International Paper 10-Q 2023-03-31

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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, 2023

☐ 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 21, 2023 was 347,056,943.

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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)

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(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, 2022 (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) were $172 million ($0.49 per diluted share) in the first quarter of 2023, compared with $(318) million ($(0.90) per diluted share) in the fourth quarter of 2022 and $360 million ($0.95 per diluted share) in the first quarter of 2022. The Company generated Adjusted operating earnings (a non-GAAP measure defined below) of $185 million ($0.53 per diluted share) in the first quarter of 2023, compared with $309 million ($0.87 per diluted share) in the fourth quarter of 2022 and $195 million ($0.51 per diluted share) in the first quarter of 2022.

International Paper’s first quarter 2023 earnings reflect solid performance in the face of a challenging macroeconomic environment. During the quarter, we delivered $65 million of year-over-year incremental earnings benefit from our Building a Better IP initiatives. Additionally, our mill system continued to perform well as we successfully executed our highest planned maintenance outage quarter of 2023. As we entered 2023, we recognized there were macroeconomic uncertainties ahead of us and that our businesses are not immune to these risks. These macro trends shifted in the latter half of the first quarter 2023 resulting in a weaker demand environment as our customers and the broader supply chain worked through elevated inventories of their products. We also believe inflationary pressure, rising interest rates and the pull forward of goods during the pandemic are weighing on consumers resulting in lower demand for our products as consumer priorities remain focused on non-discretionary goods and services in the near term. Margins were also under pressure from lower prices across our portfolio, partially offset by lower input costs. Our customers and the broader supply chain continued to work through elevated inventories of their products which has constrained demand. While we believe most of the destocking through the retail chain has been resolved, it continues throughout the rest of the supply chain, especially our manufacturer customers. We believe this will run its course through the second quarter, resulting in an improved demand environment in the second half of 2023. Regarding capital allocation in the first quarter 2023, we returned $319 million to shareowners, including $157 million of share repurchases. During the first quarter 2023, cash from operations was $345 million and free cash flow was $4 million. First quarter cash from operations and free cash flow included a $193 million final payment to the IRS for the timber monetization restructuring settlement. Finally, with respect to the sale of our interest in the Ilim joint venture, we made good progress in the quarter toward the completion of the sale, with the buyers receiving an important required approval from a Russian commission overseeing exits by foreign companies, but we are still awaiting approval from the Russian competition authority. We are optimistic this approval will be received soon and we plan to close shortly thereafter.

Comparing our performance in the first quarter 2023 to the fourth quarter 2022, price and mix was lower in our North American Industrial Packaging business due to index movements and lower export prices. Price in our Global Cellulose Fibers business was relatively flat as the earnings benefit from contract restructuring was offset by unfavorable mix as a result of lower absorbent pulp shipments and prior index movements. Volume in our North American Industrial Packaging business was flat as weaker demand and customer inventory destocking was offset by four additional shipping days in the first quarter 2023. Volume in our Global Cellulose Fibers business was similarly impacted by customer inventory destocking in addition to the negative volume impact from the Chinese new year. Operations and costs were higher in our North American Industrial Packaging and Global Cellulose Fibers businesses, in spite of the mills running well, on the non-repeat of favorable one-time items from the fourth quarter 2022 associated with lower employee benefits costs, workers’ compensation costs and medical claims. Additionally, our Global Cellulose Fibers business was impacted by higher economic downtime due to the lower demand environment. Maintenance outages were sequentially higher as the first quarter 2023 represents the highest planned maintenance outage quarter in 2023. Input costs were significantly lower in both business segments, driven by lower energy, freight and recovered fiber costs.

