10-Q 1 ip-20240331.htm 10-Q ip-20240331
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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, 2024
 
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: (901419-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesIPNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 19, 2024 was 347,332,324.


INDEX
 
  PAGE NO.
Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Balance Sheet - March 31, 2024 and December 31, 2023
Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2024 and 2023



 

INTERNATIONAL PAPER COMPANY
(Unaudited)
(In millions, except per share amounts)
 Three Months Ended
March 31,
 20242023
Net Sales$4,619 $5,020 
Costs and Expenses
Cost of products sold3,424 3,642 
Selling and administrative expenses358 381 
Depreciation, amortization and cost of timber harvested278 241 
Distribution expenses391 422 
Taxes other than payroll and income taxes41 36 
Restructuring and other charges, net3  
Net (gains) losses on sales of fixed assets5  
Interest expense, net46 62 
Non-operating pension expense (income)(12)15 
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings (Loss)85 221 
Income tax provision (benefit)27 48 
Equity earnings (loss), net of taxes(2)(1)
Earnings (Loss) From Continuing Operations56 172 
Discontinued operations, net of taxes  
Net Earnings (Loss)$56 $172 
Basic Earnings (Loss) Per Share
Earnings (loss) from continuing operations$0.16 $0.49 
Discontinued operations, net of taxes  
Net earnings (loss)$0.16 $0.49 
Diluted Earnings (Loss) Per Share
Earnings (loss) from continuing operations$0.16 $0.49 
Discontinued operations, net of taxes  
Net earnings (loss)$0.16 $0.49 
Average Shares of Common Stock Outstanding – assuming dilution348.5 353.3 
The accompanying notes are an integral part of these condensed financial statements.

1

INTERNATIONAL PAPER COMPANY
(Unaudited)
(In millions)
 
 Three Months Ended
March 31,
 20242023
Net Earnings (Loss)$56 $172 
Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans17 23 
Change in cumulative foreign currency translation adjustment(10)(9)
Total Other Comprehensive Income (Loss), Net of Tax7 14 
Comprehensive Income (Loss)$63 $186 
The accompanying notes are an integral part of these condensed financial statements.

2

INTERNATIONAL PAPER COMPANY
(In millions)
March 31,
2024
December 31,
2023
 (unaudited) 
Assets
Current Assets
Cash and temporary investments$1,070 $1,113 
Accounts and notes receivable, net3,048 3,059 
Contract assets430 433 
Inventories1,771 1,889 
Other current assets140 114 
Total Current Assets6,459 6,608 
Plants, Properties and Equipment, net10,027 10,150 
Investments160 163 
Long-Term Financial Assets of Variable Interest Entities (Note 14)2,317 2,312 
Goodwill3,041 3,041 
Overfunded Pension Plan Assets145 118 
Right of Use Assets445 448 
Deferred Charges and Other Assets434 421 
Total Assets$23,028 $23,261 
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt$138 $138 
Accounts payable2,322 2,442 
Accrued payroll and benefits378 397 
Other current liabilities1,016 982 
Total Current Liabilities3,854 3,959 
Long-Term Debt5,453 5,455 
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 14)2,115 2,113 
Deferred Income Taxes1,541 1,552 
Underfunded Pension Benefit Obligation279 280 
Postretirement and Postemployment Benefit Obligation137 140 
Long-Term Lease Obligations307 312 
Other Liabilities1,085 1,095 
Equity
Common stock, $1 par value, 2024 – 448.9 shares and 2023 – 448.9 shares
449 449 
Paid-in capital4,663 4,730 
Retained earnings9,386 9,491 
Accumulated other comprehensive loss(1,558)(1,565)
12,940 13,105 
Less: Common stock held in treasury, at cost, 2024 – 101.6 shares and 2023 – 102.9 shares
4,683 4,750 
Total Equity8,257 8,355 
Total Liabilities and Equity$23,028 $23,261 
The accompanying notes are an integral part of these condensed financial statements.

3

INTERNATIONAL PAPER COMPANY
(Unaudited)
(In millions)
 Three Months Ended
March 31,
 20242023
Operating Activities
Net earnings (loss)$56 $172 
Depreciation, amortization and cost of timber harvested278 241 
Deferred income tax provision (benefit), net(11)(2)
Restructuring and other charges, net3  
Net (gains) losses on sales and impairments of equity method investments 43 
Net (gains) losses on sales of fixed assets5  
Equity (earnings) losses, net of taxes2 (42)
Periodic pension (income) expense, net(2)26 
Other, net32 39 
Changes in current assets and liabilities
Accounts and notes receivable7 103 
Contract assets2 (52)
Inventories76 52 
Accounts payable and accrued liabilities(44)(203)
Interest payable17 (5)
Other(26)(27)
Cash Provided By (Used For) Operations395 345 
Investment Activities
Invested in capital projects(251)(341)
Proceeds from sale of fixed assets1 2 
Other3  
Cash Provided By (Used For) Investment Activities(247)(339)
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding(22)(177)
Issuance of debt 670 
Reduction of debt(3)(413)
Change in book overdrafts(5)(26)
Dividends paid(161)(162)
Cash Provided By (Used For) Financing Activities(191)(108)
Effect of Exchange Rate Changes on Cash and Temporary Investments 6 
Change in Cash and Temporary Investments(43)(96)
Cash and Temporary Investments
Beginning of period1,113 804 
End of period$1,070 $708 

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

4

INTERNATIONAL PAPER COMPANY
(Unaudited)


The accompanying unaudited condensed consolidated 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," "IP'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. You should read these unaudited condensed financial statements 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, 2023 (the "Annual Report"), which have previously been filed with the U.S. Securities and Exchange Commission ("SEC").

These unaudited condensed 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.


Recently Adopted Accounting Pronouncements

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("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, 2024. The Company has applied and will continue to apply this guidance to account for contract modifications due to changes in reference rates as those modifications occur. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This guidance requires companies to disclose incremental segment information on an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2023 and interim periods within those years beginning after December 15, 2024. Early adoption of these amendments is permitted and amendments are required to be applied retrospectively to all prior periods presented in the financial statements. The Company adopted this guidance as of January 1, 2024 and will update disclosures within the Company's 2024 annual filing.

Recently Issued Accounting Pronouncements Not Yet Adopted

Income Taxes

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This guidance requires companies to enhance income tax disclosures, particularly around rate reconciliations and income taxes paid information. This guidance is effective for annual reporting periods beginning after December 15, 2024. Early adoption of these amendments is permitted and amendments should be applied prospectively. The Company is currently evaluating the provisions of this guidance.







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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

Three Months Ended March 31, 2024
In millionsIndustrial PackagingGlobal Cellulose FibersCorporate & IntersegmentTotal
Primary Geographical Markets (a)
United States$3,239 $650 $107 $3,996 
Europe, Middle East & Africa ("EMEA")348 20  368 
Pacific Rim and Asia14 34  48 
Americas, other than U.S.207   207 
Total$3,808 $704 $107 $4,619 
Operating Segments
North American Industrial Packaging$3,486 $ $ $3,486 
EMEA Industrial Packaging348  — 348 
Global Cellulose Fibers 704 — 704 
Intrasegment Eliminations(26)  (26)
Corporate & Intersegment Sales  107 107 
Total$3,808 $704 $107 $4,619 
(a) Net sales are attributed to countries based on the location of the seller.


