IP, §1A diff (2024 → 2025)

ITEM 1A. RISK FACTORS

The following is a summary of the material risks and uncertainties that could affect our business, financial condition

and results of operations. You should read this summary together with the more detailed description of each risk

factor contained below.

Risks Related to Industry Conditions

•Fluctuations in the prices of and the demand for our products due to factors such as economic cyclicality

and changes in customer or consumer preferences, and government regulations.

•Changes in the cost and availability of raw materials, energy and transportation have recently affected, and

could continue to affect, our profitability.

•Competition and downward pricing pressure in the global packaging industry could negatively impact our

financial results.

Risks Related to Market and Economic Factors

•Maintenance of two exchange listings may adversely affect liquidity in the market for our shares of common

stock and result in pricing differentials of shares of common stock between two exchanges.

•Developments in general business and economic conditions could have an adverse effect on the demand

for our products, our financial condition and the results of our operations.

•Changes in international conditions or other risks arising from conducting business internationally could

adversely affect our business and operations.

Risks Related to our Operations

•We are subject to a wide variety of laws, regulations and other government requirements that may change

in significant ways, and the cost of compliance with such requirements, or the failure to comply with such

requirements could impact our business and results of operations.

•Material disruptions at one of our manufacturing facilities could negatively impact financial results.

•We operate in a challenging market for talent and may fail to attract and retain qualified personnel, including

key management personnel.

•Our failure to maintain good employee or labor relations may affect our respective operations.

•We may be unable to realize the expected benefits and costs savings associated with restructuring

initiatives, including our 80/20 approach.

•We may not achieve the expected benefits from strategic acquisitions, joint ventures, divestitures, spin-offs,

capital investments, capital projects and other corporate transactions that are or will be pursued.

•We are subject to cybersecurity and information technology risks related to breaches of security pertaining

to sensitive company, customer, employee and vendor information as well as breaches in the technology

used to manage operations and other business processes.

•Our continued growth will depend on our ability to retain existing customers and attract new customers.

•Uninsured losses or losses in excess of our insurance coverage for various risks could have an adverse

financial effect on our business.

•We may not be able to adequately secure and protect our intellectual property rights, which could harm our

competitive advantage.

•We may fail to identify or leverage digital transformation initiatives.

Risks Related to the Separation

•The proposed separation of our EMEA packaging business may not be completed, on the currently

contemplated timeline or at all.

Risks Related to our Indebtedness

•Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely

affect our cost of financing and have an adverse effect on the market price of our securities.

•The level of our indebtedness could adversely affect our financial condition and impair our ability to operate

our business.

•We are subject to risks associated with variable rate debt.

•Downgrades in the credit ratings of banks issuing certain letters of credit will increase our cost of

maintaining certain indebtedness and may result in the acceleration of deferred taxes.

Risks Related to Legal Proceedings and Compliance Costs

•Results of legal proceedings could have a material effect on our consolidated financial results.

•We could be exposed to liability for Brazilian taxes under our agreements with Sylvamo Corporation.

•Failure to remediate a material weakness in DS Smith’s internal control over financial reporting could

adversely affect our business and results of operations.

Risks Related to Climate and Weather and Social and Environmental Impact Reporting

•We are subject to risks associated with climate change and other sustainability matters and global, regional

and local weather conditions as well as by legal, regulatory, and market responses to climate change.

Risks Related to our Pension and Healthcare Costs

•Our pension and health care costs are subject to numerous factors which could cause these costs to

change.

•Our pension plans are currently fully funded on a projected benefit obligation basis; however, the possibility

exists that over time we may be required to make cash payments to the plan, reducing the cash available

for our business.

The Company faces a variety of risks, including risks in the normal course of business and through global, regional,

and local events that could have an adverse impact on its reputation, operations, and financial performance.

