International Paper (IP) 10-K2022 FY Annual report

Our strategic framework, The IP Way Forward, ensures that our business strategy delivers sustainable outcomes for all of our stakeholders – employees, customers, suppliers, communities, governmental and non-governmental organizations and shareholders – for generations to come. Our approach to sustainability considers our entire value chain, from focusing on sourcing raw materials responsibly and working safely, to making renewable, recyclable products and providing a market for recovered products. To help inform and prioritize the focus of our sustainability strategy, we have engaged with internal and external stakeholders using a variety of methods, assessed key issues and associated risks and opportunities, and incorporated environmental, social and governance (ESG) considerations into our processes. Additionally, in 2020, we established our Vision 2030 goals with the purpose of promoting healthy and abundant forests, thriving people and communities, sustainable operations and renewable solutions. Certain of the goals are discussed in more detail below.

The attraction, retention and development of our employees is critical to our success. We accomplish this, in part, by developing the capabilities of our team members through our continuous learning, development and performance management programs. One such program is our REACH (Recruit, Engage, Align College Hires) program through which we recruit and develop early-career engineers and safety professionals for our U.S. mills, preparing them to become future leaders. We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our employees. Our HR Talent Management Team hosts online Global New Employee Orientation for employees and each business conducts onsite new hire integration training unique to its business and/or facility. We provide continuing education courses that are relevant to our industry and job functions within the Company, including both instructor lead and online training through our MyLearning platform. In addition, we have created learning paths for specific positions that are designed to encourage an employee’s advancement and growth within our organization, such as our Global Manufacturing Training Initiative, which provides training services to hourly operations and maintenance employees in our mills in a standardized and structured manner. On the converting side of our business, approximately 200 front line and future leaders participated in our multi-day in-person Leadership Application and Professional Development and Manufacturing Management Associate Programs. Across the enterprise in 2022, employees completed 3.4 million learning activities through our Learning Management Service (LMS) system. The IP Leadership Institute offers both LMS and other courses for individual contributors, people leaders and teams. We also offer a peer mentor program and leadership and customer service training to support and develop our employees. Moreover, we offer tuition reimbursement programs for employees who desire to receive additional outside education to prepare for other positions at the Company, as well as student loan assistance to help employees repay qualified student loans. These resources provide employees with the skills and support they need to achieve their career goals, build management skills and become leaders within our Company.

The Company also has been recognized for the diversity of its Board of Directors. The make-up of our Board of Directors reflects our efforts to seek qualified Board candidates with diverse backgrounds including, but not limited to, such factors as race, gender, and ethnicity. The current composition of our Board, as noted below, reflects those efforts and the importance of diversity to the Board:

We encourage our employees to support the communities in which they live and in which the Company operates. Our global citizenship and community engagement efforts extend across the globe and support social and educational needs. To that end, in 2022 we invested more than $19 million to address critical needs in the communities in which we work and live. Our Vision 2030 goal is to strengthen the resilience of our communities and improve the lives of 100 million people in our communities, including through supporting education, reducing hunger, promoting health and wellness and supporting disaster relief. We are proud to have been named among the world’s most ethical companies by Ethisphere for 16 consecutive years.

The pulp and packaging sectors are large and fragmented, and the areas into which we sell our principal products are very competitive. Our products compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.

controlling emissions and discharges from our facilities to avoid adverse impacts on the environment, and (2) maintaining compliance with applicable laws and regulations. The Company spent approximately $30 million in 2022 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend approximately $39 million in 2023 for environmental capital projects. Capital expenditures on environmental projects for 2024 and 2025, respectively, are anticipated to be approximately $35 million and $26 million. It is possible that our capital expenditure assumptions, estimates and project completion dates may change, and our projections are subject to change due to items such as the finalization of ongoing engineering projects, varying costs or changes in environmental laws and regulations.

The Company has completed capital projects to meet the U.S. Environmental Protection Agency's ("EPA") maximum achievable control technology ("MACT") and risk and technology review ("RTR") regulations that require owners of specified pulp and paper process equipment and boilers to meet new air emissions standards for certain substances. As portions of these MACT and RTR regulations have

our low-carbon products are recycled into new products at a higher rate than any other base material. We work to advance the shift to a low-carbon, circular economy by designing products that are 100% reusable, recyclable or compostable.