Three Months Ended March 31, 2023
In millionsIndustrial PackagingGlobal Cellulose FibersCorporate & IntersegmentTotal
Primary Geographical Markets (a)
United States$3,455 $730 $126 $4,311 
EMEA391 25  416 
Pacific Rim and Asia8 56  64 
Americas, other than U.S.229   229 
Total$4,083 $811 $126 $5,020 
Operating Segments
North American Industrial Packaging$3,724 $— $— $3,724 
EMEA Industrial Packaging391 — — 391 
Global Cellulose Fibers— 811 — 811 
Intrasegment Eliminations(32)— — (32)
Corporate & Intersegment Sales— — 126 126 
Total$4,083 $811 $126 $5,020 
(a) Net sales are attributed to countries based on the location of the seller.








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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 $28 million and $32 million are included in Other current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, respectively. The Company also recorded a contract liability of $115 million related to a previous acquisition. The balance of this contract liability was $90 million and $92 million at March 31, 2024 and December 31, 2023, 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.


A summary of the changes in equity for the three months ended March 31, 2024 and 2023 is provided below:

Three Months Ended March 31, 2024
In millions, except per share amountsCommon Stock IssuedPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Common Stock Held In Treasury, At CostTotal
Equity
Balance, January 1$449 $4,730 $9,491 $(1,565)$4,750 $8,355 
Issuance of stock for various plans, net (67)  (89)22 
Repurchase of stock    22 (22)
Common stock dividends
($0.4625 per share)
  (161)  (161)
Comprehensive income (loss)  56 7  63 
Ending Balance, March 31$449 $4,663 $9,386 $(1,558)$4,683 $8,257 

Three Months Ended March 31, 2023
In millions, except per share amountsCommon Stock IssuedPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Common Stock Held In Treasury, At CostTotal
Equity
Balance, January 1$449 $4,725 $9,855 $(1,925)$4,607 $8,497 
Issuance of stock for various plans, net— (26)— — (72)46 
Repurchase of stock— — — — 179 (179)
Common stock dividends
($0.4625 per share)
— — (161)— — (161)
Comprehensive income (loss)— — 172 14 — 186 
Ending Balance, March 31$449 $4,699 $9,866 $(1,911)$4,714 $8,389 



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The following table presents changes in Accumulated Other Comprehensive Income (Loss) ("AOCI"), net of tax, for the three months ended March 31, 2024 and 2023:

Three Months Ended
March 31,
In millions20242023
Defined Benefit Pension and Postretirement Adjustments
Balance at beginning of period$(1,276)$(1,195)
Amounts reclassified from accumulated other comprehensive income17 23 
Balance at end of period(1,259)(1,172)
Change in Cumulative Foreign Currency Translation Adjustments
Balance at beginning of period(281)(722)
Other comprehensive income (loss) before reclassifications(10)(9)
Balance at end of period(291)(731)
Net Gains and Losses on Cash Flow Hedging Derivatives
Balance at beginning of period(8)(8)
Balance at end of period(8)(8)
Total Accumulated Other Comprehensive Income (Loss) at End of Period$(1,558)$(1,911)

The following table presents details of the reclassifications out of AOCI for the three months ended March 31, 2024 and 2023:

In millions:Amount Reclassified from Accumulated Other Comprehensive IncomeLocation of Amount Reclassified from AOCI
Three Months Ended
March 31,
20242023
Defined benefit pension and postretirement items:
Prior-service costs$(3)$(6)(a)Non-operating pension expense (income)
Actuarial gains (losses)(19)(24)(a)Non-operating pension expense (income)
Total pre-tax amount(22)(30)
Tax (expense) benefit5 7 
Net of tax(17)(23)
Total reclassifications for the period$(17)$(23)

(a)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for additional details).


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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 from continuing operations and diluted earnings (loss) per share from continuing operations is as follows:
 
 Three Months Ended
March 31,
In millions, except per share amounts20242023
Earnings (loss) from continuing operations $56 $172 
Weighted average common shares outstanding346.7 349.3 
Effect of dilutive securities
Restricted performance share plan1.8 4.0 
Weighted average common shares outstanding – assuming dilution348.5 353.3 
Basic earnings (loss) per share from continuing operations$0.16 $0.49 
Diluted earnings (loss) per share from continuing operations$0.16 $0.49 


2024: During the three months ended March 31, 2024, the Company recorded restructuring and other charges of $3 million for costs associated with the permanent closure of our containerboard mill in Orange, Texas and the permanent shutdown of pulp machines at our Riegelwood, North Carolina and Pensacola, Florida mills.

2023: There were no restructuring and other charges recorded during the three months ended March 31, 2023.


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 stated at cost. Temporary investments totaled $724 million and $950 million at March 31, 2024 and December 31, 2023, respectively.

Accounts and Notes Receivable

In millionsMarch 31, 2024December 31, 2023
Accounts and notes receivable, net:
Trade (less allowances of $31 in 2024 and $34 in 2023)
$2,783 $2,841 
Other265 218 
Total$3,048 $3,059 

Inventories

In millionsMarch 31, 2024December 31, 2023
Raw materials$213 $229 
Finished pulp, paper and packaging891 975 
Operating supplies616 622 
Other51 63 
Total$1,771 $1,889 






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Plants, Properties and Equipment  

Accumulated depreciation was $19.7 billion and $19.6 billion at March 31, 2024 and December 31, 2023, respectively. Depreciation expense was $268 million and $232 million for the three months ended March 31, 2024 and 2023, respectively. Depreciation expense for the three months ended March 31, 2024 includes $5 million of accelerated depreciation related to mill strategic actions.

Non-cash additions to plants, properties and equipment included within accounts payable were $61 million and $141 million at March 31, 2024 and December 31, 2023, respectively.

Accounts Payable  

Under a supplier finance program, International Paper agrees to pay a bank the stated amount of confirmed invoices from its designated suppliers on the original maturity dates of the invoices. International Paper or the bank may terminate the agreement upon at least 90 days’ notice. The supplier invoices that have been confirmed as valid under the program require payment in full on the due date with no terms exceeding 180 days. The accounts payable balance included $116 million and $122 million of supplier finance program liabilities as of March 31, 2024 and December 31, 2023, respectively.

Interest

Interest payments made during the three months ended March 31, 2024 and 2023 were $94 million and $114 million, respectively.

Amounts related to interest were as follows: 
 Three Months Ended
March 31,
In millions20242023
Interest expense$109 $103 
Interest income63 41 
Capitalized interest costs2 5 

Asset Retirement Obligations

The Company recorded liabilities in Other Liabilities in the accompanying condensed consolidated balance sheet of $103 million related to asset retirement obligations at both March 31, 2024 and December 31, 2023.


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 29 years. Total lease costs were $79 million and $75 million for the three months ended March 31, 2024 and 2023, respectively.



