☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2025- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (901) 419-9000Securities 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 |
Common Shares | IPC | London 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 May 2, 2025 was 527,901,518.
INDEX | |||
PAGE NO. | |||
PART I. FINANCIAL INFORMATION | |||
Item 1. | Financial Statements | ||
Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2025 and 2024 | 1 | ||
Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2025 and 2024 | 2 | ||
Condensed Consolidated Balance Sheet - March 31, 2025 and December 31, 2024 | 3 | ||
Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2025 and 2024 | 4 | ||
Condensed Notes to Consolidated Financial Statements | 5 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 27 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 | |
Item 4. | Controls and Procedures | 38 | |
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 | ||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL PAPER COMPANYCondensed Consolidated Statement of Operations (Unaudited)
(In millions, except per share amounts) Three Months Ended March 31,2025 | 2024 | |||
Net Sales | $ | 5,901 | $ | 4,619 |
Costs and Expenses | ||||
Cost of products sold | 4,259 | 3,424 | ||
Selling and administrative expenses | 530 | 358 | ||
Depreciation and amortization | 571 | 278 | ||
Distribution expenses | 483 | 391 | ||
Taxes other than payroll and income taxes | 93 | 41 | ||
Restructuring charges, net | 83 | 3 | ||
Net (gains) losses on sales of fixed assets | (67) | 5 | ||
Interest expense, net | 81 | 46 | ||
Non-operating pension expense (income) | 3 | (12) | ||
Earnings (Loss) Before Income Taxes and Equity Earnings (Loss) | (135) | 85 | ||
Income tax provision (benefit) | (31) | 27 | ||
Equity earnings (loss), net of taxes | (1) | (2) | ||
Net Earnings (Loss) | $ | (105) | $ | 56 |
Basic Earnings (Loss) Per Share | ||||
Net earnings (loss) | $ | (0.24) | $ | 0.16 |
Diluted Earnings (Loss) Per Share | ||||
Net earnings (loss) | $ | (0.24) | $ | 0.16 |
Average Shares of Common Stock Outstanding - assuming dilution | 437.6 | 348.5 |
The accompanying notes are an integral part of these condensed financial statements.
INTERNATIONAL PAPER COMPANYCondensed Consolidated Statement of Comprehensive Income (Unaudited)
(In millions) Three Months Ended March 31, 2025 2024Net Earnings (Loss) $ (105) $ 56
Other Comprehensive Income (Loss), Net of Tax:Amortization of pension and post-retirement prior service costs and net loss: | ||
U.S. plans | 16 | 17 |
Pension and postretirement adjustments: | ||
U.S. plans | 8 | - |
Change in cumulative foreign currency translation adjustment | 410 | (10) |
Net gains/losses on cash flow hedging derivatives: | ||
Net gains/(losses) on cash flow hedging derivatives | (52) | - |
Reclassification adjustment for (gains) losses included in net earnings (loss) | (1) | - |
Total Other Comprehensive Income (Loss), Net of Tax | 381 | 7 |
Comprehensive Income (Loss) | 276 | 63 |
The accompanying notes are an integral part of these condensed financial statements.
INTERNATIONAL PAPER COMPANY | |||
Condensed Consolidated Balance Sheet | |||
(In millions) | |||
March 31, 2025 | December 31, 2024 | ||
(unaudited) | |||
Assets | |||
Current Assets | |||
Cash and temporary investments | $ 1,156 | $ 1,170 | |
Accounts and notes receivable, net | 4,565 | 2,966 | |
Contract assets | 443 | 396 | |
Inventories | 2,590 | 1,784 | |
Assets held for sale | 174 | - | |
Other current assets | 360 | 108 | |
Total Current Assets | 9,288 | 6,424 | |
Plants, Properties and Equipment, net | 16,026 | 9,658 | |
Goodwill | 7,242 | 3,038 | |
Intangibles, net | 4,585 | 145 | |
Long-Term Financial Assets of Variable Interest Entities (Note 14) | 2,335 | 2,331 | |
Right of Use Assets | 695 | 433 | |
Overfunded Pension Plan Assets | 199 | 92 | |
Deferred Charges and Other Assets | 798 | 679 | |
Total Assets | $ 41,168 | $ 22,800 | |
Liabilities and Equity | |||
Current Liabilities | |||
Notes payable and current maturities of long-term debt | $ 444 | $ 193 | |
Accounts payable | 4,224 | 2,316 | |
Accrued payroll and benefits | 596 | 749 | |
Other current liabilities | 1,724 | 1,000 | |
Total Current Liabilities | 6,988 | 4,258 | |
Long-Term Debt | 9,175 | 5,368 | |
Deferred Income Taxes | 2,532 | 1,072 | |
Long-Term Nonrecourse Financial Liabilities of Variable Interest Entities (Note 14) | 2,122 | 2,120 | |
Long-Term Lease Obligations | 477 | 292 | |
Underfunded Pension Benefit Obligation | 310 | 233 | |
Postretirement and Postemployment Benefit Obligation | 130 | 133 | |
Other Liabilities | 1,342 | 1,151 | |
Equity | |||
Common stock, $1 par value, 2025 - 627.0 shares and 2024 - 448.9 shares | 627 | 449 | |
Paid-in capital | 14,350 | 4,732 | |
Retained earnings | 9,038 | 9,393 | |
Accumulated other comprehensive loss | (1,341) | (1,722) | |
22,674 | 12,852 | ||
Less: Common stock held in treasury, at cost, 2025 - 99.2 shares and 2024 - 101.5 shares | 4,582 | 4,679 | |
Total Equity | 18,092 | 8,173 | |
Total Liabilities and Equity | $ 41,168 | $ 22,800 | |
The accompanying notes are an integral part of these condensed financial statements.