Through improvements in operations, equipment, energy efficiency and fuel diversity, we have achieved company-wide reductions in Scope 1 and Scope 2 greenhouse gas (GHG) emissions. For example, we reduced our GHG emissions by approximately 20% between 2010 and 2020. Moreover, as part of our Vision 2030 goals, we have targeted incremental reductions of 35% in our Scope 1, 2, and 3 GHG emissions in comparison to 2019 levels. The Science Based Targets initiative (SBTi) approved these targets as consistent with levels required to meet the goals of the Paris Agreement, an agreement signed among over 170 countries, which became effective in November 2016. We intend to continue to evaluate and implement projects as we pursue this Vision 2030 GHG goal. This includes ongoing energy efficiency efforts and capital projects to phase out our most carbon intensive fuel sources (Scope 1) as well as developing GHG reduction strategies for our energy sourcing (Scope 2) and broader supply chain footprint (Scope 3).

We use carbon-neutral biomass and manufacturing residuals (rather than fossil fuels) to generate a majority of the manufacturing energy at our mills. We believe our efforts to advance sustainable forest management and restore forest landscapes are an important lever for mitigating climate change through carbon storage in forests.

The Paris Agreement went into effect in November 2016 and compels international efforts and voluntary commitments toward reducing the emissions of GHGs. Consistent with this objective, participating countries aim to balance GHG emissions generation and sequestration in the second half of this century or, in effect, achieve net-zero global GHG emissions.

To assist member countries in meeting GHG reduction obligations, the EU operates an Emissions Trading System ("EU ETS"). Our operations in the EU experience indirect impacts of the EU ETS through purchased power pricing. Neither the direct nor indirect impacts of the EU ETS have been material to the Company, but they could be material to the Company in the future depending on how the Paris Agreement's non-binding commitments or allocation of, and market prices for, GHG credits under existing rules evolve over the coming years.

future expenditures to meet GHG emission reduction obligations. These obligations may include carbon taxes, the requirement to purchase GHG credits or the need to acquire carbon offsets. We may also incur significant expenditures in relation to our efforts to meet our internal targets or goals with respect to GHGs and climate change, including our Vision 2030 goal on GHGs as set forth above. Furthermore, in connection with complying with legal requirements and/or our efforts to meet our internal targets and goals, we have made and expect to continue to make capital and other investments to displace traditional fossil fuels, such as fuel oil and coal, with lower carbon alternatives, such as biomass and natural gas. Currently, these efforts and obligations have not materially impacted the Company but such efforts and obligations may have a material impact on the Company in the future.

We believe global citizenship is a key element of corporate governance promoted by our Board of Directors and senior management. The Public Policy and Environment Committee of the Board has overall oversight responsibility for global citizenship at the Company. This Committee reviews and oversees environmental sustainability (including climate change), public policy, legal, health and safety and technology issues. The Company’s Governance Committee also has oversight of certain public policy and sustainability matters.

Additional information regarding climate change and the Company is available in our 2021 Sustainability Report, and will be available in our upcoming 2022 Sustainability Report to be filed later in 2023, both of which can, or will be, found on our website at www.internationalpaper.com. The information contained in such reports is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC. Any targets or goals with respect to ESG matters discussed herein or in our sustainability reports as noted above are forward-looking statements and may be aspirational. These targets or goals are not guarantees of future results, and involve assumptions and known and unknown risks and uncertainties, some of which are beyond our control.

