ANNUAL
PERFORMANCE
SUMMARY
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©2020 International Paper Company. All rights reserved. Accent, Ballet,
by George, Chamex, Hammermill, International Paper logo, POL,
PRO-DESIGN, REY and SvetoCopy are registered trademarks of
International Paper Company or its affiliates.
From FORTUNE Magazine, February 2020, ©2020 Fortune Media IP
Limited. FORTUNE and The World’s Most Admired Companies are
registered trademarks of Fortune Media IP Limited and are used under
license. FORTUNE and Fortune Media IP Limited are not affiliated with,
and do not endorse the products or services of, International Paper
Company. “World’s Most Ethical Companies” and “Ethisphere” names
and marks are registered trademarks of Ethisphere LLC. FTSE Russell
(the trading name of FTSE International Limited and Frank Russell
Company) confirms that International Paper has been independently
assessed according to the FTSE4Good criteria, and has satisfied the
requirements to become a constituent of the FTSE4Good Index Series.
Created by the global index provider FTSE Russell, the FTSE4Good Index
Series is designed to measure the performance of companies
demonstrating strong Environmental, Social and Governance (ESG)
practices. The FTSE4Good indices are used by a wide variety of market
participants to create and assess responsible investment funds and other
products. All product names, logos and brands are property of their
respective owners.
Annual Performance Summary printed on Accent Opaque Cover Smooth
100lb. and Text Smooth 100lb. 10-K printed on Accent Opaque Text
Smooth 50lb.
InternationalPaper.com
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Our Vision is to be among the most
successful, sustainable and responsible
companies in the world.
International Paper
Board of Directors
More than
25,000
Customers in
150 Countries
$22 Billion
Total Revenue
in 2019
More than
50,000
Employees
WHO WE ARE
We are one of the world’s leading producers
of renewable, fiber-based packaging,
pulp and paper.
WHAT WE DO
We improve people’s lives, the planet
and our company’s performance by
transforming renewable resources into
products people depend on every day.
HOW WE DO IT
We do the right things, in the right ways,
for the right reasons, all of the time – this
is The IP Way. Together, The IP Way and our
Core Values of Safety, Ethics and
Stewardship serve as our guideposts as we
carry out our Mission.
| 2019 ANNUAL PERFORMANCE SUMMARY
The IP Way Forward is our strategic framework
for pursuing our Vision and creating value for all
stakeholders for generations to come.
World
Regional
Headquarters
Headquarters
International Paper
International Paper Asia
International Paper Do Brasil
International Paper Europe,
International Paper Russia
Company
6400 Poplar Avenue
Memphis, TN 38197
8F, Building A
Xuhui Vanke Center
55 Ding An Road
United States of America
Shanghai, 200235, China
Rodovia SP 340, KM 171
Middle East and Africa
Kropotkina Street 1, Litera I
Mogi Guaçu/SP
CEP: 13845-901
(EMEA)
Saint Petersburg, 197101
Chaussée de la Hulpe 166
Russia
1170 Brussels, Belgium
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Mark S. Sutton
William J. Burns
Christopher M. Connor
Ahmet C. Dorduncu
Chairman of the Board
President
and Chief Executive Officer
The Carnegie
International Paper
Company
Endowment for
International Peace
Retired Chairman,
President and Chief
Executive Officer
The Sherwin-Williams
Company
Chief Executive Officer
Akkök Group
Ilene S. Gordon
Presiding Director
Retired Chairman,
President and Chief
Executive Officer
Ingredion Incorporated
Anders Gustafsson
Jacqueline C. Hinman
Chief Executive Officer
Former Chairman,
Zebra Technologies
Corporation
President and Chief
Executive Officer
Clinton A. Lewis, Jr.
Former Executive Vice
President and Group
President International
CH2M HILL Companies,
Operations, Commercial
Ltd.
Development, Global
Genetics and Aquatic Health
Zoetis Inc.
Kathryn D. Sullivan
Senior Fellow at the
Potomac Institute for
Policy Studies and
J. Steven Whisler
Ray G. Young
Retired Chairman and
Executive Vice President
Chief Executive Officer
and Chief Financial Officer
Phelps Dodge
Archer Daniels Midland
Ambassador-at-Large at
Corporation
Company
the Smithsonian National
Air and Space Museum
Mark S. Sutton,
Chairman of the Board
and Chief Executive Officer
Dear
Shareowners,
At International Paper, we transform
renewable resources into recyclable
products that people depend on every day.
Our commitment to sustainability creates
value for our shareowners while protecting
the planet and improving people’s lives.
Our 50,000 colleagues are the foundation of our success. Each
day, we focus on ensuring the safety of employees, contractors,
suppliers and visitors while operating reliably and serving more than
25,000 customers around the world.
We recognize our responsibility to protect the planet and help our
communities thrive. We focus on tackling the toughest challenges
throughout our entire value chain. We continue to make significant
progress reducing greenhouse gas emissions, improving forest
stewardship within and outside of our company and advancing
water stewardship.
We are proud to be a force for good in our communities, providing
volunteers, product donations and financial contributions to
organizations that address critical needs in the communities where our
InternationalPaper.com | 1
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“ As a leading producer of
renewable fiber-based
products, we provide
innovative, circular
solutions that enable
our customers to meet
consumer needs.”
CAPITAL
ALLOCATION
FRAMEWORK
Our capital allocation
framework guides our
strategic decision-making
to bring value for
shareowners and
all stakeholders.
INVEST TO
CREATE VALUE
RETURN CASH TO
SHAREHOLDERS
MAINTAIN STRONG
BALANCE SHEET
2
| 2019 ANNUAL PERFORMANCE SUMMARY
employees live and work. Over the past five years, we increased our
community engagement contributions to more than $24 million annually
to support four signature causes: education, hunger, health and
wellness, and disaster relief.
2019 IN REVIEW
In 2019, we continued to demonstrate the strength of our business
portfolio and investment choices and delivered:
• $3.9 billion in adjusted earnings before interest, tax, depreciation
and amortization (EBITDA)
• Outstanding free cash flow of $2.3 billion
• 11% adjusted return on invested capital, our 10th consecutive year
of value-creating returns
As a leading producer of renewable fiber-based products, we provide
innovative, circular solutions that enable our customers to meet
consumer needs. Our innovation and design centers combined with our
manufacturing and converting facilities support our strong commercial
positions in attractive segments and generated an adjusted EBITDA
margin of more than 17% in 2019.
We continue to make strategic choices to focus our resources and
strengthen our company. We invested in our U.S. corrugated packaging
business to enhance our capabilities and reinforce our strong position
in the fastest growing segments, and we started the conversion of a
printing paper machine in our Riverdale Mill in Alabama, which will
begin producing white-top linerboard in the second quarter of 2020.
We also made small, targeted acquisitions in our European corrugated
packaging business to expand our converting capacity near our mill in
Madrid, Spain.
Throughout the year, we took steps to streamline our portfolio and
further focus on the businesses where we can create the most value.
After determining that a significant addition to our portfolio in the
North American consumer packaging segment is not a strategic priority,
we began to monetize our ownership interest in Graphic Packaging in
early 2020.
We continue to maximize value creation by using our strong free cash
flow consistent with our capital allocation framework. In 2019, we
returned $1.3 billion to shareholders through dividends and share
repurchases. Over the past five years, we have returned 60% of free
cash flow to shareowners totaling $5.6 billion. For the 10th consecutive
year, we increased our annualized dividend, demonstrating our strong
and sustainable dividend policy.
Also in 2019, we repaid $1 billion of debt, which is a reflection of our
commitment to a strong balance sheet. In 2020, we will continue to
focus on being the supplier of choice for customers, managing costs
aggressively, executing capital spending effectively and generating
strong free cash flow.
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2020 OUTLOOK
Overall, our commercial and operational capabilities position us
for positive momentum as we navigate through the year.
The fundamentals of our corrugated packaging and fluff pulp
businesses are solid, supported by demand for sustainable
products that people depend on every day. Our paper business
is gaining momentum in e-commerce and retail channels in
response to changing consumer buying habits.
International Paper has great customers, dedicated people,
outstanding manufacturing facilities and a strong financial
position that will enable us to meet the certain global challenges
that are ahead in 2020.
Finally, as part of our continued commitment to sustainability,
we introduced our Vision 2030 goals earlier this year. These goals
expand on our previous generation of goals and guide our
commitment to building a better future for people, the planet
and our company.
Thank you for supporting our efforts to pursue our Vision to be
among the most successful, sustainable and responsible
LEADERSHIP TRANSITIONS
Our performance and execution are driven by strong leadership. In 2019, several
senior leaders accepted new assignments to accelerate our progress to a more
customer-focused company and enable greater focus on business priorities and
profitable growth:
companies in the world.
Sincerely,
Mark S. Sutton,
Chairman of the Board
and Chief Executive Officer
Clay R. Ellis was elected senior vice
president, Enterprise Operational
Excellence, to lead our efforts to
simplify, streamline and focus the
centralized services that support our
business strategies.
W. Thomas Hamic was elected senior
vice president, Containerboard and
Enterprise Commercial Excellence, to
continue leading our North American
Containerboard business as well as our
efforts to increase customer focus and
integrate market-based value creation
initiatives across businesses and
staff groups.
employees live and work. Over the past five years, we increased our
community engagement contributions to more than $24 million annually
to support four signature causes: education, hunger, health and
wellness, and disaster relief.
2019 IN REVIEW
In 2019, we continued to demonstrate the strength of our business
portfolio and investment choices and delivered:
• $3.9 billion in adjusted earnings before interest, tax, depreciation
and amortization (EBITDA)
• Outstanding free cash flow of $2.3 billion
• 11% adjusted return on invested capital, our 10th consecutive year
of value-creating returns
As a leading producer of renewable fiber-based products, we provide
innovative, circular solutions that enable our customers to meet
consumer needs. Our innovation and design centers combined with our
manufacturing and converting facilities support our strong commercial
positions in attractive segments and generated an adjusted EBITDA
margin of more than 17% in 2019.
We continue to make strategic choices to focus our resources and
strengthen our company. We invested in our U.S. corrugated packaging
business to enhance our capabilities and reinforce our strong position
in the fastest growing segments, and we started the conversion of a
printing paper machine in our Riverdale Mill in Alabama, which will
begin producing white-top linerboard in the second quarter of 2020.
We also made small, targeted acquisitions in our European corrugated
packaging business to expand our converting capacity near our mill in
Madrid, Spain.
Throughout the year, we took steps to streamline our portfolio and
further focus on the businesses where we can create the most value.
After determining that a significant addition to our portfolio in the
North American consumer packaging segment is not a strategic priority,
we began to monetize our ownership interest in Graphic Packaging in
early 2020.
We continue to maximize value creation by using our strong free cash
flow consistent with our capital allocation framework. In 2019, we
returned $1.3 billion to shareholders through dividends and share
repurchases. Over the past five years, we have returned 60% of free
cash flow to shareowners totaling $5.6 billion. For the 10th consecutive
year, we increased our annualized dividend, demonstrating our strong
and sustainable dividend policy.
Also in 2019, we repaid $1 billion of debt, which is a reflection of our
commitment to a strong balance sheet. In 2020, we will continue to
focus on being the supplier of choice for customers, managing costs
aggressively, executing capital spending effectively and generating
strong free cash flow.
VISION
2030
Vision 2030 is a set of four goals
and eight corresponding
targets that demonstrate our
commitment to building a better
future for people, the planet
and our company.
OUR GOALS:
HEALTHY &
ABUNDANT FORESTS
SUSTAINABLE
OPERATIONS
THRIVING PEOPLE
& COMMUNITIES
RENEWABLE
SOLUTIONS
See our targets at
InternationalPaper.com/Vision2030
2020 OUTLOOK
Overall, our commercial and operational capabilities position us
for positive momentum as we navigate through the year.
The fundamentals of our corrugated packaging and fluff pulp
businesses are solid, supported by demand for sustainable
products that people depend on every day. Our paper business
is gaining momentum in e-commerce and retail channels in
response to changing consumer buying habits.
International Paper has great customers, dedicated people,
outstanding manufacturing facilities and a strong financial
position that will enable us to meet the certain global challenges
that are ahead in 2020.
Finally, as part of our continued commitment to sustainability,
we introduced our Vision 2030 goals earlier this year. These goals
expand on our previous generation of goals and guide our
commitment to building a better future for people, the planet
and our company.
Thank you for supporting our efforts to pursue our Vision to be
among the most successful, sustainable and responsible
companies in the world.
Sincerely,
Mark S. Sutton,
Chairman of the Board
and Chief Executive Officer
LEADERSHIP TRANSITIONS
Our performance and execution are driven by strong leadership. In 2019, several
senior leaders accepted new assignments to accelerate our progress to a more
customer-focused company and enable greater focus on business priorities and
profitable growth:
Clay R. Ellis was elected senior vice
president, Enterprise Operational
Excellence, to lead our efforts to
simplify, streamline and focus the
centralized services that support our
business strategies.
W. Thomas Hamic was elected senior
vice president, Containerboard and
Enterprise Commercial Excellence, to
continue leading our North American
Containerboard business as well as our
efforts to increase customer focus and
integrate market-based value creation
initiatives across businesses and
staff groups.
James P. Royalty, Jr. was elected senior
vice president and president, IP Europe,
Middle East, Africa and IP Russia to lead
our paper and packaging businesses in
this region.
John V. Sims was named senior vice
president, Corporate Development, to
analyze strategic portfolio decisions
that help create advantaged positions
in attractive markets.
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InternationalPaper.com | 3
Our Businesses
Creating innovative products from responsibly sourced,
renewable resources.
We Deliver Value
for Our Shareowners
INDUSTRIAL
PACKAGING
GLOBAL
CELLULOSE FIBERS
PRINTING
PAPERS
69% of total revenue
12% of total revenue
19% of total revenue
We establish advantaged positions in attractive market segments with
safe, efficient manufacturing operations near sustainable fiber sources.
We create packaging products that
protect and promote goods, enable
worldwide commerce and keep
consumers safe. We meet our
customers’ most challenging sales,
shipping, storage and display
requirements with sustainable
solutions. In addition to
containerboard mills, box plants
and converting operations across
the globe, our North American
recycling business recovers,
processes and sells seven million
tons of corrugated packaging and
paper annually.
Segments
• E-commerce
• Protein
• Fruit and vegetable
• Distribution
• Processed food and beverage
• Durable/non-durable goods
Additionally, we provide high-
quality coated paperboard for
consumer packaging throughout
Europe, the Middle East and Africa
(EMEA). Customers rely on us for
pharmaceutical, healthcare,
cosmetics, food and beverage
packaging solutions.
We create quality cellulose fiber
products suitable for a wide range
of applications. Cellulose fiber is
a sustainable, renewable raw
material used in hundreds of
products people depend on every
day, including baby diapers,
feminine care, adult incontinence
and other personal hygiene
products that promote health and
wellness. Our innovative specialty
pulps serve as a sustainable raw
material across a variety of
industries such as textiles,
construction material, paints and
coatings and more.
Segments
• Absorbent hygiene products
• Papergrade
• Specialty
Revenue by region
94% North America
6% EMEA
Although the majority of revenue
for this business is generated in
North America, we export about
80% of this volume, primarily to
Asia and EMEA with a smaller
portion going to Latin America.
We create papers that facilitate
education and communication.
As one of the world’s largest
manufacturers of uncoated
freesheet, we produce a variety
of papers for business and home
use. Customers rely on our
signature brands including Accent®
Opaque, Ballet®, by George®,
Chamex®, Hammermill®, POL®,
PRO-DESIGN®, REY® and
SvetoCopy® for a wide range of
printing and converting applications.
End Use
• Printer and copy paper
• Commercial printing
• Book publishing
• Advertising
• Envelopes
• Bills and statements
• Filing
• Specialty packaging
• Labeling
Revenue by region
46% North America
29% EMEA
22% Brazil
3% India
Revenue by region
87% North America
9% EMEA
2% EMEA Coated Paperboard
2% Brazil
4
| 2019 ANNUAL PERFORMANCE SUMMARY
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Adjusted Return on Invested Capital
5-year average:
11% ROIC
11.4%
10.0%
9.9%
13.2%
10.8%
Annualized Dividend
Dollars per share
2020
WACC
7.0%
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
$1.76
$1.85
$1.90
$2.00
$2.05
3.2x
3.3x
4.0x
2.8x
2.8x
2015
2016
2017
2018
2019
WACC: Weighted Average Cost of Capital
10th consecutive
year of increase
10th consecutive year of greater than
cost-of-capital returns
Leverage
Adjusted Debt to EBITDA
Free Cash Flow
$ Billions
$1.8
$2.3
$1.7
$1.9
$2.0
$1.2
$1.5
$1.3
$0.8
$0.8
2015
2016
2017
2018
2019
Free Cash Flow
Cash to Shareowners
(dividends, share repurchases)
Includes balance sheet debt
and Moody’s adjustments for
operational leases/deferred
tax liability and debt issuance
expense, and pension gap
PRINTING
PAPERS
19% of total revenue
We create papers that facilitate
education and communication.
As one of the world’s largest
manufacturers of uncoated
freesheet, we produce a variety
of papers for business and home
use. Customers rely on our
signature brands including Accent®
Opaque, Ballet®, by George®,
Chamex®, Hammermill®, POL®,
PRO-DESIGN®, REY® and
SvetoCopy® for a wide range of
printing and converting applications.
End Use
• Printer and copy paper
• Commercial printing
• Book publishing
• Advertising
• Envelopes
• Bills and statements
• Filing
• Specialty packaging
• Labeling
Revenue by region
46% North America
29% EMEA
22% Brazil
3% India
We Deliver Value
for Our Shareowners
We establish advantaged positions in attractive market segments with
safe, efficient manufacturing operations near sustainable fiber sources.
Adjusted Return on Invested Capital
5-year average:
11% ROIC
11.4%
10.0%
9.9%
13.2%
10.8%
Annualized Dividend
Dollars per share
2015
2016
2017
2018
2019
$1.76
$1.85
$1.90
$2.00
$2.05
2020
WACC
7.0%
2015
2016
2017
2018
2019
WACC: Weighted Average Cost of Capital
10th consecutive
year of increase
10th consecutive year of greater than
cost-of-capital returns
Free Cash Flow
$ Billions
$1.8
$2.3
$1.7
$1.9
$2.0
$1.2
$1.5
$1.3
$0.8
$0.8
2015
2016
2017
2018
2019
Free Cash Flow
Cash to Shareowners
(dividends, share repurchases)
Leverage
Adjusted Debt to EBITDA
2015
2016
2017
2018
2019
3.2x
3.3x
4.0x
2.8x
2.8x
Includes balance sheet debt
and Moody’s adjustments for
operational leases/deferred
tax liability and debt issuance
expense, and pension gap
InternationalPaper.com | 5
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International Paper
Senior Leaders
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
W. Michael Amick, Jr.
Senior Vice President
Paper the Americas
Clay R. Ellis
Senior Vice President
Enterprise Operational
Excellence
W. Thomas Hamic
Senior Vice President
Containerboard and
Enterprise Commercial
Excellence
Timothy S. Nicholls
Senior Vice President
and Chief Financial
Officer
Thomas J. Plath
Senior Vice President
Human Resources and
Global Citizenship
Jean-Michel Ribiéras
Senior Vice President
Industrial Packaging
the Americas
James P. Royalty, Jr.
Senior Vice President
and President, IP Europe,
Middle East, Africa and
IP Russia
Sharon R. Ryan
Senior Vice President,
General Counsel and
Corporate Secretary
John V. Sims
Senior Vice President
Corporate Development
Catherine I. Slater
Senior Vice President
Global Cellulose Fibers
and IP Asia
Gregory T. Wanta
Senior Vice President
North American
Container
Recognition
Fortune Magazine
Ethisphere Institute
Women’s Choice Award®
FTSE4Good Index Series
World’s Most Admired
Companies® 2020 for
17 years
World’s Most Ethical
Companies® 2020 for
14 consecutive years
Best Companies to Work
For — Millennial Women
2018-2020
An equity index series that is
designed to facilitate investment
in companies that meet globally
recognized corporate
responsibility standards
6
| 2019 ANNUAL PERFORMANCE SUMMARY
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FORM
10-K
2 0 1 9
F
o
r
m
1
0
-
K
FTSE4Good Index Series
An equity index series that is
designed to facilitate investment
in companies that meet globally
recognized corporate
responsibility standards
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FINANCIAL HIGHLIGHTS
In millions, except per share amounts, at December 31
2019
2018
FINANCIAL SUMMARY
Net Sales
Business Segment Operating Profit
Earnings from Continuing Operations Before Income Taxes and Equity Earnings
Net Earnings
Net Earnings Attributable to Noncontrolling Interests
Net Earnings Attributable to International Paper Company
Total Assets
Total Shareholders’ Equity Attributable to International Paper Company
PER SHARE OF COMMON STOCK
Basic Earnings Per Share Attributable to International Paper Company
Common Shareholders
Diluted Earnings Per Share Attributable to International Paper Company
Common Shareholders
Cash Dividends
SHAREHOLDER PROFILE
Shareholders of Record at December 31
Shares Outstanding at December 31
Average Common Shares Outstanding
Average Common Shares Outstanding – Assuming Dilution
$ 22,376
2,599
(a)
1,604 (b)
1,220 (b-c)
(5) (d)
1,225 (b-d)
33,471
7,713
$ 23,306
3,082
(a)
1,781 (e)
2,017 (e-f)
5
2,012 (e-f)
33,576
7,362
$
$
3.10
3.07
2.0125
9,801
392.1
395.3
398.8
$
$
4.91
4.85
1.9250
11,345
400.6
409.1
414.2
(a) See the comparison of net earnings (loss) attributable to International Paper Company to its total industry segment operating profit on
(b)
(c)
(d)
(e)
(f)
page 22 and the operating profit table on page 85 for details of operating profit by industry segment.
Includes pre-tax restructuring and other charges, net of $57 million including a charge of $21 million for debt extinguishment costs, a
charge of $21 million related to an overhead cost reduction initiative and a charge of $15 million related to the optimization of our EMEA
Packaging business. Also included are a loss of $97 million related to the foreign currency cumulative translation adjustment resulting
from the classification of the assets and liabilities of our India Papers business as held for sale, a loss of $62 million for the impairment
of the net assets of our India Papers business, a loss of $52 million related to the impairment of goodwill in our Global Cellulose Fibers
business, a charge of $50 million for the removal of abandoned property at our mills, a charge of $41 million for litigation reserves, a charge
of $32 million related to an Italian antitrust fine, a charge of $25 million for environmental remediation reserve adjustments, a charge of
$9 million for costs associated with a multi-employer pension plan exit liability, a gain of $9 million for the sale of a previously closed
Oregon mill site, a gain of $6 million related to the sale of a box plant in our EMEA Packaging business, income of $6 million for the accrual
of a foreign value-added tax refund including interest, a charge of $5 million for accelerated depreciation associated with the announced
conversion of a paper machine at our Riverdale mill to containerboard production, a charge of $3 million for the fair value adjustment of our
remaining investment in India, a charge of $3 million for transaction costs associated with the divestiture of our India Papers business, a
charge of $2 million for the write-off of inventory related to the optimization of our EMEA Packaging business and a charge of $1 million for
interest expense associated with foreign tax audits.
Includes tax expense of $203 million related to a foreign deferred tax valuation allowance, a tax benefit of $53 million related to an internal
investment restructuring, tax expense of $9 million related to a tax rate change in Luxembourg, tax expense of $3 million related to foreign
tax audits and a tax benefit of $3 million related to state income tax legislative changes.
Includes the allocation of loss to noncontrolling interest of $9 million associated with the impairment of our India Papers business.
Includes pre-tax restructuring and other charges, net of $29 million including a charge of $47 million related to the optimization of our EMEA
Packaging business, a gain of $31 million related to the sale of our investment in Liaison Technologies, a charge of $10 million for debt
extinguishment costs and a charge of $3 million for severance associated with the conversion of a paper machine at our Riverdale mill.
Also included are a charge of $424 million for a settlement accounting charge associated with an annuity purchase and transfer of pension
obligations for approximately 23,000 retirees, a charge of $122 million related to the impairment of fixed assets and an intangible asset in our
Brazil Packaging business, charges of $32 million for the removal of abandoned property at our mills, a charge of $12 million associated with
our proposal to acquire Smurfit Kappa, a charge of $9 million for an environmental remediation reserve adjustment, a charge of $9 million
for a legal settlement, a charge of $6 million for accelerated depreciation associated with the Riverdale mill conversion, and income of
$5 million for a litigation settlement recovery.
Includes a tax benefit of $36 million related to the Tax Cuts and Jobs Act, tax expense of $25 million related to foreign tax audits, tax expense
of $19 million related to an internal investment restructuring and tax expense of $9 million related to state income tax legislative changes.
Also includes net after-tax income of $364 million for the gain on the transfer of the North American Consumer Packaging business and an
after-tax charge of $19 million for transaction costs to transfer the North American Consumer Packaging business.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures presented 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 use identical
calculations, the Company’s presentation of non-GAAP
measures may not be comparable to similarly titled
measures disclosed by other companies, including
companies in the same industry as International Paper.
Management believes certain non-U.S. GAAP
financial measures, when used in conjunction with
information presented in accordance with U.S. GAAP,
can facilitate a better understanding of the impact of
various factors and trends on the Company’s financial
condition and results of operations. Management
also uses these non-U.S. GAAP financial measures in
making financial, operating and planning decisions and
in evaluating the Company’s performance.
For reconciliations of Adjusted Operating Earnings
per share attributable to International Paper Company
common shareholders to diluted earnings (loss) per
share attributable to International Paper Company
common shareholders, see pages 20 - 21.
In millions, at December 31
Calculation of Free Cash Flow
Cash provided by operations
(Less)/Add:
2019
2018
2017
2016
2015
$ 3,610
$ 3,226
$ 1,757
$ 2,478
$ 2,580
Cash invested in capital projects
Cash contribution to pension plan, net of tax refunds
Kleen settlement
Free Cash Flow
(1,276)
—
—
$ 2,334
(1,572)
—
—
$ 1,654
(1,391)
1,250
354
$ 1,970
(1,348)
750
—
$ 1,880
(1,487)
750
—
$ 1,843
Free cash flow is a non-GAAP measure and the most
directly comparable GAAP measure is cash provided by
operations. Management 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, free cash flow also
enables investors to perform meaningful comparisons
between past and present periods.
2019
2018
2017
2016
2015
In millions, at December 31
Reconciliation of Adjusted Operating Earnings
Before Net Interest Expense to Net Earnings
(Loss) From Continuing Operations Before
Income Taxes and Equity Earnings
Earnings (Loss) From Continuing Operations
Before Income Taxes and Equity Earnings
Add back: Net Interest Expense
Add back: Special Items Before Taxes
Add back: Non-Operating Pension Expense
$ 1,604
491
420
$ 1,781
536
214
$
848
572
501
484
$
795
520
182
610
$ 1,132
555
559
258
Before Taxes
36
494
Adjusted Operating Earnings Before Net Interest
Expense, Income Taxes and Equity Earnings
Add back: Graphic Packaging Equity Earnings
Before Taxes
Adjusted Operating Earnings Before Net Interest
2,551
3,025
2,405
2,107
2,504
46
46
—
—
—
Expense, Income Taxes and Other Equity Earnings
2,597
3,071
2,405
2,107
2,504
Tax Rate
Adjusted Operating Earnings Before Net Interest
26%
24%
30%
32%
33%
Expense and Equity Earnings
1,935
2,325
1,684
1,433
1,678
Equity Earnings Other than Graphic Packaging,
Net of Taxes
Adjusted Operating Earnings Before
Net Interest Expense
204
290
177
198
117
$ 2,139
$ 2,615
$ 1,861
$ 1,631
$ 1,795
The Company considers adjusted return on invested
capital (“ROIC”) to be a meaningful indicator of our
operating performance, and we evaluate this metric
because it measures how effectively and efficiently
we use the capital invested in our business. ROIC, a
non-GAAP financial measure, may not be defined and
calculated by other companies in the same manner.
The Company defines and calculates ROIC using in
the numerator Adjusted Operating Earnings Before
Net Interest Expense, the most directly comparable
GAAP measure to which is Earnings (Loss) From
Continuing Operations Before Income Taxes and
Equity Earnings. The Company calculates Adjusted
Operating Earnings Before Net Interest Expense by
excluding net interest expense, the after-tax effect of
non-operating pension expense and items considered
by management to be unusual (special items) from
the earnings reported under GAAP. 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.
ROIC = Adjusted Operating Earnings Before Net
Interest Expense / Average Invested Capital
Average Invested Capital = Equity (adjusted to remove
pension-related amounts in OCI, net of tax) + interest-
bearing debt
2019
In millions, at December 31
Calculation of Adjusted EBITDA
Earnings (Loss) from Continuing Operations Before Income Taxes and Equity Earnings $ 1,604
491
Interest Expense, Net
420
Special items
36
Non-operating pension expense
2,551
EBIT before Special Items
1,301
Depreciation, amortization and cost of timber harvested
$ 3,852
Adjusted EBITDA
$ 22,376
Annualized Net Sales
Adjusted EBITDA Margin
17.2%
2018
$ 1,781
536
214
494
3,025
1,322
$ 4,347
$ 23,306
18.7%
Adjusted EBIT, Adjusted EBITDA and Adjusted
financial
EBITDA Margin are all “non-GAAP
measures” presented as supplemental measures of
our performance and the most directly comparable
GAAP measure for Adjusted EBIT and Adjusted
EBITDA are operating income and net income,
respectively. They are not presented in accordance
with accounting principles generally accepted in the
United States, or GAAP. The Company believes these
measures provide additional meaningful information
in evaluating the Company’s performance over time,
and that other companies use these and/or similar
measures for similar purposes. However, Adjusted
EBIT, Adjusted EBITDA and Adjusted EBITDA Margin
have limitations as analytical tools, and should not be
considered in isolation, or as substitutes for analysis
of our results as reported under GAAP. In addition,
in evaluating Adjusted EBIT, Adjusted EBITDA and
Adjusted EBITDA Margin, you should be aware that
in the future we will incur expenses such as those
used in calculating these measures. Our presentation
of these measures should not be construed as an
inference that our future results will be unaffected by
unusual or nonrecurring items.
Moody’s methodology is used to calculate Adjusted
Debt to EBITDA ratio. Moody’s adjusts debt to include
balance sheet debt, operating leases/deferred tax
liability and debt issuance expense, and pension gap.
EBITDA is adjusted to include lease and pension
adjustments (non-GAAP).
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
12/31/2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
13-0872805
(I.R.S. Employer Identification No.)
6400 Poplar Avenue
Memphis, Tennessee
(Address of principal executive offices)
38197
(Zip Code)
Registrant's telephone number, including area code:
901 419-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares
Trading symbol(s)
IP
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities Registered Pursuant to Section 12(g) of the Act: None
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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 (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If 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 Act). Yes
No
The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the
closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal
quarter (June 30, 2019) was approximately $17,018,195,033.
The number of shares outstanding of the Company’s common stock as of February 14, 2020 was 392,124,684.
Documents incorporated by reference:
Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 2020 annual
meeting of shareholders are incorporated by reference into Part III of this Form 10-K.
This page intentionally left blank.
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
BUSINESS.
General
Competition and Costs
Marketing and Distribution
Description of Principal Products
Sales Volumes by Product
Research and Development
Environmental Protection
Climate Change
Employees
Information About Our Executive Officers
Raw Materials
Forward-looking Statements
RISK FACTORS.
UNRESOLVED STAFF COMMENTS.
PROPERTIES.
Forestlands
Mills and Plants
Capital Investments and Dispositions
LEGAL PROCEEDINGS.
MINE SAFETY DISCLOSURES.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
SELECTED FINANCIAL DATA.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Executive Summary
Results of Operations
Description of Business Segments
Business Segment Results
Liquidity and Capital Resources
Critical Accounting Policies and Significant Accounting Estimates
Recent Accounting Developments
Legal Proceedings
Effect of Inflation
Foreign Currency Effects
Market Risk
1
1
1
1
1
1
2
2
2
3
4
4
6
6
6
12
12
12
12
12
12
12
13
13
15
19
19
23
25
26
29
32
35
35
35
35
36
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
ITEM 7A.
ITEM 8.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Management on Financial Statements, Internal Control over
Financial Reporting and Internal Control Environment and Board of
Directors Oversight
Reports of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to Consolidated Financial Statements
Interim Financial Results (Unaudited)
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
CONTROLS AND PROCEDURES.
OTHER INFORMATION.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE COMPENSATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
ITEM 16.
APPENDIX I
Additional Financial Data
FORM 10-K SUMMARY
SIGNATURES
2019 LISTING OF FACILITIES
APPENDIX II
2019 CAPACITY INFORMATION
36
37
37
39
43
44
45
46
47
48
87
89
89
89
89
89
89
89
90
90
90
90
90
94
A-1
A-4
PART I.
ITEM 1. BUSINESS
GENERAL
International Paper Company (the Company or
International Paper, which may also be referred to as
we or us) is a global producer of renewable fiber-based
packaging, pulp and paper products with manufacturing
operations in North America, Latin America, Europe,
North Africa and Russia. We are a New York corporation,
incorporated in 1941 as the successor to the New York
corporation of the same name organized in 1898. You
can learn more about us by visiting our website at
www.internationalpaper.com.
In the United States, at December 31, 2019, the
Company operated 27 pulp, paper and packaging mills,
163 converting and packaging plants, 16 recycling
plants and three bag facilities. Production facilities at
December 31, 2019 in Canada, Europe, North Africa
and Latin America included 14 pulp, paper and
packaging mills, 44 converting and packaging plants,
and two recycling plants. We operate a printing and
packaging products distribution business principally
through six branches in Asia. At December 31, 2019, we
owned or managed approximately 329,000 acres of
forestland in Brazil and had, through licenses and forest
management agreements, harvesting
rights on
government-owned forestlands in Russia. Substantially
all of our businesses have experienced, and are likely
to continue to experience, cycles relating to industry
capacity and general economic conditions.
For management and financial reporting purposes, our
three segments:
businesses are separated
Industrial Packaging; Global Cellulose Fibers; and
Printing Papers.
into
A description of these business segments can be found
Item 7. Management’s
on pages 25 and 26 of
Discussion and Analysis of Financial Condition and
Results of Operations. The Company’s equity interests
in Ilim S.A. (Ilim) and Graphic Packaging International
Partners, LLC (GPIP) are also separate reportable
industry segments.
quality
product
From 2015 through 2019, International Paper’s capital
spending approximated $7.1 billion, excluding mergers
and acquisitions. These expenditures reflect our
continuing efforts to use our capital strategically to
improve
environmental
performance, as well as lower costs and maintain
reliability of operations. Capital spending in 2019 was
approximately $1.3 billion and is expected to be
approximately $1.0 billion in 2020. You can find more
information about capital spending on page 30 of Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
and
Discussions of acquisitions can be found on page 30 of
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
You can find discussions of restructuring charges and
other special items on pages 24 and 25 of Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Throughout this Annual Report on Form 10-K, we
“incorporate by reference” certain information in parts
of other documents filed with the Securities and
Exchange Commission (SEC). The SEC permits us to
disclose important information by referring to it in that
manner. Please refer to such information. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, along with all other
reports and any amendments thereto filed with or
furnished to the SEC, are publicly available free of
charge on the Investor Relations section of our website
at www.internationalpaper.com as soon as reasonably
practicable after we electronically file such material with,
or furnish it to, the SEC. The information contained on
or connected to our website is not incorporated by
reference into this Form 10-K and should not be
considered part of this or any other report that we filed
with or furnished to the SEC.
COMPETITION AND COSTS
The pulp, paper and packaging sectors are large and
fragmented, and the areas into which the Company sells
its principal products are very competitive. Our products
compete with similar products produced by other forest
products companies. We also compete, in some
instances, with companies in other industries and
against substitutes for wood-fiber products.
Many factors influence the Company’s competitive
position, including price, cost, product quality and
services. You can find more information about the impact
of these factors on operating profits on pages 19 through
29 of Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations. You can
find information about the Company’s manufacturing
capacities on page A-4 of Appendix II.
MARKETING AND DISTRIBUTION
The Company sells products directly to end users and
converters, as well as through agents, resellers and
paper distributors.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Company’s principal products are described on
pages 25 and 26 of Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
1
SALES VOLUMES BY PRODUCT
Sales volumes of major products for 2019, 2018 and 2017 were as follows:
SALES VOLUMES BY PRODUCT (a)
In thousands of short tons (except as noted)
Industrial Packaging
Corrugated Packaging (b)
Containerboard
Recycling
Saturated Kraft
Gypsum/Release Kraft
Bleached Kraft
EMEA Packaging (b) (c)
Brazilian Packaging (b)
European Coated Paperboard
Industrial Packaging
Global Cellulose Fibers (in thousands of metric tons) (d)
Printing Papers
U.S. Uncoated Papers
European and Russian Uncoated Papers
Brazilian Uncoated Papers
Indian Uncoated Papers
Printing Papers
2019
2018
2017
10,454
2,909
2,388
174
199
22
1,538
366
417
18,467
3,501
1,799
1,456
1,172
206
4,633
10,624
3,229
2,282
196
227
31
1,476
351
390
18,806
3,573
1,886
1,440
1,125
263
4,714
10,413
3,294
2,257
181
229
27
1,518
357
398
18,674
3,708
1,915
1,483
1,167
253
4,818
Includes third-party and inter-segment sales and excludes sales of equity investees.
(a)
(b) Volumes for corrugated box sales reflect consumed tons sold. Board sales by these businesses reflect invoiced tons.
(c) Excludes newsprint sales volumes at the Madrid, Spain mill through Q3 2017.
(d)
Includes North American, European and Brazilian volumes and internal sales to mills.
RESEARCH AND DEVELOPMENT
The Company operates its primary research and
development center in Loveland, Ohio, as well as
several other product development facilities, including
a technology center in Federal Way, Washington.
chemical
We direct research and development activities to short-
term, long-term and technical assistance needs of
customers and operating divisions, and to process,
equipment and product innovations. Activities include
product development within the operating divisions;
studies on innovation and improvement of pulping,
bleaching,
recovery, paper making,
converting and coating processes; packaging design
and materials development; mechanical packaging
systems, environmentally sensitive printing inks and
reduction of environmental discharges; re-use of raw
materials in manufacturing processes; recycling of
consumer and packaging paper products; energy
conservation; applications of computer controls to
manufacturing
and
improvement of products; and development of various
new products. Our development efforts specifically
innovations
operations;
2
address product safety, as well as the minimization of
solid waste. The cost to the Company of its research
and development operations was $29 million in 2019,
$30 million in 2018 and $28 million in 2017.
We own numerous patents, copyrights, trademarks,
trade secrets and other intellectual property rights
relating to our products and to the processes for their
production. We also license intellectual property rights
to and from others where advantageous or necessary.
Many of the manufacturing processes are among our
trade secrets. Some of our products are covered by
U.S. and non-U.S. patents and are sold under well
known trademarks. We derive a competitive advantage
by protecting our trade secrets, patents, trademarks
and other intellectual property rights, and by using them
as required to support our businesses.
ENVIRONMENTAL PROTECTION
International Paper is subject to extensive federal and
state environmental regulation, as well as similar
regulations
new
impacting our
laws or regulations
environmental
facilities around the world are routinely passed or
include:
proposed. Our
continuing objectives
internationally.
addition,
In
(1) controlling emissions and discharges from our
facilities to avoid adverse impacts on the environment,
and (2) maintaining compliance with applicable laws
and regulations. The Company spent $70 million in 2019
for capital projects to control environmental releases into
the air and water, and to assure environmentally sound
management and disposal of waste. We expect to spend
$80 million in 2020 for environmental capital projects.
Capital expenditures for 2021 environmental projects
are anticipated to be approximately $85 million. Capital
expenditures for 2022 environmental projects are
estimated to be $65 million.
The Company has completed capital projects to meet
the U.S. Environmental Protection Agency's (EPA)
Boiler MACT (maximum achievable control technology)
regulations that require owners of specified boilers to
meet revised air emissions standards for certain
substances. Although certain aspects of litigation
the Boiler MACT
challenging all or portions of
regulations remain open, we have not identified any
additional Boiler MACT capital project expenditures that
might result from resolution of the open issues.
The Company has been named as a potentially
responsible party (PRP) in environmental remediation
actions under various federal and state laws, including
the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). Many of
these proceedings involve the cleanup of hazardous
substances at large commercial landfills that received
waste from many different sources. While joint and
several liability is authorized under CERCLA and
equivalent state laws, as a practical matter, liability for
CERCLA cleanups is typically allocated among the
many PRPs. There are other remediation costs typically
associated with the cleanup of hazardous substances
at the Company’s current, closed or formerly-owned
facilities, and recorded as liabilities on the balance
sheet. For additional information regarding certain
remediation actions, see Note 14 Commitments and
Contingent Liabilities of Item 8. Financial Statements
and Supplementary Data on pages 65 through 68.
CLIMATE CHANGE
International Paper plays a significant role in responding
to the climate change challenge. Our entire business
depends upon the sustainability of forests. We transform
renewable resources into recyclable products that
people depend on every day. This cycle begins with
sourcing renewable fiber from responsibly managed
forests, and at the end of use our products are recycled
into new products at a higher rate than any other base
material. We endeavor
the
international business community in responsible forest
stewardship to ensure healthy and productive forest
ecosystems for generations to come. Our efforts to
advance sustainable forest management and restore
to continue
lead
to
forest landscapes are an important lever for mitigating
climate change through carbon storage in forests.
Furthermore, we use biomass and manufacturing
residuals (rather than fossil fuels) to generate a
substantial majority of the manufacturing energy at our
mills.
In an effort to mitigate the impact of climate change
various
international, national and sub-national
(regional, state and local) governmental actions have
been or may be undertaken. Presently, these efforts
have not materially impacted International Paper, but
such efforts may have a material impact on the Company
in the future.
INTERNATIONAL EFFORTS
toward reducing
The Paris Agreement, went into effect in November 2016
and continued international efforts and voluntary
commitments
the emissions of
greenhouse gases (GHGs). Consistent with this
objective, participating countries aim to balance GHG
emissions generation and sequestration in the second
half of this century or, in effect, achieve net-zero global
GHG emissions.
to withdraw
As part of the Paris Agreement, many countries
established non-binding emissions reduction targets.
For instance, the U.S. made a non-binding commitment
to hold GHG emissions 7% below 2005 GHG emissions
levels by 2020 and 26% to 28% below by 2025. Other
countries in which we operate made similar non-binding
commitments. On August 4, 2017, the U.S. filed official
notice
the Paris Agreement.
Notwithstanding the notice of withdrawal by the U.S.,
the Company’s voluntary GHG reductions, which are set
out in our annual Global Citizenship report, remain
roughly in line with the percentages of the U.S. prior
target reductions. It is not clear at this time what, if any,
further reductions by the Company might be required by
the countries in which we operate. Due to this
uncertainty, it is not possible at this time to estimate the
potential impacts of these agreements on the Company.
from
To assist member countries in meeting GHG reduction
obligations, the EU operates an Emissions Trading
System (EU ETS). Currently, we have two sites directly
subject to regulation under Phase III of the EU ETS, one
in Poland and one in France. Other sites that we operate
in the EU experience indirect impacts of the EU ETS
through purchased power pricing. Neither the direct nor
indirect impacts of the EU ETS have been material to
the Company, but they could be material to the Company
in the future depending on how the Paris Agreement's
non-binding commitments or allocation of and market
prices for GHG credits under existing rules evolve over
the coming years.