The following are material risk factors of which we are aware, including risk factors that could cause the Company’s

actual results to differ materially from those contemplated in any forward-looking statement. If any of the events or

circumstances described in any of the following risk factors occurs, our business, results of operations and/or

financial condition could be materially and adversely affected, and our actual results may differ materially from those

contemplated in any forward-looking statements we make in any public disclosures. Additional factors that could

affect our business, results of operations and/or financial condition are discussed elsewhere in this Annual Report

on Form 10-K (including in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations) and in the Company’s other filings with the U.S. Securities and Exchange Commission.

RISKS RELATED TO INDUSTRY CONDITIONS

Fluctuations in the prices of and the demand for our products due to factors such as economic cyclicality

and changes in customer or consumer preferences, and government regulation could materially affect our

financial condition, results of operations and cash flows.

Substantially all of our business has experienced, and is expected to continue to experience, cycles relating to

industry capacity, customer demand, and general economic conditions. The length and magnitude of these cycles

have varied over time and by product. Product prices and sales volumes have fallen in the past, and there can be

no assurance that this will not recur. New or existing producers of paper and sustainable packaging products may

add or adjust capacity affecting available supply. Further, changes in customer or consumer preferences may

increase or decrease the demand for fiber-based products and non-fiber substitutes. Customer and consumer

preferences change based on, among other factors, cost, convenience, health concerns and perceptions and an

increased awareness of sustainability considerations. In some areas, customers have increasingly shown interest in

environmentally friendly products such as fiber-based packaging. Advances in non-fiber technologies such as

plastic packaging or other materials could result in decreased demand for our products. In addition, legal

developments, such as new governmental regulations on single-use packaging products could significantly alter the

market for our products. Any of the foregoing, including a failure to anticipate and respond to changing trends,

customer preferences and technological and regulatory developments, could have a material adverse effect on our

business, financial condition, results of operations and/or future prospects. A lack of investor confidence in the paper

and packaging industry could also have a negative impact on our business, financial condition, results of operations

and/or future prospects.

Changes in the cost and availability of raw materials, energy and transportation have recently affected, and

could continue to affect, our profitability.

We rely heavily on the use of certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda, starch

and adhesives), energy sources (principally biomass, natural gas, electricity and fuel oil) and third-party transport

companies. The market price of virgin wood fiber varies based on availability, demand, quality, and source. The

global supply and demand for recycled fiber may be affected by factors such as trade policies between countries,

individual governments’ legislation and regulations, and general macroeconomic conditions. In addition, the

increase in demand of products manufactured, in whole or in part, from recycled fiber, on a global basis, may cause

significant fluctuations in recycled fiber prices. Taking into account ongoing inflationary conditions in domestic and

global markets, we have experienced, and may continue to experience, a significant increase in various costs,

including recycled fiber, energy, freight, chemical, and other supply chain costs, which has adversely affected, and

may continue to adversely affect, our operations. Moreover, the availability of labor and the market price for fuel

may affect third-party transportation costs.

In addition, because our business operates in highly competitive industry segments, we have not always been able

to, and may in the future be unable to, recoup past or future increases in the costs of any raw materials, energy

sources or transportation sources from customers, which significantly affect profitability. In addition, where we are

able to recoup our cost increases, there may be a delay between the onset of the cost increases and the

recoupment. Any inability to recover input cost increases could lead to a material adverse effect on our business,

financial condition, results of operations and/or future prospects.

We have significant exposure to energy costs, in particular gas, electricity and other fuel costs. Energy prices have

fluctuated dramatically in the past and may continue to increase and/or fluctuate in the future. Transportation costs

are also impacted by energy costs since a key component of transportation costs relates to the cost of oil. We have

employed and expect to continue to employ, strategies, including hedging a portion of our energy costs, and risk

mitigation tools to reduce the volatility of energy costs and ensure a degree of certainty over future energy costs.

However, there can be no certainty that those strategies and tools will continue to manage such impact in the future.

Volatile and increasing energy prices, including as a consequence of the conflict between Russia and Ukraine as

well as heightened geopolitical tensions in regions such as the Middle East, China, and recent events in Venezuela,

or a failure to effectively implement such strategies and tools could have a material adverse effect on our business,

financial condition, results of operations and/or future prospects.

Competition and downward pricing pressure in the global packaging industry could negatively impact our

financial results.