our Ilim joint venture, which could be materially and adversely affected by such developments, and our inability to predict the full impact of the Russian invasion of Ukraine, current or future sanctions, current or future actions by the Russian government, geopolitical instability and the possibility of broadened military conflict on our Ilim joint venture, on our receipt of dividends from our Ilim joint venture and on our ability to complete the sale of our interest in the Ilim joint venture under the terms of the agreement with our joint venture partners or the sale of our interest in Ilim Group (and, if we are unable to complete such sales, on the value of and our ability to sell such interests to another purchaser); (iii) the level of our indebtedness and changes in interest rates (including the impact of current elevated interest rate levels); (iv) the impact of global and domestic economic conditions and industry conditions, including with respect to current negative macroeconomic conditions, inflationary pressures and changes in the cost or availability of raw materials, energy sources and transportation sources, supply chain shortages and disruptions, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products, and conditions impacting the credit, capital and financial markets; (v) domestic and global geopolitical conditions, changes in currency exchange rates, trade protectionist policies, downgrades in our credit ratings, and/or the credit ratings of banks issuing certain letters of credit, issued by recognized credit rating organizations; (vi) the amount of our future pension funding obligations, and pension and healthcare costs; (vii) unanticipated expenditures or other adverse developments related to compliance with existing and new environmental, tax, labor and employment, privacy, anti-bribery and anti-corruption, and other U.S. and non-U.S. governmental laws and regulations; (viii) any material disruption at any of our manufacturing facilities or other adverse impact on our operations due to severe weather, natural disasters, climate change or other causes; (ix) risks inherent in conducting business through joint ventures; (x) our ability to achieve the benefits expected from, and other risks associated with, acquisitions, joint ventures, divestitures, spinoffs and other corporate transactions, (xi) cybersecurity and information technology risks; (xii) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (xiii) our exposure to claims under our agreements with Sylvamo Corporation; (xiv) our failure to realize the anticipated benefits of the spin-off of Sylvamo Corporation and the qualification of such spin-off as a tax-free transaction for U.S. federal income tax purposes; and (xv) our ability to attract and retain qualified personnel, particularly in light of current labor market conditions. These and other factors that could cause or contribute to actual results differing materially from such forward-looking

resulting financial costs of compliance with legal or regulatory initiatives, could have a material adverse effect on our results of operations and business.

In addition, we are subject to agreements governing our indebtedness that require us to meet and maintain certain financial ratios and covenants. A significant or prolonged downturn in general business and economic conditions, or other significant adverse developments with respect to our results of operations or financial condition, may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives. Moreover, the restrictions associated with these financial ratios and covenants may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. Additionally, despite these restrictions, we may be able to incur substantial additional indebtedness in the future, which might subject us to additional restrictive covenants that could affect our financial and operational flexibility and otherwise increase the risks associated with our indebtedness as noted above.

We have interest rate risk, primarily related to our short-term cash investments, variable rate debts, supply chain financing, short-term debt and the installment notes and loans in the Temple Inland timber monetization special purpose entities. Interest rates rose significantly during 2022 and could remain high and volatile in 2023 and beyond. Changes in interest rates impact how much we earn on our short term cash investments, the interest rate we pay on our variable rate debt and credit agreements, the cost of supply chain financing and the refinance rate of our short term debt.

circumstances so warrant. Any such downgrade, suspension or withdrawal of our credit ratings could adversely affect our cost of borrowing, limit our access to the capital markets or result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur.

and could continue to have adverse effects on our business depending on the future course of the pandemic. Moreover, the pandemic could have a material adverse effect on our business, results of operations, cash flow, liquidity, or financial condition if public health conditions significantly deteriorate. The ongoing impact of the pandemic on us will depend on numerous evolving factors and future developments, which are highly uncertain, including (a) the duration, severity and scope of the pandemic, including the potential spread of more contagious and/or virulent forms of the virus; (b) governmental and public health directives and/or actions taken by our customers, vendors and other private businesses in connection with the pandemic; (c) the availability, acceptance, effectiveness and administration of medical treatments, vaccines and booster shots for COVID-19; and (d) the extent and duration of the pandemic’s impact on economic conditions and social activity.

by Russia’s invasion of Ukraine. As a result of Russia's invasion of Ukraine, the U.S., the United Kingdom, the European Union and other G7 countries, among other countries, have imposed coordinated financial and economic sanctions and export control measures on many industry sectors and parties in Russia. The negative impacts arising from the conflict and these sanctions and export control measures as well as sanctions and other actions taken by Russia have included and may continue to include reduced consumer demand, supply chain disruptions and increased costs for transportation, raw materials and energy, including recent energy increases which have been particularly acute in Europe. We continue to carefully monitor the conflict and the potential impact of financial and economic sanctions and export control measures on the regional and global economy.

We have a 50% equity interest in Ilim, the parent company of Ilim Group, whose primary operations are in Russia. Specifically, Ilim Group’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over 3.6 million metric tons. In joint ventures, such as the Ilim joint venture, we share ownership and management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. Ilim, and its directors and employees are not specially designated nationals or blocked persons or otherwise specifically identified in sanctions or export control measures issued by the U.S. or other countries.

