INTERNATIONAL PAPER CO /NEW/ [IP] Filings

10-Q 1 ip-20220930.htm 10-Q ip-20220930

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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 September 30, 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 October 21, 2022 was 355,670,009.

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INDEX


		PAGE NO.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statement of Operations - Three Months and Nine Months Ended September 30, 2022 and 2021	1

	Condensed Consolidated Statement of Comprehensive Income - Three Months and Nine Months Ended September 30, 2022 and 2021	2

	Condensed Consolidated Balance Sheet - September 30, 2022 and December 31, 2021	3

	Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 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	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

Signatures		43

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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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Sales	$	5,402	$	4,914	$	16,028	$	14,277
Costs and Expenses
Cost of products sold	3,830		3,423		11,475		10,173
Selling and administrative expenses	337		343		978		1,041
Depreciation, amortization and cost of timber harvested	261		280		789		820
Distribution expenses	471		365		1,337		1,042
Taxes other than payroll and income taxes	38		35		110		106
Restructuring and other charges, net	93		39		93		243
Net (gains) losses on sales and impairments of businesses	—		—		—		(7)
Net (gains) losses on sales of equity method investments	—		—		—		(204)
Net (gains) losses on mark to market investments	(16)		—		(65)		—
Interest expense, net	123		82		266		261
Non-operating pension expense (income)	(48)		(50)		(144)		(153)
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings	313		397		1,189		955
Income tax provision (benefit)	(575)		59		(384)		193
Equity earnings (loss), net of taxes	63		94		249		247
Earnings (Loss) From Continuing Operations	$	951	$	432	$	1,822	$	1,009
Discontinued operations, net of taxes	—		432		—		638
Net Earnings (Loss)	$	951	$	864	$	1,822	$	1,647
Less: Net earnings (loss) attributable to noncontrolling interests	—		—		—		2
Net Earnings (Loss) Attributable to International Paper Company	$	951	$	864	$	1,822	$	1,645
Basic Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	2.66	$	1.11	$	4.97	$	2.58
Discontinued operations, net of taxes	—		1.11		—		1.63
Net earnings (loss)	$	2.66	$	2.22	$	4.97	$	4.21
Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders
Earnings (loss) from continuing operations	$	2.64	$	1.10	$	4.92	$	2.55
Discontinued operations, net of taxes	—		1.10		—		1.61
Net earnings (loss)	$	2.64	$	2.20	$	4.92	$	4.16
Average Shares of Common Stock Outstanding – assuming dilution	360.4		392.6		370.7		395.3

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Earnings (Loss)	$	951	$	864	$	1,822	$	1,647
Other Comprehensive Income (Loss), Net of Tax:
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans	21		31		64		101
Pension and postretirement adjustments:
U.S. plans	—		826		—		826
Non-U.S. plans	—		5		—		6
Change in cumulative foreign currency translation adjustment	(120)		(70)		14		99
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period	—		(4)		—		3
Reclassification adjustment for (gains) losses included in net earnings (loss)	2		(8)		2		(9)
Total Other Comprehensive Income (Loss), Net of Tax	(97)		780		80		1,026
Comprehensive Income (Loss)	854		1,644		1,902		2,673
Net (earnings) loss attributable to noncontrolling interests	—		—		—		(2)
Other comprehensive (income) loss attributable to noncontrolling interests	—		—		—		2
Comprehensive Income (Loss) Attributable to International Paper Company	$	854	$	1,644	$	1,902	$	2,673

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)


	September 30, 2022		December 31, 2021
	(unaudited)
Assets
Current Assets
Cash and temporary investments	$	511	$	1,295
Accounts and notes receivable, net	3,453		3,232
Contract assets	514		378
Inventories	1,976		1,814
Current investments	—		245
Other current assets	168		132
Total Current Assets	6,622		7,096
Plants, Properties and Equipment, net	10,219		10,441
Long-Term Investments	926		751
Long-Term Financial Assets of Variable Interest Entities (Note 16)	2,289		2,275
Goodwill	3,116		3,130
Overfunded Pension Plan Assets	772		595
Right of Use Assets	387		365
Deferred Charges and Other Assets	534		590
Total Assets	$	24,865	$	25,243
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	616	$	196
Accounts payable	2,668		2,606
Accrued payroll and benefits	378		440
Other current liabilities	1,143		902
Total Current Liabilities	4,805		4,144
Long-Term Debt	4,766		5,383
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 16)	2,105		2,099
Deferred Income Taxes	1,806		2,618
Underfunded Pension Benefit Obligation	359		377
Postretirement and Postemployment Benefit Obligation	189		205
Long-Term Lease Obligations	251		236
Other Liabilities	1,096		1,099
Equity
Common stock, $1 par value, 2022 – 448.9 shares and 2021 – 448.9 shares	449		449
Paid-in capital	4,702		4,668
Retained earnings	10,340		9,029
Accumulated other comprehensive loss	(1,586)		(1,666)
	13,905		12,480
Less: Common stock held in treasury, at cost, 2022 – 93.3 shares and 2021 – 70.4 shares	4,417		3,398
Total Equity	9,488		9,082
Total Liabilities and Equity	$	24,865	$	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)