INTERNATIONAL PAPER COMPANYCondensed Consolidated Statement of Cash Flows (Unaudited)
(In millions) Three Months Ended March 31,2025 | 2024 | |
Operating Activities | ||
Net earnings (loss) | $ (105) | $ 56 |
Depreciation and amortization | 571 | 278 |
Deferred income tax provision (benefit), net | (74) | (11) |
Restructuring charges, net | 83 | 3 |
Net (gains) losses on sales of fixed assets | (67) | 5 |
Periodic pension (income) expense, net | 13 | (2) |
Other, net | (87) | 34 |
Changes in operating assets and liabilities | ||
Accounts and notes receivable | (178) | 7 |
Contract assets | (47) | 2 |
Inventories | 22 | 76 |
Accounts payable and other liabilities | (370) | (44) |
Interest payable | 23 | 17 |
Other | (72) | (26) |
Cash Provided By (Used For) Operations | (288) | 395 |
Investment Activities | ||
Capital expenditures | (330) | (251) |
Acquisitions, net of cash acquired | 415 | - |
Proceeds from sale of fixed assets | 83 | 1 |
Proceeds from insurance recoveries | 28 | - |
Other | 41 | 3 |
Cash Provided By (Used For) Investment Activities | 237 | (247) |
Financing Activities | ||
Issuance of debt | 239 | - |
Reduction of debt | (6) | (3) |
Change in book overdrafts | 94 | (5) |
Repurchases of common stock and payments of restricted stock tax withholding | (62) | (22) |
Dividends paid | (244) | (161) |
Cash Provided By (Used For) Financing Activities | 21 | (191) |
Cash Included in Assets Held for Sale | (2) | - |
Effect of Exchange Rate Changes on Cash and Temporary Investments | 18 | - |
Change in Cash and Temporary Investments | (14) | (43) |
Cash and Temporary Investments | ||
Beginning of period | 1,170 | 1,113 |
End of period | $ 1,156 | $ 1,070 |
The accompanying notes are an integral part of these condensed financial statements.
INTERNATIONAL PAPER COMPANYCondensed Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
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, 2024 (the "Annual Report"), which have previously been filed with the U.S. Securities and Exchange Commission ("SEC").
As a result of the completed acquisition of DS Smith Plc, subsequently re-registered as DS Smith Limited ("DS Smith") on January 31, 2025, the Chief Operating Decision Maker ("CODM") now reviews and manages the financial results and operations of the following segments on the basis of the new organizational structure, Packaging Solutions North America, Packaging Solutions Europe, Middle East and Africa ("EMEA") and Global Cellulose Fibers. The Packaging Solutions EMEA segment includes the Company's legacy EMEA Industrial Packaging business and the newly acquired EMEA DS Smith business. As such, amounts related to the Company's legacy EMEA Industrial Packaging business have been recast out of the Industrial Packaging segment into the new Packaging Solutions EMEA segment for all prior periods. The newly acquired North America DS Smith business has been included in the Packaging Solutions North America segment. Amounts related to the Company's legacy North America Industrial Packaging business have been reported in the Packaging Solutions North America segment for all prior periods.
Additionally, certain amounts from prior year in the condensed consolidated balance sheet have been reclassified to conform with the current year financial statement presentation.
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.
