INTERNATIONAL PAPER CO /NEW/ [IP] Filings

10-Q 1 ip-20220331.htm 10-Q ip-20220331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2022

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

For the Transition Period From to

_________________________________________

Commission File Number 001-03157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)


New York			13-0872805
(State or other jurisdiction of incorporation)			(I.R.S. Employer Identification No.)

6400 Poplar Avenue, Memphis, Tennessee			38197
(Address of Principal Executive Offices)			(Zip Code)

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	IP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

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


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. ¨

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

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

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INDEX


		PAGE NO.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2022 and 2021	1

	Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2022 and 2021	2

	Condensed Consolidated Balance Sheet - March 31, 2022 and December 31, 2021	3

	Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2022 and 2021	4

	Condensed Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

Signatures		41

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PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended March 31,
	2022		2021
Net Sales	$	5,237	$	4,593
Costs and Expenses
Cost of products sold	3,839		3,348
Selling and administrative expenses	341		302
Depreciation, amortization and cost of timber harvested	261		268
Distribution expenses	424		335
Taxes other than payroll and income taxes	36		35
Restructuring and other charges, net	—		30
Net (gains) losses on sales and impairments of businesses	—		2
Net (gains) losses on sales of equity method investments	—		(74)
Net (gains) losses on mark to market investments	(46)		—
Interest expense, net	69		93
Non-operating pension expense (income)	(49)		(52)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	362		306
Income tax provision (benefit)	95		88
Equity earnings (loss), net of taxes	93		49
Earnings (Loss) From Continuing Operations	$	360	$	267
Discontinued operations, net of taxes	—		82
Net Earnings (Loss)	$	360	$	349
Less: Net earnings (loss) attributable to noncontrolling interests	—		—
Net Earnings (Loss) Attributable to International Paper Company	$	360	$	349
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.96	$	0.68
Discontinued operations, net of taxes	—		0.21
Net earnings (loss)	$	0.96	$	0.89
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	0.95	$	0.68
Discontinued operations, net of taxes	—		0.20
Net earnings (loss)	$	0.95	$	0.88
Average Shares of Common Stock Outstanding – assuming dilution	379.2		394.8

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2022		2021
Net Earnings (Loss)	$	360	$	349
Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans	20		34
Change in cumulative foreign currency translation adjustment	(48)		(143)
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period	—		(6)
Reclassification adjustment for (gains) losses included in net earnings (loss)	—		3
Total Other Comprehensive Income (Loss), Net of Tax	(28)		(112)
Comprehensive Income (Loss)	332		237
Other comprehensive (income) loss attributable to noncontrolling interests	—		1
Comprehensive Income (Loss) Attributable to International Paper Company	$	332	$	238

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Balance Sheet

(In millions)


	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Current Assets
Cash and temporary investments	$	1,031	$	1,295
Restricted cash	88		—
Accounts and notes receivable, net	3,363		3,232
Contract assets	491		378
Inventories	1,746		1,814
Current investments	291		245
Other current assets	174		132
Total Current Assets	7,184		7,096
Plants, Properties and Equipment, net	10,336		10,441
Long-Term Investments	608		751
Long-Term Financial Assets of Variable Interest Entities (Note 16)	2,280		2,275
Goodwill	3,128		3,130
Overfunded Pension Plan Assets	653		595
Right of Use Assets	373		365
Deferred Charges and Other Assets	596		590
Total Assets	$	25,158	$	25,243
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	197	$	196
Accounts payable	2,657		2,606
Accrued payroll and benefits	345		440
Other current liabilities	943		902
Total Current Liabilities	4,142		4,144
Long-Term Debt	5,468		5,383
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)	2,101		2,099
Deferred Income Taxes	2,642		2,618
Underfunded Pension Benefit Obligation	375		377
Postretirement and Postemployment Benefit Obligation	201		205
Long-Term Lease Obligations	241		236
Other Liabilities	1,101		1,099
Equity
Common stock, $1 par value, 2022 – 448.9 shares and 2021 – 448.9 shares	449		449
Paid-in capital	4,670		4,668
Retained earnings	9,218		9,029
Accumulated other comprehensive loss	(1,694)		(1,666)
	12,643		12,480
Less: Common stock held in treasury, at cost, 2022 – 78.3 shares and 2021 – 70.4 shares	3,756		3,398
Total Equity	8,887		9,082
Total Liabilities and Equity	$	25,158	$	25,243