	Nine Months Ended September 30,
	2022		2021
Operating Activities
Net earnings (loss)	$	1,822	$	1,647
Depreciation, amortization and cost of timber harvested	789		933
Deferred income tax provision (benefit), net	(816)		(151)
Restructuring and other charges, net	93		243
Net (gains) losses on mark to market investments	(65)		—
Net (gains) losses on sales and impairments of businesses	—		(367)
Net (gains) losses on sales of equity method investments	—		(205)
Net (gains) losses on sales of fixed assets	—		(86)
Equity method dividends received	204		149
Equity (earnings) losses, net	(249)		(247)
Periodic pension (income) expense, net	(87)		(84)
Other, net	126		129
Changes in current assets and liabilities
Accounts and notes receivable	(294)		(510)
Contract assets	(138)		(74)
Inventories	(217)		(133)
Accounts payable and accrued liabilities	218		716
Interest payable	50		9
Other	(23)		(46)
Cash Provided By (Used For) Operations	1,413		1,923
Investment Activities
Invested in capital projects, net of insurance recoveries	(609)		(348)
Acquisitions, net of cash acquired	—		(80)
Proceeds from sales of equity method investments	—		843
Proceeds from sales of businesses, net of cash divested	—		827
Proceeds from exchange of equity securities	311		—
Proceeds from settlement of Variable Interest Entity installment notes	—		4,850
Proceeds from sale of fixed assets	11		95
Other	(6)		(3)
Cash Provided By (Used For) Investment Activities	(293)		6,184
Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding	(1,093)		(425)
Issuance of debt	752		1,511
Reduction of debt	(954)		(1,132)
Change in book overdrafts	—		29
Dividends paid	(509)		(602)
Net debt tender premiums paid	(89)		(221)
Reduction of Variable Interest Entity loans	—		(4,220)
Other	(2)		(14)
Cash Provided By (Used For) Financing Activities	(1,895)		(5,074)
Effect of Exchange Rate Changes on Cash and Temporary Investments	(9)		(7)
Change in Cash and Temporary Investments	(784)		3,026
Cash and Temporary Investments
Beginning of period	1,295		595
End of period	$	511	$	3,621

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 nine months of the year may not necessarily be indicative of full year results. You should read these 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, 2021 (the "Annual Report"), 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 ("Sylvamo"). 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 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, the Company completed the sale of its Kwidzyn, Poland mill on August 6, 2021. All historical operating results of the Sylvamo businesses and Kwidzyn mill have been presented as Discontinued Operations, net of tax, in the condensed consolidated statement of operations. See Note 9 - Divestitures and Impairments of Businesses for further details regarding the Sylvamo spin-off and discontinued operations.

Russia-Ukraine Conflict

The Russia-Ukraine conflict, including current and future sanctions, actions by the Russian government, and associated domestic and global economic and geopolitical conditions, have affected and 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 unable to predict the full impact of Russia’s ongoing invasion of Ukraine, sanctions that have been imposed to date or that may in the future be imposed, geopolitical instability and the possibility of broadened military conflict may have on us or our Ilim joint venture, including whether our Ilim joint venture may be able to continue to pay dividends to us. We continue to actively explore strategic options with respect to the Ilim joint venture, including a sale of our 50% equity interest in Ilim. While we may sell our equity interests in the Ilim joint venture, we cannot be certain if and when this may occur, or the impact that possible disruptions in the capital markets, negative macroeconomic conditions, or conditions associated with the Russia-Ukraine conflict, could have on the value of and our ability to sell our equity interest in the Ilim joint venture and the timing of any such sale.

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. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.