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Supplemental Balance Sheet Information Related to Leases

In millionsClassificationMarch 31, 2024December 31, 2023
Assets
Operating lease assetsRight-of-use assets$445 $448 
Finance lease assetsPlants, properties and equipment, net (a)44 47 
Total leased assets$489 $495 
Liabilities
Current
OperatingOther current liabilities$149 $153 
FinanceNotes payable and current maturities of long-term debt11 11 
Noncurrent
OperatingLong-term lease obligations307 312 
FinanceLong-term debt42 44 
Total lease liabilities$509 $520 

(a)Finance leases are recorded net of accumulated amortization of $68 million and $67 million as of March 31, 2024 and December 31, 2023, respectively.



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

Ilim S.A.

On September 18, 2023, pursuant to a previously announced agreement, the Company completed the sale of its 50% equity interest in Ilim S.A. ("Ilim"), which was a joint venture that operated a pulp and paper business in Russia and has subsidiaries including Ilim Group, to its joint venture partners for $484 million in cash. The Company also completed the sale of all of its Ilim Group shares (constituting a 2.39% stake) for $24 million, and divested other non-material residual interests associated with Ilim, to its joint venture partners. Following the completed sales, the Company no longer has an interest in Ilim or any of its subsidiaries. Additionally, we incurred transaction fees of $36 million in connection with the sale of our investment. The Company reclassified currency translation adjustments in AOCI of $517 million to the investment at the completion of the transaction.

All historical results of the Ilim investment are presented as Discontinued Operations, net of taxes in the condensed consolidated statement of operations.

The following summarizes the items comprising Equity Earnings, Impairment Charges, Tax Expense (Benefit), Discontinued Operations and Dividends related to the sale of our equity interest in Ilim:

In millionsEquity EarningsImpairment ChargesTax Expense (Benefit)Discontinued Operations, net of tax (a)Dividends
2023 First Quarter43 43    
2023 Second Quarter46 33  13 13 
2023 Third Quarter23 59 (9)(27) 
(a)    Discontinued operations, net of tax is Equity Earnings less Impairment Charges and Tax Expense (Benefit)










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Goodwill

The following table presents changes in goodwill balances as allocated to each business segment for the three months ended March 31, 2024:
In millionsIndustrial
Packaging
Global Cellulose Fibers Total
Balance as of January 1, 2024
Goodwill$3,413 $52   $3,465 
Accumulated impairment losses (372)(52)  (424)
Total3,041    3,041 
Balance as of March 31,2024
Goodwill3,413 52   3,465 
Accumulated impairment losses (372)(52)  (424)
Total$3,041 $   $3,041 
 
Other Intangibles

Identifiable intangible assets are recorded in Deferred Charges and Other Assets in the accompanying condensed consolidated balance sheet and comprised the following: 

 March 31, 2024December 31, 2023
In millionsGross
Carrying
Amount
Accumulated
Amortization
Net Intangible AssetsGross
Carrying
Amount
Accumulated
Amortization
Net Intangible Assets
Customer relationships and lists$494 $342 $152 $494 $335 $159 
Tradenames, patents and trademarks, and developed technology170 156 14 170 154 16 
Land and water rights8 2 6 8 2 6 
Other21 19 2 21 19 2 
Total$693 $519 $174 $693 $510 $183 

The Company recognized the following amounts as amortization expense related to intangible assets: 

 Three Months Ended
March 31,
In millions20242023
Amortization expense related to intangible assets$9 $9 


International Paper made income tax payments, net of refunds, of $5 million and $169 million for the three months ended March 31, 2024 and 2023, respectively.

The Company currently estimates, that as a result of ongoing discussions, pending tax settlements and expirations of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately $7 million during the next 12 months.

The Organization for Economic Cooperation and Development has proposed a 15% global minimum tax applied on a country-by-country basis (the "Pillar Two rule"), and many countries, including countries in which we operate, have enacted or begun the process of enacting laws adopting the Pillar Two rule. The first component of the Pillar Two rule became effective as of January 1, 2024 and did not have a material impact on the Company’s effective tax rate. The second component is expected to go into effect in 2025.

The Company plans to complete an internal legal entity restructuring in the second quarter, which we currently estimate will result in a tax benefit of approximately $350 million.


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Guarantees

In connection with sales of businesses, property, equipment, forestlands and other assets, International Paper commonly makes representations and warranties relating to such businesses or assets, and may agree to indemnify buyers with respect to tax and environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for such matters are determined to be probable and reasonably estimable, accrued liabilities are recorded at the time of sale as a cost of the transaction.

Brazil Goodwill Tax Matter: The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by Sylvamo do Brasil Ltda. ("Sylvamo Brazil"), which was a wholly-owned subsidiary of the Company, until the October 1, 2021 spin-off of the Printing Papers business, after which it became a subsidiary of Sylvamo Corporation ("Sylvamo"). Sylvamo Brazil received assessments for the tax years 2007-2015 totaling approximately $119 million (adjusted for variation in currency exchange rates) in tax, plus interest, penalties and fees. The interest, penalties and fees currently total approximately $278 million (adjusted for variation in currency exchange rates), which reflects a recent law change pursuant to which the Brazil tax authority on January 16, 2024 agreed to cancel a portion of the interest, penalties and fees. Accordingly, the assessments currently total approximately $397 million (adjusted for variation in currency exchange rates). After an initial favorable ruling challenging the basis for these assessments, Sylvamo Brazil received subsequent unfavorable decisions from the Brazilian Administrative Council of Tax Appeals. Sylvamo Brazil has appealed these decisions and intends to appeal any future unfavorable administrative judgments to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. Sylvamo Brazil and International Paper believe the transaction underlying these assessments was appropriately evaluated, and that Sylvamo Brazil's tax position should be sustained, based on Brazilian tax law.

This matter pertains to a business that was conveyed to Sylvamo as of October 1, 2021, as part of our spin-off transaction. Pursuant to the terms of the tax matters agreement entered into between the Company and Sylvamo, the Company will pay 60% and Sylvamo will pay 40%, on up to $300 million of any assessment related to this matter, and the Company will pay all amounts of the assessment over $300 million. Under the terms of the agreement, decisions concerning the conduct of the litigation related to this matter, including strategy, settlement, pursuit and abandonment, will be made by the Company. Sylvamo thus has no control over any decision related to this ongoing litigation. The Company intends to vigorously defend this historic tax position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015. The Brazilian government may enact a tax amnesty program that would allow Sylvamo Brazil to resolve this dispute for less than the assessed amount. As of October 1, 2021, in connection with the recording of the distribution of assets and liabilities resulting from the spin-off transaction, the Company established a liability representing the initial fair value of the contingent liability under the tax matters agreement. The contingent liability was determined in accordance with ASC 460 "Guarantees" based on the probability weighting of various possible outcomes. The initial fair value estimate and recorded liability as of December 31, 2021 was $48 million and remains this amount at March 31, 2024. This liability will not be increased in subsequent periods unless facts and circumstances change such that an amount greater than the initial recognized liability becomes probable and estimable.

Environmental

The Company has been named as a potentially responsible party ("PRP") in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). Many of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many PRPs. There are other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed and formerly-owned facilities, and recorded as liabilities in the balance sheet.