Looking ahead to the second quarter 2023, as compared to the first quarter 2023, in our Industrial Packaging business, we expect price and mix to be lower primarily due to prior index movements along with lower prices in the export market to date. Volume is expected to be seasonally higher in North America, partially offset by one less shipping day. Operations and costs are expected to be higher due to the timing of spending in the second quarter 2023. Maintenance outage expense is expected to

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decrease relative to the first quarter 2023. The second quarter 2023 will represent approximately 40% of total planned maintenance outage with approximately 80% of the annual outages completed through the first half of 2023. Input costs are expected to be lower driven by lower costs for energy and freight. In our Global Cellulose Fibers business, we expect price and mix to decrease earnings on prior index movements. Volume is expected to be seasonally higher demand. Operations and costs are expected to be favorable due to lower supply chain costs, lower unabsorbed fixed costs due to higher volume and seasonality. Maintenance outage expense is expected to be lower along with lower input costs, primarily due to lower energy and fiber costs.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings (loss) (a GAAP measure) excluding discontinued operations, net special items and non-operating pension expense (income). Net earnings (loss) and Diluted earnings (loss) per share 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 (net special items) from net earnings (loss) 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 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 from continuing operations. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations.

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

Cash provided by operations, including discontinued operations, totaled $345 million and $588 million for the first three months of 2023 and 2022, respectively. The Company generated free cash flow of approximately $4 million and $403 million in the first three months of 2023 and 2022, 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 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.

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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 2023, International Paper reported net sales of $5.0 billion, compared with $5.1 billion in the fourth quarter of 2022 and $5.2 billion in the first quarter of 2022.

Net earnings (loss) totaled $172 million, or $0.49 per diluted share, in the first quarter of 2023. This compared with $(318) million, or $(0.90) per diluted share, in the fourth quarter of 2022 and $360 million, or $0.95 per diluted share, in the first quarter of 2022.

Compared with the fourth quarter of 2022, earnings from continuing operations benefited from lower raw material and freight costs ($100 million) and lower tax expense ($8 million). These benefits were offset by lower average sales prices and an unfavorable mix ($38 million), lower sales volumes ($4 million), higher operating costs ($93 million), higher mill maintenance outage costs ($74 million), higher corporate and other items ($23 million), higher net interest expense ($2 million) and higher non-operating pension expense ($47 million). Equity earnings, net of taxes, were $2 million higher in the first quarter of 2023 than in the fourth quarter of 2022. Net special items in the first quarter of 2023 were a charge of $2 million compared with a charge of $174 million in the fourth quarter of 2022.

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Compared with the first quarter of 2022, the first quarter of 2023 reflects higher average sales prices ($227 million), lower raw material and freight costs ($87 million), lower mill maintenance outage costs ($4 million), lower corporate and other costs ($3 million), lower net interest expense ($7 million) and lower tax expense ($11 million). These benefits were offset by lower sales volumes ($73 million), higher operating costs ($275 million) and higher non-operating pension expense ($48 million). Equity earnings, net of taxes, were $1 million lower in the first quarter of 2023 than in the first quarter of 2022. Net special items in the first quarter of 2023 were a charge of $2 million compared with a gain of $35 million in the first quarter of 2022.

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) from continuing operations before income taxes and equity earnings, but including the impact of less than wholly owned subsidiaries, 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. On January 24, 2023, the Company announced an agreement to sell its Ilim equity investment and, as a result, all current and historical results of the Ilim investment are presented as Discontinued Operations, net of taxes and our equity investment is no longer a separate reportable industry segment.

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The following table presents a reconciliation of Net earnings (loss) from continuing operations to its total business segment operating profit:

Business Segment Operating Profit

Total business segment operating profits were $306 million in the first quarter of 2023, $451 million in the fourth quarter of 2022 and $348 million in the first quarter of 2022.

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Compared with the fourth quarter of 2022, operating profits benefited from lower raw material and freight costs ($134 million). These benefits were offset by lower average sales prices and an unfavorable mix ($51 million), lower sales volumes ($5 million), higher operating costs ($124 million) and higher mill outage costs ($99 million).

Compared with the first quarter of 2022, operating profits in the current quarter benefited from higher average sales prices ($311 million), lower raw material and freight costs ($119 million) and lower mill outage costs ($5 million). These benefits were offset by lower sales volumes ($100 million) and higher operating costs ($377 million).

