International Paper 10-Q 2022-03-31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 001-03157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (901) 419-7000

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

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 ☒ 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 (paragraph 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 ☒ 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 the 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. ¨

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

The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of April 22, 2022 was 370,629,339.

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INDEX

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PART I. FINANCIAL INFORMATION

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)

The accompanying notes are an integral part of these condensed financial statements.

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(In millions)

The accompanying notes are an integral part of these condensed financial statements.

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Balance Sheet

(In millions)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report"). 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 in our Annual Report, particularly under "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q and our Annual Report.

EXECUTIVE SUMMARY

Net earnings (loss) attributable to International Paper common shareholders were $360 million ($0.95 per diluted share) in the first quarter of 2022, compared with $107 million ($0.28 per diluted share) in the fourth quarter of 2021 and $349 million ($0.88 per diluted share) in the first quarter of 2021. International Paper generated Adjusted operating earnings attributable to International Paper common shareholders (a non-GAAP measure defined below) of $288 million ($0.76 per diluted share) in the first quarter of 2022, compared with $301 million ($0.78 per diluted share) in the fourth quarter of 2021 and $198 million ($0.50 per diluted share) in the first quarter of 2021.

International Paper delivered first quarter earnings that were better than our outlook, driven by strong price realization and solid operations, overcoming significantly higher input costs. We also delivered another quarter of strong cash generation. Constraints associated with the Covid-19 Omicron variant impacted volume in our Industrial Packaging business in the early part of the first quarter 2022. Shipments recovered, as expected throughout the first quarter, with demand stabilizing at elevated levels as we exited the quarter. Our mills and converting system performed well, as we managed through continued logistics constraints which negatively impacted operating costs. We successfully executed our highest maintenance outage quarter of 2022 and expect to complete about 70% of full-year planned maintenance outages by the end of the second quarter. We achieved $40 million of earnings through our Building a Better IP initiatives, which are focused on materially lowering our cost structure and accelerating profitable growth. Regarding capital allocation, in the first quarter we returned $580 million to shareholders, including dividends and approximately $400 million of share repurchases. During the first quarter 2022, we announced that we are actively exploring options, including a sale of our 50% equity investment in Ilim Group. We are working with urgency to complete this work. We have engaged advisors and had discussions with interested parties, which are ongoing.

Comparing our performance in the first quarter 2022 to the fourth quarter 2021, price and mix improved significantly, driven by price realization of our August 2021 price increase in our North American Industrial Packaging business, as well as price realization from prior increases in our Global Cellulose Fibers business. Volumes were slightly lower compared to the fourth quarter 2021, as expected, due to seasonally lower demand and Omicron variant impacts early in the quarter in our North American Industrial Packaging business along with on-going shipping constraints in our Global Cellulose Fibers business. In our North American Industrial Packaging business, operations and costs improved sequentially. Our mills and converting system performed well and made good progress normalizing containerboard inventories across our packaging system. In our Global Cellulose Fibers business, volume and operating costs were negatively impacted by on-going logistics constraints. Maintenance outages were sequentially higher in both business segments as we completed the highest maintenance outage quarter of 2022. Input costs were significantly higher sequentially in both business segments due to higher energy, chemicals and distribution costs. These higher costs were partially offset by moderately lower recovered fiber costs.

Looking ahead to the second quarter 2022, as compared to the first quarter 2022, in our Industrial Packaging business, we expect higher price and mix on the flow-through of prior price increases in North America. Volume is expected to improve on seasonally stronger demand. Operations and costs are expected to be slightly higher on the non-repeat of the Prattville insurance proceeds. Maintenance outage expense is expected to decrease as we step down from our highest maintenance quarter of 2022. Input costs are expected to increase on higher energy, chemicals and distribution costs. In our Global Cellulose Fibers business, we expect price and mix to improve on price realization of prior price increases. Volume is expected to be slightly lower. Operations and costs are expected to increase on continued logistics constraints. Maintenance outage expenses are expected to decrease, and input costs are expected to increase, again driven by higher energy, chemicals and distribution costs.

