UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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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| | 12/31/2023 |
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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 |
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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
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
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)2023) was approximately $23,247,397,657.$10,960,397,116.
The number of shares outstanding of the Company’s common stock as of February 16, 20189, 2024 was 412,940,532.346,353,824.
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 20182024 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, 20172023
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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," "International Paper" or “International Paper,”"IP", 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, 2017,2023, the Company operated 2923 pulp paper and packaging mills, 170162 converting and packaging plants, 16 recycling plants and three bag facilities. Production facilities at December 31, 20172023 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.
We are guided by our core values. We do the right things, in the right ways, for the right reasons, all of the time – this is The IP Way. Our overarching values are safety, ethics, and stewardship.
•Safety – Above all, we care about people. We look out for each other to ensure everyone returns home safely each day.
•Ethics – We act honestly and operate with integrity and respect. We promote a culture of openness and accountability.
•Stewardship – We are responsible stewards of people and communities, natural resources and capital. We strive to leave everything in better shape for future generations.
•Think the Customer – We will deliver on Our Customer Promise to do the right things for our customers, at every moment, in every experience.
•Include and Engage – We strive to build a culture in which each employee feels a sense of belonging and experiences an environment in which to do their best work every day.
For management and financial reporting purposes, our businesses are separated into threetwo segments: Industrial Packaging;Packaging and Global Cellulose Fibers; and Printing Papers.Fibers. A
A
On September 18, 2023, we completed the previously announced sale of our 50% equity interest in Ilim Holding S.A. ("Ilim") is, which was a joint venture that operated a pulp and paper business in Russia and has subsidiaries including Ilim Group. We also completed the sale of all of our Ilim Group shares (constituting a separate2.39% stake) and divested other non-material residual interests associated with Ilim. Following the completed sales, we no longer have an interest in Ilim or any of its subsidiaries, and no longer have any investments in Russia. As a result, all current and historical results of the Ilim investment reportable industry segment.segment are presented as Discontinued Operations, net of taxes. See discussion in Note 11 - Equity Method Investments on pages 69 and 70 of Item 8. Financial Statements and Supplementary Data.
Following our public announcement on October 18, 2023, the Company permanently closed its containerboard mill in Orange, Texas on December 4, 2023 and permanently ceased production on two of its pulp machines at its Riegelwood, North Carolina and Pensacola, Florida mills on December 11, 2023. The mill closure resulted in pre-tax non-cash asset write-off and accelerated depreciation charges of approximately $347 million and pre-tax cash severance and other shutdown charges of approximately $81 million. The machine shutdowns resulted in pre-tax non-cash asset write-off and accelerated depreciation charges of approximately $75 million and pre-tax cash severance and other shutdown charges of approximately $37 million. The Company recorded these charges in the fourth quarter of 2023.
From 20132019 through 2017,2023, International Paper’s capital expendituresspending approximated $6.8$4.6 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 deploy strategic capital for capacity expansion. Capital spending in 20172023 was approximately $1.4$1.1 billion and is expected to be approximately $1.5$800 million to $1.0 billion in 2018.2024. You can find more information about capital expendituresspending on page 2839 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 you to it in that manner. Please refer to such information.those documents. 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 RelationsInvestors 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. We encourage you to refer to such information.
Our website contains a significant amount of information about the Company, including our SEC filings and financial and other information for investors. The information that we post on our website could be deemed to be material information. We encourage investors, the media, and others interested in the Company to visit this website from time to time, as information is updated and new information is posted. The information contained on or connected to our Web sitewebsite, however, 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 |
|
| 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 |
|
| 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 information 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. Our internet address is included as an inactive textual reference only.
EMPLOYEES
As of December 31, 2017,2023, we have approximately 56,00039,000 employees, nearly 36,00033,000 of whom are located in the United States. Of theour U.S. employees, approximately 25,00022,900 are hourly, with unions representing approximately 15,00014,200 employees. Approximately 12,000 ofOf this number, 10,600 are represented by the United Steelworkers union (USW)("USW").
International Paper, the USW, and several other unions have entered into twofour 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 AND WELLBEING
At International Paper, safety is core to who we are and how we operate. To achieve this, we are cultivating a resilient safety culture where every team member is empowered to stop work they believe is unsafe. We work tirelessly to anticipate and address unexpected events by incorporating layers of protection, continuously enhancing our systems and engaging all team members in learning events to prevent injuries before they take place. Our Vision 2030 goal to create a 100% injury-free workplace for our team members and contractors fuels our commitment from Madrid to Memphis and everywhere in between.
We also care deeply about the mental, emotional, physical and professional wellbeing of our employees by providing an Employee Assistance Program (“EAP”) at no cost to employees and family members. Our EAP offers coaching and counseling sessions aimed at problem solving, achieving goals, and dealing with stress and anxiety management through resiliency. We embrace a holistic wellness approach providing employees with resources on incorporating wellness habits into their daily lives.
HUMAN CAPITAL MANAGEMENT
The attraction, retention and development of our employees is critical to our success. We create a positive employee experience that begins at onboarding. Our Human Resources Talent Management Team hosts online Global New Employee Orientation for employees and each business conducts onsite new hire integration training unique to its business and/or facility. This experience continues through our continuous learning, development and performance management programs. We provide continuing education courses that are relevant to our industry and job functions within the Company, including both instructor-led and online training through our Learning Management System (“LMS”) MyLearning platform. Across the enterprise in 2023, employees completed 4.6 million learning activities through our platform.
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 REACH (Recruit, Engage,
Align College Hires) program and Global Manufacturing Training Initiative programs. Through REACH 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 Global Manufacturing Training Initiative provides training services to hourly operations and maintenance employees in our mills in a standardized and structured manner.On the converting side of our business, more than 350 front line and future leaders participated in our multi-day in-person Leadership Application and Professional Development and Manufacturing Management Associate Programs during 2023.
We develop leaders through our IP Leadership Institute offering a broad range of LMS virtual and in person resources, courses and workshops for individual contributors, people leaders and teams. We also offer peer mentoring and leadership and career development training to support and develop our employees.
We help our employees better themselves by offering tuition reimbursement to employees to pursue additional education to prepare for other positions at the Company. We also provide 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 continues to be increasingly competitive. For additional information regarding risks related to the current 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
In 2023, we added Include and Engage as a new core value because we believe in an inclusive workforce, where employees of diverse backgrounds and perspectives are represented, engaged and empowered to contribute innovative ideas, influence decisions, and bring their authentic selves to work. While this core value is new, our efforts around diversity and inclusion have been in place for more than 20 years. Looking forward to projected workforce demographic changes over the next decade, and guided by our commitment to equal employment opportunity for all, 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 in non-U.S. locations. 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 a broad diversity of talent.
Our Global Diversity and Inclusion Council, comprised of senior leaders in the Company, is committed to creating and promoting a culture of inclusion, collaboration, engagement, equity and diversity. The Company supports enterprise-wide employee-led networking circles (“ENCs”) 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 ("WIP") ENC, Black Employee Networking Circle ("BEN"), LGBTQ+ & Allies ENC ("IPride") and a Veterans ENC ("iVets"). Each ENC is sponsored by Company leaders and aligned with our core values and business objectives. Through annual initiatives, ENCs offer development opportunities, encourage cross-collaboration and connection with individuals throughout the Company, and engage allies. Some facilities and functions also have their own ENCs.
In 2023 our ENCs executed on 30 initiatives aimed at strengthening our diversity and inclusion culture. As examples of our efforts, in 2023, IPride hosted a workshop, “Pride 101,” where speakers educated attendees on topics such as history of the LGBTQ+ movement, and offered guidance to allies on how to support LGBTQ+ colleagues. Similarly, BEN sponsored a Juneteenth event, iVets partnered with our Community Engagement team to sponsor Wreaths Across America, and WIP worked with our
communications team to recognize women working in our facilities. We also recognize Diversity & Inclusion awareness months, conduct training and host D&I workshops and team-level courses which further our diversity and inclusion goals.
We have also developed a Diversity Acquisition Framework for U.S. colleges and universities to guide our enterprise diversity and inclusion efforts as we strive to hire the best talent by accessing all the available talent using broad recruiting parameters through inclusive and legally compliant employment practices.
The make-up of our Board of Directors and Senior Leadership Team ("SLT") reflects our efforts to seek qualified board candidates with diverse backgrounds and perspectives including, but not limited to, such factors as race, ethnicity and gender.
At December 31, 2023, the composition of our Board of Directors, as noted below, reflects those efforts and the importance of diversity:
•27% women, 27% ethnically diverse, 18% African-American and
•75% of the Board of Director’s standing committees are chaired by women.
Our Senior Leadership Team is currently comprised of senior vice presidents who oversee crucial functions and business units within the Company and is 30 percent women as of December 31, 2023.
COMMUNITY ENGAGEMENT
We encourage our employees to support the communities in which they live and in which the Company operates. Our community engagement efforts extend across the globe and support social and educational needs. To that end, in 2023 we invested approximately $20 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, in numerous ways, and improve the lives of 100 million people in our communities in numerous ways, including the support of education, reducing hunger, promoting health and wellness and supporting disaster relief.
One way we lead in promoting health and wellness is through our award-winning Fighting Period Poverty in Our Communities program. Period poverty is lack of access to period products and education and affects at least 500 million women and girls globally. Period poverty leads to school truancy, reproductive issues, health risks and unnecessary shame. Through this program, we collaborate with partners to create
awareness of period poverty globally and provide period care kits to people who need them most.
In 2022, the Company was honored with the American Forest & Paper Association's (“AF&PA”) “Diversity, Equity and Inclusion in Sustainability Award” for our “Ending Period Poverty” program. In 2023, we hosted 62 menstrual product kit packing events in nine countries donating more than 32,000 menstrual product kits to people across the world.
Also in 2023, the Company was awarded a Leadership in Sustainability Award for Resilient U.S. Forests by the AF&PA for its innovative approach to promote forest bird awareness and conservation within the forest product supply chain in partnership with the American Bird Conservancy. In 2024, we received the Grassroots Innovation Award from the Public Affairs Council. Additionally, we are proud to have been named among the world’s most ethical companies by Ethisphere for 17 consecutive years.
INTELLECTUAL PROPERTY, PATENTS, AND TRADEMARKS
We rely on a combination of patent, copyright, trademark, design, trade secret, and internet domain laws to establish and protect our intellectual property rights in the United States and in foreign jurisdictions. The Company’s practice is to file applications and obtain patents for products and services we believe improve our value proposition to customers. We maintain a portfolio of trademarks and service marks registered with the U.S. Patent and Trademark Office and in certain foreign jurisdictions, unregistered trademarks, licenses, and internet domain names that we consider important to the marketing of our products and business. These trademarks and service marks include those entity and product names that appear in this Annual Report on Form 10-K and our logo, as well as names of other products and marketing-related taglines. Our registered intellectual property has various expiration dates. The Company also relies on trade secret and other confidential information protection for manufacturing processes, product specifications, formulae, analyses, market information, forecasts, and other competitively sensitive information.
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.
The Company sells products directly to end users and converters, as well as through agents, resellers and distributors.
Sales volumes of major products for 2023, 2022 and 2021 were as follows:
SALES VOLUMES BY PRODUCT (a)
| | | | | | | | | | | |
| In thousands of short tons (except as noted) | 2023 | 2022 | 2021 |
| Industrial Packaging | | | |
| Corrugated Packaging (b) | 9,428 | | 10,202 | | 10,787 | |
| Containerboard | 2,604 | | 2,642 | | 2,893 | |
| Recycling | 2,152 | | 2,190 | | 2,223 | |
| Saturated Kraft | 160 | | 188 | | 186 | |
| Gypsum/Release Kraft | 237 | | 251 | | 234 | |
| Europe, Middle East & Africa ("EMEA") Packaging (b) | 1,282 | | 1,376 | | 1,546 | |
| Industrial Packaging | 15,863 | | 16,849 | | 17,869 | |
Global Cellulose Fibers (in thousands of metric tons) (c) | 2,681 | | 2,893 | | 2,970 | |
(a)Includes third-party and intersegment sales and excludes sales of equity investees.
(b)Volumes for corrugated box sales reflect consumed tons sold ("CTS"). Board sales for these businesses reflect invoiced tons.
(c) Includes North American volumes and internal sales to mills.
The Company’s policy is to operate its mills and factories in compliance with all applicable laws and regulations such that it protects the environment and the health and safety of its employees. We operate our businesses and sell products globally. In each of the jurisdictions in which we operate, we are subject to a variety of laws and regulations governing various aspects of our business, including general business regulations as well as those governing the manufacturing, production, content, handling, storage, transport, marketing and sale of our products. Our operations are also subject to forestry reserve requirements, other environmental regulations and occupational health and safety laws. Violations can result in substantial fines, administrative sanctions, criminal penalties, revocations of operating permits and/or shutdowns of our facilities, litigation, other liabilities, as well as damage to our reputation. We incur costs to comply with these requirements. 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, OR THE FAILURE TO COMPLY WITH SUCH REQUIREMENTS, COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.
As responsible stewards of people and communities, natural resources and capital, stewardship is one of the Company's core values. Our 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.
Our approach to sustainability considers our entire value chain, from sourcing raw materials responsibly
and working safely, to making renewable, recyclable products and providing a market for recovered products. To help inform and prioritize the focus of our sustainability strategy, we have engaged with internal and external stakeholders using a variety of methods, assessed key issues and associated risks and opportunities, and incorporated sustainability considerations into our processes. Additionally, in 2020, we established our Vision 2030 goals with the purpose of promoting healthy and abundant forests, thriving people and communities, sustainable operations and renewable solutions.
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 often 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 $40 million in 2023 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 approximately $35 million in 2024 for environmental capital projects. Capital expenditures on environmental projects for 2025 and 2026, respectively, are anticipated to be approximately $40 million and $35 million. It is possible that our capital expenditure assumptions, estimates and project completion dates may change, and our projections are subject to change due to items such as the finalization of ongoing engineering projects, varying costs 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 of 1980, as amended ("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 and/or potentially liable parties, and costs are commonly allocated according to relative amounts of waste deposited and other factors. 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 74 through 78. 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, OR THE FAILURE TO COMPLY WITH SUCH REQUIREMENTS, COULD IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.
The Company recognizes the impacts of climate change on people and our planet. To manage climate-related risks, we are taking actions throughout our value chain to help advance a low-carbon economy. We aligned our annual sustainability reporting with the recommendations of the Task Force on Climate-Related Financial Disclosure (“TCFD”) in the 2023 reporting cycle (based upon data from 2022). As part of our TCFD reports, we identify and report on climate-related opportunities. We identify and evaluate physical and transition climate-related risks through our enterprise risk management process.
We transform renewable resources into recyclable products that people depend on every day. We aim to produce low carbon products that have a positive impact on nature. To this end, we source renewable fiber from responsibly managed forests and recycled raw materials. 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 fiber-based 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 are working to achieve company-wide reductions in Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions. As part of our Vision 2030 goals, we have targeted incremental reductions of 35% in our Scope 1, 2, and 3 GHG emissions by 2030 in comparison to 2019 levels. The Science Based Targets initiative (“SBTi”) approved these targets as consistent with levels required to meet the goals of the 2015 Paris Agreement, an agreement signed among over 170 countries, which became effective in November 2016. 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). In addition, we have recently committed to be an early adopter of the Taskforce on Nature-related Financial Disclosures (“TNFD”). TNFD adopters intend to make corporate reporting disclosures that are aligned with TNFD recommendations, which have been designed to (i) meet the corporate reporting requirements of organizations across jurisdictions; (ii) be consistent with the global baseline for corporate sustainability reporting; and (iii) be aligned with the global policy goals outlined in the Kunming-Montreal Global Biodiversity Framework, which was adopted to halt and reverse nature loss by 2030.
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 2015 Paris Agreement compels international efforts and voluntary commitments toward reducing the emissions of GHGs. IP supports the 2015 Paris Agreement and recognizes the importance of global policy action to achieve emission reductions consistent with an increase of “well below 2 ° Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 ° Celsius.” 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 European Union 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 2015 Paris Agreement's non-binding commitments or allocation of, and market prices for, GHG credits under existing rules evolve over the coming years.
Additionally, the EU’s newly mandated Corporate Sustainability Reporting Directive (“CSRD”) and Deforestation Regulation (“EUDR”), each impose additional compliance responsibilities on the Company. The CSRD requires additional reporting processes for greater accountability. The Company’s first reporting year under the CSRD is expected to be 2025. The CSRD standards replace the existing Non-Financial Reporting Directive and expands reporting requirements for companies operating in the EU. The implementation timeline varies depending on the type of entity.
The EUDR requires companies trading in products derived from certain commodities to conduct extensive diligence on the value chain to ensure goods do not result from recent deforestation, forest degradation or breaches of local environmental and social laws. Currently, the Company is evaluating the implications of the EUDR to its business with the expected earliest reporting date being in 2025.
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 and reporting 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. For example, the State of California recently passed the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, which will impose climate-related reporting obligations on companies doing business in California meeting specified thresholds, including the Company. We monitor proposed programs in other states as well; however, it is unclear what impacts, if any, future state-level or local 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. Other possible indirect impacts may include influence on competitive position due to customer and end-consumer preferences regarding low-carbon, circular products with a high recycling rate along with tax credit and funding opportunities to expand green energy production and carbon credit generation. 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 under applicable rules and regulations.
Moreover, compliance with legal requirements related to GHGs and/or climate change which are currently in effect or which may be effective or enacted in the future are expected to require future expenditures to meet GHG emission reduction, disclosure or other 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. Rather than rely on carbon offsets, we focus on reducing energy consumption as well as relative GHG emissions across our mills and manufacturing facilities. 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 sustainability is a key element of corporate governance promoted by our Board of Directors, committees of the Board of Directors, and senior management.
Our Board of Directors has primary oversight of the Company's enterprise risk management program, which includes sustainability. The Board receives updates from our Chief Sustainability Officer ("CSO") and additional members of management. Our Board of Directors also conducts periodic reviews of components of the sustainability strategy and performance and reviews material key sustainability-related developments and issues. Our standing committees share responsibility on sustainability as described below:
Audit and Finance Committee
•Reviews processes and controls for external reporting of sustainability and social impact data and metrics.
•Reviews related disclosures in Annual Report on Form 10-K and other sustainability reports.
Governance Committee
•Reviews and reassesses adequacy of, and oversees compliance with our Corporate Governance Guidelines.
•Seeks Board of Director candidates with diverse backgrounds.
Management Development and Compensation Committee ("MDCC Committee")
•Approves Chief Executive Officer ("CEO") sustainability-focused objectives and evaluates performance.
•Considers sustainability factors in SLT compensation and in overall compensation plan design.
•Reviews sustainability disclosures related to executive compensation.
Public Policy and Environment Committee ("PPE Committee")
•Reviews sustainability and social impact policies, plans and performance to ensure commitments to stewardship.
•Stays current on emerging sustainability and social impact trends and issues impacting the Company.
At the management level, ownership and governance of sustainability matters is embedded in the organization from the top down. Our CEO and SLT are responsible for corporate strategy and leadership including incorporation of our sustainability goals and standards into our daily operations and long-term business strategy. Our SLT, which is comprised of senior vice presidents who oversee critical functions and business units within the Company, evaluates sustainability issues based on input from function-specific councils that report to the SLT. The SLT receives several sustainability updates throughout the year from our CSO. The Company also has an Enterprise Lead Team (“ELT”), comprised of the SLT and additional subject matter experts, including our CSO, that meets quarterly and receives regular climate-related updates. Moreover, at the operational level, our Stewardship Council, a cross-functional leadership team with representatives from businesses and functional teams, guides and supports the Company’s sustainability strategy and tactics.
For additional information regarding risks associated with climate change, see Item 1A. Risk Factors – WE ARE SUBJECT TO RISKS ASSOCIATED WITH CLIMATE CHANGE AND OTHER SUSTAINABILITY MATTERS AND GLOBAL, REGIONAL AND LOCAL WEATHER CONDITIONS AS WELL AS LEGAL, REGULATORY AND MARKET RESPONSES TO CLIMATE CHANGE.
Additional information regarding climate change and the Company is available in our annual Sustainability Report and TCFD Report, both of which can, or will be, found on our website at www.internationalpaper.com. Our 2023 Sustainability Report and 2023 TCFD Report will be available later in 2024. The information contained in such reports is not incorporated by reference into this Annual Report on 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 sustainability matters discussed herein or in our sustainability 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.
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 adhesives. For further information concerning fiber supply purchase agreements, see page 40.
The following are the executive officers of our Company as of the date of this filing.
Mark S. Sutton, 56, chairman 62, chair (since January 1, 2015) &2015 and member of the Board of Directors since June 2014) and chief executive officer (since November 1, 2014). In his 40 years with the Company, Mr. Sutton previouslyhas served asin various roles of increasing responsibilities including president &and chief operating officer from June 1, 2014 to October 31, 2014,(June 2014-October 2014), senior vice president - industrial packaging from November 2011 to May 31, 2014,Industrial Packaging (2011-2014), senior vice president - printingPrinting and communications papers ofCommunications Papers the Americas
from 2010 until 2011, (2010-2011), senior vice president - supply chain from 2008 to 2009,Supply Chain (2008-2009), vice president - supply chain from 2007 until 2008,Supply Chain (2007-2008), and vice president - strategic planning from 2005 until 2007.Strategic Planning (2005-2007). Mr. Sutton joined International Paper in 1984. Mr. Sutton serves onis also a member of the board of directors of The Kroger Company.Company (NYSE: KR). 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.directors. He also serves on the board of directors offor Memphis Tomorrow, an association of CEOs of Memphis’ largest businesses working to promote opportunity and boardquality of governorslife for New Memphis Institute.all Memphians. Mr. Sutton has been a director since June 1, 2014.joined International Paper in 1984.
W. Michael Amick, Jr., 54,Clay R. Ellis, 53, senior vice president - paper the Americas & IndiaGlobal Cellulose Fibers and IP Asia since January 1, 2017.2023. Mr. AmickEllis previously served as senior vice president - Enterprise Operational Excellence (2019-2022) and vice president - Manufacturing, Global Cellulose Fibers (2016-2019). Prior to that, he served as vice president of Pulp (2014-2016), and vice president Manufacturing, North American papers & consumer packaging from July 2016 until December 2016,Papers (2012-2014). Mr. Ellis joined International Paper in 1992.
Aimee Gregg,45, senior vice president, Supply Chain and Information Technology, since January 2023. Prior to this role, Ms. Gregg served as vice president and general manager, Containerboard and Recycling (2020-2023); vice president, Recycling and Recovered Fiber (2018-2020), and general manager, Recycling, (2016-2018). Ms. Gregg joined International Paper in 2002.
W. Thomas Hamic, 57, senior vice president - North American papers, pulp & consumer packaging from November 2014 until June 2016, vice president - president, IP India, from August 2012Container and chief commercial officer since January 2023. Prior to October 2014, and vice president and general manager for the coated paperboard business from 2010 to 2012.this role, Mr. Amick joined International Paper in 1990.
C. Cato Ealy, 61,Hamic served as senior vice president - corporate development since 2003.Global Cellulose Fibers and Enterprise Commercial Excellence (2020-2022). 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.
Tommy S. Joseph, 58, senior vice president - manufacturing, technology, EH&S and global sourcing since January 2010. Mr. JosephHamic previously served as senior vice president - manufacturing, technology, EH&S from February 2009 until December 2009,Containerboard and vice president - technology from 2005 until February 2009.Enterprise Commercial Excellence (2019-2020). 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, senior vice president & chief financial officer since February 22, 2017. Mr. LandauHamic has also 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- Containerboard and recycling from 2007 to 2011. Mr. Landau serves on the board of directors of Factory
Mutual Insurance Company (FM Global)Recycling, North American Container(2015-2019). Mr. LandauHamic became vice president and general manager of the South Area Container the Americas in 2009, and was appointed to the role of vice president, Industrial Packaging Group’s Finance and Strategy in 2010. Mr. Hamic joined International Paper in 1991.
Timothy S. Nicholls, 56,Allison B. Magness, 46, senior vice president - industrial packaging the AmericasManufacturing and Environmental Health and Safety (”EHS”) since January 1, 2017.2023. Prior to this role, she served as vice president, South Area, North American Container (2019-2022). Previously she served in a number of roles including vice president, Manufacturing and Containerboard (2015-2019); manager, Technical Services, North American Papers and Pulp (2013-2015); and mill manager of the Franklin Mill (2011-2013). Ms. Magness joined International Paper in 2000.
Timothy S. Nicholls, 62, senior vice president and chief financial officer since June 2018. Mr. Nicholls previously served as senior vice president - industrial packaging from November 2014 through December 2016,Industrial Packaging the Americas (2017-2018), senior vice president - printingIndustrial Packaging (2014-2016), senior vice president - Printing and communications papersCommunications Papers of the Americas from November 2011 through October 2014,(2011-2014), senior vice president and chief financial officer from 2007 until 2011,(2007-2011), vice president and executive project leader of IP Europe during 2007,(2007), and vice president and chief financial officer - IP Europe from 2005 until 2007.(2005-2006). Mr. Nicholls joined International Paper in 1999 following our acquisition of Union Camp Corporation where he had worked since 1991.
Thomas J. Plath, 54, 60, senior vice president - human resourcesHuman Resources and global citizenshipCorporate Affairs since March 1, 2017.January 2023. Prior to this role, he served as senior vice president - Human Resources and Global Citizenship (2017-2022). Mr. Plath previously served as vice president - human resources,Human Resources, global businesses from November 2014 through February 2017,(2014-2017), and vice president - HR manufacturing, technology, EH&S– Human Resources Manufacturing, Technology, EHS and global supply chain from April 2013 to November 2014.Global Supply Chain (2013-2014). Mr. Plath joined International Paper in 1991.
Jean-Michel Ribieras, 55,James P. Royalty, Jr., 54, senior vice president - global cellulose fibersContainerboard and Recycling since July 2016. Mr. Ribieras previouslyJanuary 2023. Previously, he served as senior vice president -and president, IP Europe, Middle East, Africa & Russia from 2013 until June 2016, (2019-2022); vice president, Corporate Development
and Disruptive Technologies (2018-2019); vice president, - IP Latin America from 2009 until 2013.Strategic Projects (2017-2018); vice president, Investor Relations (2013-2017); vice president and general manager, Container the Americas (2008-2013). Mr. RibierasRoyalty joined International Paper in 1993.1991.
SharonJoseph R. Ryan, 58,Saab, 55, senior vice president, general counsel &and corporate secretary since November 2011. Ms. RyanJuly 2022. Mr. Saab previously served as vice president, actingdeputy general counsel &and assistant 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,(2019-2022) and associate general counsel from 2006 until 2009. Ms. Ryan- Industrial Packaging North America, Europe, Middle East & Africa (2014-2019). Mr. Saab joined International Paper in 1988.2001.
John V. Sims,Ksenia N. Sosnina, 55, senior vice president, - president, IP Europe, Middle East Africa & RussiaAfrica since July 2016. Mr. Sims previously2023. Earlier in her career, Ms. Sosnina 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,an officer and vice president financeof IP Russia (2015-2016) and strategy, industrial packaging, from 2009 until 2013. Mr. Sims is a directorserved as chief executive officer of the Ilim Holding S.A., a Swiss Holding Company in which International Paper holds a 50% interest, and of its subsidiary, Ilim Group. Mr. SimsGroup (2016-2023). Ms. Sosnina joined International Paper in 1994.2013.
Catherine I. Slater, 54, senior vice president since January 2018. Ms. Slater previously servedThere are no family relationships, as senior vice president - consumer packaging from December
2016defined by the instructions to December 2017. Ms. Slater joined International Paper from Weyerhaeuser Company in December 2016, effective with the completionthis item, among any of the acquisitionCompany’s executive officers and any other executive officers or directors 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.Company.
Gregory T. Wanta, 52, senior vice president - North American container since November 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 and starch. 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 on page 30.
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. TheseForward-looking statements are oftencan be identified by the use of forward-looking or conditional words “will,such as “expects,” “anticipates,” “believes,” “estimates,” “could,” “should,” “can,” “forecast,” “intend,” “look,” “may,” “should,“will,” “continue,“remain,” “anticipate,“confident,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,”“commit” and words of a“plan” or similar nature.expressions. These statements are not guarantees of future performance and reflect management’s current views with respectand speak only as to future events, whichthe dates the statements are made and 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) 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 greenhouse gases and other sustainability matters; (ii) the level of our indebtedness, risks associated with our variable rate debt, and changes in interest rates; (ii)rates (including the impact of current elevated interest rate levels); (iii) the impact of global and domestic economic conditions and industry conditions, including but not limitedwith respect to current negative macroeconomic conditions,
inflationary pressures and changes in the cost or availability of raw materials, energy sources and transportation costs,sources, supply chain shortages and disruptions, competition we face, cyclicality, and changes in customer or consumer preferences, government regulation, demand and pricing for our products; (iii)products, and conditions impacting the credit, capital and financial markets; (iv) risks arising from conducting business internationally, domestic and global geopolitical conditions, military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts, and the potential geopolitical and economic conditions and political changes, including but not limited to the
impairment of financial institutions,consequences associated therewith), 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; (v) the amount of our future pension funding obligation, changes in tax lawsobligations, and pension and health carehealthcare costs; (iv) unanticipated expenditures related(vi) the costs of compliance, or the failure to the cost of compliancecomply with, existing and new environmental (including with respect to climate change and GHG emissions), tax, labor and employment, privacy, anti-bribery and anti-corruption, and other U.S. and non-U.S. governmental regulationslaws and to actual or potential litigation; (v) whether we experience aregulations; (vii) any material disruption at oneany of our manufacturing facilities; (vi) risks inherent in conducting business through a joint venture;facilities or other adverse impact on our operations due to severe weather, natural disasters, climate change or other causes; (viii) our ability to realize expected benefits and (vii)cost savings associated with restructuring initiatives; (ix) our ability to achieve the benefits we expectexpected from, alland other risks associated with, acquisitions, joint ventures, divestitures, spin-offs, capital investments and restructurings.other corporate transactions, (x) cybersecurity and information technology risks, including as a result of security breaches and cybersecurity incidents; (xi) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (xii) our exposure to claims under our agreements with Sylvamo Corporation; (xiii) 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 (xiv) our ability to attract and retain qualified personnel, particularly in light of current labor market conditions. 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 reports filed with the U.S. Securities and Exchange Commission. 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.
In addition
The Company faces a variety of risks, including 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 following are material risk factors of which we are aware, including risk factors that could cause the Company’s actual results to differ materially from those contemplated in any forward-looking statement. If any of the risksevents or circumstances described in any of the following risk factors occurs, our business, results of operations and/or financial condition could be materially and uncertaintiesadversely affected, and our actual results may differ materially from those contemplated in any forward-looking statements we make in any public disclosures. Additional factors that could affect our business, results of operations and/or financial condition are discussed elsewhere in this Annual Report on Form 10-K (particularly(including in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), or and in the Company’s other filings with the Securities and Exchange Commission,Commission. Moreover, risks or uncertainties not presently known to us, or that we currently deem immaterial, may adversely affect our business, results of operations, or financial condition.
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 confidence and spending, commercial printing and advertising activity, and white-collar employment levels, all of which impact demand for our products, or otherwise adversely affect our business. We may also be adversely affected by catastrophic or other unforeseen events, including health epidemics or pandemics, such as COVID-19, natural disasters, geopolitical events, military conflicts, terrorism, port and canal blockages and similar disruptions, political, financial or social instability, or civil or social unrest. Future health pandemics could adversely impact portions of our business to varying degrees, including as the result of lower demand for certain products, supply chain and labor disruptions, and higher costs. These effects could have a material impact on our business, results of operations, cash flow, liquidity, or financial condition. 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, and negative developments associated with interest rates, asset values, 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.
Macroeconomic conditions in the U.S. and globally continue to be challenging in various respects, including as the result of significant inflationary pressures, elevated interest rates, challenging labor market conditions, and adverse effects associated with current geopolitical conditions. Our operations have been adversely affected by, and are expected to continue to be adversely affected by, these negative macroeconomic conditions, including as the result of lower demand for certain products, higher raw material and labor costs. Moreover, any significant deterioration in current negative macroeconomic conditions, or any recovery therefrom that is significantly slower than anticipated, could have a material adverse effect on our business, results of operations or financial condition. Further if current negative macroeconomic conditions result in significant disruptions to capital and financial markets, our cost of borrowing, our ability to access capital on favorable terms, and our overall liquidity could be adversely affected.
The COVID-19 pandemic adversely impacted portions of our business to varying degrees, including as the result of lower demand for certain of our products, supply chain and labor disruptions, and higher costs. If public health conditions related to COVID-19 or a similar health epidemic or pandemic were to significantly worsen in the U.S. or in other markets in which we operate, our business and financial results could be adversely impacted, and we may be unable to effectively respond to or predict any such developments.
CHANGES IN INTERNATIONAL CONDITIONS OR OTHER RISKS ARISING FROM CONDUCTING BUSINESS INTERNATIONALLY COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. As a global producer of renewable fiber-based packaging and pulp products, we could be substantially affected by risks related to the countries outside the U.S. 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, corruption, anti-American sentiment, social and ethnic unrest, natural disasters, military conflicts and terrorism, 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 and the enforceability of contracts rights and intellectual property rights) fluctuations in the value of local currency versus the U.S. dollar, foreign exchange control regimes (including restrictions on currency conversion) repatriating cash from foreign countries to the U.S., downturns or changes in economic conditions (including in relation to commodity inflation), adverse tax consequences or rulings, import restrictions or controls, economic sanctions, health guidelines and safety protocols, nationalization, changes in social, political or labor conditions, and adverse developments regarding sustainability, environmental regulations and trade policies and agreements, any of which risks could negatively affect our financial results. For example, a significant portion of sales from our Global Cellulose Fibers business are concentrated in China and could be adversely affected by changes in economic conditions and demographics in China. 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 us, 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 U.S. and China), which may 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.
During the third quarter of 2023, we completed the sale of our ownership stake in Ilim and Ilim Group, and we no longer have investments in Russia following the completion of this sale. Prior to the completion of this sale, the military conflict between Russia and Ukraine adversely affected our Ilim joint venture and our financial results, including as the result of economic sanctions, actions by the Russian government, and associated domestic and global economic and geopolitical conditions. Additionally, while we no longer have any investments in Russia, we may continue to be adversely affected by ongoing geopolitical instability and the economic consequences and disruptions arising therefrom, including as the result of the military conflict between Russia and Ukraine, the military conflict between Israel and Hamas, and increasing tensions between China and Taiwan. These risks may be further heightened in the event of the expansion in the scope or escalation of any such military conflicts.
In addition, our international operations are subject to regulation under U.S. law and other laws related to
operations in foreign jurisdictions, including laws prohibiting bribery of government officials and other corrupt practices. For example, the Foreign Corrupt Practices Act of 1977, as amended, 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 Assets 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, damage to our reputation and the prosecution of executives overseeing our international operations.
RISKS RELATED TO CLIMATE AND WEATHER
WE ARE SUBJECT TO RISKS ASSOCIATED WITH CLIMATE CHANGE AND OTHER SUSTAINABILITY MATTERS 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 and drought. Climate change may also contribute to the decreased productivity of forests and adverse impacts on the distribution and abundance of species, and 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 of compliance with legal or regulatory initiatives, could have a material adverse effect on our results of operations and business.
There has been an increased focus, including from investors, customers, the general public, U.S. and foreign governmental and nongovernmental authorities, regarding sustainability matters, including with respect to climate change, GHG emissions, packaging and waste, sustainable supply chain practices, biodiversity, deforestation, land, energy and water use, diversity and inclusion and other human capital matters. This increased focus on sustainability matters, including climate change, may result in more prescriptive reporting requirements with respect to sustainability metrics, an increased 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 sustainability matters, we have voluntarily provided disclosure and established targets and goals with respect to various sustainability 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% from 2019-2030, which have been approved by SBTi as consistent with levels required to meet the goals of the 2015 Paris Agreement. Meeting these and other sustainability targets and goals have increased, and may continue to increase, our capital and operational costs. There also continues to be a lack of consistency in legal and regulatory initiatives regarding climate change across jurisdictions and various governmental entities. We also expect to incur additional expenses as a result of U.S. and international regulators requiring additional disclosures regarding GHG emissions. Further, there can be no assurance regarding the extent to which our climate and other sustainability 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 climate and other sustainability targets and goals, on our projected timelines or at all, or if such goals and targets are perceived negatively, including the perception that they are not sufficiently robust or, conversely, are too costly or not otherwise in our best interests, any such developments 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 establish climate or other sustainability targets and goals at comparable levels to ours, which could result in competitors having lower supply chain or operating costs as well as reduced reputational risks associated with not meeting such goals.
Other climate-related business risks that we face include risks related to the transition to a lower-carbon economy, such as increased prices for fossil fuels; the introduction of a carbon tax; increased regulation of our operations and our products, and the resulting potential for increased litigation; 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 RELATED TO OUR INDEBTEDNESS
THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. As of December 31, 2023, we had approximately $5.6 billion of outstanding indebtedness. The level of our indebtedness could have important factorsconsequences 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 expenditures and future business opportunities;
•the debt service requirements of our indebtedness could make it more difficult for us to satisfy other obligations;
•it may limit our ability to adjust to changing market conditions, including to take actions in connection with elevated interest rates (such as in the current elevated interest rate environment), and place us at a competitive disadvantage compared to our competitors that have less debt;
•it may increase our exposure to risks related to fluctuations in foreign currency as we earn profits in a variety of currencies around the world and our debt is denominated in U.S. dollars;
•it may increase our exposure to the risk of increased interest rates insofar as we are compelled to refinance indebtedness at higher interest rates, which risk is heightened by the current high interest rate environment; 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 us to meet and
maintain 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 causeaffect our financial and operational flexibility and otherwise increase the risks associated with our indebtedness as noted above.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR VARIABLE RATE DEBT We have interest rate risk, primarily related to variable rate debt in the aggregate amount of approximately $908 million as of December 31, 2023, associated with our short-term cash investments, variable rate debts, supply chain financing, short-term debt and the installment notes and loans in the Temple-Inland timber monetization special purpose entities. Interest rates rose significantly during 2022 and 2023 and could remain high and volatile in 2024 and beyond. Changes in interest rates impact how much we earn on our short-term cash investments, the interest rate we pay on our variable rate debt and credit agreements, the cost of supply chain financing and the refinance rate of our short-term debt. For additional information, see “Market Risk – Interest Rate Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 44.