Liabilities - Supplier Finance Programs

In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This guidance requires a business entity operating as a buyer in a supplier finance agreement to disclose qualitative and quantitative information about its supplier finance programs. This guidance is effective for annual reporting periods beginning after December 15, 2022, and interim periods within those years. 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 September 30, 2022
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate and Inter-segment Sales		Total
Primary Geographical Markets (a)
United States	$	3,816	$	846	$	129	$	4,791
EMEA	355		29		—		384
Pacific Rim and Asia	12		12		1		25
Americas, other than U.S.	202		—		—		202
Total	$	4,385	$	887	$	130	$	5,402

Operating Segments
North American Industrial Packaging	$	4,055	$	—	$	—	$	4,055
EMEA Industrial Packaging	355		—		—		355
Global Cellulose Fibers	—		887		—		887
Intra-segment Eliminations	(25)		—		—		(25)
Corporate & Inter-segment Sales	—		—		130		130
Total	$	4,385	$	887	$	130	$	5,402

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

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	Nine Months Ended September 30, 2022
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate & Intersegment		Total
Primary Geographical Markets (a)
United States	$	11,419	$	2,260	$	358	$	14,037
EMEA	1,178		84		—		1,262
Pacific Rim and Asia	33		41		3		77
Americas, other than U.S.	652		—		—		652
Total	$	13,282	$	2,385	$	361	$	16,028

Operating Segments
North American Industrial Packaging	$	12,206	$	—	$	—	$	12,206
EMEA Industrial Packaging	1,178		—		—		1,178
Global Cellulose Fibers	—		2,385		—		2,385
Intra-segment Eliminations	(102)		—		—		(102)
Corporate & Inter-segment Sales	—		—		361		361
Total	$	13,282	$	2,385	$	361	$	16,028

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


	Three Months Ended September 30, 2021
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate & Intersegment		Total
Primary Geographical Markets (a)
United States	$	3,590	$	675	$	51	$	4,316
EMEA	331		28		(1)		358
Pacific Rim and Asia	13		37		8		58
Americas, other than U.S.	177		—		5		182
Total	$	4,111	$	740	$	63	$	4,914

Operating Segments
North American Industrial Packaging	$	3,814	$	—	$	—	$	3,814
EMEA Industrial Packaging	331		—		—		331
Global Cellulose Fibers	—		740		—		740
Intra-segment Eliminations	(34)		—		—		(34)
Corporate & Inter-segment Sales	—		—		63		63
Total	$	4,111	$	740	$	63	$	4,914

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

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	Nine Months Ended September 30, 2021
In millions	Industrial Packaging		Global Cellulose Fibers		Corporate & Intersegment		Total
Primary Geographical Markets (a)
United States	$	10,352	$	1,851	$	141	$	12,344
EMEA	1,119		74		(3)		1,190
Pacific Rim and Asia	45		90		32		167
Americas, other than U.S.	555		—		21		576
Total	$	12,071	$	2,015	$	191	$	14,277

Operating Segments
North American Industrial Packaging	$	11,037	$	—	$	—	$	11,037
EMEA Industrial Packaging	1,121		—		—		1,121
Global Cellulose Fibers	—		2,015		—		2,015
Intra-segment Eliminations	(87)		—		—		(87)
Corporate & Inter-segment Sales	—		—		191		191
Total	$	12,071	$	2,015	$	191	$	14,277

(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 $17 million and $27 million are included in Other current liabilities in the accompanying condensed consolidated balance sheet as of September 30, 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 $101 million and $107 million at September 30, 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.

NOTE 4 - EQUITY

A summary of the changes in equity for the three and nine months ended September 30, 2022 and 2021 is provided below:


	Three Months Ended September 30, 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, July 1	$	449	$	4,675	$	9,557	$	(1,489)	$	4,149	$	9,043
Issuance of stock for various plans, net	—		27		—		—		(2)		29
Repurchase of stock	—		—		—		—		270		(270)
Common stock dividends ($0.4625 per share)	—		—		(168)		—		—		(168)
Comprehensive income (loss)	—		—		951		(97)		—		854
Ending Balance, September 30	$	449	$	4,702	$	10,340	$	(1,586)	$	4,417	$	9,488

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	Nine Months Ended September 30, 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	—		34		—		—		(74)		108
Repurchase of stock	—		—		—		—		1,093		(1,093)
Common stock dividends ($1.3875 per share)	—		—		(511)		—		—		(511)
Comprehensive income (loss)	—		—		1,822		80		—		1,902
Ending Balance, September 30	$	449	$	4,702	$	10,340	$	(1,586)	$	4,417	$	9,488


	Three Months Ended September 30, 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, July 1	$	449	$	6,330	$	8,442	$	(4,094)	$	2,775	$	8,352	$	2	$	8,354
Issuance of stock for various plans, net	—		41

INTERNATIONAL PAPER CO /NEW/ [IP] Filings

INTERNATIONAL PAPER CO /NEW/ [INPAP] Filings