The Russia-Ukraine conflict, including escalating sanctions, possible actions by the Russian government, and associated domestic and global economic and geopolitical conditions, could materially and adversely affect our Ilim joint venture and could otherwise adversely affect our business, financial condition, results of operations and cash flows. We are currently unable to predict the impact the Russian invasion of Ukraine, sanctions imposed to date or that may be imposed in the future,

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geopolitical instability and the possibility of broadened military conflict may have on us or our Ilim joint venture, including on our receipt of dividends from our Ilim joint venture. Moreover, we have announced our intention to explore strategic options with respect to Ilim S.A., including a sale of our 50% equity interest in Ilim S.A. In addition, we have disclosed our intent to monetize our remaining equity stake in Sylvamo Corporation (which has certain operations in Russia, and announced in March 2022 that it began the suspension of operations in Russia and that it was continuing to assess various options for its operations in that country). While we may sell our equity interests in the Ilim joint venture and/or Sylvamo in the future, we cannot be certain if and when this may occur, or the impact that possible disruptions in the capital markets, or conditions associated with the Russia-Ukraine conflict, could have on the value of and our ability to sell our equity interests in the Ilim joint venture and/or Sylvamo and the timing of any such sales.

Adjusted operating earnings and Adjusted operating earnings per share are non-GAAP measures and are defined as net earnings (loss) attributable to International Paper (a GAAP measure) excluding discontinued operations, net special items and non-operating pension expense (income). Net earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most directly 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 or otherwise not reflective of on-going operations (net special items) from net earnings (loss) attributable to shareholders reported under GAAP. Adjusted operating earnings per share is calculated by dividing Adjusted operating earnings by diluted average shares of common stock outstanding. Management uses these measures to focus on on-going operations, and believes that these measures are useful to investors because such measures enable investors to perform meaningful comparisons of past and present consolidated operating results. The Company believes that using this information, along with the most directly comparable GAAP measures, provide for a more complete analysis of the results of operations.

The following are reconciliations of Earnings (loss) attributable to common shareholders to Adjusted operating earnings (loss) attributable to common shareholders on a total and per share basis. Additional detail is provided later in this Form 10-Q regarding the net special items referenced in the charts below.

Cash provided by operations totaled $588 million and $512 million for the first three months of 2022 and 2021, respectively. The Company generated free cash flow of approximately $403 million and $423 million in the first three months of 2022 and 2021, respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management utilizes this measure in connection with managing our business and believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting

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for certain items that are not indicative of the Company's ongoing performance, we believe that free cash flow also enables investors to perform meaningful comparisons between past and present periods.

The following is a reconciliation of cash provided by operations to free cash flow:

The non-GAAP financial measures presented in this Form 10-Q 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 Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.

RESULTS OF OPERATIONS

For the first quarter of 2022, International Paper reported net sales of $5.2 billion, compared with $5.1 billion in the fourth quarter of 2021 and $4.6 billion in the first quarter of 2021.

Net earnings (loss) attributable to International Paper totaled $360 million, or $0.95 per diluted share, in the first quarter of 2022. This compared with $107 million, or $0.28 per diluted share, in the fourth quarter of 2021 and $349 million, or $0.88 per diluted share, in the first quarter of 2021.

Compared with the fourth quarter of 2021, earnings benefited from higher average sales prices and a favorable mix ($106 million), lower corporate and other items ($28 million), lower net interest expense ($6 million) and lower non-operating pension expense ($1 million). These benefits were offset by lower sales volumes ($8 million), higher operating costs ($31 million), higher raw material and freight costs ($18 million), higher mill maintenance outage costs ($102 million) and higher tax expense ($21 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A. and other

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investments were $27 million higher than in the fourth quarter of 2021. Net special items in the first quarter of 2022 were a gain of $35 million compared with a loss of $222 million in the fourth quarter of 2021.

