2020
Annual
Performance
Summary
Our Vision is to be among the most
successful, sustainable and responsible
companies in the world.
International Paper
Board of Directors
As of April 1, 2021
Approximately
48,000 Employees
$21 Billion
Net Sales in 2020
Mark S. Sutton
Christopher M. Connor
Chairman of the Board
Retired Chairman,
Ahmet C. Dorduncu
Chief Executive Officer
and Chief Executive Officer
President and Chief
Akkök Group
International Paper
Company
Executive Officer
The Sherwin-Williams
Company
Ilene S. Gordon
Presiding Director
Retired Chairman,
President and Chief
Executive Officer
Ingredion Incorporated
More than 25,000
Customers in 150 Countries
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.
About the cover: A forest is one of nature’s most powerful systems to
capture carbon dioxide, purify water and create diverse plant and animal
habitats, and they provide economic opportunity for millions of people.
International Paper is committed to the stewardship of our natural
resources, including the sustainability of forests for generations to come.
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 PHARMAQ
Zoetis Inc.
Donald G. “DG”
Macpherson
Chairman and Chief
Executive Officer
W.W. Grainger, 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
Anton V. Vincent
President
Mars Wrigley North
America
J. Steven Whisler
Retired Chairman and
Chief Executive Officer
Phelps Dodge
Corporation
(Until May 10, 2021)
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
REGIONAL
HEADQUARTERS
HEADQUARTERS
International Paper
International Paper Asia
International Paper
28F, Ascendas Plaza
Do Brasil
333 Tianyaoqiao Road,
Rodovia SP 340, KM 171
Company
6400 Poplar Avenue
Memphis, TN 38197
United States of America
Shanghai 200030
Xuhui District,
China
Mogi Guaçu/SP
CEP: 13845-901
International Paper
Europe, Middle East
and Africa (EMEA)
International Paper
Russia
International Paper Russia
Chaussée de la Hulpe 166
Kropotkina Street 1, Litera I
1170 Brussels, Belgium
Senator Center
Saint Petersburg, 197101
Russia
Our Vision is to be among the most
successful, sustainable and responsible
companies in the world.
Dear
Shareowners,
$21 Billion
Net Sales in 2020
In 2020, the COVID-19 pandemic forced us to work
in different ways, but it also strengthened our sense
of responsibility and pride in manufacturing essential,
sustainable products that people depend on every day.
Mark S. Sutton,
Chairman of the Board and
Chief Executive Officer
Operating our facilities to take care of customers starts with our employees showing
up and working safely – and they did just that, every day, throughout the pandemic.
I am incredibly proud of and grateful for our global team’s resilience and their ongoing
commitment to our customers, our communities and each other.
We stayed true to our core values of Safety, Ethics and Stewardship throughout the
challenging year. We made a measurable improvement to close out our 2020 sustainability
goals and introduced Vision 2030, which includes robust targets to drive sustainable
outcomes for people and communities, the environment and our customers.
In the last three years, we contributed nearly $70 million to our signature causes in our
communities in addition to funds contributed by our generous employees. Addressing
critical community needs remained a significant focus in 2020, and we were proud to
donate two million corrugated boxes to local food banks and agencies to support their
efforts to deliver essential food and supplies to those in need.
2020 RESULTS
In 2020, we continued to demonstrate the strength and resilience of our employees, our diverse
customer base and our world-class manufacturing and supply chain capabilities. Adapting to our
customers’ rapidly changing needs was critical to successfully navigating demand surges in parts
of our corrugated packaging and cellulose fibers businesses, as well as unprecedented demand
declines in printing papers resulting from the pandemic’s impact on businesses and schools.
We also managed costs extremely well across our three businesses and took prudent and
early actions to reinforce cash generation and enhance our financial strength in the face of
economic uncertainty.
Through the combination of these actions, we delivered:
• $3.1 billion in adjusted earnings before interest, tax, depreciation and amortization
(Adjusted EBITDA)
• Outstanding free cash flow of $2.3 billion, bringing our five-year average free cash flow to
$2.0 billion
• The 11th consecutive year of value-creating returns
We continued to make choices consistent with our capital allocation framework:
• We repaid $1.7 billion of debt to further strengthen our balance sheet.
• Our pension gap improved by $500 million in 2020, resulting in a healthy 95% funding level.
2020 ANNUAL PERFORMANCE SUMMARY | 1
The IP Way Forward is our strategic framework
for pursuing our Vision and creating value for
all stakeholders for generations to come.
VISION
VISION
2030
2030
Vision 2030 is a set of four goals
Vision 2030 is a set of four goals
Vision 2030 is a set of four goals
and eight corresponding targets
and eight corresponding
and eight corresponding
that demonstrate our commitment
targets that demonstrate our
to building a better future for people,
targets that demonstrate our
the planet and our company.
commitment to building a better
commitment to building a better
Our Vision 2030 commitment is aligned
future for people, the planet
future for people, the planet
with the United Nations Sustainable
and our company.
and our company.
Development Goals (SDGs).
OUR GOALS:
OUR GOALS:
HEALTHY &
HEALTHY &
ABUNDANT FORESTS
ABUNDANT FORESTS
SUSTAINABLE
OPERATIONS
SUSTAINABLE
OPERATIONS
THRIVING PEOPLE
& COMMUNITIES
THRIVING PEOPLE
& COMMUNITIES
RENEWABLE
SOLUTIONS
RENEWABLE
SOLUTIONS
See our targets at:
InternationalPaper.com/Vision2030
To support critical
community needs
where we live and
work, we are donating
$500,000 to the
American Red Cross
as part of a multi-year
collaboration. This
year’s contribution
is in memory of those
who lost their lives
during the COVID-19
pandemic.
• We paid $800 million in dividends to our shareowners in 2020, bringing
our five-year total to $5.2 billion returned through dividends and share
repurchases. This represents just over 50% of our free cash flow in that
five-year period.
• We continued to invest in our North American and EMEA corrugated
packaging businesses to enhance our capabilities, serve customers
and grow earnings.
2020 was a year of relentless challenges – through it all, we demonstrated
that we can navigate all types of economic conditions, operate safely and
produce solid results.
2021 OUTLOOK
As we enter 2021, we are mindful that we are still in the midst of a global
pandemic. We remain committed to our principles for navigating COVID-19
and for remaining strong and resilient for all our stakeholders.
We are excited about the path we are charting to accelerate value creation.
In December of 2020, we announced plans to position International Paper
as a highly-advantaged corrugated packaging company. We are building
on the strength of our packaging business and taking meaningful actions
to drive sustainable, profitable growth and accelerate value creation for
our customers and shareowners.
Our plan includes the proposed spin-off of our Printing Papers
business into the world’s premier global paper company. And with a
more focused portfolio, International Paper will take meaningful actions
to accelerate profitable growth and reduce our cost structure to deliver
$350 - $400 million in incremental earnings growth by the end of 2023.
We have significant catalysts to accelerate our performance including:
• Streamlining and simplifying our organization to support a corrugated
packaging and absorbent fibers company with a more focused
geographic footprint
• Redesigning processes to increase efficiency and reduce costs in
maintenance and reliability, distribution, logistics and sourcing
• Identifying opportunities to optimize our manufacturing and converting
assets to reduce costs and be more capital efficient
Our performance in 2020 and our outlook reinforce our confidence in
the strength of International Paper and our ability to drive improvement
through operational, commercial and investment excellence. I am proud
of our team and our results. We remain committed to strengthening our
company for all our stakeholders in the short-term and the long-term, as
we pursue our Vision to be among the most successful, sustainable and
responsible companies in the world.
On behalf of International Paper’s Board of Directors and our
48,000 employees around the world, thank you for your continued
support and ownership of International Paper.
Sincerely,
2
| 2020 ANNUAL PERFORMANCE SUMMARY
Mark S. Sutton,
Chairman of the Board and Chief Executive Officer
INVESTING IN PEOPLE DURING COVID-19
In response to the pandemic, we changed the way we work to
keep our colleagues safe, mobilized our resources to address
critical community needs and continued to deliver essential
products to customers.
• We implemented new safety measures to keep essential workers at
our facilities safe.
• We donated 2 million corrugated boxes to food banks across the world.
• We donated more than 300,000 other products including paper,
paper bags, paper rolls and feminine hygiene products.
• Employees provided 3,300 socially distant volunteer hours to
support communities.
Learn more at our COVID-19 response hub:
internationalpaper.com/newsroom/covid-19
LEADERSHIP TRANSITIONS
SENIOR LEADERSHIP
RETIREMENTS
Catharine I. Slater, senior vice president,
Global Cellulose Fibers and IP Asia
retired on January 31, 2021. Cathy was
elected senior vice president in December
2016, when she joined the company as part
of the Weyerhaeuser Cellulose Fibers
acquisition. We recognize and appreciate
Cathy’s many contributions and wish
her continued good health and happiness
in retirement.
W. Michael Amick, Jr., senior vice
president, Paper the Americas,
is retiring on March 31, 2021. Mike joined
our company in 1990. He was named a
company officer in 2002 and elected senior
vice president in 2014. We appreciate
Mike’s more than 30 years of contributions
to our company and wish him all the best
in retirement.
NEW SENIOR LEADERSHIP
ASSIGNMENTS
W. Thomas Hamic was named senior vice
president, Global Cellulose Fibers and
Enterprise Commercial Excellence,
with responsibilities for our cellulose
fibers business. He will also lead our
efforts to expand our customer focus
and market-based value creation initiatives
to drive profitable growth. Tom joined
our company in 1991, was appointed
a company officer in 2009 and elected
senior vice president in 2019.
The following senior leaders have
responsibility for leading our global papers
business and will assume leadership roles
in the new company upon the successful
approval and completion of the spin-off
transaction in the second half of 2021:
Jean-Michel Ribiéras, senior vice president,
Global Papers and chief executive
officer-elect of SpinCo*
John V. Sims, senior vice president,
Finance, Global Papers and chief financial
officer-elect of SpinCo*
BOARD OF DIRECTOR
TRANSITIONS
Our board of directors, which is comprised of
individuals representing diverse perspectives
and a wide range of expertise and skills,
provides governance oversight and helps
accelerate the pursuit of our Vision.
In February 2021, the company announced
the retirement of two directors:
J. Steven Whisler, former chairman and
chief executive officer of Phelps Dodge
Corporation, is retiring in May 2021,
after 13 years of service. Among his
many contributions, he was a catalyst
and advocate for safety, helping drive
our commitment and improvement efforts.
He served as our presiding director from
January 2009 until December 2017.
We thank Steve for helping transform
International Paper into a global leader in
fiber-based packaging, pulp and paper.
William J. Burns retired from the Board
at the end of February 2021 when he was
named as the nominee for director of the
Central Intelligence Agency by President
Biden. We thank Bill for his contributions
and five years of service on our board.
His understanding of geo-politics and the
intersection of policy and business were
impactful in helping us to successfully
navigate the global marketplace.
Effective March 1, 2021, we welcomed
two new directors:
Anton V. Vincent, is president, Mars
Wrigley North America, part of Mars
Incorporated, a global, family-owned
business with $40 billion in annual sales
and a diverse and expanding portfolio of
confectionery, food and petcare products
and services. Anton’s enterprise, marketing
and broad consumer brand experience will
bring a valuable perspective to the Board.
DG Macpherson serves as chairman and
chief executive officer of W.W. Grainger,
Inc., a Fortune 500 industrial supply
company focused on maintenance, repair,
operating supplies and related services.
We will benefit from his extensive supply
chain, manufacturing, and operational
experience and track record for improving
the customer experience.
*The standalone, publicly traded company that will result from the company’s proposed spin-off of its Global Papers business (“SpinCo”)
2020 ANNUAL PERFORMANCE SUMMARY | 3
Our Businesses
Creating essential, innovative products from responsibly sourced,
renewable resources.
INDUSTRIAL
PACKAGING
GLOBAL
CELLULOSE FIBERS
PRINTING
PAPERS
73% of total revenue
12% of total revenue
15% of total revenue
We Deliver Value
for Our Shareowners
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. Additionally,
our Recycling business collects,
consumes and markets more than
seven million tons of all paper
recovered annually in the United
States, making us one of North
America’s largest recyclers of
recovered office paper and
corrugated boxes.
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,
towel and tissue products,
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®, Chamex®, Hammermill®,
POL®, PRO-DESIGN®, REY®,
Springhill®, SvetoCopy® and
Williamsburg 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
47% North America
32% EMEA
21% Brazil
REVENUE BY REGION
88% North America
9% EMEA
2% EMEA Coated Paperboard
1% Brazil
4
| 2020 ANNUAL PERFORMANCE SUMMARY
Free Cash Flow
$ Billions
$1.9
$2.0
$2.3
$2.3
$1.7
$1.5
$1.3
$0.8
$0.8
$0.8
2016
2017
2018
2019
2020
Free Cash Flow
Cash to Shareowners
(dividends, share repurchases)
Leverage
Adjusted Debt to EBIDTA (Target 2.5-2.8x)
2021 WACC 6.0%
Adjusted Return on
Invested Capital
5-Year Average:
10% ROIC
4.0x
$3.4
$11.3
3.3x
$2.0
$11.2
2.8x
$1.8
$10.7
2.9x
$1.6
$9.8
2.9x
$1.1
$8.1
2016
2017
2018
2019
2020
Pension Gap
Balance Sheet Debt
Op. Leases
7.7%
WACC: Weighted Average
Cost of Capital
Annualized Dividend
Dollars Per Share
$1.85
$1.90
$2.00
$2.05
$2.05
10.0%
9.9%
13.2%
10.8%
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Creating essential, innovative products from responsibly sourced,
renewable resources.
We Deliver Value
for Our Shareowners
PRINTING
PAPERS
15% of total revenue
We establish advantaged positions in attractive market segments with safe,
efficient manufacturing operations near sustainable fiber sources.
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®, Chamex®, Hammermill®,
POL®, PRO-DESIGN®, REY®,
Springhill®, SvetoCopy® and
Williamsburg 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
47% North America
32% EMEA
21% Brazil
Free Cash Flow
$ Billions
$1.9
$2.0
$2.3
$2.3
$1.7
$1.5
$1.3
$0.8
$0.8
$0.8
2016
2017
2018
2019
2020
Free Cash Flow
Cash to Shareowners
(dividends, share repurchases)
Leverage
Annualized Dividend
Dollars Per Share
2016
2017
2018
2019
2020
$1.85
$1.90
$2.00
$2.05
$2.05
Adjusted Return on
Invested Capital
5-Year Average:
10% ROIC
Adjusted Debt to EBIDTA (Target 2.5-2.8x)
2021 WACC 6.0%
4.0x
$3.4
$11.3
3.3x
$2.0
$11.2
2.8x
$1.8
$10.7
2.9x
$1.6
$9.8
2.9x
$1.1
$8.1
2016
2017
2018
2019
2020
Pension Gap
Balance Sheet Debt
Op. Leases
2016
2017
2018
2019
2020
10.0%
9.9%
13.2%
10.8%
7.7%
WACC: Weighted Average
Cost of Capital
11th consecutive
year of value-
creating returns
2020 ANNUAL PERFORMANCE SUMMARY | 5
386849_IPA0034_03082021_APS_Insides_Final_R1.indd 5
3/12/21 6:46 PM
International Paper
Senior Leaders
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
Clay R. Ellis
Senior Vice President
Enterprise Operational
Excellence
W. Thomas Hamic
Senior Vice President
Global Cellulose Fibers
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
Global Papers (and Chief
Executive Officer-Elect
of SpinCo)
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
Finance, Global Papers
and Chief Financial
Officer-Elect of SpinCo
Gregory T. Wanta
Senior Vice President
North American Container
*Identified as a leader for the standalone, publicly traded company that will result from the company’s proposed spin-off of its Global Papers business, pending approvals.
RECOGNITION
Fortune Magazine
World’s Most Admired
Companies® 2021 for
18 years
Ethisphere Institute
World’s Most Ethical
Companies® 2021 for
15 consecutive years
6
| 2020 ANNUAL PERFORMANCE SUMMARY
Women’s Choice Award®
Best Companies to Work
For — Millennial Women
2018-2021
FTSE4Good Index Series
An equity index series that
is designed to facilitate
investment in companies
that meet globally
recognized corporate
responsibility standards
Best Places
to Work in IT
Wall Street Journal
100 Most Sustainably
Managed Companies
Form
10-K
2020
F
o
r
m
1
0
-
K
FINANCIAL HIGHLIGHTS
In millions, except per share amounts, at December 31
2020
2019
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
$ 20,580
1,810
(a)
650 (b)
482 (b-c)
—
482 (b-c)
31,718
7,854
$ 22,376
2,599
(a)
1,604 (d)
1,220 (d-e)
(5)
1,225 (d-f)
(f)
33,471
7,713
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
$
$
1.23
1.22
2.0500
9,437
393.1
393.0
395.7
$
$
3.10
3.07
2.0125
9,801
392.1
395.3
398.8
(a) See the comparison of net earnings (loss) attributable to International Paper Company to its total industry segment operating profit on
page 23 and the operating profit table on page 87 for details of operating profit by industry segment.
Includes pre-tax restructuring and other charges, net of $195 million including a charge of $196 million for debt extinguishment costs
and income of $1 million for other items. Also included are a loss of $329 million related to the foreign currency cumulative translation
adjustment resulting from the classification of the assets and liabilities of our Brazil Packaging business as held for sale, a loss of $19 million
for the impairment of the net assets of our Brazil Packaging business, a loss of $123 million related to the foreign currency cumulative
translation adjustment resulting from the classification of the assets and liabilities of our EMEA Packaging business in Turkey as held for
sale, a charge of $48 million related to environmental remediation reserve adjustments, a charge of $43 million for an asbestos litigation
reserve adjustment, a charge of $14 million for the removal of abandoned property at our mills, a net loss of $11 million related to our
investment in India, a charge of $9 million for costs associated with the announced spin-off of our Printing Papers business, a charge of
$1 million for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard
production, a gain of $33 million related to the monetization of approximately 19% of our equity investment in Graphic Packaging, interest
income of $2 million associated with a foreign value-added tax refund accrual and a net charge of $5 million related to other items.
Includes a tax benefit of $32 million related to the settlement of tax audits.
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.
(b)
(c)
(d)
(e)
(f)
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 page 22.
In millions, at December 31
Calculation of Free Cash Flow
Cash provided by operations
(Less)/Add:
2020
2019
2018
2017
2016
$3,063
$3,610
$3,226
$1,757
$2,478
Cash invested in capital projects, net of insurance recoveries
Cash contribution to pension plan, net of tax refunds
Kleen settlement
Free Cash Flow
(751)
—
—
$2,312
(1,276)
—
—
$2,334
(1,572)
—
—
$1,654
(1,391)
1,250
354
$1,970
(1,348)
750
—
$1,880
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.
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 From Continuing Operations Before Income
2020
2019
2018
2017
2016
Taxes and Equity Earnings
Add back: Net Interest Expense
Add back: Net Special Items Before Taxes
Add back: Non-Operating Pension Expense (Income)
$
650
444
764
$ 1,604
491
420
$ 1,781
536
214
$
Before Taxes
(41)
36
494
848
572
501
484
$
795
520
182
610
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
1,817
2,551
3,025
2,405
2,107
40
46
46
—
—
Expense, Income Taxes and Other Equity Earnings
1,857
2,597
3,071
2,405
2,107
Tax Rate
Adjusted Operating Earnings Before Net Interest
24%
26%
24%
30%
32%
Expense and Equity Earnings
1,409
1,935
2,325
1,684
1,433
Equity Earnings Other than Graphic Packaging,
Net of Taxes
Adjusted Operating Earnings Before
Net Interest Expense
37
204
290
177
198
$ 1,446
$ 2,139
$ 2,615
$ 1,861
$ 1,631
The Company considers 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 (net 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
In millions, at December 31
Calculation of Adjusted EBITDA
Earnings from Continuing Operations Before Income Taxes and Equity Earnings
Interest Expense, Net
Special items
Non-operating pension expense (income)
EBIT before Special Items
Depreciation, amortization and cost of timber harvested
Adjusted EBITDA
Annualized Net Sales
Adjusted EBITDA Margin
2020
2019
$
650
444
764
(41)
1,817
1,286
$ 3,103
$ 20,580
$ 1,604
491
420
36
2,551
1,301
$ 3,852
$ 22,376
15.1%
17.2%
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).
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
12/31/2020
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 ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the
closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal
quarter (June 30, 2020) was approximately $13,786,056,781.
The number of shares outstanding of the Company’s common stock as of February 12, 2021 was 393,117,117.
Documents incorporated by reference:
Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 2021
annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
BUSINESS.
General
Human Capital
Competition and Costs
Marketing and Distribution
Description of Principal Products
Sales Volumes by Product
Environmental Protection
Climate Change
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.
ELIMINATED
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
3
4
4
4
4
5
6
7
7
8
16
16
16
16
17
17
17
18
18
20
20
24
26
27
31
34
37
37
37
38
38
INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
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.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Additional Financial Data
FORM 10-K SUMMARY
SIGNATURES
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV.
ITEM 15.
ITEM 16.
APPENDIX I
2020 LISTING OF FACILITIES
APPENDIX II
2020 CAPACITY INFORMATION
39
40
40
42
46
47
48
49
50
51
89
91
91
91
91
91
91
91
92
92
92
92
92
97
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
at
www.internationalpaper.com.
website
visiting
our
by
In the United States, at December 31, 2020, the
Company operated 27 pulp, paper and packaging
mills, 162 converting and packaging plants, 16
recycling plants and three bag facilities. Production
facilities at December 31, 2020 in Canada, Europe,
North Africa and Latin America included 11 pulp,
paper and packaging mills, 39 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, 2020, we owned or managed
approximately 314,000 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 businesses are separated into three segments:
Industrial Packaging; Global Cellulose Fibers; and
Printing Papers.
A description of these business segments can be
found on pages 26 and 27 of Item 7. Management’s
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.
On December 3, 2020, we announced a plan to
pursue a spin-off of our Printing Papers segment into
a standalone publicly-traded company ("SpinCo").
See discussion on page 27 of Item 7. Management's
Discussion and Analysis of Financial Condition and
Results of Operations and in Note 8 Divestitures and
Impairments of Businesses on page 59 of Item 8.
Financial Statements and Supplementary Data.
through 2020,
From 2016
International Paper’s
capital spending approximated $6.3 billion, excluding
mergers and acquisitions. These expenditures reflect
our continuing efforts to use our capital strategically
improve product quality and environmental
to
performance, as well as
lower costs, maintain
reliability of operations and strategic capital for
capacity expansion. Capital spending in 2020 was
approximately $751 million and is expected to be
approximately $800 million in 2021. You can find
more information about capital spending on page 33
of Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Discussions of acquisitions can be found on page 31
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 25 and 26 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
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.
website
our
of
HUMAN CAPITAL
Our strategic framework, The IP Way Forward,
ensures our business strategy delivers sustainable
outcomes for all of our stakeholders - employees,
customers, suppliers, communities, governments,
non-governmental organizations and shareholders –
for generations to come. We accomplish this through
a series of programs and processes as discussed
below. Additionally in 2020, we established our Vision
2030 goals for healthy and abundant forests, thriving
people and communities, sustainable operations and
renewable solutions. Several of these goals are
discussed in more detail below.
1
EMPLOYEES
HUMAN CAPITAL MANAGEMENT
As of December 31, 2020, we have approximately
49,300 employees, nearly 33,400 of whom are
located in the United States. Of our U.S. employees,
approximately 23,100 are hourly, with unions
representing approximately 14,300 employees.
Approximately 10,800 of this number are represented
by the United Steelworkers union ("USW").
benefit
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,
programs,
select
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
2,
International Brotherhood of Teamsters, covering
additional converting facilities.
agreement with District Council
SAFETY
The safety of our employees remains the primary
focus of our leaders. Our goal is to create a 100%
injury-free workplace
for our employees and
contractors. To accomplish this goal, we focus on the
IP Way of doing things - we do the right things, in the
right ways, for the right reasons, all of the time. Our
stated Vision 2030 Goal is to achieve zero injuries for
employees and contractors.
the COVID-19 pandemic, we have
Throughout
remained focused on protecting the health and safety
of our employees while meeting the needs of our
customers. Most of our manufacturing and converting
facilities we deemed essential have remained open
and operational during the pandemic. The health and
safety of our employees and contractors is our most
important responsibility as we manage through the
COVID-19 pandemic. We have implemented work-
systems across the Company, including hygiene,
social distancing, site cleaning, contract tracing and
other measures, as recommended by the Centers for
Disease Control and Prevention and the World Health
Organization. As a sign of our appreciation for our
workers during the pandemic, the Company gave a
one-time bonus to all employees in December 2020.
in
continuous
through
and
The attraction, retention and development of our
employees is critical to our success. We accomplish
this, in part, by developing the capabilities of our team
our
members
learning,
performance management
development
programs. One such program is our REACH (Recruit,
Engage, Align College Hires) program through which
the Company recruits and develops early-career
engineers and safety professionals for our U.S. Mill
system, preparing them to become future leaders. We
invest
the growth and development of our
employees by providing a multi-dimensional approach
to learning that empowers, intellectually grows, and
professionally develops our employees. We provide
continuing education courses that are relevant to our
industry and job function within the Company. In
addition, we have created learning paths for specific
to encourage an
positions
employee’s advancement and growth within our
organization. We also offer a peer mentor program
and leadership and customer service training to
support and develop our employees. These
resources provide employees with the skills they
need to achieve their career goals, build management
skills and become leaders within our Company. In
2019, 580 new hourly operations and maintenance
employees at our mills experienced new hire
integration training and 460 high potential leaders
participated in experiential development programs.
that are designed
DIVERSITY AND INCLUSION
The Company believes in an inclusive workforce,
where diverse backgrounds are
represented,
engaged and empowered to inspire innovative ideas
and decisions. Our stated Vision 2030 goal is to
achieve 30% overall representation of women and
50% women in salaried positions and to implement
regional diversity plans,
including 30% minority
representation in U.S. salaried positions. To foster a
more diverse and inclusive culture, the Company is
focused on (1) promoting a culture of diversity and
inclusion that leverages the talents of all employees,
and (2) implementing practices that attract, recruit
and retain diverse top talent. The Company supports
employee-led networking groups that are open to all
employees and provide a forum to communicate and
exchange ideas, build a network of relationships
across the Company, and pursue personal and
professional development, such as the Women in
International Paper Employee Networking Circle,
African American Employee Networking Circle
("IPmove"), LGBTQ Employee Networking Circle
(“IPride”) and a Veterans Employee Networking
Circle.
2
We have a global workforce and have implemented
programs around
to create diverse,
the globe
increased
inclusive workplaces. We
representation of women engineers in our REACH
program to 38% with the Class of 2021. And our
overall full-time diversity hiring for the REACH Class
2021 is 52%.
have
CITIZENSHIP
to support
We encourage our employees
the
communities in which they live and in which the
Company operates. Our citizenship efforts extend
across the globe and support social and educational
needs. To that end, in 2019 we invested more than
the
$24 million
communities in which we work and live. Our Vision
2030 goal is to strengthen the resilience of our
communities and improve the lives of 100 million
people in our communities. We are proud to have
been named among
the world’s most ethical
companies by Ethisphere for 14 consecutive years.
to address critical needs
in
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
20 through 31 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.
3
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 26 and 27 of Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
SALES VOLUMES BY PRODUCT
Sales volumes of major products for 2020, 2019 and 2018 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)
Brazilian Packaging (b)
European Coated Paperboard
Industrial Packaging
Global Cellulose Fibers (in thousands of metric tons) (c)
Printing Papers
U.S. Uncoated Papers
European and Russian Uncoated Papers
Brazilian Uncoated Papers
Indian Uncoated Papers
Printing Papers
2020
2019
2018
10,671
3,097
2,181
158
209
30
1,627
271
411
18,655
3,676
1,339
1,249
910
—
3,498
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
Includes third-party and inter-segment sales and excludes sales of equity investees.
(a)
(b) Volumes for corrugated box sales reflect consumed tons sold ("CTS"). Board sales by these businesses reflect invoiced tons.
(c) Includes North American, European and Brazilian volumes and internal sales to mills.
ENVIRONMENTAL PROTECTION
In
addition,
internationally.
The Company is subject to extensive federal and
state environmental regulation, as well as similar
regulations
new
environmental laws or regulations impacting our
facilities around the world are routinely passed or
proposed. Our continuing objectives include: (1)
controlling emissions and discharges
from our
the
to avoid adverse
facilities
environment, and (2) maintaining compliance with
applicable laws and regulations. The Company spent
$46 million in 2020 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 $50 million in
2021
for environmental capital projects. Capital
expenditures for 2022 environmental projects are
anticipated to be approximately $45 million. Capital
impacts on
4
expenditures for 2023 environmental projects are
estimated to be $30 million.
The Company has completed capital projects to meet
the U.S. Environmental Protection Agency's ("EPA")
maximum achievable control technology ("MACT")
and risk and technology review ("RTR") regulations
that require owners of specified pulp and paper
process equipment and boilers to meet new air
for certain substances. As
emissions standards
portions of these MACT and RTR regulations have
been remanded to EPA for further consideration it is
not clear at this time
what, if any, additional capital project expenditures
might result from resolution of the open issues.
The Company has been named as a potentially
environmental
("PRP")
responsible
remediation actions under various federal and state
party
in
and
substances at
laws, including the Comprehensive Environmental
Response, Compensation
Liability Act
("CERCLA"). Many of these proceedings involve the
large
cleanup of hazardous
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
facilities, and
current, closed or
recorded as liabilities on the balance sheet. For
additional information regarding certain remediation
actions, see Note 14 Commitments and Contingent
Item 8. Financial Statements and
Liabilities of
Supplementary Data on pages 68 through 70.
formerly-owned
See Item 1A. Risk Factors - WE ARE SUBJECT TO
A WIDE VARIETY OF LAWS, REGULATIONS AND
OTHER GOVERNMENT REQUIREMENTS THAT
MAY CHANGE IN SIGNIFICANT WAYS, AND THE
COST
SUCH
REQUIREMENTS COULD IMPACT OUR BUSINESS
AND RESULTS OF OPERATIONS.
COMPLIANCE WITH
OF
CLIMATE CHANGE
The Company recognizes the impacts of climate
change on people and our planet. In order to manage
climate-related
taking actions
risks, we are
throughout our value chain to advance a low-carbon
economy.