CHANGES IN CREDIT RATINGS ISSUED BY NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS COULD ADVERSELY 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. 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. Our desire to maintain the Company's investment grade rating may cause us to take certain actions designed
to improve our 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 $1.1 billion of our debt as of December 31, 2023, the applicable interest rate on such debt may increase upon each downgrade in our credit rating. As a result, a downgrade in our credit rating 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 in connection with Temple-Inland's 2007 sales of forestlands, may be downgraded below a required rating. Prior to 2013, certain banks had 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, some 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 us to additional costs of securing a replacement letter-of-credit bank or could result in an acceleration of payments of up to $485 million in deferred income taxes if replacement banks cannot be obtained. The deferred taxes are currently recorded in our consolidated financial statements. See Note 15, Variable Interest Entities, on pages 78 through 80, and Note 13. Income Taxes, on pages 72 through 74, in Item 8. Financial Statements and Supplementary Data for further information.
RISKS RELATING TO OUR PENSION AND HEALTHCARE COSTS
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 18. Retirement Plans, on pages 82 through 87, in Item 8. Financial Statements and Supplementary Data) and substantially all hourly union and non-union employees regardless of hire date. We 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. 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 resultsplan experience and assumptions of future experience. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual market returns on plan assets, changes in general interest rates and in the number of retirees may impact 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 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 PLAN IS CURRENTLY FULLY FUNDED ON A PROJECTED BENEFIT OBLIGATION BASIS; HOWEVER, THE POSSIBILITY EXISTS THAT OVER TIME WE MAY BE REQUIRED TO MAKE CASH PAYMENTS TO THE PLAN, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record an asset or a liability associated with our pension plans equal to differ materially from those projectedthe 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, 2023, we had an overfunded U.S. qualified pension asset balance of $118 million. When aggregated with U.S. nonqualified pension obligations, the benefit deficit recorded under the provisions of Accounting Standards Codification ("ASC") 715, “Compensation – Retirement Benefits,” at December 31, 2023 was $146 million. The amount and timing of future contributions, which could be material, will depend upon a number of factors, including the actual earnings, changes in any forward-looking statement.values of plan assets and changes in interest rates.
RISKS RELATING TO INDUSTRY CONDITIONS
CHANGES IN THE COST OR AVAILABILITY OF RAW MATERIALS, ENERGY AND TRANSPORTATION HAVE RECENTLY AFFECTED, AND COULD CONTINUE TO 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 general macroeconomic conditions. 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 recycled fiber prices. Taking into account ongoing inflationary conditions in the U.S. and globally, we have experienced, and may continue to experience, a significant increase in various costs, including recycled fiber, energy, freight, chemical, and other supply chain costs, which has adversely affected and is expected to continue to adversely affect our results of recycled fiber.operations. Energy prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past and may continue to increase and/or fluctuate in the future. Moreover, the availability of labor and the market price for fuel may affect our costs for third-party transportation. In addition, because our businesses operate in highly competitive industry segments, we may have not always been able, and may in the future be unable 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 CUSTOMER OR CONSUMER PREFERENCES, AND GOVERNMENT REGULATION 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 customer or
consumer preferences may increase or decrease the demand for our products.fiber-based products and non-fiber substitutes. Moreover, customer and consumer preferences are constantly changing based on, among other factors, cost, convenience, health concerns and perceptions and an increased awareness of sustainability considerations. These consumer preferences may affect the prices of our products. In addition, regulatory developments, such as new or developing regulation or single-use packaging products could significantly alter the market for our products. Consequently, our financial results are sensitive to changes in the pricing, and supply and demand for our products. In addition, our reputation and financial 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 STATESU.S. AND INTERNATIONALLY COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate in a competitive environment, both in the United StatesU.S. 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, the increased use of artificial intelligence and machine learning solutions in our industry, and the entry of new competitors into 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. Customer shifts away from wood-fiber products toward such substitute products may adversely affect our business and financial results.
RISKS RELATING TO MARKET AND ECONOMIC FACTORSOUR OPERATIONS
ADVERSE DEVELOPMENTS IN GENERAL BUSINESS AND ECONOMIC CONDITIONS
MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD HAVE AN ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS ANDNEGATIVELY IMPACT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General economicRESULTS.We operate our facilities in compliance with applicable rules and regulations 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 prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial condition. Any of our manufacturing facilities, or any of our machines within an otherwise
operational facility, could cease operations unexpectedly due to a number of events, including:
•adverse weather events like fires, floods, earthquakes, hurricanes, winter storms and extreme temperatures, or other catastrophes (including adverse weather conditions that may adversely affect industrial non-durable goods production, consumer spending, commercial printingbe intensified by climate change);
•the effect of a drought or reduced rainfall on its water supply;
•disruption in the supply of raw materials or other manufacturing inputs;
•terrorism or threats of terrorism;
•information system disruptions or failures due to any number of causes, including cyber-attacks;
•domestic and advertising activity, white-collar employment levelsinternational laws and consumer confidence, allregulations applicable to us 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 which impacta boiler or other equipment;
•damage or disruptions caused by third parties operating on or adjacent to one of our manufacturing facilities;
•disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
•a widespread outbreak of an illness or any other communicable disease, or any other public health crisis or any impacts related to government regulation as a result thereof;
•failure of our third-party service providers and business partners to satisfactorily fulfill their commitments and responsibilities in a timely manner and in accordance with agreed upon terms;
•labor difficulties; and
•other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our products.products and/or require us to make unplanned expenditures. If one of our 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 MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM STRATEGIC ACQUISITIONS, JOINT VENTURES, DIVESTITURES, SPIN-OFFS, CAPITAL INVESTMENTS, CAPITAL PROJECTS 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, capital projects, and other corporate transactions that we may pursue and to realize the benefits we expect from such transactions. Our expenditures for capital projects could be higher than we anticipate, we may experience unanticipated disruptions or delays in completing the projects and we may not achieve the desired benefits from those projects, including as a result of a deterioration in macroeconomic conditions in our business, unavailability of capital equipment or related materials, delays in obtaining permits or other requisite approvals or changes in laws and regulations. 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 and 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 a higher strategic value on such businesses and assets than we do.
Corporate transactions of this nature that we may pursue involve a number of special risks, including with respect to our inability to realize our business goals with 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.
Any of these circumstances could adversely affect our results of operations, cash flows and financial condition, and the trading price of our common stock.
WE COULD BE EXPOSED TO LIABILITY FOR BRAZILIAN TAXES UNDER OUR AGREEMENTS WITH SYLVAMO CORPORATION. In connection with the spin-off of Sylvamo Corporation ("Sylvamo"), we previously entered into agreements with Sylvamo and its subsidiaries, including among others a tax matters agreement. 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 the first $300 million 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 total approximately $119 million (adjusted for variation in currency exchange rates) in tax, plus interest, penalties, and fees. The interest, penalties, and fees currently total approximately $274 million (adjusted for variation in currency exchange rates), which reflects a recent law change pursuant to which the Brazil tax authority on January 16, 2024 agreed to cancel a portion of the interest, penalties, and fees. Accordingly, the assessments currently total approximately $393 million (adjusted for variation in currency exchange rates). See Note 14 Commitments and Contingent Liabilities on pages 74 through 78 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 salaried workers continues to be competitive, particularly for employees with specialized technical and trade experience. This, along with the current competitive labor market and ongoing inflationary conditions, has led to higher labor costs, particularly at our converting facilities. Although our focused efforts to attract and retain employees, including by offering higher levels of compensation in certain instances, resulted in a decreased attrition rate in 2023 compared to the prior two years’ historically high attrition rates, recruiting and retaining talent (particularly those early in their careers) continues to be a challenge. In addition, volatilitywe 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 and changing work-life balance expectations, 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.
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 to renegotiate such contracts on favorable terms. Negotiations between the company and USW regarding the mill master collective bargaining agreement (which expired August 2023) and related mill joint pension council master agreement (which expired September 2023) resulted in new agreements which will expire August 2027 and September 2027, respectively. Negotiations between the Company and USW regarding the converting master collective bargaining agreement (which expires April 2024) and related converting joint pension council master (which expires September 2024) are scheduled to begin on February 19, 2024. USW represents approximately 10,600 employees in our converting facilities. We have also experienced work stoppages in the capitalpast and credit markets,may experience them in the future. Moreover, labor organizations may attempt to organize groups of additional employees from time to time, recent 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, some of which are provided or managed by third parties, for data capture, processing, storage and reporting. We have invested in information technology security initiatives and risk management, as well as
incident response, business continuity and disaster recovery plans but we cannot eliminate all systematic or external risk. 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. Additionally, the regulatory environment surrounding information security data privacy and data protection is becoming increasingly restrictive and is evolving frequently.
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 recurring attempts by third parties to access information, manipulate data or disrupt our operations. In this regard, we have experienced cyber threats and incidents, although none have materially affected us, including our results of operations or financial condition. Given the current cyber threat environment, we expect the volume and intensity of cybersecurity attacks and attempted intrusions to increase in the future. In addition, despite careful security and controls design, implementation, updating, monitoring and independent third-party verification, our information technology systems, and those of our third-party providers or joint venture partners, could be compromised or disrupted due to employee error or malfeasance, cyber-attacks, including ransomware, malware, phishing attacks, or data or security breaches by malicious actors such as common hackers, criminal groups or nation-state organizations or social activist ("hacktivist") organizations, disruptions resulting from geopolitical events, natural disasters, failures or impairments of telecommunications networks or other catastrophic events. Such attacks are increasing in complexity, and the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks by making cyberattacks more difficult to detect, contain, and mitigate. Furthermore, the significant increase in remote working and personal device use increases the risks of cyber incidents and the improper dissemination of personal or confidential information. Moreover, hardware, software or applications we use may have inherent vulnerabilities or defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. In addition, the cybersecurity-related threats that we face may remain undetected for an extended period of time. In the event that our information systems are disrupted or compromised, or the information systems of any businesses with which we interact, are disrupted or compromised, in a manner which impacts interest rates, currency exchange ratesus or our information systems, as a result of any cybersecurity
attack, data or security breach, or other security incident, any such developments could result in lost sales, business delays, negative publicity or reputational impact, and the availabilitya loss of credit, couldcustomer confidence, and have a material adverse effect on our business or financial conditionresults. Any such incident or breach could also result in operational or supply chain disruptions, data loss, corruption 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 resultscustomers to conduct business with us, the acquisition, use or disclosure of operations.
THE LEVEL OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND IMPAIR OUR ABILITY TO OPERATE OUR BUSINESS. Asdata or inability to access data, the release of December 31, 2017, International Paper had approximately $11.2 billion of outstanding indebtedness. The level ofconfidential Information about our indebtedness could have important consequences to our financial condition, operating resultsoperations, 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 expenditures and future business opportunities;
the debt service requirements of our indebtedness could make it more difficult forsubject us to satisfy other obligations;
litigation and government enforcement actions. Further, in such event, access to applications required to plan our indebtedness that is subject to variable ratesoperations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of interest exposes us to increased debt service obligations in theintellectual property or trade secrets, and loss or inappropriate disclosure of confidential company, employee, customer or vendor information, could also stem from such incidents. Moreover, any significant cybersecurity event of increased interest rates;
it may limit our ability to adjust to changing market conditions 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 that require meeting and maintaining certain financial ratios and covenants. A significant or prolonged downturn in general business and economic conditions may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take actiondevote significant management time and resources in response to reducesuch event, interfere with the pursuit of other important business strategies and initiatives, and cause us to incur additional expenditures, which could be material, including to investigate and remediate such event, recover lost data, prevent future compromises and adapt systems and practices in response to such events. There is no
assurance that any remedial actions will meaningfully limit the success of future attempts to breach our debtinformation systems, particularly because malicious actors are increasingly sophisticated and utilize tools and techniques specifically designed to circumvent security measures, avoid detection and obfuscate forensic evidence, which means we may be unable to identify, investigate or to actremediate effectively or in a manner contrary to our current business objectives.
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 may limit our access to the capital markets,timely manner. Additionally, while we 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 actionsinsurance coverage designed to improve its cash flow, including saleaddress certain aspects of assets, suspensioncyber risks in place, such insurance coverage may be insufficient to cover all losses or reductionall types of our dividend and reductions in capital expenditures and working capital.
Under the terms of the agreements governing approximately $1.4 billion of our debt as of December 31, 2017, the applicable interest rate on such debtclaims that 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 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 delivered to Temple-Inlandarise in connection with Temple-Inland's 2007 salessuch incidents.
WE MAY BE UNABLE TO REALIZE THE EXPECTED BENEFITS AND COSTS SAVINGS ASSOCIATED WITH RESTRUCTURING INITIATIVES, INCLUDING OUR STRATEGIC ACTIONS ANNOUNCED IN OCTOBER 2023. We have restructured portions of forestlands may be downgraded below a required rating. Since 2007, certain banksour operations from time to time, have fallen below the required ratings thresholdcurrent restructuring initiatives taking place, and were successfully replaced, or waivers were obtained regarding their replacement. As a result of continuing uncertaintyit is likely that we will engage in restructuring activities in the banking environment, a number of the letter-of-credit banks currentlyfuture. In particular, as previously disclosed 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 subjectOctober 2023, the Company committed to additional costscertain strategic actions impacting its Containerboard and Global Cellulose Fibers businesses as further described below. Consistent
with this initiative, in an accelerationDecember 2023, the Company permanently closed its containerboard mill in Orange, Texas and permanently ceased production on two of payments of up to $538 million in deferred income taxes if replacement banks cannot be obtained.its pulp machines at its Riegelwood, North Carolina and Pensacola, Florida mills. The deferred taxes are currentlyCompany recorded incharges associated with these actions during the Company's consolidated financial statements.three months ended December 31, 2023. See Note 12, Variable Interest Entities, on pages 63 through 64,6 - Restructuring and Note 10, Income TaxesOther Charges, Net, on pages 57 through 60, in Item 8. Financial Statements and Supplementary Data for furtheradditional 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 priormay be unable to July 1, 2004realize the expected benefits from the strategic actions described above and substantially all hourlyother restructuring initiatives which we may take. In particular, restructuring activities may divert the attention of management, disrupt our operations and union employees regardless of hire date. We provide retiree health care benefitsfail to certain former U.S. hourly employees, as well as financial assistance towardsachieve the intended cost of individual retiree medical coverage for certain former U.S. salaried employees. Our pension costsand operational benefits. In addition, because we 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 equitynot able to predict or control market returns, changes in general interest rates andconditions, including changes in the number of retireessupply and demand for our products, the prices for our products or our manufacturing costs, we may resultnot be able to predict the appropriate time to undertake restructurings. Further, we may incur cash and non-cash charges in increased pension costs in future periods. Likewise, changes inconnection with restructuring activities, which may be material. Moreover, judgment is required to estimate restructuring charges, and these estimates, and the assumptions regarding current discount rates and expected rates of return on plan assets could increase pension costs.
OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE
REQUIRED TO MAKE CASH PAYMENTS TO THE PLANS, REDUCING THE CASH AVAILABLE FOR OUR BUSINESS. We record a liability associated with our pension plans equal to the excess of the benefit obligation over the fair value of plan assets. The benefit liability recorded under the provisions of Accounting Standards Codification (ASC) 715, “Compensation – Retirement Benefits,” at December 31, 2017 was $2.0 billion. The amount and timing of future contributions 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 COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Our operating results and business prospects could be substantially affected by risksunderlying them, may change as additional information becomes available or facts or circumstances related to the countries outside the United States in which we have manufacturing facilities or sell our products. Specifically, Russia, Brazil, Poland, India, and Turkey, where we have substantial manufacturing facilities, are countries that are exposed to economic and political instability in their respective regions of the world. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, adverse tax consequences, nationalization or any change in social, political or labor conditions in any of these countries or regions 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 (e.g., NAFTA) or increased trade friction between countries (e.g., the U.S. and China) 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. 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.
restructuring initiatives change.
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, OR THE FAILURE TO COMPLY 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. In addition, any failure or alleged failure to comply with applicable laws, regulations or other government requirements could adversely affect our reputation, and financial results or result in, among other things,
litigation, revocation of required licenses, internal investigations, governmental investigations or proceedings, administrative enforcement actions, fines and civil and criminal liability.
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 willto continue to incur, significant capital, operating and other expenditures complying with applicable and forthcoming environmental laws and regulations.regulations, including with respect to GHG emissions and other climate-related matters. Additionally, new environmental laws, regulations or other requirements to address GHG emissions or climate change may cause us to incur additional compliance costs, including costs that we are unable to predict at the current time. Moreover, there has historically been, and may continue to be, a lack of consistency between jurisdictions regarding legal requirements with respect to climate and GHG emission matters, which has created and may continue 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 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 changes 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, China’s Personal Information Protection Law and comprehensive privacy laws in many states, including California, Connecticut, Colorado, Utah, and Virginia. These laws impose 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 considering, 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 continue to 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. Additionally, regulatory bodies and others tasked with enforcing privacy and data protection laws have been actively engaging in enforcement investigations and actions. 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. We proactively use internal and external resources to monitor compliance with relevant legislation and continually evaluate and, where necessary, modify our data processing practices and policies 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 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 taxation, could increase our taxes and have an adverse effect on our financial results. For example, the Organization for Economic Cooperation and Development ("OECD") has proposed a number15% global minimum tax applied on a country-by-country basis (the "Pillar Two rule"), and many countries (including countries in which we operate) have enacted or begun the process of laborenacting laws adopting the Pillar Two rule. The first component of the Pillar Two rule is expected to begin applying in 2024, with the second component expected to go into effect in 2025. While we do not currently expect the Pillar Two rule to have a material impact on our effective tax rate, our analysis is ongoing as the OECD continues to release guidance and employmentas countries begin implementing legislation. Future developments could change our current assessment, and it is possible that the Pillar Two rule could adversely impact our effective tax rate in future periods.
In addition, the application of tax law is subject to interpretation and 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, taxing authorities could interpret our application of certain laws and regulations differently. We are currently subject to tax audits in the U.S. and other taxing jurisdictions around the world. 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.
As with many technological innovations, artificial intelligence (“AI”) presents risks and challenges that could significantly increaseaffect its adoption, and therefore our operating costs and reduce our operational flexibility. Additionally, changing privacy lawsbusiness. Uncertainty in the United States, Europelegal regulatory regime relating to artificial intelligence may require significant resources to modify and elsewhere, including the adoption of 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 rules under GDPR will require an extensive review of our global data processing systems, which is ongoing. A failuremaintain business practices to comply with GDPR could result in fines upU.S. and non-U.S. laws, the nature of which cannot be determined at this time. Several jurisdictions, including Europe, the U.S. federal government, and certain U.S. states, have already proposed or enacted laws, regulations, and other requirements governing AI. For example, on October 30, 2023, the Biden administration issued an Executive Order to, 20 million Eurosamong other things, establish extensive new standards for AI safety and security. Other jurisdictions may decide to adopt similar or 4% of annual global revenues, whichever is higher.more restrictive requirements that may render the use
Asof AI challenging. These requirements may make it harder for us to conduct our business using AI, lead to regulatory fines or penalties, require us to change our business practices, or limit our use of AI. If our use of AI is restricted, our business may be less efficient, or we may be at a final example, in December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cutscompetitive disadvantage. Any of these factors could adversely affect our business, financial condition, and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code. For a discussionresults of the immediate and potential impacts to the Company of the Tax Act and the uncertainties around the Company's current estimates of such impacts, see Note 10, Income Taxes.operations.
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 74 through 78 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 counsel and a private letter ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the qualification of the spin-off of Sylvamo and certain related transactions as a transaction that is generally tax-free to Sylvamo, 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 in rendering such opinion and private letter ruling. If any of the representations or covenants relied upon for the tax opinion or private letter ruling become inaccurate, incomplete or not complied with by the Company, Sylvamo or any lawsuitof their respective subsidiaries, the tax opinion may be invalid and the conclusions reached therein could be jeopardized.
If the IRS ultimately determines that the spin-off is taxable, then the spin-off could be treated as a taxable dividend or claim willcapital 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 pursuant to a tax matters agreement between the Company and Sylvamo. However, there can be no assurance that Sylvamo would have adequate resources or liquidity if it were required to indemnify the Company for any such tax liability.
Even if the spin-off otherwise qualifies for non-recognition of gain or loss under Section 355 of the U.S. Tax Code, 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, directly or indirectly, as expected.part of a plan or series of related transactions that include the spin-off. For this purpose, any acquisitions of the Company’s or Sylvamo's common stock within two years before or after the spin-off are presumed to be part of such a plan, although the Company or Sylvamo may be able to rebut that presumption based on either applicable facts and circumstances or a “safe harbor” described in the U.S. tax regulations.
RISKS RELATING TO OUR OPERATIONS
MATERIAL DISRUPTIONS AT ONE OF OUR MANUFACTURING FACILITIES COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS. We operate
None.
RISK MANAGEMENT AND STRATEGY
The Company’s cybersecurity risk management processes are integrated into the Company’s overall risk management system. The Company has a formalized enterprise risk management program overseen by the Board of Directors and committees of the Board of Directors that addresses strategic, operational, financial, compliance, legal and information technologies and cybersecurity risks. In addition, the Enterprise Risk Management Council (“ERM Council”) is a management-level team comprised of senior vice presidents and other business leaders responsible for managing enterprise risks and planning and organizing the activities of our facilities in compliance with applicable rules and regulations and take measuresorganization to minimize the riskseffects 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, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
fires, floods, earthquakes, hurricanes or other catastrophes;
risk on the effect of a drought or reduced rainfall on its water supply;
the effect of other severe weather conditions on equipment and facilities;
terrorism 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 in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
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 ourCompany's business and financial results. The ERM Council regularly reports to the Board of Directors on areas of risk and risk management. The Chief Financial Officer serves as the ERM Council Lead. The Chief Audit Executive serves as the ERM Council Process Owner.
The Company has an Information Technology (“IT”) Risk Governance Program that aligns with the
enterprise risk management framework and assists with fulfilling oversight responsibilities for major IT risks, including cybersecurity risks. The IT Risk Governance Program identifies, defines, manages, measures and governs cybersecurity risks across the Company at an enterprise level. The IT Risk Governance Program is carried out by an IT Risk Identification and Mitigation Team (“IT RIM”), which is comprised of business leaders from information security, information technology, human resources, internal audit, legal, and risk. The IT RIM meets monthly, reviews all cybersecurity incidents meeting certain criteria, provides oversight with respect to cybersecurity matters at a management level, and reports to the ERM Council.
Our Risk Assessment Program
The Company has a risk assessment program in place to assess, identify and manage material risks from cybersecurity threats. Cybersecurity risks the Company faces include targeted attacks, ransomware, data theft, virus and intrusion software, as well as attacks to our website, financial applications, operational technology, telecommunications and human resources data. For a full discussion of cybersecurity risks facing the Company, please see Part I, Item 1A. Risk Factors - 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 secureKey aspects of the Company’s cybersecurity program include the following: •layered technical protective capabilities and detective surveillance controls;
•utilizing independent third parties to assess the Company’s practices related to, and provide expertise and assistance with, various aspects of information technology systemssecurity, as further described below;
•courses and awareness training on information security for data capture, processing, storageemployees with Company email or access to Company devices, including phishing, social engineering and reporting. Despite carefulother cybersecurity training as well as targeted training for specific roles based on responsibilities and risk level;
•global security and controls design, implementation, updatingprivacy policies; and
•business continuity, incident response and disaster recovery procedures, including table top exercises involving senior leaders.
The Company carries cyber insurance which provides coverage in connection with cybersecurity breaches.
Engagement of Third Parties
The Company engages third parties in connection with assessing, identifying and managing its cybersecurity risks, including the following:
•Engagement of an independent third party verification,with incident response expertise to provide intelligence-based cybersecurity solutions and services to assist the Company with preparing for, preventing, investigating, responding to and remediating cybersecurity incidents, including attacks that target on-premise, cloud, and critical infrastructure environments.
•Engagement of an independent third party to conduct an annual security program assessment of the controls, maturity and performance of the Company’s information security program and the information security risk associated with the Company’s business systems. The assessment uses the National Institute of Standards and Technology Cybersecurity Framework as its benchmark.
•Engagement of a leading third-party service provider to annually perform an external and an internal penetration assessment using industry standard tools and techniques.
Additionally, our information technology systems, and thoseInternal Audit team conducts annual assessments of our third party providers, could become subjectcyber programs and controls.
Oversight of Third Parties
The Company has processes to employee error or malfeasance, cyber attacks, or natural disasters. Network, system, applicationoversee and data breaches could result in operational disruptions or information misappropriation including, but not limited to, interruption toidentify material risks from cybersecurity threats associated with the Company’s use of third-party service providers. In this regard, the Company’s cybersecurity risk management program takes into account third-party 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 orderswhereby the Company could be deniedimpacted by the compromise of the security of vendors or misused. Theftother business relations of intellectual propertythe Company, and the Company has a comprehensive third-party access management system. In addition, the Company conducts risk-based due diligence on the profiles of third-party service providers with respect to cybersecurity risks prior to engagement, and providers of critical services are continuously monitored with respect to security risks. The Company also requires service providers to provide prompt notification of any actual or trade secrets, and inappropriate disclosuresuspected breach impacting Company data or operations.
The Company does not believe that risks from cybersecurity threats, including as a result of confidential company, employee, customerany previous cybersecurity incidents, have materially affected the Company, including its business strategy, results of operations 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.financial condition.
CERTAIN OPERATIONS ARE CONDUCTED BY JOINT VENTURES THAT WE CANNOT OPERATE SOLELY FOR OUR BENEFIT. Certain operationsGOVERNANCE
Role of the Board of Directors and its Committees
International Paper has an integrated board and executive-level governance structure that oversees risks from cybersecurity threats. The Company’s Board of Directors has primary oversight of our enterprise risk management program, which includes cybersecurity risk. Moreover, the Board of Directors is supported in Russia are carriedits oversight by the Audit and Finance Committee and PPE Committee, which share oversight responsibilities related to the Company’s information security programs. The Audit and Finance Committee reviews management’s cybersecurity and information security risk management programs and controls, including processes for management’s identification and reporting of material cybersecurity incidents. The PPE Committee reviews technology issues pertinent to the Company including those associated with information and operational technology, cybersecurity and data security and assesses related Company strategies.
Our Board of Directors, Audit and Finance Committee and PPE Committee each receives periodic updates on by a joint venture, Ilim. In joint ventures, we share ownershipcybersecurity issues from management (including our Chief Information Security Officer (“CISO”)). For example, the CISO provides reports to the Audit 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 formalitiesFinance Committee and PPE Committee regarding cybersecurity risks, as well as time-consumingplans and strategies to mitigate those risks, at least annually. Furthermore, our ERM Council annually reports its activities either directly to the Board of Directors or through the Audit and Finance Committee.
Role of Management
At a management level, our cybersecurity risk management program is led by our CISO. Our current CISO has been with the Company for over 30 years, worked in Information Technology for over 25 years, and has led the Company’s security efforts since 2011. He was appointed as the Company’s first CISO in 2019. Our CISO stays current on cybersecurity issues and trends through continuing education activities such as participation at conferences and in webinars. Our CISO reports to the Chief Information Officer who oversees the Company’s information technology department.
The Company has also adopted a cyber-incident response plan which provides for controls and procedures in connection with cybersecurity events, including escalation procedures summarized below. The cyber-incident response plan is designed to address non-operational and operational cybersecurity events. Evaluation and response to cybersecurity events is led by our Cybersecurity
Incident Response Team (“CIRT”), under the direction of our CISO. The CIRT is comprised of subject matter experts representing Information Security, Information Technology, Operational Technology, and Legal. The CIRT performs an impact assessment with respect to cybersecurity incidents, gathers facts and provides a chronology of events in connection therewith, and leads remediation and recovery activities. Our General Counsel, Senior Vice President of Human Resources, Chief Ethics and Compliance Officer (or their respective designees), and CISO review and assess significant non-operational data breaches. Cybersecurity events that meet specified criteria for sharing information and making decisions. In joint ventures, weoperational impact are required to pay more attentionescalated for further review to our relationship withBusiness Continuity Incident Command Team (“Incident Command Team”). The Incident Command Team performs an initial assessment that includes evaluation of the cybersecurity event’s severity, response required, and estimated business cost, and leads the execution of business continuity plans to maintain Company operations. Cybersecurity events meeting certain criteria are escalated to our co-owners as well as withDisclosure Committee, General Counsel and Chief Financial Officer for further review. The Disclosure Committee, General Counsel and Chief Financial Officer assess and determine materiality using the joint venture,facts 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 portionchronology 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 assumptionevents provided 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.Incident Command Team.
None.
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, 2018,9, 2024, there were approximately 11,7668,188 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.
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, 2023 - October 31, 2023 | 5,373 | | $ | 35.19 | | — | | $ | 2.96 | |
| November 1, 2023 - November 30, 2023 | 3,992 | | 33.71 | | — | | 2.96 | |
| December 1, 2023 - December 31, 2023 | 1,241 | | 38.82 | | — | | 2.96 | |
| Total | 10,606 | | | | |
|
| | | | | | | | | | |
| 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)10,606 shares were acquired from employees or members of our Board of Directors as a result of share withholdings to pay income taxes under the Company's restricted stock program. On October 11, 2022, our Board of Directors increased the authorization up to a total of $3.35 billion shares. This repurchase program does not have an expiration date. As of December 31, 2023, approximately $2.96 billion aggregate shares of our common stock remained authorized for repurchase.
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 Securities Exchange Act of 1934, as amended.
amended, (the "Exchange Act") 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, 20122018 with a $100 investment in our Return on Invested Capital (ROIC) Peer Grouppeer group and the S&P Composite-500 Stock Index (S&P 500 Index) also made at market close on December 31, 2012.2018. The graph portrays total return, 2012–2017,2018-2023, assuming reinvestment of all dividends.
Note 1: 1)The companies included in the ROIC Peer Grouppeer group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company,DS Smith PLC, 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.
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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussion of historical items in 2021, and year-to-year comparisons between 2022 and 2021, can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 17, 2023, under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Full-year 2023 net earnings attributable to shareholders were $288 million ($0.82 per diluted share) compared with $1.5 billion ($4.10 per diluted share) for full-year 2022.
During 2023, International Paper delivered aexecuted well, both commercially and operationally, as we navigated an uncertain and challenging demand environment. During much of the year, underlying demand for our products was lower as consumers prioritized spending on services and essential goods. This trend was influenced by the pull forward of strong performancegoods during the pandemic, as well as by inflationary pressures and rising interest rates that impacted the consumer. Demand for our products was further constrained by inventory destocking as our customers, and the broader supply chain, worked through elevated inventories of their products. The lower demand combined with declining sales prices and continued cost inflation resulted in 2017, driven by excellentlower sales and earnings in 2023 as compared to 2022. During 2023, we remained focused on mitigating the impact of these challenges through commercial executionand cost reduction initiatives. We advanced our strategies to improve profitability across our businesses. Ourportfolio by investing in capabilities in our Industrial Packaging business to enhance our value proposition to align with customer needs and optimizing our Global Cellulose Fibers business is on trackby reducing our exposure to achieve the estimated transaction synergies.commodity pulp. We continuedtook strategic actions to grow value forstructurally reduce fixed costs in our shareholders withmill system in both our return on invested capital solidlyIndustrial Packaging and Global Cellulose Fibers businesses. We also made significant progress in Building a Better IP, driven by commercial and process improvement initiatives, resulting in benefits exceeding our cost2023 target. Regarding capital allocation in 2023, we returned approximately $840 million to shareowners including approximately $640 million of capitaldividends and $200 million of share repurchases. Finally, during 2023, we completed the sale of our ownership stake in Ilim for the eighth consecutive year. We made substantial progress$508 million. International Paper no longer has investments in further strengthening our portfolio during 2017. We accelerated strategic investments for growth in the Industrial Packaging business, providing the Company with the flexibility we need around capacity, products and geographyRussia following completion of this sale.
Comparing 2023 performance 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 which enabled us to increase our annual dividend for the sixth consecutive year.
Our 2017 results reflect significant pricing and mix improvement, which accelerated throughout the year. The improvement in2022, price and mix was primarilylower in our North American Industrial Packaging business due to prior index movements, lower export prices and higher export mix, as demand improved. Price in our Global Cellulose Fibers business was lower due to prior index movements and an unfavorable mix driven by price realization on price increases announcedlower absorbent pulp shipments. Volume in prior quartersboth business segments was impacted by ongoing inventory destocking across the supply chain. While there was demand recovery in the second half of the year in both business segments, volume was lower in our North American Industrial Packaging business as consumers shifted priorities toward non-discretionary goods and services while dealing with inflation. Volume in our Global Cellulose Fibers business was also impacted by lower demand as a result of the slowdown in the global economy. Operations and costs in both the North American Industrial Packaging and Global Cellulose Fibers businesses. Operations were negatively impacted by hurricanes and the Pensacola event earlier in the year; however, 2017 was a lower maintenance outage year. Input costsbusinesses were higher compared to 2016, driven by significantly higher recovered fiber costs, as well as, higher energyreflecting the impact of inflation on materials and transportation costs during the latter part of the year. Our Ilim joint venture delivered solid operational and financial results, driven by pricing and strong volume, and provided more than $130 million in cash dividends to International Paper in 2017. Finally, our 2017 results reflect the provisional net tax benefit associatedservices along with the impact of higher unabsorbed costs resulting from increased economic downtime in the December 2017 enactment of the Tax Cuts and Jobs Act.
Looking ahead to the 2018 first quarter, overall industry conditions are expected to remain strong, and we should continue to benefit from announced price increases, cost reduction initiatives and additional synergies. We expect higher export price realizationcurrent year. Planned maintenance outage costs were lower in our North American Industrial Packaging business and improved pricingwhile higher in our Printing Papers segment, as price increases
implementedGlobal Cellulose Fibers business. Input costs were lower in 2017 are realized. We also expect 2018 first quarter sales volumes forboth business segments, primarily driven by lower energy, wood and distribution costs along with lower recovered fiber costs in our North American Industrial Packaging and Brazil Papersbusiness.
Looking ahead to the first quarter 2024, as compared to the fourth quarter 2023, we expect this quarter to be downan earnings trough on seasonally lower volumes, higher costs and from the impact of the January winter freeze. We also expect the majority of prior index movements to flow through in the first quarter 2024. Specifically in our Industrial Packaging business, we expect price to be relatively flat as prior price index movements are offset by the commercial benefits from contract restructuring in the box business. Volume is expected to be lower in the first quarter 2024 due to normal seasonal declines in North America, partially offset by two more shipping days. Operations and costs are expected to decrease earnings due to seasonally higher energy consumption and cost inflation on wages and employee benefits. These increases are expected to be partially offset by lower demand. Our North American mill operations have been affected byfixed costs resulting from the severe cold weather experienced at the beginningclosure of 2018 whichour Orange, Texas mill. Maintenance outage expense is expected to impact operating costs. Costs will be higher in our European Packaging business related to the Madrid Mill conversion. In addition, planned maintenance outages are expected to increase due tocoming off of a heavy outageseasonally lower fourth quarter as 70% of the Company outages are planned during the first half of 2018.2023. Input costs are expected to decrease earnings on higher recovered fiber and energy costs. In our Global Cellulose Fibers business, we expect price and mix to modestly improve as a result of our strategy to reduce
exposure to commodity pulp. We expect volume to be relatively flat as seasonally lower shipments due to the Chinese New Year are offset by improved demand in other areas. Operations and costs are expected to decrease earnings due to seasonality and cost inflation, partially offset by the non-repeat of a turbine maintenance outage and lower fixed costs resulting from the idling of our pulp machine in our Riegelwood, North Carolina mill. Maintenance outage expense is expected to increase earnings while higher input costs associated with energy and chemicals are expected to decrease earnings.
Looking at full-year 2024, we see a transitional year where markets continue to recover as we focus on improving mix and margins in both business segments through execution of our commercial strategies. We expect demand trends to continue to improve across our businesses, driven by higher wood, energyportfolio with year-over-year industry growth of approximately three percent for packaging and transportation costs.fluff pulp. Additionally, we expect equity earnings for Ilimmore than $400 million of net benefits from our commercial and operational initiatives. This includes the fixed cost reductions tied to be sequentially higher, driven by price realization across the closure of our Orange, Texas containerboard mill and the permanent shutdown of two pulp portfolio which will be partly offset by seasonally lower volumes.