The military conflict between Russia and Ukraine, including ongoing sanctions, actions by the Russian government, and associated domestic and global economic and geopolitical conditions, has adversely affected and may continue to adversely affect our Ilim joint venture and our businesses, financial condition, results of operations and cash flows. In January 2023, we announced our entry into a definitive agreement to sell our equity interest in Ilim; however, we cannot be certain if or when the completion of this sale may occur. Our ability to complete this sale is subject to various risks, including (i) purchasers’ inability to obtain necessary regulatory approvals or to finance the purchase pursuant to the terms of the agreement, (ii) adverse actions by the Russian government, and (iii) new or expanded sanctions imposed by the U.S., the United Kingdom, or the European Union or its member countries. We are unable to predict the full impact that Russia’s ongoing invasion of Ukraine, current or potential future sanctions or export control measures, ongoing or potential disruptions resulting from the conflict, the changing regulatory environment in Russia, negative macroeconomic conditions arising from such conflict, supply chain disruptions, and/or geopolitical instability

the complexity and fluidity of the situation; (iv) financial and economic sanctions and export control measures imposed on certain industry sectors and parties in Russia as well as counter-sanctions measures implemented by Russia could lead to further disruptions in supply chains and adversely affect operations in Russia; (v) increased risks of economic, political, or social instability, escalating military conflicts with Ukraine or new conflicts with any other countries, war, or terrorism, which could adversely affect the economy of Russia or lead to a material adverse change in the value of our investments in Russia; and (vi) disclosure, accounting, and financial standards and requirements in Russia may evolve and it is not possible to accurately predict the content or implications of changes in their disclosure requirements.

Corporate transactions of this nature that we may pursue involve a number of special risks, including with respect to our inability to realize our business goals with to such transactions as noted above, the focus of our management’s attention on these transactions and the assimilation of acquired businesses into our operations, the demands on our financial, operational and information technology systems resulting from acquired businesses, and the possibility that we may become responsible for substantial contingent or unanticipated legal liabilities as the result of acquisitions or other corporate transactions.

We will rely on Sylvamo Corporation to satisfy its performance and payment obligations under these agreements entered into in connection with the spin-off. If Sylvamo Corporation fails to satisfy such obligations, it could have a material adverse effect on our financial condition and results of operations.

Moreover, changing demographics and labor work force trends, including remote work and work-life balance expectations for many individuals arising

The current cyber threat environment presents increased risk for all companies, including those in our industry. Like other global companies, our systems are subject to recurring attempts by third parties to access information, manipulate data or disrupt our operations, and we have experienced cyber threats and incidents, although none have been material or had a material adverse effect on our business. Despite careful security and controls design, implementation, updating and independent third party verification, our information technology systems, and those of our third-party providers or joint venture partners, could become subject to employee error or malfeasance, cyber-attacks, such as ransomware and data theft, by common hackers, criminal groups or nation-state organizations or social activist ("hacktivist") organizations, geopolitical events, natural disasters, failures or impairments of telecommunications networks or other catastrophic events. Moreover, hardware, software or applications we use may have inherent vulnerabilities or defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. In addition, the cybersecurity-related threats that we face may remain undetected for an extended period of time. Network, system, application and data breaches, and other cybersecurity incidents, could result in operational disruptions, data loss or manipulation, or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with us. Access to applications required to plan our operations, source materials, manufacture and ship finished goods and account for orders could be denied or misused. Theft of intellectual property or trade secrets, and loss or inappropriate disclosure of confidential company, employee, customer or vendor information, could stem from such incidents. While we have significant security processes and initiatives in place, we may be unable to detect or prevent a breach or disruption. Any significant cybersecurity incident or operational disruptions and/or misappropriation of information could result in lost sales, business delays, negative publicity, cause us to incur legal liability and increased costs to address such events and related security concerns which may include costs to recover data and institute additional controls to prevent future similar incidents and have a material effect on our business. Additionally, while we have insurance coverage designed to address certain aspects of cyber risks in place, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in connection with such incidents.

limiting our operations or requiring corrective measures), natural resource damages claims, cleanup and closure costs, third-party claims for property damage and personal injury and reputational harm as a result of violations of, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.

Our global operations subject us to complex and evolving U.S and international data privacy laws and regulations, such as European’s Union General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 (“CCPA”) as amended, and China’s Personal Information Protection Law (“PIPL”) which came into effect as of November 1, 2021. These laws require the Company to comply with a range of compliance obligations regarding the handling of personal data. There are significant penalties for non-compliance including monetary fines, disruption of operations and reputational harm. Moreover, other states and governmental authorities around the world have introduced or passed, or are considering, similar legislation which may impose varying standards and requirements on our data collection, use and processing activities.