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 low-
carbon products are recycled into new products at a
higher rate than any other base material. We work to
advance the shift to a low-carbon, circular economy
by designing products that are 100% reusable,
recyclable or compostable.
As part of our Vision 2030, we have committed to
incremental reductions in our Scope I, II and III
greenhouse gas emissions: 35% reduction by 2030.
Our greenhouse gas emissions reduction goal is
consistent with
the Paris Climate Agreement.
Furthermore, we use biomass and manufacturing
residuals (rather than fossil fuels) to generate a
majority of the manufacturing energy at our mills.
to
efforts
forest
advance
Our
management and restore forest landscapes are an
important lever for mitigating climate change through
carbon storage in forests.
sustainable
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 the Company, 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 continues international efforts and voluntary
the emissions of
commitments
greenhouse gases ("GHGs"). Consistent with this
objective, participating countries aim to balance GHG
the
emissions generation and sequestration
second half of this century or, in effect, achieve net-
zero global GHG emissions.
in
in meeting GHG
To assist member countries
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.
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 transportation fuel
efficiency standards; (ii) control GHG emissions from
new Electric Generating Units ("EGUs"); (iii) control
emissions
from new oil and gas processing
operations and (iv) require reporting of GHGs from
sources of GHGs greater than 25,000 tons per year.
Several U.S. states, including states in which we
operate facilities, have enacted or are considering
legal measures to require the reduction 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 monitor proposed programs in other
states as well; however, it is unclear what impacts, if
any, future state-level GHG rules will have on the
Company’s operations.
5
SUMMARY
future
is not
impacts,
to estimate
reasonably possible
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
the
it
Company’s costs of compliance with rules that have
not yet been adopted or implemented and may not be
adopted or implemented in the future. In addition to
legislation and
possible direct
regulation could have
the
Company, such as higher prices for transportation,
energy and other inputs, as well as more protracted
air permitting processes, causing delays and higher
costs to implement capital projects. The Company
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.
impacts on
indirect
report
is available
Additional information regarding climate change and
the Company
in our 2019 Global
found on our website at
Citizenship
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.
INFORMATION ABOUT OUR EXECUTIVE
OFFICERS
-
Mark S. Sutton, 59, 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
industrial
31, 2014, senior vice president
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
the Moscow School of
advisory board 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
6
Institute. Mr. Sutton has been a director since June
1, 2014.
W. Michael Amick, Jr., 57, senior vice president -
paper the Americas since January 1, 2017 until his
anticipated departure on March 31, 2021. 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, 50, 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, 55, senior vice president - global
cellulose fibers and enterprise commercial excellence
since September 2020. Mr. Hamic previously served
as senior vice president - containerboard and
enterprise commercial excellence from December
2019 until September 2020. Mr. Hamic has also
previously served as vice president and general
recycling, North
manager
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.
- containerboard &
Timothy S. Nicholls, 59, 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
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.
the Americas
Thomas J. Plath, 57, senior vice president - human
resources and global citizenship since March 1,
2017. Mr. Plath previously served as vice president
resources, global businesses
- human
from
November 2014 through February 2017, and vice
president - HR manufacturing, technology, EH&S
to
and global supply chain
November 2014. Mr. Plath
International
Paper in 1991.
from April 2013
joined
Jean-Michel Ribiéras, 58, senior vice president -
paper the Americas and chief executive officer-elect
of the standalone, publicly traded company that will
result from the Company's anticipated spin-off SpinCo
since January 2021. Mr. Ribieras previously served
as senior vice president - industrial packaging the
Americas from June 2018 until January 2021. Mr.
Ribieras also 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., 51, 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
investor
from 2017 until 2018, vice president,
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, 61, 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, 58, senior vice president - finance,
papers the Americas and chief financial officer-elect
of SpinCo since January 2021. Mr. Sims previously
served as senior vice president
- corporate
development from December 2019 until January
2021. 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
7
Paper holds a 50% interest, and of its subsidiary,
Ilim Group. Mr. Sims joined International Paper in
1994.
Gregory T. Wanta, 55, 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
including vice president,
industrial packaging,
from
the Americas,
central
January 2012 through October 2016. Mr. Wanta
joined International Paper in 1991.
region, Container
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
fiber supply
information concerning
purchase agreements, see pages 33 and 34.
further
FORWARD-LOOKING STATEMENTS
“may,”
“plan,”
arising
“expect,”
“should,”
“will,”
“believe,”
Certain statements in this Annual Report may be
considered “forward-looking” statements within the
meaning of the Private Securities Litigation Reform
Act of 1995. These statements are often identified by
“continue,”
the words
“anticipate,”
“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) developments related to the COVID-19
pandemic, including the severity, magnitude and
duration of the pandemic, negative global economic
conditions
the
development, availability and effectiveness of
treatments and vaccines, impacts of governments’
responses
the pandemic on our operations,
impacts of the pandemic on commercial activity, our
customers and business partners and consumer
preferences and demand, supply chain disruptions,
and disruptions in the capital or financial markets; (ii)
the level of indebtedness and changes in interest
rates; (iii) industry conditions, including but not limited
to changes in the cost or availability of raw materials,
energy and
competition
International Paper faces, cyclicality and changes in
for
consumer preferences, demand and pricing
International Paper products
(including changes
resulting from the COVID-19 pandemic); (iv) domestic
and global economic conditions and political changes,
changes
trade
protectionist policies, downgrades in International
Paper’s credit ratings, and/or the credit ratings of
in currency exchange
transportation
pandemic,
costs,
rates,
from
the
to
(xi)
(xii)
joint
from
receipt of
technology
risks; and
future pension
requirements arising
International Paper’s
banks issuing certain letters of credit, issued by
recognized credit rating organizations; (v) the amount
of
funding
obligations, and pension and health care costs; (vi)
unanticipated expenditures or other adverse
developments related to the cost of compliance with
existing and new environmental, tax, labor and
employment, privacy and other U.S. and non-U.S.
governmental laws and regulations (including new
legal
the COVID-19
pandemic); (vii) any material disruption at any of
International Paper’s manufacturing facilities due to
severe weather, natural disasters or other causes
(including as the result of the COVID-19 pandemic);
(viii) risks inherent in conducting business through
joint ventures; (ix) International Paper’s ability to
achieve the benefits expected from, and other risks
ventures,
acquisitions,
associated with,
divestitures and other corporate transactions; (x)
information
loss
contingencies and pending, threatened or future
litigation, including with respect to environmental
regulatory
the
related matters,
approvals relating to the spin-off transaction without
unexpected delays or conditions; (xiii) International
Paper’s ability to successfully separate the SpinCo
business and realize the anticipated benefits of the
spin-off transaction; (xiv) the ability to satisfy any
necessary conditions to consummate the spin-off
transaction within the estimated timeframes or at all;
and (xv) the final terms and conditions of the spin-off
transaction, including the amount of any dividend by
SpinCo to International Paper and the terms of any
ongoing commercial agreements and arrangements
between International Paper and SpinCo following
any such
the costs of any such
transaction, the nature and amount of indebtedness
incurred by SpinCo, the qualification of the spin-off
transaction as a tax-free transaction for U.S. federal
income tax purposes (including whether an IRS ruling
will be obtained), diversion of management’s attention
and the impact on relationships with customers,
and
suppliers,
business
counterparties, and
impact of any such
transaction on the businesses of International Paper
and SpinCo and the relationship between the two
companies following any such transaction. These and
other factors that could cause or contribute to actual
results differing materially from such forward-looking
statements can be found in International Paper’s
press releases and U.S. Securities and Exchange
Commission filings. In addition, other risks and
uncertainties not presently known to International
Paper or that it currently believes to be immaterial
could affect the accuracy of any forward-looking
International Paper undertakes no
statements.
obligation to publicly update any forward-looking
statements, whether as a result of new information,
future events or otherwise.
transaction,
employees
other
the
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
receives
committees and management, and
updates on the risk management processes twice per
year.
it
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.
OVERALL RISKS
CASH
RESULTS
THE CURRENT COVID-19 PANDEMIC HAS HAD
AN ADVERSE EFFECT ON PORTIONS OF OUR
BUSINESS, AND MAY HAVE MATERIAL
ADVERSE EFFECTS ON OUR BUSINESS,
OF
FINANCIAL
CONDITION,
AND
OPERATIONS
FLOWS,
PARTICULARLY
IF NEGATIVE ECONOMIC
CONDITIONS ASSOCIATED WITH COVID-19
PERSIST OR DETERIORATE. The COVID-19
pandemic has resulted in authorities throughout the
world implementing widespread measures attempting
to contain the spread and impact of COVID-19, such
as travel bans and restrictions, quarantines, stay-at-
home orders, the promotion of social distancing and
limitations on business activity, including business
closures. These measures and the pandemic have
caused a significant global economic downturn,
disrupting supply chains, significantly
increasing
unemployment and underemployment levels, and
adversely
impacting consumer confidence and
spending. The continued spread of COVID-19 has
also led to significant disruption and volatility in the
global capital and financial markets.
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
Although governments of countries in which we
operate have generally considered forest products
and the supply chain on which we depend to be
“essential industries” that should remain operational
during this pandemic, any significant disruption in
operations at one or more of our mills, plants or other
8
the potential
facilities as a result of the COVID-19 pandemic,
including precautionary measures we take or are
taken by governmental authorities that limits in-
person workplace contact at any of our facilities to
reduce
to
COVID-19, could have an adverse effect on our
business or operations. If a significant portion of our
to
workforce
measures
the COVID-19
pandemic such as
those described herein, our
operations will likely be negatively impacted.
to work effectively due
for employee exposure
is unable
taken
in response
to
COVID-19 has had a significant negative impact on
demand for our printing papers products. In addition,
our operations in Industrial Packaging experienced
higher supply chain costs due to the impact of
COVID-19.
In addition to the reduction in demand for our
products that the COVID-19 pandemic has had or
could have, other negative impacts on our business,
include, but are not limited to, the following:
to
to
and
• We rely on a global workforce, and we take
measures to protect the health and safety of
our employees, customers and others with
whom we do business, while continuing to
effectively manage our employees and
maintain business operations. During the
pandemic, we have
taken additional
measures and incurred additional expenses
to protect the health and safety of our
comply with applicable
employees
government
safety
requirements
guidance. Our business operations may be
additionally disrupted if a significant portion of
our workforce is unable to work safely and
effectively due
illness, quarantines,
government actions, or other restrictions or
responsive
measures
the pandemic.
taken across our business
Measures
operations to address health and safety may
not be sufficient to prevent the spread of
COVID-19 among our employee base,
customers and others.
A significant number of our employees as
well as customers and others with whom we
do business, continue to work remotely in
response to the COVID-19 pandemic. Our
business operations may be disrupted, and
we may experience increased risk of adverse
effects to our business, if a significant portion
of our workforce or certain business
operations are negatively impacted as a
remote work arrangements,
result of
including due
risks or other
to cyber
disruption to our technology infrastructure.
to
•
•
various
in response
Cost management and
cost-
containment actions implemented across our
business
the COVID-19
pandemic could hinder execution of our
business strategy,
including deferral of
planned capital expenditures, and could
adversely affect our business and results of
operations.
to
the pandemic,
While we are closely monitoring the impact of the
pandemic on all aspects of our business, the extent of
the impact on our results of operations, cash flow,
liquidity, and financial performance, as well as our
ability to execute near-term and long-term business
strategies and initiatives, will depend on numerous
evolving factors and future developments, which are
highly uncertain and which we cannot predict or
control, and some of which we are not currently
aware, including, but not limited to: (a) the duration,
including
severity and scope of
additional waves, increases and spikes in the number
of COVID-19 cases in certain areas; (b) rapidly-
changing governmental and public health directives to
contain and combat the outbreak, including the
duration, degree and effectiveness of directives, as
well as the easing, removal and potential reinstitution
of directives; (c) the availability and wide-spread
administration of
for
the
COVID-19; (d)
pandemic’s adverse effect on economic and social
activity, consumer confidence, discretionary spending
and preferences, labor and healthcare costs, and
unemployment rates, any of which may reduce
demand for our products; (e) any temporary reduction
in our workforce, closures of our offices and facilities
and our ability to adequately staff and maintain our
operations; and (f) the ability of our customers and
suppliers to continue their operations, which could
result in terminations of contracts, losses of revenue,
adverse effects to our supply chain. If the pandemic
continues to create disruptions or turmoil in the credit
or financial markets, or impacts our credit ratings, it
could adversely affect our ability to access capital on
favorable terms and continue to meet our liquidity
needs.
treatments and vaccines
the extent and duration of
the
inherent
uncertainty
Given
surrounding
COVID-19, we expect the pandemic will continue to
have an adverse impact on portions of our business
in the near term. If these conditions persist for a
prolonged period, the COVID-19 pandemic, including
any of the above factors and others that are currently
unknown, may have a material adverse effect on our
business, results of operations, cash flow, liquidity, or
financial condition.
9
WE ARE SUBJECT TO PHYSICAL AND
FINANCIAL RISKS ASSOCIATED WITH CLIMATE
CHANGE AND GLOBAL, REGIONAL AND LOCAL
WEATHER CONDITIONS.
Our operations and the operations of our suppliers
are subject to climate variations, which impact the
productivity of forests, the frequency and severity of
wildfires, the distribution and abundance of species,
and the spread of disease or insect epidemics.
Additionally, the unpredictability and frequency of
natural disasters such as hurricanes, earthquakes,
hailstorms, wildfires, snow, ice storms, the spread of
disease, and insect infestations could also affect
timber supply or cause variations in the cost of raw
in precipitation could make
materials. Changes
wildfires more frequent or more severe, and could
adversely affect timber harvesting. The effects of
climate change and global, regional and local weather
conditions could also have a material adverse effect
on our results of operations.
RISKS RELATING TO INDUSTRY CONDITIONS
ENERGY
MATERIALS,
trade policies between countries,
CHANGES IN THE COST OR AVAILABILITY OF
RAW
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 fiber
varies based upon availability and source. The global
supply and demand for recycled fiber may be affected
by
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.
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
AFFECT
OUR
general economic conditions. The
length and
magnitude of these cycles have varied over time and
by product.
in consumer
In addition, changes
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.
COULD
COMPETITION IN THE UNITED STATES AND
INTERNATIONALLY
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 printing and advertising
activity, white-collar employment levels and consumer
confidence, all of which impact demand for our
products. In addition, volatility in the capital and credit
markets, which
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.
impacts
IN
INTERNATIONAL CONDITIONS
CHANGES
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
in which we have manufacturing
United States
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
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. Trade protection measures in favor
in economic activity, adverse
10
of local producers of competing products, including
governmental subsidies,
tax benefits and other
measures giving
local producers a competitive
International Paper, may also
advantage over
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 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.
OUR
AFFECT
THE LEVEL OF OUR INDEBTEDNESS COULD
ADVERSELY
FINANCIAL
CONDITION AND
IMPAIR OUR ABILITY TO
OPERATE OUR BUSINESS. As of December 31,
2020, International Paper had approximately $8.1
billion of outstanding indebtedness. The level of our
indebtedness could have important consequences to
our
results and
business, including the following:
financial condition, operating
•
•
•
•
financing
it may limit our ability to obtain additional debt or
equity
for working capital, capital
expenditures, product development, dividends,
share repurchases, debt service requirements,
acquisitions and general corporate or other
purposes;
a portion of our cash flows from operations will
be dedicated to payments on indebtedness and
will not be available for other purposes, including
operations, capital expenditures and
future
business opportunities;
debt
service
the
our
indebtedness could make it more difficult for us
to satisfy other obligations;
requirements
of
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.
to our
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
results of
respect
operations or financial condition, may affect our ability
to comply with these covenants or meet those
financial ratios and tests and could require us to take
action to reduce our debt or to act in a manner
contrary to our current business objectives. Moreover,
the restrictions associated with these financial ratios
and covenants may prevent us from taking actions
that we believe would be in the best interest of our
business and may make it difficult for us to execute
our business strategy successfully or effectively
compete with companies
that are not similarly
restricted. Additionally, despite these restrictions, we
may be able
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.
to
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 November 2020, the administrator of LIBOR
announced it will consult on its intention to extend the
retirement date of certain offered rates whereby the
publication of the one week and two month LIBOR
offered rates will cease after December 31, 2021, but
the publication of the remaining LIBOR offered rates
will continue until June 20 2023. 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
Additionally,
the nature of such potential
uncertainty as
replacement may
discontinuation,
negatively impact the cost of our variable rate debt.
financial markets.
the broader
reform
or
to
ISSUED BY
IN CREDIT RATINGS
CHANGES
STATISTICAL
RECOGNIZED
NATIONALLY
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
11
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
in capital expenditures and working
reductions
capital.
the
terms of
Under
the agreements governing
approximately $1.0 billion of our debt as of
December 31, 2020, 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,
the rating
suspended or withdrawn entirely by
agencies,
judgment,
in each rating agency’s
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.
if,
those delivered
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
letters of credit supporting
issued
irrevocable
installment notes,
to
including
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 $488 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,
12
on pages 70 through 72, and Note 13, Income Taxes,
on pages 65 through 68, in Item 8. Financial
Statements and Supplementary Data
further
information.
for
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
78 through 84, 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 service and compensation on or after
January 1, 2019; however, the pension freeze does
not affect benefits accrued through December 31,
2018. We provide retiree health care benefits to
certain former U.S. employees, as well as financial
assistance towards the cost of individual retiree
medical coverage for certain former U.S. salaried
employees. Our pension costs are dependent upon
numerous
from actual plan
resulting
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.
factors
record a
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
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, 2020 was $1.1 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
MATERIAL DISRUPTIONS AT ONE OF OUR
COULD
MANUFACTURING
FACILITIES
OUR
IMPACT
NEGATIVELY
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,
impact our
reduce our sales and/or negatively
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
•
•
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.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
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 outbreak of
the COVID-19 virus, 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;
13
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,
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.
rather
than
THE
WITHIN
THE ANNOUNCED PROPOSED SPIN-OFF OF OUR
PRINTING PAPERS BUSINESS MAY NOT BE
EXPECTED
COMPLETED
TIMEFRAME, OR AT ALL, AND WE MAY NOT
ACHIEVE THE EXPECTED BENEFITS FROM THE
SEPARATION. On December 3, 2020, we
announced a plan to pursue a spin-off of our Printing
Papers segment into SpinCo, a standalone, publicly
traded company. International Paper will distribute
shares of SpinCo to International Paper shareholders
on a pro rata basis in a manner intended to be tax-
free to International Paper and its shareholders for
U.S. Federal income tax purposes. The transaction is
expected to be completed in late third quarter 2021.
to customary
The proposed spin-off
conditions,
the
by
International Paper Board of Directors, receipt of a
tax opinion and the filing and effectiveness of a Form
10 registration statement with the U.S. Securities and
Exchange Commission. No assurance can be given
regarding the form that a spin-off transaction may
take or the specific terms or timing thereof, or that a
spin-off will in fact occur. In addition, International
Paper expects to retain up to 19.9% of the shares of
is subject
final
including
approval
in
the
SpinCo at the time of the separation, with the intent to
monetize
future and provide additional
proceeds to International Paper. No assurance can
be given that we will be able to monetize the shares
of SpinCo at a favorable price or at all, or the timing
thereof.
industry, which could result
International Paper and SpinCo may not realize some
or all of the anticipated strategic, financial, operational
or other benefits, including cost savings, from the
separation on the expected timeframe or at all. As
independent publicly-traded companies, International
Paper and SpinCo will be smaller, less diversified
companies with a narrower business focus and may
be more vulnerable to changing market conditions,
such as changes in the industrial packaging or
in
printing papers
increased volatility in their respective cash flows,
working capital and financing requirements and could
respective
materially and adversely affect
results of
business,
operations.
transaction,
SpinCo is expected to pay International Paper a
dividend
to pay down outstanding
International Paper indebtedness. There can be no
assurance that SpinCo will be able to pay a dividend,
the amount of any such dividend, or that any dividend
paid will be sufficient to repay the amount of
indebtedness expected. Further, there can be no
assurance that the combined value of the common
stock of the two publicly-traded companies will be
equal
the value of
International Paper’s common stock would have been
had the proposed separation not occurred.
financial
In connection with
condition and
the
to or greater
to be used
than what
the
Moreover, substantial expenses will be incurred in
connection with the transaction. Such expenses are
difficult to estimate accurately and may exceed
current estimates. Accordingly, the benefits from the
transaction may be offset by costs or delays incurred
the
in effectuating
proposed transaction will require significant time and
attention
senior
management and employees, which could disrupt
International Paper’s ongoing business and adversely
affect the financial results and results of operations.
transaction. Executing
International Paper’s
from
the
WE MAY NOT ACHIEVE THE EXPECTED
BENEFITS FROM STRATEGIC ACQUISITIONS,
JOINT VENTURES, DIVESTITURES, CAPITAL
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
14
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
technology
financial, operational and
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.
information
TO
ARE
SUBJECT
information
AS WELL
INFORMATION
technology systems
WE
INFORMATION
TECHNOLOGY RISKS RELATED TO BREACHES
OF SECURITY PERTAINING TO SENSITIVE
COMPANY, CUSTOMER, EMPLOYEE AND
VENDOR
AS
BREACHES IN THE TECHNOLOGY USED TO
MANAGE OPERATIONS AND OTHER BUSINESS
PROCESSES. Our business operations rely upon
secure
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, such as ransomware and data theft, by
common hackers, criminal groups or nation-state
organizations
("hacktivist")
organizations, geopolitical events, natural disasters,
failures or
telecommunications
networks or other catastrophic events. Network,
system, application and data breaches could result in
information
operational
misappropriation
to,
limited
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
trade secrets, and
inappropriate disclosure of confidential company,
intellectual property or
including, but not
impairments of
disruptions
activist
social
or
or
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
AND
REGULATIONS
WE ARE SUBJECT TO A WIDE VARIETY OF
LAWS,
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. laws, regulations and other
government requirements -- including, among others,
those relating to the environment, health and safety,
labor and employment, data privacy, tax, trade and
health care. There can be no assurance that laws,
regulations and government requirements will not be
changed, applied or interpreted in ways that will
require us to modify our operations and objectives or
affect our returns on
investments by restricting
existing activities and products, subjecting them to
escalating costs.
and
laws
For example, we have incurred, and expect that we
will continue to incur, significant capital, operating and
other expenditures complying with applicable
regulations. Our
environmental
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
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.
violations of, or
Our global operations subject us to complex and
evolving U.S and international privacy laws and
regulations, such as General Data Protection
Regulation (“GDPR”), Brazil's Lei Geral de Pnoteçāo
de Dados ("LGPD") and the California Consumer
Privacy Act of 2018 (“CCPA”) and the California
Privacy Rights Act ("CPRA"). These laws require the
Company to comply with a range of compliance
obligations regarding the handling of personal data.
These are significant penalties for non-compliance
including monetary fines, disruption of operations and
reputational
governmental
harm. Moreover,
authorities around the world are considering, or are in
the process of implementing new data protection
regulations.
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 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
loss of consumer
harm our
reputation, cause
15
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.
authorities. Additionally,
As a final example, the application of tax law is
subject to interpretation and is subject to audit by
taxing
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
tax
in
controversy matters may
in previously
unrecorded tax expenses, higher future tax expenses
or the assessment of interest and penalties.
the court system. As such,
result
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
regulatory or
in connection with our
loss
governmental
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.
legal,
or
proceedings
other
IF THE SPIN-OFF WERE TO FAIL TO QUALIFY
FOR NON-RECOGNITION TREATMENT FOR U.S.
FEDERAL
INCOME TAX PURPOSES, THEN
INTERNATIONAL PAPER, SPINCO AND OUR
SHAREHOLDERS MAY BE SUBJECT TO
SIGNIFICANT U.S. FEDERAL INCOME TAXES.
International Paper intends to receive an opinion of
tax counsel, to the effect that the spin-off and certain
related transactions will qualify as tax-free to SpinCo,
International Paper and its shareholders for U.S.
federal income tax purposes. A tax opinion is not
binding on the IRS or the courts, and there can be no
assurance that the IRS or a court will not take a
contrary position. In addition, International Paper’s tax
counsel will rely on certain representations and
covenants delivered by
International Paper and
SpinCo in rendering such opinion. International Paper
may also pursue a private letter ruling from the IRS to
16
that
the effect
the spin-off and certain related
transactions will qualify as tax-free to International
Paper, SpinCo and International Paper shareholders
for U.S. federal income tax purposes.
If the IRS ultimately determines that the spin-off is
taxable, then the spin-off could be treated as a
taxable dividend or capital gain to the International
Paper shareholders for U.S. federal income tax
purposes, International Paper could incur significant
U.S. federal income tax liabilities, and SpinCo may be
required to indemnify International Paper for such tax
liability pursuant to a tax matters agreement. There
can be no assurance that SpinCo would have the
resources or
indemnify
liquidity
International Paper for any such tax liability.
required
to
Even if the spin-off otherwise qualifies for non-
recognition of gain or loss under Internal Revenue
Code ("the Code") Section 355 of the Code, the spin-
off may be taxable to International Paper (but not
International Paper’s shareholders) pursuant
to
Section 355(e) of the Code if there is a 50% or more
(by vote or value) change in ownership of either
International Paper or SpinCo, directly or indirectly, as
part of a plan or series of related transactions that
include the spin-off. For this purpose, any acquisitions
of International Paper’s or SpinCo’s common stock
within two years before or after the spin-off are
presumed to be part of such a plan, although
International Paper or SpinCo may be able to rebut
that presumption based on either applicable facts and
circumstances or a “safe harbor” described in the
U.S. income tax regulations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
FORESTLANDS
As of December 31, 2020, the Company owned or
managed approximately 314,000 acres of forestlands
in Brazil, and had, through licenses and forest
rights on
management agreements, harvesting
government-owned forestlands in Russia. All owned
lands in Brazil are independently third-party certified
for sustainable forestry under the Brazilian National
Forest Certification Program ("CERFLOR") and the
Forest Stewardship Council ("FSC").
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.
pages 25 through 26 of Item 7. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations, and in Note 7 Acquisitions on
Item 8. Financial Statements and
page 59 of
Supplementary Data.
CAPITAL INVESTMENTS AND DISPOSITIONS
ITEM 3. LEGAL PROCEEDINGS
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 2021 on page 33, and dispositions
and restructuring activities as of December 31, 2020,
on
the
Information concerning certain legal proceedings of
the Company is set forth in Note 14 Commitments
and Contingent Liabilities on pages 68 through 70 of
Item 8. Financial Statements and Supplementary
Data which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
17
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS
AND
EQUITY
SECURITIES
PURCHASES OF
ISSUER
As of the filing of this Annual Report on Form 10-K,
the Company’s common shares are traded on the
New York Stock Exchange (NYSE:
IP). As of
February 12, 2021, there were approximately 9,379
record holders of common stock of the Company.
foreseeable
We pay regular quarterly cash dividends and expect
to continue to pay regular quarterly cash dividends in
though each quarterly
the
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.
future,
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, 2020 - October 31, 2020
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
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)
244 $
1,393
—
1,637
40.54
43.75
—
— $
—
—
1.73
1.73
1.73
(a) 1,637 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs.
During 2020, 389,100 shares were purchased under our share repurchase program, which was approved on September 30, 2013, and
increased twice on July 8, 2014 and October 9, 2018. Through this program, which does not have an expiration date, we are authorized to
purchase, in open market transactions (including block trades), privately negotiated transactions or otherwise, up to $5 billion shares of our
common stock. As of December 31, 2020, approximately $1.73 billion aggregate amount of shares of our common stock remain authorized
for purchase under this program.
18
PERFORMANCE GRAPH
The performance graph shall not be deemed
"soliciting material" or
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.
"filed" with
to be
The following graph compares a $100 investment in
Company stock on December 31, 2015 with a $100
investment in our Peer Group and the S&P also made
at market close on December 31, 2015. The graph
portrays
assuming
return,
total
reinvestment of dividends.
2015-2020,
Return on $100 Investment at YE 2015
s
r
a
l
l
o
D
250
200
150
100
50
0
2015
2016
IP
2017
2018
2019
2020
Peer Group
S&P 500 Index
1) The companies included in the Peer Group are Domtar Inc., Graphic Packaging Holding Company, Klabin S.A.,
Metsa Board Corporation, Mondi Group, Packaging Corporation of America, Smurfit Kappa Group, Stora Enso
Group, UPM-Kymmene Corp., and WestRock Company.
2) Returns are calculated in $USD
19
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
information,
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
following discussion
the
contains forward-looking statements that reflect our
plans, estimates, and beliefs that involve significant
risks and uncertainties. Our actual results could differ
materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to
those differences include those discussed below and
elsewhere in this Annual Report on Form 10-K,
particularly in “Risk Factors” and “Forward-Looking
Statements.”
The following generally discusses 2020 and 2019
items and year-to-year comparisons between 2020
and 2019. Discussion of historical items in 2018, and
year-to-year comparisons between 2019 and 2018,
can be found in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, filed with
the SEC on February 19, 2020, under Part II, Item 7,
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
EXECUTIVE SUMMARY
Full-year 2020 net earnings attributable
to
shareholders were $482 million ($1.22 per diluted
share) compared with $1.2 billion ($3.07 per diluted
share) for full-year 2019.
the
systems
overcome
International Paper navigated the impacts of the
Covid-19 pandemic in 2020 to deliver solid earnings
and outstanding cash generation. Our 2020
strength and
performance demonstrates
resilience of our employees, our diverse customer
base and our world class manufacturing and supply
chain capabilities. We ran our manufacturing system
well and leveraged the flexibility of our mill and
converting
significant
to
challenges due to the pandemic, while managing
costs extremely well across our three businesses,
with no material operational disruptions due to the
pandemic. We continued to grow value for our
shareholders with a return above our cost of capital,
which marks the eleventh consecutive year with
value-creating returns. We generated full-year cash
from operations of $3.1 billion and free cash flow of
$2.3 billion. Given
the significant economic
uncertainty, we took prudent and early actions to
reinforce cash generation and enhance our financial
strength. We continued to execute on our capital
allocation framework. In 2020, we returned $820
million to shareowners and reduced debt by $1.7
billion. We also invested in our North American and
EMEA corrugated packaging businesses to enhance
our capabilities and grow earnings. Finally, in the
fourth quarter, we announced plans to spin-off our
Printing Papers business into a stand-alone, publicly
traded company, which we expect to complete in the
third quarter 2021.
the
to mitigate
Compared to 2019, the Company’s 2020 results
reflect
cost
strong execution and effective
impact of market
management
disruptions associated with the pandemic. Price and
mix were negatively affected by the full-year impact of
2019 price index movements in our North America
Packaging business, as well as lower average pricing
in our Global Cellulose Fibers and Printing Papers
businesses. Volume was also an earnings headwind
due to the unprecedented decline in demand for
Printing Papers related to the pandemic. These price
and volume headwinds were partly offset by strong
volume growth in our North American Packaging
business, outstanding cost management and lower
maintenance outage expenses. During 2020, we
made choices around planned maintenance and
other spending priorities in response to market
disruptions resulting from the pandemic. Operating
costs were higher in 2020, primarily due to higher
costs in the latter part of the year, as we flexed our
system to meet strong packaging demand. Overall,
input costs were favorable in 2020, driven by lower
wood, energy and distribution costs although we did
see an increase in recovered fiber, energy and
distribution in the fourth quarter. Equity earnings were
lower in 2020 due to decreased Ilim earnings, driven
by the challenging global pulp markets along with a
foreign exchange
Ilim’s U.S. dollar
loss on
denominated net debt.
to
the realization of prior price
Looking ahead to the first quarter 2021, as compared
to the fourth quarter of 2019, in our Industrial
Packaging business, we expect price and mix to
improve on
index
movement. Volume is expected to be flat sequentially
with continued strong box demand in North America.
improve
Operations and costs are expected
sequentially, resulting from the non-repeat of isolated
reliability issues and other unfavorable one-time items
in the fourth quarter 2020. Maintenance outage
to be higher along with
expense
increased input costs, mainly due to higher recovered
fiber and distribution costs. In our Global Cellulose
Fibers business, we expect improved price and mix
on the realization of prior price index movements.