3
U.S. EFFORTS, INCLUDING STATE, REGIONAL AND
LOCAL MEASURES
The U.S. Congress has not passed GHG legislation.
The EPA manages regulations to: (i) control GHGs from
mobile sources by adopting
fuel
efficiency standards; (ii) control GHG emissions from
new Electric Generating Units (EGUs); (iii) control
emissions from new oil and gas processing operations
and (iv) require reporting of GHGs from sources of
GHGs greater than 25,000 tons per year.
transportation
Several U.S. states, including states in which we operate
facilities, have enacted or are considering legal
measures to require the reduction of emissions of GHGs
by companies and public utilities. California, New York
and Virginia have already enacted such programs,
although these regulations have not, and are not
expected to have a material impact on the Company.
We are monitoring proposed programs in other states,
however it is unclear what impacts, if any, state-level
GHG rules will have on the Company’s operations.
SUMMARY
Regulation of GHGs continues to evolve in various
countries in which we do business. While it is likely that
there will be increased governmental action regarding
GHGs and climate change in the future, it is unclear
when such actions will occur and at this time it is not
reasonably possible to estimate Company costs of
compliance with rules that have not yet been adopted
or implemented and may not be adopted or implemented
in the future. In addition to possible direct impacts, future
legislation and regulation could have indirect impacts on
International Paper, such as higher prices
for
transportation, energy and other inputs, as well as more
protracted air permitting processes, causing delays and
higher costs to implement capital projects. International
Paper has controls and procedures in place to stay
informed about developments concerning possible
climate change legislation and regulation in the U.S. and
in other countries where we operate. We regularly
assess whether such legislation or regulation may have
a material effect on the Company, its operations or
financial condition, and whether we have any related
disclosure obligations.
report
Additional information regarding climate change and
International Paper is available in our 2018 Global
Citizenship
found on our website at
www.internationalpaper.com, though this information is
not incorporated by reference into this Form 10-K and
should not be considered part of this or any other report
that we file with or furnish to the SEC.
EMPLOYEES
As of December 31, 2019, we have approximately
51,000 employees, nearly 33,000 of whom are located
the United States. Of our U.S. employees,
in
4
approximately 23,000 are hourly, with unions
representing approximately 14,000 employees.
Approximately 11,000 of this number are represented
by the United Steelworkers union (USW).
International Paper, the USW, and several other unions
have entered into two master agreements covering
various mills and converting facilities. These master
agreements cover several specific items, including
wages, select benefit programs, successorship,
employment security, and health and safety. Individual
facilities continue to have local agreements for other
subjects not covered by the master agreements. If local
facility agreements are not successfully negotiated at
the time of expiration, under the terms of the master
agreements the local contracts will automatically renew
with the same terms in effect. The master agreements
cover the majority of our union represented mills and
converting facilities. In addition, International Paper is
party to a master agreement with District Council 2,
International Brotherhood of Teamsters, covering
additional converting facilities.
INFORMATION ABOUT OUR EXECUTIVE
OFFICERS
Mark S. Sutton, 58, chairman (since January 1, 2015)
& chief executive officer (since November 1, 2014).
Mr. Sutton previously served as president & chief
operating officer from June 1, 2014 to October 31,
2014, senior vice president - industrial packaging from
November 2011 to May 31, 2014, senior vice president
- printing and communications papers of the Americas
from 2010 until 2011, senior vice president - supply
chain from 2008 to 2009, vice president - supply chain
from 2007 until 2008, and vice president - strategic
planning from 2005 until 2007. Mr. Sutton joined
International Paper in 1984. Mr. Sutton serves on the
board of directors of The Kroger Company. He is a
member of The Business Council, serves on the
American Forest & Paper Association board of
directors, The Business Roundtable board of directors,
and the international advisory board of the Moscow
School of Management - Skolkovo. He was appointed
chairman of the U.S. Russian Business Council. He
also serves on the board of directors for Memphis
Tomorrow and board of governors for New Memphis
Institute. Mr. Sutton has been a director since June 1,
2014.
W. Michael Amick, Jr., 56, senior vice president -
paper the Americas since January 1, 2017. Mr. Amick
previously served as senior vice president - North
American papers & consumer packaging from July
2016 until December 2016, senior vice president -
North American papers, pulp & consumer packaging
from November 2014 until June 2016, vice president
- president, IP India, from August 2012 to October
2014, and vice president and general manager for the
coated paperboard business from 2010 to 2012. Mr.
Amick joined International Paper in 1990.
Clay R. Ellis, 49, senior vice president - enterprise
operational excellence since December 2019. Mr. Ellis
previously served as vice president - manufacturing,
global cellulose fibers from 2016 to December 2019,
vice president of pulp from 2014 to 2016, and vice
president manufacturing, North American papers from
2012 to 2014. Mr. Ellis joined International Paper in
1992.
W. Thomas Hamic, 54, senior vice president -
containerboard and enterprise commercial excellence
since December 2019. Mr. Hamic previously served as
vice president and general manager - containerboard &
recycling, North American container from June 2015
until December 2019. Mr. Hamic became vice president
and general manager of the south area in container of
the Americas in 2009, and he was appointed to the role
of vice president, industrial packaging group’s finance
& strategy in 2010. Mr. Hamic joined International Paper
in 1991.
Tommy S. Joseph, 60, senior vice president until his
retirement effective February 29, 2020. Mr. Joseph
-
previously served as senior vice president
manufacturing, technology, EH&S and global sourcing
from January 2010 until October 2019. Mr. Joseph has
also previously served as senior vice president -
manufacturing, technology, EH&S from February 2009
until December 2009, and vice president - technology
from 2005 until February 2009. Mr. Joseph is a director
of Ilim in which International Paper holds a 50%
interest, and of its subsidiary, Ilim Group. Mr. Joseph
joined International Paper in 1982.
Timothy S. Nicholls, 58, senior vice president & chief
financial officer since June 2018. Mr. Nicholls previously
served as senior vice president - industrial packaging
the Americas from January 2017 through June 2018,
senior vice president - industrial packaging from
November 2014 through December 2016, senior vice
president - printing and communications papers of the
Americas from November 2011 through October 2014,
senior vice president and chief financial officer from
2007 until 2011, vice president and executive project
leader of IP Europe during 2007, and vice president and
chief financial officer - IP Europe from 2005 until 2007.
Mr. Nicholls joined International Paper in 1999.
Thomas J. Plath, 56, senior vice president - human
resources and global citizenship since March 1, 2017.
Mr. Plath previously served as vice president - human
resources, global businesses from November 2014
through February 2017, and vice president - HR
manufacturing, technology, EH&S and global supply
5
chain from April 2013 to November 2014. Mr. Plath
joined International Paper in 1991.
Jean-Michel Ribieras, 57, senior vice president -
industrial packaging the Americas since June 2018. Mr.
Ribieras previously served as senior vice president -
global cellulose fibers from July 2016 through June
2018, senior vice president - president, IP Europe,
Middle East, Africa & Russia from 2013 until June 2016,
and president - IP Latin America from 2009 until 2013.
Mr. Ribieras joined International Paper in 1993.
James P. Royalty, Jr., 50, senior vice president and
president, Europe, the Middle East, Africa and Russia
since December 2019. Most recently, Mr. Royalty served
as vice president, corporate development and disruptive
technologies from September 2018 until December
2019, vice president, strategic projects from 2017 until
2018, vice president, investor relations from 2013 until
2017, vice president and general manager, container
the Americas in 2008 to 2013. Mr. Royalty joined
International Paper in 1991.
Sharon R. Ryan, 60, senior vice president, general
counsel & corporate secretary since November 2011.
Ms. Ryan previously served as vice president, acting
general counsel & corporate secretary from May 2011
until November 2011, vice president from March 2011
until May 2011, associate general counsel, chief ethics
and compliance officer from 2009 until 2011, and
associate general counsel from 2006 until 2009. Ms.
Ryan joined International Paper in 1988.
John V. Sims, 57, senior vice president - corporate
development since December 2019. Mr Sims
previously served as senior vice president - president,
IP Europe, Middle East, Africa & Russia from July 2016
until December 2019. Mr. Sims also previously served
as vice president and general manager, European
papers from January 2016 until June 2016, vice
president & general manager, North American papers
from 2014 until December 2015, and vice president,
finance and strategy, industrial packaging, from 2009
until 2013. Mr. Sims is a director of Ilim in which
International Paper holds a 50% interest, and of its
subsidiary, Ilim Group. Mr. Sims joined International
Paper in 1994.
Catherine I. Slater, 56, senior vice president - global
cellulose fibers & IP Asia since June 2018. Ms. Slater
previously served as senior vice president - consumer
packaging from December 2016 through December
2017. Ms. Slater joined International Paper from
Weyerhaeuser Company in December 2016, effective
with the completion of the acquisition of Weyerhaeuser’s
cellulose fibers business, which she previously led. Ms.
Slater’s 24-year career with Weyerhaeuser included
leadership roles in manufacturing, printing papers,
consumer products, wood products and the cellulose
fibers business.
Gregory T. Wanta, 54, senior vice president - North
American container since December 2016. Mr. Wanta
has served in a variety of roles of increasing
in manufacturing and commercial
responsibility
in specialty papers, coated
leadership
roles
paperboard, printing papers,
foodservice and
industrial packaging, including vice president, central
region, Container the Americas, from January 2012
through October 2016. Mr. Wanta joined International
Paper in 1991.
RAW MATERIALS
Raw materials essential to our businesses include wood
fiber, purchased in the form of pulpwood, wood chips
and old corrugated containers (OCC), and certain
chemicals, including caustic soda and starch. For further
information
supply purchase
concerning
agreements, see page 31.
fiber
FORWARD-LOOKING STATEMENTS
“will,”
“may,”
the words,
Certain statements in this Annual Report on Form 10-K
(including the exhibits hereto) that are not historical in
nature may be considered “forward-looking” statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are often
identified by
“should,”
“continue,” “anticipate,” “believe,” “expect,” “plan,”
“appear,” “project,” “estimate,” “intend,” and words of a
similar nature. These statements are not guarantees of
future performance and reflect management’s current
views with respect to future events, which 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) the level
of our indebtedness and changes in interest rates; (ii)
industry conditions, including but not limited to changes
in the cost or availability of raw materials, energy and
transportation costs, competition we face, cyclicality and
changes in consumer preferences, demand and pricing
for our products; (iii) domestic and global economic
conditions and political changes, including but not
limited to 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,
rating
organizations, (iv) the amount of our future pension
funding obligations, and pension and health care costs;
(v) unanticipated expenditures or other adverse
developments related to the cost of compliance with
existing and new environmental,
labor and
employment, privacy, and other U.S. and non-U.S.
governmental laws and regulations; (vi) whether we
experience a material disruption at one of our
recognized credit
issued by
tax,
manufacturing facilities; (vii) risks inherent in conducting
business through joint ventures; (viii) our ability to
achieve the benefits we expect from, and other risks
associated with, acquisitions, joint ventures, divestitures
and other corporate transactions, (ix) information
technology risks, and (x) loss contingencies and
pending, threatened or future litigation, including with
respect to environmental matters. These and other
factors that could cause or contribute to actual results
differing materially
forward-looking
statements are discussed in greater detail below in “Item
1A. Risk Factors.”
In addition, other risks and
uncertainties not presently known to us or that we
currently believe to be immaterial could affect the
accuracy of any forward-looking statements. We
undertake no obligation to publicly update any forward-
looking statements, whether as a result of new
information, future events or otherwise.
such
from
ITEM 1A. RISK FACTORS
The Company faces risks in the normal course of
business and through global, regional, and local events
that could have an adverse impact on its reputation,
operations, and financial performance. The Board of
Directors exercises oversight of
the Company’s
enterprise risk management program, which includes
strategic, operational and financial matters, as well as
compliance and legal risks. The Audit and Finance
Committee coordinates the risk oversight role exercised
by the Board’s standing committees and management,
and it receives updates on the risk management
processes twice per year.
In addition to the risks and uncertainties discussed
elsewhere in this Annual Report on Form 10-K
(particularly in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations), or in the Company’s other filings with the
Securities and Exchange Commission, the following are
some important factors that could cause the Company’s
actual results to differ materially from those projected in
any forward-looking statement. If any of the events or
circumstances described in any of the following risk
factors occurs, our business, results of operations and/
or financial condition could be materially and adversely
affected, and our actual results may differ materially from
those contemplated in any forward-looking statements
we make in any public disclosures.
RISKS RELATING TO INDUSTRY CONDITIONS
CHANGES IN THE COST OR AVAILABILITY OF RAW
MATERIALS, ENERGY AND TRANSPORTATION
COULD AFFECT OUR PROFITABILITY. We rely
heavily on the use of certain raw materials (principally
virgin wood fiber, recycled fiber, caustic soda and
starch), energy sources (principally biomass, natural
gas, electricity and fuel oil) and third-party companies
that transport our goods. The market price of virgin wood
6
fiber varies based upon availability and source. The
global supply and demand for recycled fiber may be
affected by trade policies between countries, individual
governments' legislation and regulations, as well as
changes in the global economy. In addition, the increase
in demand of products manufactured, in whole or in part,
from recycled fiber, on a global basis, may cause
significant fluctuations in recycled fiber prices. Energy
prices, in particular prices for oil and natural gas, have
fluctuated dramatically in the past and may continue to
fluctuate in the future. The availability of labor and the
market price for fuel may affect our costs for third-party
transportation. Our profitability has been, and will
continue to be, affected by changes in the costs and
availability of such raw materials, energy sources and
transportation sources.
OUR
AFFECT
INDUSTRIES
THE
IN WHICH WE OPERATE
EXPERIENCE BOTH ECONOMIC CYCLICALITY
AND CHANGES IN CONSUMER PREFERENCES.
FLUCTUATIONS IN THE PRICES OF, AND THE
DEMAND FOR, OUR PRODUCTS COULD
MATERIALLY
FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND
CASH FLOWS. Substantially all of our businesses have
experienced, and are likely to continue to experience,
cycles relating to industry capacity and general
economic conditions. The length and magnitude of
these cycles have varied over time and by product. In
addition, changes in consumer preferences may
increase or decrease the demand for our fiber-based
products and non-fiber substitutes. Moreover, consumer
preferences are constantly changing based on, among
other
factors, cost, convenience and health,
environmental and social concerns and perceptions.
These consumer preferences affect the prices of our
products. Consequently, our financial results are
sensitive to changes in the pricing and demand for our
products.
IN THE UNITED STATES AND
COMPETITION
INTERNATIONALLY COULD NEGATIVELY IMPACT
OUR FINANCIAL RESULTS. We operate
in a
competitive environment, both in the United States and
internationally, in all of our operating segments. Product
innovations, manufacturing and operating efficiencies,
and marketing, distribution and pricing strategies
pursued or achieved by competitors could negatively
impact our financial results.
RISKS RELATING TO MARKET AND ECONOMIC FACTORS
ADVERSE DEVELOPMENTS
IN GENERAL
BUSINESS AND ECONOMIC CONDITIONS COULD
HAVE AN ADVERSE EFFECT ON THE DEMAND FOR
OUR PRODUCTS AND OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. General economic
conditions may adversely affect industrial non-durable
goods production, consumer spending, commercial
activity, white-collar
printing
advertising
and
employment levels and consumer confidence, all of
which impact demand for our products. In addition,
volatility in the capital and credit markets, which impacts
interest rates, currency exchange rates and the
availability of credit, could have a material adverse effect
on our business, financial condition and our results of
operations.
IN
CHANGES
INTERNATIONAL CONDITIONS
COULD ADVERSELY AFFECT OUR BUSINESS AND
RESULTS OF OPERATIONS. Our operating results
and business prospects could be substantially affected
by risks related to the countries outside the United States
in which we have manufacturing facilities or sell our
products. Specifically, Russia, Brazil, Poland, and
Turkey, where we have substantial manufacturing
facilities, are countries that are exposed to economic
and political instability in their respective regions of the
world. Fluctuations in the value of local currency versus
the U.S. dollar, downturns in economic activity, adverse
tax consequences or rulings, nationalization or any
change in social, political or labor conditions in any of
these countries or regions impacting matters such as
sustainability, environmental regulations and trade
policies and agreements, could negatively affect our
financial results. In addition, outbreak of a widespread
health epidemic, such as a coronavirus, influenza and
other highly communicable diseases or viruses, could
also adversely impact our operating results and
business prospects, including if operations of our
customers are adversely impacted. In this regard, while
we do not currently expect that our financial results will
be significantly and adversely affected by the COVID-19
virus that was first detected in Wuhan, China in
December 2019, there continue to be significant
uncertainties associated with the COVID-19 virus,
including with respect to the ultimate geographic spread
of the virus, the severity of the disease, the duration of
the outbreak, and actions that may be taken by Chinese
or other governmental authorities to contain the
COVID-19 virus or to treat its impact, and the extent to
which the COVID-19 outbreak may impact our financial
results, including as the result of its possible impact on
the Chinese or global economy, is not certain.
Trade protection measures in favor of local producers
of competing products,
including governmental
subsidies, tax benefits and other measures giving local
producers a competitive advantage over International
Paper, may also adversely impact our operating results
and business prospects in these countries. Likewise,
disruption in existing trade agreements or increased
trade friction between countries (e.g., the U.S. and
China), which can result in tariffs, could have a negative
effect on our business and results of operations by
restricting the free flow of goods and services across
borders. In addition, our international operations are
subject to regulation under U.S. law and other laws
related to operations in foreign jurisdictions. For
7
example, the Foreign Corrupt Practices Act prohibits
U.S. companies and their representatives from offering,
promising, authorizing or making payments to foreign
officials for the purpose of obtaining or retaining
business abroad, and the U.S. Department of Treasury’s
Office of Foreign Asset Control and other non-U.S.
government entities maintain economic sanctions
targeting various countries, persons and entities. Failure
to comply with domestic or foreign laws could result in
various adverse consequences, including the imposition
of civil or criminal sanctions and the prosecution of
executives overseeing our international operations.
THE LEVEL OF OUR INDEBTEDNESS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND IMPAIR OUR ABILITY TO OPERATE OUR
BUSINESS. As of December 31, 2019, International
Paper had approximately $9.8 billion of outstanding
indebtedness. The level of our indebtedness could have
important consequences to our financial condition,
operating results and business, including the following:
•
•
•
•
•
financing
it may limit our ability to obtain additional debt or
for working capital, capital
equity
expenditures, product development, dividends,
share repurchases, debt service requirements,
acquisitions and general corporate or other
purposes;
a portion of our cash flows from operations will be
dedicated to payments on indebtedness and will
not be available for other purposes, including
future
operations, capital expenditures and
business opportunities;
the debt service requirements of our indebtedness
could make it more difficult for us to satisfy other
obligations;
it may limit our ability to adjust to changing market
conditions and place us at a competitive
disadvantage compared to our competitors that
have less debt; and
it may increase our vulnerability to a downturn in
general economic conditions or in our business,
and may make us unable to carry out capital
spending that is important to our growth.
In addition, we are subject to agreements governing our
indebtedness that require us to meet and maintain
certain financial ratios and covenants. A significant or
prolonged downturn in general business and economic
conditions, or other significant adverse developments
with respect to our results of operations or financial
condition, may affect our ability to comply with these
covenants or meet those financial ratios and tests and
could require us to take action to reduce our debt or to
act in a manner contrary to our current business
objectives. Moreover, the restrictions associated with
8
these financial ratios and covenants may prevent us
from taking actions that we believe would be in the best
interest of our business and may make it difficult for us
to execute our business strategy successfully or
effectively compete with companies that are not similarly
restricted. Additionally, despite these restrictions, we
may be able to incur substantial additional indebtedness
in the future, which might subject us to additional
restrictive covenants that could affect our financial and
operational flexibility and otherwise increase the risks
associated with our indebtedness as noted above.
Moreover, certain of our variable rate debt uses the
London Interbank Offering Rate (“LIBOR”) as a
benchmark for establishing the interest rate. The U.K.
Financial Conduct Authority announced in 2017 that it
intends to phase out LIBOR by the end of 2021. In
addition, other regulators have suggested reforming or
replacing other benchmark rates. The discontinuation,
reform or replacement of LIBOR or any other benchmark
rates may have an unpredictable impact on contractual
mechanics in the credit markets or cause disruption to
the broader financial markets. Additionally, uncertainty
as to the nature of such potential discontinuation, reform
or replacement may negatively impact the cost of our
variable rate debt.
IN CREDIT RATINGS
ISSUED BY
CHANGES
NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS COULD ADVERSELY AFFECT
OUR COST OF FINANCING AND HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR
SECURITIES. Maintaining an investment-grade credit
rating is an important element of our financial strategy,
and a downgrade of the Company’s ratings below
investment grade will likely eliminate our ability to
access the commercial paper market, may limit our
access to the capital markets, have an adverse effect
on the market price of our securities, increase our cost
of borrowing and require us to post collateral for
derivatives in a net liability position. The Company’s
desire to maintain its investment grade rating may cause
the Company to take certain actions designed to
improve its cash flow, including sale of assets,
suspension or reduction of our dividend and reductions
in capital expenditures and working capital.
the
terms of
Under
the agreements governing
approximately $1.4 billion of our debt as of
December 31, 2019, the applicable interest rate on such
debt may increase upon each downgrade in our credit
rating below investment grade. As a result, a downgrade
in our credit rating below investment grade may lead to
an increase in our interest expense. There can be no
assurance that such credit ratings will remain in effect
for any given period of time or that such ratings will not
be lowered, suspended or withdrawn entirely by the
rating agencies, if, in each rating agency’s judgment,
circumstances so warrant. Any such downgrade,
suspension or withdrawal of our credit ratings could
adversely affect our cost of borrowing, limit our access
to the capital markets or result in more restrictive
covenants in agreements governing the terms of any
future indebtedness that we may incur.
DOWNGRADES IN THE CREDIT RATINGS OF
BANKS ISSUING CERTAIN LETTERS OF CREDIT
WILL INCREASE OUR COST OF MAINTAINING
CERTAIN INDEBTEDNESS AND MAY RESULT IN
THE ACCELERATION OF DEFERRED TAXES. We are
subject to the risk that a bank with currently issued
irrevocable letters of credit supporting installment notes,
including those delivered to Temple-Inland in connection
with Temple-Inland's 2007 sales of forestlands, may be
downgraded below a required rating. Since 2007,
certain banks have fallen below the required ratings
threshold and were successfully replaced, or waivers
were obtained regarding their replacement. As a result
of continuing uncertainty in the banking environment, a
number of the letter-of-credit banks currently in place
remain subject to risk of downgrade and the number of
qualified replacement banks remains limited. The
downgrade of one or more of these banks may subject
the Company to additional costs of securing a
replacement letter-of-credit bank or could result in an
acceleration of payments of up to $485 million in
deferred income taxes if replacement banks cannot be
obtained. The deferred taxes are currently recorded in
the Company's consolidated financial statements. See
Note 15, Variable Interest Entities, on pages 68 through
70, and Note 13, Income Taxes, on pages 62 through
65, in Item 8. Financial Statements and Supplementary
Data for further information.
OUR PENSION AND HEALTH CARE COSTS ARE
SUBJECT TO NUMEROUS FACTORS WHICH
COULD CAUSE THESE COSTS TO CHANGE. We
have defined benefit pension plans covering
substantially all U.S. salaried employees hired prior to
July 1, 2004 (or later for certain acquired populations,
as described in Note 19. Retirement Plans, on pages
75 through 81, in Item 8. Financial Statements and
Supplementary Data) and substantially all hourly union
and non-union employees regardless of hire date. The
Company has frozen participation under these plans for
U.S. salaried employees, including credited services
and compensation on or after January 1, 2019; however,
the pension freeze does not affect benefits accrued
through December 31, 2018. We provide retiree health
care benefits to certain former U.S. employees, as well
as financial assistance towards the cost of individual
retiree medical coverage for certain former U.S. salaried
employees. Our pension costs are dependent upon
numerous factors resulting from actual plan experience
and assumptions of future experience. Pension plan
assets are primarily made up of equity and fixed income
investments. Fluctuations in actual equity market
returns, changes in general interest rates and changes
in the number of retirees may impact pension costs in
future periods. Likewise, changes in assumptions
regarding current discount rates and expected rates of
return on plan assets could increase pension costs.
Drivers for fluctuating health costs include unit cost
changes, health care utilization by participants, and
potential legislative impacts and government oversight.
OUR PENSION PLANS ARE CURRENTLY
UNDERFUNDED ON A PROJECTED BENEFIT
OBLIGATION BASIS, AND OVER TIME WE MAY BE
REQUIRED TO MAKE CASH PAYMENTS TO THE
PLANS, REDUCING THE CASH AVAILABLE FOR
OUR BUSINESS. We record a liability associated with
our pension plans equal to the excess of the benefit
obligation over the fair value of plan assets. The benefit
liability recorded under the provisions of Accounting
Standards Codification (ASC) 715, “Compensation –
Retirement Benefits,” at December 31, 2019 was $1.6
billion. The amount and timing of future contributions,
which could be material, will depend upon a number of
factors, including the actual earnings and changes in
values of plan assets and changes in interest rates.
RISKS RELATING TO OUR OPERATIONS
FACILITIES
MATERIAL DISRUPTIONS AT ONE OF OUR
MANUFACTURING
COULD
NEGATIVELY IMPACT OUR FINANCIAL RESULTS.
We operate our facilities in compliance with applicable
rules and regulations and take measures to minimize
the risks of disruption at our facilities. A material
disruption at our corporate headquarters or one of our
manufacturing facilities could prevent us from meeting
customer demand, reduce our sales and/or negatively
impact our financial condition. Any of our manufacturing
facilities, or any of our machines within an otherwise
operational
operations
could
unexpectedly due to a number of events, including:
facility,
cease
•
•
•
•
•
•
•
fires, floods, earthquakes, hurricanes or other
catastrophes;
the effect of a drought or reduced rainfall on its
water supply;
the effect of other severe weather conditions on
equipment and facilities;
disruption in the supply of raw materials or other
manufacturing inputs;
terrorism or threats of terrorism;
information system disruptions or failures due to
any number of causes, including cyber-attacks;
domestic and international laws and regulations
applicable to our Company and our business
partners, including joint venture partners, around
the world;
9
•
•
•
•
•
•
•
•
•
•
•
unscheduled maintenance outages;
prolonged power failures;
an equipment failure;
a chemical spill or release;
explosion of a boiler or other equipment;
damage or disruptions caused by third parties
operating on or adjacent
to one of our
manufacturing facilities;
disruptions in the transportation infrastructure,
including roads, bridges, railroad tracks and
tunnels;
a widespread outbreak of an illness or any other
communicable disease, such as
the recent
outbreak of the COVID-19 virus in China, or any
other public health crisis;
failure of our third party service providers and
business partners to satisfactorily fulfill their
commitments and responsibilities in a timely
manner and in accordance with agreed upon
terms;
labor difficulties; and
other operational problems.
Any such downtime or facility damage could prevent us
from meeting customer demand for our products and/
or require us to make unplanned expenditures. If one of
these machines or facilities were to incur significant
downtime, our ability to meet our production targets and
satisfy customer requirements could be impaired,
resulting in lower sales and having a negative effect on
our business and financial results.
CERTAIN OPERATIONS ARE CONDUCTED BY
JOINT VENTURES THAT WE CANNOT OPERATE
SOLELY FOR OUR BENEFIT. Certain operations in
Russia are carried on by a joint venture, Ilim. In joint
ventures, we share ownership and management of a
company with one or more parties who may or may not
have the same goals, strategies, priorities or resources
as we do. In general, joint ventures are intended to be
operated for the benefit of all co-owners, rather than for
our exclusive benefit. Operating a business as a joint
venture often
requires additional organizational
formalities as well as time-consuming procedures for
sharing information and making decisions. In joint
ventures, we are required to pay more attention to our
relationship with our co-owners as well as with the joint
venture, and if a co-owner changes, our relationship
may be adversely affected. In addition, the benefits from
a successful joint venture are shared among the co-
owners, so we receive only our portion of those benefits.
10
DIVESTITURES,
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS
JOINT
FROM
STRATEGIC ACQUISITIONS,
CAPITAL
VENTURES,
INVESTMENTS AND OTHER
CORPORATE
TRANSACTIONS THAT WE HAVE PURSUED OR
MAY PURSUE. Our strategy for long-term growth,
productivity and profitability depends, in part, on our
ability
joint
to accomplish prudent acquisitions,
ventures, divestitures, capital investments and other
corporate transactions that we may pursue and to
realize the benefits we expect from such transactions,
and we are subject to the risk that we may not achieve
the expected benefits. This failure could require us to
record an impairment charge for goodwill or other
intangible assets, which could lead to decreased assets
and reduced net earnings. Among the benefits we
expect from potential as well as completed acquisitions
and joint ventures are synergies, cost savings, growth
opportunities or access
to new markets (or a
combination thereof), and in the case of divestitures, the
realization of proceeds from the sale of businesses and
assets to purchasers who place higher strategic value
on such businesses and assets than does International
Paper.
Corporate transactions of this nature which we may
pursue involve a number of special risks, including with
respect to our inability to realize our business goals with
respect to such transactions as noted above, the focus
of our management’s attention on these transactions
and the assimilation of acquired businesses into our
operations, the demands on our financial, operational
and information technology systems resulting from
acquired businesses, and the possibility that we may
become responsible for substantial contingent or
unanticipated legal liabilities as the result of acquisitions
or other corporate transactions.
TO
AND
SUBJECT
EMPLOYEE
WE ARE
INFORMATION
TECHNOLOGY RISKS RELATED TO BREACHES OF
SECURITY PERTAINING TO SENSITIVE COMPANY,
CUSTOMER,
VENDOR
INFORMATION AS WELL AS BREACHES IN THE
TECHNOLOGY USED TO MANAGE OPERATIONS
AND OTHER BUSINESS PROCESSES. Our business
operations rely upon secure information technology
systems for data capture, processing, storage and
reporting. Despite careful security and controls design,
implementation, updating and independent third party
verification, our information technology systems, and
those of our third party providers or joint venture
partners, could become subject to employee error or
malfeasance, cyber attacks by common hackers,
criminal groups or nation-state organizations or social
activist (hacktivist) organizations, geopolitical events,
natural disasters,
impairments of
telecommunications networks or other catastrophic
events. Network, system, application and data breaches
failures or
limited
including, but not
could result in operational disruptions or information
misappropriation
to,
interruption to systems availability, denial of access to
and misuse of applications required by our customers
to conduct business with International Paper. Access to
applications required to plan our operations, source
materials, manufacture and ship finished goods and
account for orders could be denied or misused. Theft of
intellectual property or trade secrets, and inappropriate
disclosure of confidential company, employee,
customer or vendor information, could stem from such
incidents. Any of these operational disruptions and/or
misappropriation of information could result in lost sales,
business delays, negative publicity and could have a
material effect on our business.
RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE
COSTS
laws,
WE ARE SUBJECT TO A WIDE VARIETY OF LAWS,
REGULATIONS AND OTHER GOVERNMENT
REQUIREMENTS THAT MAY CHANGE
IN
SIGNIFICANT WAYS, AND THE COST OF
COMPLIANCE WITH SUCH REQUIREMENTS
COULD IMPACT OUR BUSINESS AND RESULTS OF
OPERATIONS. Our operations are subject to regulation
under a wide variety of U.S. federal and state and non-
U.S.
regulations and other government
requirements -- including, among others, those relating
to the environment, health and safety, labor and
employment, data privacy, tax, trade and health care.
There can be no assurance that laws, regulations and
government requirements will not be changed, applied
or interpreted in ways that will require us to modify our
operations and objectives or affect our returns on
investments by restricting existing activities and
products, subjecting them to escalating costs.
For example, we have incurred, and expect that we will
continue to incur, significant capital, operating and other
expenditures complying with applicable environmental
laws and regulations. Our environmental expenditures
include, among other areas, those related to air and
water quality, waste disposal and the cleanup of
contaminated soil and groundwater, including situations
where we have been identified as a potentially
responsible party. Moreover, we may be directly
impacted by, and are working to manage, the risks and
costs to us, our customers and our vendors of the effects
of climate change, greenhouse gases, and
the
availability of energy and water resources. These risks
include the potentially adverse impact on forestlands,
which are a key resource in the production of our
products, increased product costs and a change in the
types of products that customers purchase. We also face
risks arising from the increased public focus, including
by governmental and nongovernmental organizations,
on these and other environmental sustainability matters,
such as packaging and waste, deforestation, and land
use. These risks also include the increased pressure to
make commitments, set targets, or establish additional
goals and take actions to meet them. These risks could
expose us to market, operational, and execution costs
or risks. There can be no assurance that future
remediation requirements and compliance with existing
and new laws and requirements will not require
significant expenditures, or that existing reserves for
specific matters will be adequate to cover future costs.
We could also incur substantial fines or sanctions,
enforcement actions (including orders limiting our
operations or requiring corrective measures), natural
resource damages claims, cleanup and closure costs,
and third-party claims for property damage and personal
injury as a result of violations of, or liabilities under,
environmental laws, regulations, codes and common
law. The amount and
timing of environmental
expenditures is difficult to predict, and, in some cases,
liability may be imposed without regard to contribution
or to whether we knew of, or caused, the release of
hazardous substances.
Additionally, we are subject to complex and evolving
U.S. and international privacy laws and regulations,
including those pertaining to the handling of personal
data, such as the General Data Protection Regulation
(“GDPR”) and the California Consumer Privacy Act of
2018 (“CCPA”). The GDPR, which became effective on
May 25, 2018, with respect to all member states of the
European Union, includes operational requirements for
companies receiving or processing personal data of EU
residents that are partially different from those that had
previously been in place and includes significant
penalties for noncompliance. The CCPA, which went
into effect on January 1, 2020, affords California
privacy
residents
protections. Moreover, governmental authorities around
the world are considering, or are in the process of
implementing, new data protection regulations.
households
expanded
and
Many of these laws and regulations are subject to
uncertain application, interpretation or enforcement
standards that could result in claims, changes to our
business practices, data processing and security
systems, penalties, increased operating costs or other
impacts on our businesses. The recently enacted laws
often provide for civil penalties for violations, as well as
private rights of action for data breaches that may
increase data breach litigation. IP proactively uses
internal and external resources to monitor compliance
with relevant legislation and continually evaluates and,
where necessary, modifies its data processing practices
and policies in order to comply with evolving privacy
laws. Nevertheless, relevant regulatory authorities
could determine that our data handling practices fail to
address all the requirements of certain new laws, which
could subject us to penalties and/or litigation. In addition,
there is no assurance that our security controls over
personal data, the training of employees and vendors
11
on data privacy and data security, and the policies,
procedures and practices we implemented or may
implement in the future will prevent the improper
disclosure of personal data. Improper disclosure of
personal data in violation of the GDPR, the CCPA and/
or of other personal data protection laws could harm our
reputation, cause loss of consumer confidence, subject
us to government enforcement actions (including fines),
or result in private litigation against us, which could result
in loss of revenue, increased costs, liability for monetary
damages, fines and/or criminal prosecution, all of which
could negatively affect our business and operating
results.
As a final example, the application of tax law is subject
to interpretation and is subject to audit by taxing
authorities. Additionally, administrative guidance can be
incomplete or vary from legislative intent, and therefore
the application of the tax law is uncertain. While we
believe the positions reported by the Company comply
with relevant tax laws and regulations, taxing authorities
could interpret our application of certain laws and
regulations differently. We are currently subject to tax
audits in the U.S., Brazil, Poland, Russia and other
taxing jurisdictions around the world. In some cases,
we have appealed and may continue to appeal,
assessments by taxing authorities in the court system.
As such, tax controversy matters may result in
previously unrecorded tax expenses, higher future tax
expenses or the assessment of interest and penalties.
RESULTS OF LEGAL PROCEEDINGS COULD HAVE
A MATERIAL EFFECT ON OUR CONSOLIDATED
FINANCIAL RESULTS. We are a party to various legal,
regulatory and governmental proceedings and other
related matters, including with respect to environmental
matters. In addition, we are and may become subject to
other loss contingencies, both known and unknown,
which may relate to past, present and future facts,
events, circumstances and occurrences. Should an
unfavorable outcome occur in connection with our legal,
regulatory or governmental proceedings or other loss
contingencies, or if we become subject to any such loss
contingencies in the future, there could be a material
adverse impact on our financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
FORESTLANDS
As of December 31, 2019, the Company owned or
managed approximately 329,000 acres of forestlands in
forest
Brazil, and had,
management agreements, harvesting
rights on
government-owned forestlands in Russia. All owned
licenses and
through
lands in Brazil are independently third-party certified for
sustainable forestry under the Brazilian National Forest
Certification Program (CERFLOR) and the Forest
Stewardship Council (FSC).
MILLS AND PLANTS
A listing of our production facilities by segment, the vast
majority of which we own, can be found in Appendix I
hereto, which is incorporated herein by reference.
The Company’s facilities are in good operating condition
and are suited for the purposes for which they are
presently being used. We continue to study the
economics of modernization or adopting other
alternatives for higher cost facilities.
CAPITAL INVESTMENTS AND DISPOSITIONS
Given the size, scope and complexity of our business
interests, we continually examine and evaluate a wide
variety of business opportunities and planning
alternatives, including possible acquisitions and sales
or other dispositions of properties. You can find a
discussion about
level of planned capital
investments for 2020 on page 30, and dispositions and
restructuring activities as of December 31, 2019, on
Item 7. Management’s
pages 23
Discussion and Analysis of Financial Condition and
Results of Operations, and on page 56 of Item 8.
Financial Statements and Supplementary Data.
through 25 of
the
ITEM 3. LEGAL PROCEEDINGS
Information concerning certain legal proceedings of the
Company is set forth in Note 14 Commitments and
Contingent Liabilities on pages 65 through 68 of Item 8.
Financial Statements and Supplementary Data which is
incorporated herein by reference.
Additionally, the Florida Department of Environmental
Protection and the Company are currently in negotiations
to enter into a settlement of violations by the Company’s
Pensacola mill of its wastewater effluent discharge permit
chronic toxicity limit. The settlement would include
penalties totaling $1.1 million and require the mill to
engage in certain corrective actions.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
As of the filing of this Annual Report on Form 10-K, the
Company’s common shares are traded on the New York
Stock Exchange (NYSE: IP). As of February 14, 2020,
there were approximately 9,663 record holders of
common stock of the Company.
We pay regular quarterly cash dividends and expect to
continue to pay regular quarterly cash dividends in the
foreseeable future, though each quarterly dividend
payment is subject to review and approval by our Board
of Directors. Our ability to pay dividends is, and in the
future may continue to be, limited by the terms of our
debt documents.
The table below presents information regarding the
Company’s purchases of its equity securities for the time
periods presented.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
Period
October 1, 2019 - October 31, 2019
November 1, 2019 - November 30, 2019
December 1, 2019 - December 31, 2019
Total
Total Number of Shares
Purchased (a)
Average Price Paid per
Share
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced
Programs
Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (in billions)
— $
205
5,357
5,562
—
43.68
46.34
— $
—
—
1.75
1.75
1.75
(a) 5,562 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs.
During 2019, 10,828,416 shares were purchased under our share repurchase program, which was approved by our Board of Directors and
announced on July 8, 2014 and October 9, 2018. Through this program, which does not have an expiration date, we were authorized to
purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $3.5 billion aggregate
amount of shares of our common stock. As of February 14, 2020, approximately $1.75 billion aggregate amount of shares of our common
stock remained authorized for purchase under this program.
13
PERFORMANCE GRAPH
The performance graph shall not be deemed “soliciting
material” or to be “filed” with the Commission or subject
to Regulation 14A or 14C under, or to the liabilities of
Section 18 of, the Exchange Act of 1934, as amended.
The following graph compares a $100 investment in
Company stock on December 31, 2014 with a $100
investment in our Return on Invested Capital (ROIC)
Peer Group and the S&P 500 also made at market close
on December 31, 2014. The graph portrays total return,
2014–2019, assuming reinvestment of dividends.
Note 1. The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Graphic Packaging Holding Company, Klabin
S.A., Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso Group, and UPM-
Kymmene Corp. WestRock was added to the Peer group beginning in 2016 after the merger of MeadWestvaco and Rock-Tenn. Fibria
Celulose S.A. was excluded at the end of 2018 due to being acquired by Suzano.
Note 2.
Returns are calculated in $USD.
14
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY (a)
Dollar amounts in millions, except per share
amounts and stock prices
RESULTS OF OPERATIONS
Net sales
Costs and expenses, excluding interest
Earnings (loss) from continuing operations
before income taxes and equity earnings
Equity earnings (loss), net of taxes
Discontinued operations, net of taxes
Net earnings (loss)
Noncontrolling interests, net of taxes
Net earnings (loss) attributable to International
Paper Company
FINANCIAL POSITION
2019
2018
2017
2016
2015
$ 22,376
20,281
$ 23,306
20,989
$ 21,743
20,323
$ 19,495
18,180
$ 20,675
18,988
1,604
(b)
1,781
(e)
250
—
1,220
(b-c)
(5)
(d)
336
345
2,017
5
(f)
(e-g)
848
177
34
2,144
(h)
(i)
(h-j)
—
(k)
(l)
(k-m)
795
198
102
902
(2)
1,132
(n)
117
85
917
(21)
(o)
(n-p)
1,225
(b-d)
2,012
(e-g)
2,144
(h-j)
904
(k-m)
938
(n-p)
Current assets less current liabilities
$ (2,007)
$
2,302
$
3,175
$
2,601
$
2,244
Plants, properties and equipment, net
Forestlands
Financial assets of variable interest entities
Total assets
Notes payable and current maturities of long-
term debt
Current nonrecourse financial liabilities of
variable interest entities
Long-term debt
Long-term nonrecourse financial liabilities of
variable interest entities
Total shareholders’ equity
BASIC EARNINGS PER SHARE
ATTRIBUTABLE TO INTERNATIONAL
PAPER COMPANY COMMON
SHAREHOLDERS
13,004
391
7,088
33,471
168
4,220
9,597
2,085
7,713
Earnings (loss) from continuing operations
$
3.10
Discontinued operations
Net earnings (loss)
DILUTED EARNINGS PER SHARE
ATTRIBUTABLE TO INTERNATIONAL
PAPER COMPANY COMMON
SHAREHOLDERS
—
3.10
Earnings (loss) from continuing operations
$
3.07
Discontinued operations
Net earnings (loss)
Cash dividends
COMMON STOCK PRICES
High
Low
Year-end
FINANCIAL RATIOS
Current ratio
Total debt to capital ratio
Return on shareholders’ equity
CAPITAL EXPENDITURES
NUMBER OF EMPLOYEES
—
3.07
2.013
$ 48.24
36.45
46.05
0.8
0.56
16.2%
$ 1,276
51,000
13,067
402
7,070
33,576
639
—
13,265
448
7,051
33,903
311
—
13,003
456
7,033
33,093
239
—
10,015
10,846
11,075
6,298
7,362
4.07
0.84
4.91
4.02
0.83
4.85
1.925
$
$
6,291
6,522
5.11
0.08
5.19
5.05
0.08
5.13
1.863
$
$
6,284
4,341
1.95
0.25
2.20
1.93
0.25
2.18
1.783
$
$
11,000
366
7,014
30,271
426
—
8,844
6,277
3,884
$
$
2.05
0.20
2.25
2.03
0.20
2.23
1.640
$
66.94
$
58.96
$
54.68
$
57.90
37.55
40.36
1.5
0.59
28.4%
49.60
57.94
1.6
0.63
43.9%
32.50
53.06
1.6
0.72
22.1%
36.76
37.70
1.6
0.70
20.0%
$
1,572
53,000
$
1,391
56,000
$
1,348
55,000
$
1,487
56,000
15
2019:
(b)
Includes the following charges (gains):
In millions
FINANCIAL GLOSSARY
Current ratio—
current assets divided by current liabilities.