We operate in a competitive international environment. Our products compete with other forest products and

packaging companies in the markets where we operate.

Product innovations, manufacturing and operating efficiencies, additional manufacturing capacity, distribution and

commercial strategies pursued or achieved by competitors, and the entry of new competitors, could negatively

impact our financial results. In addition, our products compete with companies that produce substitutes for wood-

fiber products, such as plastics and various types of metal. Customer shifts away from wood-fiber products toward

such substitute products may adversely affect our business and financial results. Further, we depend on critical

suppliers and key customers. An inability to foster these relationships and to manage any material changes in

commercial terms and service levels could have a material adverse impact on our business, financial condition,

results of operations and/or future prospects.

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Pricing in the paper and packaging industries can be affected by, among other things, product commoditization,

changes in demand, entrance or withdrawal of new competitors or capacity, changes in product supply, and the

introduction of new products, technologies and equipment, including the use of artificial intelligence ("AI") and

machine learning solutions. We face significant pressure to reduce per unit costs to achieve commercially

acceptable returns. In circumstances where we are unable to adjust the relevant cost base sufficiently, pricing

pressure could have a material adverse effect on our business, financial condition, results of operations and/or

future prospects.

RISKS RELATED TO MARKET AND ECONOMIC FACTORS

Our maintenance of two exchange listings may adversely affect liquidity in the market for our shares of

common stock and result in pricing differentials of shares of common stock between the two exchanges.

Trading in shares of common stock on the London Stock Exchange ("LSE") and the NYSE takes place in different

currencies (pound sterling on the LSE and U.S. dollars on the NYSE) and at different times (resulting from different

time zones, different trading hours and different trading days for the LSE and the NYSE). The trading prices of

shares of common stock on these two exchanges may at times differ due to these and other factors. Any decrease

in the price of shares of common stock on the NYSE could cause a decrease in the trading price of shares of

common stock on the LSE and vice versa.

The benefits we expect of the dual listing on the NYSE and the LSE, which are increased liquidity, visibility among

investors and access to investors who may be able to hold listed shares in the United Kingdom, but not the United

States, and vice versa, may not be realized or, if realized, may not be sustained, and the costs and additional

regulatory burdens associated with a dual listing may ultimately outweigh the associated benefits.

We are affected by developments in general business and economic conditions, which could have an

adverse effect on the demand for our products, our financial condition and the results of our operations

including our ability to pay a cash dividend.

General economic conditions may adversely affect industrial non-durable goods production, consumer confidence

and spending, and employment levels, all which impact demand for our products, or otherwise adversely affect our

business. We may also be adversely affected by catastrophic or other unforeseen events, natural disasters,

geopolitical events, military conflicts, terrorism, port and canal blockages and similar disruptions, political, financial

or social instability, or civil or social unrest. Future health epidemics or pandemics could also adversely impact

portions of our business to varying degrees, including as the result of change in demand for certain products, supply

chain and labor disruptions, and higher costs. These effects could have a material impact on our business, results of

operations, cash flow, liquidity, or financial condition. Moreover, negative economic conditions or other adverse

developments with respect to our business have resulted in and may in the future result in impairment charges,

including impairments related to divested or acquired businesses whose carrying values may not be recoverable,

any of which could be material. Volatility or uncertainty in the financial, capital and credit markets, and negative

developments associated with interest rates, asset values, currency exchange rates and the availability of credit,

could also have a material adverse effect on our business, financial condition and results of operations and could

adversely affect our liquidity, access to capital markets and ability to pay a dividend.