Compared with the first quarter of 2021, the first quarter of 2022 reflects higher average sales prices and a favorable mix ($418 million), lower corporate and other costs ($16 million), lower net interest expense ($17 million) and lower tax expense ($7 million). These benefits were offset by lower sales volumes ($6 million), higher operating costs ($92 million), higher raw material and freight costs ($58 million), higher mill maintenance outage costs ($256 million) and higher non-operating pension expense ($2 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim S.A. and other investments were $44 million higher in the first quarter of 2022 than in the first quarter of 2021. Net special items in the first quarter of 2022 were a gain of $35 million compared with a gain of $30 million in the first quarter of 2021.

Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides a more complete analysis of the results of operations by quarter. Business segment operating profits are defined as earnings (loss) before income taxes and equity earnings, but including the impact of noncontrolling interests, and excluding interest expense, net, corporate expenses, net, corporate net special items, business net special items and non-operating pension expense. Business segment operating profits is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280.

The Company currently operates in two segments: Industrial Packaging and Global Cellulose Fibers.

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The following table presents a reconciliation of Net earnings (loss) attributable to International Paper Company to its Total business segment operating profit:

Business Segment Operating Profit

Total business segment operating profits were $348 million in the first quarter of 2022, $415 million in the fourth quarter of 2021 and $340 million in the first quarter of 2021.

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Compared with the fourth quarter of 2021, operating profits benefited from higher average sales prices and a favorable mix ($131 million). These benefits were offset by lower sales volumes ($10 million), higher operating costs ($39 million), higher raw material and freight costs ($22 million) and higher mill outage costs ($127 million).

Compared with the first quarter of 2021, operating profits in the current quarter benefited from higher average sales prices and a favorable mix ($595 million). These benefits were offset by lower sales volumes ($9 million), higher operating costs ($131 million), higher raw material and freight costs ($364 million) and higher mill outage costs ($83 million).

Sales Volumes by Product (a)

Sales volumes of major products for the three months ended March 31, 2022 and 2021 were as follows:

(a)Sales volumes include third party and inter-segment sales and exclude 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.

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Discontinued Operations

On October 1, 2021, the Company completed the previously announced spin-off of its Printing Papers business along with certain mixed-use coated paperboard and pulp businesses in North America, France and Russia into a standalone, publicly-traded company, Sylvamo Corporation. On August 6, 2021, the Company completed the sale of its Kwidzyn, Poland mill which included the pulp and paper mill in Kwidzyn and supporting functions. As a result of the Sylvamo Corporation spin-off and sale of Kwidzyn, the Company no longer has a Printing Papers business segment, and all historical results have been adjusted to reflect the Kwidzyn and the Printing Papers business and other businesses conveyed to Sylvamo Corporation as discontinued operations. See Note 9 - Divestitures and Impairments of Item 1. Financial Statements for further discussion.

Discontinued operations include the operating earnings of the businesses noted above. Discontinued operations also includes an after-tax net special items charge of $20 million and $8 million for the three months ended March 31, 2021 and December 31, 2021, respectively.

Details of these charges were as follows:

Income Taxes

An income tax provision of $95 million was recorded for the first quarter of 2022 and the reported effective income tax rate was 26%. Excluding expense of $11 million related to the tax effects of net special items and expense of $12 million related to the tax effects of non-operating pension expense, the effective income tax rate was 27% for the quarter.

An income tax benefit of $5 million was recorded for the fourth quarter of 2021 and the reported effective income tax rate was (11)%. Excluding a benefit of $73 million related to the tax effects of net special items and expense of $11 million related to the tax effects of non-operating pension expense, the effective income tax rate was 20% for the quarter.

An income tax provision of $88 million was recorded for the first quarter of 2021 and the reported effective income tax rate was 29%. Excluding expense of $12 million related to the tax effects of net special items and expense of $13 million related to the tax effects of non-operating pension expense, the effective income tax rate was 30% for the quarter.

Interest Expense

Net interest expense was $69 million in the first quarter of 2022, compared with $76 million in the fourth quarter of 2021 and $93 million in the first quarter of 2021.