Remediation costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these environmental remediation matters, including those described herein, to be approximately $249 million and $251 million in the aggregate as of March 31, 2024 and December 31, 2023, respectively. Other than as described below, completion of required environmental remedial actions ("RAs") is not expected to have a material effect on our consolidated financial statements.

Cass Lake: One of the matters included above arises out of a closed wood-treatment facility located in Cass Lake, Minnesota. In June 2011, the U.S. Environmental Protection Agency ("EPA") selected and published a proposed soil remedy at the site

13

with an estimated cost of $46 million. 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 soil remedy referenced above. The total reserve for the Cass Lake superfund site was $45 million and $46 million as of March 31, 2024 and December 31, 2023, respectively.

Kalamazoo River: The Company is a PRP with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan. The EPA asserts that the site is contaminated by polychlorinated biphenyls primarily as a result of discharges from various paper mills located along the Kalamazoo River, including a 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 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 1: In October 2016, the Company and another PRP received a special notice letter from the EPA inviting participation in the remedial design ("RD") component of the landfill remedy for the Allied Paper Mill, which is also known as Operable Unit 1. A Record of Decision ("ROD") 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 special notice letter in December 2016. In February 2017, the EPA informed the Company that it would make other arrangements for the performance of the RD. In the summer 2021, the EPA initiated RA activities. In October 2022, the Company received a unilateral administrative order to perform the RA. As a result, the Company increased its reserve by $27 million in the fourth quarter of 2022.

The total reserve for the Kalamazoo River superfund site was $22 million and $27 million as of March 31, 2024 and December 31, 2023, respectively.

In addition, in December 2020, the Federal District Court approved a Consent Decree among the United States, NCR Corporation (one of the parties to the allocation/apportionment litigation described below), the State of Michigan and natural resource trustees. Under the Consent Decree NCR agreed to make payments of more than $100 million and perform work in Operable Unit 5, Areas 2, 3, and 4 at an estimated cost of $136 million.

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 Company is involved in allocation/apportionment 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 presently 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 (collectively, "GP") in a contribution and cost recovery action for alleged pollution at the site related to the Company's potential CERCLA liability. NCR Corporation and Weyerhaeuser Company were 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 Federal District 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 District Court did not address responsibility for future costs in its decision. In July 2018, the Company and each of the other parties filed notices appealing the Final Judgment and prior orders incorporated into that Judgment. In April 2022, the Sixth Circuit Court of Appeals (the "Sixth Circuit") reversed the Judgment of the Court, finding that the suit against the Company was time-barred by the applicable statute of limitations. In May 2022, GP filed a petition for rehearing with the Sixth Circuit, which was denied in July 2022. In November 2022, GP filed a petition for writ of certiorari with the U.S. Supreme Court. In October 2023, the U.S. Supreme Court denied GP's writ petition, thus rendering final the Sixth Circuit's decision that GP's suit against the Company was time-barred. In January 2024 GP requested that the District Court’s final order declare that each party is jointly and severally liable for future costs, arguing that the Sixth Circuit decision only applies to past costs. On April 9, 2024, the District Court entered Final Judgment After Remand, declaring, consistent with the Sixth Circuit's decision, that GP’s past costs are time-barred by the applicable statute of limitations. The District Court also entered Final Judgment on Remand that all three parties, including the Company, are jointly and severally liable for future response costs at the site. The Company believes the District Court’s Final Judgment on Remand

14

regarding liability for future costs is in error and is appealing the Final Judgment on Remand on future costs liability to the Sixth Circuit.
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 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 impoundment, and $10 million for the 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 RD.

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 RD for the northern impoundment. That RD work is ongoing. The AOC does not include any agreement to perform waste removal or other construction activity at the site. Rather, it involves adaptive management techniques and a pre-design investigation, the objectives of which include filling data gaps (including but not limited to post-Hurricane Harvey technical data generated prior to the ROD and not incorporated into the selected remedy), refining areas and volumes of materials to be addressed, determining if an excavation remedy is able to be implemented in a manner protective of human health and the environment, and investigating potential impacts of remediation activities to infrastructure in the vicinity.
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, 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 represents the Company's 50% share of our estimate of the low end of the range of probable remediation costs.

We submitted the Final Design Package for the southern impoundment to the EPA, and the EPA approved this plan in May 2021. The EPA issued a Unilateral Administrative Order for RA of the southern impoundment in August 2021. An addendum to the Final 100% RD (Amended April 2021) was submitted to the EPA for the southern impoundment in June 2022. This addendum incorporated additional data collected to date which indicated that additional waste material removal will be required, lengthening the time to complete RA.

With respect to the northern impoundment, the PRPs submitted the final component of the 90% to the EPA in November 2022. Upon submittal of the final component, an updated engineering estimate was developed, and the Company increased the reserved amount by approximately $21 million, which represents the Company's 50% share of our estimate of the low end of the range of probable remediation costs. On January 5, 2024, the PRPs received comments from the EPA on the November 2022 90% RD submittal. The PRPs responded to the EPA comments in late January 2024. While several key technical issues have been resolved, respondents still face significant challenges remediating this area in a cost-efficient manner that will not result in a release of contaminated materials to the environment during the excavation, removal and transport of the materials. 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; however, we are unable to estimate any loss or range of loss in excess of such liability. The total reserve for the southern and northern impoundment was $78 million and $83 million as of March 31, 2024 and December 31, 2023, respectively.

Versailles Pond: The Company is a responsible party for the investigation and remediation of Versailles Pond, a 57-acre dammed river impoundment that historically received paperboard mill wastewater in Sprague, Connecticut. A comprehensive investigation has determined that Versailles Pond is contaminated with polychlorinated biphenyls, mercury, and metals. A preliminary remediation plan was prepared in the third quarter of 2023. Negotiations with state and federal governmental officials are ongoing regarding the scope and timing of the remediation. The total reserve for Versailles Pond was $30 million as of both March 31, 2024 and December 31, 2023.

Asbestos-Related Matters

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's total recorded liability with respect to pending and future asbestos-related claims was $110 million and $97 million as of March 31,

15

2024 and December 31, 2023, respectively, both 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 are unable to estimate any loss or range of loss in excess of such liability, and do not believe additional material losses are probable.
Antitrust

In March 2017, the Italian Competition Authority ("ICA") commenced an investigation into the Italian packaging industry to determine whether producers of corrugated sheets and boxes violated the applicable European competition law. In April 2019, the ICA concluded its investigation and issued initial findings alleging that over 30 producers, including our Italian packaging subsidiary ("IP Italy"), improperly coordinated the production and sale of corrugated sheets and boxes. In August 2019, the ICA issued its decision and assessed IP Italy a fine of €29 million (approximately $31 million at the then-current exchange rates) which was recorded in the third quarter of 2019. We appealed the ICA decision and our appeal was denied in May 2021. We further appealed the decision to the Italian Council of State ("Council of State"), and in March 2023 the Council of State largely upheld the ICA’s findings, but referred the calculation of IP Italy’s fine back to the ICA, finding that it was disproportionately high based on the conduct found. We further appealed the Council of State decision to uphold the ICA’s findings, and in March 2024, the Council published its decision holding that its earlier decision should be interpreted as accepting many of IP Italy’s earlier arguments and that the ICA should reduce IP Italy’s fine accordingly. Notwithstanding these decisions by the Council of State, in March 2024 the ICA served IP Italy with its redetermination decision leaving IP Italy’s fine unchanged. IP Italy does not believe the ICA's redetermination decision is consistent with the Council of State's March 2024 decision or its March 2023 referral back to the ICA, and intends to further appeal the amount of its fine. The Company and other producers also have been named in lawsuits, and we have received other claims, by a number of customers in Italy for damages associated with the alleged anticompetitive conduct. We do not believe material losses arising from such private lawsuits and claims are probable.

