International Paper 10-K 2020-12-31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 1-3157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2020) was approximately $13,786,056,781.

The number of shares outstanding of the Company’s common stock as of February 12, 2021 was 393,117,117.

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 2021 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

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INTERNATIONAL PAPER COMPANY

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2020

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As of the filing of this Annual Report on Form 10-K, the Company’s common shares are traded on the New York Stock Exchange (NYSE: IP). As of February 12, 2021, there were approximately 9,379 record holders of common stock of the Company.

We pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future, though each quarterly dividend payment is subject to review and approval by our Board of Directors. Our ability to pay dividends is, and in the future may continue to be, limited by the terms of our debt documents.

The table below presents information regarding the Company’s purchases of its equity securities for the time periods presented.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

*(a)*1,637 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs. During 2020, 389,100 shares were purchased under our share repurchase program, which was approved on September 30, 2013, and increased twice on July 8, 2014 and October 9, 2018. Through this program, which does not have an expiration date, we are authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $5 billion shares of our common stock. As of December 31, 2020, approximately $1.73 billion aggregate amount of shares of our common stock remain authorized for purchase under this program.

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PERFORMANCE GRAPH

The performance graph shall not be deemed "soliciting material" or to be "filed" with the Commission or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act of 1934, as amended.

The following graph compares a $100 investment in Company stock on December 31, 2015 with a $100 investment in our Peer Group and the S&P also made at market close on December 31, 2015. The graph portrays total return, 2015-2020, assuming reinvestment of dividends.

1)The companies included in the Peer Group are Domtar Inc., Graphic Packaging Holding Company, Klabin S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, UPM-Kymmene Corp., and WestRock Company.

2)Returns are calculated in $USD

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussion of historical items in 2018, and year-to-year comparisons between 2019 and 2018, can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 19, 2020, under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE SUMMARY

Full-year 2020 net earnings attributable to shareholders were $482 million ($1.22 per diluted share) compared with $1.2 billion ($3.07 per diluted share) for full-year 2019.

International Paper navigated the impacts of the Covid-19 pandemic in 2020 to deliver solid earnings and outstanding cash generation. Our 2020 performance demonstrates the strength and resilience of our employees, our diverse customer base and our world class manufacturing and supply chain capabilities. We ran our manufacturing system well and leveraged the flexibility of our mill and converting systems to overcome significant challenges due to the pandemic, while managing costs extremely well across our three businesses, with no material operational disruptions due to the pandemic. We continued to grow value for our shareholders with a return above our cost of capital, which marks the eleventh consecutive year with value-creating returns. We generated full-year cash from operations of $3.1 billion and free cash flow of $2.3 billion. Given the significant economic uncertainty, we took prudent and early actions to reinforce cash generation and enhance our financial strength. We continued to execute on our capital allocation framework. In 2020, we returned $820

million to shareowners and reduced debt by $1.7 billion. We also invested in our North American and EMEA corrugated packaging businesses to enhance our capabilities and grow earnings. Finally, in the fourth quarter, we announced plans to spin-off our Printing Papers business into a stand-alone, publicly traded company, which we expect to complete in the third quarter 2021.

Compared to 2019, the Company’s 2020 results reflect strong execution and effective cost management to mitigate the impact of market disruptions associated with the pandemic. Price and mix were negatively affected by the full-year impact of 2019 price index movements in our North America Packaging business, as well as lower average pricing in our Global Cellulose Fibers and Printing Papers businesses. Volume was also an earnings headwind due to the unprecedented decline in demand for Printing Papers related to the pandemic. These price and volume headwinds were partly offset by strong volume growth in our North American Packaging business, outstanding cost management and lower maintenance outage expenses. During 2020, we made choices around planned maintenance and other spending priorities in response to market disruptions resulting from the pandemic. Operating costs were higher in 2020, primarily due to higher costs in the latter part of the year, as we flexed our system to meet strong packaging demand. Overall, input costs were favorable in 2020, driven by lower wood, energy and distribution costs although we did see an increase in recovered fiber, energy and distribution in the fourth quarter. Equity earnings were lower in 2020 due to decreased Ilim earnings, driven by the challenging global pulp markets along with a foreign exchange loss on Ilim’s U.S. dollar denominated net debt.

Looking ahead to the first quarter 2021, as compared to the fourth quarter of 2019, in our I

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