Looking to full year 2018, our focus will be on value creationmachines in our growth businesses. We anticipate another year of strong growth, driven by a continued strong outlook in our core businesses and the full-year price flow through of the 2017 increases. We continue to see healthy demand and solid fundamentals across our portfolio. We expect higher maintenance outage expenses due to the calendar impact of mills on an eighteen-month cycle 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 will be invested in strategic projects, including the Madrid Mill conversion and the Riverdale conversion. Also, we will see the positive cash tax impact associatedGlobal Cellulose Fibers business, with tax reform. Our Ilim joint venture is well positioned for another strong year of performance, and we will start to see the benefits of both strategic actions expected to be at a full run rate by the fourth quarter 2024. These cost saving initiatives will be important in offsetting expected higher costs for recovered fiber, transportation and general inflation on wages, employee benefits, materials and services. With respect to our investmentcapital allocation framework, we are targeting capital expenditures of $800 million - $1.0 billion in Graphic Packaging. All2024 for general maintenance, cost improvement and to enhance capabilities in our box business. As previously mentioned, we expect another yearreturned approximately $840 million of strong cash generation enabling us to continueshareowners in 2023 including approximately $640 million of dividends. Given our strategic customer relationships, talented teams, world class assets and market expertise, we are committed to allocate capital to growmaximizing long-term value for all our shareholders.stakeholders.
As previously disclosed, the Company permanently closed its containerboard mill in Orange, Texas in December 2023 and permanently ceased production of two of its pulp machines at its Riegelwood, North Carolina and Pensacola, Florida mills on December 11, 2023. The mill closure resulted in pre-tax non-cash asset write-off and accelerated depreciation charges of approximately $347 million and pre-tax cash severance and other shutdown charges of approximately $81 million during the year ended
December 31, 2023. The machine shutdowns resulted in pre-tax non-cash asset write-off and accelerated depreciation charges of approximately $75 million and pre-tax cash severance and other shutdown charges of approximately $37 million during the year ended December 31, 2023.
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 directdirectly 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 Annual Report on Form 10-K regarding the net special items referenced in the charts below:
| | | | | | | | |
| In millions | 2023 | 2022 |
| Net Earnings (Loss) Attributable to Shareholders | $ | 288 | | $ | 1,504 | |
| Less - Discontinued operations, net of taxes (gain) loss | 14 | | 237 | |
| Earnings (Loss) from Continuing Operations | 302 | | 1,741 | |
| Add back - Non-operating pension expense (income) | 54 | | (192) | |
| Add back - Net special items expense (income) | 572 | | 233 | |
| Income tax effect - Non-operating pension and special items | (173) | | (614) | |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | $ | 755 | | $ | 1,168 | |
|
| | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | |
| | 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 |
|
| | | | | | | | |
| 2023 | 2022 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | $ | 0.82 | | $ | 4.10 | |
| Less - Discontinued operations, net of taxes (gain) loss per share | 0.04 | | 0.64 | |
| Diluted Earnings (Loss) Per Share from Continuing Operations | 0.86 | | 4.74 | |
| Add back - Non-operating pension expense (income) per share | 0.15 | | (0.52) | |
| Add back - Net special items expense (income) per share | 1.64 | | 0.63 | |
| Income tax effect per share - Non-operating pension and special items | (0.49) | | (1.67) | |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $ | 2.16 | | $ | 3.18 | |
| | | | | | | | | | | | | | | | | | | | |
| In millions | | Three Months Ended December 31, 2023 | | Three Months Ended September 30, 2023 | | Three Months Ended December 31, 2022 |
| Net Earnings (Loss) Attributable to Shareholders | | $ | (284) | | | $ | 165 | | | $ | (318) | |
| Less - Discontinued operations, net of taxes (gain) loss | | — | | | 27 | | | 489 | |
| Earnings (Loss) from Continuing Operations | | (284) | | | 192 | | | 171 | |
| Add back - Non-operating pension expense (income) | | 14 | | | 13 | | | (48) | |
| Add back - Net special items expense (income) | | 546 | | | 29 | | | 144 | |
| Income tax effect - Non-operating pension and special items | | (134) | | | (10) | | | 42 | |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | | $ | 142 | | | $ | 224 | | | $ | 309 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2023 | | Three Months Ended September 30, 2023 | | Three Months Ended December 31, 2022 |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | | $ | (0.82) | | | $ | 0.47 | | | $ | (0.90) | |
| Less - Discontinued operations, net of taxes (gain) loss per share | | — | | | 0.08 | | | 1.38 | |
| Diluted Earnings (Loss) Per Share from Continuing Operations | | (0.82) | | | 0.55 | | | 0.48 | |
| Add back - Non-operating pension expense (income) per share | | 0.04 | | | 0.04 | | | (0.13) | |
| Add back - Net special items expense (income) per share | | 1.58 | | | 0.08 | | | 0.41 | |
| Income tax effect per share - Non-operating pension and special items | | (0.39) | | | (0.03) | | | 0.11 | |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | | $ | 0.41 | | | $ | 0.64 | | | $ | 0.87 | |
|
| | | | | | | | | | | | |
| | | 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 approximately $1.8 billion and $2.2 billion for 2023 and 2022, respectively. The Company generated free cash flow of approximately $692 million in 2023 and $1.2 billion in 2022. Free Cash Flowcash 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 | 2023 | 2022 |
| Cash provided by operations | $ | 1,833 | | $ | 2,174 | |
| Adjustments: | | |
| Cash invested in capital projects, net of insurance recoveries | (1,141) | | (931) | |
| Free Cash Flow | $ | 692 | | $ | 1,243 | |
| | | | | | | | | | | |
| In millions | Three Months Ended December 31, 2023 | Three Months Ended September 30, 2023 | Three Months Ended December 31, 2022 |
| Cash provided by operations | $ | 492 | | $ | 468 | | $ | 761 | |
| Adjustments: | | | |
| Cash invested in capital projects, net of insurance recoveries | (305) | | (228) | | (322) | |
| Free Cash Flow | $ | 187 | | $ | 240 | | $ | 439 | |
The non-GAAP financial measures presented in this Annual Report on 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 our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company’s presentation of non-GAAP measures in this Annual Report on Form 10-K may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Cash provided by operations | $ | 1,757 |
| $ | 2,478 |
| $ | 2,580 |
|
| 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 |
| — |
| — |
|
| Free Cash Flow | $ | 1,970 |
| $ | 1,880 |
| $ | 1,843 |
|
|
| | | | | | | | | |
| In millions | Three Months Ended December 31, 2017 | Three Months Ended September 30, 2017 | Three Months Ended December 31, 2016 |
| Cash provided by operations | $ | 1,188 |
| $ | (709 | ) | $ | 912 |
|
| Adjustments: | | | |
| Cash invested in capital projects | (456 | ) | (271 | ) | (445 | ) |
| Cash contribution to pension plan | — |
| 1,250 |
| — |
|
Cash payment for Kleen Settlement
| — |
| 354 |
| — |
|
| Free Cash Flow | $ | 732 |
| $ | 624 |
| $ | 467 |
|
Results of OperationsRESULTS OF OPERATIONS
Business Segment Operating Profits (Losses) are used by International Paper’s management to measure the earnings performance of its businesses. Management uses this measure to focus on ongoing 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 (Losses) are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earningsless than wholly owned subsidiaries, and noncontrolling interests, 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 by(Losses) is 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 - "Segment Reporting".
International Paper operates in threetwo segments: Industrial Packaging and Global Cellulose FibersFibers. On September 18, 2023, the Company completed the sale of its Ilim equity investment and, Printing Papers. During 2017, as a result, all current and historical results of the transfer of the North American Coated Paperboard business and the associated reclassification of this business toIlim investment are presented as Discontinued Operations, the remaining salesnet of taxes and operating profits previously reportedour equity investment in the ConsumerIlim is no longer a separate reportable industry segment. For additional information, see discussion in Note 11 – Equity method Investments on pages 69 and 70 of Item 8. Financial Statements and Supplementary Data.
Packaging segment 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 netNet earnings (loss) from continuing operations attributable to International Paper Company to its total Business Segment Operating Profit:Profit (Loss):
| | | | | | | | |
| In millions | 2023 | 2022 |
| Net Earnings (Loss) from Continuing Operations Attributable to International Paper Company | $ | 302 | | $ | 1,741 | |
| Add back (deduct) | | |
| Income tax provision (benefit) | 59 | | (236) | |
| Equity (earnings) loss, net of taxes | 21 | | 6 | |
| | |
| Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | 382 | | 1,511 | |
| Interest expense, net | 231 | | 325 | |
| Adjustment for less than wholly owned subsidiaries | (2) | | (5) | |
| Corporate expenses, net | 27 | | 34 | |
| Corporate net special items | 28 | | 99 | |
| Business net special items | 529 | | 76 | |
| Non-operating pension expense (income) | 54 | | (192) | |
| $ | 1,249 | | $ | 1,848 | |
| Business Segment Operating Profit (Loss): | | |
| Industrial Packaging | $ | 1,266 | | $ | 1,742 | |
| Global Cellulose Fibers | (17) | | 106 | |
| | |
| Total Business Segment Operating Profit (Loss) | $ | 1,249 | | $ | 1,848 | |
|
| | | | | | | | | |
| 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 (Loss) in 2017 included a net loss from special items of $4252023 was $599 million compared with $127 millionlower than in 2016 and $137 million in 2015. Operationally, compared with 2016,2022 as the benefits from higherlower input costs ($982 million) and lower maintenance outage costs ($8 million) were more than offset by lower average sales price realizations and an unfavorable mix ($605435 million), higherlower sales volumes ($33 million), lower maintenance outage costs ($55228 million) and the incremental operating earnings from the pulp business acquired in late 2016 ($117 million) were offset by higher operating costs ($172 million), higher input costs ($362 million) and higher other costs ($11926 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$1.3 billion were $194was $476 million lower than in 20162022 as the benefits of higher average sales price realizations and mix and higher sales volumes were partially offset by higher operating costs, higher maintenance outage costs, higherlower input costs and higher other 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 $65 million was $244 million favorable versus 2016 as the benefits of higher average sales price realizations 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 an unfavorable mix, lower sales volumes and higher operating costs.
•Global Cellulose Fibers' operating profit (loss) of $(17) million was $123 million lower than in 2022 as the benefits of lower input costs were more than offset by lower average sales price and an unfavorable mix, lower sales volumes, higher operating 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 billion of cash flow from operations for the year ended December 31, 2023, compared with $2.5$2.2 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.2022. Capital spending for 20172023 totaled $1.4$1.1 billion, or 98%80% of depreciation and amortization expense. Our liquidity position remains strong,
supported by approximately $2.1$1.9 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, recycled
recovered 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, 2017,2023, and the major factors affecting these results compared to 2016 and 2015.2022.
For the year ended December 31, 2017,2023, International Paper reported net sales of $21.7$18.9 billion, compared with $19.5$21.2 billion in 2016 and $20.7 billion in 2015.2022. International net sales (including(based on the location of the seller and including U.S. exports) totaled $8.4$5.3 billion or 39%28% of total sales in 2017.2023. This compares with international net sales of $6.9$5.9 billion in 2016 and $7.6 billion in 2015.2022.
Full year 20172023 net earnings attributable to International Paper Company totaled $2.1 billion$288 million ($5.130.82 per diluted share), compared with net earnings of $904 million$1.5 billion ($2.184.10 per diluted share) in 2016 and $938 million ($2.23 per diluted share) in 2015.2022. Amounts in all periods2023 and 2022 include the results of discontinued operations.
Earnings from continuing operations attributable to International Paper Company after taxes in 2017, 20162023 and 20152022 were as follows:
| | | In millions | 2017 | | 2016 | | 2015 | |
| 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 | |
| Earnings from continuing operations attributable to International Paper Company | | $ | 302 | | (a) | $ | 1,741 | | (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$412 million of net special items charges and $375$41 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.expense.
(c) (b)Includes $439$429 million of net special items chargesincome and $157$144 million of non-operating pension expense.income.
Compared with 2016,2022, the benefits from higher sales volumes, higher average sales price realizations and mix,lower input costs ($743 million), lower maintenance outage costs incremental earnings from the acquisition of Weyerhaeuser's pulp business,($6 million), lower corporate and other costs ($3 million), lower net interest expense ($25 million) and lower tax expense ($8 million) were partiallymore than offset by lower average sales price and an unfavorable mix ($329 million), lower sales volumes ($172 million) and higher operating costs higher input costs and higher net interest expense.($700 million). In addition, 2017excluding special items, 2023 results
included lowerhigher equity earnings, net of taxes, relatingtaxes. Our Building a Better IP initiatives delivered $260 million of earnings in 2023 primarily though our strategy acceleration initiative to the Company’sdeliver profitable growth through commercial and investment in Ilim Holding, SA.excellence.
Discontinued OperationsDISCONTINUED OPERATIONS
2017:
On January 1, 2018,September 18, 2023, the Company completed the transfersale of its North American Consumer Packaging business, which includes its North American Coated PaperboardIlim equity investment and, Foodservice businesses, toas a subsidiary of Graphic Packaging Holding Company. International Paper received a 20.5% ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. As a result, of this transfer, all current and prior year amounts have been adjusted to reflecthistorical results of the North American Consumer Packaging businessIlim investment are presented as Discontinued Operations, net of taxes and our equity investment is no longer a discontinued operation. See separate reportable industry segment. This transaction is discussed further in Note 711 - Equity Method Investments on pages 53 through 5569 and 70 of Item 8. Financial Statements and Supplementary Data for further discussion.
Included in discontinuedDiscontinued operations wereinclude the operatingequity earnings of the North American Consumer Packaging business, anprior Ilim joint venture. Discontinued operations also includes after-tax chargelosses of $10$126 million and $533 million in 2023 and 2022, respectively for costs associated with the transferimpairment and an after-tax charge of $28 million for non-operating pension expensestransaction costs related to curtailment charges and termination benefitsour former equity method investment in connection with this same transaction.the Ilim joint venture.
2016:INCOME TAXES
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 Taxes
A net income tax benefitprovision from continuing operations of $1.1 billion$59 million was recorded for 2017, including2023 and the reported effective income tax rate was 15%. This includes a provisional net tax benefit of $1.2 billion$23 million related to the enactmentsettlement of the Tax Cutstax audits and Jobs Act, tax benefitsexpense of $113$4 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.internal legal entity restructuring. Excluding these items, a $194$141 million net tax benefit for other special items and a $186$13 million tax benefit related to non-operating pension expense, the operational tax provision (non-GAAP) for 2023 was $549$232 million, or 30%23% of pre-tax earnings before equity earnings.
A net income tax provision of $193 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 provisionbenefit from continuing operations of $417$236 million was recorded for 2015 including2022 and the reported effective income tax rate was (16%). This includes a tax benefit of $62$604 million related to internal restructurings,the settlement of the timber monetization restructuring tax matter, a tax benefit of $66 million related to the tax-free exchange of our shares of Sylvamo and tax expense of $23$45 million for therelated to a foreign deferred tax impact of a cash pension contribution of $750 million and a $2 million tax expense for other items.valuation allowance. Excluding these items, an $83a $37 million net tax benefit for other special items and a $101$48 million tax benefitexpense related to non-operating pension expense,income, the operational tax provision (non-GAAP) for 2022 was $638$378 million, or 33%24% of pre-tax earnings before equity earnings.
Equity Earnings, Net
The operational tax provision and operational effective tax rate are non-GAAP financial measures and are calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect of Taxes
Equity earnings, net of taxes in 2017, 2016special items and 2015 consisted principallynon-operating pension expense (income). Management believes that this presentation provides useful information to investors by providing a meaningful comparison of the Company’s shareincome tax rate between past and present periods.
The following is a reconciliation of earnings from its 50% investment in Ilim Holding S.A. in Russia (see page 27).the net income tax provision (benefit) to the operational tax provision and rate:
Interest Expense and Noncontrolling Interest | | | | | | | | |
| In millions | 2023 | 2022 |
| Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | $ | 382 | | $ | 1,511 | |
| Pre-tax special items | 554 | | 233 | |
| Non-operating pension (income) expense | 54 | | (192) | |
| Adjusted Operating Earnings (Loss) from Continuing Operations Before Income Taxes and Equity Earnings | $ | 990 | | $ | 1,552 | |
| | |
| Income tax provision (benefit) | $ | 59 | | $ | (236) | |
| Income tax effect - non-operating pension (income) expense and pre-tax special items | 173 | | 614 | |
| Operational Tax Provision | $ | 232 | | $ | 378 | |
| Operational Tax Rate | 23 | % | 24 | % |
INTEREST EXPENSE AND EQUITY EARNINGS, NET OF TAXES
Net corporate interest expense totaled $572$231 million in 2017, $5202023 and $325 million in 20162022. Net interest expense includes $3 million and $555$58 million of interest expense related to the timber monetization restructuring tax matter in 2015.2023 and 2022, respectively. Net interest expense in 20172023 also includes $5$6 million of interest income associated with incomethe settlement of tax refund claims.audits. The increasedecrease in 2017net interest expense in 2023 compared with 2016 is2022 was due to higher average outstanding debt. The decrease in 2016 compared with 2015 reflects lower average interest rates.income.
ThereEquity earnings, net of taxes were no net earnings attributable to noncontrolling interests in 2017, compared with a loss of $2 million in 2016 and a loss of $21 millionand a loss of $6 million in 2015. The decrease from 2015 reflects2023 and 2022, respectively. Equity earnings in 2023 includes an $18 million other-than-temporary impairment of an equity method investment.
SPECIAL ITEMS
Pre-tax special items (excluding interest expense and equity earnings) included in continuing operations totaling $557 million and $175 million were recorded in 2023 and 2022, respectively. Details of these charges were as follows:
| | | | | | | | | | | | | | |
| Special Items | | | | |
| In millions | 2023 | | 2022 | |
| Business Segments | | | | |
| Restructuring and other, net | $ | 107 | | | $ | — | | |
| Orange mill accelerated depreciation | 347 | | (a) | — | | |
| Pensacola mill and Riegelwood mill accelerated depreciation | 75 | | (b) | — | | |
| Net (gains) losses on sales and impairments of businesses | — | | | 76 | | (c) |
| 529 | | | 76 | | |
| Corporate | | | | |
| Restructuring and other, net | $ | (8) | | | $ | 89 | | |
| Environmental remediation reserve adjustments | 36 | | | 63 | | |
| Legal reserve adjustments | — | | | (4) | | |
| Foreign currency cumulative translation loss related to sale of equity method investment | — | | | 10 | | |
| Sylvamo investment fair value adjustment | — | | | (65) | | |
| Other | — | | | 6 | | |
| 28 | | | 99 | | |
| Total | $ | 557 | | | $ | 175 | | |
(a) Recorded in the saleIndustrial Packaging business segment.
(b) Recorded in the Global Cellulose Fibers business segment.
(c) Recorded in the Industrial Packaging business segment for the impairment of goodwill in our equity share of the IP-Sun JV in 2015.
EMEA Packaging business.Special Items
Restructuring and Other Charges
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 facilitycurrent investment grade credit rating.
During 2023 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.
During 2017, 2016 and 2015,2022, pre-tax restructuring and other charges, net, totaling $67 million, $54$99 million and $252$89 million, respectively, 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 | 2023 | | 2022 | |
| Business Segments | | | | |
| Orange mill closure costs | $ | 81 | | (a) | $ | — | | |
| Pensacola mill and Riegelwood mill pulp machine shutdowns | 37 | | (b) | — | | |
| Building a Better IP | (11) | | (c) | — | | |
| 107 | | | — | | |
| Corporate | | | | |
| Building a Better IP | $ | (8) | | | $ | — | | |
Early debt extinguishment costs (see Note 16) | — | | | 93 | | |
| Other | — | | | (4) | | |
| (8) | | | 89 | | |
| Total | $ | 99 | | | $ | 89 | | |
(a) Recorded in the Industrial Packaging business segment.
(b) Recorded in the Global Cellulose Fibers segment.
Other Corporate Special Items
In addition, other corporate special items totaling $0 million,(c) Includes $8 million and $(4) million wereincome recorded in 2017, 2016the Industrial Packaging business segment 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$3 million income recorded in 2017 or 2016.the Global Cellulose Fibers business segment.
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 PackagingINDUSTRIAL PACKAGING
International PaperThe majority of our business is the largest manufacturer of containerboard in the United States.focused on creating fiber-based packaging that protects and promotes goods, enables worldwide commerce and helps keep consumers safe. We meet our customers’ most challenging sales, shipping, storage and display requirements with sustainable solutions. 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 178173 North American containercorrugated packaging plants. Additionally, we recycle approximately one million tons of OCC and mixed and
white paper through our 1816 U.S. 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 23 corrugated packaging plants in France, Italy, Spain, Morocco and Portugal.
International Paper also produces high quality coated paperboard forGLOBAL CELLULOSE FIBERS
Cellulose fibers are a sustainable, renewable raw material used in a variety of packaging end uses with 431,000 tonsproducts people depend on every day. We create safe, quality pulp for a wide range of capacity at our mills in Polandapplications like diapers, towel and Russia.
Global Cellulose Fibers
Our cellulose fibers product portfolio includes fluff, market and specialty pulps. Our fluff pulp is used to make absorbent hygienetissue products, like baby diapers, feminine care, adult incontinence and other non-wovenpersonal care products that promote health and wellness. In addition, 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 areserve as a sustainable raw material used for non-absorbent end uses includingin textiles, filtration, construction material,materials, paints, and coatings reinforced plastics and more. Our products are made in the United States and Canada France, Poland, and Russia and are sold around the world. International Paper facilities have annual dried pulp capacity of about 43 million metric tonnes.tons.
Printing Papers
International Paper is one of the world’s largest producers of printing and writing papers. The primary product in this segment is uncoated papers. This business produces papers for use in copiers, desktop and laser printers 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 Svetocopy. 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 3.4 million metric tons. Ilim has exclusive harvesting rights on timberland and forest areas exceeding 16.4 million acres (6.6 million hectares).
Products and brand designations appearing in italics are trademarks of International Paper or a related company.
BUSINESS SEGMENT RESULTS
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 | 2023 | 2022 |
| Net Sales | $ | 15,596 | | $ | 17,451 | |
| Operating Profit (Loss) | $ | 1,266 | | $ | 1,742 | |
Industrial Packagingnet sales for 2017 increased 6%2023 decreased 11% to $15.1$15.6 billion compared with $14.2$17.5 billion in 2016, and 4% compared with $14.6 billion in 2015.2022. Operating profits in 20172023 were 11%27% lower than in 2016 and 20% lower than in 2015.2022. Comparing 20172023 with 2016,2022, benefits from higherlower input costs ($856 million) and maintenance
outage costs ($21 million) were more than offset by lower average sales price realizations and an unfavorable mix ($593363 million) and higher, lower sales volumes ($75177 million) were offset byand higher operating costs ($245813 million), higher maintenance outage costs ($1 million), higher input costs ($304 million) and higher other costs ($17 million).
| | North American Industrial Packaging | | In millions | 2017 | 2016 | 2015 |
| In millions | |
| In millions | | 2023 | 2022 |
| Net Sales (a) | $ | 13,329 |
| $ | 12,450 |
| $ | 12,618 |
|
| Operating Profit (Loss) | $ | 1,504 |
| $ | 1,757 |
| $ | 2,009 |
|
| 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$95 million for 20172023 and $143$132 million for 2016.2022.
North American Industrial Packaging's average sales margins were lower, reflecting lower prices for both containerboard and corrugated boxes and an unfavorable geographic mix. Sales volumes decreased in 2023 compared with 2022 for corrugated boxes across our segments, reflecting a soft demand environment as consumer spending focused on non-discretionary goods and services and retailers and manufacturers pulled down inventory levels. Containerboard sales volumes increasedalso decreased. Total maintenance and economic downtime was about 725,000 short tons higher in 20172023 compared with 2016 reflecting higher box shipments2022, primarily due to economic downtime. Operating and higher shipments of containerboarddistribution costs increased, primarily due to export markets. In 2017, the business took about 416,000 tons of total downtime of which about 35,000 wereinflation on materials and services and increased economic downtime and 381,000 were maintenance downtime. The business took about 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were maintenance downtime. Average sales prices for boxes and average sales price realizations for containerboard in export markets were significantly higher. Input costs were significantly higher, primarily for recycled fiber, but also for energy, chemicals and freight, while wood costs were lower. Planned maintenance downtime costs were $5 million higherlower in 20172023 than in 2016.2022. Input costs were significantly lower, driven by lower recovered fiber, energy and wood costs.
Looking ahead to the first quarter of 2018,2024, compared with the fourth quarter of 2017,2023, sales volumes for corrugated boxes and containerboard 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, energy 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 Morocco 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, compared with the fourth quarter of 2017 sales volumes are expected to be slightly lower. Average sales margins are expected to be lower due to continuing higher containerboard prices.stable. 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 operating costs will be higher due to other costs.increase. Planned maintenance downtime costs are expected to be $1 million higher. Input costs are expected to be higher, primarily for recovered fiber.
|
| | | | | | | | | |
| European Coated Paperboard | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 335 |
| $ | 327 |
| $ | 319 |
|
| Operating Profit (Loss) | $ | 72 |
| $ | 93 |
| $ | 87 |
|
| | | | | | | | |
| EMEA Industrial Packaging | | |
| In millions | 2023 | 2022 |
| Net Sales | $ | 1,398 | | $ | 1,572 | |
| Operating Profit (Loss) | $ | 80 | | $ | (11) | |
European Coated Paperboard's sales volumes in 2017 compared with 2016 increased in Europe, but decreased in Russia. Average sales price realizations were lower in Russia while in EuropeEMEA Industrial Packaging's average sales margins increasedwere lower reflecting lower average sales prices for containerboard and an unfavorable product mix partially offset by higher average sales prices for corrugated boxes. Sales volumes in 2023 were lower than in 2022 driven by soft demand. Operating costs in 2023 were higher driven by inflation on materials and a more favorable mix.services. Planned maintenance outage costs were lower in 2023 compared with 2022. Input costs for wood,were significantly lower in 2023, driven by energy and purchased pulp were higher. Planned maintenance downtime costs were $3 million lower in 2017.recovered fiber costs.
Looking forward to
Entering the first quarter of 2018,2024, compared with the fourth quarter of 2017,2023, sales volumes are expected to increase in Europe, but expected to be seasonally lower in Russia.higher driven by seasonality. Average sales price realizationsmargins are expected to be higher, in both Europe and Russia. Inputreflecting lower containerboard costs. Operating costs are expected to be lower. Planned maintenance outage costs are expected to be $5 million higherlower. Other input costs are expected to be stable. Earnings will be impacted by the non-repeat of an energy subsidy and other favorable one-time items in the firstfourth quarter of 2018 due to a planned outage at the Kwidzyn mill.2023.
|
| | | | | | | | | |
| Asian Industrial Packaging | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | — |
| $ | 133 |
| $ | 280 |
|
| Operating Profit (Loss) | $ | — |
| $ | (81 | ) | $ | (8 | ) |
| Asia Packaging restructuring and impairment | — |
| 70 |
| — |
|
| Operating Profit Before Special Items | $ | — |
| $ | (11 | ) | $ | (8 | ) |
Global 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, and freight costs.
|
| | | | | | | | | |
| Global Cellulose Fibers | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 2,551 |
| $ | 1,092 |
| $ | 975 |
|
| Operating Profit (Loss) | $ | 65 |
| $ | (179 | ) | $ | 68 |
|
| 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 2017 increased to $2.6 billion compared with $1.1 billion in 2016 and $975 million in 2015. Operating profits in 2017 were significantly higher than in 2016 and 4% lower than in2015. Comparing 2017 with 2016 for the legacy business, benefits from higher average sales price realizations and mix ($61 million), lower planned maintenance downtime costs ($39 million), lower input costs ($5 million), lower operating costs ($1 million) and 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. Average sales margins increased, reflecting higher sales price realizations for both fluff pulp and softwood market pulp and a favorable product mix. 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 Europe and Russia, average sales margins increased significantly and planned maintenance downtime costs were $3 million lower than in 2016.
Entering the first quarter of 2018, 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 should be favorable. Operating costs are expected to be higher, partly due to the severe winter weather experienced in January. Input costs are expected to increase for energy, wood and chemicals. Planned maintenance downtime costs should be $52 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 energyoutage costs, and freight costs.
| | | | | | | | |
| Global Cellulose Fibers | | |
| In millions | 2023 | 2022 |
| Net Sales | $ | 2,890 | | $ | 3,227 | |
| Operating Profit (Loss) | $ | (17) | | $ | 106 | |
|
| | | | | | | | | |
| 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 PapersGlobal Cellulose Fibersnet sales for 2017 of $4.22023 decreased10%to $2.9 billion, increased 2% compared with $4.1$3.2 billion in both 2016 and 2015.2022. Operating profits in 2017 were 15% lower than in 2016 and 2%lowerthan in 2015.2023 decreased compared to 2022. Comparing 20172023 with 2016,2022, benefits from higher sales volumes ($25 million), lower planned maintenance downtimeinput costs ($15 million) and lower other costs ($12126 million) were more than offset by lower average sales price realizations and an unfavorable mix ($6172 million), lower sales volumes ($51 million), higher operating costs ($31113 million) and higher inputmaintenance outage costs ($4113 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' salesSales volumes for 2017in 2023 compared with 2022 were lower, driven by customer inventory destocking. Total maintenance and economic downtime was about 507,000 short tons higher than in 2016. Average sales price realizations decreased for both cutsize paper and rolls.2023 compared with 2022, primarily due to economic downtime. Average sales margins were also impacted bylower, reflecting lower average market pulp prices and an unfavorable mix.product mix partially offset by higher average fluff pulp prices. Operating costs increased, driven by inflation on materials and services and downtime. Distribution costs were lower as the global supply chain environment improved. Planned maintenance outage costs were higher in 2023. Input costs were higher forlower, driven by energy, freight, wood and chemicals, partially offset by lower wood costs. Planned maintenance downtime costs were $12 million higher in 2017. Operating costs were lower.chemicals.
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 2018,2024, compared with the fourth quarter of 2017,2023, 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. Input costs are expected to be slightly higher 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 realizationsmargins 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.stable. 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.
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 million in 2017 compared with earnings of $199 million in 2016 and earnings of $131 million in 2015. Operating results recorded in 2017 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-tax foreign exchange loss of $75 million in 2015 primarily on the remeasurement of Ilim's U.S. dollar denominated net debt.
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 volumes in the Russian market decreased for softwood pulp and hardwood pulp, but increased for linerboard. Average sales price realizations were higher in 2017 for sales of softwood pulp, hardwood pulp and linerboard to China and other export markets. Average sales price realizations in Russian markets increased year over year for all products. Inputhigher. Planned maintenance outage costs also increased in 2017 for wood, energy and fuel. Distribution costs were higher in 2017. The Company received cash dividends from the joint venture of $133 million in 2017, $58 million in 2016, and $35 million in 2015.
Entering the first quarter of 2018, sales volumes are expected to be lower than in the fourth quarter of 2017 due to the seasonal slowdown in Russia and export markets. Average sales price realizations are expected to increase for hardwood pulp, softwood pulp and linerboard to China.2023. Input costs are expected to be lower, while distribution costs are projected to increase.higher, primarily for energy and chemicals.
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, dodistribution, 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 were2023 was primarily focused on working capital requirements, capital spending debt reductions, pension contributions, 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$1.8 billion in 20172023, compared with $2.5$2.2 billion for 2016 and $2.6 billion for 2015.2022. Cash used by working capital components (accounts receivable, contract assets and inventory less accounts payable and accrued liabilities, interest payable and other) totaled $402$2 million in 2017,2023, compared with cash providedused by working capital components of $71$145 million in 2016 and a cash use for working capital components of $2222022. Cash dividends received from equity investments were $13 million in 2015. The increase2023, compared with $204 million in 2017 working capital is largely due to growth in receivables primarily tied to year-over-year price increases.2022.
INVESTMENT ACTIVITIES
Investment Activities
Including discontinued operations, investment activities in 2017 decreased2023 increased from 2016 as 2016 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 business of $108 million, net of cash divested. In 2015, investment activity includes higher capital spending and the use of $198 million of cash in conjunction with the timber monetization restructuring (see Note 12 Variable Interest Entities and Preferred Securities of Subsidiaries on pages 63 through 64 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.2022. Capital spending was $1.4$1.1 billion in 2017,2023, or 98%80% of depreciation and amortization, compared with $1.3 billion$931 million in 2016,2022, or 110%90% of depreciation and amortization,amortization. Included in 2023 depreciation expense is $347 million of accelerated depreciation related to
the closure of our containerboard mill in Orange, Texas and $1.5 billion, or 115%$75 million of accelerated depreciation related to the permanent shutdown of pulp machines at our Riegelwood, North Carolina and amortization in 2015. Across our businesses, capitalPensacola, Florida mills. Capital spending as a percentage of depreciation and amortization ranged from 37.5% to 107.0%was 62% for Global Cellulose Fibers and 81% for Industrial Packaging in 2017.2023.
The following table shows capital spending for operations by business segment for the years ended December 31, 2017, 20162023 and 2015, excluding amounts related to discontinued operations of $111 million2022:
| | | | | | | | |
| In millions | 2023 | 2022 |
| Industrial Packaging | $ | 928 | | $ | 762 | |
| Global Cellulose Fibers | 177 | | 143 | |
| | |
| Subtotal | 1,105 | | 905 | |
| Corporate and other | 36 | | 26 | |
| Capital Spending | $ | 1,141 | | $ | 931 | |
Capital spending in 2017, $107 million in 2016 and $177 million 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 currently2024 is expected to be about $1.5approximately $800 million to $1.0 billion,, or 111%78% to 97% of expected depreciation and amortization.
Acquisitions
Acquisitions and Joint Ventures
FINANCING ACTIVITIES
Financing Activitiesactivities during 2023 included debt issuances of $783 million and reductions of $780 million for a net increase of $3 million. Financing activities during 2022 included debt issuances of $1.0 billion and reductions of $1.0 billion.
There were no early debt extinguishment amounts during the year ended December 31, 2023. Amounts related to early debt extinguishment during the yearsyear ended December 31, 2017, 2016 and 2015 were as follows:2022 are below:
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Debt reductions (a) | $ | 993 |
| $ | 266 |
| $ | 2,151 |
|
| Pre-tax early debt extinguishment costs (b) | 83 |
| 29 |
| 207 |
|
| | | | | |
| In millions | 2022 |
| Early debt reductions (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). |
| $ | 503 | |
| Pre-tax early debt extinguishment costs (b) | Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.93 | |
2017: Financing
(a)Reductions related to notes with interest rates ranging from 3.00% to 8.70% with original maturities from 2021 to 2048 for the year ended December 31, 2022.
(b)Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.
Other financing activities during 20172023 included debt issuancesthe net issuance of $1.9 billionapproximately 1.6 million shares of treasury stock. Repurchases of common stock and retirementspayments of $1.4 billionrestricted stock withholding taxes totaled $218 million, including $197 million related to shares repurchased under the Company's share repurchase program. Through December 31, 2023, the Company
has repurchased 119.8 million shares at an average price of $46.23, for a total of approximately $5.5 billion, since the repurchase program began in September 2013. The Company paid cash dividends totaling $642 million during 2023.
Other financing activities during 2022 included the net increaseissuance of $483approximately 1.6 million. shares of treasury stock. In 2022, repurchases of common stock and payments of restricted stock withholding taxes totaled $1.3 billion, including $1.3 billion related to shares repurchased under the Company's share repurchase program. The Company paid cash dividends totaling $673 million during 2022.
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 and manage interest expense. At December 31, 2017,debt. During 2020, 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 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 hadits interest rate swaps with a total notional amount of $17$700 million and maturities in 2018 (see Note 14 Derivatives and Hedging Activities on pages 65 through 69ranging from 2024 to 2026 with an approximate fair value of Item 8. Financial Statements and Supplementary Data). During 2015, existing swaps and$85 million. Subsequent to 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 inclusiontermination of the offsettinginterest rate swaps, the fair value basis adjustment is amortized to earnings as interest income from short-term investments reduced this effectiveover the same period as a debt premium on the previously hedged debt. The Company had no outstanding interest 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
operationsswaps for the twelve monthsyears ended December 31, 2015.2023 and 2022.
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 6378 through 6480 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 (the "2015 Financing Entities") when the installment notes and third-party loans were extended. The 2015 Financing 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 2015 Financing 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. On September 2, 2022, the Company and the Internal Revenue Service agreed to settle the 2015 Financing Entities timber monetization restructuring tax matter. Under this
agreement, the Company agreed to fully resolve the matter and Capital Resources Outlookpay $252 million in U.S. federal income taxes. As a result, interest was charged upon closing of the audit. The amount of interest expense recognized in 2022 was $58 million. As of December 31, 2023, $252 million in U.S. federal income taxes and $58 million in interest expense have been paid as a result of the settlement agreement. The Company has now fully satisfied the payment terms of the settlement agreement regarding the 2015 Financing Entities timber monetization restructuring tax matter. The reversal of the Company’s remaining deferred tax liability associated with the 2015 Financing Entities of $604 million was recognized as a one-time tax benefit in the third quarter of 2022.
LIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2024
We intend to continue making choices for 2018the 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 investment 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 businesses.
On October 11, 2022, our Board of Directors approved an additional $1.5 billion under our share repurchase program. This program does not have an expiration date and has approximately $2.96 billion aggregate amount of shares of common stock remaining authorized for purchase as of December 31, 2023. 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, applicable securities laws requirements and other factors. In addition, we have paid 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.
Capital Expenditures and Long-Term Debt
Capital spending for 2024 is planned at approximately $800 million to $1.0 billion, or about 78% to 97% of depreciation and amortization.
At December 31, 2023, International Paper’s credit agreements totaled $1.9 billion, which is comprised of the $1.4 billion contractually committed bank credit agreement and up to $500 million under the receivables securitization program. In June 2023, the Company amended and restated its credit agreement
to, among other things (i) reduce the size of the contractually committed bank facility from $1.5 billion to $1.4 billion, (ii) extend the maturity date from June 2026 to June 2028, and (iii) replace the LIBOR-based rate with a SOFR-based rate. 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, 2023, the Company had no borrowings outstanding under the $1.4 billion credit agreement or the $500 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 80 and 81 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, 2023 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.