NOTE 2 - RECENT ACCOUNTING DEVELOPMENTS
Recently Adopted Accounting PronouncementsIncome 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 adopted this guidance as of January 1, 2025 and will update disclosures within the Company's 2025 annual filing.
Recently Issued Accounting Pronouncements Not Yet AdoptedDisaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)." This guidance requires companies to provide more detailed information of certain income statement expenses within the footnotes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the provisions of this 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
Three Months Ended March 31, 2025
In millions | Packaging Solutions North America | Packaging Solutions EMEA | Global Cellulose Fibers | Corporate & Intersegment | Total |
Primary Geographical Markets (a) | |||||
United States | $ 3,498 | $ - | $ 619 | $ 6 | $ 4,123 |
Europe, Middle East and Africa | - | 1,550 | 23 | - | 1,573 |
Pacific Rim and Asia | 11 | - | 1 | - | 12 |
Americas, other than U.S. | 193 | - | - | - | 193 |
Total | $ 3,702 | $ 1,550 | $ 643 | $ 6 | $ 5,901 |
(a) Net sales are attributed to countries based on the location of the seller.
Three Months Ended March 31, 2024
In millions | Packaging Solutions North America | Packaging Solutions EMEA | Global Cellulose Fibers | Corporate & Intersegment | Total |
Primary Geographical Markets (a) | |||||
United States | $ 3,265 | $ - | $ 650 | $ 81 | $ 3,996 |
Europe, Middle East and Africa | - | 348 | 20 | - | 368 |
Pacific Rim and Asia | 14 | - | 34 | - | 48 |
Americas, other than U.S. | 207 | - | - | - | 207 |
Total | $ 3,486 | $ 348 | $ 704 | $ 81 | $ 4,619 |
(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 $33 million and $30 million are included in Other current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024, respectively. The Company also recorded a contract liability of $115 million related to a previous acquisition. The balance of this contract liability was $82 million and
$84 million at March 31, 2025 and December 31, 2024, 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 months ended March 31, 2025 and 2024 is provided below:
Three Months Ended March 31, 2025
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 | $ 4,732 | $ 9,393 $ | (1,722) | $ 4,679 | $ 8,173 |
Issuance of stock for various plans, net | - | (113) | - | - | (159) | 46 |
Issuance of stock for DS Smith acquisition | 178 | 9,731 | - | - | - | 9,909 |
Repurchase of stock | - | - | - | - | 62 | (62) |
Common stock dividends ($0.4625 per share) | - | - | (250) | - | - | (250) |
Comprehensive income (loss) | - | - | (105) | 381 | - | 276 |
Ending Balance, March 31 | $ 627 | $ 14,350 | $ 9,038 $ | (1,341) | $ 4,582 | $ 18,092 |
Three Months Ended March 31, 2024 | |||||||||||
Accumulated Other | Common Stock | ||||||||||
In millions, except per share amounts | Common Stock Issued | Paid-in Capital | Retained Comprehensive Earnings Income (Loss) | Held In Treasury, At Cost | Total 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 |
NOTE 5 - OTHER COMPREHENSIVE INCOME
The following table presents changes in Accumulated Other Comprehensive Income (Loss) ("AOCI"), net of tax, for the three months ended March 31, 2025 and 2024:
Three Months Ended March 31,
In millions | 2025 | 2024 |
Defined Benefit Pension and Postretirement Adjustments | ||
Balance at beginning of period | $ (1,312) | $ (1,276) |
Amounts reclassified from accumulated other comprehensive income | 24 | 17 |
Balance at end of period | (1,288) | (1,259) |
Change in Cumulative Foreign Currency Translation Adjustments | ||
Balance at beginning of period | (402) | (281) |
Other comprehensive income (loss) before reclassifications | 410 | (10) |
Balance at end of period | 8 | (291) |
Net Gains and Losses on Cash Flow Hedging Derivatives | ||
Balance at beginning of period | (8) | (8) |
Other comprehensive income (loss) before reclassifications | (52) | - |
Amounts reclassified from accumulated other comprehensive income | (1) | - |
Balance at end of period | (61) | (8) |
Total Accumulated Other Comprehensive Income (Loss) at End of Period | $ (1,341) | $ (1,558) |
The following table presents details of the reclassifications out of AOCI for the three months ended March 31, 2025 and 2024:
Amount Reclassified from Accumulated Other Comprehensive Income
Three Months Ended March 31,
In millions: | 2025 | 2024 | AOCI | ||||
Defined benefit pension and postretirement items: | |||||||
Prior-service costs | $ | (4) | $ | (3) (a) | Non-operating pension expense (income) | ||
Actuarial gains (losses) | (18) | (19) (a) | Non-operating pension expense (income) | ||||
Settlement charge | (8) | - (a) | Non-operating pension expense (income) | ||||
Total pre-tax amount (30) | (22) | ||||||
Tax (expense) benefit | 6 | 5 | |||||
Net of tax | (24) | (17) | |||||
Net gains and losses on cash flow hedging derivatives: | |||||||
Commodity contracts | 1 | - (b) | Cost of products sold | ||||
Total pre-tax amount | 1 | - | |||||
Tax (expense)/benefit | - | - | |||||
Net of tax | 1 | - | |||||
Total reclassifications for the period | $ | (23) | $ | (17) | |||
Location of Amount Reclassified from
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 17for additional details).