Sales Volumes by Product (a)

Sales volumes of major products for the three months ended March 31, 2023 and 2022 were as follows:

(a)Sales volumes include third party and intersegment 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 January 24, 2023, the Company announced it had reached an agreement to sell its equity investment in Ilim and had also received an indication of interest to purchase its equity investment in Ilim Group. All current and historical results of the Ilim joint venture investment are presented as Discontinued Operations, net of taxes in the consolidated statement of operations. This transaction is discussed further in Note 10 - Equity Method Investments of Item 1. Financial Statements.

Discontinued operations include the equity earnings of the Ilim joint venture. Discontinued operations also includes after-tax net special items charges of $43 million and $533 million for the three months ended March 31, 2023 and December 31, 2022, respectively.

Details of these charges were as follows:

Income Taxes

An income tax provision of $48 million was recorded for the first quarter of 2023 and the reported effective income tax rate was 22%. Excluding a benefit of $1 million related to the tax effects of net special items and a benefit of $4 million related to the tax effects of non-operating pension expense, the operational effective income tax rate was 22% for the quarter. The effective tax rate for the first quarter of 2023 was lower than the prior quarter primarily due to a decrease in state income taxes in the first quarter of 2023.

An income tax provision of $148 million was recorded for the fourth quarter of 2022 and the reported effective income tax rate was 46%. Excluding expense of $30 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 operational effective income tax rate was 25% for the quarter.

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 operational effective income tax rate was 27% for the quarter. The higher operational effective income tax rate in the first quarter of 2022 was primarily due to reduced tax benefits for equity-based compensation.

The operational tax provision and rate are non-GAAP measures and are calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect of net special items and non-operating pension expense (income). Management believes that the presentation provides useful information to investors by providing a more meaningful comparison of the income tax rate between past and present periods.

Interest Expense

Net interest expense was $62 million in the first quarter of 2023, compared with $59 million in the fourth quarter of 2022 and $69 million in the first quarter of 2022. The first quarter of 2023 and fourth quarter of 2022 include $3 million of interest expense related to the previously announced settlement of the timber monetization restructuring tax matter.

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Effects of Net Special Items Expense (Income) and Non-Operating Pension Expense

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

Net special items expense (income) include the following tax expenses (benefits):

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 2023 were 2% lower compared with the fourth quarter of 2022 and 7% lower compared with the first quarter of 2022. Operating profit was 23% lower in the first quarter of 2023 compared with the fourth quarter of 2022 and 19% lower compared with the first quarter of 2022.

(a)Includes intra-segment sales of $32 million, $29 million and $30 million for the three months ended March 31, 2023 and 2022 and December 31, 2022, respectively.

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North American Industrial Packaging sales volumes in the first quarter of 2023 were lower compared to the fourth quarter of 2022 for corrugated boxes in all segments driven by the macroeconomic environment reflecting consumer focus on non-discretionary and value spending and retailer and manufacturer inventory reduction. Containerboard sales volumes were flat. Total maintenance and economic downtime was about 45,000 short tons lower in the first quarter of 2023 compared with the fourth quarter of 2022, driven by lower economic downtime partially offset by higher maintenance downtime. Average sales margins were lower reflecting lower average sales prices for boxes and containerboard partially offset by a favorable mix. Operating costs were higher driven by the non-repeat of favorable one-time items for employee benefit costs and medical claims in the fourth quarter of 2022 partially offset by lower distribution costs. Planned maintenance downtime costs were $92 million higher in the first quarter of 2023 compared with the fourth quarter of 2022. Input costs were lower driven by energy, recovered fiber and wood.

Compared with the first quarter of 2022, sales volumes in the first quarter of 2023 were lower for corrugated boxes and containerboard. Sales volumes for corrugated boxes were lower reflecting inflation impacts on consumer spending as well as inventory destocking by retailers and manufacturers. Total maintenance and economic downtime was about 409,000 short tons higher in the first quarter of 2023, primarily due to higher economic downtime. Average sales prices for boxes were higher reflecting previous price increases. Export containerboard prices were lower. Operating costs increased, driven by economic downtime, inflation on goods and services and distribution costs. Planned maintenance downtime costs were $4 million lower in the first quarter of 2023 compared with the first quarter of 2022. Input costs were significantly lower driven by recovered fiber costs.