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. Assessments of lawsuits and claims can involve a series of complex judgments about future events, can rely heavily on estimates and assumptions, and are otherwise subject to significant uncertainties. As a result, there can be no certainty that the Company will not ultimately incur charges in excess of presently recorded liabilities. The Company believes that loss contingencies arising from pending matters including the matters described herein, will not have a material effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending or threatened legal matters, some of which are beyond the Company's control, and the large or indeterminate damages sought in some of these matters, a future adverse ruling, settlement, unfavorable development, or increase in accruals with respect to these matters could result in future charges that could be material to the Company's results of operations or cash flows in any particular reporting period.


Variable Interest Entities

As of March 31, 2024, the fair value of the Timber Notes and Extension Loans for the 2007 Financing Entities was $2.4 billion and $2.1 billion, respectively. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 1 in the Company’s Annual Report.

The Timber Notes of $2.3 billion and the Extension Loans of $2.1 billion both mature in 2027 and are shown in Long-term nonrecourse financial assets of variable interest entities and Long-term nonrecourse financial liabilities of variable interest entities, respectively, on the accompanying condensed consolidated balance sheet.
Activity between the Company and the 2007 Financing Entities was as follows:

Three Months Ended
March 31,
In millions20242023
Revenue (a)$39 $33 
Expense (b)35 31 
Cash receipts (c)34 27 
Cash payments (d)34 27 
 

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(a)The revenue is included in Interest expense, net in the accompanying statement of operations and includes approximately $5 million for both the three months ended March 31, 2024 and 2023, of accretion income for the amortization of the basis difference adjustment on the Financial assets of special purpose entities.
(b)The expense is included in Interest expense, net in the accompanying statement of operations and includes approximately $2 million for both the three months ended March 31, 2024 and 2023, of accretion expense for the amortization of the basis difference adjustment on the Nonrecourse financial liabilities of special purpose 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.

On September 2, 2022, the Company and the Internal Revenue Service agreed to settle the previously disclosed timber monetization restructuring tax matter involving the variable interest entities that were restructured in 2015 ("the 2015 Financing Entities") in connection with an extension of installment notes and third-party loans. Under this agreement, the Company was required to fully resolve the matter and pay $252 million in U.S. federal income taxes. As a result, interest was charged upon closing of the audit. The Company has paid $252 million in U.S. federal income taxes and $58 million in interest expense as a result of the settlement agreement. The Company paid $163 million in U.S. federal income taxes and $30 million in interest during the first quarter of 2023 and fully satisfied the payment terms of the settlement agreement regarding the 2015 Financing Entities timber monetization restructuring tax matter during the second quarter of 2023.


The borrowing capacity of the Company's commercial paper program is $1.0 billion supported by its $1.4 billion credit agreement. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. As of March 31, 2024, the Company had no borrowings outstanding under the program.

At March 31, 2024, International Paper’s credit facilities totaled $1.9 billion. The credit facilities generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The credit facilities previously included a $1.5 billion contractually committed bank facility with a maturity date of June 2026. In June 2023, the Company amended and restated its credit agreement to, among other things, (i) reduce the size of the contractually committed bank facility from $1.5 billion to $1.4 billion, (ii) extend the maturity date from June 2026 to June 2028, and (iii) replace the LIBOR-based rate with a SOFR-based rate. The liquidity facilities also included up to $500 million of uncommitted financings based on eligible receivables balances under a receivables securitization program that expires in June 2025. At March 31, 2024, the Company had no borrowings outstanding under the receivables securitization program.

During the first quarter of 2024, the Company had debt reductions of $3 million related to decreases in the amount of capital leases.

The Company’s financial covenants require 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 March 31, 2024, we were in compliance with our debt covenants.

At March 31, 2024, the fair value of International Paper’s $5.6 billion of debt was approximately $5.3 billion. The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues. International Paper’s long-term debt is classified as Level 2 within the fair value hierarchy, which is further defined in Note 1 in the Company’s Annual Report.


International Paper sponsors and maintains the Retirement Plan of International Paper Company (the "Pension Plan"), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all hourly and union employees who work at a participating business unit. The Pension Plan was frozen as of January 1, 2019 for salaried participants.

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).


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Net periodic pension expense (income) for our qualified and nonqualified U.S. defined benefit plans comprised the following: 

 Three Months Ended
March 31,
In millions20242023
Service cost$13 $12 
Interest cost111 116 
Expected return on plan assets(148)(132)
Actuarial loss19 24 
Amortization of prior service cost3 6 
Net periodic pension expense (income)$(2)$26 

The components of net periodic pension expense (income) other than the Service cost component are included in Non-operating pension expense (income) in the condensed consolidated statement of operations.

The Company’s funding policy for our 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 made no voluntary cash contributions to the qualified pension plan in the first three months of 2024 or 2023. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $5 million for the three months ended March 31, 2024.


The Company's 2009 Amended and Restated Incentive Compensation Plan ("ICP") is administered by the Management Development and Compensation Committee of the Board of Directors (the "Committee"). The ICP authorizes grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards and cash-based awards at the discretion of the Committee. As of March 31, 2024, 3.8 million shares were available for grant under the ICP.

Stock-based compensation expense and related income tax benefits were as follows: 

 Three Months Ended
March 31,
In millions20242023
Total stock-based compensation expense (selling and administrative)$9 $34 
Income tax benefits related to stock-based compensation13 11 

At March 31, 2024, $108 million, net of estimated forfeitures, of compensation cost related to time-based and performance-based shares and restricted stock attributable to future service had not yet been recognized. This amount will be recognized in expense over a weighted-average period of 1.8 years.

Long-Term Incentive Plan

During the first three months of 2024, the Company granted 1.4 million performance units at an average grant date fair value of $37.83 and 1.4 million time-based units at an average grant date fair value of $36.15.


International Paper’s business segments, Industrial Packaging and Global Cellulose Fibers, are consistent with the internal structure used to manage these businesses. Both segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry.

Business segment operating profits (losses) are used by International Paper's management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Business segment operating profits (losses) are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of less than wholly owned subsidiaries, and excluding interest expense, net, corporate expenses, net, corporate net special items, business net special items and non-operating pension expense.