Volume is expected to be stable and operations and
costs are expected to improve on the non-repeat of
unfavorable fourth quarter items. Maintenance outage
expenses are expected to decrease moderately and
input costs are expected to increase on seasonally
is expected
20
higher wood and energy costs. In our Printing Papers
business, price and mix is expected to be stable and
volume is expected to decrease, mostly due to lower
seasonal demand in Brazil and Russia. Operations
and costs are expected to improve and maintenance
outage expense is expected to be flat. Input costs are
expected to be higher, primarily due to higher
seasonal wood and energy costs. Lastly, for our Ilim
joint venture, we expect lower earnings on the non-
repeat of
foreign currency gain on US
denominated debt recognized in the fourth quarter
2020.
the
As we enter 2021, we are mindful that we are still in
the midst of a global pandemic and there is still
uncertainty. Accordingly, we remain committed to our
COVID-19 principles to focus on what we need to do
as a company to remain strong and resilient for all our
stakeholders –
to keep our employees and
contractors safe, to take care of our customers and to
maintain our financial strength. Looking to 2021, we
anticipate continued strong demand for corrugated
packaging and pulp and are poised to grow earnings.
We remain focused on cash generation and will
continue to make choices consistent with our capital
allocation
long-term value
creation.
framework
to drive
On March 11, 2020 the World Health Organization
declared the novel strain of coronavirus ("COVID-19")
a global pandemic and recommended containment
and mitigation measures worldwide. Since that time,
most of our manufacturing and converting facilities
have remained open and operational during the
pandemic. The health and safety of our employees
and contractors is our most important responsibility
as we manage through the COVID-19 pandemic. We
the
implemented work-systems across
have
Company, including hygiene, social distancing, site
cleaning, contact tracing, and other measures, as
recommended by the CDC and WHO. Our COVID-19
measures are proving to be effective and we have not
had any material disruptions to our operations.
We have seen a significant negative impact on
demand for our printing papers products. Demand for
our pulp, containerboard and corrugated box products
has not been negatively impacted by COVID-19 to
date, but our operations in Industrial Packaging
experienced higher supply chain costs due to the
impacts of COVID-19. The recent resurgence of the
virus
to additional
governmental measures, such as stay-at-home
orders or business and school closures, negatively
therefore our
impacting our supply chain, and
production.
in many areas has
led
There continue
associated with the COVID-19 pandemic, including
to be significant uncertainties
21
with respect to the various economic reopening plans
and the resurgence of the virus in many areas;
additional actions that may be taken by governmental
authorities and private businesses to attempt to
contain the COVID-19 outbreak or to mitigate its
impact; the extent and duration of social distancing
and stay-at-home orders; the efficacy of various
vaccines; and availability and the ongoing impact of
COVID-19 on unemployment, economic activity and
consumer confidence. Developments
to
COVID-19 are significantly adversely affecting
portions of our business, and could have a material
adverse effect on our financial condition, results of
operations and cash flows, particularly if negative
global economic conditions persist for a significant
period of time or deteriorate.
related
(loss) attributable
Adjusted Operating Earnings and Adjusted Operating
Earnings Per Share are non-GAAP measures and are
to
defined as net earnings
International Paper (a GAAP measure) excluding net
special items and non-operating pension expense
(income). Net earnings (loss) and Diluted earnings
(loss) per share attributable to common shareholders
are the most directly comparable GAAP measures.
The Company
calculates Adjusted Operating
Earnings by excluding the after-tax effect of non-
operating pension expense (income) and
items
considered by management to be unusual (net
special items) 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
because it enables them to perform meaningful
comparisons of past and present consolidated
operating results. The Company believes that using
this
the most direct
comparable GAAP measure, provides for a more
complete analysis of the results of operations.
information, along with
The following are reconciliations of Earnings (loss)
attributable to common shareholders to Adjusted
operating earnings (loss) attributable to common
shareholders. Additional detail is provided later in this
Form 10-K regarding the net special items referenced
in the charts below.
In millions
Net Earnings (Loss) Attributable to
Shareholders
Add back - Non-operating pension expense
(income)
Add back - Net special items expense (income)
Income tax effect - Non-operating pension and
special items expense
2020
2019
$ 482 $ 1,225
(41)
36
762
409
(96)
98
Adjusted Operating Earnings (Loss)
Attributable to Shareholders
$ 1,107 $ 1,768
Diluted Earnings (Loss) Per Share
Attributable to Shareholders
Add back - Non-operating pension expense
(income) per share
2020
2019
$ 1.22 $ 3.07
(0.10) 0.09
Add back - Net special items expense (income)
per share
1.93 1.02
Income tax effect per share - Non-operating
pension and special items expense
(0.25) 0.25
Adjusted Operating Earnings (Loss) Per Share
Attributable to Shareholders
$ 2.80 $ 4.43
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
operational
performance, we believe that free cash flow also
enables investors to perform meaningful comparisons
between past and present periods.
underlying
ongoing
Three Months
Ended
December 31,
2020
Three Months
Ended
September 30,
2020
Three Months
Ended
December 31,
2019
The following are reconciliations of free cash flow to
cash provided by operations:
In millions
2020
2019
Cash provided by operations
$
3,063 $
3,610
$
153 $
204 $
165
Adjustments:
(10)
(11)
9
201
109
136
(48)
(22)
120
$
296 $
280 $
430
Cash invested in capital projects, net of
insurance recoveries
Free Cash Flow
(751)
(1,276)
$
2,312 $
2,334
Three Months
Ended
December 31,
2020
Three Months
Ended
September 30,
2020
Three Months
Ended
December 31,
2019
$
789 $
735 $
928
In millions
Cash provided by
operations
Adjustments:
Three Months
Ended
December 31,
2020
Three Months
Ended
September 30,
2020
Three Months
Ended
December 31,
2019
Cash invested in
capital projects, net of
insurance recoveries
Free Cash Flow
$
(94)
695 $
(119)
616 $
(363)
565
$
0.39 $
0.52 $
0.42
(0.03)
(0.03)
0.02
0.51
0.28
0.34
(0.12)
(0.06)
0.31
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.
$
0.75 $
0.71 $
1.09
RESULTS OF OPERATIONS
In millions
Net Earnings
(Loss) Attributable
to Shareholders
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
Diluted Earnings
(Loss) Per Share
Attributable to
Shareholders
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 $3.1 billion and
$3.6 billion for 2020 and 2019, respectively. The
Company generated free cash flow of approximately
$2.3 billion in both 2020 and 2019. Free Cash Flow is
a non-GAAP measure and
the most directly
comparable GAAP measure is cash provided by
operations. Management utilizes this measure in
connection with managing our business and believes
that free cash flow is useful to investors as a liquidity
measure because it measures the amount of cash
generated that is available, after reinvesting in the
Business 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)
taxes and equity earnings, but
before
including the impact of noncontrolling interests, and
income
22
excluding interest expense, net, corporate expenses,
net, corporate net special items, business net special
items and non-operating pension expense. Business
Segment Operating Profits is a measure reported to
our management for purposes of making decisions
about allocating resources to our business segments
and assessing the performance of our business
segments and is presented in our financial statement
footnotes in accordance with ASC 280.
International Paper operates in three segments:
Industrial Packaging, Global Cellulose Fibers and
Printing Papers.
The following table presents a comparison of net
earnings (loss) attributable to International Paper
Company to its total Business Segment Operating
Profit:
In millions
2020
2019
Net Earnings (Loss) Attributable to
International Paper Company
Add back (deduct)
Income tax provision (benefit)
Equity (earnings) loss, net of taxes
Noncontrolling interests, net of taxes
Earnings (Loss) Before Income Taxes and
Equity Earnings
Interest expense, net
Noncontrolling interests included in operations
Corporate expenses, net
Corporate net special items
Business net special items
Non-operating pension expense (income)
Business Segment Operating Profit (Loss):
Industrial Packaging
Global Cellulose Fibers
Printing Papers
$ 482 $ 1,225
245
634
(77)
(250)
—
(5)
650 1,604
444
491
—
(7)
274
490
(41)
3
54
104
307
36
$ 1,810 $ 2,599
$ 1,819 $ 2,076
(237)
(6)
228
529
Total Business Segment Operating Profit
$ 1,810 $ 2,599
Business Segment Operating Profit in 2020 was $789
million lower than in 2019 as the benefits from lower
input costs ($221 million) and lower maintenance
outage costs ($64 million) were more than offset by
lower average sales price realizations and mix ($907
million), lower sales volumes ($95 million) and higher
operating costs ($72 million).
The principal changes in operating profit by business
segment were as follows:
•
Industrial Packaging’s operating profit of $1.8
billion was $257 million lower than in 2019 as
the benefits of higher sales volumes, lower input
costs and lower maintenance outage costs were
more than offset by lower average sales price,
unfavorable mix and higher operating costs.
• Global Cellulose Fibers' operating loss of $237
million was $231 million higher
the
operating loss in 2019 as the benefits of higher
sales volumes, lower operating costs, lower
maintenance outage costs and lower input costs
were more than offset by lower average sales
price, net of mix.
than
•
Printing Papers’ operating profit of $228 million
was $301 million lower than in 2019 as the
benefits of
lower
maintenance outage costs were more than offset
by lower average sales price, unfavorable mix,
lower sales volumes and higher operating costs.
input costs and
lower
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2020, International
Paper generated $3.1 billion of cash flow from
operations compared with $3.6 billion in 2019. Capital
spending for 2020 totaled $751 million, or 58% of
depreciation and amortization expense. Our liquidity
position remains strong, supported by approximately
$2.8 billion of credit facilities.
23
RESULTS OF OPERATIONS
While the operating results for International Paper’s
various business segments are driven by a number of
business-specific factors, changes in International
Paper’s operating results are closely tied to changes
in general economic conditions in North America,
Europe, Russia, Latin America, North Africa and the
Middle East.
Factors that impact the demand for our products
industrial non-durable goods production,
include
consumer
spending,
commercial printing and advertising activity, white-
collar employment
location, and
movements in currency exchange rates.
preferences,
levels and
consumer
deferred tax valuation allowance and $28 million of non-
operating pension expense.
Compared with 2019, the benefits from lower input
costs ($163 million), lower maintenance outage costs
($47 million), lower corporate and other costs ($44
million), lower net interest expense ($35 million) and
lower tax expense ($16 million) were more than offset
by lower average sales price and an unfavorable mix
($670 million), lower sales volumes ($70 million) and
higher operating costs ($53 million). In addition, 2020
results included lower equity earnings, net of taxes,
relating to the Company’s investments in Ilim and
GPIP.
Product prices are affected by a variety of factors
including general economic trends, inventory levels,
currency exchange rate movements and worldwide
capacity utilization. In addition to these revenue-
related factors, net earnings are impacted by various
cost drivers, the more significant of which include
changes in raw material costs, principally wood,
recovered fiber and chemical costs; energy costs;
freight costs; mill outage costs; salary and benefits
costs,
including pensions; and manufacturing
conversion costs.
The following is a discussion of International Paper’s
consolidated results of operations for the year ended
December 31, 2020, and the major factors affecting
these results compared to 2019.
See Business Segment Results on pages 27 through
31 of Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations for a
discussion of the impact of these factors by segment.
For the year ended December 31, 2020, International
Paper reported net sales of $20.6 billion, compared
with $22.4 billion in 2019. International net sales
(based on the location of the seller and including U.S.
exports) totaled $6.9 billion or 34% of total sales in
2020. This compares with international net sales of
$8.1 billion in 2019.
Full year 2020 net earnings attributable
to
International Paper Company totaled $0.5 billion
($1.22 per diluted share), compared with net earnings
of $1.2 billion ($3.07 per diluted share) in 2019.
Earnings from continuing operations attributable to
International Paper Company after taxes in 2020 and
2019 were as follows:
In millions
2020
2019
Earnings from continuing operations
attributable to International Paper
Company
$
482 (a) $ 1,225 (b)
(a)
(b)
Includes $656 million of net special items charges and $31
million of non-operating pension income.
Includes $515 million of net special items charges which
included tax expense of $203 million related to a foreign
INCOME TAXES
to
the settlement of
A net income tax provision of $245 million was
recorded for 2020, including a tax benefit of $32
million related
tax audits.
Excluding this item, a $74 million net tax benefit for
other special items and a $10 million tax expense
the
related
operational tax provision was $341 million, or 25% of
pre-tax earnings before equity earnings.
to non-operating pension
income,
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.
24
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 $48 million and $207 million in
2020 and 2019, respectively, and from its 15.0%
ownership interest at December 31, 2020 in GPIP of
$40 million in 2020, and from its 20.5% ownership
interest at December 31, 2019 of $46 million in 2019
(see page 30).
INTEREST EXPENSE AND NONCONTROLLING INTEREST
interest
includes $2 million of
Net corporate interest expense totaled $444 million in
2020 and $491 million in 2019. Net interest expense
in 2020
income
associated with a foreign value-added tax refund
accrual. 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 2020 compared with 2019 was due to
lower average outstanding debt.
Net earnings attributable to noncontrolling interests
were zero in 2020, compared with a loss of $5 million
in 2019. The loss in 2019 includes the allocation of
loss of $9 million associated with the impairment of
the net assets of our India Papers business.
SPECIAL ITEMS
Pre-tax special items totaling $764 million and $420
million were recorded in 2020 and 2019, respectively.
Details of these charges were as follows:
Other
Total
Special Items
In millions
Business Segments
2020
2019
Net loss on sales and impairments of
businesses
$ 467
$ 205
Abandoned property removal
14 (a)
50 (a)
Environmental remediation reserve
adjustments
Riverdale mill conversion accelerated
depreciation
Restructuring and other, net
Antitrust fines
Multi-employer pension plan exit liability
Gain on sale of previously closed
Albany, Oregon mill site
Other
Corporate
7 (b)
—
1 (b)
(1)
—
—
—
2 (d)
5 (b)
25
32 (c)
9 (c)
(9) (c)
(1) (d)
490
316
Restructuring and other, net
$ 196
Asbestos litigation reserve adjustment
Environmental remediation reserve
adjustments
India investment
Printing Papers business spin-off costs
Litigation reserves
India transaction costs
Gain on sale of portion of equity
investment in Graphic Packaging
Net gain on sales and impairments of
businesses
43
41
11
9
—
—
$ 32
—
25
3
—
41
3
(33)
—
(2)
9
274
$ 764
—
—
104
$ 420
(a) Includes $9 million and $35 million recorded in the Industrial
Packaging business segment for 2020 and 2019, respectively;
$5 million and $12 million recorded in the Global Cellulose
Fibers business segment for 2020 and 2019, respectively; $3
million recorded in the Printing Papers business segment for
2019.
(b) Recorded in the Printing Papers business segment.
(c) Recorded in the Industrial Packaging business segment.
(d) Includes expense of $2 million for 2019 recorded in the
Industrial Packaging business segment and expense of $2
million and
for 2020 and 2019,
respectively, recorded
the Printing Papers business
segment.
income of $3 million
in
25
Net losses on sales and impairments of businesses
included in special items totaled a pre-tax loss of
$465 million and $205 million in 2020 and 2019,
respectively. Details of these losses were as follows:
Net Loss on Sales and Impairments of Businesses
In millions
2020
2019
Brazil Packaging impairment
$
348 $
EMEA Packaging impairment - Turkey
India Papers impairment
Global Cellulose Fibers goodwill
impairment
Gain on sale of EMEA Packaging box
plant
Other
Total
123
—
—
—
(6)
—
—
159
52
(6)
—
$
465 $
205
See Note 8 Divestitures and Impairments on pages
59 through 61 of Item 8. Financial Statements and
Supplementary Data for further discussion.
evaluates
continually
International Paper
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. Additionally, the Company is
committed to its capital allocation framework to
maintain a strong balance sheet including reducing
debt to maximize value creation and maintain our
current investment grade credit rating.
During 2020 and 2019, pre-tax restructuring and
other charges, net, totaling $195 million and $57
million were recorded. Details of these charges were
as follows:
Restructuring and Other, Net
In millions
Business Segments
2020
2019
DESCRIPTION OF BUSINESS SEGMENTS
International Paper’s business segments discussed
below are consistent with the internal structure used
to manage these businesses. All segments are
differentiated on a common product, common
customer basis consistent with
the business
segmentation generally used in the forest products
industry.
INDUSTRIAL PACKAGING
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 174
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 containerboard mill in
Morocco, a recycled containerboard mill in Spain and
27 container plants in France, Italy, Spain, Morocco,
Turkey and Portugal. On January 5, 2021, the
Company announced that it had entered into an
agreement with Mondi Group to sell its 90.38%
ownership interest in Olmuksan International Paper, a
corrugated packaging business in Turkey. See Note 8
Divestitures and Impairments of Businesses on pages
59 through 61 of Item 8. Financial Statements and
Supplementary Data.
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.
EMEA Packaging optimization
Overhead reduction initiative
$ —
—
$ 15 (a)
10 (b)
GLOBAL CELLULOSE FIBERS
Other
Corporate
Early debt extinguishment costs (see
Note 16)
Overhead reduction initiative
Total
(1) (a)
—
(1)
25
$ 196
—
196
$ 195
$ 21
11
32
$ 57
(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.
26
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
in
and paper products. We continue
exploring new innovative uses for our products, such
as our specialty pulps, which are used for non-
absorbent end uses
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.
including
textiles,
invest
to
PRINTING PAPERS
GPIP
International Paper is one of the world’s largest
producers of printing and writing papers. The primary
product in this segment is uncoated papers. This
business produces papers for use in copiers, desktop
and laser printers and digital imaging. End-use
include advertising and promotional
applications
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
include Hammermill,
that
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 314,000 acres
of forestlands in Brazil. On December 3, 2020, the
Company announced a plan to pursue a spin-off of
the Printing Papers segment
into SpinCo, a
standalone, publicly-traded company. The transaction
will be
the distribution of
SpinCo shares to International Paper shareholders.
We expect
for
International Paper's shareholders for U.S. federal
income tax purposes. International Paper will retain
approximately 19.9% of the shares of SpinCo at the
time of the separation, with the intent to monetize and
provide additional proceeds to International Paper.
The transaction is expected to close late in the third
to customary
quarter of 2021 and
conditions,
the
by
International Paper board of directors and the filing
and effectiveness of a Form 10 registration statement
with the SEC. See further discussion in Note 8
Divestitures and Impairments of Businesses on pages
59 through 61 of Item 8. Financial Statements and
Supplementary Data.
is subject
final
implemented
transaction
including
approval
through
tax-free
to be
the
ILIM
International Paper and
In October 2007,
Ilim
completed a 50:50 joint venture to operate a pulp and
paper business located in Russia. Ilim’s facilities
include three paper mills located in Bratsk, Ust-Ilimsk,
and Koryazhma, Russia, with combined total pulp and
paper capacity of over 3.6 million metric tons. Ilim has
exclusive harvesting rights on timberland and forest
areas exceeding 19.8 million acres (8.01 million
hectares).
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 transferred 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.
On January 29, 2020, the Company exchanged
15,150,784 units of the aggregate units owned by the
Company for an aggregated price of $250 million,
resulting in a pre-tax gain of $33 million ($25 million
after taxes) which was recorded in the first quarter of
2020. On August 7, 2020, the Company exchanged
17,399,414 units of the aggregate units owned by the
Company for an aggregated price of $250 million,
resulting in an immaterial gain which was recorded in
the third quarter of 2020. After these transactions, the
Company's ownership percentage
is
approximately 15%. See Note 11 Equity Method
Investments on pages 62 and 63 and Note 23
Subsequent Events on page 88 of Item 8. Financial
Statements and Supplementary Data
further
information.
in GPIP
for
Products and brand designations appearing in italics
are trademarks of International Paper or a related
company.
BUSINESS SEGMENT RESULTS
The following tables present net sales and operating
profit (loss) which is the Company's measure of
segment profitability.
INDUSTRIAL PACKAGING
industrial
Demand for Industrial Packaging products is closely
goods
non-durable
correlated with
production, as well as with demand for e-commerce,
processed
foods, poultry, meat and agricultural
products. In addition to prices and volumes, major
Industrial
factors affecting
Packaging are raw material and energy costs, freight
costs, mill outage costs, manufacturing efficiency and
product mix.
the profitability of
Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$ 15,033 $ 15,326
1,819 $ 2,076
$
27
Industrial Packaging net sales for 2020 decreased
2% to $15.0 billion compared with $15.3 billion in
2019. Operating profits in 2020 were 12% lower than
in 2019. Comparing 2020 with 2019, benefits from
higher sales volumes ($66 million), lower input costs
($125 million) and lower maintenance outage costs
($56 million) were more than offset by lower average
sales price and an unfavorable mix ($431 million) and
higher operating costs ($73 million).
North American Industrial Packaging
In millions
Net Sales (a)
Operating Profit (Loss)
2020
2019
$ 13,318 $ 13,509
1,722 $ 2,043
$
(a) Includes intra-segment sales of $116 million for 2020 and
$118 million for 2019.
Industrial Packaging's sales
North American
volumes increased in 2020 compared with 2019 for
boxes driven by strong demand in certain customer
segments including e-commerce and shipping and
distribution, reflecting the impacts of the COVID-19
pandemic. Export containerboard sales volumes also
increased. Total maintenance and economic
downtime was about 942,000 tons lower in 2020
compared with 2019, primarily due to economic
downtime. Average sales prices were lower for both
export containerboard and box. Operating costs
increased primarily due to inflation and costs related
to the Riverdale conversion. Planned maintenance
downtime costs were $60 million lower in 2020 than
in 2019. Input costs were lower, driven by lower wood
and energy costs partially offset by higher recovered
fiber costs.
Looking ahead to the first quarter of 2021, compared
with the fourth quarter of 2020, sales volumes for
boxes are expected to be stable, with strong box
demand offset by one less shipping day in the first
quarter. Average sales margins are expected to be
higher. Operating costs are expected to be lower.
Planned maintenance downtime costs are expected
to be $87 million higher. Input costs are expected to
be higher primarily for recovered fiber, wood and
energy.
EMEA Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$
$
1,317 $ 1,335
(17)
38 $
EMEA Industrial Packaging's sales volumes in
2020 were higher than in 2019, despite the negative
demand impact of the COVID-19 pandemic which
was more
improved economic
conditions in Turkey and the full-year impact of 2019
improved
acquisitions. Average sales margins
than offset by
in all
regions driven by
significantly
lower
containerboard costs and stable sales prices for
boxes. Operating costs were lower, driven by the
ramp-up of the Madrid, Spain mill and improved box
plant operations partially offset by inflation in Turkey.
Planned maintenance outage costs were $3 million
higher in 2020 compared with 2019. Other input costs
were lower. Earnings were negatively affected by
unfavorable foreign currency impacts in Turkey.
Entering the first quarter of 2021, compared with the
fourth quarter of 2020, sales volumes are expected to
be seasonally higher. Average sales margins are
expected to be lower, reflecting higher input costs.
Operating costs are expected to be lower. Planned
maintenance outage costs are expected to be flat due
to no outages in the fourth quarter and no planned
outages in the first quarter. Input costs are expected
to be stable.
Brazilian Industrial Packaging
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$
$
148 $
(3) $
235
(14)
On October 14, 2020, the Company closed the
previously announced sale of its Brazilian Packaging
business. See Note 8 Divestitures and Impairments
Item 8. Financial
on pages 59
further
for
Statements and Supplementary Data
discussion.
through 61 of
European Coated Paperboard
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$
$
366 $
365
62 $
64
European Coated Paperboard's sales volumes in
2020 compared with 2019 were stable as higher
volumes in Russia were offset by lower volumes in
Europe. Average sales margins were slightly higher
as higher sales prices in Russia and a favorable mix
in Europe were mostly offset by an unfavorable mix in
Russia. Operating costs were higher. Planned
maintenance outage costs were $3 million higher in
2020 compared with 2019. Input costs were lower,
driven by purchased pulp, wood and energy costs in
Europe. In Russia, input costs were slightly higher,
primarily for wood. Earnings benefited from favorable
foreign currency impacts in Russia, partially offset by
unfavorable impacts in Europe.
Looking forward to the first quarter of 2021, compared
with the fourth quarter of 2020, sales volumes are
expected to be stable in both regions. Average sales
margins are expected to be slightly higher, driven by
a favorable mix in Russia. Operating costs are
expected to be lower. Planned maintenance outage
costs are expected to be flat due to no outages in the
fourth quarter and no planned outages in the first
28
quarter. Input costs are expected to be higher driven
by purchased pulp, wood and energy in Europe.
GLOBAL CELLULOSE FIBERS
Demand for Cellulose Fibers products is closely
correlated with changes in demand for absorbent
the
primarily
products,
hygiene
demographics and
in various
income growth
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.
driven
by
Global Cellulose Fibers
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$ 2,319 $ 2,551
$
(237) $
(6)
Global Cellulose Fibers net sales
for 2020
decreased 9% to $2.3 billion, compared with $2.6
billion in 2019. Operating profits in 2020 were
significantly lower than in 2019. Comparing 2020 with
2019, benefits from higher sales volumes ($1 million),
lower operating costs ($15 million), lower input costs
($33 million) and lower maintenance outage costs ($2
million) were more than offset by lower average sales
price, net of mix ($282 million).
Sales volumes in 2020 compared with 2019 were
slightly higher as higher volumes in North America
were mostly offset by lower volumes in Europe and
Russia. Total maintenance and economic downtime
was about 104,000 tons lower in 2020 compared with
2019, primarily due to economic downtime. Average
sales margins were significantly lower, reflecting
lower average fluff and market pulp prices driven by
the flow through of 2019 price decreases. Operating
costs increased primarily due to inflation. Planned
maintenance outage costs were $2 million lower in
2020. Input costs were lower, driven by wood,
chemicals and energy.
Entering the first quarter of 2021, compared with the
fourth quarter of 2020, sales volumes are expected to
be stable. Average sales margins are expected to be
higher. Operating costs are expected to be lower,
reflecting the non-repeat of unfavorable items in the
fourth quarter of 2020. Planned maintenance outage
costs are expected to be $6 million lower than in the
fourth quarter of 2020. Input costs are expected to be
seasonally higher, primarily for wood, chemicals and
energy.
PRINTING PAPERS
Demand for Printing Papers products is closely
correlated with changes in commercial printing and
advertising activity, direct mail volumes and, for
uncoated cut-size products, with changes in white-
collar employment levels and work location that affect
the usage of copy and laser printer paper. Principal
cost drivers include manufacturing efficiency, raw
material and energy costs, mill outage costs and
freight costs.
Printing Papers
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$ 3,036 $ 4,291
$
228 $
529
Printing Papers net sales for 2020 of $3.0 billion
decreased 29%, compared with $4.3 billion in 2019.
Operating profits in 2020 were 57% lower than in
2019. Comparing 2020 with 2019, benefits from lower
input costs
lower planned
maintenance outage costs ($6 million), were more
than offset by lower average sales price realizations
and an unfavorable of mix ($194 million), lower sales
volumes ($162 million) and higher operating costs
($14 million).
($63 million) and
North American Printing Papers
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$ 1,436 $ 1,956
$
53 $
211
North American Printing Papers' sales volumes for
2020 were significantly lower across all grades for
uncoated freesheet paper than in 2019 driven by the
unprecedented demand decline due to the COVID-19
pandemic. The Riverdale conversion also negatively
impacted volumes. Total maintenance and economic
downtime was about 281,000 tons higher in 2020
to demand
compared with 2019, primarily due
conditions. Average sales margins were
lower,
reflecting lower sales prices for cutsize paper and
rolls, net of a favorable geographic mix. Operating
costs were lower, reflecting cost reduction initiatives
and strong cost management. Planned maintenance
outage costs were flat in 2020 compared with 2019.
Input costs were lower, primarily for wood and
chemicals.
Entering the first quarter of 2021, compared with the
fourth quarter of 2020, sales volumes are expected to
be stable. Average sales margins are also expected
to be stable. Operating costs are expected to be
higher due to seasonality and inflation. Planned
maintenance outage costs are expected to be about
$4 million higher in the first quarter of 2021. Input
29
costs are expected to be higher, primarily for wood
and chemicals.
Brazilian Papers
In millions
Net Sales (a)
Operating Profit (Loss)
2020
2019
$
$
632 $
83 $
967
155
(a) Includes intra-segment sales of $8 million for 2020 and $42
million for 2019.
reflecting
for uncoated
Brazilian Papers' sales volumes
freesheet paper in 2020 were significantly lower
compared with 2019 for both export and domestic
markets
the unprecedented negative
demand impact of the COVID-19 pandemic. Earnings
were negatively impacted by economic downtime in
2020 due to the COVID-19 demand impact. Average
sales margins were lower, driven by lower average
export sales prices and an unfavorable geographic
lower. Planned
costs were
mix. Operating
maintenance outage costs were $1 million lower in
2020. Input costs were favorable, primarily for pulp
and virgin fiber.
freesheet paper are expected
Looking ahead to the first quarter of 2021, compared
with the fourth quarter of 2020, sales volumes for
uncoated
to be
lower. Average sales margins are
seasonally
expected to higher. Operating costs are expected to
be flat. Planned maintenance outage costs are
expected to be flat with no outages in either the fourth
quarter of 2020 or the first quarter of 2021. Input
costs are expected to be slightly higher, primarily for
chemicals.
