INTERNATIONAL PAPER CO NEW

While the operating results for International Paper’s various business segments are driven by a number of business-specific factors, changes in International Paper’s operating results are closely tied to changes in general economic conditions in North America,

Europe, Latin America, North Africa and the Middle East.

Factors that impact the demand for our products include industrial non-durable goods production, consumer preferences, consumer spending and movements in currency exchange rates.

Product prices are affected by a variety of factors including general economic trends, inventory levels, currency exchange rate movements and worldwide capacity utilization. In addition to these revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include changes in raw material costs, principally wood, recovered fiber and chemical costs; energy costs; freight costs; mill outage costs; salary and benefits costs, including pensions; and manufacturing conversion costs.

The following summarizes our results from continuing operations for the year ended December 31, 2024 compared with the year ended December 31, 2023:

TWELVE MONTHS ENDED DECEMBER 31, 2024 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2023

The following is a discussion of International Paper’s consolidated results of operations for the year ended December 31, 2024, and the major factors affecting these results compared to 2023.

Refer to the Effects of Net Special Items Expense (Income) section beginning on page 37 for details of net special items expense (income) discussed below.

Net sales

Net sales for the year ended December 31, 2024 decreased by $297 million or 2% compared to the year ended December 31, 2023. The decrease was driven by lower sales volumes partially offset by higher sales prices. International net sales (based on the location of the seller and including U.S. exports) totaled $5.2 billion or 28% of total sales in 2024. This compares with international net sales of $5.3 billion in 2023 or 28% of total sales. Additional details on net sales are provided in the Business Segment Results section below.

Cost of products sold

Compared to the year ended December 31, 2023, cost of products sold for the year ended December 31, 2024 decreased by $253 million or 2%. Net special items includes charges of $77 million and $36 million in the year ended December 31, 2024 and the year ended December 31, 2023, respectively, in cost of products sold. Additionally, there were decreases of $368 million driven by lower sales and lower fuel and packaging expense, partially offset by an increase in raw materials, maintenance and other expenses of $75 million.

Selling and administrative expenses

Compared to the year ended December 31, 2023, selling and administrative expenses for the year ended December 31, 2024 increased by $480 million or 35%. Net special items includes charges of $128 million for the year ended December 31, 2024 in selling and administrative expenses. There were no special items included in selling and administrative expense for the year ended December 31, 2023. The increase in 2024 compared to the 2023 was primarily driven by higher incentive compensation of $325 million.

Depreciation and amortization

Compared to the year ended December 31, 2023, depreciation and amortization for the year ended December 31, 2024 decreased by $127 million or 9%. Depreciation expense includes $233 million and $422 million for the years ended December 31, 2024 and December 31, 2023, respectively, for accelerated depreciation related to mill and other 80/20 strategic actions. The decrease in 2024 compared to 2023 was primarily driven by less accelerated depreciation, partially offset by the write-down of fixed assets for the Ixtac, Mexico box plant fire in 2024.

Distribution expenses

Compared to the year ended December 31, 2023, distribution expenses for the year ended December 31, 2024 decreased by $100 million or 6%, primarily driven by lower freight expense of $76 million reflecting lower sales volumes.

Taxes other than payroll and income taxes

Compared to the year ended December 31, 2023, taxes other than payroll and income taxes for the year ended December 31, 2024 decreased by $7 million or 5%, primarily driven by lower real estate tax expense of $8 million due to the divestiture of real estate.

Interest expense, net

Compared to the year ended December 31, 2023, interest expense, net for the year ended December 31, 2024 decreased by $23 million or 10%. Net special items includes income of $10 million and $3 million for the years ended December 31, 2024 and December 31, 2023, respectively, in interest expense, net. The decrease in 2024 compared to 2023 was primarily driven by higher interest income of $22 million in 2024.

Income tax provision (benefit)

Refer to Income Taxes section on pages 41 and 42 for discussion on income tax provision (benefit) and income tax rates.

Net earnings (loss) and earnings (loss) from continuing operations

Full year 2024 net earnings totaled $557 million ($1.57 per diluted share), compared with net earnings of $288 million ($0.82 per diluted share) in 2023. Amounts in 2023 include the results of discontinued operations.

Earnings from continuing operations after taxes in 2024 and 2023 were as follows:

(a)Includes $125 million of net special items income and $32 million of non-operating pension income.

(b)Includes $95 million of net special items charges and $41 million of non-operating pension expense.

Compared with 2023, the benefits from higher sales prices net of an unfavorable mix ($163 million), lower maintenance outage costs ($52 million), lower accelerated depreciation expense ($147 million), lower net interest expense ($12 million) and lower tax expense ($41 million) were partially offset by lower sales volumes ($92 million), higher operating costs ($293 million), higher input costs ($54 million) and higher corporate and other costs ($12 million). In addition, 2024 results included lower equity earnings, net of taxes.

See Business Segment Results on pages 42 through 44 of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impact of these factors by segment.

DISCONTINUED OPERATIONS

On September 18, 2023, the Company completed the sale of its Ilim equity investment and, as a result, all current and historical results of the Ilim investment are presented as Discontinued Operations, net of taxes and our equity investment is no longer a separate reportable industry segment. This transaction is discussed further in Note 10 - Equity Method Investments on page 75 of Item 8. Financial Statements and Supplementary Data for further discussion.

Discontinued operations include the equity earnings of the prior Ilim joint venture. Discontinued operations also includes after-tax losses of $126 million in 2023 for impairment and transaction costs related to our former equity method investment in the Ilim joint venture.

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

A net income tax benefit from continuing operations of $415 million was recorded for 2024 and the reported effective income tax rate was (282)%. This includes a tax benefit of $416 million related to internal legal entity restructuring. Excluding this item, a $72 million net tax benefit for other special items and a $10 million tax expense related to non-operating pension expense, the operational tax provision (non-GAAP) for 2024 was $63 million, or 13% of pre-tax earnings before equity earnings.

A net income tax provision from continuing operations of $59 million was recorded for 2023 and the reported effective income tax rate was 15%. This includes a tax benefit of $23 million related to the settlement of tax audits and tax expense of $4 million related to internal legal entity restructuring. Excluding these items, a $36 million net tax benefit for other special items and a $13 million tax benefit related to non-operating pension income, the operational tax provision (non-GAAP) for 2023 was $127 million, or 22% of pre-tax earnings before equity earnings.

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