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Net sales by business segment for the three months ended March 31, 2024 and 2023 were as follows: 

 Three Months Ended
March 31,
In millions20242023
Industrial Packaging$3,808 $4,083 
Global Cellulose Fibers704 811 
Corporate and Intersegment Sales107 126 
Net Sales$4,619 $5,020 

Operating profit (loss) by business segment for the three months ended March 31, 2024 and 2023 were as follows: 

 Three Months Ended
March 31,
In millions20242023
Industrial Packaging$216 $322 
Global Cellulose Fibers(47)(16)
Business Segment Operating Profit (Loss)$169 $306 
Earnings (loss) from continuing operations before income taxes and equity earnings$85 $221 
Interest expense, net46 62 
Adjustment for less than wholly owned subsidiaries(2) 
Corporate expenses, net24 8 
Corporate net special items20  
Business net special items8  
Non-operating pension expense (income)(12)15 
Business Segment Operating Profit (Loss)$169 $306 



On April 16, 2024, the Company issued an announcement, pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers, disclosing the terms of a recommended offer by the Company to acquire the entire issued and to be issued share capital of DS Smith Plc, a public limited company incorporated in England and Wales (“DS Smith”), in an all-stock transaction (the “Business Combination”). Under the terms of the Business Combination, each DS Smith share will be valued at 415 pence per share based on the Company’s closing share price of $40.85 and GBP/USD exchange rate of 1.2645 on March 25, 2024, being the close of business on the last day prior to the announcement by DS Smith of a previously disclosed possible offer by the Company. This will result in IP issuing 0.1285 shares for each DS Smith share, resulting in pro forma ownership of 66.3% for IP shareholders and 33.7% for DS Smith shareholders, with an implied enterprise value of approximately $9.9 billion. Costs related to the transaction were $5 million for the three months ended March 31, 2024. In connection with the Business Combination, the Company also intends to seek a secondary listing of International Paper common stock on the London Stock Exchange. Following completion of the Business Combination, Memphis, Tennessee will be the headquarters of the combined company, with plans to establish a Europe, Middle East and Africa (EMEA) headquarters at DS Smith’s existing London headquarters. Upon the closing of the Business Combination, it is intended that the Company’s board of directors will form the board of directors of the combined company, and that up to two directors of DS Smith will be invited to join the board of directors of the combined company. Mr. Andrew K. Silvernail will be the Chief Executive Officer of the combined company. The transaction is expected to close during the fourth quarter of 2024, subject to the approval of IP shareholders and DS Smith shareholders, as well as customary closing conditions, including regulatory clearances in Europe and the U.S.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and in our Annual Report, particularly under "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q and our Annual Report. Please see our "Cautionary Statement Regarding Forward-Looking Statements" below.

EXECUTIVE SUMMARY

Net earnings (loss) were $56 million ($0.16 per diluted share) in the first quarter of 2024, compared with $(284) million ($(0.82) per diluted share) in the fourth quarter of 2023 and $172 million ($0.49 per diluted share) in the first quarter of 2023. The Company generated Adjusted operating earnings (a non-GAAP measure defined below) of $61 million ($0.17 per diluted share) in the first quarter of 2024, compared with $142 million ($0.41 per diluted share) in the fourth quarter of 2023 and $185 million ($0.53 per diluted share) in the first quarter of 2023.

In the first quarter of 2024, our teams across International Paper executed well, with intense focus on accelerating our commercial and mill optimization strategies and taking care of our customers. We were encouraged to see positive market momentum as sales price indexes improved across our portfolio in the first quarter of 2024, and we continue to see signs of demand recovery. The first quarter of 2024 represents an earnings trough based on seasonally lower volumes, the majority of negative price flow through from 2023 index movements and higher recovered fiber costs. Our first quarter of 2024 results also included approximately $52 million of impacts associated with a January freeze, impacting both businesses, along with the initial financial impacts of the Ixtac, Mexico box plant fire in our North American Industrial Packaging business. Our teams across International Paper made significant progress executing our strategic initiatives. We realized margin and mix benefits from our Box Go-to-Market strategy in the first quarter of 2024. We also realized benefits in both businesses from the fixed cost reduction efforts in our mill system. Finally, in a move that we believe is a catalyst to create significant value for our shareholders, we announced on April 16, 2024, our intent to acquire DS Smith in an all-stock transaction valued at approximately $9.9 billion.

Comparing our performance in the first quarter of 2024 to the fourth quarter of 2023, price and mix in our North American Industrial Packaging business was higher due to significant benefits from our Box Go-to-Market strategy which was partially offset by the majority of prior sales price index declines from 2023. The February index publication of $40 per ton increase will primarily flow through our sales contracts in the second and third quarters of 2024. Price in our Global Cellulose Fibers business was higher due to prior index movement and mix improved from the GCF optimization strategy driving benefits from more fluff and specialty pulp and less commodity grades. Volume in our North American Industrial Packaging business was lower as the first quarter of 2024 is expected to represent our seasonally lowest shipment quarter of the year, along with some impact from the January freeze. Also, our Go-to-Market strategy is about making choices regarding value over volume in the near term. We believe this will allow us to improve our margins and mix over the longer term, with a focus on maximizing the profitability of our Industrial Packaging business. Volume in our Global Cellulose Fibers business was sequentially flat overall, as higher shipments for absorbent pulp was offset by lower sales of commodity grades, as we continued to focus on strategically aligning our business with the most attractive customers and end markets. Operations and costs were sequentially higher in our North American Industrial Packaging business due to the January freeze and the Ixtac, Mexico fire in March 2024. Additionally, operations and costs were higher due to cost inflation including items such as labor, materials, contracted maintenance services and employee benefit costs. There was also lower fixed cost absorption from seasonally lower volumes. The higher operating costs were partially offset by lower fixed costs following the fourth quarter shutdown of the Orange, Texas mill. Operations and costs in our Global Cellulose Fibers business were higher due to the January freeze. Additionally, costs were higher due to inflation on items such as labor, materials, contracted maintenance services and employee benefit costs, and some timing of spend. The higher operating costs were largely offset by lower fixed costs resulting from the two pulp machine closures at our mills in Riegelwood, North Carolina and Pensacola, Florida. Planned maintenance outages were higher in our Industrial Packaging business while lower in our Global Cellulose Fibers business. Input costs were higher in our Industrial Packaging business, primarily driven by higher recovered fiber costs. Input costs in our Global Cellulose Fibers business were higher, primarily driven by higher energy costs.


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Looking ahead to the second quarter 2024, as compared to the first quarter 2024, in our Industrial Packaging business, we expect price and mix to improve earnings from prior index movement in North America, higher export prices to date, as well as continued progress with our Box Go-to-Market strategy. Volume is expected to be seasonally higher in North America, and also benefit from one more shipping day in the second quarter of 2024. Operations and costs are expected to be higher due to proactive maintenance spending beyond our full-scale mill annual maintenance outages. As we anticipate continuous demand recovery, this spending is focused on improving productivity and efficiencies across our mills and box plant network. We will continue to experience additional inflation and higher selling and administration costs by the additional commercial resources needed to support our Box Go-to-Market strategy.