European Papers
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$
$
976 $ 1,250
144
92 $
European Papers' sales volumes
for uncoated
freesheet paper in 2020 were significantly lower in
both Europe and Russia compared with 2019, driven
by the unprecedented negative demand impact of the
COVID-19 pandemic. Earnings in both regions were
negatively impacted by economic downtime in 2020
due to the COVID-19 demand impact. Average sales
margins decreased for uncoated freesheet paper in
both regions, reflecting lower average sales prices
and an unfavorable mix. Operating costs were lower.
Planned maintenance outage costs were $2 million
lower in 2020 than in 2019. Input costs were lower in
Europe primarily for wood, energy and pulp. In
Russia, input costs were slightly higher driven by
wood costs. Earnings benefited
favorable
foreign currency impacts in both regions.
from
Entering 2021, sales volumes for uncoated freesheet
paper in the first quarter are expected to be flat in
Europe and seasonally lower in Russia, compared to
the fourth quarter of 2020. Average sales margins are
expected to be slightly lower in Europe and stable in
Russia. Operating costs are expected to be higher in
both regions. Planned maintenance outage costs are
expected to be about $2 million lower in the first
quarter. Input costs are expected to be higher in both
regions, primarily for wood, energy and chemicals.
Indian Papers
In millions
Net Sales
Operating Profit (Loss)
2020
2019
$
$
— $
— $
160
19
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 59 through 61 of Item 8.
Financial Statements and Supplementary Data for
further discussion.
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 $48 million in 2020, compared with
earnings of $207 million in 2019. Operating results
recorded in 2020 included an after-tax non-cash
foreign exchange loss of $50 million, compared with
an after-tax foreign exchange gain of $32 million in
2019, primarily on the remeasurement of Ilim's U.S.
dollar denominated net debt.
Driven by the newly modernized Ust Ilimsk pulp line
and the upgraded Bratsk containerboard machine,
sales volumes for the joint venture increased by 9%
in 2020, primarily for softwood pulp shipments to
China, Russia and other export markets, partially
offset by lower shipments of hardwood pulp to China
and Russia. Average sales price margins were
significantly
for sales of softwood pulp,
hardwood pulp and containerboard in all areas. Input
costs were higher, primarily for wood. Distribution
costs were negatively impacted by transportation
tariffs and inflation. Maintenance and repair expenses
were higher. The Company received cash dividends
from the joint venture of $141 million in 2020 and
$246 million in 2019.
lower
Entering the first quarter of 2021, sales volumes are
expected to be lower than in the fourth quarter of
2020, due to the New Year holidays in China and
other seasonal factors. Based on results to date in
30
the current quarter, average margins are expected to
increase 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 $40
million in 2020 and $46 million in 2019 on its
ownership position in GPIP. The Company received
cash dividends from the investment of $20 million in
2020 and $27 million in 2019. See Description of
Business Segments on pages 26 and 27 for further
detail regarding our ownership interest in GPIP.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
is
resource planning
A major factor in International Paper’s liquidity and
capital
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 2020 was primarily focused on
capital spending, debt reduction and returning cash to
shareholders through dividends.
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operations totaled $3.1 billion in
2020, compared with $3.6 billion for 2019. Cash
provided by working capital components (accounts
receivable, contract assets and
less
accounts payable and accrued liabilities, interest
payable and other) totaled $324 million in 2020,
compared with cash provided by working capital
components of $342 million in 2019. Cash dividends
received from equity investments were $162 million in
2020, compared with $273 million in 2019.
inventory
INVESTMENT ACTIVITIES
Cash outflows from investment activities in 2020
decreased from 2019, as 2019 included higher capital
spending. The Company made a concerted effort to
control spending in 2020 and will continue to do so
throughout 2021. Capital spending was $751 million
in 2020, or 58% of depreciation and amortization,
compared with $1.3 billion in 2019, or 98% of
depreciation and amortization. Across our segments,
capital spending as a percentage of depreciation and
amortization ranged from 35.8% to 63.6% in 2020.
31
following
The
table shows capital spending by
business segment for the years ended December 31,
2020 and 2019:
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Subtotal
Corporate and other
Capital Spending
$
$
2020
2019
162
922
525 $
97
116
172
738 1,256
20
751 $ 1,276
13
Capital spending
to be
approximately $800 million, or 61% of depreciation
and amortization.
is expected
in 2021
to
first quarter and
The Company also had total proceeds of $500 million
related
third quarter 2020
transactions where the Company sold a portion of its
in GPIP. See Note 11 Equity Method
units
Investments on pages 62 and 63 of Item 8. Financial
Statements and Supplementary Data
further
information.
for
Acquisitions
See Note 7 Acquisitions on page 59 of Item 8.
Financial Statements and Supplementary Data for a
discussion of the Company's acquisitions.
FINANCING ACTIVITIES
included debt
Financing activities during 2020
issuance of $583 million and reductions of $2.3 billion
for a net decrease of $1.7 billion. Financing activities
during 2019 included debt issuances of $534 million
and reductions of $1.5 billion for a net decrease of
$973 million.
Amounts related to early debt extinguishment during
the years ended December 31, 2020 and 2019 were
as follows:
In millions
Early debt reductions (a)
Pre-tax early debt extinguishment costs (b)
2020
2019
$ 1,640 $ 614
196
21
(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, 2020 and 2019.
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
The Company’s early debt reductions in 2020 were
comprised of debt tenders of $406 million with an
interest rate of 7.50% due in 2021, $658 million with
an interest rate of 3.65% due in 2024, $127 million
with an interest rate of 3.80% due in 2026, and $297
million with an interest rate of 3.00% due in 2027. In
addition to these debt tenders, the Company had
early debt extinguishments of approximately $152
million from open market repurchases related to debt
with interest rates ranging from 3.00% to 4.40% and
maturities dates from 2026 to 2048.
The Company had debt issuances in 2020 of $583
million related primarily to the AR securitization
program and international debt. In addition to the
early debt reductions,
the Company had debt
reductions of $638 million in 2020 related primarily to
the AR securitization program, commercial paper, and
international debt.
Other financing activities during 2020 included the net
issuance of approximately one million shares of
treasury stock. Repurchases of common stock and
payments of restricted stock withholding taxes totaled
$42 million, including $14 million related to shares
repurchased under the Company's share repurchase
program. The Company has repurchased 69.3 million
shares at an average price of $47.17, for a total of
approximately $3.3 billion, since the repurchase
program began
through
December 31, 2020. The Company paid cash
dividends totaling $806 million during 2020.
in September 2013
including
restricted stock
Other financing activities during 2019 included the net
repurchase of approximately 8.5 million shares of
treasury 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. The Company paid cash dividends totaling
$796 million during 2019.
Interest Rate Swaps
first quarter of 2020,
Our policy is to manage interest cost using a mixture
of fixed-rate and variable-rate debt. To manage this
risk, International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt. During
the
International Paper
terminated its interest rate swaps with a notional
amount of $700 million and maturities ranging from
2024 to 2026 with an approximate fair value of $85
million. Subsequent to the termination of the interest
rate swaps,
is
amortized to earnings as interest income over the
same period as a debt premium on the previously
hedged debt (see Note 17 Derivatives and Hedging
Activities on pages 73 through 77 of Item 8. Financial
Statements and Supplementary Data). At December
31, 2019 the Company had interest rate swaps with a
notional amount of $700 million and during 2019, the
inclusion of the offsetting interest income from short
term investments reduced the effective interest rate
from 4.8% to 4.4%.
fair value basis adjustment
the
32
Variable Interest Entities
Information concerning variable interest entities is set
forth in Note 15 Variable Interest Entities on pages 70
through 72 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 and third-party
loans of $4.2 billion, which, as a result of an
extension in November 2020, mature in August 2021.
These installment notes and third-party loans are
shown in Current nonrecourse financial assets of
variable interest entities and Current nonrecourse
financial
interest entities,
respectively, on
the accompanying consolidated
balance sheet. We will settle the third-party loans at
their maturity in August 2021 with the proceeds from
the installment notes which also mature in August
2021
in expected cash proceeds of
approximately $0.6 billion representing our equity in
the variable
the
installment notes and termination of the monetization
structure is expected to result in a $75 million cash
tax payment in 2021.
interest entities. Maturity of
liabilities of variable
resulting
LIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2021
We expect another year of solid cash generation in
2021. Furthermore, we intend to continue to make
choices for the use of cash that are consistent with
our capital allocation framework to drive long-term
value creation. These include maintaining a strong
balance sheet and investment grade credit rating,
returning meaningful cash to shareholders through
dividends and share repurchases and making organic
investments to maintain our world-class system and
strengthen our packaging business.
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 $1.73 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
to
negotiated
liquidity
prevailing market
requirements, restrictions in our debt documents,
applicable securities laws requirements and other
factors. In addition, we pay regular quarterly cash
dividends and expect to continue to pay regular
quarterly cash dividends in the foreseeable future.
transactions or otherwise, subject
conditions,
our
Each quarterly dividend is subject to review and
approval by our Board of Directors, and is subject to
restrictions in our debt documents.
Capital Expenditures and Long-Term Debt
Capital spending for 2021 is planned at approximately
$800 million, or about 61% of depreciation and
amortization.
At December 31, 2020, International Paper’s credit
agreements totaled $2.8 billion, which is comprised of
the $750 million contractually committed revolving
credit agreement,
the $1.5 billion contractually
committed bank credit agreement, and up to $550
million under the receivables securitization program.
Management believes these credit agreements are
adequate to cover expected operating cash flow
variability during the current economic cycle. The
credit agreements generally provide for interest rates
at a floating rate index plus a pre-determined margin
dependent upon International Paper’s credit rating. At
December 31, 2020, the Company had no borrowings
outstanding under the $750 million revolving credit
agreement, the $1.5 billion credit agreement, or the
$550 million receivables securitization program. The
Company’s credit agreements are not subject to any
restrictive covenants other
financial
covenants as disclosed on pages 72 and 73 in Note
16 - Debt and Lines of Credit of Item 8. Financial
Statements and Supplementary Data, and
the
borrowings under
receivables securitization
program being limited by eligible receivables. The
its debt
Company was
covenants at December 31, 2020 and was well below
the thresholds stipulated under the covenants as
defined in the credit agreements. Further the financial
covenants do not restrict any borrowings under the
credit agreements. After considering the Company’s
liquidity position in relation to COVID-19 and the
current economic environment,
the Company's
receivable securitization program was amended from
a
an
uncommitted financing arrangement in February 2021
with the borrowing limit and expiration date remaining
unchanged.”
in compliance with all
arrangement
committed
financing
than
the
the
to
the program,
In addition to the $2.8 billion in credit agreements,
International Paper has a commercial paper program
with a borrowing capacity of $1.0 billion. Under the
terms of
individual maturities on
borrowings may vary, but not exceed one year from
the date of issue. Interest bearing notes may be
issued either as fixed or floating rate notes. The
Company had no borrowings outstanding as of
December 31, 2020, and $30 million of borrowings
outstanding as of December 31, 2019, under this
program.
33
International Paper expects to be able to meet
projected capital expenditures, service existing debt
and meet working capital and dividend requirements
for the next 12 months with current cash balances
and cash from operations, supplemented as required
by its existing credit facilities. The Company will
continue to rely on debt and capital markets for the
majority of any necessary long-term funding not
provided by operating cash flows. Funding decisions
will be guided by our capital structure planning
objectives. The primary goals of the Company’s
capital structure planning are to maximize financial
flexibility and maintain appropriate levels of liquidity to
meet our needs while managing balance sheet debt
and interest expense. The majority of International
Paper’s debt is accessed through global public capital
markets where we have a wide base of investors.
During 2020, management took various actions to
further strengthen the Company’s liquidity position in
response to the COVID-19 pandemic. This included
the Company amending its receivable securitization
program from an uncommitted financing arrangement
to a committed financing arrangement in April 2020
and also deferring the payment of our payroll taxes
as allowed under CARES Act. The CARES Act allows
for the deferral of the payment of the employer
portion of Social Security taxes accrued between
March 27, 2020, and December 31, 2020. Under the
CARES Act 50% of the deferred payroll taxes will be
paid by December 31, 2021 and the remainder will be
paid by December 31, 2022. We believe that our
credit agreements, commercial paper program, and
the actions taken in response to COVID-19 provide
us with sufficient liquidity to operate in this uncertain
environment; however, an extended period of
economic disruption could impact our access to
additional sources of liquidity.
Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2020, 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, 2020, were as follows:
In millions
Debt maturities
2021
2022
2023
2024
2025
Thereafter
$
29 $ 199 $ 361 $ 152 $ 209 $
7,143
Lease obligations
175
Purchase obligations (a)
2,768
133
540
88
441
53
329
36
317
161
1,308
Total (b)
$ 2,972 $ 872 $ 890 $ 534 $ 562 $
8,612
(a)
Includes $945 million 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 $993 million 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 $163 million. Also not included in
the above table is $117 million of Deemed Repatriation
Transition Tax associated with the 2017 Tax Cuts and Jobs
Act which will be settled from 2021 - 2026.
We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2020,
to be
permanently reinvested and, accordingly, no U.S.
income taxes have been provided thereon (see Note
13 Income Taxes on pages 65 through 68 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.
The Company expects significant cash generation
through various transactions in 2021 including the
sale of the Kwidzyn, Poland mill, further monetization
of our investment in Graphic Packaging, the Printing
Papers spin-off, the unwind of the 2005 timber
monetization structure and the sale of its ownership
interest in Olmuksan International Paper. We will
deploy this cash in a manner consistent with our
capital allocation framework by maintaining a strong
balance sheet, returning cash to shareholders and
investing in opportunities that generate returns above
our cost of capital and grow earnings and cash.
Pension Obligations and Funding
determined
for accounting purposes.
At December 31, 2020,
the projected benefit
obligation for the Company’s U.S. defined benefit
plans
under U.S. GAAP was
approximately $1.0 billion higher than the fair value of
plan assets, excluding non-U.S. plans. Approximately
$595 million of this amount relates to plans that are
subject to minimum funding 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")
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 and elected not to make any voluntary
contributions in 2018, 2019 or 2020. At this time, we
do not expect to have any required contributions to
our plans in 2021, although the Company may elect
to make future voluntary contributions. The timing and
34
future contributions, which could be
amount of
material, will depend on a number of
factors,
including the actual earnings and changes in values
of plan assets and changes in interest rates.
ILIM SHAREHOLDER'S AGREEMENT
In October 2007, in connection with the formation of
the Ilim joint venture, International Paper entered into
a shareholder’s agreement that includes provisions
relating to the reconciliation of disputes among the
partners. This agreement provides that at any time,
either the Company or its partners may commence
procedures specified under the deadlock agreement.
If these or any other deadlock procedures under the
shareholder's agreement are commenced, although it
is not obligated to do so, the Company may in certain
situations choose to purchase its partners' 50%
interest in Ilim. Any such transaction would be subject
to review and approval by Russian and other relevant
antitrust authorities. Based on the provisions of the
agreement, the Company estimates that the current
purchase price for its partners' 50% interests would
be approximately $700 million, 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 shareholder’s
the deadlock provisions of
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
revenues and
recording of assets,
require
expenses. Some of
that are
subjective
inherently uncertain.
liabilities,
these estimates
judgments about matters
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,
for
contingencies, impairment or disposal of long-lived
assets and goodwill, pensions and income 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 accounting
include
the Company’s Board of Directors and with its
independent registered public accounting firm.
from COVID-19
in connection with
While we have taken into account certain impacts
arising
the
accounting estimates reflected in this Annual Report
on Form 10-K, the full impact of COVID-19 is
unknown and cannot be reasonably estimated.
However, we have made appropriate accounting
estimates based on the facts and circumstances
available as of the reporting date. To the extent there
are differences between these estimates and actual
results, our consolidated financial statements may be
affected.
CONTINGENT LIABILITIES
Accruals for contingent liabilities, including personal
injury, product liability, environmental, asbestos and
other legal matters, are recorded when it is probable
that a liability has been incurred or an asset impaired
and the amount of the loss can be reasonably
estimated. Liabilities accrued for legal matters require
judgments regarding projected outcomes and range
of loss based on historical litigation and settlement
experience and recommendations of legal counsel
and,
for
if applicable, other experts. Liabilities
environmental matters require evaluations of relevant
environmental regulations and estimates of future
remediation alternatives and costs. Liabilities for
asbestos-related matters require reviews of recent
and historical claims data. The Company utilizes its
in-house legal and environmental experts to develop
estimates of its legal, environmental and asbestos
obligations, supplemented as needed by third-party
specialists to analyze its most complex contingent
liabilities.
on
estimated
actuarially
We calculate our workers' compensation reserves
based
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
the carrying amount
An impairment of a long-lived asset exists when the
asset’s carrying amount exceeds its fair value, and is
recorded when
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
35
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 market value of the
related assets based on management’s best
estimates of certain key factors, including future
selling prices and volumes, operating, raw material,
energy and freight costs, 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.
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.
for
test
The Company performed its annual testing of its
reporting units for possible goodwill impairments by
performing the quantitative goodwill impairment test
for its North America Industrial Packaging, EMEA
Industrial Packaging, European Papers, Russian
Papers, and Brazilian Papers reporting units as of
October 1, 2020. The Company elected to perform
its
impairment
the quantitative goodwill
reporting units due
the current economic
to
environment. The quantitative goodwill impairment
test was performed by comparing
the carrying
amount of each respective reporting unit to its
estimated fair value. The Company calculated the
estimated fair value of each of the reporting units with
goodwill using a weighted approach based on
discounted future cash flows, market multiples and
transaction multiples. The determination of fair value
using the discounted cash flow approach requires
management
to make significant estimates and
assumptions related to forecasts of future revenues,
operating profit margins, and discount rates. The
determination of fair value using market multiples and
transaction multiples requires management to make
significant assumptions related to revenue multiples
and adjusted earnings before
taxes,
depreciation, and amortization ("EBITDA") multiples.
The results of our annual impairment test indicated
that the carrying amount did not exceed the estimated
fair value of any reporting units. For our EMEA
Packaging reporting unit, the fair value exceeded the
carrying amount by 13%. While the reporting unit’s
forecasted results support the fair value, significant
changes in or inability to achieve the forecasts could
result in the impairment of all or a portion of the
reporting unit’s $70 million goodwill balance as of
December 31, 2020. While the Printing Papers
interest,
segment has experienced a significant decline in
demand for its products in the current year as a result
of COVID-19, the Company has determined the fair
values for those reporting units have not been
materially
impacted based on management's
cumulative long-term outlook and forecasts, which
are inherently subjective given the uncertainty around
the duration and magnitude of the economic impact of
COVID-19. Currently all of our Printing Papers
reporting units fair values exceed carrying values by
more than 85%.
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, 2020.
In the fourth quarter of 2019, in conjunction with the
annual testing of its reporting units for possible
goodwill impairments, the Company calculated 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.
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
future compensation
rates, projected
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, 2020, 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
$
12,613 $
12,018
407
264
—
190
The table below shows the discount rate used by
International Paper
to calculate U.S. pension
obligations for the years shown:
Discount rate
2020
2019
2018
2.60 %
3.40 %
4.30 %
these actuarial
International Paper determines
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
investment portfolio. The
discount rate assumption was determined based on a
hypothetical settlement portfolio selected from a
universe of high quality corporate bonds.
the plan’s
in
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, 2020 was
7.00%.
Increasing (decreasing) the expected long-term rate
of return on U.S. plan assets by an additional 0.25%
would decrease (increase) 2021 pension expense by
approximately $28 million, while a
(decrease)
the discount rate would
increase of 0.25%
(increase)
by
pension
approximately $27 million.
decrease
expense
in
Actual rates of return earned on U.S. pension plan
assets for each of the last 10 years were:
Year
2020
2019
2018
2017
2016
Return
24.7 %
23.9 %
(3.0) %
19.3 %
7.1 %
Year
2015
2014
2013
2012
2011
Return
1.3 %
6.4 %
14.1 %
14.1 %
2.5 %
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 13.9% and
10.7% 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
36
remaining
prospectively over a period that approximates the
average
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
2020
2019
2018
2017
2016
$
32 $
93 $ 632 $ 717 $ 809
5
6
4
5
4
Net expense
$
37 $
99 $ 636 $ 722 $ 813
The decrease in 2020 pension expense primarily
reflects a higher return on assets and lower interest
costs slightly offset by higher service cost.
Assuming that discount rates, expected long-term
returns on plan assets and
future
compensation increases remain the same as of
December 31, 2020, projected future net periodic
pension plan expense (income) would be as follows:
rates of
In millions
Pension expense (income)
U.S. plans
Non-U.S. plans
Net (income) expense
2022
2021
$
(181) $
(114)
4
5
$
(177) $
(109)
The Company estimates that it will record net pension
income of approximately $114 million for its U.S.
defined benefit plans in 2021, compared to expense
of $32 million in 2020. The estimated decrease in net
pension expense in 2021 is primarily due to higher
return on assets, lower interest cost and lower
amortization of actuarial losses partially offset by
higher service cost.
for
The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2020 totaled approximately $12.0 billion, consisting of
approximately 40% equity securities, 48% debt
securities, 7% real estate funds and 5% other assets.
The Company’s
its qualified
funding policy
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
2020. The nonqualified defined benefit plans are
funded to the extent of benefit payments, which
totaled $31 million for the year ended December 31,
2020.
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 will not be realized. Significant judgment is
required in evaluating the need for and magnitude of
appropriate valuation allowances against deferred tax
assets. The realization of these assets is dependent
on generating future taxable income, as well as
successful implementation of various tax planning
strategies.
International Paper believes
While
these
judgments and estimates are appropriate and
reasonable
actual
resolution of these matters may differ from recorded
estimated amounts.
circumstances,
under
that
the
LEGAL PROCEEDINGS
Information concerning the Company’s environmental
and legal proceedings is set forth in Note 14
Commitments and Contingent Liabilities on pages 68
through 70 of Item 8. Financial Statements and
Supplementary Data.
RECENT ACCOUNTING DEVELOPMENTS
See Note 2 Recent Accounting Developments on
pages 54 and 55 of Item 8. Financial Statements and
Supplementary Data
for a discussion of new
accounting pronouncements.
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
37
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
financial statements. Direct
International Paper has operations in a number of
countries. Its operations in those countries also
export to, and compete with, imports from other
regions. As such, currency movements can have a
number of direct and
the
Company’s
impacts
include the translation of international operations’
local currency financial statements into U.S. dollars
and the remeasurement impact associated with non-
functional currency financial assets and liabilities.
Indirect
in
include
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.
impacts
change
the
MARKET RISK
We use financial instruments, including fixed and
variable rate debt, to finance operations, for capital
for general corporate
spending programs and
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
to
International Paper’s debt obligations is included in
Note 16 Debt and Lines of Credit on pages 72 and 73
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 73 through 77 of Item 8.
Financial Statements and Supplementary Data.
trading purposes.
Information
related
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.
38
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
in marketable
securities at December 31, 2020 and 2019 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.
investments
fund. Our
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, 2020
and 2019, the fair value of the net liability of financial
instruments with exposure to interest rate risk was
approximately $9.3 billion and $9.8 billion,
respectively. The potential increase in fair value
resulting from a 10% adverse shift in quoted interest
rates would have been approximately $443 million
and $511 million at December 31, 2020 and 2019,
respectively.
COMMODITY PRICE RISK
of
our
objective
commodity
The
exposure
management is to minimize volatility in earnings due
to large fluctuations in the price of commodities.
Commodity swap or forward purchase contracts may
be used to manage risks associated with market
fluctuations in energy prices. At both December 31,
2020 and 2019, the net fair value of these contracts
was immaterial and the potential loss in fair value
from a 10% adverse change in quoted commodity
prices for these contracts was also immaterial.
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, 2020 and 2019, the net
fair value of financial instruments with exposure to
foreign currency risk was approximately a $3 million
liability and a $16 million asset, respectively. The
in
loss
potential
financial
fair value
instruments from a 10% adverse change in quoted
foreign currency exchange rates would have been
approximately $26 million and $87 million at
December 31, 2020 and 2019, respectively.
for such
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
the preceding discussion and Note 17
See
Derivatives and Hedging Activities on pages 73
through 77 of Item 8. Financial Statements and
Supplementary Data.
39
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF MANAGEMENT ON:
Financial Statements
in
financial
The management of International Paper Company is
responsible for the preparation of the consolidated
this annual report. The
financial statements
consolidated
statements have been
prepared using accounting principles generally
accepted in the United States of America considered
appropriate in the circumstances to present fairly the
Company’s consolidated financial position, results of
operations and cash flows on a consistent basis.
Management has also prepared the other information
in this annual report and is responsible for its
accuracy and consistency with
the consolidated
financial statements.
of achieving the designed control objectives. The
Company’s internal control system is supported by
written policies and procedures, contains self-
the
monitoring mechanisms, and
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.
is audited by
financial
The Company has assessed the effectiveness of its
internal control over
reporting as of
December 31, 2020. In making this assessment, it
used the criteria described in “Internal Control –
the
issued by
Integrated Framework
Committee of Sponsoring Organizations of
the
Treadway Commission ("COSO"). Based on this
assessment, management believes
that, as of
December 31, 2020, the Company’s internal control
over financial reporting was effective.
(2013)”
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
including minutes of all meetings of
data,
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
Internal control over
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).
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
limitations,
including
inherent
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 44 and 45.
Internal Control Environment And Board Of
Directors Oversight
to all employees; a
internal control environment
includes an
Our
integrity and control
enterprise-wide attitude of
consciousness that establishes a positive “tone at the
top.” This is exemplified by our ethics program that
includes long-standing principles and policies on
ethical business conduct that require employees to
maintain the highest ethical and legal standards in the
conduct of International Paper business, which have
been distributed
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.
The Board of Directors, assisted by the Audit and
the
Finance Committee ("Committee"), monitors
integrity of the Company’s financial statements and
financial reporting procedures, the performance of the
Company’s internal audit function and independent
auditors, and other matters set forth in its charter. The
Committee, which consists of independent directors,
40
to
and
without
meets regularly with representatives of management,
and with the independent auditors and the Internal
management
Auditor,
with
their
review
in attendance,
representatives
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, 2020,
including critical
accounting policies and significant management
judgments, with management and the independent
auditors. The Committee’s report recommending the
inclusion of such financial statements in this Annual
Report on Form 10-K will be set forth in our Proxy
Statement.
MARK S. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TIMOTHY S. NICHOLLS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
41
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
International Paper Company:
Opinion on the Financial Statements
amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting
principles used and significant estimates made by
the overall
management, as well as evaluating
presentation of the financial statements. We believe
that our audits provide a reasonable basis for our
opinion.
We have audited the accompanying consolidated
balance sheets of International Paper Company and
subsidiaries (the "Company") as of December 31,
2020 and 2019, 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, 2020, and the related
notes (collectively referred
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, 2020
and 2019, and the results of its operations and its
cash flows for each of the three years in the period
in conformity with
ended December 31, 2020,
accounting principles generally accepted
the
United States of America.
to as
in
Critical Audit Matters
that are material
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 and
Finance Committee and that (1) relate to accounts or
disclosures
financial
involved our especially
statements and
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.
the
(2)
to
We have also audited, in accordance with the
the Public Company Accounting
standards of
Oversight Board (United States) (PCAOB),
the
Company's internal control over financial reporting as
of December 31, 2020, based on criteria established
in Internal Control — Integrated Framework (2013)
issued
of Sponsoring
Organizations of the Treadway Commission and our
report dated February 19, 2021, expressed an
unqualified opinion on the Company's internal control
over financial reporting.
the Committee
by
Basis for Opinion
These financial statements are the responsibility of
the Company's management. Our responsibility is to
express an opinion on the Company's financial
statements based on our audits. We are a public
accounting firm registered with the PCAOB and are
required to be independent with respect to the
federal
Company
rules and
securities
regulations of
the Securities and Exchange
Commission and the PCAOB.
in accordance with
laws and
the applicable
the U.S.
the audit
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require
that we plan and perform
to obtain
reasonable assurance about whether the financial
statements are
free of material misstatement,
whether due to error or fraud. Our audits included
performing procedures to assess the risks of material
misstatement of the financial statements, whether
due to error or fraud, and performing procedures that
respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the
42
Goodwill — Printing Papers Reportable Segment
— Refer to Note 12 to the financial statements
Critical Audit Matter Description
the discounted cash
The Company’s evaluation of goodwill associated
with the Printing Papers reportable segment for
impairment involves the comparison of the fair value
of each reporting unit to its carrying value. The
Company determines the fair value of its reporting
units using the discounted cash flow model and the
market approach. The determination of the fair value
using
flow model requires
to make significant estimates and
management
assumptions related to forecasts of future revenues,
operating profit margins, and discount rates. The
determination of the fair value using the market
approach requires management to make significant
assumptions
revenue multiples and
adjusted earnings before interest, taxes, depreciation,
and amortization (EBITDA) multiples. The Company
performed its annual impairment assessment of each
reporting unit as of October 1, 2020. Because the
estimated fair values exceeded their carrying values,
no impairments were recorded. As of December 31,
2020,
the Printing Papers reportable segment’s
goodwill was $201 million.
related
to
for
the Printing Papers
We identified the Company’s impairment evaluations
of goodwill
reportable
segment, specifically related to the Brazil Papers and
European Papers reporting units, as a critical audit
matter. Given reductions in cash flows caused by a
substantial decline in demand for printing papers
the
across all geographic
uncertainty regarding the duration and magnitude of
regions and given
to evaluate
the economic impact of the COVID-19 pandemic, a
high degree of auditor judgment and an increased
extent of effort was required when performing audit
reasonableness of
procedures
management and
its specialists’ estimates and
assumptions related to the discount rate, forecasted
future revenues and operating margins, and revenue
and adjusted EBITDA multiples, including the need to
involve our fair value specialists.
the
How the Critical Audit Matter Was Addressed in the
Audit
Our audit procedures related to the forecasts of future
revenues and operating profit margins ("forecasts"),
revenue and adjusted EBITDA multiples, and
selection of discount rates for the Brazil Papers and
European Papers
the
following, among others:
reporting units,
included
including
• We tested the effectiveness of controls over
goodwill,
the
determination of fair value, such as controls
related to management’s selection of the
discount rate and forecasts of future revenue
and operating margin.
those
over
• We evaluated management’s ability
to
accurately
revenues and
operating margins by comparing actual
results to management’s historical forecasts.
forecast
future
• We evaluated
the
reasonableness of
management’s forecasts by comparing the
forecasts to (1) historical results, (2) internal
communications to management and the
Board of Directors, and
forecasted
information
in Company press
releases as well as in analyst and industry
reports of the Company and companies in its
peer group.
included
(3)
• We considered the impact of changes in the
operating environment on management’s
forecasts,
the
COVID-19 pandemic on
long-term
demand for the Company’s products.
impact of
including
the
the
• With
testing
the assistance of our
fair value
specialists, we evaluated the discount rates,
including
the underlying source
information and the mathematical accuracy of
the calculations, and developing a range of
independent estimates and comparing those
to
by
the
management.
discount
selected
rates
• With
the assistance of our
fair value
specialists, we evaluated the revenue and
adjusted EBITDA multiples, including testing
information and
the underlying source
mathematical accuracy of the calculations,
and comparing the multiples selected by
management to its guideline companies.