Entering the second quarter of 2023, sales volumes are expected to be seasonally higher compared to the first quarter of 2023. There is one less shipping day in the second quarter. Average sales margins are expected to be lower. Operating costs are expected to be higher. Planned maintenance downtime costs are expected to be $10 million lower in the second quarter of 2023 compared with the first quarter of 2023. Input costs are expected to be lower driven by energy, wood and freight.

EMEA Industrial Packaging sales volumes for corrugated boxes in the first quarter of 2023 were stable compared with the fourth quarter of 2022 seasonally as higher volumes in Morocco were offset by lower volumes in Europe. Average sales margins for corrugated boxes were stable. Average sales margins for containerboard were lower. Operating costs were stable. Planned maintenance outage costs were $4 million lower in the first quarter of 2023 compared with the fourth quarter of 2022. Input costs were lower driven by energy costs.

Compared with the first quarter of 2022, sales volumes in the first quarter of 2023 were lower reflecting softening demand in the Eurozone. Average sales margins for corrugated boxes were higher driven by lower containerboard costs. Operating costs were higher driven by inflation on goods and services. Distribution costs were higher. There were no planned maintenance outages in either the first quarter of 2023 or the first quarter of 2022. Input costs were lower primarily for energy.

Looking ahead to the second quarter of 2023, sales volumes for corrugated boxes are expected to be higher in Europe and seasonally lower in Morocco. Average sales margins are expected to be lower. Operating costs are expected to be higher. There are no planned maintenance outages in the second quarter of 2023. Input costs are expected to be lower.

Global Cellulose Fibers

Global Cellulose Fibers net sales in the first quarter of 2023 were 4% lower compared with the fourth quarter of 2022 and 14% higher than in the first quarter of 2022. Operating profit was lower in the first quarter of 2023 compared with the fourth quarter of 2022 and improved compared with the first quarter of 2022.

Sales volumes in the first quarter of 2023 compared with the fourth quarter of 2022 were lower due to seasonality and customer inventory destocking. Total maintenance and economic downtime was about 100,000 short tons higher in the first quarter of 2023 compared with the fourth quarter of 2022 driven by economic downtime. Average sales margins were slightly lower as the

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benefits from contract restructuring was offset by price index movement and an unfavorable product mix. Operating costs were higher driven by economic downtime and the non-repeat of favorable one-time items for employee benefit costs and medical claims in the fourth quarter of 2022. Planned maintenance downtime costs in the first quarter of 2023 were $11 million higher compared with the fourth quarter of 2022. Input costs were lower, primarily for energy and wood.

Compared with the first quarter of 2022, sales volumes in the first quarter of 2023 were lower driven by customer inventory destocking. Total maintenance and economic downtime was about 132,000 short tons higher in the first quarter of 2023, mainly due to economic downtime. Average sales margins were higher reflecting higher average sales prices partially offset by an unfavorable product mix. Operating costs were higher driven by economic downtime and distribution costs. Planned maintenance downtime costs in the first quarter of 2023 were $1 million lower compared with the first quarter of 2022. Input costs were higher primarily for chemicals and wood partially offset by lower energy costs.

Entering the second quarter of 2023, sales volumes are expected to be higher. Average sales margins are expected to be lower. Planned maintenance downtime costs in the second quarter of 2023 are expected to be $33 million lower compared with the first quarter of 2023. Operating costs are expected to be lower. Input costs are expected to be lower.

Equity Earnings, Net of Taxes – Ilim

On January 24, 2023, the Company announced it had reached an agreement to sell its equity investment in Ilim and also received from the same purchasers an indication of interest to purchase its equity investment in Ilim Group. This transaction is discussed further in Note 10 - Equity Method Investments of Item 1. Financial Statements .

