on October 12, 2021, which does not have an expiration date, has approximately $2.9 billion aggregate amount of shares of common stock remaining authorized for 2018purchase as of December 31, 2021. We may continue to repurchase shares under such authorization in open market transactions (including block trades), privately negotiated transactions or otherwise, subject to prevailing market conditions, our liquidity requirements, restrictions in our debt documents, applicable securities laws requirements and other factors. In addition, we pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future. Each quarterly dividend is subject to review and approval by our Board of Directors, and is subject to restrictions in our debt documents.
Capital Expenditures and Long-Term Debt
Capital spending for 2022 is planned at approximately $1.1 billion, or about 96% of depreciation and amortization.
At December 31, 2021, International Paper’s credit agreements totaled $2.1 billion, which is comprised of the $1.5 billion contractually committed bank credit agreement and up to $550 million under the receivables securitization program. Management believes these credit agreements are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. At December 31, 2021, the Company had no borrowings outstanding under the $1.5 billion credit agreement or the $550 million receivables securitization program. The Company’s credit agreements are not subject to any restrictive covenants other than the financial covenants as disclosed on pages 75 and 76 in Note 16 - Debt and Lines of Credit of Item 8. Financial Statements and Supplementary Data, and the borrowings under the receivables securitization program being limited by eligible receivables. The Company was in compliance with all its debt covenants at December 31, 2021 and was well below the thresholds stipulated under the covenants as defined in the credit agreements. Further the financial covenants do not restrict any borrowings under the credit agreements.
International Paper also has a commercial paper program with a borrowing capacity up to $1.0 billion supported by its $1.5 billion credit agreement. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. The Company had no borrowings outstanding as of December 31, 2021 under this program.
International Paper expects to be able to meet projected capital expenditures, service existing debt, and meet working capital and dividend requirements during 2018and make common stock and/or debt repurchases for the next 12 months and for the foreseeable future thereafter with current cash balances and cash from operations. Additionally, the Company hasoperations, supplemented as required by its existing credit facilities totaling $2.1 billion available at December 31, 2017.
facilities. The Company will continue to rely uponon debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preservemaintain appropriate levels of liquidity to meet our needs while reducingmanaging balance sheet debt and interest expense.expense, and we have repurchased, and may continue to repurchase, our common stock (under our existing share repurchase program) and debt (including in open market purchases) to the extent consistent with this capital structure planning. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. During 2020, management took various actions to further strengthen the Company’s liquidity position in response to the COVID-19 pandemic. This included the Company deferring the payment of our payroll taxes as allowed under CARES Act. The Company was in compliance with all its debt covenants at CARES Act allows for the deferral of the payment of the employer portion of Social Security taxes accrued between March 27, 2020 and December 31, 20172020. Under the CARES Act 50% of the deferred payroll taxes was paid in 2021 and was well below the thresholds stipulated under the covenants as definedremainder will be paid by December 31, 2022. We believe that our credit agreements and commercial paper program provide us with sufficient liquidity to operate in the credit agreements.current environment; however, an extended period of economic disruption could impact our access to additional sources of liquidity.
Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At December 31, 2017,2021, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively.
Contractual obligations for future payments under existing debt and lease commitments and purchase obligations at December 31, 2017,2021, were as follows:
| | | In millions | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | In millions | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter |
| Maturities of long-term debt (a) | $ | 311 |
| $ | 126 |
| $ | 164 |
| $ | 440 |
| $ | 956 |
| $ | 9,160 |
| |
| Lease obligations | 130 |
| 102 |
| 77 |
| 53 |
| 37 |
| 141 |
| |
| Debt maturities (a) | | Debt maturities (a) | $ | 196 | | $ | 358 | | $ | 149 | | $ | 206 | | $ | 73 | | $ | 4,597 | |
| Operating lease obligations | | Operating lease obligations | 139 | | 97 | | 60 | | 38 | | 23 | | 28 | |
| Purchase obligations (b) | 3,415 |
| 680 |
| 583 |
| 523 |
| 463 |
| 2,197 |
| Purchase obligations (b) | 2,900 | | 533 | | 386 | | 291 | | 259 | | 1,052 | |
| Total (c) | $ | 3,856 |
| $ | 908 |
| $ | 824 |
| $ | 1,016 |
| $ | 1,456 |
| $ | 11,498 |
| Total (c) | $ | 3,235 | | $ | 988 | | $ | 595 | | $ | 535 | | $ | 355 | | $ | 5,677 | |
| |
(a) | Total debt includes scheduled principal payments only. |
| |
(b) | Includes $1.6 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes $1.2 billion relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business. |
| |
(c) | Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits of approximately $134 million. |
(a)Includes financing lease obligations.
(b)Includes $798 million relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business. Also includes $979 million relating to fiber supply agreements assumed in conjunction with the 2016 acquisition of Weyerhaeuser's pulp business.
(c)Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits of approximately $160 million. Also not included in the above table is $106 million of Deemed Repatriation Transition Tax associated with the 2017 Tax Cuts and Jobs Act which will be settled from 2022 - 2026.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017,2021, to be permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon. As a result of recent U.S. tax legislation, the Company is evaluating this assertionthereon (see Note 1013 Income Taxes on pages 5768 through 6070 of Item 8. Financial Statements and Supplementary Data). As of December 31, 2017, the amount of cash associated with permanently reinvested foreign earnings was approximately $590 million. We do not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. Pension Obligations and Funding
At December 31, 2017,2021, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $1.9 billion higher$242 million lower than the fair value of plan assets.assets, excluding non-U.S. plans. Approximately $1.5 billion$595 million of this amount relates to plans that are subject to minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding requirements differs from the calculation of the present value of plan benefits(the projectedbenefits (the "projected benefit obligation)obligation") for accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA)("WERA") was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding method selected by the Company, and the timing of its implementation, as
well as on actual demographic data and the targeted funding level. The Company continually reassesses the amount and timing of any discretionary contributions and elected not to make any voluntary contributions totaling $1,250 million and $750 million for the years ended December 31, 2017 and 2016, respectively.in 2019, 2020 or 2021. At this time, we
do not expect to have any required contributions to our plans in 2018,2022, although the Company may elect to make future voluntary contributions. The timing and amount of future contributions, which could be material, will depend on a number of factors, including the actual earnings and changes in values of plan assets and changes in interest rates.
During the fourth quarter of 2017, the Company entered into an agreement with The Prudential Insurance Company of America to purchase a group annuity contract and transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit obligations. The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction, at the end of 2017, Prudential assumed responsibility for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension settlement charge of $376 million before tax in the fourth quarter of 2017. In addition, large payments from the non-qualified pension plan also required a remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was also recognized in the fourth quarter of 2017.
During the first quarter of 2016, International Paper announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement accounting, the Company recognized non-cash settlement charges of $3 million in both the third and fourth quarters of 2016.
ILIM SHAREHOLDERS' AGREEMENTIlim Holding S.A. Shareholder’s Agreement
In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, International Paper entered into a shareholder’sshareholders' agreement with an initial 15-year term expiring in October 2022 that automatically renews for successive five-year terms, unless terminated by either party. The shareholders' agreement also includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement.provisions. If these or any other deadlock procedures under the shareholder'sshareholders' agreement are commenced, although it is not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trustantitrust authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price for its partners' 50% interests would be approximately $1.5$2.3 billion, excluding the impact of Ilim debt at December 31, 2021, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholder’s agreement.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require subjective judgments about matters that are inherently uncertain.
Accounting policies whose application mayhas had or is reasonably likely to have a significant effectmaterial impact on the reported results of operations and financial position of International Paper, and that can require judgmentsa significant level of estimation or uncertainty by management that affect their application, include the accounting for contingencies, impairment or disposal of long-lived
assets and goodwill, pensions and postretirement benefit obligations, stock options and income taxes. The Company has discussed the selection of critical accounting policies and the effect of significant estimates with the Audit and Finance Committee of the Company’s Board of Directors.Directors and with its independent registered public accounting firm.
Contingent LiabilitiesWhile we have taken into account certain impacts arising from COVID-19 in connection with the accounting estimates reflected in this Annual Report on Form 10-K, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be affected.
CONTINGENT LIABILITIES
Accruals for contingent liabilities, including legal,personal injury, product liability, environmental, asbestos and environmentalother legal matters, are recorded when it is probable that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments
regarding projected outcomes and range of loss based on historical litigation and settlement experience and recommendations of legal counsel.counsel and, if applicable, other experts. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. Liabilities for asbestos-related matters require reviews of recent and historical claims data. The Company utilizes its in-house legal and environmental experts to develop estimates of its legal, environmental and asbestos obligations, supplemented as needed by third-party specialists to analyze its most complex contingent liabilities.
We calculate our workers' compensation reserves based on estimated actuarially calculated development factors. The workers' compensation reserves are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. While we believe that our assumptions are appropriate, the ultimate settlement of workers' compensation reserves may differ significantly from amounts we have accrued in our consolidated financial statements.
ImpairmentBrazil Goodwill Tax Matter: The Brazilian Federal Revenue Service has challenged the deductibility of Long-Lived Assetsgoodwill amortization generated in a 2007 acquisition by Sylvamo do Brasil Ltda., a wholly-owned subsidiary of the Company until the October 1, 2021 spin-off of the Printing Papers business. The Company received assessments for the tax years
2007-2015 totaling approximately $106 million in tax, and Goodwill$351 million in interest, penalties, and fees as of December 31, 2021 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received other subsequent unfavorable decisions from the Brazilian Administrative Council of Tax Appeals. The Company has appealed and intends to further appeal these and any future unfavorable administrative judgments to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. The Company believes that it has appropriately evaluated the transaction underlying these assessments, and has concluded based on Brazilian tax law, that its tax position would be sustained.
The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015. This assessment pertains to a business that was conveyed to Sylvamo Corporation as of October 1, 2021, as part of our spin-off transaction. Pursuant to the terms of the tax matters agreement entered into between the Company and Sylvamo Corporation, the Company will pay 60% and Sylvamo will pay 40%, on up to $300 million of any tax assessment related to the matter, and the Company will pay all amounts of the assessment over $300 million. The Brazilian government may enact a tax amnesty program that would allow Sylvamo do Brasil Ltda. to resolve this dispute for less than the assessed amount. In addition, all decisions concerning the conduct of the litigation related to this matter, including strategy, settlement, pursuit and abandonment, continue to be made by the Company. Sylvamo Corporation thus has no control over any decision related to this ongoing litigation. As of October 1, 2021, in connection with the recording of the distribution of assets and liabilities resulting from the spin-off transaction, the Company has established a liability representing the initial fair value of the contingent liability under the tax matter agreement. The contingent liability was determined in accordance with ASC 460 "Guarantees" based on the probability weighting of various possible outcomes. The initial fair value estimate and recorded liability as of December 31, 2021 is $48 million. This liability will not be adjusted in subsequent periods unless facts and circumstances change such that an amount greater than the initial recognized liability becomes probable and estimable.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL
An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through undiscounted cash flows from
future operations.operations or disposals. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testingevaluation for possible impairment of goodwill and intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments may require the estimation of future cash flows andor the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes, operating, raw material, energy and freight costs, and various other projected operating economic factors.factors and other intended uses of the assets. As these key factors change in future periods, the Company will update its impairment analysesanalysis to reflect its latest estimates and projections.
ASU 2011-08, "Intangibles - Goodwill and Other," allows entities testing goodwill for impairment the option of performing a qualitative ("Step 0") assessment before calculatingperforming the fair value of a reporting unit for thequantitative goodwill impairment test. If a Step 0qualitative assessment is performed, an entity is no longernot required to calculateperform the fair value of a reporting unitquantitative goodwill impairment test unless the entity determines that, based on that Step 0qualitative assessment, it is more likely than not that its fair value is less than its carrying value.
The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the qualitative Step 0 analysisassessment to its North America Industrial Packaging reporting unitsunit and the quantitative goodwill impairment test to its EMEA Industrial Packaging reporting unit as of October 1, 2017. 2021.
For the current year test,evaluation, the Company assessed various assumptions, events and circumstances that would have affected the estimated fair value of the North America Industrial Packaging reporting units. Theunit under the qualitative assessment and the results of this assessmentthe qualitative assessments indicated that it iswas not more likely than not
that the fair values of the Company's reporting units were less than the carrying valuesvalue of the reporting units.unit was less than its carrying value.
The Company also performed the quantitative goodwill impairment test which included comparing the carrying amount of the EMEA Industrial Packaging reporting unit to its estimated fair value. The Company performed the quantitative goodwill impairment test for EMEA Industrial Packaging due to the changes in the reporting unit's asset base as a result of acquisitions and divestitures since the previous quantitative goodwill impairment test. The Company calculated the estimated fair value of the reporting unit using a weighted approach based on
discounted future cash flows, market multiples and transaction multiples. The determination of fair value using the discounted cash flow approach requires management to make significant estimates and assumptions related to forecasts of future revenues, operating profit margins, and discount rates. The determination of fair value using market multiples and transaction multiples requires management to make significant assumptions related to revenue multiples and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples. The results of our annual impairment test indicated that the carrying amount did not exceed the estimated fair value of the EMEA Industrial Packaging reporting unit.
In addition, the Company considered whether there were any events or circumstances subsequent tooutside of the annual testevaluation that would reduce the fair value of its reporting units below their carrying amounts and necessitate anothera goodwill impairment test.evaluation. In consideration of all relevant factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017.2021.
No goodwill impairment charges were recorded in 2017 or 2016.
In the fourth quarter of 2015, in conjunction with the annual testing of its reporting units for goodwill impairment, the Company calculated the estimated fair value of its Brazil Packaging business using the discounted future cash flows and determined that all of the goodwill in the business, totaling $137 million, should be written off. The decline in the fair value of the Brazil Packaging business and resulting impairment charge was due to the negative impacts on the cash flows of the business caused by the continued decline of the overall Brazilian economy.
Pension and Postretirement Benefit ObligationsPENSION BENEFIT OBLIGATIONS
The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with International Paper’s consulting actuary, and are dependent upon various assumptions including the expected long-term rate of return on plan assets, discount rates, projected future compensation increases health care cost trend rates and mortality rates.
The calculations of pension and postretirement benefit obligations and expenses require decisions about a number of key assumptions that can significantly affect liability and expense amounts, including the expected long-term rate of return on plan assets and the discount rate used to calculate plan liabilities.
In advance of the spin-off of the Printing Papers segment into a standalone, publicly traded company, Sylvamo, a legally separate Sylvamo Pension Plan was established to transfer both pension liabilities and qualified pension assets for the projected rateapproximately 900 active qualified pension participants who transitioned to Sylvamo. Effective September 1, 2021, the Retirement Plan of future compensation increasesInternational Paper and health care cost trend rates.the Sylvamo Pension Plan were legally separated and remeasured as of that date.
Benefit obligations and fair values of plan assets as of December 31, 2017,2021, for International Paper’s pension and postretirement plansplan were as follows:
| | | In millions | Benefit
Obligation | Fair Value of
Plan Assets | In millions | Benefit
Obligation | Fair Value of
Plan Assets |
| U.S. qualified pension | $ | 12,895 |
| $ | 11,368 |
| U.S. qualified pension | $ | 11,480 | | $ | 12,075 | |
| U.S. nonqualified pension | 369 |
| — |
| U.S. nonqualified pension | 353 | | — | |
| U.S. postretirement | 270 |
| — |
| |
| Non-U.S. pension | 247 |
| 176 |
| Non-U.S. pension | 65 | | 19 | |
| Non-U.S. postretirement | 25 |
| — |
| |
The table below shows assumptionsthe discount rate used by International Paper to calculate U.S. pension obligations for the years shown:
|
| | | | | | |
| | 2017 | 2016 | 2015 |
| Discount rate | 3.60 | % | 4.10 | % | 4.40 | % |
| Rate of compensation increase | 3.75 | % | 3.75 | % | 3.75 | % |
| | | | | | | | | | | |
| 2021 | 2020 | 2019 |
| Discount rate | 2.90 | % | 2.60 | % | 3.40 | % |
Additionally, health care cost trend rates and other assumptions used in the calculation of U.S. postretirement obligations for the years shown were:
|
| | | | |
| | 2017 | 2016 |
| Discount rate | 3.50 | % | 4.00 | % |
| Health care cost trend rate assumed for next year | 6.50 | % | 6.50 | % |
| Rate that the cost trend rate gradually declines to | 5.00 | % | 5.00 | % |
| Year that the rate reaches the rate it is assumed to remain | 2022 |
| 2022 |
|
International Paper determines these actuarial assumptions, after consultation with our actuaries, on December 31 of each year or more frequently if required, to calculate liability information as of that date and pension and postretirement expense for the following year. The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. The discount rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high quality corporate bonds.
The weighted average expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the year ended December 31, 20172021 was 7.50%6.40%.
Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) 20182022 pension expense by approximately $27$27 million,, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease pension expense by approximately $35 million. The effect on net postretirement benefit cost from a 1% increase or decrease in the annual health care cost trend rate would be approximately $1 million.$19 million.
Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were:
|
| | | | | |
| Year | Return | Year | Return |
| 2017 | 19.3 | % | 2012 | 14.1 | % |
| 2016 | 7.1 | % | 2011 | 2.5 | % |
| 2015 | 1.3 | % | 2010 | 15.1 | % |
| 2014 | 6.4 | % | 2009 | 23.8 | % |
| 2013 | 14.1 | % | 2008 | (23.6 | )% |
| | | | | | | | | | | |
| Year | Return | Year | Return |
| 2021 | 7.7 | % | 2016 | 7.1 | % |
| 2020 | 24.7 | % | 2015 | 1.3 | % |
| 2019 | 23.9 | % | 2014 | 6.4 | % |
| 2018 | (3.0) | % | 2013 | 14.1 | % |
| 2017 | 19.3 | % | 2012 | 14.1 | % |
The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple-Inland asset returns. International Paper and Temple-
InlandTemple-Inland assets were combined in October 2014. The annualized time-weighted rate of return
earned on U.S. pension plan assets was 9.4%14.0% and 7.2%11.3% for the past five and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from 2007 – 2017.
ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains and losses in subsequent years. The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost for the U.S. pension plans over the next fiscal year are $327 million and $17 million, respectively.
Net periodic pension and postretirement plan expenses, calculated for all of International Paper’s plans, were as follows:
| | | In millions | 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| In millions | 2021 | 2020 | 2019 | 2018 | 2017 |
| Pension expense |
| | |
| U.S. plans (non-cash) | $ | 717 |
| $ | 809 |
|
| $461 |
|
| $387 |
|
| $545 |
| |
| Non-U.S. plans | 5 |
| 4 |
| 6 |
| — |
| 5 |
| |
| Postretirement expense |
| | |
| Pension (income) expense | | Pension (income) expense | |
| U.S. plans | 17 |
| 13 |
| 8 |
| 7 |
| (1 | ) | U.S. plans | $ | (112) | | $ | 32 | | $ | 93 | | $ | 632 | | $ | 717 | |
| Non-U.S. plans | 1 |
| 1 |
| 5 |
| 7 |
| 7 |
| Non-U.S. plans | 4 | | 5 | | 6 | | 4 | | 5 | |
| Net expense | $ | 740 |
| $ | 827 |
|
| $480 |
|
| $401 |
|
| $556 |
| |
| Net (income) expense | | Net (income) expense | $ | (108) | | $ | 37 | | $ | 99 | | $ | 636 | | $ | 722 | |
The decrease in 2017 U.S.2021 pension expense primarily reflects a higher asset returns, lower settlement lossesinterest cost due to a lower discount rate and lower actuarial losses partiallyloss due to a higher amortization period slightly offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit charges.
Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as of December 31, 2017,2021, projected future net periodic pension and postretirement plan expensesexpense (income) would be as follows:
| | | In millions | 2019 | 2018 | In millions | 2023 | 2022 |
| Pension expense | | |
| U.S. plans (non-cash) | $ | 30 |
| $ | 167 |
| |
| Non-U.S. plans | 5 |
| 4 |
| |
| Postretirement expense | | |
| Pension expense (income) | | Pension expense (income) | |
| U.S. plans | 14 |
| 16 |
| U.S. plans | $ | (165) | | $ | (114) | |
| Non-U.S. plans | 1 |
| 1 |
| Non-U.S. plans | 5 | | 5 | |
| Net expense | $ | 50 |
| $ | 188 |
| |
| Net (income) expense | | Net (income) expense | $ | (160) | | $ | (109) | |
The Company estimates that it will record net pension expenseincome of approximately $167$114 million for its U.S. defined benefit plans in 2018,2022, compared to expenseincome of $717$112 million in 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated with the North American Consumer Packaging business and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a higher expected return on assets associated with the increased pension asset balance.2021.
The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 20172021 totaled approximately $11.4$12.1 billion,, consisting of
approximately 49%18% equity securities, 36%68% debt securities, 10%8% real estate funds and 5%6% other assets.
The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions and could elect to make voluntary contributions in the future. There arewere no required contributions to the U.S. qualified plan in 2018.2021. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $40$21 million for the year ended December 31, 2017.2021.
Income Taxes
INCOME TAXES
International Paper records its global tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income
tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering technical merits of the position based on
specific tax regulations and facts of each matter. Changes to recorded liabilities are only made when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, change in tax laws, or a recent court casecases that addressesare relevant to the matter.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.
While International Paper believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.
The Company’s effective income tax rates, before equity earnings and discontinued operations, were (128)%, 24% and 37% for 2017, 2016 and 2015, respectively. The income tax benefit in 2017 was primarily driven by the recent U.S. tax legislation in December 2017 (see Note 10 Income Taxes on pages 57 through 60 of Item 8. Financial Statements and Supplementary Data). These effective tax rates include the tax effects of certain special items that can significantly affect the effective income tax rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate computed after excluding these special items may provide a better estimate of the rate that might be expected in future years if no additional special items were to occur. However, as a result of recent U.S. tax legislation, which includes a reduction of the U.S. income tax rate from 35% to 21%, we will have a lower worldwide effective income tax rate going forward. Excluding these special items, the effective income tax rate for 2017 was 30% of pre-tax earnings compared with 32% in 2016 and 33% in 2015. We estimate that the 2018 effective income tax rate will be approximately 25-27% based on expected earnings and business conditions.Business Combinations
The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business Combinations", as amended. We allocate the total consideration of the assets acquired and liabilities assumed based on their estimated fair value as of the business combination date. In developing estimates of fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such
as customer lists and developed technology involves judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated statements of earnings. Subsequent actual results of the underlying business activity supporting the specifically identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives in future periods.
While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general inflation have had minimal impact on our operating results in each2019 and 2020. The effects of inflation in the last three years.current year have been more significant than prior years as the pandemic has had an impact on economic conditions, including labor market conditions, economic activity, consumer behavior, supply shortages and disruptions and inflationary pressures. Sales prices and volumes are more stronglyprimarily influenced by economic supply and demand factors in specific markets and by exchange rate fluctuations thanbut are also currently being impacted by the current inflationary factors.environment.
International Paper has operations in a number of countries. Its operations in those countries also export to, and compete with, imports from other regions. As such, currency movements can have a number of direct and indirect impacts on the Company’s financial statements. Direct impacts include the translation of international operations’ local currency financial statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing of products that are traded internationally). In general, a weaker U.S. dollar and stronger local currency is beneficial to International Paper. The currenciescurrency that havehas the most impact areis the Euro, the Brazilian real, the Polish zloty and the Russian ruble.Euro.
We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending programs and for general corporate
The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity prices.
Interest Rate RiskINTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations and investments in marketable securities. We invest in investment-grade securities of financial institutions and money market mutual funds with a minimum rating of AAA and limit exposure to any one issuer or fund. Our investments in marketable securities at December 31, 20172021 and 20162020 are stated at cost, which approximates market due to their short-term nature. Our interest rate risk exposure related to these investments was not material.
We issue fixed and floating rate debt in a proportion that management deems appropriate based on current and projected market conditions. Derivative instruments, such as, interest rate swaps, may be used to execute this strategy. At December 31, 20172021 and 2016,2020, the fair value of the net liability of financial instruments with exposure to interest rate risk was approximately $11.1$6.7 billion and $11.3$9.3 billion,, respectively. The potential lossincrease in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $679$304 million and $623$443 million at December 31, 20172021 and 2016,2020, respectively.
COMMODITY PRICE RISK
Commodity Price Risk
The objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations in the price of commodities. Commodity swap or forward purchase contracts may be used to manage risks associated with market fluctuations in energy prices. TheAt December 31, 2021 and 2020, the net fair value of such outstanding energy hedge contract at December 31, 2017these contracts was
immaterial and 2016 was approximately a $8 million and a $2 million liability, respectively. Thethe potential loss in fair value resulting from a 10% adverse change in the underlyingquoted commodity prices would have been approximately $1 million at December 31, 2017 and 2016, respectively.for these contracts was also immaterial.
Foreign Currency RiskFOREIGN CURRENCY RISK
International Paper transacts business in many currencies and is also subject to currency exchange rate risk through investments and businesses owned and operated in foreign countries. Our objective in managing the associated foreign currency risks is to minimize the effect of adverse exchange rate fluctuations on our after-tax cash flows. We address these risks on a limited basis by entering into cross-currency and interest rate swaps, or foreign exchange
contracts. At December 31, 20172021 and 2016,2020, the net fair value of financial instruments with exposure to foreign currency risk was approximately a $10 million asset and a $1 million liability, respectively.immaterial. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would have been approximately $29 million and $23 million at December 31, 2017 and 2016, respectively.was also immaterial.
REPORT OF MANAGEMENT ON:
Financial Statements
The management of International Paper Company is responsible for the preparation of the consolidated financial statements in this annual report and for establishing and maintaining adequate internal controls over financial reporting.report. The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances to present fairly the Company’s consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements.
As can be expected in a complex and dynamic business environment, some financial statement amounts are based on estimates and judgments. Even though estimates and judgments are used, measures have been taken to provide reasonable assurance of the integrity and reliability of the financial information contained in this annual report. We have formed a Disclosure Committee to oversee this process.
The accompanying consolidated financial statements have been audited by the independent registered public accounting firm Deloitte & Touche LLP.LLP (PCAOB ID No. 34). During its audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the board of directors and all committees of the board. Management believes that all representations made to the independent auditors during their audits were valid and appropriate.
Internal Control Over Financial Reporting
The management of International Paper Company is also responsible for establishing and maintaining adequate internal control over financial reporting.reporting (as defined in Rules (13a-15(e) and 15d-15(e) under the Exchange Act). Internal control over financial reporting is the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. All internal control systems have inherent limitations, including the possibility of circumvention and overriding of controls,
and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is
supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified. Our procedures for financial reporting include the active involvement of senior management, our Audit and Finance Committee and our staff of highly qualified financial and legal professionals.
The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2017.2021. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)("COSO"). Based on this assessment, management believes that, as of December 31, 2017,2021, the Company’s internal control over financial reporting was effective.
The Company completed the acquisitions of two packaging businesses located in Spain (La Gaviota and Cartonajes Trilla) on April 1, 2021. Due to the timing of these acquisitions, we have excluded these businesses from our evaluation of the effectiveness of internal control over financial reporting. For the period ended December 31, 2021, sales and assets for these businesses represented approximately 0.1% of net sales and 0.4% of total assets.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting. The report appears on pages 39 and 40.43 through 46.
Internal Control Environment And Board Of Directors Oversight
Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, which have been distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and an office of ethics and business practice. The internal control system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies
throughout International Paper, and an extensive program of internal audits with management follow-up.
The Board of Directors, assisted by the Audit and Finance Committee (Committee)("Committee"), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which consists of independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of
the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2017,2021, including critical accounting policies and significant management judgments, with management and the independent auditors. The Committee’s report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement.
MARK S. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GLENN R. LANDAU
TIMOTHY S. NICHOLLS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Shareholders of International Paper Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of International Paper Company and subsidiaries (the "Company") as of December 31, 20172021 and 2016,2020, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2017,2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control -— Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018,18, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit and finance committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Tax Free Printing Papers Spin-Off — Refer to Note 1 to the financial statements
Critical Audit Matter Description
On October 1, 2021, the Company completed the spin-off of its Printing Papers segment along with certain mixed-use coated paperboard and pulp businesses in North America, France, and Russia into a standalone, publicly traded company, Sylvamo Corporation (“Sylvamo”). The transaction was executed by distributing shares of Sylvamo to the Company’s shareholders (the “Distribution”). The Company concluded the Distribution to be a tax-free transaction for U.S. Federal income tax purposes.
We identified the Company’s conclusion that the Distribution was a tax-free transaction to be a critical audit matter because of the complexity of the interpretation and application of the U.S. Internal Revenue Code (“Code”), the materiality of the potential tax consequences, and the need to involve our income tax specialists when performing audit procedures to evaluate the qualification of the Distribution as a tax-free transaction.
How the Critical Audit Matter Was Addressed in the Audit
With the assistance of our income tax specialists, the audit procedures we performed related to the Company’s conclusion that the Distribution was a tax-free transaction included the following, among others:
•We tested the effectiveness of controls over the Company’s conclusion that the Distribution was a tax-free transaction.
•We inspected the Private Letter Ruling (“PLR”) received by the Company from the U.S. Internal Revenue Service and the external opinions received by the Company from third-party advisors, which were relied upon in the Company’s evaluation of whether the Distribution qualified as a tax-free transaction.
•We evaluated the key factors addressed in the PLR and external opinions regarding the qualification of the Distribution as a tax-free transaction in comparison to the corresponding criteria prescribed by the Code, including interpretations of the Code and related statutes.
•We tested the key inputs to a mathematical model prepared by the Company and used in its evaluation of whether the Distribution qualified as a tax-free transaction.
•We performed a sensitivity analysis on the key inputs used in the mathematical model, including the key inputs used in the determination of the fair market value and tax basis of the legal entities included in the Distribution.
•We searched for contradictory evidence regarding the qualification of the Distribution as a tax-free transaction by reading minutes of the Company’s Board of Directors meetings and its committees, and reading other relevant documentation, such as income tax returns and historical financial information, of the Company and the legal entities included in the Distribution, as applicable.
•We obtained written representations from management regarding the Company’s intent not to execute transactions in the future that could affect the qualification of the Distribution as a tax-free transaction.
Retirement Plans — Plan Assets — Refer to Note 19 to the financial statements
Critical Audit Matter Description
As of December 31, 2021, the Company’s Pension Plans held approximately $3.0 billion in investments whose reported value is determined based on net
asset value (“NAV”). The strategic asset allocation policy prescribed by the Company’s Pension Plan includes permissible investments in certain hedge funds, private equity funds, and real estate funds whose reported values are determined based on the estimated NAV of each investment.
These NAVs are generally determined by the Pension Plan’s third-party administrators or fund managers and are subject to review and oversight by management of the Company and its third-party investment advisors.
Given a lack of a readily determinable value of these investments and the subjective nature of the valuation methodologies and unobservable inputs used in these methodologies, auditing the NAV associated with these investments requires a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals in our firm having expertise in alternative investments.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of NAV associated with the Company’s Pension Plan’s investments in hedge funds, private equity funds, and real estate funds included the following, among others:
•We tested the effectiveness of controls over the Company’s determination and evaluation of NAV, including those related to the reliability of NAVs reported by third-party administrators and fund managers.
•We inquired of management and the investment advisors regarding changes to the investment portfolio and investment strategies.
•We obtained a confirmation from the third-party custodian as of December 31, 2021 of all individual investments held in trust for the Pension Plan to confirm the existence of each individual asset held in trust.
•For each selected investment fund with a fiscal year end of December 31, we performed a retrospective review in which we compared the estimated fair value recorded by the Company in the December 31, 2020 financial statements, to the actual fair value of the fund (using the per-share NAV disclosed in the fund’s subsequently issued audited financial statements), to evaluate the appropriateness of management’s estimation process.
•With the assistance of professionals in our firm having expertise in alternative investments, we rolled forward the valuation from the selected funds’ most recently audited financial statements to December 31, 2021. This roll forward procedure included consideration of the Company’s transactions in the fund during the period, as well as an estimate of the funds’ returns based on an appropriate, independently obtained benchmark or index. We then compared our independent fund valuation estimate to the December 31, 2021, balance recorded by the Company. For certain selected funds, our roll forward procedures included alternative procedures, such as inspecting trust statements for observable transactions near year-end to compare to the estimated fair value.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 201818, 2022
We have served as the Company's auditor since 2002.
To the shareholders and the Board of Directors and Shareholders of International Paper Company:Company":
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of International Paper Company and subsidiaries (the "Company"“Company”) as of December 31, 2017,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on the criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20172021, of the Company and our report dated February 22, 201818, 2022, expressed an unqualified opinion on those financial statementsstatements.
As described in the Report of Management on Internal Control over Financial Reporting, management excluded from its assessment of the internal control over financial reporting the acquisitions of packaging businesses located in Spain (La Gaviota and Cartonajes Trilla) completed during 2021. The acquired businesses constitute 0.1% of net sales and 0.4% of total assets of the consolidated financial statement schedule.amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at these acquired businesses.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 201818, 2022
| | | In millions, except per share amounts, for the years ended December 31 | 2017 | 2016 | 2015 | In millions, except per share amounts, for the years ended December 31 | 2021 | 2020 | 2019 |
| NET SALES | $ | 21,743 |
| $ | 19,495 |
| $ | 20,675 |
| NET SALES | $ | 19,363 | | $ | 17,565 | | $ | 18,317 | |
| COSTS AND EXPENSES | | COSTS AND EXPENSES | |
| Cost of products sold | 15,300 |
| 14,057 |
| 14,313 |
| Cost of products sold | 13,832 | | 12,339 | | 12,669 | |
| Selling and administrative expenses | 1,653 |
| 1,484 |
| 1,539 |
| Selling and administrative expenses | 1,385 | | 1,353 | | 1,449 | |
| Depreciation, amortization and cost of timber harvested | 1,343 |
| 1,124 |
| 1,167 |
| Depreciation, amortization and cost of timber harvested | 1,097 | | 1,091 | | 1,072 | |
| Distribution expenses | 1,434 |
| 1,237 |
| 1,248 |
| Distribution expenses | 1,444 | | 1,287 | | 1,250 | |
| Taxes other than payroll and income taxes | 169 |
| 154 |
| 158 |
| Taxes other than payroll and income taxes | 139 | | 136 | | 133 | |
| Restructuring and other charges | 67 |
| 54 |
| 252 |
| |
| Impairment of goodwill and other intangibles | — |
| — |
| 137 |
| |
| Restructuring and other charges, net | | Restructuring and other charges, net | 509 | | 195 | | 51 | |
| Net (gains) losses on sales and impairments of businesses | 9 |
| 70 |
| 174 |
| Net (gains) losses on sales and impairments of businesses | (7) | | 465 | | 205 | |
| Litigation settlement | 354 |
| — |
| — |
| |
| Net bargain purchase gain on acquisition of business | (6 | ) | — |
| — |
| |
| Net (gains) losses on sales of equity method investments | | Net (gains) losses on sales of equity method investments | (204) | | (35) | | — | |
| Net (gains) losses on mark to market investments | | Net (gains) losses on mark to market investments | 32 | | — | | — | |
| Antitrust fines | | Antitrust fines | — | | — | | 32 | |
| Interest expense, net | 572 |
| 520 |
| 555 |
| Interest expense, net | 337 | | 446 | | 499 | |
| Non-operating pension (income) expense | | Non-operating pension (income) expense | (200) | | (41) | | 36 | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 848 |
| 795 |
| 1,132 |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 999 | | 329 | | 921 | |
| Income tax provision (benefit) | (1,085 | ) | 193 |
| 417 |
| Income tax provision (benefit) | 188 | | 176 | | 477 | |
| Equity earnings (loss), net of taxes | 177 |
| 198 |
| 117 |
| Equity earnings (loss), net of taxes | 313 | | 77 | | 250 | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 2,110 |
| 800 |
| 832 |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 1,124 | | 230 | | 694 | |
| Discontinued operations, net of taxes | 34 |
| 102 |
| 85 |
| Discontinued operations, net of taxes | 630 | | 252 | | 526 | |
| NET EARNINGS (LOSS) | 2,144 |
| 902 |
| 917 |
| NET EARNINGS (LOSS) | 1,754 | | 482 | | 1,220 | |
| Less: Net earnings (loss) attributable to noncontrolling interests | — |
| (2 | ) | (21 | ) | Less: Net earnings (loss) attributable to noncontrolling interests | 2 | | — | | (5) | |
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 2,144 |
| $ | 904 |
| $ | 938 |
| NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 1,752 | | $ | 482 | | $ | 1,225 | |
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | |
| Earnings (loss) from continuing operations | $ | 5.11 |
| $ | 1.95 |
| $ | 2.05 |
| Earnings (loss) from continuing operations | $ | 2.88 | | $ | 0.59 | | $ | 1.77 | |
| Discontinued operations, net of taxes | 0.08 |
| 0.25 |
| 0.20 |
| Discontinued operations, net of taxes | 1.62 | | 0.64 | | 1.33 | |
| Net earnings (loss) | $ | 5.19 |
| $ | 2.20 |
| $ | 2.25 |
| Net earnings (loss) | $ | 4.50 | | $ | 1.23 | | $ | 3.10 | |
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | |
| Earnings (loss) from continuing operations | $ | 5.05 |
| $ | 1.93 |
| $ | 2.03 |
| Earnings (loss) from continuing operations | $ | 2.86 | | $ | 0.58 | | $ | 1.75 | |
| Discontinued operations, net of taxes | 0.08 |
| 0.25 |
| 0.20 |
| Discontinued operations, net of taxes | 1.61 | | 0.64 | | 1.32 | |
| Net earnings (loss) | $ | 5.13 |
| $ | 2.18 |
| $ | 2.23 |
| Net earnings (loss) | $ | 4.47 | | $ | 1.22 | | $ | 3.07 | |
| AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | |
| Earnings (loss) from continuing operations | $ | 2,110 |
| $ | 802 |
| $ | 853 |
| |
| Discontinued operations, net of taxes | 34 |
| 102 |
| 85 |
| |
| Net earnings (loss) | $ | 2,144 |
| $ | 904 |
| $ | 938 |
| |
The accompanying notes are an integral part of these financial statements.