This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 16for additional details).
NOTE 6 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed assuming that all potentially dilutive securities were converted into common shares. There are no adjustments required to be made to net income for purposes of computing basic and diluted earnings per share. A reconciliation of the amounts included in the computation of basic earnings (loss) per share and diluted earnings (loss) per share is as follows:
Three Months Ended March 31,
In millions, except per share amounts | 2025 | 2024 | ||
Net earnings (loss) | $ | (105) | $ | 56 |
Weighted average common shares outstanding | 437.6 | 346.7 | ||
Effect of dilutive securities (a) | ||||
Restricted performance share plan | - | 1.8 | ||
Weighted average common shares outstanding - assuming dilution | 437.6 | 348.5 | ||
Basic earnings (loss) per share | $ | (0.24) | $ | 0.16 |
Diluted earnings (loss) per share | $ | (0.24) | $ | 0.16 |
(a) 6.1 million of securities were anti-dilutive for the three months ended March 31, 2025 and were not included in the table.
NOTE 7 - RESTRUCTURING CHARGES, NET
During the three months ended March 31, 2025, the Company recorded restructuring charges of $78 million for costs associated with the permanent closure of our Red River containerboard mill in Campti, Louisiana. Included in the $78 million of restructuring charges was $17 million of severance charges recorded in Accrued payroll and benefits in the accompanying condensed consolidated balance sheet, $22 million of inventory charges recorded in Inventories in the accompanying condensed consolidated balance sheet and $39 million of other costs recorded in Other current liabilities and Other Liabilities in the accompanying condensed consolidated balance sheet. The majority of the severance charges will be paid in 2025.
Additionally, during the three months ended March 31, 2025, the Company recorded restructuring charges of $5 million in Accrued payroll and benefits in the accompanying condensed balance sheet for other costs related to our 80/20 strategic approach.
NOTE 8 - ACQUISITIONS
On January 31, 2025, the Company completed its acquisition of the entire issued and to be issued share capital of DS Smith. Upon closing, IP issued 0.1285 shares for each DS Smith share, resulting in the issuance of 178,126,631 new shares of IP common stock ("New Company Common Stock"). As a result of the share issuance, the holders of the New Company Common Stock own approximately 34.1% of the Company's outstanding share capital. Based on the issuance of 178,126,631 new shares and the closing price of $55.63 on the close of January 31, 2025, the total purchase consideration for the completed acquisition was approximately $9.9 billion. Acquisition-related costs were $87 million and $5 million for the three months ended March 31, 2025 and March 31, 2024, respectively, and were recorded in Selling and administrative expenses and Taxes other than payroll and income taxes in the accompanying condensed consolidated statement of operations. On February 4, 2025, the Company began trading the New Company Common Stock and continues to be listed on the New York Stock Exchange under the trading symbol "IP" and via a secondary listing on the London Stock Exchange under the trading symbol "IPC." The headquarters of the combined company is based in Memphis, Tennessee, and the EMEA headquarters has been established at DS Smith's existing main office in London.
The Company is accounting for the acquisition under ASC 805, "Business Combinations" and the results of operations have been included in International Paper's financial statements beginning with the date of acquisition.