In conjunction with the entry into the announced agreement, a determination was made that the book value of the Ilim and Ilim Group investments plus associated cumulative translation losses, exceeded fair value, based upon the agreed upon transaction price for Ilim and the offer price for Ilim Group. As a result, an other than temporary impairment of $43 million and $533 million was recorded in the first quarter of 2023 and fourth quarter of 2022, respectively, to write down these investments to fair value. The impairment charges included approximately $43 million and $375 million of foreign currency cumulative translation adjustment loss in the first quarter of 2023 and fourth quarter of 2022, respectively. As of March 31, 2023, the approximately $418 million of cumulative translation adjustment loss remained within AOCI with the recognition of this loss recorded as an offset to the investment balance.

All current and historical results of the Ilim joint venture investment are presented as Discontinued Operations, net of taxes in the consolidated statement of operations. The Company recorded equity earnings, net of taxes, related to Ilim of $43 million in the first quarter 2023, compared with earnings of $45 million in the fourth quarter 2022 and $93 million in the first quarter of 2022. In the first quarter of 2022, foreign exchange gains (losses) of ($15) million, were included in equity earnings. Ilim Group had no US dollar-denominated debt outstanding at March 31, 2023 and December 31 2022.

Compared with the fourth quarter of 2022, results in the first quarter of 2023 were relatively flat, reflecting the negative impact of lower volumes and lower average sales prices, offset by lower operating costs and the positive impact of a weaker ruble. Sales volumes in the first quarter of 2023 were 10% lower driven primarily by lower sales of softwood pulp in China, other export markets and Russia. Sales of hardwood pulp declined sharply in other export markets and Russia, but were partially offset by higher sales of hardwood pulp in China. Containerboard sales declined in China and other export markets, but were more than offset by significantly higher sales of containerboard in Russia. Average sales margins were markedly lower for sales of softwood pulp, hardwood pulp and containerboard reflecting lower average sales prices in all markets. Input costs were relatively flat. Lower maintenance and no outages in the first quarter of 2023 contributed to a decrease in operating costs.

Compared with the first quarter of 2022, lower sales volumes, declining average sales margins, higher input costs due to inflation, and higher operating costs contributed to lower earnings in the first quarter of 2023. Sales volumes in the first quarter of 2023 were 7% lower as shipments of softwood pulp, hardwood pulp and containerboard to Europe and other export countries declined, but were partially offset by higher shipments of those products to China. In Russia, sales of containerboard were higher, but were partially offset by lower sales of softwood pulp and hardwood pulp. Average sales margins were significantly lower reflecting lower average sales prices for sales of containerboard in China, Russia and other export markets, partially offset by higher average sales margins for sales of softwood pulp and hardwood pulp in all markets. Input costs for wood and fuel increased. The sale of timber and saw logs declined. Transportation costs decreased as transportation tariffs and shipping routes were changed. The Company received cash dividends from the joint venture of $0 million in the first three months of 2023 and $204 million in the first three months of 2022.

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LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $345 million for the first three months of 2023, compared with $588 million for the comparable 2022 three-month period.

Investments in capital projects, net of insurance recoveries, totaled $341 million in the first three months of 2023, compared to $185 million in the first three months of 2022. Full-year 2023 capital spending is currently expected to be approximately $1.0 billion to $1.2 billion, or 99% to 118% of depreciation and amortization.

Financing activities for the first three months of 2023 included a $257 million net increase in debt versus a $85 million net increase in debt during the comparable 2022 three-month period.

See Note 15 - Debt of Item 1. Financial Statements for a discussion of various debt-related actions taken by the Company during the first quarter of 2023.

There were no early debt reductions for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, contractual obligations for future payments of debt maturities (including finance lease liabilities disclosed in Note 9 - Leases and excluding the timber monetization structure disclosed in Note 14 - Variable Interest Entities) by calendar year were as follows: $352 million in 2023; $148 million in 2024; $191 million in 2025; $144 million in 2026; $298 million in 2027; and $4.7 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At March 31, 2023, 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, 2023, International Paper’s credit agreements totaled $2.0 billion, which is comprised of the $1.5 billion contractually committed bank credit agreement and up to $500 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, 2023, the Company had no borrowings outstanding under the $1.5 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 in Note 15 - 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, 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 $2.0 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, 2023, the Company had no borrowings outstanding under the 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 and will be used to repay debt maturing later in 2023 and general corporate purposes.