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

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INTERNATIONAL PAPER COMPANY

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2022		2021
Operating Activities
Net earnings (loss)	$	360	$	349
Depreciation, amortization and cost of timber harvested	261		309
Deferred income tax provision (benefit), net	30		20
Restructuring and other charges, net	—		30
Net (gains) losses on mark to market investments	(46)		—
Net (gains) losses on sales and impairments of businesses	—		2
Net (gains) losses on sales of equity method investments	—		(74)
Equity method dividends received	204		4
Equity (earnings) losses, net	(93)		(49)
Periodic pension (income) expense, net	(28)		(28)
Other, net	51		25
Changes in current assets and liabilities
Accounts and notes receivable	(146)		(186)
Contract assets	(114)		(83)
Inventories	31		93
Accounts payable and accrued liabilities	89		68
Interest payable	25		15
Other	(36)		17
Cash Provided By (Used For) Operations	588		512
Investment Activities
Invested in capital projects, net of insurance recoveries	(185)		(89)
Acquisitions, net of cash acquired	—		(61)
Proceeds from sales of equity method investments	—		397
Proceeds from sales of businesses, net of cash divested	—		11
Proceeds from sale of fixed assets	5		—
Cash Provided By (Used For) Investment Activities	(180)		258
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding	(428)		(155)
Issuance of debt	88		2
Reduction of debt	(3)		(111)
Change in book overdrafts	(66)		(19)
Dividends paid	(174)		(202)
Net debt tender premiums paid	—		(19)
Cash Provided By (Used For) Financing Activities	(583)		(504)
Cash Included in Assets Held for Sale	—		(54)
Effect of Exchange Rate Changes on Cash and Temporary Investments and Restricted Cash	(1)		(20)
Change in Cash and Temporary Investments and Restricted Cash	(176)		192
Cash and Temporary Investments and Restricted Cash
Beginning of period	1,295		595
End of period	$	1,119	$	787

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

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INTERNATIONAL PAPER COMPANY

Condensed Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States and in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments that are necessary for the fair presentation of International Paper Company’s ("International Paper's", "the Company’s" or "our") financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed herein, such adjustments are of a normal, recurring nature. Results for the first three months of the year may not necessarily be indicative of full year results. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which have previously been filed with the Securities and Exchange Commission.

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.

Printing Papers Spinoff

On October 1, 2021, the Company completed the previously announced spin-off of its Printing Papers segment along with certain mixed-use coated paperboard and pulp businesses in North America, France and Russia into a standalone, publicly-traded company, Sylvamo Corporation. The transaction was implemented through the distribution of shares of the standalone company to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo Corporation is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".

In addition to the spin-off of Sylvamo Corporation, the Company completed the sale of its Kwidzyn, Poland mill on August 6, 2021. All historical operating results of the Sylvamo Corporation businesses and Kwidzyn mill have been presented as Discontinued Operations, net of tax, in the condensed consolidated statement of operations. See Note 9 - Divest itures and Impairments of Businesses for further details regarding the Sylvamo Corporation spin-off and discontinued operations.

Russia/Ukraine Conflict

The Russia-Ukraine conflict, including escalating sanctions, possible actions by the Russian government, and associated domestic and global economic and geopolitical conditions, could materially and adversely affect our Ilim joint venture and could otherwise adversely affect our business, financial condition, results of operations and cash flows. We are currently unable to predict the impact the Russian invasion of Ukraine, sanctions imposed to date or that may be imposed in the future, geopolitical instability and the possibility of broadened military conflict may have on us or our Ilim joint venture, including on our receipt of dividends from our Ilim joint venture. Moreover, we have announced our intention to explore strategic options with respect to Ilim S.A., including a sale of our 50% equity interest in Ilim S.A. In addition, we have disclosed our intent to monetize our remaining equity stake in Sylvamo Corporation (which has certain operations in Russia, and announced in March 2022 that it began the suspension of operations in Russia and that it was continuing to assess various options for its operations in that country). While we may sell our equity interests in the Ilim joint venture and/or Sylvamo in the future, we cannot be certain if and when this may occur, or the impact that possible disruptions in the capital markets, or conditions associated with the Russia-Ukraine conflict, could have on the value of and our ability to sell our equity interests in the Ilim joint venture and/or Sylvamo and the timing of any such sales.