Total debt to capital ratio—
long-term debt plus notes payable and current
maturities of long-term debt divided by long-term
debt, notes payable and current maturities of long-
term debt and total shareholders’ equity.
Return on shareholders’ equity—
net earnings attributable to International Paper
Company divided by average shareholders’ equity
(computed monthly).
FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY
(a) All prior periods presented have been restated to reflect the North
American Consumer Packaging business and the xpedx business
as discontinued operations (excluding cash flow related items) and
prior period amounts have been adjusted to conform with current
year presentation, if applicable.
In millions
India impairment
India divestiture transaction costs
Global Cellulose Fibers goodwill
impairment
Litigation reserves
Italian antitrust fine
Environmental remediation reserve
adjustment
(Gain) loss on sale of EMEA Packaging
box plant
EMEA Packaging business optimization
Multi-employer pension plan exit liability
Abandoned property removal
Riverdale mill conversion costs
Foreign VAT refund accrual including
interest
Debt extinguishment costs
Gain on sale of previously closed
Oregon mill site
Overhead cost reduction initiative
Other items
Total special items
Non-operating pension expense
Total
2019
Before
Tax
After
Tax
$ 159
$ 157
3
52
41
32
25
(6)
17
9
50
5
(6)
21
(9)
21
4
2
42
31
32
19
(5)
14
6
38
4
(4)
16
(7)
16
4
$ 418
36
$ 365
28
$ 454
$ 393
(c)
Includes the following tax expenses (benefits):
In millions
Luxembourg statutory tax rate change
State income tax legislative changes
Foreign tax audits
Internal investment restructuring
Foreign deferred tax valuation allowance
Total
2019
$
$
9
(3)
3
(53)
203
159
(d)
Includes the following allocation of loss:
In millions
India Impairment
Total
2018:
(e)
Includes the following charges (gains):
Smurfit-Kappa acquisition proposal costs
Legal settlement
$
Litigation settlement recovery
Environmental remediation reserve
adjustment
EMEA Packaging business optimization
Abandoned property removal
Riverdale mill conversion costs
Brazil Packaging impairment
Debt extinguishment costs
Gain on sale of investment in Liaison
Technologies
Total special items
Non-operating pension expense
Total
(f)
Includes the following charges (gains):
In millions
North American Consumer Packaging
transaction costs
North American Consumer Packaging
gain on transfer
Total
2019
Before
Tax
After
Tax
$
$
9
9
$
$
9
9
2018
Before
Tax
After
Tax
$
12
9
(5)
9
47
32
9
122
10
9
7
(4)
7
34
24
7
81
7
(31)
(23)
$ 214
$ 149
494
371
$ 708
$ 520
2018
Before
Tax
After
Tax
$
25
$
19
(488)
(364)
$ (463) $ (345)
(g)
Includes the following tax expenses (benefits):
In millions
State income tax legislative changes
Tax benefit of Tax Cuts and Jobs Act
Internal investment restructuring
Foreign tax audits
Total
2018
$
$
9
(36)
19
25
17
16
2017:
(h)
Includes the following charges (gains):
2016:
(k)
Includes the following charges (gains):
In millions
2017
Before
Tax
After
Tax
In millions
2016
Before
Tax
After
Tax
Gain on sale of investment in ArborGen
$
(14) $
(9)
Riegelwood mill conversion costs
$
India Packaging evaluation write-off
Write-off of certain regulatory pre-
engineering costs
Early debt extinguishment costs
Costs associated with the newly
acquired pulp business
Asia Box impairment / restructuring
Gain on sale of investment in Arizona
Chemical
Turkey mill closure
$
9
17
8
29
31
70
(8)
7
6
11
5
18
21
58
(5)
6
Amortization of Weyerhaeuser inventory
fair value step-up
Total special items
Non-operating pension expense
Total
19
182
610
792
$
$
11
131
375
506
$
$
(l)
Includes the operating earnings of the North American Consumer
Packaging business for the full year. Also includes the following
charges (gains):
In millions
xpedx legal settlement
Total
2016
Before
Tax
After
Tax
$
$
8
8
$
$
5
5
(m)
Includes the following tax expenses (benefits):
In millions
Cash pension contribution
U.S. Federal audit
Brazil goodwill
International legal entity restructuring
Luxembourg tax rate change
Total
2016
$
23
(14)
(57)
(6)
31
$
(23)
Costs associated with the pulp business
acquired in 2016
Amortization of Weyerhaeuser inventory
fair value step-up
Holmen bargain purchase gain
Abandoned property removal
Kleen Products settlement
Asia Foodservice sale
Brazil Packaging wood supply
accelerated amortization
Debt extinguishment costs
Interest income on income tax refund
claims
Other items
Total special items
Non-operating pension expense
Total
33
14
(6)
20
354
9
10
83
(5)
(2)
$
$
496
484
980
$
$
20
8
(6)
13
219
4
7
51
(3)
(2)
302
298
600
(i)
Includes the operating earnings of the North American Consumer
Packaging business for the full year. Also includes the following
charges (gains):
In millions
North American Consumer Packaging
transaction costs
Non-operating pension expense
Total
2017
Before
Tax
After
Tax
$
$
17
45
62
$
$
10
28
38
(j)
Includes the following tax expenses (benefits):
In millions
International legal entity restructuring
$
Income tax refund claims
Cash pension contribution
International tax law change
2017
34
(113)
38
9
Tax benefit of Tax Cuts and Jobs Act
Total
(1,222)
$
(1,254)
17
2015:
(n)
Includes the following charges (gains):
In millions
2015
Before
Tax
After
Tax
Riegelwood mill conversion costs, net of
proceeds from sale of the Carolina
Coated Bristols brand
$
Timber monetization restructuring
Early debt extinguishment costs
IP-Sun JV impairment
Legal reserve adjustment
Refund and state tax credits
Impairment of Orsa goodwill and trade
name intangible
Other items
Total special items
Non-operating pension expense
Total
$
$
8
16
207
174
15
(4)
137
6
559
258
817
$
$
$
4
10
133
180
9
(2)
137
5
476
157
633
(o)
Includes the operating earnings of the North American Consumer
Packaging business for the full year.
(p)
Includes the following tax expenses (benefits):
In millions
IP-Sun JV impairment
Cash pension contribution
Other items
Total
2015
$
(67)
23
7
$
(37)
18
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements
and related notes included in “Financial Statements and
Supplementary Data” of this Annual Report on Form
10-K. In addition to historical consolidated financial
information, the following discussion contains forward-
looking statements that reflect our plans, estimates, and
beliefs that involve significant risks and uncertainties.
Our actual results could differ materially from those
discussed in the forward-looking statements. Factors
that could cause or contribute to those differences
include those discussed below and elsewhere in this
Annual Report on Form 10-K, particularly in “Risk
Factors” and “Forward-Looking Statements.”
The following generally discusses 2019 and 2018 items
and year-to-year comparisons between 2019 and 2018.
Discussion of historical items in 2017, and year-to-year
comparisons between 2018 and 2017, can be found in
our Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, filed with the SEC on
February 20, 2019, under Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and
Results of Operations.
EXECUTIVE SUMMARY
Full-year 2019 net earnings were $1.2 billion ($3.07 per
diluted share) compared with net earnings of $2.0 billion
($4.85 per diluted share) for full-year 2018.
that
impacted our exports. Against
International Paper delivered solid earnings and
outstanding cash generation in 2019. Our performance
demonstrates our ability to generate strong cash flow and
the flexibility of the company to navigate well through a
challenging global environment. While the U.S. economy
remains healthy, during 2019 we managed through
significant inventory headwinds and broader trade
tensions
this
backdrop, we focused on optimizing our full value chain
by strengthening commercial offerings in faster growing
packaging segments, running our manufacturing system
well and leveraging the flexibility of our mill and converting
system. We continued to grow value for our shareholders
with returns above our cost of capital for a tenth
consecutive year. Our capital allocation choices were
consistent with our framework. In 2019, we returned $1.3
billion to shareholders through dividends of about $800
million and share repurchases of about $500 million. The
Company also increased its dividend for the tenth
consecutive year, reinforcing our policy of a strong and
sustainable dividend. We also repaid approximately $1
billion of debt during 2019 as part of our commitment to
a strong balance sheet and to maintain an investment
grade rating. We continued to invest strategically to
strengthen our Industrial Packaging business. In our
North American corrugated packaging business, we
made targeted investments to enhance our capabilities
and reinforce our strong position in the fastest growing
segments. In our EMEA Packaging business, we
to expand our
completed selective acquisitions
converting network around the Madrid, Spain mill. Lastly,
in January 2020, we monetized approximately 19% of
our investment in Graphic Packaging in exchange for
$250 million.
Compared to 2018, the Company’s 2019 results reflect
the impact of a challenging global environment, which
resulted in price and mix being a headwind, mostly due
to significant price pressure
in export pulp and
containerboard markets, as well as the price impact of
index movements in our North American Industrial
Packaging business. Volume negatively impacted 2019
results due to challenging export markets. In particular,
export containerboard volume was
impacted by
unusually high customer inventories at the start of 2019
which took most of the year to normalize. Operations and
costs were impacted by significant economic downtime,
particularly in the first half of 2019, due to lower export
shipments and our ability to reduce inventories across
our North American Industrial Packaging system due to
improved supply chain operations. Input costs were
favorable for the full year, primarily from lower recovered
fiber and energy costs. Even though wood costs
moderated in the second half of 2019, they had a negative
impact on earnings in 2019. Equity earnings decreased
in 2019 due to lower Ilim earnings, driven by the
challenging global pulp market dynamics.
Looking ahead to the first quarter 2020, as compared to
the fourth quarter of 2019, in our Industrial Packaging
business, we expect lower price and mix on the flow-
through of prior price index movements. Volume is
expected to be seasonally lower in North America.
Operations and costs are expected to be negatively
impacted by the non-repeat of a favorable inventory
valuation adjustment recognized in the fourth quarter, as
well as higher unabsorbed fixed costs associated with
the Riverdale mill conversion. Maintenance outage
expense is expected to be higher, and input costs are
expected to be higher seasonally. In our Global Cellulose
Fibers business, we expect lower price and mix on the
impact of prior price index movements. Volume is
expected to improve driven by higher fluff pulp shipments.
Operations and costs are expected to negatively impact
earnings due to the non-repeat of favorable items
recognized in the fourth quarter. Maintenance outage
expenses are expected to increase while input costs are
expected to remain stable. In our Printing Papers
business, flow-through of prior negative price movement
is expected to be offset by improved geographic mix.
Volume is expected to be down mostly due to seasonally
lower volumes in Brazil. Operations and costs are
19
expected to have a favorable impact on earnings mostly
due to the non-repeat of an unfavorable inventory
valuation adjustment recognized in the fourth quarter, as
well as improved fixed cost absorption in North America.
Maintenance outage expenses are expected to increase
while input costs should remain stable. Lastly, we expect
lower equity earnings from our Ilim joint venture on the
non-repeat of the fourth quarter foreign exchange gain.
Looking ahead to the full-year 2020, we expect to
generate solid cash flows despite earnings headwinds,
by continuing to leverage the flexibility of the company to
manage costs, capital spending and working capital.
Earnings are expected to be negatively impacted by price
carryover from 2019, as well as the impact of the January
2020 containerboard index movement. Earnings are also
expected to be negatively impacted by higher planned
maintenance outage expense and costs related to the
Riverdale conversion, including unabsorbed fixed costs
during the conversion process. We plan to offset
anticipated inflation through deliberate improvement
initiatives. The fundamentals of our packaging and fluff
pulp businesses are solid - we believe we are well
positioned to capture growth while continuing to optimize
the Company’s value chain to position us with positive
momentum as we navigate through 2020. Lastly, we
intend to continue to make choices for the use of the
Company’s strong cash generation that are consistent
with our capital allocation framework in order to drive
long-term value creation.
Adjusted Operating Earnings and Adjusted Operating
Earnings Per Share are non-GAAP measures and are
defined as net earnings from continuing operations (a
GAAP measure) excluding special items and non-
operating pension expense. 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 non-
items considered by
operating pension expense,
management
items) and
to be unusual (special
discontinued operations from the earnings 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
to perform meaningful
because
comparisons of past and present consolidated operating
results. The Company believes
this
information, along with the most direct comparable GAAP
measure, provides for a more complete analysis of the
results of operations.
that using
it enables
them
The following are reconciliations of Earnings (loss)
to Adjusted
attributable
to common shareholders
to common
operating earnings (loss) attributable
shareholders. Additional detail is provided later in this
Form 10-K regarding the special items referenced in the
charts below.
2019
2018
Earnings (Loss) Attributable to Shareholders
$ 1,225 $ 2,012
Less - Discontinued operations (gain) loss
—
(345)
Earnings (Loss) from Continuing Operations
1,225
1,667
Add back - Non-operating pension expense
(income)
Add back - Net special items expense (income)
Income tax effect - Non-operating pension and
special items expense
36
409
494
214
98
(171)
Adjusted Operating Earnings (Loss)
Attributable to Shareholders
$ 1,768 $ 2,204
Diluted Earnings (Loss) Per Share
Attributable to Shareholders
Less - Discontinued operations (gain) loss per
share
Diluted Earnings (Loss) Per Share from
Continuing Operations
Add back - Non-operating pension expense
(income) per share
Add back - Net special items expense (income)
per share
Income tax effect per share - Non-operating
pension and special items expense
2019
2018
$ 3.07 $ 4.85
— (0.83)
3.07
4.02
0.09
1.19
1.02
0.52
0.25
(0.41)
Adjusted Operating Earnings (Loss) Per Share
Attributable to Shareholders
$ 4.43 $ 5.32
Three Months
Ended
December 31,
2019
Three Months
Ended
September 30,
2019
Three Months
Ended
December 31,
2018
$
165
$
344
$
316
—
165
9
136
120
—
344
9
94
—
316
429
(15)
(16)
(60)
$
430
$
431
$
670
Earnings (Loss)
Attributable to
Shareholders
Less - Discontinued
operations (gain)
loss
Earnings (Loss)
from Continuing
Operations
Add back - Non-
operating pension
expense (income)
Add back - Net
special items
expense (income)
Income tax effect -
Non-operating
pension and special
items expense
Adjusted Operating
Earnings (Loss)
Attributable to
Shareholders
20
Three Months
Ended
December 31,
2019
Three Months
Ended
September 30,
2019
Three Months
Ended
December 31,
2018
$
0.42
$
0.87
$
0.78
—
—
—
0.42
0.02
0.34
0.87
0.78
0.02
1.05
0.24
(0.04)
0.31
(0.04)
(0.14)
In millions
Cash provided by
operations
Adjustments:
Cash invested in
capital projects
Free Cash Flow
Three Months
Ended
December 31,
2019
Three Months
Ended
September 30,
2019
Three Months
Ended
December 31,
2018
$
$
928 $
882 $
821
(363)
565 $
(285)
597 $
(286)
535
The non-GAAP financial measures presented in this
Form 10-K as referenced above have limitations as
analytical tools and should not be considered in isolation
or as a substitute for an analysis of 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-K
may not be comparable to similarly titled measures
disclosed by other companies, including companies in
the same industry as the Company.
$
1.09
$
1.09
$
1.65
RESULTS OF OPERATIONS
Diluted Earnings
(Loss) Per Share
Attributable to
Shareholders
Less - Discontinued
operations (gain)
loss per share
Diluted Earnings
(Loss) Per Share
from Continuing
Operations
Add back - Non-
operating pension
expense (income)
per share
Add back - Net
special items
expense (income)
per share
Income tax effect
per share - Non-
operating pension
and special items
expense
Adjusted Operating
Earnings (Loss)
Per Share
Attributable to
Shareholders
Cash provided by operations totaled $3.6 billion and $3.2
billion for 2019 and 2018, respectively. The Company
generated Free Cash Flow of approximately $2.3 billion
and $1.7 billion in 2019 and 2018, respectively. Free Cash
Flow is a non-GAAP measure and the most directly
comparable GAAP measure is cash provided by
operations. Management 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 underlying operational performance, we believe
that free cash flow also enables investors to perform
meaningful comparisons between past and present
periods.
The following are reconciliations of free cash flow to cash
provided by operations:
In millions
2019
2018
Cash provided by operations
$
3,610 $
3,226
Adjustments:
Cash invested in capital projects
(1,276)
(1,572)
Free Cash Flow
$
2,334 $
1,654
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 year. Business Segment Operating Profits
are defined as earnings (loss) from continuing operations
before income taxes and equity earnings, but including
the impact of equity earnings and noncontrolling
interests, excluding interest expense, net, corporate
items, net, special items, net, 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.
International Paper operates
three segments:
Industrial Packaging, Global Cellulose Fibers and
Printing Papers.
in
21
The following table presents a comparison of net
earnings (loss) from continuing operations attributable to
International Paper Company to its total Business
Segment Operating Profit:
In millions
2019
2018
Net Earnings (Loss) From Continuing
Operations Attributable to International Paper
Company
$ 1,225 $ 1,667
Add back (deduct)
Income tax provision (benefit)
Equity (earnings) loss, net of taxes
Noncontrolling interests, net of taxes
Earnings (Loss) From Continuing Operations
Before Income Taxes and Equity Earnings
Interest expense, net
Noncontrolling interests/equity earnings included
in operations
Corporate items, net
Corporate special items, net (income) expense
Business special items, net (income) expense
Non-operating pension expense
634
445
(250)
(336)
(5)
5
1,604
1,781
491
536
3
54
104
307
36
(10)
67
9
205
494
$ 2,599 $ 3,082
The principal changes in operating profit by business
segment were as follows:
•
Industrial Packaging’s operating profit of $2.1 billion
was $201 million lower than in 2018 as the benefits
of lower input costs and lower maintenance outage
costs were more than offset by lower average sales
price, unfavorable mix, lower sales volumes and
higher operating costs.
• Global Cellulose Fibers' operating loss of $(6)
million was $268 million lower than in 2018 as the
benefits of higher
lower
maintenance outage costs and lower input costs
were more than offset by lower average sales price,
an unfavorable mix and higher operating costs.
volumes,
sales
• Printing Papers’ operating profit of $529 million
represented a $14 million decrease in operating
profit from 2018. The benefits from higher average
sales price, net of mix, were offset by lower sales
volumes, higher input costs, higher maintenance
outage costs and higher operating costs.
$ 2,076 $ 2,277
LIQUIDITY AND CAPITAL RESOURCES
Business Segment Operating Profit
Industrial Packaging
Global Cellulose Fibers
Printing Papers
(6)
529
262
543
Business Segment Operating Profit
$ 2,599 $ 3,082
Business Segment Operating Profit in 2019 was $483
million lower than in 2018 as the benefits from lower input
costs ($78 million) and lower maintenance outage costs
($30 million) were more than offset by lower average
sales price realizations and mix ($161 million), lower
sales volumes ($118 million) and higher operating costs
($312 million).
For the year ended December 31, 2019, International
Paper generated $3.6 billion of cash flow from operations
compared with $3.2 billion in 2018. Capital spending for
2019 totaled $1.3 billion, or 98% of depreciation and
amortization expense. Our liquidity position remains
strong, supported by approximately $2.1 billion of credit
facilities.
We expect another year of solid cash generation in 2020.
Furthermore, we intend to continue to make choices for
the use cash that are consistent with our capital allocation
framework to drive long-term value creation. These
include maintaining a strong balance sheet and
investment grade credit rating, returning meaningful cash
to shareholders
through dividends and share
repurchases and making organic investments to maintain
our world-class system and strengthen our packaging
business. Capital spending for 2020 is planned at
approximately $1.0 billion, or about 74% of depreciation
and amortization, including approximately $250 million
of strategic investments.
Under our share repurchase program most recently
approved by our Board of Directors on October 9, 2018,
which does not have an expiration date, approximately
$1.75 billion aggregate amount of shares of common
stock remains authorized for purchase under this
program. We may continue to repurchase shares under
such authorization in open market transactions (including
block trades), privately negotiated transactions or
otherwise, subject to prevailing market conditions, our
liquidity requirements, restrictions in our debt documents,
applicable securities laws requirements and other
factors. In addition, we pay regular quarterly cash
22
dividends and expect to continue to pay regular quarterly
cash dividends in the foreseeable future. Each quarterly
dividend is subject to review and approval by our Board
of Directors, and is subject to restrictions in our debt
documents.
RESULTS OF OPERATIONS
in
While the operating results for International Paper’s
various business segments are driven by a number of
business-specific
International
factors, changes
Paper’s operating results are closely tied to changes in
general economic conditions in North America, Europe,
Russia, Latin America, North Africa and the Middle East.
(and were closely tied to general economic conditions in
India prior to the sale of our controlling interest in
International Paper APPM Limited, an India-based
printing paper business, effective October 30, 2019).
Factors that impact the demand for our products include
industrial non-durable goods production, consumer
preferences, consumer spending, commercial printing
and advertising activity, white-collar employment levels,
and movements in currency exchange rates.
Product prices are affected by general economic trends,
inventory levels, currency exchange rate movements and
worldwide capacity utilization. In addition to these
revenue-related factors, net earnings are impacted by
various cost drivers, the more significant of which include
changes in raw material costs, principally wood, recycled
fiber and chemical costs; energy costs; freight costs; mill
outage costs; salary and benefits costs, including
pensions; and manufacturing conversion costs.
The following is a discussion of International Paper’s
consolidated results of operations for the year ended
December 31, 2019, and the major factors affecting these
results compared to 2018.
For the year ended December 31, 2019, International
Paper reported net sales of $22.4 billion, compared with
$23.3 billion in 2018. International net sales (based on
the location of the seller and including U.S. exports)
totaled $8.1 billion or 36% of total sales in 2019. This
compares with international net sales of $8.8 billion in
2018.
Full year 2019 net earnings attributable to International
Paper Company totaled $1.2 billion ($3.07 per diluted
share), compared with net earnings of $2.0 billion ($4.85
per diluted share) in 2018. Amounts in 2018 include the
results of discontinued operations.
Earnings from continuing operations attributable to
International Paper Company after taxes in 2019 and
2018 were as follows:
In millions
2019
2018
Earnings from continuing operations
attributable to International Paper
Company
$ 1,225 (a) $1,667 (b)
(a)
(b)
Includes $515 million of net special items charges which included
tax expense of $203 million related to a foreign deferred tax
valuation allowance and $28 million of non-operating pension
expense.
Includes $166 million of net special items charges and $371
million of non-operating pension expense which included a pre-
tax charge of $424 million ($318 million after taxes) for a
settlement accounting charge associated with an annuity
purchase and transfer of pension obligations for approximately
23,000 retirees.
Compared with 2018, the benefits from lower input costs
($59 million), lower maintenance outage costs ($23
million), lower corporate and other costs ($8 million) and
lower net interest expense ($32 million) were more than
offset by lower average sales price and an unfavorable
mix ($122 million), lower sales volumes ($89 million),
higher operating costs ($235 million) and higher tax
expense ($26 million). In addition, 2019 results included
lower equity earnings, net of taxes, relating to the
Company’s investments in Ilim and GPIP.
See Business Segment Results on pages 26 through 29
for a discussion of the impact of these factors by segment.
DISCONTINUED OPERATIONS
2018: In 2018, discontinued operations included an after-
tax gain of $364 million on the transfer of the North
American Consumer Packaging business and after-tax
charges of $19 million for costs associated with the
transfer. See Note 8 Divestitures and Impairments on
pages 56 through 58 of Item 8. Financial Statements and
Supplementary Data for further discussion.
23
INCOME TAXES
A net income tax provision of $634 million was recorded
for 2019, including tax expense of $203 million related to
a foreign deferred tax valuation allowance, a tax benefit
of $53 million related to internal investment restructuring,
tax expense of $9 million related to a non U.S. tax rate
change, tax expense of $3 million related to foreign tax
audits and a tax benefit of $3 million related to state
income tax legislative changes. Excluding these items, a
$53 million net tax benefit for other special items and a
$8 million tax benefit related to non-operating pension
expense, the operational tax provision was $536 million,
or 26% of pre-tax earnings before equity earnings.
A net income tax provision of $445 million was recorded
for 2018, including a tax benefit of $36 million to revise
our 2017 estimated tax related to the enactment of the
Tax Cuts and Jobs Act, tax expense of $25 million related
to foreign tax audits, tax expense of $19 million related to
an international investment restructuring and tax expense
of $9 million related to state income tax legislative
changes. Excluding these items, a $65 million net tax
benefit for other special items and a $123 million tax
benefit related to non-operating pension expense, the
operational tax provision was $616 million, or 25% of pre-
tax earnings before equity earnings.
EQUITY EARNINGS, NET OF TAXES
Equity earnings, net of taxes, consisted principally of the
Company’s share of earnings from its 50% investment in
Ilim of $207 million and $290 million in 2019 and 2018,
respectively, and from its then 21.6% ownership interest
in GPIP of $46 million in 2019, and from its then 20.5%
ownership interest of $46 million in 2018 (see page 29).
INTEREST EXPENSE AND NONCONTROLLING INTEREST
Net corporate interest expense totaled $491 million in
2019 and $536 million in 2018. Net interest expense in
2019 includes $3 million of interest income associated
with a foreign value-added tax refund accrual and $1
million of interest expense related to foreign tax audits.
The decrease in 2019 compared with 2018 was due to
lower average outstanding debt.
Net earnings attributable to noncontrolling interests were
a loss of $5 million in 2019, compared with earnings of
$5 million in 2018. The decrease in 2019 was primarily
due to the allocation of loss of $9 million associated with
the impairment of the net assets of our India Papers
business.
SPECIAL ITEMS
Restructuring and Other Charges, Net
International Paper continually evaluates its operations
for improvement opportunities targeted to (a) focus our
portfolio on our core businesses, (b) realign capacity to
operate fewer facilities with the same revenue capability,
(c) close high cost facilities, and (d) reduce costs.
During 2019 and 2018, pre-tax restructuring and other
charges, net, totaling $57 million and $29 million were
recorded. Details of these charges were as follows:
Restructuring and Other, Net
In millions
Business Segments
2019
2018
EMEA Packaging optimization
$
15 (a) $
47 (a)
Overhead reduction initiative
10 (b)
—
Riverdale mill paper machine conversion
severance reserve
Corporate
Early debt extinguishment costs (see
Note 15)
$
Overhead reduction initiative
Gain on sale of investment in Liaison
Technologies
—
25
21
11
—
32
3 (c)
$
50
10
—
(31)
(21)
Total
$
57
$
29
(a) Recorded in the Industrial Packaging business segment.
(b) Includes $6 million recorded in the Printing Papers business
segment and $4 million recorded in the Global Cellulose Fibers
business segment.
(c) Recorded in the Printing Papers business segment.
24
5 (c)
6 (c)
INDUSTRIAL PACKAGING
Other Special Items
In addition, other pre-tax special items totaling $158
million and $63 million were recorded in 2019 and 2018,
respectively. Details of these charges were as follows:
Other Special Items
In millions
Business Segments
Antitrust fines
Abandoned property removal
Multi-employer pension plan exit liability
Riverdale mill conversion accelerated
depreciation
Gain on sale of previously closed
Albany, Oregon mill site
Litigation settlement recovery
Other
Corporate
Litigation reserves
Environmental remediation reserve
adjustments
Fair value adjustment on remaining
investment in India
India transaction costs
Smurfit-Kappa acquisition proposal costs
Legal settlement
2019
2018
$
32 (a) $ —
50 (b)
9 (a)
32 (b)
—
(9) (a)
—
—
(1) (d)
86
(5) (a)
—
33
$
41
$ —
25
3
3
—
—
72
9
—
—
12
9
30
63
Total
$ 158
$
(a) Recorded in the Industrial Packaging business segment.
(b) Includes $35 million and $20 million recorded in the Industrial
Packaging business segment for 2019 and 2018, respectively; $12
million and $11 million recorded in the Global Cellulose Fibers
business segment for 2019 and 2018, respectively; $3 million and
$1 million recorded in the Printing Papers business segment for
2019 and 2018, respectively.
(c) Recorded in the Printing Papers business segment.
(d) Includes expense of $2 million recorded in the Industrial Packaging
business segment and income of $3 million recorded in the Printing
Papers business segment.
Net Losses on Sales and Impairments of Businesses
Net losses on sales and impairments of businesses
included in special items totaled a pre-tax loss of $205
million and $122 million in 2019 and 2018, respectively.
Details of these losses were as follows:
Net Loss on Sales and Impairments of
Businesses
In millions
India Papers impairment
Global Cellulose Fibers goodwill impairment
Gain on sale of EMEA Packaging box plant
Brazil Packaging impairment of fixed assets and
an intangible asset
Total
2019
2018
$ 159 $ —
52
(6)
—
—
— 122
$ 205 $ 122
25
See Note 8 Divestitures and Impairments on pages 56
through 58 of
Item 8. Financial Statements and
Supplementary Data for further discussion.
DESCRIPTION OF BUSINESS SEGMENTS
International Paper’s business segments discussed
below are consistent with the internal structure used to
manage
these businesses. All segments are
differentiated on a common product, common customer
basis consistent with the business segmentation
generally used in the forest products industry.
in
International Paper is the largest manufacturer of
containerboard
the United States. Our U.S.
production capacity is over 13 million tons annually. Our
products include linerboard, medium, whitetop, recycled
linerboard, recycled medium and saturating kraft. About
80% of our production is converted into corrugated
boxes and other packaging by our 175 North American
container plants. Additionally, we recycle approximately
one million tons of OCC and mixed and white paper
through our 18 recycling plants. Our container plants are
supported by regional design centers, which offer total
packaging solutions and supply chain initiatives. In
EMEA, our operations include one recycled fiber
recycled
containerboard mill
containerboard mill in Spain and 28 container plants in
France, Italy, Spain, Morocco, Turkey and Portugal. In
Brazil, our operations include three containerboard mills
and four box plants.
in Morocco, a
International Paper also produces high quality coated
paperboard for a variety of packaging end uses with
443,000 tons of annual capacity at our mills in Poland
and Russia.
GLOBAL CELLULOSE FIBERS
Our cellulose fibers product portfolio includes fluff,
market and specialty pulps. International Paper is the
largest producer of fluff pulp which is used to make
absorbent hygiene products like baby diapers, feminine
care, adult incontinence and other non-woven products.
Our market pulp is used for tissue and paper products.
We continue to invest in exploring new innovative uses
for our products, such as our specialty pulps, which are
used for non-absorbent end uses including textiles,
filtration, construction material, paints and coatings,
reinforced plastics and more. Our products are made in
the United States, Canada, France, Poland, and Russia
and are sold around the world. International Paper
facilities have annual dried pulp capacity of about
4 million metric tons.
PRINTING PAPERS
BUSINESS SEGMENT RESULTS
laser printers and digital
International Paper is one of the world’s largest
producers of printing and writing papers. The primary
product in this segment is uncoated papers. This
business produces papers for use in copiers, desktop
imaging. End-use
and
applications
include advertising and promotional
materials such as brochures, pamphlets, greeting cards,
books, annual reports and direct mail. Uncoated papers
also produces a variety of grades that are converted by
our customers into envelopes, tablets, business forms
and file folders. Uncoated papers are sold under private
label and International Paper brand names that include
Hammermill, Springhill, Williamsburg, Postmark,
Accent, Great White, Chamex, Ballet, Rey, Pol, and
Svetocopy. The mills producing uncoated papers are
located in the United States, France, Poland, Russia
and Brazil. The mills have uncoated paper production
capacity of over 4 million tons annually. Brazilian
operations function through International Paper do
Brasil, Ltda, which owns or manages approximately
329,000 acres of forestlands in Brazil.
ILIM
located
In October 2007, International Paper and Ilim completed
a 50:50 joint venture to operate a pulp and paper
business located in Russia. Ilim’s facilities include three
paper mills
in Bratsk, Ust-Ilimsk, and
Koryazhma, Russia, with combined total pulp and paper
capacity of over 3.5 million metric tons. Ilim has
exclusive harvesting rights on timberland and forest
areas exceeding 19.5 million acres (7.88 million
hectares).
GPIP
On January 1, 2018, the Company completed the
transfer of its North American Consumer Packaging
business, which includes its North American Coated
Paperboard and Foodservice businesses, to Graphic
Packaging International Partners, LLC (GPIP), a
subsidiary of Graphic Packaging Holding Company, in
exchange for a 20.5% ownership interest in GPIP. GPIP
the North American
subsequently
Consumer Packaging business to Graphic Packaging
International, LLC (GPI), a wholly-owned subsidiary of
GPIP that holds the assets of the combined business.
transferred
On January 29, 2020, the Company exchanged
approximately 19.0% of the aggregate units owned by
the Company for an aggregated price of $250 million.
the Company's ownership
After
percentage in GPIP is approximately 18.3%. The
Company expects to record a gain on the exchange in
the first quarter of 2020.
transaction,
this
Products and brand designations appearing in italics are
trademarks of International Paper or a related company.
26
The following tables present net sales and operating
profit (loss) which is the Company's measure of segment
profitability.
INDUSTRIAL PACKAGING
Demand for Industrial Packaging products is closely
correlated with non-durable industrial goods production,
as well as with demand for processed foods, poultry, meat
and agricultural products. In addition to prices and
volumes, major factors affecting the profitability of
Industrial Packaging are raw material and energy costs,
freight costs, mill outage costs, manufacturing efficiency
and product mix.
Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$ 15,326 $ 15,900
2,076 $ 2,277
$
Industrial Packaging net sales for 2019 decreased 4%
to $15.3 billion compared with $15.9 billion in 2018.
Operating profits in 2019 were 9% lower than in 2018.
Comparing 2019 with 2018, benefits from lower input
costs ($124 million) and lower maintenance outage costs
($22 million) were more than offset by lower average
sales price and an unfavorable mix ($61 million), lower
sales volumes ($107 million) and higher operating costs
($179 million).
North American Industrial Packaging
In millions
Net Sales (a)
Operating Profit (Loss)
2019
2018
$ 13,509 $ 14,187
2,043 $ 2,307
$
(a) Includes intra-segment sales of $118 million for 2019 and
$233 million for 2018.
North American Industrial Packaging's sales volumes
decreased in 2019 compared with 2018 for export
containerboard, primarily due to customer destocking as
customers exited 2018 with high inventory levels which
persisted through the first half of 2019. Box shipments
were also lower, reflecting weaker demand and the
impact of customer gains and losses. In 2019, the
business took about 1.4 million tons of total maintenance
and economic downtime compared with 0.5 million tons
of total downtime in 2018. Average sales prices were
lower export
significantly
containerboard prices, which were partially offset by
higher sales prices
Input costs were
substantially lower, primarily for recycled fiber. Planned
maintenance downtime costs were $23 million lower in
2019 than in 2018. Operating costs increased due to
inflation, but were mostly offset by strong mill
manufacturing operations. Earnings benefited from a
favorable inventory valuation adjustment in 2019,
compared with an unfavorable inventory valuation
adjustment in 2018.
lower primarily due
for boxes.
to
to be seasonally
Looking ahead to the first quarter of 2020, compared with
the fourth quarter of 2019, sales volumes for boxes are
lower. Shipments of
expected
containerboard to export markets are also expected to
be lower. Average sales margins for boxes are expected
to be lower, reflecting the recent price index movements.
Input costs, primarily for wood and energy, are expected
to be relatively flat. Planned maintenance downtime costs
are expected to be about $90 million higher as we move
into a high maintenance outage quarter. Operating costs
are anticipated to be higher, reflecting the impact of
unabsorbed
the Riverdale
conversion.
fixed costs related
to
EMEA Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$
$
1,335 $ 1,355
(73)
(17) $
EMEA Industrial Packaging's sales volumes in 2019
were lower than in 2018, reflecting weaker economic
conditions in Turkey and a slower fruit and vegetable
season in Morocco. Average sales margins improved
significantly in all regions driven by lower containerboard
costs and stable sales prices for boxes. Other input costs
were flat. Planned maintenance downtime costs were
also flat. Operating costs were lower due to the ramp-up
of the Madrid, Spain mill and the benefits of our
optimization initiatives, partially offset by inflation in
Turkey. Earnings also benefited from the box plant
acquisitions completed in the first half of 2019. Earnings
were negatively affected by unfavorable foreign currency
impacts, primarily in Turkey.
Entering the first quarter of 2020, compared with the
fourth quarter of 2019, sales volumes are expected to be
seasonally higher. Average sales margins are expected
to be slightly higher reflecting lower containerboard costs.
Planned maintenance downtime costs are expected to
be about $3 million higher. Input costs should be stable.
Operating costs are expected to be higher, driven by
inflation.
Brazilian Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$
$
235 $
(14) $
232
(29)
Industrial Packaging's sales volumes
Brazilian
increased in 2019 compared with 2018 for boxes and
containerboard. Average sales margins
improved
reflecting higher average sales prices and a favorable
mix. Input costs increased, primarily for utilities, recycled
fiber, wood and chemicals. Operating costs were lower.
Planned maintenance downtime costs were $1 million
higher in 2019, compared with 2018.
27
Looking ahead to the first quarter of 2020, compared with
the fourth quarter of 2019, sales volumes are expected
to be lower for both boxes and containerboard. Average
sales margins are expected to be stable. Input costs are
expected to be flat. Operating costs are expected to be
stable.
European Coated Paperboard
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$
$
365 $
64 $
359
72
European Coated Paperboard's sales volumes in 2019
compared with 2018 increased in both Europe and
Russia. Average sales margins were higher reflecting
higher average sales prices net of an unfavorable mix in
Europe and higher average sales prices and a favorable
mix in Russia. Input costs were stable as lower purchased
pulp and energy costs in Europe were offset by higher
energy costs in Russia and higher wood and chemicals
costs in Europe. Planned maintenance downtime costs
were flat. Operating costs were higher. Earnings were
negatively affected by unfavorable foreign currency
impacts in both Europe and Russia.
Looking forward to the first quarter of 2020, compared
with the fourth quarter of 2019, sales volumes are
expected to be stable as higher volumes in Europe are
offset by lower volumes in Russia. Average sales margins
are expected to be higher in both regions. Input costs are
expected to be flat in Europe and higher in Russia,
primarily for wood and chemicals. Maintenance outage
costs are expected to be flat due to no outages in the
fourth quarter and no planned outages in the first quarter.
Operating costs are expected to be lower.
GLOBAL CELLULOSE FIBERS
Demand
is closely
for Cellulose Fibers products
correlated with changes in demand for absorbent hygiene
products, primarily driven by the demographics and
income growth in various geographic regions. It is further
affected by changes in currency rates that can benefit or
hurt producers in different geographic regions. Principal
cost drivers
include manufacturing efficiency, raw
material and energy costs, mill outage costs, and freight
costs.
Global Cellulose Fibers
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$ 2,551 $ 2,819
$
(6) $
262
Global Cellulose Fibers net sales for 2019 decreased
10% to $2.6 billion, compared with $2.8 billion in 2018.
Operating profits in 2019 were significantly lower than in
2018. Comparing 2019 with 2018, benefits from higher
sales volumes ($3 million), lower input costs ($8 million)
and lower maintenance outage costs ($16 million) were
more than offset by lower average sales price and mix
($216 million) and higher operating costs ($79 million).
Sales volumes in 2019 compared with 2018 were lower
as higher market pulp volumes were more than offset by
lower fluff pulp volumes. In 2019, the business took about
300,000 tons of total maintenance and economic
downtime compared with about 180,000 tons of total
downtime
in 2018. Average sales margins were
significantly lower, reflecting lower average pulp prices
driven by very challenging supply and demand conditions
outside the U.S. Average sales margins were also
negatively affected by an unfavorable product mix
reflecting a decrease in sales of fluff pulp. Input costs
were flat. Planned maintenance downtime costs were
$16 million lower in 2019. Operating costs increased
primarily due to inflation and an unfavorable mill
manufacturing mix. In Europe and Russia, sales volumes
increased. Average sales prices decreased significantly
in both regions. Input costs were higher for wood,
chemicals and purchased pulp in Europe and chemicals
and energy in Russia. Planned maintenance downtime
costs were flat.
Entering the first quarter of 2020, compared with the
fourth quarter of 2019, sales volumes are expected to
be slightly higher, primarily for fluff pulp. Average sales
margins are expected to be lower, reflecting the impact
of prior price index movement. Input costs are expected
to be stable. Planned maintenance downtime costs are
expected to be $27 million higher than in the fourth
quarter of 2019. Operating costs are expected to
increase due to seasonality and higher distribution
costs. In Europe, sales volumes are expected to be
slightly higher and stable in Russia. Average sales
margins are expected to be higher in both regions.
Planned maintenance downtime costs are expected to
be about $7 million lower in the first quarter of 2020 in
Europe and Rusia.
PRINTING PAPERS
Demand
is closely
for Printing Papers products
correlated with changes in commercial printing and
advertising activity, direct mail volumes and, for uncoated
in white-collar
cut-size products, with changes
employment levels that affect the usage of copy and laser
printer
include
manufacturing efficiency, raw material and energy costs,
mill outage costs and freight costs.
paper. Principal
drivers
cost
Printing Papers
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$ 4,291 $ 4,375
$
529 $
543
Printing Papers net sales for 2019 of $4.3 billion
decreased 2%, compared with $4.4 billion in 2018.
Operating profits in 2019 were 3% lower than in 2018.
Comparing 2019 with 2018, benefits from higher average
28
sales price realizations, net of mix ($116 million), were
more than offset by lower sales volumes ($14 million),
higher operating costs ($54 million), higher input costs
($54 million) and higher planned maintenance downtime
costs ($8 million).
North American Printing Papers
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$ 1,956 $ 1,956
$
211 $
170
North American Printing Papers' sales volumes for
2019 were lower than in 2018, primarily for commercial
printing paper. In 2019, the business took about 125,000
tons of total maintenance and economic downtime
compared with about 48,000 tons of total downtime in
2018. Average sales margins improved due to the
realization of sales price increases for both cutsize paper
and rolls, net of an unfavorable geographic mix. Input
for wood. Planned
costs were higher, primarily
maintenance downtime costs were $4 million higher in
2019. Operating costs were higher primarily due to
inflation and an unfavorable manufacturing mix, mostly
offset by lower distribution costs and favorable mill
operations. Earnings were negatively impacted by an
unfavorable inventory valuation adjustment in 2019.
Entering the first quarter of 2020, compared with the
fourth quarter of 2019, sales volumes are expected to be
lower, primarily for export markets. Average sales
margins are expected to be stable. Input costs are
expected to be stable. Operating costs are expected to
be higher due to seasonality and inflation. Earnings are
expected to benefit from the non-repeat of an unfavorable
inventory valuation adjustment in the fourth quarter of
2019. Planned maintenance downtime costs are
expected to increase by about $29 million in the first
quarter of 2020.
Brazilian Papers
In millions
Net Sales (a)
Operating Profit (Loss)
2019
2018
$
$
967 $
155 $
978
227
(a)
Includes intra-segment sales of $42 million for 2019 and $13
million for 2018.
Brazilian Papers' sales volumes for uncoated freesheet
paper in 2019, were higher compared with 2018 for export
markets but lower for domestic markets. Average sales
margins were lower as higher average domestic sales
prices were more than offset by lower average export
sales prices and an unfavorable geographic mix. Input
costs increased, primarily for virgin fiber, chemicals and
energy. Manufacturing costs were lower, but were offset
by higher other operating costs. Planned maintenance
downtime costs were $1 million lower in 2019.