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.

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During the first three months of 2023, International Paper used 1.5 million shares of treasury stock for various incentive plans. International Paper also acquired 4.8 million shares of treasury stock, including restricted stock tax withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $177 million, including $157 million related to shares repurchased under the Company's repurchase program. Our current share repurchase program approved by our Board of Directors on October 11, 2022, which does not have an expiration date, has approximately $3.01 billion aggregate amount of shares of common stock remaining authorized for purchase as of March 31, 2023.

During the first three months of 2022, International Paper used approximately 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 withholding. 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.

Cash dividend payments related to common stock totaled $162 million and $174 million for the first three months of 2023 and 2022, respectively. Dividends were $0.4625 per share for the both of the first three months of 2023 and 2022.

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

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, 2022. 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 borrowings from third-party lenders. These variable interest entities were restructured in 2015 when the installment notes and third-party loans were extended. The restructured variable interest entities held installment notes of $4.8 billion and third-party loans of $4.2 billion which both matured in August 2021. We settled the third-party loans at their maturity with the proceeds from the installment notes. This resulted in cash proceeds of approximately $630 million representing our equity in the variable interest entities. Maturity of the installment notes and termination of the monetization structure also resulted in a $72 million tax liability that was paid in the fourth quarter of 2021. 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 will fully resolve the matter and pay $252 million in U.S. federal income taxes. As a result, interest will also be charged upon closing of the audit. The amount of interest expense recognized in 2022 was $58 million. As of March 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.

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 Annual Report 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 2023.

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

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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 level of our indebtedness and changes in interest rates (including the impact of current elevated interest rate levels); (iii) the impact of global and domestic economic conditions and industry conditions, including with respect to current negative macroeconomic conditions, inflationary pressures and changes in the cost or availability of raw materials, energy sources and transportation sources, supply chain shortages and disruptions, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products, and conditions impacting the credit, capital and financial markets, including possible instability in such markets and/or disruptions to the banking system due to potential or actual bank failures; (iv) 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 recognized credit rating organizations; (v) the amount of our future pension funding obligations, and pension and healthcare costs; (vi) 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; (vii) 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; (viii) 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 full impact of the Russian invasion of Ukraine, current or future sanctions, current or future actions by the Russian government, geopolitical instability and the possibility of broadened military conflict on our Ilim joint venture, on our receipt of dividends from our Ilim joint venture and on our ability to complete the sale of our interest in the Ilim joint venture under the terms of the agreement with our joint venture partners to purchase our interest (and, if we are unable to complete such a sale, on the value of and our ability to sell our interest to another purchaser); (ix) risks inherent in conducting business through joint ventures; (x) our ability to achieve the benefits expected from, and other risks associated with, acquisitions, joint ventures, divestitures, spinoffs and other corporate transactions, (xi) cybersecurity and information technology risks; (xii) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (xiii) our exposure to claims under our agreements with Sylvamo Corporation; (xiv) our failure to realize the anticipated benefits of the spin-off of Sylvamo Corporation and the qualification of such spin-off as a tax-free transaction for U.S. federal income tax purposes; and (xv) our ability to attract and retain qualified personnel, 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-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 41-42 of International Paper’s Annual Report, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2022.

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 Form 10-Q, 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, 2023 (the end of the period covered by this Form 10-Q).

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, 2023 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 regarding certain legal proceedings involving the Company occurring in the period covered by this Form 10-Q is found in Note 13 of the Condensed Notes to the Consolidated Financial Statements in this Form 10-Q, which is incorporated by reference herein. 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, 2022 (Part I, Item 1A).

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

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

(a) 486,951 shares were acquired from employees or board members as a result of share withholdings to pay income taxes under the Company's restricted stock program. The remainder were purchased under a share repurchase program. As of March 31, 2023 approximately $3.01 billion aggregate shares of our common stock remained authorized for repurchase under a previous Board authorization. This authorization was increased by our Board on October 11, 2022, up to a total of $3.35 billion shares. This repurchase program does not have an expiration date.

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.