NOTE 2 - RECENT ACCOUNTING DEVELOPMENTS

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 optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company will apply the amendments in this update to account for contract modifications due to changes in reference rates once those occur. We do not expect these amendments to have a material impact on our consolidated financial statements and related disclosures.

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Government Assistance

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance." This guidance requires a business entity to provide certain disclosures around assistance received from governments. This guidance is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the provisions of the guidance.

NOTE 3 - REVENUE RECOGNITION

Generally, the Company recognizes revenue on a point-in-time basis when the customer takes title to the goods and assumes the risks and rewards for the goods. For customized goods where the Company has a legally enforceable right to payment for the goods, the Company recognizes revenue over time which, generally, is as the goods are produced.

Disaggregated Revenue

A geographic disaggregation of revenues across our company segmentation in the following tables provides information to assist in evaluating the nature, timing and uncertainty of revenue and cash flows and how they may be impacted by economic factors.


	Three Months Ended March 31, 2022
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate and Inter-segment Sales		Total
Primary Geographical Markets (a)
United States	$	3,761	$	662	$	120	$	4,543
EMEA	410		30		—		440
Pacific Rim and Asia	10		18		1		29
Americas, other than U.S.	225		—		—		225
Total	$	4,406	$	710	$	121	$	5,237

Operating Segments
North American Industrial Packaging	$	4,025	$	—	$	—	$	4,025
EMEA Industrial Packaging	410		—		—		410
Global Cellulose Fibers	—		710		—		710
Intra-segment Eliminations	(29)		—		—		(29)
Corporate & Inter-segment Sales	—		—		121		121
Total	$	4,406	$	710	$	121	$	5,237

(a) Net sales are attributed to countries based on the location of the seller.

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	Three Months Ended March 31, 2021
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate & Intersegment		Total
Primary Geographical Markets (a)
United States	$	3,332	$	543	$	47	$	3,922
EMEA	393		24		(1)		416
Pacific Rim and Asia	18		28		14		60
Americas, other than U.S.	187		—		8		195
Total	$	3,930	$	595	$	68	$	4,593

Operating Segments
North American Industrial Packaging	$	3,560	$	—	$	—	$	3,560
EMEA Industrial Packaging	396		—		—		396
Global Cellulose Fibers	—		595		—		595
Intra-segment Eliminations	(26)		—		—		(26)
Corporate & Inter-segment Sales	—		—		68		68
Total	$	3,930	$	595	$	68	$	4,593

(a) Net sales are attributed to countries based on the location of the seller.

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. Contract liabilities of $22 million and $27 million are included in Other current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021, respectively. During the second quarter of 2021, the Company also recorded a contract liability of $115 million related to the April 2021 acquisition disclosed in Note 8 - Acquisitions. The balance of this contract liability was $105 million and $107 million at March 31, 2022 and December 31, 2021, respectively, and is recorded in Other current liabilities and Other Liabilities in the accompanying condensed consolidated balance sheet.

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 for which we have an unconditional right to payment or receive prepayment from the customer, respectively.

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NOTE 4 - EQUITY

A summary of the changes in equity for the three months March 31, 2022 and 2021 is provided below:


	Three Months Ended March 31, 2022
In millions, except per share amounts	Common Stock Issued		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held In Treasury, At Cost		Total Equity
Balance, January 1	$	449	$	4,668	$	9,029	$	(1,666)	$	3,398	$	9,082
Issuance of stock for various plans, net	—		2		—		—		(70)		$	72
Repurchase of stock	—		—		—		—		428		$	(428)
Common stock dividends ($0.4625 per share)	—		—		(171)		—		—		$	(171)
Comprehensive income (loss)	—		—		360		(28)		—		$	332
Ending Balance, March 31	$	449	$	4,670	$	9,218	$	(1,694)	$	3,756	$	8,887