| | | In millions for the years ended December 31 | 2017 | 2016 | 2015 | In millions for the years ended December 31 | 2021 | 2020 | 2019 |
| NET EARNINGS (LOSS) | $ | 2,144 |
| $ | 902 |
| $ | 917 |
| NET EARNINGS (LOSS) | $ | 1,754 | | $ | 482 | | $ | 1,220 | |
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | |
| Amortization of pension and postretirement prior service costs and net loss: | | Amortization of pension and postretirement prior service costs and net loss: | |
| U.S. plans (less tax of $280, $343 and $186) | 486 |
| 545 |
| 296 |
| |
| U.S. plans (less tax of $41, $56 and $54) | | U.S. plans (less tax of $41, $56 and $54) | 124 | | 170 | | 163 | |
| Non-U.S. plans (less tax of $0, $0 and $0) | | Non-U.S. plans (less tax of $0, $0 and $0) | 1 | | — | | 1 | |
| Pension and postretirement liability adjustments: | | Pension and postretirement liability adjustments: | |
| U.S. plans (less tax of $69, $283 and $206) | 56 |
| (451 | ) | (329 | ) | |
| Non-U.S. plans (less tax of $1, $4 and $0) | 3 |
| 3 |
| (2 | ) | |
| Change in cumulative foreign currency translation adjustment | 177 |
| 260 |
| (1,042 | ) | |
| U.S. plans (less tax of $235, $76 and $7) | | U.S. plans (less tax of $235, $76 and $7) | 706 | | 229 | | 22 | |
| Non-U.S. plans (less tax of $1, $1 and $3) | | Non-U.S. plans (less tax of $1, $1 and $3) | 7 | | (2) | | (20) | |
| Change in cumulative foreign currency translation adjustment (less tax of $0, $1 and $1) | | Change in cumulative foreign currency translation adjustment (less tax of $0, $1 and $1) | 69 | | 8 | | 116 | |
| Net gains/losses on cash flow hedging derivatives: | | Net gains/losses on cash flow hedging derivatives: | |
| Net gains (losses) arising during the period (less tax of $4, $3 and $3) | 15 |
| (6 | ) | (3 | ) | |
| Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $3 and $8) | (7 | ) | (7 | ) | 12 |
| |
| Net gains (losses) arising during the period (less tax of $1, $15 and $2) | | Net gains (losses) arising during the period (less tax of $1, $15 and $2) | 3 | | (34) | | 4 | |
| Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $13 and $2) | | Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $13 and $2) | (9) | | 26 | | 4 | |
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 730 |
| 344 |
| (1,068 | ) | TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 901 | | 397 | | 290 | |
| Comprehensive Income (Loss) | 2,874 |
| 1,246 |
| (151 | ) | Comprehensive Income (Loss) | 2,655 | | 879 | | 1,510 | |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | — |
| 2 |
| 21 |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | (2) | | — | | 5 | |
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | (1 | ) | 2 |
| 6 |
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | 2 | | — | | — | |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 2,873 |
| $ | 1,250 |
| $ | (124 | ) | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 2,655 | | $ | 879 | | $ | 1,515 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | |
| In millions, except per share amounts, at December 31 | 2021 | 2020 |
| ASSETS | | |
| Current Assets | | |
| Cash and temporary investments | $ | 1,295 | | $ | 468 | |
| Accounts and notes receivable (less allowances of $34 in 2021 and $44 in 2020) | 3,232 | | 2,632 | |
| Contract assets | 378 | | 331 | |
| Inventories | 1,814 | | 1,626 | |
| Current financial assets of variable interest entities (Note 15) | — | | 4,850 | |
| Current assets of discontinued operations | — | | 1,050 | |
| Current investments | 245 | | — | |
| Assets held for sale | — | | 138 | |
| Other current assets | 132 | | 141 | |
| Total Current Assets | 7,096 | | 11,236 | |
| Plants, Properties and Equipment, net | 10,441 | | 10,945 | |
| Forestlands | 18 | | 18 | |
| Long-Term Investments | 751 | | 1,178 | |
| Long-Term Financial Assets of Variable Interest Entities (Note 15) | 2,275 | | 2,257 | |
| Goodwill | 3,130 | | 3,115 | |
| Overfunded Pension Plan Assets | 595 | | — | |
| Right of Use Assets | 365 | | 387 | |
| Long-Term Assets of Discontinued Operations | — | | 1,954 | |
| Deferred Charges and Other Assets | 572 | | 628 | |
| TOTAL ASSETS | $ | 25,243 | | $ | 31,718 | |
| LIABILITIES AND EQUITY | | |
| Current Liabilities | | |
| Notes payable and current maturities of long-term debt | $ | 196 | | $ | 26 | |
| Current nonrecourse financial liabilities of variable interest entities (Note 15) | — | | 4,220 | |
| Accounts payable | 2,606 | | 2,035 | |
| Accrued payroll and benefits | 440 | | 410 | |
| Current liabilities of discontinued operations | — | | 495 | |
| Liabilities held for sale | — | | 181 | |
| Other current liabilities | 902 | | 917 | |
| Total Current Liabilities | 4,144 | | 8,284 | |
| Long-Term Debt | 5,383 | | 8,042 | |
| Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 15) | 2,099 | | 2,092 | |
| Deferred Income Taxes | 2,618 | | 2,572 | |
| Underfunded Pension Benefit Obligation | 377 | | 1,032 | |
| Postretirement and Postemployment Benefit Obligation | 205 | | 235 | |
| Long-Term Lease Obligations | 236 | | 256 | |
| Long-Term Liabilities of Discontinued Operations | — | | 369 | |
| Other Liabilities | 1,099 | | 968 | |
| Commitments and Contingent Liabilities (Note 14) | 0 | 0 |
| Equity | | |
| Common stock $1 par value, 2021 - 448.9 shares and 2020 - 448.9 shares | 449 | | 449 | |
| Paid-in capital | 4,668 | | 6,325 | |
| Retained earnings | 9,029 | | 8,070 | |
| Accumulated other comprehensive loss | (1,666) | | (4,342) | |
| 12,480 | | 10,502 | |
| Less: Common stock held in treasury, at cost, 2021 – 70.4 shares and 2020 – 55.8 shares | 3,398 | | 2,648 | |
| Total International Paper Shareholders’ Equity | 9,082 | | 7,854 | |
| Noncontrolling interests | — | | 14 | |
| Total Equity | 9,082 | | 7,868 | |
| TOTAL LIABILITIES AND EQUITY | $ | 25,243 | | $ | 31,718 | |
The accompanying notes are an integral part of these financial statements.
|
| | | | | | |
| In millions, except per share amounts, at December 31 | 2017 | 2016 |
| ASSETS | | |
| Current Assets | | |
| Cash and temporary investments | $ | 1,018 |
| $ | 1,033 |
|
| Accounts and notes receivable, less allowances of $73 in 2017 and $70 in 2016 | 3,287 |
| 2,852 |
|
| Inventories | 2,313 |
| 2,233 |
|
| Assets held for sale | 1,377 |
| 361 |
|
| Other current assets | 282 |
| 191 |
|
| Total Current Assets | 8,277 |
| 6,670 |
|
| Plants, Properties and Equipment, net | 13,265 |
| 13,003 |
|
| Forestlands | 448 |
| 456 |
|
| Investments | 390 |
| 360 |
|
| Financial Assets of Special Purpose Entities (Note 12) | 7,051 |
| 7,033 |
|
| Long-Term Assets Held for Sale | — |
| 1,018 |
|
| Goodwill | 3,411 |
| 3,364 |
|
| Deferred Charges and Other Assets | 1,061 |
| 1,189 |
|
| TOTAL ASSETS | $ | 33,903 |
| $ | 33,093 |
|
| LIABILITIES AND EQUITY | | |
| Current Liabilities | | |
| Notes payable and current maturities of long-term debt | $ | 311 |
| $ | 239 |
|
| Accounts payable | 2,458 |
| 2,199 |
|
| Accrued payroll and benefits | 485 |
| 401 |
|
| Liabilities held for sale | 805 |
| 161 |
|
| Other accrued liabilities | 1,043 |
| 1,069 |
|
| Total Current Liabilities | 5,102 |
| 4,069 |
|
| Long-Term Liabilities Held for Sale | — |
| 8 |
|
| Long-Term Debt | 10,846 |
| 11,075 |
|
| Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12) | 6,291 |
| 6,284 |
|
| Deferred Income Taxes | 2,291 |
| 3,127 |
|
| Pension Benefit Obligation | 1,939 |
| 3,400 |
|
| Postretirement and Postemployment Benefit Obligation | 326 |
| 330 |
|
| Other Liabilities | 567 |
| 441 |
|
| Commitments and Contingent Liabilities (Note 11) |
|
|
| Equity | | |
| Common stock $1 par value, 2017 - 448.9 shares & 2016 – 448.9 shares | 449 |
| 449 |
|
| Paid-in capital | 6,206 |
| 6,189 |
|
| Retained earnings | 6,180 |
| 4,818 |
|
| Accumulated other comprehensive loss | (4,633 | ) | (5,362 | ) |
| | 8,202 |
| 6,094 |
|
| Less: Common stock held in treasury, at cost, 2017 – 35.975 shares and 2016 – 37.671 shares | 1,680 |
| 1,753 |
|
| Total International Paper Shareholders’ Equity | 6,522 |
| 4,341 |
|
| Noncontrolling interests | 19 |
| 18 |
|
| Total Equity | 6,541 |
| 4,359 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 33,903 |
| $ | 33,093 |
|
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2021 | 2020 | 2019 |
| OPERATING ACTIVITIES | | | |
| Net earnings (loss) | $ | 1,754 | | $ | 482 | | $ | 1,220 | |
| Depreciation, amortization, and cost of timber harvested | 1,210 | | 1,287 | | 1,306 | |
| Deferred income tax provision (benefit), net | (291) | | 9 | | 212 | |
| Restructuring and other charges, net | 509 | | 195 | | 57 | |
| Periodic pension (income) expense, net | (112) | | 32 | | 93 | |
| Net (gains) losses on mark to market investments | 32 | | — | | — | |
| Net (gains) losses on sales and impairments of businesses | (358) | | 465 | | 205 | |
| Net (gains) losses on sales of equity method investments | (205) | | (35) | | — | |
| Net (gains) losses on sales of fixed assets | (86) | | — | | — | |
| Antitrust fines | — | | — | | 32 | |
| Equity method dividends received | 159 | | 162 | | 273 | |
| Equity (earnings) losses, net | (313) | | (77) | | (250) | |
| Other, net | 157 | | 219 | | 120 | |
| Changes in current assets and liabilities | | | |
| Accounts and notes receivable | (596) | | 59 | | 246 | |
| Contract assets | (49) | | 35 | | 2 | |
| Inventories | (263) | | 35 | | (1) | |
| Accounts payable and accrued liabilities | 519 | | 141 | | 139 | |
| Interest payable | (32) | | (55) | | (19) | |
| Other | (5) | | 109 | | (25) | |
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | 2,030 | | 3,063 | | 3,610 | |
| INVESTMENT ACTIVITIES | | | |
| Invested in capital projects, net of insurance recoveries | (549) | | (751) | | (1,276) | |
| Acquisitions, net of cash acquired | (80) | | (65) | | (103) | |
| Proceeds from sales of equity method investments | 908 | | 500 | | — | |
| Proceeds from sales of businesses, net of cash divested | 827 | | 40 | | 81 | |
| Proceeds from settlement of Variable Interest Entities | 4,850 | | — | | — | |
| Proceeds from sale of fixed assets | 101 | | 8 | | 18 | |
| Other | (3) | | (1) | | (20) | |
| CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES | 6,054 | | (269) | | (1,300) | |
| FINANCING ACTIVITIES | | | |
| Repurchases of common stock and payments of restricted stock tax withholding | (839) | | (42) | | (535) | |
| Issuance of debt | 1,512 | | 583 | | 534 | |
| Reduction of debt | (2,509) | | (2,278) | | (1,507) | |
| Change in book overdrafts | 65 | | 35 | | (66) | |
| Dividends paid | (780) | | (806) | | (796) | |
| Reduction of Variable Interest Entity loans | (4,220) | | — | | — | |
| Distribution to Sylvamo Corporation | (130) | | — | | — | |
| Net debt tender premiums paid | (456) | | (188) | | (18) | |
| Other | (18) | | (4) | | (1) | |
| CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (7,375) | | (2,700) | | (2,389) | |
| Cash Included in Assets Held for Sale | — | | (2) | | — | |
| Effect of Exchange Rate Changes on Cash | (9) | | (8) | | 1 | |
| Change in Cash and Temporary Investments | 700 | | 84 | | (78) | |
| Cash and Temporary Investments | | | |
| Beginning of the period | 595 | | 511 | | 589 | |
| End of the period | $ | 1,295 | | $ | 595 | | $ | 511 | |
The accompanying notes are an integral part of these financial statements.
|
| | | | | | | | | |
| In millions for the years ended December 31 | 2017 | 2016 | 2015 |
| OPERATING ACTIVITIES | | | |
| Net earnings (loss) | $ | 2,144 |
| $ | 902 |
| $ | 917 |
|
| Depreciation, amortization, and cost of timber harvested | 1,423 |
| 1,227 |
| 1,294 |
|
| Deferred income tax provision (benefit), net | (1,113 | ) | 136 |
| 281 |
|
| Restructuring and other charges | 67 |
| 54 |
| 252 |
|
| Pension plan contribution | (1,250 | ) | (750 | ) | (750 | ) |
| Periodic pension expense, net | 717 |
| 809 |
| 461 |
|
| Net bargain purchase gain on acquisition of business | (6 | ) | — |
| — |
|
| Net (gains) losses on sales and impairments of businesses | 9 |
| 70 |
| 174 |
|
| Ilim dividends received | 133 |
| 58 |
| 35 |
|
| Equity (earnings) losses, net of taxes | (177 | ) | (198 | ) | (117 | ) |
| Impairment of goodwill and other intangible assets | — |
| — |
| 137 |
|
| Other, net | 212 |
| 99 |
| 118 |
|
| Changes in current assets and liabilities | | | |
| Accounts and notes receivable | (370 | ) | (94 | ) | 7 |
|
| Inventories | (87 | ) | 11 |
| (131 | ) |
| Accounts payable and accrued liabilities | 114 |
| 98 |
| (89 | ) |
| Interest payable | 1 |
| 41 |
| (17 | ) |
| Other | (60 | ) | 15 |
| 8 |
|
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | 1,757 |
| 2,478 |
| 2,580 |
|
| INVESTMENT ACTIVITIES | | | |
| Invested in capital projects | (1,391 | ) | (1,348 | ) | (1,487 | ) |
| Acquisitions, net of cash acquired | (45 | ) | (2,228 | ) | — |
|
| Proceeds from divestitures | 4 |
| 108 |
| 23 |
|
| Investment in Special Purpose Entities | — |
| — |
| (198 | ) |
| Proceeds from sale of fixed assets | 26 |
| 19 |
| 37 |
|
| Other | 15 |
| (49 | ) | (114 | ) |
| CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES | (1,391 | ) | (3,498 | ) | (1,739 | ) |
| FINANCING ACTIVITIES | | | |
| Repurchase of common stock and payments of restricted stock tax withholding | (47 | ) | (132 | ) | (605 | ) |
| Issuance of common stock | — |
| — |
| 2 |
|
| Issuance of debt | 1,907 |
| 3,830 |
| 6,873 |
|
| Reduction of debt | (1,424 | ) | (1,938 | ) | (6,947 | ) |
| Change in book overdrafts | 26 |
| — |
| (14 | ) |
| Dividends paid | (769 | ) | (733 | ) | (685 | ) |
| Debt tender premiums paid | (84 | ) | (31 | ) | (211 | ) |
| Other | (8 | ) | (14 | ) | (14 | ) |
| CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (399 | ) | 982 |
| (1,601 | ) |
| Effect of Exchange Rate Changes on Cash | 18 |
| 21 |
| (71 | ) |
| Change in Cash and Temporary Investments | (15 | ) | (17 | ) | (831 | ) |
| Cash and Temporary Investments | | | |
| Beginning of the period | 1,033 |
| 1,050 |
| 1,881 |
|
| End of the period | $ | 1,018 |
| $ | 1,033 |
| $ | 1,050 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Common Stock Issued | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Common Stock Held In Treasury, At Cost | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity |
| BALANCE, JANUARY 1, 2019 | $ | 449 | | $ | 6,280 | | $ | 7,465 | | $ | (4,500) | | $ | 2,332 | | $ | 7,362 | | $ | 21 | | $ | 7,383 | |
| Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform | — | | — | | 529 | | (529) | | — | | — | | — | | — | |
| Issuance of stock for various plans, net | — | | (18) | | — | | — | | (165) | | 147 | | — | | 147 | |
| Repurchase of stock | — | | — | | — | | — | | 535 | | (535) | | — | | (535) | |
| Dividends ($2.013 per share) | — | | — | | (811) | | — | | — | | (811) | | — | | (811) | |
| Transactions of equity method investees | — | | 35 | | — | | — | | — | | 35 | | — | | 35 | |
| Divestiture of noncontrolling interests | — | | — | | — | | — | | — | | — | | (11) | | (11) | |
| Comprehensive income (loss) | — | | — | | 1,225 | | 290 | | — | | 1,515 | | (5) | | 1,510 | |
| BALANCE, DECEMBER 31, 2019 | 449 | | 6,297 | | 8,408 | | (4,739) | | 2,702 | | 7,713 | | 5 | | 7,718 | |
| Adoption of ASU 2016-13 measurement of credit losses on financial instruments | — | | — | | (2) | | — | | — | | (2) | | — | | (2) | |
| Issuance of stock for various plans, net | — | | (8) | | — | | — | | (96) | | 88 | | — | | 88 | |
| Repurchase of stock | — | | — | | — | | — | | 42 | | (42) | | — | | (42) | |
| Dividends ($2.050 per share) | — | | — | | (818) | | — | | — | | (818) | | — | | (818) | |
| Transactions of equity method investees | — | | 36 | | — | | — | | — | | 36 | | — | | 36 | |
| Transactions with noncontrolling interest holders | — | | — | | — | | — | | — | | — | | 9 | | 9 | |
| Comprehensive income (loss) | — | | — | | 482 | | 397 | | — | | 879 | | — | | 879 | |
| BALANCE, DECEMBER 31, 2020 | 449 | | 6,325 | | 8,070 | | (4,342) | | 2,648 | | 7,854 | | 14 | | 7,868 | |
| Sylvamo Corporation spin-off | — | | (1,729) | | — | | 1,773 | | — | | 44 | | (1) | | 43 | |
| Issuance of stock for various plans, net | — | | 54 | | — | | — | | (89) | | 143 | | — | | 143 | |
| Repurchase of stock | — | | — | | — | | — | | 839 | | (839) | | — | | (839) | |
| Dividends ($2.000 per share) | — | | — | | (793) | | — | | — | | (793) | | — | | (793) | |
| Transactions of equity method investees | — | | 18 | | — | | — | | — | | 18 | | — | | 18 | |
| Divestiture of noncontrolling interests | — | | — | | — | | — | | — | | — | | (13) | | (13) | |
| Comprehensive income (loss) | — | | — | | 1,752 | | 903 | | — | | 2,655 | | — | | 2,655 | |
| BALANCE, DECEMBER 31, 2021 | $ | 449 | | $ | 4,668 | | $ | 9,029 | | $ | (1,666) | | $ | 3,398 | | $ | 9,082 | | $ | — | | $ | 9,082 | |
The accompanying notes are an integral part of these financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Common Stock Issued | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity |
| BALANCE, JANUARY 1, 2015 | $ | 449 |
| $ | 6,245 |
| $ | 4,409 |
| $ | (4,646 | ) | $ | 1,342 |
| $ | 5,115 |
| $ | 148 |
| $ | 5,263 |
|
| Issuance of stock for various plans, net | — |
| 35 |
| — |
| — |
| (198 | ) | 233 |
| — |
| 233 |
|
| Repurchase of stock | — |
| — |
| — |
| — |
| 605 |
| (605 | ) | — |
| (605 | ) |
| Dividends | — |
| — |
| (698 | ) | — |
| — |
| (698 | ) | — |
| (698 | ) |
| Transactions of equity method investees | — |
| (37 | ) | — |
| — |
| — |
| (37 | ) | — |
| (37 | ) |
| Divestiture of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| (96 | ) | (96 | ) |
| Comprehensive income (loss) | — |
| — |
| 938 |
| (1,062 | ) | — |
| (124 | ) | (27 | ) | (151 | ) |
| BALANCE, DECEMBER 31, 2015 | 449 |
| 6,243 |
| 4,649 |
| (5,708 | ) | 1,749 |
| 3,884 |
| 25 |
| 3,909 |
|
| Issuance of stock for various plans, net | — |
| (6 | ) | — |
| — |
| (128 | ) | 122 |
| — |
| 122 |
|
| Repurchase of stock | — |
| — |
| — |
| — |
| 132 |
| (132 | ) | — |
| (132 | ) |
| Dividends | — |
| — |
| (743 | ) | — |
| — |
| (743 | ) | — |
| (743 | ) |
| Transactions of equity method investees | — |
| (48 | ) | — |
| — |
| — |
| (48 | ) | — |
| (48 | ) |
| Divestiture of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| (3 | ) | (3 | ) |
| Other | — |
| — |
| 8 |
| — |
| — |
| 8 |
| — |
| 8 |
|
| Comprehensive income (loss) | — |
| — |
| 904 |
| 346 |
| — |
| 1,250 |
| (4 | ) | 1,246 |
|
| BALANCE, DECEMBER 31, 2016 | 449 |
| 6,189 |
| 4,818 |
| (5,362 | ) | 1,753 |
| 4,341 |
| 18 |
| 4,359 |
|
| Issuance of stock for various plans, net | — |
| 42 |
| — |
| — |
| (120 | ) | 162 |
| — |
| 162 |
|
| Repurchase of stock | — |
| — |
| — |
| — |
| 47 |
| (47 | ) | — |
| (47 | ) |
| Dividends | — |
| — |
| (782 | ) | — |
| — |
| (782 | ) | — |
| (782 | ) |
| Transactions of equity method investees | — |
| (25 | ) | — |
| — |
| — |
| (25 | ) | — |
| (25 | ) |
| Comprehensive income (loss) | — |
| — |
| 2,144 |
| 729 |
| — |
| 2,873 |
| 1 |
| 2,874 |
|
| BALANCE, DECEMBER 31, 2017 | $ | 449 |
| $ | 6,206 |
| $ | 6,180 |
| $ | (4,633 | ) | $ | 1,680 |
| $ | 6,522 |
| $ | 19 |
| $ | 6,541 |
|
The accompanying notes are an integral part of these financial statements.
NATURE OF BUSINESS
International Paper (the Company)"Company") is a global paper andcorrugated packaging company with primary markets and manufacturing operations in North America and Europe and additional markets and manufacturing operations in Latin America, North Africa India and Russia.Asia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions.
FINANCIAL STATEMENTS
On March 11, 2020 the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. During 2021, there continued to be a large number of COVID-19 cases and deaths in the United States and throughout the world, and restrictive measures, including masks and vaccine requirements were implemented or reinstituted by various governmental authorities and private businesses. Economic recovery in the United States and various other regions of the world has continued but may be threatened by the continued adverse effects of COVID-19 and other factors. Most of our manufacturing and converting facilities have remained open and operational during the pandemic and at the current time our manufacturing and converting facilities are generally operational. The health and safety of our employees and contractors is our most important responsibility as we manage through the COVID-19 pandemic.We have implemented work-systems across the Company to maintain the health and safety of our employees including social distancing, site cleaning, contract tracing and other measures as recommended by the CDC and WHO.
There continue to be significant uncertainties associated with the COVID-19 pandemic. The impacts of the pandemic had an adverse effect on our operations in 2021, and could have a material adverse effect on our financial condition, results of operations and cash flows if public health and/or global economic conditions deteriorate.
These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require
the use of management’s estimates. Actual results could differ from management’s estimates. Prior-period amounts have been adjusted to conform with current year presentation.
Printing Papers Spinoff
On JanuaryOctober 1, 2018,2021, the Company completed the previously announced transferspin-off of its Printing Papers segment along with certain mixed-use coated paperboard and pulp businesses in North American Consumer Packaging business, which includes its North American Coated PaperboardAmerica, France and Foodservice businesses, toRussia into a subsidiarystandalone, publicly-traded company, Sylvamo Corporation. The transaction was implemented through the distribution of Graphic Packaging Holding Company. The Company received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assetsshares of the combined business.standalone company to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo Corporation is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".
The Distribution was made to the Company's stockholders of record as of the close of business on September 15, 2021 (the "Record Date"), and such stockholders received one share of Sylvamo Corporation common stock for every 11 shares of International Paper common stock held as of the close of business on the Record Date. The Company retained 19.9% of the shares of Sylvamo at the time of the separation and this transfer, allretained investment is discussed further in Note 9 - Supplementary Financial Statement Information. In the third quarter of 2021, Sylvamo incurred $1.5 billion in debt in anticipation of a net cash distribution of $1.4 billion that was made to the Company as part of the spin-off. At the time of the spin, the Company distributed $130 million of cash to Sylvamo Corporation.
All current and historical operating results of the Sylvamo Corporation businesses and Kwidzyn mill are presented as Discontinued Operations, net of tax, in the consolidated statement of operations. All historical assets and liabilities of the Sylvamo Corporation businesses and Kwidzyn are classified as current and long-term assets of discontinued operations and current and long-term liabilities of discontinued operations in the accompanying balance sheet as of December 31, 2020. The spin-off was tax-free for the Company and its shareholders for U.S. federal income tax purposes.
In connection with the Distribution, on September 29, 2021, the Company and Sylvamo Corporation entered into a separation and distribution agreement as well as various other agreements that govern the
relationships between the parties following the Distribution, including a transition services agreement, a tax matters agreement and an employee matters agreement. These agreements provide for the allocation between International Paper Company and Sylvamo Corporation of assets, liabilities and obligations attributable to periods prior to, at and after the Distribution and govern certain relationships between International Paper and Sylvamo Corporation after the Distribution. The Company is also party to various ongoing operational agreements with Sylvamo Corporation under which it sells fiber, paper and other products. Sales under these agreements were $185 million for the year amountsended December 31, 2021.
DISCONTINUED OPERATIONS
A discontinued operation may include a component or a group of components of the Company's operations. A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have been adjusteda major effect on the Company's operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to reflectbe classified as held for sale; (2) the North American Consumer Packaging businesscomponent or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off).For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation. See Note 7operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for further discussion.sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for current and all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods.
CONSOLIDATION
The consolidated financial statements include the accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled subsidiaries.subsidiaries for which we have a controlling financial interest, including variable interest entities for which we are the primary beneficiary. All significant intercompany balances and transactions are eliminated.
Investments in affiliated companies where
EQUITY METHOD INVESTMENTS
The equity method of accounting is applied for investments when the Company has significant influence over the investee’s operations, or when the investee is structured with separate capital accounts. Our material equity method investments are described in Note 11.
BUSINESS COMBINATIONS
The Company allocates the total consideration of the assets acquired and liabilities assumed based on their operationsestimated fair value as of the business combination date. In developing estimates of fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such as customer lists and developed technology involves judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are accounted for bycharged to the equity method. International Paper’s shareconsolidated statement of affiliates’operations. Subsequent actual results of the underlying business activity supporting the specifically identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives in future periods. See Note 7 for further details.
RESTRUCTURING LIABILITIES AND COSTS
For operations totaled earnings (loss)to be closed or restructured, a liability and related expense is recorded in the period when operations cease. For termination costs associated with employees covered by a written or substantive plan, a liability is recorded when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. For termination costs associated with employees not covered by a written and broadly communicated policy covering involuntary termination benefits (severance plan), a liability is recorded for costs to terminate employees (one-time termination benefits) when the termination plan has been approved and committed to by management, the employees to be terminated have been identified, the termination plan benefit terms are communicated, the employees identified in the plan have been notified and actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn. The timing and $117 millionamount of an accrual is dependent upon the type of benefits granted, the timing of communication and other provisions that may be provided in 2017, 2016 and 2015, respectively.the benefit plan. The accounting for each termination is evaluated individually. See Note 6 for further details.
REVENUE RECOGNITION
Revenue is recognizedGenerally, the Company recognizes revenue on a point-in-time basis when the customer takes title to the goods and assumes the risks and rewards of ownership. Revenuefor the goods. For customized goods where the Company has a legally enforceable right to payment for the goods, the Company recognizes revenue over time, which generally is, recordedas the goods are produced.
The Company’s revenue is primarily derived from fixed consideration; however, we do have contract terms that give rise to variable consideration, primarily volume rebates, early payment discounts and other customer refunds. The Company estimates its volume rebates at the timeindividual customer level based on the most likely amount method outlined in ASC 606. The Company estimates early payment discounts and other customer refunds based on the historical experience across the Company's portfolio of shipment for terms designated f.o.b. (free on board) shipping point. For sales
transactions designated f.o.b. destination,customers to record reductions in revenue that is recorded whenconsistent with the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer.
SHIPPING AND HANDLING COSTS
Shipping and handling costs, such as freight to our customers’ destinations, are includedexpected value method outlined in distribution expensesASC 606. Management has concluded that these methods result in the consolidated statementbest estimate of operations. Whenthe consideration the Company will be entitled to from its customers.
The Company has elected to present all sales taxes on a net basis, account for shipping and handling activities as fulfillment activities, recognize the incremental costs are includedof obtaining a contract as expense when incurred if the amortization period of the asset the Company would recognize is one year or less, and not record interest income or interest expense when the difference in the sales price chargedtiming of control or transfer and customer payment is one year or less. See Note 3 for our products, they are recognized in net sales.further details.
ANNUAL MAINTENANCE COSTS
Costs for repair and maintenance activities are expensed in the month that the related activity is performed under the direct expense method of accounting.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of three months or less and money market funds with greater than three month maturities but with the right to redeem without notice are treated as cash equivalents and are stated at cost, which approximates market value. See Note 9 for further details.
INVENTORIES
Inventories are valued at the lower of cost or market value and include all costs directly associated with manufacturing products: materials, labor and
manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products, are generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or average cost methods. See Note 9 for further details.
LEASED ASSETS
Operating lease right of use (ROU) assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs and maintenance. As the implicit rate is not readily determinable for most of the Company's leases, the Company applies a portfolio approach using an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate, and apply the rate based on the currency of the lease, which is updated on a quarterly basis for measurement of new lease liabilities. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all of the Company's leases except for certain gas and chemical agreements. See Note 10 for further details.
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for
betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for pulp and paper mills, and the straight-line method is used for other plants and equipment. See Note 9 for further details.
GOODWILL
Annual testingevaluation for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim testingevaluation performed when management believes that it is more likely than not, that events or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill.
The Company has the option to assessevaluate goodwill for impairment by first performing a qualitative ("Step 0") assessment of events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amounts, then the two-stepquantitative goodwill impairment test is not required to be performed. If the companyCompany determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company does not elect the option to perform an initial qualitative assessment, the Company performsis required to perform the two-stepquantitative goodwill impairment test. In performing this testing,evaluation, the Company estimates the fair value of its reporting unitsunit using the projecteda weighted approach based on discounted future cash flows, market multiples and transaction multiples. The determination of fair value using the discounted cash flow approach requires management to be generated by each unit, discounted for each reporting unit. These estimatedmake significant estimates and assumptions related to forecasts of future revenues, operating profit margins, and discount rates. The determination of fair values are then analyzed for reasonableness by comparing themvalue using market multiples and transaction multiples requires management to historic market transactions for businesses in the industry,make significant assumptions related to revenue multiples and by comparing the sum of the reporting unit fair valuesadjusted earnings before interest, taxes, depreciation, and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s traded stock price on the testing date.amortization ("EBITDA") multiples. For reporting units whose recorded value of net assets plus goodwillcarrying amount is in excess of their estimated fair values,value, the fair values of the individual assets and liabilities of the respective reporting units are then determined to calculateunit will record an impairment charge by the amount that the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of any goodwill allocated to the reporting unit. The results of our annual impairment charge required, if any.
The Company performed its annual testing of its reporting units for possible goodwill impairments by applyingtest indicated that the qualitative Step 0 analysis to its reporting units as of October 1, 2017. For the current year test, the Company assessed various assumptions, events and circumstances that would have affectedcarrying amount did not exceed the estimated fair value of theany reporting units. The results of this assessment indicated that it is not more likely than not that the fair values of the Company's reporting units were less than the carrying values of the reporting units.
In addition, the Company considered whether there were any events or circumstances subsequent to the annual test that would reduce the fair value of its reporting units below their carrying amounts and necessitate another goodwill impairment test. In consideration of all relevant factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2017. See Note 912 for further discussion.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, measuredrecoverable. A recoverability test is performed based on undiscounted cash flows, requiring judgments as to whether assets are held and used or held for sale, the weighting of operational alternatives being considered by comparing their net book value tomanagement and estimates of the undiscounted projectedamount and timing of expected future cash flows from the use of the long-lived assets generated by their use. Impaired assets are recorded at their estimated fair value. See Note 8 for further discussion.
INCOME TAXES
International Paper uses the asset and liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences
attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are remeasured to reflect new tax rates in the periods rate changes are enacted.
International Paper records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering the technical merits of the position based on specific tax regulations and the facts of each matter. Changes to recorded liabilities are made only when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, a change in tax laws, or a recent court case that addresses the matter.
While the judgments and estimates made by the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by consultation with outside consultants, historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual
resolution of these matters may differ from recorded estimated amounts, resulting in adjustments that could materially affect future financial statements. See Note 13 for further details.
International Paper uses the flow-through method to account for investment tax credits earned on eligible open-loop biomass facilities and combined heat and power system expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather than a reduction in the asset basis.
ENVIRONMENTAL REMEDIATION COSTS
Costs associated with environmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably estimable.determinable. See Note 14 for further details.
TRANSLATION OF FINANCIAL STATEMENTS
Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive loss.
Other than as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the consolidated financial statements.
COMPREHENSIVE INCOMERECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Reference Rate Reform
In February 2018,March 2020, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income2020-04, "Reference Rate Reform (Topic 220)848): ReclassificationFacilitation of Certain Taxthe Effects from Accumulated Other Comprehensive Income.of Reference Rate Reform on Financial Reporting." This guidance gives entitiesprovides companies with optional guidance to ease the optionpotential accounting burden associated with transitioning away from reference rates that are expected to reclassify stranded tax effects causedbe discontinued. This guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company will apply the amendments in this update to account for contract modifications due to changes in reference rates once those occur. We do not expect these amendments to have a material impact on our consolidated financial statements and related disclosures.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by the newly-enacted U.S. Tax Cuts and Jobs ActBusiness Entities about Government Assistance." This guidance requires a business entity to provide certain disclosures around assistance received from accumulated other comprehensive income to retained earnings.governments. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years.2021. The Company is currently evaluating the provisions of thisthe guidance.
DERIVATIVES AND HEDGING
In August 2017,
NOTE 3 - REVENUE RECOGNITION
DISAGGREGATED REVENUE
A geographic disaggregation of revenues across our company segmentation in the FASB issued ASU 2017-12, "Derivativesfollowing tables provides information to assist in evaluating the nature, timing and Hedging (Topic 815): Targeted Improvementsuncertainty of revenue and cash flows and how they may be impacted by economic factors.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| Reportable Segments | | Industrial Packaging | | Global Cellulose Fibers | | Corporate & Intersegment | | Total |
| Primary Geographical Markets (a) | | | | | | | | |
| United States | | $ | 14,006 | | | $ | 2,510 | | | $ | 253 | | | $ | 16,769 | |
| EMEA | | 1,506 | | | 109 | | | (4) | | | 1,611 | |
| Pacific Rim and Asia | | 59 | | | 113 | | | 35 | | | 207 | |
| Americas, other than U.S. | | 755 | | | — | | | 21 | | | 776 | |
| Total | | $ | 16,326 | | | $ | 2,732 | | | $ | 305 | | | $ | 19,363 | |
| | | | | | | | |
| Operating Segments | | | | | | | | |
| North American Industrial Packaging | | $ | 14,944 | | | $ | — | | | $ | — | | | $ | 14,944 | |
| EMEA Industrial Packaging | | 1,508 | | | — | | | — | | | 1,508 | |
| Global Cellulose Fibers | | — | | | 2,732 | | | — | | | 2,732 | |
| Intra-segment Eliminations | | (126) | | | — | | | — | | | (126) | |
| Corporate & Inter-segment Sales | | — | | | — | | | 305 | | | 305 | |
| Total | | $ | 16,326 | | | $ | 2,732 | | | $ | 305 | | | $ | 19,363 | |
(a) Net sales are attributed to Accounting for Hedging Activities." The objective of this new guidance iscountries based on the improvementlocation of the financial reporting of hedging relationshipsreportable segment making the sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| Reportable Segments | | Industrial Packaging | | Global Cellulose Fibers | | Corporate & Intersegment | | Total |
| Primary Geographical Markets (a) | | | | | | | | |
| United States | | $ | 12,770 | | | $ | 2,212 | | | $ | 196 | | | $ | 15,178 | |
| EMEA | | 1,309 | | | 90 | | | (4) | | | 1,395 | |
| Pacific Rim and Asia | | 57 | | | 91 | | | 55 | | | 203 | |
| Americas, other than U.S. | | 764 | | | — | | | 25 | | | 789 | |
| Total | | $ | 14,900 | | | $ | 2,393 | | | $ | 272 | | | $ | 17,565 | |
| | | | | | | | |
| Operating Segments | | | | | | | | |
| North American Industrial Packaging | | $ | 13,552 | | | $ | — | | | $ | — | | | $ | 13,552 | |
| EMEA Industrial Packaging | | 1,317 | | | — | | | — | | | 1,317 | |
| Brazilian Industrial Packaging | | 148 | | | — | | | — | | | 148 | |
| Global Cellulose Fibers | | — | | | 2,393 | | | — | | | 2,393 | |
| Intra-segment Eliminations | | (117) | | | — | | | — | | | (117) | |
| Corporate & Inter-segment Sales | | — | | | — | | | 272 | | | 272 | |
| Total | | $ | 14,900 | | | $ | 2,393 | | | $ | 272 | | | $ | 17,565 | |
(a) Net sales are attributed to better portraycountries based on the economic results of an entity's risk management activities in its financial statements. In addition to that main objective, the amendments in this guidance make certain targeted improvements to simplify the applicationlocation of the hedge accounting guidance in current GAAP. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company early adoptedreportable segment making the provisionssale.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
| Reportable Segments | | Industrial Packaging | | Global Cellulose Fibers | | Corporate & Intersegment | | Total |
| Primary Geographical Markets (a) | | | | | | | | |
| United States | | $ | 12,968 | | | $ | 2,427 | | | $ | 221 | | | $ | 15,616 | |
| EMEA | | 1,327 | | | 104 | | | (4) | | | 1,427 | |
| Pacific Rim and Asia | | 65 | | | 149 | | | 173 | | | 387 | |
| Americas, other than U.S. | | 900 | | | — | | | (13) | | | 887 | |
| Total | | $ | 15,260 | | | $ | 2,680 | | | $ | 377 | | | $ | 18,317 | |
| | | | | | | | |
| Operating Segments | | | | | | | | |
| North American Industrial Packaging | | $ | 13,808 | | | $ | — | | | $ | — | | | $ | 13,808 | |
| EMEA Industrial Packaging | | 1,335 | | | — | | | — | | | 1,335 | |
| Brazilian Industrial Packaging | | 235 | | | — | | | — | | | 235 | |
| Global Cellulose Fibers | | — | | | 2,680 | | | — | | | 2,680 | |
| Intra-segment Eliminations | | (118) | | | — | | | — | | | (118) | |
| Corporate & Inter-segment Sales | | — | | | — | | | 377 | | | 377 | |
| Total | | $ | 15,260 | | | $ | 2,680 | | | $ | 377 | | | $ | 18,317 | |
(a) Net sales are attributed to countries based on the financial statements.
RETIREMENT BENEFITS
In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Costs and Net Periodic Postretirement Benefit Cost." Under this new guidance, employers will present the service costs componentlocation of the net periodic benefit costreportable segment making the sale.
REVENUE CONTRACT BALANCES
A contract asset is created when the Company recognizes revenue on its customized products prior to having an unconditional right to payment from the customer, which generally does not occur until title and risk of loss passes to the customer.
A contract liability is created when customers prepay for goods prior to the Company transferring those goods to the customer. The contract liability is reduced once control of the goods is transferred to the customer. The majority of our customer prepayments are received during the fourth quarter each year for goods that will be transferred to customers over the following twelve months. Current liabilities of $27 million and $21 million are included in Other current liabilities in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the Line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, disclosure of the Line(s) used to present the other components of net periodic benefit cost will be required if the components are not presented separately in the income statement. This guidance is effective for
annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permittedaccompanying condense consolidated balance sheets as of
December 31, 2021 and 2020, respectively. During the
beginningsecond quarter of
an annual period for which financial statement (interim or annual) have not been issued or made available for issuance. 2021, the Company also recorded a contract liability of $115 million related to the April 2021 acquisition disclosed in Note 7 - Acquisitions.
The Company adopteddifference between the provisions of the guidance on January 1, 2018, using the retrospective method. The adoption resulted in a change in our adjusted operating profit (used to measure the earnings performanceopening and closing balances of the Company's contract assets and contract liabilities primarily results from the difference between the price and quantity at comparable points in time for goods which we have an unconditional right to payment or receive prepayment from the customer, respectively.
PERFORMANCE OBLIGATIONS AND SIGNIFICANT JUDGEMENTS
International Paper's principal business segments), which is offset byto manufacture and sell fiber-based packaging and pulp goods. As a corresponding change in non-operating pension expensegeneral rule, none of our businesses provide equipment installation or other ancillary services outside of producing and shipping packaging and pulp products to reflect the impact of presenting the amortizationcustomers.
The nature of the prior service cost component of net periodic pension expense outside of operating income. This guidance had no impact on our statements of financial position or cash flows.