This increasingly restrictive and evolving regulatory environment at the international, federal and state level related to data privacy and data protection may continue to require changes to our business practices and give rise to significantly expanded compliance burdens, costs and enforcement risks. Moreover, many of these laws and regulations are subject to uncertain application, interpretation or enforcement standards that could result in claims, changes to our business practices, data processing and security systems, penalties, increased operating costs or other impacts on our businesses. These laws often provide for civil penalties for violations, as well as private rights of action for data breaches that may increase data breach litigation. We proactively use internal and external resources to monitor compliance with relevant legislation and continually evaluates and, where necessary, modifies its data processing practices and policies in order to comply with evolving privacy laws. Nevertheless, relevant regulatory authorities could determine that our data handling practices fail to address all the requirements of certain new laws, which could subject us to penalties and/or litigation. In addition, there is no assurance that our security controls over personal data, the training of employees and vendors on data privacy and data security, and the policies, procedures and practices we implemented or may implement in the

Not applicable.

We pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future, though each quarterly dividend payment is subject to review and approval by our Board of Directors.

The table below presents information regarding the Company’s purchases of its equity securities for the time periods presented.

The following line graph compares a $100 investment in Company stock on December 31, 2017 with a $100 investment in our Peer Group and the S&P Composite-500 Stock Index (S&P 500 Index) also made at market close on December 31, 2017. The graph portrays total return, 2017-2022, assuming reinvestment of all dividends.

The following generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussion of historical items in 2020, and

2022, demand was also negatively impacted as consumers shifted priorities toward both non-discretionary goods as well as services while dealing with inflation. Operating costs were negatively impacted by lower volumes in our North American Industrial Packaging business. High inflation on materials and services also negatively impacted operating costs in our North American Industrial Packaging and Global Cellulose Fibers businesses. Rising supply chain costs negatively impacted both businesses during 2022. Higher operating costs were partially offset by improved mill performance and reliability. Maintenance outage expense increased, as planned, impacted by high inflation on equipment, parts and contracted services. Input costs rose sharply across nearly all categories, with higher energy and fuel costs being the leading drivers. Corporate expenses were favorable driven by overhead streamlining initiatives.

Looking ahead to the first quarter 2023, as compared to the fourth quarter 2022, in our Industrial Packaging business, we expect price and mix to be lower based on prior price index movements and lower average export prices. Volume is expected to be higher in the first quarter 2023 due to four more shipping days in North America, partially offset by normal seasonal declines in North America. Operations and costs are expected to decrease earnings due to the non-repeat of favorable one-time items in the fourth quarter 2022, seasonally higher energy consumption and additional inflation on materials and services. Maintenance outage expense is expected to be significantly higher as the first quarter will be our highest outage quarter this year, representing about 40% of total planned outage costs in 2023. Input costs are expected to improve on lower average costs for energy, fuel and fiber. In our Global Cellulose Fibers business, we expect price and mix to improve. We expect volume to decrease due to seasonally lower demand and customer inventory destocking in response to increased supply chain velocity. Operations and costs are expected to increase on the non-repeat of a favorable one-time items in the fourth quarter 2022. Operations and costs will also be impacted by higher unabsorbed fixed costs due to lower volumes, seasonally higher energy consumption and additional inflation on materials and services. Maintenance outage expense is expected to increase as the first quarter 2023 will also be Global Cellulose Fibers highest maintenance outage quarter in 2023. Input costs are expected to decrease driven by lower energy and fiber.

Looking to full-year 2023, we believe we have significant opportunities to reduce high marginal costs across our system and capture further benefits from our Building a Better IP initiatives. The Building a Better IP initiatives are focused on continuing to

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

Business Segment Operating Profit in 2022 was $213 million higher than in 2021 as the benefits from higher average sales price realizations net of an unfavorable mix ($2.2 billion) were partially offset by lower sales volumes ($160 million), higher operating costs ($657 million), higher input costs ($1.1 billion) and higher maintenance outage costs ($70 million).

benefit of $66 million related to the tax-free exchange of our shares of Sylvamo Corporation and tax expense of $45 million related to a foreign deferred tax valuation allowance. Excluding these items, a $37 million net tax benefit for other special items and a $48 million tax expense related to non-operating pension income, the operational tax provision (non-GAAP) was $378 million, or 24% of pre-tax earnings before equity earnings.