Looking ahead to the first quarter of 2020, compared with
the fourth quarter of 2019, sales volumes for uncoated
freesheet paper are expected to be seasonally lower.
Average sales margins are expected to decrease,
primarily due to an unfavorable geographic mix. Input
costs are expected to be stable. Planned maintenance
outage costs are expected to be about $3 million lower
in the first quarter of 2020. Operating costs are expected
to be lower.
European Papers
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$ 1,250 $ 1,252
129
$
144 $
European Papers' sales volumes
for uncoated
freesheet paper in 2019 were higher in Europe and
Russia compared with 2018. Average sales margins
increased for uncoated freesheet paper in both regions,
reflecting the realization of price increases implemented
throughout 2018 and 2019. Input costs were higher for
wood and chemicals in Europe and chemicals and energy
in Russia. Planned maintenance downtime costs were
$3 million higher in 2019 than in 2018. Operating costs
were higher. Earnings were negatively affected by
unfavorable foreign currency impacts in both regions.
Entering 2020, sales volumes for uncoated freesheet
paper in the first quarter are expected to increase in
Europe, but expected to decrease in Russia, compared
to the fourth quarter of 2019. Average sales margins are
expected to be lower in Europe and stable in Russia.
Input costs should be higher in both regions, mainly for
chemicals in Europe and wood and chemicals in Russia.
Maintenance outage costs should be about $9 million
lower due to no planned outages in the first quarter.
Operating costs are expected to be lower.
foreign exchange loss of $82 million in 2018, primarily on
the remeasurement of Ilim's U.S. dollar denominated net
debt.
Coming off of a strong market in 2018, sales volumes for
the joint venture decreased by 3% in 2019, primarily for
containerboard shipments to China, Russia and other
export markets. Shipments of softwood pulp and
hardwood pulp to China were slightly higher, but fell below
prior year levels in Russia and other export markets.
Average sales price realizations were significantly lower
for sales of softwood pulp, hardwood pulp and
containerboard in all markets. Input costs were higher,
primarily for wood, chemicals and fuel. Distribution costs
were negatively impacted by transportation tariffs and
inflation. Ilim completed two major capital projects in
2019: the rebuild of the kraft linerboard line at its Bratsk
mill and the modernization of a pulp line at the Ust Ilmsk
mill. The Company received cash dividends from the joint
venture of $246 million in 2019 and $128 million in 2018.
Entering the first quarter of 2020, sales volumes are
expected to be lower than in the fourth quarter of 2019,
due to the seasonal slowdown in China. Based on pricing
to date in the current quarter, average sales prices are
expected to decrease for softwood pulp, hardwood pulp
and containerboard. Input costs and distribution costs are
projected to be relatively flat.
EQUITY EARNINGS - GPIP
International Paper recorded equity earnings of $46
million in 2019 and $46 million in 2018 on its ownership
position in GPIP. The Company received cash dividends
from the investment of $27 million in 2019 and $25 million
in 2018.
Indian Papers
In millions
Net Sales
Operating Profit (Loss)
2019
2018
$
$
160 $
19 $
202
17
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
On May 29, 2019, International Paper announced it had
entered into an agreement to sell its controlling interest
in its Indian Papers business. The transaction closed on
October 30, 2019. See Note 8 Divestitures and
Impairments on pages 56 through 58 of Item 8. Financial
Statements and Supplementary Data
further
discussion.
for
EQUITY EARNINGS, NET OF TAXES - ILIM
International Paper accounts for its investment in Ilim , a
separate reportable industry segment, using the equity
method of accounting.
The Company recorded equity earnings, net of taxes,
related to Ilim of $207 million in 2019, compared with
earnings of $290 million in 2018. Operating results
recorded in 2019 included an after-tax non-cash foreign
exchange gain of $32 million, compared with an after-tax
29
A major factor in International Paper’s liquidity and capital
resource planning is its generation of operating cash flow,
which is highly sensitive to changes in the pricing and
demand for our major products. While changes in key
operating cash costs, such as raw material, energy, mill
outage and distribution, do have an effect on operating
cash generation, we believe that our focus on commercial
and operational excellence, as well as our ability to tightly
manage costs and working capital has improved our cash
flow generation over an operating cycle.
Use of cash during 2019 was primarily focused on capital
spending, debt reduction and returning cash
to
shareholders through dividends and share repurchases
under the Company's share repurchase program.
CASH PROVIDED BY OPERATING ACTIVITIES
FINANCING ACTIVITIES
Cash provided by operations, including discontinued
operations, totaled $3.6 billion in 2019, compared with
$3.2 billion for 2018. Cash provided by working capital
components (accounts receivable, contract assets and
inventory less accounts payable and accrued liabilities,
interest payable and other) totaled $342 million in 2019,
compared with cash used by working capital components
of $439 million in 2018. Cash dividends received from
equity investments were $273 million in 2019, compared
with $153 million in 2018.
INVESTMENT ACTIVITIES
Including discontinued operations, the cash outflow from
investment activities in 2019 decreased from 2018, as
2018 included higher capital spending. The Company
maintains an average capital spending target around
depreciation and amortization levels, or modestly above,
due to strategic plans over the course of an economic
cycle. Capital spending was $1.3 billion in 2019, or 98%
of depreciation and amortization, compared with $1.6
billion in 2018, or 118% of depreciation and amortization.
Across our segments, capital spending as a percentage
of depreciation and amortization ranged from 61.6% to
116.1% in 2019.
The following table shows capital spending by business
segment for the years ended December 31, 2019 and
2018.
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Subtotal
Corporate and other
Capital Spending
$
2019
2018
922 $ 1,061
183
162
172
1,256
303
1,547
20
25
$ 1,276 $ 1,572
Capital spending in 2020 is expected to be approximately
$1.0 billion, or 74% of depreciation and amortization,
including approximately $250 million of strategic
investments. The expected reduction in capital spending
in 2020 is primarily due to the completion of large strategic
investments in our containerboard mill system, including
the Madrid, Spain mill and the Riverdale mill conversions,
which is expected to be completed in the first half of 2020.
Acquisitions
See Note 7 Acquisitions on page 56 of Item 8. Financial
Statements and Supplementary Data for a discussion of
the Company's acquisitions.
Amounts related to early debt extinguishment during the
years ended December 31, 2019 and 2018 were as
follows:
In millions
Early debt reductions (a)
Pre-tax early debt extinguishment costs (b)
2019
2018
$ 614 $ 780
21
10
(a) Reductions related to notes with interest rates ranging from
3.00% to 9.50% with original maturities from 2021 to 2048 for
the years ended December 31, 2019 and 2018.
(b) Amounts are included in Restructuring and other charges in the
accompanying consolidated statements of operations.
2019: Financing activities during 2019 included debt
issuances of $534 million and reductions of $1.5 billion
for a net decrease of $973 million.
In June 2019, International Paper issued $200 million of
3.55% senior unsecured notes with a maturity date in
2029. The proceeds from this offering, together with a
combination of available cash and other borrowings,
were used for general corporate purposes, including
repayment of outstanding commercial paper borrowings
and other existing indebtedness.
In October 2019, International Paper issued $127 million
of environmental development bonds with interest rates
ranging from 1.90% to 2.10% and maturity dates in 2024.
The proceeds from this offering were used to repay other
existing environmental development bonds.
In June 2018, the borrowing capacity of the commercial
paper program was increased from $750 million to $1.0
billion. Under the terms of the program, individual
maturities on borrowings may vary, but may not exceed
one year from the date of issuance. Interest bearing notes
may be issued either as fixed notes or floating rate notes.
As of December 31, 2019 and 2018, the Company had
$30 million and $465 million, respectively, outstanding
under this program.
Other financing activities during 2019 included the net
repurchase of approximately 8.5 million shares of
treasury stock, including restricted stock tax withholding.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $535 million,
including $485 million related to shares repurchased
under the Company's share repurchase program. On
October 9, 2018,
the Company announced an
authorization to repurchase $2 billion of the Company's
common stock to supplement remaining amounts under
prior share repurchase authorizations, bringing total
share repurchase authorizations since 2013 to $5.0
billion. The Company will continue to repurchase such
shares in open market repurchase transactions. Under
the $5.0 billion share repurchase program, the Company
has repurchased 68.9 million shares at an average price
30
of $47.23, for a total of approximately $3.3 billion, as of
December 31, 2019.
In October 2019, International Paper announced that the
quarterly dividend would be increased from $0.50 per
share to $0.5125 per share, effective for the 2019 fourth
quarter.
2018: Financing activities during 2018 included debt
issuances of $490 million and retirements of $1.0 billion
for a net decrease of $518 million.
Other financing activities during 2018 included the net
repurchase of approximately 12.3 million shares of
treasury stock, including restricted stock tax withholding.
Repurchases of common stock and payments of
restricted stock withholding taxes totaled $732 million,
including $700 million related to shares repurchased
under the Company's share repurchase program.
In October 2018, International Paper announced that the
quarterly dividend would be increased from $0.4750 per
share to $0.50 per share, effective for the 2018 fourth
quarter.
Interest Rate Swaps
International Paper utilizes interest rate swaps to change
the mix of fixed and variable rate debt and manage
interest expense. At December 31, 2019 and 2018,
International Paper had interest rate swaps with a
notional amount of $700 million and maturities ranging
from 2024 to 2026 (see Note 17 Derivatives and Hedging
Activities on pages 71 through 75 of Item 8. Financial
Statements and Supplementary Data). During 2019 and
2018, the inclusion of the offsetting interest income from
short-term investments reduced the effective interest rate
from 4.8% to 4.4% and from 4.8% to 4.6%, respectively.
Variable Interest Entities
Information concerning variable interest entities is set
forth in Note 15 Variable Interest Entities on pages 68
through 70 of Item 8. Financial Statements and
Supplementary Data. In connection with the 2006
International Paper installment sale of forestlands, we
received $4.8 billion of
installment notes. These
installment notes were used by variable interest entities
as collateral for 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 hold
installment notes of $4.8 billion that mature in August
2021 (unless extended) and third-party loans of $4.2
billion that mature in the fourth quarter of 2020 (unless
extended). These third-party loans are shown in Current
nonrecourse financial liabilities of variable interest
entities on the accompanying consolidated balance
sheet. We are evaluating alternatives for extending the
installment notes and refinancing the third-party loans.
31
Failure to extend, renew or refinance these third-party
loans prior to their stated maturity, which we believe is
unlikely, could necessitate a disposition of the installment
notes to facilitate the $4.2 billion debt payment, which we
are confident could be achieved.
LIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2020
Capital Expenditures and Long-Term Debt
International Paper expects to be able to meet projected
capital expenditures, service existing debt and meet
working capital and dividend requirements during 2020
with current cash balances and cash from operations.
Additionally, the Company has existing credit facilities
totaling $2.1 billion at December 31, 2019.
The Company will continue to rely upon 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
preserve liquidity while reducing interest expense. The
majority of International Paper’s debt is accessed
through global public capital markets where we have a
wide base of investors. The Company was in compliance
with all its debt covenants at December 31, 2019, and
was well below the thresholds stipulated under the
covenants as defined in our credit agreements.
Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2019, the Company held long-
term credit ratings of BBB (stable outlook) and Baa2
(stable outlook) by S&P and Moody’s, respectively.
Contractual obligations for future payments under
existing debt and lease commitments and purchase
obligations at December 31, 2019, were as follows:
In millions
Debt maturities
Lease obligations
Purchase obligations (a)
2020
2021
2022
2023
2024
Thereafter
$
168 $
431 $
136 $
355 $
803 $
7,872
163
3,155
125
707
89
502
55
417
34
322
169
1,644
Total (b)
$ 3,486 $ 1,263 $
727 $
827 $ 1,159 $
9,685
(a)
Includes $1.3 billion relating to fiber supply agreements entered
into at the time of the 2006 Transformation Plan forestland sales
and in conjunction with the 2008 acquisition of Weyerhaeuser
Company’s Containerboard, Packaging and Recycling
business. Also includes $1.1 billion relating to fiber supply
agreements assumed in conjunction with the 2016 acquisition
of Weyerhaeuser's pulp business.
(b) Not included in the above table due to the uncertainty of the
amount and timing of the payment are unrecognized tax benefits
of approximately $153 million. Also not included in the above
table is $128 million of Deemed Repatriation Transition Tax
associated with the 2017 Tax Cuts and Jobs Act which will be
settled from 2020 - 2026.
We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2019, to be permanently
reinvested and, accordingly, no U.S. income taxes have
been provided thereon (see Note 13 Income Taxes on
pages 62 through 65 of Item 8. Financial Statements and
Supplementary Data). We do not anticipate the need to
repatriate funds to the United States to satisfy domestic
liquidity needs arising in the ordinary course of business,
including liquidity needs associated with our domestic
debt service requirements.
Pension Obligations and Funding
to minimum
that are subject
At December 31, 2019, the projected benefit obligation
for the Company’s U.S. defined benefit plans determined
under U.S. GAAP was approximately $1.5 billion higher
than the fair value of plan assets, excluding non-U.S.
plans. Approximately $1.2 billion of this amount relates
funding
to plans
requirements. Under current IRS funding rules, the
calculation of minimum funding requirements differs from
the calculation of the present value of plan benefits (the
projected benefit obligation) for accounting purposes. In
December 2008, the Worker, Retiree and Employer
Recovery Act of 2008 (WERA) was passed by the U.S.
Congress which provided for pension funding relief and
technical corrections. Funding contributions depend on
the funding method selected by the Company, and the
timing of its implementation, as well as on actual
demographic data and the targeted funding level. The
Company continually reassesses the amount and timing
of any discretionary contributions elected not to make
any voluntary contributions in 2018 or 2019. At this time,
we do not expect to have any required contributions to
our plans in 2020, although the Company may elect to
make future voluntary contributions. The timing and
amount of future contributions, which could be material,
will depend on a number of factors, including the actual
earnings and changes in values of plan assets and
changes in interest rates.
During the fourth quarter of 2018, the Company entered
into an agreement with The Prudential Insurance
Company of America to purchase a group annuity
contract and transfer approximately $1.6 billion of
International Paper's U.S. qualified pension plan
projected benefit obligations, subject to customary
closing conditions. The transaction closed on October 2,
2018 and was funded with pension plan assets. Under
the transaction, at the end of 2018, Prudential assumed
responsibility
for pension benefits and annuity
administration for approximately 23,000 retirees or their
beneficiaries receiving less than $1,000 in monthly
benefit payments from the plan. Settlement accounting
rules required a remeasurement of the qualified plan as
of October 2, 2018 and the Company recognized a non-
cash pension settlement charge of $424 million before
tax in the fourth quarter of 2018.
ILIM SHAREHOLDER'S AGREEMENT
that
In October 2007, in connection with the formation of the
Ilim joint venture, International Paper entered into a
shareholder’s agreement
includes provisions
relating to the reconciliation of disputes among the
partners. This agreement provides that at any time, either
the Company or its partners may commence procedures
specified under the deadlock agreement. If these or any
other deadlock procedures under the shareholder's
agreement are commenced, although it is not obligated
to do so, the Company may in certain situations choose
to purchase its partners' 50% interest in Ilim. Any such
transaction would be subject to review and approval by
Russian and other relevant anti-trust authorities. Based
on the provisions of the agreement, the Company
estimates that the current purchase price for its partners'
50% interests would be approximately $1.6 billion, which
could be satisfied by payment of cash or International
Paper common stock, or some combination of the two,
at the Company's option. The purchase by the Company
of its partners’ 50% interest in Ilim would result in the
consolidation of Ilim's financial position and results of
operations in all subsequent periods. The parties have
informed each other that they have no current intention
to commence procedures specified under the deadlock
provisions of the shareholder’s agreement.
CRITICAL ACCOUNTING POLICIES AND
SIGNIFICANT ACCOUNTING ESTIMATES
requires
International Paper
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States
to establish
accounting policies and to make estimates that affect
both the amounts and timing of the recording of assets,
liabilities, revenues and expenses. Some of these
estimates require subjective judgments about matters
that are inherently uncertain.
Accounting policies whose application 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 the accounting for contingencies,
impairment or disposal of long-lived assets and goodwill,
pensions and
taxes. The Company has
discussed the selection of critical accounting policies and
the effect of significant estimates with the Audit and
Finance Committee of the Company’s Board of Directors
and with its independent registered public accounting
firm.
income
CONTINGENT LIABILITIES
Accruals for contingent liabilities, including personal
injury, product liability, environmental and other legal
matters, are recorded when it is probable that a liability
has been incurred or an asset impaired and the amount
32
and
settlement
experience
of the loss can be reasonably estimated. Liabilities
accrued for legal matters require judgments regarding
projected outcomes and range of loss based on historical
litigation
and
recommendations of legal counsel and, if applicable,
other experts. Liabilities for environmental matters
require evaluations of relevant environmental regulations
and estimates of future remediation alternatives and
costs. The Company utilizes its in-house legal and
environmental experts to develop estimates of its legal
and environmental obligations, supplemented as needed
by third-party specialists to analyze its most complex
contingent liabilities.
We calculate our workers' compensation reserves based
on estimated actuarially calculated development factors.
The workers' compensation reserves are reviewed at
least quarterly to determine the adequacy of the accruals
and related financial statement disclosure. While we
believe that our assumptions are appropriate, the
ultimate settlement of workers' compensation reserves
may differ significantly from amounts we have accrued
in our consolidated financial statements.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL
An impairment of a long-lived asset exists when the
asset’s carrying amount exceeds its fair value, and is
recorded when the carrying amount is not recoverable
through undiscounted cash flows from future operations
or disposals. A goodwill impairment exists when the
carrying amount of goodwill exceeds its fair value.
Assessments of possible impairments of long-lived
assets and goodwill are made when events or changes
in circumstances indicate that the carrying value of the
asset may not be recoverable through future operations.
Additionally, evaluation for possible impairment of
goodwill is required annually. The amount and timing of
any impairment charges based on these assessments
may require the estimation of future cash flows or the fair
related assets based on
market value of
management’s best estimates of certain key factors,
including future selling prices and volumes, operating,
raw material, energy and freight costs, various other
projected operating economic factors and other intended
uses of the assets. As these key factors change in future
periods, the Company will update its impairment analysis
to reflect its latest estimates and projections.
the
ASU 2011-08, "Intangibles - Goodwill and Other," allows
entities testing goodwill for impairment the option of
performing a qualitative assessment before performing
the quantitative goodwill impairment test. If a qualitative
assessment is performed, an entity is not required to
perform the quantitative goodwill impairment test unless
the entity determines that, based on that qualitative
assessment, it is more likely than not that its fair value is
less than its carrying value.
33
The Company performed its annual testing of its reporting
units for possible goodwill impairments by applying the
qualitative assessment to its North America Industrial
Packaging, European Papers, Russian Papers, and
Brazilian Papers reporting units and the quantitative
goodwill impairment test to its Global Cellulose Fibers
and EMEA Industrial Packaging reporting units as of
October 1, 2019. For this evaluation, the Company
assessed
and
circumstances that would have affected the estimated
fair value of the reporting units under the qualitative
assessment for the reporting units listed above and the
result of the qualitative assessment indicated that it is not
more likely than not that the fair values of its North
Industrial Packaging, European Papers,
America
Russian Papers, and Brazilian Papers reporting units
were less than their carrying values.
assumptions,
various
events
for EMEA
The Company also performed the quantitative goodwill
impairment test which included comparing the carrying
amount of the Global Cellulose Fibers and EMEA
Industrial Packaging reporting units to their estimated fair
value. The Company performed the quantitative goodwill
impairment test for Global Cellulose Fibers due to the
reporting unit's outlook and
Industrial
Packaging due to the changes in the reporting unit's asset
base as a result of strategic capital projects and
acquisitions since the previous quantitative goodwill
impairment test. The Company calculated the estimated
fair value of its Global Cellulose Fibers and EMEA
Industrial Packaging reporting units using a probability-
weighted approach based on discounted future cash
flows, market multiples and transaction multiples. The
carrying amount did not exceed the estimated fair value
of the EMEA Industrial Packaging reporting unit. The
carrying amount did exceed the estimated fair value of
the Global Cellulose Fibers reporting unit, and it was
determined that all of the goodwill in the reporting unit,
totaling $52 million, was impaired. This impairment
charge was recognized during the fourth quarter of 2019.
The decline in the fair value of Global Cellulose Fibers
and resulting impairment charge was due to a change in
the outlook of the Global Cellulose Fibers reporting unit's
operations.
In addition, the Company considered whether there were
any events or circumstances outside of the annual
evaluation that would reduce the fair value of its reporting
units below their carrying amounts and necessitate a
goodwill impairment evaluation. In consideration of all
relevant factors, there were no indicators that would
require goodwill impairment subsequent to October 1,
2019.
No goodwill impairment charges were recorded in 2018.
During 2018, a determination was made that the current
carrying value of the long-lived assets of the Brazil
Packaging business exceeded their estimated fair value
due to a change in the outlook for the business.
Management engaged a third party to assist with
determining the fair value of the business and the fixed
assets. The fair value of the business was calculated
using a probability-weighted approach based on
discounted future cash flows, market multiples, and
transaction multiples and the fair value of the fixed assets
was determined using a market approach. As a result, a
pre-tax charge of $122 million ($81 million, net of tax)
was recorded related to the impairment of an intangible
asset and fixed assets.
PENSION BENEFIT OBLIGATIONS
The charges recorded for pension benefit obligations are
determined annually in conjunction with International
Paper’s consulting actuary, and are dependent upon
various assumptions including the expected long-term
rate of return on plan assets, discount rates, projected
future compensation increases and mortality rates.
The calculations of pension obligations and expenses
require decisions about a number of key assumptions
that can significantly affect liability and expense amounts,
including the expected long-term rate of return on plan
assets and the discount rate used to calculate plan
liabilities.
Benefit obligations and fair values of plan assets as of
December 31, 2019, for International Paper’s pension
plan were as follows:
In millions
U.S. qualified pension
U.S. nonqualified pension
Non-U.S. pension
Benefit
Obligation
Fair Value of
Plan Assets
$
11,318 $
10,165
381
253
—
183
The
table below shows assumptions used by
International Paper to calculate U.S. pension obligations
for the years shown:
Discount rate
Rate of compensation increase
2019
2018
2017
3.40%
2.25%
4.30%
2.25%
3.60%
3.75%
International Paper determines
these actuarial
assumptions, after consultation with our actuaries, on
December 31 of each year or more frequently if required,
to calculate liability information as of that date and
pension expense for the following year. The expected
long-term rate of return on plan assets is based on
projected rates of return for current asset classes in the
plan’s investment portfolio. The discount rate assumption
was determined based on a hypothetical settlement
portfolio selected from a universe of high quality
corporate bonds.
34
The expected long-term rate of return on U.S. pension
plan assets used to determine net periodic cost for the
year ended December 31, 2019 was 7.25%.
Increasing (decreasing) the expected long-term rate of
return on U.S. plan assets by an additional 0.25% would
(increase) 2020 pension expense by
decrease
approximately $24 million, while a (decrease) increase
of 0.25% in the discount rate would (increase) decrease
pension expense by approximately $31 million.
Actual rates of return earned on U.S. pension plan assets
for each of the last 10 years were:
Year
2019
2018
2017
2016
2015
Return
23.9 %
(3.0)%
19.3 %
7.1 %
1.3 %
Year
2014
2013
2012
2011
2010
Return
6.4%
14.1%
14.1%
2.5%
15.1%
The 2012, 2013 and 2014 returns above represent
weighted averages of International Paper and Temple-
Inland asset returns. International Paper and Temple-
Inland assets were combined in October 2014. The
annualized time-weighted rate of return earned on U.S.
pension plan assets was 9.2% and 9.8% for the past five
and ten years, respectively.
ASC 715, “Compensation – Retirement Benefits,”
provides for delayed recognition of actuarial gains and
losses, including amounts arising from changes in the
estimated projected plan benefit obligation due to
changes in the assumed discount rate, differences
between the actual and expected return on plan assets,
and other assumption changes. These net gains and
losses are recognized in pension expense prospectively
over a period that approximates the average remaining
service period of active employees expected to receive
benefits under the plans to the extent that they are not
offset by gains and losses in subsequent years.
Net periodic pension plan expenses, calculated for all of
International Paper’s plans, were as follows:
In millions
Pension expense
U.S. plans
Non-U.S. plans
Net expense
2019
2018
2017
2016
2015
$
$
93 $ 632 $ 717 $ 809 $ 461
6
4
5
4
6
99 $ 636 $ 722 $ 813 $ 467
The decrease in 2019 pension expense primarily reflects
lower service cost due to the salaried pension freeze,
lower amortization and the absence of a settlement loss
in the current year slightly offset by lower asset returns.
Assuming that discount rates, expected long-term
returns on plan assets and rates of future compensation
increases remain the same as of December 31, 2019,
projected future net periodic pension plan expenses
would be as follows:
In millions
Pension expense
U.S. plans
Non-U.S. plans
Net (income) expense
2021
2020
$
$
(11) $
4
(7) $
46
5
51
The Company estimates that it will record net pension
expense of approximately $46 million for its U.S. defined
benefit plans in 2020, compared to expense of $93 million
in 2019. The estimated decrease in net pension expense
in 2020 is primarily due to higher return on assets and
lower interest cost partially offset by higher amortization
of actuarial losses and higher service cost.
The market value of plan assets for International Paper’s
U.S. qualified pension plan at December 31, 2019 totaled
approximately $10.2 billion, consisting of approximately
37% equity securities, 50% debt securities, 8% real
estate funds and 5% other assets.
The Company’s funding policy for its qualified pension
plans is to contribute amounts sufficient to meet legal
funding requirements, plus any additional amounts that
the Company may determine
to be appropriate
considering the funded status of the plan, tax deductibility,
the cash flows generated by the Company, and other
factors. The Company continually reassesses the
amount and timing of any discretionary contributions and
could elect to make voluntary contributions in the future.
There were no required contributions to the U.S. qualified
plan in 2019. The nonqualified defined benefit plans are
funded to the extent of benefit payments, which totaled
$26 million for the year ended December 31, 2019.
INCOME TAXES
International Paper records its global tax provision based
on the respective tax rules and regulations for the
jurisdictions in which it operates. Where the Company
believes that a tax position is supportable for income tax
purposes, the item is included in its income tax returns.
Where treatment of a position is uncertain, liabilities are
recorded based upon the Company’s evaluation of the
“more likely than not” outcome considering technical
merits of the position based on specific tax regulations
and facts of each matter. Changes to recorded liabilities
are only made when an identifiable event occurs that
changes the likely outcome, such as settlement with the
relevant tax authority, the expiration of statutes of
limitation for the subject tax year, change in tax laws, or
recent court cases that are relevant to the matter.
Valuation allowances are recorded to reduce deferred tax
assets when it is more likely than not that a tax benefit
35
will not be realized. Significant judgment is required in
evaluating the need for and magnitude of appropriate
valuation allowances against deferred tax assets. The
realization of these assets is dependent on generating
future
income, as well as successful
implementation of various tax planning strategies.
taxable
While International Paper believes that these judgments
and estimates are appropriate and reasonable under the
circumstances, actual resolution of these matters may
differ from recorded estimated amounts.
RECENT ACCOUNTING DEVELOPMENTS
See Note 2 Recent Accounting Developments on pages
50 through 52 of Item 8. Financial Statements and
Supplementary Data for a discussion of new accounting
pronouncements.
LEGAL PROCEEDINGS
legal proceedings
Information concerning the Company’s environmental
and
in Note 14
Commitments and Contingent Liabilities on pages 65
through 68 of Item 8. Financial Statements and
Supplementary Data.
is set
forth
EFFECT OF INFLATION
While inflationary increases in certain input costs, such
as energy, wood fiber and chemical costs, have an impact
on the Company’s operating results, changes in general
inflation have had minimal impact on our operating results
in each of the last three years. Sales prices and volumes
are more strongly influenced by economic supply and
demand factors in specific markets and by exchange rate
fluctuations than by inflationary factors.
FOREIGN CURRENCY EFFECTS
indirect
impacts on
local currency
the Company’s
International Paper has operations in a number of
countries. Its operations in those countries also export
to, and compete with, imports from other regions. As
such, currency movements can have a number of direct
financial
and
statements. Direct impacts include the translation of
international operations’
financial
statements into U.S. dollars and the remeasurement
impact associated with non-functional currency financial
assets and liabilities. Indirect impacts include the change
in competitiveness of imports into, and exports out of, the
United States (and the impact on local currency pricing
of products that are traded internationally). In general, a
weaker U.S. dollar and stronger local currency is
beneficial to International Paper. The currencies that
have the most impact are the Euro, the Brazilian real, the
Polish zloty and the Russian ruble.
MARKET RISK
COMMODITY PRICE RISK
The objective of our commodity exposure management
is to minimize volatility in earnings due to large
fluctuations in the price of commodities. Commodity swap
or forward purchase contracts may be used to manage
risks associated with market fluctuations in energy prices.
FOREIGN CURRENCY RISK
transacts business
International Paper
in many
currencies and is also subject to currency exchange rate
risk through investments and businesses owned and
operated in foreign countries. Our objective in managing
the associated foreign currency risks is to minimize the
effect of adverse exchange rate fluctuations on our after-
tax cash flows. We address these risks on a limited basis
by entering into cross-currency interest rate swaps, or
foreign exchange contracts. At December 31, 2019 and
2018, the net fair value of financial instruments with
exposure to foreign currency risk was approximately a
$16 million asset and an $8 million liability, respectively.
The potential loss in fair value for such financial
instruments from a 10% adverse change in quoted
foreign currency exchange rates would have been
approximately $87 million and $29 million at
December 31, 2019 and 2018, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See the preceding discussion and Note 17 Derivatives
and Hedging Activities on pages 71 through 75 of Item 8.
Financial Statements and Supplementary Data.
We use financial instruments, including fixed and variable
rate debt, to finance operations, for capital spending
programs and
for general corporate purposes.
Additionally, financial instruments, including various
derivative contracts, are used to hedge exposures to
interest rate, commodity and foreign currency risks. We
do not use financial instruments for trading purposes.
Information
International Paper’s debt
obligations is included in Note 16 Debt and Lines of Credit
on pages 70 and 71 of Item 8. Financial Statements and
Supplementary Data. A discussion of derivatives and
hedging activities is included in Note 17 Derivatives and
Hedging Activities on pages 71 through 75 of Item 8.
Financial Statements and Supplementary Data.
related
to
The fair value of our debt and financial instruments varies
due to changes in market interest and foreign currency
rates and commodity prices since the inception of the
related instruments. We assess this market risk utilizing
a sensitivity analysis. The sensitivity analysis measures
the potential loss in earnings, fair values and cash flows
based on a hypothetical 10% change (increase and
decrease) in interest and currency rates and commodity
prices.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates
relates primarily to short- and long-term debt obligations
and investments in marketable securities. We invest in
investment-grade securities of financial institutions and
money market mutual funds with a minimum rating of AAA
and limit exposure to any one issuer or fund. Our
investments in marketable securities at December 31,
2019 and 2018 are stated at cost, which approximates
market due to their short-term nature. Our interest rate
risk exposure related to these investments was not
material.
We issue fixed and floating rate debt in a proportion that
management deems appropriate based on current and
projected market conditions. Derivative instruments,
such as, interest rate swaps, may be used to execute this
strategy. At December 31, 2019 and 2018, the fair value
of the net liability of financial instruments with exposure
to interest rate risk was approximately $9.8 billion and
$9.2 billion, respectively. The potential increase in fair
value resulting from a 10% adverse shift in quoted interest
rates would have been approximately $511 million and
$538 million at December 31, 2019 and 2018,
respectively.
36
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF MANAGEMENT ON:
Financial Statements
in
The management of International Paper Company is
responsible for the preparation of the consolidated
financial statements
this annual report. The
consolidated financial statements have been prepared
using accounting principles generally accepted in the
United States of America considered appropriate in the
circumstances
the Company’s
consolidated financial position, results of operations and
cash flows on a consistent basis. Management has also
prepared the other information in this annual report and
is responsible for its accuracy and consistency with the
consolidated financial statements.
to present
fairly
As can be expected in a complex and dynamic business
environment, some financial statement amounts are
based on estimates and judgments. Even though
estimates and judgments are used, measures have
been taken to provide reasonable assurance of the
integrity and reliability of the financial information
contained in this annual report. We have formed a
Disclosure Committee to oversee this process.
The accompanying consolidated financial statements
have been audited by the independent registered public
accounting firm Deloitte & Touche LLP. During its audits,
Deloitte & Touche LLP was given unrestricted access to
all financial records and related data, including minutes
of all meetings of stockholders and the board of directors
and all committees of the board. Management believes
that all representations made to the independent
auditors during their audits were valid and appropriate.
Internal Control Over Financial Reporting
The management of International Paper Company is
also responsible for establishing and maintaining
adequate internal control over financial reporting (as
defined in Rules (13a-15(e) and 15d-15(e) under the
Exchange Act). Internal control over financial reporting
is the process designed by, or under the supervision of,
our principal executive officer and principal financial
officer, and effected by our Board of Directors,
management and other personnel
to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes. All internal control
systems have
the
possibility of circumvention and overriding of controls,
and therefore can provide only reasonable assurance
of achieving the designed control objectives. The
Company’s internal control system is supported by
written policies and procedures, contains self-
limitations,
including
inherent
monitoring mechanisms, and is audited by the internal
audit function. Appropriate actions are taken by
management to correct deficiencies as they are
identified. Our procedures for financial reporting include
the active involvement of senior management, our Audit
and Finance Committee and our staff of highly qualified
financial and legal professionals.
financial
The Company has assessed the effectiveness of its
internal control over
reporting as of
December 31, 2019. In making this assessment, it used
the criteria described in “Internal Control – Integrated
Framework (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, management
believes that, as of December 31, 2019, the Company’s
internal control over financial reporting was effective.
The Company completed the acquisitions of four
packaging businesses located in Portugal (Ovar),
France (Torigni and Cabourg), and Spain (Tavernes de
la Valldigna and Montblanc) over the course of 2019.
Due to the timing of these acquisitions, we have
excluded these businesses from our evaluation of the
effectiveness of internal control over financial reporting.
For the period ended December 31, 2019, sales and
assets for these businesses represented approximately
0.4% of net sales and 0.6% of total assets.
The Company’s
registered public
independent
accounting firm, Deloitte & Touche LLP, has issued its
report on the effectiveness of the Company’s internal
control over financial reporting. The report appears on
pages 41 and 42.
Internal Control Environment And Board Of
Directors Oversight
in
legal standards
Our internal control environment includes an enterprise-
wide attitude of integrity and control consciousness that
establishes a positive “tone at the top.” This is
exemplified by our ethics program that includes long-
standing principles and policies on ethical business
conduct that require employees to maintain the highest
the conduct of
ethical and
International Paper business, which have been
distributed to all employees; a toll-free telephone
helpline whereby any employee may anonymously
report suspected violations of law or International
Paper’s policy; and an office of ethics and business
practice. The internal control system further includes
careful selection and training of supervisory and
management personnel, appropriate delegation of
authority and division of responsibility, dissemination of
accounting and business policies
throughout
International Paper, and an extensive program of
internal audits with management follow-up.
37
the performance of
The Board of Directors, assisted by the Audit and
Finance Committee (Committee), monitors the integrity
of the Company’s financial statements and financial
reporting procedures,
the
Company’s internal audit function and independent
auditors, and other matters set forth in its charter. The
Committee, which consists of independent directors,
meets regularly with representatives of management,
and with the independent auditors and the Internal
Auditor, with and without management representatives
in attendance, to review their activities. The Committee’s
Charter takes into account the New York Stock
Exchange rules relating to Audit Committees and the
SEC rules and regulations promulgated as a result of
the Sarbanes-Oxley Act of 2002. The Committee has
reviewed and discussed the consolidated financial
statements for the year ended December 31, 2019,
including critical accounting policies and significant
management judgments, with management and the
report
independent auditors. The Committee’s
recommending
financial
statements in this Annual Report on Form 10-K will be
set forth in our Proxy Statement.
inclusion of such
the
MARK S. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TIMOTHY S. NICHOLLS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
38
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
International Paper Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of International Paper Company and
subsidiaries (the "Company") as of December 31, 2019
and 2018, the related consolidated statements of
operations, comprehensive income, changes in equity,
and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes
(collectively referred to as the "financial statements"). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company
as of December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the three
years in the period ended December 31, 2019, in
conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal
control over financial reporting as of December 31,
2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of
the Treadway
Commission and our report dated February 19, 2020,
expressed an unqualified opinion on the Company's
internal control over financial reporting.
Basis for Opinion
the Company's
These financial statements are the responsibility of the
Company's management. Our responsibility is to
express an opinion on
financial
statements based on our audits. We are a public
accounting firm registered with the PCAOB and are
required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such
procedures included examining, on a test basis,
39
evidence regarding the amounts and disclosures in the
financial statements. Our audits also
included
the accounting principles used and
evaluating
significant estimates made by management, as well as
evaluating the overall presentation of the financial
statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are
matters arising from the current-period audit of the
financial statements
that were communicated or
required to be communicated to the audit committee and
that (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our
especially challenging, subjective, or complex
judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by
communicating
the critical audit matters below,
providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
Income Taxes - Valuation Allowances - Refer to
Notes 1 and 13 to the financial statements
Critical Audit Matter Description
The Company recognizes deferred income tax assets
for deductible temporary differences and carryforwards.
Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected
to be realized based on estimates of future taxable
income.
During the year ended December 31, 2019, the
Company recorded a valuation allowance of $203
million related to indefinite-lived non-US net operating
loss carryforwards. Management’s determination that a
valuation allowance was necessary in the current year
was influenced by current year changes in global tax
laws, which have adversely impacted the time period
over which the Company could reasonably realize the
deferred tax asset based on its current global structure
and ability to execute prudent and feasible tax planning
actions.
We identified the valuation allowance as a critical audit
matter because it is dependent upon an analysis of
complex tax laws and subjective projections of future
result, performing audit
taxable
reasonableness of
the
procedures
management's projections and the timing for recognition
of the valuation allowance, required a high degree of
auditor judgment and an increased extent of effort,
including the need to involve our income tax specialists.
income. As a
to evaluate
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimated future taxable
income and the determination of whether it is more likely
than not that the deferred tax asset will be realized
included the following, among others:
• We tested the effectiveness of controls over the
valuation allowance assessment for income taxes,
including management’s controls over
the
identification and evaluation of changes in global
tax laws, estimates of future taxable income, and
the determination of whether it is more likely than
not that the deferred tax asset will be realized.
• With the assistance of our income tax specialists:
• We identified and evaluated changes in global
tax laws and the potential impact on the
Company’s ability to utilize the deferred tax
asset.
• We considered management’s intent and
ability to execute prudent and feasible tax
planning actions based upon their underlying
economic substance and local tax laws.
• We evaluated management’s ability to accurately
estimate future taxable income by comparing actual
results to management’s historical estimates.
• We
considered
whether management’s
determination that a valuation allowance was
required in the current year was indicative of
management bias by evaluating the Company’s
historical conclusions reached with respect to the
realizability of its deferred tax assets in other
jurisdictions with unlimited carryforward periods.
Other Accrued Liabilities - Commitments and
Contingent Liabilities - Harris County San Jacinto
Environmental Proceeding - Refer to Note 14 to the
financial statements
Critical Audit Matter Description
The Company has obligations related to certain
environmental matters. Such obligations are recorded
when it is probable that a liability has been incurred and
the loss can be reasonably estimated.
The Company has been named a potentially responsible
party (“PRP”) at the Harris County San Jacinto Waste
Pits Superfund Site (“San Jacinto”). The Company has
been participating in the remediation activities at the site
with other PRPs.
40
During 2017, the Environmental Protection Agency
(“EPA”) issued a Record of Decision (“ROD”) which
included a waste removal and relocation remedy for the
site, including an estimate of costs to remediate. Due to
uncertainty about
feasibility of
executing the remedy prescribed within the ROD, the
Company believes additional losses for this site are not
estimable.
technological
the
We identified the San Jacinto environmental proceeding
as a critical audit matter because of the uncertainty
associated with executing the remedy prescribed in the
ROD. As a result, auditing management's determination
that additional losses for the site are not reasonably
estimable required a high degree of auditor judgment
and an increased extent of effort, including the need to
involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures
to management’s
determination and the Company’s disclosure that
additional losses are not estimable related to San
Jacinto included the following, among others:
related
• We tested the effectiveness of controls related to
San Jacinto, including management’s controls over
evaluating whether the liability was reflective of
current circumstances, included necessary costs
(i.e. probable and estimable), and the related
disclosure in the financial statements was accurate
and complete.
• With assistance from our environmental specialists:
• We inquired of the Company’s environmental
specialists, including inquiries of both internal
and external legal counsel, to understand the
status of progress under
the 2018
Administrative Order on Consent (“AOC”) as
well as the status of ongoing discussions with
the EPA and the other regulatory agencies
involved.
• We inspected correspondence between the
PRPs and the EPA to gain an understanding of
progress and developments related to the site
based on
timeline and requirements
outlined in the AOC, including consideration of
contradictory evidence or
indications of
Management bias.
the
• We assessed management’s assertion
regarding the technical feasibility of compliance
with the ROD in evaluating the recorded liability.
• We evaluated the sufficiency of the Company’s
disclosures related to additional losses not
being reasonably estimable.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 19, 2020
We have served as the Company's auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
International Paper Company:
Opinion on
Reporting
Internal Control over Financial
We have audited the internal control over financial
reporting of
International Paper Company and
subsidiaries (the “Company”) as of December 31, 2019,
based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of
the Treadway
Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal
control over financial reporting as of December 31,
2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial
statements as of and for the year ended December 31,
2019, of the Company, and our report dated February
19, 2020 expressed an unqualified opinion on those
financial statements.
As described in the Report of Management on Internal
Control over Financial Reporting, management
excluded from its assessment the internal control over
financial reporting
the acquisitions of packaging
businesses located in Portugal (Ovar), France (Torigni
and Cabourg), and Spain (Tavernes de la Valldigna and
Montblanc) completed during 2019. The acquired
businesses constitute 0.4% of net sales and 0.6% of
total assets of the consolidated financial statement
amounts as of and for the year ended December 31,
2019. Accordingly, our audit did not include the internal
control over financial reporting at these acquired
businesses.
41
Basis for Opinion
is responsible
for
The Company’s management
maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and
are required to be independent with respect to the
Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material
respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of
internal control based on the assessed risk, and
performing such other procedures as we considered
necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over
Financial Reporting
reporting
financial statements
A company’s internal control over financial reporting is
a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of
for external
purposes in accordance with generally accepted
accounting principles. A company’s internal control over
those policies and
includes
financial
procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that
receipts and expenditures of the company are being
made only in accordance with authorizations of
management and directors of the company; and (3)
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial
reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 19, 2020
42
CONSOLIDATED STATEMENT OF OPERATIONS
In millions, except per share amounts, for the years ended December 31
NET SALES
COSTS AND EXPENSES
Cost of products sold
Selling and administrative expenses
Depreciation, amortization and cost of timber harvested
Distribution expenses
Taxes other than payroll and income taxes
Restructuring and other charges, net
Net (gains) losses on sales and impairments of businesses
Antitrust fines and settlements
Net bargain purchase gain on acquisition of business
Interest expense, net
Non-operating pension expense
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY
EARNINGS (LOSSES)
Income tax provision (benefit)
Equity earnings (loss), net of taxes
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
Discontinued operations, net of taxes
NET EARNINGS (LOSS)
Less: Net earnings (loss) attributable to noncontrolling interests
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
COMMON SHAREHOLDERS
Earnings (loss) from continuing operations
Discontinued operations, net of taxes
Net earnings (loss)
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
COMMON SHAREHOLDERS
Earnings (loss) from continuing operations
Discontinued operations, net of taxes
Net earnings (loss)
The accompanying notes are an integral part of these financial statements.