In addition to the $1.9 billion capacity under the Company's credit agreements, International Paper has a commercial paper program with a borrowing capacity of $1.0 billion supported by its $1.4 billion credit agreement. Under the terms of the Company's commercial paper 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, 2023, and $410 million outstanding as of December 31, 2022, under this program.
During the first quarter of 2023, the Company entered into a variable term loan agreement providing for a $600 million term loan which was fully drawn on the date of such loan agreement and matures in 2028. The $600 million debt was issued following the repayment of $410 million of commercial paper earlier in 2023. Additionally, during the first quarter of 2023, the Company issued an approximately $72 million environmental development bond ("EDB") with an interest rate of 4.00% and a maturity date of April 1, 2026. The proceeds from this issuance were used to repay an approximately $72 million outstanding EDB that matured on April 1, 2023.
During the second quarter of 2023, the Company issued approximately $24 million of debt with a variable interest rate and a maturity date of December 1, 2027. The Company had debt
reductions of approximately $49 million of variable interest EDBs with current maturities. Additionally, during the second quarter of 2023, the Company issued an approximately $54 million EDB with a variable rate and a maturity date of May 1, 2028. The proceeds of this were used to repay an approximately $54 million EDB that matured on May 1, 2023. The Company issued an approximately $25 million EDB with a variable rate and a maturity date of June 1, 2030. The proceeds of this were used to repay an approximately $25 million EDB that matured on June 1, 2023.
During the third quarter of 2023, the Company repaid an approximately $70 million EDB with an interest rate of 2.90% that matured on September 1, 2023.
During the fourth quarter of 2023, the Company repaid an approximately $87 million note with an interest rate of 6.875% that matured on November 1, 2023. Additionally, the Company issued approximately $11 million of debt with a variable interest rate and a maturity date of December 1, 2027.
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. We have repurchased, and may continue to repurchase, our common stock (under our existing share repurchase program) and debt (including through open market purchases, privately negotiated transactions or otherwise) to the extent consistent with this capital structure planning, and subject to prevailing market conditions, our liquidity requirements, applicable securities laws requirements and other factors. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. The Company was in compliance with all its debt covenants at December 31, 2017 and was well below the thresholds stipulated under the covenants as defined in the credit agreements.
Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At December 31, 2017,2023, 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, 2017,2023, were as follows:
| | | In millions | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | In millions | 2024 | 2025 | 2026 | 2027 | 2028 | 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) | |
| Operating lease obligations | |
| Purchase obligations (b) | 3,415 |
| 680 |
| 583 |
| 523 |
| 463 |
| 2,197 |
|
| Total (c) | $ | 3,856 |
| $ | 908 |
| $ | 824 |
| $ | 1,016 |
| $ | 1,456 |
| $ | 11,498 |
|
| |
(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 $3.8 billion relating to fiber supply agreements.
(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 $168 million. Also not included in the above table is $84 million of Deemed Repatriation Transition Tax associated with the 2017 Tax Cuts and Jobs Act which will be settled from 2024 - 2026. Additionally, the deferred tax liability of $485 million related to the Temple-Inland timber monetization is not included in the table above. It will be settled with the maturity of the notes in 2027.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2017,2023, 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 5772 through 6074 of ItemItem 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, 2017,2023, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $1.9 billion$146 million higher than the fair value of plan assets. Approximately $1.5 billion of this amount relates to plansassets, excluding non-U.S. plans. Plans that are subject to minimum funding requirements.requirements had plan assets of $118 million higher than the projected benefit obligation. 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) was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding methodmethods selected by the Company,Company. The selected methods allow for the smoothing of asset values and interest rates used to measure the timing of its implementation, as
well as on actual demographic data and the targeted funding level.obligations. 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 2021, 2022 or 2023. At this time, we do not expect to have any required contributions to our plans in 2018,2024, 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 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’s agreement that 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. If these or any other deadlock procedures under the shareholder's 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-trust 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 billion, 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 StatesU.S. GAAP 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 CompanyManagement 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 Liabilities
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. The Company estimated the probable liability associated with environmental matters to be approximately $251 million and $243 million in the aggregate as of December 31, 2023 and 2022, respectively. Liabilities for asbestos-related matters require reviews of recent and historical claims data. The Company's total recorded liability with respect to pending and future
We calculate our workers' compensation reserves based on
asbestos-related claims was $97 million and $105 million, net of estimated actuarially calculated development factors.insurance recoveries, as of December 31, 2023 and 2022, respectively. The workers' compensation reservesCompany utilizes its in-house legal counsel 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL
Long-lived assets are reviewed at least quarterlyfor impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable. A recoverability test is performed by comparing the undiscounted cash flows to carrying value of the assets. If the carrying amount is less than the undiscounted cash flows, the fair value of the assets is compared to the carrying value to determine the adequacy of the accruals and related financial statement disclosure. While we believe that our assumptionsif they are appropriate, the ultimate settlement of workers' compensation reserves may differ significantly from amounts we have accrued in our consolidated financial statements.
Impairment of Long-Lived Assets and Goodwill
impaired. 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 cash flows from future operations. Avalue.
We perform an annual goodwill impairment exists when the carrying amountas of goodwill exceeds its fair value. AssessmentsOctober 1. Additionally, interim assessments of possible impairments of long-lived assets and goodwill are also made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possibleA goodwill impairment exists when the carrying amount of goodwill and intangible asset balances is required annually. exceeds its fair value.
The amount and timing of anygoodwill and long-lived asset impairment charges based on these assessments requirerequires 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. As these key factors change in future periods,and other intended uses of the Company will update its impairment analyses to reflect its latest estimates and projections.assets.
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 itsNorth America Industrial Packaging reporting units for possible goodwill impairments by applyingunit is the qualitative Step 0 analysis to itsCompany’s only reporting units asunit with goodwill. As of October 1, 2017.2023, we performed our annual goodwill impairment test for this reporting unit through a quantitative goodwill impairment test. For the current year2023 quantitative assessment, the estimated fair value of
the reporting unit was calculated 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 quantitative goodwill impairment test indicated that the Company assessed various assumptions, events and circumstances that would have affectedcarrying amount did not exceed the estimated fair value of the North America Industrial Packaging reporting units. unit.
PENSION BENEFIT OBLIGATIONS
The results of this assessment indicated that it is not more likely than not
that the fair valuescalculation 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 carryingpension benefit obligation and corresponding expense 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.
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 Obligations
The charges recorded for pension and other postretirement benefit obligations are determined annually, in conjunction with involvement of 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 expensesexpense 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, the projected rate of future compensation increases and health care cost trend rates.liabilities.
Benefit obligations and fair values of plan assets as of December 31, 2017,2023, 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. nonqualified pension | 369 |
| — |
|
| U.S. postretirement | 270 |
| — |
|
| Non-U.S. pension | 247 |
| 176 |
|
| 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 |
| 2023 | | | 2023 | 2022 | 2021 |
| Discount rate | 3.60 | % | 4.10 | % | 4.40 | % | Discount rate | 5.10 | % | 5.40 | % | 2.90 | % |
| Rate of compensation increase | 3.75 | % | 3.75 | % | 3.75 | % |
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 qualityhigh-quality corporate bonds.
The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the year ended December 31, 20172023 was 7.50%6.50%.
Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) 20182024 pension expense by approximately $27$21 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.$12 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 |
| 2023 | 7.3 | % | 2018 | (3.0) | % |
| 2022 | (22.0) | % | 2017 | 19.3 | % |
| 2021 | 7.7 | % | 2016 | 7.1 | % |
| 2020 | 24.7 | % | 2015 | 1.3 | % |
| 2019 | 23.9 | % | 2014 | 6.4 | % |
The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and Temple-Inland asset returns. International Paper and Temple-
Inland assets were combined in October 2014. The annualized time-weighted rate of return earned on U.S. pension plan assets was 9.4% and 7.2% 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 | 2023 | 2022 | 2021 | 2020 | 2019 |
| 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 | |
| U.S. plans | |
| U.S. plans | |
| U.S. plans | 17 |
| 13 |
| 8 |
| 7 |
| (1 | ) |
| Non-U.S. plans | 1 |
| 1 |
| 5 |
| 7 |
| 7 |
|
| Net expense | $ | 740 |
| $ | 827 |
|
| $480 |
|
| $401 |
|
| $556 |
|
| Net (income) expense | |
The decreaseincrease in 2017 U.S.2023 pension expense primarily reflects lower settlement losseshigher interest cost and lower actuarial losses partiallyexpected return on assets, offset by lower asset returns due to the annuity purchase as well as curtailment and special termination benefit charges.
service cost.
Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as of
December 31, 2017,2023, projected future net periodic pension and postretirement plan expensesexpense (income) would be as follows:
| | | In millions | 2019 | 2018 | In millions | 2025 | 2024 |
| Pension expense | |
| U.S. plans (non-cash) | $ | 30 |
| $ | 167 |
|
| Non-U.S. plans | 5 |
| 4 |
|
| Postretirement expense | |
| Pension expense (income) | |
| U.S. plans | |
| U.S. plans | |
| U.S. plans | 14 |
| 16 |
|
| Non-U.S. plans | 1 |
| 1 |
|
| Net expense | $ | 50 |
| $ | 188 |
|
| Net (income) expense | |
The Company estimates that it will record net pension expenseincome of approximately $167$7 million for its U.S. defined benefit plans in 2018,2024, compared to expense of $717$94 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.2023.
The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 20172023 totaled approximately $11.4$8.8 billion,, consisting of approximately 49% equity securities, 36% debt securities, 10% real estate66% hedging assets and 5% other34% return seeking assets.
The Company’s funding policy for its qualified pension plansplan 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 2018.2023. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $40$22 million for the year ended December 31, 20172023.
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 recent court cases that are relevant to the matter. Accrued interest related to these uncertain tax positions is recorded in our consolidated statement of operations in Interest expense, net.
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 assessing the need for and magnitude of appropriate valuation allowances against deferred tax assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. The Company's valuation allowance was $848 million and $677 million at December 31, 2023 and 2022, respectively.
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.
Information concerning the Company’s environmental and other legal proceedings is set forth in Note 14 Commitments and Contingent Liabilities on pages 74 through 78 of Item 8. Financial Statements and Supplementary Data. 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.
Inflationary increases in certain input costs, such as energy, wood, recycled fiber, freight and chemical costs, had an adverse impact on the Company’s operating results in 2023 and 2022. The effects of inflation have been more significant in recent years due to general inflationary conditions, including labor market conditions, economic activity, consumer behavior, supply shortages and disruptions. Sales prices and volumes are primarily influenced by economic supply and demand factors in specific markets and by exchange rate fluctuations but are also currently being impacted by the current inflationary 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 currency that has the most impact is the Euro.
We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending programs and for general corporate purposes. Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. Information related to International Paper’s debt obligations is included in
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 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, 2023 and 2022 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, 2023 and 2022, the fair value of the net liability of financial instruments with exposure to interest rate risk was approximately $4.5 billion and $4.3 billion, respectively. The potential increase in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $273 million and $328 million at December 31, 2023 and 2022, respectively.
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. At December 31, 2023 and 2022, the net fair value of these contracts was $27 million asset and $20 million asset. The potential loss in fair value from a 10% adverse change in quoted commodity prices for these contracts would have been approximately $4 million and $3 million at December 31, 2023 and 2022, respectively.
FOREIGN 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. The currency that has the most impact is the Euro. 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 interest rate swaps, or foreign exchange contracts.
At December 31, 2023 and 2022, the net fair value of financial instruments with exposure to foreign currency risk was immaterial. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates was also immaterial.
See the preceding discussion regarding market risk.
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 on Form 10-K. 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 on Form 10-K 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 on Form 10-K. 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 (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 shareholders and the Board of Directors and all committees of the Board of Directors. 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 (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 our 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, 2023. 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"). Based on this assessment, management believes that, as of December 31, 2023, the Company’s internal control over financial reporting was effective.
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 48 through 50.
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. The Company provides a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and maintains 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, 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
Audit and Finance 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 Audit and Finance Committee 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 Audit and Finance Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2023, including critical accounting policies and significant management judgments, with management and the independent auditors. The Audit and Finance 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
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 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Ilim S.A. as of and for the year ended December 31, 2022. The Company’s investment in Ilim S.A. is accounted for by use of the equity method and is presented as held-for-sale and within discontinued operations, as disclosed in Note 11. The accompanying financial statements of the Company include its equity investment in Ilim S.A. of $133 million as of December 31, 2022, and its equity earnings in Ilim S.A. of $296 million for the year ended December 31, 2022. The financial statements of Ilim S.A. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Ilim S.A. as of and for the year ended December 31, 2022, is based solely on the report of the other auditors.
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, 2023, 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 16, 2024, 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Finance Committee and that (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Retirement Plans — Plan Assets — Refer to Note 18 to the financial statements
Critical Audit Matter Description
As of December 31, 2023, the Company’s Qualified Pension Plan held approximately $2.7 billion in investments whose reported value is determined based on net asset value (“NAV”). The strategic asset allocation policy prescribed by the Company’s Qualified 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 Qualified 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 Qualified 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, 2023 of all individual investments held in trust for the Qualified Pension Plan to confirm the existence of each individual asset held in trust.
•For selected investment funds 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, 2022 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 selected funds’ most recently audited financial statements to December 31, 2023. 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, 2023, 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.
•For certain investments, we inquired of management to understand year-over-year changes in the fund manager’s estimate of NAV and compared the fund’s return on investment to other available qualitative and quantitative information.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 16, 2024
We have served as the Company's auditor since 2002.
To the shareholders and the Board of Directors of International Paper 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”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the
year ended December 31, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’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’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 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’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’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’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that 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 16, 2024
| | | | | | | | | | | |
| In millions, except per share amounts, for the years ended December 31 | 2023 | 2022 | 2021 |
| NET SALES | $ | 18,916 | | $ | 21,161 | | $ | 19,363 | |
| COSTS AND EXPENSES | | | |
| Cost of products sold | 13,629 | | 15,143 | | 13,832 | |
| Selling and administrative expenses | 1,360 | | 1,293 | | 1,385 | |
| Depreciation, amortization and cost of timber harvested | 1,432 | | 1,040 | | 1,097 | |
| Distribution expenses | 1,575 | | 1,783 | | 1,444 | |
| Taxes other than payroll and income taxes | 154 | | 148 | | 139 | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (7) | |
| Net (gains) losses on sales of equity method investments | — | | 10 | | (204) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Interest expense, net | 231 | | 325 | | 337 | |
| Non-operating pension (income) expense | 54 | | (192) | | (200) | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 382 | | 1,511 | | 999 | |
| Income tax provision (benefit) | 59 | | (236) | | 188 | |
| Equity earnings (loss), net of taxes | (21) | | (6) | | 2 | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 302 | | 1,741 | | 813 | |
| Discontinued operations, net of taxes | (14) | | (237) | | 941 | |
| NET EARNINGS (LOSS) | 288 | | 1,504 | | 1,754 | |
| Less: Net earnings (loss) attributable to noncontrolling interests | — | | — | | 2 | |
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 288 | | $ | 1,504 | | $ | 1,752 | |
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.87 | | $ | 4.79 | | $ | 2.08 | |
| Discontinued operations, net of taxes | (0.04) | | (0.65) | | 2.42 | |
| Net earnings (loss) | $ | 0.83 | | $ | 4.14 | | $ | 4.50 | |
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.86 | | $ | 4.74 | | $ | 2.07 | |
| Discontinued operations, net of taxes | (0.04) | | (0.64) | | 2.40 | |
| Net earnings (loss) | $ | 0.82 | | $ | 4.10 | | $ | 4.47 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| NET EARNINGS (LOSS) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | | |
| Amortization of pension and postretirement prior service costs and net loss: | | | |
| U.S. plans (less tax of $29, $28 and $41) | 87 | | 85 | | 124 | |
| Non-U.S. plans (less tax of $0, $0 and $0) | (1) | | 1 | | 1 | |
| Pension and postretirement liability adjustments: | | | |
| U.S. plans (less tax of $(56), $(109) and $235) | (170) | | (327) | | 706 | |
| Non-U.S. plans (less tax of $0, $1 and $1) | 3 | | 8 | | 7 | |
| Change in cumulative foreign currency translation adjustment (less tax of $0, $0 and $0) | 441 | | (28) | | 69 | |
| Net gains/losses on cash flow hedging derivatives (less tax of $0, $1 and $(1)) | — | | 2 | | (6) | |
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 360 | | (259) | | 901 | |
| Comprehensive Income (Loss) | 648 | | 1,245 | | 2,655 | |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | — | | — | | (2) | |
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | — | | — | | 2 | |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 648 | | $ | 1,245 | | $ | 2,655 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | |
| In millions, except per share amounts, at December 31 | 2023 | 2022 |
| ASSETS | | |
| Current Assets | | |
| Cash and temporary investments | $ | 1,113 | | $ | 804 | |
| Accounts and notes receivable (less allowances of $34 in 2023 and $31 in 2022) | 3,059 | | 3,284 | |
| Contract assets | 433 | | 481 | |
| Inventories | 1,889 | | 1,942 | |
| Assets held for sale | — | | 133 | |
| Other current assets | 114 | | 126 | |
| Total Current Assets | 6,608 | | 6,770 | |
| Plants, Properties and Equipment, net | 10,150 | | 10,431 | |
| Investments | 163 | | 186 | |
| Long-Term Financial Assets of Variable Interest Entities (Note 15) | 2,312 | | 2,294 | |
| Goodwill | 3,041 | | 3,041 | |
| Overfunded Pension Plan Assets | 118 | | 297 | |
| Right of Use Assets | 448 | | 424 | |
| Deferred Charges and Other Assets | 421 | | 497 | |
| TOTAL ASSETS | $ | 23,261 | | $ | 23,940 | |
| LIABILITIES AND EQUITY | | |
| Current Liabilities | | |
| Notes payable and current maturities of long-term debt | $ | 138 | | $ | 763 | |
| Accounts payable | 2,442 | | 2,708 | |
| Accrued payroll and benefits | 397 | | 355 | |
| Other current liabilities | 982 | | 1,174 | |
| Total Current Liabilities | 3,959 | | 5,000 | |
| Long-Term Debt | 5,455 | | 4,816 | |
| Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 15) | 2,113 | | 2,106 | |
| Deferred Income Taxes | 1,552 | | 1,732 | |
| Underfunded Pension Benefit Obligation | 280 | | 281 | |
| Postretirement and Postemployment Benefit Obligation | 140 | | 150 | |
| Long-Term Lease Obligations | 312 | | 283 | |
| Other Liabilities | 1,095 | | 1,075 | |
| Commitments and Contingent Liabilities (Note 14) | | |
| Equity | | |
| Common stock $1 par value, 2023 - 448.9 shares and 2022 - 448.9 shares | 449 | | 449 | |
| Paid-in capital | 4,730 | | 4,725 | |
| Retained earnings | 9,491 | | 9,855 | |
| Accumulated other comprehensive loss | (1,565) | | (1,925) | |
| 13,105 | | 13,104 | |
| Less: Common stock held in treasury, at cost, 2023 – 102.9 shares and 2022 – 98.6 shares | 4,750 | | 4,607 | |
| Total Equity | 8,355 | | 8,497 | |
| TOTAL LIABILITIES AND EQUITY | $ | 23,261 | | $ | 23,940 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| OPERATING ACTIVITIES | | | |
| Net earnings (loss) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| Depreciation, amortization, and cost of timber harvested | 1,432 | | 1,040 | | 1,210 | |
| Deferred income tax provision (benefit), net | (156) | | (773) | | (291) | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Periodic pension (income) expense, net | 94 | | (116) | | (112) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (358) | |
| Net (gains) losses on sales and impairments of equity method investments | 153 | | 543 | | (205) | |
| Net (gains) losses on sales of fixed assets | — | | — | | (86) | |
| Equity method dividends received | 13 | | 204 | | 159 | |
| Equity (earnings) losses, net | (108) | | (291) | | (313) | |
| Other, net | 20 | | 108 | | 157 | |
| Changes in current assets and liabilities | | | |
| Accounts and notes receivable | 255 | | (59) | | (596) | |
| Contract assets | 48 | | (103) | | (49) | |
| Inventories | 73 | | (162) | | (263) | |
| Accounts payable and accrued liabilities | (402) | | 110 | | 519 | |
| Interest payable | (19) | | 41 | | (32) | |
| Other | 43 | | 28 | | (5) | |
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | 1,833 | | 2,174 | | 2,030 | |
| INVESTMENT ACTIVITIES | | | |
| Invested in capital projects, net of insurance recoveries | (1,141) | | (931) | | (549) | |
| Acquisitions, net of cash acquired | — | | — | | (80) | |
| Proceeds from sales of equity method investments, net of transaction costs | 472 | | — | | 908 | |
| Proceeds from sales of businesses, net of cash divested | — | | — | | 827 | |
| Proceeds from exchange of equity securities | — | | 311 | | — | |
| Proceeds from settlement of Variable Interest Entities | — | | — | | 4,850 | |
| Proceeds from sale of fixed assets | 4 | | 13 | | 101 | |
| Other | (3) | | (1) | | (3) | |
| CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES | (668) | | (608) | | 6,054 | |
| FINANCING ACTIVITIES | | | |
| Repurchases of common stock and payments of restricted stock tax withholding | (218) | | (1,284) | | (839) | |
| Issuance of debt | 783 | | 1,011 | | 1,512 | |
| Reduction of debt | (780) | | (1,017) | | (2,509) | |
| Change in book overdrafts | (8) | | 1 | | 65 | |
| Dividends paid | (642) | | (673) | | (780) | |
| Reduction of Variable Interest Entity loans | — | | — | | (4,220) | |
| Distribution to Sylvamo Corporation | — | | — | | (130) | |
| Net debt tender premiums paid | — | | (89) | | (456) | |
| Other | (1) | | (3) | | (18) | |
| CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (866) | | (2,054) | | (7,375) | |
| Effect of Exchange Rate Changes on Cash | 10 | | (3) | | (9) | |
| Change in Cash and Temporary Investments | 309 | | (491) | | 700 | |
| Cash and Temporary Investments | | | |
| Beginning of the period | 804 | | 1,295 | | 595 | |
| End of the period | $ | 1,113 | | $ | 804 | | $ | 1,295 | |
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) | Common Stock Held In Treasury, At Cost | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity |
| BALANCE, JANUARY 1, 2021 | $ | 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 | |
| Issuance of stock for various plans, net | — | | 57 | | — | | — | | (75) | | 132 | | — | | 132 | |
| Repurchase of stock | — | | — | | — | | — | | 1,284 | | (1,284) | | — | | (1,284) | |
| Dividends ($1.850 per share) | — | | — | | (678) | | — | | — | | (678) | | — | | (678) | |
| Comprehensive income (loss) | — | | — | | 1,504 | | (259) | | — | | 1,245 | | — | | 1,245 | |
| BALANCE, DECEMBER 31, 2022 | 449 | | 4,725 | | 9,855 | | (1,925) | | 4,607 | | 8,497 | | — | | 8,497 | |
| Issuance of stock for various plans, net | — | | 5 | | — | | — | | (77) | | 82 | | — | | 82 | |
| Repurchase of stock | — | | — | | — | | — | | 220 | | (220) | | — | | (220) | |
| Dividends ($1.850 per share) | — | | — | | (652) | | — | | — | | (652) | | — | | (652) | |
| Comprehensive income (loss) | — | | — | | 288 | | 360 | | — | | 648 | | — | | 648 | |
| BALANCE, DECEMBER 31, 2023 | $ | 449 | | $ | 4,730 | | $ | 9,491 | | $ | (1,565) | | $ | 4,750 | | $ | 8,355 | | $ | — | | $ | 8,355 | |
The accompanying notes are an integral part of these financial statements.
NATURE OF BUSINESS
International Paper (the "Company") is a global producer of renewable fiber-based packaging and pulp products with primary markets and manufacturing operations in North America and Europe and additional markets and manufacturing operations in Latin America, North Africa and 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
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. Certain amounts from prior year have been reclassified to conform with the current year financial statement presentation.
Printing Papers Spin-off
On October 1, 2021, the Company completed the previously announced 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 implemented through the distribution of shares of the standalone company to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".
In addition to the spin-off of Sylvamo, the Company completed the sale of its Kwidzyn, Poland mill on August 6, 2021. All historical operating results of the Sylvamo businesses and Kwidzyn mill have been presented as Discontinued Operations, net of tax, in the consolidated statement of operations. See Note 8 for further details regarding the Sylvamo spin-off and discontinued operations.
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 a 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 be classified as held for sale; (2) the component 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, 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 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.
CONSOLIDATION
The consolidated financial statements include the accounts of International Paper and 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.
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.
OTHER-THAN-TEMPORARY IMPAIRMENT
The Company evaluates our equity method investments for other-than-temporary impairment ("OTTI") when circumstances indicate the investment may be impaired. When a decline in fair value is deemed to be an OTTI, an impairment is recognized to the extent that the fair value is less than the carrying value of the investment. We consider various factors in determining whether a loss in value of an investment is other than temporary including: the length of time and the extent to which the fair value has been below cost, the financial condition of the investee, and our intent and ability to retain the investment for a period of time sufficient to allow for recovery of value. Management makes certain judgments and estimates in its assessment including but not limited to: identifying if circumstances indicate
a decline in value is other than temporary, expectations about operations, as well as industry, financial, regulatory and market factors.
BUSINESS COMBINATIONS
The Company allocates 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 statement of 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 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 amount of an accrual is dependent upon the type of benefits granted, the timing of communication and other provisions that may be provided in the benefit plan. The accounting for each termination is evaluated individually. See Note 6 for further details.
REVENUE RECOGNITION
Generally, the Company recognizes revenue on a point-in-time basis when the Company transfers control of the goods to the customer. 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, as 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 individual customer level based on the most likely amount method outlined in ASC 606 "Revenue from Contracts with Customers". The Company estimates early payment discounts and other customer refunds based on the historical experience across the Company's portfolio of customers to record reductions in revenue that is consistent with the expected value method outlined in ASC 606. Management has concluded that these methods result in the best estimate of the 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 of 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 timing of control or transfer and customer payment is one year or less. See Note 3 for further details.
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. If a decision is made to abandon plants, properties or equipment before the end of its useful life, depreciation expense is revised to reflect the shortened useful life. See Note 9 for further details.
GOODWILL
Annual evaluation for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim evaluation 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 evaluate goodwill for impairment by first performing a qualitative 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 quantitative goodwill impairment test is not required to be performed. If the Company 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 is required to perform the quantitative goodwill impairment test. In performing this evaluation, the Company estimates the fair value of its 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. For reporting units whose carrying amount is in excess of their estimated fair value, the reporting unit 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 goodwill allocated to the reporting unit.
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. A recoverability test is performed by comparing the undiscounted cash flows to carrying value of the assets. The inputs related to the undiscounted cash flows requires judgments as to whether assets are held and used or held for sale, the weighting of operational alternatives being considered by management and estimates of the amount and timing of expected future cash flows from the use of the long-lived assets generated by their use. If the carrying amount is less than the undiscounted cash flows, the fair value of the assets is compared to the carrying value to determine if they are impaired. We estimate fair value using discounted cash flows and other valuation techniques as needed.
Impaired assets are recorded at their estimated fair value.
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 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 recent court cases that are relevant to the matter. Accrued interest related to these uncertain tax positions is recorded in our consolidated statement of operations in Interest expense, net.
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.
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 assessing the need for and magnitude of appropriate valuation allowances against deferred tax assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax
income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.
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. 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 income (loss).
FAIR VALUE MEASUREMENTS
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.
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.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This guidance provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.
This guidance is effective upon issuance and generally can be applied through December 31, 2024.
The Company has applied and will continue to apply this guidance to account for contract modifications due to changes in reference rates as those modifications occur. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.
Liabilities - Supplier Finance Programs
In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This guidance requires a business entity
operating as a buyer in a supplier finance agreement to disclose qualitative and quantitative information about its supplier finance programs. This guidance is
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This guidance requires companies to disclose incremental segment information on an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2023 and interim periods within those years beginning after December 15, 2024. Early adoption of these amendments is permitted and amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance.
Income TaxesFinancial Statements
The management of International Paper recordsCompany is responsible for the preparation of the consolidated financial statements in this Annual Report on Form 10-K. 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 on Form 10-K and is responsible for its global tax provisionaccuracy 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 respective taxintegrity and reliability of the financial information contained in this Annual Report on Form 10-K. 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 (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 shareholders and the Board of Directors and all committees of the Board of Directors. 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 (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 our 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, 2023. 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"). Based on this assessment, management believes that, as of December 31, 2023, the Company’s internal control over financial reporting was effective.
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 48 through 50.
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. The Company provides a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and maintains 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, 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
Audit and Finance 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 Audit and Finance Committee Charter takes into account the New York Stock Exchange rules relating to audit committees and the SEC 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 case that addresses 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,promulgated as a result of recent U.S. tax legislation, which includes a reductionthe Sarbanes-Oxley Act of 2002. The Audit and Finance Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2023, including critical accounting policies and significant management judgments, with management and the independent auditors. The Audit and Finance 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
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 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Ilim S.A. as of and for the year ended December 31, 2022. The Company’s investment in Ilim S.A. is accounted for by use of the equity method and is presented as held-for-sale and within discontinued operations, as disclosed in Note 11. The accompanying financial statements of the Company include its equity investment in Ilim S.A. of $133 million as of December 31, 2022, and its equity earnings in Ilim S.A. of $296 million for the year ended December 31, 2022. The financial statements of Ilim S.A. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Ilim S.A. as of and for the year ended December 31, 2022, is based solely on the report of the other auditors.
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, 2023, 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 16, 2024, 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. incomefederal 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Finance Committee and that (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Retirement Plans — Plan Assets — Refer to Note 18 to the financial statements
Critical Audit Matter Description
As of December 31, 2023, the Company’s Qualified Pension Plan held approximately $2.7 billion in investments whose reported value is determined based on net asset value (“NAV”). The strategic asset allocation policy prescribed by the Company’s Qualified 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 Qualified 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 Qualified 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, 2023 of all individual investments held in trust for the Qualified Pension Plan to confirm the existence of each individual asset held in trust.
•For selected investment funds 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, 2022 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 selected funds’ most recently audited financial statements to December 31, 2023. 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, 2023, 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.
•For certain investments, we inquired of management to understand year-over-year changes in the fund manager’s estimate of NAV and compared the fund’s return on investment to other available qualitative and quantitative information.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 16, 2024
We have served as the Company's auditor since 2002.
To the shareholders and the Board of Directors of International Paper 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”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the
year ended December 31, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’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’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 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’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’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’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that 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 16, 2024
| | | | | | | | | | | |
| In millions, except per share amounts, for the years ended December 31 | 2023 | 2022 | 2021 |
| NET SALES | $ | 18,916 | | $ | 21,161 | | $ | 19,363 | |
| COSTS AND EXPENSES | | | |
| Cost of products sold | 13,629 | | 15,143 | | 13,832 | |
| Selling and administrative expenses | 1,360 | | 1,293 | | 1,385 | |
| Depreciation, amortization and cost of timber harvested | 1,432 | | 1,040 | | 1,097 | |
| Distribution expenses | 1,575 | | 1,783 | | 1,444 | |
| Taxes other than payroll and income taxes | 154 | | 148 | | 139 | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (7) | |
| Net (gains) losses on sales of equity method investments | — | | 10 | | (204) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Interest expense, net | 231 | | 325 | | 337 | |
| Non-operating pension (income) expense | 54 | | (192) | | (200) | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 382 | | 1,511 | | 999 | |
| Income tax provision (benefit) | 59 | | (236) | | 188 | |
| Equity earnings (loss), net of taxes | (21) | | (6) | | 2 | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 302 | | 1,741 | | 813 | |
| Discontinued operations, net of taxes | (14) | | (237) | | 941 | |
| NET EARNINGS (LOSS) | 288 | | 1,504 | | 1,754 | |
| Less: Net earnings (loss) attributable to noncontrolling interests | — | | — | | 2 | |
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 288 | | $ | 1,504 | | $ | 1,752 | |
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.87 | | $ | 4.79 | | $ | 2.08 | |
| Discontinued operations, net of taxes | (0.04) | | (0.65) | | 2.42 | |
| Net earnings (loss) | $ | 0.83 | | $ | 4.14 | | $ | 4.50 | |
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.86 | | $ | 4.74 | | $ | 2.07 | |
| Discontinued operations, net of taxes | (0.04) | | (0.64) | | 2.40 | |
| Net earnings (loss) | $ | 0.82 | | $ | 4.10 | | $ | 4.47 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| NET EARNINGS (LOSS) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | | |
| Amortization of pension and postretirement prior service costs and net loss: | | | |
| U.S. plans (less tax of $29, $28 and $41) | 87 | | 85 | | 124 | |
| Non-U.S. plans (less tax of $0, $0 and $0) | (1) | | 1 | | 1 | |
| Pension and postretirement liability adjustments: | | | |
| U.S. plans (less tax of $(56), $(109) and $235) | (170) | | (327) | | 706 | |
| Non-U.S. plans (less tax of $0, $1 and $1) | 3 | | 8 | | 7 | |
| Change in cumulative foreign currency translation adjustment (less tax of $0, $0 and $0) | 441 | | (28) | | 69 | |
| Net gains/losses on cash flow hedging derivatives (less tax of $0, $1 and $(1)) | — | | 2 | | (6) | |
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 360 | | (259) | | 901 | |
| Comprehensive Income (Loss) | 648 | | 1,245 | | 2,655 | |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | — | | — | | (2) | |
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | — | | — | | 2 | |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 648 | | $ | 1,245 | | $ | 2,655 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | |
| In millions, except per share amounts, at December 31 | 2023 | 2022 |
| ASSETS | | |
| Current Assets | | |
| Cash and temporary investments | $ | 1,113 | | $ | 804 | |
| Accounts and notes receivable (less allowances of $34 in 2023 and $31 in 2022) | 3,059 | | 3,284 | |
| Contract assets | 433 | | 481 | |
| Inventories | 1,889 | | 1,942 | |
| Assets held for sale | — | | 133 | |
| Other current assets | 114 | | 126 | |
| Total Current Assets | 6,608 | | 6,770 | |
| Plants, Properties and Equipment, net | 10,150 | | 10,431 | |
| Investments | 163 | | 186 | |
| Long-Term Financial Assets of Variable Interest Entities (Note 15) | 2,312 | | 2,294 | |
| Goodwill | 3,041 | | 3,041 | |
| Overfunded Pension Plan Assets | 118 | | 297 | |
| Right of Use Assets | 448 | | 424 | |
| Deferred Charges and Other Assets | 421 | | 497 | |
| TOTAL ASSETS | $ | 23,261 | | $ | 23,940 | |
| LIABILITIES AND EQUITY | | |
| Current Liabilities | | |
| Notes payable and current maturities of long-term debt | $ | 138 | | $ | 763 | |
| Accounts payable | 2,442 | | 2,708 | |
| Accrued payroll and benefits | 397 | | 355 | |
| Other current liabilities | 982 | | 1,174 | |
| Total Current Liabilities | 3,959 | | 5,000 | |
| Long-Term Debt | 5,455 | | 4,816 | |
| Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 15) | 2,113 | | 2,106 | |
| Deferred Income Taxes | 1,552 | | 1,732 | |
| Underfunded Pension Benefit Obligation | 280 | | 281 | |
| Postretirement and Postemployment Benefit Obligation | 140 | | 150 | |
| Long-Term Lease Obligations | 312 | | 283 | |
| Other Liabilities | 1,095 | | 1,075 | |
| Commitments and Contingent Liabilities (Note 14) | | |
| Equity | | |
| Common stock $1 par value, 2023 - 448.9 shares and 2022 - 448.9 shares | 449 | | 449 | |
| Paid-in capital | 4,730 | | 4,725 | |
| Retained earnings | 9,491 | | 9,855 | |
| Accumulated other comprehensive loss | (1,565) | | (1,925) | |
| 13,105 | | 13,104 | |
| Less: Common stock held in treasury, at cost, 2023 – 102.9 shares and 2022 – 98.6 shares | 4,750 | | 4,607 | |
| Total Equity | 8,355 | | 8,497 | |
| TOTAL LIABILITIES AND EQUITY | $ | 23,261 | | $ | 23,940 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| OPERATING ACTIVITIES | | | |
| Net earnings (loss) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| Depreciation, amortization, and cost of timber harvested | 1,432 | | 1,040 | | 1,210 | |
| Deferred income tax provision (benefit), net | (156) | | (773) | | (291) | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Periodic pension (income) expense, net | 94 | | (116) | | (112) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (358) | |
| Net (gains) losses on sales and impairments of equity method investments | 153 | | 543 | | (205) | |
| Net (gains) losses on sales of fixed assets | — | | — | | (86) | |
| Equity method dividends received | 13 | | 204 | | 159 | |
| Equity (earnings) losses, net | (108) | | (291) | | (313) | |
| Other, net | 20 | | 108 | | 157 | |
| Changes in current assets and liabilities | | | |
| Accounts and notes receivable | 255 | | (59) | | (596) | |
| Contract assets | 48 | | (103) | | (49) | |
| Inventories | 73 | | (162) | | (263) | |
| Accounts payable and accrued liabilities | (402) | | 110 | | 519 | |
| Interest payable | (19) | | 41 | | (32) | |
| Other | 43 | | 28 | | (5) | |
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | 1,833 | | 2,174 | | 2,030 | |
| INVESTMENT ACTIVITIES | | | |
| Invested in capital projects, net of insurance recoveries | (1,141) | | (931) | | (549) | |
| Acquisitions, net of cash acquired | — | | — | | (80) | |
| Proceeds from sales of equity method investments, net of transaction costs | 472 | | — | | 908 | |
| Proceeds from sales of businesses, net of cash divested | — | | — | | 827 | |
| Proceeds from exchange of equity securities | — | | 311 | | — | |
| Proceeds from settlement of Variable Interest Entities | — | | — | | 4,850 | |
| Proceeds from sale of fixed assets | 4 | | 13 | | 101 | |
| Other | (3) | | (1) | | (3) | |
| CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES | (668) | | (608) | | 6,054 | |
| FINANCING ACTIVITIES | | | |
| Repurchases of common stock and payments of restricted stock tax withholding | (218) | | (1,284) | | (839) | |
| Issuance of debt | 783 | | 1,011 | | 1,512 | |
| Reduction of debt | (780) | | (1,017) | | (2,509) | |
| Change in book overdrafts | (8) | | 1 | | 65 | |
| Dividends paid | (642) | | (673) | | (780) | |
| Reduction of Variable Interest Entity loans | — | | — | | (4,220) | |
| Distribution to Sylvamo Corporation | — | | — | | (130) | |
| Net debt tender premiums paid | — | | (89) | | (456) | |
| Other | (1) | | (3) | | (18) | |
| CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (866) | | (2,054) | | (7,375) | |
| Effect of Exchange Rate Changes on Cash | 10 | | (3) | | (9) | |
| Change in Cash and Temporary Investments | 309 | | (491) | | 700 | |
| Cash and Temporary Investments | | | |
| Beginning of the period | 804 | | 1,295 | | 595 | |
| End of the period | $ | 1,113 | | $ | 804 | | $ | 1,295 | |
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) | Common Stock Held In Treasury, At Cost | Total International Paper Shareholders’ Equity | Noncontrolling Interests | Total Equity |
| BALANCE, JANUARY 1, 2021 | $ | 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 | |
| Issuance of stock for various plans, net | — | | 57 | | — | | — | | (75) | | 132 | | — | | 132 | |
| Repurchase of stock | — | | — | | — | | — | | 1,284 | | (1,284) | | — | | (1,284) | |
| Dividends ($1.850 per share) | — | | — | | (678) | | — | | — | | (678) | | — | | (678) | |
| Comprehensive income (loss) | — | | — | | 1,504 | | (259) | | — | | 1,245 | | — | | 1,245 | |
| BALANCE, DECEMBER 31, 2022 | 449 | | 4,725 | | 9,855 | | (1,925) | | 4,607 | | 8,497 | | — | | 8,497 | |
| Issuance of stock for various plans, net | — | | 5 | | — | | — | | (77) | | 82 | | — | | 82 | |
| Repurchase of stock | — | | — | | — | | — | | 220 | | (220) | | — | | (220) | |
| Dividends ($1.850 per share) | — | | — | | (652) | | — | | — | | (652) | | — | | (652) | |
| Comprehensive income (loss) | — | | — | | 288 | | 360 | | — | | 648 | | — | | 648 | |
| BALANCE, DECEMBER 31, 2023 | $ | 449 | | $ | 4,730 | | $ | 9,491 | | $ | (1,565) | | $ | 4,750 | | $ | 8,355 | | $ | — | | $ | 8,355 | |
The accompanying notes are an integral part of these financial statements.