Retirement Plans — Plan Assets — Refer to Note
19 to the financial statements
Critical Audit Matter Description
As of December 31, 2020, the Company’s Pension
Plans held approximately $2.5 billion in investments
whose reported value is determined based on net
asset value (“NAV”). The strategic asset allocation
policy prescribed by the Company’s Pension Plan
includes permissible investments in certain hedge
funds, private equity funds, and real estate funds
whose reported values are determined based on the
estimated NAV of each investment.
These NAVs are generally determined by the Pension
Plan’s third-party administrators or fund managers
and are subject
review and oversight by
management of the Company and its third-party
investment advisors.
to
Given a lack of a readily determinable value of these
investments and the subjective nature of the valuation
methodologies and unobservable inputs used in
these methodologies, auditing the NAV associated
with these investments requires a high degree of
auditor judgment and an increased extent of effort,
including the need to involve professionals in our firm
having expertise in alternative investments.
How the Critical Audit Matter Was Addressed in the
Audit
Our audit procedures related to the determination of
NAV associated with the Company’s Pension Plan’s
investments in hedge funds, private equity funds, and
real estate funds included the following, among
others:
• We tested the effectiveness of controls over
the Company’s determination and evaluation
of NAV,
the
reliability of NAVs reported by third-party
administrators and fund managers.
those related
including
to
• We
inquired of management and
the
investment advisors regarding changes to the
investment
investment
strategies.
portfolio
and
• We obtained a confirmation from the third-
party custodian as of December 31, 2020 of
all individual investments held in trust for the
Pension Plan to confirm the existence of
each individual asset held in trust.
43
•
For each selected investment fund with a
fiscal year end of December 31, we
performed a retrospective review in which we
compared the estimated fair value recorded
by the Company in the December 31, 2019
financial statements, to the actual fair value
of
the per-share NAV
disclosed in the fund’s subsequently issued
audited financial statements), to evaluate the
appropriateness of management’s estimation
process.
(using
fund
the
in
having
funds’ most
the selected
• With the assistance of professionals in our
firm
alternative
expertise
investments, we rolled forward the valuation
from
recently
audited financial statements to December 31,
2020. This roll forward procedure included
consideration of the Company’s transactions
in the fund during the period, as well as an
estimate of the funds’ returns based on an
appropriate,
obtained
benchmark or index. We then compared our
independent fund valuation estimate to the
December 31, 2020, balance recorded by the
Company. For certain selected funds, our roll
included alternative
forward procedures
procedures,
trust
statements for observable transactions near
year-end to compare to the estimated fair
value.
independently
such as
inspecting
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 19, 2021
We have served as the Company's auditor since
2002.
REPORT OF
PUBLIC ACCOUNTING FIRM
INDEPENDENT REGISTERED
To the shareholders and the Board of Directors of
International Paper Company":
Opinion on
Reporting
Internal Control over Financial
Integrated Framework (2013)
We have audited the internal control over financial
reporting of
International Paper Company and
subsidiaries (the “Company”) as of December 31,
2020, based on criteria established in Internal Control
the
issued by
—
Committee of Sponsoring Organizations of
the
Treadway Commission (COSO). In our opinion, the
Company maintained,
respects,
effective internal control over financial reporting as of
December 31, 2020, based on criteria established in
in all material
44
Internal Control — Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the
the Public Company Accounting
standards of
Oversight Board (United States) (PCAOB),
the
consolidated financial statements as of and for the
year ended December 31, 2020, of the Company and
our report dated February 19, 2021, expressed an
unqualified opinion on those financial statements.
Basis for Opinion
is responsible
The Company’s management
for
maintaining effective internal control over financial
reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
the accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We are a public accounting firm registered with the
PCAOB and are required to be independent with
respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and
the Securities and Exchange
regulations of
Commission and the PCAOB.
financial
the audit
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require
that we plan and perform
to obtain
reasonable assurance about whether effective
internal control over
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
regarding
to provide
reliability of
A company’s internal control over financial reporting
reasonable
is a process designed
assurance
financial
the
reporting and the preparation of financial statements
for external purposes in accordance with generally
accepted accounting principles. A company’s internal
control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable
recorded as
that
transactions are
assurance
necessary
financial
to permit preparation of
statements in accordance with generally accepted
receipts and
accounting principles, and
that
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
the degree of
compliance with the policies or procedures may
deteriorate.
in conditions, or
that
/s/ Deloitte & Touche LLP
Memphis, Tennessee
February 19, 2021
45
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
Net (gains) losses on sales of equity method investments
Antitrust fines
Interest expense, net
Non-operating pension (income) 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.
2020
2019
2018
$ 20,580 $ 22,376 $ 23,306
14,373 15,268 15,555
1,520
1,647
1,723
1,287
1,306
1,328
1,551
1,560
1,567
171
195
465
(35)
—
444
(41)
650
245
77
170
57
205
—
32
491
36
171
29
122
—
—
536
494
1,604
1,781
634
250
445
336
482
1,220
1,672
—
—
345
482
1,220
2,017
—
(5)
5
$
482 $ 1,225 $ 2,012
$
$
$
$
1.23 $
3.10 $
—
—
1.23 $
3.10 $
4.07
0.84
4.91
1.22 $
3.07 $
—
—
1.22 $
3.07 $
4.02
0.83
4.85
46
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 $56, $54 and $196)
Non-U.S. plans (less tax of $0, $0 and $0)
Pension and postretirement liability adjustments:
U.S. plans (less tax of $76, $7 and $6)
Non-U.S. plans (less tax of $1, $3 and $1)
Change in cumulative foreign currency translation adjustment (less tax of $1, $1 and $1)
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $15, $2 and $5)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $13, $2 and $1)
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
2020
2019
2018
$
482 $
1,220 $
2,017
170
—
229
(2)
8
(34)
26
397
879
—
—
163
1
22
(20)
116
4
4
290
588
1
18
4
(473)
(10)
2
130
1,510
2,147
5
—
(5)
3
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
$
879 $
1,515 $
2,145
The accompanying notes are an integral part of these financial statements.
47
CONSOLIDATED BALANCE SHEET
In millions, except per share amounts, at December 31
2020
2019
ASSETS
Current Assets
Cash and temporary investments
Accounts and notes receivable (less allowances of $76 in 2020 and $73 in 2019)
Contract assets
Inventories
Current financial assets of variable interest entities (Note 15)
Assets held for sale
Other current assets
Total Current Assets
Plants, Properties and Equipment, net
Forestlands
Investments
Long-Term 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
Liabilities held for sale
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, 2020 - 448.9 shares and 2019 - 448.9 shares
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Common stock held in treasury, at cost, 2020 – 55.8 shares and 2019 – 56.8 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.
48
$
595 $
511
3,064
3,280
355
393
2,050
2,208
4,850
138
184
—
—
247
11,236
6,639
12,217 13,004
311
391
1,178
1,721
2,257
7,088
3,315
3,347
459
745
434
847
$ 31,718 $ 33,471
$
29 $
168
4,220
4,220
2,320
2,423
466
181
466
—
1,068
1,369
8,284
8,646
8,064
9,597
2,092
2,085
2,743
2,633
1,055
1,578
251
315
1,046
270
304
640
449
449
6,325
6,297
8,070
8,408
(4,342)
(4,739)
10,502 10,415
2,648
2,702
7,854
7,713
14
5
7,868
7,718
$ 31,718 $ 33,471
2020
2019
2018
$
482 $ 1,220 $ 2,017
1,328
1,306
1,287
9
195
32
—
465
(35)
—
162
(77)
219
212
57
93
—
205
—
32
133
29
632
(488)
122
—
—
273
153
(250)
(336)
120
75
59
35
35
141
(55)
109
3,063
(751)
(65)
500
—
40
8
(1)
(269)
246
(342)
2
(1)
139
(19)
(25)
(32)
(236)
151
(8)
28
3,610
3,226
(1,276)
(1,572)
(103)
—
—
81
18
(20)
(8)
—
(40)
—
23
28
(1,300)
(1,569)
(42)
583
(2,278)
35
(806)
(188)
(4)
(2,700)
(2)
(8)
84
(535)
(732)
534
490
(1,507)
(1,008)
(66)
(1)
(796)
(789)
(18)
(1)
(6)
—
(2,389)
(2,046)
—
1
—
(40)
(78)
(429)
511
595 $
589
1,018
511 $
589
$
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
Periodic pension expense, net
Net gain on transfer of North American Consumer Packaging business
Net (gains) losses on sales and impairments of businesses
Net (gains) losses on sales of equity method investments
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, net of insurance recoveries
Acquisitions, net of cash acquired
Proceeds from sales of equity method investments
Net settlement on transfer of North American Consumer Packaging business
Proceeds from sales of businesses, 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
Cash Included in Assets Held for Sale
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.
49
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
In millions
Common
Stock
Issued
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock
Held In
Treasury,
At Cost
Total
International
Paper
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
BALANCE, JANUARY 1,
2018
Adoption of ASC 606 revenue
from contracts with customers
$
449 $ 6,206 $
6,180 $
(4,633) $
1,680 $
6,522 $
19 $ 6,541
—
—
73
—
—
73
—
73
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
Adoption of ASU 2016-13
measurement of credit
losses on financial
instruments
Issuance of stock for
various plans, net
Repurchase of stock
Dividends ($2.050 per
share)
Transactions of equity
method investees
Transactions with
noncontrolling interest
holders
Comprehensive income
(loss)
BALANCE, DECEMBER 31,
2020
—
—
—
—
—
62
—
—
12
—
—
—
(800)
—
2,012
—
—
—
—
133
(80)
732
—
—
—
142
(732)
(800)
12
2,145
—
—
—
142
(732)
(800)
—
12
2
2,147
449
6,280
7,465
(4,500)
2,332
7,362
21
7,383
—
—
529
(529)
—
—
—
—
—
—
—
(18)
—
—
—
35
—
—
—
—
—
—
(811)
—
—
1,225
—
—
—
—
—
290
(165)
535
—
—
—
—
147
(535)
(811)
35
—
1,515
—
—
—
147
(535)
(811)
—
35
(11)
(11)
(5)
1,510
449
6,297
8,408
(4,739)
2,702
7,713
5
7,718
—
—
—
—
(8)
—
(2)
—
—
—
—
(818)
—
36
—
—
—
—
—
—
—
(96)
42
—
—
—
—
—
—
—
—
—
482
397
—
(2)
88
(42)
(818)
36
—
879
—
(2)
—
—
88
(42)
—
(818)
—
36
9
9
—
879
$
449 $ 6,325 $
8,070 $
(4,342) $
2,648 $
7,854 $
14 $ 7,868
The accompanying notes are an integral part of these financial statements.
50
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
facilities have
On March 11, 2020 the World Health Organization
(WHO) declared the novel strain of coronavirus
(COVID-19) a global pandemic and recommended
containment and mitigation measures worldwide.
Since that time, most of our manufacturing and
converting
remained open and
operational during the pandemic. The health and
safety of our employees and contractors is our most
important responsibility as we manage through the
COVID-19 pandemic. We have implemented work-
systems across the Company, including hygiene,
social distancing, site cleaning, contact tracing, and
other measures, as recommended by the Centers for
Disease Control (CDC) and WHO. Our COVID-19
measures are proving to be effective and we have not
had any material disruptions to our operations.
We have seen a significant negative impact on
demand for our printing papers products. Demand for
our pulp, containerboard and corrugated box products
has not been negatively impacted by COVID-19 to
date, but our operations in Industrial Packaging
experienced higher supply chain costs due to the
impacts of COVID-19. The recent resurgence of the
virus
to additional
governmental measures, such as stay-at-home
orders or business and school closures, negatively
impacting our supply chain, and
therefore our
production.
in many areas has
led
There continue
to be significant uncertainties
associated with the COVID-19 pandemic, including
with respect to the various economic reopening plans
and the resurgence of the virus in many areas;
additional actions that may be taken by governmental
authorities and private businesses to attempt to
contain the COVID-19 outbreak or to mitigate its
impact; the extent and duration of social distancing
and stay-at-home orders; the efficacy and availability
of various vaccines; and the ongoing impact of
COVID-19 on unemployment, economic activity and
to
consumer confidence. Developments
related
51
COVID-19 are significantly adversely affecting
portions of our business, and could have a material
adverse effect on our financial condition, results of
operations and cash flows, particularly if negative
global economic conditions persist for a significant
period of time or deteriorate.
These consolidated financial statements have been
prepared in conformity with accounting principles
generally accepted in the United States that require
the use of management’s estimates. Actual results
could differ from management’s estimates.
CONSOLIDATION
The consolidated financial statements include the
accounts of International Paper and subsidiaries for
which we have a controlling
interest,
including variable interest entities for which we are
the primary beneficiary. All significant intercompany
balances and transactions are eliminated.
financial
EQUITY METHOD INVESTMENTS
The equity method of accounting is applied for
investments when
the Company has significant
influence over the investee’s operations, or when the
investee is structured with separate capital accounts.
investments are
Our material equity method
described in Note 11.
BUSINESS COMBINATIONS
The Company allocates the total consideration of the
assets acquired and liabilities assumed based on
their estimated
the business
fair value as of
combination date. In developing estimates of fair
values for long-lived assets, including identifiable
intangible assets, the Company utilizes a variety of
inputs including forecasted cash flows, anticipated
growth rates, discount rates, estimated replacement
costs and depreciation and obsolescence factors.
Determining the fair value for specifically identified
intangible assets such as customer
lists and
developed technology involves judgment. We may
refine our estimates and make adjustments to the
assets acquired and
liabilities assumed over a
measurement period, not to exceed one year. Upon
the conclusion of the measurement period or the final
determination of the values of assets acquired and
first, any
liabilities assumed, whichever comes
subsequent adjustments are charged
the
consolidated statement of operations. Subsequent
actual results of the underlying business activity
supporting the specifically identified intangible assets
could change, requiring us to record impairment
charges or adjust their economic lives in future
periods. See Note 7 for further details.
to
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
the Company's operations and
major effect on
financial results when the following occurs: (1) a
component (or group of components) meets the
criteria to be classified as held for sale; (2) the
component or group of components is disposed of by
sale; or (3) the component or group of components is
disposed of other than by sale (for example, by
abandonment or in a distribution to owners in a spin-
off). For any component classified as held for sale or
disposed of by sale or other than by sale, qualifying
for presentation as a discontinued operation, the
Company reports the results of operations of the
discontinued operations (including any gain or loss
recognized on the disposal or loss recognized on
classification as held for sale of a discontinued
operation), less applicable income taxes (benefit), as
a separate component in the consolidated statement
for current and all prior periods
of operations
presented.
RESTRUCTURING LIABILITIES AND COSTS
policy
broadly
communicated
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
covering
and
involuntary termination benefits (severance plan), a
liability is recorded for costs to terminate employees
(one-time termination benefits) when the termination
plan has been approved and committed to by
management, the employees to be terminated have
been identified, the termination plan benefit terms are
communicated, the employees identified in the plan
have been notified and actions required to complete
the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will
be withdrawn. The timing and amount of an accrual is
dependent upon the type of benefits granted, the
timing of communication and other provisions that
may be provided in the benefit plan. The accounting
for each termination is evaluated individually. See
Note 6 for further details.
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.
rise
that give
The Company’s revenue is primarily derived from
fixed consideration; however, we do have contract
to variable consideration,
terms
primarily volume rebates, early payment discounts
and other customer refunds. The Company estimates
its volume rebates at the individual customer level
based on the most likely amount method outlined in
ASC 606. The Company estimates early payment
discounts and other customer refunds based on the
historical experience across the Company's portfolio
of customers to record reductions in revenue which is
consistent with the expected value method outlined in
ASC 606. Management has concluded that these
methods
the
consideration the Company will be entitled to from its
customers.
the best estimate of
result
in
recognize
The Company has elected to present all sales taxes
on a net basis, account for shipping and handling
the
fulfillment activities,
activities as
incremental costs of obtaining a contract as expense
when incurred if the amortization period of the asset
the Company would recognize is one year or less,
and not record interest income or interest expense
when the difference in timing of control or transfer
and customer payment is one year or less. See Note
3 for further details.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of
three months or less and money market funds with
greater than three month maturities but with the right
to redeem without notice are
treated as cash
equivalents and are stated at cost, which
approximates market value. See Note 9 for further
details.
INVENTORIES
Inventories are valued at the lower of cost or market
value and include all costs directly associated with
manufacturing products: materials,
labor and
manufacturing overhead. In the United States, costs
of raw materials and
finished pulp and paper
products, are generally determined using the last-in,
first-out method. Other inventories are valued using
the first-in, first-out or average cost methods. See
Note 9 for further details.
REVENUE RECOGNITION
LEASED ASSETS
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
lease ROU assets and
Operating
liabilities are
recognized at the commencement date of the lease
based on the present value of lease payments over
52
relate
the lease term. The Company's leases may include
options to extend or terminate the lease. These
options to extend are included in the lease term when
it is reasonably certain that we will exercise that
option. Some
leases have variable payments,
however, because they are not based on an index or
rate, they are not included in the ROU assets and
liabilities. Variable payments for real estate leases
primarily
to common area maintenance,
insurance, taxes and utilities. Variable payments for
equipment, vehicles, and
leases within supply
agreements primarily relate to usage, repairs and
maintenance. As the implicit rate is not readily
determinable for most of the Company's leases, the
Company applies a portfolio approach using an
estimated incremental borrowing rate to determine
the initial present value of lease payments over the
lease terms on a collateralized basis over a similar
term, which is based on market and company specific
information. We use the unsecured borrowing rate
and
to approximate a
rate
collateralized rate, and apply the rate based on the
currency of the lease, which is updated on a quarterly
basis
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.
for measurement of new
risk-adjust
lease
that
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.
first performing a qualitative
The Company has the option to evaluate goodwill for
impairment by
assessment of events and circumstances
to
determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying
amount. If, after assessing the totality of events or
53
the Company
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,
is
required
the quantitative goodwill
to perform
impairment test. In performing this evaluation, the
Company estimates the fair value of its reporting unit
using a weighted approach based on discounted
future cash flows, market multiples and transaction
multiples. The determination of fair value using the
discounted cash flow approach requires management
to make significant estimates and assumptions
related to forecasts of future revenues, operating
profit margins, and discount rates. The determination
of fair value using market multiples and transaction
multiples requires management to make significant
assumptions
revenue multiples and
adjusted earnings before interest, taxes, depreciation,
and amortization ("EBITDA") multiples. The results of
our annual impairment test indicated that the carrying
amount did not exceed the estimated fair value of any
reporting units. 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
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.
the carrying amount exceeds
related
that
to
IMPAIRMENT OF LONG-LIVED ASSETS
changes
Long-lived assets are reviewed for impairment upon
the occurrence of events or
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
the asset and
International Paper uses
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
TRANSLATION OF FINANCIAL STATEMENTS
Balance sheets of
international operations are
translated into U.S. dollars at year-end exchange
rates, while statements of operations are translated at
average rates. Adjustments resulting from financial
statement translations are included as cumulative
in Accumulated other
translation adjustments
comprehensive loss.
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
Income Taxes
for
(Topic 740): Simplifying
In December 2019, the FASB issued ASU 2019-12,
"Income Taxes
the
Accounting
Income Taxes." This guidance
for
removes certain exceptions from recognizing deferred
intraperiod
investments, performing
taxes
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. The Company early adopted the
provisions of this guidance in the fourth quarter of
2020 with no material impact.
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
losses. The Company
reflects expected credit
adopted
the modified
guidance
this
retrospective approach on January 1, 2020. As a
result of using
the Company
recognized a cumulative effect adjustment of $2
million to the opening balance of retained earnings
representing the adjustment to our opening allowance
for doubtful accounts required to state our trade
receivables and contract assets net of their expected
credit losses, net of deferred taxes.
this approach,
using
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.
its worldwide
International Paper
tax
records
provision based on the respective tax rules and
regulations for the jurisdictions in which it operates.
Where the Company believes that a tax position is
supportable for income tax purposes, the item is
included in its income tax returns. Where treatment of
a position is uncertain, liabilities are recorded based
upon the Company’s evaluation of the “more likely
than not” outcome considering the technical merits of
the position based on specific tax regulations and the
facts of each matter. Changes to recorded liabilities
are 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
and
management
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.
appropriate
believes
are
International Paper uses the flow-through method to
account for investment tax credits earned on eligible
open-loop biomass facilities and combined heat and
power system expenditures. Under this method, the
investment tax credits are recognized as a reduction
to income tax expense in the year they are earned
rather than a reduction in the asset basis.
ENVIRONMENTAL REMEDIATION COSTS
Costs associated with environmental remediation
obligations are accrued when such costs are
probable and reasonably estimable. Such accruals
are adjusted as further information develops or
circumstances change. Costs of future expenditures
for environmental
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.
54
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT
YET ADOPTED
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04,
"Reference Rate Reform (Topic 848): Facilitation of
the Effects of Reference Rate Reform on Financial
Reporting." This guidance provides companies with
NOTE 3 - REVENUE RECOGNITION
DISAGGREGATED REVENUE
transitioning away
optional guidance to ease the potential accounting
burden associated with
from
reference rates that are expected to be discontinued.
issuance and
is effective upon
This guidance
generally can be applied through December 31, 2022.
The Company is currently evaluating the provisions of
this guidance.
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
2020
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Corporate &
Intersegment
Total
$
12,537 $
1,993 $
1,425 $
192 $
16,147
1,675
57
764
235
91
—
1,025
26
560
(15)
28
(13)
2,920
202
1,311
$
15,033 $
2,319 $
3,036 $
192 $
20,580
North American Industrial Packaging
$
13,318 $
— $
— $
— $
13,318
EMEA Industrial Packaging
Brazilian Industrial Packaging
European Coated Paperboard
Global Cellulose Fibers
North American Printing Papers
Brazilian Papers
European Papers
Intra-segment Eliminations
Corporate & Inter-segment Sales
Total
1,317
148
366
—
—
—
—
(116)
—
—
—
—
2,319
—
—
—
—
—
—
—
—
—
1,436
632
976
(8)
—
—
—
—
—
—
—
—
—
192
1,317
148
366
2,319
1,436
632
976
(124)
192
$
15,033 $
2,319 $
3,036 $
192 $
20,580
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
55
Reportable Segments
Primary Geographical Markets (a)
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Total
Operating Segments
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
North American Industrial Packaging
$
13,509 $
— $
— $
— $
13,509
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
1,335
235
365
—
—
—
—
—
(118)
—
—
—
—
2,551
—
—
—
—
—
—
—
—
—
—
1,956
967
1,250
160
(42)
—
—
—
—
—
—
—
—
—
—
208
1,335
235
365
2,551
1,956
967
1,250
160
(160)
208
$
15,326 $
2,551 $
4,291 $
208 $
22,376
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
Reportable Segments
Primary Geographical Markets (a)
United States
EMEA
Pacific Rim and Asia
Americas, other than U.S.
Total
Operating Segments
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
North American Industrial Packaging
$
14,187 $
— $
— $
— $
14,187
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
1,355
232
359
—
—
—
—
—
(233)
—
—
—
—
2,819
—
—
—
—
—
—
—
—
—
—
1,956
978
1,252
202
(13)
—
—
—
—
—
—
—
—
—
—
212
1,355
232
359
2,819
1,956
978
1,252
202
(246)
212
$
15,900 $
2,819 $
4,375 $
212 $
23,306
(a) Net sales are attributed to countries based on the location of the reportable segment making the sale.
56
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
location, etc.).
contractual volume, geographical
Management has concluded
the prices
individual customer are
negotiated with each
representative of the stand-alone selling price of the
product.
that
NOTE 4 EARNINGS PER SHARE ATTRIBUTABLE
TO INTERNATIONAL PAPER COMPANY
COMMON SHAREHOLDERS
Basic earnings per share is computed by dividing
the weighted average number of
earnings by
common shares outstanding. Diluted earnings per
share is computed assuming that all potentially
dilutive securities were converted
into common
shares.
There are no adjustments required to be made to net
income for purposes of computing basic and diluted
EPS.
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
2020
2019
2018
Earnings (loss) from continuing
operations attributable to
International Paper common
shareholders
Weighted average common shares
outstanding
Effect of dilutive securities:
$ 482 $ 1,225 $ 1,667
393.0
395.3
409.1
Restricted performance share plan
2.7
3.5
5.1
Weighted average common shares
outstanding – assuming dilution
395.7
398.8
414.2
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
$ 1.23 $ 3.10 $ 4.07
$ 1.22 $ 3.07 $ 4.02
REVENUE CONTRACT BALANCES
A contract asset is created when the Company
recognizes revenue on its customized products prior
to having an unconditional right to payment from the
customer, which generally does not occur until title
and risk of loss passes to the customer.
A contract liability is created when customers prepay
for goods prior to the Company transferring those
goods to the customer. The contract liability is
reduced once control of the goods is transferred to
the customer. The majority of our customer
prepayments are received during the fourth quarter
each year for goods that will be transferred to
customers over the following twelve months. Current
liabilities of $31 million and $56 million are included in
Other current
the accompanying
condense consolidated balance sheets as of
December 31, 2020 and 2019, respectively.
liabilities
in
The difference between the opening and closing
balances of the Company's contract assets and
contract liabilities primarily results from the difference
between the price and quantity at comparable points
in time for goods which we have an unconditional
right to payment or receive prepayment from the
customer, respectively.
PERFORMANCE
JUDGEMENTS
OBLIGATIONS
AND
SIGNIFICANT
to
International Paper's principal business
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
57
NOTE 5 OTHER COMPREHENSIVE INCOME
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
2020
2019
2018
$
(2,277) $
227
(1,916) $
2
—
(527)
170
(1,880)
164
(2,277)
(2,465)
(319)
327
—
(2,457)
(2,581)
14
102
—
(2,465)
3
(34)
—
26
(5)
(3)
4
(2)
4
3
(2,527)
22
—
589
(1,916)
(2,111)
(475)
2
3
(2,581)
5
(10)
—
2
(3)
(4,500)
Total Accumulated Other Comprehensive Income (Loss) at End of Period
$
(4,342) $
(4,739) $
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
2020
2019
2018
Location of Amount
Reclassified from AOCI
$
(19) $
(10) $
(11) (a) Non-operating pension expense
(207)
(226)
56
(170)
—
(170)
(327)
—
(327)
(39)
(39)
13
(26)
—
(26)
(208)
(218)
54
(164)
527
363
(102)
—
(102)
(6)
(6)
2
(4)
2
(2)
(774) (a) Non-operating pension expense
(785)
196
(589)
—
Retained Earnings
(589)
Net (gains) losses on sales and
impairment of businesses and
Discontinued operations, net of
taxes
(2)
—
(2)
(3) (b) Cost of products sold
(3)
1
(2)
—
(2)
Retained Earnings
Total reclassifications for the period, net of tax
$
(523) $
259 $
(593)
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19 for
additional details).
58
(b) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 17 for additional
details).
an equity method investment.
NOTE 6 RESTRUCTURING CHARGES AND
OTHER ITEMS
2020: During 2020, restructuring and other charges,
net, totaling $195 million before taxes were recorded.
The charges included:
In millions
Early debt extinguishment costs (see Note 16)
Other restructuring items
Total
2020
$
$
196
(1)
195
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 were 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
were paid in 2020.
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 2018..
NOTE 7 ACQUISITIONS
2020: In May 2020, the Company increased its
noncontrolling interest in an entity that produces
corrugated sheets from a 7% interest to a 40%
interest. The equity purchase price was $56 million.
The Company is party to various agreements with the
entity which
includes a containerboard supply
agreement. The Company accounts for its interest as
59
2019: On June 28, 2019, the Company completed the
acquisition of two packaging businesses located in
Portugal (Ovar) and France (Torigni and Cabourg)
total purchase
from DS Smith Packaging. The
consideration,
capital
adjustments, was
€71 million
(approximately $81 million at June 30, 2019
exchange rates).
approximately
of working
inclusive
The following table summarizes the final fair value
assigned to 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 debt
Postretirement and postemployment
benefit obligation
Long-term lease obligations
Total liabilities assumed
Net assets acquired
$
2
22
8
37
27
14
3
2
115
2
17
5
4
1
3
2
34
81
NOTE 8 DIVESTITURES AND IMPAIRMENTS OF
BUSINESSES
PRINTING PAPERS SPIN-OFF
through
implemented
On December 3, 2020,
2020:
the Company
announced a plan to pursue a spin-off of the
Company's Printing Papers segment
into a
standalone, publicly-traded company. The transaction
will be
the distribution of
shares of the standalone company to International
Paper shareholders. International Paper will retain up
to 19.9% of the shares of the standalone company at
the time of the separation, with the intent to monetize
its investment and to provide additional proceeds to
the Company. The Company expects the separation
to be tax-free for the Company and its shareholders
for U.S. federal income tax purposes and plans to
complete the spin-off late in the third quarter of 2021,
regulatory
subject
approvals. See Note 23 for further discussion.
receipt of
required
the
to
BRAZIL PACKAGING
2020: On October 14, 2020, the Company closed the
previously announced sale of its Brazilian Industrial
Packaging business for R$330 million ($58.5 million
U.S. dollars), with R$280 million ($49.6 million U.S.
dollars) paid at closing and R$50 million ($8.9 million
U.S. dollars) to be paid one year from closing. This
business includes three containerboard mills and four
box plants and the agreement follows International
Paper's previously announced strategic review of the
Brazilian Industrial Packaging business.