2019
2018
2017
$ 22,376 $ 23,306 $ 21,743
15,268
15,555
14,802
1,647
1,306
1,560
170
57
205
32
—
491
36
1,723
1,328
1,567
171
29
122
—
—
536
494
1,621
1,343
1,434
169
67
9
354
(6)
572
530
1,604
1,781
848
634
250
1,220
—
1,220
(5)
445
336
1,672
345
2,017
5
(1,085)
177
2,110
34
2,144
—
$
1,225 $
2,012 $ 2,144
$
$
$
$
3.10 $
4.07 $
—
0.84
3.10 $
4.91 $
3.07 $
4.02 $
—
0.83
3.07 $
4.85 $
5.11
0.08
5.19
5.05
0.08
5.13
43
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
In millions for the years ended December 31
NET EARNINGS (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $54, $196 and $280)
Non-U.S. plans (less tax of $0, $0 and $0)
Pension and postretirement liability adjustments:
U.S. plans (less tax of $7, $6 and $69)
Non-U.S. plans (less tax of $3, $1 and $1)
Change in cumulative foreign currency translation adjustment (less tax of $1, $1 and $0)
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $2, $5 and $4)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $2, $1 and $2)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Comprehensive Income (Loss)
Net (Earnings) Loss Attributable to Noncontrolling Interests
Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests
2019
2018
2017
$
1,220 $
2,017 $
2,144
163
1
22
(20)
116
4
4
290
1,510
5
—
588
1
18
4
(473)
(10)
2
130
2,147
(5)
3
486
—
56
3
177
15
(7)
730
2,874
—
(1)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
$
1,515 $
2,145 $
2,873
The accompanying notes are an integral part of these financial statements.
44
CONSOLIDATED BALANCE SHEET
In millions, except per share amounts, at December 31
2019
2018
ASSETS
Current Assets
Cash and temporary investments
Accounts and notes receivable (less allowances of $73 in 2019 and $81 in 2018)
Contract assets
Inventories
Other current assets
Total Current Assets
Plants, Properties and Equipment, net
Forestlands
Investments
Financial Assets of Variable Interest Entities (Note 15)
Goodwill
Right of Use Assets
Deferred Charges and Other Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt
Current nonrecourse financial liabilities of variable interest entities (Note 15)
Accounts payable
Accrued payroll and benefits
Other current liabilities
Total Current Liabilities
Long-Term Debt
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 15)
Deferred Income Taxes
Pension Benefit Obligation
Postretirement and Postemployment Benefit Obligation
Long-Term Lease Obligations
Other Liabilities
Commitments and Contingent Liabilities (Note 14)
Equity
Common stock $1 par value, 2019 - 448.9 shares and 2018 - 448.9 shares
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Common stock held in treasury, at cost, 2019 – 56.800 shares and 2018 – 48.310 shares
Total International Paper Shareholders’ Equity
Noncontrolling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
The accompanying notes are an integral part of these financial statements.
45
$
511 $
589
3,280
393
2,208
247
6,639
3,521
395
2,241
250
6,996
13,004
13,067
391
1,721
7,088
3,347
434
847
402
1,648
7,070
3,374
—
1,019
$ 33,471 $ 33,576
$
168 $
4,220
2,423
466
1,369
8,646
9,597
2,085
2,633
1,578
270
304
640
449
6,297
8,408
639
—
2,413
535
1,107
4,694
10,015
6,298
2,600
1,762
264
—
560
449
6,280
7,465
(4,739)
(4,500)
10,415
2,702
7,713
5
9,694
2,332
7,362
21
7,718
7,383
$ 33,471 $ 33,576
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions for the years ended December 31
OPERATING ACTIVITIES
Net earnings (loss)
Depreciation, amortization, and cost of timber harvested
Deferred income tax provision (benefit), net
Restructuring and other charges, net
Pension plan contributions
Periodic pension expense, net
Net gain on transfer of North American Consumer Packaging business
Net bargain purchase gain on acquisition of business
Net (gains) losses on sales and impairments of businesses
Antitrust fines
Equity method dividends received
Equity (earnings) losses, net
Other, net
Changes in current assets and liabilities
Accounts and notes receivable
Contract assets
Inventories
Accounts payable and accrued liabilities
Interest payable
Other
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
INVESTMENT ACTIVITIES
Invested in capital projects
Acquisitions, net of cash acquired
Net settlement on transfer of North American Consumer Packaging business
Proceeds from divestitures, net of cash divested
Proceeds from sale of fixed assets
Other
CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES
FINANCING ACTIVITIES
Repurchases of common stock and payments of restricted stock tax withholding
Issuance of debt
Reduction of debt
Change in book overdrafts
Dividends paid
Net debt tender premiums paid
Other
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Effect of Exchange Rate Changes on Cash
Change in Cash and Temporary Investments
Cash and Temporary Investments
Beginning of the period
End of the period
The accompanying notes are an integral part of these financial statements.
46
2019
2018
2017
$ 1,220 $ 2,017 $ 2,144
1,423
1,328
1,306
212
57
—
93
—
—
205
32
273
(250)
120
246
2
(1)
139
(19)
(25)
133
29
(1,113)
67
— (1,250)
632
(488)
—
122
—
153
(336)
75
(342)
(32)
(236)
151
(8)
28
717
—
(6)
9
—
133
(177)
212
(370)
—
(87)
114
1
(60)
3,610
3,226
1,757
(1,276)
(1,572)
(1,391)
(103)
—
81
18
(20)
(8)
(40)
—
23
28
(45)
—
4
26
15
(1,300)
(1,569)
(1,391)
(535)
534
(732)
490
(47)
1,907
(1,507)
(1,008)
(1,424)
(66)
(796)
(18)
(1)
(1)
(789)
(6)
—
(2,389)
(2,046)
1
(78)
(40)
(429)
26
(769)
(84)
(8)
(399)
18
(15)
589
511 $
1,018
1,033
589 $ 1,018
$
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
In millions
BALANCE, JANUARY 1,
2017
Issuance of stock for various
plans, net
Repurchase of stock
Dividends ($1.863 per share)
Transactions of equity
method investees
Comprehensive income (loss)
BALANCE, DECEMBER 31,
2017
Adoption of ASC 606 revenue
from contracts with
customers
Issuance of stock for various
plans, net
Repurchase of stock
Dividends ($1.925 per share)
Transactions of equity
method investees
Comprehensive income (loss)
BALANCE, DECEMBER 31,
2018
Adoption of ASU 2018-02
reclassification of stranded
tax effects resulting from
Tax Reform
Issuance of stock for
various plans, net
Repurchase of stock
Dividends ($2.013 per
share)
Transactions of equity
method investees
Divestiture of
noncontrolling interests
Comprehensive income
(loss)
BALANCE, DECEMBER 31,
2019
Common
Stock
Issued
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock
Held In
Treasury,
At Cost
Total
International
Paper
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
$
449 $ 6,189 $
4,818 $
(5,362) $
1,753 $
4,341 $
18 $ 4,359
—
—
—
—
—
42
—
—
(25)
—
—
—
(782)
—
2,144
—
—
—
—
729
(120)
47
—
—
—
449
6,206
6,180
(4,633)
1,680
—
—
—
—
—
—
—
62
—
—
12
—
73
—
—
(800)
—
2,012
—
—
—
—
—
133
—
(80)
732
—
—
—
449
6,280
7,465
(4,500)
2,332
—
—
—
—
—
—
—
—
(18)
—
—
35
—
—
529
—
—
(811)
—
—
(529)
—
—
—
—
—
—
(165)
535
—
—
—
—
1,225
290
162
(47)
(782)
(25)
2,873
6,522
73
142
(732)
(800)
12
2,145
7,362
—
147
(535)
(811)
35
—
—
—
—
—
1
162
(47)
(782)
(25)
2,874
19
6,541
—
—
—
—
—
2
73
142
(732)
(800)
12
2,147
21
7,383
—
—
—
—
—
—
147
(535)
(811)
35
(11)
(11)
1,515
(5)
1,510
$
449 $ 6,297 $
8,408 $
(4,739) $
2,702 $
7,713 $
5 $ 7,718
The accompanying notes are an integral part of these financial statements.
47
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 SUMMARY OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
International Paper (the Company) is a global paper and
packaging company with primary markets and
manufacturing operations in North America, Europe, Latin
America, North Africa and Russia. Substantially all of our
businesses have experienced, and are likely to continue
to experience, cycles relating to available industry
capacity and general economic conditions.
FINANCIAL STATEMENTS
These consolidated financial statements have been
in conformity with accounting principles
prepared
generally accepted in the United States that require the
use of management’s estimates. Actual results could
differ from management’s estimates.
On January 1, 2018, the Company completed the
previously announced transfer of its North American
Consumer Packaging business and received a 20.5%
ownership interest in a subsidiary of Graphic Packaging
Holding Company that holds the assets of the combined
business. See Note 8 for further details.
CONSOLIDATION
financial statements
The consolidated
the
accounts of International Paper and subsidiaries for which
we have a controlling financial interest, including variable
interest entities for which we are the primary beneficiary.
All significant intercompany balances and transactions
are eliminated.
include
specifically identified intangible assets such as customer
lists and developed technology involves judgment. We
may refine our estimates and make adjustments to the
assets acquired and
liabilities assumed over a
measurement period, not to exceed one year. Upon the
conclusion of the measurement period or the final
determination of the values of asset acquired and
liabilities assumed, whichever comes
first, any
subsequent adjustments are charged to the consolidated
statement of earnings. Subsequent actual results of the
underlying business activity supporting the specifically
identified intangible assets could change, requiring us to
record impairment charges or adjust their economic lives
in future periods. See Note 7 for further details.
DISCONTINUED OPERATIONS
A discontinued operation may include a component or a
group of components of the Company's operations. A
disposal of a component or a group of components is
reported in discontinued operations if the disposal
represents a strategic shift that has or will have a major
effect on the Company's operations and financial results
when the following occurs: (1) a component (or group of
components) meets the criteria to be classified as held
for sale; (2) the component or group of components is
disposed of by sale; or (3) the component or group of
components is disposed of other than by sale (for
example, by abandonment or in a distribution to owners
in a spinoff). For any component classified as held for sale
or disposed of by sale or other than by sale, qualifying for
presentation as a discontinued operation, the Company
reports the results of operations of the discontinued
operations (including any gain or loss recognized on the
disposal or loss recognized on classification as held for
sale of a discontinued operation), less applicable income
taxes (benefit), as a separate component in the
consolidated statement of operations for current and all
prior periods presented. See Note 8 for further details.
EQUITY METHOD INVESTMENTS
RESTRUCTURING LIABILITIES AND COSTS
is applied
The equity method of accounting
for
investments when the Company has significant influence
over the investee’s operations, or when the investee is
structured with separate capital accounts and our
investment is considered more than minor. Our material
equity method investments are described in Note 11.
BUSINESS COMBINATIONS
The Company allocates the total consideration of the
assets acquired and liabilities assumed based on their
estimated fair value as of the business combination date.
In developing estimates of fair values for long-lived
assets, including identifiable intangible assets, the
Company utilizes a variety of inputs including forecasted
cash flows, anticipated growth rates, discount rates,
estimated replacement costs and depreciation and
obsolescence factors. Determining the fair value for
48
For operations to be closed or restructured, a liability and
related expense is recorded in the period when operations
cease. For termination costs associated with employees
covered by a written or substantive plan, a liability is
recorded when it is probable that employees will be
entitled to benefits and the amount can be reasonably
estimated. For
termination costs associated with
employees not covered by a written and broadly
communicated policy covering involuntary termination
benefits (severance plan), a liability is recorded for costs
to terminate employees (one-time termination benefits)
when the termination plan has been approved and
committed to by management, the employees to be
terminated have been identified, the termination plan
benefit
the employees
identified in the plan have been notified and actions
required to complete the plan indicate that it is unlikely
terms are communicated,
that significant changes to the plan will be made or that
the plan will be withdrawn. The timing and amount of an
accrual is dependent upon the type of benefits granted,
the timing of communication and other provisions that
may be provided in the benefit plan. The accounting for
each termination is evaluated individually. See Note 6 for
further details.
REVENUE RECOGNITION
Generally, the Company recognizes revenue on a point-
in-time basis when the customer takes title to the goods
and assumes the risks and rewards for the goods. For
customized goods where the Company has a legally
enforceable right to payment for the goods, the Company
recognizes revenue over time, which generally is, as the
goods are produced.
The Company’s revenue is primarily derived from fixed
consideration; however, we do have contract terms that
give rise to variable consideration, primarily cash
discounts and volume rebates. International Paper offers
early payment discounts to customers across the
Company’s businesses. The Company estimates the
expected cash discounts and other customer refunds
based on the historical experience across the Company’s
portfolio of customers to record reductions in revenue
which is consistent with the most likely amount method
outlined in ASC 606. Management has concluded that this
method is the best estimate of the consideration the
Company will be entitled to from its customers.
The Company has elected to present all sales taxes on
a net basis, account for shipping and handling activities
as fulfillment activities, recognize the incremental costs
of obtaining a contract as expense when incurred if the
amortization period of the asset the Company would
recognize is one year or less, and not record interest
income or interest expense when the difference in timing
of control or transfer and customer payment is one year
or less. See Note 3 for further details.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of three
months or less and money market funds with greater than
three month maturities but with the right to redeem without
notice are treated as cash equivalents and are stated at
cost, which approximates market value. See Note 9 for
further details.
INVENTORIES
Inventories are valued at the lower of cost or market value
include all costs directly associated with
and
manufacturing
and
products: materials,
manufacturing overhead. In the United States, costs of
raw materials and finished pulp and paper products, are
generally determined using the last-in, first-out method.
labor
Other inventories are valued using the first-in, first-out or
average cost methods. See Note 9 for further details.
LEASED ASSETS
the
related
that option. Some
Operating lease ROU assets and liabilities are recognized
at the commencement date of the lease based on the
present value of lease payments over the lease term. The
Company's leases may include options to extend or
terminate the lease. These options to extend are included
in the lease term when it is reasonably certain that we will
leases have variable
exercise
payments, however, because they are not based on an
index or rate, they are not included in the ROU assets and
liabilities. Variable payments for real estate leases
to common area maintenance,
primarily
insurance, taxes and utilities. Variable payments for
equipment, vehicles, and
leases within supply
agreements primarily related to usage, repairs and
is not readily
maintenance. As
determinable for most of the Company's leases, the
Company applies a portfolio approach using an estimated
incremental borrowing rate to determine the initial present
value of lease payments over the lease terms on a
collateralized basis over a similar term, which is based on
market and company specific information. We use the
unsecured borrowing rate and risk-adjust that rate to
approximate a collateralized rate, and apply the rate
based on the currency of the lease, which is updated on
a quarterly basis for measurement of new lease liabilities.
Leases having a lease term of twelve months or less are
not recorded on the balance sheet and the related lease
expense is recognized on a straight-line basis over the
term of the lease. In addition, the Company has applied
the practical expedient to account for the lease and non-
lease components as a single lease component for all of
the Company's leases. See Note 10 for further details.
implicit rate
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost, less
accumulated depreciation. Expenditures for betterments
are capitalized, whereas normal repairs and maintenance
are expensed as incurred. The units-of-production
method of depreciation is used for pulp and paper mills,
and the straight-line method is used for other plants and
equipment. See Note 9 for further details.
GOODWILL
Annual evaluation for possible goodwill impairment is
performed as of the beginning of the fourth quarter of each
year, with additional interim evaluation performed when
management believes that it is more likely than not, that
events or circumstances have occurred that would result
in the impairment of a reporting unit’s goodwill.
The Company has the option to evaluate goodwill for
impairment by first performing a qualitative assessment
of events and circumstances to determine whether it is
49
more likely than not that the fair value of a reporting unit
is less than its carrying amount. If, after assessing the
totality of events or circumstances, the Company
determines that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amounts,
then the quantitative goodwill impairment test is not
required to be performed. If the Company determines that
it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, or if the Company
does not elect the option to perform an initial qualitative
assessment, the Company is required to perform the
quantitative goodwill impairment test. In performing this
evaluation, the Company estimates the fair value of its
reporting unit using a probability-weighted approach
based on discounted future cash flows, market multiples
and transaction multiples. Key assumptions in the
quantitative goodwill impairment test considered by
management include the discount rate, long-term growth
rate, tax rate, inflation rate, and business forecast. For
reporting units whose carrying amount is in excess of their
estimated fair value, the reporting unit will record an
impairment charge by the amount that the carrying
amount exceeds the reporting unit's fair value, not to
exceed the total amount of goodwill allocated to the
reporting unit. See Note 12 for further discussion.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment upon the
occurrence of events or changes in circumstances that
indicate that the carrying value of the assets may not be
recoverable. A recoverability test is performed based on
undiscounted cash flows, requiring judgments as to
whether assets are held and used or held for sale, the
weighting of operational alternatives being considered by
management and estimates of the amount and timing of
expected future cash flows from the use of the long-lived
assets generated by their use. Impaired assets are
recorded at their estimated fair value. See Note 8 for
further discussion.
INCOME TAXES
International Paper uses the asset and liability method of
accounting for income taxes whereby deferred income
taxes are recorded for the future tax consequences
attributable to differences between the financial statement
and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered
or settled. Deferred tax assets and liabilities are
remeasured to reflect new tax rates in the periods rate
changes are enacted.
International Paper records its worldwide tax provision
based on the respective tax rules and regulations for the
jurisdictions in which it operates. Where the Company
believes that a tax position is supportable for income tax
purposes, the item is included in its income tax returns.
50
Where treatment of a position is uncertain, liabilities are
recorded based upon the Company’s evaluation of the
“more likely than not” outcome considering the technical
merits of the position based on specific tax regulations
and the facts of each matter. Changes to recorded
liabilities are made only when an identifiable event occurs
that changes the likely outcome, such as settlement with
the relevant tax authority, the expiration of statutes of
limitation for the subject tax year, a change in tax laws,
or a recent court case that addresses the matter.
While the judgments and estimates made by the
Company are based on management’s evaluation of the
technical merits of a matter, assisted as necessary by
consultation with outside consultants, historical
experience and other assumptions that management
believes are appropriate and reasonable under current
circumstances, actual resolution of these matters may
differ from recorded estimated amounts, resulting in
adjustments that could materially affect future financial
statements. See Note 13 for further details.
International Paper uses the flow-through method to
account for investment tax credits earned on eligible
open-loop biomass facilities and combined heat and
power system expenditures. Under this method, the
investment tax credits are recognized as a reduction to
income tax expense in the year they are earned rather
than a reduction in the asset basis.
ENVIRONMENTAL REMEDIATION COSTS
remediation
Costs associated with environmental
obligations are accrued when such costs are probable
and reasonably estimable. Such accruals are adjusted as
further information develops or circumstances change.
for environmental
Costs of
remediation obligations are discounted to their present
value when the amount and timing of expected cash
payments are reliably determinable. See Note 14 for
further details.
future expenditures
TRANSLATION OF FINANCIAL STATEMENTS
Balance sheets of international operations are translated
into U.S. dollars at year-end exchange rates, while
statements of operations are translated at average rates.
Adjustments
statement
translations are included as cumulative translation
adjustments in Accumulated other comprehensive loss.
resulting
financial
from
NOTE 2 RECENT ACCOUNTING DEVELOPMENTS
Other than as described below, no new accounting
pronouncement issued or effective during the fiscal year
has had or is expected to have a material impact on the
consolidated financial statements.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
Intangibles
In January 2017, the FASB issued ASU 2017-04,
"Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment." This
guidance eliminates the requirement to calculate the
implied fair value of goodwill under Step 2 of the previous
goodwill impairment test approach to measure a
goodwill impairment charge. Instead, entities will record
an impairment charge based on the excess of a reporting
unit's carrying amount over its fair value. This guidance
should be applied prospectively. The Company early
adopted the provision of this guidance in the fourth
quarter of 2019 in conjunction with our annual evaluation
for possible goodwill impairment which resulted in the
recognition of a goodwill impairment charge of $52
million for the Global Cellulose Fibers reporting unit. See
Note 12.
Pension Plan Disclosures
which
the FASB
Improvements,"
issued ASU 2018-09,
In July 2018,
"Codification
included
amendments to Subtopic 962-325. This disclosure
guidance pertains to the presentation of certain types of
investments. The Company adopted the provisions of
this guidance in the fourth quarter of 2019 in conjunction
with the preparation of our 2019 annual Form 10-K
disclosures and presentation related to pension plan
assets.
Leases
the modified
In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842): Leases." The Company adopted
the provisions of this guidance effective January 1,
2019, using
retrospective optional
transition method. Therefore, the standard was applied
beginning January 1, 2019, and prior periods were not
restated. The adoption of the standard did not result in
a cumulative effect adjustment to the opening balance
of Retained earnings. The Company elected the
package of practical expedients and implemented
internal controls and system functionality to enable the
preparation of financial information upon adoption.
liabilities recorded on
The adoption of the new standard resulted in the
recognition of a right of use asset and short-term and
long-term
the Company's
consolidated balance sheet related to operating leases.
Accounting for finance leases remained substantially
unchanged. In addition, the adoption of the standard did
not have a material impact on the Company's results of
operations or cash flows. See Note 10.
51
In February 2018, the FASB issued ASU 2018-02,
"Income Statement - Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income." This
guidance provided entities the option to reclassify
stranded tax effects caused by the newly-enacted U.S.
Tax Cuts and Jobs Act from accumulated other
comprehensive income to retained earnings. As a result,
the Company adopted this guidance effective January
1, 2019, and recorded a net increase to opening
Retained earnings and a decrease
to opening
Accumulated other comprehensive income of $529
million, due to the cumulative impact of adopting the new
guidance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT
YET ADOPTED
Income Taxes
from
taxes
recognizing deferred
In December 2019, the FASB issued ASU 2019-12,
"Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes." This guidance removes certain
exceptions
for
investments, performing intraperiod allocation and
calculating income taxes in interim periods. It also adds
guidance to reduce complexity in certain areas,
including recognizing deferred taxes for tax goodwill and
allocating taxes to members of a consolidated group.
This guidance is effective for annual reporting periods
beginning after December 15, 2020, and interim periods
within those years. Early adoption of the amendments
is permitted, including adoption in any interim period for
public business entities for periods for which financial
statements have not yet been issued. The Company is
currently evaluating the provisions of this guidance.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial
Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments." This
guidance replaces the current incurred loss impairment
method with a method that reflects expected credit
losses. This guidance is effective for annual reporting
periods beginning after December 15, 2019, including
interim periods within those fiscal years. Early adoption
is permitted. The Company has substantially completed
its evaluation of the provisions of this guidance and
determined it will not have a material impact on the
consolidated statement of position, results of operations
or cash flows. The Company will adopt this guidance
using the modified retrospective approach on its
effective date of January 1, 2020. As a result of using
this approach, the Company will recognize the
cumulative effect adjustment to the opening balance of
retained earnings for initial application of the guidance.
NOTE 3 - REVENUE RECOGNITION
DISAGGREGATED REVENUE
A geographic disaggregation of revenues across our company segmentation in the following tables provides information
to assist in evaluating the nature, timing and uncertainty of revenue and cash flows and how they may be impacted by
economic factors.
Reportable Segments
Primary Geographical Markets (a)
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Total
Operating Segments
North American Industrial Packaging
EMEA Industrial Packaging
Brazilian Industrial Packaging
European Coated Paperboard
Global Cellulose Fibers
North American Printing Papers
Brazilian Papers
European Papers
Indian Papers
Intra-segment Eliminations
Corporate & Inter-segment Sales
Total
$
$
2019
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Corporate &
Intersegment
Total
$
12,668
$
2,148
$
1,912
$
220
$
16,948
1,692
65
901
254
149
—
1,323
189
867
(11)
12
(13)
3,258
415
1,755
15,326
$
2,551
$
4,291
$
208
$
22,376
13,509
$
— $
— $
— $
1,335
235
365
—
—
—
—
—
(118)
—
—
—
—
2,551
—
—
—
—
—
—
—
—
—
—
1,956
967
1,250
160
(42)
—
$
15,326
$
2,551
$
4,291
$
—
—
—
—
—
—
—
—
—
208
208
13,509
1,335
235
365
2,551
1,956
967
1,250
160
(160)
208
$
22,376
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
52
Reportable Segments
Primary Geographical Markets (a)
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Total
Operating Segments
North American Industrial Packaging
EMEA Industrial Packaging
Brazilian Industrial Packaging
European Coated Paperboard
Global Cellulose Fibers
North American Printing Papers
Brazilian Papers
European Papers
Indian Papers
Intra-segment Eliminations
Corporate & Inter-segment Sales
Total
$
$
2018
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Corporate &
Intersegment
Total
$
13,167
$
2,336
$
1,903
$
203
$
17,609
1,704
142
887
304
179
—
1,330
245
897
(17)
39
(13)
3,321
605
1,771
15,900
$
2,819
$
4,375
$
212
$
23,306
14,187
$
— $
— $
— $
1,355
232
359
—
—
—
—
—
(233)
—
—
—
—
2,819
—
—
—
—
—
—
—
—
—
—
1,956
978
1,252
202
(13)
—
$
15,900
$
2,819
$
4,375
$
—
—
—
—
—
—
—
—
—
212
212
14,187
1,355
232
359
2,819
1,956
978
1,252
202
(246)
212
$
23,306
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
REVENUE CONTRACT BALANCES
The opening and closing balances of the Company's contract assets and current contract liabilities are as follows:
In millions
Beginning Balance - January 1, 2019
Ending Balance - December 31, 2019
Increase / (Decrease)
A contract asset is created when the Company
recognizes revenue on its customized products prior to
having an unconditional right to payment from the
customer, which generally does not occur until title and
risk of loss passes to the customer.
A contract liability is created when customers prepay for
goods prior to the Company transferring those goods to
the customer. The contract liability is reduced once
control of the goods is transferred to the customer. The
majority of our customer prepayments are received
during the fourth quarter each year for goods that will
be transferred to customers over the following twelve
months.
The difference between the opening and closing
balances of the Company's contract assets and contract
liabilities primarily results from the difference between
53
Contract Assets
(Short-Term)
Contract Liabilities
(Short-Term)
$
$
395
$
393
(2) $
56
56
—
the price and quantity at comparable points in time for
goods which we have an unconditional right to payment
or receive pre-payment from the customer, respectively.
PERFORMANCE
JUDGEMENTS
OBLIGATIONS
AND
SIGNIFICANT
International Paper's principal business
to
manufacture and sell fiber-based packaging, pulp and
paper goods. As a general rule, none of our businesses
provide equipment installation or other ancillary services
outside of producing and shipping packaging, pulp and
paper goods to customers.
is
The nature of the Company's contracts can vary based
on the business, customer type and region; however, in
all instances it is International Paper's customary
business practice to receive a valid order from the
customer, in which each parties' rights and related
payment terms are clearly identifiable.
Contracts or purchase orders with customers could
include a single type of product or it could include
multiple types/grades of products. Regardless, the
contracted price with the customer is agreed to at the
individual product level outlined in the customer
contracts or purchase orders. The Company does not
bundle prices; however, we do negotiate with customers
on pricing and rebates for the same products based on
a variety of factors (e.g. level of contractual volume,
geographical
location, etc.). Management has
concluded that the prices negotiated with each individual
customer are representative of the stand-alone selling
price of the product.
NOTE 4 EARNINGS PER SHARE ATTRIBUTABLE
TO INTERNATIONAL PAPER COMPANY COMMON
SHAREHOLDERS
Basic earnings per share is computed by dividing
earnings by the weighted average number of common
shares outstanding. Diluted earnings per share is
computed assuming that all potentially dilutive securities
were converted into common shares.
NOTE 5 OTHER COMPREHENSIVE INCOME
There are no adjustments required to be made to net
income for purposes of computing basic and diluted
EPS.
A reconciliation of the amounts included in the
computation of basic earnings (loss) per share from
continuing operations, and diluted earnings (loss) per
share from continuing operations is as follows:
In millions, except per share amounts
2019
2018
2017
Earnings (loss) from continuing
operations attributable to
International Paper common
shareholders
Weighted average common shares
outstanding
Effect of dilutive securities:
$ 1,225
$ 1,667
$ 2,110
395.3
409.1
412.7
Restricted performance share plan
3.5
5.1
5.0
Weighted average common shares
outstanding – assuming dilution
398.8
414.2
417.7
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
$ 3.10
$ 4.07
$ 5.11
$ 3.07
$ 4.02
$ 5.05
The following table presents changes in AOCI, net of tax, reported in the consolidated financial statements for the years
ended December 31:
In millions
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Reclassification of stranded tax effects
Amounts reclassified from accumulated other comprehensive income
Balance at end of period
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest
Balance at end of period
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Reclassification of stranded tax effects
Amounts reclassified from accumulated other comprehensive income
Balance at end of period
Total Accumulated Other Comprehensive Income (Loss) at End of Period
2019
2018
2017
$
$
(1,916) $
2
(527)
(2,527) $
22
—
164
589
(3,072)
59
—
486
(2,277)
(1,916)
(2,527)
(2,581)
14
102
—
(2,465)
(3)
4
(2)
4
3
(4,739) $
(2,111)
(475)
2
3
(2,581)
5
(10)
—
2
(3)
(4,500) $
(2,287)
178
(1)
(1)
(2,111)
(3)
15
—
(7)
5
(4,633)
54
Reclassifications out of AOCI for the three years ended December 31 were as follows:
In millions
Defined benefit pension and postretirement items:
Prior-service costs
Actuarial gains/(losses)
Total pre-tax amount
Tax (expense)/benefit
Net of tax
Reclassification of stranded tax effects
Total, net of tax
Change in cumulative foreign currency translation
adjustments:
Business acquisitions/divestiture
Tax (expense)/benefit
Net of tax
Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts
Total pre-tax amount
Tax (expense)/benefit
Net of tax
Reclassification of stranded tax effects
Total, net of tax
Amount Reclassified from Accumulated
Other Comprehensive Income
2019
2018
2017
Location of Amount
Reclassified from AOCI
$
(10) $
(11) $
(33) (a) Non-operating pension expense
(208)
(218)
54
(164)
527
363
(102)
—
(102)
(6)
(6)
2
(4)
2
(2)
(774)
(785)
196
(589)
—
(589)
(2)
—
(2)
(3)
(3)
1
(2)
—
(2)
(733) (a) Non-operating pension expense
(766)
280
(486)
—
(486)
1 (b)
—
1
Retained Earnings
Net (gains) losses on sales and
impairment of businesses and
Cost of products sold
9 (c) Cost of products sold
9
(2)
7
—
7
Retained Earnings
Total reclassifications for the period, net of tax
$
259 $
(593) $
(478)
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19 for
additional details).
(b) Amounts for 2018 were reclassed to Discontinued operations, net of taxes.
(c) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 17 for additional
details).
2018: During 2018, restructuring and other charges,
net, totaling $29 million before taxes were recorded.
These charges included:
In millions
EMEA packaging restructuring (a)
Gain on sale of investment in Liaison Technologies
Inc.
Early debt extinguishment costs (see Note 16)
Riverdale mill conversion severance
Total
2018
$
47
(31)
10
3
29
$
(a) Includes $33 million of severance, $6 million in accelerated
depreciation, $2 million in accelerated amortization and $6
million in other charges in conjunction with the optimization of
our EMEA Packaging business. The majority of the severance
charges recorded were paid throughout the year.
NOTE 6 RESTRUCTURING CHARGES AND
OTHER ITEMS
2019: During 2019, restructuring and other charges,
net, totaling $57 million before taxes were recorded.
These charges included:
In millions
Overhead cost reduction initiative (a)
EMEA packaging restructuring (b)
Early debt extinguishment costs (see Note 16)
Total
2019
21
15
21
57
$
$
(a) Includes pre-tax charges of $11 million, $6 million and $4 million
in Corporate, the Printing Papers segment and the Global
Cellulose Fibers segment, respectively, for severance related
to an overhead cost reduction initiative. The majority of the
severance charges will be paid in 2020.
(b) Includes $14 million of severance and $1 million in other charges
in conjunction with the restructuring of our EMEA Packaging
business. The majority of the severance charges will be paid in
2020.
55
2017: During 2017, restructuring and other charges,
net, totaling $67 million before taxes were recorded.
These charges included:
In millions
Early debt extinguishment costs (see Note 16)
Gain on sale of investment in ArborGen
Other
Total
2017
83
(14)
(2)
67
$
$
NOTE 7 ACQUISITIONS
EMEA PACKAGING BUSINESSES
2019: On June 28, 2019, the Company completed the
acquisition of two packaging businesses located in
Portugal (Ovar) and France (Torigni and Cabourg) from
DS Smith Packaging. The total purchase consideration,
inclusive of working capital adjustments, was
approximately €71 million (approximately $81 million at
current exchange rates).
The following table summarizes the consideration paid
and the amounts of the assets and liabilities assumed
as of June 28, 2019:
In millions
June 28, 2019
Cash and temporary investments
$
Accounts and notes receivable
Inventory
Plants, properties and equipment
Goodwill
Intangible assets
Right of use assets
Deferred charges and other assets
Total assets acquired
Short-term debt
Accounts payable and accrued liabilities
Other current liabilities
Deferred income taxes
Long-term lease obligations
Other Liabilities
Total liabilities assumed
Net assets acquired
$
2
22
8
40
23
16
3
1
115
2
21
4
3
3
1
34
81
Since the date of acquisition, Net sales of $50 million
and Earnings (loss) from continuing operations before
income taxes and equity earnings of $4 million from the
acquired businesses have been included in the
Company's consolidated statement of operations for the
year ended December 31, 2019.
The allocation of the consideration paid is preliminary
and could be revised as a result of additional information
obtained regarding assets acquired and liabilities
assumed, and revisions to provisional estimates of fair
56
values, including, but not limited to, the completion of
independent appraisals and valuations related to
property, plant and equipment and acquired intangible
assets. Adjustments to provisional amounts will be
finalized as new information becomes available, but
within the adjustment period of up to one year from the
acquisition date.
Pro forma information has not been included as it is
impracticable to obtain the information due to the lack
of availability of historical U.S. GAAP financial data. The
results of the operations of these businesses do not have
a material effect on the Company's consolidated results
of operations.
TANGIER, MOROCCO FACILITY
2017: On June 30, 2017, the Company completed the
acquisition of Europac's Tangier, Morocco facility, a
for €40 million
corrugated packaging
(approximately $46 million using the June 30, 2017
exchange rate). After working capital and other post-
close adjustments, final consideration exchanged was
€33 million (approximately $38 million using the June
30, 2017 exchange rate).
facility,
The following table summarizes the final fair value
assigned to assets and liabilities acquired as of June
30, 2017:
In millions
June 30, 2017
Cash and temporary investments
$
Accounts and notes receivable
Inventory
Plants, properties and equipment
Goodwill
Other intangible assets
Deferred charges and other assets
Total assets acquired
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Total liabilities assumed
Net assets acquired
$
1
7
3
31
4
5
4
55
4
11
2
17
38
NOTE 8 DIVESTITURES AND IMPAIRMENTS OF
BUSINESSES
2019: On October 30, 2019, the Company closed the
previously announced sale of its controlling interest in
International Paper APPM Limited (APPM) to West
Coast Paper Mills Limited (WCPM). The net proceeds
received for the sale totaled $82 million. International
Paper remains a passive investor retaining a 20%
interest in APPM until such time that IP sells its
remaining shares. The Company will account for its
retained investment at fair value.
As a result of the transaction, a net pre-tax impairment
charge of $159 million ($157 million after taxes) was
recorded during 2019. This charge included $97 million
related to a loss for the write-off of the cumulative foreign
currency translation of APPM and a $62 million loss
related to the write-off of the long-lived assets of APPM.
This charge is included in the Net (gains) losses on sales
and impairments of businesses in the accompanying
consolidated statement of operations and is included in
the results for the Printing Papers segment. A loss of $9
million (before and after taxes) has been allocated to
the noncontrolling interest related to the impairment of
the long-lived assets of APPM. The fair value of the
Company's retained investment in APPM was $32
million at December 31, 2019.
2018: During 2018, a determination was made that the
current carrying value of the long-lived assets of the
Brazil Packaging business exceeded their estimated fair
value due to a change in the outlook for the business.
Management engaged a third party to assist with
determining the fair value of the business and the fixed
assets. The fair value of the business was calculated
using a probability-weighted approach based on
discounted future cash flows, market multiples, and
transaction multiples and the fair value of the fixed
assets was determined using a market approach. As a
result, a pre-tax charge of $122 million ($81 million, net
of tax) was recorded related to the impairment of an
intangible asset and fixed assets. This charge is
included in Net (gains) losses on sales and impairments
of businesses in the accompanying consolidated
statement of operations and is included in the results for
the Industrial Packaging segment. In the fourth quarter
of 2018, the Company announced that it was exploring
strategic options for its Brazil Packaging business.
2017: On September 7, 2017, the Company completed
the sale of its foodservice business in China to
Huhtamaki Hong Kong Limited. Proceeds received
totaled approximately RMB 129 million ($18 million
using the September 30, 2017 exchange rate). Under
the terms of the transaction, and after post-closing
adjustments,
received
approximately RMB 49 million in exchange for its
ownership interest in two China foodservice entities and
RMB 80 million for the sale of notes receivable from the
acquired entities.
International
Paper
DISCONTINUED OPERATIONS
transferred
2017: On January 1, 2018, the Company completed the
transfer of its North American Consumer Packaging
business, which included its North American Coated
Paperboard and Foodservice businesses, to Graphic
Packaging International Partners, LLC (GPIP), a
subsidiary of Graphic Packaging Holding Company, in
exchange for a 20.5% ownership interest in GPIP. GPIP
subsequently
the North American
Consumer Packaging business to Graphic Packaging
International, LLC (GPI), a wholly-owned subsidiary of
GPIP. International Paper is accounting for its ownership
interest in the combined business under the equity
method. The Company determined the fair value of its
investment in the combined business to be $1.1 billion
and recorded a pre-tax gain of $488 million ($364 million,
net of tax) in 2018. The fair value was calculated using
a market approach using inputs classified as Level 2
and Level 3 within the fair value hierarchy, which is
further defined in Note 17.
in
tax,
included
All current and historical operating results for North
in
American Consumer Packaging are
Discontinued operations, net of
the
accompanying consolidated statement of operations.
The following summarizes the major classes of line
items comprising Earnings (Loss) Before Income Taxes
and Equity Earnings reconciled
to Discontinued
Operations, net of tax, related to the transfer of the North
American Consumer Packaging business for all prior
periods presented in the consolidated statement of
operations:
In millions
Net Sales
Costs and Expenses
Cost of products sold
Selling and administrative expenses
Depreciation, amortization and cost of
timber harvested
Distribution expenses
Taxes other than payroll and income taxes
(Gain) loss on transfer of business
Interest expense, net
Earnings (Loss) Before Income Taxes and
Equity Earnings
Income tax provision (benefit)
2018
2017
$
— $ 1,559
—
25
—
—
—
(488)
—
463
118
1,179
110
80
126
11
—
1
52
18
34
Discontinued Operations, Net of Taxes
$
345 $
Subsequent to the announced agreement in June 2017,
a determination was made that the current book value
of the asset group exceeded its estimated fair value of
$7 million, which was the agreed upon selling price. As
a result, a pre-tax charge of $9 million was recorded
during the second quarter of 2017, to write down the
long-lived assets of this business to their estimated fair
value. Amounts related to this business included in the
Company's statement of operations were immaterial for
all periods presented.
57
Total cash provided by (used for) operations related to
the North American Consumer Packaging business of
$(25) million and $207 million for 2018 and 2017 is
included in Cash Provided By (Used For) Operations in
the consolidated statement of cash flows. Total cash
used for investing activities related to the North
American Consumer Packaging business of $40 million
and $111 million for 2018 and 2017 is included in Cash
Provided By (Used For) Investing Activities in the
consolidated statement of cash flows.
NOTE 9 SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of three
months or less are treated as cash equivalents and are
stated at cost. Temporary investments totaled $335
million and $402 million at December 31, 2019 and
2018, respectively.
Non-cash additions to plants, property and equipment
included within accounts payable were $164 million,
$135 million and $275 million at December 31, 2019,
2018 and 2017, respectively.
Annual straight-line depreciable lives generally are, for
buildings - 20 to 40 years, and for machinery and
equipment - 3 to 20 years. Depreciation expense was
$1.2 billion
the years ended
the each of
December 31, 2019, 2018 and 2017, respectively. Cost
of products sold excludes depreciation and amortization
expense.
for
ACCOUNTS AND NOTES RECEIVABLE
INTEREST
Accounts and notes receivable, net, by classification
were:
In millions at December 31
2019
2018
Accounts and notes receivable:
Trade
Other
Total
INVENTORIES
In millions at December 31
Raw materials
Finished pulp, paper and packaging
products
Operating supplies
Other
Inventories
$ 3,020 $ 3,249
260
272
$ 3,280 $ 3,521
2019
2018
$
298 $
260
1,192
1,241
659
59
641
99
$ 2,208 $ 2,241
International Paper’s U.S.
The last-in, first-out inventory method is used to value
most of
inventories.
Approximately 71% of total raw materials and finished
products inventories were valued using this method.
The last-in, first-out inventory reserve was $295 million
and $329 million at December 31, 2019 and 2018,
respectively.
PLANTS, PROPERTIES AND EQUIPMENT
In millions at December 31
2019
2018
Pulp, paper and packaging facilities
$ 32,292 $ 32,329
Other properties and equipment
Gross cost
Less: Accumulated depreciation
1,224
1,232
33,516
33,561
20,512
20,494
Plants, properties and equipment, net
$ 13,004 $ 13,067
Interest payments of $754 million, $772 million and $782
million were made during
years ended
December 31, 2019, 2018 and 2017, respectively.
the
Amounts related to interest were as follows:
In millions
Interest expense
Interest income
Capitalized interest costs
2019
2018
2017
$
706 $
734 $
215
29
198
30
758
186
25
ASSET RETIREMENT OBLIGATIONS
At December 31, 2019 and 2018, we had recorded
liabilities of $96 million and $86 million, respectively,
related to asset retirement obligations.
NOTE 10 LEASES
International Paper leases various real estate, including
certain operating facilities, warehouses, office space
and land. The Company also leases material handling
equipment, vehicles, and certain other equipment. The
Company's leases have remaining lease terms of one
year to 97 years.
COMPONENTS OF LEASE EXPENSE
In millions
Operating lease costs, net
Variable lease costs
Short-term lease costs, net
Finance lease cost
Amortization of lease assets
Interest on lease liabilities
Total lease cost, net
December 31, 2019
$
$
132
70
59
12
5
278
58
SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED
TO LEASES
MATURITY OF LEASE LIABILITIES
Classification
December 31, 2019
In millions
Operating
Leases
Financing
Leases
Total
In millions
Assets
Operating
lease assets
Total leased
assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Right of use assets
Finance lease
assets
Plants, properties and
equipment, net (a)
$
$
Other current liabilities
$
Notes payable and
current maturities of
long-term debt
Long-term lease
obligations
Finance
Long-term debt
Total lease
liabilities
$
434
103
537
134
12
304
88
538
(a) Finance leases are recorded net of accumulated amortization
of $40 million.