NATURE OF BUSINESS
International Paper (the "Company") is a global producer of renewable fiber-based packaging and pulp products with primary markets and manufacturing operations in North America and Europe and additional markets and manufacturing operations in Latin America, North Africa and 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
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. Certain amounts from prior year have been reclassified to conform with the current year financial statement presentation.
Printing Papers Spin-off
On October 1, 2021, the Company completed the previously announced 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 implemented through the distribution of shares of the standalone company to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".
In addition to the spin-off of Sylvamo, the Company completed the sale of its Kwidzyn, Poland mill on August 6, 2021. All historical operating results of the Sylvamo businesses and Kwidzyn mill have been presented as Discontinued Operations, net of tax, rate from 35% to 21%, wein the consolidated statement of operations. See Note 8 for further details regarding the Sylvamo spin-off and discontinued operations.
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 a lower worldwide effectivemajor effect on the Company's operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component 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, 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 sale of a discontinued operation), less applicable income tax rate going forward. Excluding these specialtaxes (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 effective income tax rateconsolidated balance sheet.
CONSOLIDATION
The consolidated financial statements include the accounts of International Paper and subsidiaries for 2017 was 30%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.
EQUITY METHOD INVESTMENTS
The equity method of pre-tax earnings comparedaccounting is applied for investments when the Company has significant influence over the investee’s operations, or when the investee is structured with 32%separate capital accounts. Our material equity method investments are described in 2016 and 33%Note 11.
OTHER-THAN-TEMPORARY IMPAIRMENT
The Company evaluates our equity method investments for other-than-temporary impairment ("OTTI") when circumstances indicate the investment may be impaired. When a decline in 2015. We estimatefair value is deemed to be an OTTI, an impairment is recognized to the extent that the 2018 effective income tax rate will be approximately 25-27% based on expected earningsfair value is less than the carrying value of the investment. We consider various factors in determining whether a loss in value of an investment is other than temporary including: the length of time and business conditions.the extent to which the fair value has been below cost, the financial condition of the investee, and our intent and ability to retain the investment for a period of time sufficient to allow for recovery of value. Management makes certain judgments and estimates in its assessment including but not limited to: identifying if circumstances indicate
a decline in value is other than temporary, expectations about operations, as well as industry, financial, regulatory and market factors.
BUSINESS COMBINATIONS
The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business Combinations", as amended. We allocateCompany allocates 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 statementsstatement of earnings.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.
RESTRUCTURING LIABILITIES AND COSTS
For operations 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 amount of an accrual is dependent upon the type of benefits granted, the timing of communication and other provisions that may be provided in the benefit plan. The accounting for each termination is evaluated individually. See Note 6 for further details.
REVENUE RECOGNITION
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 Supplementary Data for a discussion of new accounting pronouncements.
While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impactindividual customer level based on the Company’s operating results, changesmost likely amount method outlined in general inflation have had minimal impactASC 606 "Revenue from Contracts with Customers". The Company estimates early payment discounts and other customer refunds based on our operating resultsthe historical experience across the Company's portfolio of customers to record reductions in eachrevenue that is consistent with the expected value method outlined in ASC 606. Management has concluded that these methods result in the best estimate of the last three years. Sales pricesconsideration 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 volumes are more strongly influenced by economic supply and demand factors in specific markets and by exchange rate fluctuations than by inflationary factors.
International Paper has operations inhandling activities as fulfillment activities, recognize the incremental costs of obtaining 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 oncontract as expense when incurred if 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 outamortization period of the United States (andasset the impact on local currency pricingCompany would recognize is one year or less, and not record interest income or interest expense when the difference in timing of products that are traded internationally). In general, a weaker U.S. dollarcontrol or transfer and stronger local currencycustomer payment is beneficial to International Paper. The currencies that have the most impact are the Euro, the Brazilian real, the Polish zloty and the Russian ruble.
We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending programs and for general corporate purposes. Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. Information related to International Paper’s debt obligations is included in one year or less. See Note 13 Debt and Lines3 for further details.
TEMPORARY INVESTMENTS
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 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 institutionsthree months or less and money market mutual funds with a minimum rating of AAAgreater than three-month maturities but with the right to redeem without notice are treated as cash equivalents and limit exposure to any one issuer or fund. Our investments in marketable securities at December 31, 2017 and 2016 are stated at cost, which approximates market duevalue. 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 their short-term nature. Our interestextend 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, risk exposurethey 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. If a decision is made to abandon plants, properties or equipment before the end of its useful life, depreciation expense is revised to reflect the shortened useful life. See Note 9 for further details.
GOODWILL
Annual evaluation for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim evaluation 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 evaluate goodwill for impairment by first performing a qualitative 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 quantitative goodwill impairment test is not required to be performed. If the Company 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 is required to perform the quantitative goodwill impairment test. In performing this evaluation, the Company estimates the fair value of its 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 these investments wasforecasts 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. For reporting units whose carrying amount is in excess of their estimated fair value, the reporting unit will record an impairment charge by the amount that the carrying amount exceeds the reporting unit's fair value, not material.to exceed the total amount of goodwill allocated to the reporting unit.
We issue fixed
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. A recoverability test is performed by comparing the undiscounted cash flows to carrying value of the assets. The inputs related to the undiscounted cash flows requires judgments as to whether assets are held and floating rate debt in a proportion thatused or held for sale, the weighting of operational alternatives being considered by 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, 2017estimates of the amount and 2016,timing of expected future cash flows from the use of the long-lived assets generated by their use. If the carrying amount is less than the undiscounted cash flows, the fair value of the net liability of financial instruments with exposureassets is compared to interest rate risk was approximately $11.1 billion and $11.3 billion, respectively. The potential loss inthe carrying value to determine if they are impaired. We estimate fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $679 millionusing discounted cash flows and $623 million at December 31, 2017 and 2016, respectively.other valuation techniques as needed.
Commodity Price RiskImpaired assets are recorded at their estimated fair value.
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 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 recent court cases that are relevant to the matter. Accrued interest related to these uncertain tax positions is recorded in our consolidated statement of operations in Interest expense, net.
The objectivejudgments 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.
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 assessing the need for and magnitude of appropriate valuation allowances against deferred tax assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax
income is considered objectively verifiable positive evidence of our commodity exposure management isability to minimize volatility in earnings due to large fluctuationsgenerate positive pre-tax income in the pricefuture. In accordance with GAAP, when there is a recent history of commodities. Commodity swappre-tax losses, there is little or forward purchase contracts may be usedno weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to manage risksestimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.
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 market fluctuationsenvironmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. 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 energy prices. Accumulated other comprehensive income (loss).
FAIR VALUE MEASUREMENTS
The netguidance for fair value of such outstanding energy hedge contract at December 31, 2017measurements and 2016 was approximatelydisclosures sets out a $8 million and a $2 million liability, respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would have been approximately $1 million at December 31, 2017 and 2016, respectively.
Foreign 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, 2017 and 2016, the nethierarchy that groups fair value of financial instruments with exposure to foreign currency risk was approximately a $10 millionmeasurement 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 and a $1 millionor liability, respectively. 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.
REPORT OF MANAGEMENT ON:Transfers between levels are recognized at the end of the reporting period.
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.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This guidance provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.
This guidance is effective upon issuance and generally can be applied through December 31, 2024.
The Company has applied and will continue to apply this guidance to account for contract modifications due to changes in reference rates as those modifications occur. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.
Liabilities - Supplier Finance Programs
In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This guidance requires a business entity
operating as a buyer in a supplier finance agreement to disclose qualitative and quantitative information about its supplier finance programs. This guidance is
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This guidance requires companies to disclose incremental segment information on an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2023 and interim periods within those years beginning after December 15, 2024. Early adoption of these amendments is permitted and amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance.
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.Annual Report on Form 10-K. 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 reportAnnual Report on Form 10-K 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.Annual Report on Form 10-K. 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 stockholdersshareholders and the boardBoard of directorsDirectors and all committees of the board.Board of Directors. 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 theour 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, 2017.2023. 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, 2017,2023, the Company’s internal control over financial reporting was effective.
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 40.48 through 50.
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;employees. The Company provides a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and maintains 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), 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
Audit and Finance 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’sAudit and Finance Committee Charter takes into account the New York Stock Exchange rules relating to Audit Committeesaudit committees and the SEC rules and regulations promulgated as a result of
the Sarbanes-Oxley Act of 2002. The Audit and Finance Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2017,2023, including critical accounting policies and significant management judgments, with management and the independent auditors. The Audit and Finance 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, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, 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, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Ilim S.A. as of and for the year ended December 31, 2022. The Company’s investment in Ilim S.A. is accounted for by use of the equity method and is presented as held-for-sale and within discontinued operations, as disclosed in Note 11. The accompanying financial statements of the Company include its equity investment in Ilim S.A. of $133 million as of December 31, 2022, and its equity earnings in Ilim S.A. of $296 million for the year ended December 31, 2022. The financial statements of Ilim S.A. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Ilim S.A. as of and for the year ended December 31, 2022, is based solely on the report of the other auditors.
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, 2017,2023, 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, 2018,16, 2024, 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Finance Committee and that (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Retirement Plans — Plan Assets — Refer to Note 18 to the financial statements
Critical Audit Matter Description
As of December 31, 2023, the Company’s Qualified Pension Plan held approximately $2.7 billion in investments whose reported value is determined based on net asset value (“NAV”). The strategic asset allocation policy prescribed by the Company’s Qualified 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 Qualified 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 Qualified 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, 2023 of all individual investments held in trust for the Qualified Pension Plan to confirm the existence of each individual asset held in trust.
•For selected investment funds 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, 2022 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 selected funds’ most recently audited financial statements to December 31, 2023. 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, 2023, 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.
•For certain investments, we inquired of management to understand year-over-year changes in the fund manager’s estimate of NAV and compared the fund’s return on investment to other available qualitative and quantitative information.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 22, 201816, 2024
We have served as the Company's auditor since 2002.
To the shareholders and the Board of Directors and Shareholders of International Paper 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, 2017,2023, 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, 2017,2023, 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, 20172023, of the Company and our report dated February 22, 201816, 2024, expressed an unqualified opinion on those financial statements and financial statement schedule.statements.
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's
company’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, 201816, 2024
| | | | | | | | | | | |
| In millions, except per share amounts, for the years ended December 31 | 2023 | 2022 | 2021 |
| NET SALES | $ | 18,916 | | $ | 21,161 | | $ | 19,363 | |
| COSTS AND EXPENSES | | | |
| Cost of products sold | 13,629 | | 15,143 | | 13,832 | |
| Selling and administrative expenses | 1,360 | | 1,293 | | 1,385 | |
| Depreciation, amortization and cost of timber harvested | 1,432 | | 1,040 | | 1,097 | |
| Distribution expenses | 1,575 | | 1,783 | | 1,444 | |
| Taxes other than payroll and income taxes | 154 | | 148 | | 139 | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (7) | |
| Net (gains) losses on sales of equity method investments | — | | 10 | | (204) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Interest expense, net | 231 | | 325 | | 337 | |
| Non-operating pension (income) expense | 54 | | (192) | | (200) | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 382 | | 1,511 | | 999 | |
| Income tax provision (benefit) | 59 | | (236) | | 188 | |
| Equity earnings (loss), net of taxes | (21) | | (6) | | 2 | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 302 | | 1,741 | | 813 | |
| Discontinued operations, net of taxes | (14) | | (237) | | 941 | |
| NET EARNINGS (LOSS) | 288 | | 1,504 | | 1,754 | |
| Less: Net earnings (loss) attributable to noncontrolling interests | — | | — | | 2 | |
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 288 | | $ | 1,504 | | $ | 1,752 | |
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.87 | | $ | 4.79 | | $ | 2.08 | |
| Discontinued operations, net of taxes | (0.04) | | (0.65) | | 2.42 | |
| Net earnings (loss) | $ | 0.83 | | $ | 4.14 | | $ | 4.50 | |
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 0.86 | | $ | 4.74 | | $ | 2.07 | |
| Discontinued operations, net of taxes | (0.04) | | (0.64) | | 2.40 | |
| Net earnings (loss) | $ | 0.82 | | $ | 4.10 | | $ | 4.47 | |
The accompanying notes are an integral part of these financial statements.
|
| | | | | | | | | |
| In millions, except per share amounts, for the years ended December 31 | 2017 | 2016 | 2015 |
| NET SALES | $ | 21,743 |
| $ | 19,495 |
| $ | 20,675 |
|
| COSTS AND EXPENSES | | | |
| Cost of products sold | 15,300 |
| 14,057 |
| 14,313 |
|
| Selling and administrative expenses | 1,653 |
| 1,484 |
| 1,539 |
|
| Depreciation, amortization and cost of timber harvested | 1,343 |
| 1,124 |
| 1,167 |
|
| Distribution expenses | 1,434 |
| 1,237 |
| 1,248 |
|
| Taxes other than payroll and income taxes | 169 |
| 154 |
| 158 |
|
| Restructuring and other charges | 67 |
| 54 |
| 252 |
|
| Impairment of goodwill and other intangibles | — |
| — |
| 137 |
|
| Net (gains) losses on sales and impairments of businesses | 9 |
| 70 |
| 174 |
|
| Litigation settlement | 354 |
| — |
| — |
|
| Net bargain purchase gain on acquisition of business | (6 | ) | — |
| — |
|
| Interest expense, net | 572 |
| 520 |
| 555 |
|
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS (LOSSES) | 848 |
| 795 |
| 1,132 |
|
| Income tax provision (benefit) | (1,085 | ) | 193 |
| 417 |
|
| Equity earnings (loss), net of taxes | 177 |
| 198 |
| 117 |
|
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 2,110 |
| 800 |
| 832 |
|
| Discontinued operations, net of taxes | 34 |
| 102 |
| 85 |
|
| NET EARNINGS (LOSS) | 2,144 |
| 902 |
| 917 |
|
| Less: Net earnings (loss) attributable to noncontrolling interests | — |
| (2 | ) | (21 | ) |
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY | $ | 2,144 |
| $ | 904 |
| $ | 938 |
|
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 5.11 |
| $ | 1.95 |
| $ | 2.05 |
|
| Discontinued operations, net of taxes | 0.08 |
| 0.25 |
| 0.20 |
|
| Net earnings (loss) | $ | 5.19 |
| $ | 2.20 |
| $ | 2.25 |
|
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS | | | |
| Earnings (loss) from continuing operations | $ | 5.05 |
| $ | 1.93 |
| $ | 2.03 |
|
| Discontinued operations, net of taxes | 0.08 |
| 0.25 |
| 0.20 |
|
| Net earnings (loss) | $ | 5.13 |
| $ | 2.18 |
| $ | 2.23 |
|
| 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 |
|
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| NET EARNINGS (LOSS) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | | |
| Amortization of pension and postretirement prior service costs and net loss: | | | |
| U.S. plans (less tax of $29, $28 and $41) | 87 | | 85 | | 124 | |
| Non-U.S. plans (less tax of $0, $0 and $0) | (1) | | 1 | | 1 | |
| Pension and postretirement liability adjustments: | | | |
| U.S. plans (less tax of $(56), $(109) and $235) | (170) | | (327) | | 706 | |
| Non-U.S. plans (less tax of $0, $1 and $1) | 3 | | 8 | | 7 | |
| Change in cumulative foreign currency translation adjustment (less tax of $0, $0 and $0) | 441 | | (28) | | 69 | |
| Net gains/losses on cash flow hedging derivatives (less tax of $0, $1 and $(1)) | — | | 2 | | (6) | |
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 360 | | (259) | | 901 | |
| Comprehensive Income (Loss) | 648 | | 1,245 | | 2,655 | |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | — | | — | | (2) | |
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | — | | — | | 2 | |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 648 | | $ | 1,245 | | $ | 2,655 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | |
| In millions, except per share amounts, at December 31 | 2023 | 2022 |
| ASSETS | | |
| Current Assets | | |
| Cash and temporary investments | $ | 1,113 | | $ | 804 | |
| Accounts and notes receivable (less allowances of $34 in 2023 and $31 in 2022) | 3,059 | | 3,284 | |
| Contract assets | 433 | | 481 | |
| Inventories | 1,889 | | 1,942 | |
| Assets held for sale | — | | 133 | |
| Other current assets | 114 | | 126 | |
| Total Current Assets | 6,608 | | 6,770 | |
| Plants, Properties and Equipment, net | 10,150 | | 10,431 | |
| Investments | 163 | | 186 | |
| Long-Term Financial Assets of Variable Interest Entities (Note 15) | 2,312 | | 2,294 | |
| Goodwill | 3,041 | | 3,041 | |
| Overfunded Pension Plan Assets | 118 | | 297 | |
| Right of Use Assets | 448 | | 424 | |
| Deferred Charges and Other Assets | 421 | | 497 | |
| TOTAL ASSETS | $ | 23,261 | | $ | 23,940 | |
| LIABILITIES AND EQUITY | | |
| Current Liabilities | | |
| Notes payable and current maturities of long-term debt | $ | 138 | | $ | 763 | |
| Accounts payable | 2,442 | | 2,708 | |
| Accrued payroll and benefits | 397 | | 355 | |
| Other current liabilities | 982 | | 1,174 | |
| Total Current Liabilities | 3,959 | | 5,000 | |
| Long-Term Debt | 5,455 | | 4,816 | |
| Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 15) | 2,113 | | 2,106 | |
| Deferred Income Taxes | 1,552 | | 1,732 | |
| Underfunded Pension Benefit Obligation | 280 | | 281 | |
| Postretirement and Postemployment Benefit Obligation | 140 | | 150 | |
| Long-Term Lease Obligations | 312 | | 283 | |
| Other Liabilities | 1,095 | | 1,075 | |
| Commitments and Contingent Liabilities (Note 14) | | |
| Equity | | |
| Common stock $1 par value, 2023 - 448.9 shares and 2022 - 448.9 shares | 449 | | 449 | |
| Paid-in capital | 4,730 | | 4,725 | |
| Retained earnings | 9,491 | | 9,855 | |
| Accumulated other comprehensive loss | (1,565) | | (1,925) | |
| 13,105 | | 13,104 | |
| Less: Common stock held in treasury, at cost, 2023 – 102.9 shares and 2022 – 98.6 shares | 4,750 | | 4,607 | |
| Total Equity | 8,355 | | 8,497 | |
| TOTAL LIABILITIES AND EQUITY | $ | 23,261 | | $ | 23,940 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
| In millions for the years ended December 31 | 2023 | 2022 | 2021 |
| OPERATING ACTIVITIES | | | |
| Net earnings (loss) | $ | 288 | | $ | 1,504 | | $ | 1,754 | |
| Depreciation, amortization, and cost of timber harvested | 1,432 | | 1,040 | | 1,210 | |
| Deferred income tax provision (benefit), net | (156) | | (773) | | (291) | |
| Restructuring and other charges, net | 99 | | 89 | | 509 | |
| Periodic pension (income) expense, net | 94 | | (116) | | (112) | |
| Net (gains) losses on mark to market investments | — | | (65) | | 32 | |
| Net (gains) losses on sales and impairments of businesses | — | | 76 | | (358) | |
| Net (gains) losses on sales and impairments of equity method investments | 153 | | 543 | | (205) | |
| Net (gains) losses on sales of fixed assets | — | | — | | (86) | |
| Equity method dividends received | 13 | | 204 | | 159 | |
| Equity (earnings) losses, net | (108) | | (291) | | (313) | |
| Other, net | 20 | | 108 | | 157 | |
| Changes in current assets and liabilities | | | |
| Accounts and notes receivable | 255 | | (59) | | (596) | |
| Contract assets | 48 | | (103) | | (49) | |
| Inventories | 73 | | (162) | | (263) | |
| Accounts payable and accrued liabilities | (402) | | 110 | | 519 | |
| Interest payable | (19) | | 41 | | (32) | |
| Other | 43 | | 28 | | (5) | |
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | 1,833 | | 2,174 | | 2,030 | |
| INVESTMENT ACTIVITIES | | | |
| Invested in capital projects, net of insurance recoveries | (1,141) | | (931) | | (549) | |
| Acquisitions, net of cash acquired | — | | — | | (80) | |
| Proceeds from sales of equity method investments, net of transaction costs | 472 | | — | | 908 | |
| Proceeds from sales of businesses, net of cash divested | — | | — | | 827 | |
| Proceeds from exchange of equity securities | — | | 311 | | — | |
| Proceeds from settlement of Variable Interest Entities | — | | — | | 4,850 | |
| Proceeds from sale of fixed assets | 4 | | 13 | | 101 | |
| Other | (3) | | (1) | | (3) | |
| CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES | (668) | | (608) | | 6,054 | |
| FINANCING ACTIVITIES | | | |
| Repurchases of common stock and payments of restricted stock tax withholding | (218) | | (1,284) | | (839) | |
| Issuance of debt | 783 | | 1,011 | | 1,512 | |
| Reduction of debt | (780) | | (1,017) | | (2,509) | |
| Change in book overdrafts | (8) | | 1 | | 65 | |
| Dividends paid | (642) | | (673) | | (780) | |
| Reduction of Variable Interest Entity loans | — | | — | | (4,220) | |
| Distribution to Sylvamo Corporation | — | | — | | (130) | |
| Net debt tender premiums paid | — | | (89) | | (456) | |
| Other | (1) | | (3) | | (18) | |
| CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | (866) | | (2,054) | | (7,375) | |
| Effect of Exchange Rate Changes on Cash | 10 | | (3) | | (9) | |
| Change in Cash and Temporary Investments | 309 | | (491) | | 700 | |
| Cash and Temporary Investments | | | |
| Beginning of the period | 804 | | 1,295 | | 595 | |
| End of the period | $ | 1,113 | | $ | 804 | | $ | 1,295 | |
The accompanying notes are an integral part of these financial statements.
|
| | | | | | | | | |
| In millions for the years ended December 31 | 2017 | 2016 | 2015 |
| NET EARNINGS (LOSS) | $ | 2,144 |
| $ | 902 |
| $ | 917 |
|
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | | |
| Amortization of pension and postretirement prior service costs and net loss: | | | |
| U.S. plans (less tax of $280, $343 and $186) | 486 |
| 545 |
| 296 |
|
| 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 | ) |
| 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 |
|
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 730 |
| 344 |
| (1,068 | ) |
| Comprehensive Income (Loss) | 2,874 |
| 1,246 |
| (151 | ) |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | — |
| 2 |
| 21 |
|
| Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests | (1 | ) | 2 |
| 6 |
|
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY | $ | 2,873 |
| $ | 1,250 |
| $ | (124 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2021 | $ | 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 | |
| Issuance of stock for various plans, net | — | | 57 | | — | | — | | (75) | | 132 | | — | | 132 | |
| Repurchase of stock | — | | — | | — | | — | | 1,284 | | (1,284) | | — | | (1,284) | |
| Dividends ($1.850 per share) | — | | — | | (678) | | — | | — | | (678) | | — | | (678) | |
| Comprehensive income (loss) | — | | — | | 1,504 | | (259) | | — | | 1,245 | | — | | 1,245 | |
| BALANCE, DECEMBER 31, 2022 | 449 | | 4,725 | | 9,855 | | (1,925) | | 4,607 | | 8,497 | | — | | 8,497 | |
| Issuance of stock for various plans, net | — | | 5 | | — | | — | | (77) | | 82 | | — | | 82 | |
| Repurchase of stock | — | | — | | — | | — | | 220 | | (220) | | — | | (220) | |
| Dividends ($1.850 per share) | — | | — | | (652) | | — | | — | | (652) | | — | | (652) | |
| Comprehensive income (loss) | — | | — | | 288 | | 360 | | — | | 648 | | — | | 648 | |
| BALANCE, DECEMBER 31, 2023 | $ | 449 | | $ | 4,730 | | $ | 9,491 | | $ | (1,565) | | $ | 4,750 | | $ | 8,355 | | $ | — | | $ | 8,355 | |
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 |
|
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 |
|
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 paperproducer of renewable fiber-based packaging and packaging companypulp products 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
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-periodCertain amounts from prior year have been adjustedreclassified to conform with the current year financial statement presentation.
Printing Papers Spin-off
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 ("Sylvamo"). 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 this transfer, all currentthe Distribution, Sylvamo is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".
In addition to the spin-off of Sylvamo, the Company completed the sale of its Kwidzyn, Poland mill on August 6, 2021. All historical operating results of the Sylvamo businesses and prior year amountsKwidzyn mill have been adjustedpresented as Discontinued Operations, net of tax, in the consolidated statement of operations. See Note 8 for further details regarding the Sylvamo spin-off and discontinued operations.
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 a 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.
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 whereEQUITY METHOD INVESTMENTS
The equity method of accounting is applied for investments when the Company has significant influence over theirthe investee’s operations, or when the investee is structured with separate capital accounts. Our material equity method investments are accounteddescribed in Note 11.
OTHER-THAN-TEMPORARY IMPAIRMENT
The Company evaluates our equity method investments for byother-than-temporary impairment ("OTTI") when circumstances indicate the equity method. International Paper’s share of affiliates’ results of operations totaled earnings (loss) of $177 million, $198 million and $117 millioninvestment may be impaired. When a decline in 2017, 2016 and 2015, respectively.
REVENUE RECOGNITION
Revenuefair value is deemed to be an OTTI, an impairment is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales
transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when titleextent that the fair value is less than the carrying value of the investment. We consider various factors in determining whether a loss in value of an investment is other than temporary including: the length of time and riskthe extent to which the fair value has been below cost, the financial condition of loss are transferred. Timberthe investee, and forestland sales revenueour intent and ability to retain the investment for a period of time sufficient to allow for recovery of value. Management makes certain judgments and estimates in its assessment including but not limited to: identifying if circumstances indicate
a decline in value is generally recognized when titleother than temporary, expectations about operations, as well as industry, financial, regulatory and riskmarket factors.
BUSINESS COMBINATIONS
The Company allocates the total consideration of loss passthe 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 buyer.
SHIPPING AND HANDLING COSTS
Shippingassets acquired and
handling costs, such as freightliabilities assumed over a measurement period, not to
our customers’ destinations,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
included in distribution expenses incharged to the consolidated statement of operations.
WhenSubsequent 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 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 amount of an accrual is dependent upon the type of benefits granted, the timing of communication and other provisions that may be provided in the benefit plan. The accounting for each termination is evaluated individually. See Note 6 for further details.
REVENUE RECOGNITION
Generally, the Company recognizes revenue on a point-in-time basis when the Company transfers control of the goods to the customer. 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, as 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 individual customer level based on the most likely amount method outlined in ASC 606 "Revenue from Contracts with Customers". The Company estimates early payment discounts and other customer refunds based on the historical experience across the Company's portfolio of customers to record reductions in revenue that is consistent with the expected value method outlined in ASC 606. Management has concluded that these methods result in the best estimate of the 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. If a decision is made to abandon plants, properties or equipment before the end of its useful life, depreciation expense is revised to reflect the shortened useful life. 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 of any goodwill impairment charge required, if any.
The Company performed its annual testing of itsthat the carrying amount exceeds the reporting units for possible goodwill impairments by applying 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 affected the estimatedunit's fair value, not to exceed the total amount of goodwill allocated to the 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.unit.
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 9 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 by comparing their net bookthe undiscounted cash flows to carrying value of the assets. The inputs related to the undiscounted projectedcash flows requires judgments as to whether assets are held and used or held for sale, the weighting of operational alternatives being considered by management and estimates of the amount and timing of expected future cash flows from the use of the long-lived assets generated by their use. If the carrying amount is less than the undiscounted cash flows, the fair value of the assets is compared to the carrying value to determine if they are impaired. We estimate fair value using discounted cash flows and other valuation techniques as needed.
Impaired assets are recorded at their estimated fair value.
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 worldwideglobal 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 only 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 casecases that addressesare relevant to the matter. Accrued interest related to these uncertain tax positions is recorded in our consolidated statement of operations in Interest expense, net.
While theThe 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, actualcircumstances. 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.
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 assessing the need for and magnitude of appropriate valuation allowances against deferred tax assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax
income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.
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 expendituresSee Note 14 for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably estimable.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.income (loss).
FAIR VALUE MEASUREMENTS
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.
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 ADOPTED ACCOUNTING PRONOUNCEMENTS
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 caused bybe discontinued.
This guidance is effective upon issuance and generally can be applied through December 31, 2024.
The Company has applied and will continue to apply this guidance to account for contract modifications due to changes in reference rates as those modifications occur. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.
Liabilities - Supplier Finance Programs
In September 2022, the newly-enacted U.S. Tax CutsFASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This guidance requires a business entity
operating as a buyer in a supplier finance agreement to disclose qualitative and Jobs Act from accumulated other comprehensive incomequantitative information about its supplier finance programs. This guidance is
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to retained earnings.Reportable Segment Disclosures." This guidance requires companies to disclose incremental segment information on an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2018,2023 and interim periods within those years.years beginning after December 15, 2024. Early adoption of these amendments is permitted and amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance.
DERIVATIVES AND HEDGINGIncome Taxes
In August 2017,December 2023, the FASB issued ASU 2017-12, "Derivatives and Hedging2023-09, "Income Taxes (Topic 815)740): Targeted Improvements to Accounting for Hedging Activities.Income Tax Disclosures." The objective of this newThis guidance is the improvement of the financial reporting of hedging relationshipsrequires companies to better portray 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 application of the hedge accounting guidance in current GAAP.enhance income tax disclosures, particularly around rate reconciliations and income taxes paid information. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years.2024. Early adoption is permitted. The Company early adopted the provisions of this guidance effective January 1, 2018, with no material impact 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 component of the net periodic benefit cost 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 adoptionthese amendments is permitted as of the beginning of an annual period for which financial statement (interim or annual) have not been issued or made available for issuance. The Company adopted 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 performance of the Company's business segments), which is offset by a corresponding change in non-operating pension expense to reflect the impact of presenting the amortization 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 charge based on the excess of a reporting unit's carrying amount over its fair value. This guidanceamendments should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2019, for any impairment test performed in 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.prospectively. The Company is currently evaluating the provisions of this guidance;guidance.
DISAGGREGATED REVENUE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 |
| Reportable Segments | | Industrial Packaging | | Global Cellulose Fibers | | Corporate & Intersegment | | Total |
| Primary Geographical Markets (a) | | | | | | | | |
| United States | | $ | 13,340 | | | $ | 2,570 | | | $ | 430 | | | $ | 16,340 | |
| EMEA | | 1,398 | | | 96 | | | — | | | 1,494 | |
| Pacific Rim and Asia | | 37 | | | 224 | | | — | | | 261 | |
| Americas, other than U.S. | | 821 | | | — | | | — | | | 821 | |
| Total | | $ | 15,596 | | | $ | 2,890 | | | $ | 430 | | | $ | 18,916 | |
| | | | | | | | |
| Operating Segments | | | | | | | | |
| North American Industrial Packaging | | $ | 14,293 | | | $ | — | | | $ | — | | | $ | 14,293 | |
| EMEA Industrial Packaging | | 1,398 | | | — | | | — | | | 1,398 | |
| Global Cellulose Fibers | | — | | | 2,890 | | | — | | | 2,890 | |
| Intrasegment Eliminations | | (95) | | | — | | | — | | | (95) | |
| Corporate & Intersegment Sales | | — | | | — | | | 430 | | | 430 | |
| Total | | $ | 15,596 | | | $ | 2,890 | | | $ | 430 | | | $ | 18,916 | |
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 |
| Reportable Segments | | Industrial Packaging | | Global Cellulose Fibers | | Corporate & Intersegment | | Total |
| Primary Geographical Markets (a) | | | | | | | | |
| United States | | $ | 14,970 | | | $ | 3,032 | | | $ | 480 | | | $ | 18,482 | |
| EMEA | | 1,572 | | | 121 | | | — | | | 1,693 | |
| Pacific Rim and Asia | | 46 | | | 74 | | | 3 | | | 123 | |
| Americas, other than U.S. | | 863 | | | — | | | — | | | 863 | |
| Total | | $ | 17,451 | | | $ | 3,227 | | | $ | 483 | | | $ | 21,161 | |
| | | | | | | | |
| Operating Segments | | | | | | | | |
| North American Industrial Packaging | | $ | 16,011 | | | $ | — | | | $ | — | | | $ | 16,011 | |
| EMEA Industrial Packaging | | 1,572 | | | — | | | — | | | 1,572 | |
| Global Cellulose Fibers | | — | | | 3,227 | | | — | | | 3,227 | |
| Intrasegment Eliminations | | (132) | | | — | | | — | | | (132) | |
| Corporate & Intersegment Sales | | — | | | — | | | 483 | | | 483 | |
| Total | | $ | 17,451 | | | $ | 3,227 | | | $ | 483 | | | $ | 21,161 | |
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| Intrasegment Eliminations | | (126) | | | — | | | — | | | (126) | |
| Corporate & Intersegment Sales | | — | | | — | | | 305 | | | 305 | |
| Total | | $ | 16,326 | | | $ | 2,732 | | | $ | 305 | | | $ | 19,363 | |
(a) Net sales are attributed to countries based on the location of the reportable 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 $32 million and $38 million are included in Other current liabilities in the accompanying consolidated balance sheet as of December 31, 2023 and 2022, respectively. The Company also recorded a contract liability of $115 million related to a previous acquisition. The balance of this contract liability was $92 million and $99 million at December 31, 2023 and 2022, respectively, and is recorded in Other current liabilities and Other Liabilities in the accompanying consolidated balance sheet.
The difference between the opening 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 JUDGMENTS
International Paper's principal business is to manufacture and sell fiber-based packaging and pulp goods. As a general rule, none of our businesses provide equipment installation or other ancillary services outside of producing and shipping packaging and pulp products to customers.
The nature of the Company's contracts can vary based on the business, 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 product or it could include multiple types/grades of products. Regardless, the contracted price with the customer is agreed to at the individual product level outlined in the customer contracts or purchase orders. The Company 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.variety of factors (e.g. level of contractual volume, geographical location, etc.).
INCOME TAXES
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires companies to recognize the income tax effects 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 expectManagement 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.earnings per share.