INTANGIBLES
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This guidance eliminates the requirement to calculate the implied fair value of goodwill under Step 2 of today's goodwill impairment test to measure a goodwill impairment charge. Instead, entities will record an impairment chargeCompany's contracts can vary based on the excessbusiness, customer type and region; however, in all instances it is International Paper's customary business practice to receive a valid order from the customer, in which each parties' rights and related payment terms are clearly identifiable.
Contracts or purchase orders with customers could include a single type of a reporting unit's carrying amount over its fair value. This guidance should be applied prospectively andproduct or it could include multiple types/grades of products. Regardless, the contracted price with the customer is effective for annual reporting periods beginning after December 15, 2019, for any impairment test performedagreed to at the individual product level outlined in 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.the customer contracts or purchase orders. The Company is currently evaluating the provisions of this guidance;does not
bundle prices; however, we do not anticipate adoption havingnegotiate with customers on pricing and rebates for the same products based on a material impact on the financial statements.
INCOME TAXES
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfersvariety of Assets Other Than Inventory." This ASU requires companies to recognize the income tax effectsfactors (e.g. level of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs rather than defer the income tax effects which is current practice. This new guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The guidance requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Early adoption is permitted. The Company does not expectcontractual volume, geographical location, etc.). Management has concluded that the adoptionprices negotiated with each individual customer are representative of this standard will result in a material impact on the financial statements.stand-alone selling price of the product.
STOCK COMPENSATION
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): "Scope of Modification Accounting." This guidance
clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under this guidance, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, including in any interim period. The Company adopted the provisions of this guidance on January 1, 2018, with no material impact on the financial statements.
LEASES
In February 2016, the FASB issued ASU 2016-02, Leases Topic (842): "Leases." This ASU will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting will remain substantially similar to current U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, and mandates a modified retrospective transition method for all entities. The Company expects to adopt this guidance using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We expect to recognize a liability and corresponding asset associated with in-scope operating and finance leases but we are still in the process of determining those amounts and the processes required to account for leasing activity on an ongoing basis.
BUSINESS COMBINATIONS
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) - Clarifying the Definition of a Business." Under the new guidance, an entity must first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If this threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company adopted the provisions of this guidance on January 1, 2018 with no material impact on the financial statements.
REVENUE RECOGNITION
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This guidance replaces most existing revenue recognition guidance and provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This ASU was effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and permits the use of either the retrospective or cumulative effect transition method; however, in August 2015, the FASB issued ASU 2015-14 which defers the effective date by one year making the guidance effective for annual reporting periods beginning after December 15, 2017. The FASB has continued to clarify this guidance in various updates during 2015 and 2016, all of which, have the same effective date as the original guidance.
We have evaluated the impact of ASU 2014-09 and all related ASUs on our consolidated financial statements. The Company's transition team, including representatives from all of our business segments, has finalized its review and analysis of the impact of the standard on our revenue contracts. Surveys were developed and reviews of customer contracts were performed in order to gather information and identify areas of the Company's business where potential differences could result in applying the requirements of the new standard to its revenue contracts. The results of the surveys, contract reviews and legal analysis indicate that the adoption of the standard will require acceleration of revenue for products produced by the Company without an alternative future use and where the Company has a legally enforceable right of payment for production of products completed to date. The Company adopted the new revenue guidance effective January 1, 2018, using the modified retrospective transition method. Due to the repetitive nature of our sales, we do not expect the impact of this acceleration to significantly alter our reported sales over time. In addition, we do not expect the net impact of adoption to have a material impact on our consolidated results.
Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities were converted into common shares.
There are no adjustments required to be made to net income for purposes of computing basic and diluted EPS.
A reconciliation of the amounts included in the computation of basic earnings (loss) per share from
continuing operations, and diluted earnings (loss) per share from continuing operations is as follows:
| | | In millions, except per share amounts | 2017 | | 2016 | | 2015 | In millions, except per share amounts | 2021 | | 2020 | | 2019 |
| Earnings (loss) from continuing operations attributable to International Paper common shareholders | $ | 2,110 |
| | $ | 802 |
| | $ | 853 |
| Earnings (loss) from continuing operations attributable to International Paper common shareholders | $ | 1,122 | | | $ | 230 | | | $ | 699 | |
| Weighted average common shares outstanding | 412.7 |
| | 411.1 |
| | 417.4 |
| Weighted average common shares outstanding | 389.4 | | | 393.0 | | | 395.3 | |
| Effect of dilutive securities: | | | | | | Effect of dilutive securities: | |
| Restricted performance share plan | 5.0 |
| | 4.5 |
| | 3.2 |
| Restricted performance share plan | 3.0 | | | 2.7 | | | 3.5 | |
| Weighted average common shares outstanding – assuming dilution | 417.7 |
| | 415.6 |
| | 420.6 |
| Weighted average common shares outstanding – assuming dilution | 392.4 | | | 395.7 | | | 398.8 | |
| Basic earnings (loss) per share from continuing operations | $ | 5.11 |
| | $ | 1.95 |
| | $ | 2.05 |
| Basic earnings (loss) per share from continuing operations | $ | 2.88 | | | $ | 0.59 | | | $ | 1.77 | |
| Diluted earnings (loss) per share from continuing operations | $ | 5.05 |
| | $ | 1.93 |
| | $ | 2.03 |
| Diluted earnings (loss) per share from continuing operations | $ | 2.86 | | | $ | 0.58 | | | $ | 1.75 | |
The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years ended December 31:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Defined Benefit Pension and Postretirement Adjustments | | Defined Benefit Pension and Postretirement Adjustments | |
| Balance at beginning of period | $ | (3,072 | ) | $ | (3,169 | ) | $ | (3,134 | ) | Balance at beginning of period | $ | (1,880) | | $ | (2,277) | | $ | (1,916) | |
| Other comprehensive income (loss) before reclassifications | 59 |
| (448 | ) | (331 | ) | Other comprehensive income (loss) before reclassifications | 713 | | 227 | | 2 | |
| Reclassification of stranded tax effects | | Reclassification of stranded tax effects | — | | — | | (527) | |
| Reclassification related to Sylvamo Corporation spin-off | | Reclassification related to Sylvamo Corporation spin-off | 80 | | — | | — | |
| Amounts reclassified from accumulated other comprehensive income | 486 |
| 545 |
| 296 |
| Amounts reclassified from accumulated other comprehensive income | 125 | | 170 | | 164 | |
| Balance at end of period | (2,527 | ) | (3,072 | ) | (3,169 | ) | Balance at end of period | (962) | | (1,880) | | (2,277) | |
| Change in Cumulative Foreign Currency Translation Adjustments | | Change in Cumulative Foreign Currency Translation Adjustments | |
| Balance at beginning of period | (2,287 | ) | (2,549 | ) | (1,513 | ) | Balance at beginning of period | (2,457) | | (2,465) | | (2,581) | |
| Other comprehensive income (loss) before reclassifications | 178 |
| 263 |
| (1,002 | ) | Other comprehensive income (loss) before reclassifications | (115) | | (319) | | 14 | |
| Reclassification related to Sylvamo Corporation spin-off | | Reclassification related to Sylvamo Corporation spin-off | 1,692 | | — | | — | |
| Amounts reclassified from accumulated other comprehensive income | (1 | ) | (3 | ) | (40 | ) | Amounts reclassified from accumulated other comprehensive income | 184 | | 327 | | 102 | |
| Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | (1 | ) | 2 |
| 6 |
| Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | 2 | | — | | — | |
| Balance at end of period | (2,111 | ) | (2,287 | ) | (2,549 | ) | Balance at end of period | (694) | | (2,457) | | (2,465) | |
| Net Gains and Losses on Cash Flow Hedging Derivatives | | Net Gains and Losses on Cash Flow Hedging Derivatives | |
| Balance at beginning of period | (3 | ) | 10 |
| 1 |
| Balance at beginning of period | (5) | | 3 | | (3) | |
| Other comprehensive income (loss) before reclassifications | 15 |
| (6 | ) | (3 | ) | Other comprehensive income (loss) before reclassifications | 3 | | (34) | | 4 | |
| Reclassification of stranded tax effects | | Reclassification of stranded tax effects | — | | — | | (2) | |
| Reclassification related to Sylvamo Corporation spin-off | | Reclassification related to Sylvamo Corporation spin-off | 1 | | — | | — | |
| Amounts reclassified from accumulated other comprehensive income | (7 | ) | (7 | ) | 12 |
| Amounts reclassified from accumulated other comprehensive income | (9) | | 26 | | 4 | |
| Balance at end of period | 5 | (3 | ) | 10 |
| Balance at end of period | (10) | | (5) | | 3 | |
| Total Accumulated Other Comprehensive Income (Loss) at End of Period | $ | (4,633 | ) | $ | (5,362 | ) | $ | (5,708 | ) | Total Accumulated Other Comprehensive Income (Loss) at End of Period | $ | (1,666) | | $ | (4,342) | | $ | (4,739) | |
Reclassifications out of AOCI for the three years ended December 31 were as follows:
| | | | | | | | | | | | | | | | | |
| Amount Reclassified from Accumulated Other Comprehensive Income | | Location of Amount Reclassified from AOCI |
| 2021 | 2020 | 2019 | |
| In millions | | | | | |
| Defined benefit pension and postretirement items: | | | | | |
| Prior-service costs | $ | (20) | | $ | (19) | | $ | (10) | | (a) | Non-operating pension expense |
| Actuarial gains/(losses) | (146) | | (207) | | (208) | | (a) | Non-operating pension expense |
| Total pre-tax amount | (166) | | (226) | | (218) | | | |
| Tax (expense)/benefit | 41 | | 56 | | 54 | | | |
| Net of tax | (125) | | (170) | | (164) | | | |
| Reclassification of stranded tax effects | — | | — | | 527 | | | Retained Earnings |
| Reclassification related to Sylvamo Corporation spin-off | (80) | | — | | — | | | Paid-in Capital |
| Total, net of tax | (205) | | (170) | | 363 | | | |
| Change in cumulative foreign currency translation adjustments: | | | | | |
| Business acquisitions/divestiture | (184) | | (327) | | (102) | | | Net (gains) losses on sales and impairment of businesses and Discontinued operations, net of taxes |
| Tax (expense)/benefit | — | | — | | — | | | |
| Net of tax | (184) | | (327) | | (102) | | | |
| Reclassification related to Sylvamo Corporation spin-off | (1,692) | | — | | — | | | Paid-in Capital |
| Total, net of tax | (1,876) | | (327) | | (102) | | | |
| Net gains and losses on cash flow hedging derivatives: | | | | | |
| Cash flow hedges | 11 | | (39) | | (6) | | (b) | Cost of products sold and Discontinued operations, net of taxes |
| Total pre-tax amount | 11 | | (39) | | (6) | | | |
| Tax (expense)/benefit | (2) | | 13 | | 2 | | | |
| Net of tax | 9 | | (26) | | (4) | | | |
| Reclassification of stranded tax effects | — | | — | | 2 | | | Retained Earnings |
| Reclassification related to Sylvamo Corporation spin-off | (1) | | — | | — | | | Paid-in Capital |
| Total, net of tax | 8 | | (26) | | (2) | | | |
| Total reclassifications for the period, net of tax | $ | (2,073) | | $ | (523) | | $ | 259 | | | |
|
| | | | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Income | | Location of Amount Reclassified from AOCI |
| 2017 | 2016 | 2015 | |
| In millions | | | | | |
| Defined benefit pension and postretirement items: | | | | | |
| Prior-service costs | $ | (33 | ) | $ | (37 | ) | $ | (33 | ) | (a) | Cost of products sold |
| Actuarial gains/(losses) | (733 | ) | (851 | ) | (449 | ) | (a) | Cost of products sold |
| Total pre-tax amount | (766 | ) | (888 | ) | (482 | ) | | |
| Tax (expense)/benefit | 280 |
| 343 |
| 186 |
| | |
| Net of tax | (486 | ) | (545 | ) | (296 | ) | | |
| Change in cumulative foreign currency translation adjustments: | | | | | |
| Business acquisitions/divestiture | 1 |
| 3 |
| 40 |
| | Net (gains) losses on sales and impairments of businesses |
| Tax (expense)/benefit | — |
| — |
| — |
| | |
| Net of tax | 1 |
| 3 |
| 40 |
| | |
| Net gains and losses on cash flow hedging derivatives: | | | | | |
| Foreign exchange contracts | 9 |
| 10 |
| (20 | ) | (b) | Cost of products sold |
| Total pre-tax amount | 9 |
| 10 |
| (20 | ) | | |
| Tax (expense)/benefit | (2 | ) | (3 | ) | 8 |
| | |
| Net of tax | 7 |
| 7 |
| (12 | ) | | |
| Total reclassifications for the period, net of tax | $ | (478 | ) | $ | (535 | ) | $ | (268 | ) | | |
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1619 for additional details). (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 1417 for additional details).
2017:2021: During 2017,2021, restructuring and other charges, net, totaling $67$509 million before taxes were recorded. TheseThe charges included:
| | | | | | | | |
| In millions | | 2021 |
| Early debt extinguishment costs (see Note 16) | | $ | 461 | |
| Building a Better IP (a) | | 29 | |
| EMEA packaging restructuring (b) | | 12 | |
| Other restructuring items | | 7 | |
| Total | | $ | 509 | |
(a) Severance related to our Building a Better IP initiative which is focused on value creation through streamlined operations and
process optimization. The majority of the severance charges are expected to be paid in 2022. |
| | | | |
| In millions | | 2017 |
| Early debt extinguishment costs (see Note 13) | | $ | 83 |
|
| Gain on sale of investment in ArborGen | | (14 | ) |
| Other | | (2 | ) |
| Total | | $ | 67 |
|
2016: 2020:During 2016, total2020, restructuring and other charges, of $54net, totaling $195 million before taxes were recorded. These charges included:
|
| | | | |
| In millions | | 2016 |
| Early debt extinguishment costs (see Note 13) | | $ | 29 |
|
| India packaging evaluation write-off | | 17 |
|
| Gain on sale of investment in Arizona Chemical | | (8 | ) |
| Riegelwood mill conversion costs (a) | | 9 |
|
| Turkey mill closure (b) | | 7 |
|
| Total | | $ | 54 |
|
| |
(a) | Includes $3 million of accelerated depreciation, $3 million of inventory write-off charges and $3 million of other charges. |
| | | | | | | | |
(b)In millions | Includes $4 million of accelerated depreciation and $3 million of severance charges which is related to 85 employees. | 2020 |
| Early debt extinguishment costs (see Note 16) | | $ | 196 | |
| Other restructuring items | | (1) | |
| Total | | $ | 195 | |
2015:
2019: During 2015, total2019, restructuring and other charges, of $252net, totaling $51 million before taxes were recorded.
These charges included:
|
| | | | |
| In millions | | 2015 |
| Early debt extinguishment costs (see Note 13) | | $ | 207 |
|
| Timber monetization restructuring | | 16 |
|
| Legal liability reserve adjustment | | 15 |
|
| Riegelwood mill conversion costs net of proceeds from the sale of Carolina Coated Bristols brand (a) | | 8 |
|
| Other | | 6 |
|
| Total | | $ | 252 |
|
| | | | | | | | |
(a)In millions | Includes $5 million of severance charges, which is related to 69 employees, $24 million of accelerated depreciation, sale proceeds of $22 million and $1 million of other charges. | 2019 |
| Overhead cost reduction initiative (a) | | $ | 15 | |
| EMEA packaging restructuring (b) | | 15 | |
| Early debt extinguishment costs (see Note 16) | | 21 | |
| Total | | $ | 51 | |
(a) Includes pre-tax charges of $11 million in Corporate and $4 million in the Global Cellulose Fibers segment for severance related to an overhead cost reduction initiative. The majority of the severance charges were paid in 2020. (b) Includes $14 million of severance and $1 million in other charges in conjunction with the restructuring of our EMEA Packaging business. The majority of the severance charges were paid in 2020.
TANGIER, MOROCCO FACILITY
2017:2021: On June 30, 2017,April 1, 2021, the Company completedclosed on the previously announced acquisition of Europac's Tangier, Morocco facility, a corrugated packaging facility, for €40two box plants located in Spain. The total purchase consideration, inclusive of working capital adjustments, was approximately €71 million (approximately $46$83 million usingbased on the June 30, 2017April 1, 2021 exchange rate). After working capital and other post-
close adjustments, final consideration exchanged was €33 million (approximately $38 million using the June 30, 2017 exchange rate).
The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of June 30, 2017:April 1, 2021:
|
| | | |
| In millions | June 30, 2017 |
| Cash and temporary investments | $ | 1 |
|
| Accounts and notes receivable | 7 |
|
| Inventory | 3 |
|
| Plants, properties and equipment | 32 |
|
| Goodwill | 4 |
|
| Other intangible assets | 5 |
|
| Deferred charges and other assets | 4 |
|
| Total assets acquired | 56 |
|
| Accounts payable and accrued liabilities | 5 |
|
| Long-term debt | 11 |
|
| Other long-term liabilities | 2 |
|
| Total liabilities assumed | 18 |
|
| Net assets acquired | $ | 38 |
|
| | | | | |
| In millions | |
| Cash and temporary investments | $ | 5 | |
| Accounts and notes receivable | 10 | |
| Inventories | 3 | |
| Plants, properties and equipment | 50 | |
| Goodwill | 23 | |
| Intangible assets | 13 | |
| Total assets acquired | 104 | |
| Short-term debt | 2 | |
| Accounts payable and accrued liabilities | 4 | |
| Other current liabilities | 2 | |
| Long-term debt | 1 | |
| Deferred income taxes | 12 | |
| Total liabilities assumed | 21 | |
| Net assets acquired | $ | 83 | |
Adjustments, if any, to provisional amounts will be finalized within the measurement period of up to one year from the acquisition date. Since the date of acquisition, Net sales of $6$28 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $(1)$1 million from the acquired business have been included in the Company's consolidated statement of operations for the year ended December 31, 2017. 2021.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and
liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to inventory, property, plant and equipment and acquired intangible assets. Adjustments to provisional amounts will be finalized as new information becomes available, but within the adjustment period of up to one year from the acquisition date.
Pro forma information related to the acquisition of the Europac business has not been included as it is impracticalimpracticable to obtain the information due to the lack of availability of historical U.S. GAAP financial data and doesdata. The results of the operations of these businesses do not have a material effect on the Company's consolidated results of operations.
WEYERHAEUSER PULP BUSINESS
2016: On December 1, 2016, the Company finalized the purchase of Weyerhaeuser's pulp business for approximately $2.2 billion in cash, subject to post-closing adjustments. Under the terms of the agreement, International Paper acquired four fluff pulp mills, one northern bleached softwood kraft mill and two converting facilities of modified fiber, located in the United States, Canada and Poland.
The following table summarizes the final fair values assigned to assets and liabilities acquired as of December 1, 2016:
|
| | | |
| In millions | December 1, 2016 |
|
| Cash and temporary investments | $ | 12 |
|
| Accounts and notes receivable | 195 |
|
| Inventory | 238 |
|
| Other current assets | 11 |
|
| Plants, properties and equipment | 1,711 |
|
| Goodwill | 52 |
|
| Other intangible assets | 212 |
|
| Deferred charges and other assets | 6 |
|
| Total assets acquired | 2,437 |
|
| Accounts payable and accrued liabilities | 114 |
|
| Long-term debt | 104 |
|
| Other long-term liabilities | 28 |
|
| Total liabilities assumed | 246 |
|
| Net assets acquired | $ | 2,191 |
|
In connection with the allocation of fair value, inventories were written up by $33 million to their estimated fair value. During 2017 and 2016, $14 million before taxes ($8 million after taxes) and $19 million before taxes ($12 million after taxes), respectively, were expensed to Cost of products sold as the related inventory was sold.
Since the date of acquisition, Net sales of $111 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $(21) million from the acquired business are included in the Company's consolidated statement of operations for the year ended December 31, 2016. Additionally, Selling and administrative expenses for 2016 include $28 million in charges before taxes ($18 million after taxes) for integration costs associated with the acquisition.
The identifiable intangible assets acquired in connection with the acquisition of the Weyerhaeuser pulp business included the following:
|
| | | | | |
| In millions | | Estimated
Fair Value | Average
Remaining
Useful Life |
| Asset Class: | | | (at acquisition
date) |
| Customer relationships and lists | | $ | 95 |
| 24 years |
| Trade names, patents, trademarks and developed technology | | 113 |
| 8 years |
| Other | | 4 |
| 10 years |
| Total | | $ | 212 |
| |
On an unaudited pro forma basis, assuming the acquisition of the newly acquired pulp business had closed January 1, 2015, the consolidated results would have reflected Net sales of $20.8 billion and $22.2 billion and Earnings (loss) from continuing operations before income taxes and equity earnings of $942 million and $1.3 billion for the years ended December 31, 2016 and 2015, respectively.
The 2016 pro forma information includes adjustments for additional amortization expense on identifiable intangible assets of $18 million and eliminating the write-off of the estimated fair value of inventory of $19 million and non-recurring integration costs associated with the acquisition of $30 million, including $12 million of deal costs.
The 2015 pro forma information includes adjustments for additional amortization expense on identifiable intangible assets of $18 million, non-recurring integration costs associated with the acquisition of $30 million, and incremental expense of $33 million associated with the write-off of the estimated fair value of inventory.
The unaudited pro forma consolidated financial information was prepared for comparative purposes only and includes certain adjustments, as noted above. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to represent International Paper's actual results of operations as if the transaction described above would have occurred as of January 1, 2015, nor is it necessarily an indicator of future results.
HOLMEN PAPER NEWSPRINT MILL
2016: On June 30, 2016, the Company completed the previously announced acquisition of Holmen Paper's newsprint mill in Madrid, Spain. Under the terms of the acquisition agreement, International Paper purchased the Madrid newsprint mill, as well as, associated recycling operations and a 50% ownership interest in a cogeneration facility. The Company is in the process of converting the mill to produce recycled containerboard with an expected capacity of 440,000 tons. Once completed, the converted mill will support the Company's corrugated packaging business in EMEA.
The Company's aggregate purchase price for the mill, recycling operations and 50% ownership of the cogeneration facility was €53 million (approximately $59 million using June 30, 2016 exchange rate). The assignment of fair value to assets acquired and liabilities assumed was completed in the first quarter of 2017 and is presented in the table below.
|
| | | |
| In millions | June 30, 2016 |
| Current assets | $ | 14 |
|
| Equity method investments | 14 |
|
| Plants, properties and equipment | 60 |
|
| Other long-term assets | 5 |
|
| Total assets acquired | 93 |
|
| Short-term liabilities | 9 |
|
| Long-term liabilities | 16 |
|
| Total liabilities assumed | 25 |
|
| Net assets acquired | $ | 68 |
|
The final fair values assigned indicated that the sum of the cash consideration paid was less than the fair value of the underlying net assets, after adjustments, by $6 million, resulting in a bargain purchase gain being recorded on this transaction. The amount of revenue and earnings recognized since the acquisition date are $90 million and a net loss of $2 million, respectively, for the year ended December 31, 2016. Pro forma information related to the acquisition of the Holmen businesses has not been included as it is impractical to obtain the information due to the lack of availability of financial data and does not have a material effect on the Company's consolidated results of operations.
The Company has accounted for the above acquisitionsacquisition under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the datesdate of acquisition.
In April 2021, the Company received a noncontrolling interest in a U.S-based corrugated packaging producer. In the second quarter, the Company recorded its investment of $115 million based on the fair value of the noncontrolling interest, and a corresponding contract liability that is amortized over 15 years. The Company is party to various agreements with the entity which includes a containerboard supply agreement. The Company is accounting for its interest as an equity method investment.
2020: In May 2020, the Company increased its noncontrolling interest in an entity that produces corrugated sheets. The equity purchase price was $56 million. The Company is party to various agreements with the entity which includes a containerboard supply agreement. The Company accounts for its interest as an equity method investment.
DISCONTINUED OPERATIONSPRINTING PAPERS SPIN-OFF
2017:2021: On JanuaryOctober 1, 2018,2021, the Company completed the previously announced transferspin-off of its Printing Papers segment along with certain mixed-use coated paperboard and pulp businesses in North American Consumer Packaging business, which includes its North American Coated PaperboardAmerica, France and Foodservice businesses, toRussia into a subsidiarystandalone, publicly-traded company, Sylvamo Corporation. The transaction was implemented through the distribution of Graphic Packaging Holding Company in exchange for a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assetsshares of the combined business.standalone company to International Paper's shareholders (the "Distribution"). As parta result of the transaction, International Paper also received $660 million in cash proceeds from a new loan entered into on December 8, 2017, which the Company used to pay down existing debt. The loan was subsequently assumed by Graphic Packaging International, LLC on the transaction closing date andDistribution, Sylvamo Corporation is classified as Liabilities held for sale in the accompanying consolidated balance sheet as of
an independent
December 31, 2017. International Paper will account for its ownership interest inpublic company that trades on the combined businessNew York Stock Exchange under the equity method. The Company has not finalized the fair value of its investment in the combined business, but expects to record a gain on the transfer in the first quarter of 2018.symbol "SLVM".
The North American Consumer Packaging business was historically presented in the Company's Consumer Packaging segment. For further discussion of the transaction's impact to segment reporting, see Note 19.
All current and historical operating results for North American Consumer Packagingof the Sylvamo Corporation businesses and Kwidzyn are included inpresented as Discontinued operations,Operations, net of tax, in the accompanying consolidated statement of operations. Kwidzyn was previously part of the Printing Papers business prior to its sale in August 2021. See Kwidzyn Mill section below for further details regarding this sale. The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued Operations, net of tax, related to the transfer of the North American Consumer Packaging businessSylvamo Corporation businesses and Kwidzyn for all prior periods presented in the consolidated statement of operations:
| | | In millions | 2017 |
| 2016 |
| 2015 |
| In millions | 2021 | 2020 | 2019 |
| Net Sales | $ | 1,559 |
| $ | 1,584 |
| $ | 1,690 |
| Net Sales | $ | 2,417 | | $ | 3,015 | | $ | 4,059 | |
| Costs and Expenses | | Costs and Expenses | |
| Cost of products sold | 1,179 |
| 1,095 |
| 1,155 |
| Cost of products sold | 1,508 | | 2,036 | | 2,597 | |
| Selling and administrative expenses | 110 |
| 91 |
| 106 |
| Selling and administrative expenses | 224 | | 165 | | 199 | |
| Depreciation, amortization and cost of timber harvested | 80 |
| 103 |
| 127 |
| Depreciation, amortization and cost of timber harvested | 113 | | 196 | | 234 | |
| Distribution expenses | 126 |
| 124 |
| 158 |
| Distribution expenses | 229 | | 264 | | 310 | |
| Taxes other than payroll and income taxes | 11 |
| 10 |
| 10 |
| Taxes other than payroll and income taxes | 24 | | 35 | | 38 | |
| Restructuring and other charges, net | | Restructuring and other charges, net | — | | — | | 6 | |
| Net (gains) losses on sales of fixed assets | | Net (gains) losses on sales of fixed assets | (86) | | — | | — | |
| Net (gains) losses on sales and impairments of businesses | | Net (gains) losses on sales and impairments of businesses | (351) | | — | | — | |
| Interest expense, net | 1 |
| — |
| — |
| Interest expense, net | (19) | | (2) | | (7) | |
| Earnings (Loss) Before Income Taxes and Equity Earnings | 52 |
| 161 |
| 134 |
| Earnings (Loss) Before Income Taxes and Equity Earnings | 775 | | 321 | | 682 | |
| Income tax provision (benefit) | 18 |
| 54 |
| 49 |
| Income tax provision (benefit) | 145 | | 69 | | 156 | |
| Discontinued Operations, Net of Taxes | $ | 34 |
| $ | 107 |
| $ | 85 |
| Discontinued Operations, Net of Taxes | $ | 630 | | $ | 252 | | $ | 526 | |
All current and historical assets and liabilities of North American Consumer Packagingthe Sylvamo Corporation businesses and Kwidzyn are classified as current and long-term assets held for saleof discontinued operations and current and long-term liabilities held for saleof discontinued operations in the accompanying consolidated balance sheet. The following summarizes the major classes of assets and liabilities of North American Consumer Packagingthe Sylvamo Corporation businesses and Kwidzyn reconciled to total Assets held for salecurrent assets and total Liabilities held for salelong-term assets of discontinued operations and current liabilities and long-term liabilities of
discontinued operations in the accompanying consolidated balance sheet:
| | | | | |
| In millions | 2020 |
| Cash and temporary investments | $ | 127 | |
| Accounts and notes receivable | 432 | |
| Contract assets | 24 | |
| Inventories | 424 | |
| Other current assets | 43 | |
| Current assets of discontinued operations | $ | 1,050 | |
| Plants, Properties and Equipment | $ | 1,272 | |
| Forestlands | 293 | |
| Goodwill | 200 | |
| Right of Use Assets | 73 | |
| Deferred Charges and Other Assets | 116 | |
| Long-Term Assets of Discontinued Operations | $ | 1,954 | |
| Notes payable and current maturities of long-term debt | $ | 4 | |
| Accounts payable | 285 | |
| Accrued payroll and benefits | 56 | |
| Other current liabilities | 150 | |
| Current liabilities of discontinued operations | $ | 495 | |
| Long-Term Debt | $ | 22 | |
| Deferred Income taxes | 171 | |
| Pension Benefit Obligation | 24 | |
| Postretirement and Postemployment Benefit Obligation | 17 | |
| Long-Term Lease Obligations | 59 | |
| Other Liabilities | 76 | |
| Long-Term Liabilities of Discontinued Operations | $ | 369 | |
|
| | | | | | | |
| In millions | 2017 |
| | 2016 |
|
| Accounts and notes receivable | $ | 143 |
| | $ | 149 |
|
| Inventories | 185 |
| | 205 |
|
| Other current assets | 3 |
| | 7 |
|
| Current assets held for sale | 331 |
| | 361 |
|
| Plants, properties and equipment | 1,021 |
| | 987 |
|
| Deferred charges and other assets | 25 |
| | 31 |
|
| Long-term assets held for sale | 1,046 |
| (a) | 1,018 |
|
| Total Assets Held for Sale | $ | 1,377 |
| | $ | 1,379 |
|
| Accounts payable | $ | 104 |
| | $ | 110 |
|
| Accrued payroll and benefits | 25 |
| | 29 |
|
| Other accrued liabilities | 17 |
| | 22 |
|
| Current liabilities held for sale | 146 |
| | 161 |
|
| Long-term debt | 651 |
| | — |
|
| Other liabilities | 8 |
| | 8 |
|
| Long-term liabilities held for sale | 659 |
| (a) | 8 |
|
| Total Liabilities Held for Sale | $ | 805 |
| | $ | 169 |
|
(a) As a result ofThe following summarizes the January 1, 2018 transfer of the North American Consumer Packaging business, these amounts have been included in current assets held for sale of $1.4 billion and current liabilities held for sale of $805 million in the accompanying consolidated balance sheet as of December 31, 2017.
Totaltotal cash provided by operations related to the North American Consumer Packaging business of $207 million, $268 million and $197 million for 2017, 2016 and 2015, respectively, is included in Cash Provided By (Used For) Operations in the consolidated statement of cash flows. Totaltotal cash used for investing activities related to the North American Consumer Packaging business of $111 million, $114 millionSylvamo Corporation businesses and $178 million for 2017, 2016Kwidzyn and 2015, respectively, is included in Cash Provided By (Used For) Investing Activities in the consolidated statement of cash flows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Cash Provided by (Used For) Operating Activities | $ | 290 | | $ | 463 | | $ | 831 | |
| Cash Provided by (Used For) Investment Activities | $ | 757 | | $ | (111) | | $ | (147) | |
In anticipation of the spin-off, Sylvamo incurred $1.5 billion in debt during the third quarter of 2021 with the proceeds used for a distribution to the Company and other expenses associated with the transaction. The
Company was an obligor of the debt prior to the spin-off as Sylvamo was a wholly-owned subsidiary. Subsequent to the distribution of the net assets, the Company was no longer an obligor of the Sylvamo debt. The $1.5 billion of borrowings was comprised of $450 million of 7.00% senior unsecured notes due 2029 issued in September 2021. It was also comprised of the senior secured credit facility that Sylvamo entered into in September 2021 which consisted of $450 million of borrowings related to its term loan “B” facility, $520 million of borrowings related to its term loan “F” facility, and the $100 million draw on its revolving credit facility which had a capacity of $450 million. Additionally, at the time of the spin-off in the fourth quarter of 2021, the Company distributed $130 million to Sylvamo. The debt issuance and distribution to Sylvamo Corporation are classified as financing activities in the accompanying consolidated statement of cash flows.
OTHER DIVESTITURES AND IMPAIRMENTSKWIDZYN MILL
2017:2021: On September 7, 2017,August 6, 2021, the Company completed the sale of its foodservice business in China to Huhtamaki Hong Kong Limited. Proceeds received totaled approximately RMB 129Kwidzyn, Poland mill for €669 million ($18(approximately $794 million using the September 30, 2017July 31, 2021 exchange rate) in cash, subject to final working capital and net debt adjustments. The business includes the pulp and paper mill in Kwidzyn and supporting functions. During the third quarter of 2021, the Company recorded a net gain of $360 million ($350 million after taxes) including a gain of $404 million ($394 million after taxes) related to the sale of net assets and a loss of $44 million (before and after taxes) related to the cumulative foreign currency translation loss. During the fourth quarter of 2021, the Company incurred $9 million ($6 million after taxes) of costs related to the sale of Kwidzyn. All current year and historical operating results for Kwidzyn have been presented as Discontinued Operations, net of tax, in the consolidated statement of operations.
OLMUKSAN INTERNATIONAL PAPER
2021: On May 31, 2021, the Company completed the sale of its 90.38% ownership interest in Olmuksan International Paper, a corrugated packaging business in Turkey, to Mondi Group for €66 million (approximately $81 million using the May 31, 2021 exchange rate). UnderDuring the termssecond quarter of 2021, the transaction,Company recorded a gain of $6 million ($0 after taxes) related to the business working capital adjustment. This charge is included in the Net (gains) losses on sales and after post-closing adjustments, International Paper received approximately RMB 49 millionimpairments of businesses in exchange for its ownership interestthe accompanying consolidated statement of operations and is included in two China foodservice entities and RMB 80 millionthe results for the sale of notes receivable from the acquired entities.Industrial Packaging segment.
Subsequent to
In conjunction with the announced agreement in June 2017,the fourth quarter of 2020, a determination was made that the current book value of the assetOlmuksan International Paper disposal group exceeded its estimated fair value of $7$79 million which was based on the agreed upon sellingtransaction price. As a result, a pre-taxpreliminary charge of $9$123 million (before and after taxes) was recorded during the secondfourth quarter of 2017,2020. During the first quarter of 2021, the Company recorded an additional charge of $2 million (before and after taxes) related to the cumulative foreign currency translation loss. This charge is included in the Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations and is included in the results for the Industrial Packaging segment.
BRAZIL PACKAGING
2020: On October 14, 2020, the Company closed the previously announced sale of its Brazilian Industrial Packaging business for R$330 million ($58.5 million U.S. dollars), with R$280 million ($49.6 million U.S. dollars) paid at closing and R$50 million ($8.9 million U.S. dollars) to be paid one year from closing. This business includes 3 containerboard mills and 4 box plants and the agreement follows International Paper's previously announced strategic review of the Brazilian Industrial Packaging business.
In conjunction with the announced agreement, net pre-tax charges of $347 million ($340 million after taxes) were recorded in 2020. These charges included $327 million related to the cumulative foreign currency translation loss and a $20 million loss related the write down of the long-lived assets of thisthe Brazilian Industrial Packaging business to their estimated fair value. Amounts related to this business included in the
Company's statement of operations were immaterial for all periods presented.
2016: On June 30, 2016, the Company completed the sale of its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise. Under the terms of the transaction and after post-closing adjustments, International Paper received a total of approximately RMB 957 million (approximately $144 million at the June 30, 2016 exchange rate), which included the buyer's assumption of a liability for outstanding loans of approximately $55 million whichThese charges are payable up to three years from the closing of the sale. The remaining balance of the outstanding loans payable to International Paper as of December 31, 2017, totaled $9 million.
Based on the final sales price, a determination was made that the current book value of the asset group was not recoverable. As a result, a pre-tax charge of $46 million was recorded during 2016 in the Company's Industrial Packaging segment to write down the long-lived assets of this business to their estimated fair value. In addition, the Company recorded a pre-tax charge of $24 million for severance that was contingent upon the sale of this business. The 2016 net loss totaling $70 million related to the impairment and severance of IP Asia Packaging is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.
The amount of pre-tax losses related to the IP Asia Packaging businessoperations and is included in the Company's consolidated statement of operations were $83 million, and $8 million for years ended December 31, 2016 and 2015.
2015: On October 13, 2015, the Company finalized the sale of its 55% interest in IP Asia Coated Paperboard (IP-Sun JV) business to its Chinese coated board joint venture partner, Shandong Sun Holding Group Co., Ltd. for RMB 149 million (approximately USD $23 million). During the third quarter of 2015, a determination was made that the current book value of the asset group was not recoverable. As a result, the net pre-tax impairment charge of $174 million ($113 million after taxes) was recorded to write down the long-lived assets of this business to its estimated fair value. The impairment charge is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations. The amount of pre-tax losses related to noncontrolling interest of the IP-Sun JV included in the Company's consolidated statement of operationsresults for the year ended December 31, 2015 was $19 million. The amount of pre-tax losses related to the IP-Sun JV included in the Company's consolidated statement of operations for the year ended December 31, 2015 was $226 million.
Industrial Packaging segment.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of three months or less and money market funds with greater than three month maturities but with the right to redeem without notices are treated as cash equivalents and are stated at cost. Temporary investments totaled $661 million$1.1 billion and $757$294 million at December 31, 20172021 and 2016,2020, respectively.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable, net, of allowances, by classification were:
| | | | | | | | |
| In millions at December 31 | 2021 | 2020 |
| Accounts and notes receivable: | | |
| Trade | $ | 3,027 | | $ | 2,365 | |
| Other | 205 | | 267 | |
| Total | $ | 3,232 | | $ | 2,632 | |
|
| | | | | | |
| In millions at December 31 | 2017 | 2016 |
| Accounts and notes receivable: | | |
| Trade | $ | 3,017 |
| $ | 2,612 |
|
| Other | 270 |
| 240 |
|
| Total | $ | 3,287 |
| $ | 2,852 |
|
The allowance for expected credit losses was $34 million and $44 million at December 31, 2021 and 2020, respectively. Based on the Company's accounting estimates and the facts and circumstances available as of the reporting date, we believe our allowance for expected credit losses is adequate.
INVENTORIES
|
| | | | | | |
| In millions at December 31 | 2017 | 2016 |
| Raw materials | $ | 274 |
| $ | 286 |
|
| Finished pulp, paper and packaging products | 1,337 |
| 1,231 |
|
| Operating supplies | 615 |
| 616 |
|
| Other | 87 |
| 100 |
|
| Inventories | $ | 2,313 |
| $ | 2,233 |
|
| | | | | | | | |
| In millions at December 31 | 2021 | 2020 |
| Raw materials | $ | 245 | | $ | 211 | |
| Finished pulp and packaging products | 1,014 | | 876 | |
| Operating supplies | 486 | | 501 | |
| Other | 69 | | 38 | |
| Inventories | $ | 1,814 | | $ | 1,626 | |
The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories. Approximately 71%80% of total raw materials and finished products inventories were valued using this method. The last-in, first-out inventory reserve was $293$195 million and $290$183 million at December 31, 20172021 and 2016,2020, respectively.
CURRENT INVESTMENTS
As a result of the spin-off of Sylvamo Corporation, the Company retained 19.9% of the shares of Sylvamo. The intent is to monetize its investment and to provide additional proceeds to the Company. The Company is accounting for its ownership interest in Sylvamo at fair value as an investment in equity securities. As of December 31, 2021 the investment was valued at $245 million and is recorded in Current investments on the accompanying balance sheet.