LEASE TERM AND DISCOUNT RATE
In millions
December 31, 2019
Weighted average remaining lease term
(years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
9.8 years
10.9 years
3.06%
4.69%
SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO
LEASES
In millions
December 31, 2019
Cash paid for amounts included in the
measurement of lease liabilities
Operating cash flows related to
operating leases
$
Operating cash flows related to financing
leases
Financing cash flows related to finance
leases
Right of use assets obtained in exchange
for lease liabilities
Operating leases
Finance leases
147
5
9
162
11
59
2020
2021
2022
2023
2024
Thereafter
Total lease
payments
Less imputed
interest
Present value of
lease liabilities
$
147 $
110
75
42
24
103
501
63
16 $
15
14
13
10
66
134
34
163
125
89
55
34
169
635
97
$
438 $
100 $
538
At December 31, 2018,
future minimum
commitments under existing non-cancelable operating
leases were as follows:
total
In millions
Lease
obligations
2019 2020 2021 2022
2023 Thereafter
160
125
77
49
28
118
NOTE 11 EQUITY METHOD INVESTMENTS
The Company accounts for the following investments
under the equity method of accounting.
GRAPHIC PACKAGING INTERNATIONAL PARTNERS, LLC
transferred
On January 1, 2018, the Company completed the
transfer of its North American Consumer Packaging
business, which includes its North American Coated
Paperboard and Foodservice businesses, to Graphic
Packaging International Partners, LLC (GPIP), a
subsidiary of Graphic Packaging Holding Company, in
exchange for a 20.5% ownership interest in GPIP. GPIP
subsequently
the North American
Consumer Packaging business to Graphic Packaging
International, LLC (GPI), a wholly-owned subsidiary of
GPIP that holds the assets of the combined business.
As of December 31, 2019, the Company's ownership
percentage in GPIP was 21.6%. The Company
recorded equity earnings, net of taxes, of $46 million
for each of the years ended December 31, 2019 and
2018. The Company received cash dividends from
GPIP of $27 million and $25 million in 2019 and 2018,
respectively. At both December 31, 2019 and 2018, the
Company's investment in GPIP was $1.1 billion, which
was $529 million and $562 million more than the
Company's proportionate share of
the entity's
underlying net assets at December 31, 2019 and 2018,
respectively. The difference primarily relates to the
basis difference between
fair value of our
investment and the underlying net assets and is
generally amortized in equity earnings over a period
consistent with the underlying long-lived assets.
the
Management engaged a third party to assist with
determining the fair value of the intangible assets and
the fixed assets. The fair value of the intangible assets
were calculated using income and market approaches
and the fair value of the fixed assets was calculated
using a cost approach. The fair values were determined
using inputs classified as Level 2 and Level 3 within the
fair value hierarchy, which is further defined in Note 17.
The Company is party to various agreements with GPI
under which it sells fiber and other products to GPI.
Sales under these agreements were $274 million and
$240 million for the years ended December 31, 2019
and 2018, respectively.
On January 29, 2020, the Company exchanged
approximately 19.0% of the aggregate units owned by
the Company for an aggregated price of $250 million.
After this transaction, the Company's ownership
percentage in GPIP is approximately 18.3%. The
Company expects to record a gain on the exchange in
the first quarter of 2020.
Summarized financial information for GPIP is presented
in the following tables:
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Income Statement
In millions
Net sales
Gross profit
Income from continuing operations
Net income
ILIM S.A. (Ilim)
$
$
2019
2018
$
1,796
5,482
1,178
3,244
1,757
5,292
1,148
3,156
2019
2018
6,160
1,093
333
334
946
336
337
The Company also holds a 50% equity interest in Ilim,
which has subsidiaries whose primary operations are
in Russia. The Company recorded equity earnings, net
of taxes, of $207 million, $290 million, and $183 million
(losses)
includes an after-tax
in 2019, 2018, and 2017, respectively, for Ilim. Equity
earnings
foreign
exchange (loss) gain of $32 million, $(82) million, and
$15 million in 2019, 2018 and 2017, respectively,
primarily on the remeasurement of U.S. dollar-
denominated net debt. The Company received cash
dividends from the joint venture of $246 million and
$128 million in 2019 and 2018, respectively. At
December 31, 2019 and 2018,
the Company's
investment in Ilim, which is recorded in Investments in
the consolidated balance sheet, was $508 million and
$478 million, respectively, which was $136 million and
$145 million, respectively, more than the Company's
proportionate share of the joint venture's underlying net
assets. The differences primarily relate to currency
translation adjustments and the basis difference
between the fair value of our investment at acquisition
and the underlying net assets. The Company is party
to a joint marketing agreement with JSC Ilim Group, a
the Company
Ilim, under which
subsidiary of
purchases, markets and sells paper produced by JSC
Ilim Group. Purchases under this agreement were $215
million, $214 million and $205 million for the years
ended December 31, 2019, 2018 and 2017,
respectively.
Summarized financial information for Ilim is presented
in the following tables:
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
6,023
Noncontrolling interests
$
2019
2018
$
804
2,813
1,015
1,844
16
981
1,710
545
1,470
11
Income Statement
In millions
Net sales
Gross profit
Income from
continuing operations
Net income
2019
2018
2017
$
2,189
1,025
438
424
$
2,713
$
1,549
592
571
2,150
1,047
379
362
The audited U.S. GAAP financial statements for Ilim are
included in Exhibit 99.1 to this Form 10-K.
60
NOTE 12 GOODWILL AND OTHER INTANGIBLES
GOODWILL
The following table presents changes in the goodwill balances as allocated to each business segment for the years ended
December 31, 2019 and 2018:
In millions
Balance as of December 31, 2017
Goodwill
Accumulated impairment losses
Currency translation and other (a)
Goodwill additions/reductions
Balance as of December 31, 2018
Goodwill
Accumulated impairment losses
Currency translation and other (a)
Goodwill additions/reductions
Accumulated impairment loss additions/reductions
Balance as of December 31, 2019
Goodwill
Accumulated impairment losses
Total
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Total
$
3,382
$
52
$
2,150
$
5,584
(296)
3,086
(1)
(2) (b)
3,379
(296)
3,083
—
31 (b)(c)
—
3,410
(296)
—
(1,877)
52
—
—
52
—
52
—
—
(52) (e)
52
(52)
273
(34)
—
2,116
(1,877)
239
(6)
(112) (d)
112 (d)
1,998
(1,765)
(2,173)
3,411
(35)
(2)
5,547
(2,173)
3,374
(6)
(81)
60
5,460
(2,113)
$
3,114
$
—
$
233
$
3,347
(a) Represents the effects of foreign currency translations and reclassifications.
(b) Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in the U.S.
(c) Reflects the goodwill for the acquisitions of Industrial Packaging box plants in EMEA of which $28 million is considered provisional.
(d) Reflects the reclassification of India goodwill and related impairment losses to held for sale prior to the sale of the business.
(e) Reflects the impairment of the Global Cellulose Fibers reporting unit.
The Company performed its annual testing of its reporting
units for possible goodwill impairments by applying the
qualitative assessment to its North America Industrial
Packaging, European Papers, Russian Papers, and
Brazilian Papers reporting units and the quantitative
goodwill impairment test to its Global Cellulose Fibers
and EMEA Industrial Packaging reporting units as of
October 1, 2019. For the current year evaluation, the
Company assessed various assumptions, events and
circumstances that would have affected the estimated
fair value of the reporting units under the qualitative
assessment for the reporting units listed above and the
results of the qualitative assessments indicated that it is
not more likely than not that the fair values of its North
America
Industrial Packaging, European Papers,
Russian Papers, and Brazilian Papers reporting units
were less than their carrying values.
The company also performed the quantitative goodwill
impairment test which included comparing the carrying
amount of the Global Cellulose Fibers and EMEA
Industrial Packaging reporting units to their estimated fair
value. The Company performed the quantitative goodwill
impairment test for Global Cellulose Fibers due to the
reporting unit's outlook and
Industrial
Packaging due to the changes in the reporting unit's asset
for EMEA
61
base as a result of strategic capital projects and
acquisitions since the previous quantitative goodwill
impairment test. The Company calculated the estimated
fair value of its Global Cellulose Fibers and EMEA
Industrial Packaging reporting units using a probability-
weighted approach based on discounted future cash
flows, market multiples and transaction multiples. The
carrying amount did not exceed the estimated fair value
of the EMEA Industrial Packaging reporting unit. The
carrying amount did exceed the estimated fair value of
the Global Cellulose Fibers reporting unit, and it was
determined that all of the goodwill in the reporting unit,
totaling $52 million, was impaired. This charge is included
in Net (gains) losses on sales and impairments of
businesses in the accompanying consolidated statement
of operations. The decline in the fair value of Global
Cellulose Fibers and resulting impairment charge was
due to a change in the outlook of the Global Cellulose
Fibers reporting unit's operations.
In addition, the Company considered whether there were
any events or circumstances outside of the annual
evaluation that would reduce the fair value of its reporting
units below their carrying amounts and necessitate a
goodwill impairment evaluation. In consideration of all
relevant factors, there were no indicators that would
require goodwill impairment subsequent to October 1,
2019.
OTHER INTANGIBLES
Identifiable intangible assets comprised the following:
In millions at December 31
Customer relationships and lists
Non-compete agreements
Tradenames, patents and trademarks, and
developed technology
Land and water rights
Software
Other
Total
2019
2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Intangible
Assets
Gross
Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
$
$
560 $
—
170
8
26
18
782 $
275 $
—
102
2
25
10
414 $
285 $
—
68
6
1
8
368 $
542 $
67
174
8
26
30
847 $
247 $
67
90
2
25
23
454 $
295
—
84
6
1
7
393
The Company recognized the following amounts as amortization expense related to intangible assets:
In millions
Amortization expense related to intangible assets
2019
2018
2017
$
58 $
59 $
77
Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years
is as follows: 2020 – $50 million, 2021 – $48 million, 2022 – $46 million, 2023 – $41 million, 2024 – $41 million, and
cumulatively thereafter – $136 million.
NOTE 13 INCOME TAXES
The components of International Paper’s earnings from
continuing operations before income taxes and equity
earnings by taxing jurisdiction were as follows:
In millions
Earnings (loss)
U.S.
Non-U.S.
2019
2018
2017
$ 1,342 $ 1,450 $
262
331
297
551
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$ 1,604 $ 1,781 $
848
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the Tax Act). The Tax Act
makes broad and complex changes to the U.S. tax code,
including, but not limited to, (1) reducing the U.S. federal
corporate tax rate from 35% to 21%; (2) requiring
companies to pay a one-time deemed repatriation
from
income
taxes on dividends
transition tax (the Transition Tax) on certain earnings of
foreign subsidiaries; (3) generally eliminating U.S.
federal
foreign
subsidiaries; (4) requiring a current inclusion in U.S.
federal taxable income of certain earnings of controlled
foreign corporations; (5) eliminating the corporate
alternative minimum tax (AMT) and changing how AMT
credits can be realized; (6) capital expensing; (7)
the deduction on U.S. manufacturing
eliminating
activities; and (8) creating new limitations on deductible
interest expense and executive compensation.
In connection with our initial analysis of the impact of
the Tax Act, we recorded a provisional net tax benefit of
$1.22 billion in the period ending December 31, 2017.
The net tax benefit primarily consisted of a net tax benefit
for the re-measurement of U.S. deferred taxes of $1.454
billion and an expense for the Transition Tax of $231
million. During the period ended December 31, 2018,
we recorded an additional net tax benefit of $36 million
associated with the one-time effects of the Tax Act.
62
In millions
2019
2018
2017
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$ 1,604
$ 1,781
$
848
Statutory U.S. income tax rate
21%
21%
35 %
Tax expense (benefit) using
statutory U.S. income tax rate
State and local income taxes
Impact of rate differential on
non-U.S. permanent differences
and earnings
Foreign valuation allowance
Tax expense (benefit) on
manufacturing activities
Non-deductible business
expenses
Non-deductible impairments
Tax audits
Deemed repatriation, net of
foreign tax credits
U.S. federal tax rate change
Foreign derived intangible
income deduction
US tax on non-U.S. earnings
(GILTI and Subpart F)
Foreign tax credits
General business and other tax
credits
Other, net
337
6
31
203
—
20
31
—
1
—
2
36
(2)
(33)
2
374
72
35
—
(1)
27
—
28
(25)
(13)
(25)
19
(15)
(26)
(5)
297
(7)
(36)
—
23
7
—
—
231
(1,451)
—
44
(96)
(86)
(11)
Income tax provision (benefit) $
634
$
445
$ (1,085)
Effective income tax rate
40%
25%
(128)%
The provision (benefit) for income taxes from continuing
operations (excluding noncontrolling interests) by taxing
jurisdiction was as follows:
In millions
2019
2018
2017
Current tax provision (benefit)
U.S. federal
U.S. state and local
Non-U.S.
Deferred tax provision (benefit)
U.S. federal
U.S. state and local
Non-U.S.
Income tax provision (benefit)
$
$
$
$
$
271 $
227 $
29
122
37
165
422 $
429 $
(73)
(23)
112
16
44 $
12 $ (1,150)
(23)
191
212 $
634 $
50
(46)
9
40
16 $ (1,101)
445 $ (1,085)
The Company’s deferred income tax provision (benefit)
includes a $44 million benefit, a $13 million benefit and
a $1.459 billion benefit for 2019, 2018 and 2017,
respectively, for the effect of various changes in non-
U.S. and U.S. federal and state tax rates.
International Paper made income tax payments, net of
refunds, of $349 million, $388 million and $7 million in
2019, 2018 and 2017, respectively.
A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the actual
income tax provision follows:
63
The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2019 and 2018, were as follows:
A reconciliation of the beginning and ending amount of
unrecognized
the years ended
December 31, 2019, 2018 and 2017 is as follows:
tax benefits
for
In millions
Deferred income tax assets:
2019
2018
In millions
2019
2018
2017
Balance at January 1
$
(220) $
(188) $
(98)
Postretirement benefit accruals
$
90 $
(Additions) reductions for tax
positions related to current year
(Additions) for tax positions related
to prior years
Reductions for tax positions
related to prior years
Settlements
Expiration of statutes of
limitations
Currency translation adjustment
(5)
(6)
5
31
3
3
(7)
(54)
(37)
(40)
5
2
2
3
4
6
1
(7)
Balance at December 31
$
(189) $
(220) $
(188)
If the Company were to prevail on the unrecognized tax
benefits recorded, substantially all of the balances at
December 31, 2019, 2018 and 2017 would benefit the
effective tax rate.
The Company accrues interest on unrecognized tax
benefits as a component of interest expense. Penalties,
if incurred, are recognized as a component of income
tax expense. The Company had approximately $21
million accrued for the payment of estimated interest
and penalties associated with unrecognized tax benefits
at both December 31, 2019 and 2018, respectively.
The major jurisdictions where the Company files income
tax returns are the United States, Brazil, France, Poland
and Russia. Generally, tax years 2006 through 2018
remain open and subject to examination by the relevant
faces
tax authorities. The Company
challenges regarding the amount of taxes due. These
challenges include positions taken by the Company
related to the timing, nature, and amount of deductions
and the allocation of income among various tax
jurisdictions. Pending audit settlements and
the
expiration of statute of limitations could reduce the
uncertain tax positions by $53 million during the next
twelve months.
frequently
Pension obligations
Tax credits
Net operating and capital loss
carryforwards
Compensation reserves
Lease obligations
Environmental reserves
Other
Gross deferred income tax assets
Less: valuation allowance (a)
Net deferred income tax asset
Deferred income tax liabilities:
Intangibles
Investments
Right of use assets
89
465
291
594
191
—
78
86
421
290
621
181
106
93
126
$
$
$
1,928 $
1,794
(691)
(441)
1,237 $
1,353
(152) $
(265)
(106)
(152)
(255)
—
Plants, properties and equipment
(1,866)
(1,826)
Forestlands, related installment sales,
and investment in subsidiary
(1,407)
(1,453)
Gross deferred income tax liabilities
$ (3,796) $ (3,686)
Net deferred income tax liability
$ (2,559) $ (2,333)
(a) The net change in the total valuation allowance for the years
ended December 31, 2019 and 2018 was an increase of $250
million and an increase of $12 million, respectively. The net
change in the current year is primarily due to tax law changes
in foreign jurisdictions impacting future utilization of deferred
tax assets of $203 million.
Deferred income tax assets and liabilities are recorded
in the accompanying consolidated balance sheet under
the captions Deferred charges and other assets and
Deferred income taxes. Of the $1.4 billion of deferred
tax liabilities for forestlands, related installment sales,
and investment in subsidiary, $884 million is attributable
to an investment in subsidiary and relates to a 2006
International Paper installment sale of forestlands and
$485 million is attributable to a 2007 Temple-Inland
installment sale of forestlands (see Note 15).
64
The Brazilian Federal Revenue Service has challenged
the deductibility of goodwill amortization generated in a
2007 acquisition by International Paper do Brasil Ltda.,
a wholly-owned subsidiary of the Company. The
Company received assessments for the tax years
2007-2015 totaling approximately $146 million in tax,
and $387 million in interest and penalties as of
December 31, 2019 (adjusted for variation in currency
exchange rates). After a previous favorable ruling
challenging the basis for these assessments, we
received unfavorable decisions in October 2018 and
November 2019 from the Brazilian Administrative
Council of Tax Appeals. The Company has appealed
and intends to further appeal these and any future
unfavorable administrative judgments to the Brazilian
federal courts; however, this tax litigation matter may
take many years to resolve. The Company believes that
it has appropriately evaluated the transaction underlying
these assessments, and has concluded based on
Brazilian tax law, that its tax position would be sustained.
The Company intends to vigorously defend its position
against the current assessments and any similar
assessments that may be issued for tax years
subsequent to 2015.
The Company provides for foreign withholding taxes and
any applicable U.S. state income taxes on earnings
intended to be repatriated from non-U.S. subsidiaries,
which we believe will be limited in the future to each
year's current earnings. No provision for these taxes on
approximately $2.2 billion of undistributed earnings of
non-U.S. subsidiaries as of December 31, 2019 has
been made, as
these earnings are considered
indefinitely invested. Determination of the amount of
taxes that might be paid on these undistributed earnings
if eventually remitted in a taxable manner is not
practicable.
If management decided to monetize the Company’s
foreign investments, we would recognize the tax cost
related to the excess of the book value over the tax basis
of those investments. This would include foreign
withholding taxes and any applicable U.S. Federal and
state income taxes. Determination of the tax cost that
that would be incurred upon monetization of the
Company’s foreign investments is not practicable;
however, we do not believe it would be material.
The following details the scheduled expiration dates of
the Company’s net operating loss and income tax credit
carryforwards:
In millions
U.S. federal and
non-U.S. NOLs
State taxing
jurisdiction NOLs (a)
U.S. federal, non-
U.S. and state tax
credit carryforwards
(a)
U.S. federal and
state capital loss
carryforwards (a)
Total
Less: valuation
allowance (a)
Total, net
2020
Through
2029
2030
Through
2039
Indefinite
Total
$
55 $
48 $
424 $
527
—
94
118
290
76
160
—
18
12
—
291 $
78 $
542 $
—
—
911
(198)
(44)
(393)
(635)
93 $
34 $
149 $
276
$
$
(a) State amounts are presented net of federal benefit.
NOTE 14 COMMITMENTS AND CONTINGENT
LIABILITIES
GUARANTEES
indemnify buyers with
In connection with sales of businesses, property,
equipment, forestlands and other assets, International
Paper commonly makes representations and warranties
relating to such businesses or assets, and may agree
to
tax and
environmental liabilities, breaches of representations
and warranties, and other matters. Where liabilities for
such matters are determined to be probable and
reasonably estimable, accrued liabilities are recorded
at the time of sale as a cost of the transaction.
respect
to
ENVIRONMENTAL AND LEGAL PROCEEDINGS
Environmental
International Paper has been named as a potentially
responsible party (PRP) in environmental remediation
actions under various federal and state laws, including
the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). Many of
these proceedings involve the cleanup of hazardous
substances at large commercial landfills that received
65
waste from many different sources. While joint and
several liability is authorized under CERCLA and
equivalent state laws, as a practical matter, liability for
CERCLA cleanups is typically allocated among the
many PRPs. There are other remediation costs typically
associated with the cleanup of hazardous substances
at the Company’s current, closed or formerly-owned
facilities, and recorded as liabilities in the balance sheet.
Remediation costs are recorded in the consolidated
financial statements when they become probable and
reasonably estimable.
International Paper has
estimated the probable liability associated with these
environmental remediation matters, including those
described herein, to be approximately $157 million
($166 million undiscounted) in the aggregate as of
December 31, 2019. Other than as described below,
completion of required environmental remedial actions
is not expected to have a material effect on our
consolidated financial statements.
Cass Lake: One of the matters included above arises
out of a closed wood-treating facility located in Cass
Lake, Minnesota. In June 2011, the United States
Environmental Protection Agency (EPA) selected and
published a proposed soil remedy at the site, the
estimated cost of which is reflected in the overall
remediation reserve for the site of $46 million as of
December 31, 2019. In October 2011, the EPA released
a public statement indicating that the final soil remedy
decision would be delayed. In June 2019, the EPA
issued a revised proposed plan concerning clean-up
standards at a portion of the site, the estimated cost of
which is included within the reserve referenced above.
In October 2012, the Natural Resource Trustees for this
site provided notice to International Paper and other
PRPs of their intent to perform a Natural Resource
Damage Assessment. It is premature to predict the
outcome of the assessment or to estimate a loss or
range of loss, if any, in excess of the liability noted above
which may be incurred.
Kalamazoo River: The Company is a PRP with respect
to the Allied Paper, Inc./Portage Creek/Kalamazoo River
Superfund Site in Michigan. The EPA asserts that the
site is contaminated by polychlorinated biphenyls
(PCBs) primarily as a result of discharges from various
paper mills located along the Kalamazoo River,
including a paper mill (the Allied Paper Mill) formerly
owned by St. Regis Paper Company (St. Regis). The
Company is a successor in interest to St. Regis.
• Operable Unit 5, Area 1: In March 2016, the Company
and other PRPs received a special notice letter from
the EPA (i) inviting participation in implementing a
remedy for a portion of the site known as Operable
Unit 5, Area 1, and (ii) demanding reimbursement of
EPA past costs totaling $37 million, including $19
million in past costs previously demanded by the
66
EPA. In December 2016, the EPA issued a unilateral
administrative order to the Company and other PRPs
to perform the remedy. The Company responded to
the unilateral administrative order, agreeing to
comply with the order subject to its sufficient cause
defenses.
• Operable Unit 5, Area 2: In September 2017, the EPA
issued a Record of Decision selecting the final
remedy for a portion of the site known as Operable
Unit 5, Area 2, but has not yet issued a special notice
letter for implementing the remedy.
• Operable Unit 1: In October 2016, the Company and
another PRP received a special notice letter from the
EPA inviting participation in the remedial design
component of the landfill remedy for the Allied Paper
Mill, which is also known as Operable Unit 1. The
Record of Decision establishing the final landfill
remedy for the Allied Paper Mill was issued by the
EPA in September 2016. In February 2017, the EPA
informed the Company that it would make other
arrangements for the performance of the remedial
design.
As noted below, the Company is involved in allocation/
apportionment litigation with regard to the site. In
addition, in December 2019, the United States published
notice in the Federal Register of a proposed consent
decree with NCR Corporation (one of the parties to the
allocation/apportionment litigation described below),
the State of Michigan and natural resource trustees
under which NCR would make payments of more than
$100 million and perform work at the Site at an estimated
cost of $135.7 million. The public comment period with
respect to the proposed consent decree closes in
February 2020.
The Company’s CERCLA liability has not been finally
determined with respect to any portions of the site, and
except as noted above, the Company has declined to
perform any work or reimburse the EPA at this time.
Accordingly, it is premature to predict the outcome or
estimate our maximum reasonably possible loss or
range of loss with respect to this site. We have a
recorded liability for future remediation costs at the site
that are probable and reasonably estimable, and it
remains reasonably possible that additional losses in
excess of this recorded liability could be material.
The Company was named as a defendant by Georgia-
Pacific Consumer Products LP, Fort James Corporation
and Georgia Pacific LLC in a contribution and cost
recovery action for alleged pollution at the site. NCR
Corporation and Weyerhaeuser Company are also
named as defendants in the suit. The suit seeks
contribution under CERCLA for costs purportedly
expended by plaintiffs ($79 million as of the filing of the
complaint) and for future remediation costs. In June
2018, the Court issued its Final Judgment and Order,
which fixed the past cost amount at approximately $50
million (plus interest to be determined) and allocated to
the Company a 15% share of responsibility for those
past costs. The Court did not address responsibility for
future costs in its decision. In July 2018, the Company
and each of the other parties filed notices appealing the
Final Judgment and prior orders incorporated into that
Judgment. The proposed consent decree with NCR
described above, if entered, would result in the
termination of NCR’s involvement in the appeal.
Harris County: International Paper and McGinnis
Industrial Maintenance Corporation
(MIMC), a
subsidiary of Waste Management, Inc. (WMI), are PRPs
at the San Jacinto River Waste Pits Superfund Site in
Harris County, Texas. The PRPs have been actively
participating in the activities at the site and share the
costs of these activities. In September 2016, the EPA
issued a proposed remedial action plan (PRAP) for the
site, which identified the preferred remedy as the
removal of
the contaminated material currently
protected by an armored cap. In addition, the EPA
selected a preferred remedy for the separate southern
impoundment that requires offsite disposal. In January
2017, the PRPs submitted comments on the PRAP.
On October 11, 2017, the EPA issued a Record of
Decision (ROD) selecting the final remedy for the site:
removal and relocation of the waste material from both
the northern and southern impoundments. The EPA did
not specify the methods or practices needed to perform
this work. While the EPA’s selected remedy was
accompanied by a cost estimate of approximately $115
million ($105 million for the northern impoundment, and
$10 million for the southern impoundment), we do not
believe that estimate provides a reasonable basis for
accrual under GAAP because the estimate was based
on a technological method for performing the work that
we believe is not feasible with respect to the northern
impoundment. Subsequent to the issuance of the ROD,
there have been numerous meetings between the EPA
and the PRPs, and the Company continues to work with
the EPA and MIMC/WMI to develop the remedial design.
To this end, in April 2018, the PRPs entered into an
Administrative Order on Consent (AOC) with the EPA,
agreeing to work together to develop the remedial
design over the subsequent 29 months. The AOC does
not include any agreement to perform waste removal or
other construction activity at the site. Rather, it involves
adaptive management techniques and a pre-design
investigation, the objectives of which include filling data
gaps (including but not limited to post-Hurricane Harvey
technical data generated prior to the ROD and not
incorporated into the selected remedy), refining areas
and volumes of materials to be addressed, determining
if an excavation remedy is able to be implemented in a
manner protective of human health and
the
environment, and investigating potential impacts of
remediation activities to infrastructure in the vicinity. In
October 2019, the PRPs received a special notice letter
from the EPA (i) inviting participation in implementing
the remedy described in the ROD, and (ii) demanding
reimbursement of EPA’s past costs, for which we have
accrued our portion as of December 31, 2019. In
December 2019, the PRPs each responded to the
special notice letter. In its response, the Company took
the position that the special notice letter was premature
and should be withdrawn, given concerns and
uncertainties
implementability and
constructability of the remedy described in the ROD.
regarding
the
The Company’s response to the special notice letter was
consistent with concerns and uncertainties it has raised
since the ROD was issued regarding the remedy
described in the ROD and regarding the EPA’s estimates
for the costs and time required to implement the selected
remedy for the northern impoundment. The Company
has determined, however, that even if the ROD cannot
be implemented, a sheet pile "engineered barrier" can
be constructed, which would enhance the existing
remedy for the northern impoundment and could also
be used should the ROD be determined to be feasible
and implementable. In the third quarter of 2018, we
increased our recorded liability accordingly to reflect the
estimated cost of constructing this barrier. In December
2019, certain pre-design investigation results indicated
that dry excavation of the southern impoundment as
required by the ROD is feasible, and we increased our
recorded liability accordingly to reflect the estimated
cost of implementing this remedy for the southern
impoundment. Because of ongoing questions regarding
cost effectiveness, technical feasibility, timing and other
technical data, however, it continues to be uncertain how
the ROD will be
the northern
implemented
impoundment. Consequently, while additional losses in
excess of our recorded liability are probable as a result
of the selected remedy, we are currently unable to
reasonably estimate any further adjustment to our
recorded liability or any loss or range of loss in excess
of such liability. It remains reasonably possible that
additional losses could be material as the remedial
design process with the EPA continues over the coming
quarters.
for
International Paper and MIMC/WMI are also defending
a lawsuit related to the site brought by approximately
600 individuals who allege property damage and
personal injury. In the first quarter of 2020, the Company
resolved a significant number of these plaintiffs’ claims,
and we do not believe a material loss is reasonably
possible with respect to the remaining plaintiffs’ claims,
whether they are settled or litigated to verdict.
67
Antitrust
Containerboard: In January 2011, International Paper
was named as a defendant in a lawsuit filed in state court
in Cocke County, Tennessee alleging that International
Paper violated Tennessee law by conspiring to limit the
supply and fix the prices of containerboard from
mid-2005 to the present. This lawsuit has been
dismissed for failure to prosecute and is no longer
pending.
Italy: In March 2017, the Italian Competition Authority
(ICA) commenced an investigation into the Italian
packaging industry to determine whether producers of
corrugated sheets and boxes violated the applicable
European competition law. In April 2019, the ICA
concluded its investigation and issued initial findings
alleging that over 30 producers, including our Italian
packaging subsidiary (IP Italy), improperly coordinated
the production and sale of corrugated sheets and boxes.
On August 6, 2019, the ICA issued its decision and
assessed IP Italy a fine of €29 million (approximately
$32 million at current exchange rates) which was
recorded in the third quarter of 2019. This charge is
included in the Antitrust fines and settlements line item
in
the accompanying consolidated statement of
operations. However, we are vigorously appealing this
decision of the ICA to the Italian courts and have
numerous and strong bases for our appeal.
Contract
Signature: In August 2014, a lawsuit captioned
Signature Industrial Services LLC et al. v. International
Paper Company was filed in state court in Texas. The
Signature lawsuit arises out of approximately $1 million
in disputed invoices related to the installation of new
equipment at the Company's Orange, Texas mill. In
addition to the invoices in dispute, Signature and its
president allege consequential damages arising from
the Company's nonpayment of those invoices. The
lawsuit was tried before a jury in Beaumont, Texas, in
May 2017. On June 1, 2017, the jury returned a verdict
awarding approximately $125 million in damages to the
plaintiffs. The Court issued a judgment on December
14, 2017, awarding the plaintiffs a total of approximately
$137 million in actual and consequential damages, fees,
costs and pre-judgment interest, and awarding post-
judgment interest. The Company has appealed this
judgment. The Company has presented in its briefing
numerous and strong bases for appeal, and we believe
we will prevail on appeal. Because the appellate
proceedings are ongoing, we are unable to estimate a
range of reasonably possible loss, but we expect the
amount of any loss to be immaterial.
Taxes Other Than Payroll and Income Taxes
In 2017, the Brazilian Federal Supreme Court decided
that the state value-added tax (VAT) should not be
68
included in the basis of federal VAT calculations. In 2018
and 2019, the Brazilian tax authorities published both
an internal consultation and a normative ruling with a
narrow interpretation of the effects of the case. We have
determined that any related federal VAT refunds should
be recognized when they are both probable and
reasonably estimable. Based upon the best information
available to us, we have determined that the amount of
refund that is probable of being realized is limited to that
determined by the tax authorities’ narrow interpretation,
for which we have recognized a receivable of $6 million
as of December 31, 2019. Upcoming court decisions
and guidance from the tax authorities could expand the
scope of the federal VAT refunds.
General
The Company is involved in various other inquiries,
administrative proceedings and litigation relating to
environmental and safety matters, personal injury,
product liability, labor and employment, contracts, sales
of property, intellectual property, tax and other matters,
some of which allege substantial monetary damages.
See Note 13 for details regarding a tax matter.
Assessments of lawsuits and claims can involve a series
of complex judgments about future events, can rely
heavily on estimates and assumptions, and are
otherwise subject to significant uncertainties. As a
result, there can be no certainty that the Company will
not ultimately incur charges in excess of presently
recorded liabilities. The Company believes that loss
contingencies arising from pending matters, including
the matters described herein, will not have a material
effect on the consolidated financial position or liquidity
of the Company. However, in light of the inherent
uncertainties involved in pending or threatened legal
matters, some of which are beyond the Company’s
control, and the large or indeterminate damages sought
in some of these matters, a future adverse ruling,
settlement, unfavorable development, or increase in
accruals with respect to these matters could result in
future charges that could be material to the Company’s
results of operations or cash flows in any particular
reporting period.
NOTE 15 VARIABLE INTEREST ENTITIES
In connection with the 2006 sale of approximately 5.6
International Paper
million acres of
received installment notes (the Timber Notes) totaling
approximately $4.8 billion.
forestlands,
The Timber Notes were used as collateral for borrowings
from third party lenders, which effectively monetized the
Timber Notes through the creation of newly formed
special purposes entities
(the Entities). The
monetization structure preserved the tax deferral that
resulted from the 2006 forestlands sales. As of
December 31, 2019, this deferred tax liability was $884
million.
During 2015, International Paper initiated a series of
actions in order to extend the 2006 monetization
structure and maintain the long-term nature of the
deferred tax liability. The Entities, with assets and
liabilities primarily consisting of the Timber Notes and
third-party bank loans (the Extension Loans), were
restructured which resulted in the formation of wholly-
owned, bankruptcy-remote special purpose entities (the
2015 Financing Entities).
interest entities on
The Timber Notes are shown in Financial assets of
the accompanying
variable
consolidated balance sheet and mature in August 2021
unless extended for an additional five years. These
notes, which do not require principal payments prior to
their maturity, are supported by approximately $4.8
billion of irrevocable letters of credit.
The Extension Loans are shown in Current nonrecourse
financial liabilities of variable interest entities on the
accompanying consolidated balance sheet and mature
in the fourth quarter of 2020. These bank loans, totaling
approximately $4.2 billion, are nonrecourse to the
Company, and are secured by approximately $4.8 billion
of Timber Notes, the irrevocable letters of credit
supporting the Timber Notes and approximately $150
million of International Paper debt obligations. The $150
million of International Paper debt obligations are
eliminated in the consolidation of the 2015 Financing
Entities and are not reflected in the Company’s
consolidated balance sheet. Provisions of
loan
agreements related to approximately $1.1 billion of the
Extension Loans require the bank issuing letters of credit
supporting the Timber Notes pledged as collateral to
maintain a credit rating at or above a specified threshold.
In the event the credit rating of the letter of credit bank
is downgraded below the specified threshold, the letters
of credit must be replaced within 60 days with letters of
credit from a qualifying financial institution.
As of December 31, 2019 and 2018, the fair value of the
Timber Notes was $4.9 billion and $4.7 billion,
respectively, and the fair value of the Extension Loans
was $4.3 billion and $4.2 billion for the years ended 2019
and 2018. The Timber Notes and Extension Loans are
classified as Level 2 within the fair value hierarchy, which
is further defined in Note 17.
Activity between the Company and the 2015 Financing
Entities was as follows:
In millions
Revenue (a)
Expense (a)
Cash receipts (b)
Cash payments (c)
2017
2018
2019
$ 95 $ 95 $ 95
128
128
95
95
128
95
128
128
128
69
(a) The revenue and expense are included in Interest expense,
net in the accompanying consolidated statement of operations.
(b) The cash receipts are interest received on the Financial assets
of variable interest entities.
(c) The cash payments represent interest paid on Current
nonrecourse financial liabilities of variable interest entities.
In connection with the acquisition of Temple-Inland in
February 2012, two special purpose entities became
wholly-owned subsidiaries of International Paper. The
use of the two wholly-owned special purpose entities
discussed below preserved the tax deferral that resulted
from the 2007 Temple-Inland timberlands sales. As of
December 31, 2019, this deferred tax liability was $485
million, which will be settled with the maturity of the notes
in 2027.
In October 2007, Temple-Inland sold 1.55 million acres
of timberland for $2.4 billion. The total consideration
consisted almost entirely of notes due in 2027 issued
by the buyer of the timberland, which Temple-Inland
contributed to two wholly-owned, bankruptcy-remote
special purpose entities. The notes are shown in
Financial assets of variable interest entities in the
accompanying consolidated balance sheet and are
supported by $2.4 billion of irrevocable letters of credit
issued by three banks, which are required to maintain
minimum credit ratings on their long-term debt. As of
December 31, 2019 and 2018, the fair value of the notes
was $2.3 billion and $2.2 billion, respectively. These
notes are classified as Level 2 within the fair value
hierarchy, which is further defined in Note 17.
In December 2007, Temple-Inland's two wholly-owned
special purpose entities borrowed $2.1 billion which is
shown in Long-term nonrecourse financial liabilities of
variable interest entities. The loans are repayable in
2027 and are secured by the $2.4 billion of notes and
the irrevocable letters of credit securing the notes, and
are nonrecourse to us. The loan agreements provide
that if a credit rating of any of the banks issuing the letters
of credit is downgraded below the specified threshold,
the letters of credit issued by that bank must be replaced
within 30 days with letters of credit from another
qualifying financial institution. As of December 31, 2019
and 2018, the fair value of this debt was $2.1 billion and
$2.0 billion, respectively. This debt is classified as Level
2 within the fair value hierarchy, which is further defined
in Note 17.
Activity between the Company and the 2007 financing
entities was as follows:
In millions
Revenue (a)
Expense (b)
Cash receipts (c)
Cash payments (d)
2017
2018
2019
$ 79 $ 72 $ 49
48
67
76
62
69
48
57
28
39
(a) The revenue is included in Interest expense, net, in the
accompanying consolidated statement of operations and
includes approximately $19 million for the years ended
December 31, 2019, 2018 and 2017, respectively, of accretion
income for the amortization of the purchase accounting
adjustment on the Financial assets of variable interest entities.
(b) The expense is included in Interest expense, net, in the
accompanying consolidated statement of operations and
includes approximately $7 million for the years ended
December 31, 2019, 2018 and 2017, respectively, of accretion
expense for the amortization of the purchase accounting
adjustment on the Long-term nonrecourse financial liabilities
of variable interest entities.
(c) The cash receipts are interest received on the Financial assets
of special purpose entities.
(d) The cash payments are interest paid on Nonrecourse financial
liabilities of special purpose entities.
NOTE 16 DEBT AND LINES OF CREDIT
Amounts related to early debt extinguishment during the
years ended December 31, 2019, 2018 and 2017 were
as follows:
In millions
2019
2018
2017
Early debt reductions (a)
$
614 $ 780 $ 993
Pre-tax early debt extinguishment
costs (b)
21
10
83
(a) Reductions related to notes with interest rates ranging from
1.57% to 9.50% with original maturities from 2018 to 2048 for
the years ended December 31, 2019, 2018 and 2017.
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
In June 2018, the borrowing capacity of the commercial
paper program was increased from $750 million to $1.0
billion. Under the terms of the program, individual
maturities on borrowings may vary, but not exceed one
year from the date of issue. Interest bearing notes may
be issued either as fixed notes or floating rate notes. As
of December 31, 2019 and 2018, the Company had $30
million and $465 million, respectively, outstanding under
this program.
A summary of long-term debt follows:
In millions at December 31
7.500% notes – due 2021
4.750% notes – due 2022
6.875% notes – due 2023
3.650% notes – due 2024
7.350% notes – due 2025
7.750% notes – due 2025
3.800% notes – due 2026
7.200% notes – due 2026
6.400% notes – due 2026
3.000% notes – due 2027
7.150% notes – due 2027
3.550% notes – due 2029
6.875% notes – due 2029
5.000% notes – due 2035
6.650% notes – due 2037
8.700% notes – due 2038
7.300% notes – due 2039
6.000% notes – due 2041
4.800% notes – due 2044
5.150% notes – due 2046
4.400% notes – due 2047
4.350% notes – due 2048
Floating rate notes – due 2019 – 2024 (a)
Environmental and industrial development
bonds – due 2019 – 2035 (b)
Total principal
Capitalized leases
Premiums, discounts, and debt issuance
costs
Interest rate swaps
Other (c)
Total (d)
Less: current maturities
Long-term debt
2019
2018
$
406 $
—
94
658
44
31
645
58
5
803
7
200
37
600
4
265
722
585
800
700
406
355
94
676
44
31
669
58
5
939
7
—
37
600
4
265
722
585
800
700
1,158
986
339
552
1,200
1,000
908
556
9,699
10,661
100
(88)
46
8
63
(98)
16
12
9,765
10,654
168
639
$ 9,597 $ 10,015
(a) The weighted average interest rate on these notes was 3.1%
in 2019 and 3.5% in 2018.
(b) The weighted average interest rate on these bonds was 4.4%
(c)
in 2019 and 5.5% in 2018.
Includes $7 million and $10 million of fair market value
adjustments as of December 31, 2019 and 2018, respectively.
(d) The fair market value was approximately $10.9 billion at
December 31, 2019 and $10.6 billion at December 31, 2018.
70
Total maturities of long-term debt over the next five years
are 2020 – $168 million; 2021 – $431 million; 2022 –
$136 million; 2023 – $355 million; and 2024 – $803
million.
At December 31, 2019, International Paper’s credit
facilities (the Agreements) totaled $2.1 billion. The
Agreements generally provide for interest rates at a
floating rate index plus a pre-determined margin
dependent upon International Paper’s credit rating. The
include a $1.5 billion contractually
Agreements
committed bank facility that expires in December 2021,
and has a facility fee of 0.15% payable annually. The
liquidity facilities also include up to $600 million of
uncommitted financings based on eligible receivables
balances under a receivables securitization program
that expires in December 2020. At December 31, 2019,
there were no borrowings under either the bank facility
or receivables securitization program.
financial covenants require
The Company’s
the
maintenance of a minimum net worth, as defined in our
debt agreements, of $9 billion and a total debt-to-capital
ratio of less than 60%. Net worth is defined as the sum
of common stock, paid-in capital and retained earnings,
less treasury stock plus any cumulative goodwill
impairment charges. The calculation also excludes
accumulated other comprehensive income/loss and
both the current and long-term Nonrecourse Financial
Liabilities of Variable Interest Entities. The total debt-to-
capital ratio is defined as total debt divided by the sum
of total debt plus net worth. As of December 31, 2019,
we were in compliance with our debt covenants.
NOTE 17 DERIVATIVES AND HEDGING
ACTIVITIES
International Paper periodically uses derivatives and
other financial instruments to hedge exposures to
interest
risks.
rate, commodity and currency
International Paper does not hold or issue financial
instruments for trading purposes. For hedges that meet
the hedge accounting criteria, International Paper, at
inception, formally designates and documents the
instrument as a fair value hedge, a cash flow hedge or
a net investment hedge of a specific underlying
exposure.
INTEREST RATE RISK MANAGEMENT
Our policy is to manage interest cost using a mixture of
fixed-rate and variable-rate debt. To manage this risk in
a cost-efficient manner, we enter into interest rate swaps
whereby we agree to exchange with the counterparty,
at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to a
notional amount.