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 | 2023 | | 2022 | | 2021 |
| Earnings (loss) from continuing operations attributable to International Paper common shareholders | $ | 2,110 |
| | $ | 802 |
| | $ | 853 |
|
| Weighted average common shares outstanding | 412.7 |
| | 411.1 |
| | 417.4 |
|
| Effect of dilutive securities: | | | | | |
| Restricted performance share plan | 5.0 |
| | 4.5 |
| | 3.2 |
|
| Restricted performance share plan | |
| Restricted performance share plan | |
| Weighted average common shares outstanding – assuming dilution | 417.7 |
| | 415.6 |
| | 420.6 |
|
| Basic earnings (loss) per share from continuing operations | $ | 5.11 |
| | $ | 1.95 |
| | $ | 2.05 |
|
| Diluted earnings (loss) per share from continuing operations | $ | 5.05 |
| | $ | 1.93 |
| | $ | 2.03 |
|
The following table presents changes in AOCI,Accumulated Other Comprehensive Loss ("AOCI"), net of tax, reported in the consolidated financial statements for the years ended December 31:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2023 | 2022 | 2021 |
| Defined Benefit Pension and Postretirement Adjustments | |
| Balance at beginning of period | $ | (3,072 | ) | $ | (3,169 | ) | $ | (3,134 | ) |
| Balance at beginning of period | |
| Balance at beginning of period | |
| Other comprehensive income (loss) before reclassifications | 59 |
| (448 | ) | (331 | ) |
| Amounts reclassified from accumulated other comprehensive income | 486 |
| 545 |
| 296 |
|
| Reclassification related to Sylvamo Corporation spin-off | |
| Amounts reclassified from accumulated other comprehensive loss | |
| Balance at end of period | (2,527 | ) | (3,072 | ) | (3,169 | ) |
| Change in Cumulative Foreign Currency Translation Adjustments | |
| Balance at beginning of period | (2,287 | ) | (2,549 | ) | (1,513 | ) |
| Balance at beginning of period | |
| Balance at beginning of period | |
| Other comprehensive income (loss) before reclassifications | 178 |
| 263 |
| (1,002 | ) |
| Amounts reclassified from accumulated other comprehensive income | (1 | ) | (3 | ) | (40 | ) |
| Reclassification related to Sylvamo Corporation spin-off | |
| Amounts reclassified from accumulated other comprehensive loss | |
| Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | (1 | ) | 2 |
| 6 |
|
| Balance at end of period | (2,111 | ) | (2,287 | ) | (2,549 | ) |
| Net Gains and Losses on Cash Flow Hedging Derivatives | |
| Balance at beginning of period | (3 | ) | 10 |
| 1 |
|
| Balance at beginning of period | |
| Balance at beginning of period | |
| Other comprehensive income (loss) before reclassifications | 15 |
| (6 | ) | (3 | ) |
| Amounts reclassified from accumulated other comprehensive income | (7 | ) | (7 | ) | 12 |
|
| Reclassification related to Sylvamo Corporation spin-off | |
| Amounts reclassified from accumulated other comprehensive loss | |
| Balance at end of period | 5 | (3 | ) | 10 |
|
| Total Accumulated Other Comprehensive Income (Loss) at End of Period | $ | (4,633 | ) | $ | (5,362 | ) | $ | (5,708 | ) |
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 |
| 2017 | 2016 | 2015 | |
| Amount Reclassified from Accumulated Other Comprehensive Loss | | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Location of Amount Reclassified from AOCI |
| | In millions | |
| In millions | |
| In millions | | |
| Defined benefit pension and postretirement items: | | |
| Defined benefit pension and postretirement items: | |
| Defined benefit pension and postretirement items: | |
| Prior-service costs | |
| Prior-service costs | |
| Prior-service costs | $ | (33 | ) | $ | (37 | ) | $ | (33 | ) | (a) | Cost of products sold | $ | (23) | | $ | (23) | | $ | (20) | | (a) | (a) | Non-operating pension expense |
| Actuarial gains/(losses) | (733 | ) | (851 | ) | (449 | ) | (a) | Cost of products sold | Actuarial gains/(losses) | (92) | | (91) | (91) | | (146) | (146) | | (a) | (a) | Non-operating pension expense |
| 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 | |
| Tax (expense)/benefit | — |
| — |
| — |
| |
| Net of tax | 1 |
| 3 |
| 40 |
| |
| Net of tax | |
| Net of tax | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | | — | | — | | (80) | | | Paid-in Capital |
| Total, net of tax | |
| Change in cumulative foreign currency translation adjustments: | |
| Change in cumulative foreign currency translation adjustments: | |
| Change in cumulative foreign currency translation adjustments: | |
| Business divestiture | |
| Business divestiture | |
| Business divestiture | | (517) | | (10) | | (184) | | (b) | Net (gains) losses on sales of equity method investments, Discontinued Operations, net of taxes and Net (gains) losses on sales and impairment of businesses |
| Tax (expense)/benefit | |
| Net of tax | |
| Net of tax | |
| Net of tax | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | | — | | — | | (1,692) | | | Paid-in Capital |
| Total, net of tax | |
| Net gains and losses on cash flow hedging derivatives: | | |
| Foreign exchange contracts | 9 |
| 10 |
| (20 | ) | (b) | Cost of products sold |
| Net gains and losses on cash flow hedging derivatives: | |
| Net gains and losses on cash flow hedging derivatives: | |
| Cash flow hedges | |
| Cash flow hedges | |
| Cash flow hedges | | — | | (3) | | 11 | | | Cost of products sold, Discontinued operations, net of taxes, and Interest expense, net |
| Total pre-tax amount | 9 |
| 10 |
| (20 | ) | |
| Tax (expense)/benefit | (2 | ) | (3 | ) | 8 |
| |
| Tax (expense)/benefit | |
| Tax (expense)/benefit | |
| Net of tax | 7 |
| 7 |
| (12 | ) | |
| Net of tax | |
| Net of tax | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | |
| Reclassification related to Sylvamo Corporation spin-off | | — | | — | | (1) | | | Paid-in Capital |
| Total, net of tax | |
| Total reclassifications for the period, net of tax | $ | (478 | ) | $ | (535 | ) | $ | (268 | ) | |
| Total reclassifications for the period, net of tax | |
| Total reclassifications for the period, net of tax | |
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see Note 1618 - Retirement Plans for additional details). (b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see See Note 1411 - Equity Method Investments for additional details).details for 2023 amounts.
2017:2023:During 2017,2023, restructuring and other charges, net, totaling $67$99 million before taxes were recorded. TheseThe charges included:
|
| | | | |
| In millions | | 2017 |
| Early debt extinguishment costs (see Note 13) | | $ | 83 |
|
| Gain on sale of investment in ArborGen | | (14 | ) |
| Other | | (2 | ) |
| Total | | $ | 67 |
|
| | | | | | | | |
| In millions | | 2023 |
| Orange, Texas mill closure costs (a) | | $ | 81 | |
| Pensacola mill and Riegelwood mill pulp machine shutdowns (b) | | 37 | |
| Building a Better IP (c) | | (19) | |
| Total | | $ | 99 | |
2016: (a) Includes $25 million of severance charges, $30 million of inventory impairment charges and $26 million of other costs associated with the closure of our containerboard mill in Orange, Texas. The majority of the severance charges will be paid in 2024.
(b) Includes $21 million of severance charges, $12 million of inventory impairment charges and $4 million of other costs associated with the permanent shutdown of pulp machines at our Riegelwood, North Carolina and Pensacola, Florida mills. The majority of the severance charges will be paid in 2024.
(c) Revision of severance estimates related to our Building a Better IP initiative.
2022:During 2016, total2022, restructuring and other charges, of $54net, totaling $89 million before taxes were recorded. The charges included:
| | | | | | | | |
| In millions | | 2022 |
| Early debt extinguishment costs (see Note 16) | | $ | 93 | |
| Other restructuring items | | (4) | |
| Total | | $ | 89 | |
2021: During 2021, restructuring and other charges, net, totaling $509 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. |
| | | | | | | | |
| In millions | | 2021 |
(b)Early debt extinguishment costs (see Note 16) | | Includes $4 million of accelerated depreciation and $3 million of severance charges which is related to 85 employees.
2015: During 2015, total restructuring and other charges of $252 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 |
|
| $ | 461 | |
| Building a Better IP (a) | | 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.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. All severance has been paid as of December 31, 2023. (b) Severance related to the optimization of our EMEA Packaging business. All severance has been paid as of December 31, 2023.
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 provisionalfinal 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 million and Earnings (loss) from continuing operations before income taxes and equity earnings of $(1) million from the acquired business have been included in the Company's consolidated statement of operations for the year ended December 31, 2017. 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.
2021: 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.
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 PackagingAmerica, France and Russia into a standalone, publicly-traded
company, Sylvamo Corporation ("Sylvamo"). The transaction was implemented through the distribution of shares of Sylvamo to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo 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 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 with the intent to monetize its investment and provide additional proceeds to the Company. 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 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 provided for the allocation between the Company and Sylvamo of assets, liabilities and obligations attributable to periods prior to, at and after the Distribution and govern certain relationships between the Company and Sylvamo after the Distribution. The Company has various ongoing operational agreements with Sylvamo under which includes its North American Coated Paperboardit sells fiber, paper and Foodservice businesses,other products. Related party sales under these agreements were $630 million and $185 million for the year ended December 31, 2022 and 2021, respectively. Following the sale of the Company's ownership interest in Sylvamo during the third quarter 2022, Sylvamo is no longer considered a related party.
In the second quarter 2022, the Company exchanged 4,132,000 shares of Sylvamo common stock owned by the Company in exchange and as repayment for an approximately $144 million term loan obligation which resulted in the reversal of a $31 million deferred tax liability due to a subsidiarythe tax-free exchange of Graphic Packaging Holdingthe Sylvamo common stock. In the third quarter 2022, the Company exchanged the remaining 4,614,358 shares of Sylvamo common stock owned by the Company in exchange for $167 million and as partial repayment of a 20.5%$210 million term loan obligation. This also resulted in the reversal of a $35 million deferred tax liability due to the tax-free exchange of Sylvamo common stock. As of the end of the third quarter
2022, the Company no longer had an ownership interest in a subsidiary of Graphic Packaging Holding Company that holds the assets of the combined business. As part 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 and is classified as Liabilities held for sale in the accompanying consolidated balance sheet as ofSylvamo.
December 31, 2017. International Paper will account for its ownership interest in the combined business 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.
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 businesses, as well as the results of our Kwidzyn, Poland mill that was sold on August 6, 2021, 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 the 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 ofSylvamo businesses and Kwidzyn for the North American Consumer Packaging business for all periodsyear ended December 31, 2021 presented in the consolidated statement of operations:
|
| | | | | | | | | |
| In millions | 2017 |
| 2016 |
| 2015 |
|
| Net Sales | $ | 1,559 |
| $ | 1,584 |
| $ | 1,690 |
|
| Costs and Expenses | | | |
| Cost of products sold | 1,179 |
| 1,095 |
| 1,155 |
|
| Selling and administrative expenses | 110 |
| 91 |
| 106 |
|
| Depreciation, amortization and cost of timber harvested | 80 |
| 103 |
| 127 |
|
| Distribution expenses | 126 |
| 124 |
| 158 |
|
| Taxes other than payroll and income taxes | 11 |
| 10 |
| 10 |
|
| Interest expense, net | 1 |
| — |
| — |
|
| Earnings (Loss) Before Income Taxes and Equity Earnings | 52 |
| 161 |
| 134 |
|
| Income tax provision (benefit) | 18 |
| 54 |
| 49 |
|
| Discontinued Operations, Net of Taxes | $ | 34 |
| $ | 107 |
| $ | 85 |
|
| | | | | |
| In millions | 2021 |
| Net Sales | $ | 2,417 | |
| Costs and Expenses | |
| Cost of products sold | 1,508 | |
| Selling and administrative expenses | 224 | |
| Depreciation, amortization and cost of timber harvested | 113 | |
| Distribution expenses | 229 | |
| Taxes other than payroll and income taxes | 24 | |
| Net (gains) losses on sales of fixed assets | (86) | |
| Net (gains) losses on sales and impairments of businesses | (351) | |
| Interest expense, net | (19) | |
| Earnings (Loss) Before Income Taxes and Equity Earnings | 775 | |
| Income tax provision (benefit) | 145 | |
| Discontinued Operations, Net of Taxes | $ | 630 | |
All current and historical assets and liabilities of North American Consumer Packaging are classified as current and long-term assets held for sale and current and long-term liabilities held for sale in the accompanying consolidated balance sheet. The following summarizes the major classes of assets and liabilities of North American Consumer Packaging reconciled to total Assets held for sale and total Liabilities held for sale in the accompanying consolidated balance sheet:
|
| | | | | | | |
| 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 of 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.
Total 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 |
| Cash Provided by (Used For) Operating Activities | $ | 290 | |
| Cash Provided by (Used For) Investment Activities | $ | 757 | |
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. The business included 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 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 termstwelve months ended December 31, 2021, the Company recorded a net gain of $4 million ($2 million after taxes) related to the transaction,business working capital adjustment and after post-closing adjustments, International Paper received approximately RMB 49 million in exchange for its ownership interest in two China foodservice entities and RMB 80 million for the sale of notes receivable from the acquired entities.cumulative foreign currency translation loss.
Subsequent toIn 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, to write down the long-lived assets of this business to their estimated fair value. Amounts related to this business included in the2020.
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 which 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 business 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 operations 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.
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$950 million and $757$690 million at December 31, 20172023 and 2016,2022, respectively.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable, net, of allowances, by classification were:
| | | | | | | | |
| In millions at December 31 | 2023 | 2022 |
| Accounts and notes receivable: | | |
| Trade (less allowances of $34 in 2023 and $31 in 2022) | $ | 2,841 | | $ | 3,064 | |
| Other | 218 | | 220 | |
| Total | $ | 3,059 | | $ | 3,284 | |
|
| | | | | | |
| In millions at December 31 | 2017 | 2016 |
| Accounts and notes receivable: | | |
| Trade | $ | 3,017 |
| $ | 2,612 |
|
| Other | 270 |
| 240 |
|
| Total | $ | 3,287 |
| $ | 2,852 |
|
INVENTORIES
INVENTORIES
| | | | | | | | |
| In millions at December 31 | 2023 | 2022 |
| Raw materials | $ | 229 | | $ | 267 | |
| Finished pulp and packaging products | 975 | | 1,071 | |
| Operating supplies | 622 | | 516 | |
| Other | 63 | | 88 | |
| Inventories | $ | 1,889 | | $ | 1,942 | |
|
| | | | | | |
| 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 |
|
The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories. Approximately 71%81% of total raw materials and finished products inventories were valued using this method. The last-in, first-out inventory reserve was $293$343 million and $290$282 million at December 31, 20172023 and 2016,2022, respectively.
PLANTS, PROPERTIES AND EQUIPMENT
| | | | | | | | |
| In millions at December 31 | 2023 | 2022 |
| Pulp and packaging facilities | $ | 28,661 | | $ | 27,773 | |
| Other properties and equipment | 1,050 | | 1,029 | |
| Gross cost | 29,711 | | 28,802 | |
| Less: Accumulated depreciation | 19,561 | | 18,371 | |
| Plants, properties and equipment, net | $ | 10,150 | | $ | 10,431 | |
Non-cash additions to plants, property and equipment included within accounts payable were $141 million, $185 million and $106 million at December 31, 2023, 2022 and 2021, 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 consolidated statement of cash flows are presented net of insurance recoveries of $26 million and $17 million received during the years ended December 31, 2022 and 2021, respectively. There were no insurance recoveries received during the year ended December 31, 2023.
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$1.4 billion, $1.0 billion$996 million and $1.1 billion for the years ended December 31, 2017, 20162023, 2022 and 2015, respectively.2021. Depreciation expense for the year ended December 31, 2023 includes $422 million of accelerated depreciation related to mill strategic actions. Cost of products sold excludes depreciation and amortization expense.
ACCOUNTS PAYABLE
Under a supplier finance program, International Paper agrees to pay a bank the stated amount of confirmed invoices from its designated suppliers on the original maturity dates of the invoices. International Paper or the bank may terminate the agreement upon at least 90 days’ notice. The supplier invoices that have been confirmed as valid under the program require payment in full on the due date with no terms exceeding 180 days. The accounts payable balance included $122 million of supplier finance program liabilities as of both December 31, 2023 and 2022.
INTEREST
Interest payments of $782$463 million, $682$380 million and $680$473 million were made during the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
Amounts related to interest were as follows:
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Interest expense | $ | 421 | | $ | 403 | | $ | 430 | |
| Interest income | 190 | | 78 | | 93 | |
| Capitalized interest costs | 22 | | 18 | | 12 | |
|
| | | | | | | | | |
| 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, 20172023 and December 31, 2016,2022, we had recorded liabilities of $86$103 million and $83$105 million, respectively, related to asset retirement obligations.
In connection with potential future closures or redesigns of certain production facilities, it is possible that the Company may be required to take steps to remove certain materials from these facilities. Applicable regulations and standards provide that the removal of certain materials would only be required if
the facility were to be demolished or underwent major renovations. At this time, any such obligations have an indeterminate settlement date, and the Company believes that adequate information does not exist to apply an expected-present-value technique to estimate any such potential obligations. Accordingly, the Company does not record a liability for such remediation until a decision is made that allows reasonable estimation of the timing of such remediation.
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 30 years.
COMPONENTS OF LEASE EXPENSE
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Operating lease costs, net | $ | 177 | | $ | 153 | | $ | 138 | |
| Variable lease costs | 39 | | 39 | | 40 | |
| Short-term lease costs, net | 71 | | 57 | | 53 | |
| Finance lease cost | | | |
| Amortization of lease assets | 12 | | 11 | | 11 | |
| Interest on lease liabilities | 3 | | 3 | | 3 | |
| Total lease cost, net | $ | 302 | | $ | 263 | | $ | 245 | |
SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| | | | | | | | | | | |
| In millions | Classification | 2023 | 2022 |
| Assets | | | |
| Operating lease assets | Right of use assets | $ | 448 | | $ | 424 | |
| Finance lease assets | Plants, properties and equipment, net (a) | 47 | | 49 | |
| Total leased assets | | $ | 495 | | $ | 473 | |
| Liabilities | | | |
| Current | | | |
| Operating | Other current liabilities | $ | 153 | | $ | 147 | |
| Finance | Notes payable and current maturities of long-term debt | 11 | | 10 | |
| Noncurrent | | | |
| Operating | Long-term lease obligations | 312 | | 283 | |
| Finance | Long-term debt | 44 | | 49 | |
| Total lease liabilities | | $ | 520 | | $ | 489 | |
(a) Finance leases are recorded net of accumulated amortization of $67 million and $59 million at December 31, 2023 and 2022, respectively.
LEASE TERM AND DISCOUNT RATE
| | | | | | | | |
| In millions | 2023 | 2022 |
| Weighted average remaining lease term (years) | | |
| Operating leases | 4.0 years | 4.1 years |
| Finance leases | 7.7 years | 8.4 years |
| Weighted average discount rate | | |
| Operating leases | 3.99 | % | 2.96 | % |
| Finance leases | 4.78 | % | 4.57 | % |
SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows related to operating leases | $ | 180 | | $ | 160 | | $ | 166 | |
| Operating cash flows related to financing leases | 3 | | 3 | | 4 | |
| Financing cash flows related to finance leases | 13 | | 10 | | 14 | |
| | | |
| Right of use assets obtained in exchange for lease liabilities | | | |
| Operating leases | 216 | | 221 | | 156 | |
| Finance leases | 12 | | 6 | | 9 | |
MATURITY OF LEASE LIABILITIES
| | | | | | | | | | | |
| In millions | Operating Leases | Financing Leases | Total |
| 2024 | $ | 171 | | $ | 14 | | $ | 185 | |
| 2025 | 127 | | 12 | | 139 | |
| 2026 | 89 | | 11 | | 100 | |
| 2027 | 60 | | 10 | | 70 | |
| 2028 | 33 | | 8 | | 41 | |
| Thereafter | 31 | | 14 | | 45 | |
| Total lease payments | 511 | | 69 | | 580 | |
| Less imputed interest | 46 | | 14 | | 60 | |
| Present value of lease liabilities | $ | 465 | | $ | 55 | | $ | 520 | |
NOTE 11 EQUITY METHOD INVESTMENTS
The Company accounts for the following investments under the equity method of accounting.
ILIM S.A. ("Ilim")
On September 18, 2023, pursuant to a previously announced agreement, the Company completed the sale of its 50% equity interest in Ilim, which was a joint venture that operated a pulp and paper business in Russia and has subsidiaries including Ilim Group, to its joint venture partners for $484 million in cash. The Company also completed the sale of all of its Ilim Group shares (constituting a 2.39% stake) for $24 million, and divested other non-material residual interests associated with Ilim, to its joint venture partners. Following the completed sales, the Company no longer has an interest in Ilim or any of its subsidiaries. Additionally, we incurred transaction fees of $36 million in connection with the sale of our investment. The Company reclassified currency translation adjustments in AOCI of $517 million to the investment at the completion of the transaction.
As of December 31, 2022 and for all subsequent periods, the Company concluded that the held for sale balance sheet classification criteria had been met and classified the investment as Assets held for sale in the consolidated balance sheet. Also, all current and historical results of the Ilim investment have been presented as Discontinued Operations, net of taxes in the consolidated statement of operations.
Also in conjunction with the previously announced agreement entered into in January 2023 to sell the Company's ownership interests in Ilim and related offer for the Company's shares in Ilim Group, a determination was made that in the fourth quarter of 2022 and for all subsequent periods through the third quarter 2023, the combined book value of our investments, plus associated cumulative translation losses, exceeded fair value based upon the agreed upon transaction price of $484 million for Ilim and the offer price of $24 million for Ilim Group and the company recorded impairment charges as presented in the table below.
The following summarizes the items comprising Equity Earnings, Impairment Charges, Tax Expense (Benefit), Discontinued Operations and Dividends related to the sale of our equity interest in Ilim:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Equity Earnings | | Impairment Charges | | Tax Expense (Benefit) | | Discontinued Operations, net of tax (a) | | Dividends |
| Twelve Months Ended December 31, 2022 | $ | 296 | | | $ | 533 | | | $ | — | | | $ | (237) | | | $ | 204 | |
| Twelve Months Ended December 31, 2023 | $ | 112 | | | $ | 135 | | | $ | (9) | | | $ | (14) | | | $ | 13 | |
(a) Discontinued operations, net of tax is Equity Earnings less Impairment Charges and Tax Expense (Benefit).
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.
| | | | | | | | | | | | | | | | | |
| Date | Transaction Type | Units | Proceeds | Pre-Tax Gain | After-Tax Gain |
| In millions except units | | | | | |
| 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 tax receivable agreement ("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 for the twelve months ended December 31, 2021. The Company received cash dividends from GPIP of $5 million during 2021.
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, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | |
| In millions | Industrial
Packaging | | Global Cellulose Fibers | | Total |
| Balance as of December 31, 2021 | | | | | |
| Goodwill | $ | 3,426 | | | $ | 52 | | | $ | 3,478 | |
| Accumulated impairment losses | (296) | | | (52) | | | (348) | |
| 3,130 | | | — | | | 3,130 | |
| Currency translation and other (a) | (13) | | | — | | | (13) | |
| Accumulated impairment loss additions/reductions | (76) | | (b) | — | | | (76) | |
| Balance as of December 31, 2022 | | | | | |
| Goodwill | 3,413 | | | 52 | | | 3,465 | |
| Accumulated impairment losses | (372) | | | (52) | | | (424) | |
| | 3,041 | | | — | | | 3,041 | |
| Balance as of December 31, 2023 | | | | | |
| Goodwill | 3,413 | | | 52 | | | 3,465 | |
| Accumulated impairment losses | (372) | | | (52) | | | (424) | |
| Total | $ | 3,041 | | | $ | — | | | $ | 3,041 | |
(a)Represents the effects of foreign currency translations and reclassifications.
(b)Reflects the impairment of the EMEA Industrial Packaging reporting unit.
The Company performed its annual goodwill impairment testing by applying the quantitative goodwill impairment test to its North America Industrial Packaging reporting unit as of October 1, 2023. This was performed by comparing the carrying amount of the North America Industrial Packaging reporting unit to its estimated fair value. The estimated fair value of the reporting unit was calculated using a weighted approach based on discounted future cash flows, market multiples and transaction multiples which are classified as Level 2 and Level 3 within the fair value hierarchy. 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,
|
| | | | | | | | | | | | | | | |
| 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. |
56and amortization ("EBITDA") multiples. The results of our quantitative goodwill impairment test indicated that the carrying amount did not exceed the estimated fair value of the North America Industrial Packaging reporting unit.
In the fourth quarter of 2022, the Company performed the quantitative goodwill impairment test related to its EMEA Industrial Packaging reporting unit and estimated fair value in the same manner noted above. The results of our quantitative goodwill impairment test indicated that the carrying amount exceeded the estimated fair value of the EMEA Industrial Packaging reporting unit and it was determined that all of the goodwill in the reporting unit, totaling $76 million, was impaired. The decline in the fair value of EMEA Industrial Packaging and resulting impairment charge was due to the impacts of certain negative macroeconomic conditions, including the impacts from inflation and the geopolitical environment to the reporting unit.
OTHER INTANGIBLES
Identifiable intangible assets are recorded in Deferred Charges and Other Assets in the accompanying consolidated balance sheet and comprised the following:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | 2022 |
| 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 | $ | 494 | | $ | 335 | | $ | 159 | | $ | 490 | | $ | 303 | | $ | 187 | |
| Tradenames, patents and trademarks, and developed technology | 170 | | 154 | | 16 | | 170 | | 146 | | 24 | |
| Land and water rights | 8 | | 2 | | 6 | | 8 | | 2 | | 6 | |
| Other | 21 | | 19 | | 2 | | 23 | | 20 | | 3 | |
| Total | $ | 693 | | $ | 510 | | $ | 183 | | $ | 691 | | $ | 471 | | $ | 220 | |
|
| | | | | | | | | | | | | | | | | | |
| | 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 | 2023 | 2022 | 2021 |
| Amortization expense related to intangible assets | $ | 77 |
| $ | 54 |
| $ | 60 |
|
Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows: 20182024 – $55$40 million, 20192025 – $52$36 million, 20202026 – $51$29 million, 20212027 – $51$11 million, 20222028 – $49$8 million, and cumulatively thereafter – $217$53 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 | 2023 | 2022 | 2021 |
| Earnings (loss) | | | |
| U.S. | $ | 129 | | $ | 1,469 | | $ | 906 | |
| Non-U.S. | 253 | | 42 | | 93 | |
| Earnings (loss) from continuing operations before income taxes and equity earnings (losses) | $ | 382 | | $ | 1,511 | | $ | 999 | |
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 | 2023 | 2022 | 2021 |
| Current tax provision (benefit) | | | |
| U.S. federal | $ | 157 | | $ | 454 | | $ | 413 | |
| U.S. state and local | 16 | | 56 | | 47 | |
| Non-U.S. | 42 | | 27 | | 37 | |
| | $ | 215 | | $ | 537 | | $ | 497 | |
| Deferred tax provision (benefit) | | | |
| U.S. federal | $ | (164) | | $ | (775) | | $ | (274) | |
| U.S. state and local | 3 | | (39) | | (27) | |
| Non-U.S. | 5 | | 41 | | (8) | |
| | $ | (156) | | $ | (773) | | $ | (309) | |
| Income tax provision (benefit) | $ | 59 | | $ | (236) | | $ | 188 | |
|
| | | | | | | | | |
| 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 billion$6 million benefit, a $18 million provision and a $3 million provisionbenefit and an $8 million benefit for 2017, 20162023, 2022 and 2015,2021, 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$340 million, $90$345 million and $149$601 million in 2017, 20162023, 2022 and 2015,2021, 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 | 2023 | 2022 | 2021 |
Earnings (loss) from continuing
operations before income taxes
and equity earnings | $ | 382 | | $ | 1,511 | | $ | 999 | |
| Statutory U.S. income tax rate | 21 | % | 21 | % | 21 | % |
| Tax expense (benefit) using statutory U.S. income tax rate | 80 | | 317 | | 210 | |
| State and local income taxes | 2 | | 44 | | 15 | |
| Impact of rate differential on non-U.S. permanent differences and earnings | (10) | | 1 | | 5 | |
| Foreign valuation allowance | — | | 45 | | — | |
| Tax expense (benefit) on exchange of Sylvamo shares | — | | (56) | | — | |
| Adjustment to tax basis of assets | — | | — | | (14) | |
| Non-deductible business expenses | 7 | | 2 | | 1 | |
| Non-deductible impairments | — | | 16 | | — | |
| Non-deductible compensation | 7 | | 13 | | 11 | |
| Tax audits | (4) | | 6 | | 9 | |
| Timber Monetization Audit Settlement | — | | (604) | | — | |
| Foreign derived intangible income deduction | 2 | | (8) | | (7) | |
| US tax on non-U.S. earnings (GILTI and Subpart F) | — | | 27 | | 5 | |
| Foreign tax credits | 8 | | 8 | | (6) | |
| General business and other tax credits | (38) | | (43) | | (39) | |
| Tax expense (benefit) on equity earnings | (4) | | (1) | | — | |
| Legal entity restructuring gain (loss) | 4 | | — | | — | |
| Other, net | 5 | | (3) | | (2) | |
| Income tax provision (benefit) | $ | 59 | | $ | (236) | | $ | 188 | |
| Effective income tax rate | 15 | % | (16) | % | 19 | % |
|
| | | | | | | | | |
| 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, 20172023 and 2016,2022, were as follows:
| | | | | | | | |
| In millions | 2023 | 2022 |
| Deferred income tax assets: | | |
| Postretirement benefit accruals | $ | 67 | | $ | 68 | |
| Pension obligations | 61 | | 18 | |
| Tax credits | 182 | | 175 | |
| Net operating and capital loss carryforwards | 699 | | 568 | |
| Compensation reserves | 146 | | 151 | |
| Lease obligations | 116 | | 108 | |
| Environmental reserves | 114 | | 119 | |
| Other | 319 | | 271 | |
| Gross deferred income tax assets | $ | 1,704 | | $ | 1,478 | |
| Less: valuation allowance (a) | (848) | | (677) | |
| Net deferred income tax asset | $ | 856 | | $ | 801 | |
| Deferred income tax liabilities: | | |
| Intangibles | $ | (141) | | $ | (147) | |
| Investments | 3 | | (2) | |
| Right of use assets | (116) | | (108) | |
| Plants, properties and equipment | (1,650) | | (1,778) | |
| Forestlands, related installment sales, and investment in subsidiary | (485) | | (485) | |
| Gross deferred income tax liabilities | $ | (2,389) | | $ | (2,520) | |
| Net deferred income tax liability | $ | (1,533) | | $ | (1,719) | |
|
| | | | | | |
| 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, 20172023 and 20162022 was an increase of $26$171 million and a decrease of $27$(31) 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 intaxes, respectively. The $485 million 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 million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of forestlands and $538 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 1215 - Variable Interest Entities).
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017, 20162023, 2022 and 20152021 is as follows:
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Balance at January 1 | $ | (177) | | $ | (166) | | $ | (143) | |
| (Additions) reductions for tax positions related to current year | (13) | | (7) | | (13) | |
| (Additions) for tax positions related to prior years | (11) | | (10) | | (23) | |
| Reductions for tax positions related to prior years | 1 | | 3 | | 1 | |
| Settlements | 17 | | 1 | | 10 | |
Expiration of statutes of
limitations | 11 | | 1 | | 1 | |
| Currency translation adjustment | (1) | | 1 | | 1 | |
| Balance at December 31 | $ | (173) | | $ | (177) | | $ | (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, 20162023, 2022 and 20152021 would benefit the effective tax rate. Pending audit settlements and the expiration of statutes of limitations could reduce the uncertain tax positions by $7 million during the next twelve months.
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$34 million and $22$29 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 20172023 and 2016,2022, 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 20162022 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, bothjurisdictions.
On January 5, 2024, the Company received a notice of proposed adjustment from the Internal Revenue Service relating to investment tax credits for the 2017-2019 years that currently are under examination. We estimate the net incremental tax liability associated with the proposed adjustments would be approximately $50 million. We disagree with the proposed adjustments and plan to initiate the administrative appeals process in the United States and overseas. Pending audit settlements andfirst quarter.An unfavorable resolution in the expiration of statute of limitations could reduce the uncertaincurrent examination, future administrative proceedings, or future tax positions by $5 million during the next twelve months. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time andlitigation could result in final settlements that differcash tax payments and could adversely impact the effective tax rate.
The Company provides for foreign withholding taxes and any applicable U.S. state income taxes on earnings intended to be repatriated 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 $1.6 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2023 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 | 2024
Through
2033 | 2034
Through
2043 | Indefinite | Total |
| U.S. federal and non-U.S. NOLs | $ | 1 | | $ | 225 | | $ | 426 | | $ | 652 | |
| State taxing jurisdiction NOLs (a) | 38 | | 9 | | — | | 47 | |
U.S. federal, non-
U.S. and state tax credit carryforwards (a) | 82 | | 3 | | 97 | | 182 | |
| Total | $ | 121 | | $ | 237 | | $ | 523 | | $ | 881 | |
| Less: valuation allowance (a) | (83) | | (220) | | (475) | | (778) | |
| Total, net | $ | 38 | | $ | 17 | | $ | 48 | | $ | 103 | |
(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. ("Sylvamo Brazil"), which was a wholly-owned subsidiary of the Company, until the October 1, 2021 spin-off of the Printing Papers business, after which it became a subsidiary of Sylvamo. Sylvamo Brazil received assessments for the tax years 2007-2015 totaling approximately $119 million (adjusted for variation in currency exchange rates) in tax, plus interest, penalties and fees. The interest, penalties and fees currently total approximately $274 million (adjusted for variation in currency exchange rates), which reflects a recent law change pursuant to which the Brazil tax authority on January 16, 2024 agreed to cancel a portion of the interest, penalties and fees. Accordingly, the assessments currently total approximately $393 million (adjusted for variation in currency exchange rates). After an initial 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 decisions and intends to appeal 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 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, the Company will pay 60% and Sylvamo will pay 40%, on up to $300 million of any assessment related to this matter, and the Company will pay all amounts of the assessment over $300 million. Under the terms of the agreement, decisions concerning the conduct of the litigation related to this matter, including strategy, settlement, pursuit and abandonment, will be made by the Company. Sylvamo 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 Brazil 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 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 was $48 million and remains this amount at December 31, 2023. This liability will not be increased 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)("PRP") in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)("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 orand 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$251 million ($141and $243 million undiscounted) in the aggregate as of December 31, 2017.2023 and December 31, 2022, respectively. Other than as described below, completion of required environmental remedial actions ("RAs") 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 StatesU.S. Environmental Protection Agency (EPA)("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 referenced above. In October 2012,The total reserve for the Natural Resource Trustees for thisCass Lake superfund site provided notice to International Paperwas $46 million and other$47 million as of December 31, 2023 and 2022, respectively.
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)("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 partiesagreeing 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 ("RD") component of the landfill remedy for the Allied Paper Mill. The recordMill, which is also known as Operable Unit 1. A Record of decisionDecision ("ROD") 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 RD. In the summer 2021, the EPA initiated RA activities. In October 2022, the Company received a unilateral administrative order to perform the RA. As a result, the Company increased its reserve by $27 million in the fourth quarter of 2022.
The total reserve for the Kalamazoo River superfund site was $27 million and $37 million as of December 31, 2023 and 2022, respectively.
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 Corporation 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 (collectively, "GP") in a contribution and cost recovery action for alleged pollution at the site. NCR Corporation and Weyerhaeuser Company were 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 owned and operated by St. Regis, discharged PCB contaminated solids 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 theFederal District Court forissued its Final Judgment and Order, which fixed the Eastern District of Wisconsinpast cost amount at approximately $50 million (plus interest to be determined) and allocated to the Company a 15% share of responsibility for those past costs. The District Court 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, for 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 has 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 unableJudgment. In April 2022, the Sixth Circuit Court of Appeals reversed the Judgment of the Court, finding that the suit against the Company was time-barred by the applicable statute of limitations. In May 2022, GP filed a petition for rehearing with the Sixth Circuit Court of Appeals, which was denied in July 2022. In November 2022, GP filed a petition for writ of certiorari with the U.S. Supreme Court. In October 2023, the U.S. Supreme Court denied GP's writ petition, thus rendering final the Sixth Circuit's decision that GP's suit against the Company was time-barred. In January 2024 GP requested that the District Court’s final order declare that each party is jointly and severally liable for future costs, arguing that the Sixth Circuit decision only applies to predictpast costs. The Company believes the outcomeSixth Circuit decision dismisses all of GP’s claims against it, whether for past or estimate our maximum reasonably possible loss. However, we do not believe that any material lossfuture costs, and is probable.opposing GP’s request.
Harris County: International Paper and McGinnis Industrial Maintenance Corporation (MIMC)("MIMC"), a subsidiary of Waste Management, Inc. (WMI)("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)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 other PRPsMIMC/WMI to develop the remedial design, includingRD.
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 RD for the northern impoundment. That RD 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, 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 (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 submitted the Final Design Package for the southern impoundment to the EPA, and the EPA
approved this plan in May 2021. The EPA issued a Unilateral Administrative Order for RA of the southern impoundment in August 2021. An addendum to the Final 100% RD (Amended April 2021) was submitted to the EPA for the southern impoundment in June 2022. This addendum incorporated additional data collected to date which indicated that additional waste material removal will be required, lengthening the time required to implementcomplete RA.
With respect to the selected remedy.northern impoundment, the PRPs submitted the final component of the 90% RD to the EPA in November 2022. Upon submittal of the final component, an updated engineering estimate was developed, and the Company increased the reserved amount by approximately $21 million, which represents the Company's 50% share of our estimate of the low end of the range of probable remediation costs. On January 5, 2024, the PRPs received comments from the EPA on the November 2022 90% RD submittal. The PRPs responded to the EPA comments in late January 2024. While several key technical issues have been resolved, respondents still face significant challenges remediating this area in a cost-efficient manner that will not result in a release of contaminated materials to the environment during the excavation, removal and transport of the materials. 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 probablepossible. The total reserve for the southern and northern impoundment was $83 million and $95 million as of December 31, 2023 and 2022, respectively.