PLANTS, PROPERTIES AND EQUIPMENT
| | | | | | | | |
| In millions at December 31 | 2021 | 2020 |
| Pulp and packaging facilities | $ | 27,025 | | $ | 26,706 | |
| Other properties and equipment | 972 | | 1,047 | |
| Gross cost | 27,997 | | 27,753 | |
| Less: Accumulated depreciation | 17,556 | | 16,808 | |
| Plants, properties and equipment, net | $ | 10,441 | | $ | 10,945 | |
Non-cash additions to plants, property and equipment included within accounts payable were $106 million,
$41 million and $164 million at December 31, 2021, 2020 and 2019, respectively. |
| | | | | | |
| In millions at December 31 | 2017 | 2016 |
| Pulp, paper and packaging facilities | $ | 32,523 |
| $ | 30,943 |
|
| Other properties and equipment | 1,291 |
| 1,308 |
|
| Gross cost | 33,814 |
| 32,251 |
|
| Less: Accumulated depreciation | 20,549 |
| 19,248 |
|
| Plants, properties and equipment, net | $ | 13,265 |
| $ | 13,003 |
|
Amounts invested in capital projects in the accompanying condensed consolidated statement of cash flows are presented net of insurance recoveries of $17 million and $42 million received during the years ended December 31, 2021 and 2020, respectively. There were no insurance recoveries received during the year ended December 31, 2019.
Annual straight-line depreciable lives generally are, for buildings - 20 to 40 years, and for machinery and equipment - 3 to 20 years. Depreciation expense was $1.2 billion, $1.0 billion and $1.1 billion for each of the years ended December 31, 2017, 20162021 and 2015, respectively.2020 and $1.0 billion for the year ended December 31, 2019. Cost of products sold excludes depreciation and amortization expense.
INTEREST
Interest payments of $782$473 million, $682 million and $680$748 million were made during the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
Amounts related to interest were as follows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Interest expense | $ | 430 | | $ | 597 | | $ | 701 | |
| Interest income | 93 | | 151 | | 202 | |
| Capitalized interest costs | 12 | | 31 | | 28 | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Interest expense (a) | $ | 758 |
| $ | 695 |
| $ | 644 |
|
| Interest income (a) | 186 |
| 175 |
| 89 |
|
| Capitalized interest costs | 25 |
| 28 |
| 25 |
|
| |
(a) | Interest expense and interest income exclude approximately $25 million in 2015 related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset (see Note 12). |
ASSET RETIREMENT OBLIGATIONS
At December 31, 20172021 and December 31, 2016,2020, we had recorded liabilities of $86$107 million and $83$94 million, respectively, related to asset retirement obligations.
International Paper leases various real estate, including certain operating facilities, warehouses, office space and land. The Company also leases material handling equipment, vehicles, and certain other equipment. The Company's leases have remaining lease terms of up to 32 years.
COMPONENTS OF LEASE EXPENSE
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Operating lease costs, net | $ | 138 | | $ | 132 | | $ | 121 | |
| Variable lease costs | 40 | | 43 | | 51 | |
| Short-term lease costs, net | 53 | | 46 | | 46 | |
| Finance lease cost | | | |
| Amortization of lease assets | 11 | | 10 | | 9 | |
| Interest on lease liabilities | 3 | | 3 | | 3 | |
| Total lease cost, net | $ | 245 | | $ | 234 | | $ | 230 | |
SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| | | | | | | | | | | |
| In millions | Classification | 2021 | 2020 |
| Assets | | | |
| Operating lease assets | Right of use assets | $ | 365 | | $ | 387 | |
| Finance lease assets | Plants, properties and equipment, net (a) | 57 | | 62 | |
| Total leased assets | | $ | 422 | | $ | 449 | |
| Liabilities | | | |
| Current | | | |
| Operating | Other current liabilities | $ | 132 | | $ | 134 | |
| Finance | Notes payable and current maturities of long-term debt | 10 | | 10 | |
| Noncurrent | | | |
| Operating | Long-term lease obligations | 236 | | 256 | |
| Finance | Long-term debt | 56 | | 61 | |
| Total lease liabilities | | $ | 434 | | $ | 461 | |
(a) Finance leases are recorded net of accumulated amortization of $51 million and $43 million at December 31, 2021 and 2020, respectively.
LEASE TERM AND DISCOUNT RATE
| | | | | | | | |
| In millions | 2021 | 2020 |
| Weighted average remaining lease term (years) | | |
| Operating leases | 4.0 years | 4.0 years |
| Finance leases | 9.1 years | 9.3 years |
| Weighted average discount rate | | |
| Operating leases | 2.12 | % | 2.63 | % |
| Finance leases | 4.50 | % | 4.45 | % |
SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows related to operating leases | $ | 166 | | $ | 162 | | $ | 147 | |
| Operating cash flows related to financing leases | 4 | | 5 | | 5 | |
| Financing cash flows related to finance leases | 14 | | 10 | | 9 | |
| | | |
| Right of use assets obtained in exchange for lease liabilities | | | |
| Operating leases | 156 | | 179 | | 162 | |
| Finance leases | 9 | | 11 | | 11 | |
MATURITY OF LEASE LIABILITIES
| | | | | | | | | | | |
| In millions | Operating Leases | Financing Leases | Total |
| 2022 | $ | 139 | | $ | 13 | | $ | 152 | |
| 2023 | 97 | | 12 | | 109 | |
| 2024 | 60 | | 10 | | 70 | |
| 2025 | 38 | | 9 | | 47 | |
| 2026 | 23 | | 8 | | 31 | |
| Thereafter | 28 | | 34 | | 62 | |
| Total lease payments | 385 | | 86 | | 471 | |
| Less imputed interest | 17 | | 20 | | 37 | |
| Present value of lease liabilities | $ | 368 | | $ | 66 | | $ | 434 | |
NOTE 11 EQUITY METHOD INVESTMENTS
The Company accounts for the following investments under the equity method of accounting.
ILIM S.A. ("Ilim")
The Company holds a 50% equity interest in Ilim, which has subsidiaries whose primary operations are in Russia. The Company recorded equity earnings, net of taxes, of $311 million, $48 million, and $207 million in 2021, 2020, and 2019, respectively, for Ilim. Foreign exchange gains (losses) included in equity earnings in 2021, were not material and JSC Ilim Group had no U.S. dollar-denominated debt outstanding as of December 31, 2021. Equity earnings includes an after-tax foreign exchange (loss) gain of $(50) million, and $32 million in 2020 and 2019, respectively, primarily on the remeasurement of U.S. dollar-denominated net debt. The Company received cash dividends from the joint venture of $154 million, $141 million and $246 million in 2021, 2020 and 2019, respectively. At December 31, 2021 and 2020, the Company's investment in Ilim, which is recorded in Investments in the consolidated balance sheet, was $557 million and $393 million, respectively, which was $121 million and $127 million, respectively, more than the Company's proportionate share of the joint venture's underlying net assets.
The differences primarily relate to currency translation adjustments and the basis difference between the fair value of our investment at acquisition and the underlying net assets. Prior to the spin-off of the Printing Papers segment on October 1, 2021, the Company was party to a joint marketing agreement with JSC Ilim Group, a subsidiary of Ilim, under which the Company purchased, marketed and sold paper produced by JSC Ilim Group. Purchases under this agreement were $125 million, $174 million and $215 million for the years ended December 31, 2021, 2020 and 2019, respectively.The joint marketing agreement
was conveyed to Sylvamo Corporation as part of the spin-off transaction on October 1, 2021.
Summarized financial information for Ilim is presented in the following tables:
Balance Sheet
| | | | | | | | | | | |
| In millions | 2021 | | 2020 |
| Current assets | $ | 1,010 | | | $ | 739 | |
| Noncurrent assets | 3,145 | | | 2,733 | |
| Current liabilities | 1,212 | | | 674 | |
| Noncurrent liabilities | 2,047 | | | 2,249 | |
| Noncontrolling interests | 24 | | | 17 | |
Income Statement
| | | | | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | | 2019 |
| Net sales | $ | 2,693 | | | $ | 2,015 | | | $ | 2,189 | |
| Gross profit | 1,432 | | | 838 | | | 1,025 | |
| Income from continuing operations | 635 | | | 115 | | | 438 | |
| Net income | 613 | | | 113 | | | 424 | |
GRAPHIC PACKAGING INTERNATIONAL PARTNERS, LLC
The Company completed the transfer of its North American Consumer Packaging business in exchange for an initial 20.5% ownership interest (79,911,591 units) in Graphic Packaging International Partners, LLC (GPIP) in 2018. The Company has since fully monetized its investment in GPIP with transactions beginning in the first quarter 2020 through the second quarter 2021.
GPIP Monetization Transactions
| | | | | | | | | | | | | | | | | |
| Date | Transaction Type | Units | Proceeds | Pre-Tax Gain | After-Tax Gain |
| In millions except units | | | | | |
| 2020 First Quarter | Units exchange | 15,150,784 | | $ | 250 | | $ | 33 | | $ | 25 | |
| 2020 Third Quarter | Units exchange | 17,399,414 | | 250 | — | | — | |
| 2021 First Quarter | Units exchange and open market sale | 24,588,316 | | 397 | 33 | 25 | |
| 2021 First Quarter | TRA (a) | | | 42 | 31 | |
| 2021 Second Quarter | Units exchange and open market sale | 22,773,077 | | 403 | 64 | 48 | |
| 2021 Second Quarter | TRA (a) | | | 66 | 50 | |
(a) The TRA entitles the Company to 50% of the amount of any tax benefits projected to be realized by GPIP upon the Company's exchange of its units. The Company made income tax payments of $310 million in 2021 as a result of the monetization of its investment in GPIP.
As of June 30, 2021, the Company no longer had an ownership interest in GPIP. The Company recorded equity earnings of $4 million, $40 million and $46 million for the twelve months ended December 31, 2021, 2020 and 2019, respectively. The Company received cash dividends from GPIP of $5 million, $20 million and $27 million during 2021, 2020 and 2019, respectively.
The Company's remaining equity method investments are not material.
GOODWILL
The following table presents changes in the goodwill balances as allocated to each business segment for the years ended December 31, 20172021 and 2016:2020:
| | | | | | | | | | | | | | | | | |
| In millions | Industrial
Packaging | | Global Cellulose Fibers | | Total |
| Balance as of December 31, 2019 | | | | | |
| Goodwill | $ | 3,410 | | | $ | 52 | | | $ | 3,462 | |
| Accumulated impairment losses | (296) | | | (52) | | | (348) | |
| 3,114 | | | — | | | 3,114 | |
| Currency translation and other (a) | 6 | | | — | | | 6 | |
| Goodwill additions/reductions | (5) | | (b)(c) | — | | | (5) | |
| | | | | |
| Balance as of December 31, 2020 | | | | | |
| Goodwill | 3,411 | | | 52 | | | 3,463 | |
| Accumulated impairment losses | (296) | | | (52) | | | (348) | |
| | 3,115 | | | — | | | 3,115 | |
| Currency translation and other (a) | (8) | | | — | | | (8) | |
| Goodwill additions/reductions | 23 | | (c) | — | | | 23 | |
| Balance as of December 31, 2021 | | | | | |
| Goodwill | 3,426 | | | 52 | | | 3,478 | |
| Accumulated impairment losses | (296) | | | (52) | | | (348) | |
| Total | $ | 3,130 | | | $ | — | | | $ | 3,130 | |
(a)Represents the effects of foreign currency translations and reclassifications.
(b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S.
(c) Reflects the goodwill for the acquisitions and divestitures of Industrial Packaging box plants in EMEA.
The Company performed its annual testing of its reporting units for possible goodwill impairments by applying the qualitative assessment to its North America Industrial Packaging reporting unit and the quantitative goodwill impairment test to its EMEA Industrial Packaging reporting unit as of October 1, 2021.
For the current year evaluation, the Company assessed various assumptions, events and circumstances that would have affected the estimated fair value of the North America Industrial Packaging reporting unit under the qualitative assessment and the results of the qualitative assessments indicated that it was not more likely than not that the fair value of the reporting unit was less than its carrying value.
The Company also performed the quantitative goodwill impairment test which included comparing the carrying amount of the EMEA Industrial Packaging reporting unit to its estimated fair value.
|
| | | | | | | | | | | | | | | |
| In millions | Industrial Packaging | | Global Cellulose Fibers | | Printing Papers | | Total |
| Balance as of December 31, 2015 | | | | | | | |
| Goodwill | $ | 3,384 |
| | $ | — |
| | $ | 2,124 |
| | $ | 5,508 |
|
| Accumulated impairment losses | (296 | ) | | — |
| | (1,877 | ) | | (2,173 | ) |
| | 3,088 |
| | — |
| | 247 |
| | 3,335 |
|
| Reclassifications and other (a) | (4 | ) | | — |
| | 33 |
| | 29 |
|
| Additions/reductions | (5 | ) | (b) | 19 |
| (c) | (14 | ) | (d) | — |
|
| Impairment loss | — |
| | — |
| | — |
| | — |
|
| Balance as of December 31, 2016 | | | | | | | |
| Goodwill | 3,375 |
| | 19 |
| | 2,143 |
| | 5,537 |
|
| Accumulated impairment losses | (296 | ) | | — |
| | (1,877 | ) | | (2,173 | ) |
| | 3,079 |
| | 19 |
| | 266 |
| | 3,364 |
|
| Reclassifications and other (a) | 3 |
| | — |
| | 8 |
| | 11 |
|
| Additions/reductions | 4 |
| (e) | 33 |
| (c) | (1 | ) | | 36 |
|
| Impairment loss | — |
|
| — |
| | — |
| | — |
|
| Balance as of December 31, 2017 | | | | | | | |
| Goodwill | 3,382 |
| | 52 |
| | 2,150 |
| | 5,584 |
|
| Accumulated impairment losses | (296 | ) | | — |
| | (1,877 | ) | | (2,173 | ) |
| Total | $ | 3,086 |
| | $ | 52 |
| | $ | 273 |
| | $ | 3,411 |
|
| |
(a) | Represents the effects of foreign currency translations and reclassifications. |
| |
(b) | Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S. |
| |
(c) | Reflects the acquisition and purchase price adjustments of the newly acquired pulp business. |
| |
(d) | Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil. |
| |
(e) | Reflects the acquisition of the newly acquired Moroccan box plant. |
56The Company performed the quantitative goodwill impairment test for EMEA Industrial Packaging due to the changes in the reporting unit's asset base as a result of acquisitions and divestitures since the previous quantitative goodwill impairment test. The Company calculated the estimated fair value of the reporting unit using a weighted approach based on discounted future cash flows, market multiples and transaction multiples. The carrying amount did not exceed the estimated fair value of the EMEA Industrial Packaging reporting unit.
In addition, the Company considered whether there were any events or circumstances outside of the annual evaluation that would reduce the fair value of its reporting units below their carrying amounts and necessitate a goodwill impairment evaluation. In consideration of all relevant factors, there were no indicators that would require goodwill impairment subsequent to October 1, 2021.
OTHER INTANGIBLES
Identifiable intangible assets comprised the following:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | 2020 |
| In millions at December 31 | Gross
Carrying
Amount | Accumulated
Amortization | Net Intangible Assets | Gross
Carrying
Amount | Accumulated
Amortization | Net Intangible Assets |
| Customer relationships and lists | $ | 493 | | $ | 273 | | $ | 220 | | $ | 483 | | $ | 244 | | $ | 239 | |
| Tradenames, patents and trademarks, and developed technology | 170 | | 131 | | 39 | | 170 | | 117 | | 53 | |
| Land and water rights | 8 | | 2 | | 6 | | 8 | | 2 | | 6 | |
| Software | 15 | | 15 | | — | | 15 | | 15 | | — | |
| Other | 9 | | 6 | | 3 | | 10 | | 7 | | 3 | |
| Total | $ | 695 | | $ | 427 | | $ | 268 | | $ | 686 | | $ | 385 | | $ | 301 | |
|
| | | | | | | | | | | | | | | | | | |
| | 2017 | 2016 |
| In millions at December 31 | Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets | Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets |
| Customer relationships and lists | $ | 610 |
| $ | 247 |
| $ | 363 |
| $ | 605 |
| $ | 211 |
| $ | 394 |
|
| Non-compete agreements | 72 |
| 72 |
| — |
| 69 |
| 64 |
| 5 |
|
| Tradenames, patents and trademarks, and developed technology | 172 |
| 72 |
| 100 |
| 173 |
| 56 |
| 117 |
|
| Land and water rights | 8 |
| 2 |
| 6 |
| 10 |
| 2 |
| 8 |
|
| Software | 24 |
| 23 |
| 1 |
| 21 |
| 20 |
| 1 |
|
| Other | 38 |
| 26 |
| 12 |
| 48 |
| 26 |
| 22 |
|
| Total | $ | 924 |
| $ | 442 |
| $ | 482 |
| $ | 926 |
| $ | 379 |
| $ | 547 |
|
The Company recognized the following amounts as amortization expense related to intangible assets:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Amortization expense related to intangible assets | $ | 77 |
| $ | 54 |
| $ | 60 |
| Amortization expense related to intangible assets | $ | 44 | | $ | 45 | | $ | 45 | |
Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows: 2018 – $55 million, 2019 – $52 million, 2020 – $51 million, 2021 – $51 million, 2022 – $49$44 million, 2023 – $40 million, 2024 – $40 million, 2025 – $35 million, 2026 – $30 million, and cumulatively thereafter – $217$73 million.
The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows:
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Earnings (loss) | | | |
| U.S. | $ | 297 |
| $ | 411 |
| $ | 1,013 |
|
| Non-U.S. | 551 |
| 384 |
| 119 |
|
| Earnings (loss) from continuing operations before income taxes and equity earnings | $ | 848 |
| $ | 795 |
| $ | 1,132 |
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("the Tax Act.") The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations ondeductible interest expense and executive compensation.
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Earnings (loss) | | | |
| U.S. | $ | 906 | | $ | 660 | | $ | 1,103 | |
| Non-U.S. | 93 | | (331) | | (182) | |
| Earnings (loss) from continuing operations before income taxes and equity earnings (losses) | $ | 999 | | $ | 329 | | $ | 921 | |
The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional net tax benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition Tax of $231 million. For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of the Tax Act.
Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable estimates of those elements and, therefore, recorded provisional adjustments as follows:
Reduction of U.S. federal corporate tax rate:The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain of our deferred tax assets and liabilities, we have recorded a provisional net decrease of $1.451 billion with a corresponding adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analysis related to the Tax Act, including but not limited to, the state tax effect of adjustments made to federal temporary differences.
Deemed Repatriation Transition Tax: This is atax on previously untaxed accumulated and current earnings and profits (“E&P”) of foreign subsidiaries. To determine the amount of the transition tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $231 million. The provisional amount of current tax liability related to the Transition Tax recorded in Other accrued liabilities is $17 million. However, we are continuing to gather additional information, which may result in our ability to more precisely compute the amount of the Transition Tax.
Valuation Allowances: The Company has assessed whether its U.S. state and local income tax valuation allowance analysis is affected by various aspects of the Tax Act (e.g. deemed repatriation of foreign income, acceleration of cost recovery). Since, as discussed herein, the Company has recorded provisional amounts related to elements of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. For certain of our state deferred tax assets, we have recorded a net $3 million provisional decrease in the recorded valuation allowance with a corresponding adjustment to deferred income tax benefit in the same amount for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the Tax Act on state attributes, the resolution of, or changes from, other factors noted herein may result in changes in our recorded valuation allowance.
The Tax Act may impact decisions surrounding the Company’s permanent reinvestment assertions related to its foreign investments and could have an impact on the Company’s accounting for untaxed outside basis differences. We previously considered the earnings in our non-U.S. subsidiaries to be permanently reinvested,
and, accordingly deferred income taxes were not provided for such basis differences which totaled approximately $5.9 billion at December 31, 2016. While the transition tax resulted in a reduction in these basis differences, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional taxes, including, but not limited to, foreign withholding taxes and U.S. state income taxes. In light of the Tax Act, the Company is evaluating its global cash management and non-U.S. repatriation strategy but we have yet to determine whether we plan to change our prior assertion. Accordingly, we have not recorded any deferred taxes attributable to our investments in our non-U.S. subsidiaries.
These estimates may change materially due to, among other things, further clarification of existing guidance that may be issued by U.S. taxing authorities or regulatory bodies and/or changes in interpretations and assumptions we have preliminarily made. We will continue to analyze the Tax Act to finalize its financial statement impact, including the mandatory deemed repatriation of foreign earnings, re-measurement of deferred taxes and all other provisions of the legislation and will record the effects of any changes to provisional amounts in the period we can complete our analysis or are first able to make a reasonable estimate, but no later than December 2018.
The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Current tax provision (benefit) | | | |
| U.S. federal | $ | 413 | | $ | 98 | | $ | 219 | |
| U.S. state and local | 47 | | 31 | | 18 | |
| Non-U.S. | 37 | | (3) | | 18 | |
| | $ | 497 | | $ | 126 | | $ | 255 | |
| Deferred tax provision (benefit) | | | |
| U.S. federal | $ | (274) | | $ | (2) | | $ | 47 | |
| U.S. state and local | (27) | | 2 | | (21) | |
| Non-U.S. | (8) | | 50 | | 196 | |
| | $ | (309) | | $ | 50 | | $ | 222 | |
| Income tax provision (benefit) | $ | 188 | | $ | 176 | | $ | 477 | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Current tax provision (benefit) | | | |
| U.S. federal | $ | (73 | ) | $ | (7 | ) | $ | 35 |
|
| U.S. state and local | (23 | ) | (12 | ) | 3 |
|
| Non-U.S. | 112 |
| 76 |
| 111 |
|
| | $ | 16 |
| $ | 57 |
| $ | 149 |
|
| Deferred tax provision (benefit) | | | |
| U.S. federal | $ | (1,150 | ) | $ | 134 |
| $ | 306 |
|
| U.S. state and local | 9 |
| 27 |
| 32 |
|
| Non-U.S. | 40 |
| (25 | ) | (70 | ) |
| | $ | (1,101 | ) | $ | 136 |
| $ | 268 |
|
| Income tax provision (benefit) | $ | (1,085 | ) | $ | 193 |
| $ | 417 |
|
The Company’s deferred income tax provision (benefit) includes a $1.459 billionan $8 million benefit, a $18$2 million provisionbenefit and a $3$44 million provisionbenefit for 2017, 20162021, 2020 and 2015,2019, respectively, for the effect of various changes in non-U.S. and U.S. federal and state tax rates.
International Paper made income tax payments, net of refunds, of $7$601 million, $90$162 million and $149$349 million in 2017, 20162021, 2020 and 2015,2019, respectively.
A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
Earnings (loss) from continuing
operations before income taxes
and equity earnings | $ | 999 | | $ | 329 | | $ | 921 | |
| Statutory U.S. income tax rate | 21 | % | 21 | % | 21 | % |
| Tax expense (benefit) using statutory U.S. income tax rate | 210 | | 69 | | 193 | |
| State and local income taxes | 15 | | 26 | | (1) | |
| Impact of rate differential on non-U.S. permanent differences and earnings | 5 | | 29 | | 25 | |
| Foreign valuation allowance | — | | — | | 203 | |
| Adjustment to tax basis of assets | (14) | | — | | — | |
| Non-deductible business expenses | 1 | | 4 | | 6 | |
| Non-deductible impairments | — | | 92 | | 31 | |
| Non-deductible compensation | 11 | | 11 | | 2 | |
| Tax audits | 9 | | (28) | | — | |
| Deemed repatriation, net of foreign tax credits | — | | — | | 1 | |
| U.S. federal tax rate change | — | | 7 | | — | |
| Foreign derived intangible income deduction | (7) | | — | | 4 | |
| US tax on non-U.S. earnings (GILTI and Subpart F) | 5 | | 6 | | 29 | |
| Foreign tax credits | (6) | | (3) | | 2 | |
| General business and other tax credits | (39) | | (42) | | (31) | |
| Tax expense (benefit) on equity earnings | — | | 8 | | 10 | |
| Other, net | (2) | | (3) | | 3 | |
| Income tax provision (benefit) | $ | 188 | | $ | 176 | | $ | 477 | |
| Effective income tax rate | 19 | % | 53 | % | 52 | % |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
Earnings (loss) from continuing
operations before income taxes
and equity earnings | $ | 848 |
| $ | 795 |
| $ | 1,132 |
|
| Statutory U.S. income tax rate | 35 | % | 35 | % | 35 | % |
| Tax expense (benefit) using statutory U.S. income tax rate | 297 |
| 278 |
| 396 |
|
| State and local income taxes | (7 | ) | 8 |
| 20 |
|
| Tax rate and permanent differences on non-U.S. earnings | (36 | ) | (26 | ) | (44 | ) |
| Net U.S. tax on non-U.S. dividends | 44 |
| 21 |
| 12 |
|
| Tax expense (benefit) on manufacturing activities | 23 |
| (10 | ) | (12 | ) |
| Non-deductible business expenses | 7 |
| 9 |
| 8 |
|
| Non-deductible impairments | — |
| — |
| 109 |
|
| Sale of non-strategic assets | — |
| 12 |
| (61 | ) |
| Tax audits | — |
| (14 | ) | — |
|
| U.S. federal tax rate change | (1,451 | ) | — |
| — |
|
| Foreign tax credits | (96 | ) | (11 | ) | — |
|
| Subsidiary liquidation | — |
| (63 | ) | — |
|
| Deemed repatriation, net of foreign tax credits | 231 |
| — |
| — |
|
| General business and other tax credits | (86 | ) | (15 | ) | (15 | ) |
| Other, net | (11 | ) | 4 |
| 4 |
|
| Income tax provision (benefit) | $ | (1,085 | ) | $ | 193 |
| $ | 417 |
|
| Effective income tax rate | (128 | )% | 24 | % | 37 | % |
The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, 20172021 and 2016,2020, were as follows:
| | | | | | | | |
| In millions | 2021 | 2020 |
| Deferred income tax assets: | | |
| Postretirement benefit accruals | $ | 84 | | $ | 91 | |
| Pension obligations | — | | 280 | |
| Tax credits | 199 | | 293 | |
| Net operating and capital loss carryforwards | 661 | | 563 | |
| Compensation reserves | 184 | | 170 | |
| Lease obligations | 92 | | 99 | |
| Environmental reserves | 104 | | 111 | |
| Other | 189 | | 191 | |
| Gross deferred income tax assets | $ | 1,513 | | $ | 1,798 | |
| Less: valuation allowance (a) | (708) | | (681) | |
| Net deferred income tax asset | $ | 805 | | $ | 1,117 | |
| Deferred income tax liabilities: | | |
| Intangibles | $ | (140) | | $ | (114) | |
| Investments | (56) | | (251) | |
| Right of use assets | (92) | | (99) | |
| Pension obligations | (34) | | — | |
| Plants, properties and equipment | (1,776) | | (1,826) | |
| Forestlands, related installment sales, and investment in subsidiary | (1,279) | | (1,351) | |
| Gross deferred income tax liabilities | $ | (3,377) | | $ | (3,641) | |
| Net deferred income tax liability | $ | (2,572) | | $ | (2,524) | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Deferred income tax assets: | | |
| Postretirement benefit accruals | $ | 102 |
| $ | 165 |
|
| Pension obligations | 516 |
| 1,344 |
|
| Alternative minimum and other tax credits | 416 |
| 270 |
|
| Net operating and capital loss carryforwards | 665 |
| 662 |
|
| Compensation reserves | 174 |
| 257 |
|
| Other | 139 |
| 251 |
|
| Gross deferred income tax assets | 2,012 |
| 2,949 |
|
| Less: valuation allowance (a) | (429 | ) | (403 | ) |
| Net deferred income tax asset | $ | 1,583 |
| $ | 2,546 |
|
| Deferred income tax liabilities: | | |
| Intangibles | $ | (139 | ) | $ | (231 | ) |
| Plants, properties and equipment | (2,000 | ) | (2,828 | ) |
| Forestlands, related installment sales, and investment in subsidiary | (1,454 | ) | (2,260 | ) |
| Gross deferred income tax liabilities | $ | (3,593 | ) | $ | (5,319 | ) |
| Net deferred income tax liability | $ | (2,010 | ) | $ | (2,773 | ) |
(a) The net change in the total valuation allowance for the years ended December 31, 20172021 and 20162020 was ana increase of $26 million and a decrease of $27 million and an decrease of $(6) million, respectively.
Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and Deferred income taxes. There was a decrease inOf the $1.3 billion of deferred income tax assets principally relating to the U.S. tax rate change, the impact of changes in qualified pension liabilities, and the utilization of tax credits and net operating loss carryforwards. Deferred tax liabilities decreased primarily due to the U.S. tax rate change offset by tax greater than book depreciation. Of the $1.5 billionfor forestlands, related installment sales, and investment in subsidiary, deferred tax liability, $884$813 million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of forestlands and $538$487 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 1215).
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017, 20162021, 2020 and 20152019 is as follows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Balance at January 1 | $ | (143) | | $ | (166) | | $ | (172) | |
| (Additions) reductions for tax positions related to current year | (13) | | (10) | | (5) | |
| (Additions) for tax positions related to prior years | (23) | | (10) | | (3) | |
| Reductions for tax positions related to prior years | 1 | | 30 | | 5 | |
| Settlements | 10 | | 13 | | 7 | |
Expiration of statutes of
limitations | 1 | | 1 | | 2 | |
| Currency translation adjustment | 1 | | (1) | | — | |
| Balance at December 31 | $ | (166) | | $ | (143) | | $ | (166) | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Balance at January 1 | $ | (98 | ) | $ | (150 | ) | $ | (158 | ) |
| (Additions) reductions based on tax positions related to current year | (54 | ) | (4 | ) | (6 | ) |
| Additions for tax positions of prior years | (40 | ) | (3 | ) | (6 | ) |
| Reductions for tax positions of prior years | 4 |
| 33 |
| 7 |
|
| Settlements | 6 |
| 19 |
| 2 |
|
Expiration of statutes of
limitations | 1 |
| 5 |
| 4 |
|
| Currency translation adjustment | (7 | ) | 2 |
| 7 |
|
| Balance at December 31 | $ | (188 | ) | $ | (98 | ) | $ | (150 | ) |
If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at December 31, 2017, 20162021, 2020 and 20152019 would benefit the effective tax rate.
The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately $17$21 million and $22$16 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 20172021 and 2016,2020, respectively.
The major jurisdictions where the Company files income tax returns areis currently subject to audits in the United States Brazil, France, Poland and Russia.other taxing jurisdictions around the world. Generally, tax years 20062009 through 20162020 remain open and subject to examination by the relevant
tax authorities. The Company is typically engaged infrequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax examinations at any given time, both in the United States and overseas.jurisdictions. Pending audit settlements and the expiration of statute of limitations could reduce the uncertain tax positions by $5$3 million during the next twelve months. While the
The Company believes that it is adequately accruedprovides for possible audit adjustments, the final resolution of these examinations cannotforeign withholding taxes and any applicable U.S. state income taxes on earnings intended to be determined at this time and could result in final settlements that differrepatriated from current estimates.
International Paper uses the flow-through method to account for investment tax credits earned on eligible open-loop biomass facilities and combined heat and power system expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expensenon-U.S. subsidiaries, which we believe will be limited in the year theyfuture to each year's current earnings. No provision for these taxes on approximately $2.3 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2021 has been made, as these earnings are earned rather thanconsidered indefinitely invested. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted in a reduction intaxable manner is not practicable.
If management decided to monetize the asset basis. The Company recorded aCompany’s foreign investments, we would recognize the tax benefit of $68 million during 2017cost related to Investment Tax Credits earned inthe excess of the book value over the tax years 2013-2017.basis of those investments. This would include foreign withholding taxes and any applicable U.S. Federal and state income taxes. Determination of the
tax cost that would be incurred upon monetization of the Company’s foreign investments is not practicable; however, we do not believe it would be material.
The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards:
| | | | | | | | | | | | | | |
| In millions | 2022
Through
2031 | 2032
Through
2041 | Indefinite | Total |
| U.S. federal and non-U.S. NOLs | $ | 53 | | $ | 123 | | $ | 425 | | $ | 601 | |
| State taxing jurisdiction NOLs (a) | 52 | | 8 | | — | | 60 | |
U.S. federal, non-
U.S. and state tax credit carryforwards (a) | 81 | | 5 | | 113 | | 199 | |
| Total | $ | 186 | | $ | 136 | | $ | 538 | | $ | 860 | |
| Less: valuation allowance (a) | (100) | | (118) | | (389) | | (607) | |
| Total, net | $ | 86 | | $ | 18 | | $ | 149 | | $ | 253 | |
(a) State amounts are presented net of federal benefit.
|
| | | | | | | | | | | | |
| In millions | 2018
Through
2027 | 2028
Through
2037 | Indefinite | Total |
| U.S. federal and non-U.S. NOLs | $ | 65 |
| $ | 2 |
| $ | 432 |
| $ | 499 |
|
| State taxing jurisdiction NOLs | 147 |
| 68 |
| — |
| 215 |
|
U.S. federal, non-
U.S. and state tax credit carryforwards | 199 |
| 18 |
| 269 |
| 486 |
|
| U.S. federal and state capital loss carryforwards | 2 |
| — |
| — |
| 2 |
|
| Total | $ | 413 |
| $ | 88 |
| $ | 701 |
| $ | 1,202 |
|
OPERATING LEASES
Certain property, machinery and equipment are leased under cancelable and non-cancelable agreements.
At December 31, 2017, total future minimum commitments under existing non-cancelable operating leases were as follows:
|
| | | | | | | | | | | | | | | | | | |
| In millions | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter |
| Lease obligations | $ | 130 |
| $ | 102 |
| $ | 77 |
| $ | 53 |
| $ | 37 |
| $ | 141 |
|
Rent expense was $157 million, $150 million and $157 million for 2017, 2016 and 2015, respectively.
GUARANTEES
In connection with sales of businesses, property, equipment, forestlands and other assets, International Paper commonly makes representations and warranties relating to such businesses or assets, and may agree to indemnify buyers with respect to tax and environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for such matters are determined to be probable and subject to reasonable estimation,reasonably estimable, accrued liabilities are recorded at the time of sale as a cost of the transaction.
Brazil Goodwill Tax Matter: The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by Sylvamo do Brasil Ltda., a wholly-owned subsidiary of the Company ("Sylvamo Brazil") until the October 1, 2021 spin-off of the Printing Papers business after which is became a subsidiary of Sylvamo Corporation. Sylvamo Brazil received assessments for the tax years 2007-2015 totaling approximately $106 million in tax, and $351 million in interest, penalties, and fees as of December 31, 2021 (adjusted for variation in currency exchange rates).
After a previous favorable ruling challenging the basis for these assessments, Sylvamo Brazil received subsequent unfavorable decisions from the Brazilian Administrative Council of Tax Appeals. Sylvamo Brazil has appealed these and any future unfavorable administrative judgments to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. Sylvamo Brazil and International Paper believe the transaction underlying these assessments was appropriately evaluated, and that Sylvamo Brazil's tax position would be sustained, based on Brazilian tax law.
This matter pertains to a business that was conveyed to Sylvamo Corporation as of October 1, 2021, as part of our spin-off transaction. Pursuant to the terms of the tax matters agreement entered into between the Company and Sylvamo Corporation, the Company will pay 60% and Sylvamo will pay 40%, of up to $300 million of any tax assessment related to the matter, and the Company will pay all tax assessment amounts over $300 million. All decisions concerning the conduct of the litigation related to this matter, including strategy, settlement, pursuit and abandonment, will be made by the Company. Sylvamo Corporation thus has no control over any decision related to this ongoing litigation. The Company intends to vigorously defend this historic tax position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015. The Brazilian government may enact a tax amnesty program that would allow Sylvamo do Brasil Ltda. to resolve this dispute for less than the assessed amount. As of October 1, 2021, in connection with the recording of the distribution of assets and liabilities resulting from the spin-off transaction, the Company has established a liability representing the initial fair value of the contingent liability under the tax matters agreement. The contingent liability was determined in accordance with ASC 460 "Guarantees" based on the probability weighting of various possible outcomes. The initial fair value estimate and recorded liability as of December 31, 2021 is $48 million. This liability will not be adjusted in subsequent periods unless facts and circumstances change such that an amount greater than the initial recognized liability becomes probable and estimable.
ENVIRONMENTAL AND LEGAL PROCEEDINGS
Environmental
International PaperThe Company has been named as a potentially responsible party (PRP) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Many of these proceedings involve the
cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet.
Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these environmental remediation matters, including those described herein, to be approximately $128$182 million ($141191 million undiscounted) in the aggregate as of December 31, 2017.2021. Other than as described below, completion of required environmental remedial actions is not expected to have a material effect on our consolidated financial statements.
Cass Lake: One of the matters included above arises out of a closed wood-treatingwood-treatment facility located in Cass Lake, Minnesota. In June 2011, the United States Environmental Protection Agency (EPA) selected and published a proposed soil remedy at the site with an estimated cost of $46 million. The overall remediation reserve for the site is currently $47 million to address the selection of an alternative for the soil remediation component of the overall site remedy, which includes the ongoing groundwater remedy. In October 2011, the EPA released a public statement indicating that the final soil remedy decision would be delayed. In March 2016,April 2020, the EPA issued a proposedfinal plan concerning clean-up standards at a portion of the site, the estimated cost of which is included within the reservesoil remedy cost referenced above. In October 2012, the Natural Resource Trustees for this site provided notice to International Paper and other
PRPs of their intent to perform a Natural Resource Damage Assessment. It is premature to predict the outcome of the assessment or to estimate a loss or range of loss, if any, which may be incurred.
Kalamazoo River:The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls (PCBs) primarily as a result of discharges from various paper mills located along the Kalamazoo River, including a paper mill (the Allied Paper Mill) formerly owned by St. Regis Paper Company (St. Regis). The Company is a successor in interest to St. Regis.
•Operable Unit 5, Area 1: In March 2016, the Company and other PRPs received a special notice letter from the EPA (i) inviting participation in implementing a remedy for a portion of the site known as Operable Unit 5, Area 1, and (ii) demanding reimbursement of EPA past costs totaling $37 million, including $19 million in past costs previously demanded by the EPA. The Company responded to the special notice letter. In December 2016, the EPA issued a unilateral administrative order to the Company and other PRPs to perform the remedy. The unilateral administrative order has not yet become effective and the Company is evaluating its response.
In April 2016, the EPA issued a separate unilateral administrative order to the Company and certain other PRPs for a time-critical removal action (TCRA) of PCB-contaminated sediments from a different portion of the site. The Company responded to the unilateral administrative order, and agreed along with two other parties
agreeing to comply with the order subject to its sufficient cause defenses.
•Operable Unit 1: In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design component of the landfill remedy for the Allied Paper Mill.Mill, which is also known as Operable Unit 1. The recordRecord of decisionDecision establishing the final landfill remedy for the Allied Paper Mill was issued by the EPA in September 2016. The Company responded to the Allied Paper Mill special notice letter in late December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the remedial design.
In addition, in December 2019, the United States published notice in the Federal Register of a proposed consent decree with NCR Corporation (one of the parties to the allocation/apportionment litigation described below), the State of Michigan and natural resource trustees under which NCR would make payments of more than $100 million and perform work in Operable Unit 5, Areas 2, 3, and 4 at an estimated cost of $136 million. In December 2020, the Federal District Court approved the proposed consent decree.
The Company’s CERCLA liability has not been finally determined with respect to these or any other portions of the site, and except as noted above, the Company has declined to perform any work or reimburse the EPA at this time. As noted below, the Company is involved in allocation/apportionment litigation with regard to the site. Accordingly, it is premature to predict the outcome or estimate our maximum reasonably possible loss or range of loss with respect to this site. However, we do not believeWe have recorded a liability for future remediation costs at the site that any material loss is probable.are probable and reasonably estimable, and it remains reasonably possible that additional losses in excess of this recorded liability could be material.