Interest rate swaps that meet specific accounting criteria
are accounted for as fair value or cash flow hedges. For
fair value hedges, the changes in the fair value of both
the hedging instruments and the underlying debt
obligations are immediately recognized in interest
expense. For cash flow hedges, the effective portion of
the changes in the fair value of the hedging instrument
is reported in Accumulated other comprehensive
income (AOCI) and reclassified into interest expense
over the life of the underlying debt. The ineffective
portion for both cash flow and fair value hedges, which
is not material for any year presented, is immediately
recognized in earnings.
FOREIGN CURRENCY RISK MANAGEMENT
We manufacture and sell our products and finance
operations in a number of countries throughout the world
and, as a result, are exposed to movements in foreign
currency exchange rates. The purpose of our foreign
currency hedging program is to manage the volatility
associated with the changes in exchange rates.
To manage this exchange rate risk, we have historically
utilized a combination of forward contracts, options and
currency swaps. Contracts that qualify are designated
as cash flow hedges of certain forecasted transactions
denominated in foreign currencies or net investment
hedges of foreign denominated subsidiaries. For cash
flow hedges, the effective portion of the changes in fair
value of these instruments is reported in AOCI and
reclassified
financial
statement line item and in the same period or periods
during which the related hedged transactions affect
earnings. The ineffective portion, which is not material
for any year presented, is immediately recognized in
earnings. For net investment hedges, all changes in the
fair value of these instruments are recorded in AOCI,
offsetting the currency translation adjustment of the
related investment that is also recorded in AOCI.
into earnings
the same
in
in value of certain non-qualifying
The change
instruments used
foreign exchange
to manage
exposure of intercompany financing transactions and
certain balance sheet items subject to revaluation is
immediately recognized
in earnings, substantially
offsetting the foreign currency mark-to-market impact of
the related exposure.
COMMODITY RISK MANAGEMENT
Certain raw materials used in our production processes
are subject to price volatility caused by weather, supply
conditions, political and economic variables and other
unpredictable factors. To manage the volatility in
earnings due to price fluctuations, we may utilize swap
contracts or forward purchase contracts.
71
(a) These contracts had maturities of two years or less as of
December 31, 2019.
The following table shows gains or losses recognized
in AOCI, net of tax, related to derivative instruments:
Gain (Loss)
Recognized in AOCI on Derivatives
(Effective Portion)
In millions
2019
2018
2017
Derivatives in Cash Flow
Hedging Relationships:
Foreign exchange
contracts
Derivatives in Net
Investment Hedging
Relationships:
Interest rate contracts
$
$
4 $
(10) $
15
7 $
— $
—
During the next 12 months, the amount of the
December 31, 2019 AOCI balance, after tax, that is
expected to be reclassified to earnings is a gain of $3
million.
Derivative instruments are reported in the consolidated
balance sheets at their fair values, unless the derivative
instruments qualify for the normal purchase normal sale
(NPNS) exception under GAAP and such exception has
been elected. If the NPNS exception is elected, the fair
values of such contracts are not recognized on the
balance sheet.
Contracts that qualify are designated as cash flow
hedges of forecasted commodity purchases. The
effective portion of the changes in fair value for these
instruments is reported in AOCI and reclassified into
earnings in the same financial statement line item and
in the same period or periods during which the hedged
transactions affect earnings. The ineffective and non-
qualifying portions, which are not material for any year
presented, are immediately recognized in earnings. The
change in the fair value of certain non-qualifying
instruments used to reduce commodity price volatility is
immediately recognized in earnings.
The notional amounts of qualifying and non-qualifying
instruments used in hedging transactions were as
follows:
In millions
Derivatives in Cash Flow
Hedging Relationships:
Foreign exchange contracts
(a)
Derivatives in Fair Value
Hedging Relationships:
Interest rate contracts
Derivatives in Net Investment
Hedging Relationships:
Interest rate contracts
Derivatives Not Designated as
Hedging Instruments:
Electricity contract
Foreign exchange contracts
December 31,
2019
December 31,
2018
407
700
475
16
7
407
700
—
8
19
72
The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying
financial instruments used in hedging transactions were as follows:
In millions
2019
2018
2017
Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion)
Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion)
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts
Interest rate contracts
Total
$
$
(3)
(1)
(4)
$
$
(1)
(1)
(2)
$
$
8
Cost of products sold
Interest expense, net
(1)
7
Gain (Loss)
Recognized
in Income
Location of Gain
(Loss)
in Consolidated
Statement of
Operations
In millions
2019
2018
2017
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts
Debt
Total
Derivatives Not Designated as Hedging Instruments:
Electricity Contracts
Foreign exchange contracts
Interest rate contracts
Total
$
30
$
16
$ —
Interest expense, net
(30)
(16)
—
Interest expense, net
$ —
$ —
$ —
$
$
3
(2)
—
1
$
2
1
—
$ (10)
Cost of products sold
—
Cost of products sold
1 (a)
Interest expense, net
$
3
$
(9)
(a) Excluding gain of $1 million related to debt reduction recorded to Restructuring and other charges.
Fair Value Measurements
International Paper’s financial assets and liabilities that
are recorded at fair value consist of derivative contracts,
including interest rate swaps, foreign currency forward
contracts, options and other financial instruments that
are used to hedge exposures to interest rate, commodity
and currency risks. For these financial instruments, fair
value is determined at each balance sheet date using
an income approach.
for
The guidance
fair value measurements and
disclosures sets out a fair value hierarchy that groups
fair value measurement inputs into the following three
classifications:
Level 1: Quoted market prices in active markets for
identical assets or liabilities.
Level 2: Observable market-based inputs other than
that are
quoted prices
observable for the asset or liability, either directly or
indirectly.
included within Level 1
Level 3: Unobservable inputs for the asset or liability
reflecting the reporting entity’s own assumptions or
external inputs from inactive markets.
73
Transfers between levels are recognized at the end of
the reporting period. All of International Paper’s
derivative fair value measurements use Level 2 inputs.
Below is a description of the valuation calculation and
the inputs used for each class of contract:
Interest Rate Contracts
Interest rate contracts are valued using swap curves
obtained from an independent market data provider. The
market value of each contract is the sum of the fair value
of all future interest payments between the contract
counterparties, discounted to present value. The fair
value of the future interest payments is determined by
comparing the contract rate to the derived forward
interest rate and present valued using the appropriate
derived interest rate curve.
Foreign Exchange Contracts
Foreign currency forward and option contracts are
valued using standard valuation models. Significant
inputs used in these standard valuation models are
foreign currency forward and interest rate curves and
a volatility measurement. The fair value of each contract
is present valued using the applicable interest rate. All
significant inputs are readily available in public markets,
or can be derived from observable market transactions.
Electricity Contract
The Company is party to an electricity contract used to
manage market fluctuations in energy pricing. The
Company's electricity contract is valued using the Mid-
C index forward curve obtained from the Intercontinental
Exchange. The market value of the contract is the sum
of the fair value of all future purchase payments between
the contract counterparties, discounted to present
value. The fair value of the future purchase payments
is determined by comparing the contract price to the
forward price and present valued using International
Paper's cost of capital.
Since the volume and level of activity of the markets that
each of the above contracts are traded in has been
normal, the fair value calculations have not been
adjusted for inactive markets or disorderly transactions.
The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:
Fair Value Measurements
Level 2 – Significant Other Observable Inputs
In millions
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow
Interest rate contracts - net investment
Interest rate contracts – fair value
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments
Electricity contract
Foreign exchange contracts
Total derivatives not designated as hedging
instruments
Total derivatives
Assets
Liabilities
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
$
$
$
10
11
47
68
—
—
$
3
—
16
19
—
—
—
68 (a) $
—
19 (b) $
$
4
—
—
4
2
1
3
10
—
—
10
4
1
5
7 (c) $
15 (d)
(a)
(b)
(c)
(d)
Includes $14 million recorded in Other current assets and $54 million recorded in Deferred charges and other assets in the accompanying
consolidated balance sheet.
Included $2 million recorded in Other current assets and $17 million Deferred charges recorded in the accompanying consolidated balance
sheet.
Included $6 million recorded in Other accrued liabilities and $1 million recorded in Other liabilities the accompanying consolidated balance
sheet.
Included in Other accrued liabilities in the accompanying consolidated balance sheet.
The above contracts are subject to enforceable master
netting arrangements that provide rights of offset with
each counterparty when amounts are payable on the
same date in the same currency or in the case of certain
specified defaults. Management has made an
accounting policy election to not offset the fair value of
recognized derivative assets and derivative liabilities in
the consolidated balance sheet. The amounts owed to
the counterparties and owed to the Company are
considered immaterial with respect to each counterparty
and in the aggregate with all counterparties.
Credit-Risk-Related Contingent Features
International Paper evaluates credit risk by monitoring
its exposure with each counterparty to ensure that
exposure stays within acceptable policy limits. Credit
risk is also mitigated by contractual provisions with the
majority of our banks. Certain of the contracts include a
credit support annex that requires the posting of
collateral by the counterparty or International Paper
based on each party’s rating and level of exposure.
Based on the Company’s current credit rating, the
collateral threshold is generally $15 million.
If the lower of the Company’s credit rating by Moody’s
or S&P were to drop below investment grade, the
Company would be required to post collateral for all of
its derivatives in a net liability position, although no
derivatives would terminate. The fair value of derivative
instruments containing credit-risk-related contingent
features in a net liability position was $1 million as of
December 31, 2019. As of December 31, 2018, there
were no derivative instruments containing credit-risk-
74
related contingent features in a net liability position. The
Company was not required to post any collateral as of
December 31, 2019 or 2018.
NOTE 18 CAPITAL STOCK
The authorized capital stock at both December 31,
2019 and 2018, consisted of 990,850,000 shares of
common stock, $1 par value; 400,000 shares of
cumulative $4 preferred stock, without par value (stated
value $100 per share); and 8,750,000 shares of serial
preferred stock, $1 par value. The serial preferred stock
is issuable in one or more series by the Board of
Directors without further shareholder action.
The following is a rollforward of shares of common stock
for the three years ended December 31, 2019, 2018
and 2017:
In thousands
Balance at January 1, 2017
Common Stock
Issued
448,916
Treasury
37,671
Issuance of stock for various plans, net
Repurchase of stock
—
—
Balance at December 31, 2017
448,916
(2,577)
881
35,975
Issuance of stock for various plans, net
Repurchase of stock
Balance at December 31, 2018
Issuance of stock for various plans,
net
Repurchase of stock
Balance at December 31, 2019
—
(1,721)
— 14,056
48,310
448,916
—
(3,416)
— 11,906
56,800
448,916
NOTE 19 RETIREMENT PLANS
International Paper sponsors and maintains
the
Retirement Plan of International Paper Company (the
Pension Plan), a tax-qualified defined benefit pension
plan that provides retirement benefits to substantially all
U.S. salaried employees and hourly employees
(receiving salaried benefits) hired prior to July 1, 2004,
and substantially all other U.S. hourly union and non-
union employees who work at a participating business
unit regardless of hire date. These employees generally
are eligible to participate in the Pension Plan upon
attaining 21 years of age and completing one year of
eligibility service. U.S. salaried employees and hourly
employees (receiving salaried benefits) hired after
June 30, 2004 are not eligible to participate in the
Pension Plan, but receive a company contribution to
their individual savings plan accounts (see Other U.S.
Plans); however, salaried employees hired by Temple
Inland prior to March 1, 2007 or Weyerhaeuser
Company's Cellulose Fibers division prior to December
1, 2011 also participate in the Pension Plan. The
Pension Plan provides defined pension benefits based
on years of credited service and either final average
earnings (salaried employees and hourly employees
receiving salaried benefits), hourly job rates or specified
benefit rates (hourly and union employees).
The Company also has two unfunded nonqualified
defined benefit pension plans: a Pension Restoration
Plan available to employees hired prior to July 1, 2004
that provides retirement benefits based on eligible
compensation in excess of limits set by the Internal
Revenue Service, and a supplemental retirement plan
for senior managers (SERP), which is an alternative
retirement plan for salaried employees who are senior
vice presidents and above or who are designated by the
chief executive officer as participants. These
nonqualified plans are only funded to the extent of
benefits paid, which totaled $26 million, $29 million and
$40 million in 2019, 2018 and 2017, respectively, and
which are expected to be $28 million in 2020.
credited
including
the Company
service
froze
Effective January 1, 2019,
and
participation,
compensation, for salaried employees under the
Pension Plan, the Pension Restoration Plan and the
SERP plan. This change does not affect benefits
accrued through December 31, 2018. For service after
December 31, 2018, employees affected by the freeze
receive a company contribution to their individual
Retirement Savings Account as described later in this
Note 19.
Many non-U.S. employees are covered by various
retirement benefit arrangements, some of which are
considered to be defined benefit pension plans for
accounting purposes.
75
OBLIGATIONS AND FUNDED STATUS
The following table shows the changes in the benefit
obligation and plan assets for 2019 and 2018, and the
plans’ funded status.
Actuarial loss (gain)
1,230
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$10,467 $ 215 $13,264 $ 247
68
440
—
—
—
—
40
(546)
—
5
8
(1)
(6)
33
3
(1)
—
(8)
5
153
467
—
(1,653)
(1,089)
—
—
2
(677)
5
8
—
(2)
(17)
—
—
—
(9)
—
(17)
$11,699 $ 253 $10,467 $ 215
$ 8,735 $ 161 $11,368 $ 176
1,950
26
(546)
—
—
23
10
(8)
(6)
3
(332)
29
(677)
(1,653)
(2)
10
(9)
(2)
—
(12)
$10,165 $ 183 $ 8,735 $ 161
$ (1,534) $
(70) $ (1,732) $
(54)
In millions
Change in projected benefit
obligation:
Benefit obligation,
January 1
Service cost
Interest cost
Curtailment
Settlements
Acquisitions
Divestitures
Plan amendments
Benefits paid
Effect of foreign currency
exchange rate movements
Benefit obligation,
December 31
Change in plan assets:
Fair value of plan assets,
January 1
Actual return on plan
assets
Company contributions
Benefits paid
Settlements
Effect of foreign currency
exchange rate movements
Fair value of plan
assets, December 31
Funded status,
December 31
Amounts recognized in the
consolidated balance sheet:
Non-current asset
$
— $
6 $
— $
Current liability
(28)
(3)
(27)
Non-current liability
(1,506)
(73)
(1,705)
$ (1,534) $
(70) $ (1,732) $
5
(2)
(57)
(54)
Amounts recognized in
accumulated other
comprehensive income
under ASC 715 (pre-tax):
Prior service cost (credit)
$
98 $
(1) $
74 $
(1)
Net actuarial loss
2,851
75
3,140
$ 2,949 $
74 $ 3,214 $
57
56
The largest contributor to the actuarial loss affecting the
benefit obligation was the decrease in the discount rate
from 4.30% at December 31, 2018 to 3.40% at
December 31, 2019. However positive asset returns
76
offset the higher obligation for a slightly improved funded
position.
The components of the $(265) million and $18 million
related to U.S. plans and non-U.S. plans, respectively,
in the amounts recognized in OCI during 2019 consisted
of:
In millions
U.S.
Plans
Non-
U.S.
Plans
Current year actuarial (gain) loss
$
(89) $
Amortization of actuarial loss
Current year prior service cost
Amortization of prior service cost
Settlements/curtailments
Effect of foreign currency exchange
rate movements
(200)
40
(16)
—
—
$
(265) $
19
(2)
—
—
(1)
2
18
The portion of the change in the funded status that was
recognized in net periodic benefit cost and OCI for the
U.S. plans was $(172) million, $(134) million and $(184)
million in 2019, 2018 and 2017, respectively. The portion
of the change in funded status for the non-U.S. plans
was $24 million, $(6) million, and $10 million in 2019,
2018 and 2017, respectively.
The accumulated benefit obligation at December 31,
2019 and 2018 was $11.7 billion and $10.4 billion,
respectively, for our U.S. defined benefit plans and $236
million and $200 million, respectively, at December 31,
2019 and 2018 for our non-U.S. defined benefit plans.
The following table summarizes information for pension
plans with an accumulated benefit obligation in excess
of plan assets at December 31, 2019 and 2018:
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 11,699 $ 225 $ 10,467 $
187
11,672
10,165
208
149
10,440
8,735
175
128
In millions
Projected benefit
obligation
Accumulated benefit
obligation
Fair value of plan assets
ASC 715, “Compensation – Retirement Benefits”
provides for delayed recognition of actuarial gains and
losses, including amounts arising from changes in the
estimated projected plan benefit obligation due to
changes in the assumed discount rate, differences
between the actual and expected return on plan assets
and other assumption changes. These net gains and
losses are recognized prospectively over a period that
approximates the average remaining service period of
active employees expected to receive benefits under
the plans to the extent that they are not offset by gains
in subsequent years.
NET PERIODIC PENSION EXPENSE
Service cost is the actuarial present value of benefits
attributed by the plans’ benefit formula to services
rendered by employees during the year. Interest cost
represents the increase in the projected benefit
obligation, which is a discounted amount, due to the
passage of time. The expected return on plan assets
reflects the computed amount of current-year earnings
from the investment of plan assets using an estimated
long-term rate of return.
Net periodic pension expense
for qualified and
nonqualified U.S. and non-U.S. defined benefit plans
comprised the following:
2019
2018
2017
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
In millions
Service cost
$
68 $
5 $ 153 $
5 $ 160 $
Interest cost
440
8
467
8
536
4
9
Expected return
on plan assets
Actuarial loss
(gain)
Amortization of
prior service cost
Curtailment loss
(gain) (a)
Settlement loss
Special
termination
benefits (a)
Net periodic
pension
expense
(631)
(10)
(765)
(11)
(774)
(11)
200
16
—
—
2
—
(1)
2
337
2
339
16
—
424
—
—
28
23
— 383
—
—
—
—
22
2
—
—
1
—
$
93 $
6 $ 632 $
4 $ 717 $
5
(a) 2017 amounts were recorded in Discontinued operations in
the consolidated statement of operations.
The components of net periodic pension expense other
than the Service cost component are included in Non-
the Consolidated
operating pension expense
Statement of Operations.
in
The decrease in 2019 pension expense primarily
reflects lower service cost due to the salaried pension
freeze, lower amortization and the current year absence
of a settlement loss related to the October 2018 annuity
purchase transaction slightly offset by lower asset
returns due to the 2018 annuity purchase.
77
On September 25, 2018, the Company entered into an
agreement with The Prudential Insurance Company of
America to purchase a group annuity contract and
transfer approximately $1.6 billion of International
Paper's U.S. qualified pension plan projected benefit
obligations, subject to customary closing conditions.
The transaction closed on October 2, 2018 and was
funded with pension plan assets. Under the transaction,
at the end of 2018, Prudential assumed responsibility
for pension benefits and annuity administration for
approximately 23,000 retirees or their beneficiaries
receiving less than $1,000 in monthly benefit payments
from the plan. Settlement accounting rules required a
remeasurement of the qualified plan as of October 2,
2018 and the Company recognized a non-cash pension
settlement charge of $424 million before tax in the fourth
quarter of 2018.
On September 26, 2017, the Company entered into an
agreement with The Prudential Insurance Company of
America to purchase a group annuity contract and
transfer approximately $1.3 billion of International
Paper's U.S. qualified pension plan projected benefit
obligations, subject to customary closing conditions.
The transaction closed on October 3, 2017 and was
funded with pension plan assets. Under the transaction,
at the end of 2017, Prudential assumed responsibility
for pension benefits and annuity administration for
approximately 45,000 retirees or their beneficiaries
receiving less than $450 in monthly benefit payments
from the plan. Settlement accounting rules required a
remeasurement of the qualified plan as of October 3,
2017 and the Company recognized a non-cash pension
settlement charge of $376 million before tax in the fourth
quarter of 2017. In addition, large payments from the
required a
non-qualified pension plan also
remeasurement as of October 2, 2017 and a non-cash
settlement charge of $7 million was also recognized in
the fourth quarter of 2017.
ASSUMPTIONS
accounting
International Paper evaluates its actuarial assumptions
annually as of December 31 (the measurement date)
and considers changes in these long-term factors based
upon market conditions and the requirements for
employers’
pensions. These
assumptions are used to calculate benefit obligations
as of December 31 of the current year and pension
expense to be recorded in the following year (i.e., the
discount rate used to determine the benefit obligation
as of December 31, 2019 is also the discount rate used
to determine net pension expense for the 2020 year).
for
Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined
benefit plans are presented in the following table:
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate
Rate of compensation increase
Actuarial assumptions used to determine net periodic pension cost for years ended
December 31:
Discount rate (a)
Expected long-term rate of return on plan assets
Rate of compensation increase
2019
2018
2017
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
3.40% 2.70% 4.30% 3.97% 3.60% 3.59%
2.25% 3.62% 2.25% 4.05% 3.75% 4.06%
4.30% 3.97% 3.80% 3.59% 4.03% 3.88%
7.25% 6.20% 7.50% 6.52% 7.50% 6.73%
2.25% 4.05% 3.38% 4.06% 3.75% 4.20%
(a) Represents the weighted average rate for the U.S. qualified plans in 2018 and 2017 due to the remeasurements.
The expected long-term rate of return on plan assets is
based on projected rates of return for current asset
classes in the plan’s investment portfolio. Projected
rates of return are developed through an asset/liability
study in which projected returns for each of the plan’s
asset classes are determined after analyzing historical
experience and future expectations of returns and
volatility of the various asset classes.
Based on the target asset allocation for each asset class,
the overall expected rate of return for the portfolio is
developed considering the effects of active portfolio
management and expenses paid from plan assets. The
discount rate assumption was determined from a
universe of high quality corporate bonds. A settlement
portfolio is selected and matched to the present value
of the plan’s projected benefit payments. To calculate
pension expense for 2020, the Company will use an
expected long-term rate of return on plan assets of
7.00% for the Retirement Plan of International Paper, a
discount rate of 3.40% and an assumed rate of
compensation increase of 2.25%. The Company
estimates that it will record net pension expense of
approximately $46 million for its U.S. defined benefit
plans in 2020, compared to expense of $93 million in
2019. The estimated decrease in net pension expense
in 2020 is primarily due to higher return on assets and
lower interest cost partially offset by higher amortization
of actuarial losses and higher service cost.
For non-U.S. pension plans, assumptions reflect
economic assumptions applicable to each country.
The following illustrates the effect on pension expense
for 2020 of a 25 basis point decrease in the above
assumptions:
In millions
Expense (Income):
Discount rate
Expected long-term rate of return on plan assets
PLAN ASSETS
2020
$
31
24
International Paper’s Board of Directors has appointed
a Fiduciary Review Committee that is responsible for
fiduciary oversight of the U.S. Pension Plan, approving
investment policy and reviewing the management and
control of plan assets. Pension Plan assets are invested
to maximize returns within prudent levels of risk.
The Pension Plan maintains a strategic asset allocation
policy that designates target allocations by asset class.
Investments are diversified across classes and within
each class to minimize the risk of large losses.
Derivatives, including swaps, forward and futures
contracts, may be used as asset class substitutes or for
hedging or other risk management purposes. Periodic
reviews are made of investment policy objectives and
investment manager performance. For non-U.S. plans,
assets consist principally of common stock and fixed
income securities.
78
International Paper’s U.S. pension allocations by type
of fund at December 31, 2019 and 2018 and target
allocations were as follows:
Asset Class
Equity accounts
Fixed income accounts
Real estate accounts
Other
Total
2019
2018
37%
50%
8%
5%
32%
51%
11%
6%
100%
100%
Target
Allocations
32% - 43%
44% - 56%
5% - 11%
3% - 8%
The fair values of International Paper’s pension plan
assets at December 31, 2019 and 2018 by asset class
are shown below. Hedge funds disclosed in the following
table are allocated to fixed income accounts for target
allocation purposes. Following our adoption of ASU
2018-09
Improvements", we have
evaluated certain investments and classified them as
Level 2 (previously Level 0). Prior year leveling
disclosures have been updated for comparability as a
result of our retrospective adoption of this disclosure
guidance.
"Codification
Fair Value Measurement at December 31, 2019
Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Asset Class
In millions
Equities – domestic
$ 1,613 $
965 $
648 $
1,599
—
—
—
—
—
336
582
1,845
2,659
1
(661)
—
—
Equities – international
Corporate bonds
Government securities
Mortgage backed securities
Other fixed income
Derivatives
Cash and cash equivalents
Other investments:
Hedge funds
Private equity
Real estate funds
2,181
1,845
2,659
1
(647)
(19)
336
902
522
772
—
—
—
—
—
14
(19)
—
Total Investments
$10,165 $
2,900 $
5,074 $
(5)
Fair Value Measurement at December 31, 2018
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Asset Class
In millions
Equities – domestic
$ 1,200 $
685 $
515 $
Equities – international
Corporate bonds
Government securities
Other fixed income
Derivatives
Cash and cash equivalents
Other investments:
Hedge funds
Private equity
Real estate funds
Total Investments
1,141
—
—
—
—
294
442
1,493
2,262
(556)
—
—
1,583
1,493
2,262
(543)
98
294
886
518
944
$ 8,735 $
2,120 $
4,156 $
111
—
—
—
—
13
98
—
In accordance with accounting standards, certain
investments that are measured at NAV and are not
classified in the fair value hierarchy.
Other Investments at December 31, 2019
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
In millions
Hedge funds
Private equity
Real estate
funds
902
522
772
Total
$
2,196 $
— Daily to annually
1 - 100 days
(a)
None
Quarterly
45 - 60 days
198
147
345
(a) A private equity fund investment ("partnership interest") is
contractually locked up for the life of the private equity fund by
the partnership agreement. Limited partners do not have the
option to redeem partnership interests.
Other Investments at December 31, 2018
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
In millions
Hedge funds
Private equity
Real estate
funds
886
518
944
Total
$
2,348 $
— Daily to annually
1 - 100 days
(a)
None
Quarterly
45 - 60 days
310
109
419
(a) A private equity fund investment ("partnership interest") is
contractually locked up for the life of the private equity fund by
the partnership agreement. Limited partners do not have the
option to redeem partnership interests.
79
Equity securities consist primarily of publicly traded U.S.
companies and international companies. Publicly traded
equities are valued at the closing prices reported in the
active market in which the individual securities are
traded.
Fixed income consists of government securities,
mortgage-backed securities, corporate bonds, common
collective funds and other fixed income investments.
Government securities are valued by third-party pricing
sources. Mortgage-backed security holdings consist
primarily of agency-rated holdings. The fair value
estimates for mortgage securities are calculated by
third-party pricing sources chosen by the custodian’s
price matrix. Corporate bonds are valued using either
the yields currently available on comparable securities
of issuers with similar credit ratings or using a discounted
cash flows approach that utilizes observable inputs,
such as current yields of similar instruments, but
includes adjustments for certain risks that may not be
observable, such as credit and liquidity risks. Common
collective funds are valued at the net asset value per
share multiplied by the number of shares held as of the
measurement date. Other fixed income investments of
$(647) million and $(543) million at December 31, 2019
and 2018, respectively, primarily include reverse
repurchase agreement obligations in which we have
sold a security and have an agreement to repurchase
the same or substantially the same security at a later
date for a price specified in the agreement.
investments such as
forward
Derivative
contracts, options and swaps are used to help manage
risks. Derivatives are generally employed as asset class
substitutes (such as when employed in a portable alpha
strategy), for managing asset/liability mismatches, or
futures,
bona fide hedging or other appropriate risk management
purposes. Derivative instruments are generally valued
by the investment managers or in certain instances by
third-party pricing sources.
(commingled, multi-manager
Hedge funds are investment structures for managing
private, loosely-regulated investment pools that can
pursue a diverse array of investment strategies with a
wide range of different securities and derivative
instruments. These investments are made through
fund
funds-of-funds
structures) and through direct investments in individual
hedge funds. Hedge funds are primarily valued by each
fund’s
the
valuation of the underlying securities and instruments
and primarily by applying a market or income valuation
methodology as appropriate depending on the specific
type of security or instrument held. Funds-of-funds are
valued based upon the net asset values of the underlying
investments in hedge funds.
third-party administrator based upon
Private equity consists of interests in partnerships that
invest in U.S. and non-U.S. debt and equity securities.
Partnership interests are valued using the most recent
general partner statement of fair value, updated for any
subsequent partnership interest cash flows.
Real estate funds include commercial properties, land
and timberland, and generally include, but are not limited
to, retail, office,
industrial, multifamily and hotel
properties. Real estate fund values are primarily
reported by the fund manager and are based on
valuation of the underlying investments which include
inputs such as cost, discounted cash flows, independent
appraisals and market based comparable data.
80
The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at
December 31, 2019.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
In millions
Beginning balance at December 31, 2017
Actual return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales and settlements
Transfers in and/or out of Level 3
Ending balance at December 31, 2018
Actual return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales and settlements
Transfers in and/or out of Level 3
Ending balance at December 31, 2019
FUNDING AND CASH FLOWS
The Company’s funding policy for the Pension Plan is
to contribute amounts sufficient to meet legal funding
requirements, plus any additional amounts that the
Company may determine to be appropriate considering
the funded status of the plans, tax deductibility, cash
flow generated by the Company, and other factors. The
Company continually reassesses the amount and
timing of any discretionary contributions. Contributions
to the qualified plan totaling $1.25 billion were made by
the Company in 2017. No voluntary contributions were
made in 2018 or 2019. Generally, International Paper’s
non-U.S. pension plans are funded using the projected
benefit as a target, except in certain countries where
funding of benefit plans is not required.
At December 31, 2019, projected future pension benefit
payments, excluding any termination benefits, were as
follows:
In millions
2020
2021
2022
2023
2024
2025-2029
$
569
579
593
607
619
3,217
OTHER U.S. PLANS
International Paper sponsors the International Paper
Company Salaried Savings Plan and the International
Paper Company Hourly Savings Plan, both of which are
tax-qualified defined contribution 401(k) savings plans.
Substantially all U.S. salaried and certain hourly
employees are eligible to participate and may make
Mortgage
backed
securities
Other
fixed
income Derivatives
Total
$
1 $
12 $
16 $
29
—
—
(1)
—
1
—
—
—
75
(19)
26
—
76
(19)
25
—
$
— $
13 $
98 $
111
—
—
—
—
1
—
—
—
$
— $
14 $
(127)
(126)
314
314
(304)
(304)
—
(19) $
—
(5)
elective deferrals to such plans to save for retirement.
International Paper makes matching contributions to
participant accounts on a specified percentage of
employee deferrals as determined by the provisions of
each plan. The Company makes Retirement Savings
Account contributions equal to a percentage of an
eligible employee’s pay. Beginning in 2019, as a result
of the freeze for salaried employees under the Pension
Plan, all salaried employees are eligible for the
contribution to the Retirement Savings Account.
The Company also sponsors the International Paper
Company Deferred Compensation Savings Plan, which
is an unfunded nonqualified defined contribution plan.
This plan permits eligible employees to continue to make
deferrals and receive company matching contributions
(and Retirement Savings Account contributions) when
their contributions to the International Paper Salaried
Savings Plan are stopped due to limitations under U.S.
tax law. Participant deferrals and company contributions
are not invested in a separate trust, but are paid directly
from International Paper’s general assets at the time
benefits become due and payable.
to
the plans
contributions
Company
totaled
approximately $172 million, $125 million and $117
million for the plan years ending in 2019, 2018 and 2017,
respectively. The increase in 2019 reflects increased
contributions in connection with the salaried pension
plan freeze.
NOTE 20 POSTRETIREMENT BENEFITS
U.S. POSTRETIREMENT BENEFITS
International Paper provides certain retiree health care
and life insurance benefits covering certain U.S.
81
The discount rates used to determine net U.S. and non-
U.S. postretirement benefit cost for the years ended
December 31, 2019, 2018 and 2017 were as follows:
2019
2018
2017
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
4.20% 9.10% 3.50% 9.38% 4.00% 10.53%
The weighted average assumptions used to determine
the benefit obligation at December 31, 2019 and 2018
were as follows:
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
3.30% 7.15% 4.20% 9.10%
6.75% 9.57% 7.00% 10.04%
5.00% 4.78% 5.00% 4.93%
2026
2030
2026
2030
salaried and hourly employees. These employees are
generally eligible for benefits upon retirement and
completion of a specified number of years of creditable
service. International Paper does not fund these
benefits prior to payment and has the right to modify or
terminate certain of these plans in the future.
In addition to the U.S. plan, certain Brazilian and
Moroccan employees are eligible for retiree health care
and life insurance benefits.
The components of postretirement benefit expense in
2019, 2018 and 2017 were as follows:
In millions
2019
2018
2017
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Service cost
Interest cost
Actuarial loss
Amortization of
prior service
credits
Net
postretirement
expense
$ — $
1 $
1 $ — $
1 $ —
Discount rate
8
4
1
2
8
9
2
2
11
8
2
3
(2)
(3)
(2)
(3)
(3)
(4)
$
10 $
1 $
16 $
1 $
17 $
1
Health care cost trend rate
assumed for next year
Rate that the cost trend rate
gradually declines to
Year that the rate reaches
the rate it is assumed to
remain
International Paper evaluates its actuarial assumptions
annually as of December 31 (the measurement date)
and considers changes in these long-term factors
based upon market conditions and the requirements of
employers’ accounting for postretirement benefits other
than pensions. The discount rate assumption was
determined based on a hypothetical settlement portfolio
selected from a universe of high quality corporate
bonds.
82
The plans are only funded in an amount equal to
benefits paid. The following table presents the changes
in benefit obligation and plan assets for 2019 and 2018:
The components of the $18 million and $8 million
change in the amounts recognized in OCI during 2019
for U.S. and non-U.S. plans, respectively, consisted of:
In millions
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Change in projected benefit
obligation:
Benefit obligation, January 1
$ 213 $
24 $ 270 $
—
8
4
20
(32)
1
—
1
1
—
8
(2)
—
(1)
1
8
5
(34)
(38)
1
—
25
—
2
—
2
(1)
—
(4)
$ 214 $
31 $ 213 $
24
Service cost
Interest cost
Participants’ contributions
Actuarial (gain) loss
Benefits paid
Less: Federal subsidy
Currency Impact
Benefit obligation,
December 31
Change in plan assets:
Fair value of plan assets,
January 1
Company contributions
Participants’ contributions
Benefits paid
Fair value of plan assets,
December 31
In millions
U.S.
Plans
Non-
U.S.
Plans
Current year actuarial (gain) loss
$
20 $
Amortization of actuarial (loss) gain
Current year prior service cost
Amortization of prior service credit
Currency impact
(4)
—
2
—
$
18 $
7
(2)
—
3
—
8
The portion of the change in the funded status that was
recognized in net periodic benefit cost and OCI for the
U.S. plans was $29 million, $(25) million and $25 million
in 2019, 2018 and 2017, respectively. The portion of
the change in funded status for the non-U.S. plans was
$9 million, $5 million, and $3 million in 2019, 2018 and
2017, respectively.
$ — $ — $ — $ —
28
4
(32)
2
—
(2)
33
5
(38)
1
—
(1)
At December 31, 2019, estimated
future
postretirement benefit payments, net of participant
contributions and estimated future Medicare Part D
subsidy receipts, were as follows:
total
$ — $ — $ — $ —
In millions
Benefit
Payments
Subsidy
Receipts
Benefit
Payments
Funded status, December 31
$ (214) $ (31) $ (213) $ (24)
Amounts recognized in the
consolidated balance sheet
under ASC 715:
Current liability
$ (21) $
(1) $ (23) $
Non-current liability
(193)
(30)
(190)
(1)
(23)
$ (214) $ (31) $ (213) $ (24)
Amounts recognized in
accumulated other
comprehensive income under
ASC 715 (pre-tax):
Net actuarial loss (gain)
Prior service credit
$
$
47 $
19 $
31 $
15
(2)
(18)
(4)
45 $
1 $
27 $
(22)
(7)
The non-current portion of the liability is included with
the postemployment liability in the accompanying
consolidated balance sheet under Postretirement and
postemployment benefit obligation.
2020
2021
2022
2023
2024
2025 – 2029
U.S.
Plans
U.S.
Plans
$
22 $
1 $
Non-
U.S.
Plans
21
20
18
17
73
1
1
1
1
4
1
—
1
1
1
6
NOTE 21 INCENTIVE PLANS
International Paper currently has an
Incentive
Compensation Plan (ICP). The ICP authorizes grants of
restricted stock, restricted or deferred stock units,
performance awards payable in cash or stock upon the
attainment of specified performance goals, dividend
equivalents, stock options, stock appreciation rights,
other stock-based awards, and cash-based awards at
the discretion of the Management Development and
83
PERFORMANCE SHARE PLAN
Outstanding at December 31, 2016
Compensation Committee of the Board of Directors (the
Committee) that administers the ICP. Additionally,
restricted stock, which may be deferred into RSU’s, may
be awarded under a Restricted Stock and Deferred
Compensation Plan for Non-Employee Directors.
Under the Performance Share Plan (PSP), contingent
awards of International Paper common stock are
granted by the Committee. The PSP awards are earned
over a three-year period. PSP awards are earned based
on the achievement of defined performance of Return
on Invested Capital (ROIC) measured against our
internal benchmark and ranking of Total Shareholder
Return (TSR) compared to the TSR peer group of
companies. The 2017-2019 Award is weighted 75% for
ROIC and 25% for TSR for all participants except for
officers for whom the awards are weighted 50% for ROIC
and 50% for TSR. The 2018-2020 and 2019-2021
Awards are weighted 50% ROIC and 50% TSR for all
participants. The ROIC component of the PSP awards
is valued at the closing stock price on the day prior to
the grant date. As the ROIC component contains a
performance condition, compensation expense, net of
estimated forfeitures, is recorded over the requisite
service period based on the most probable number of
awards expected to vest. The TSR component of the
PSP awards is valued using a Monte Carlo simulation
as the TSR component contains a market condition. The
Monte Carlo simulation estimates the fair value of the
TSR component based on the expected term of the
award, a risk-free rate, expected dividends, and the
expected volatility for the Company and its competitors.
The expected term is estimated based on the vesting
period of the awards, the risk-free rate is based on the
yield on U.S. Treasury securities matching the vesting
period, and the volatility is based on the Company’s
historical volatility over the expected term. PSP grants
are made in performance-based restricted stock units.
The following table sets forth the assumptions used to
determine compensation cost for the market condition
component of the PSP plan:
Expected volatility
Risk-free interest rate
Twelve Months Ended
December 31, 2019
22.81%-24.60%
1.47%-2.44%
The following summarizes PSP activity for the three
years ended December 31, 2019:
Weighted
Average
Grant Date
Fair Value
$35.89
51.78
51.00
45.96
36.17
62.97
53.67
56.57
38.79
43.49
36.79
50.64
Share/
Units
5,950,130
2,163,912
(1,876,134)
(438,024)
5,799,884
1,751,235
(1,588,642)
(196,000)
5,766,477
2,353,613
(2,367,135)
(238,227)
Granted
Shares issued
Forfeited
Outstanding at December 31, 2017
Granted
Shares issued
Forfeited
Outstanding at December 31, 2018
Granted
Shares issued
Forfeited
Outstanding at December 31, 2019
5,514,728
$41.14
RESTRICTED STOCK AWARD PROGRAMS
The service-based Restricted Stock Award program
(RSA), designed for recruitment, retention and special
recognition purposes, provides for awards of restricted
stock to key employees.
The following summarizes the activity of the RSA
program for the three years ended December 31, 2019:
Outstanding at December 31, 2016
Granted
Shares issued
Forfeited
Outstanding at December 31, 2017
Granted
Shares issued
Forfeited
Outstanding at December 31, 2018
Granted
Shares issued
Forfeited
Weighted
Average
Grant Date
Fair Value
$45.34
57.24
47.90
53.53
48.63
51.43
48.44
—
50.17
43.70
48.90
45.10
Shares
169,331
63,319
(59,650)
(6,700)
166,300
66,100
(100,289)
—
132,111
87,910
(52,021)
(7,300)
Outstanding at December 31, 2019
160,700
$47.27
At December 31, 2019, 2018 and 2017 a total of 9.8
million, 11.9 million and 13.2 million shares, respectively,
were available for grant under the ICP.
84
External sales by major product is determined by
aggregating sales from each segment based on similar
products or services. External sales are defined as those
that are made to parties outside International Paper’s
consolidated group, whereas sales by segment in the
Net Sales table are determined using a management
approach and include intersegment sales.
INFORMATION BY BUSINESS SEGMENT
Net Sales
In millions
2019
2018
Industrial Packaging
$ 15,326
Global Cellulose Fibers
Printing Papers
Corporate and Intersegment
Sales (a)
$ 15,900
2,819
2017
$ 15,077
2,551
4,375
4,157
2,551
4,291
208
212
(42)
Net Sales
$ 22,376
$ 23,306
$ 21,743
Operating Profit
In millions
2019
2018
2017
Industrial Packaging
$
2,076
$
2,277
$
1,919
Global Cellulose Fibers
Printing Papers
Business Segment Operating
Profit
(6)
529
262
543
116
459
2,599
3,082
2,494
Earnings (loss) from
continuing operations before
income taxes and equity
earnings
Interest expense, net
Noncontrolling interests /
equity earnings adjustment (b)
Corporate expenses, net (a)
Corporate special items, net
(a)
Business special items, net
Non-operating pension
expense
1,604
491
1,781
536
3
54
104
307
36
(10)
67
9
205
494
848
572
(2)
91
76
425
484
$
2,599
$
3,082
$
2,494
Business Special Items, Net
In millions
2019
2018
2017
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Business Special Items, Net $
78
68
161
307
$
184
$
372
11
10
51
2
$
205
$
425
Stock-based compensation expense and related
income tax benefits were as follows:
In millions
2019
2018
2017
Total stock-based compensation
expense (included in selling and
administrative expense)
Income tax benefits related to stock-
based compensation
$
130 $
135 $
147
30
16
45
At December 31, 2019, $92 million of compensation
cost, net of estimated forfeitures, related to unvested
restricted performance shares, executive continuity
awards and restricted stock attributable to future
performance had not yet been recognized. This amount
will be recognized in expense over a weighted-average
period of 1.6 years.
NOTE 22 FINANCIAL INFORMATION BY BUSINESS
SEGMENT AND GEOGRAPHIC AREA
International Paper’s business segments, Industrial
Packaging, Global Cellulose Fibers and Printing Papers,
are consistent with the internal structure used to manage
these businesses. See the Description of Business
Segments in Part II. Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations for a description of the types of products and
services from which each reportable segment derives its
revenues. All segments are differentiated on a common
product, common customer basis consistent with the
business segmentation generally used in the Forest
Products industry.
Business segment operating profits are used by
International Paper’s management to measure the
earnings performance of its businesses. Management
believes that this measure allows a better understanding
of trends in costs, operating efficiencies, prices and
volumes. Business segment operating profits are
defined as earnings (loss) from continuing operations
before income taxes and equity earnings, but including
the impact of equity earnings and noncontrolling
interests, and excluding interest expense, net, corporate
items, net, corporate special items, net, business special
items, net, and non-operating pension expense. In 2019,
the Company changed its measure of business segment
operating profits to exclude items considered by
management to be unusual (business special items, net)
from the normal operations of the business segment. As
a result, all prior periods have been restated to reflect
the current measure.
85
Assets
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Corporate and other (c)
Assets
Capital Spending
INFORMATION BY GEOGRAPHIC AREA
2019
$ 16,338
3,733
3,476
9,924
$ 33,471
2018
$ 15,859
3,880
3,905
9,932
$ 33,576
Net Sales (f)
In millions
United States (g)
EMEA
Pacific Rim and Asia
Americas, other than U.S.