The following table summarizes the provisional fair value assigned to assets and liabilities acquired as of January 31, 2025:
In millions | ||
Cash and temporary investments | $ | 448 |
Accounts and notes receivable, net | 1,386 | |
Inventories | 852 | |
Other current assets | 147 | |
Plants, properties and equipment | 6,429 | |
Intangibles | 4,327 | |
Goodwill | 4,048 | |
Overfunded pension plan assets | 79 | |
Right of use assets | 257 | |
Deferred charges and other assets | 56 | |
Total assets acquired | 18,029 | |
Notes payable and current maturities of long-term debt | 60 | |
Accounts payable | 1,654 | |
Accrued payroll and benefits | 240 | |
Other current liabilities | 608 | |
Long-term debt | 3,634 | |
Deferred income taxes | 1,520 | |
Underfunded pension benefit obligation | 78 | |
Long-term lease obligations | 177 | |
Other liabilities | 149 | |
Total liabilities assumed | 8,120 | |
Net assets acquired | $ | 9,909 |
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, review of contracts and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to inventory, property, plant and equipment, acquired intangible assets, leases, taxes, contract assets and derivatives. Adjustments to provisional amounts will be finalized as new information becomes available, but within the adjustment period of up to one year from the acquisition date. Goodwill is not deductible for local income tax purposes and is primarily related to the value of new customers through expansion opportunities not reflected in the fair value of the existing customers relationships and the value of the intellectual property beyond selected life for trade names.
Since the date of acquisition, Net sales of $1.3 billion and Net earnings (loss) of $(107) million have been included in the Company's condensed consolidated statement of operations for the three months ended March 31, 2025.
The identifiable intangible assets acquired in connection with the acquisition of DS Smith included the following:
In millions | Estimated Fair Value | Average Useful Life | ||
Customer relationships and lists | $ | 3,843 | 18 years | |
Tradenames, patents and trademarks, and developed technology | 379 | 15 years | ||
Software (a) | 90 | 3 - 5 years | ||
Other | 15 | Indefinite lived | ||
Total | $ | 4,327 |
(a) Of this balance, $57 million has been placed in service and $33 million is in development.
Below are the consolidated results on an unaudited pro forma basis assuming the acquisition of DS Smith had closed on January 1, 2024:
Three Months Ended March 31,
In millions | 2025 (Unaudited) | 2024 (Unaudited) | ||
Net Sales | $ | 6,636 $ | 6,726 | |
Net Earnings (Loss) | (107) | 11 |
The unaudited pro forma information for the three months ended March 31, 2025 includes adjustments for additional amortization expense on identifiable intangible assets of $9 million and adjustments for additional depreciation expense on identifiable fixed assets of $6 million and eliminates the write-off of the estimated fair value of inventory of $70 million and the non-recurring integration costs associated with the acquisition of $65 million.
The unaudited pro forma information for the three months ended March 31, 2024 includes adjustments for additional amortization expense on identifiable intangible assets of $27 million, additional depreciation expense on identifiable fixed assets of $19 million, incremental expense of $70 million associated with the write-off of the estimated fair value of inventory and non-recurring integration costs associated with the acquisition of $65 million.
The unaudited pro forma consolidated financial information was prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may have differed materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to represent International Paper's actual results of operation as if the transaction described above would have occurred as of January 1, 2024, nor is it necessarily an indicator of future results.
In connection with the DS Smith acquisition, the European Commission issued its Phase I clearance of the business combination between International Paper and DS Smith on January 31, 2025, with the condition that International Paper commit to divest five European plants in Mortagne, Saint-Amand, and Cabourg (France), Ovar (Portugal) and Bilbao (Spain). The Company agreed to divest these locations and all assets and liabilities at March 31, 2025 related to these locations have been recorded as held for sale in the accompanying condensed consolidated balance sheet. On April 14, 2025, the Company announced it had entered into exclusive negotiations with Palm Group of Germany after receiving an irrevocable offer for the purchase of the European plants. The closing is expected by the end of the second quarter of 2025.
NOTE 9 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Temporary Investments
Temporary investments with an original maturity of three months or less and money market funds with greater than three month maturities but with the right to redeem without notices are treated as cash equivalents and stated at cost. Temporary investments totaled $545 million and $990 million at March 31, 2025 and December 31, 2024, respectively.
Accounts and Notes Receivable, Net
In millions | March 31, 2025 | December 31, 2024 | ||
Trade (less allowances of $66 and $30, respectively) | $ | 3,959 | $ | 2,703 |
Other | 606 | 263 | ||
Total | $ | 4,565 | $ | 2,966 |
As a result of the DS Smith acquisition, IP has a trade receivable factoring program that allows the Company to sell trade receivables without recourse.
Inventories
In millions | March 31, 2025 | December 31, 2024 | ||
Raw materials | $ | 481 | $ | 188 |
Finished pulp, paper and packaging | 1,250 | 934 | ||
Operating supplies | 753 | 623 | ||
Other | 106 | 39 | ||
Total | $ | 2,590 | $ | 1,784 |
The last-in, first-out inventory method is used to value most of International Paper's U.S. inventories. Approximately 58% of total raw materials and finished products inventories were valued using this method. The last-in, first-out inventory reserve was
$341 million and $336 million at March 31, 2025 and December 31, 2024, respectively.