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Effects of Net Special Items and Non-Operating Pension Expense

Details of net special items and non-operating pension expense (income) for the three months ended are as follows:

(a) Recorded in the Industrial Packaging segment.

(b) Includes a charge of $11 million ($9 million after taxes) recorded in the Industrial Packaging segment and $3 million ($2 million after taxes) recorded in the Global Cellulose Fibers segment.

BUSINESS SEGMENT OPERATING RESULTS

The following tables present net sales and business segment operating profit (loss) which is the Company's measure of segment profitability.

Industrial Packaging

Industrial Packaging net sales for the first quarter of 2022 were 4% higher compared with the fourth quarter of 2021 and 12% higher compared with the first quarter of 2021. Operating profit was 4% lower in the first quarter of 2022 compared with the fourth quarter of 2021 and 6% lower compared with the first quarter of 2021.

(a)Includes intra-segment sales of $29 million, $26 million and $39 million for the three months ended March 31, 2022 and 2021 and December 31, 2021, respectively.

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North American Industrial Packaging sales volumes in the first quarter of 2022 were lower compared to the fourth quarter of 2021 for corrugated boxes and export containerboard driven by seasonality and fewer shipping days. Omicron labor constraints also impacted volumes. Total maintenance and economic downtime was about 121,000 tons higher in the first quarter of 2022 compared with the fourth quarter of 2021, due to higher maintenance downtime. The first quarter of 2022 was the highest maintenance quarter of the year. Average sales margins were significantly higher reflecting higher average sales prices for boxes and export containerboard and a favorable mix in our box system. Operating costs were lower, driven by strong converting and mill operations. Planned maintenance downtime costs were $119 million higher in the first quarter of 2022 compared with the fourth quarter of 2021. Input costs were flat as higher freight costs were offset by lower recovered fiber costs. Earnings benefited from insurance recoveries in both the first quarter of 2022 and the fourth quarter of 2021.

Compared with the first quarter of 2021, sales volumes in the first quarter of 2022 were higher for domestic containerboard but decreased for export containerboard. Sales volumes for corrugated boxes were lower reflecting Omicron labor constraints. Total maintenance and economic downtime was about 74,000 tons higher in the first quarter of 2022, due to higher maintenance downtime. Export containerboard and box prices were significantly higher reflecting previous price increases. Operating costs increased, driven by inflation partially offset by strong mill operations. Distribution costs increased. Planned maintenance downtime costs were $74 million higher in the first quarter of 2022 compared with the first quarter of 2021. Input costs were significantly higher driven by recovered fiber, wood, energy and freight.

Entering the second quarter of 2022, sales volumes for corrugated boxes and export containerboard are expected to be higher compared to the first quarter of 2022. Average sales margins are also expected to be higher, reflecting previous price increases. Operating costs are expected to be higher. Planned maintenance downtime costs are expected to be $60 million lower in the second quarter of 2022 compared with the first quarter of 2022. Input costs are expected to be higher.

EMEA Industrial Packaging sales volumes for corrugated boxes in the first quarter of 2022 were stable compared with the fourth quarter of 2021 as seasonally higher volumes in Morocco were offset by lower volumes in the Eurozone. Average sales margins for corrugated boxes were higher reflecting higher average sales prices in the Eurozone. Average sales margins in Morocco were lower driven by higher containerboard costs. Operating costs were higher. Planned maintenance downtime costs were lower in the first quarter of 2022 compared with the fourth quarter of 2021. Input costs were significantly higher, primarily for energy.

Compared with the first quarter of 2021, sales volumes in the first quarter of 2022 were lower driven by the sale of our EMEA Packaging business in Turkey in the second quarter of 2021. Average sales margins for corrugated boxes were lower driven by higher containerboard costs. Average sales margins for containerboard were higher, reflecting higher average sales prices. Operating costs were higher. There were no planned maintenance outages in either the first quarter of 2022 or the first quarter of 2021. Input costs were significantly higher, primarily for energy and recovered fiber.