The Company was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the site. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. The suit seeks contribution under CERCLA for costs purportedly expended by plaintiffs ($79 million as of the filing of the complaint) and for future remediation costs. The suit alleges that a mill, duringIn June 2018, the time it was allegedly ownedCourt issued its Final Judgment and operated by St. Regis, discharged PCB contaminated solidsOrder, which fixed the past cost amount at approximately $50 million (plus interest to be determined) and paper residuals resulting from paper de-inking and recycling. NCR Corporation and Weyerhaeuser Company are also named as defendants in the suit. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsinallocated to the District CourtCompany a 15% share of responsibility for the Western District of Michigan. The trial of the initial liability phase took place in February 2013. Weyerhaeuser conceded prior to trial that it was a liable party with respect to the site. In September 2013, an opinion and order was issued in the suit. The order concluded that the Company (as the successor to St. Regis) was not an “operator,” but was an “owner,” of the mill at issue during a portion of the relevant period and is therefore liable under CERCLA. The order also determined that NCR is a liable party as an "arranger for disposal" of PCBs in waste paper that was de-inked and recycled by mills along the Kalamazoo River. The order did not address the Company's responsibility, if any, forthose past or future costs. The parties’ responsibility, including that of the Company, was the subject of a second trial, which was concluded in late 2015. A decision hasCourt did not been rendered and it is unclear to what extent the Court will address responsibility for future costs in its
decision. In July 2018, the Company and each of the other parties filed notices appealing the Final Judgment and prior orders incorporated into that decision. We are unable to predict the outcome or estimate our maximum reasonably possible loss. However, we do not believe that any material lossJudgment. The Company appeal is probable.pending.
Harris County: International Paper and McGinnis Industrial Maintenance Corporation (MIMC), a subsidiary of Waste Management, Inc. (WMI), are PRPs at the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. The PRPs have been actively participating in the activities at the site and share the costs of these activities.
In September 2016, the EPA issued a proposed remedial action plan (PRAP) for the site, which identified the preferred remedy as the removal of the contaminated material currently protected by an armored cap. In addition, the EPA selected a preferred remedy for the separate southern impoundment that requires offsite disposal. In January 2017, the PRPs submitted comments on the PRAP.
On October 11, 2017, the EPA issued a Record of Decision (ROD) selecting the final remedy for the site: removal and relocation of the waste material from both the northern and southern impoundments. The EPA did not specify the methods or practices needed to perform this work. While theThe EPA’s selected remedy was accompanied by a cost estimate of approximately $115
million we do not believe that estimate provides a reasonable basis for accrual under GAAP because the estimate was based on a technological method for performing the work that we believe is not feasible. On October 25, 2017, the PRPs received a letter from the EPA inviting participation in the remedial design component of the EPA’s selected remedy($105 million for the site,northern impoundment, and $10 million for the Company plans to participate in this remedial design process to determine if and how the remedy can be accomplished. We expect this process will include additional studies to determine feasible alternatives and costs to complete this final remedy, and we have accrued reasonably estimable costs related to this process.southern impoundment). Subsequent to the issuance of the ROD, there have been severalnumerous meetings between the EPA and the PRPs, and the Company anticipates workingcontinues to work with the EPA and otherMIMC/WMI to develop the remedial design.
To this end, in April 2018, the PRPs entered into an Administrative Order on Consent (AOC) with the EPA, agreeing to work together to develop the remedial design includingfor the northern impoundment. That remedial design work is ongoing. The AOC does not include any agreement to perform waste removal or other construction activity at the site. Rather, it involves adaptive management techniques and a predesignpre-design investigation, expected to commence in the first quarter of 2018. The objectives of the predesign investigationwhich include filling data gaps (including but not limited to post-Hurricane Harvey technical data generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if thean excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts of remediation activities to infrastructure in the vicinity. The
During the first quarter of 2020, through a series of meetings among the Company, has identified a number of concernsMIMC/WMI, our consultants, the EPA and uncertainties regarding the remedy describedTexas Commission on Environmental Quality (TCEQ), progress was made to resolve key technical issues previously preventing the Company from determining the manner in which the ROD and regarding the EPA’s estimatesselected remedy for the costsnorthern impoundment would be feasibly implemented. As a result of these developments the Company reserved the following amounts in relation to remediation at this site: (a) $10 million for the southern impoundment; and time required(b)
$55 million for the northern impoundment, which represents the Company's 50% share of our estimate of the low end of the range of probable remediation costs.
We have submitted the Final Design Package for the southern impoundment to implement the selected remedy.EPA, and the EPA approved this plan May 7, 2021. The EPA issued a Unilateral Administrative Order for Remedial Action of the southern impoundment on August 5, 2021.
With respect to the northern impoundment, although several key technical issues have been resolved, we still face significant challenges remediating this area in a cost-efficient manner and without a release to the environment and therefore our discussions with the EPA on the best approach to remediation will continue. Because of ongoing questions regarding cost effectiveness, technical feasibility, timing and gathering other technical data, it is uncertain how the ROD will be implemented. Consequently, while additional losses in excess of our recorded liability are probable as a result of the selected remedy, wepossible. We are currently unable to determinereasonably estimate any further adjustment to our immaterial recorded liability. It remains reasonably possible that additional losses could be material as the remedial design process with the EPA continues over the coming quarters.
International Paper and MIMC/WMI are also defending an additional lawsuit related to the site brought by approximately 600 individuals who allege property damage and personal injury. Because this case is still in the discovery phase, it is premature to predict the outcomeliability or to estimate aany loss or range of loss in excess of such liability; however, we believe it is unlikely any which mayadjustment would be incurred.material.
Antitrust
Containerboard: In June 2016, a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporation of America (W.D. Wis.), was filed in federal court in Wisconsin against ten defendants, including the Company, Temple-Inland and Weyerhaeuser Company. The Ashley Furniture lawsuit closely tracks the allegations found in the now-settled Kleen Products
Asbestos-Related Matters
litigation, alleging a practically identical civil violation of Section 1 of the Sherman Act (in particular, that defendants conspired to limit the supply and thereby increase prices of containerboard products), but also asserts Wisconsin state antitrust claims. In January 2011, International Paper wasWe have been named as a defendant in a lawsuit filedvarious asbestos-related personal injury litigation, in both state and federal court, primarily in Cocke County, Tennessee alleging that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005relation to the present. Plaintiffs inprior operations of certain companies previously acquired by the state court action seek certificationCompany. As of a classDecember 31, 2021, the Company's total recorded liability with respect to pending and future asbestos-related claims was $103 million, net of Tennessee indirect purchasers of containerboard products, damages and costs, including attorneys' fees. No class certification materials have been filed to date in the Tennessee action.
The Company disputes the allegations made in the Ashley Furniture and Tennessee lawsuits andestimated insurance recoveries. While it is vigorously defending each. At this time, however, because the actions are in a preliminary stage, we are unable to predict an outcome or estimate a range of reasonably possible loss.
Contract
Signature: In August 2014, a lawsuit captioned Signature Industrial Services LLC et al. v. International Paper Company was filed in state court in Texas. The Signature lawsuit arises out of approximately $1 million in disputed invoices related to the installation of new equipment at the Company's Orange, Texas mill. In addition to the invoices in dispute, Signature and its president allege consequential damages arising from the Company's nonpayment of those invoices. The lawsuit was tried before a jury in Beaumont, Texas, in May 2017. On June 1, 2017, the jury returned a verdict awarding approximately $125 million in damages to the plaintiffs. The Court issued a judgment on December 14, 2017, awarding the plaintiffs a total of approximately $137 million in actual and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The judgment will not be final until post-trial motions are decided, andthat the Company will appeal the final judgment thereafter. The Company has numerous and strong bases for appeal, and we believe we will prevail on appeal. Because post-trial proceedings aremay incur losses in a preliminary stage,excess of its recorded liability with respect to asbestos-related matters, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss or range in excess of such liability, and do not believe additional material losses are probable.
Antitrust
In March 2017, the Italian Competition Authority (ICA) commenced an investigation into the Italian packaging industry to determine whether producers of corrugated sheets and boxes violated the applicable European competition law. In April 2019, the ICA concluded its investigation and issued initial findings alleging that over 30 producers, including our Italian packaging subsidiary (IP Italy), improperly coordinated the production and sale of corrugated sheets and boxes. On August 6, 2019, the ICA issued its decision and assessed IP Italy a fine of €29 million (approximately $32 million at current exchange rates) which was recorded in the third quarter of 2019. We appealed the ICA decision and our appeal was denied on May 25, 2021. However, we continue to
believe we have numerous and strong bases to challenge the ICA decision, and we have further appealed the decision to the Italian Council of State.
Taxes Other Than Payroll and Income Taxes
In 2017, the Brazilian Federal Supreme Court decided that the state value-added tax (VAT) should not be immaterial.included in the basis of federal VAT calculations. In 2018 and 2019, the Brazilian tax authorities published both an internal consultation and a normative ruling with a narrow interpretation of the effects of the case. Based upon the best information available to us at that time, we determined an estimated refund was probable of being realized. As of March 31, 2021, we had recognized a receivable of $11 million based upon the authority's narrow interpretation. On May 13, 2021, the Brazilian Federal Supreme Court ruled again on the case. This ruling provides a much broader definition of the state VAT, which increased the exclusion amount from the Federal VAT calculations. Therefore, we recognized an additional receivable of $70 million during the three months ended June 30, 2021, which brought the total receivable to $81 million as of June 30, 2021. The $70 million of income recognized during the second quarter of 2021 included income of $42 million in Cost of Products sold and income of $28 million in Interest expense, net in the accompanying condensed consolidated statement of operations. A portion of this receivable has been consumed by offsetting various taxes payable leaving a remaining receivable of $48 million. This remaining receivable was conveyed to Sylvamo Corporation on of October 1, 2021, as part of our spin-off transaction.
General
The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, personal injury, product liability, labor and employment, contracts, sales of property, intellectual property, tax, and other matters, some of which allege substantial monetary damages. While any proceeding or litigation hasSee Note 13 for details regarding a tax matter. Assessments of lawsuits and claims can involve a series of complex judgments about future events, can rely heavily on estimates and assumptions, and are otherwise subject to significant uncertainties. As a result, there can be no certainty that the elementCompany will not ultimately incur charges in excess of uncertainty, thepresently recorded liabilities. The Company believes that loss contingencies arising from pending matters including the outcome of any of these
lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature)matters described herein, will not have a material effect on itsthe consolidated financial statements.position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending or threatened legal matters, some
of which are beyond the Company's control, and the large or indeterminate damages sought in some of these matters, a future adverse ruling, settlement, unfavorable development, or increase in accruals with respect to these matters could result in future charges that could be material to the Company's results of operations or cash flows in any particular reporting period.
In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the Timber Notes)"Timber Notes") totaling approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their maturity are supported by irrevocable letters of credit obtained by the buyers of the forestlands.
$4.8 billion. The Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the Timber Notes through the creation of newly formed special purposes entities (the Entities)"Entities"). The monetization structure preserved the $1.4 billion tax deferral that resulted from the 2006 forestlands sales. As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured to be $884 million.
During 2015, International Paper initiated a series of actions in order to extend the 2006 monetization structure and maintain the long-term nature of the $884 million deferred tax liability. International Paper acquired the Class A interests in the Investor Entities from a third party for $198 million in cash. As a result, International Paper became the owner of all of the Class A and Class B interests in the Entities and became the primary beneficiary of the Entities. The assets and liabilities of the Entities, primarily consisting of the Timber Notes and third party bank loans, were recorded at fair value as of the acquisition date of the Class A interests. The Entities, with assets and liabilities primarily consisting of the Timber Notes and third-party bank loans (the "Extension Loans"), were restructured which resulted in the formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015"2015 Financing Entities) duringEntities").
In August 2021, the third quarterTimber Notes of 2015. Also, during$4.8 billion and the third quarterExtension Loans of 2015,$4.2 billion related to the 2015 Financing Entities used $630 million in cash to pay down a portion of the third party bank loans and refinanced approximately $4.2 billion of those loans on nonrecourse terms (the 2015 Refinance Loans).
During the fourth quarter of 2015, International Paper extended the maturity date on the Timber Notes for an additional five years. The Timber Notes are shown in Financial assets of special purpose entities on the accompanying consolidated balance sheet and mature in August 2021 unless extended for an additional five years. These notes are supported by approximately $4.8 billion of irrevocable letters of credit. In addition, the Company extinguished the 2015 Refinance Loans scheduled to mature in May 2016 and entered into new
nonrecourse third party bank loans totaling approximately $4.2 billion (the Extension Loans). Provisions of loan agreements related to approximately $1.1 billion ofboth matured. We settled the Extension Loans requireat their maturity with the bank issuing letters of credit supportingproceeds from the Timber Notes pledged as collateral to maintain a credit rating at or above a specified threshold. InNotes. This resulted in cash proceeds of approximately $630 million representing our equity in the event the credit ratingvariable interest entities. Maturity of the letterinstallment notes and termination of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days with letters of credit frommonetization structure also resulted in a qualifying financial institution. The Extension Loans are shown in Nonrecourse financial liabilities of special purpose entities on the accompanying consolidated balance sheet and mature$72 million tax liability that was paid in the fourth quarter of 2020. The extinguishment of the 2015 Refinance Loans of approximately $4.2 billion and the issuance of the Extension Loans of approximately $4.2 billion are shown as part of reductions of debt and issuances of debt, respectively, in the financing activities of the consolidated statement of cash flows for the year ended December 31, 2015.
The Extension Loans are nonrecourse to the Company, and are secured by approximately $4.8 billion of Timber Notes, the irrevocable letters of credit supporting the Timber Notes and approximately $150 million of International Paper debt obligations. The $150 million of International Paper debt obligations are eliminated in the consolidation of the 2015 Financing Entities and are not reflected in the Company’s consolidated balance sheet.
The transactions described in these paragraphs result in continued long-term classification of the $884 million deferred tax liability related to the 2006 forestlands sale.
2021. As of December 31, 2017 and 2016,2021, the fair valueremaining deferred tax liability was $813 million. The 2015 timber monetization restructuring is currently under examination by the Internal Revenue Service. An unfavorable resolution in such current examination, future administrative procedures, or future tax litigation could result in material, accelerated cash tax payments as a result of the Timber Notes was $4.8 billion and $4.7 billion, respectively, and the fair valueall or a portion of the Extension Loans was $4.3 billion for both the years ended 2017 and 2016. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14.deferred tax liability becoming payable.
Activity between the Company and the 2015 Financing Entities (the Entities prior to the purchase of the Class A interest discussed above) was as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Revenue (a) | $ | 95 |
| $ | 95 |
| $ | 43 |
| Revenue (a) | $ | 61 | | $ | 95 | | $ | 95 | |
| Expense (a) | 128 |
| 128 |
| 81 |
| Expense (a) | 34 | | 122 | | 128 | |
| Cash receipts (b) | 95 |
| 77 |
| 21 |
| Cash receipts (b) | 95 | | 95 | | 95 | |
| Cash payments (c) | 128 |
| 98 |
| 71 |
| Cash payments (c) | 38 | | 157 | | 128 | |
| |
(a) | The net expense related to the Company’s interest in the Entities is included in the accompanying consolidated statement of operations, as International Paper has(a)The revenue and intends to effect its legal right to offset as discussed above. After formation of the 2015 Financing Entities, the revenue and |
expense are included in Interest expense, net in the accompanying consolidated statement of operations.
| |
(b) | The cash receipts are equity distributions from the Entities to International Paper prior to the formation of the 2015 Financing Entities. After formation of the 2015 Financing Entities, cash receipts are interest received on the Financial assets of special purpose entities. |
| |
(c) | The cash payments are interest payments on the associated debt obligations discussed above. After formation of the 2015 Financing Entities, the payments represent interest paid on Nonrecourse financial liabilities of special purpose entities. |
(b)The cash receipts are interest received on the Financial assets of variable interest entities.
(c)The cash payments represent interest paid on Current nonrecourse financial liabilities of variable interest entities.
In connection with the acquisition of Temple-Inland in February 2012, two special purpose entities became wholly-owned subsidiaries of International Paper.
The use of the two wholly-owned special purpose entities discussed below preserved the $831 million tax deferral that resulted from the 2007 Temple-Inland timberlands sales. As a result of tax reform legislation in the fourth quarter of 2017, described in Note 10 Income Taxes,December 31, 2021, this deferred tax liability was remeasured to be $538$487 million, which will be settled with the maturity of the notes in 2027.
In October 2007, Temple-Inland sold 1.55 million acres of timberland for $2.4 billion.$2.4 billion. The total consideration consisted almost entirely of notes due in 2027 issued by the buyer of the timberland, which Temple-Inland contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are shown in FinancialLong-term financial assets of special purposevariable interest entities in the accompanying consolidated balance sheet and are supported by $2.4$2.4 billion of irrevocable letters of credit issued by three banks, which are required to maintain minimum credit ratings on their long-term debt. As of December 31, 2017 and 2016, the fair value of the notes was $2.3 billion and $2.2 billion, respectively. These notes are classified as Level 2 within the fair value hierarchy, which is further defined in Note 14.
In December 2007, Temple-Inland's two wholly-owned special purpose entities borrowed $2.1$2.1 billion which is shown in NonrecourseLong-term nonrecourse financial liabilities of special purposevariable interest entities. The loans are repayable in 2027 and are secured only by the $2.4$2.4 billion of notes and the irrevocable letters of credit securing the notes, and are nonrecourse to us. The loan agreements provide that if a credit rating of any of the banks issuing the letters of credit is downgraded below the specified threshold, the letters of credit issued by that bank must be replaced within 30 days with letters of credit from another qualifying financial institution.
As of both December 31, 20172021 and 2016,2020, the fair value of the notes receivable was $2.3 billion. As of both December 31, 2021 and 2020, the fair value of this debt was $2.1 billion for both the years ended 2017$2.1 billion. The notes receivable and 2016. This debt isare classified as Level 2 within the fair value hierarchy, which is further defined in Note 1417.
Activity between the Company and the 2007 financing entities was as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Revenue (a) | $ | 49 |
| $ | 37 |
| $ | 27 |
| Revenue (a) | $ | 24 | | $ | 41 | | $ | 79 | |
| Expense (b) | 48 |
| 37 |
| 27 |
| Expense (b) | 24 | | 43 | | 76 | |
| Cash receipts (c) | 28 |
| 15 |
| 7 |
| Cash receipts (c) | 5 | | 29 | | 62 | |
| Cash payments (d) | 39 |
| 27 |
| 18 |
| Cash payments (d) | 16 | | 40 | | 69 | |
| |
(a) | The revenue is included in Interest expense, net in the accompanying consolidated statement of operations and includes approximately $19 million for the years ended December 31, 2017, 2016 and 2015, respectively, of accretion income for the amortization of the purchase accounting adjustment on the Financial assets of special purpose entities. |
(a)The revenue is included in Interest expense, net, in the accompanying consolidated statement of operations and includes approximately $19 million for the years ended December 31, 2021, 2020 and 2019, respectively, of accretion income for the amortization of the purchase accounting adjustment on the Financial assets of variable interest entities.
(b) The expense is included in Interest expense, net, in the accompanying consolidated statement of operations and includes approximately $7 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019 respectively, of accretion expense for the amortization of the purchase accounting adjustment on the NonrecourseLong-term nonrecourse financial liabilities of special purposevariable interest entities.
(c) The cash receipts are interest received on the Financial assets of special purpose entities.
(d) The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities.
In 2017, International Paper issued $1.0 billion of 4.35% senior unsecured notes with a maturity date in 2048. The proceeds from this offering, together with a combination of available cash
Amounts related to early debt extinguishment during the years ended December 31, 2021, 2020 and other borrowings,2019 were usedas follows:
| | | | | | | | | | | |
| In millions | 2021 | 2020 | 2019 |
| Early debt reductions (a) | $ | 2,472 | | $ | 1,640 | | $ | 614 | |
| Pre-tax early debt extinguishment costs (b) | 461 | | 196 | | 21 | |
(a)Reductions related to make a $1.25 billion voluntary cash contribution to the Company's pension plan. In December 2017, International Paper received $660 million in cash proceeds from a new loan entered into as part of the transfer of the North American Consumer Packaging business to a subsidiary of Graphic Packing Holding Company discussed in Note 7. The Company used the cash proceeds, together with available cash, to pay down existing debt of approximately $900 million of notes with interest rates ranging from 1.92%3.00% to 9.38% and9.50% with original maturities from 20182021 to 2021. Pre-tax early debt retirement costs of $83 million related to2048 for the debt repayments, including $82 million of cash premiums,years ended December 31, 2021, 2020 and 2019. (b)Amounts are included in Restructuring and other charges in the accompanying consolidated statementstatements of operations for the year ended December 31, 2017. operations.
The $660Company's early debt reductions in 2021 included debt tenders of $500 million term loan was subsequently assumed by Graphic Packaging International, LLC on January 1, 2018with interest rates ranging from 4.80% to 5.15% and is classified as Liabilities held for sale at December 31, 2017, in the accompanying consolidated balance sheet.
In 2016, International Paper issued $1.1 billion of 3.00% senior unsecured notes with a maturity date in 2027, and $1.2 billion of 4.40% senior unsecured notes with a maturity date in 2047. In addition, the Company repaid approximately $266dates ranging from 2035 to 2046, $200 million of notes with an interest rate of 7.95%3.55% due in 2029, and an original$558 million with interest rates ranging from 4.35% to 4.40% and maturity dates ranging from 2047 to 2048. In addition
to these debt tenders, the Company had make whole calls of 2018. Pre-tax early debt retirement costs of $29$517 million related to debt with an interest rate 3.80% due in 2026 and $268 million related to debt with an interest rate of 3.00% due in 2027. Finally, the Company had $429 million in open market repurchases related to debt repayments, including $31with interest rates ranging from 3.00% to 5.38% and maturity dates ranging from 2027 to 2048.
The Company had debt issuances in 2021 of $1.5 billion related primarily to Sylvamo debt issuances as discussed further in Note 8 - Divestitures and Impairments of Businesses. In addition to the early debt reductions, the Company had debt reductions of $37 million in 2021 related primarily to capital leases, debt maturities, and international debt. The borrowing capacity of cash premiums, are included in Restructuring and other charges in the
accompanying consolidated statement of operations for the year ended December 31, 2016.
In June 2016, International Paper entered into aCompany's commercial paper program with a borrowing capacity of $750 million.is $1.0 billion. Under the terms of thethis program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. The Company had no borrowings outstanding as of December 31, 2021 and December 31, 2020, under this program.
In March 2020, the Company entered into a $750 million contractually committed 364-day revolving credit agreement with a syndicate of banks and other financial institutions which supplemented the Company's $1.5 billion credit agreement. The Company determined not to extend the $750 million credit agreement after its expiration on March 24, 2021. In June 2021, the Company extended the maturity date of the $1.5 billion credit facility from December 2022 to June 2026. As of December 31, 2017,2021 and December 31, 2020, the Company had $180 millionno borrowings outstanding under thisthe $1.5 billion credit agreement.
In April 2020, the Company's receivable securitization program was amended from an uncommitted financing arrangement to a committed financing arrangement with a borrowing limit up to $550 million based on eligible receivables balances that expires in April 2022. In February 2021, the Company's receivable securitization program was amended from a committed financing arrangement to an uncommitted financing arrangement with the borrowing limit and expiration date remaining unchanged. As of December 31, 2021 and December 31, 2020, the Company had no borrowings outstanding under the program.
Amounts related to early debt extinguishment during the years ended December 31, 2017, 2016 and 2015 were as follows:
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Debt reductions (a) | $ | 993 |
| $ | 266 |
| $ | 2,151 |
|
| Pre-tax early debt extinguishment costs (b) | 83 |
| 29 |
| 207 |
|
| |
(a) | Reductions related to notes with interest rates ranging from 1.57% to 9.38% with original maturities from 2015 to 2030 for the years ended December 31, 2017, 2016 and 2015. Includes the $630 million payment for a portion of the Special Purpose Entity Liability for the year ended December 31, 2015 (see Note 12 Variable Interest Entities). |
| |
(b) | Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations. |
A summary of long-term debt follows:
|
| | | | | | |
| In millions at December 31 | 2017 | 2016 |
| 9 3/8% note – due 2019 | $ | — |
| $ | 295 |
|
| 8.7% note – due 2038 | 264 |
| 264 |
|
| 7.95% debenture – due 2018 | — |
| 382 |
|
| 7.5% note – due 2021 | 409 |
| 598 |
|
| 7.3% note – due 2039 | 721 |
| 721 |
|
| 6 7/8% notes – due 2023 – 2029 | 131 |
| 131 |
|
| 6.65% note – due 2037 | 4 |
| 4 |
|
| 6 5/8% note – due 2018 | — |
| 72 |
|
| 6.4% to 7.75% debentures due 2025 – 2027 | 143 |
| 142 |
|
| 6.0% note – due 2041 | 585 |
| 585 |
|
| 5.00% to 5.15% notes – due 2035 – 2046 | 1,281 |
| 1,280 |
|
| 4.8% note – due 2044 | 796 |
| 796 |
|
| 4.75% note – due 2022 | 817 |
| 810 |
|
| 3.00% to 4.40% notes – due 2024 – 2048 | 4,775 |
| 3,786 |
|
| Floating rate notes – due 2017 – 2025 (a) | 650 |
| 763 |
|
Environmental and industrial development
bonds – due 2017 – 2035 (b) | 585 |
| 681 |
|
| Other (c) | (4 | ) | 4 |
|
| Total (d) | 11,157 |
| 11,314 |
|
| Less: current maturities | 311 |
| 239 |
|
| Long-term debt | $ | 10,846 |
| $ | 11,075 |
|
| | | | | | | | |
| In millions at December 31 | 2021 | 2020 |
| 6.875% notes – due 2023 | 94 | | 94 | |
| 7.350% notes – due 2025 | 44 | | 44 | |
| 7.750% notes – due 2025 | 31 | | 31 | |
| 3.800% notes – due 2026 | — | | 517 | |
| 7.200% notes – due 2026 | 58 | | 58 | |
| 6.400% notes – due 2026 | 5 | | 5 | |
| 3.000% notes – due 2027 | — | | 477 | |
| 7.150% notes – due 2027 | 7 | | 7 | |
| 3.550% notes – due 2029 | — | | 200 | |
| 6.875% notes – due 2029 | 37 | | 37 | |
| 5.000% notes – due 2035 | 407 | | 600 | |
| 6.650% notes – due 2037 | 4 | | 4 | |
| 8.700% notes – due 2038 | 265 | | 265 | |
| 7.300% notes – due 2039 | 722 | | 722 | |
| 6.000% notes – due 2041 | 585 | | 585 | |
| 4.800% notes – due 2044 | 686 | | 800 | |
| 5.150% notes – due 2046 | 449 | | 700 | |
| 4.400% notes – due 2047 | 648 | | 1,084 | |
| 4.350% notes – due 2048 | 744 | | 938 | |
| Floating rate notes – due 2020 – 2024 (a) | 222 | | 245 | |
| Environmental and industrial development bonds – due 2022 – 2035 (b) | 489 | | 579 | |
| Total principal | 5,497 | | 7,992 | |
| Capitalized leases | 66 | | 71 | |
| Premiums, discounts, and debt issuance costs | (48) | | (80) | |
| Terminated interest rate swaps | 58 | | 80 | |
| | |
| Other (c) | 6 | | 5 | |
| Total (d) | 5,579 | | 8,068 | |
| Less: current maturities | 196 | | 26 | |
| Long-term debt | $ | 5,383 | | $ | 8,042 | |
| |
(a) | The weighted average interest rate on these notes was 2.6% in 2017 and 2.2% in 2016.
|
| |
(b) | The weighted average interest rate on these bonds was 6.0% in 2017 and 5.9% in 2016.
|
| |
(c) | Includes $70 million and $69 million of debt issuance costs as of December 31, 2017 and 2016, respectively.
|
(a)The weighted average interest rate on these notes was 1.4% in 2021 and 1.3% in 2020.(b)The weighted average interest rate on these bonds was 3.2% in 2021 and 3.5% in 2020.
| |
(d) | The fair market value was approximately $12.3 billion at December 31, 2017 and $12.0 billion at December 31, 2016.
|
(c)Includes $1 million and $4 million of fair market value adjustments as of December 31, 2021 and 2020, respectively.
Total(d)The fair market value was approximately $7.1 billion at December 31, 2021 and $10.5 billion at December 31, 2020.
At December 31, 2021, contractual obligations for future payments of debt maturities of long-term debt(including finance lease liabilities disclosed in Note 10 - Leases and excluding the timber monetization structures disclosed in Note 15 - Variable Interest Entities) by calendar year were as follows over the next five years are 2018years: 2022 – $311 million; 2019$196 million; 2023 – $126 million; 2020$358 million; 2024 – $164 million; 2021$149 million; 2025 – $440 million;$206 million; and 20222026 – $956 million.$73 million.
At December 31, 2017, International Paper’s credit facilities (the Agreements) totaled $2.1 billion. The Agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The Agreements include a $1.5 billion contractually committed bank facility that expires in December 2021 and has a facility fee of 0.15% payable annually. The liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivables balances under a receivables securitization program that expires in December 2018. At December 31, 2017, there were no borrowings under either the bank facility or receivables securitization program.
The Company’s financial covenants require the maintenance of a minimum net worth, as defined in our debt agreements, of $9 billion and a total debt-to-capital ratio of less than 60%. Net worth is defined as
the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any cumulative goodwill impairment charges. The calculation also excludes accumulated other comprehensive income/loss and both the current and long-term Nonrecourse Financial Liabilities of Special PurposeVariable Interest Entities. The total debt-to-capital ratio is defined as total debt divided by the sum of total debt plus net worth. As of December 31, 2017,2021, we were in compliance with our debt covenants.
International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet the hedge accounting criteria at inception, International Paper at inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying exposure.
INTEREST RATE RISK MANAGEMENT
Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.
Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense. For cash flow hedges, the effective portion of the changes in the fair value of the hedging instrument is reported in Accumulated other comprehensive income (“AOCI”)(AOCI) and reclassified into interest expense over the life of the underlying debt. The ineffective portion for both cash flow and fair value hedges, which is not material for any year presented, is immediately recognized in earnings.
FOREIGN CURRENCY RISK MANAGEMENT
We manufacture and sell our products and finance operations in a number of countries throughout the
world and, as a result, are exposed to movements in foreign currency exchange rates. The purpose of our foreign currency hedging program is to manage the volatility associated with the changes in exchange rates.
To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and currency swaps. Contracts that qualify are designated as cash flow hedges of certain forecasted transactions denominated in foreign currencies. Thecurrencies or net investment hedges of foreign denominated subsidiaries. For cash flow hedges, the effective portion of the changes in fair value of these instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion,
which is not material for any year presented, is immediately recognized in earnings. For net investment hedges, all changes in the fair value of these instruments are recorded in AOCI, offsetting the currency translation adjustment of the related investment that is also recorded in AOCI.
The change in value of certain non-qualifying instruments used to manage foreign exchange exposure of intercompany financing transactions and certain balance sheet items subject to revaluation is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure.
COMMODITY RISK MANAGEMENT
Certain raw materials used in our production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility in earnings due to price fluctuations, we may utilize swap contracts or forward purchase contracts.
Derivative instruments are reported in the consolidated balance sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale ("NPNS") exception under GAAP and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized on the balance sheet.
Contracts that qualify are designated as cash flow hedges of forecasted commodity purchases. The effective portion of the changes in fair value for these
instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transactions affect earnings. The ineffective and non-qualifying portions, which are not material for any year presented, are immediately recognized in earnings.
The change in the fair value of certain non-qualifying instruments used to reduce commodity price volatility is immediately recognized in earnings.
The notional amounts of qualifying and non-qualifying instruments used in hedging transactions were as follows:
|
| | | | |
| In millions | December 31, 2017 | December 31, 2016 |
| Derivatives in Cash Flow Hedging Relationships: | | |
| Foreign exchange contracts (a) | 329 |
| 275 |
|
| Derivatives Not Designated as Hedging Instruments: | | |
| Electricity contract | 13 |
| 6 |
|
| Foreign exchange contracts | 10 |
| 24 |
|
| | | | | | | | |
| In millions | December 31, 2021 | December 31, 2020 |
| Derivatives in Cash Flow Hedging Relationships: (a) | | |
| Foreign exchange contracts (USD) | — | | 3 | |
| | |
| Derivatives Not Designated as Hedging Instruments: | | |
| Electricity contract (MWh) | 0.5 | | 0.2 | |
| |
(a) | These contracts had maturities of two years or less as of December 31, 2017.
|
(a)These contracts had maturities of two years or less as of December 31, 2021.
The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments:
| | | | Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) | | Gain (Loss)
Recognized in AOCI on Derivatives
(Effective Portion) |
| In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Derivatives in Cash Flow Hedging Relationships: | | Derivatives in Cash Flow Hedging Relationships: | |
| Foreign exchange contracts | | Foreign exchange contracts | $ | 3 | | $ | (34) | | $ | 4 | |
| Derivatives in Net Investment Hedging Relationships: | | Derivatives in Net Investment Hedging Relationships: | |
| Foreign exchange contracts | $ | 15 |
| $ | 4 |
| $ | (3 | ) | Foreign exchange contracts | 18 | | — | | — | |
| Interest rate contracts | — |
| (10 | ) | — |
| Interest rate contracts | — | | 25 | | 7 | |
| Total | $ | 15 |
| $ | (6 | ) | $ | (3 | ) | Total | $ | 18 | | $ | 25 | | $ | 7 | |
During the next 12 months,, the amount of the December 31, 20172021 AOCI balance, after tax, that is expected to be reclassified to earnings is a gainloss of $6$1 million.
The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion) | | Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion) |
| In millions | 2021 | | 2020 | | 2019 | | |
| Derivatives in Cash Flow Hedging Relationships: | | | | | | | |
| Foreign exchange contracts | $ | 10 | | | $ | (25) | | | $ | (3) | | | Cost of products sold and Discontinued operations, net of taxes |
| Interest rate contracts | (1) | | | (1) | | | (1) | | | Interest expense, net |
| Total | $ | 9 | | | $ | (26) | | | $ | (4) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss)
Recognized
in Income | | | Location of Gain (Loss)
in Consolidated Statement of
Operations |
| In millions | 2021 | | | 2020 | | | 2019 | | | |
| Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | |
| Interest rate contracts | $ | — | | | | $ | 38 | | | | $ | 30 | | | | Interest expense, net |
| Debt | — | | | | (38) | | | | (30) | | | | Interest expense, net |
| Total | $ | — | | | | $ | — | | | | $ | — | | | | |
| Derivatives in Net Investment Hedging Relationships: | | | | | | | | | | |
| Foreign exchange contracts | $ | — | | | | $ | 2 | | | | $ | — | | | | Net (gains) losses on sales and impairments of businesses |
| Total | $ | — | | | | $ | 2 | | | | $ | — | | | | |
| Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | |
| Electricity Contracts | $ | 15 | | | | $ | (2) | | | | $ | 3 | | | | Cost of products sold |
| Foreign exchange contracts | (2) | | | | — | | | | (2) | | | | Cost of products sold |
| Total | $ | 13 | | | | $ | (2) | | | | $ | 1 | | | | |
|
| | | | | | | | | | | | | |
| | Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion) | | Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion) |
| In millions | 2017 |
| | 2016 |
| | 2015 |
| | |
| Derivatives in Cash Flow Hedging Relationships: | | | | | | | |
| Foreign exchange contracts | $ | 8 |
| | $ | 7 |
| | $ | (12 | ) | | Cost of products sold |
| Interest rate contracts | (1 | ) | | — |
| | — |
| | Interest expense, net |
| Total | $ | 7 |
| | $ | 7 |
| | $ | (12 | ) | | |
|
| | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Income | | | Location of Gain (Loss) in Consolidated Statement of Operations |
| In millions | 2017 | | | 2016 | | | 2015 | | | |
| Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | |
| Interest rate contracts | $ | — |
| | | $ | — |
| | | $ | 3 |
| | | Interest expense, net |
| Debt | — |
| | | — |
| | | (3 | ) | | | Interest expense, net |
| Total | $ | — |
| | | $ | — |
| | | $ | — |
| | | |
| Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | |
| Electricity Contracts | $ | (10 | ) | | | $ | — |
| | | $ | (7 | ) | | | Cost of products sold |
| Foreign exchange contracts | — |
| | | — |
|
| | (4 | ) | | | Cost of products sold |
| Interest rate contracts | 1 |
| (a) | | 5 |
| (b) | | 13 |
| (c) | | Interest expense, net |
| Total | $ | (9 | ) | | | $ | 5 |
| | | $ | 2 |
| | | |
| |
(a) | Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges. |
| |
(b) | Excluding gain of $2 million related to debt reduction recorded to Restructuring and other charges. |
| |
(c) | Excluding gain of $3 million related to debt reduction recorded to Restructuring and other charges. |
In 2016, fully effective interest rate swaps designated as fair value hedges with a notional value of $55 million were terminated early. The resulting gain was immaterial.
Fair Value Measurements
International Paper’s financial assets and liabilities that are recorded at fair value consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, options and other financial instruments that
are used to hedge exposures to interest rate, commodity and currency risks. For these financial instruments, fair value is determined at each balance sheet date using an income approach.
The guidance for fair value measurements and disclosures sets out a fair value hierarchy that groups fair value measurement inputs into the following three classifications:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability reflecting the reporting entity’s own assumptions or external inputs from inactive markets.
Transfers between levels are recognized at the end of the reporting period. All of International Paper’s derivative fair value measurements use Level 2 inputs.
Below is a description of the valuation calculation and the inputs used for each class of contract:
Interest Rate Contracts
Interest rate contracts are valued using swap curves obtained from an independent market data provider.
The market value of each contract is the sum of the fair value of all future interest payments between the contract counterparties, discounted to present value.
The fair value of the future interest payments is determined by comparing the contract rate to the derived forward interest rate and present valued using the appropriate derived interest rate curve.
Foreign Exchange Contracts
Foreign currency forward and option contracts are valued using standard valuation models. Significant inputs used in these standard valuation models are foreign currency forward and interest rate curves and a volatility measurement. The fair value of each contract is present valued using the applicable interest rate. All
significant inputs are readily available in public markets, or can be derived from observable market transactions.
Electricity Contract
The Company is party to an electricity contract used to manage market fluctuations in energy pricing. The Company's electricity contract is valued using the Mid-C index forward curve obtained from the Intercontinental Exchange. The market value of the
contract is the sum of the fair value of all future purchase payments between the contract counterparties, discounted to present value. The fair value of the future purchase payments is determined by comparing the contract price to the forward price and present valued using International Paper's cost of capital.
Since the volume and level of activity of the markets that each of the above contracts are traded in has been normal, the fair value calculations have not
been adjusted for inactive markets or disorderly transactions.
The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:
Fair Value Measurements
Level 2 – Significant Other Observable Inputs
|
| | | | | | | | | | | | | | | | |
| | Assets | | Liabilities | |
| In millions | December 31, 2017 | | December 31, 2016 | | December 31, 2017 | | December 31, 2016 | |
| Derivatives designated as hedging instruments | | | | | | | | |
| Foreign exchange contracts – cash flow | $ | 11 |
| (a) | $ | 3 |
| (b) | $ | 1 |
| (c) | $ | 4 |
| (c) |
| Total derivatives designated as hedging instruments | 11 |
| | 3 |
| | 1 |
| | 4 |
| |
| Derivatives not designated as hedging instruments | | | | | | | | |
| Electricity contract | — |
|
| — |
|
| 8 |
| (d) | 2 |
| (c) |
| Total derivatives not designated as hedging instruments | — |
| | — |
| | 8 |
| | 2 |
| |
| Total derivatives | $ | 11 |
| | $ | 3 |
| | $ | 9 |
| | $ | 6 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | Liabilities | |
| In millions | December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | |
| Electricity contract | $ | 10 | | (a) | $ | — | | | $ | — | | | $ | 1 | | (b) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(a)Includes $6 million recorded in Other current assets and $4 million in Deferred charges recorded in the accompanying consolidated balance sheet.
| |
(a) | Includes $10 million recorded in Other current assets and $1 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet. |
| |
(b) | Included in Other current assets in the accompanying consolidated balance sheet. |
| |
(c) | Included in Other accrued liabilities in the accompanying consolidated balance sheet. |
| |
(d) | Includes $5 million recorded in Other accrued liabilities and $3 million recorded in Other liabilities in the accompanying consolidated balance sheet. |
(b)Included $1 million recorded in Other current liabilities in the accompanying consolidated balance sheet.