A net income tax provision from continuing operations of $188 million was recorded for 2021. Excluding a $87 million net tax benefit for other special items and a $49 million tax expense related to non-operating pension income, the operational tax provision (non-GAAP) was $226 million, or 19% of pre-tax earnings before equity earnings.

The operational tax provision and rate are non-GAAP measures and are calculated by adjusting the income tax provision from continuing operations and rate to exclude net special items and non-operating pension expense (income). Management adjusts the income tax provision and rate to account for non-recurring, non-operational items as we believe it provides a more meaningful comparison of the income tax rate between past and present periods.

International Paper’s business segments discussed below are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the forest products industry.

International Paper is the largest manufacturer of containerboard in the United States. Our U.S. production capacity is over 13 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 80% of our production is converted into corrugated packaging and other packaging by our 176 North American corrugated packaging plants. Additionally, we recycle approximately one million tons of OCC and mixed and white paper through our 16 U.S. recycling plants. Our corrugated packaging plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives. In EMEA, our operations include a recycled fiber containerboard mill in Morocco and one in Spain and 24 corrugated packaging plants in France, Italy, Spain, Morocco and Portugal.

Looking ahead to the first quarter of 2023, compared with the fourth quarter of 2022, sales volumes for corrugated boxes and containerboard are expected to increase reflecting four additional shipping days partially offset by the normal season decline. Average sales margins are expected to be lower. Operating costs are expected to increase. Planned maintenance downtime costs are expected to be $95 million higher. Input costs are expected to be lower primarily for recovered fiber and energy.

Financing activities during 2022 included debt issuances of $1.0 billion and reductions of $1.0 billion. Including discontinued operations, financing activities during 2021 included debt issuances of $1.5 billion and reductions of $2.5 billion for a net decrease of $1.0 billion.

Amounts related to early debt extinguishment during the years ended December 31, 2022 and 2021 were as follows:

Other financing activities during 2022 included the net issuance of approximately 1.6 million shares of treasury stock. Repurchases of common stock and payments of restricted stock withholding taxes totaled $1.3 billion, including $1.3 billion related to shares repurchased under the Company's share repurchase program. The Company has repurchased 114.4 million shares at an average price of $46.66, for a total of approximately $5.3 billion, since the repurchase program began in September 2013 through December 31, 2022. The Company paid cash dividends totaling $673 million during 2022.

Other financing activities during 2021 included the net issuance of approximately 1.9 million shares of

federal income taxes and $28 million in interest expense have been paid as a result of the settlement agreement. The remaining $163 million U.S. federal income tax liability and $30 million accrued interest liability are recorded as current liabilities in the balance sheet. The reversal of the Company’s remaining deferred tax liability associated with the 2015 Financing Entities of $604 million was recognized as a one-time tax benefit in the third quarter of 2022.

We expect another year of solid cash generation in 2023. Furthermore, we intend to continue to make choices for the use of cash that are consistent with our capital allocation framework to drive long-term value creation. These include maintaining a strong balance sheet and investment grade credit rating, returning meaningful cash to shareholders through dividends and share repurchases and making organic investments to maintain our world-class system and strengthen our businesses.

On October 11, 2022, our Board of Directors approved an additional $1.5 billion under our share repurchase program. This program does not have an expiration date and has approximately $3.2 billion aggregate amount of shares of common stock remaining authorized for purchase as of December 31, 2022. We may continue to repurchase shares under such authorization in open market transactions (including block trades), privately negotiated transactions or otherwise, subject to prevailing market conditions, our liquidity requirements, applicable securities laws requirements and other factors. In addition, we pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future. Each quarterly dividend is subject to review and approval by our Board of Directors.

Capital spending for 2023 is planned at approximately $1.0 billion to $1.2 billion, or about 91% to 109% of depreciation and amortization.