In conjunction with the announced agreement, net
pre-tax charges of $347 million ($340 million after
in 2020. These charges
taxes) were recorded
included $327 million related to the cumulative foreign
currency translation loss and a $20 million loss
related the write down of the long-lived assets of the
Brazilian
their
Industrial Packaging business
estimated fair value. These charges are included in
Net (gains) losses on sales and impairments of
businesses
the accompanying consolidated
statement of operations and is included in the results
for the Industrial Packaging segment.
to
in
2018: During 2018, a determination was made that
the current carrying value of the long-lived assets of
their
the Brazil Packaging business exceeded
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.
OLMUKSAN INTERNATIONAL PAPER
International Paper,
in Turkey,
2020: On January 5, 2021, the Company announced
that it had entered into an agreement with Mondi
Group to sell its 90.38% ownership interest in
corrugated
Olmuksan
packaging business
for €66 million
(approximately $81 million using the December 31,
2020 exchange rate). The transaction is expected to
be completed in the first half of 2021 subject to
satisfaction of customary closing conditions and
regulatory approvals.
a
In conjunction with the announced agreement, a
determination was made that the current book value
of the Olmuksan International Paper disposal group
exceeded its estimated fair value of $79 million which
was based on the agreed upon transaction price. As a
result, a preliminary charge of $123 million (before
and after taxes) was recorded during the fourth
quarter of 2020 related to the cumulative foreign
currency translation loss. This charge is included in
the Net (gains) losses on sales and impairments of
businesses
the accompanying consolidated
statement of operations and is included in the results
for the Industrial Packaging segment.
in
At December 31, 2020, all assets and liabilities
related to Olmuksan International Paper are classified
as current assets held for sale and current liabilities
held for sale in the accompanying consolidated
balance sheet.
The following summarizes the major classes of
assets and liabilities of Olmuksan International Paper
reconciled to total Assets held for sale and total
Liabilities held
the accompanying
for sale
consolidated balance sheet.
in
In millions
December 31, 2020
Cash and temporary investments
$
Accounts and notes receivable
Inventories
Other current assets
Plants, properties and equipment (net of
impairment)
Goodwill
Deferred charges and other assets
Total Assets Held for Sale
Accounts payable and accrued liabilities
Other current liabilities
Deferred income taxes
Other liabilities
Impairment reserve
Total Liabilities Held for Sale
2
62
18
5
38
6
7
138
29
24
1
4
123
181
INTERNATIONAL PAPER APPM LIMITED
2019: On October 30, 2019, the Company closed on
the 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.
the
transaction, a net pre-tax
As a result of
impairment charge of $159 million ($157 million after
taxes) was recorded during 2019. 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
60
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.
products inventories were valued using this method.
The last-in, first-out inventory reserve was $242
million and $295 million at December 31, 2020 and
2019, respectively.
During 2020,
its remaining
the Company sold
investment in APPM and recorded an immaterial loss.
NOTE 9 SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of
three months or less and money market funds with
greater than three month maturities but with the right
to redeem without notices are treated as cash
equivalents and are stated at cost. Temporary
investments totaled $358 million and $335 million at
December 31, 2020 and 2019, respectively.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable, net, by classification
were:
In millions at December 31
Accounts and notes receivable:
Trade
Other
Total
2020
2019
$ 2,776 $ 3,020
288
260
$ 3,064 $ 3,280
The allowance for expected credit losses was $76
million at December 31, 2020 and the allowance for
doubtful accounts was $73 million at December 31,
2019. Based on the Company's accounting estimates
and the facts and circumstances available as of the
reporting date, we believe our allowance for expected
credit losses is adequate. While we have taken into
account certain impacts of COVID-19 in connection
with our estimate of the allowance for expected credit
losses, it is possible that additional expected credit
losses in excess of such allowance could occur if
additional containment and mitigation measures are
required or negative economic conditions persist or
deteriorate as a result of COVID-19.
INVENTORIES
In millions at December 31
Raw materials
Finished pulp, paper and packaging
products
Operating supplies
Other
Inventories
2020
2019
$
268 $
298
1,091
1,192
627
64
659
59
$ 2,050 $ 2,208
The last-in, first-out inventory method is used to value
most of
inventories.
Approximately 74% of total raw materials and finished
International Paper’s U.S.
PLANTS, PROPERTIES AND EQUIPMENT
In millions at December 31
2020
2019
Pulp, paper and packaging facilities
$ 32,439 $ 32,292
Other properties and equipment
Gross cost
Less: Accumulated depreciation
1,156
1,224
33,595 33,516
21,378 20,512
Plants, properties and equipment, net
$ 12,217 $ 13,004
Non-cash additions to plants, property and equipment
included within accounts payable were $41 million,
$164 million and $135 million at December 31, 2020,
2019 and 2018, respectively.
in
invested
in capital projects
the
Amounts
accompanying condensed consolidated statement of
cash flows are presented net of insurance recoveries
the year ended
of $42 million received during
insurance
December 31, 2020. There were no
recoveries
the years ended
received during
December 31, 2019 and 2018.
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, 2020, 2019 and 2018. Cost of products
sold excludes depreciation and amortization expense.
for
INTEREST
Interest payments of $686 million, $754 million and
$772 million were made during the years ended
December 31, 2020, 2019 and 2018, respectively.
Amounts related to interest were as follows:
In millions
Interest expense
Interest income
Capitalized interest costs
2020
2019
2018
$
600 $
706 $
156
31
215
29
734
198
30
ASSET RETIREMENT OBLIGATIONS
At December 31, 2020 and 2019, we had recorded
liabilities of $116 million and $96 million, respectively,
related to asset retirement obligations.
NOTE 10 LEASES
leases various
International Paper
real estate,
including certain operating facilities, warehouses,
office space and land. The Company also leases
material handling equipment, vehicles, and certain
61
other equipment. The Company's
remaining lease terms of one year to 96 years.
leases have
SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO
LEASES
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
2020
2019
$
145 $
132
61
52
14
5
70
59
12
5
In millions
2020
2019
Cash paid for amounts included in the
measurement of lease liabilities
Operating cash flows related to
operating leases
$
162 $
147
Operating cash flows related to financing
leases
Financing cash flows related to finance
leases
5
10
5
9
Total lease cost, net
$
277 $
278
Right of use assets obtained in exchange
for lease liabilities
SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED
TO LEASES
Operating leases
Finance leases
179
11
162
11
In millions
Assets
Operating
lease assets
Classification
2020
2019
MATURITY OF LEASE LIABILITIES
Right of use assets
$
459 $
434
In millions
Operating
Leases
Financing
Leases
Total
Finance lease
assets
Plants, properties and
equipment, net (a)
95
103
Total leased
assets
Liabilities
Current
$
554 $
537
Operating
Other current liabilities $
148 $
134
Finance
Noncurrent
Operating
Notes payable and
current maturities of
long-term debt
13
12
Long-term lease
obligations
315
304
Finance
Long-term debt
82
88
2021
2022
2023
2024
2025
Thereafter
Total lease
payments
Less imputed
interest
Present value of
lease liabilities
$
158 $
117
74
42
26
105
522
59
17 $
16
14
11
10
56
124
29
175
133
88
53
36
161
646
88
$
463 $
95 $
558
NOTE 11 EQUITY METHOD INVESTMENTS
Total lease
liabilities
$
558 $
538
The Company accounts for the following investments
under the equity method of accounting.
GRAPHIC PACKAGING INTERNATIONAL PARTNERS, LLC
LLC
("GPIP"). GPIP
the Company completed
the
In January 2018,
transfer of its North American Consumer Packaging
business in exchange for a 20.5% ownership interest
(79,911,511 units) in Graphic Packaging International
subsequently
Partners,
transferred 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. On January 29,
2020, the Company exchanged 15,150,784 units of
the aggregate units owned by the Company for an
aggregated price of $250 million, resulting in a pre-tax
(a) Finance leases are recorded net of accumulated amortization
of $53 million and $40 million at December 31, 2020 and
2019, respectively.
LEASE TERM AND DISCOUNT RATE
In millions
2020
2019
Weighted average remaining lease
term (years)
Operating leases
Finance leases
9.7 years
9.9 years
9.8 years
10.9 years
Weighted average discount rate
Operating leases
Finance leases
2.56 %
4.52 %
3.06 %
4.69 %
62
gain of $33 million ($25 million after taxes) which was
recorded in the first quarter of 2020. On August 7,
2020, the Company exchanged 17,399,414 units of
the aggregated units owned by the Company for an
aggregated price of $250 million, resulting in an
immaterial gain which was recorded in the third
quarter of 2020. As of December 31, 2020, the
in GPIP was
Company's ownership percentage
15.0%. The Company recorded equity earnings of
$40 million, $46 million and $46 million for the years
ended December 31, 2020, 2019 and 2018,
respectively. The Company received cash dividends
from GPIP of $20 million and $27 million in 2020 and
2019, respectively. The Company's investment in
GPIP was $702 million and $1.1 billion at
December 31, 2020 and 2019, respectively, which
was $345 million and $529 million more than the
Company's proportionate share of
the entity's
underlying net assets at December 31, 2020 and
2019, respectively. The difference primarily relates to
the basis difference between the 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 Company is party to various agreements with
GPI under which it sells fiber and other products to
GPI. Sales under these agreements were $253
million, $274 million and $240 million for the years
ended December 31, 2020, 2019 and 2018
respectively.
ILIM S.A. ("Ilim")
includes an after-tax
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 $48 million, $207 million, and $290
million in 2020, 2019, and 2018, respectively, for Ilim.
foreign
Equity earnings
exchange (loss) gain of $(50) million, $32 million, and
$(82) million in 2020, 2019 and 2018, respectively,
primarily on
the remeasurement of U.S. dollar-
denominated net debt. The Company received cash
dividends from the joint venture of $141 million and
$246 million in 2020 and 2019, respectively. At
December 31, 2020 and 2019,
the Company's
investment in Ilim, which is recorded in Investments in
the consolidated balance sheet, was $393 million and
$508 million, respectively, which was $127 million and
$136 million, respectively, more than the Company's
proportionate share of the joint venture's underlying
to
net assets. The differences primarily relate
currency
the basis
translation adjustments and
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 subsidiary of Ilim, under which the
Company purchases, markets and sells paper
produced by JSC Ilim Group. Purchases under this
agreement were $174 million, $215 million and $214
million for the years ended December 31, 2020, 2019
and 2018, respectively.
Summarized
presented in the following tables:
financial
information
for GPIP
is
Summarized financial information for Ilim is presented
in the following tables:
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Income Statement
In millions
Net sales
Gross profit
Income from
continuing operations
Net income
2020
2019
$
739 $
2,733
674
2,249
17
804
2,813
1,015
1,844
16
2020
2019
2018
$
2,015 $
838
2,189 $
1,025
2,713
1,549
115
113
438
424
592
571
The Company's remaining equity method investments
are not material.
2020
2019
$
2,011 $
5,784
1,827
3,594
1,796
5,482
1,178
3,244
2020
2019
2018
Balance Sheet
In millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Income Statement
In millions
Net sales
Gross profit
$
6,560 $
1,100
Income from
continuing operations
Net income
232
233
6,160 $
6,023
1,093
333
334
946
336
337
63
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, 2020 and 2019:
In millions
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
Currency translation and other (a)
Goodwill additions/reductions
Balance as of December 31, 2020
Goodwill
Accumulated impairment losses
Total
Industrial
Packaging
Global
Cellulose
Fibers
Printing
Papers
Total
$
3,379
$
(296)
3,083
—
31 (b)(c)
—
3,410
(296)
3,114
5
(5) (b)(c)
3,410
(296)
52
—
52
—
—
(52) (e)
52
(52)
—
—
—
52
(52)
$
2,116
$
5,547
(1,877)
239
(6)
(112) (d)
112 (d)
1,998
(1,765)
233
(33)
1
1,966
(1,765)
(2,173)
3,374
(6)
(81)
60
5,460
(2,113)
3,347
(28)
(4)
5,428
(2,113)
$
3,114
$
—
$
201
$
3,315
(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 and divestitures of Industrial Packaging box plants in EMEA.
(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 quantitative goodwill impairment test to
its North America
Industrial Packaging, EMEA
Industrial Packaging, European Papers, Russian
Papers, and Brazilian Papers reporting units as of
October 1, 2020. The Company elected to perform
the quantitative goodwill impairment test due to the
current economic environment. The quantitative
goodwill
test was performed by
comparing the carrying amount of each respective
fair value. The
its estimated
reporting unit
Company calculated the estimated fair value of each
of its reporting units with goodwill using a weighted
approach based on discounted future cash flows,
transaction multiples. The
market multiples and
carrying amount did not exceed the estimated fair
value of any reporting units.
impairment
to
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, 2020.
In the fourth quarter of 2019, in conjunction with the
annual testing of its reporting units for possible
goodwill impairments, the Company calculated 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.
64
OTHER INTANGIBLES
Identifiable intangible assets comprised the following:
In millions at December 31
Customer relationships and lists
2020
2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Intangible
Assets
Gross
Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
$
542 $
294 $
248 $
560 $
275 $
Tradenames, patents and trademarks, and
developed technology
Land and water rights
Software
Other
Total
$
170
8
25
19
764 $
117
2
24
10
447 $
53
6
1
9
317 $
170
8
26
18
782 $
102
2
25
10
414 $
285
68
6
1
8
368
The Company recognized the following amounts as amortization expense related to intangible assets:
In millions
Amortization expense related to intangible assets
2020
2019
2018
$
60 $
58 $
59
Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding
years is as follows: 2021 – $51 million, 2022 – $46 million, 2023 – $41 million, 2024 – $41 million, 2025 – $36
million, and cumulatively thereafter – $96 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.
2020
2019
2018
$
727 $ 1,342 $ 1,450
(77)
262
331
Earnings (loss) from continuing
operations before income taxes
and equity earnings (losses)
$
650 $ 1,604 $ 1,781
The provision
continuing operations
interests) by taxing jurisdiction was as follows:
for
from
(excluding noncontrolling
(benefit)
income
taxes
In millions
2020
2019
2018
$
124 $
271 $
227
35
77
29
122
$
236 $
422 $
$
(6) $
44 $
1
14
(23)
191
9 $
212 $
37
165
429
12
50
(46)
16
245 $
634 $
445
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)
$
$
65
income
The Company’s deferred
tax provision
(benefit) includes a $2 million benefit, a $44 million
benefit and a $13 million benefit for 2020, 2019 and
2018, 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 $162 million, $349 million and $388
million in 2020, 2019 and 2018, respectively.
A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the
actual income tax provision follows:
In millions
2020
2019
2018
Earnings (loss) from
continuing
operations before income
taxes
and equity earnings
$ 650
$ 1,604
$ 1,781
The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2020 and 2019, were as follows:
In millions
Deferred income tax assets:
2020
2019
Postretirement benefit accruals
$
91 $
Pension obligations
Tax credits
Net operating and capital loss
carryforwards
Compensation reserves
Lease obligations
Environmental reserves
Other
288
296
590
179
114
117
218
90
421
290
621
181
106
93
126
Gross deferred income tax assets
$ 1,893 $ 1,928
Less: valuation allowance (a)
(685)
(691)
Net deferred income tax asset
$ 1,208 $ 1,237
Statutory U.S. income tax rate
21 %
21 %
21 %
Deferred income tax liabilities:
Intangibles
Investments
Right of use assets
$
(159) $
(251)
(114)
(152)
(265)
(106)
Plants, properties and equipment
(1,958)
(1,866)
Forestlands, related installment sales,
and investment in subsidiary
Gross deferred income tax liabilities
Net deferred income tax liability
(1,400)
(1,407)
$
$
(3,882) $
(3,796)
(2,674) $
(2,559)
(a) The net change in the total valuation allowance for the years
ended December 31, 2020 and 2019 was a decrease of $(6)
million and an increase of $250 million, respectively. The net
change in the prior year is primarily due to tax law changes
in foreign jurisdictions impacting future utilization of deferred
tax assets of $203 million.
income
tax assets and
Deferred
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, $887
million is attributable to an investment in subsidiary
and relates to a 2006 International Paper installment
sale of forestlands and $488 million is attributable to a
2007 Temple-Inland installment sale of forestlands
(see Note 15).
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
Non-deductible compensation
137
28
22
—
337
6
31
203
—
—
5
92
11
7
31
3
Tax audits
(38)
—
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
Tax expense (benefit) on equity
earnings
Other, net
14
7
—
11
(4)
1
—
2
36
(2)
(45)
(33)
8
(3)
10
2
374
72
35
—
(1)
6
—
11
28
(25)
(13)
(25)
19
(15)
(26)
10
(5)
Income tax provision (benefit) $ 245
$ 634
$ 445
Effective income tax rate
38 %
40 %
25 %
66
A reconciliation of the beginning and ending amount
of unrecognized tax benefits for the years ended
December 31, 2020, 2019 and 2018 is as follows:
In millions
2020
2019
2018
Balance at January 1
$
(189) $
(220) $
(188)
(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
(10)
(5)
(7)
(10)
(6)
(37)
30
13
1
(1)
5
31
3
3
5
2
2
3
Balance at December 31
$
(166) $
(189) $
(220)
If the Company were to prevail on the unrecognized
tax benefits recorded, substantially all of the balances
at December 31, 2020, 2019 and 2018 would benefit
the effective tax rate.
income
The Company accrues interest on unrecognized tax
interest expense.
benefits as a component of
Penalties, if incurred, are recognized as a component
of
tax expense. The Company had
approximately $17 million and $21 million accrued for
the payment of estimated interest and penalties
tax benefits at
associated with unrecognized
December 31, 2020 and 2019, respectively.
The major jurisdictions where the Company files
income tax returns are the United States, Brazil,
France, Poland and Russia. Generally, tax years
2007 through 2019 remain open and subject to
examination by the relevant tax authorities. The
Company frequently faces challenges regarding the
amount of taxes due. These challenges include
positions taken by the Company related to the timing,
nature, and amount of deductions and the allocation
of income among various tax jurisdictions. Pending
audit settlements and the expiration of statute of
limitations could reduce the uncertain tax positions by
$16 million during the next twelve months.
these assessments, we
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
$114 million in tax, and $367 million in interest,
fees as of December 31, 2020
penalties, and
(adjusted for variation in currency exchange rates).
After a previous favorable ruling challenging the basis
for
received other
subsequent unfavorable decisions 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
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.
take many years
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 $2.3 billion of
undistributed earnings of non-U.S. subsidiaries as of
December 31, 2020 has been made, as these
earnings are considered
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.
indefinitely
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
67
tax cost that would be incurred upon monetization of
the Company’s foreign investments is not practicable;
however, we do not believe it would be material.
On March 27, 2020, the U.S. government enacted the
Coronavirus Aid, Relief, and Economic Security
(CARES) Act ("the CARES Act"). The CARES Act
for
provides various
individuals and businesses due to the COVID-19
pandemic, including temporary corporate tax relief.
We currently do not believe there to be a material
impact to the income tax provision resulting from the
CARES Act.
types of economic
relief
The following details the scheduled expiration dates
of the Company’s net operating loss and income tax
credit carryforwards:
2021
Through
2030
2031
Through
2040
Indefinite
Total
$
2 $
53 $
457 $
512
61
16
—
77
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)
169
8
119
296
885
Total
$
232 $
77 $
576 $
Less: valuation
allowance (a)
(145)
(49)
(410)
(604)
Total, net
$
87 $
28 $
166 $
281
(a) State amounts are presented net of federal benefit.
NOTE 14 COMMITMENTS AND CONTINGENT
LIABILITIES
GUARANTEES
commonly makes
In connection with sales of businesses, property,
equipment, forestlands and other assets, International
representations and
Paper
warranties relating to such businesses or assets, and
may agree to indemnify buyers with respect to tax
and
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.
environmental
breaches
liabilities,
ENVIRONMENTAL AND LEGAL PROCEEDINGS
Environmental
party
International Paper has been named as a potentially
responsible
environmental
("PRP")
remediation actions under various federal and state
laws, including the Comprehensive Environmental
Liability Act
Response, Compensation
("CERCLA"). Many of these proceedings involve the
and
in
substances at
cleanup of hazardous
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
facilities, and
current, closed or
recorded as liabilities in the balance sheet.
formerly-owned
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 $185 million
($194 million undiscounted) in the aggregate as of
December 31, 2020. Other than as described below,
completion of
remedial
actions is not expected to have a material effect on
our consolidated financial statements.
required environmental
Cass Lake: One of the matters included above arises
out of a closed wood-treatment 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 with an estimated cost of $45 million as of
December 31, 2020. In April 2020, the EPA issued a
final 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 applicable
reserve referenced above, which may be incurred.
that
the site
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
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 EPA. The
Company responded to the special notice letter. In
December 2016, the EPA issued a unilateral
administrative order to the Company and other
68
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. The
Company responded to the Allied Paper Mill
In
special notice
February 2017, the EPA informed the Company
that it would make other arrangements for the
performance of the remedial design.
in December 2016.
letter
in
In addition, in December 2019, the United States
published notice
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. On December 2, 2020, the Federal District
Court approved the proposed consent decree, as
submitted. NCR will deposit the settlement funds into
a Court Registry Account.
is
involved
The Company’s CERCLA liability has not been finally
determined with respect to these or any other
portions of the site, and except as noted above, the
Company has declined to perform any work or
reimburse the EPA at this time. As noted below, the
in allocation/apportionment
Company
litigation with regard to the site. Accordingly, it is
premature to predict the outcome or estimate our
maximum reasonably possible loss or range of loss
with respect to this site. We have recorded a 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
the Final
Judgment and prior orders incorporated into that
Judgment. The proposed consent decree by NCR
described above will result in the termination of
NCR's involvement in the appeal.
filed notices appealing
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 October 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. The EPA’s selected
remedy was accompanied by a cost estimate of
approximately $115 million ($105 million for the
northern
the
impoundment, and $10 million
southern 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.
for
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 until April 2021. 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
to
infrastructure in the vicinity.
remediation activities
impacts of
During the first quarter of 2020, through a series of
meetings among the Company, MIMC/WMI, our
consultants, the EPA and the Texas Commission on
Environmental Quality ("TCEQ"), progress was made
to resolve key technical issues previously preventing
the Company from determining the manner in which
the selected remedy for the northern impoundment
would be feasibly implemented. As a result of these
developments the Company reserved the following
amounts in relation to remediation at this site: (a)
$10 million for the southern impoundment; and (b)
$55 million for the northern impoundment, which
69
represents the Company's 50% share of our estimate
of the low end of the range of probable remediation
costs.
However, we are vigorously appealing this decision of
the ICA to the Italian courts and have numerous and
strong bases for our appeal.
Although key technical issues have been resolved,
we still face significant challenges remediating the
northern impoundment in a cost-efficient manner and
without a release to the environment and therefore
our discussions with the EPA on the best approach to
remediation will continue. Because of ongoing
questions regarding cost effectiveness, timing and
gathering other technical data, additional losses in
excess of our recorded liability are possible. 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; however, we
believe
is unlikely any adjustment would be
material.
it
Asbestos-Related Matters
legal
review of
We have been named as a defendant in various
asbestos-related personal injury litigation, in both
state and federal court, primarily in relation to the
prior operations of certain companies previously
acquired by the Company. The Company regularly
its
conducts a comprehensive
asbestos liabilities and reviews recent and historical
claims data. During the second quarter of 2020, as
previously disclosed, we adjusted our estimated net
liability associated with asbestos-related litigation
concerning products sold by Champion International
Corporation prior to our acquisition of Champion in
2000 to revise the time period associated with
anticipated future claims through 2059, a commonly
viewed end point when such claims are more
predictable. We concluded the adjustment of $43
million to increase this net liability, which resulted in a
liability of $75 million, net of estimated insurance
recoveries, was not material to any period. As of
December 31, 2020, the Company's total recorded
liability with respect to pending and future asbestos-
related claims was $115 million, net of estimated
insurance recoveries. While it is reasonably possible
that the Company may incur losses in excess of its
recorded liability with respect to asbestos-related
matters, we do not believe material losses are
probable.
Antitrust
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
improperly
packaging
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.
subsidiary
Italy"),
("IP
Taxes Other Than Payroll and Income Taxes
in
included
the basis of
In 2017,
the Brazilian Federal Supreme Court
decided that the state value-added tax ("VAT") should
not be
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
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
narrow
interpretation,
for which we have recognized a
receivable of $12 million as of December 31, 2020. It
is possible that future court decisions and guidance
from the tax authorities could expand the scope of the
federal VAT refunds.
they are both probable and
authorities'
the
tax
by
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
the Company.
liquidity of
inherent uncertainties
the
light of
However,
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.
in
NOTE 15 VARIABLE INTEREST ENTITIES
forestlands,
In connection with the 2006 sale of approximately 5.6
million acres of
International Paper
received
installment notes (the "Timber Notes")
totaling approximately $4.8 billion. The Timber Notes
were used as collateral for borrowings from third party
the Timber
lenders, which effectively monetized
70
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, 2020,
this deferred tax liability was $887 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").
variable
interest entities on
The Timber Notes are shown in Current financial
assets of
the
accompanying consolidated balance sheet and
mature in August 2021. These notes, which do not
require principal payments prior to their maturity, are
supported by approximately $4.8 billion of irrevocable
letters of credit.
loans,
sheet. These bank
During the fourth quarter of 2020, the Extension
Loans were amended to extend the maturity dates to
August 2021. The Extension Loans are shown in
Current nonrecourse financial liabilities of variable
interest entities on the accompanying consolidated
balance
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 both December 31, 2020 and 2019, the fair
value of the Timber Notes was $4.9 billion, and the
fair value of the Extension Loans was $4.2 billion and
$4.3 billion for the years ended 2020 and 2019. 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
Financing Entities was as follows:
the Company and
the 2015
In millions
Revenue (a)
Expense (a)
Cash receipts (b)
Cash payments (c)
2019
2018
2020
$ 95 $ 95 $ 95
122 128 128
95
157 128 128
95
95
(a) The revenue and expense are included in Interest expense,
the accompanying consolidated statement of
net
in
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, 2020, this deferred tax
liability was $488 million, which will be settled with the
maturity of the notes in 2027.
timberland
for $2.4 billion. The
In October 2007, Temple-Inland sold 1.55 million
total
acres of
consideration consisted almost entirely of notes due
in 2027 issued by the buyer of the timberland, which
Temple-Inland contributed
two wholly-owned,
bankruptcy-remote special purpose entities. The
notes are shown in Long-term financial assets of
variable
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.
interest entities
to
in
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 both December 31, 2020 and 2019, the fair
value of the notes receivable was $2.3 billion. As of
both December 31, 2020 and 2019, the fair value of
this debt was $2.1 billion. The notes receivable and
71
$152 million in open market repurchases related to
debt with interest rates ranging from 3.00% to 4.40%
and maturities dates from 2026 to 2048.
The Company had debt issuances in 2020 of $583
million related primarily to the AR securitization
program and international debt. In addition to the
the Company had debt
early debt reductions,
reductions of $638 million in 2020 related primarily to
the AR securitization program, commercial paper, and
international debt.
The borrowing capacity of the Company's commercial
paper program is $1.0 billion. Under the terms of this
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
floating rate notes. The Company had no
or
borrowings outstanding as of December 31, 2020,
and $30 million of borrowings outstanding as of
December 31, 2019, under this program.
In March 2020, the Company entered into a $750
million contractually committed 364-day revolving
credit agreement with a syndicate of banks and other
financial institutions which augments the Company's
access to liquidity due to macroeconomic conditions
at that time and supplements the Company's $1.5
billion five-year credit agreement. In October 2020,
the Company extended the expiration date of the $1.5
billion credit agreement from December 2021 to
December 2022. As of December 31, 2020, the
Company had no borrowings outstanding under either
the $750 million revolving credit agreement or the
$1.5 billion credit agreement.
to a committed
In April 2020, the Company's receivable securitization
program was amended
from an uncommitted
financing
financing arrangement
arrangement with a borrowing limit up to $550 million
based on eligible receivables balances that expires in
April 2022. This was done in response to the
economic environment related to COVID-19 to further
strengthen the Company’s liquidity position. As of
December 31, 2020, the Company had no borrowings
outstanding under the program. After considering the
Company’s liquidity position in relation to COVID-19
and
the
the current economic environment,
Company's receivable securitization program was
amended from a committed financing arrangement to
an uncommitted financing arrangement in February
2021 with the borrowing limit and expiration date
remaining unchanged.
debt are 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)
2019
2018
2020
$ 41 $ 79 $ 72
67
76
43
29
40
62
69
48
57
(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, 2020, 2019 and 2018, 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, 2020, 2019 and 2018 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, 2020, 2019 and 2018
were as follows:
In millions
2020
2019
2018
Early debt reductions (a)
$ 1,640 $ 614 $ 780
Pre-tax early debt extinguishment
costs (b)
196
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, 2020, 2019 and 2018.
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
The Company’s early debt reductions in 2020 were
comprised of debt tenders of $406 million with an
interest rate of 7.50% due in 2021, $658 million with
an interest rate of 3.65% due in 2024, $127 million
with an interest rate of 3.80% due in 2026, and $297
million with an interest rate of 3.00% due in 2027. In
addition to these debt tenders, the Company had
early debt extinguishments of approximately
72
A summary of long-term debt follows:
In millions at December 31
7.500% notes – due 2021
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 2020 – 2024 (a)
Environmental and industrial development
bonds – due 2022 – 2035 (b)
Total principal
Capitalized leases
Premiums, discounts, and debt issuance
costs
Terminated interest rate swaps
Interest rate swaps
Other (c)
Total (d)
Less: current maturities
Long-term debt
2020
2019
$ — $
406
94
—
44
31
94
658
44
31
517
645
58
5
58
5
477
803
7
200
37
600
4
265
722
585
800
700
7
200
37
600
4
265
722
585
800
700
1,084 1,158
938
245
986
339
579
552
7,992 9,699
95
100
(80)
(88)
80
—
6
—
46
8
8,093 9,765
29
168
$ 8,064 $ 9,597
(a) The weighted average interest rate on these notes was
1.3% in 2020 and 3.1% in 2019.
(b) The weighted average interest rate on these bonds was
(c)
3.5% in 2020 and 4.4% in 2019.