Full-scale mill annual maintenance outage expense is expected to increase in the second quarter of 2024 including costs associated with the Riverdale mill outage, a portion of which will be recovered during 2024 through our existing paper supply arrangement with Sylvamo. Input costs are expected to be stable based on higher costs for recovered fiber offset by lower energy costs. In our Global Cellulose Fibers business, we expect price and mix to increase earnings based on prior index movements. Volume is expected to remain flat as we reduce our exposure to commodity grades and grow with absorbent pulp. Operations and costs are expected to be lower due to lower fixed costs resulting from the pulp machine closures in our Riegelwood and Pensacola mills, the non-repeat of the January freeze, and timing of spending. Maintenance outage expense is expected to be lower coming off the first quarter of 2024 which included an outage at the Georgetown mill, a portion of the costs of which are expected to be recovered throughout the remainder of the year as part of the existing paper supply arrangement with Sylvamo. Input costs are expected to be stable relative to the first quarter of 2024.

As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission, on April 16, 2024, the Company issued an announcement, pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers, disclosing the terms of a recommended offer by the Company to acquire the entire issued and to be issued share capital of DS Smith Plc ("DS Smith"), a public limited company incorporated in England and Wales, in an all-stock transaction (the “Business Combination”). For more information on the announcement, please see Note 19 - Subsequent Event and our public filings with the SEC. The Company expects to effect the Business Combination by way of scheme of arrangement under the laws of England and Wales, such that the issuance of Company shares is not expected to require registration under the U.S. Securities Act of 1933, as amended. In connection with the proposed share issuance, the Company expects to file a proxy statement on Schedule 14A with the SEC.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures defined as net earnings (loss) (a GAAP measure) excluding discontinued operations, net special items and non-operating pension expense (income). Net earnings (loss) and Diluted earnings (loss) per share are the most directly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of discontinued operations, non-operating pension expense (income) and items considered by management to be unusual (net special items) from net earnings (loss) reported under GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses this measure to focus on on-going operations and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results from continuing operations. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations.



21

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

 Three Months Ended
March 31,
Three Months Ended December 31,
In millions202420232023
Net earnings (loss) $56 $172 $(284)
Less - Discontinued operations (gain) loss  — — 
Earnings (loss) from continuing operations 56 172 (284)
Add back - Non-operating pension expense (income)(12)15 14 
Add back - Net special items expense (income) (a)18 546 
Income taxes - Non-operating pension and special items(1)(5)(134)
Adjusted operating earnings (loss)$61 $185 $142 
(a)    See page 29 for details of Net special items expense (income).

 Three Months Ended
March 31,
Three Months Ended December 31,
202420232023
Diluted earnings (loss) per share $0.16 $0.49 $(0.82)
Less - Discontinued operations (gain) loss per share — — 
Diluted earnings (loss) per share from continuing operations0.16 0.49 (0.82)
Add back - Non-operating pension expense (income) per share(0.04)0.04 0.04 
Add back - Net special items expense (income) per share0.05 0.01 1.58 
Income taxes per share - Non-operating pension and special items (0.01)(0.39)
Adjusted operating earnings (loss) per share $0.17 $0.53 $0.41 

Cash provided by operations, including discontinued operations, totaled $395 million and $345 million for the first three months of 2024 and 2023, respectively. The Company generated free cash flow of $144 million and $4 million in the first three months of 2024 and 2023, respectively. Free cash flow is a non-GAAP measure, which equals cash provided by operations subject to the adjustments set forth in the reconciliation table below, and the most directly comparable GAAP measure is cash provided by operations. Management utilizes this measure in connection with managing our business and believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.

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

 Three Months Ended
March 31,
In millions20242023
Cash provided by operations$395 $345 
Adjustments:
Cash invested in capital projects(251)(341)
Free Cash Flow$144 $

The non-GAAP financial measures presented in this Form 10-Q as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.





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For the first quarter of 2024, International Paper reported net sales of $4.6 billion, compared with $4.6 billion in the fourth quarter of 2023 and $5.0 billion in the first quarter of 2023.
Net earnings (loss) totaled $56 million, or $0.16 per diluted share, in the first quarter of 2024. This compared with $(284) million, or $(0.82) per diluted share, in the fourth quarter of 2023 and $172 million, or $0.49 per diluted share, in the first quarter of 2023.
Continuing Ops Waterfall QoQ Q1 24.jpg
Compared with the fourth quarter of 2023, earnings from continuing operations benefited from higher average sales prices and a favorable mix ($47 million), lower tax expense ($4 million) and lower non-operating pension expense ($20 million). These benefits were offset by lower sales volumes ($29 million), higher operating costs ($43 million), higher raw material and freight costs ($23 million), higher mill maintenance outage costs ($11 million), higher corporate and other costs ($22 million) and higher net interest expense ($3 million). Equity earnings, net of taxes, were $1 million lower in the first quarter of 2024 than in the fourth quarter of 2023. Net special items in the first quarter of 2024 were a charge of $14 million compared with a charge of $415 million in the fourth quarter of 2023.


23

Continuing Ops Waterfall YoY Q1 24.jpg
Compared with the first quarter of 2023, the first quarter of 2024 benefited from lower operating costs ($15 million), lower raw material and freight costs ($48 million), lower mill maintenance outage costs ($74 million), lower net interest expense ($2 million) and lower non-operating pension expense ($20 million). These benefits were offset by lower average sales prices and an unfavorable mix ($240 million), lower sales volumes ($4 million), higher corporate and other costs ($11 million) and higher tax expense ($7 million). Equity earnings, net of taxes, were $1 million lower in the first quarter of 2024 compared with the first quarter of 2023. Net special items in the first quarter of 2024 were a charge of $14 million compared with a charge of $2 million in the first quarter of 2023.

The Company currently operates in two segments: Industrial Packaging and Global Cellulose Fibers. On September 18, 2023, the Company completed the sale of its Ilim equity investment and, as a result, all historical results of the Ilim investment are presented as Discontinued Operations, net of taxes and our equity investment is no longer a separate reportable industry segment.

Total business segment operating profit (loss) is a non-GAAP measure and the most directly comparable GAAP measure is net earnings from continuing operations. Total business segment operating profit (losses) are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of less than wholly owned subsidiaries, and excluding interest expense, net, corporate expenses, net, corporate net special items, business net special items and non-operating pension expense. In addition, business segment operating profit (loss), at a segment level, 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 - "Segment Reporting". Business segment operating profits (losses) are used by International Paper's management to measure the earnings performance of its businesses. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides a more complete analysis of the results of operations by quarter.





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

 Three Months Ended
 March 31,December 31,
In millions202420232023
Net Earnings (Loss) from Continuing Operations$56 $172 $(284)
Add back (deduct):
Income tax provision (benefit)27 48 (61)
Equity (earnings) loss, net of taxes2 19 
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings85 221 (326)
Interest expense, net46 62 52 
Less than wholly owned subsidiaries included in operations(2)— (2)
Corporate expenses, net24 (9)
Corporate net special items20 — (1)
Business net special items8 — 529 
Non-operating pension expense (income)(12)15 14 
Adjusted Operating Profit$169 $306 $257 
Business Segment Operating Profit (Loss):
Industrial Packaging$216 $322 $315 
Global Cellulose Fibers(47)(16)(58)
Total Business Segment Operating Profit (Loss)$169 $306 $257 

Total Business Segment Operating Profit (Loss)

Total business segment operating profits (losses) were $169 million in the first quarter of 2024, compared with $257 million in the fourth quarter of 2023 and $306 million in the first quarter of 2023.