	Three Months Ended March 31, 2021
In millions, except per share amounts	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	$	449	$	6,325	$	8,070	$	(4,342)	$	2,648	$	7,854	$	14	$	7,868
Issuance of stock for various plans, net	—		(58)		—		—		(84)		26		—		26
Repurchase of stock	—		—		—		—		155		(155)		—		(155)
Common stock dividends ($0.5125 per share)	—		—		(205)		—		—		(205)		—		(205)
Comprehensive income (loss)	—		—		349		(111)		—		238		(1)		237
Ending Balance, March 31	$	449	$	6,267	$	8,214	$	(4,453)	$	2,719	$	7,758	$	13	$	7,771

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N OTE 5 - OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income (AOCI) for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
In millions	2022		2021
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period	$	(962)	$	(1,880)
Amounts reclassified from accumulated other comprehensive income	20		34
Balance at end of period	(942)		(1,846)
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period	(694)		(2,457)
Other comprehensive income (loss) before reclassifications	(48)		(143)
Other comprehensive income (loss) attributable to noncontrolling interest	—		1
Balance at end of period	(742)		(2,599)
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period	(10)		(5)
Other comprehensive income (loss) before reclassifications	—		(6)
Amounts reclassified from accumulated other comprehensive income	—		3
Balance at end of period	(10)		(8)
Total Accumulated Other Comprehensive Income (Loss) at End of Period	$	(1,694)	$	(4,453)

The following table presents details of the reclassifications out of AOCI for the three months ended March 31, 2022 and 2021:


In millions:	Amount Reclassified from Accumulated Other Comprehensive Income					Location of Amount Reclassified from AOCI
	Three Months Ended March 31,
	2022		2021
Defined benefit pension and postretirement items:
Prior-service costs	$	(5)	$	(6)	(a)	Non-operating pension expense
Actuarial gains (losses)	(22)		(40)		(a)	Non-operating pension expense
Total pre-tax amount	(27)		(46)
Tax (expense) benefit	7		12
Total, net of tax	(20)		(34)

Net gains and losses on cash flow hedging derivatives:
Foreign exchange contracts	—		(4)		(b)	Cost of products sold
Total pre-tax amount	—		(4)
Tax (expense)/benefit	—		1
Net of tax	—		(3)
Total reclassifications for the period	$	(20)	$	(37)

(a)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19 for additional details).

(b)This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 18 for additional details).

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NOTE 6 - EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities were converted into common shares. There are no adjustments required to be made to net income for purposes of computing basic and diluted earnings per share. A reconciliation of the amounts included in the computation of basic earnings (loss) per share and diluted earnings (loss) per share is as follows:


	Three Months Ended March 31,
In millions, except per share amounts	2022		2021
Earnings (loss) from continuing operations attributable to International Paper Company common shareholders	$	360	$	267
Weighted average common shares outstanding	375.2		392.8
Effect of dilutive securities
Restricted performance share plan	4.0		2.0
Weighted average common shares outstanding – assuming dilution	379.2		394.8
Basic earnings (loss) per share from continuing operations	$	0.96	$	0.68
Diluted earnings (loss) per share from continuing operations	$	0.95	$	0.68

NOTE 7 - RESTRUCTURING AND OTHER CHARGES, NET

2022: There were no restructuring and other charges recorded during the three months ended March 31, 2022.

2021: During the three months ended March 31, 2021, the Company recorded an $18 million pre-tax charge in Corporate related to early debt extinguishment costs and a $12 million pre-tax charge in the Industrial Packaging segment for severance related to the optimization of our EMEA Packaging business.

NOTE 8 - ACQUISITIONS

2021: On April 1, 2021, the Company closed on the previously announced acquisition of two box plants located in Spain. The total purchase consideration, inclusive of working capital adjustments, was approximately €71 million (approximately $83 million based on the April 1, 2021 exchange rate).

The following table summarizes the final fair value assigned to assets and liabilities acquired as of April 1, 2021:


In millions
Cash and temporary investments	$	5
Accounts and notes receivable	10
Inventories	3
Plants, properties and equipment	50
Goodwill	23
Intangible assets	13
Total assets acquired	$	104
Short-term debt	2
Accounts payable and accrued liabilities	4
Other current liabilities	2
Long-term debt	1
Deferred income taxes	12
Total liabilities assumed	21
Net assets acquired	$	83

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Pro forma information has not been included as it is impracticable to obtain the information due to the lack of availability of historical U.S. GAAP financial data. The results of the operations of these businesses do not have a material effect on the Company's consolidated results of operations.