Versailles Pond: The Company is a responsible party for the investigation and remediation of Versailles Pond, a 57-acre dammed river impoundment that historically received paperboard mill wastewater in Sprague, Connecticut. A comprehensive investigation has determined that Versailles Pond is contaminated with PCBs, mercury, and metals. A preliminary remediation plan was prepared in the third quarter 2023. Negotiations with state and federal governmental officials are ongoing regarding the scope and timing of the remediation. The total reserve for Versailles Pond was $30 million as of December 31, 2023.
Asbestos-Related Matters
We have been named as a resultdefendant in various asbestos-related personal injury litigation, in both state and federal court, primarily in relation to the prior operations of certain companies previously acquired by the selected remedy, we are currently unableCompany. The Company's total recorded liability with respect to determine any adjustment to our immaterial recorded liability. It remainspending and future asbestos-related claims was $97 million, net of
estimated insurance recoveries and $105 million, net of insurance recoveries as of December 31, 2023 and December 31, 2022, respectively. While it is reasonably possible that additionalthe Company may incur losses could be material as the remedial design processin excess of its recorded liability with the EPA continues over the coming quarters.
International Paper and MIMC/WMIrespect to asbestos-related matters, we 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 outcome orunable to estimate aany loss or range of loss in any, which may be incurred.excess of such liability, and do not believe additional material losses are probable.
Antitrust
Containerboard: In June 2016,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. In August 2019, the ICA issued its decision and assessed IP Italy a lawsuit captioned Ashley Furniture Indus., Inc. v. Packaging Corporationfine of America (W.D. Wis.),€29 million (approximately $31 million at the then-current exchange rates) which 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 foundrecorded in the now-settled Kleen Products
litigation, alleging a practically identical civil violationthird quarter of Section 1 of2019. We appealed the Sherman Act (in particular, that defendants conspired to limitICA decision, and our appeal was denied in May 2021. We further appealed the supply and thereby increase prices of containerboard products), but also asserts Wisconsin state antitrust claims. In January 2011, International Paper was named as a defendant in a lawsuit filed in state court 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-2005decision to the present. PlaintiffsItalian Council of State ("Council of State"), and in March 2023 the state court action seek certificationCouncil of a classState largely upheld the ICA’s findings but referred the calculation of Tennessee indirect purchasersIP Italy’s fine back to the ICA, finding that it was disproportionately high based on the conduct found. We have further appealed the Council of containerboard products, damagesState decision to uphold the ICA’s findings. The Company and costs, including attorneys' fees. No class certification materialsother producers also have been filed to datenamed in the Tennessee action.
The Company disputes the allegations made in the Ashley Furniture and Tennessee lawsuits, and is vigorously defending each. At this time, however, becausewe have received other claims, by a number of customers in Italy for damages associated with 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 damagesalleged anticompetitive conduct. We do not believe material losses 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 actualsuch private lawsuits and consequential damages, fees, costs and pre-judgment interest, and awarding post-judgment interest. The judgment will not be final until post-trial motionsclaims are decided, and 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 are in a preliminary stage, we are unable to estimate a range of reasonably possible loss, but we expect the amount of any loss to be immaterial.probable.
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 - Income Taxes 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 its the
consolidated financial statements.
In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the 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 buyersposition or liquidity of the forestlands.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.
The Timber Notes were used as collateral for borrowings from third party lenders,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 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 effectively monetizedincreased the Timber Notes through the creation of newly formed special purposes entities (the Entities). The monetization structure preserved the $1.4 billion tax deferral that resultedexclusion amount from the 2006 forestlands sales. As a resultFederal VAT calculations. Therefore, we recognized an additional receivable of tax reform legislation in$70 million during the fourththree 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 2017, described in Note 10 Income Taxes, this deferred tax liability was remeasured to be $884 million.
During 2015, International Paper initiated a series2021 included income of actions in order to extend the 2006 monetization structure$42 million and maintain the long-term natureincome 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, were restructured which resulted in the formation of wholly-owned, bankruptcy-remote special purpose entities (the 2015 Financing Entities) during the third quarter of 2015. Also, during the third quarter of 2015, 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 of the Extension Loans require the bank issuing letters of credit supporting the Timber Notes pledged as collateral to maintain a credit rating at or above a specified threshold. In the event the credit rating of the letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days with letters of credit from 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 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$28 million of International Paper debt obligations. The $150 millionnet interest expense and is recorded in Discontinued Operations, net 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.
As of December 31, 2017 and 2016, the fair value of the Timber Notes was $4.8 billion and $4.7 billion, respectively, and the fair value 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.
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 |
| Revenue (a) | $ | 95 |
| $ | 95 |
| $ | 43 |
|
| Expense (a) | 128 |
| 128 |
| 81 |
|
| Cash receipts (b) | 95 |
| 77 |
| 21 |
|
| Cash payments (c) | 128 |
| 98 |
| 71 |
|
| |
(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 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, nettaxes, in the accompanying 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 on October 1, 2021, as part of our spin-off transaction.
| |
(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. |
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, 2023, this deferred tax liability was remeasured to be $538$485 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,
20172023 and
2016,2022, the fair value of the notes receivable was $2.3 billion. As of both December 31, 2023 and 2022, 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 14.hierarchy.
Activity between the Company and the 2007 financing entities was as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2023 | 2022 | 2021 |
| Revenue (a) | $ | 49 |
| $ | 37 |
| $ | 27 |
|
| Expense (b) | 48 |
| 37 |
| 27 |
|
| Cash receipts (c) | 28 |
| 15 |
| 7 |
|
| Cash payments (d) | 39 |
| 27 |
| 18 |
|
| |
(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, 2023, 2022 and 2021, 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, 20162023, 2022 and 2015,2021 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 connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the "Timber Notes") totaling approximately $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"). The monetization structure preserved the tax deferral that resulted from the 2006 forestlands sales. During 2015, International Paper initiated a series of actions to extend the 2006 monetization structure and maintain the long-term nature of the deferred tax liability. 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 Financing Entities").
In August 2021, the Timber Notes of $4.8 billion and the Extension Loans of $4.2 billion related to the 2015 Financing Entities both matured. We settled the Extension Loans at their maturity with the proceeds from the Timber 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.
On September 2, 2022, the Company and the Internal Revenue Service agreed to settle the previously disclosed timber monetization restructuring tax matter involving the 2015 Financing Entities. Under this agreement, the Company was required to fully resolve the matter and pay $252 million in U.S. federal income taxes. As a result, interest was charged upon closing of the audit. The amount of interest expense recognized in 2022 was $58 million. As of December 31, 2023, $252 million in U.S. federal income taxes and $58 million in interest expense have been paid as a result of the settlement agreement. The Company paid $163 million in U.S. federal income taxes and $30 million in interest during the first quarter of 2023 and fully satisfied the payment terms of the settlement agreement regarding the 2015 Financing Entities timber monetization restructuring tax matter during the second quarter of 2023. The reversal of the Company’s remaining deferred tax liability associated with the 2015 Financing Entities of $604 million was recognized as a one-time tax benefit in the third quarter of 2022.
Activity between the Company and the 2015 Financing Entities for the year ended 2021 was as follows:
| | | | | |
| In millions | 2021 |
| Revenue (a) | $ | 61 | |
| Expense (a) | 34 | |
| Cash receipts (b) | 95 | |
| Cash payments (c) | 38 | |
(a)The revenue and expense are included in Interest expense, net in the accompanying consolidated statement of operations.
(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 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, 2023, 2022 and other borrowings,2021 were usedas follows:
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Early debt reductions (a) | $ | — | | $ | 503 | | $ | 2,472 | |
| Pre-tax early debt extinguishment costs (b) | — | | 93 | | 461 | |
(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% and8.70% 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, 2022 and 2021. (b)Amounts are included in Restructuring and other charges in the accompanying consolidated statementstatements of operationsoperations.
The Company had no early debt reductions in 2023. The Company had debt reductions of $780 million in 2023, related primarily to capital leases, commercial paper, debt maturities and international debt.
During the first quarter of 2023, the Company entered into a variable term loan agreement providing for the year ended December 31, 2017. The $660a $600 million term loan which was subsequently assumed by Graphic Packaging International, LLCfully drawn on January 1, 2018the date of such loan agreement and is classified as Liabilities held for sale at December 31, 2017,matures in 2028. The $600 million debt was issued following the accompanying consolidated balance sheet.
In 2016, International Paper issued $1.1 billionrepayment of 3.00% senior unsecured notes with a maturity date$410 million of commercial paper earlier in 2027, and $1.2 billion2023. Additionally, during the first quarter of 4.40% senior unsecured notes with a maturity date in 2047. In addition,2023, the Company repaidissued an approximately $266$72 million of notesenvironmental development bond ("EDB") with an interest rate of 7.95%4.00% and a maturity date of April 1, 2026. The proceeds from this issuance were used to repay an original maturityapproximately $72 million outstanding EDB that matured on April 1, 2023.
During the second quarter of 2018. Pre-tax early debt retirement costs of $29 million related to2023, the debt repayments, including $31Company issued approximately $24 million of cash premiums, are includeddebt with a variable interest rate and a maturity date of December 1, 2027. The Company had debt reductions of approximately $49 million of variable interest EDBs with current maturities. Additionally, during the second quarter of 2023, the Company issued an approximately $54 million EDB with a
variable rate and a maturity date of May 1, 2028. The proceeds of this were used to repay an approximately $54 million EDB that matured on May 1, 2023. The Company issued an approximately $25 million EDB with a variable rate and a maturity date of June 1, 2030. The proceeds of this were used to repay an approximately $25 million EDB that matured on June 1, 2023.
During the third quarter of 2023, the Company repaid an approximately $70 million EDB with an interest rate of 2.90% that matured on September 1, 2023.
During the fourth quarter of 2023, the Company repaid an approximately $87 million note with an interest rate of 6.875% that matured on November 1, 2023. Additionally, the Company issued approximately $11 million of debt with a variable interest rate and a maturity date of December 1, 2027.
The Company had debt issuances in Restructuring2022 of $354 million of term loan agreements, $410 million of commercial paper and other charges$248 million of environmental development bonds.
The Company had debt issuances 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 supported by its $1.4 billion credit agreement. 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. AsThe Company had no borrowings outstanding as of December 31, 2017, the Company had $1802023 and $410 million borrowings outstanding as of December 31, 2022 under this 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 |
|
| |
(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.
|
| |
(d) | The fair market value was approximately $12.3 billion at December 31, 2017 and $12.0 billion at December 31, 2016.
|
Total maturities of long-term debt over the next five years are 2018 – $311 million; 2019 – $126 million; 2020 – $164 million; 2021 – $440 million; and 2022 – $956 million.
At December 31, 2017, International Paper’s2023, the Company's credit facilities (the Agreements) totaled $2.1 billion.$1.9 billion. The Agreementscredit facilities generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’sPaper's credit rating. The Agreements includecredit facilities previously included a $1.5$1.5 billion contractually committed bank facility that expires in December 2021with a maturity date of June 2026. In June 2023, the Company amended and hasrestated its credit agreement to, among other things, (i) reduce the size of the contractually committed bank facility from $1.5 billion to $1.4 billion, (ii) extend the maturity date from June 2026 to June 2028, and (iii) replace the LIBOR-based rate with a facility fee of 0.15% payable annually.SOFR-based rate. The liquidity facilities also include up to $600$500 million of uncommitted financings based on eligible receivables balances under a receivablesreceivable securitization program that expires in June 2025. As of December 2018. 31, 2023
and December 31, 2022, the Company had no borrowings outstanding under the program.
A summary of long-term debt follows:
| | | | | | | | |
| In millions at December 31 | 2023 | 2022 |
| 6.875% notes – due 2023 | $ | — | | $ | 87 | |
| 7.350% notes – due 2025 | 39 | | 39 | |
| 7.750% notes – due 2025 | 22 | | 22 | |
| 7.200% notes – due 2026 | 58 | | 58 | |
| 6.400% notes – due 2026 | 5 | | 5 | |
| 7.150% notes – due 2027 | 7 | | 7 | |
| 6.875% notes – due 2029 | 10 | | 10 | |
| 5.000% notes – due 2035 | 407 | | 407 | |
| 6.650% notes – due 2037 | 3 | | 3 | |
| 8.700% notes – due 2038 | 86 | | 86 | |
| 7.300% notes – due 2039 | 453 | | 453 | |
| 6.000% notes – due 2041 | 585 | | 585 | |
| 4.800% notes – due 2044 | 686 | | 686 | |
| 5.150% notes – due 2046 | 449 | | 449 | |
| 4.400% notes – due 2047 | 647 | | 647 | |
| 4.350% notes – due 2048 | 740 | | 740 | |
| Floating rate notes – due 2023 – 2027 (a) | 308 | | 732 | |
| Environmental and industrial development bonds – due 2023 – 2028 (b) | 419 | | 489 | |
| Floating rate term loan - due 2028 | 600 | | — | |
| Total principal | 5,524 | | 5,505 | |
| Capitalized leases | 55 | | 59 | |
| Premiums, discounts, and debt issuance costs | (41) | | (42) | |
| Terminated interest rate swaps | 54 | | 55 | |
| Other | 1 | | 2 | |
| Total (c) | 5,593 | | 5,579 | |
| Less: current maturities | 138 | | 763 | |
| Long-term debt | $ | 5,455 | | $ | 4,816 | |
(a)The weighted average interest rate on these notes was 5.4% in 2023 and 4.6% in 2022.
(b)The weighted average interest rate on these bonds was 2.4% in 2023 and 2.4% in 2022.
(c)The fair market value was approximately $5.5 billion at December 31, 2023 and $5.2 billion at December 31, 2022. Debt fair value measurements use Level 2 inputs.
At December 31, 2017, there2023, contractual obligations for future payments of debt maturities (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 no borrowings under eitheras follows over the bank facility or receivables securitization program.next five years: 2024 – $138 million; 2025 – $189 million; 2026 – $143 million; 2027 – $333 million; and 2028 – $670 million.
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, 2017,2023, 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, 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”) 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. 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.
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 |
|
| |
(a) | These contracts had maturities of two years or less as of December 31, 2017.
|
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) |
| In millions | 2017 | 2016 | 2015 |
| Foreign exchange contracts | $ | 15 |
| $ | 4 |
| $ | (3 | ) |
| Interest rate contracts | — |
| (10 | ) | — |
|
| Total | $ | 15 |
| $ | (6 | ) | $ | (3 | ) |
During the next 12 months, the amount of the December 31, 2017 AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of $6 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 | 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 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 |
| |
| |
(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. |
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.
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, there 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. The Company was not required to post any collateral as of December 31, 2017 or 2016.
The authorized capital stock at both December 31, 20172023 and 2016,2022, 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 rollforwardroll forward of shares of common stock for the three years ended December 31, 2017, 20162023, 2022 and 2015:2021:
| | | | | | | | |
| | Common Stock |
| In thousands | Issued | Treasury |
| Balance at January 1, 2021 | 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 | |
| Issuance of stock for various plans, net | — | | (1,569) | |
| Repurchase of stock | — | | 29,839 | |
| Balance at December 31, 2022 | 448,916 | | 98,632 | |
| Issuance of stock for various plans, net | — | | (1,647) | |
| Repurchase of stock | — | | 5,894 | |
| Balance at December 31, 2023 | 448,916 | | 102,879 | |
|
| | | | |
| | 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 threetwo unfunded nonqualified defined benefit pension plans: athe 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 two supplemental retirement plansthe Unfunded Supplemental Retirement Plan for senior managers (SERP)Senior Managers ("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$22 million,, $21 $29 million and $62$21 million in 2017, 20162023, 2022 and 2015,2021, respectively, and which are expected to be $30$20 million in 2018.2024.
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.SERP. 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 1618.
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.
OBLIGATIONS AND FUNDED STATUS
The following table shows the changes in the benefit obligation and plan assets for 20172023 and 2016,2022 and the plans’ funded status.
|
| | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | |
| | 2023 | 2022 |
| 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 | $ | 8,816 | | $ | 54 | | $ | 11,833 | | $ | 65 | |
| Service cost | 48 | | 4 | | 85 | | 3 | |
| Interest cost | 459 | | 3 | | 338 | | 2 | |
| Actuarial loss (gain) | 225 | | (3) | | (2,863) | | (11) | |
| Plan amendments | 26 | | — | | 16 | | — | |
| Benefits paid | (593) | | (3) | | (593) | | (2) | |
| Special termination benefits | 1 | | — | | — | | — | |
| Effect of foreign currency exchange rate movements | — | | 3 | | — | | (3) | |
| Benefit obligation, December 31 | $ | 8,982 | | $ | 58 | | $ | 8,816 | | $ | 54 | |
| Change in plan assets: | | | | |
| Fair value of plan assets, January 1 | $ | 8,845 | | $ | 18 | | $ | 12,075 | | $ | 19 | |
| Actual return on plan assets | 562 | | 1 | | (2,666) | | — | |
| Company contributions | 22 | | 3 | | 29 | | 2 | |
| Benefits paid | (593) | | (3) | | (593) | | (2) | |
| Effect of foreign currency exchange rate movements | — | | 1 | | — | | (1) | |
| Fair value of plan assets, December 31 | $ | 8,836 | | $ | 20 | | $ | 8,845 | | $ | 18 | |
| Funded status, December 31 | $ | (146) | | $ | (38) | | $ | 29 | | $ | (36) | |
| Amounts recognized in the consolidated balance sheet: | | | | |
| Overfunded pension plan assets | $ | 118 | | $ | — | | $ | 297 | | $ | — | |
| Underfunded pension benefit obligation - current | (20) | | (2) | | (22) | | (2) | |
| Underfunded pension benefit obligation - non-current | (244) | | (36) | | (246) | | (34) | |
| | $ | (146) | | $ | (38) | | $ | 29 | | $ | (36) | |
| | | | | | | | | | | | | | |
| Amounts recognized in accumulated other comprehensive income (loss) under ASC 715 (pre-tax): | | | | |
| Prior service cost (credit) | $ | 91 | | $ | — | | $ | 89 | | $ | — | |
| Net actuarial loss (gain) | 1,663 | | (10) | | 1,563 | | (7) | |
| | $ | 1,754 | | $ | (10) | | $ | 1,652 | | $ | (7) | |
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.
The largest contributor to the actuarial loss affecting the benefit obligation was the decrease in the discount rate from 5.40% at December 31, 2022 to 5.10% at December 31, 2023.
The components of the $901$102 million and $5$(3) million change related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during 20172023 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 |
|
| Amortization of actuarial loss | (339 | ) | (2 | ) |
| Current year prior service cost | 3 |
| — |
|
| Amortization of prior service cost | (28 | ) | — |
|
| Settlements | (383 | ) | (1 | ) |
| Curtailments | (11 | ) | — |
|
| Effect of foreign currency exchange rate movements | — |
| 6 |
|
| | $ | (901 | ) | $ | 5 |
|
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)$197 million, $626$474 million and $505 million$(1.0) billion in 2017, 20162023, 2022 and 2015,2021, respectively. The portion of the change in funded status for the non-U.S. plans was $10$2 million, $23$(6) million, and $8$(73) million in 2017, 20162023, 2022 and 2015,2021, respectively.
The accumulated benefit obligation at December 31, 20172023 and 20162022 was $13.2$9.0 billion and $13.5$8.8 billion,, respectively, for our U.S. defined benefit plans and $230$49 million and $205$46 million,, respectively, at December 31, 20172023 and 20162022 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, 20172023 and 2016:2022:
| | | | 2017 | 2016 | | 2023 | 2022 |
| In millions | U.S.
Plans | Non-U.S.
Plans | U.S.
Plans | Non-U.S.
Plans | 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:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | 2022 | 2021 |
| 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 | $ | 48 | | $ | 4 | | $ | 85 | | $ | 3 | | $ | 100 | | $ | 5 | |
| Interest cost | 459 | | 3 | | 338 | | 2 | | 333 | | 4 | |
| Expected return on plan assets | (530) | | (1) | | (649) | | (1) | | (705) | | (7) | |
| Actuarial loss (gain) | 93 | | (1) | | 87 | | 1 | | 138 | | 2 | |
| Amortization of prior service cost | 23 | | — | | 23 | | — | | 22 | | — | |
| Special termination benefits | 1 | | — | | — | | — | | — | | — | |
| Net periodic pension (income) expense | $ | 94 | | $ | 5 | | $ | (116) | | $ | 5 | | $ | (112) | | $ | 4 | |
|
| | | | | | | | | | | | | | | | | | |
| | 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 except for $(3) million related to Sylvamo participants in 2021 recorded in Discontinued operations in the consolidated statement of operations.Operations.
The decreaseincrease in 20172023 pension expense primarily reflects lower settlement losses and lower actuarial losses partially offset by lower asset returns, higher interest cost due to the annuity purchase as well as curtailment and special termination benefit charges.
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 nethigher discount rate, higher actuarial loss, after remeasurement, resulting in a $439 million non-cash charge to the Company's earnings in the second quarterand lower service cost.
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 was2023 is also the discount rate used to determine net pension expense for the 20182024 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 | | 2023 | 2022 | 2021 |
| | 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: | |
| Discount rate | 3.60 | % | 3.59 | % | 4.10 | % | 3.88 | % | 4.40 | % | 4.64 | % |
| Discount rate | |
| Discount rate | | 5.10 | % | 5.88 | % | 5.40 | % | 5.31 | % | 2.90 | % | 2.59 | % |
| Rate of compensation increase | 3.75 | % | 4.06 | % | 3.75 | % | 4.20 | % | 3.75 | % | 4.12 | % | Rate of compensation increase | 3.00 | % | 3.40 | % | 3.00 | % | 3.36 | % | 3.00 | % | 2.92 | % |
| 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 | % |
| Expected long-term rate of return on plan assets | 7.50 | % | 6.73 | % | 7.75 | % | 6.55 | % | 7.75 | % | 6.64 | % |
| Discount rate (a) | |
| Discount rate (a) | | 5.40 | % | 5.31 | % | 2.90 | % | 2.59 | % | 2.67 | % | 2.32 | % |
| Expected long-term rate of return on plan assets (a) | | Expected long-term rate of return on plan assets (a) | 6.50 | % | 3.83 | % | 6.00 | % | 3.66 | % | 6.40 | % | 4.99 | % |
| Rate of compensation increase | 3.75 | % | 4.20 | % | 3.75 | % | 4.03 | % | 3.75 | % | 4.03 | % | Rate of compensation increase | 3.00 | % | 3.36 | % | 3.00 | % | 2.92 | % | 2.25 | % | 3.66 | % |
(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 qualityhigh-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 2018,2024, the Company will use an expected long-term rate of return on plan assets of 7.50%7.00% for the Retirement Plan of International Paper, a discount rate of 3.60%5.10% and an assumed rate of compensation increase of 3.75%3.00%. The Company estimates that it will record net pension expenseincome of approximately $167$7 million for its U.S. defined benefit plans in 2018,2024, compared to expense of $717$94 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.2023.
For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.
The following illustrates the effect on pension expense for 20182024 of a 25 basis point decrease in the above assumptions:
|
| | | |
| In millions | 2018 |
| Expense/(Income): | |
| Discount rate | $ | 35 |
|
| Expected long-term rate of return on plan assets | 27 |
|
| Rate of compensation increase | (1 | ) |
| | | | | |
| In millions | 2024 |
| Expense (Income): | |
| Discount rate | $ | 12 | |
| Expected long-term rate of return on plan assets | 21 | |
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, 2023 and 2022 and target allocations were as follows:
|
| | | | | |
| Asset Class | 2017 | 2016 | Target
Allocations |
| Equity accounts | 49 | % | 51 | % | 42% - 53% |
| Fixed income accounts | 36 | % | 27 | % | 32% - 44% |
| Real estate accounts | 10 | % | 10 | % | 7% - 13% |
| Other | 5 | % | 12 | % | 3% - 8% |
| Total | 100 | % | 100 | % | |
| | | | | | | | | | | |
| Asset Class | 2023 | 2022 | Target
Allocations |
| Hedging assets | 66 | % | 64 | % | 61% - 72% |
| Return seeking assets (a) | 34 | % | 36 | % | 28% - 39% |
| Total | 100 | % | 100 | % | |
The fair values of International Paper’s pension plan assets at December 31, 20172023 and 20162022 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 and fixed income accountsto hedging assets for target allocation purposes.
|
| | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2017 |
| 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 | $ | 1,291 |
| $ | 1,291 |
| $ | — |
| $ | — |
|
| Equities – international | 2,132 |
| 2,119 |
| 13 |
| — |
|
| Corporate bonds | 1,177 |
| — |
| 1,177 |
| — |
|
| Government securities | 2,778 |
| — |
| 2,778 |
| — |
|
| Mortgage backed securities | 1 |
| — |
| — |
| 1 |
|
| Other fixed income | (802 | ) | — |
| (814 | ) | 12 |
|
| Commodities | — |
| — |
| — |
| — |
|
| Derivatives | 8 |
| — |
| (8 | ) | 16 |
|
| Cash and cash equivalents | 397 |
| 397 |
| — |
| — |
|
| Other investments: | | | | |
| Equities - domestic | 708 |
| | | |
| Equities - international | 866 |
| | | |
| Corporate bonds | 66 |
| | | |
| Other fixed income | 232 |
| | | |
| Hedge funds | 927 |
| | | |
| Private equity | 481 |
| | | |
| Real estate | 1,106 |
| | | |
| Total Investments | $ | 11,368 |
| $ | 3,807 |
| $ | 3,146 |
| $ | 29 |
|
| | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2023 |
| 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 | $ | 1,336 | | $ | 835 | | $ | 501 | | $ | — | |
| Fixed income | 4,691 | | — | | 4,684 | | 7 | |
| Derivatives | 71 | | — | | — | | 71 | |
| Cash and cash equivalents | 49 | | 49 | | — | | — | |
| Other investments: | | | | |
| Hedge funds | 1,293 | | | | |
| Private equity | 644 | | | | |
| Real estate funds | 752 | | | | |
| Total Investments | $ | 8,836 | | $ | 884 | | $ | 5,185 | | $ | 78 | |
| | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2022 |
| 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 | $ | 1,353 | | $ | 889 | | $ | 464 | | $ | — | |
| Fixed income | 4,550 | | — | | 4,543 | | 7 | |
| Derivatives | 25 | | — | | — | | 25 | |
| Cash and cash equivalents | 82 | | 82 | | — | | — | |
| Other investments: | | | | |
| Hedge funds | 1,319 | | | | |
| Private equity | 688 | | | | |
| Real estate funds | 828 | | | | |
| Total Investments | $ | 8,845 | | $ | 971 | | $ | 5,007 | | $ | 32 | |
|
| | | | | | | | | | | | |
| 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, 2023 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| In millions | | | | |
| Hedge funds | $ | 1,293 | | $ | 103 | | Quarterly to semi-annually | 45 - 60 days |
| Private equity | 644 | | 81 | | (a) | None |
| Real estate funds | 752 | | 94 | | Quarterly | 45 - 60 days |
| Total | $ | 2,689 | | $ | 278 | | | |
(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, 2022 |
| Investment | Fair Value | Unfunded Commitments | Redemption Frequency | Remediation Notice Period |
| In millions | | | | |
| Hedge funds | $ | 1,319 | | $ | 120 | | Daily to annually | 1 - 100 days |
| Private equity | 688 | | 126 | | (a) | None |
| Real estate funds | 828 | | 129 | | Quarterly | 45 - 60 days |
| Total | $ | 2,835 | | $ | 375 | | | |
(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.
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.
The following tables summarize derivative holdings as of December 31, 2023 and 2022, respectively:
| | | | | | | | | | | |
| Derivatives at December 31, 2023 |
| In millions | Gross Asset | Gross Liability | Total |
| Collateral | $ | 7 | | $ | (7) | | $ | — | |
| Credit Default Swap | 2 | | — | | 2 | |
| Interest Rate Swap | 4 | | — | | 4 | |
| Bond/Equity Swap | 65 | | — | | 65 | |
| Total | $ | 78 | | $ | (7) | | $ | 71 | |
| | | | | | | | | | | |
| Derivatives at December 31, 2022 |
| In millions | Gross Asset | Gross Liability | Total |
| Collateral | $ | 9 | | $ | — | | $ | 9 | |
| Credit Default Swap | 1 | | — | | 1 | |
| Interest Rate Swap | 16 | | — | | 16 | |
| Bond/Equity Swap | 3 | | — | | 3 | |
| Options | 6 | | (10) | | (4) | |
| Total | $ | 35 | | $ | (10) | | $ | 25 | |
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, 2017.2023:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
| | | | | | | | | | | | |
| In millions | | Other
fixed
income | Derivatives | Total |
| Beginning balance at December 31, 2021 | | $ | 16 | | $ | (21) | | $ | (5) | |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | | (9) | | 38 | | 29 | |
| Relating to assets sold during the period | | 10 | | (189) | | (179) | |
| Purchases, sales and settlements | | (10) | | 197 | | 187 | |
| Transfers in and/or out of Level 3 | | — | | — | | — | |
| Ending balance at December 31, 2022 | | $ | 7 | | $ | 25 | | $ | 32 | |
| Actual return on plan assets: | | | | |
| Relating to assets still held at the reporting date | | — | | 57 | | 57 | |
| Relating to assets sold during the period | | — | | 48 | | 48 | |
| Purchases, sales and settlements | | — | | (59) | | (59) | |
| Transfers in and/or out of Level 3 | | — | | — | | — | |
| Ending balance at December 31, 2023 | | $ | 7 | | $ | 71 | | $ | 78 | |
|
| | | | | | | | | | | | |
| 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.2021, 2022 or 2023. 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, 2017,2023, projected future pension benefit payments, excluding any termination benefits, were as follows:
|
| | | |
| In millions | |
| 2018 | $ | 708 |
|
| 2019 | 709 |
|
| 2020 | 718 |
|
| 2021 | 727 |
|
| 2022 | 735 |
|
| 2023-2027 | 3,763 |
|
| | | | | |
| In millions | |
| 2024 | $ | 620 | |
| 2025 | 632 | |
| 2026 | 639 | |
| 2027 | 639 | |
| 2028 | 639 | |
| 2029-2033 | 3,175 | |
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
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 companyCompany 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$160 million,, $106 $159 million and $100$172 million for the plan years endingended in 2017, 20162023, 2022 and 2015,2021, 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, 20162023, 2022 and 20152021 were as follows:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2023 | 2022 | 2021 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| 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 |
|
| Interest cost | 11 |
| 2 |
| 11 |
| 3 |
| 11 |
| 5 |
|
| Actuarial loss | 8 |
| 3 |
| 5 |
| 2 |
| 6 |
| 1 |
|
| Amortization of prior service credits | (3 | ) | (4 | ) | (4 | ) | (4 | ) | (10 | ) | (2 | ) |
| Net postretirement (benefit) expense | $ | 17 |
| $ | 1 |
| $ | 13 |
| $ | 1 |
| $ | 8 |
| $ | 5 |
|
| Net postretirement expense | |
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 qualityhigh-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, 20162023, 2022 and 20152021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Discount rate | 5.50 | % | 5.70 | % | 2.90 | % | 5.20 | % | 2.50 | % | 6.91 | % |
|
| | | | | | | | | | | | |
| | 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 | % |
The weighted average assumptions used to determine the benefit obligation at December 31, 20172023 and 20162022 were as follows:
| | | | 2017 | 2016 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| 2023 | | | 2023 | 2022 |
| 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 | 5.20 | % | 6.10 | % | 5.50 | % | 5.70 | % |
| 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 | % | 7.25 | % | 4.00 | % |
| 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 | % | 4.00 | % |
| 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 | 2032 | 2023 | 2032 | 2023 |
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 20172023 and 2016:2022:
| | | | | | | | | | | | | | |
| In millions | 2023 | 2022 |
| U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Change in projected benefit obligation: | | | | |
| Benefit obligation, January 1 | $ | 125 | | $ | 4 | | $ | 172 | | $ | 5 | |
| Service cost | — | | — | | — | | — | |
| Interest cost | 7 | | — | | 5 | | — | |
| Participants’ contributions | 2 | | — | | 3 | | — | |
| Actuarial (gain) loss | 8 | | — | | (33) | | — | |
| Benefits paid | (24) | | — | | (23) | | — | |
| Less: Federal subsidy | — | | — | | 1 | | — | |
| Currency Impact | — | | — | | — | | (1) | |
| Benefit obligation, December 31 | $ | 118 | | $ | 4 | | $ | 125 | | $ | 4 | |
| Change in plan assets: | | | | |
| Fair value of plan assets, January 1 | $ | — | | $ | — | | $ | — | | $ | — | |
| Company contributions | 22 | | — | | 20 | | — | |
| Participants’ contributions | 2 | | — | | 3 | | — | |
| Benefits paid | (24) | | — | | (23) | | — | |
| Fair value of plan assets, December 31 | $ | — | | $ | — | | $ | — | | $ | — | |
| Funded status, December 31 | $ | (118) | | $ | (4) | | $ | (125) | | $ | (4) | |
| Amounts recognized in the consolidated balance sheet under ASC 715: | | | | |
| Current liability | $ | (13) | | $ | — | | $ | (15) | | $ | — | |
| Non-current liability | (105) | | (4) | | (110) | | (4) | |
| | $ | (118) | | $ | (4) | | $ | (125) | | $ | (4) | |
| Amounts recognized in accumulated other comprehensive income (loss) under ASC 715 (pre-tax): | | | | |
| Net actuarial loss (gain) | $ | 2 | | $ | (1) | | $ | (6) | | $ | (1) | |
| Prior service credit | — | | — | | — | | — | |
| | $ | 2 | | $ | (1) | | $ | (6) | | $ | (1) | |
|
| | | | | | | | | | | | |
| In millions | 2017 | 2016 |
| | U.S.
Plans | Non-
U.S.
Plans | U.S.
Plans | Non-
U.S.
Plans |
| Change in projected benefit obligation: | | | | |
| Benefit obligation, January 1 | $ | 280 |
| $ | 23 |
| $ | 275 |
| $ | 45 |
|
| Service cost | 1 |
| — |
| 1 |
| — |
|
| Interest cost | 11 |
| 2 |
| 11 |
| 3 |
|
| Participants’ contributions | 5 |
| — |
| 5 |
| — |
|
| Actuarial (gain) loss | 14 |
| 2 |
| 31 |
| 5 |
|
| Plan amendments | — |
| — |
| — |
| (35 | ) |
| Benefits paid | (42 | ) | (2 | ) | (44 | ) | (1 | ) |
| Less: Federal subsidy | 1 |
| — |
| 1 |
| — |
|
| Currency Impact | — |
| — |
| — |
| 6 |
|
| Benefit obligation, December 31 | $ | 270 |
| $ | 25 |
| $ | 280 |
| $ | 23 |
|
| Change in plan assets: | | | | |
| Fair value of plan assets, January 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Company contributions | 37 |
| 2 |
| 39 |
| 1 |
|
| Participants’ contributions | 5 |
| — |
| 5 |
| — |
|
| Benefits paid | (42 | ) | (2 | ) | (44 | ) | (1 | ) |
| Fair value of plan assets, December 31 | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Funded status, December 31 | $ | (270 | ) | $ | (25 | ) | $ | (280 | ) | $ | (23 | ) |
| Amounts recognized in the consolidated balance sheet under ASC 715: | | | | |
| Current liability | $ | (28 | ) | $ | (1 | ) | $ | (29 | ) | $ | (2 | ) |
| Non-current liability | (242 | ) | (24 | ) | (251 | ) | (21 | ) |
| | $ | (270 | ) | $ | (25 | ) | $ | (280 | ) | $ | (23 | ) |
| Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | | | | |
| Net actuarial loss (gain) | $ | 74 |
| $ | 19 |
| $ | 68 |
| $ | 21 |
|
| Prior service credit | (6 | ) | (30 | ) | (8 | ) | (34 | ) |
| | $ | 68 |
| $ | (11 | ) | $ | 60 |
| $ | (13 | ) |
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$8 million and $2$0 million change in the amounts recognized in OCIother comprehensive income ("OCI") during 20172023 for U.S. and non-U.S. plans, respectively, consisted of:
|
| | | | | | |
| In millions | U.S.
Plans | Non-
U.S.
Plans |
| Current year actuarial loss | $ | 14 |
| $ | 1 |
|
| Amortization of actuarial (loss) gain | (8 | ) | (3 | ) |
| Current year prior service cost | — |
| — |
|
| Amortization of prior service credit | 2 |
| 4 |
|
| Currency impact | — |
| — |
|
| | $ | 8 |
| $ | 2 |
|
| | | | | | | | |
| In millions | U.S.
Plans | Non-
U.S.
Plans |
| Current year actuarial (gain) loss | $ | 8 | | $ | — | |
| Amortization of actuarial (loss) gain | — | | — | |
| $ | 8 | | $ | — | |
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 $25$(2) million,, $42 $44 million and $17$27 million in 2017, 20162023, 2022 and 2015,2021, respectively. The portion of the change in funded status for the non-U.S. plans was $3$0 million, $(25)$0 million, and $0$1 million in 2017, 20162023, 2022 and 2015,2021, 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, 2017,2023, 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 |
| 2024 | $ | 14 | | $ | 1 | | $ | — | |
| 2025 | 13 | | 1 | | — | |
| 2026 | 12 | | 1 | | — | |
| 2027 | 11 | | 1 | | — | |
| 2028 | 11 | | 1 | | — | |
| 2029– 2033 | 45 | | 2 | | 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 anoperates under its Amended and Restated 2009 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)("ICP"). The ICP authorizes grants of restricted stock, restricted or deferred stock units ("RSUs"), performance awards payable in cash or stock upon the attainment of specified performance goals ("PSUs"), 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) that"MDCC"). The MDCC administers the ICP.