Plants, Properties and Equipment
Accumulated depreciation was $19.9 billion and $19.6 billion at March 31, 2025 and December 31, 2024, respectively. Depreciation expense was $519 million and $268 million for the three months ended March 31, 2025 and 2024, respectively. Depreciation expense for the three months ended March 31, 2025 includes $197 million of accelerated depreciation related to mill strategic actions and other 80/20 strategic actions.
Non-cash additions to plants, properties and equipment included within accounts payable were $120 million and $110 million at March 31, 2025 and December 31, 2024, respectively.
Accounts Payable
Under supplier finance programs, International Paper agrees to pay the relevant banks the stated amount of confirmed invoices from its designated suppliers on the original maturity dates of the invoices. International Paper or the relevant banks may terminate the agreement on notice periods from 28 to 90 days. 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
$369 million and $115 million of supplier finance program liabilities as of March 31, 2025 and December 31, 2024, respectively.
Interest
Interest payments made during the three months ended March 31, 2025 and 2024 were $95 million and $94 million, respectively.
Amounts related to interest were as follows:
Three Months Ended March 31,
In millions
2025
2024
Interest income
52
63
Capitalized interest costs 5 2
Interest expense $ 133 $ 109
Asset Retirement Obligations
The Company recorded liabilities in Other Liabilities in the accompanying condensed consolidated balance sheet of $152 million and $128 million related to asset retirement obligations at March 31, 2025 and December 31, 2024, respectively.
NOTE 10 - LEASES
International Paper leases various real estate, including certain operating facilities, warehouses, office space and land. The Company also leases material handling equipment, vehicles, and certain other equipment. The Company's leases have a remaining lease term of up to 28 years. Total lease costs were $106 million and $79 million for the three months ended March 31, 2025 and 2024, respectively.
Supplemental Balance Sheet Information Related to LeasesIn millions | Classification | March 31, 2025 | December 31, 2024 | ||||||
Assets | |||||||||
Operating lease assets | Right-of-use assets | $ | 695 | $ | 433 | ||||
Finance lease assets | Plants, properties and equipment, net (a) | 82 | 39 | ||||||
Total leased assets | $ | 777 | $ | 472 | |||||
Liabilities | |||||||||
Current | |||||||||
Operating | Other current liabilities | $ | 232 | $ | 156 | ||||
Finance | Notes payable and current maturities of long-term debt | 19 | 11 | ||||||
Noncurrent | |||||||||
Operating | Long-term lease obligations | 477 | 292 | ||||||
Finance | Long-term debt | 68 | 38 | ||||||
Total lease liabilities | $ | 796 | $ | 497 | |||||
(a) Finance leases are recorded net of accumulated amortization of $70 million as of both March 31, 2025 and December 31, 2024. | |||||||||
Maturity of Lease Liabilities | |||||||||
In millions | Operating Leases | Financing Leases | Total | ||||||
2025 | $ | 199 | $ | 21 | $ | 220 | |||
2026 | 209 | 22 | 231 | ||||||
2027 | 149 | 18 | 167 | ||||||
2028 | 92 | 14 | 106 | ||||||
2029 | 49 | 11 | 60 | ||||||
Thereafter | 94 | 16 | 110 | ||||||
Total lease payments | 792 | 102 | 894 | ||||||
Less imputed interest | 83 | 15 | 98 | ||||||
Present value of lease liabilities | $ | 709 | $ | 87 | $ | 796 | |||
NOTE 11 - GOODWILL AND OTHER INTANGIBLES
Goodwill
The following table presents changes in goodwill balances as allocated to each business segment for the three months ended March 31, 2025:
In millions | Packaging Solutions North America | Packaging Solutions EMEA | Global Cellulose Fibers | Total | ||
Balance as of January 1, 2025 | ||||||
Goodwill | $ 3,334 | $ 76 | $ 52 | $ 3,462 | ||
Accumulated impairment losses | (296) | (76) | (52) | (424) | ||
Total | 3,038 | - | - | 3,038 | ||
Goodwill additions/reductions (a) | 336 | (c) | 3,712 | (c) | - | 4,048 |
Currency translation and other (b) | - | 156 | - | 156 | ||
Balance as of March 31, 2025 | ||||||
Goodwill | 3,433 | 3,944 | 52 | 7,429 | ||
Accumulated impairment losses | (59) | (76) | (52) | (187) | ||
Total | $ 3,374 | $ 3,868 | $ - | $ 7,242 |
Includes write-offs of previously impaired goodwill of $237 million and accumulated impairment losses of $(237) million.