The Company has accounted for the above acquisition under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the date of acquisition.

2021: In April 2021, the Company received a noncontrolling interest in a U.S-based corrugated packaging producer. In the second quarter of 2021, the Company recorded its investment of $115 million based on the fair value of the noncontrolling interest, and a corresponding contract liability that is amortized over 15 years. The Company is party to various agreements with the entity which includes a containerboard supply agreement. The Company is accounting for its interest as an equity method investment.

NOTE 9 - DIVESTITURES AND IMPAIRMENTS

Printing Papers Spin-off

2021: On October 1, 2021, the Company completed the previously announced spin-off of its Printing Papers segment along with certain mixed-use coated paperboard and pulp businesses in North America, France and Russia into a standalone, publicly-traded company, Sylvamo Corporation. The transaction was implemented through the distribution of shares of the standalone company to International Paper's shareholders (the "Distribution"). As a result of the Distribution, Sylvamo Corporation is an independent public company that trades on the New York Stock Exchange under the symbol "SLVM".

The Distribution was made to the Company's stockholders of record as of the close of business on September 15, 2021 (the "Record Date"), and such stockholders received one share of Sylvamo Corporation common stock for every 11 shares of International Paper common stock held as of the close of business on the Record Date. The Company retained 19.9% of the shares of Sylvamo at the time of the separation and this retained investment is discussed further in Note 10 - Supplementary Financial Statement Information. The spin-off was tax-free for the Company and its shareholders for U.S. federal income tax purposes.

In connection with the Distribution, on September 29, 2021, the Company and Sylvamo Corporation entered into a separation and distribution agreement as well as various other agreements that govern the relationships between the parties following the Distribution, including a transition services agreement, a tax matters agreement and an employee matters agreement. These agreements provide for the allocation between the Company and Sylvamo Corporation of assets, liabilities and obligations attributable to periods prior to, at and after the Distribution and govern certain relationships between the Company and Sylvamo Corporation after the Distribution. The Company is also party to various ongoing operational agreements with Sylvamo Corporation under which it sells fiber, paper and other products. Sales under these agreements were $198 million for the three months ended March 31, 2022.

All historical operating results of the Sylvamo Corporation businesses, as well as the results of our Kwidzyn, Poland mill that was sold on August 6, 2021, are presented as Discontinued Operations, net of tax, in the consolidated statement of operations. Kwidzyn was previously part of the Printing Papers business prior to its sale in August 2021. See Kwidzyn Mill section below for further details regarding this sale.

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The following summarizes the major classes of line items comprising Earnings (Loss) Before Income Taxes and Equity Earnings reconciled to Discontinued Operations, net of tax, related to the Sylvamo Corporation businesses and Kwidzyn for the three months ended March 31, 2021 in the condensed consolidated statement of operations:


In millions	Three Months Ended March 31, 2021
Net Sales	$	770
Costs and Expenses
Cost of products sold	499
Selling and administrative expenses	59
Depreciation, amortization and cost of timber harvested	41
Distribution expenses	70
Taxes other than payroll and income taxes	8
Earnings (Loss) Before Income Taxes and Equity Earnings	93
Income tax provision (benefit)	11
Discontinued Operations, Net of Taxes	$	82

The following summarizes the total cash provided by operations and total cash used for investing activities related to the Sylvamo Corporation businesses and Kwidzyn and included in the condensed consolidated statement of cash flows for the three months ended March 31, 2021:


In millions	Three Months Ended March 31, 2021
Cash Provided by (Used For) Operating Activities	$	79
Cash Provided by (Used For) Investment Activities	$	(19)

In anticipation of the spin-off, Sylvamo incurred $1.5 billion in debt during the third quarter of 2021 with the proceeds used for a distribution to the Company and other expenses associated with the transaction. The Company was an obligor of the debt prior to the spin-off as Sylvamo was a wholly-owned subsidiary. Subsequent to the distribution of the net assets, the Company was no longer an obligor of the Sylvamo debt. The $1.5 billion of borrowings was comprised of $450 million of 7.00% senior unsecured notes due 2029 issued in September 2021. It was also comprised of the senior secured credit facility that Sylvamo entered into in September 2021 which consisted of $450 million of borrowings related to its term loan “B” facility, $520 million of borrowings related to its term loan “F” facility, and the $100 million draw on its revolving credit facility which had a capacity of $450 million. Additionally, at the time of the spin-off in the fourth quarter of 2021, the Company distributed $130 million to Sylvamo.