Includes $4 million and $7 million of fair market value
adjustments as of December 31, 2020 and 2019,
respectively.
(d) The fair market value was approximately $10.5 billion at
December 31, 2020 and $10.9 billion at December 31,
2019.
the
At December 31, 2020, contractual obligations for
future payments of debt maturities (including finance
lease liabilities disclosed in Note 10 - Leases and
excluding
structures
disclosed in Note 15 - Variable Interest Entities) by
calendar year were as follows over the next five
years: 2021 – $29 million; 2022 – $199 million; 2023
– $361 million; 2024 – $152 million; and 2025 – $209
million.
timber monetization
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, 2020,
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 at inception,
and
International Paper
documents the instrument as a fair value hedge, a
cash flow hedge or a net investment hedge of a
specific underlying exposure.
designates
formally
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
interest amounts
fixed and variable
calculated by reference to a notional amount.
are
debt
in
interest expense. For cash
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
immediately
underlying
obligations
recognized
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
73
in
reported
instruments are
Derivative
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:
December 31,
2020
December 31,
2019
313
407
—
700
Interest rate contracts
—
475
Derivatives Not Designated as
Hedging Instruments:
Electricity contract
Foreign exchange contracts
7
—
16
7
(a) These contracts had maturities of two years or less as of
December 31, 2020.
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.
in
To manage
this exchange rate risk, we have
forward
historically utilized a combination of
contracts, options and currency swaps. Contracts that
qualify are designated as cash flow hedges of certain
forecasted
foreign
transactions denominated
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 into
earnings in the same financial statement line item and
in the same period or periods during which the related
hedged transactions affect earnings. The ineffective
portion, which is not material for any year presented,
in earnings. For net
is
investment hedges, all changes in the fair value of
these instruments are recorded in AOCI, offsetting the
currency
related
investment that is also recorded in AOCI.
translation adjustment of
immediately recognized
the
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
raw materials used
Certain
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.
74
During the first quarter of 2020, International Paper
terminated its interest rate contracts in fair value
hedging relationships. These contracts had a notional
value of $700 million and an approximate fair value of
$85 million at the time of termination. Subsequent to
the termination of the interest rate swaps, the fair
value basis adjustment is amortized to earnings as
interest income over the same period as a debt
premium on the previously hedged debt. During the
first and second quarter of 2020, International Paper
also
in net
investment hedging relationships with a notional
value of $475 million. These contracts had an
approximate fair value of $33 million at the time of
termination.
rate contracts
terminated
interest
Subsequent to the termination of the net investment
hedges, the fair value is accounted for in other
comprehensive
translation
adjustment for the previously hedged net investment.
income as cumulative
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
2020
2019
2018
Derivatives in Cash Flow
Hedging Relationships:
Foreign exchange
contracts
Derivatives in Net
Investment Hedging
Relationships:
$
(34) $
4 $
(10)
Interest rate contracts
$
25 $
7 $
—
During the next 12 months, the amount of the
December 31, 2020 AOCI balance, after tax, that is
expected to be reclassified to earnings is a loss of $2
million.
The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-
qualifying financial instruments used in hedging transactions were as follows:
In millions
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts
Interest rate contracts
Total
Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion)
2020
2019
2018
Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion)
$ (25)
(1)
$ (26)
$
$
(3)
(1)
(4)
$
(1)
Cost of products sold
(1)
(2)
$
Interest expense, net
Gain (Loss)
Recognized
in Income
Location of Gain
(Loss)
in Consolidated
Statement of
Operations
In millions
2020
2019
2018
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts
Debt
Total
Derivatives in Net Investment Hedging Relationships:
Foreign exchange contracts
Total
Derivatives Not Designated as Hedging Instruments:
Electricity Contracts
Foreign exchange contracts
Total
$ 38
$ 30
$ 16
Interest expense, net
(38)
(30)
(16)
Interest expense, net
$ —
$ —
$ —
$
$
2
2
$ —
$ —
$
(2)
—
$
(2)
$
3
(2)
$
1
$ —
$ —
$
$
2
1
3
Net (gains) losses on
sales and
impairments of
businesses
Cost of products sold
Cost of products sold
75
Fair Value Measurements
interest rate swaps,
International Paper’s financial assets and liabilities
that are recorded at fair value consist of derivative
including
contracts,
foreign
forward contracts, options and other
currency
financial
to hedge
that are used
instruments
exposures to interest rate, commodity and currency
risks. For these financial instruments, fair value is
determined at each balance sheet date using an
income approach.
The guidance for fair value measurements and
disclosures sets out a fair value hierarchy that groups
fair value measurement inputs into the following three
classifications:
Level 1: Quoted market prices in active markets for
identical assets or liabilities.
Level 2: Observable market-based inputs other than
quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly.
Level 3: Unobservable inputs for the asset or liability
reflecting the reporting entity’s own assumptions or
external inputs from inactive markets.
Transfers between levels are recognized at the end of
the reporting period. All of International Paper’s
derivative fair value measurements use Level 2
inputs.
Below is a description of the valuation calculation and
the inputs used for each class of contract:
Interest Rate Contracts
Interest rate contracts are valued using swap curves
obtained from an independent market data provider.
The market value of each contract is the sum of the
fair value of all future interest payments between the
contract counterparties, discounted to present value.
The fair value of the future interest payments is
determined by comparing the contract rate to the
derived forward interest rate and present valued
using the appropriate derived interest rate curve.
Foreign Exchange Contracts
Foreign currency forward and option contracts are
valued using standard valuation models. Significant
inputs used in these standard valuation models are
foreign currency forward and interest rate curves and
a volatility measurement. The fair value of each
the applicable
contract
interest rate. All significant inputs are readily available
in public markets, or can be derived from observable
market transactions.
is present valued using
Electricity Contract
index
forward curve obtained
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
the
Intercontinental Exchange. The market value of the
contract is the sum of the fair value of all future
contract
purchase
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.
payments
between
from
the
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.
76
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
Assets
Liabilities
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
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
$
5
—
—
5
—
—
$
10
11
47
68
—
—
Total derivatives not designated as hedging
instruments
—
—
$
8
—
—
8
1
—
1
4
—
—
4
2
1
3
Total derivatives
$
5 (a) $
68 (b) $
9 (c) $
7 (d)
(a)
(b)
(c)
(d)
Includes $5 million recorded in Other current assets in the accompanying consolidated balance sheet.
Included $14 million recorded in Other current assets and $54 million Deferred charges recorded in the accompanying consolidated
balance sheet.
Included $7 million recorded in Other current liabilities and $2 million recorded in Other liabilities the accompanying consolidated balance
sheet.
Included $6 million recorded in Other current liabilities and $1 million recorded in Other liabilities in the accompanying consolidated
balance sheet.
The above contracts are subject to enforceable
master netting arrangements that provide rights of
offset with each counterparty when amounts are
payable on the same date in the same currency or in
the case of certain specified defaults. Management
has made an accounting policy election to not offset
the fair value of recognized derivative assets and
derivative liabilities in the consolidated balance sheet.
The amounts owed to the counterparties and owed to
the Company are considered immaterial with respect
to each counterparty and in the aggregate with all
counterparties.
Credit-Risk-Related Contingent Features
International Paper evaluates credit risk by monitoring
its exposure with each counterparty to ensure that
exposure stays within acceptable policy limits. Credit
risk is also mitigated by contractual provisions with
the majority of our banks. Certain of the contracts
include a credit support annex that requires the
the counterparty or
posting of collateral by
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
fair value of
derivatives would
derivative instruments containing credit-risk-related
contingent features in a net liability position was $5
million and $1 million as of December 31, 2020 and
December 31, 2019, respectively. The Company was
not required to post any collateral as of December 31,
2020 or 2019.
terminate. The
NOTE 18 CAPITAL STOCK
The authorized capital stock at both December 31,
2020 and 2019, 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.
77
The following is a rollforward of shares of common
stock for the three years ended December 31, 2020,
2019 and 2018:
In thousands
Balance at January 1, 2018
Issuance of stock for various plans, net
Repurchase of stock
Common Stock
Issued
Treasury
448,916 35,975
—
(1,721)
— 14,056
Balance at December 31, 2018
448,916 48,310
Issuance of stock for various plans, net
Repurchase of stock
—
(3,416)
— 11,906
Balance at December 31, 2019
448,916 56,800
Issuance of stock for various plans,
net
Repurchase of stock
—
—
(2,010)
1,027
Balance at December 31, 2020
448,916 55,817
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
certain employees.
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 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
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
$31 million, $26 million and $29 million in 2020, 2019
and 2018, respectively, and which are expected to be
$21 million in 2021.
retirement plan
credited
including
the Company
service
Effective January 1, 2019,
froze
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
their
individual Retirement Savings Account as described
later in this Note 19.
to
5
8
(1)
(6)
33
3
(1)
Many non-U.S. employees are covered by various
retirement benefit arrangements, some of which are
considered to be defined benefit pension plans for
accounting purposes.
OBLIGATIONS AND FUNDED STATUS
The following table shows the changes in the benefit
obligation and plan assets for 2020 and 2019, and the
plans’ funded status.
In millions
Change in projected benefit
obligation:
Benefit obligation,
January 1
Service cost
Interest cost
Curtailment
Settlements
2020
2019
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 11,699 $ 253 $ 10,467 $ 215
85
393
—
—
5
6
(1)
(5)
68
440
—
—
Actuarial loss (gain)
1,357
10 1,230
Acquisitions
Divestitures
Plan amendments
Benefits paid
— —
—
(1)
—
—
42 —
40 —
(556)
(7)
(546)
(8)
Effect of foreign currency
exchange rate movements
—
4
—
5
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
$ 13,020 $ 264 $ 11,699 $ 253
$ 10,165 $ 183 $ 8,735 $ 161
2,377
11 1,950
32
(556)
—
9
(7)
(5)
26
(546)
—
23
10
(8)
(6)
Effect of foreign currency
exchange rate movements
—
(1)
—
3
Fair value of plan assets,
December 31
$ 12,018 $ 190 $ 10,165 $ 183
Funded status,
December 31
Amounts recognized in the
consolidated balance sheet:
$ (1,002) $
(74) $ (1,534) $
(70)
Non-current asset
$ — $
5 $ — $
Current liability
(20)
(3)
(28)
6
(3)
Non-current liability
(982)
(76) (1,506)
(73)
$ (1,002) $
(74) $ (1,534) $
(70)
Amounts recognized in
accumulated other
comprehensive income
under ASC 715 (pre-tax):
Prior service cost (credit)
$
120 $ — $
98 $
(1)
Net actuarial loss
2,297
82 2,851
$ 2,417 $
82 $ 2,949 $
75
74
78
The non-current portion of the liability is included with
the pension liability in the accompanying consolidated
balance sheet under Pension Benefit Obligation. The
liability for Turkey has been reclassified to Liabilities
held for sale.
The largest contributor to the actuarial loss affecting
the benefit obligation was the decrease in the
discount rate from 3.40% at December 31, 2019 to
2.60% at December 31, 2020. However positive asset
returns offset the higher obligation for an improved
funded position.
The components of the $(532) million and $8 million
related
to U.S. plans and non-U.S. plans,
respectively, in the amounts recognized in OCI during
2020 consisted of:
In millions
Current year actuarial (gain) loss
Amortization of actuarial loss
Current year prior service cost
Amortization of prior service cost
Effect of foreign currency exchange
rate movements
Non-
U.S.
Plans
U.S.
Plans
$
(352) $
(202)
42
(20)
—
$
(532) $
6
(2)
—
—
4
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 $(500) million, $(172) million
in 2020, 2019 and 2018,
and $(134) million
respectively. The portion of the change in funded
status for the non-U.S. plans was $13 million, $24
million, and $(6) million in 2020, 2019 and 2018,
respectively.
The accumulated benefit obligation at December 31,
2020 and 2019 was $13.0 billion and $11.7 billion,
respectively, for our U.S. defined benefit plans and
$246 million and $236 million, respectively, at
December 31, 2020 and 2019 for our non-U.S.
defined benefit plans.
following
The
for
table summarizes
pension plans with an accumulated benefit obligation
in excess of plan assets at December 31, 2020 and
2019:
information
2020
2019
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
In millions
Projected benefit obligation $ 13,020 $ 245 $ 11,699 $
225
Accumulated benefit
obligation
12,997
227 11,672
Fair value of plan assets
12,018
166 10,165
208
149
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.
79
Net periodic pension expense for qualified and
nonqualified U.S. and non-U.S. defined benefit plans
comprised the following:
2020
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ 85 $
5 $ 68 $
5 $ 153 $
393
6 440
8 467
5
8
(668)
(8) (631)
(10) (765)
(11)
202
2 200
2 337
2
20 —
16 —
16 —
—
(1) —
(1) — —
In millions
Service cost
Interest cost
Expected return
on plan assets
Actuarial loss
(gain)
Amortization of
prior service cost
Curtailment loss
(gain)
Settlement loss
—
1 —
2 424 —
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
for pension benefits and
assumed responsibility
annuity administration
for approximately 23,000
retirees or their beneficiaries receiving less than
$1,000 in monthly benefit payments from the plan.
Settlement
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.
accounting
required
rules
Net periodic
pension
expense
$ 32 $
5 $ 93 $
6 $ 632 $
4
ASSUMPTIONS
The components of net periodic pension expense
other than the Service cost component are included
the
pension
in Non-operating
Consolidated Statement of Operations.
expense
in
The decrease in 2020 pension expense primarily
reflects higher asset returns and lower interest cost
slightly offset by higher service cost.
its
Paper
evaluates
for employers’ accounting
International
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
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.,
to
determine the benefit obligation as of December 31,
2020 is also the discount rate used to determine net
pension expense for the 2021 year).
the discount rate used
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
2020
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
2.60 % 2.32 % 3.40 % 2.70 % 4.30 % 3.97 %
2.25 % 3.66 % 2.25 % 3.62 % 2.25 % 4.05 %
3.40 % 2.70 % 4.30 % 3.97 % 3.80 % 3.59 %
7.00 % 4.92 % 7.25 % 6.20 % 7.50 % 6.52 %
2.25 % 3.62 % 2.25 % 4.05 % 3.38 % 4.06 %
(a) Represents the weighted average rate for the U.S. qualified plans in 2018 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
future expectations of
historical experience and
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
80
payments. To calculate pension expense for 2021,
the Company will use an expected long-term rate of
return on plan assets of 6.60% for the Retirement
Plan of International Paper, a discount rate of 2.60%
and an assumed rate of compensation increase of
2.25%. The Company estimates that it will record net
pension income of approximately $114 million for its
U.S. defined benefit plans in 2021, compared to
expense of $32 million in 2020. 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.
and
objectives
policy
investment manager
performance. For non-U.S. plans, assets consist
principally of common stock and
income
securities.
fixed
International Paper’s U.S. pension allocations by type
of fund at December 31, 2020 and 2019 and target
allocations were as follows:
Asset Class
Equity accounts
Fixed income accounts
Real estate accounts
2020
2019
40 %
48 %
7 %
5 %
37 %
50 %
8 %
5 %
100 %
100 %
Target
Allocations
32% - 43%
44% - 56%
5% - 11%
3% - 8%
For non-U.S. pension plans, assumptions reflect
economic assumptions applicable to each country.
Other
Total
The fair values of International Paper’s pension plan
assets at December 31, 2020 and 2019 by asset
class are shown below. Hedge funds disclosed in the
following table are allocated to fixed income accounts
for target allocation purposes.
Fair Value Measurement at December 31, 2020
Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Asset Class
In millions
Total
Equities – domestic
$ 1,806 $
1,037 $
769 $
Equities – international
2,921
2,181
—
—
—
—
342
210
Corporate bonds
Government securities
Mortgage backed securities
2,345
3,377
133
Other fixed income
(1,585)
Derivatives
Cash and cash equivalents
Other investments:
Hedge funds
Private equity
Real estate funds
336
210
1,112
563
800
740
2,345
3,377
133
(1,599)
—
—
—
—
—
—
—
14
(6)
—
Total Investments
$ 12,018 $
3,770 $
5,765 $
8
following
The
the effect on pension
expense for 2021 of a 25 basis point decrease in the
above assumptions:
illustrates
In millions
Expense (Income):
Discount rate
Expected long-term rate of return on plan assets
2021
$
27
28
PLAN ASSETS
International Paper’s Board of Directors has
appointed a Fiduciary Review Committee that is
responsible for fiduciary oversight of the U.S. Pension
Plan, approving investment policy and reviewing the
management and control of plan assets. Pension
Plan assets are invested to maximize returns within
prudent levels of risk.
The Pension Plan maintains a strategic asset
allocation policy that designates target allocations by
asset class.
Investments are diversified across
classes and within each class to minimize the risk of
large losses. Derivatives, including swaps, forward
and futures contracts, may be used as asset class
substitutes or for hedging or other risk management
purposes. Periodic reviews are made of investment
81
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 $
Equities – international
2,181
1,599
Corporate bonds
Government securities
1,845
2,659
Mortgage backed securities
Other fixed income
Derivatives
1
(647)
(19)
—
—
—
—
—
Cash and cash equivalents
336
336
582
1,845
2,659
1
(661)
—
—
—
—
—
—
—
14
(19)
—
Other investments:
Hedge funds
Private equity
Real estate funds
Total Investments
902
522
772
$ 10,165 $ 2,900 $
5,074 $
(5)
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, 2020
Investment
Fair Value
Unfunded
Commitments
Redemption
Frequency
Remediation
Notice Period
In millions
Hedge funds
Private equity
Real estate
funds
1,112
563
800
Total
$
2,475 $
— Daily to annually
1 - 100 days
(a)
None
Quarterly
45 - 60 days
290
210
500
(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, 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.
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,
bonds,
securities,
mortgage-backed
corporate
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 $(1,585)
million and $(647) million at December 31, 2020 and
2019,
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.
respectively,
primarily
include
futures,
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 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
in
through direct
individual hedge funds. Hedge funds are primarily
valued by each fund’s third-party administrator based
upon the valuation of the underlying securities and
instruments and primarily by applying a market or
income valuation methodology as appropriate
depending on
type of security or
instrument held. Funds-of-funds are valued based
the underlying
upon
investments in hedge funds.
the net asset values of
the specific
investments
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.
82
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
flows,
inputs such as cost, discounted cash
independent
based
comparable data.
and market
appraisals
The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at
December 31, 2020.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
In millions
Beginning 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
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, 2020
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,
factors. The Company continually
and other
reassesses
timing of any
the amount and
discretionary contributions. No voluntary contributions
were made in 2018, 2019 or 2020. 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, 2020, projected future pension
benefit payments, excluding any termination benefits,
were as follows:
In millions
2021
2022
2023
2024
2025
2026-2030
$
580
598
612
624
635
3,271
83
Other
fixed
income
Derivatives
Total
13 $
98 $ 111
1
—
—
—
14 $
1
(1)
—
—
14 $
(127)
(126)
314
314
(304)
(304)
—
(19) $
—
(5)
21
22
268
267
(276)
(276)
—
(6) $
—
8
$
$
$
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 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,
is an unfunded nonqualified defined
which
contribution plan. This plan permits eligible
employees to continue to make deferrals and receive
company matching contributions (and Retirement
their
Savings Account
contributions to the International Paper Salaried
contributions) when
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.
Company contributions
totaled
approximately $154 million, $172 million and $125
million for the plan years ending in 2020, 2019 and
2018, respectively.
the plans
to
its
Paper
evaluates
International
actuarial
assumptions annually as of December 31 (the
measurement date) and considers changes in these
long-term factors based upon market conditions and
the
for
requirements of employers’ accounting
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.
The discount rates used to determine net U.S. and
non-U.S. postretirement benefit cost for the years
ended December 31, 2020, 2019 and 2018 were as
follows:
2020
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate 3.30 % 7.15 % 4.20 % 9.10 % 3.50 % 9.38 %
The weighted average assumptions used
to
determine the benefit obligation at December 31,
2020 and 2019 were as follows:
2020
2019
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Discount rate
2.50 % 6.91 % 3.30 % 7.15 %
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
6.50 % 8.56 % 6.75 % 9.57 %
5.00 % 4.23 % 5.00 % 4.78 %
2026
2031
2026
2030
NOTE 20 POSTRETIREMENT BENEFITS
U.S. POSTRETIREMENT BENEFITS
International Paper provides certain retiree health
care and life insurance benefits covering certain U.S.
salaried and hourly employees. These employees are
generally eligible for benefits upon retirement and
completion of a specified number of years of
creditable service. International Paper does not fund
these benefits prior to payment and has the right to
modify or terminate certain of these plans in the
future.
In addition to the U.S. plan, certain Brazilian and
Moroccan employees are eligible for retiree health
care and life insurance benefits.
The components of postretirement benefit expense in
2020, 2019 and 2018 were as follows:
In millions
2020
2019
2018
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
$ — $ — $ — $
1 $
1 $ —
7
5
2
1
8
4
1
2
8
9
2
2
(1)
(2)
(2)
(3)
(2)
(3)
$ 11 $
1 $ 10 $
1 $ 16 $
1
Service cost
Interest cost
Actuarial loss
Amortization of
prior service
credits
Net
postretirement
expense
84
The plans are only funded in an amount equal to
benefits paid. The
the
following
changes in benefit obligation and plan assets for
2020 and 2019:
table presents
The components of the $1 million and ($1) million
change in the amounts recognized in OCI during
2020 for U.S. and non-U.S. plans, respectively,
consisted of:
In millions
2020
2019
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Change in projected benefit
obligation:
Benefit obligation, January 1
$ 214 $ 31 $ 213 $ 24
In millions
Current year actuarial (gain) loss
Amortization of actuarial (loss) gain
Current year prior service cost
Amortization of prior service credit
Service cost
Interest cost
— — —
7
2
8
1
1
Divestitures
Currency impact
U.S.
Plans
Non-
U.S.
Plans
$
5 $
1
(5)
(1)
— —
1
—
—
$
1 $
2
(2)
(1)
(1)
Participants’ contributions
3 —
4 —
Actuarial (gain) loss
Benefits paid
4
1
20
(28)
(1)
(32)
8
(2)
Less: Federal subsidy
1 —
1 —
Divestiture
Currency Impact
Benefit obligation,
December 31
Change in plan assets:
—
(7) — —
—
(6) —
(1)
$ 201 $ 20 $ 214 $ 31
Fair value of plan assets,
January 1
$ — $ — $ — $ —
Company contributions
25
1
28
2
Participants’ contributions
3 —
4 —
Benefits paid
(28)
(1)
(32)
(2)
Fair value of plan assets,
December 31
$ — $ — $ — $ —
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 $12 million, $29 million and
$(25) million in 2020, 2019 and 2018, respectively.
The portion of the change in funded status for the
non-U.S. plans was $0 million, $9 million, and $5
million in 2020, 2019 and 2018, respectively.
At December 31, 2020, estimated
future
postretirement benefit payments, net of participant
contributions and estimated future Medicare Part D
subsidy receipts, were as follows:
total
Funded status, December 31
$ (201) $ (20) $ (214) $
(31)
In millions
Amounts recognized in the
consolidated balance sheet
under ASC 715:
Current liability
$
(18) $ — $ (21) $
(1)
Non-current liability
(183)
(20) (193)
(30)
$ (201) $ (20) $ (214) $
(31)
Amounts recognized in
accumulated other
comprehensive income under
ASC 715 (pre-tax):
2021
2022
2023
2024
2025
2026 – 2030
Benefit
Payments
Subsidy
Receipts
Benefit
Payments
U.S.
Plans
U.S.
Plans
$
20 $
1 $
Non-
U.S.
Plans
18
17
16
15
64
1
1
1
1
4
—
—
1
1
1
5
Net actuarial loss (gain)
$ 46 $ 12 $ 47 $ 19
Prior service credit
—
(12)
(2)
(18)
NOTE 21 INCENTIVE PLANS
$ 46 $ — $ 45 $
1
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.
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,
85
stock
options,
equivalents,
the discretion of
dividend
stock
appreciation rights, other stock-based awards, and
cash-based awards at
the
Management Development and Compensation
Committee of
(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.
the Board of Directors
PERFORMANCE SHARE PLAN
Under
("PSP"),
the Performance Share Plan
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")
internal benchmark and
measured against our
("TSR")
ranking of Total Shareholder Return
compared to the TSR peer group of companies. The
2018-2020, 2019-2021 and 2020-2022 Awards are
for all
weighted 50% ROIC and 50% TSR
the PSP
participants. The ROIC component of
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:
The following summarizes PSP activity for the three
years ended December 31, 2020:
Weighted
Average
Grant Date
Fair Value
Share/Units
Outstanding at December 31, 2017
5,799,884
$36.17
Granted
Shares issued
Forfeited
1,751,235
(1,588,642)
(196,000)
Outstanding at December 31, 2018
5,766,477
Granted
Shares issued
Forfeited
2,353,613
(2,367,135)
(238,227)
Outstanding at December 31, 2019
5,514,728
Granted
Shares issued
Forfeited
2,171,385
(1,221,950)
(844,138)
62.97
53.67
56.57
38.79
43.49
36.79
50.64
41.14
49.15
51.70
51.70
Outstanding at December 31, 2020
5,620,025
$40.36
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,
2020:
Outstanding at December 31, 2017
Granted
Shares issued
Forfeited
Outstanding at December 31, 2018
Granted
Shares issued
Forfeited
Outstanding at December 31, 2019
Granted
Shares issued
Forfeited
Weighted
Average
Grant Date
Fair Value
$48.63
Shares
166,300
66,100
(100,289)
—
132,111
87,910
(52,021)
(7,300)
160,700
82,228
(83,053)
(33,800)
51.43
48.44
—
50.17
43.70
48.90
45.10
47.27
40.12
44.25
46.43
Outstanding at December 31, 2020
126,075
$44.83
Expected volatility
Risk-free interest rate
Twelve Months Ended
December 31, 2020
22.81% - 24.60%
1.61% - 2.44%
At December 31, 2020, 2019 and 2018 a total of 8.5
million, 9.8 million and 11.9 million shares,
respectively, were available for grant under the ICP.
86
Stock-based compensation expense and related
income tax benefits were as follows:
In millions
2020
2019
2018
Total stock-based compensation
expense (included in selling and
administrative expense)
Income tax benefits related to stock-
based compensation
$
72 $ 130 $ 135
17
30
16
At December 31, 2020, $66 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
in expense over a
amount will be recognized
weighted-average period of 1.6 years.
NOTE
BUSINESS SEGMENT AND GEOGRAPHIC AREA
INFORMATION BY
FINANCIAL
22
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 on pages 26 and 27 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.
that
trends
Business segment operating profits are used by
International Paper’s management to measure the
earnings performance of its businesses. Management
this measure allows a better
believes
understanding of
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 noncontrolling
interests, excluding interest expense, net, corporate
items, net, corporate net special items, business net
special items and non-operating pension expense.
External sales by major product is determined by
aggregating sales from each segment based on
similar products or services. External sales are
defined as those that are made to parties outside
International Paper’s consolidated group, whereas
sales by segment
table are
determined using a management approach and
include intersegment sales.
the Net Sales
in
INFORMATION BY BUSINESS SEGMENT
Net Sales
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Corporate and Intersegment
Sales
Net Sales
Operating Profit (Loss)
2020
2019
$ 15,033 $ 15,326 $ 15,900
2,819
2,551
2018
2,319
3,036
4,291
4,375
192
212
$ 20,580 $ 22,376 $ 23,306
208
In millions
2020
2019
2018
Industrial Packaging
$ 1,819 $ 2,076 $ 2,277
Global Cellulose Fibers
Printing Papers
Business Segment Operating
Profit
(237)
228
(6)
529
262
543
1,810
2,599
3,082
Earnings (loss) from
continuing operations before
income taxes and equity
earnings
Interest expense, net
Noncontrolling interests
adjustment (a)
Corporate expenses, net
Corporate net special items
Business net special items
Non-operating pension
(income) expense
650
444
—
(7)
274
490
1,604
491
1,781
536
3
54
104
307
(10)
67
9
205
(41)
36
494
$ 1,810 $ 2,599 $ 3,082
Business Net Special Items
In millions
2020
2019
2018
Industrial Packaging
$
475 $
78 $
184
Global Cellulose Fibers
Printing Papers
5
10
68
161
11
10
Business Net Special Items
$
490 $
307 $
205
87
Assets
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Corporate and other
Assets
Capital Spending
Long-Lived Assets (d)
2020
2019
$ 15,976 $ 16,338
3,733
3,507
In millions
United States
EMEA
2,855
3,476
Americas, other than U.S.
9,380
9,924
$ 31,718 $ 33,471
Long-Lived Assets
2020
2019
$ 10,221 $ 10,706
1,368
1,280
1,027
1,321
$ 12,528 $ 13,395
(a) Operating profits
for
industry segments
include each
segment’s percentage share of the profits of subsidiaries
included in that segment that are less than wholly-owned.
The pre-tax noncontrolling interests for these subsidiaries is
added here to present consolidated earnings from continuing
operations before income taxes and equity earnings.
In millions
2020
2019
2018
Industrial Packaging
$
525 $
922 $ 1,061
Global Cellulose Fibers
Printing Papers
Subtotal
Corporate and other
Capital Spending
97
116
738
13
162
172
183
303
1,256
1,547
20
25
(b) Net sales are attributed to countries based on the location of
the seller.
(c) Export sales to unaffiliated customers were $2.5 billion in
2020, $2.7 billion in 2019 and $3.1 billion in 2018.
(d) Long-Lived Assets
includes Forestlands and Plants,
$
751 $ 1,276 $ 1,572
Properties and Equipment, net.
Depreciation, Amortization and Cost of Timber
Harvested
In millions
2020
2019
2018
NOTE 23 SUBSEQUENT EVENTS
SALE OF KWIDZYN MILL
Industrial Packaging
$
826 $
794 $
Global Cellulose Fibers
Printing Papers
Corporate
Depreciation and
Amortization
271
186
4
263
244
5
803
262
258
5
$ 1,287 $ 1,306 $ 1,328
External Sales By Major Product
In millions
Industrial Packaging
Global Cellulose Fibers
Printing Papers
Other
Net Sales
2020
2019
$ 14,983 $ 15,259 $ 15,828
2,810
2,545
2018
2,317
3,016
4,284
4,359
264
309
$ 20,580 $ 22,376 $ 23,306
288
INFORMATION BY GEOGRAPHIC AREA
Net Sales (b)
In millions
United States (c)
EMEA
Pacific Rim and Asia
Americas, other than U.S.