Looking ahead to the second quarter of 2022, sales volumes for corrugated boxes are expected to be lower, reflecting seasonally lower volumes in Morocco. Average sales margins are expected to be higher. Operating costs are expected to be higher. There are no planned maintenance outages scheduled for the second quarter of 2022. Input costs are expected to increase.

Global Cellulose Fibers

Global Cellulose Fibers net sales in the first quarter of 2022 were 1% lower compared with the fourth quarter of 2021 and 19% higher than in the first quarter of 2021. Operating profit in the first quarter of 2022 decreased compared to the fourth quarter of 2021 and improved compared to the first quarter of 2021.

Sales volumes in the first quarter of 2022 compared with the fourth quarter of 2021 were slightly lower reflecting continuing supply chain challenges. Total maintenance and economic downtime was about 4,000 tons lower in the first quarter of 2022 compared with the fourth quarter of 2021 due to maintenance downtime. Average sales margins improved, reflecting higher average sales price for both fluff pulp and market pulp. Operating costs were higher driven by seasonality and distribution

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costs. Planned maintenance downtime costs in the first quarter of 2022 were $9 million higher compared with the fourth quarter of 2021. Input costs were higher, primarily for wood, chemicals and energy.

Compared with the first quarter of 2021, sales volumes in the first quarter of 2022 were lower driven by on-going logistics challenges. Total maintenance and economic downtime was about 1,000 tons lower in the first quarter of 2022, due to maintenance downtime. Average sales prices were significantly higher for both fluff and market pulp. Operating costs were higher due to logistics challenges and inflation. Distribution costs were also higher. Planned maintenance downtime costs in the first quarter of 2022 were $9 million higher compared with the first quarter of 2021. Input costs were higher primarily for wood, chemicals and energy.

Entering the second quarter of 2022, sales volumes are expected to be slightly lower driven by continued logistics challenges. Average sales margins are expected to be higher. Planned maintenance downtime costs in the second quarter of 2022 are expected to be $26 million lower compared with the first quarter of 2022. Operating costs are expected to be seasonally lower. Distribution costs are expected to be higher. Input costs are expected to increase for energy and chemicals.

Equity Earnings, Net of Taxes – Ilim

International Paper accounts for its 50% equity interest in Ilim S.A. (Ilim) using the equity method of accounting. Ilim is a separate reportable industry segment with primary operations in Russia. During the first quarter of 2022, the Company announced its intention to explore options, including a sale of its 50% ownership in Ilim Group. The Company recorded equity earnings, net of taxes, of $93 million in the first quarter of 2022, compared with $66 million in the fourth quarter of 2021 and $49 million in the first quarter of 2021. In the first quarter of 2022 and fourth quarter of 2021, foreign exchange gains (losses) of $(15) million and $5 million, respectively, are included in equity earnings. Ilim Group had no US dollar-denominated debt outstanding at March 31, 2022 and December 31, 2021. There is no recourse of Ilim Group debt to International Paper.

Compared with the fourth quarter of 2021, sales volumes in the first quarter of 2022 were 5% higher as logistical constraints at the Chinese border were resolved. Average sales prices for softwood pulp, hardwood pulp and containerboard were lower. Costs for fuel and distribution were higher and wood costs were seasonally lower.

Compared with the first quarter of 2021, sales volumes in the first quarter of 2022 increased, as logistical constraints at the Chinese border were resolved. Average sales margins for softwood pulp, hardwood pulp and containerboard increased reflecting higher average sales prices in all regions.

Looking forward to the second quarter of 2022, sales volumes are expected to be stable. Average sales margins are projected to increase for softwood pulp and hardwood pulp. Repair and maintenance costs are projected to increase in the second quarter. Input costs for wood are expected to be seasonally higher.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $588 million for the first three months of 2022, compared with $512 million for the comparable 2021 three-month period.

Investments in capital projects, net of insurance recoveries, totaled $185 million in the first three months of 2022, compared to $89 million in the first three months of 2021. Full-year 2022 capital spending is currently expected to be approximately $1.1 billion, or 96% of depreciation and amortization.