The above contracts are subject to enforceable master netting arrangements that provide rights of offset with each counterparty when amounts are payable on the same date in the same currency or in the case of certain specified defaults. Management has made an accounting policy election to not offset the fair value of recognized derivative assets and derivative liabilities in the consolidated balance sheet. The amounts owed to the counterparties and owed to the Company are considered immaterial with respect to each counterparty and in the aggregate with all counterparties.
Credit-Risk-Related Contingent Features
International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with
the majority of our banks. Certain of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the collateral threshold is generally $15 million.$15 million.
If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the Company would be required to post collateral for all of its derivatives in a net liability position, although no derivatives would terminate. As of December 31, 2017, thereThere were no derivative instruments containing credit-risk-related contingent features in a net liability position. The fair value of derivative instruments containing credit-risk-related contingent features in a net liability position was $3 million as of December 31, 2016.2021 and December 31, 2020. The Company was not required to post any collateral as of December 31, 20172021 or 2016.2020.
The authorized capital stock at both December 31, 20172021 and 2016,2020, consisted of 990,850,000 shares of common stock, $1$1 par value; 400,000 shares of cumulative $4$4 preferred stock, without par value (stated value $100$100 per share); and 8,750,000 shares of serial preferred stock, $1$1 par value. The serial preferred stock is issuable in one or more series by the Board of Directors without further shareholder action.
The following is a rollforward of shares of common stock for the three years ended December 31, 2017, 20162021, 2020 and 2015:2019:
| | | | | | | | |
| | Common Stock |
| In thousands | Issued | Treasury |
| Balance at January 1, 2019 | 448,916 | | 48,310 | |
| Issuance of stock for various plans, net | — | | (3,416) | |
| Repurchase of stock | — | | 11,906 | |
| Balance at December 31, 2019 | 448,916 | | 56,800 | |
| Issuance of stock for various plans, net | — | | (2,010) | |
| Repurchase of stock | — | | 1,027 | |
| Balance at December 31, 2020 | 448,916 | | 55,817 | |
| Issuance of stock for various plans, net | — | | (1,855) | |
| Repurchase of stock | — | | 16,400 | |
| Balance at December 31, 2021 | 448,916 | | 70,362 | |
|
| | | | |
| | Common Stock |
| In thousands | Issued | Treasury |
| Balance at January 1, 2015 | 448,854 |
| 28,734 |
|
| Issuance of stock for various plans, net | 62 |
| (4,230 | ) |
| Repurchase of stock | — |
| 12,272 |
|
| Balance at December 31, 2015 | 448,916 |
| 36,776 |
|
| Issuance of stock for various plans, net | — |
| (2,745 | ) |
| Repurchase of stock | — |
| 3,640 |
|
| Balance at December 31, 2016 | 448,916 |
| 37,671 |
|
| Issuance of stock for various plans, net | — |
| (2,577 | ) |
| Repurchase of stock | — |
| 881 |
|
| Balance at December 31, 2017 | 448,916 |
| 35,975 |
|
International Paper sponsors and maintains the Retirement Plan of International Paper Company (the “Pension Plan”"Pension Plan"), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union employees who work at a participating business unit regardless of hire date. These employees generally arecertain employees.
eligible to participate in the Pension Plan upon attaining
21 years of age and completing one year of eligibility service. U.S. salaried employees and hourly employees (receiving salaried benefits) hired after June 30, 2004 are not eligible to participate in the Pension Plan, but receive a company contribution to their individual savings plan accounts (see Other U.S. Plans); however, salaried employees hired by Temple Inland prior to March 1, 2007 or Weyerhaeuser Company's Cellulose Fibers division prior to December 1, 2011 also participate in the Pension Plan. The Pension Plan provides defined pension benefits based on years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees).
The Company also has three2 unfunded nonqualified defined benefit pension plans: a Pension Restoration Plan available to employees hired prior to July 1, 2004 that provides retirement benefits based on eligible compensation in excess of limits set by the
Internal Revenue Service, and twoa supplemental retirement plansplan for senior managers (SERP)("SERP"), which
is an alternative retirement plan for salaried employees who are senior vice presidents and above or who are designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent of benefits paid, which totaled $40$21 million,, $21 $31 million and $62$26 million in 2017, 20162021, 2020 and 2015,2019, respectively, and which are expected to be $30$21 million in 2018.2022.
TheEffective January 1, 2019, the Company will freezefroze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the two SERP plans for all service on or after January 1, 2019.plan. This change willdoes not affect benefits accrued through December 31, 2018. For service after this date,December 31, 2018, employees affected by the freeze will receive a company contribution to their individual Retirement Savings Account contributions as described later in this Note 1619.
Many non-U.S. employees are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes.
In advance of the spin-off of the Printing Papers segment into a standalone, publicly-traded company, Sylvamo, a legally separate Sylvamo Pension Plan was established to transfer both pension liabilities and qualified pension assets for the approximately 900 active pension participants who transitioned to Sylvamo. Effective September 1, 2021, the Retirement Plan of International Paper (“IP Pension Plan”) and the Sylvamo Pension Plan were legally separated and remeasured as of that date. The remeasurement resulted in a net asset balance of $520 million for the IP Pension Plan, which has been classified as part of the Pension Assets balance on the Consolidated Balance Sheet. Based on the September 1, 2021 remeasurement, the IP Pension Plan completed the transfer of approximately $287 million in projected benefit obligation and approximately $255 million in pension assets, net of post-spin true-up adjustments, to the Sylvamo Pension Plan.
OBLIGATIONS AND FUNDED STATUS
The following table shows the changes in the benefit obligation and plan assets for 20172021 and 2016,2020, and the plans’ funded status.
| | | | | | | | | | | | | | |
| | 2021 | 2020 |
| In millions | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Change in projected benefit obligation: | | | | |
| Benefit obligation, January 1 | $ | 13,020 | | $ | 264 | | $ | 11,699 | | $ | 253 | |
| Service cost | 100 | | 5 | | 85 | | 5 | |
| Interest cost | 333 | | 4 | | 393 | | 6 | |
| Curtailment | — | | — | | — | | (1) | |
| Settlements | — | | — | | — | | (5) | |
| Actuarial loss (gain) | (760) | | (11) | | 1,357 | | 10 | |
| Divestitures | (287) | | (187) | | — | | (1) | |
| Plan amendments | — | | — | | 42 | | — | |
| Benefits paid | (573) | | (5) | | (556) | | (7) | |
| Effect of foreign currency exchange rate movements | — | | (5) | | — | | 4 | |
| Benefit obligation, December 31 | $ | 11,833 | | $ | 65 | | $ | 13,020 | | $ | 264 | |
| Change in plan assets: | | | | |
| Fair value of plan assets, January 1 | $ | 12,018 | | $ | 190 | | $ | 10,165 | | $ | 183 | |
| Actual return on plan assets | 864 | | 4 | | 2,377 | | 11 | |
| Company contributions | 21 | | 6 | | 32 | | 9 | |
| Benefits paid | (573) | | (5) | | (556) | | (7) | |
| Settlements | — | | — | | — | | (5) | |
| Divestiture | (255) | | (175) | | — | | — | |
| Effect of foreign currency exchange rate movements | — | | (1) | | — | | (1) | |
| Fair value of plan assets, December 31 | $ | 12,075 | | $ | 19 | | $ | 12,018 | | $ | 190 | |
| Funded status, December 31 | $ | 242 | | $ | (46) | | $ | (1,002) | | $ | (74) | |
| Amounts recognized in the consolidated balance sheet: | | | | |
| Overfunded pension plan assets | $ | 595 | | $ | — | | $ | — | | $ | 5 | |
| Underfunded pension benefit obligation - current | (21) | | (1) | | (20) | | (3) | |
| Underfunded pension benefit obligation - non-current | (332) | | (45) | | (982) | | (76) | |
| | $ | 242 | | $ | (46) | | $ | (1,002) | | $ | (74) | |
| | | | | | | | | | | | | | |
| Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | | | | |
| Prior service cost (credit) | $ | 95 | | $ | — | | $ | 120 | | $ | — | |
| Net actuarial loss | 1,199 | | 4 | | 2,297 | | 82 | |
| | $ | 1,294 | | $ | 4 | | $ | 2,417 | | $ | 82 | |
The non-current asset for the qualified plan is included in the accompanying consolidated balance
sheet under Overfunded Pension Plan Assets. The non-current portion of the liability is included with the pension liability under Underfunded Pension Benefit Obligation. |
| | | | | | | | | | | | |
| | 2017 | 2016 |
| In millions | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Change in projected benefit obligation: | | | | |
| Benefit obligation, January 1 | $ | 13,683 |
| $ | 219 |
| $ | 14,438 |
| $ | 204 |
|
| Service cost | 160 |
| 4 |
| 158 |
| 4 |
|
| Interest cost | 536 |
| 9 |
| 580 |
| 9 |
|
| Settlements | (1,295 | ) | (4 | ) | (1,222 | ) | (2 | ) |
| Actuarial loss (gain) | 913 |
| 2 |
| 495 |
| 35 |
|
| Acquisitions | — |
| 5 |
| 1 |
| — |
|
| Divestitures | 33 |
| — |
| — |
| — |
|
| Plan amendments | 3 |
| — |
| — |
| (1 | ) |
| Benefits paid | (769 | ) | (8 | ) | (767 | ) | (9 | ) |
| Effect of foreign currency exchange rate movements | — |
| 20 |
| — |
| (21 | ) |
| Benefit obligation, December 31 | $ | 13,264 |
| $ | 247 |
| $ | 13,683 |
| $ | 219 |
|
| Change in plan assets: | | | | |
| Fair value of plan assets, January 1 | $ | 10,312 |
| $ | 153 |
| $ | 10,923 |
| $ | 155 |
|
| Actual return on plan assets | 1,830 |
| 10 |
| 607 |
| 17 |
|
| Company contributions | 1,290 |
| 10 |
| 771 |
| 8 |
|
| Benefits paid | (769 | ) | (8 | ) | (767 | ) | (9 | ) |
| Settlements | (1,295 | ) | (4 | ) | (1,222 | ) | (2 | ) |
| Other | — |
| 3 |
| — |
| — |
|
| Effect of foreign currency exchange rate movements | — |
| 12 |
| — |
| (16 | ) |
| Fair value of plan assets, December 31 | $ | 11,368 |
| $ | 176 |
| $ | 10,312 |
| $ | 153 |
|
| Funded status, December 31 | $ | (1,896 | ) | $ | (71 | ) | $ | (3,371 | ) | $ | (66 | ) |
| Amounts recognized in the consolidated balance sheet: | | | | |
| Non-current asset | $ | — |
| $ | 5 |
| $ | — |
| $ | 6 |
|
| Current liability | (30 | ) | (3 | ) | (40 | ) | (3 | ) |
| Non-current liability | (1,866 | ) | (73 | ) | (3,331 | ) | (69 | ) |
| | $ | (1,896 | ) | $ | (71 | ) | $ | (3,371 | ) | $ | (66 | ) |
|
| | | | | | | | | | | | |
| Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | | | | |
| Prior service cost | $ | 88 |
| $ | (1 | ) | $ | 125 |
| $ | — |
|
| Net actuarial loss | 3,893 |
| 67 |
| 4,757 |
| 61 |
|
| | $ | 3,981 |
| $ | 66 |
| $ | 4,882 |
| $ | 61 |
|
The components of the $901$(1.1) billion and $(78) million and $5 million change related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during 20172021 consisted of:
| | | In millions | U.S.
Plans | Non-
U.S.
Plans | In millions | U.S.
Plans | Non-
U.S.
Plans |
| Current year actuarial (gain) loss | $ | (143 | ) | $ | 2 |
| Current year actuarial (gain) loss | $ | (961) | | $ | (8) | |
| Amortization of actuarial loss | (339 | ) | (2 | ) | Amortization of actuarial loss | (138) | | (2) | |
| Current year prior service cost | 3 |
| — |
| Current year prior service cost | (2) | | — | |
| Amortization of prior service cost | (28 | ) | — |
| Amortization of prior service cost | (22) | | — | |
| Settlements | (383 | ) | (1 | ) | |
| Curtailments | (11 | ) | — |
| |
| Divestiture | | Divestiture | — | | (67) | |
| Effect of foreign currency exchange rate movements | — |
| 6 |
| Effect of foreign currency exchange rate movements | — | | (1) | |
| | $ | (901 | ) | $ | 5 |
| | $ | (1,123) | | $ | (78) | |
The portion of the change in the funded status that was recognized in either net periodic benefit cost orand OCI for the U.S. plans was $(184) million, $626$(1.0) billion, $(500) million and $505$(172) million in 2017, 20162021, 2020 and 2015,2019, respectively. The portion of the change in funded status for the non-U.S. plans was $10$(73) million, $23$13 million, and $8$24 million in 2017, 20162021, 2020 and 2015,2019, respectively.
The accumulated benefit obligation at December 31, 20172021 and 20162020 was $13.2$11.8 billion and $13.5$13.0 billion,, respectively, for our U.S. defined benefit plans and $230
$56 million and $205$246 million,, respectively, at December 31, 20172021 and 20162020 for our non-U.S. defined benefit plans.
The following table summarizes information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 20172021 and 2016:2020:
| | | | | | | | | | | | | | |
| | 2021 | 2020 |
| In millions | U.S.
Plans | Non-U.S.
Plans | U.S.
Plans | Non-U.S.
Plans |
| Projected benefit obligation | $ | 353 | | $ | 65 | | $ | 13,020 | | $ | 245 | |
| Accumulated benefit obligation | 353 | | 56 | | 12,997 | | 227 | |
| Fair value of plan assets | — | | 19 | | 12,018 | | 166 | |
|
| | | | | | | | | | | | |
| | 2017 | 2016 |
| In millions | U.S.
Plans | Non-U.S.
Plans | U.S.
Plans | Non-U.S.
Plans |
| Projected benefit obligation | $ | 13,264 |
| $ | 215 |
| $ | 13,683 |
| $ | 190 |
|
| Accumulated benefit obligation | 13,161 |
| 200 |
| 13,535 |
| 177 |
|
| Fair value of plan assets | 11,368 |
| 139 |
| 10,312 |
| 118 |
|
ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets and other assumption changes. These net gains and losses are recognized prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains in subsequent years. The estimated net loss and prior service cost that will be amortized from AOCI into net periodic pension cost for the U.S. plans during the next
fiscal year are expected to be $327 million and $17 million, respectively.
NET PERIODIC PENSION EXPENSE
Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from the investment of plan assets using an estimated long-term rate of return.
Net periodic pension expense for qualified and nonqualified U.S. and non-U.S. defined benefit plans comprised the following:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | 2020 | 2019 |
| In millions | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Service cost | $ | 100 | | $ | 5 | | $ | 85 | | $ | 5 | | $ | 68 | | $ | 5 | |
| Interest cost | 333 | | 4 | | 393 | | 6 | | 440 | | 8 | |
| Expected return on plan assets | (705) | | (7) | | (668) | | (8) | | (631) | | (10) | |
| Actuarial loss (gain) | 138 | | 2 | | 202 | | 2 | | 200 | | 2 | |
| Amortization of prior service cost | 22 | | — | | 20 | | — | | 16 | | — | |
| Curtailment loss (gain) | — | | — | | — | | (1) | | — | | (1) | |
| Settlement loss | — | | — | | — | | 1 | | — | | 2 | |
| Net periodic pension (income) expense | $ | (112) | | $ | 4 | | $ | 32 | | $ | 5 | | $ | 93 | | $ | 6 | |
|
| | | | | | | | | | | | | | | | | | |
| | 2017 | 2016 | 2015 |
| In millions | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Service cost | $ | 160 |
| $ | 4 |
| $ | 158 |
| $ | 4 |
| $ | 161 |
| $ | 6 |
|
| Interest cost | 536 |
| 9 |
| 580 |
| 9 |
| 597 |
| 10 |
|
| Expected return on plan assets | (774 | ) | (11 | ) | (815 | ) | (10 | ) | (783 | ) | (11 | ) |
| Actuarial loss / (gain) | 339 |
| 2 |
| 400 |
| 1 |
| 428 |
| 1 |
|
| Amortization of prior service cost | 28 |
| — |
| 41 |
| — |
| 43 |
| — |
|
| Curtailment loss / (gain) (a) | 23 |
| — |
| — |
| — |
| — |
| — |
|
| Settlement loss | 383 |
| 1 |
| 445 |
| — |
| 15 |
| — |
|
| Special termination benefits (a) | 22 |
| — |
| — |
| — |
| — |
| — |
|
| Net periodic pension expense | $ | 717 |
| $ | 5 |
| $ | 809 |
| $ | 4 |
| $ | 461 |
| $ | 6 |
|
(a) RecordedThe components of net periodic pension expense other than the Service cost component are included in Non-operating pension (income) expense in the Consolidated Statement of Operations with the exception of $(3) million related to Sylvamo participants in 2021 recorded in Discontinued operations in the consolidated statement of operations.Operations.
The decrease in 20172021 pension expense primarily reflects higher asset returns, lower settlement lossesinterest cost due to a lower discount rate and lower actuarial losses partiallyloss due to a higher amortization period slightly offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit charges.higher service cost.
On September 26, 2017, the Company entered into an agreement with The Prudential Insurance Company of America to purchase a group annuity contract and transfer approximately $1.3 billion of International Paper's U.S. qualified pension plan projected benefit obligations, subject to customary closing conditions. The transaction closed on October 3, 2017 and was funded with pension plan assets. Under the transaction,
at the end of 2017, Prudential assumed responsibility for pension benefits and annuity administration for approximately 45,000 retirees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan. Settlement accounting rules required a remeasurement of the qualified plan as of October 3, 2017 and the Company recognized a non-cash pension settlement charge of $376 million before tax in the fourth quarter of 2017. In addition, large payments from the non-qualified pension plan also required a remeasurement as of October 2, 2017 and a non-cash settlement charge of $7 million was also recognized in the fourth quarter of 2017.
In the first quarter of 2016 International Paper announced a voluntary, limited-time opportunity for former employees who are participants in the Retirement Plan of International Paper Company (the Pension Plan) to request early payment of their entire Pension Plan benefit in the form of a single lump sum payment. The amount of total payments under this program was approximately $1.2 billion, and were made from Plan trust assets on June 30, 2016. Based on the level of payments made, settlement accounting rules applied and resulted in a plan remeasurement as of the June 30, 2016 payment date. As a result of settlement accounting, the Company recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarter of 2016. Additional payments of $8 million and $9 million were made during the third and fourth quarters, respectively, due to mandatory cash payouts and a small lump sum payout, and the Pension Plan was subsequently remeasured at September 30, 2016 and December 31, 2016. As a result of settlement accounting, the Company recognized non-cash settlement charges of $3 million in both the third and fourth quarters of 2016.
ASSUMPTIONS
International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements for employers’ accounting for pensions. These assumptions are used to calculate
benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation as of December 31, 2017 was2021 is also the discount rate used to determine net pension expense for the 20182022 year).
Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit plans are presented in the following table:
| | | | 2017 | 2016 | 2015 | | 2021 | 2020 | 2019 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Actuarial assumptions used to determine benefit obligations as of December 31: | | Actuarial assumptions used to determine benefit obligations as of December 31: | |
| Discount rate | 3.60 | % | 3.59 | % | 4.10 | % | 3.88 | % | 4.40 | % | 4.64 | % | Discount rate | 2.90 | % | 2.59 | % | 2.60 | % | 2.32 | % | 3.40 | % | 2.70 | % |
| Rate of compensation increase | 3.75 | % | 4.06 | % | 3.75 | % | 4.20 | % | 3.75 | % | 4.12 | % | Rate of compensation increase | 3.00 | % | 2.92 | % | 2.25 | % | 3.66 | % | 2.25 | % | 3.62 | % |
| Actuarial assumptions used to determine net periodic pension cost for years ended December 31: | | Actuarial assumptions used to determine net periodic pension cost for years ended December 31: | |
| Discount rate (a) | 4.03 | % | 3.88 | % | 4.05 | % | 4.72 | % | 4.10 | % | 4.72 | % | Discount rate (a) | 2.67 | % | 2.32 | % | 3.40 | % | 2.70 | % | 4.30 | % | 3.97 | % |
| Expected long-term rate of return on plan assets | 7.50 | % | 6.73 | % | 7.75 | % | 6.55 | % | 7.75 | % | 6.64 | % | |
| Expected long-term rate of return on plan assets (a) | | Expected long-term rate of return on plan assets (a) | 6.40 | % | 4.99 | % | 7.00 | % | 4.92 | % | 7.25 | % | 6.20 | % |
| Rate of compensation increase | 3.75 | % | 4.20 | % | 3.75 | % | 4.03 | % | 3.75 | % | 4.03 | % | Rate of compensation increase | 2.25 | % | 3.66 | % | 2.25 | % | 3.62 | % | 2.25 | % | 4.05 | % |
(a) Represents the weighted average rate for the U.S. qualified plans in 2017 and 20162021 due to the remeasurements.spin-off remeasurement..
The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes.
Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption was determined from a universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate pension expense for 2018,2022, the Company will use an expected long-term rate of return on plan assets of 7.50%6.00% for the Retirement Plan of International Paper, a discount rate of 3.60%2.90% and an assumed rate of compensation increase of 3.75%2.25%. The Company estimates that it will record net pension expenseincome of approximately $167$114 million for its U.S. defined benefit plans in 2018,2022, compared to expenseincome of $717$112 million in 2017. The 2017 expense includes $45 million of curtailment and special pension benefits associated with the North American Consumer Packaging business and $383 million of settlement accounting charges. Excluding these settlement charges and curtailment and special pension benefits, the estimated decrease in net pension expense in 2018 is primarily due to lower interest cost on the reduced pension obligation and a higher expected return on assets associated with the increased pension asset balance.2021.
For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.
The following illustrates the effect on pension expense for 20182022 of a 25 basis point decrease in the above assumptions:
| | | | | |
| In millions | 2022 |
| Expense (Income): | |
| Discount rate | $ | 19 | |
| Expected long-term rate of return on plan assets | 27 | |
|
| | | |
| In millions | 2018 |
| Expense/(Income): | |
| Discount rate | $ | 35 |
|
| Expected long-term rate of return on plan assets | 27 |
|
| Rate of compensation increase | (1 | ) |
PLAN ASSETS
International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk.
The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. Investments are diversified across classes and within each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic reviews are made of investment
policy objectives and investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed income securities.
International Paper’s U.S. pension allocations by type of fund at December 31, 2021 and 2020 and target allocations were as follows:
| | | Asset Class | 2017 | 2016 | Target
Allocations | Asset Class | 2021 | 2020 | Target
Allocations |
| Equity accounts | 49 | % | 51 | % | 42% - 53% | Equity accounts | 18 | % | 40 | % | 14% - 25% |
| Fixed income accounts | 36 | % | 27 | % | 32% - 44% | Fixed income accounts | 68 | % | 48 | % | 62% - 78% |
| Real estate accounts | 10 | % | 10 | % | 7% - 13% | Real estate accounts | 8 | % | 7 | % | 4% - 10% |
| Other | 5 | % | 12 | % | 3% - 8% | Other | 6 | % | 5 | % | 2% - 7% |
| Total | 100 | % | 100 | % | | Total | 100 | % | 100 | % | |
The fair values of International Paper’s pension plan assets at December 31, 20172021 and 20162020 by asset class are shown below. Plan assets included an immaterial amount of International Paper common stock at December 31, 2016. Hedge funds disclosed in the following table are allocated equally between equity andto fixed income accounts for target allocation purposes.
| | | Fair Value Measurement at December 31, 2017 | |
| Fair Value Measurement at December 31, 2021 | | Fair Value Measurement at December 31, 2021 |
| Asset Class | Total | Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1) | Significant
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) | Asset Class | Total | Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1) | Significant
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) |
| In millions | | In millions | |
| Equities – domestic | $ | 1,291 |
| $ | 1,291 |
| $ | — |
| $ | — |
| Equities – domestic | $ | 805 | | $ | 471 | | $ | 334 | | $ | — | |
| Equities – international | 2,132 |
| 2,119 |
| 13 |
| — |
| Equities – international | 1,381 | | 976 | | 405 | | — | |
| Corporate bonds | 1,177 |
| — |
| 1,177 |
| — |
| Corporate bonds | 2,249 | | — | | 2,249 | | — | |
| Government securities | 2,778 |
| — |
| 2,778 |
| — |
| Government securities | 5,733 | | — | | 5,733 | | — | |
| Mortgage backed securities | 1 |
| — |
| — |
| 1 |
| Mortgage backed securities | 126 | | — | | 126 | | — | |
| Other fixed income | (802 | ) | — |
| (814 | ) | 12 |
| Other fixed income | (1,482) | | — | | (1,498) | | 16 | |
| Commodities | — |
| — |
| — |
| — |
| |
| Derivatives | 8 |
| — |
| (8 | ) | 16 |
| Derivatives | (21) | | — | | — | | (21) | |
| Cash and cash equivalents | 397 |
| 397 |
| — |
| — |
| Cash and cash equivalents | 266 | | 266 | | — | | — | |
| Other investments: | | Other investments: | |
| Equities - domestic | 708 |
| | |
| Equities - international | 866 |
| | |
| Corporate bonds | 66 |
| | |
| Other fixed income | 232 |
| | |
| Hedge funds | 927 |
| | Hedge funds | 1,368 | | |
| Private equity | 481 |
| | Private equity | 721 | | |
| Real estate | 1,106 |
| | |
| Real estate funds | | Real estate funds | 929 | | |
| Total Investments | $ | 11,368 |
| $ | 3,807 |
| $ | 3,146 |
| $ | 29 |
| Total Investments | $ | 12,075 | | $ | 1,713 | | $ | 7,349 | | $ | (5) | |
| | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2020 |
| Asset Class | Total | Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1) | Significant
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) |
| In millions | | | | |
| Equities – domestic | $ | 1,806 | | $ | 1,037 | | $ | 769 | | $ | — | |
| Equities – international | 2,921 | | 2,181 | | 740 | | — | |
| Corporate bonds | 2,345 | | — | | 2,345 | | — | |
| Government securities | 3,377 | | — | | 3,377 | | — | |
| Mortgage backed securities | 133 | | — | | 133 | | — | |
| Other fixed income | (1,585) | | — | | (1,599) | | 14 | |
| Derivatives | 336 | | 342 | | — | | (6) | |
| Cash and cash equivalents | 210 | | 210 | | — | | — | |
| Other investments: | | | | |
| Hedge funds | 1,112 | | | | |
| Private equity | 563 | | | | |
| Real estate funds | 800 | | | | |
| Total Investments | $ | 12,018 | | $ | 3,770 | | $ | 5,765 | | $ | 8 | |
|
| | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2016 |
| Asset Class | Total | Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1) | Significant
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) |
| In millions | | | | |
| Equities – domestic | $ | 2,208 |
| $ | 1,380 |
| $ | 828 |
| $ | — |
|
| Equities – international | 2,575 |
| 1,806 |
| 769 |
| — |
|
| Corporate bonds | 1,018 |
| — |
| 1,018 |
| — |
|
| Government securities | 870 |
| — |
| 870 |
| — |
|
| Mortgage backed securities | 41 |
| — |
| 40 |
| 1 |
|
| Other fixed income | 245 |
| — |
| 234 |
| 11 |
|
| Commodities | 324 |
| — |
| 324 |
| — |
|
| Derivatives | (71 | ) | — |
| — |
| (71 | ) |
| Cash and cash equivalents | 322 |
| 322 |
| — |
| — |
|
| Other investments: | | | | |
| Hedge funds | 891 |
| | | |
| Private equity | 472 |
| | | |
| Real estate | 1,015 |
| | | |
| Risk parity funds | 402 |
| | | |
| Total Investments | $ | 10,312 |
| $ | 3,508 |
| $ | 4,083 |
| $ | (59 | ) |
In accordance with accounting standards, the followingcertain investments that are measured at NAV and are not classified in the fair value hierarchy. Some
| | | | | | | | | | | | | | |
| Other Investments at December 31, 2021 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| In millions | | | | |
| Hedge funds | 1,368 | | 176 | | Daily to annually | 1 - 100 days |
| Private equity | 721 | | 190 | | (a) | None |
| Real estate funds | 929 | | 176 | | Quarterly | 45 - 60 days |
| Total | $ | 3,018 | | $ | 542 | | | |
(a) A private equity fund investment ("partnership interest") is contractually locked up for the life of the investmentsprivate equity fund by the partnership agreement. Limited partners do not have
the option to redeem partnership interests.
redemption limitations, restrictions, and notice requirements which are further explained below. | | | | | | | | | | | | | | |
| Other Investments at December 31, 2020 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| In millions | | | | |
| Hedge funds | 1,112 | | — | | Daily to annually | 1 - 100 days |
| Private equity | 563 | | 290 | | (a) | None |
| Real estate funds | 800 | | 210 | | Quarterly | 45 - 60 days |
| Total | $ | 2,475 | | $ | 500 | | | |
(a) A private equity fund investment ("partnership interest") is contractually locked up for the life of the private equity fund by the partnership agreement. Limited partners do not have the option to redeem partnership interests. |
| | | | | | | | |
| Other Investments at December 31, 2017 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| Equities - domestic | $ | 708 |
| $ | — |
| Daily to monthly | 1-5 days |
| Equities - international | 866 |
| — |
| Daily to monthly | 1-5 days |
| Corporate bonds | 66 |
| — |
| Daily to monthly | 1-5 days |
| Other fixed income | 232 |
| — |
| Daily to monthly | 1-5 days |
| Hedge funds | 927 |
| — |
| Daily to annually | 1 - 100 days |
| Private equity | 481 |
| 262 |
| None | None |
| Real estate | 1,106 |
| 121 |
| Quarterly | 45 - 60 days |
| Total | $ | 4,386 |
| $ | 383 |
|
|
|
|
| | | | | | | | |
| Other Investments at December 31, 2016 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| Hedge funds | $ | 891 |
| $ | — |
| Daily to annually | 1 - 100 days |
| Private equity | 472 |
| 226 |
| None | None |
| Real estate | 1,015 |
| 224 |
| Quarterly | 45 - 60 days |
| Risk parity funds | 402 |
| — |
| Monthly | 5 - 15 days |
| Total | $ | 2,780 |
| $ | 450 |
| | |
Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded.
Fixed income consists of government securities, mortgage-backed securities, corporate bonds, and common collective funds.funds and other fixed income investments. Government securities are valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date. Other fixed income investments of $(1.5) billion and $(1.6) billion at December 31, 2021 and 2020, respectively, primarily include reverse repurchase agreement obligations in which we have sold a security and have an agreement to repurchase the same or substantially the same security at a later date for a price specified in the agreement.
Derivative investments such as futures, forward contracts, options and swaps are used to help manage risks. Derivatives are generally employed as asset class substitutes (such as when employed in a portable alpha strategy), for managing asset/liability mismatches, or bona fide hedging or other appropriate risk management purposes.Derivative instruments are generally valued by the investment managers or in certain instances by third-party pricing sources.
Hedge funds are investment structures for managing private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a
wide range of different securities and derivative instruments. These investments are made through funds-of-funds (commingled, multi-manager fund structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each fund’s third-party administrator based upon the valuation of the underlying securities and instruments
and primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held. Funds-of-funds are valued based upon the net asset values of the underlying investments in hedge funds.
Private equity consists of interests in partnerships
that invest in U.S. and non-U.S. debt and equity securities. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interest cash flows.
Real estate includesfunds include commercial properties, land and timberland, and generally includes,include, but isare not limited to, retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the fund manager and are based on
valuation of the
underlying investments which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.
Derivative investments such as futures, forward contracts, options and swaps are used to help manage risks. Derivatives are generally employed as an asset class substitutes (such as when employed in a portable alpha strategy), for managing asset/liability mismatches, or bona fide hedging or other appropriate risk management purposes.Derivative instruments are generally valued by the investment managers or in certain instances by third-party pricing sources.
The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, 2017.2021.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
| | | | | | | | | | | | |
| In millions | | Other
fixed
income | Derivatives | Total |
| Beginning balance at December 31, 2019 | | $ | 14 | | $ | (19) | | $ | (5) | |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | | 1 | | 21 | | 22 | |
| Relating to assets sold during the period | | (1) | | 268 | | 267 | |
| Purchases, sales and settlements | | — | | (276) | | (276) | |
| Transfers in and/or out of Level 3 | | — | | — | | — | |
| Ending balance at December 31, 2020 | | $ | 14 | | $ | (6) | | $ | 8 | |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | | 2 | | (20) | | (18) | |
| Relating to assets sold during the period | | — | | (101) | | (101) | |
| Purchases, sales and settlements | | — | | 106 | | 106 | |
| Transfers in and/or out of Level 3 | | — | | — | | — | |
| Ending balance at December 31, 2021 | | $ | 16 | | $ | (21) | | $ | (5) | |
|
| | | | | | | | | | | | |
| In millions | Mortgage backed securities | Other
fixed
income | Derivatives | Total |
| Beginning balance at December 31, 2015 | $ | — |
| $ | 10 |
| $ | (20 | ) | $ | (10 | ) |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | — |
| 1 |
| (66 | ) | (65 | ) |
| Relating to assets sold during the period | — |
| — |
| (24 | ) | (24 | ) |
| Purchases, sales and settlements | 1 |
| — |
| 39 |
| 40 |
|
| Transfers in and/or out of Level 3 | — |
| — |
| — |
| — |
|
| Ending balance at December 31, 2016 | $ | 1 |
| $ | 11 |
| $ | (71 | ) | $ | (59 | ) |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | — |
| 1 |
| 94 |
| 95 |
|
| Relating to assets sold during the period | — |
| — |
| (23 | ) | (23 | ) |
| Purchases, sales and settlements | — |
| — |
| 16 |
| 16 |
|
| Transfers in and/or out of Level 3 | — |
| — |
| — |
| — |
|
| Ending balance at December 31, 2017 | $ | 1 |
| $ | 12 |
| $ | 16 |
| $ | 29 |
|
FUNDING AND CASH FLOWS
The Company’s funding policy for the Pension Plan is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash
flow generated by the Company, and other factors. The
Company continually reassesses the amount and
timing of any discretionary contributions. Contributions to the qualified plan totaling $1.25 billion, $750 million and $750 millionNo voluntary contributions were made by the Company in 2017, 2016 and 2015, respectively.2019, 2020 or 2021. Generally, International Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required.
At December 31, 2017,2021, projected future pension benefit payments, excluding any termination benefits, were as follows:
| | | | | |
| In millions | |
| 2022 | $ | 589 | |
| 2023 | 604 | |
| 2024 | 613 | |
| 2025 | 621 | |
| 2026 | 631 | |
| 2027-2031 | 3,193 | |
|
| | | |
| In millions | |
| 2018 | $ | 708 |
|
| 2019 | 709 |
|
| 2020 | 718 |
|
| 2021 | 727 |
|
| 2022 | 735 |
|
| 2023-2027 | 3,763 |
|
OTHER U.S. PLANS
International Paper sponsors the International Paper Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are
tax-qualified defined contribution 401(k) savings plans. Substantially all U.S. salaried and certain hourly employees are eligible to participate and may make elective deferrals to such plans to save for retirement. International Paper makes matching contributions to participant accounts on a specified percentage of employee deferrals as determined by the provisions of each plan. For eligible employees hired after June 30, 2004, theThe Company makes Retirement Savings Account contributions equal to a percentage of an eligible employee’s pay. Beginning in 2019, as a result of the freeze for salaried employees under the Pension Plan, all salaried employees are eligible for the contribution to the Retirement Savings Account.
The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make deferrals and receive company matching contributions (and Retirement Savings Account contributions) when their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company contributions are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time benefits become due and payable.
Company contributions to the plans totaled approximately $117$172 million,, $106 $154 million and $100$172 million for the plan years ending in 2017, 20162021, 2020 and 2015,2019, respectively.
U.S. POSTRETIREMENT BENEFITS
International Paper provides certain retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees. These employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. International Paper does not fund these benefits prior to payment and has the right to modify or terminate certain of these plans in the future.
In addition to the U.S. plan, certain Brazilian and Moroccan employees are eligible for retiree health care and life insurance benefits.
The components of postretirement benefit expense in 2017, 20162021, 2020 and 20152019 were as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Service cost | $ | 1 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | 1 |
| $ | 1 |
| Service cost | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1 | |
| Interest cost | 11 |
| 2 |
| 11 |
| 3 |
| 11 |
| 5 |
| Interest cost | 5 | | 1 | | 7 | | 2 | | 8 | | 1 | |
| Actuarial loss | 8 |
| 3 |
| 5 |
| 2 |
| 6 |
| 1 |
| Actuarial loss | 5 | | 1 | | 5 | | 1 | | 4 | | 2 | |
| Amortization of prior service credits | (3 | ) | (4 | ) | (4 | ) | (4 | ) | (10 | ) | (2 | ) | Amortization of prior service credits | — | | (2) | | (1) | | (2) | | (2) | | (3) | |
| Net postretirement (benefit) expense | $ | 17 |
| $ | 1 |
| $ | 13 |
| $ | 1 |
| $ | 8 |
| $ | 5 |
| |
| Net postretirement expense | | Net postretirement expense | $ | 10 | | $ | — | | $ | 11 | | $ | 1 | | $ | 10 | | $ | 1 | |
International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements of employers’ accounting for postretirement benefits other than pensions. The discount rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high quality corporate bonds.
The discount rates used to determine net U.S. and non-U.S. postretirement benefit cost for the years ended December 31, 2017, 20162021, 2020 and 20152019 were as follows:
|
| | | | | | | | | | | | |
| | 2017 | 2016 | 2015 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Discount rate | 4.00 | % | 10.53 | % | 4.20 | % | 12.23 | % | 3.90 | % | 11.52 | % |
| | | | | | | | | | | | | | | | | | | | |
| 2021 | 2020 | 2019 |
| U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Discount rate | 2.50 | % | 6.91 | % | 3.30 | % | 7.15 | % | 4.20 | % | 9.10 | % |
The weighted average assumptions used to determine the benefit obligation at December 31, 20172021 and 20162020 were as follows:
| | | | 2017 | 2016 | | 2021 | 2020 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Discount rate | 3.50 | % | 9.38 | % | 4.00 | % | 10.53 | % | Discount rate | 2.90 | % | 5.20 | % | 2.50 | % | 6.91 | % |
| Health care cost trend rate assumed for next year | 6.50 | % | 10.27 | % | 6.50 | % | 10.90 | % | Health care cost trend rate assumed for next year | 7.00 | % | 4.00 | % | 6.50 | % | 8.56 | % |
| Rate that the cost trend rate gradually declines to | 5.00 | % | 5.15 | % | 5.00 | % | 5.81 | % | Rate that the cost trend rate gradually declines to | 5.00 | % | 4.00 | % | 5.00 | % | 4.23 | % |
| Year that the rate reaches the rate it is assumed to remain | 2022 |
| 2028 |
| 2022 |
| 2027 |
| Year that the rate reaches the rate it is assumed to remain | 2030 | 2022 | 2026 | 2031 |
A 1% increase in the assumed annual health care cost trend rate would have increased the U.S. and non-U.S. accumulated postretirement benefit obligations at December 31, 2017 by approximately $12 million and $6 million, respectively. A 1% decrease in the annual trend rate would have decreased the U.S. and non-U.S. accumulated postretirement benefit obligation at December 31, 2017 by approximately $10 million and $4 million, respectively. The effect on net postretirement benefit cost from a 1% increase or decrease would be approximately $1 million for both U.S. and non-U.S. plans.