2020
2019
2018
$ 16,147 $ 16,948 $ 17,609
2,920
202
1,311
3,258
415
1,755
3,321
605
1,771
Net Sales
$ 20,580 $ 22,376 $ 23,306
On February 12, 2021, the Company entered into an
agreement to sell our Kwidzyn, Poland mill for €670
million (approximately $812 million) in cash, subject
to final working capital and net debt adjustments.
The business includes the pulp and paper mill in
Kwidzyn and supporting functions. The transaction is
expected to close in the fourth quarter of 2021,
to customary closing conditions and
subject
regulatory approvals.
On December 3, 2020, the Company announced its
intention to spin off its Printing Papers business into a
standalone, publicly-traded company in order to focus
on its corrugated packaging and absorbent fibers
businesses. The sale of Kwidzyn provides an
opportunity for International Paper to achieve a
incremental cash
premium value and significant
proceeds, but otherwise does not change its plans for
the proposed spin-off.
GRAPHIC PACKAGING MONETIZATION
On February 16, 2021, the Company exchanged
15,307,000 units of the aggregate units owned by the
Company
for 15,307,000 shares of Graphic
Packaging stock. The Company sold the shares in
open market transactions for approximately $247
million. Additionally, on February 16, 2021, Graphic
Packaging repurchased 9,281,316 units owned by the
Company for an aggregate price of $150 million. The
Company expects to recognize a gain on these two
transactions and related tax expense in the first
quarter 2021.
88
INTERIM FINANCIAL RESULTS (UNAUDITED)
In millions, except per share amounts
and stock prices
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
2020
Net sales
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Net earnings (loss) attributable to
International Paper Company
Basic earnings (loss) per share
attributable to International Paper
Company common shareholders:
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
$ 5,352
$ 4,866
$ 5,123
$ 5,239
$ 20,580
(16) (a)
261 (a)
282 (a)
123 (a)
650 (a)
(141) (a-b)
266 (a-b)
204 (a-b)
153 (a-b)
482 (a-b)
(0.36)
0.67
(0.36)
0.67
0.52
0.52
0.39
0.39
1.23
1.22
Dividends per share of common stock 0.5125
0.5125
0.5125
0.5125
2.0500
2019
Net sales
Earnings (loss) from continuing
operations before income taxes and
equity earnings
Net earnings (loss) attributable to
International Paper Company
Basic earnings (loss) per share
attributable to International Paper
Company common shareholders:
Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:
$ 5,643
$ 5,667
$ 5,568
$ 5,498
$ 22,376
418 (c)
334 (c)
452 (c)
400 (c)
1,604 (c)
424 (c-d)
292 (c-e)
344 (c-e)
165 (c-d)
1,225 (c-e)
1.06
1.05
0.74
0.73
0.88
0.87
0.42
0.42
3.10
3.07
Dividends per share of common stock
0.5000
0.5000
0.5000
0.5125
2.0125
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.
89
Footnotes to Interim Financial Results
(a)
Includes the following pre-tax charges (gains):
(c)
Includes the following pre-tax charges (gains):
2020
In millions
Q1
Q2
Q3
Q4
Brazil Packaging impairment
$ 344
$
8 $
(4) $ —
India investment
17
(6)
—
—
Asbestos litigation reserve
adjustment
Environmental remediation
reserve adjustments
Gain on sale of portion of
equity investment in Graphic
Packaging
Abandoned property removal
Riverdale mill conversion
accelerated depreciation
Debt extinguishment costs
—
43
—
—
41
—
7
—
(33)
—
—
—
9
1
8
5
—
—
—
—
—
18
105
65
EMEA Packaging impairment
—
—
—
123
Printing Papers business spin-
off costs
Other items
Non-operating pension
expense
—
—
—
(3)
—
1
9
4
(6)
(14)
(11)
(10)
Total
$ 378
$ 54 $ 98 $ 191
(b)
Includes the following tax expenses (benefits):
2020
In millions
Q1
Q2
Q3
Q4
Tax benefit related to settlement
of tax audits
$ — $ — $ — $ (32)
Tax impact of other special
items
Tax impact of non-operating
pension expense
(12)
(18)
(26)
(18)
1
3
4
2
Total
$ (11) $ (15) $ (22) $ (48)
In millions
India impairment
India divestiture
transaction costs
2019
Q1
Q2
Q3
Q4
$ — $ 152 $ 8 $ (1)
—
—
—
3
Global Cellulose Fibers
goodwill impairment
—
—
—
52
Litigation reserves
—
—
22
19
Italian antitrust fine
—
—
32
—
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
—
—
15
10
(7)
—
—
1
—
—
—
17
16
—
(7)
—
11
11
13
15
1
1
1
2
—
—
—
(6)
Debt extinguishment costs
—
—
—
21
Gain on sale of previously
closed Oregon mill site
Overhead cost reduction
initiative
—
—
(9)
—
—
—
21
—
Other items
—
1
—
Non-operating pension
expense
10
8
9
3
9
Total
$ 31 $ 173 $ 105 $ 145
(d)
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
(e)
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.
90
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2020, an evaluation was carried
out under the supervision and with the participation of
the Company’s management, including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and
procedures (as 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, 2020.
IN
INTERNAL CONTROL OVER FINANCIAL
CHANGES
REPORTING
There have been no changes in our internal control
over financial reporting during the quarter ended
December 31, 2020, that have materially affected, or
are reasonably likely to materially affect, our internal
control over financial reporting. During Q1 2020,
many corporate employees began working remotely
due to the COVID-19 pandemic. From the onset of
the
the pandemic, we have closely monitored
potential
the design and operating
effectiveness of our internal control over financial
reporting.
impact on
See Item 8. Financial Statements and Supplementary
Data on pages 40 and 41 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.
ITEM 9B. OTHER INFORMATION
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
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
Information with respect
to our definitive proxy statement that will be filed with
the SEC within 120 days of the close of our fiscal
year.
to our executive
officers is set forth on pages 6 and 7 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 following the annual meeting of
shareholders and, until the election of successors,
subject to removal by the Board.
The Company’s Code of Business Ethics (Code) 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
the Charters of our Audit and Finance
and
Committee, Management
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.
Development
respect
Information with
to compliance 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 11. EXECUTIVE COMPENSATION
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.
91
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
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.
independence matters,
is
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
Information with respect to fees paid to, and services
independent registered public
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
conjunction with
financial
statements in Item 8. Financial Statements and
Supplementary Data. Schedules not included
with this additional financial data have been
omitted because they are not applicable, or the
the
required
consolidated financial statements or the notes
thereto.
information
shown
in
is
(2.1)
Additional Financial Data
2020, 2019 and 2018
Transaction Agreement, dated October
23, 2017, by and among the Company,
Graphic Packaging Holding Company,
Gazelle Newco LLC and Graphic
Packaging
Inc.
(incorporated by reference to Exhibit 2.1
to the Company’s Current Report on
Form 8-K dated October 24, 2017).
International,
Incorporation
Restated Certificate of
(incorporated by
of
the Company
reference
the
to Exhibit 3.1
Company’s Current Report on Form 8-K
dated May 13, 2013).
to
By-laws of the Company, as amended
through February 9, 2016 (incorporated
the
by reference
Company’s Current Report on Form 8-K
dated February 8, 2016).
to Exhibit 3.1
to
Indenture, dated as of April 12, 1999,
between the Company and The Bank of
New York, as Trustee (incorporated by
reference
the
to Exhibit 4.1
Company’s Current Report on Form 8-K
dated June 16, 2000).
to
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,
International Paper
2009, between
Company and The Bank of New York
trustee (incorporated by
Mellon, as
reference
the
to Exhibit 4.1
Company's Current Report on Form 8-K
dated May 11, 2009).
to
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
the
by reference
Company's Current Report on Form 8-K
dated December 7, 2009).
to Exhibit 4.1
to
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
the
Company's Current Report on Form 8-K
dated November 16, 2011).
to Exhibit 4.1
to
(3.1)
(3.2)
(4.1)
(4.2)
(4.3)
(4.4)
(4.5)
(4.6)
92
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). +
of Restricted Stock Award
Form
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). +
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). +
to
Amendment Number One
the
International Paper Pension Restoration
for Salaried Employees effective
Plan
January 1, 2013
(incorporated by
reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 2019). +
to
Amendment Number Two
the
International Paper Pension Restoration
for Salaried Employees effective
Plan
January 1, 2013
(incorporated by
reference to Exhibit 10.9 to the Company's
Annual Report on Form 10K for the fiscal
year ended December 31, 2019). +
to
Amendment Number Three
the
International Paper Pension Restoration
for Salaried Employees effective
Plan
(incorporated by
January 1, 2015
reference
the
to Exhibit 10.10
Company's Annual Report on Form 10-K
for the fiscal year ended December 31,
2019). +
to
(4.7)
(4.8)
(4.9)
(4.10)
(4.11)
(4.12)
(4.13)
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
(10.9)
(10.10)
Supplemental Indenture (including the
form of Notes), dated as of June 10,
2014, between the Company and The
Bank of New York Mellon Trust
trustee
Company,
(incorporated
to
Exhibit 4.1 to the Company's Current
Report on Form 8-K dated June 10,
2014).
N.A.,
by
reference
as
Supplemental Indenture (including the
form of Notes), dated as of May 26,
2015, between the Company and The
Bank of New York Mellon Trust
trustee
Company,
(incorporated
to
Exhibit 4.1 to the Company's Current
Report on Form 8-K dated May 26,
2015).
N.A.,
by
reference
as
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,
trustee
(incorporated by reference to Exhibit
4.1 to the Company's Current Report on
Form 8-K dated August 11, 2016).
N.A.,
as
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,
trustee
(incorporated by reference to Exhibit
4.1 to the Company's Current Report on
Form 8-K dated August 9, 2017.
N.A.,
as
Supplemental Indenture (including the
form of Notes), dated as of June 10,
2019, between the Company and the
The Bank of New York Mellon Trust
Company,
trustee
(incorporated by reference to Exhibit
4.1 to the Company's Current Report on
Form 8-K dated June 10, 2019).
N.A.,
as
Item
accordance with
In
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 (incorporated
by reference to Exhibit 4.13 to the
Company's Annual Report on Form 10K
for the fiscal year ended December 31,
2019). +
Amended and Restated 2009 Incentive
Compensation Plan (ICP) (corrected
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). +
93
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
(10.14)
(10.15)
to
Amendment Number Four
the
International Paper Pension Restoration
Plan for Salaried Employees effective
July 1, 2014 (incorporated by reference
to Exhibit 10.11
the Company's
to
Annual Report on Form 10-K for the
fiscal year ended December 31, 2019).
+
to
Amendment Number Five
the
International Paper Pension Restoration
Plan for Salaried Employees effective
(incorporated by
January 1, 2019
the
to Exhibit 10.12
reference
Company's Annual Report on Form 10-K
for the fiscal year ended December 31,
2019). +
to
to
the
Amendment Number Six
International Paper Pension Restoration
Plan for Salaried Employees effective
(incorporated by
January 1, 2009
reference
the
to Exhibit 10.1
Company’s Quarterly Report on Form
10-Q for the quarter ended March 31,
2020). +
to
Unfunded Supplemental Retirement
Plan for Senior Managers, as amended
and restated effective January 1, 2008
(incorporated by reference to Exhibit
10.21 to the Company’s Annual Report
on Form 10-K for the fiscal year ended
December 31, 2007). +
Amendment No. 1 to the International
Unfunded
Paper
Company
Supplemental Retirement Plan
for
Senior Managers, effective October 13,
to
2008 (incorporated by reference
Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated October 17,
2008). +
Amendment No. 2 to the International
Unfunded
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 Supplemental Retirement
Plan for Senior Managers, as amended
and restated effective January 1, 2008
(incorporated by reference to Exhibit
10.21 to the Company’s Annual Report
on Form 10-K for the fiscal year ended
December 31, 2007). +
Amendment No. 1 to the International
Unfunded
Paper
Company
Supplemental Retirement Plan
for
Senior Managers, effective October 13,
to
2008 (incorporated by reference
Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated October 17,
2008). +
(10.16)
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(10.22)
(10.23)
Amendment No. 2 to the International
Paper Company Unfunded Supplemental
Retirement Plan
for Senior Managers,
effective October 14, 2008 (incorporated
by
the
Company’s Current Report on Form 8-K
dated October 17, 2008). +
to Exhibit 10.5
reference
to
Amendment No. 3 to the International
Paper Company Unfunded 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
Amendment No. 4 to the International
Paper Company Unfunded 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). +
Amendment No. 5 to the International
Paper Company Unfunded Supplemental
Retirement Plan
for Senior Managers,
effective October 31, 2009 (incorporated
by reference
the
Company’s Annual Report on Form 10-K
for the fiscal year ended December 31,
2009). +
to Exhibit 10.17
to
Amendment No. 6 to the International
Paper Company Unfunded Supplemental
Retirement Plan
for Senior Managers,
effective January 1, 2012 (incorporated by
the
to Exhibit 10.21
reference
Company’s Annual Report on Form 10-K
for the fiscal year ended December 31,
2011). +
to
Amendment No. 7 to the International
Paper Company Unfunded Supplemental
Retirement Plan
for Senior Managers
effective July 12, 2016 (incorporated by
reference
the
to Exhibit 10.20
Company's Annual Report on Form 10-K
for the fiscal year ended December 31,
2019). +
to
Amendment No. 8 to the International
Paper Company Unfunded Supplemental
for Senior Managers
Retirement Plan
effective January 1, 2019 (incorporated by
reference
the
to Exhibit 10.21
Company's Annual Report on Form 10-K
for the year ended December 31, 2019). +
to
Amendment No. 9 to the International
Paper Company Unfunded Supplemental
Retirement Plan
for Senior Managers
effective November 1, 2019 (incorporated
the
by
Company's Quarterly Report on Form 10-
Q for the quarter ended September 30,
2019. +
to Exhibit 10.1
reference
to
(
94
(10.32)
(10.33)
(10.34)
(10.35)
(10.36)
(10.37)
(10.24)
(10.25)
(10.26)
(10.27)
(10.28)
(10.29)
(10.30)
(10.31)
Form of Non-Competition Agreement,
entered
into by certain Company
employees (including named executive
officers) who have received restricted
stock (incorporated by reference
to
Exhibit 10.22 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2008). +
Form of Non-Solicitation Agreement,
entered
into by certain Company
employees (including named executive
officers) who have received restricted
to
stock (incorporated by reference
Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended March 31, 2006). +
senior
"grandfathered"
Form of Change-in-Control Agreement -
Tier I, for the Chief Executive Officer and
all
vice
presidents elected prior to 2012 (all but
one named executive officer) - approved
(incorporated by
September 2013
reference
the
to Exhibit 10.1
Company’s Quarterly Report on Form
10-Q for the quarter ended September
30, 2013). +
to
II,
for all
Form of Change-in-Control Agreement -
Tier
future senior vice
presidents and all "grandfathered" vice
presidents
(one named executive
officer) elected prior to February 2008 -
approved
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). +
September
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
the
to Exhibit 10.1
Company’s Current Report on Form 8-K
filed on October 18, 2005). +
to
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 by reference to Exhibit
99.1 to the Company’s Current Report
on Form 8-K dated October 14, 2014). +
95
12,
2016,
Paper
Five-Year Credit Agreement dated as of
among
December
International
Company,
N.A.,
JPMorgan
individually and as administrative agent,
and certain lenders (incorporated by
reference
the
to Exhibit 99.1
Company’s Current Report on Form 8-K
filed June 6, 2017).
Chase
Bank,
to
among
Amended and Restated Five-Year Credit
Agreement dated as of October 16,
2020,
International Paper
Company, JPMorgan Chase Bank, N.A.,
individually and as administrative agent,
and certain lenders (incorporated by
reference
the
to Exhibit 10.1
Company’s Current Report on Form 8-K
filed October 19, 2020).
to
26,
2017,
Agreement,
dated
Commitment
September
between
International Paper Company and The
Insurance Company of
Prudential
America, relating to 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). +
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).
+
25,
2018,
Agreement,
dated
Commitment
September
between
International Paper Company and
Prudential
Insurance Company of
America, relating to 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 for the fiscal year
ended December 31, 2018). * +
Credit Agreement, dated March 25,
2020, by and among the Company,
Sumitomo Mitsui Banking Corporation;
Banco Bilbao Vizcaya Argentaria, S.A.,
New York Branch; BNP Paribas and
Credit
and
Investment Bank, as
lenders and
Sumitomo Mitsui Banking Corporation,
as administrative agent (incorporated by
reference
the
Company's Current Report on Form 8-K/
A dated March 26, 2020).
to Exhibit
Corporate
Agricole
10.1
to
(101.INS) 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
(101.SCH) XBRL Taxonomy Extension Schema *
(101.CAL) XBRL Taxonomy Extension Calculation
Linkbase *
(101.DEF) XBRL Taxonomy Extension Definition
Linkbase *
(101.LAB) XBRL Taxonomy Extension Label
Linkbase *
(101.PRE) XBRL Extension Presentation Linkbase
*
(104)
Cover Page
(formatted as
contained in Exhibit 101. *
Interactive Data File
Inline XBRL, and
+ 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.
(10.38)
(10.39)
(21)
(23)
(24)
(31.1)
(31.2)
(32)
to
Amendment No. 16
the Second
Amended and Restated Credit and
Security Agreement, dated April 28,
2020, by and among the Corporation,
as servicer, Red Bird Receivables, LLC,
as borrower, the lenders and co-agents
from time to time party thereto, and
Mizuho Bank, Ltd., as Administrative
to
Agent (incorporated by reference
Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on April 29,
2020).
Continued
Agreement Regarding
Employment, Termination, Severance
and General Release dated September
8, 2020 between International Paper
Company and Catherine
I. Slater
(incorporated by reference to Exhibit
99.1 to the Company's Current Report
on Form 8-K filed on September 11,
2020). +
Subsidiaries and Joint Ventures.*
Consent of
Public Accounting Firm. *
Independent Registered
Power of Attorney (contained on the
signature page to the Company’s Annual
Report on Form 10-K for the year ended
December 31, 2010). *
Certification by Mark S. Sutton,
Chairman and Chief Executive Officer,
pursuant
the
Sarbanes-Oxley Act of 2002. *
to Section 302 of
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.**
96
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
SIGNATURES
By:
/S/ SHARON R. RYAN
Sharon R. Ryan
Senior Vice President, General Counsel
and Corporate Secretary
POWER OF ATTORNEY
February 19, 2021
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Timothy S. Nicholls, Sharon R. Ryan and Alan R. Haguewood 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, 2021
/S/ WILLIAM J. BURNS
Director
February 19, 2021
Willliam J. Burns
/S/ CHRISTOPHER M. CONNOR
Director
Christopher M. Connor
February 19, 2021
/S/ AHMET C. DORDUNCU
Director
February 19, 2021
Ahmet C. Dorduncu
/S/ ILENE S. GORDON
Director
February 19, 2021
Ilene S. Gordon
/S/ ANDERS GUSTAFSSON
Director
February 19, 2021
Anders Gustafsson
97
/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, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
/S/ TIMOTHY S. NICHOLLS
Timothy S. Nicholls
Senior Vice President and Chief Financial
Officer
February 19, 2021
/S/ VINCENT P. BONNOT
Vice President – Finance and Controller
February 19, 2021
Vincent P. Bonnot
98
2020 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)
PRINTING PAPERS
Uncoated Papers
U.S.:
Selma, Alabama (Riverdale Mill)
Ticonderoga, New York
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
International:
Luiz Antônio, São Paulo, Brazil
Mogi Guacu, São Paulo, Brazil
Savannah, Georgia
Cayuga, Indiana
Cedar Rapids, Iowa
Henderson, Kentucky
Maysville, Kentucky
Bogalusa, Louisiana
Campti, Louisiana
Mansfield, Louisiana
Vicksburg, Mississippi
Valliant, Oklahoma
Springfield, Oregon
Orange, Texas
Três Lagoas, Mato Grosso do Sul, Brazil
International:
APPENDIX I
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
Franco da Rocha, São Paulo, Brazil 1
Aurora, Illinois (3 locations)
Nova Campina, São Paulo, Brazil 1
Paulinia, São Paulo, Brazil 1
Bedford Park, Illinois (2 locations) 1
leased
Belleville, Illinois
Cantonment, Florida (Pensacola Mill)
U.S.:
Kwidzyn, Poland
Svetogorsk, Russia
GLOBAL CELLULOSE FIBERS
Pulp
U.S.:
Flint River, Georgia
Port Wentworth, Georgia
Columbus, Mississippi
New Bern, North Carolina
Riegelwood, North Carolina
Eastover, South Carolina
Georgetown, South Carolina
Franklin, Virginia
International:
Veracruz, Mexico
Kenitra, Morocco
Madrid, Spain
Corrugated Container
Bay Minette, Alabama
Decatur, Alabama
Dothan, Alabama leased
Huntsville, Alabama
Conway, Arkansas
Carol Stream, Illinois
Des Plaines, Illinois
Lincoln, Illinois
Montgomery, Illinois
Northlake, Illinois
Rockford, Illinois
Butler, Indiana
Crawfordsville, Indiana
Fort Wayne, Indiana
Indianapolis, Indiana (2 locations)
Saint Anthony, Indiana
Fort Smith, Arkansas (2 locations)
Tipton, Indiana
Russellville, Arkansas (2 locations)
Cedar Rapids, Iowa
Tolleson, Arizona
Yuma, Arizona
Anaheim, California
Waterloo, Iowa
Garden City, Kansas
Kansas City, Kansas
Grande Prairie, Alberta, Canada
Buena Park, California leased
Bowling Green, Kentucky
Saillat, France
Gdansk, Poland
Kwidzyn, Poland
Svetogorsk, Russia
INDUSTRIAL PACKAGING
Containerboard
U.S.:
Pine Hill, Alabama
Prattville, Alabama
Selma, Alabama (Riverdale Mill)
Camarillo, California
Carson, California
Cerritos, California leased
Compton, California
Elk Grove, California
Exeter, California
Gilroy, California (2 locations)
Los Angeles, California
Modesto, California
Ontario, California
Salinas, California
Sanger, California
Lexington, Kentucky
Louisville, Kentucky
Walton, Kentucky
Bogalusa, Louisiana
Lafayette, Louisiana
Shreveport, Louisiana
Springhill, Louisiana
Auburn, Maine
Three Rivers, Michigan
Arden Hills, Minnesota
Austin, Minnesota
Fridley, Minnesota
Cantonment, Florida (Pensacola Mill)
locations)
Rome, Georgia
Stockton, California 2
Minneapolis, Minnesota leased
Shakopee, Minnesota
Santa Fe Springs, California (2
A-1
White Bear Lake, Minnesota
Lexington, South Carolina
Houston, Mississippi
Jackson, Mississippi
Magnolia, Mississippi leased
Olive Branch, Mississippi
Fenton, Missouri
Kansas City, Missouri
Ashland City, Tennessee leased
Cleveland, Tennessee
Elizabethton, Tennessee leased
Morristown, Tennessee
Murfreesboro, Tennessee
Amarillo, Texas
Maryland Heights, Missouri
Carrollton, Texas (2 locations)
North Kansas City, Missouri leased
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
Statesville, North Carolina
Byesville, Ohio
Delaware, Ohio
Eaton, Ohio
Madison, Ohio
Marion, Ohio
Marysville, Ohio leased
Middletown, Ohio
Mt. Vernon, Ohio
Newark, Ohio
Streetsboro, Ohio
Wooster, Ohio
Oklahoma City, Oklahoma
Beaverton, Oregon (3 locations)
Hillsboro, Oregon
Portland, Oregon
Salem, Oregon leased
Silao, Mexico
Toluca, Mexico
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
Corum, Turkey
Gebze, Turkey
Izmir, Turkey
Recycling
U.S.:
Phoenix, Arizona
Fremont, California
Norwalk, California
Edinburg, Texas
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
International:
West Sacramento, California
Manaus, Amazonas, Brazil 1
Paulinia, São Paulo, Brazil 1
Rio Verde, Goias, Brazil 1
Suzano, São Paulo, Brazil 1
Rancagua, Chile
Arles, France 3
Cabourg, France
Chalon-sur-Saone, France
Itasca, Illinois
Des Moines, Iowa
Wichita, Kansas
Roseville, Minnesota
Omaha, Nebraska
Charlotte, North Carolina
Beaverton, Oregon
Springfield, Oregon leased
LePuy, France (Espaly Box Plant)
Carrollton, Texas
Mortagne, France
Saint Amand, France
Guadeloupe, French West Indies
Salt Lake City, Utah
Richmond, Virginia
Kent, Washington
Bellusco, Italy
Catania, Italy
Pomezia, Italy
San Felice, Italy
International:
Monterrey, Mexico leased
Xalapa, Veracruz, Mexico leased
Bags
U.S.:
Buena Park, California
Beaverton, Oregon
Grand Prairie, Texas
Biglerville, Pennsylvania (2 locations)
Apodaco (Monterrey), Mexico leased
Eighty-four, Pennsylvania
Hazleton, Pennsylvania
Kennett Square, Pennsylvania
Lancaster, Pennsylvania
Mount Carmel, Pennsylvania
Georgetown, South Carolina
Laurens, South Carolina
Ixtaczoquitlan, Mexico
Juarez, Mexico leased
Los Mochis, Mexico
Puebla, Mexico leased
Reynosa, Mexico
San Jose Iturbide, Mexico
Santa Catarina, Mexico
A-2
Coated Paperboard
International:
Kwidzyn, Poland
Svetogorsk, Russia
DISTRIBUTION
International:
Guangzhou, China leased
Hong Kong, China leased
Shanghai, China leased
Japan leased
Korea leased
Singapore leased
FOREST RESOURCES
International:
Approximately 314,000 acres
in Brazil
1) Sold October 2020
2) Closed September 2020
3) Closed July 2020
A-3
APPENDIX II
U.S.
EMEA
Americas,
other
than U.S.
Total
13,738
—
13,738
497
443
940
27
—
27
14,262
443
14,705
2,988
352
498
3,838
1,700
1,186
1,135
4,021
—
102
—
102
1,700
1,288
1,135
4,123
2020 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)
314
862
1,176
A-4
INTERNATIONAL PAPER LEADERSHIP
As of April 1, 2021
Mark S. Sutton
Chairman of the Board and
Chief Executive Officer
Clay R. Ellis
Senior Vice President
Enterprise Operational Excellence
W. Thomas Hamic
Senior Vice President
Global Cellulose Fibers 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
Global Papers
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, Finance
Global Papers
Gregory T. Wanta
Senior Vice President
North American Container
Lee Alexander
Vice President
Global Fiber Supply
Santiago Arbelaez
Vice President Strategy
Industrial Packaging
Hans M. Bjorkman*
Vice President
and General Manager
European Papers
September G. Blain
Vice President
Disruptive Technology
Paul J. Blanchard
Vice President
Supply Chain
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
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
Aimee K. Gregg
Vice President and
General Manager
Containerboard,
Recycling and Recovered Fiber
John F. Grover
Vice President
Enterprise Converting
Optimization
North American Container
Guillermo Gutierrez
Vice President
Investor Relations
Charles Levell Hairston
Vice President and General
Manager Recycling and
Recovered Fiber
Joseph R. Saab
Vice President
Deputy General Counsel and
Assistant Corporate Secretary
F. David Segal
Vice President
Investment Excellence
Fred A. Towler
Vice President
Human Resources,
Talent Management and
Global Mobility and
Chief Diversity Officer
Keith R. Townsend
Vice President
Strategic Projects
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
* Identified as a leader for the
standalone, publicly traded company
that will result from the company’s
proposed spin-off of its Global
Papers business, pending approvals
Jason J. Handel
Vice President
Sales and Marketing
Global Cellulose Fibers
Errol A. Harris
Vice President and Treasurer
Russell V. Harris
Vice President Manufacturing
Containerboard
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
Containerboard
Mark P. Nellessen
Vice President
Financial Planning and Analysis
Michael V. Pauly*
Vice President Manufacturing
Paper the Americas
Leslie Petrie
Vice President
Environment, Health and Safety
BOARD OF DIRECTORS
As of April 1, 2021
Mark S. Sutton
Chairman of the Board and Chief Executive Officer
International Paper Company
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 PHARMAQ Zoetis Inc.
Donald G. “DG” Macpherson
Chairman of the Board &
Chief Executive Officer
W.W. Grainger, 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
Anton V. Vincent
President
Mars Wrigley North America
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 virtually at
www.virtualshareholdermeeting.com/IP2021 at 8:30 a.m. CDT
on Monday, May 10, 2021.
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
As of April 1, 2021
Approximately
48,000 Employees
$21 Billion
Net Sales in 2020
Mark S. Sutton
Chairman of the Board
and Chief Executive Officer
International Paper
Company
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
More than 25,000
Customers in 150 Countries
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.
About the cover: A forest is one of nature’s most powerful systems to
capture carbon dioxide, purify water and create diverse plant and animal
habitats, and they provide economic opportunity for millions of people.
International Paper is committed to the stewardship of our natural
resources, including the sustainability of forests for generations to come.
The IP Way Forward is our strategic framework
for pursuing our Vision and creating value for
all stakeholders for generations to come.
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 PHARMAQ
Zoetis Inc.
Donald G. “DG”
Macpherson
Chairman and Chief
Executive Officer
W.W. Grainger, 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
Anton V. Vincent
President
Mars Wrigley North
America
J. Steven Whisler
Retired Chairman and
Chief Executive Officer
Phelps Dodge
Corporation
(Until May 10, 2021)
Ray G. Young
Executive Vice President
and Chief Financial Officer
Archer Daniels Midland
Company
WORLD
HEADQUARTERS
REGIONAL
HEADQUARTERS
International Paper
Company
6400 Poplar Avenue
Memphis, TN 38197
United States of America
International Paper Asia
28F, Ascendas Plaza
333 Tianyaoqiao Road,
Xuhui District,
Shanghai 200030
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
International Paper Russia
Kropotkina Street 1, Litera I
Senator Center
Saint Petersburg, 197101
Russia
©2021 International Paper Company. All rights reserved.
Accent, Ballet, Chamex, Hammermill, International Paper logo,
POL, PRO-DESIGN, REY, Springhill and SvetoCopy are
registered trademarks of International Paper Company or
its affiliates.
From FORTUNE Magazine, February 2021, ©2021 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. The Wall Street Journal
mark is reprinted with permission of the Wall Street Journal.
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