Financing activities for the first three months of 2022 included a $85 million net increase in debt versus a $109 million net decrease in debt during the comparable 2021 three-month period.

Amounts related to early debt extinguishment during the three and three months ended March 31, 2022 and 2021 were as follows:

(a)There were no early debt reductions for the three months ended March 31, 2022. There were reductions related to notes with interest rates ranging from 3.00% to 4.80% with original maturities from 2027 to 2048 for the three months ended March 31, 2021.

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At March 31, 2022, contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in Note 11 - Leases and excluding the timber monetization structures disclosed in Note 16 - Variable Interest Entities) by calendar year were as follows: $195 million in 2022; $358 million in 2023; $149 million in 2024; $206 million in 2025; $73 million in 2026; and $4.7 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At March 31, 2022, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings under the Company's commercial paper program.

At March 31, 2022, International Paper’s credit agreements totaled $2.1 billion, which is comprised of the $1.5 billion contractually committed bank credit agreement and up to $550 million under the receivables securitization program. Management believes these credit agreements are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. At March 31, 2022, the Company had no borrowings outstanding under the $1.5 billion credit agreement or the $550 million receivables securitization program. The Company’s credit agreements are not subject to any restrictive covenants other than the financial covenants as disclosed in Note 17 - Debt, and the borrowings under the receivables securitization program being limited by eligible receivables. The Company was in compliance with all its debt covenants at March 31, 2022 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 $2.1 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 $1.5 billion credit agreement. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. As of March 31, 2022, the Company had no borrowings outstanding under the program.

International Paper expects to be able to meet projected capital expenditures, service existing debt, meet working capital and dividend requirements and 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, supplemented as required by its existing credit facilities. The Company will continue to rely on 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 maintain appropriate levels of liquidity to meet our needs while managing balance sheet debt and interest expense, and we have repurchased, and may continue to repurchase, our common stock (under our existing share repurchase program) and debt (including in open market purchases) to the extent consistent with this capital structure planning. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

During the first three months of 2022, International Paper used 1.5 million shares of treasury stock for various incentive plans. International Paper also acquired 9.4 million shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $428 million, including $406 million related to shares repurchased under the Company's repurchase program. Our current share repurchase program approved by our Board of Directors on October 12, 2021, which does not have an expiration date, has approximately $2.52 billion aggregate amount of shares of common stock remaining authorized for purchase as of March 31, 2022.

During the first three months of 2021, International Paper used approximately 1.8 million shares of treasury stock for various incentive plans. International Paper also acquired 3.1 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $155 million, including $129 million related to shares repurchased under the Company's repurchase program.

Cash dividend payments related to common stock totaled $174 million and $202 million for the first three months of 2022 and 2021, respectively. Dividends were $0.4625 per share and $0.5125 per share for the first three months in 2022 and 2021, respectively.

Our pension plan is currently sufficiently funded and we do not anticipate any required contributions for the next 12 months.

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Variable Interest Entities

Information concerning variable interest entities is set forth in Note 15 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. In connection with the 2006 International Paper installment sale of forestlands, we received $4.8 billion of installment notes. The restructured variable interest entities held installment notes of $4.8 billion and third-party loans of $4.2 billion which both matured in August 2021. We settled the third-party loans at their maturity with the proceeds from the installment notes. As of March 31, 2022, the Company's remaining deferred tax liability associated with the 2015 Financing Entities was $813 million. The nature and timing of the income tax due related to these transactions is currently under review by the Internal Revenue Service.

Ilim S.A. Shareholders’ Agreement

In October 2007, in connection with the formation of the Ilim joint venture, International Paper entered into a shareholders' agreement with an initial 15-year term expiring in October 2022 that automatically renews for successive five-year terms, unless terminated by either party. We have announced our intention to explore strategic options with respect to Ilim S.A., including a sale of our 50% equity interest in Ilim S.A. While we may sell our equity interests in the Ilim joint venture in the future, we cannot be certain if and when this may occur, or the impact that possible disruptions in the capital markets, or conditions associated with the Russia-Ukraine conflict, could have on the value of and our ability to sell our equity interests in the Ilim joint venture and the timing of any such sales.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions and income taxes.