Represents the effects of foreign currency translations and reclassifications.
Reflects the acquisition of DS Smith. See Note 8 for further details.
Other Intangibles
Identifiable intangible assets comprised of the following:
March 31, 2025 | December 31, 2024 | ||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | ||
In millions | Amount | Amortization | Assets | Amount | Amortization | Assets | |
Customer relationships and lists | $ 4,458 | $ 392 | $ 4,066 | $ 489 | $ 360 | $ 129 | |
Tradenames, patents and trademarks, and developed technology | 564 | 171 | 393 | 170 | 162 | 8 | |
Software | 118 | 14 | 104 | (a) | 12 | 12 | - |
Land and water rights | 8 | 2 | 6 | 8 | 2 | 6 | |
Other | 21 | 5 | 16 | 7 | 5 | 2 | |
Total | $ 5,169 | $ 584 | $ 4,585 | $ 686 | $ 541 | $ 145 | |
(a) Of this balance, $65 million has been placed in service and $39 million is in development.
The Company recognized the following amounts as amortization expense related to intangible assets:
Three Months Ended March 31,
In millions | 2025 | 2024 | ||
Amortization expense related to intangible assets | $ | 51 $ | 9 |
Based on current intangibles subject to amortization, estimated amortization expense for each of the succeeding years is as follows:
In millions | Amortization Expense | ||
2025 | $ | 216 | |
2026 | 287 | ||
2027 | 268 | ||
2028 | 265 | ||
2029 | 252 | ||
Thereafter | 3,276 | ||
Total | $ | 4,564 | |
NOTE 12 - INCOME TAXES |
International Paper made income tax payments, net of refunds, of $45 million and $5 million for the three months ended March 31, 2025 and 2024, 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 $8 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. With the DS Smith acquisition on January 31, 2025, the evaluation of the impact of the second component of Pillar Two is ongoing but is not expected to have a material impact on the Company's effective tax rate for 2025.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
General
The Company is involved in various 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, that arise in the normal course of business. These matters may raise difficult and complicated legal issues and may be subject to many uncertainties and complexities. Moreover, some of these matters allege substantial or indeterminate monetary damages.
International Paper reviews inquiries, administrative proceedings and litigation, including with respect to environmental matters, on an ongoing basis and establishes an estimated liability for specific legal proceedings and other loss contingencies when it determines that the likelihood of an unfavorable outcome is probable, and the amount of the loss can be reasonably estimated. In addition, if the likelihood of an unfavorable outcome with respect to material loss contingencies is reasonably possible and International Paper is able to determine an estimate of the possible loss or range of loss, whether in excess of a related accrued liability of where there is no accrued liability, International Paper will disclose the estimate of the possible loss or range of loss. When no amount in a range of loss is more likely than any other amount in the range, the low end of the range is used as the estimate of the possible loss. International Paper's assessment of whether a loss is probable is based on management's assessment of the ultimate outcome of the matter.
Assessments of lawsuits and claims and the estimates reflected herein, are subject to significant judgments about future events, rely heavily on estimates and assumptions, and are otherwise subject to significant known and unknown uncertainties. The matters underlying such estimates may change from time to time and actual losses may vary significantly from current estimates. Additionally, the estimated liability for loss contingencies does not include matters or losses that are not reasonably estimable and probable.
Based on information currently known to International Paper, management believes that loss contingencies arising from pending matters, including the matters described herein, will not have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in such 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 materially adverse to the Company's results of operations or cash flows in any particular reporting period.
Environmental
The Company has been named as a potentially responsible party ("PRP") in environmental remediation actions under various U.S.federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("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 $284 million and $279 million in the aggregate as of March 31, 2025 and December 31, 2024, respectively.
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. In April 2020, the EPA issued a final plan concerning clean-up standards at a portion of the site. The Company is performing RA and continues to cooperate with the EPA on the remaining remediation goals at the site. The estimated liability for the Cass Lake superfund site was $48 million as of both March 31, 2025 and December 31, 2024. 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 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 ("OU5"), Area 1, and (ii) demanding reimbursement of EPA past costs totaling $37 million. In December 2016, the EPA issued a unilateral administrative order ("UAO") to the Company and other PRPs to perform the remedy. The Company responded to the UAO, agreeing to comply with the order subject to its sufficient cause defenses. The Company continues to comply with the UAO in performing remediation activities at OU5, Area 1.