Kwidzyn Mill

2021: On August 6, 2021, the Company completed the sale of its Kwidzyn, Poland mill for €669 million (approximately $794 million using the July 31, 2021 exchange rate) in cash. The business included the pulp and paper mill in Kwidzyn and supporting functions. During the third quarter of 2021, the Company recorded a net gain of $360 million ($350 million after taxes) including a gain of $404 million ($394 million after taxes) related to the sale of net assets and a loss of $44 million (before and after taxes) related to the cumulative foreign currency translation loss. During the fourth quarter of 2021, the Company incurred $9 million ($6 million after taxes) of costs related to the sale of Kwidzyn. All historical operating results for Kwidzyn have been presented as Discontinued Operations, net of tax, in the condensed consolidated statement of operations.

Olmuksan International Paper

2021: On May 31, 2021, the Company completed the sale of its 90.38% ownership interest in Olmuksan International Paper, a corrugated packaging business in Turkey, to Mondi Group for €66 million (approximately $81 million using the May 31, 2021 exchange rate). During the second quarter of 2021, the Company recorded a gain of $6 million ($0 after taxes) related to the business working capital adjustment.

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In conjunction with the announced agreement in the fourth quarter of 2020, 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. During the first quarter of 2021, the Company recorded an additional charge of $2 million (before and after taxes) related to the cumulative foreign currency translation loss. This charge is included in the Net (gains) losses on sales and impairments of businesses in the accompanying condensed consolidated statement of operations and is included in the results for the Industrial Packaging segment.

NOTE 10 - SUPPLEMENTAL 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 $889 million and $1.1 billion at March 31, 2022 and December 31, 2021, respectively.

Restricted Cash

A reconciliation of cash and temporary investments and restricted cash in the condensed consolidated balance sheet to cash and temporary investments and restricted cash in the condensed consolidated statement of cash flows for the three months ended March 31, 2022 is below. The Company had no restricted cash at March 31, 2021.


	Three Months Ended March 31,
In millions	2022
Cash and Temporary Investments	$	1,031
Restricted Cash	88
Total Cash and Temporary Investments and Restricted Cash	$	1,119

The Company's restricted cash consists of the cash proceeds from the $88 million first quarter 2022 debt issuance. Proceeds from this debt issuance were used to repay debt maturing on April 1, 2022. See Note 17 - Debt for further details regarding the first quarter 2022 debt issuance and the expected debt repayment.

Accounts and Notes Receivable


In millions	March 31, 2022		December 31, 2021
Accounts and notes receivable, net:
Trade (less allowances of $31 in 2022 and $34 in 2021)	$	3,124	$	3,027
Other	239		205
Total	$	3,363	$	3,232

Inventories


In millions	March 31, 2022		December 31, 2021
Raw materials	$	251	$	245
Finished pulp, paper and packaging	986		1,014
Operating supplies	458		486
Other	51		69
Total	$	1,746	$	1,814

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Current Investments

As a result of the 2021 spin-off of Sylvamo Corporation, the Company retained 19.9% of the shares of Sylvamo. The intent is to monetize its investment and to provide additional proceeds to the Company. The Company is accounting for its ownership interest in Sylvamo at fair value as an investment in equity securities. The investment was valued at $291 million and $245 million at March 31, 2022 and December 31, 2021, respectively, and is recorded in Current investments in the accompanying condensed consolidated balance sheet.

In April 2022, the Company borrowed approximately $144 million under a term loan credit agreement with a third-party lender. Subsequently, the Company exchanged 4,132,000 shares of Sylvamo Corporation common stock owned by the Company in exchange and as repayment of the approximately $144 million term loan obligation. After this transaction, the Company owns 4,614,358, or approximately 10.5% of the shares, of Sylvamo Corporation common stock.

Plants, Properties and Equipment

Accumulated depreciation was $17.8 billion and $17.6 billion at March 31, 2022 and December 31, 2021, respectively. Depreciation expense was $250 million and $258 million for the three months ended March 31, 2022 and 2021, respectively.