The Company has included in its 2021 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first three months of 2022.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “believes,” “estimates” and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and reflect management’s current views 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 GHGs and other environmental, social and governance matters; (ii) the impact of the conflict involving Russia and Ukraine, including in connection with related escalated sanctions imposed by the United States, the European Union, G7 and other countries and possible actions by the Russian government, and the impact of such developments on domestic and global economic and geopolitical conditions in general and on us and our Ilim joint venture, which could be materially and adversely affected by such developments, and our inability to predict the impact of the Russian invasion of Ukraine, sanctions imposed to date, geopolitical instability and the broadened military conflict on our Ilim joint venture and on our receipt of dividends from our Ilim joint venture; (iii) the possible impact of these developments involving Ukraine and Russia and possible resulting disruptions in the capital markets on the value of and our ability to sell all or a portion of our remaining equity stake in Sylvamo Corporation and the timing of any such sales; (iv) the impact of and developments related to the COVID-19 pandemic; (v) the level of our indebtedness and changes in interest rates; (vi) the impact of global and domestic economic conditions and industry conditions, including with respect to commercial activity, inflationary pressures and changes in the cost or availability of raw materials, energy sources and transportation sources, supply chain shortages and disruptions, the availability of labor, particularly in light of current labor market conditions which are exceptionally tight, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products, and conditions impacting the credit, capital and financial markets; (vii) domestic and global geopolitical conditions, 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

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recognized credit rating organizations; (viii) the amount of our future pension funding obligations, and pension and healthcare costs; (ix) unanticipated expenditures or other adverse developments related to compliance with existing and new environmental, tax, labor and employment, privacy, anti-bribery and anti-corruption, and other U.S. and non-U.S. governmental laws and regulations; (x) any material disruption at any of our manufacturing facilities or other adverse impact on our operations due to severe weather, natural disasters, climate change or other causes; (xi) risks inherent in conducting business through joint ventures; (xii) our ability to achieve the benefits expected from, and other risks associated with, acquisitions, joint ventures, divestitures, spin-offs and other corporate transactions, (xiii) cybersecurity and information technology risks; (xiv) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (xv) our exposure to claims under our agreements with Sylvamo Corporation; (xvi) 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 (xvii) our ability to attract and retain qualified personnel. These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements can be found in our press releases and SEC filings. In addition, other risks and uncertainties not presently known to the Company or that we currently believe to be immaterial could affect the accuracy of any forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Information relating to quantitative and qualitative disclosures about market risk is shown on pages 39-40 of International Paper’s 2021 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2021.

Evaluation of Disclosure Controls and Procedures:

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported (and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure) within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022 (the end of the period covered by this report).

Changes in Internal Control over Financial Reporting:

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.****LEGAL PROCEEDINGS

A discussion of material developments in the Company’s litigation matters occurring in the period covered by this report is found in Note 15 of the Condensed Notes to the Consolidated Financial Statements in this Form 10-Q, which is incorporated by reference. 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.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (Part I, Item 1A) other than as discussed below.

Our financial results and businesses, including our Ilim joint venture and equity interest in Sylvamo Corporation, may be adversely affected by the current military conflict between Russia and Ukraine, including new sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine.

The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia's invasion of Ukraine, the United States, the United Kingdom, the European Union and other G7 countries, among other countries, have imposed coordinated financial and economic sanctions and export-control measures on certain industry sectors and parties in Russia. Some of these measures include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions targeting Russia's import of various goods. The negative impacts arising from the conflict and these sanctions may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials. We will continue to monitor the conflict and the potential impact of financial and economic sanctions on the regional and global economy.