At December 31, 2022, International Paper’s credit agreements totaled $2.0 billion, which is comprised of the $1.5 billion contractually committed bank credit agreement and up to $500 million under the receivables securitization program. Management believes these credit agreements are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. At December 31,

2020 and December 31, 2020. Under the CARES Act 50% of the deferred payroll taxes was paid in 2021 and the remainder was paid in 2022. We believe that our credit agreements and commercial paper program provide us with sufficient liquidity to operate in the current negative macroeconomic environment; however, an extended period of economic disruption could impact our access to additional sources of liquidity.

and, if applicable, other experts. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. The Company estimated the probable liability associated with these environmental matters to be approximately $243 million ($251 million undiscounted) in the aggregate as of December 31, 2022 and $182 million ($191 million undiscounted) in the aggregate as of December 31, 2021. Liabilities for asbestos-related matters require reviews of recent and historical claims data. The Company's total recorded liability with respect to pending and future asbestos-related claims was $105 million and $103 million, net of estimated insurance recoveries, as of December 31, 2022 and 2021, respectively. The Company utilizes its in-house legal counsel and environmental experts to develop estimates of its legal, environmental and asbestos obligations, supplemented as needed by third-party specialists to analyze its most complex contingent liabilities.

We calculate our workers' compensation reserves based on estimated actuarially calculated development factors. The workers' compensation reserves are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. The Company's total recorded workers' compensation reserve was $136 million and $159 million as of December 31, 2022 and 2021, respectively. While we believe that our assumptions are appropriate, the ultimate settlement of workers' compensation reserves may differ significantly from amounts we have accrued in our consolidated financial statements.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable. A recoverability test is performed by comparing the undiscounted cash flows to carrying value of the assets. If the carrying amount is less than the undiscounted cash flows, the fair value of the assets is compared to the carrying value to determine if they are impaired. An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value.

We perform an annual goodwill impairment as of October 1. Additionally, interim assessments of possible impairments of goodwill are also made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value.

The results of our quantitative goodwill impairment test indicated that the carrying amount exceeded the estimated fair value of the EMEA Industrial Packaging reporting unit and it was determined that all of the goodwill in the reporting unit, totaling $76 million, was impaired. The decline in the fair value of EMEA Industrial Packaging and resulting impairment charge was due to the impacts of certain macroeconomic conditions, including the impacts from inflation and the geopolitical environment to the reporting unit.

Due to the macroeconomic factors noted above, we also performed the long-lived asset impairment test for asset groups that represent the EMEA Industrial Packaging reporting unit prior to the goodwill impairment test and the respective assets groups were determined not to be impaired.

OTHER-THAN-TEMPORARY IMPAIRMENT

The 2013 and 2014 returns above represent weighted averages of International Paper and Temple-Inland asset returns. International Paper and Temple-Inland assets were combined in October 2014. The annualized time-weighted rate of return earned on U.S. pension plan assets was 4.7% and 7.1% for the past five and ten years, respectively.

ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains and losses in subsequent years.

The increase in 2022 pension income primarily reflects lower service cost, lower actuarial loss, and lower asset returns, slightly offset by higher interest cost.

assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. The Company's valuation allowance was $677 million and $708 million at December 31, 2022 and 2021, respectively.

While International Paper believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.

Inflationary increases in certain input costs, such as energy, wood, recycled fiber, freight and chemical costs, had an adverse impact on the Company’s operating results in 2021 and 2022, but had a minimal impact in 2020. We expect that inflationary pressures will continue to adversely impact our operating results

The objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations in the price of commodities. Commodity swap or forward purchase contracts may be used to manage risks associated with market fluctuations in energy prices. At December 31, 2022 and 2021, the net fair value of these contracts was $20 million asset and $10 million asset. The potential loss in fair value from a 10% adverse change in quoted commodity prices for these contracts would have been approximately $3 million and $2 million at December 31, 2022 and 2021, respectively.

and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified. Our procedures for financial reporting include the active involvement of senior management, our Audit and Finance Committee and our staff of highly qualified financial and legal professionals.

The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management believes that, as of December 31, 2022, the Company’s internal control over financial reporting was effective.

Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, which have been distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and an office of ethics and business practice. The internal control system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout International Paper, and an extensive program of internal audits with management follow-up.

The Board of Directors, assisted by the Audit and Finance Committee ("Committee"), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The

statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Finance Committee and that (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

As of December 31, 2022, the Company’s Pension Plans held approximately $2.8 billion in investments whose reported value is determined based on net asset value (“NAV”). The strategic asset allocation policy prescribed by the Company’s Pension Plan includes permissible investments in certain hedge funds, private equity funds, and real estate funds whose reported values are determined based on the estimated NAV of each investment.

Memphis, Tennessee

February 17, 2023

We have audited the internal control over financial reporting of International Paper Company and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 17, 2023, expressed an unqualified opinion on those financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Memphis, Tennessee

February 17, 2023