25

Segment Ops Waterfall QoQ Q1 24.jpg

Compared with the fourth quarter of 2023, business segment operating profits benefited from higher average sales prices and a favorable mix ($71 million). These benefits were offset by lower sales volumes ($44 million), higher operating costs ($65 million), higher raw material and freight costs ($34 million) and higher mill outage costs ($16 million).


26

Segment Ops Waterfall YoY Q1 24.jpg

Compared with the first quarter of 2023, operating profits in the current quarter benefited from lower operating costs ($19 million), lower raw material and freight costs ($61 million) and lower mill outage costs ($95 million). These benefits were offset by lower average sales prices and an unfavorable mix ($307 million) and lower sales volumes ($5 million).

Sales Volumes by Product (a)
Sales volumes of major products for the three months ended March 31, 2024 and 2023 were as follows: 
 Three Months Ended
March 31,
In thousands of short tons (except as noted)20242023
Industrial Packaging
Corrugated Packaging (b)2,232 2,381 
Containerboard739 544 
Recycling575 560 
Saturated Kraft47 34 
Gypsum/Release Kraft58 60 
EMEA Packaging (b)340 335 
Industrial Packaging3,991 3,914 
Global Cellulose Fibers (in thousands of metric tons) (c)
729 688 
 
(a)Sales volumes include third party and intersegment sales and exclude sales of equity investees.
(b)Volumes for corrugated box sales reflect consumed tons sold ("CTS"). Board sales for these businesses reflect invoiced tons.
(c)Includes North American volumes and internal sales to mills.



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Discontinued Operations

On September 18, 2023, pursuant to a previously announced agreement, the Company completed the sale of its 50% equity interest in Ilim S.A. ("Ilim"), which was a joint venture that operated a pulp and paper business in Russia and has subsidiaries including Ilim Group, to its joint venture partners for $484 million in cash. The Company also completed the sale of all of its Ilim Group shares (constituting a 2.39% stake) for $24 million, and divested other non-material residual interests associated with Ilim, to its joint venture partners. Following the completed sales, the Company no longer has an interest in Ilim or any of its subsidiaries. Additionally, we incurred transaction fees of $36 million in connection with the sale of our investment. This transaction is discussed further in Note 10 - Equity Method Investments of Item 1. Financial Statements.

Discontinued operations includes the equity earnings of the prior Ilim joint venture. Discontinued operations also includes special items charges of $43 million (before and after taxes) for the three months ended March 31, 2023.

Income Taxes

An income tax provision of $27 million was recorded for the first quarter of 2024 and the reported effective income tax rate was 32%. The reported effective income tax rate for the first quarter of 2024 was higher than the fourth quarter of 2023 primarily due to reduced tax benefits for equity-based compensation. Excluding a benefit of $4 million related to the tax effects of net special items and an expense of $3 million related to the tax effects of non-operating pension expense, the operational effective income tax rate was 31% for the first quarter of 2024. The operational effective tax rate for the first quarter of 2024 was lower than the fourth quarter of 2023 primarily due to an increased deferred tax valuation allowance in the fourth quarter.

An income tax benefit of $61 million was recorded for the fourth quarter of 2023 and the reported effective income tax rate was 19%. Excluding a benefit of $131 million related to the tax effects of net special items and benefit of $3 million related to the tax effects of non-operating pension expense, the operational effective income tax rate was 34% for the fourth quarter of 2023.

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

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

The following is a reconciliation of the net income tax provision (benefit) to the operational income tax provision and rate:

Three Months Ended
March 31,December 31,
In millions202420232023
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings$85 $221 $(326)
Pre-tax special items18 528 
Non-operating pension (income) expense(12)15 14 
Adjusted Operating Earnings (Loss) from Continuing Operations Before Income Taxes and Equity Earnings$91 $239 $216 
Income tax provision (benefit)$27 $48 $(61)
Income tax effect - non-operating pension (income) expense and pre-tax special items1 134 
Operational Tax Provision$28 $53 $73 
Operational Effective Tax Rate31 %22 %34 %
Interest Expense
Net interest expense was $46 million in the first quarter of 2024, compared with $52 million in the fourth quarter of 2023 and $62 million in the first quarter of 2023. The first quarter of 2024 includes $10 million of interest income on prior years tax overpayments related to the settlement of tax audits. The first quarter of 2023 includes $3 million of interest expense related to the settlement of the timber monetization restructuring tax matter.

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Effects of Net Special Items Expense (Income) and Non-Operating Pension Expense
Details of net special items expense (income) and non-operating pension expense (income) for the three months ended are as follows:
Three Months Ended
March 31,December 31,
202420232023
In millionsBefore TaxAfter TaxBefore TaxAfter TaxBefore TaxAfter Tax
Business Segments
Accelerated depreciation$5 $4 (a)$— $— $422 $317 (a)
Severance and other costs3 2 (b)— — 118 89 (b)
Building a Better IP  — — (11)(8)(c)
Business Segments Total8 6 — — 529 398 
Corporate
Legal reserve adjustments10 7 — — — — 
DS Smith combination costs5 4 — — — — 
Net loss on miscellaneous land sales5 4 — — — — 
Equity method investment impairment  — — 18 14 
Environmental remediation reserve adjustment  — — 
Building a Better IP  — — (8)(6)
Corporate Total20 15 — — 17 13 
Interest expense, net
Interest related to settlement of tax audits(10)(7)— — — — 
Interest related to timber monetization settlement  — — 
Interest Total(10)(7)— — 
Total net special items expense (income)18 14 546 411 
Non-operating pension expense (income)(12)(9)15 11 14 11 
Total net special items and non-operating pension expense (income)$6 $5 $18 $13 $560 $422 
(a)Includes $1 million (before and after taxes) and $347 million ($261 million after taxes) for the three months ended March 31, 2024 and December 31, 2023, respectively, recorded in the Industrial Package business segment and $4 million ($3 million after taxes) and $75 million ($56 million after taxes) for the three months ended March 31, 2024 and December 31, 2023, respectively, recorded in the Global Cellulose Fibers business segment.
(b)Includes $3 million ($2 million after taxes) and $81 million ($61 million after taxes) for the three months ended March 31, 2024 and December 31, 2023, respectively, recorded in the Industrial Packaging business segment and $37 million ($28 million after taxes) for the three months ended December 31, 2023 recorded in the Global Cellulose Fibers business segment.
(c)Includes $8 million ($6 million after taxes) recorded in the Industrial Packaging business segment and $3 million ($2 million after taxes) recorded in the Global Cellulose Fibers business segment.
Net special items expense (income) include the following tax expenses (benefits):
Three Months Ended
March 31,December 31,
In millions202420232023
Tax related to legal entity restructuring$ $— $
Total$ $— $


The following tables present net sales and business segment operating profit (loss) at a segment level, which is the Company's measure of segment profitability. As previously noted, business segment operating profit (loss), at a segment level, 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 - "Segment Reporting". For additional information regarding business segment operating profit (loss) at a segment level as well as total business segment operating profit (loss), a non-GAAP financial measure, see above under “Results of Operations” of this Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q.

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Industrial Packaging 

Total Industrial Packaging20242023
In millions1st Quarter