Operable Unit 1 ("OU1"): 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 denying liability for OU1. In 2021, the EPA initiated RA activities. In October 2022, the Company received a unilateral administrative order to perform the RA. The Company began performing the RA in 2023 and established a $27 million reserve to account for this liability in the fourth quarter of 2022. In the fourth quarter of 2024, the Company increased the reserve by $27 million to account for the reasonably estimable costs for the next phases of the RA, following an EPA approved design modification in October to the original remedial design.
The total reserve for the combined liabilities for OU5, Area 1 and OU1 at the Kalamazoo River superfund site was $29 million as of both March 31, 2025 and December 31, 2024.
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. The lawsuit 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 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 the Final Judgment. In April 2022, the Sixth Circuit Court of Appeals (the "Sixth Circuit") reversed the Final Judgment of the Court, finding that the lawsuit 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 lawsuit 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 regarding liability for future costs is in error and has appealed 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.
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. The AOC does not include any agreement to perform waste removal or other construction activity at the site.
In 2020, the Company reserved the following estimated liability amounts in relation to remediation at this site: (a) $10 million for the southern impoundment; and (b) $55 million for the northern impoundment, which represented the Company's 50% share of our estimate of the low end of the range of probable remediation costs.
The Company submitted the Final Design Package for the southern impoundment to the EPA, and the EPA approved the 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. The Company substantially completed the RA for the southern impoundment in 2024.
With respect to the northern impoundment, the PRPs submitted a Final 100% RD to EPA in July 2024. EPA provided comments at the end of October and a Revised Final 100% RD was submitted at the end of November 2024. The total estimated liability for the southern and northern impoundment was $98 million as of both March 31, 2025 and December 31, 2024. The current reserve is primarily for the Company's 50% share of our estimate of the low end of the range of probable costs to implement the RD. Because of ongoing questions regarding cost effectiveness, timing and gathering other technical data, additional losses in excess of our recorded liability are possible.
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 estimated liability for Versailles Pond was
$29 million and $30 million as of March 31, 2025 and December 31, 2024,
Asbestos-Related Matters
We have been named as a defendant in various asbestos-related personal injury litigation, in both U.S. 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 $100 million net of insurance recoveries as of both March 31, 2025 and December 31, 2024. 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") and, prior to completion of the business combination certain subsidiaries of DS Smith operating in Italy ("DS Smith 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) for participation in the boxes coordination, 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. Given the failure of the Council of State to address certain arguments brought by IP, we further appealed the Council of State decision to uphold the ICA's findings. In March 2024, the Council of State 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 appealed the ICA's redetermination decision as inconsistent with the Council of State's 2024 and 2023 decision. In July 2024, the Council of State partially annulled the ICA redetermination decision, reducing IP Italy's fine by $6 million (€6 million). As of March 31, 2025, after giving effect to this development, the Company did not have any remaining liability related to IP Italy's fine. IP Italy has further appealed the Council of State's July 2024 decision seeking further reduction. DS Smith Italy was also subject to the ICA decision but not fined, given its position as leniency applicant. IP Italy, DS Smith Italy, and other producers also have been named in lawsuits, and we have received other claims, by a number of customers for damages associated with the alleged anticompetitive conduct. Given the early stages of these claims and the intention of the Company to defend robustly against such claims, it is too early to predict with any real degree of certainty, the precise overall outcome and ultimate potential liability (if any) that might be incurred in connection therewith, and there can be no guarantee that the aggregate of possible damages against IP Italy and DS Smith Italy could not, together, have a material impact on the Company's financial condition.
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 $103 million (adjusted for variation in currency exchange rates) in tax, plus interest, penalties and fees. The interest, penalties and fees currently total approximately $260 million (adjusted for variation in currency exchange rates). Accordingly, the assessments currently total approximately $363 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 appealed these decisions. On October 11, 2024, the federal regional court issued a ruling favorable to Sylvamo Brazil in the first stage of judicial review on the assessments for tax years 2007 and 2008-2012, comprising approximately $230 million of the total $363 million as of March 31, 2025. On December 18, 2024, the Brazilian Federal Revenue Service appealed this ruling. 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 on 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 tax matters 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 historical 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, 2025. 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.
NOTE 14 - VARIABLE INTEREST ENTITIES
Variable Interest Entities
As of March 31, 2025, 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 millions | 2025 | 2024 | ||
Revenue (a) | $ | 33 | $ | 39 |
Expense (b) | 29 | 35 | ||
Cash receipts (c) | 30 | 34 | ||
Cash payments (d) | 30 | 34 |
(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, 2025 and 2024 of accretion income for the amortization of the basis difference adjustment on the Long-term financial assets of variable interest entities.
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