The plans are only funded in an amount equal to benefits paid. The following table presents the changes in benefit obligation and plan assets for 20172021 and 2016:2020:
| | | In millions | 2017 | 2016 | In millions | 2021 | 2020 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Change in projected benefit obligation: | | Change in projected benefit obligation: | |
| Benefit obligation, January 1 | $ | 280 |
| $ | 23 |
| $ | 275 |
| $ | 45 |
| Benefit obligation, January 1 | $ | 201 | | $ | 20 | | $ | 214 | | $ | 31 | |
| Service cost | 1 |
| — |
| 1 |
| — |
| Service cost | — | | — | | — | | — | |
| Interest cost | 11 |
| 2 |
| 11 |
| 3 |
| Interest cost | 5 | | 1 | | 7 | | 2 | |
| Participants’ contributions | 5 |
| — |
| 5 |
| — |
| Participants’ contributions | 3 | | — | | 3 | | — | |
| Actuarial (gain) loss | 14 |
| 2 |
| 31 |
| 5 |
| Actuarial (gain) loss | (12) | | — | | 4 | | 1 | |
| Plan amendments | — |
| — |
| — |
| (35 | ) | |
| Benefits paid | (42 | ) | (2 | ) | (44 | ) | (1 | ) | Benefits paid | (26) | | — | | (28) | | (1) | |
| Less: Federal subsidy | 1 |
| — |
| 1 |
| — |
| Less: Federal subsidy | 1 | | — | | 1 | | — | |
| Divestiture | | Divestiture | — | | (15) | | — | | (7) | |
| Currency Impact | — |
| — |
| — |
| 6 |
| Currency Impact | — | | (1) | | — | | (6) | |
| Benefit obligation, December 31 | $ | 270 |
| $ | 25 |
| $ | 280 |
| $ | 23 |
| Benefit obligation, December 31 | $ | 172 | | $ | 5 | | $ | 201 | | $ | 20 | |
| Change in plan assets: | | Change in plan assets: | |
| Fair value of plan assets, January 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
| Fair value of plan assets, January 1 | $ | — | | $ | — | | $ | — | | $ | — | |
| Company contributions | 37 |
| 2 |
| 39 |
| 1 |
| Company contributions | 23 | | — | | 25 | | 1 | |
| Participants’ contributions | 5 |
| — |
| 5 |
| — |
| Participants’ contributions | 3 | | — | | 3 | | — | |
| Benefits paid | (42 | ) | (2 | ) | (44 | ) | (1 | ) | Benefits paid | (26) | | — | | (28) | | (1) | |
| Fair value of plan assets, December 31 | $ | — |
| $ | — |
| $ | — |
| $ | — |
| Fair value of plan assets, December 31 | $ | — | | $ | — | | $ | — | | $ | — | |
| Funded status, December 31 | $ | (270 | ) | $ | (25 | ) | $ | (280 | ) | $ | (23 | ) | Funded status, December 31 | $ | (172) | | $ | (5) | | $ | (201) | | $ | (20) | |
| Amounts recognized in the consolidated balance sheet under ASC 715: | | Amounts recognized in the consolidated balance sheet under ASC 715: | |
| Current liability | $ | (28 | ) | $ | (1 | ) | $ | (29 | ) | $ | (2 | ) | Current liability | $ | (17) | | $ | — | | $ | (18) | | $ | — | |
| Non-current liability | (242 | ) | (24 | ) | (251 | ) | (21 | ) | Non-current liability | (155) | | (5) | | (183) | | (20) | |
| | $ | (270 | ) | $ | (25 | ) | $ | (280 | ) | $ | (23 | ) | | $ | (172) | | $ | (5) | | $ | (201) | | $ | (20) | |
| Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | | Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | |
| Net actuarial loss (gain) | $ | 74 |
| $ | 19 |
| $ | 68 |
| $ | 21 |
| Net actuarial loss (gain) | $ | 29 | | $ | — | | $ | 46 | | $ | 12 | |
| Prior service credit | (6 | ) | (30 | ) | (8 | ) | (34 | ) | Prior service credit | — | | — | | — | | (12) | |
| | $ | 68 |
| $ | (11 | ) | $ | 60 |
| $ | (13 | ) | | $ | 29 | | $ | — | | $ | 46 | | $ | — | |
The non-current portion of the liability is included with the postemployment liability in the accompanying consolidated balance sheet under Postretirement and postemployment benefit obligation.
The components of the $8($17) million and $2$0 million change in the amounts recognized in OCI during 20172021 for U.S. and non-U.S. plans, respectively, consisted of:
| | | In millions | U.S.
Plans | Non-
U.S.
Plans | In millions | U.S.
Plans | Non-
U.S.
Plans |
| Current year actuarial loss | $ | 14 |
| $ | 1 |
| |
| Current year actuarial (gain) loss | | Current year actuarial (gain) loss | $ | (12) | | $ | — | |
| Amortization of actuarial (loss) gain | (8 | ) | (3 | ) | Amortization of actuarial (loss) gain | (5) | | (1) | |
| Current year prior service cost | — |
| — |
| Current year prior service cost | — | | — | |
| Amortization of prior service credit | 2 |
| 4 |
| Amortization of prior service credit | — | | 2 | |
| Divestitures | | Divestitures | — | | (2) | |
| Currency impact | — |
| — |
| Currency impact | — | | 1 | |
| | $ | 8 |
| $ | 2 |
| | $ | (17) | | $ | — | |
The portion of the change in the funded status that was recognized in either net periodic benefit cost orand OCI for the U.S. plans was $25$27 million,, $42 $12 million and $17$29 million in 2017, 20162021, 2020 and 2015,2019, respectively. The portion of the change in funded status for the non-U.S. plans was $3$1 million, $(25)$0 million, and $0$9 million in 2017, 20162021, 2020 and 2015,2019, respectively.
The estimated amounts of net loss and prior service credit that will be amortized from OCI into net U.S. postretirement benefit cost in 2018 are expected to be $8 million and $(2) million, respectively. The estimated amounts for non-U.S. plans in 2018 are expected to be $2 million and $(4) million, respectively.
At December 31, 2017,2021, estimated total future postretirement benefit payments, net of participant contributions and estimated future Medicare Part D subsidy receipts, were as follows:
| | | | | | | | | | | |
| In millions | Benefit
Payments | Subsidy Receipts | Benefit
Payments |
| U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| 2022 | $ | 18 | | $ | 1 | | $ | — | |
| 2023 | 16 | | 1 | | — | |
| 2024 | 15 | | 1 | | — | |
| 2025 | 14 | | 1 | | — | |
| 2026 | 14 | | 1 | | — | |
| 2027 – 2031 | 57 | | 3 | | 1 | |
|
| | | | | | | | | |
| In millions | Benefit
Payments | Subsidy Receipts | Benefit
Payments |
| | U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| 2018 | $ | 29 |
| $ | 1 |
| $ | 1 |
|
| 2019 | 27 |
| 1 |
| 1 |
|
| 2020 | 25 |
| 1 |
| 1 |
|
| 2021 | 24 |
| 1 |
| — |
|
| 2022 | 22 |
| 1 |
| — |
|
| 2023 – 2027 | 91 |
| 5 |
| 4 |
|
International Paper currently has an Incentive Compensation Plan (ICP) which, upon the approval by the Company’s shareholders in May 2009, replaced the Company’s Long-Term Incentive Compensation Plan (LTICP). The ICP authorizes grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock
appreciation rights, other stock-based awards, and cash-based awards at the discretion of the Management Development and Compensation Committee of the Board of Directors (the Committee)"Committee") that administers the ICP. Additionally, restricted stock, which may be deferred into RSU’s, may be awarded under a Restricted Stock and Deferred Compensation Plan for Non-Employee Directors.
PERFORMANCE SHARE PLAN
Under the Performance Share Plan (PSP)("PSP"), contingent awards of International Paper common stock are granted by the Committee. The PSP awards are earned over a three-year period. PSP awards are earned based on the achievement of defined performance rankings of ROICReturn on Invested Capital ("ROIC") measured against our internal benchmark and TSRranking of Total Shareholder Return ("TSR") compared to ROIC andthe TSR peer groupsgroup of companies. The 2019-2021, 2020-2022 and 2021-2023 Awards are weighted 75% for50% ROIC and 25% for50% TSR for all participants except for officers for whom the awards are weighted 50% for ROIC and 50% for TSR.participants. The ROIC component of the PSP awards is valued at the closing stock price on the day prior to the grant date. As the ROIC component contains a performance condition, compensation expense, net of estimated forfeitures, is recorded over the requisite service period based on the most probable number of awards expected to vest. The TSR component of the PSP awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the award, a risk-free rate, expected dividends, and the expected volatility for the Company and its competitors. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the Company’s historical volatility over the expected term. PSP grants are made in performance-based restricted stock units.
The following table sets forth the assumptions used to determine compensation cost for the market condition component of the PSP plan:
|
| | | | |
| Twelve Months Ended December 31, 20172021 |
| Expected volatility | 22.75%-23.39%24.36% - 36.92% |
| Risk-free interest rate | 1.10%-1.47%0.17% - 2.44% |
The following summarizes PSP activity for the three years ending ended December 31, 2017:2021:
| | | | | | | Share/Units | Weighted
Average
Grant Date
Fair Value |
| | Share/Units | Weighted Average Grant Date Fair Value | |
| Outstanding at December 31, 2014 | 7,275,934 |
|
| $34.98 |
| |
| Outstanding at December 31, 2018 | | Outstanding at December 31, 2018 | 5,766,477 | | $38.79 | |
| Granted | 1,863,623 |
| 53.25 |
| Granted | 2,353,613 | | 43.49 | |
| Shares issued | (2,959,160 | ) | 37.09 |
| Shares issued | (2,367,135) | | 36.79 | |
| Forfeited | (322,664 | ) | 53.97 |
| Forfeited | (238,227) | | 50.64 | |
| Outstanding at December 31, 2015 | 5,857,733 |
| 38.69 |
| |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 5,514,728 | | 41.14 | |
| Granted | 2,617,982 |
| 37.26 |
| Granted | 2,171,385 | | 49.15 | |
| Shares issued | (2,316,085 | ) | 43.82 |
| Shares issued | (1,221,950) | | 51.70 | |
| Forfeited | (209,500 | ) | 43.61 |
| Forfeited | (844,138) | | 51.70 | |
| Outstanding at December 31, 2016 | 5,950,130 |
| 35.89 |
| |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 5,620,025 | | 40.36 | |
| Granted | 2,163,912 |
| 51.78 |
| Granted | 2,316,295 | | 45.24 | |
| Shares issued | (1,876,134 | ) | 51.00 |
| Shares issued | (994,052) | | 63.54 | |
| Forfeited | (438,024 | ) | 45.96 |
| Forfeited | (1,016,126) | | 57.55 | |
| Outstanding at December 31, 2017 | 5,799,884 |
|
| $36.17 |
| |
| Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | 5,926,142 | | $35.43 | |
RESTRICTED STOCK AWARD PROGRAMS
The service-based Restricted Stock Award program (RSA)("RSA"), designed for recruitment, retention and special recognition purposes, provides for awards of restricted stock to key employees.
The following summarizes the activity of the RSA program for the three years ending ended December 31, 2017:2021:
| | | | | | | Shares | Weighted
Average
Grant Date
Fair Value |
| | Shares | Weighted Average Grant Date Fair Value | |
| Outstanding at December 31, 2014 | 114,599 |
|
| $47.03 |
| |
| Outstanding at December 31, 2018 | | Outstanding at December 31, 2018 | 132,111 | | $50.17 | |
| Granted | 36,300 |
| 50.06 |
| Granted | 87,910 | | 43.70 | |
| Shares issued | (27,365 | ) | 45.35 |
| Shares issued | (52,021) | | 48.90 | |
| Forfeited | (3,166 | ) | 50.04 |
| Forfeited | (7,300) | | 45.10 | |
| Outstanding at December 31, 2015 | 120,368 |
| 48.24 |
| |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 160,700 | | 47.27 | |
| Granted | 117,881 |
| 42.81 |
| Granted | 82,228 | | 40.12 | |
| Shares issued | (59,418 | ) | 47.14 |
| Shares issued | (83,053) | | 44.25 | |
| Forfeited | (9,500 | ) | 39.36 |
| Forfeited | (33,800) | | 46.43 | |
| Outstanding at December 31, 2016 | 169,331 |
| 45.34 |
| |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 126,075 | | 44.83 | |
| Granted | 63,319 |
| 57.24 |
| Granted | 85,098 | | 50.90 | |
| Shares issued | (59,650 | ) | 47.90 |
| Shares issued | (85,768) | | 45.59 | |
| Forfeited | (6,700 | ) | 53.53 |
| Forfeited | (21,636) | | 45.52 | |
| Outstanding at December 31, 2017 | 166,300 |
|
| $48.63 |
| |
| Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | 103,769 | | $49.03 | |
At December 31, 2017, 20162021, 2020 and 20152019 a total of 13.27.7 million,, 14.3 8.5 million and 16.29.8 million shares, respectively, were available for grant under the ICP.
Stock-based compensation expense and related income tax benefits were as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2021 | 2020 | 2019 |
| Total stock-based compensation expense (included in selling and administrative expense) | $ | 147 |
| $ | 124 |
| $ | 107 |
| Total stock-based compensation expense (included in selling and administrative expense) | $ | 130 | | $ | 72 | | $ | 130 | |
| Income tax benefits related to stock-based compensation | 45 |
| 34 |
| 88 |
| Income tax benefits related to stock-based compensation | 13 | | 17 | | 30 | |
At December 31, 2017, $862021, $84 million of compensation cost, net of estimated forfeitures, related to unvested
restricted performance shares, executive continuity awards and restricted stock attributable to future performance had not yet been recognized. This amount will be recognized in expense over a weighted-average period of 1.81.7 years.
International Paper’s business segments, Industrial Packaging and Global Cellulose Fibers and Printing Papers, are consistent with the internal structure used to manage these businesses. See the Description of IndustryBusiness Segments on pages 28 and 29 in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of the types of products and services from which each reportable segment derives its revenues. On JanuaryOctober 1, 2018,2021, the Company completed the previously announced transferspin-off of its North American Consumer PackagingPrinting Papers business into a new, publicly-traded company, Sylvamo Corporation, listed on the New York Stock Exchange. Additionally, on August 6, 2021, the Company completed the sale of its Kwidzyn, Poland mill which includes its North American Coated Paperboardincluded the pulp and Foodservice businesses, to a subsidiary of Graphic Packaging Holding Company. The North American Consumer Packaging business was historically presentedpaper mill in the Company's Consumer Packaging segment; however, asKwidzyn and supporting functions. As a result of this transfer,the Sylvamo Corporation spin-off and the sale of Kwidzyn, the Company no longer has a Printing Papers segment, and all current and prior year amounts have been adjusted to reflect the North American Consumer Packaging businessSylvamo Corporation and Kwidzyn businesses as a discontinued operation. In addition, after the announced transfer during the fourth quarter of 2017, the chief operating decision maker began evaluating the European Coated Paperboard business, previously presented in the Company's Consumer Packaging business segment, as part of the Industrial Packaging business segment. As such, amounts related to the European Coated Paperboard business have been presented in the Industrial Packaging business segment for all periods presented. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry.
Business segment operating profits are used by International Paper’s management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding interest expense, net, corporate
items, net, corporate net special items, business net special items and corporate special items.non-operating pension expense.
External sales by major product is determined by aggregating sales from each segment based on similar products or services. External sales are defined as those that are made to parties outside International Paper’s consolidated group, whereas sales by segment in the Net Sales table are determined using a management approach and include intersegment sales.
The Company also holds a 50% interest in Ilim that is a separate reportable industry segment. The Company recorded equity earnings (losses), net of taxes, of $183 million, $199 million, and $131 million in 2017, 2016, and 2015, respectively, for Ilim. Equity earnings (losses) includes an after-tax foreign exchange gain (loss) of $15 million, $25 million, and $(75) million in 2017, 2016 and 2015, respectively, primarily on the remeasurement of U.S. dollar-denominated net debt.
Summarized financial information for Ilim which is accounted for under the equity method is presented in the following tables. The audited U.S. GAAP financial statements for Ilim are included in Exhibit 99.1 to this Form 10-K.
Balance Sheet
|
| | | | | | | |
| In millions | 2017 | | 2016 |
| Current assets | $ | 689 |
| | $ | 774 |
|
| Noncurrent assets | 1,696 |
| | 1,351 |
|
| Current liabilities | 1,039 |
| | 402 |
|
| Noncurrent liabilities | 972 |
| | 1,426 |
|
| Noncontrolling interests | 6 |
| | 22 |
|
Income Statement
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Net sales | $ | 2,150 |
| | $ | 1,927 |
| | $ | 1,931 |
|
| Gross profit | 1,047 |
| | 957 |
| | 971 |
|
| Income from continuing operations | 379 |
| | 419 |
| | 254 |
|
| Net income attributable to Ilim | 362 |
| | 391 |
| | 237 |
|
At December 31, 2017 and 2016, the Company's investment in Ilim, which is recorded in Investments in the consolidated balance sheet, was $338 million and $302 million, respectively, which was $154 million and $164 million, respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to purchase price fair value adjustments and currency translation adjustments. The Company is party to a joint marketing agreement with Ilim, under which the Company purchases, markets and sells paper produced by Ilim. Purchases under this agreement were $205 million, $170 million and $170 million for the years ended December 31, 2017, 2016 and 2015, respectively.
INFORMATION BY BUSINESS SEGMENT
Net Sales
| | | | | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 16,326 | | | $ | 14,900 | | | $ | 15,260 | |
| Global Cellulose Fibers | 2,732 | | | 2,393 | | | 2,680 | |
| | | | | |
| Corporate and Intersegment Sales (a) | 305 | | | 272 | | | 377 | |
| Net Sales | $ | 19,363 | | | $ | 17,565 | | | $ | 18,317 | |
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Industrial Packaging | $ | 15,077 |
| | $ | 14,226 |
| | $ | 14,559 |
|
| Global Cellulose Fibers | 2,551 |
| | 1,092 |
| | 975 |
|
| Printing Papers | 4,157 |
| | 4,058 |
| | 4,056 |
|
| Corporate and Intersegment Sales (a) | (42 | ) | | 119 |
| | 1,085 |
|
| Net Sales | $ | 21,743 |
| | $ | 19,495 |
| | $ | 20,675 |
|
| | | In millions | 2017 | | 2016 | | 2015 | In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 1,547 |
| | $ | 1,741 |
| | $ | 1,938 |
| Industrial Packaging | $ | 1,638 | | | $ | 1,757 | | | $ | 2,011 | |
| Global Cellulose Fibers | 65 |
| | (179 | ) | | 68 |
| Global Cellulose Fibers | (3) | | | (218) | | | (12) | |
| Printing Papers | 457 |
| | 540 |
| | 465 |
| |
| Business Segment Operating Profit | 2,069 |
| | 2,102 |
| | 2,471 |
| Business Segment Operating Profit | 1,635 | | | 1,539 | | | 1,999 | |
| | | | | | | |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 848 |
| | 795 |
| | 1,132 |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 999 | | | 329 | | | 921 | |
| Interest expense, net | 572 |
| | 520 |
| | 555 |
| Interest expense, net | 337 | | | 446 | | | 499 | |
| Noncontrolling interests / equity earnings adjustment (b) | (2 | ) | | 1 |
| | 8 |
| |
| Corporate items, net (a) | 91 |
| | 121 |
| | 96 |
| |
| Corporate special items, net (a) | 76 |
| | 55 |
| | 422 |
| |
| Non-operating pension expense | 484 |
| | 610 |
| | 258 |
| |
| Noncontrolling interests adjustment (b) | | Noncontrolling interests adjustment (b) | (5) | | | — | | | — | |
| Corporate expenses, net (a) | | Corporate expenses, net (a) | 134 | | | 62 | | | 129 | |
| Corporate net special items (a) | | Corporate net special items (a) | 352 | | | 262 | | | 263 | |
| Business net special items | | Business net special items | 18 | | | 481 | | | 151 | |
| Non-operating pension (income) expense | | Non-operating pension (income) expense | (200) | | | (41) | | | 36 | |
| $ | 2,069 |
| | $ | 2,102 |
| | $ | 2,471 |
| | $ | 1,635 | | | $ | 1,539 | | | $ | 1,999 | |
Business Net Special Items | | | | | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 15 | | | $ | 476 | | | $ | 83 | |
| Global Cellulose Fibers | 3 | | | 5 | | | 68 | |
| | | | | |
| Business Net Special Items | $ | 18 | | | $ | 481 | | | $ | 151 | |
Restructuring and Other Charges
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Industrial Packaging | $ | — |
| | $ | 7 |
| | $ | — |
|
| Global Cellulose Fibers | — |
| | — |
| | — |
|
| Printing Papers | — |
| | — |
| | — |
|
| Corporate (c) | 67 |
| | 47 |
| | 252 |
|
| Restructuring and Other Charges | $ | 67 |
| | $ | 54 |
| | $ | 252 |
|
Assets
| | | | | | | | | | | |
| In millions | 2021 | | 2020 |
| Industrial Packaging | $ | 16,247 | | | $ | 15,951 | |
| Global Cellulose Fibers | 3,521 | | | 3,444 | |
| | | |
| Corporate and other (c) | 5,475 | | | 12,323 | |
| Assets | $ | 25,243 | | | $ | 31,718 | |
|
| | | | | | | |
| In millions | 2017 | | 2016 |
| Industrial Packaging | $ | 15,354 |
| | $ | 14,707 |
|
| Global Cellulose Fibers | 3,913 |
| | 3,845 |
|
| Printing Papers | 4,054 |
| | 3,965 |
|
| Corporate and other (d) | 10,582 |
| | 10,576 |
|
| Assets | $ | 33,903 |
| | $ | 33,093 |
|
Capital Spending
| | | In millions | 2017 | | 2016 | | 2015 | In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 836 |
| | $ | 832 |
| | $ | 871 |
| Industrial Packaging | $ | 382 | | | $ | 554 | | | $ | 951 | |
| Global Cellulose Fibers | 188 |
| | 174 |
| | 129 |
| Global Cellulose Fibers | 83 | | | 96 | | | 163 | |
| Printing Papers | 235 |
| | 215 |
| | 232 |
| |
| Subtotal | 1,259 |
| | 1,221 |
| | 1,232 |
| Subtotal | 465 | | | 650 | | | 1,114 | |
| Corporate and other (e) | 21 |
| | 20 |
| | 78 |
| |
| Corporate and other (d) | | Corporate and other (d) | 15 | | | 13 | | | 23 | |
| Capital Spending | $ | 1,280 |
| | $ | 1,241 |
| | $ | 1,310 |
| Capital Spending | $ | 480 | | | $ | 663 | | | $ | 1,137 | |
Depreciation, Amortization and Cost of Timber Harvested (f)
| | | | | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 829 | | | $ | 813 | | | $ | 799 | |
| Global Cellulose Fibers | 265 | | | 274 | | | 262 | |
| Corporate (e) | 3 | | | 4 | | | 11 | |
| Depreciation and Amortization | $ | 1,097 | | | $ | 1,091 | | | $ | 1,072 | |
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Industrial Packaging | $ | 781 |
| | $ | 730 |
| | $ | 739 |
|
| Global Cellulose Fibers | 261 |
| | 108 |
| | 73 |
|
| Printing Papers | 245 |
| | 232 |
| | 234 |
|
| Corporate (g) | 56 |
| | 54 |
| | 121 |
|
| Depreciation and Amortization | $ | 1,343 |
| | $ | 1,124 |
| | $ | 1,167 |
|
External Sales By Major Product
| | | In millions | 2017 | | 2016 | | 2015 | In millions | 2021 | | 2020 | | 2019 |
| Industrial Packaging | $ | 14,946 |
| | $ | 14,142 |
| | $ | 14,496 |
| Industrial Packaging | $ | 16,276 | | | $ | 14,851 | | | $ | 15,192 | |
| Global Cellulose Fibers | 2,524 |
| | 1,090 |
| | 986 |
| Global Cellulose Fibers | 2,730 | | | 2,394 | | | 2,675 | |
| Printing Papers | 4,142 |
| | 4,062 |
| | 4,082 |
| |
| Other (h) | 131 |
| | 201 |
| | 1,111 |
| |
| Other (f) | | Other (f) | 357 | | | 320 | | | 450 | |
| Net Sales | $ | 21,743 |
| | $ | 19,495 |
| | $ | 20,675 |
| Net Sales | $ | 19,363 | | | $ | 17,565 | | | $ | 18,317 | |
INFORMATION BY GEOGRAPHIC AREA
Net Sales (i)(g)
| | | | | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | | 2019 |
| United States (h) | $ | 16,769 | | | $ | 15,178 | | | $ | 15,616 | |
| EMEA | 1,611 | | | 1,395 | | | 1,427 | |
| Pacific Rim and Asia | 207 | | | 203 | | | 387 | |
| Americas, other than U.S. | 776 | | | 789 | | | 887 | |
| Net Sales | $ | 19,363 | | | $ | 17,565 | | | $ | 18,317 | |
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| United States (j) | $ | 16,247 |
| | $ | 14,363 |
| | $ | 14,875 |
|
| EMEA | 3,129 |
| | 2,852 |
| | 2,759 |
|
| Pacific Rim and Asia | 625 |
| | 699 |
| | 1,501 |
|
| Americas, other than U.S. | 1,742 |
| | 1,581 |
| | 1,540 |
|
| Net Sales | $ | 21,743 |
| | $ | 19,495 |
| | $ | 20,675 |
|
Long-Lived Assets (k)(i)
| | | | | | | | | | | |
| In millions | 2021 | | 2020 |
| United States | $ | 9,317 | | | $ | 9,780 | |
| EMEA | 745 | | | 759 | |
| Americas, other than U.S. | 397 | | | 424 | |
| Long-Lived Assets | $ | 10,459 | | | $ | 10,963 | |
(a)Includes sales of $44 million in 2021, $56 million in 2020 and $161 million in 2019, operating profit (losses) of $9 million in 2021, $1 million in 2020 and $25 million in 2019, and corporate net special items expense of $0 million in 2021, $0 million in 2020 and $159 million in 2019, from previously divested businesses.
(b)Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax noncontrolling interests for these subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings.
(c)Includes corporate assets and assets of divested businesses.
(d)Includes corporate assets and assets of previously divested businesses of $0 million in 2021, $0 million in 2020 and $4 million in 2019.
(e)Includes $0 million in 2021, $0 million in 2020 and $7 million in 2019 from previously divested businesses.
(f)Includes $44 million in 2021, $56 million in 2020 and $161 million in 2019 from previously divested businesses.
(g)Net sales are attributed to countries based on the location of the seller.
(h)Export sales to unaffiliated customers were $2.6 billion in 2021, $2.4 billion in 2020 and $2.6 billion in 2019.
(i)Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net.
|
| | | | | | | |
| In millions | 2017 | | 2016 |
| United States | $ | 10,545 |
| | $ | 10,532 |
|
| EMEA | 1,302 |
| | 1,009 |
|
| Pacific Rim and Asia | 236 |
| | 246 |
|
| Americas, other than U.S. | 1,630 |
| | 1,672 |
|
| Long-Lived Assets | $ | 13,713 |
| | $ | 13,459 |
|
| |
(a) | Includes sales of $15 million in 2017, $42 million in 2016 and $931 million in 2015, operating profits (losses) of $0 million in 2017, $(2) million in 2016 and $(62) million in 2015, and corporate special items expense of $9 million in 2017, $9 million in 2016 and $184 million in 2015, from previously divested businesses. |
| |
(b) | Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax noncontrolling interests and equity earnings for these subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings. |
| |
(c) | Includes corporate expenses and expenses of $9 million in 2017, $9 million in 2016 and $10 million in 2015, from previously divested businesses.
|
| |
(d) | Includes corporate assets, assets of businesses held for sale and assets of previously divested businesses. |
| |
(e) | Includes corporate assets and assets of previously divested businesses of $0 million in 2017, $1 million in 2016 and $26 million in 2015. |
| |
(f) | Excludes accelerated depreciation related to the closure and/or repurposing of mills. |
| |
(g) | Includes $1 million in 2017, $2 million in 2016 and $74 million in 2015 from previously divested businesses.
|
| |
(h) | Includes $15 million in 2017, $42 million in 2016, and $930 million in 2015 from previously divested businesses.
|
| |
(i) | Net sales are attributed to countries based on the location of the seller. |
| |
(j) | Export sales to unaffiliated customers were $2.9 billion in 2017, $1.8 billion in 2016 and $1.8 billion in 2015.
|
| |
(k) | Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net. |
| | | In millions, except per share amounts and stock prices | 1st
Quarter | | 2nd
Quarter | | 3rd
Quarter | | 4th Quarter | | Year | | In millions, except per share amounts and stock prices | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter | | Year | |
| 2017 | | | | | | | | | | | |
| 2021 | | 2021 | |
| Net sales | $ | 5,132 |
| | $ | 5,383 |
| | $ | 5,517 |
| | $ | 5,711 |
| | $ | 21,743 |
| | Net sales | $ | 4,593 | | | $ | 4,770 | | | $ | 4,914 | | | $ | 5,086 | | | $ | 19,363 | | |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 217 |
| (a) | (23 | ) | (a) | 457 |
| (a) | 197 |
| (a) | 848 |
| (a) | Earnings (loss) from continuing operations before income taxes and equity earnings | 306 | | (a) | 252 | | (a) | 397 | | (a) | 44 | | (a) | 999 | | (a) |
| Gain (loss) from discontinued operations | 17 |
| (b) | (4 | ) | (b) | 29 |
| (b) | (8 | ) | (b) | 34 |
| (b) | Gain (loss) from discontinued operations | 82 | | (b) | 124 | | (b) | 432 | | (b) | (8) | | (b) | 630 | | (b) |
| Net earnings (loss) attributable to International Paper Company | 209 |
| (a-c) | 80 |
| (a-c) | 395 |
| (a-c) | 1,460 |
| (a-c) | 2,144 |
| (a-c) | Net earnings (loss) attributable to International Paper Company | 349 | | (a-c) | 432 | | (a-d) | 864 | | (a-c) | 107 | | (a-c) | 1,752 | | (a-d) |
| Basic earnings (loss) per share attributable to International Paper Company common shareholders: | | | | | | | | | | | Basic earnings (loss) per share attributable to International Paper Company common shareholders: | |
| Earnings (loss) from continuing operations | $ | 0.47 |
| (a) | $ | 0.20 |
| (a) | $ | 0.89 |
| (a) | $ | 3.56 |
| (a) | $ | 5.11 |
| (a) | Earnings (loss) from continuing operations | $ | 0.68 | | | $ | 0.79 | | | $ | 1.11 | | | $ | 0.30 | | | $ | 2.88 | | |
| Gain (loss) from discontinued operations | 0.04 |
| (b) | (0.01 | ) | (b) | 0.07 |
| (b) | (0.02 | ) | (b) | 0.08 |
| (b) | Gain (loss) from discontinued operations | 0.21 | | | 0.31 | | | 1.11 | | | (0.02) | | | 1.62 | | |
| Net earnings (loss) | 0.51 |
| (a-c) | 0.19 |
| (a-c) | 0.96 |
| (a-c) | 3.54 |
| (a-c) | 5.19 |
| (a-c) | Net earnings (loss) | 0.89 | | | 1.10 | | | 2.22 | | | 0.28 | | | 4.50 | | |
| Diluted earnings (loss) per share attributable to International Paper Company common shareholders: | | | | | | | | | | | Diluted earnings (loss) per share attributable to International Paper Company common shareholders: | |
| Earnings (loss) from continuing operations | 0.46 |
| (a) | 0.20 |
| (a) | 0.88 |
| (a) | 3.52 |
| (a) | 5.05 |
| (a) | Earnings (loss) from continuing operations | 0.68 | | | 0.78 | | | 1.10 | | | 0.30 | | | 2.86 | | |
| Gain (loss) from discontinued operations | 0.04 |
| (b) | (0.01 | ) | (b) | 0.07 |
| (b) | (0.02 | ) | (b) | 0.08 |
| (b) | Gain (loss) from discontinued operations | 0.20 | | | 0.31 | | | 1.10 | | | (0.02) | | | 1.61 | | |
| Net earnings (loss) | 0.50 |
| (a-c) | 0.19 |
| (a-c) | 0.95 |
| (a-c) | 3.50 |
| (a-c) | 5.13 |
| (a-c) | Net earnings (loss) | 0.88 | | | 1.09 | | | 2.20 | | | 0.28 | | | 4.47 | | |
| Dividends per share of common stock | 0.4625 |
| | 0.4625 |
| | 0.4625 |
| | 0.4750 |
| | 1.8625 |
| | Dividends per share of common stock | 0.5125 | | | 0.5125 | | | 0.5125 | | | 0.4625 | | | 2.0000 | | |
| Common stock prices | | | | | | | | | | | |
| High | $ | 58.86 |
| | $ | 57.24 |
| | $ | 58.95 |
| | $ | 58.96 |
| | $ | 58.96 |
| | |
| Low | 49.62 |
| | 49.60 |
| | 51.28 |
| | 53.10 |
| | 49.60 |
| | |
| 2016 | | | | | | | | | | | |
| 2020 | | 2020 | |
| Net sales | $ | 4,717 |
| | $ | 4,914 |
| | $ | 4,864 |
| | $ | 5,000 |
| | $ | 19,495 |
| | Net sales | $ | 4,450 | | | $ | 4,299 | | | $ | 4,376 | | | $ | 4,440 | | | $ | 17,565 | | |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 307 |
| (d) | (76 | ) | (d) | 320 |
| (d) | 244 |
| (d) | 795 |
| (d) | Earnings (loss) from continuing operations before income taxes and equity earnings | (138) | | (e) | 241 | | (e) | 202 | | (e) | 24 | | (e) | 329 | | (e) |
| Gain (loss) from discontinued operations | 4 |
| (e) | 40 |
| (e) | 34 |
| (e) | 24 |
| (e) | 102 |
| (e) | Gain (loss) from discontinued operations | 94 | | (f) | 15 | | (f) | 55 | | (f) | 88 | | (f) | 252 | | (f) |
| Net earnings (loss) attributable to International Paper Company | 334 |
| (d-f) | 40 |
| (d-f) | 312 |
| (d-f) | 218 |
| (d-f) | 904 |
| (d-f) | Net earnings (loss) attributable to International Paper Company | (141) | | (e-g) | 266 | | (e-g) | 204 | | (e-g) | 153 | | (e-g) | 482 | | (e-g) |
| Basic earnings (loss) per share attributable to International Paper Company common shareholders: |
|
| |
|
| |
|
| |
|
| |
|
| | Basic earnings (loss) per share attributable to International Paper Company common shareholders: | |
| Earnings (loss) from continuing operations | $ | 0.80 |
| (d) | $ | 0.00 |
| (d) | $ | 0.68 |
| (d) | $ | 0.47 |
| (d) | $ | 1.95 |
| (d) | Earnings (loss) from continuing operations | $ | (0.59) | | | $ | 0.64 | | | $ | 0.38 | | | $ | 0.17 | | | $ | 0.59 | | |
| Gain (loss) from discontinued operations | 0.01 |
| (e) | 0.10 |
| (e) | 0.08 |
| (e) | 0.06 |
| (e) | 0.25 |
| (e) | Gain (loss) from discontinued operations | 0.23 | | | 0.03 | | | 0.14 | | | 0.22 | | | 0.64 | | |
| Net earnings (loss) | 0.81 |
| (d-f) | 0.10 |
| (d-f) | 0.76 |
| (d-f) | 0.53 |
| (d-f) | 2.20 |
| (d-f) | Net earnings (loss) | (0.36) | | | 0.67 | | | 0.52 | | | 0.39 | | | 1.23 | | |
| Diluted earnings (loss) per share attributable to International Paper Company common shareholders: |
|
| |
|
| |
|
| |
|
| |
|
| | Diluted earnings (loss) per share attributable to International Paper Company common shareholders: | |
| Earnings (loss) from continuing operations | 0.80 |
| (d) | 0.00 |
| (d) | 0.67 |
| (d) | 0.47 |
| (d) | 1.93 |
| (d) | Earnings (loss) from continuing operations | (0.59) | | | 0.64 | | | 0.38 | | | 0.17 | | | 0.58 | | |
| Gain (loss) from discontinued operations | 0.01 |
| (e) | 0.10 |
| (e) | 0.08 |
| (e) | 0.06 |
| (e) | 0.25 |
| (e) | Gain (loss) from discontinued operations | 0.23 | | | 0.03 | | | 0.14 | | | 0.22 | | | 0.64 | | |
| Net earnings (loss) | 0.81 |
| (d-f) | 0.10 |
| (d-f) | 0.75 |
| (d-f) | 0.53 |
| (d-f) | 2.18 |
| (d-f) | Net earnings (loss) | (0.36) | | | 0.67 | | | 0.52 | | | 0.39 | | | 1.22 | | |
| Dividends per share of common stock | 0.4400 |
| | 0.4400 |
| | 0.4400 |
| | 0.4625 |
| | 1.7825 |
| | Dividends per share of common stock | 0.5125 | | | 0.5125 | | | 0.5125 | | | 0.5125 | | | 2.0500 | | |
| Common stock prices | | | | | | | | | | | |
| High | $ | 42.09 |
| | $ | 44.60 |
| | $ | 49.90 |
| | $ | 54.68 |
| | $ | 54.68 |
| | |
| Low | 32.50 |
| | 39.24 |
| | 41.08 |
| | 43.55 |
| | 32.50 |
| | |
Note: International Paper's common shares (symbol: IP) are listed on the New York Stock Exchange.
Note: Since basic and diluted earnings per share are computed independently for each period and category, full year per share amounts may not equal the sum of the four quarters. In addition, the unaudited selected consolidatedconsolidate financial data are derived from our audited consolidated financial statements and have been revised to reflect discontinued operations.