We have a 50% equity interest in Ilim S.A., the holding company of Ilim Group JSC, whose primary operations are in Russia. Specifically, Ilim Group’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.6 million metric tons. In joint ventures, such as the Ilim joint venture, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. We also have an equity interest in Sylvamo Corporation, which is a standalone, publicly traded company created by the spin-off of our Printing Papers business in October 2021. Sylvamo Corporation reported that Russian operations accounted for roughly 15% of its 2021 total revenue, and in March 2022 announced that it began the suspension of its operations in Russia as it continues to assess various options for its operations in that country.

The military conflict between Russia and Ukraine, including escalating sanctions, possible actions by the Russian government, and associated domestic and global economic and geopolitical conditions, could materially adversely affect our Ilim joint venture and our businesses, financial condition, results of operations and cash flows. We are currently unable to predict the impact Russia’s invasion of Ukraine, sanctions imposed to date or that may be imposed in the future, potential embargoes, supply chain disruptions, geopolitical instability and shifts, and the possibility of broadened military conflict may have on us or our Ilim joint venture, including on whether our Ilim joint venture will be able to continue to pay dividends to us. We are actively exploring strategic options, including a sale of our equity interest in the Ilim joint venture and are selling our interest in Sylvamo Corporation, but we cannot be certain if and when this may occur. Further, we cannot be certain of possible resulting disruptions (including in the capital markets) on the value of and our ability to sell all or a portion of our equity interest in Sylvamo Corporation or our interest in the Ilim joint venture and the timing of any such sales. In addition, the effects of escalated or prolonged military conflict could heighten many of our known risks described in Part I, Item 1A. “Risk Factors” in our Annual Report Form 10-K for fiscal year 2021. Such risks include, but are not limited to, adverse effects on global business and economic conditions, including increased volatility in the price and demand of oil and natural gas and inflation and demand for our products, increased cyber security risks, adverse changes in trade policies, taxes, government regulations, our ability to implement and execute our business strategy including with respect to joint ventures, divestitures, spin-offs, capital investments and other corporate transactions that we have pursued or may pursue, disruptions in global supply chains, risks related to employees and contracts in the affected regions, our exposure to foreign currency fluctuations and potential nationalizations and asset seizures in Russia, constraints, volatility, or disruption in the capital markets and our sources of liquidity, and our potential inability to service our remaining performance obligations and potential contractual breaches and litigations.

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In particular, our investments in Ilim S.A. and Sylvamo Corporation involve certain legal, geopolitical, investment, repatriation, and transparency risks not typically associated with investments in companies operating in the U.S, including: (i) the legal framework of Russia may rapidly evolve and it is not possible to accurately predict the content or implications of changes in their statutes or regulations. The Russian Parliament is considering legislation that could result in nationalization, expropriation or other unfavorable regulations and may be introduced at any time without prior warning or consultation; (ii) legal frameworks may be unfairly or unevenly enforced, and courts may decline to enforce legal protections covering our investments altogether. The cost and difficulties of litigation in Russia may make enforcement of our rights impractical or impossible.; (iii) the risk we may inadvertently violate sanctions that may be imposed by the United States or foreign governments, including Russia, given the complexity and rapidly changing nature of the situation; (iv) financial and economic sanctions and export-control measures imposed on certain industry sectors and parties in Russia as well as counter-sanctions measures implemented by Russia could lead to further disruptions in supply chains and adversely affect operations in Russia; (v) increased risks of economic, political, or social instability, escalating military conflicts with Ukraine or new conflicts with any other countries, war, or terrorism, which could adversely affect the economies of Russia or lead to a material adverse change in the value of our investments in Russia; and (vi) disclosure, accounting, and financial standards and requirements in Russia may rapidly evolve and it is not possible to accurately predict the content or implications of changes in their disclosure requirements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

(a) 469,741 shares were acquired from employees or board members as a result of share withholdings to pay income taxes under the Company's restricted stock program. The remainder was purchased under a share repurchase program. Under current Board authorization that was increased on October 12, 2021, we are authorized to purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $3.3 billion of shares of our common stock. This repurchase program does not have an expiration date. As of March 31, 2022, approximately $2.52 billion aggregate amount of shares of our common stock remained authorized for purchase under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

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SIGNATURES

Pursuant to the requirements 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.