Non-cash additions to plants, properties and equipment included within accounts payable were $68 million and $106 million at March 31, 2022 and December 31, 2021, respectively.

Amounts invested in capital projects in the accompanying condensed consolidated statement of cash flows are presented net of insurance recoveries of $18 million received during the three months ended March 31, 2022 and $2 million received during the three months ended March 31, 2021.

Interest

Interest payments made during the three months ended March 31, 2022 and 2021 were $56 million and $111 million, respectively.

Amounts related to interest were as follows:


	Three Months Ended March 31,
In millions	2022		2021
Interest expense	$	77	$	124
Interest income	8		31
Capitalized interest costs	4		2

Asset Retirement Obligations

The Company had recorded liabilities of $107 million related to asset retirement obligations at March 31, 2022 and December 31, 2021.

NOTE 11 - LEASES

International Paper leases various real estate, including certain operating facilities, warehouses, office space and land. The Company also leases material handling equipment, vehicles, and certain other equipment. The Company's leases have a remaining lease term of up to 31 years. Total lease costs were $60 million for both of the three months ended March 31, 2022 and 2021.

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Supplemental Balance Sheet Information Related to Leases


In millions	Classification	March 31, 2022		December 31, 2021
Assets
Operating lease assets	Right-of-use assets	$	373	$	365
Finance lease assets	Plants, properties and equipment, net (a)	55		57
Total leased assets		$	428	$	422
Liabilities
Current
Operating	Other current liabilities	$	137	$	132
Finance	Notes payable and current maturities of long-term debt	10		10
Noncurrent
Operating	Long-term lease obligations	241		236
Finance	Long-term debt	54		56
Total lease liabilities		$	442	$	434

(a)Finance leases are recorded net of accumulated amortization of $52 million and $51 million as of March 31, 2022 and December 31, 2021, respectively.

NOTE 12 - EQUITY METHOD INVESTMENTS

The Company accounts for the following investments under the equity method of accounting.

Ilim S.A.

The Company has a 50% equity interest in Ilim S.A. (Ilim), which has subsidiaries whose primary operations are in Russia. The Company recorded equity earnings, net of taxes, of $93 million and $49 million for the three months ended March 31, 2022 and 2021, respectively. Foreign exchange losses included in equity earnings for the three months ended March 31, 2022 were $15 million, primarily on the remeasurement of U.S. dollar denominated payables. JSC Ilim Group had no U.S. dollar-denominated debt outstanding as of March 31, 2022. Equity earnings (losses) for the three months ended March 31, 2021 included after-tax foreign exchange losses of $2 million primarily on the remeasurement of U.S. dollar-denominated debt. The Company received cash dividends from the joint venture of $204 million during the first three months of 2022. At March 31, 2022 and December 31, 2021, the Company's investment in Ilim, which is recorded in Long-Term Investments in the condensed consolidated balance sheets, was $413 million and $557 million, respectively, which was $125 million and $121 million, respectively, more than the Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to currency translation adjustments and the basis difference between the fair value of our investment at acquisition and the underlying net assets. Prior to the spin-off of the Printing Papers segment on October 1, 2021, the Company was party to a joint marketing agreement with JSC Ilim Group, a subsidiary of Ilim, under which the Company purchased, marketed and sold paper produced by JSC Ilim Group. Purchases under this agreement were $41 million for the three months ended March 31, 2021. The joint marketing agreement was conveyed to Sylvamo Corporation as part of the spin-off transaction on October 1, 2021.

Summarized financial information for Ilim is presented in the following tables:

Balance Sheet


In millions	March 31, 2022	December 31, 2021
Current assets	772	$	1,010
Noncurrent assets	2,830	3,145
Current liabilities	1,404	1,212
Noncurrent liabilities	1,595	2,047
Noncontrolling interests	27	24

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Income Statement


	Three Months Ended March 31,
In millions	2022		2021
Net sales	$	707	$	531
Gross profit	399		248
Income (loss) from continuing operations	182		103
Net income (loss)	177		100

The Company's remaining equity method investments are not material.

NOTE 13 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the three-months ended March 31, 2022:

In millions

Industrial
Packaging

Global Cellulose Fibers

Total

Balance as of January 1, 2022

Goodwill

3,426