Footnotes to Interim Financial Results
| |
(a) | Includes the following pre-tax charges (gains): |
|
| | | | | | | | | | | | | | | | |
| | | 2017 |
| In millions | | Q1 |
| | Q2 | | Q3 | | Q4 |
| Gain on sale of investment in ArborGen | | $ | — |
| | $ | (14 | ) | | $ | — |
| | $ | — |
|
| Costs associated with the pulp business acquired in 2016 | | 4 |
| | 5 |
| | 6 |
| | 18 |
|
| Amortization of Weyerhaeuser inventory fair value step-up | | 14 |
| | — |
| | — |
| | — |
|
| Holmen bargain purchase gain | | (6 | ) | | — |
| | — |
| | — |
|
| Abandoned property removal | | 2 |
| | 5 |
| | 7 |
| | 6 |
|
| Kleen Products settlement | | — |
| | 354 |
| | — |
| | — |
|
| Asia Foodservice sale | | — |
| | 9 |
| | — |
| | — |
|
| Brazil Packaging wood supply accelerated amortization | | — |
| | — |
| | 10 |
| | — |
|
| Debt extinguishment costs | | — |
| | — |
| | — |
| | 83 |
|
| Interest income on income tax refund claims | | — |
| | (4 | ) | | — |
| | (1 | ) |
| Other items | | — |
| | (2 | ) | | — |
| | — |
|
| Non-operating pension expense | | 31 |
| | 34 |
| | 33 |
| | 386 |
|
| Total | | $ | 45 |
| | $ | 387 |
| | $ | 56 |
| | $ | 492 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| In millions | | Q1 | | Q2 | | Q3 | | Q4 |
| Debt extinguishment costs | | $ | 18 | | | $ | 170 | | | $ | 35 | | | $ | 238 | |
| EMEA Packaging business optimization | | 12 | | | — | | | — | | | — | |
| Building a Better IP | | — | | | — | | | — | | | 29 | |
| Legal reserve adjustment | | — | | | — | | | — | | | (5) | |
| Environmental remediation reserve adjustment | | — | | | 5 | | | 5 | | | — | |
| Gain on sale of equity investment in Graphic Packaging | | (74) | | | (130) | | | — | | | — | |
| EMEA Packaging impairment - Turkey | | 2 | | | (9) | | | — | | | — | |
| Sylvamo investment - fair value adjustment | | — | | | — | | | — | | | 32 | |
| Real estate - office impairment | | — | | | 21 | | | — | | | — | |
| Other items | | — | | | 11 | | | 9 | | | 1 | |
| Non-operating pension expense | | (52) | | | (51) | | | (50) | | | (47) | |
| Total | | $ | (94) | | | $ | 17 | | | $ | (1) | | | $ | 248 | |
| | | | | | | | |
(b) Includes the operating earnings of the North American Consumer PackagingPrinting Papers business for the full year. Also includes the following pre-tax charges (gains):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| In millions | Q1 | | Q2 | | Q3 | | Q4 |
| Printing Papers spin-off expenses | $ | 20 | | | $ | 20 | | | $ | 47 | | | $ | 5 | |
| Gain on sale of Kwidzyn, Poland mill | — | | | — | | | (350) | | | 6 | |
| Gain on sale of La Mirada, CA distribution center | — | | | — | | | (65) | | | — | |
| Foreign value-added tax credit | — | | | (47) | | | 10 | | | — | |
| Foreign and state taxes related to spin-off of Printing Papers business | — | | | — | | | 27 | | | (3) | |
| Non-operating pension expense | (1) | | | (1) | | | — | | | — | |
| Total | $ | 19 | | | $ | (28) | | | $ | (331) | | | $ | 8 | |
|
| | | | | | | | | | | | | | | | |
| | | 2017 |
| In millions | | Q1 |
| | Q2 | | Q3 | | Q4 |
| North American Consumer Packaging transaction costs | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 17 |
|
| Non-operating pension expense | | — |
| | — |
| | — |
| | 45 |
|
| Total | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 62 |
|
(c) Includes the following tax expenses (benefits):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| In millions | Q1 | | Q2 | | Q3 | | Q4 |
| Tax impact of other special items | 12 | | | (14) | | | (12) | | | (73) | |
| Tax impact of non-operating pension expense | 13 | | | 13 | | | 12 | | | 11 | |
| Total | $ | 25 | | | $ | (1) | | | $ | — | | | $ | (62) | |
(d) Includes the allocation of income to noncontrolling interest of $1 million for the three months ended June 30, 2021 related to the gain on the sale of our EMEA Packaging business in Turkey.
|
| | | | | | | | | | | | | | | | | |
| | | 2017 | |
| In millions | | Q1 | | Q2 | | Q3 | | Q4 | |
| International legal entity restructuring | | $ | 15 |
| | $ | — |
| | $ | 19 |
| | $ | — |
| |
| Income tax refund claims | | — |
| | (85 | ) | | — |
| | (28 | ) | |
| Cash pension contribution | | — |
| | 38 |
| | — |
| | — |
| |
| International Tax Law Change | | — |
| | — |
| | — |
| | 9 |
| |
| Tax benefit of Tax Cuts and Jobs Act | | — |
| | — |
| | — |
| | (1,222 | ) | |
Tax impact of other special items
| | (8 | ) | | (137 | ) | | (8 | ) | | (41 | ) | |
| Total | | $ | 7 |
| | $ | (184 | ) | | $ | 11 |
| | $ | (1,282 | ) | |
(d)(e) Includes the following pre-tax charges (gains):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| In millions | | Q1 | | Q2 | | Q3 | | Q4 |
| Brazil Packaging impairment | | $ | 344 | | | $ | 8 | | | $ | (4) | | | $ | — | |
| India investment | | 17 | | | (6) | | | — | | | — | |
| Asbestos litigation reserve adjustment | | — | | | 43 | | | — | | | — | |
| Environmental remediation reserve adjustment | | 41 | | | — | | | — | | | — | |
| Gain on sale of equity investment in Graphic Packaging | | (33) | | | — | | | — | | | — | |
| Abandoned property removal | | 9 | | | 5 | | | — | | | — | |
| Riverdale mill conversion accelerated depreciation | | 1 | | | — | | | — | | | — | |
| Debt extinguishment costs | | 8 | | | 18 | | | 105 | | | 65 | |
| EMEA Packaging impairment - Turkey | | — | | | — | | | — | | | 123 | |
| Other items | | (3) | | | — | | | 1 | | | — | |
| Non-operating pension expense | | (6) | | | (14) | | | (11) | | | (10) | |
| Total | | $ | 378 | | | $ | 54 | | | $ | 91 | | | $ | 178 | |
|
| | | | | | | | | | | | | | | | |
| | | 2016 |
| In millions | | Q1 |
| | Q2 | | Q3 | | Q4 |
| Riegelwood mill conversion costs | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| India Packaging evaluation write-off | | — |
| | — |
| | 17 |
| | — |
|
| Early debt extinguishment costs | | — |
| | — |
| | 29 |
| | — |
|
| Write-off of certain regulatory pre-engineering costs | | — |
| | — |
| | 8 |
| | — |
|
| Costs associated with the newly acquired pulp business | | — |
| | 5 |
| | 7 |
| | 19 |
|
| Asia Box impairment / restructuring | | 37 |
| | 28 |
| | 5 |
| | — |
|
| Gain on sale of investment in Arizona Chemical | | (8 | ) | | — |
| | — |
| | — |
|
Turkey mill closure
| | — |
| | — |
| | — |
| | 7 |
|
| Amortization of Weyerhaeuser inventory fair value step-up | | — |
| | — |
| | — |
| | 19 |
|
| Non-operating pension expense | | 44 |
| | 487 |
| | 42 |
| | 37 |
|
| Total | | $ | 82 |
| | $ | 520 |
| | $ | 108 |
| | $ | 82 |
|
(e)(f) Includes the operating earnings of the North American Consumer PackagingPrinting Papers business for the full year and a pre-tax charge of $8 million for a legal settlement associated withyear. Also includes the xpedx business.following charges (gains):
(f)
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| In millions | Q1 | | Q2 | | Q3 | | | Q4 |
| Printing Papers spin-off expenses | $ | — | | | $ | — | | | $ | — | | | | $ | 8 | |
| Environmental remediation reserve adjustment | — | | | — | | | 6 | | | | — | |
| Tax benefit related to settlement of tax audits | — | | | — | | | — | | | | (9) | |
| Other items | — | | | — | | | (1) | | | | 3 | |
| Total | $ | — | | | $ | — | | | $ | 5 | | | | $ | 2 | |
(g) Includes the following tax expenses (benefits):
|
| | | | | | | | | | | | | | | | |
| | | 2016 |
| In millions | | Q1 | | Q2 | | Q3 | | Q4 |
| Cash pension contribution | | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | — |
|
| U.S. Federal audit | | (14 | ) | | — |
| | — |
| | — |
|
| Brazil goodwill | | (57 | ) | | — |
| | — |
| | — |
|
| International legal entity restructuring | | — |
| | (6 | ) | | — |
| | — |
|
| Luxembourg tax rate change | | — |
| | — |
| | — |
| | 31 |
|
| Tax impact of other special items | | (3 | ) | | (10 | ) | | (24 | ) | | (14 | ) |
| Total | | $ | (74 | ) | | $ | 7 |
| | $ | (24 | ) | | $ | 17 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| In millions | Q1 | | Q2 | | Q3 | | | Q4 |
| Tax benefit related to settlement of tax audits | $ | — | | | $ | — | | | $ | — | | | | $ | (23) | |
| Tax impact of other special items | (12) | | | (18) | | | (24) | | | | (16) | |
| Tax impact of non-operating pension expense | 1 | | | 3 | | | 4 | | | | 2 | |
| Total | $ | (11) | | | $ | (15) | | | $ | (20) | | | | $ | (37) | |
None.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2017,2021, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as(as that term is defined byin Rule 13a-15 under13a-15(f) and 15d-15(f) of the Exchange Act.Act). Based upon this evaluation, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017.2021.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishingThe Company completed the acquisitions of two packaging businesses located in Spain (La Gaviota and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (GAAP). Our internal control over financial reporting includes those policies and procedures that:
pertainCartonajes Trilla) on April 1, 2021. Due to the maintenancetiming of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsthese acquisitions, we have excluded these businesses from our evaluation of our assets;
provide reasonable assurance that transactions are recorded as necessary to allow for the preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements; and
provide reasonable assurance as to the detection of fraud.
All internal control systems have inherent limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.
As of December 31, 2017, management has assessed the effectiveness of the Company’s internal control over financial reporting. In a report included on pages 37 and 38, management concluded thatFor the Company’s internal control over financial reporting was effective as of period ended December 31, 2017.
In making this assessment, we used the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee2021, sales and assets for these businesses represented approximately 0.1% of Sponsoring Organizationsnet sales and 0.4% of the Treadway Commission.total assets.
Our independent registered public accounting firm, Deloitte & Touche LLP, with direct access to our Board of Directors through our Audit and Finance Committee, has audited the consolidated financial statements prepared by us. Deloitte & Touche LLP has also issued an attestation report on our internal control over financial reporting. Their report on the consolidated financial statements and attestation report are included in Part II, Item 8 of this Annual Report under the heading “Financial Statements and Supplementary Data.”
MANAGEMENT’S PROCESS TO ASSESS THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
To comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we followed a comprehensive compliance process across the enterprise to evaluate our internal control over financial reporting, engaging employees at all levels of the organization. Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of our business, which have been distributed to all employees; a toll-free telephone helpline whereby any
employee may report suspected violations of law or our policy; and an office of ethics and business practice. The internal control system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout the Company, and an extensive program of internal audits with management follow-up. Our Board of Directors, assisted by the Audit and Finance Committee, monitors the integrity of our financial statements and financial reporting procedures, the performance of our internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which consists of independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2017,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
None.
Information concerning our directors is hereby incorporated by reference to our definitive proxy statement that will be filed with the Securities and Exchange Commission (SEC)("SEC") within 120 days of the close of our fiscal year. The Audit and Finance Committee of the Board of Directors has at least one member who is a financial expert, as that term is defined in Item 401(d)(5) of Regulation S-K. Further information concerning the composition of the Audit and Finance Committee and our audit committee financial experts is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. Information with respect to our executive officers is set forth on pages 5 and 6page 7 in Part I of this Form 10-K under the caption, “Information About Our Executive Officers of the RegistrantOfficers.”.” Executive officers of International Paper are elected to hold office until the next annual meeting of the Board of Directors following the annual meeting of shareholders and, until the election of successors, subject to removal by the Board.
The Company’s Code of Business Ethics (Code) is applicable to all employees of the Company, including the chief executive officer and senior financial officers, as well as the Board of Directors. We disclose any amendments to our Code and any waivers from a provision of our Code granted to our directors, chief executive officer and senior financial officers on our Internet Web sitewebsite within four business days following such amendment or waiver. To date, no waivers of the Code have been granted.
We make available free of charge on our Internet Web sitewebsite at www.internationalpaper.com,, and in print to any shareholder who requests them, our Corporate Governance Principles, our Code of Business Ethics and the Charters of our Audit and Finance Committee, Management Development and Compensation Committee, Governance Committee and Public Policy and Environment Committee. Requests for copies may be directed to the corporate secretary at our corporate headquarters.
Information with respect to compliance with Section 16(a) of the Securities and Exchange Act and our corporate governance is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year.
Information with respect to the compensation of executives and directors of the Company is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year.
A description of the security ownership of certain beneficial owners and management and equity compensation plan information is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year.
A description of applicable information with respect to certain relationships and related transactions and director independence matters, is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year.
Information with respect to fees paid to, and services rendered by, our principal accountant,independent registered public accounting firm, and our policies and procedures for pre-approving those services, is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year.
| |
(1) | Financial Statements – See Item 8. Financial Statements and Supplementary Data. |
| |
(2) | Financial Statement Schedules – The following additional financial data should be read in conjunction with the consolidated financial statements in Item 8. Schedules not included with this additional financial data have been omitted because they are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto. |
(2)Financial Statement Schedules – The following additional financial data should be read in conjunction with the consolidated financial statements in Item 8. Financial Statements and Supplementary Data. Schedules not included with this additional financial data have been omitted because they are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
2017, 20162021, 2020 and 20152019
|
| |
Consolidated Schedule: II-Valuation and Qualifying Accounts. | 89 |
|
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(2.1 | )(2.1) | |
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(2.2 | ) | |
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(3.1 | )(2.2) | |
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(4.1 | )(4.1) | |
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(4.2 | )(4.2) | |
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(4.3 | ) | |
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(4.4 | )(4.3) | |
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(4.5 | ) | |
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(4.6 | )(4.4) | |
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(4.9 | )(4.7) | |
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(4.10 | )(4.8) | |
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(4.11(4.9) | ) |
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| (4.10) | In accordance with Item 601 (b) (4) (iii) (A) of Regulation S-K, certain instruments respecting long-term debt of the Company have been omitted but will be furnished to the Commission upon request. |
| |
(10.1 | )(4.11) | |
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| (10.1) | |
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(10.2 | )(10.2) | |
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(10.3 | )(10.3) | |
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(10.4 | )(10.4) | |
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(10.5 | )(10.5) | |
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(10.6 | )(10.6) | |
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(10.7 | )(10.7) | |
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(10.8 | )(10.8) | |
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| (10.9) | |
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| (10.10) | |
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| (10.11) | |
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| (10.12) | |
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| (10.13) | |
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| (10.14) | |
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(10.9 | )(10.15) | |
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(10.11 | ) |
| (10.17) | |
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(10.12 | )(10.18) | |
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(10.13 | )(10.19) | |
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(10.14 | )(10.20) | |
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(10.15 | )(10.21) | |
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| (10.22) | |
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| (10.23) | |
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| (10.24) | |
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(10.16 | )(10.25) | |
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(10.17 | )(10.26) | |
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(10.18 | )(10.27) | |
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(10.19 | )(10.28) | |
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(10.20 | )(10.29) | |
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(10.21 | )(10.30) | |
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(10.22 | )(10.31) | |
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(10.23 | )(10.32) | |
| |
(10.24 | )(10.33) | SettlementAmended and Restated Five-Year Credit Agreement dated June 27, 2017, by and betweenas of October 16, 2020, among International Paper Company, Temple-Inland Inc.JPMorgan Chase Bank, N.A., n/k/a Temple-Inland LLC, TIN Inc., n/k/a TIN LLC, and Weyerhaeuser Company, and Kleen Products LLC, R.P.R. Enterprises, Inc., Mighty Pac, Inc., Ferraro Foods, Inc., Ferraro Foods of North Carolina, LLC, MTM Packaging Solutions of Texas, LLC, RHE Hatco, Inc., and Chandler Packaging, Inc., the plaintiff class representatives, both individually and on behalf of the plaintiff classas administrative agent, and certain lenders (incorporated by reference to Exhibit 10.1 to the Company’s QuarterlyCurrent Report on Form 10-Q for the quarter ended June 30, 2017)8-K filed October 19, 2020).
|
| |
|
| | |
| |
(10.25 | )(10.34) | |
| |
(10.26 | )(10.35) | |
| |
(11 | )(10.36) | |
| |
(12 | )(10.37) | |
| | | | | |
| (10.38) | Amendment No. 16 to the Second Amended and Preferred Stock Dividends. *Restated Credit and Security Agreement, dated April 28, 2020, by and among International Paper Company, as servicer, Red Bird Receivables, LLC, as borrower, the lenders and co-agents from time to time party thereto, and Mizuho Bank, Ltd., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 29, 2020). |
| |
(21 | )(10.39) | |
| |
| (10.40) | |
| |
| (10.41) | |
| |
| (10.42) | |
| |
| (21) | |
| |
(23.1 | )(23) | |
| |
(23.2 | )(24) | |
| |
(24 | ) | |
| |
(31.1 | )(31.1) | |
|
| |
| (101.SCH) | |
(101.INS) | XBRL Instance Document * |
| |
(101.SCH) | XBRL Taxonomy Extension Schema * |
| |
| (101.CAL) | XBRL Taxonomy Extension Calculation Linkbase * |
| |
| (101.DEF) | XBRL Taxonomy Extension Definition Linkbase * |
| |
| (101.LAB) | XBRL Taxonomy Extension Label Linkbase * |
| |
| (101.PRE) | XBRL Extension Presentation Linkbase * |
| |
| (104) | Cover Page Interactive Data File (formatted as Inline XBRL, and contained in Exhibit 101. * |
+ Management contract or compensatory plan or arrangement.
* Filed herewith
** Furnished herewith
† Confidential treatment has been granted for certain information pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.
None.
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2017 |
| Balance at
Beginning
of Period | | Additions
Charged to
Earnings | | Additions
Charged to
Other
Accounts | | Deductions
from
Reserves | | Balance at
End of
Period |
| Description | | | | | | | | | |
| Reserves Applied Against Specific Assets Shown on Balance Sheet: | | | | | | | | | |
| Doubtful accounts – current | $ | 70 |
| | $ | 5 |
| | $ | — |
| | (2)(a) | | $ | 73 |
|
| Restructuring reserves | 6 |
| | — |
| | — |
| | (4)(b) | | 2 |
|
|
| | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2016 |
| Balance at
Beginning
of Period | | Additions
Charged to
Earnings | | Additions
Charged to
Other
Accounts | | Deductions
from
Reserves | | Balance at
End of
Period |
| Description | | | | | | | | | |
| Reserves Applied Against Specific Assets Shown on Balance Sheet: | | | | | | | | | |
| Doubtful accounts – current | $ | 70 |
| | $ | 9 |
| | $ | — |
| | (9)(a) | | $ | 70 |
|
| Restructuring reserves | 10 |
| | 3 |
| | — |
| | (7)(b) | | 6 |
|
|
| | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2015 |
| Balance at
Beginning
of Period | | Additions
Charged to
Earnings | | Additions
Charged to
Other
Accounts | | Deductions
from
Reserves | | Balance at
End of
Period |
| Description | | | | | | | | | |
| Reserves Applied Against Specific Assets Shown on Balance Sheet: | | | | | | | | | |
| Doubtful accounts – current | $ | 82 |
| | $ | 11 |
| | $ | — |
| | (23)(a) | | $ | 70 |
|
| Restructuring reserves | 16 |
| | 5 |
| | — |
| | (11)(b) | | 10 |
|
| |
(a) | Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments. |
| |
(b) | Includes payments and deductions for reversals of previously established reserves that were no longer required. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
| | | | | | | | | | | |
| | | |
| By: | /S/ SHARON R. RYAN | | February 22, 201818, 2022 |
By: | /S/ SHARON R. RYAN
| | |
| Sharon R. Ryan | | |
| Senior Vice President, General Counsel
and Corporate Secretary
| | |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Timothy S. Nicholls, Sharon R. Ryan and Deon VaughanAlan R. Haguewood as his or her true and lawful attorney-in-fact and agent, acting alone, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite or necessary to be done, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | | | | | | | | | | |
| | | | |
| Signature | | Title | | Date |
Signature | | Title | | Date |
| | | | |
/S/ MARK S. SUTTON | | Chairman of the Board & Chief Executive Officer and Director | | February 22, 201818, 2022 |
| Mark S. Sutton | | | | |
| | | | |
/S/ DAVID J. BRONCZEK
| | Director | | February 22, 2018 |
David J. Bronczek | | | | |
| | | | |
/S/ WILLIAM J. BURNS
| | Director | | February 22, 2018 |
Willliam J. Burns | | | | |
| | | | |
/S/ CHRISTOPHER M. CONNOR
| | Director | | February 22, 2018 |
Christopher M. Connor | | | | |
| | | | |
/S/ AHMET C. DORDUNCU
| | Director | | February 22, 2018 |
Ahmet C. Dorduncu | | | | |
| | | | |
/S/ ILENE S. GORDON
| | Director | | February 22, 2018 |
Ilene S. Gordon | | | | |
| | | | |
/S/ JACQUELINE C. HINMAN
| | Director | | February 22, 2018 |
Jacqueline C. Hinman | | | | |
| | | | |
/S/ JAY L. JOHNSON
| | Director | | February 22, 2018 |
Jay L. Johnson | | | | |
| | | | |
|
| | | | |
/s/S/ CLINTON A. LEWIS, JR.HRISTOPHER M. CONNOR | | Director | | February 22, 201818, 2022 |
Clinton A. Lewis, Jr.Christopher M. Connor | | | | |
| | | | |
/S/ KATHRYN D. SULLIVAN
| | Director | | February 22, 2018 |
Kathryn D. Sullivan | | | | |
| | | | |
/S/ JOHN L. TOWNSEND III
| | Director | | February 22, 2018 |
John L. Townsend III | | | | |
| | | | |
/S/ J. STEVEN WHISLER
| | Director | | February 22, 2018 |
J. Steven Whisler | | | | |
| | | | |
/S/ RAY G. YOUNG
| | Director | | February 22, 2018 |
Ray G. Young | | | | |
| | | | |
/S/ GLENN R. LANDAU
| | Senior Vice President and Chief Financial Officer | | February 22, 2018 |
Glenn R. Landau | | | | |
| | | | |
/S/ VINCENT P. BONNOT
| | Vice President – Finance and Controller | | February 22, 2018 |
Vincent P. Bonnot | | | | |
2017 LISTING OF FACILITIES
(all facilities are owned except noted otherwise) |
| | | | |
PRINTING PAPERS/S/ AHMET C. DORDUNCU | | Savannah, GeorgiaDirector | | Tracy, CaliforniaFebruary 18, 2022 |
| Ahmet C. Dorduncu | | Cayuga, Indiana | | Golden, Colorado |
Uncoated Papers | | Cedar Rapids, Iowa | | Wheat Ridge, Colorado |
U.S.:/S/ ILENE S. GORDON | | Henderson, KentuckyDirector | | Putnam, ConnecticutFebruary 18, 2022 |
| Ilene S. Gordon | | | | |
| | | | |
/S/ ANDERS GUSTAFSSON | | Director | | February 18, 2022 |
| Anders Gustafsson | | | | |
| | | | |
/S/ JACQUELINE C. HINMAN | | Director | | February 18, 2022 |
| Jacqueline C. Hinman | | | | |
| | | | | | | | | | | | | | |
| | | | |
/s/ CLINTON A. LEWIS, JR. | | Director | | February 18, 2022 |
| Clinton A. Lewis, Jr. | | | | |
| | | | |
/s/ DONALD G. (DG) MACPHERSON | | Director | | February 18, 2022 |
| Donald G. (DG) Macpherson | | | | |
| | | | |
/s/ KATHRYN D. SULLIVAN | | Director | | February 18, 2022 |
| Kathryn D. Sullivan | | | | |
| | | | |
/s/ ANTONV. VINCENT | | Director | | February 18, 2022 |
| Anton V. Vincent | | | | |
| | | | |
/S/ RAY G. YOUNG | | Director | | February 18, 2022 |
| Ray G. Young | | | | |
| | | | |
/S/ TIMOTHY S. NICHOLLS | | Senior Vice President and Chief Financial Officer | | February 18, 2022 |
| Timothy S. Nicholls | | | | |
| | | | |
/S/ VINCENT P. BONNOT | | Vice President – Finance and Controller | | February 18, 2022 |
| Vincent P. Bonnot | | | | |
2021 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)
| | | | | | | | | | | | | | |
| INDUSTRIAL PACKAGING | | Modesto, California | | Fridley, Minnesota |
| | Ontario, California | | Minneapolis, Minnesota leased |
| Containerboard | | Salinas, California | | Shakopee, Minnesota |
| U.S.: | | Sanger, California | | White Bear Lake, Minnesota |
| Pine Hill, Alabama | | Santa Fe Springs, California (2 locations) | | Houston, Mississippi |
| Prattville, Alabama | | Tracy, California | | Jackson, Mississippi |
| Selma, Alabama (Riverdale Mill) | | Maysville, KentuckyGolden, Colorado | | Orlando, FloridaMagnolia, Mississippi leased |
Ticonderoga, New YorkCantonment, Florida (Pensacola Mill) | | Bogalusa, LouisianaWheat Ridge, Colorado | | Olive Branch, Mississippi |
| Rome, Georgia | | Putnam, Connecticut | | Fenton, Missouri |
| Savannah, Georgia | | Orlando, Florida | | Kansas City, Missouri (2 locations) |
| Cayuga, Indiana | | Plant City, Florida | | Maryland Heights, Missouri |
Eastover, South CarolinaCedar Rapids, Iowa | | Campti, Louisiana | | Tampa, Florida leased | | North Kansas City, Missouri leased |
Georgetown, South CarolinaHenderson, Kentucky | | Mansfield, Louisiana | | Columbus, Georgia | | St. Joseph, Missouri |
Sumter, South CarolinaMaysville, Kentucky | | Vicksburg, Mississippi | | Forest Park, Georgia | | St. Louis, Missouri |
| Bogalusa, Louisiana | | Valliant, Oklahoma | | Griffin, Georgia | | Omaha, Nebraska |
International:Campti, Louisiana | | Springfield, OregonLithonia, Georgia | | Kennesaw, Georgia leasedMcCarran, Nevada |
Luiz Antônio, São Paulo, BrazilMansfield, Louisiana | | Orange, TexasSavannah, Georgia | | Lithonia, GeorgiaBarrington, New Jersey |
Mogi Guacu, São Paulo, BrazilVicksburg, Mississippi | | Tucker, Georgia | | Savannah, GeorgiaBellmawr, New Jersey |
Três Lagoas, Mato Grosso do Sul, BrazilValliant, Oklahoma | | International: | | Stone Mountain, Georgia leased |
Saillat, France | | Franco da Rocha, São Paulo, Brazil | | Tucker, Georgia |
Kadiam, India | | Nova Campina, São Paulo, Brazil | | Aurora, Illinois (3 locations) | | Milltown, New Jersey |
Rajahmundry, IndiaSpringfield, Oregon | | Paulinia, São Paulo, Brazil | | Bedford Park, Illinois (2 locations) 1 leased | | Spotswood, New Jersey |
Kwidzyn, PolandOrange, Texas | | Veracruz, Mexico | | Belleville, Illinois | | Thorofare, New Jersey |
Svetogorsk, Russia | | Kenitra, Morocco | | Carol Stream, Illinois | | Binghamton, New York |
| International: | | Madrid, Spain | | Des Plaines, Illinois | | Buffalo, New York |
GLOBAL CELLULOSE FIBERSVeracruz, Mexico | | | | Lincoln, Illinois | | Rochester, New York |
| Kenitra, Morocco | | Corrugated Container | | Montgomery, Illinois | | Scotia, New York |
PulpMadrid, Spain | | U.S.: | | Northlake, Illinois | | Utica, New York |
| | Rockford, Illinois | | Charlotte, North Carolina (2 locations) 1 leased |
| Corrugated Packaging | | Butler, Indiana | | Lumberton, North Carolina |
| U.S.: | | Crawfordsville, Indiana | | Manson, North Carolina |
| Bay Minette, Alabama | | Rockford, IllinoisFort Wayne, Indiana | | Newton, North Carolina |
Cantonment, Florida (Pensacola Mill) | | Decatur, Alabama | | Butler,Indianapolis, Indiana (3 locations) | | Statesville, North Carolina |
Flint River, Georgia | | Dothan, Alabama leased | | Crawfordsville,Saint Anthony, Indiana | | Byesville, Ohio |
Port Wentworth, Georgia | | Huntsville, Alabama | | Fort Wayne,Tipton, Indiana | | Delaware, Ohio |
Columbus, Mississippi | | Conway, Arkansas | | Hammond, IndianaCedar Rapids, Iowa | | Eaton, Ohio |
New Bern, North Carolina | | Fort Smith, Arkansas (2 locations) | | Indianapolis, Indiana (2 locations)Waterloo, Iowa | | Madison, Ohio |
Riegelwood, North Carolina | | Russellville, Arkansas (2 locations) | | Saint Anthony, IndianaGarden City, Kansas | | Marion, Ohio |
Eastover, South Carolina | | Tolleson, Arizona | | Tipton, IndianaBowling Green, Kentucky | | Marysville, Ohio leased |
Georgetown, South Carolina | | Yuma, Arizona | | Cedar Rapids, IowaLexington, Kentucky | | Middletown, Ohio |
Franklin, Virginia | | Anaheim, California | | Waterloo, IowaLouisville, Kentucky | | Mt. Vernon, Ohio |
| | Buena Park, California leased | | Garden City, KansasWalton, Kentucky | | Newark, Ohio |
International: | | Camarillo, California | | Kansas City, KansasBogalusa, Louisiana | | Streetsboro, Ohio |
Grand Prairie, Albert, Canada | | Carson, California | | Bowling Green, KentuckyLafayette, Louisiana | | Wooster, Ohio |
Saillat, France | | Cerritos, California leased | | Lexington, KentuckyShreveport, Louisiana | | Oklahoma City, Oklahoma |
Gdansk, Poland | | Compton, California | | Louisville, KentuckySpringhill, Louisiana | | Beaverton, Oregon (3 locations) |
Kwidzyn, Poland | | Elk Grove, California | | Walton, KentuckyAuburn, Maine | | Hillsboro, Oregon |
Svetogorsk, Russia | | Exeter, California | | Bogalusa, LouisianaThree Rivers, Michigan | | Portland, Oregon |
| | Gilroy, California (2 locations) | | Lafayette, LouisianaArden Hills, Minnesota | | Salem, Oregon leased |
INDUSTRIAL PACKAGING | | Los Angeles, California | | Shreveport, Louisiana |
| | Modesto, California | | Springhill, Louisiana |
Containerboard | | Ontario, California | | Auburn, Maine |
U.S.: | | Salinas, California | | Three Rivers, Michigan |
Pine Hill, Alabama | | Sanger, California | | Arden Hills, Minnesota |
Prattville, Alabama | | San Leandro, California leased | | Austin, Minnesota |
Cantonment, Florida (Pensacola Mill) | | Santa Fe Springs, CaliforniaBiglerville, Pennsylvania (2 locations) | | Fridley, Minnesota |
Rome, Georgia | | Stockton, California | | Minneapolis, Minnesota leased |
| | | | | | | | | | | | | | |
| | | | |
Shakopee, MinnesotaEighty-four, Pennsylvania | | Puebla, Mexico leased | | Bags |
| Hazleton, Pennsylvania | | Reynosa, Mexico | | U.S.: |
| Kennett Square, Pennsylvania | | San Jose Iturbide, Mexico | | Buena Park, California |
| Lancaster, Pennsylvania | | Santa Catarina, Mexico | | Beaverton, Oregon |
| Mount Carmel, Pennsylvania | | Silao, Mexico | | Grand Prairie, Texas |
| Georgetown, South Carolina | | Toluca, Mexico | | |
| Laurens, South Carolina | | Silao,Zapopan, Mexico | | Coated Paperboard |
White Bear Lake, Minnesota | | Lexington, South Carolina | | Villa Nicolas Romero, MexicoAgadir, Morocco | | International: |
Houston, Mississippi | | Ashland City, Tennessee leased | | Zapopan, MexicoCasablanca, Morocco | | Kwidzyn, Poland 2 |
Jackson, Mississippi | | Cleveland, Tennessee | | Agadir,Tangier, Morocco | | Svetogorsk, Russia 1 |
Magnolia, Mississippi leased | | Elizabethton, Tennessee leased | | Casablanca, MoroccoOvar, Portugal | | |
Olive Branch, Mississippi | | Morristown, Tennessee | | Kenitra, MoroccoBarcelona, Spain | | GLOBAL CELLULOSE FIBERS |
Fenton, Missouri | | Murfreesboro, Tennessee | | Tangier, MoroccoBilbao, Spain | | |
Kansas City, Missouri | | Amarillo, Texas | | Almeria,Gandia, Spain | | Pulp |
Maryland Heights, Missouri | | Carrollton, Texas (2 locations) | | Barcelona,Grinon, Spain | | U.S.: |
North Kansas City, Missouri leased | | Edinburg, Texas | | Bilbao,Las Palmas, Spain | | Cantonment, Florida (Pensacola Mill) |
St. Joseph, Missouri | | El Paso, Texas | | Gandia,Madrid, Spain | | Flint River, Georgia |
St. Louis, Missouri | | Ft. Worth, Texas leased | | Las Palmas,Montblanc, Spain | | Port Wentworth, Georgia |
Omaha, Nebraska | | Grand Prairie, Texas | | Madrid,Tavernes de la Valldigna, Spain | | Columbus, Mississippi |
Barrington, New Jersey | | Hidalgo, Texas | | Tenerife, Spain | | New Bern, North Carolina |
Bellmawr, New Jersey | | McAllen, Texas | | Adana, TurkeyValls, Spain | | Riegelwood, North Carolina |
Milltown, New Jersey | | San Antonio, Texas (2 locations) | | Bursa.Adana, Turkey3 | | Eastover, South Carolina 1 |
Spotswood, New Jersey | | Sealy, Texas | | Corlu,Bursa, Turkey3 | | Georgetown, South Carolina |
Thorofare, New Jersey | | Waxahachie, Texas | | Corum, Turkey3 | | Franklin, Virginia |
Binghamton, New York | | Lynchburg, Virginia | | Gebze, Turkey3 | | |
Buffalo, New York | | Petersburg, Virginia | | Izmir, Turkey3 | | International: |
Rochester, New York | | Richmond, Virginia | | | | Grande Prairie, Alberta, Canada |
Scotia, New York | | Moses Lake, Washington | | Recycling | | Saillat, France 1 |
Utica, New York | | Olympia, Washington | | U.S.: | | Gdansk, Poland |
Charlotte, North Carolina (2 locations) 1 leased | | Yakima, Washington | | Phoenix, Arizona | | Kwidzyn, Poland 2 |
Lumberton, North Carolina | | Fond du Lac, Wisconsin | | Fremont, California | | Svetogorsk, Russia 1 |
Manson, North Carolina | | Manitowoc, Wisconsin | | Norwalk, California | | |
Newton, North Carolina | | | | West Sacramento, California | | PRINTING PAPERS |
Statesville, North CarolinaInternational: | | International: | | Itasca, Illinois | | |
Byesville, OhioRancagua, Chile | | Manaus, Amazonas, Brazil | | Des Moines, Iowa | | Uncoated Papers |
Delaware, OhioCabourg, France | | Paulinia, São Paulo, Brazil | | Wichita, Kansas | | U.S.: |
Eaton, OhioChalon-sur-Saone, France | | Rio Verde, Goias, Brazil | | Roseville, Minnesota | | Ticonderoga, New York 1 |
Madison, Ohio | | Suzano, São Paulo, Brazil | | Omaha, Nebraska |
Marion, Ohio | | Rancagua, Chile | | Charlotte, North Carolina |
Marysville, Ohio leased | | Arles, France | | Beaverton, Oregon |
Middletown, Ohio | | Chalon-sur-Saone, France | | Springfield, Oregon leased |
Mt. Vernon, Ohio | | Creil, France | | Carrollton, Texas |
Newark, Ohio | | LePuy, France (Espaly Box Plant) | | Omaha, Nebraska | | Eastover, South Carolina 1 |
| Mortagne, France | | Charlotte, North Carolina | | Sumter, South Carolina 1 |
| Saint Amand, France | | Beaverton, Oregon | | |
Guadeloupe, French West Indies 4 | | Springfield, Oregon leased | | International: |
| Bellusco, Italy | | Carrollton, Texas | | Luiz Antônio, São Paulo, Brazil 1 |
| Catania, Italy | | Salt Lake City, Utah | | Mogi Guacu, São Paulo, Brazil 1 |
| Pomezia, Italy | | Richmond, Virginia | | Três Lagoas, Mato Grosso do Sul, Brazil 1 |
| San Felice, Italy | | Kent, Washington | | Saillat, France 1 |
Streetsboro, Ohio | | Mortagne, France | | Richmond, Virginia |
Wooster, Ohio | | Guadeloupe, French West Indies | | Kent, Washington |
Oklahoma City, Oklahoma | | Bellusco, Italy | | |
Beaverton, Oregon (3 locations) | | Catania, Italy | | International: |
Hillsboro, Oregon | | Pomezia, Italy | | Monterrey, Mexico leased |
Portland, Oregon | | San Felice, Italy | | Xalapa, Veracruz, Mexico leased |
Salem, Oregon leased | | Apodaco (Monterrey), Mexico leased | | | | Kwidzyn, Poland 2 |
Biglerville, Pennsylvania (2 locations) | | Ixtaczoquitlan, Mexico | | BagsInternational: | | Svetogorsk, Russia 1 |
Eighty-four, Pennsylvania | | Juarez, Mexico leased (2 locations) | | U.S.:Monterrey, Mexico leased | | |
Hazleton, Pennsylvania | | Los Mochis, Mexico | | Buena Park, CaliforniaXalapa, Veracruz, Mexico leased | | |
Kennett Square, Pennsylvania | | Puebla, Mexico leased | | Beaverton, Oregon |
Lancaster, Pennsylvania | | Reynosa, Mexico | | Grand Prairie, Texas |
Mount Carmel, Pennsylvania | | San Jose Iturbide, Mexico | | |
Georgetown, South Carolina | | Santa Catarina, Mexico | | |
| | | | | | | | | | | | | | |
| DISTRIBUTION | | | | |
| | | | |
CONSUMER PACKAGINGInternational: | | DISTRIBUTION | | |
| Guangzhou, China leased | | | | |
Coated PaperboardHong Kong, China leased | | IP Asia | | |
U.S.:Shanghai, China leased | | International: | | |
| Japan leased | | | | |
| Korea leased | | | | |
| Singapore leased | | | | |
| | | | |
| | | | |
| FOREST RESOURCES | | | | |
| International: | | | | |
Augusta, Georgia 2Approximately 314,000 acres 1
| | Guangzhou, China | | |
Prosperity, South Carolina 2
in Brazil | | Hong Kong, China | | |
Texarkana, Texas 2
| | Shanghai, China | | |
| | Japan | | |
International:1) Spun off October 2021 | | Korea | | |
Kwidzyn, Poland2) Sold August 2021 | | Singapore | | |
Svetogorsk, Russia3) Sold May 2021 | | Taiwan | | |
| 4) Sold March 2021 | | Thailand | | |
Foodservice | | Vietnam | | |
U.S.: | | | | |
Visalia, California 2
| | FOREST PRODUCTS | | |
Shelbyville, Illinois 2
| | | | |
Kenton, Ohio 2
| | Forest Resources | | |
| | International: | | |
International: | | Approximately 329,400 acres | | |
Shanghai, China 1
| | in Brazil | | |
Tianjin, China 1
| | | | |
Bogota, Colombia | | | | |
Cheshire, England leased 2
| | | | |
| | | | |
| | | | |
| | | | |
1) Sold September 2017 | | | | |
2) Transferred January 2018 | | | | |
| | | | |
| | | | |
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| | | | |
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| | | | |
| | | | |
| | | | |
20172021 CAPACITY INFORMATION
|
| | | | | | | | | | | | | | |
| (in thousands of short tons except as noted) | U.S. | | EMEA | | Americas,
other
than U.S. | | India | | Total |
| Industrial Packaging | | | | | | | | | |
Containerboard (a) | 13,488 |
| | 45 |
| | 363 |
| | — |
| | 13,896 |
|
| Coated Paperboard | — |
| | 431 |
| | — |
| | — |
| | 431 |
|
| Total Industrial Packaging | 13,488 |
| | 476 |
| | 363 |
| | — |
| | 14,327 |
|
| Global Cellulose Fibers | | | | | | | | | |
Dried Pulp (in thousands of metric tons) | 2,912 |
| | 302 |
| | 535 |
| | — |
| | 3,749 |
|
| Printing Papers | | | | | | | | | |
Uncoated Freesheet & Bristols (b) | 1,990 |
| | 1,193 |
| | 1,135 |
| | 266 |
| | 4,584 |
|
| Newsprint | — |
| | 312 |
| | — |
| | — |
| | 312 |
|
| Total Printing Papers | 1,990 |
| | 1,505 |
| | 1,135 |
| | 266 |
| | 4,896 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands of short tons except as noted) | U.S. | | EMEA | | Americas,
other
than U.S. | | | | Total |
| Industrial Packaging | | | | | | | | | |
Containerboard (a) | 13,805 | | | 529 | | | 27 | | | | | 14,361 | |
| Global Cellulose Fibers | | | | | | | | | |
Dried Pulp (in thousands of metric tons) | 2,963 | | | — | | | 371 | | | | | 3,334 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum.
(b) In addition to Uncoated Freesheet and Bristols, includes bleached multiwall bag and plate.
|
| | |
| |
Forest Resources | |
We own, manage or have an interest in approximately 1.4 million acres of forestlands worldwide. These forestlands and associated acres are located in the following regions: | (M Acres) |
Brazil | 329 |
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We have harvesting rights in: | |
Russia | 1,047 |
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Poland | — |
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Total | 1,376 |
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