Additionally, restricted stock, which may be deferred into RSU’s,RSUs, may be awarded under a Restricted Stock and Deferred Compensation Plan for Non-Employee Directors.
PERFORMANCE SHARELONG-TERM INCENTIVE PLAN
UnderEffective January 1, 2023, the MDCC renamed the Performance Share Plan (PSP),("PSP") to the Long-Term Incentive Plan ("LTIP") and began incorporating RSUs into its annual grant process as a complement to PSUs to better align with market and aid in our recruitment and retention efforts. Under the LTIP, contingent awards of International Paper common stock are granted by the Committee. MDCC.
The PSPmaximum aggregate number of shares of the Company’s common stock that may be issued pursuant to awards under the ICP shall not exceed 15.4 million shares. Shares for which payment is in cash, including the shares withheld to cover associate payroll taxes, as well as shares that expire, terminate, or are canceled or forfeited, may be awarded,or granted again under the ICP.
Performance Share Units
PSU awards are earned over a three-year period. PSP awards are earnedperiod based on the achievement of definedpre-established performance rankingsgoals of ROICReturn on Invested Capital ("ROIC") measured against our internal benchmark and TSRour relative performance in Total Shareholder Return ("TSR") compared to ROIC andthe TSR peer groups of companies.group. The 2021-2023, 2022-2024 and 2023-2025 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 PSPPSU awards is valued at the 20-trading day average closing stock price on the dayimmediately 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 PSPPSU awards is valued using the same methodology as the RSUs but then adjusted using a factor derived from 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 grantsPSUs are madepayable in performance-based restricted stock units.cash or shares at the Company's discretion.
Restricted Stock Units
Time-based RSU awards granted under the LTIP are expected to vest in three equal installments commencing on February 1st following the first anniversary of the grant date over a 3-year service period, subject to forfeiture and transfer restrictions. RSUs are payable in cash or shares at the Company’s discretion.
Generally, the requisite service period is the vesting period. In the case of retirement (eligibility for which is based on the associate's age and years of service as provided in the relevant award agreement), awards vest pro-rata based on length of service during the award period, subject to continued employment and paid upon termination.
Dividend equivalents are generally accrued on PSUs and RSUs outstanding as of the record date. These dividend equivalents are paid only on PSUs and RSUs that ultimately vest.
The following table sets forth the assumptions used to determine compensation cost for the market condition component of the PSPLTIP plan:
| | | | | |
| |
| Twelve Months Ended December 31, 20172023 |
| Expected volatility | 22.75%-23.39%35.97% - 37.11% |
| Risk-free interest rate | 1.10%-1.47%0.17% - 4.18% |
The following summarizes PSPLTIP activity for the three years ending ended December 31, 2017:2023:
| | | | Share/Units | Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2014 | 7,275,934 |
|
| $34.98 |
|
| Share/Units | | | Share/Units | Weighted
Average
Grant Date
Fair Value |
| Outstanding at December 31, 2020 | |
| Granted | 1,863,623 |
| 53.25 |
|
| Shares issued | (2,959,160 | ) | 37.09 |
|
| Forfeited | (322,664 | ) | 53.97 |
|
| Outstanding at December 31, 2015 | 5,857,733 |
| 38.69 |
|
| Outstanding at December 31, 2021 | |
| Granted | 2,617,982 |
| 37.26 |
|
| Shares issued | (2,316,085 | ) | 43.82 |
|
| Forfeited | (209,500 | ) | 43.61 |
|
| Outstanding at December 31, 2016 | 5,950,130 |
| 35.89 |
|
| Granted | 2,163,912 |
| 51.78 |
|
| Shares issued | (1,876,134 | ) | 51.00 |
|
| Outstanding at December 31, 2022 | |
| Granted - LTIP PSU | |
| Granted - LTIP RSU | |
| Shares issued - LTIP PSU | |
| Shares issued - LTIP RSU | |
| Forfeited | (438,024 | ) | 45.96 |
|
| Outstanding at December 31, 2017 | 5,799,884 |
|
| $36.17 |
|
| Outstanding at December 31, 2023 | |
RESTRICTED STOCKRECOGNITION AWARD PROGRAMSPROGRAM
The Recognition Award Program ("RA Program") is service-based Restricted Stock Award program (RSA),and designed for recruitment, retention
and special recognition purposes,purposes. It provides for awards of restricted stockRSUs to key employees.
The following summarizes the activity of the RSA programRA Program for the three years ending ended December 31, 2017:2023:
| | | | Shares | Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2014 | 114,599 |
|
| $47.03 |
|
| Shares | | | Shares | Weighted
Average
Grant Date
Fair Value |
| Outstanding at December 31, 2020 | |
| Granted | 36,300 |
| 50.06 |
|
| Shares issued | (27,365 | ) | 45.35 |
|
| Forfeited | (3,166 | ) | 50.04 |
|
| Outstanding at December 31, 2015 | 120,368 |
| 48.24 |
|
| Outstanding at December 31, 2021 | |
| Granted | 117,881 |
| 42.81 |
|
| Shares issued | (59,418 | ) | 47.14 |
|
| Forfeited | (9,500 | ) | 39.36 |
|
| Outstanding at December 31, 2016 | 169,331 |
| 45.34 |
|
| Outstanding at December 31, 2022 | |
| Granted | 63,319 |
| 57.24 |
|
| Shares issued | (59,650 | ) | 47.90 |
|
| Forfeited | (6,700 | ) | 53.53 |
|
| Outstanding at December 31, 2017 | 166,300 |
|
| $48.63 |
|
| Outstanding at December 31, 2023 | |
At December 31, 2017, 20162023, 2022 and 20152021 a total of 13.25.5 million,, 14.3 7.3 million and 16.27.7 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 | 2023 | 2022 | 2021 |
| Total stock-based compensation expense (included in selling and administrative expense) | $ | 147 |
| $ | 124 |
| $ | 107 |
|
| Income tax benefits related to stock-based compensation | 45 |
| 34 |
| 88 |
|
At December 31, 2017, $862023, $58 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 1.81.4 years.
announced transferspin-off of its North American Consumer PackagingPrinting Papers business into a new, publicly-traded company, Sylvamo, listed on the New York Stock Exchange as SLVM. 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 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 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. AllBoth 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,less than wholly owned subsidiaries, 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 | 2023 | | 2022 | | 2021 |
| Industrial Packaging | $ | 15,596 | | | $ | 17,451 | | | $ | 16,326 | |
| Global Cellulose Fibers | 2,890 | | | 3,227 | | | 2,732 | |
| | | | | |
| Corporate and Intersegment Sales (a) | 430 | | | 483 | | | 305 | |
| Net Sales | $ | 18,916 | | | $ | 21,161 | | | $ | 19,363 | |
|
| | | | | | | | | | | |
| 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 |
| 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 |
|
| | | | | | |
| 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 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 |
|
| $ | 2,069 |
| | $ | 2,102 |
| | $ | 2,471 |
|
Restructuring and Other Charges
| | | In millions | 2017 | | 2016 | | 2015 | In millions | 2023 | | 2022 | | 2021 |
| Industrial Packaging | $ | — |
| | $ | 7 |
| | $ | — |
|
| Global Cellulose Fibers | — |
| | — |
| | — |
|
| Printing Papers | — |
| | — |
| | — |
|
| Corporate (c) | 67 |
| | 47 |
| | 252 |
|
| Restructuring and Other Charges | $ | 67 |
| | $ | 54 |
| | $ | 252 |
|
| Business Segment Operating Profit | |
| | Earnings (loss) from continuing operations before income taxes and equity earnings | |
| Earnings (loss) from continuing operations before income taxes and equity earnings | |
| Earnings (loss) from continuing operations before income taxes and equity earnings | |
| Interest expense, net | |
| Adjustment for less than wholly owned subsidiaries (b) | |
| Corporate expenses, net (a) | |
| Corporate net special items | |
| Business net special items | |
| Non-operating pension (income) expense | |
| $ | |
Assets
| | | In millions | 2017 | | 2016 | In millions | 2023 | | 2022 |
| 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 |
|
| Corporate and other | |
| Assets | $ | 33,903 |
| | $ | 33,093 |
|
Capital Spending
| | | In millions | 2017 | | 2016 | | 2015 | In millions | 2023 | | 2022 | | 2021 |
| 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 (e) | 21 |
| | 20 |
| | 78 |
|
| Corporate and other | |
| Capital Spending | $ | 1,280 |
| | $ | 1,241 |
| | $ | 1,310 |
|
Depreciation, Amortization and Cost of Timber Harvested (f)
| | | | | | | | | | | | | | | | | |
| In millions | 2023 | | 2022 | | 2021 |
| Industrial Packaging | $ | 1,144 | | | $ | 783 | | | $ | 829 | |
| Global Cellulose Fibers | 286 | | | 255 | | | 265 | |
| Corporate | 2 | | | 2 | | | 3 | |
| Depreciation and Amortization | $ | 1,432 | | | $ | 1,040 | | | $ | 1,097 | |
|
| | | | | | | | | | | |
| 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 | 2023 | | 2022 | | 2021 |
| Industrial Packaging | $ | 14,946 |
| | $ | 14,142 |
| | $ | 14,496 |
|
| Global Cellulose Fibers | 2,524 |
| | 1,090 |
| | 986 |
|
| Printing Papers | 4,142 |
| | 4,062 |
| | 4,082 |
|
| Other (h) | 131 |
| | 201 |
| | 1,111 |
|
| Other (c) | |
| Net Sales | $ | 21,743 |
| | $ | 19,495 |
| | $ | 20,675 |
|
INFORMATION BY GEOGRAPHIC AREA
Net Sales (i)(d)
| | | | | | | | | | | | | | | | | |
| In millions | 2023 | | 2022 | | 2021 |
| United States (e) | $ | 16,340 | | | $ | 18,482 | | | $ | 16,769 | |
| EMEA | 1,494 | | | 1,693 | | | 1,611 | |
| Pacific Rim and Asia | 261 | | | 123 | | | 207 | |
| Americas, other than U.S. | 821 | | | 863 | | | 776 | |
| Net Sales | $ | 18,916 | | | $ | 21,161 | | | $ | 19,363 | |
Long-Lived Assets (f)
| | | | | | | | | | | |
| In millions | 2023 | | 2022 |
| United States | $ | 9,021 | | | $ | 9,333 | |
| EMEA | 757 | | | 738 | |
| Americas, other than U.S. | 390 | | | 378 | |
| Long-Lived Assets | $ | 10,168 | | | $ | 10,449 | |
(a)Includes sales of $44 million in 2021 and operating profit (losses) of $9 million in 2021, from previously divested businesses. There were no sales or operating profit (losses) from previously divested businesses in 2022 and 2023.
(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 earnings for these subsidiaries is added here to present consolidated earnings from continuing operations before income taxes and equity earnings.
(c)Includes $44 million in 2021 from previously divested businesses.
(d)Net sales are attributed to countries based on the location of the seller.
(e)Export sales to unaffiliated customers were $2.7 billion in 2023, $3.2 billion in 2022 and $2.6 billion in 2021.
(f)Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net.
|
| | | | | | | | | | | |
| 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 |
|
92
|
| | | | | | | |
| 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 | |
| 2017 | | | | | | | | | | |
| Net sales | $ | 5,132 |
| | $ | 5,383 |
| | $ | 5,517 |
| | $ | 5,711 |
| | $ | 21,743 |
| |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 217 |
| (a) | (23 | ) | (a) | 457 |
| (a) | 197 |
| (a) | 848 |
| (a) |
| Gain (loss) from discontinued operations | 17 |
| (b) | (4 | ) | (b) | 29 |
| (b) | (8 | ) | (b) | 34 |
| (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) |
| 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) |
| Gain (loss) from discontinued operations | 0.04 |
| (b) | (0.01 | ) | (b) | 0.07 |
| (b) | (0.02 | ) | (b) | 0.08 |
| (b) |
| Net earnings (loss) | 0.51 |
| (a-c) | 0.19 |
| (a-c) | 0.96 |
| (a-c) | 3.54 |
| (a-c) | 5.19 |
| (a-c) |
| 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) |
| Gain (loss) from discontinued operations | 0.04 |
| (b) | (0.01 | ) | (b) | 0.07 |
| (b) | (0.02 | ) | (b) | 0.08 |
| (b) |
| Net earnings (loss) | 0.50 |
| (a-c) | 0.19 |
| (a-c) | 0.95 |
| (a-c) | 3.50 |
| (a-c) | 5.13 |
| (a-c) |
| Dividends per share of common stock | 0.4625 |
| | 0.4625 |
| | 0.4625 |
| | 0.4750 |
| | 1.8625 |
| |
| 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 | | | | | | | | | | |
| Net sales | $ | 4,717 |
| | $ | 4,914 |
| | $ | 4,864 |
| | $ | 5,000 |
| | $ | 19,495 |
| |
| Earnings (loss) from continuing operations before income taxes and equity earnings | 307 |
| (d) | (76 | ) | (d) | 320 |
| (d) | 244 |
| (d) | 795 |
| (d) |
| Gain (loss) from discontinued operations | 4 |
| (e) | 40 |
| (e) | 34 |
| (e) | 24 |
| (e) | 102 |
| (e) |
| Net earnings (loss) attributable to International Paper Company | 334 |
| (d-f) | 40 |
| (d-f) | 312 |
| (d-f) | 218 |
| (d-f) | 904 |
| (d-f) |
| 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) |
| Gain (loss) from discontinued operations | 0.01 |
| (e) | 0.10 |
| (e) | 0.08 |
| (e) | 0.06 |
| (e) | 0.25 |
| (e) |
| Net earnings (loss) | 0.81 |
| (d-f) | 0.10 |
| (d-f) | 0.76 |
| (d-f) | 0.53 |
| (d-f) | 2.20 |
| (d-f) |
| 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) |
| Gain (loss) from discontinued operations | 0.01 |
| (e) | 0.10 |
| (e) | 0.08 |
| (e) | 0.06 |
| (e) | 0.25 |
| (e) |
| Net earnings (loss) | 0.81 |
| (d-f) | 0.10 |
| (d-f) | 0.75 |
| (d-f) | 0.53 |
| (d-f) | 2.18 |
| (d-f) |
| Dividends per share of common stock | 0.4400 |
| | 0.4400 |
| | 0.4400 |
| | 0.4625 |
| | 1.7825 |
| |
| 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: 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 consolidated 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 |
|
(b) Includes the operating earnings of the North American Consumer Packaging business for the full year. Also includes the following pre-tax charges (gains):
|
| | | | | | | | | | | | | | | | |
| | | 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):
|
| | | | | | | | | | | | | | | | | |
| | | 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) Includes the following pre-tax charges (gains):
|
| | | | | | | | | | | | | | | | |
| | | 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) Includes the operating earnings of the North American Consumer Packaging business for the full year and a pre-tax charge of $8 million for a legal settlement associated with the xpedx business.
(f) 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 |
|
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, 2017,2023, 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, 2017.2023.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing 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:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions 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 that the Company’s internal control over financial reporting was effective as of December 31, 2017.
In making this assessment, we used the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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, 2017,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On November 14, 2023, Ms. Kathryn D. Sullivan, a member of the Company’s Board of Directors, adopted a trading arrangement for the sale of the Company’s common stock (a “Rule 10b5-1 Trading Plan”) that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c). The Rule 10b5-1 Trading Plan provides for the sale of up to 12,000 shares of common stock pursuant to the terms of the Rule 10b5-1 Trading Plan beginning in February 2024 and ending in November 2024.
With the exception of Ms. Sullivan, during the quarter ended December 31, 2023, no other director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, as defined in Item 408 of Regulation S-K.
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 59 and 610 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)Conduct (the "Code") is applicable to all employees of the Company, including the chief executive officerCEO 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 officerCEO 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 our Corporate Governance Principles, our Code and the Charters of our Audit and Finance Committee, MDCC, Governance Committee and PPE Committee available free of charge on our Internet Web site at www.internationalpaper.comwebsite (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. Requeststhem. In addition, requests for printed copies may be directed to the corporate
secretary at our corporate headquarters. Please direct your request to:
International Paper Company
Attn: Mr. Joseph R. Saab, Corporate Secretary
6400 Poplar Avenue
Memphis, TN 38197
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.
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(1) | Financial Statements – See Item 8. Financial Statements and Supplementary Data. |
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(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, 20162023, 2022 and 20152021
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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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| (4.3) | |
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(4.4 | ) | |
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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(4.10) | ) | 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 CommissionSEC upon request. |
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| (4.11) | |
| (10.1 | )
| (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 | )
| (10.5) | |
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| (10.6) | |
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| (10.6.1) | |
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| (10.6.2) | |
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| (10.6.3) | |
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(10.5 | )(10.6.4) | |
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(10.6 | )(10.7) | |
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(10.7 | ) |
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| (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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| (10.13.1) | |
| (10.8 | )
| (10.13.2) | |
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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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| (10.21) | |
| (10.15 | )
| (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 | )
| (10.31) | |
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(10.21 | ) | |
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(10.22 | ) | |
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(10.23 | )(10.32) | |
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(10.24 | ) | Settlement Agreement dated June 27, 2017, by and between International Paper Company, Temple-Inland Inc., 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 class (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017).
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| (10.34) | Amendment No. 20 to the Second Amended and Restated Credit and Security Agreement, dated June 8, 2023, 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.* |
| (10.26 | )
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| (10.35) | Third Amended and Restated Five-Year Credit Agreement, dated December 8, 2017, byas of June 7, 2023, among International Paper Company, JPMorgan Chase Bank, N.A., individually and among the Company, Bank of America, N.A.as administrative agent, Citibank, individually and BNP Paribasas syndication agent, and certain lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 12, 2017).June 7, 2023. |
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(11 | )(10.36) | |
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(12 | )(10.37) | |
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| (10.38) | |
| (21 | )
| (10.39) | |
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| (19) | |
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| (21) | |
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(23.1 | )(23.1) | |
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(23.2 | )(23.2) | |
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(24 | )(24) | |
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(31.1 | )(31.1) | |
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(31.2 | )(31.2) | |
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(32 | )(32) | |
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| (97) | |
| (99.1 | )
| (99) | |
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| (101.INS) | |
(101.INS) | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document. * |
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| (101.SCH) | XBRL Taxonomy Extension Schema * |
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| (101.CAL) | XBRL Taxonomy Extension Calculation Linkbase * |
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| (101.DEF) | XBRL Taxonomy Extension Definition Linkbase * |
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| (101.LAB) | XBRL Taxonomy Extension Label Linkbase * |
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| (101.PRE) | XBRL Extension Presentation Linkbase * |
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| (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)
|
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| 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 |
|
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| | 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 |
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| | 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 |
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| Restructuring reserves | 16 |
| | 5 |
| | — |
| | (11)(b) | | 10 |
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(a) | Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments. |
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(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
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| By: | /S/ JOSEPH R. SAAB | | February 16, 2024 |
| Joseph R. Saab | | | |
| | | February 22, 2018 |
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 SharonTimothy S. Nicholls, Joseph R. RyanSaab and Deon VaughanAmanda M. Jenkins 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, as amended, 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, 201816, 2024 |
| Mark S. Sutton | | | | |
| | | | |
/S/ CHRISTOPHER M. CONNOR | | Director | | February 16, 2024 |
| | | | |
/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 16, 2024 |
| | | | |
/S/ AHMET C. DORDUNCU
| | Director | | February 22, 2018 |
| Ahmet C. Dorduncu | | | | |
| | | | |
/S/ ILENE S. GORDON | | Director | | February 16, 2024 |
| | | | |
/S/ ILENE S. GORDON
| | Director | | February 22, 2018 |
| Ilene S. Gordon | | | | |
| | | | |
/S/ ANDERS GUSTAFSSON | | Director | | February 16, 2024 |
| Anders Gustafsson | | | | |
| | | | |
/S/ JACQUELINE C. HINMAN | | Director | | February 16, 2024 |
/S/ JACQUELINE C. HINMAN
| | Director | | February 22, 2018 |
| Jacqueline C. Hinman | | | | |
| | | | |
/S/ JAY L. JOHNSON
| | Director | | February 22, 2018 |
Jay L. Johnson | | | | |
| | | | |
| | | | | | | | | | | | | | |
| | | | |
/s/ CLINTON A. LEWIS, JR. | | Director | | February 16, 2024 |
| | | | |
/s/ CLINTON A. LEWIS, JR.
| | Director | | February 22, 2018 |
| Clinton A. Lewis, Jr. | | | | |
| | | | |
/s/ KATHRYN D. SULLIVAN | | Director | | February 16, 2024 |
| | | | |
/S/ KATHRYN D. SULLIVAN
| | Director | | February 22, 2018 |
| Kathryn D. Sullivan | | | | |
| | | | |
/s/ ANTONV. VINCENT | | Director | | February 16, 2024 |
| Anton V. Vincent | | | | |
| | | | |
/S/ RAY G. YOUNG | | Director | | February 16, 2024 |
/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. LANDAUTIMOTHY S. NICHOLLS | | Senior Vice President and Chief Financial Officer | | February 22, 201816, 2024 |
Glenn R. LandauTimothy S. Nicholls | | | | |
| | | | |
/S/ VINCENT P. BONNOT HOLLY G. GOUGHNOUR | | Vice President – Finance and Corporate Controller | | February 22, 201816, 2024 |
Vincent P. BonnotHolly G. Goughnour | | | | |
20172023 LISTING OF FACILITIES
(all facilities are owned except noted otherwise) | | | | | | | | | | | | | | |
| INDUSTRIAL PACKAGING | | Modesto, California | | Fridley, Minnesota |
| | Ontario, California | | | | Minneapolis, Minnesota leased |
PRINTING PAPERSContainerboard | | Salinas, California | | Savannah, Georgia | Tracy, CaliforniaShakopee, Minnesota |
| U.S.: | | Sanger, California | | Cayuga, Indiana | Golden, ColoradoWhite Bear Lake, Minnesota |
Uncoated Papers | | Cedar Rapids, Iowa | | Wheat Ridge, Colorado |
U.S.: | | Henderson, Kentucky | | Putnam, Connecticut |
Selma, Alabama (Riverdale Mill) | | Maysville, Kentucky | | Orlando, Florida |
Ticonderoga, New York | | Bogalusa, Louisiana | | Plant City, Florida |
Eastover, South Carolina | | Campti, Louisiana | | Tampa, Florida leased |
Georgetown, South Carolina | | Mansfield, Louisiana | | Columbus, Georgia |
Sumter, South Carolina | | Vicksburg, Mississippi | | Forest Park, Georgia |
| | Valliant, Oklahoma | | Griffin, Georgia |
International: | | Springfield, Oregon | | Kennesaw, Georgia leased |
Luiz Antônio, São Paulo, Brazil | | Orange, Texas | | Lithonia, Georgia |
Mogi Guacu, São Paulo, Brazil | | | | Savannah, Georgia |
Três Lagoas, Mato Grosso do Sul, Brazil | | 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) |
Rajahmundry, India | | Paulinia, São Paulo, Brazil | | Bedford Park, Illinois (2 locations) 1 leased |
Kwidzyn, Poland | | Veracruz, Mexico | | Belleville, Illinois |
Svetogorsk, Russia | | Kenitra, Morocco | | Carol Stream, Illinois |
| | Madrid, Spain | | Des Plaines, Illinois |
GLOBAL CELLULOSE FIBERS | | | | Lincoln, Illinois |
| | Corrugated Container | | Montgomery, Illinois |
Pulp | | U.S.: | | Northlake, Illinois |
U.S.: | | Bay Minette, Alabama | | Rockford, Illinois |
Cantonment, Florida (Pensacola Mill) | | Decatur, Alabama | | Butler, Indiana |
Flint River, Georgia | | Dothan, Alabama leased | | Crawfordsville, Indiana |
Port Wentworth, Georgia | | Huntsville, Alabama | | Fort Wayne, Indiana |
Columbus, Mississippi | | Conway, Arkansas | | Hammond, Indiana |
New Bern, North Carolina | | Fort Smith, Arkansas (2 locations) | | Indianapolis, Indiana (2 locations) |
Riegelwood, North Carolina | | Russellville, Arkansas (2 locations) | | Saint Anthony, Indiana |
Eastover, South Carolina | | Tolleson, Arizona | | Tipton, Indiana |
Georgetown, South Carolina | | Yuma, Arizona | | Cedar Rapids, Iowa |
Franklin, Virginia | | Anaheim, California | | Waterloo, Iowa |
| | Buena Park, California leased | | Garden City, Kansas |
International: | | Camarillo, California | | Kansas City, Kansas |
Grand Prairie, Albert, Canada | | Carson, California | | Bowling Green, Kentucky |
Saillat, France | | Cerritos, California leased | | Lexington, Kentucky |
Gdansk, Poland | | Compton, California | | Louisville, Kentucky |
Kwidzyn, Poland | | Elk Grove, California | | Walton, Kentucky |
Svetogorsk, Russia | | Exeter, California | | Bogalusa, Louisiana |
| | Gilroy, California (2 locations) | | Lafayette, Louisiana |
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, California (2 locations) | | Fridley, MinnesotaHouston, Mississippi |
Rome, GeorgiaPrattville, Alabama | | Tracy, California | | Stockton, California | Minneapolis, Minnesota leased |
| Jackson, Mississippi |
| Selma, Alabama (Riverdale Mill) | | Golden, Colorado | | | |
Shakopee, Minnesota | | Laurens, South Carolina | | Silao, Mexico |
White Bear Lake, Minnesota | | Lexington, South Carolina | | Villa Nicolas Romero, Mexico |
Houston, Mississippi | | Ashland City, Tennessee leased | | Zapopan, Mexico |
Jackson, Mississippi | | Cleveland, Tennessee | | Agadir, Morocco |
| Magnolia, Mississippi leased | | Elizabethton, Tennessee leased | | Casablanca, Morocco |
| Cantonment, Florida (Pensacola Mill) | | Wheat Ridge, Colorado | | Olive Branch, Mississippi | | Morristown, Tennessee | | Kenitra, Morocco |
| Rome, Georgia | | Putnam, Connecticut | | Fenton, Missouri | | Murfreesboro, Tennessee | | Tangier, Morocco |
| Savannah, Georgia | | Orlando, Florida | | Kansas City, Missouri | | Amarillo, Texas | | Almeria, Spain (2 locations) |
| Cayuga, Indiana | | Plant City, Florida | | Maryland Heights, Missouri | | Carrollton, Texas (2 locations) | | Barcelona, Spain |
| Cedar Rapids, Iowa | | Tampa, Florida leased | | North Kansas City, Missourileased | | Edinburg, Texas | | Bilbao, Spain |
| Henderson, Kentucky | | Columbus, Georgia | | St. Joseph, Missouri | | El Paso, Texas | | Gandia, Spain |
| Maysville, Kentucky | | Forest Park, Georgia | | St. Louis, Missouri | | Ft. Worth, Texas leased | | Las Palmas, Spain |
| Bogalusa, Louisiana | | Griffin, Georgia | | Omaha, Nebraska | | Grand Prairie, Texas | | Madrid, Spain |
| Campti, Louisiana | | Lithonia, Georgia | | McCarran, Nevada |
| Mansfield, Louisiana | | Savannah, Georgia | | Barrington, New Jersey | | Hidalgo, Texas | | Tenerife, Spain |
| Vicksburg, Mississippi | | Tucker, Georgia | | Bellmawr, New Jersey | | McAllen, Texas | | Adana, Turkey |
| Valliant, Oklahoma | | Aurora, Illinois (3 locations) 1 leased | | Milltown, New Jersey leased |
| Springfield, Oregon | | San Antonio, Texas Bedford Park, Illinois (2 locations) 1 leased (2) | | Bursa. Turkey |
| Spotswood, New Jersey | | Sealy, Texas | | Corlu, Turkey |
Orange, Texas (1) | | Belleville, Illinois | | Thorofare, New Jersey | | Waxahachie, Texas | | Corum, Turkey |
| | Carol Stream, Illinois | | Binghamton, New York | | Lynchburg, Virginia | | Gebze, Turkey |
| International: | | Des Plaines, Illinois | | Buffalo, New York | | Petersburg, Virginia | | Izmir, Turkey |
| Veracruz, Mexico | | Lincoln, Illinois | | Rochester, New York | | Richmond, Virginia | | |
| Kenitra, Morocco | | Montgomery, Illinois | | Scotia, New York | | Moses Lake, Washington | | Recycling |
| Madrid, Spain | | Northlake, Illinois | | Utica, New York | | Olympia, Washington | | U.S.: |
| | Rockford, Illinois | | Charlotte, North Carolina (2 locations) 1 leased | | Yakima, Washington | | Phoenix, Arizona |
| Corrugated Packaging | | Butler, Indiana | | Lumberton, North Carolina |
| U.S.: | | Crawfordsville, Indiana | | Manson, North Carolina |
| Bay Minette, Alabama | | Fort Wayne, Indiana | | Newton, North Carolina |
| Decatur, Alabama | | Indianapolis, Indiana (3 locations) | | Statesville, North Carolina |
| Dothan, Alabama leased | | Saint Anthony, Indiana | | Byesville, Ohio |
| Huntsville, Alabama | | Tipton, Indiana | | Delaware, Ohio |
| Conway, Arkansas | | Cedar Rapids, Iowa | | Eaton, Ohio |
| Fort Smith, Arkansas (2 locations) | | Waterloo, Iowa | | Madison, Ohio |
| Russellville, Arkansas (2 locations) | | Garden City, Kansas | | Marion, Ohio |
| Tolleson, Arizona | | Bowling Green, Kentucky | | Marysville, Ohio leased |
| Yuma, Arizona | | Lexington, Kentucky | | Middletown, Ohio |
| Anaheim, California | | Louisville, Kentucky | | Mt. Vernon, Ohio |
| Buena Park, California leased | | Walton, Kentucky | | Newark, Ohio |
| Camarillo, California | | Bogalusa, Louisiana | | Streetsboro, Ohio |
| Carson, California | | Lafayette, Louisiana | | Wooster, Ohio |
| Cerritos, California leased | | Shreveport, Louisiana | | Oklahoma City, Oklahoma |
| Compton, California | | Springhill, Louisiana | | Beaverton, Oregon |
| Elk Grove, California | | Auburn, Maine | | Hillsboro, Oregon |
| Exeter, California | | Three Rivers, Michigan | | Portland, Oregon |
| Gilroy, California (2 locations) | | Arden Hills, Minnesota | | Salem, Oregon leased |
| Los Angeles, California | | Austin, Minnesota | | Atglen, Pennsylvania |
| | | | | | | | | | | | | | |
| | | | |
| Biglerville, Pennsylvania (2 locations) | | Puebla, Mexico leased | | Bags |
| Eighty-four, Pennsylvania | | Reynosa, Mexico | | U.S.: |
| Hazleton, Pennsylvania | | San Jose Iturbide, Mexico | | Buena Park, California |
| Kennett Square, Pennsylvania | | Santa Catarina, Mexico | | Beaverton, Oregon |
| Lancaster, Pennsylvania | | Silao, Mexico | | Grand Prairie, Texas |
| Mount Carmel, Pennsylvania | | Toluca, Mexico | | |
| Georgetown, South Carolina | | Zapopan, Mexico | | GLOBAL CELLULOSE FIBERS |
| Laurens, South Carolina | | Agadir, Morocco | | |
| Lexington, South Carolina | | Casablanca, Morocco | | Pulp |
| Ashland City, Tennessee leased | | Tangier, Morocco | | U.S.: |
| Cleveland, Tennessee | | Ovar, Portugal | | Cantonment, Florida (Pensacola Mill) |
| Elizabethton, Tennessee leased | | Barcelona, Spain | | Flint River, Georgia |
| Morristown, Tennessee | | Bilbao, Spain | | Port Wentworth, Georgia |
| Murfreesboro, Tennessee | | Gandia, Spain | | Columbus, Mississippi (2 locations) |
| Amarillo, Texas | | Grinon, Spain | | New Bern, North Carolina |
| Carrollton, Texas (2 locations) | | Las Palmas, Spain | | Riegelwood, North Carolina |
| Edinburg, Texas | | Madrid, Spain | | Georgetown, South Carolina |
| El Paso, Texas | | Montblanc, Spain | | Franklin, Virginia |
| Ft. Worth, Texas leased | | Tavernes de la Valldigna, Spain | | |
| Grand Prairie, Texas | | Tenerife, Spain | | International: |
| Hidalgo, Texas | | Valls, Spain | | Grande Prairie, Alberta, Canada |
| McAllen, Texas | | | | Gdansk, Poland |
| San Antonio, Texas (2 locations) | | Recycling | | |
| Sealy, Texas | | U.S.: | | DISTRIBUTION |
| Waxahachie, Texas | | Phoenix, Arizona | | |
| Lynchburg, Virginia | | Fremont, California | | International: |
| Petersburg, Virginia | | Norwalk, California | | Guangzhou, China leased |
| Richmond, Virginia | | West Sacramento, California | | Hong Kong, China leased |
| Moses Lake, Washington | | Itasca, Illinois | | Shanghai, China leased |
| Olympia, Washington | | Des Moines, Iowa | | Japan leased |
| Yakima, Washington | | Wichita, Kansas | | Korea leased |
| Fond du Lac, Wisconsin | | Roseville, Minnesota | | Fremont, CaliforniaSingapore leased |
Manson, North Carolina | | Manitowoc, Wisconsin | | Omaha, Nebraska | | Norwalk, California |
| Newton, North Carolina | | | West Sacramento, California |
Statesville, North Carolina | | International: | | Itasca, Illinois |
Byesville, Ohio | | Manaus, Amazonas, Brazil | | Des Moines, Iowa |
Delaware, Ohio | | Paulinia, São Paulo, Brazil | | Wichita, Kansas |
Eaton, Ohio | | Rio Verde, Goias, Brazil | | Roseville, Minnesota |
Madison, Ohio | | Suzano, São Paulo, Brazil | | Omaha, Nebraska |
Marion, Ohio | | Rancagua, Chile | | Charlotte, North Carolina | | |
Marysville, Ohio leasedInternational: | | Arles, France | | Beaverton, Oregon | | |
Middletown, OhioRancagua, Chile | | Chalon-sur-Saone, France | | Springfield, Oregon leased | | 1) Closed December 2023 |
Mt. Vernon, OhioCabourg, France | | Creil, France | | Carrollton, Texas | | 2) Closed one location January 2023 |
Newark, OhioChalon, France | | LePuy, France (Espaly Box Plant) | | Salt Lake City, Utah | | |
Streetsboro, OhioEspaly, France | | Richmond, Virginia | | |
| Mortagne, France | | Kent, Washington | | Richmond, Virginia |
Wooster, OhioSaint Amand, France | | | Guadeloupe, French West Indies | | Kent, Washington
Oklahoma City, Oklahoma | | Bellusco, Italy | | International: | | |
Beaverton, Oregon (3 locations) | | Catania, Italy | | International: |
Hillsboro, Oregon | | Pomezia, Italy | | Monterrey, Mexico leased | | |
Portland, OregonPomezia, Italy | | San Felice, Italy | | Xalapa, Veracruz, Mexico leased | | |
Salem, Oregon leasedSan Felice, Italy | | | | |
Apodaco, (Monterrey), Mexico leased | | | | |
Biglerville, Pennsylvania (2 locations) | | Ixtaczoquitlan, Mexico | | | Bags | |
Eighty-four, Pennsylvania | | Juarez, Mexico leased (2 locations) | | | U.S.: | |
Hazleton, Pennsylvania | | Los Mochis, Mexico | | | Buena Park, California | |
| 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 | | |
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CONSUMER PACKAGING | | DISTRIBUTION | | |
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Coated Paperboard | | IP Asia | | |
U.S.: | | International: | | |
Augusta, Georgia 2
| | Guangzhou, China | | |
Prosperity, South Carolina 2
| | Hong Kong, China | | |
Texarkana, Texas 2
| | Shanghai, China | | |
| | Japan | | |
International: | | Korea | | |
Kwidzyn, Poland | | Singapore | | |
Svetogorsk, Russia | | Taiwan | | |
| | Thailand | | |
Foodservice | | Vietnam | | |
U.S.: | | | | |
Visalia, California 2
| | FOREST PRODUCTS | | |
Shelbyville, Illinois 2
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Kenton, Ohio 2
| | Forest Resources | | |
| | International: | | |
International: | | Approximately 329,400 acres | | |
Shanghai, China 1
| | in Brazil | | |
Tianjin, China 1
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Bogota, Colombia | | | | |
Cheshire, England leased 2
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1) Sold September 2017 | | | | |
2) Transferred January 2018 | | | | |
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20172023 CAPACITY INFORMATION
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| (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 |
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| Coated Paperboard | — |
| | 431 |
| | — |
| | — |
| | 431 |
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| Total Industrial Packaging | 13,488 |
| | 476 |
| | 363 |
| | — |
| | 14,327 |
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| 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 |
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| Newsprint | — |
| | 312 |
| | — |
| | — |
| | 312 |
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| Total Printing Papers | 1,990 |
| | 1,505 |
| | 1,135 |
| | 266 |
| | 4,896 |
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| (in thousands of short tons except as noted) | U.S. | | EMEA | | Americas,
other
than U.S. | | Total |
| Industrial Packaging | | | | | | | |
Containerboard (a) | 13,829 | | | 560 | | | 27 | | | 14,416 | |
| Global Cellulose Fibers | | | | | | | |
Dried Pulp (in thousands of metric tons) (b) | 2,749 | | | — | | | 373 | | | 3,122 | |
(a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum. U.S capacity includes Orange, Texas mill, which was permanently closed in December 2023.
(b) In addition to Uncoated FreesheetU.S. capacity includes pulp machines at Riegelwood, North Carolina and Bristols, includes bleached multiwall bagPensacola, Florida mills, which were permanently shutdown in December 2023 and plate.August 2023, respectively.
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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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