2019
2018
2017
$ 16,948
$ 17,609
$ 16,247
3,258
415
1,755
3,321
605
1,771
3,129
625
1,742
Net Sales
$ 22,376
$ 23,306
$ 21,743
In millions
2019
2018
2017
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Subtotal
Corporate and other
Capital Spending
922
162
172
1,256
20
$
1,061
$
183
303
1,547
25
836
188
235
1,259
21
$
1,276
$
1,572
$
1,280
Long-Lived Assets (h)
In millions
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Long-Lived Assets
2019
$ 10,706
1,368
—
1,321
$ 13,395
2018
$ 10,586
1,315
201
1,367
$ 13,469
Depreciation, Amortization and Cost of Timber
Harvested
In millions
2019
2018
2017
(a)
Includes sales of $15 million, operating profits (losses) of $0
million and corporate special items expense of $9 million in 2017
from previously divested businesses.
Industrial Packaging
$
Global Cellulose Fibers
Printing Papers
Corporate (d)
Depreciation and
Amortization
$
794
263
244
5
$
803
262
258
5
815
264
254
10
$
1,306
$
1,328
$
1,343
External Sales By Major Product
In millions
2019
2018
Industrial Packaging
$ 15,259
Global Cellulose Fibers
Printing Papers
Other (e)
Net Sales
$ 15,828
2,810
4,359
309
2,545
4,284
288
$ 22,376
$ 23,306
interests and equity earnings
(b) Operating profits for industry segments include each segment’s
percentage share of the profits of subsidiaries included in that
segment that are less than wholly-owned. The pre-tax
noncontrolling
these
subsidiaries is added here to present consolidated earnings from
continuing operations before income taxes and equity earnings.
Includes corporate assets and assets of businesses held for
sale.
Includes $1 million in 2017 from previously divested businesses.
Includes $15 million
from previously divested
businesses.
in 2017
(d)
(e)
for
(c)
2017
$ 14,946
2,524
4,142
131
$ 21,743
(f) Net sales are attributed to countries based on the location of
the seller.
(g) Export sales to unaffiliated customers were $2.7 billion in 2019,
$3.1 billion in 2018 and $2.9 billion in 2017.
(h) Long-Lived Assets includes Forestlands and Plants, Properties
and Equipment, net.
86
INTERIM FINANCIAL RESULTS (UNAUDITED)
In millions, except per share amounts
and stock prices
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
2019
Net sales
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Gain (loss) from discontinued
operations
Net earnings (loss) attributable to
International Paper Company
Basic earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued
operations
Net earnings (loss)
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued
operations
Net earnings (loss)
$ 5,643
$ 5,667
$ 5,568
$ 5,498
$ 22,376
418 (a)
334 (a)
452 (a)
400 (a)
1,604 (a)
—
—
—
—
—
424 (a-b)
292 (a-c)
344 (a-c)
165 (a-b)
1,225 (a-c)
$
1.06
$
0.74
$
0.88
$
0.42
$
3.10
—
1.06
1.05
—
1.05
—
0.74
0.73
—
0.73
—
0.88
0.87
—
0.87
—
0.42
0.42
—
0.42
—
3.10
3.07
—
3.07
Dividends per share of common stock
0.5000
0.5000
0.5000
0.5125
2.0125
2018
Net sales
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Gain (loss) from discontinued operations
Net earnings (loss) attributable to
International Paper Company
Basic earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued operations
Net earnings (loss)
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
Earnings (loss) from continuing
operations
Gain (loss) from discontinued operations
Net earnings (loss)
$ 5,621
$ 5,833
$ 5,901
$ 5,951
$ 23,306
356 (d)
368 (e)
490 (d)
(23) (e)
553 (d)
— (e)
382 (d)
— (e)
1,781 (d)
345 (e)
729 (d-f)
405 (d-f)
562 (d-f)
316 (d-f)
2,012 (d-f)
$
0.87
0.89
1.76
0.86
0.88
1.74
$
1.03
$
1.38
$
0.79
$
(0.05)
0.98
1.02
(0.05)
0.97
—
1.38
1.37
—
1.37
—
0.79
0.78
—
0.78
4.07
0.84
4.91
4.02
0.83
4.85
Dividends per share of common stock
0.4750
0.4750
0.4750
0.5000
1.9250
Note: International Paper's common shares (symbol: IP) are listed on
the New York Stock Exchange.
Note: Since basic and diluted earnings per share are computed
independently for each period and category, full year per share amounts
may not equal the sum of the four quarters.
87
Footnotes to Interim Financial Results
(d)
Includes the following pre-tax charges (gains):
(a)
Includes the following pre-tax charges (gains):
2018
In millions
Q1
Q2
Q3
Q4
Smurfit-Kappa acquisition
proposal costs
$ — $ 12
$ — $ —
Legal settlement
Litigation settlement
recovery
Environmental
remediation reserve
adjustment
EMEA Packaging
business optimization
Abandoned property
removal
Riverdale mill conversion
costs
Brazil Packaging
impairment
Debt extinguishment costs
Gain on sale of investment
in Liaison Technologies
Non-operating pension
expense
9
—
—
22
9
—
—
—
—
4
—
(5)
—
(1)
8
4
—
10
(31)
—
—
—
26
9
—
—
—
9
—
6
5
— 122
—
—
—
—
36
25
429
Total
$ 44
$ 83
$167
$414
(e)
Includes the following pre-tax charges (gains):
2018
In millions
Q1
Q2
Q3
Q4
North American
Consumer Packaging
transaction costs
North American
Consumer Packaging
gain on transfer
Total
$
23
$
2
$ — $ —
(516)
28
—
—
$ (493) $ 30
$ — $ —
(f)
Includes the following tax expenses (benefits):
In millions
Q1
Q2
Q3
Q4
2018
State income tax
legislative changes
Tax benefit of Tax Cuts
and Jobs Act
Internal investment
restructuring
Foreign tax audits
Tax impact of other
special items
Tax impact of non-
operating pension
expense
Total
$ — $
9
$ — $ —
—
—
—
—
—
—
(36)
—
—
(9)
(13)
(46)
—
19
25
3
(1)
(9)
(6)
(107)
$(10) $ (13) $ (88) $ (60)
In millions
India impairment
India divestiture
transaction costs
Global Cellulose Fibers
goodwill impairment
Litigation reserves
Italian antitrust fine
Environmental
remediation reserve
adjustment
(Gain) loss on sale of
EMEA Packaging box
plant
EMEA Packaging
business optimization
Multi-employer pension
plan exit liability
Abandoned property
removal
Riverdale mill conversion
costs
Foreign VAT refund
accrual including interest
Debt extinguishment costs
Gain on sale of previously
closed Oregon mill site
Overhead cost reduction
initiative
Other items
Non-operating pension
expense
2019
Q1
Q2
Q3
Q4
$ — $152
$
8
$ (1)
—
—
—
—
—
—
—
—
—
—
22
32
3
52
19
—
—
—
15
10
(7)
—
16
11
1
—
—
—
—
—
10
—
—
—
11
1
—
—
—
—
1
8
—
—
(7)
13
1
—
—
(9)
21
—
9
1
17
—
15
2
(6)
21
—
—
3
9
Total
$ 31
$173
$ 105
$145
(b)
Includes the following tax expenses (benefits):
In millions
Q1
Q2
Q3
Q4
Luxembourg statutory tax
rate change
$ — $
9
$ — $ —
2019
State income tax
legislative changes
Foreign tax audits
Internal investment
restructuring
Foreign deferred tax
valuation allowance
Tax impact of other
special items
Tax impact of non-
operating pension
expense
Total
—
—
—
—
(3)
3
—
—
—
—
—
—
—
—
(53)
203
(6)
(5)
(14)
(28)
(2)
(2)
(2)
(2)
$ (8) $
2
$ (16) $ 120
(c)
Includes allocation of loss to noncontrolling interest of $7 million
and $2 million for the three months ended June 30, 2019 and
September 30, 2019, respectively, associated with the impairment
of the net assets of our India Papers business.
88
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS
AND
FINANCIAL DISCLOSURE
ACCOUNTING
ON
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2019, an evaluation was carried out
under the supervision and with the participation of the
including our principal
Company’s management,
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures
(as that term is defined in Rule 13a-15(f) and 15d-15(f)
of the Exchange Act). Based upon this evaluation, our
principal executive officer and principal financial officer
have concluded that the Company’s disclosure controls
and procedures were effective as of December 31,
2019.
The Company completed the acquisitions of four
packaging businesses located in Portugal (Ovar),
France (Torigni and Cabourg), and Spain (Tavernes de
la Valldigna and Montblanc) over the course of 2019.
Due to the timing of these acquisitions, we have
excluded these businesses from our evaluation of the
effectiveness of internal control over financial reporting.
For the period ended December 31, 2019, sales and
assets for these businesses represented approximately
0.4% of net sales and 0.6% of total assets.
CHANGES
REPORTING
IN
INTERNAL CONTROL OVER FINANCIAL
reporting during
There have been no changes in our internal control over
financial
the quarter ended
December 31, 2019, that have materially affected, or
are reasonably likely to materially affect, our internal
control over financial reporting.
See Item 8. Financial Statements and Supplementary
Data on pages 37 and 38 of this Form 10-K for
management's annual report on our internal control over
financial reporting and the attestation report of our
independent public accounting firm.
Committee of the Board of Directors has at least one
member who is a financial expert, as that term is defined
in Item 401(d)(5) of Regulation S-K. Further information
concerning the composition of the Audit and Finance
Committee and our audit committee financial experts
is hereby incorporated by reference to our definitive
proxy statement that will be filed with the SEC within
120 days of the close of our fiscal year. Information with
respect to our executive officers is set forth on pages 4
through 6 in Part I of this Form 10-K under the caption,
“Information About Our Executive Officers.”
Executive officers of International Paper are elected to
hold office until the next annual meeting of the Board
of Directors
the annual meeting of
shareholders and, until the election of successors,
subject to removal by the Board.
following
The Company’s Code of Business Ethics (Code) is
applicable to all employees of the Company, including
the chief executive officer and senior financial officers,
as well as the Board of Directors. We disclose any
amendments to our Code and any waivers from a
provision of our Code granted to our directors, chief
executive officer and senior financial officers on our
website within four business days following such
amendment or waiver. To date, no waivers of the Code
have been granted.
in print
We make available free of charge on our website at
www.internationalpaper.com, and
to any
shareholder who requests
them, our Corporate
Governance Principles, our Code of Business Ethics
and the Charters of our Audit and Finance Committee,
Management Development and Compensation
Committee, Governance Committee and Public Policy
and Environment Committee. Requests for copies may
be directed to the corporate secretary at our corporate
headquarters.
respect
to compliance with
Information with
Section 16(a) of the Exchange Act and our corporate
governance is hereby incorporated by reference to our
definitive proxy statement that will be filed with the SEC
within 120 days of the close of our fiscal year.
ITEM 9B. OTHER INFORMATION
ITEM 11. EXECUTIVE COMPENSATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information concerning our directors
is hereby
incorporated by reference to our definitive proxy
statement that will be filed with the Securities and
Exchange Commission (SEC) within 120 days of the
close of our fiscal year. The Audit and Finance
89
Information with respect to the compensation of
executives and directors of the Company is hereby
incorporated by reference to our definitive proxy
statement that will be filed with the SEC within 120 days
of the close of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
A description of the security ownership of certain
beneficial owners and management and equity
compensation plan information is hereby incorporated
by reference to our definitive proxy statement that will
be filed with the SEC within 120 days of the close of our
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
A description of applicable information with respect to
certain relationships and related transactions and
director independence matters, is hereby incorporated
by reference to our definitive proxy statement that will
be filed with the SEC within 120 days of the close of our
fiscal year.
(3.2)
(4.1)
(4.2)
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
(4.3)
Information with respect to fees paid to, and services
registered public
independent
rendered by, our
accounting firm, and our policies and procedures for pre-
approving those services, is hereby incorporated by
reference to our definitive proxy statement that will be
filed with the SEC within 120 days of the close of our
fiscal year.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(1) Financial Statements – See Item 8. Financial
Statements and Supplementary Data.
the consolidated
(2) Financial Statement Schedules – The following
additional financial data should be read in
financial
conjunction with
statements in Item 8. Financial Statements and
Supplementary Data. Schedules not included
with this additional financial data have been
omitted because they are not applicable, or the
required information is shown in the consolidated
financial statements or the notes thereto.
Additional Financial Data
2019, 2018 and 2017
(2.1)
(3.1)
Transaction Agreement, dated October 23,
2017, by and among the Company, Graphic
Packaging Holding Company, Gazelle
Newco LLC and Graphic Packaging
International,
by
reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K dated October
24, 2017).
(incorporated
Inc.
Restated Certificate of Incorporation of the
Company (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report
on Form 8-K dated May 13, 2013).
90
(4.4)
(4.5)
(4.6)
(4.7)
(4.8)
By-laws of the Company, as amended
through February 9, 2016 (incorporated by
reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K dated February
8, 2016).
Indenture, dated as of April 12, 1999,
between the Company and The Bank of New
York, as Trustee (incorporated by reference
to Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated June 16, 2000).
Supplemental Indenture (including the form
of Notes), dated as of June 4, 2008, between
the Company and The Bank of New York, as
Trustee (incorporated by reference
to
Exhibit 4.1 to the Company’s Current Report
on Form 8-K dated June 4, 2008).
Supplemental Indenture (including the form
of Notes), dated as of May 11, 2009,
between International Paper Company and
The Bank of New York Mellon, as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated May 11, 2009).
Supplemental Indenture (including the form
of Notes), dated as of August 10, 2009,
between the Company and The Bank of New
York Mellon, as trustee (incorporated by
reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated
August 10, 2009).
Supplemental Indenture (including the form
of Notes), dated as of December 7, 2009,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated December 7, 2009).
Supplemental Indenture (including the form
of Notes), dated as of November 16, 2011,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated November 16, 2011).
Supplemental Indenture (including the form
of Notes), dated as of June 10, 2014,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated June 10, 2014).
Supplemental Indenture (including the form
of Notes), dated as of May 26, 2015,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated May 26, 2015).
(10.6)
(10.7)
(10.8)
(10.9)
(10.10)
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
(4.9)
(4.10)
(4.11)
(4.12)
(4.13)
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
Supplemental Indenture (including the form
of Notes), dated as of August 11, 2016,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated August 11, 2016).
Supplemental Indenture (including the form
of Notes), dated as of August 9, 2017,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated August 9, 2017).
Supplemental Indenture (including the form
of Notes), dated as of June 10, 2019,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated June 10, 2019).
with
accordance
In
Item 601
(b) (4) (iii) (A) of Regulation S-K, certain
instruments respecting long-term debt of the
Company have been omitted but will be
furnished to the Commission upon request.
Description of Securities.*
(ICP)
Amended and Restated 2009 Incentive
(corrected
Compensation Plan
version of a previously
filed exhibit)
(incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2019).
+
and
Deferred
Restricted
Stock
Compensation Plan
for Non-Employee
Directors, Amended and Restated as of May
10, 2010 (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2010). +
Form of Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-
K for the fiscal year ended December 31,
2017). +
Form of Restricted Stock Unit Award
Agreement (cash settled) (incorporated by
reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 2017). +
Form of Restricted Stock Unit Award
Agreement (stock settled) (incorporated by
reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 2017). +
91
Form of Performance Share Plan award
certificate (incorporated by reference to
Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 2017). +
Pension Restoration Plan
for Salaried
Employees (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
March 31, 2009). +
the
Amendment Number One
International Paper Pension Restoration
Plan
for Salaried Employees effective
January 1, 2013.* +
to
Amendment Number Two
the
International Paper Pension Restoration
Plan
for Salaried Employees effective
January 1, 2013.* +
to
Amendment Number Three
the
International Paper Pension Restoration
Plan
for Salaried Employees effective
January 1, 2015.* +
to
Amendment Number Four
the
International Paper Pension Restoration
Plan for Salaried Employees effective July
1, 2014.* +
to
Amendment Number Five
the
International Paper Pension Restoration
Plan
for Salaried Employees effective
January 1, 2019.* +
to
Unfunded Supplemental Retirement Plan
for Senior Managers, as amended and
restated effective January 1, 2008
(incorporated by reference to Exhibit 10.21
the Company’s Annual Report on
to
Form 10-K
fiscal year ended
December 31, 2007). +
the
for
Unfunded
Amendment No. 1 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective October 13, 2008 (incorporated by
reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K dated October
17, 2008). +
Unfunded
Amendment No. 2 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective October 14, 2008 (incorporated by
reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K dated October
17, 2008). +
Unfunded
Amendment No. 3 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective December 8, 2008 (incorporated
by reference
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+
to Exhibit 10.20
to
(10.26)
(10.27)
(10.28)
(10.29)
(10.30)
(10.31)
(10.32)
(10.33)
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(10.22)
(10.23)
(10.24)
(10.25)
Unfunded
Amendment No. 4 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective January 1, 2009 (incorporated by
reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009). +
Unfunded
Amendment No. 5 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective October 31, 2009 (incorporated by
reference to Exhibit 10.17 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2009). +
Unfunded
Amendment No. 6 to the International Paper
Supplemental
Company
Retirement Plan for Senior Managers,
effective January 1, 2012 (incorporated by
reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 2011). +
Amendment No. 7 to the International Paper
Company
Supplemental
Retirement Plan
for Senior Managers
effective July 12, 2016.* +
Unfunded
Amendment No. 8 to the International Paper
Company
Supplemental
Retirement Plan
for Senior Managers
effective January 1, 2019.* +
Unfunded
Unfunded
Amendment No. 9 to the International Paper
Company
Supplemental
Retirement Plan
for Senior Managers
effective November 1, 2019 (incorporated
by
the
Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2019.
†
to Exhibit 10.1
reference
to
Form of Non-Competition Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
the
by reference
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+
to Exhibit 10.22
to
Form of Non-Solicitation Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
by
the
Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006). +
to Exhibit 10.5
reference
to
Form of Change-in-Control Agreement - Tier
I, for the Chief Executive Officer and all
"grandfathered" senior vice presidents
elected prior to 2012 (all but one named
executive officer) - approved September
2013 (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September
30, 2013). +
92
Form of Change-in-Control Agreement - Tier
II, for all future senior vice presidents and all
"grandfathered" vice presidents (one named
executive officer) elected prior to February
2008
- approved September 2013
(incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30,
2013). +
Form of Indemnification Agreement for
Directors (incorporated by reference to
Exhibit 10.13 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2003). +
Board Policy on Severance Agreements
with Senior Executives (incorporated by
reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on October
18, 2005). +
Board Policy on Change of Control
Agreements (incorporated by reference to
Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on October 18,
2005). +
Time Sharing Agreement, dated October 17,
2014 (and effective November 1, 2014), by
and between Mark S. Sutton and
International Paper Company (incorporated
the
by
Company’s Current Report on Form 8-K
dated October 14, 2014). +
to Exhibit 99.1
reference
to
Five-Year Credit Agreement dated as of
December 12, 2016, among International
Paper Company, JPMorgan Chase Bank,
N.A., individually and as administrative
agent, and certain lenders (incorporated by
reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed June 6,
2017).
Commitment Agreement, dated September
26, 2017, between International Paper
Company and The Prudential Insurance
Company of America, relating
the
Retirement Plan of International Paper
Company (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2017). †
to
Credit Agreement, dated December 8, 2017,
by and among the Company, Bank of
America, N.A.
and BNP Paribas
(incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-
K filed December 12, 2017).
(101.INS)
(101.SCH)
(101.CAL)
(101.DEF)
(101.LAB)
XBRL Instance Document - the instance
document does not appear
the
Interactive Data File because its XBRL
tags are embedded within the inline
XBRL document. *
in
XBRL Taxonomy Extension Schema *
XBRL Taxonomy Extension Calculation
Linkbase *
XBRL Taxonomy Extension Definition
Linkbase *
XBRL Taxonomy Extension Label
Linkbase *
(101.PRE)
XBRL Extension Presentation Linkbase
*
+ Management contract or compensatory plan or arrangement.
* Filed herewith
** Furnished herewith
† Confidential treatment has been granted for certain information
pursuant to Rule 24b-2 under the Securities Act of 1934, as
amended.
(10.34)
Commitment Agreement, dated September
25, 2018, between International Paper
Insurance
Company and Prudential
Company of America, relating
the
Retirement Plan of International Paper
Company (corrected version of previously
filed exhibit) (incorporated by reference to
Exhibit 10.27 to the Company's Annual
Report on Form 10-K
fiscal
the
year ended December 31, 2018). * +
for
to
(21)
(23.1)
Subsidiaries and Joint Ventures.*
Consent of Independent Registered Public
Accounting Firm. *
(23.2)
Consent of Independent Auditors. *
(24)
(31.1)
(31.2)
(32)
(99.1)
Power of Attorney (contained on
the
signature page to the Company’s Annual
Report on Form 10-K for the year ended
December 31, 2019). *
Certification by Mark S. Sutton, Chairman
and Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002. *
Certification by Tim S. Nicholls, Senior Vice
President and Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. *
Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.**
Audited Financial Statements for Ilim S.A.
and its subsidiaries as of and for the year
ended December 31, 2019 and 2018. *
93
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INTERNATIONAL PAPER COMPANY
By:
/S/ SHARON R. RYAN
Sharon R. Ryan
Senior Vice President, General Counsel
and Corporate Secretary
POWER OF ATTORNEY
February 19, 2020
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Sharon R. Ryan and Matthew Barron as his or her true and lawful attorney-in-fact and agent, acting alone, with full
power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities,
to sign any or all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-
in-fact full power and authority to do and perform each and every act and thing requisite or necessary to be done,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/S/ MARK S. SUTTON
Mark S. Sutton
Chairman of the Board & Chief Executive
Officer and Director
February 19, 2020
/S/ WILLIAM J. BURNS
Director
William J. Burns
/S/ CHRISTOPHER M. CONNOR Director
Christopher M. Connor
/S/ AHMET C. DORDUNCU
Director
Ahmet C. Dorduncu
/S/ ILENE S. GORDON
Director
Ilene S. Gordon
/S/ ANDERS GUSTAFSSON
Director
Anders Gustafsson
94
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
/S/ JACQUELINE C. HINMAN
Director
Jacqueline C. Hinman
/s/ CLINTON A. LEWIS, JR.
Director
Clinton A. Lewis, Jr.
/S/ KATHRYN D. SULLIVAN
Director
Kathryn D. Sullivan
/S/ J. STEVEN WHISLER
Director
J. Steven Whisler
/S/ RAY G. YOUNG
Director
Ray G. Young
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
/S/ TIMOTHY S. NICHOLLS
Timothy S. Nicholls
Senior Vice President and Chief Financial
Officer
February 19, 2020
/S/ VINCENT P. BONNOT
Vice President – Finance and Controller
February 19, 2020
Vincent P. Bonnot
95
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2019 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)
PRINTING PAPERS
Uncoated Papers
U.S.:
Rome, Georgia
Savannah, Georgia
Cayuga, Indiana
Cedar Rapids, Iowa
Selma, Alabama (Riverdale Mill)
Henderson, Kentucky
Ticonderoga, New York
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
International:
Luiz Antônio, São Paulo, Brazil
Maysville, Kentucky
Bogalusa, Louisiana
Campti, Louisiana
Mansfield, Louisiana
Vicksburg, Mississippi
Valliant, Oklahoma
Springfield, Oregon
Mogi Guacu, São Paulo, Brazil
Orange, Texas
Três Lagoas, Mato Grosso do Sul, Brazil
International:
APPENDIX I
Stockton, California
Tracy, California
Golden, Colorado
Wheat Ridge, Colorado
Putnam, Connecticut
Orlando, Florida
Plant City, Florida
Tampa, Florida leased
Columbus, Georgia
Forest Park, Georgia
Griffin, Georgia
Kennesaw, Georgia leased
Lithonia, Georgia
Savannah, Georgia
Tucker, Georgia
Saillat, France
Kadiam, India 2
Rajahmundry, India 2
Kwidzyn, Poland
Svetogorsk, Russia
GLOBAL CELLULOSE FIBERS
Pulp
U.S.:
Franco da Rocha, São Paulo, Brazil
Aurora, Illinois (3 locations)
Nova Campina, São Paulo, Brazil
Bedford Park, Illinois (2 locations) 1
leased
Paulinia, São Paulo, Brazil
Belleville, Illinois
Veracruz, Mexico
Kenitra, Morocco
Madrid, Spain
Corrugated Container
U.S.:
Carol Stream, Illinois
Des Plaines, Illinois
Lincoln, Illinois
Montgomery, Illinois
Northlake, Illinois
Rockford, Illinois
Butler, Indiana
Cantonment, Florida (Pensacola Mill)
Bay Minette, Alabama
Flint River, Georgia
Port Wentworth, Georgia
Columbus, Mississippi
New Bern, North Carolina
Decatur, Alabama
Crawfordsville, Indiana
Dothan, Alabama leased
Fort Wayne, Indiana
Huntsville, Alabama
Conway, Arkansas
Indianapolis, Indiana (2 locations)
Saint Anthony, Indiana
Riegelwood, North Carolina
Fort Smith, Arkansas (2 locations)
Tipton, Indiana
Eastover, South Carolina
Russellville, Arkansas (2 locations)
Cedar Rapids, Iowa
Georgetown, South Carolina
Franklin, Virginia
Tolleson, Arizona
Yuma, Arizona
Anaheim, California
Waterloo, Iowa
Garden City, Kansas
Kansas City, Kansas
International:
Buena Park, California leased
Bowling Green, Kentucky
Grande Prairie, Alberta, Canada
Camarillo, California
Saillat, France
Gdansk, Poland
Kwidzyn, Poland
Svetogorsk, Russia
Lexington, Kentucky
Louisville, Kentucky
Carson, California
Cerritos, California leased
Walton, Kentucky
Compton, California
Elk Grove, California
Exeter, California
Bogalusa, Louisiana
Lafayette, Louisiana
Shreveport, Louisiana
INDUSTRIAL PACKAGING
Gilroy, California (2 locations)
Springhill, Louisiana
Los Angeles, California
Auburn, Maine
Containerboard
U.S.:
Pine Hill, Alabama
Prattville, Alabama
Modesto, California
Ontario, California
Salinas, California
Sanger, California
Three Rivers, Michigan
Arden Hills, Minnesota
Austin, Minnesota
Fridley, Minnesota
Cantonment, Florida (Pensacola Mill)
Santa Fe Springs, California (2
locations)
Minneapolis, Minnesota leased
A-1
Shakopee, Minnesota
Laurens, South Carolina
White Bear Lake, Minnesota
Lexington, South Carolina
San Jose Iturbide, Mexico
Santa Catarina, Mexico
Houston, Mississippi
Jackson, Mississippi
Ashland City, Tennessee leased
Silao, Mexico
Cleveland, Tennessee
Magnolia, Mississippi leased
Elizabethton, Tennessee leased
Olive Branch, Mississippi
Fenton, Missouri
Kansas City, Missouri
Morristown, Tennessee
Murfreesboro, Tennessee
Amarillo, Texas
Maryland Heights, Missouri
Carrollton, Texas (2 locations)
North Kansas City, Missouri leased
Edinburg, Texas
St. Joseph, Missouri
St. Louis, Missouri
Omaha, Nebraska
Barrington, New Jersey
Bellmawr, New Jersey
Milltown, New Jersey
Spotswood, New Jersey
Thorofare, New Jersey
Binghamton, New York
Buffalo, New York
Rochester, New York
Scotia, New York
Utica, New York
Charlotte, North Carolina (2 locations)
1 leased
Lumberton, North Carolina
Manson, North Carolina
Newton, North Carolina
El Paso, Texas
Ft. Worth, Texas leased
Grand Prairie, Texas
Hidalgo, Texas
McAllen, Texas
San Antonio, Texas (2 locations)
Sealy, Texas
Waxahachie, Texas
Lynchburg, Virginia
Petersburg, Virginia
Richmond, Virginia
Moses Lake, Washington
Olympia, Washington
Yakima, Washington
Fond du Lac, Wisconsin
Manitowoc, Wisconsin
Statesville, North Carolina
International:
Toluca, Mexico
Villa Nicolas Romero, Mexico 1
Zapopan, Mexico
Agadir, Morocco
Casablanca, Morocco
Tangier, Morocco
Ovar, Portugal
Barcelona, Spain
Bilbao, Spain
Gandia, Spain
Las Palmas, Spain
Madrid, Spain
Montblanc, Spain
Tavernes de la Valldigna, Spain
Tenerife, Spain
Adana, Turkey
Bursa, Turkey
Corlu, Turkey 4
Corum, Turkey
Gebze, Turkey
Izmir, Turkey
Recycling
U.S.:
Phoenix, Arizona
Fremont, California
Norwalk, California
Byesville, Ohio
Delaware, Ohio
Eaton, Ohio
Madison, Ohio
Marion, Ohio
Marysville, Ohio leased
Middletown, Ohio
Mt. Vernon, Ohio
Newark, Ohio
Streetsboro, Ohio
Wooster, Ohio
Manaus, Amazonas, Brazil
Paulinia, São Paulo, Brazil
Rio Verde, Goias, Brazil
West Sacramento, California
Suzano, São Paulo, Brazil
Itasca, Illinois
Rancagua, Chile
Arles, France
Cabourg, France
Chalon-sur-Saone, France
Creil, France 3
Des Moines, Iowa
Wichita, Kansas
Roseville, Minnesota
Omaha, Nebraska
Charlotte, North Carolina
LePuy, France (Espaly Box Plant)
Beaverton, Oregon
Mortagne, France
Springfield, Oregon leased
Oklahoma City, Oklahoma
Saint Amand, France
Carrollton, Texas
Beaverton, Oregon (3 locations)
Guadeloupe, French West Indies
Salt Lake City, Utah
Hillsboro, Oregon
Portland, Oregon
Salem, Oregon leased
Bellusco, Italy
Catania, Italy
Pomezia, Italy
Richmond, Virginia
Kent, Washington
Biglerville, Pennsylvania (2 locations)
San Felice, Italy
International:
Eighty-four, Pennsylvania
Hazleton, Pennsylvania
Apodaco (Monterrey), Mexico
leased
Monterrey, Mexico leased
Ixtaczoquitlan, Mexico
Xalapa, Veracruz, Mexico leased
Kennett Square, Pennsylvania
Juarez, Mexico leased
Lancaster, Pennsylvania
Los Mochis, Mexico
Mount Carmel, Pennsylvania
Puebla, Mexico leased
Georgetown, South Carolina
Reynosa, Mexico
A-2
Bags
U.S.:
Buena Park, California
Beaverton, Oregon
Grand Prairie, Texas
Coated Paperboard
International:
Kwidzyn, Poland
Svetogorsk, Russia
DISTRIBUTION
IP Asia
International:
Guangzhou, China leased
Hong Kong, China leased
Shanghai, China leased
Japan leased
Korea leased
Singapore leased
FOREST RESOURCES
International:
Approximately 329,400 acres
in Brazil
1) Closed July 2019
2) Sold October 2019
3) Sold March 2019
4) Closed April 2019
A-3
APPENDIX II
U.S.
EMEA
Americas,
other
than U.S.
13,507
—
13,507
302
443
745
364
—
364
Total
14,173
443
14,616
2,988
268
489
3,745
1,959
1,152
1,135
—
96
—
1,959
1,248
1,135
4,246
96
4,342
2019 CAPACITY INFORMATION
(in thousands of short tons except as noted)
Industrial Packaging
Containerboard (a)
Coated Paperboard
Total Industrial Packaging
Global Cellulose Fibers
Dried Pulp (in thousands of metric tons)
Printing Papers
Uncoated Freesheet & Bristols (b)
Newsprint
Total Printing Papers
(a) In addition to Containerboard, this also includes saturated kraft, kraft bag, and gypsum.
(b) In addition to Uncoated Freesheet and Bristols, includes bleached multiwall bag and plate.
Forest Resources
We own, manage or have an interest in
approximately 1.2 million acres of forestlands
worldwide. These forestlands and associated
acres are located in the following regions:
Brazil
We have harvesting rights in:
Russia
Total
(M Acres)
329
862
1,191
A-4
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INTERNATIONAL PAPER LEADERSHIP
As of April 1, 2020
Mark S. Sutton
Chairman of the Board and
Chief Executive Officer
W. Michael Amick, Jr.
Senior Vice President
Paper the Americas
Clay R. Ellis
Senior Vice President
Enterprise Operational Excellence
W. Thomas Hamic
Senior Vice President
Containerboard and
Enterprise Commercial Excellence
Timothy S. Nicholls
Senior Vice President and
Chief Financial Officer
Thomas J. Plath
Senior Vice President
Human Resources and
Global Citizenship
Jean-Michel Ribiéras
Senior Vice President
Industrial Packaging
the Americas
James P. Royalty, Jr.
Senior Vice President and President
International Paper Europe,
Middle East, Africa and Russia
Sharon R. Ryan
Senior Vice President,
General Counsel and
Corporate Secretary
John V. Sims
Senior Vice President
Corporate Development
Catherine I. Slater
Senior Vice President
Global Cellulose Fibers and
IP Asia
Gregory T. Wanta
Senior Vice President
North American Container
Lee C. Alexander
Vice President
Global Fiber Supply
Santiago Arbelaez
Vice President
Industrial Packaging
International Paper Brazil
Mark M. Azzarello
Vice President
Human Resources, Global
Compensation and Benefits
Hans M. Bjorkman
Vice President and
General Manager
European Papers
September G. Blain
Vice President
Disruptive Technologies
Paul J. Blanchard
Vice President
Supply Chain Operations
Industrial Packaging
Vincent P. Bonnot
Vice President
Finance, Controller and
Chief Accounting Officer
Eric Chartrain
Vice President and
General Manager
Packaging
Europe, Middle East and
Africa
Thomas A. Cleves
Vice President
Global Citizenship
Kirt Cuevas
Vice President
Environment,
Health and Safety
Rodrigo Davoli
Vice President
Latin America Papers
President
International Paper Brazil
Donald P. Devlin
Vice President
Finance and Strategy
Industrial Packaging
Gary M. Gavin
Vice President
West Area
North American Container
Greg C. Gibson
Vice President and
General Manager
North American Papers
Holly Goughnour
Vice President
Tax
John F. Grover
Vice President
Enterprise Converting
Optimization
North American Container
Bathsheba T. Sams
Vice President
Human Resources
Industrial Packaging
the Americas
Fred A. Towler
Chief Diversity Officer and
Vice President
Human Resources,
Talent Management and
Global Mobility
Keith R. Townsend
Vice President and President
International Paper Russia
Marc Van Lieshout
Vice President
Corporate Audit
Robert W. Wenker
Vice President and
Chief Information Officer
Hunter M. Whiteley
Vice President Manufacturing
Global Cellulose Fibers
Patrick Wilczynski
Vice President
Capital Effectiveness
Ron P. Wise
Vice President
Commercial and
National Accounts
North American Container
ILIM GROUP
SENIOR LEADERSHIP
Ksenia Sosnina
Chief Executive Officer
Guillermo Gutierrez
Vice President
Investor Relations
Jason J. Handel
Vice President
Sales and Marketing
Global Cellulose Fibers
Errol A. Harris
Vice President and Treasurer
Russell V. Harris
Vice President Manufacturing
Industrial Packaging
Peter G. Heist
Vice President
North Area
North American Container
Kally Hodgson
Vice President
Global Sourcing
Robert M. Hunkeler
Vice President
Trust Investments
Chris J. Keuleman
Vice President
Global Government Relations
Allison B. Magness
Vice President
South Area
North American Container
Brian N.G. McDonald
Vice President
Strategic Planning
Brett A. Mosley
Vice President Manufacturing
Industrial Packaging
Mark P. Nellessen
Vice President
Financial Planning and Analysis
Michael V. Pauly
Vice President Manufacturing
Paper the Americas
Aimee K. Gregg
Vice President and
General Manager
Recycling and Recovered Fiber
Joseph R. Saab
Vice President
Deputy General Counsel and
Assistant Corporate Secretary
BOARD OF DIRECTORS
As of April 1, 2020
Mark S. Sutton
Chairman of the Board and Chief Executive Officer
International Paper Company
William J. Burns
President
The Carnegie Endowment for International Peace
Christopher M. Connor
Retired Chairman, President and Chief Executive Officer
The Sherwin-Williams Company
Ahmet C. Dorduncu
Chief Executive Officer
Akkök Group
Ilene S. Gordon
Presiding Director
Retired Chairman, President and Chief Executive Officer
Ingredion Incorporated
Anders Gustafsson
Chief Executive Officer
Zebra Technologies Corporation
Jacqueline C. Hinman
Former Chairman, President and Chief Executive Officer
CH2M HILL Companies, Ltd.
Clinton A. Lewis, Jr.
Former Executive Vice President and Group President
International Operations, Commercial Development,
Global Genetics and Aquatic Health
Zoetis Inc.
Kathryn D. Sullivan
Senior Fellow at the Potomac
Institute for Policy Studies and
Ambassador-at-Large at the Smithsonian
National Air and Space Museum
J. Steven Whisler
Retired Chairman and Chief Executive Officer
Phelps Dodge Corporation
Ray G. Young
Executive Vice President and Chief Financial Officer
Archer Daniels Midland Company
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
International Paper Company
6400 Poplar Avenue Memphis, TN 38197
(901) 419-9000
ANNUAL MEETING
The next annual meeting of shareholders will be held at
International Paper’s global headquarters in Memphis, TN,
at 11:00 a.m. CDT on Monday, May 11, 2020.
TRANSFER AGENT AND REGISTRAR
Computershare, our transfer agent, maintains the records of
our registered shareholders and can help you with a variety of
shareholder related services at no charge including:
• Change of name or address
• Consolidation of accounts
• Duplicate mailings
• Dividend reinvestment enrollment
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
Telephone:
(800) 678-8715 (U.S.)
(201) 680-6578 (International)
MAILING ADDRESSES
Shareholder correspondence should be mailed to:
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000
USA
Overnight mail delivery:
Computershare Investor Services
462 South 4th Street, Ste. 1600
Louisville, KY 40202
USA
SHAREHOLDER WEBSITE
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
STOCK EXCHANGE LISTINGS
Common shares (symbol: IP) are listed on the New York
Stock Exchange.
DIRECT PURCHASE PLAN
Under our plan, you may invest all or a portion of your dividends,
and you may purchase up to $250,000 of additional shares each
year. You may also deposit your certificates with the transfer
agent for safe-keeping. For a copy of the plan prospectus, call or
write to Computershare.
https://www-us.computershare.com/Investor/#DirectStock
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Suite 350
6075 Poplar Avenue
Memphis, TN 38119-0112
USA
REPORTS AND PUBLICATIONS
This Annual Performance Summary is being delivered
to our shareholders to comply with the annual report
delivery requirements of the New York Stock Exchange
and Rule 14a-3 under the Securities Exchange Act. All
information required by those applicable rules is contained
in this Annual Performance Summary, including certain
information contained in the Form 10-K included herein,
which has previously been filed with the Securities and
Exchange Commission. Copies of this Annual Performance
Summary (including the 10-K), SEC filings and other
publications may be obtained free of charge by visiting our
Web site, http://www.internationalpaper.com, by calling
(800)332-8146, or by writing to our investor relations
department at the corporate headquarters address
listed above.
INVESTOR RELATIONS
Investors desiring further information about International Paper
should contact the investor relations department at corporate
headquarters, (901) 419-9000.
Our Vision is to be among the most
successful, sustainable and responsible
companies in the world.
International Paper
Board of Directors
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
International Paper
Company
William J. Burns
President
The Carnegie
Endowment for
International Peace
Christopher M. Connor
Retired Chairman,
President and Chief
Executive Officer
The Sherwin-Williams
Company
Ahmet C. Dorduncu
Chief Executive Officer
Akkök Group
Ilene S. Gordon
Presiding Director
Retired Chairman,
President and Chief
Executive Officer
Ingredion Incorporated
Anders Gustafsson
Chief Executive Officer
Zebra Technologies
Corporation
Jacqueline C. Hinman
Former Chairman,
President and Chief
Executive Officer
CH2M HILL Companies,
Ltd.
Clinton A. Lewis, Jr.
Former Executive Vice
President and Group
President International
Operations, Commercial
Development, Global
Genetics and Aquatic Health
Zoetis Inc.
Kathryn D. Sullivan
Senior Fellow at the
Potomac Institute for
Policy Studies and
Ambassador-at-Large at
the Smithsonian National
Air and Space Museum
J. Steven Whisler
Retired Chairman and
Chief Executive Officer
Phelps Dodge
Corporation
Ray G. Young
Executive Vice President
and Chief Financial Officer
Archer Daniels Midland
Company
The IP Way Forward is our strategic framework
for pursuing our Vision and creating value for all
stakeholders for generations to come.
World
Headquarters
Regional
Headquarters
International Paper
Company
6400 Poplar Avenue
Memphis, TN 38197
United States of America
International Paper Asia
8F, Building A
Xuhui Vanke Center
55 Ding An Road
Shanghai, 200235, China
International Paper Do Brasil
Rodovia SP 340, KM 171
Mogi Guaçu/SP
CEP: 13845-901
International Paper Europe,
Middle East and Africa
(EMEA)
Chaussée de la Hulpe 166
1170 Brussels, Belgium
International Paper Russia
Kropotkina Street 1, Litera I
Saint Petersburg, 197101
Russia
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More than
25,000
Customers in
150 Countries
$22 Billion
Total Revenue
in 2019
More than
50,000
Employees
WHO WE ARE
We are one of the world’s leading producers
of renewable, fiber-based packaging,
pulp and paper.
WHAT WE DO
We improve people’s lives, the planet
and our company’s performance by
transforming renewable resources into
products people depend on every day.
HOW WE DO IT
We do the right things, in the right ways,
for the right reasons, all of the time – this
is The IP Way. Together, The IP Way and our
Core Values of Safety, Ethics and
Stewardship serve as our guideposts as we
carry out our Mission.
| 2019 ANNUAL PERFORMANCE SUMMARY
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SUMMARY
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©2020 International Paper Company. All rights reserved. Accent, Ballet,
by George, Chamex, Hammermill, International Paper logo, POL,
PRO-DESIGN, REY and SvetoCopy are registered trademarks of
International Paper Company or its affiliates.
From FORTUNE Magazine, February 2020, ©2020 Fortune Media IP
Limited. FORTUNE and The World’s Most Admired Companies are
registered trademarks of Fortune Media IP Limited and are used under
license. FORTUNE and Fortune Media IP Limited are not affiliated with,
and do not endorse the products or services of, International Paper
Company. “World’s Most Ethical Companies” and “Ethisphere” names
and marks are registered trademarks of Ethisphere LLC. FTSE Russell
(the trading name of FTSE International Limited and Frank Russell
Company) confirms that International Paper has been independently
assessed according to the FTSE4Good criteria, and has satisfied the
requirements to become a constituent of the FTSE4Good Index Series.
Created by the global index provider FTSE Russell, the FTSE4Good Index
Series is designed to measure the performance of companies
demonstrating strong Environmental, Social and Governance (ESG)
practices. The FTSE4Good indices are used by a wide variety of market
participants to create and assess responsible investment funds and other
products. All product names, logos and brands are property of their
respective owners.
Annual Performance Summary printed on Accent Opaque Cover Smooth
100lb. and Text Smooth 100lb. 10-K printed on Accent Opaque Text
Smooth 50lb.
InternationalPaper.com
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