Macroeconomic conditions in the U.S., Europe and globally remain challenging and volatile. Recent periods have

been characterized not only by persistent inflationary pressures, elevated interest rates, challenging labor market

conditions, tariff policies and heightened trade policy uncertainty but also by slowing global economic growth,

weakening global trade and investment flows, supply chain realignments, currency volatility, shifting fiscal and

monetary policies across major economies and adverse effects and uncertainty associated with current geopolitical

conditions. Our operations have been adversely affected and could continue to be adversely affected in the future,

by these challenging macroeconomic and geopolitical conditions, including as the result of lower demand for certain

products, and higher raw material and labor costs. Further, because the markets for packaging products in many

industrialized countries are generally mature, there is a significant degree of correlation between economic growth

and demand for packaging products. Therefore, any deterioration in macroeconomic conditions in the U.S., Europe

and/or globally resulting in a slowdown in economic growth may correlate with a corresponding decline in demand

for packaging products in those markets. Moreover, any significant deterioration in current negative macroeconomic

conditions, or any recovery therefrom that is significantly slower than anticipated, could have a material adverse

effect on our business, results of operations or financial condition. In addition, there can be no assurance that

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dividends will continue to be declared or paid at historical levels, and any reduction or suspension of dividends

could negatively impact our stock price. Further, if negative macroeconomic conditions result in significant

disruptions to capital and financial markets, the cost of borrowing, our ability to access capital on favorable terms,

and our overall liquidity could be adversely affected.

Changes in international conditions or other risks arising from conducting business internationally could

adversely affect our business and operations.

As a global producer of renewable fiber-based packaging products, we operate in many different countries. As a

result, we are vulnerable to risks related to our international operations. These risks, which can vary substantially by

country, may include economic or political instability, geopolitical events, corruption, anti-American sentiment,

expropriation measures, social and ethnic unrest, natural disasters, military conflicts and terrorism, the regulatory

environment (including the risks of operating in developing or emerging markets in which there are significant

uncertainties regarding the interpretation and enforceability of legal requirements and the enforceability of

contractual rights and intellectual property rights), adverse currency fluctuations, foreign exchange control regimes

(including restrictions on currency conversion), downturns or changes in economic conditions (including in relation

to commodity inflation), adverse tax consequences or rulings, import restrictions, controls or other trade protection

measures, economic sanctions, health guidelines and safety protocols, nationalization, changes in social, political or

labor conditions, and adverse developments regarding sustainability, environmental regulations and trade policies

and agreements, any of which risks could negatively affect our financial results. For example, a portion of our sales

could be adversely affected by changes in economic conditions and demographics, including as a result of tariffs.

Trade protection measures in favor of local producers of competing products, including governmental subsidies,

tariffs, tax benefits and other measures may give local producers a competitive advantage and adversely impact our

operating results and our business prospects in these countries. Likewise, disruption in existing trade agreements or

increased trade friction between countries (such as in relation to the trade tensions between the U.S. and China),

could have a negative effect on our business and results of operations by restricting the free flow of goods and

services across borders. Additionally, the U.S. government in 2025 increased certain rates and broadened the

scope of certain tariffs imposed on goods imported into the U.S., such as from China, which may strain international

trade relations and increase the risk that foreign governments implement retaliatory tariffs on goods imported from

the United States. Specifically, the U.S. federal government implemented tariffs on certain foreign goods and may

implement additional tariffs on foreign goods. If lasting, such tariffs and any further legislation or actions taken by the

U.S. federal government that restrict trade, such as additional tariffs, trade barriers, and other protectionist or

retaliatory measures taken by governments in Europe, Asia, and other countries, could adversely impact our ability

to sell products and services in our international markets. Tariffs have increased the cost of certain capital items,

including materials and equipment used in our capital investments. These increased costs could adversely impact

the profit margin that we earn on our products, which could make our products less competitive and reduce

consumer demand. Countries may also adopt other protectionist measures that could limit our ability to offer our

products and services. Conversely, these tariffs and retaliatory tariffs may be subject to further changes or

negotiations which could lower or remove them in the near or longer term with a return to more normalized trade

conditions in some instances. Due to this uncertainty, the ultimate impact of any tariffs and trade tension is unclear

and will depend on various factors, including if there are negotiated bilateral agreements to remove or lower tariffs,

and the timing, amount, scope and nature of the tariffs that remain implemented.

Recent legal and policy developments have further increased uncertainty. On February 20, 2026, the U.S. Supreme

Court struck down several of the sweeping tariffs imposed through a series of executive orders, holding that the

tariffs exceeded the authority granted under the International Emergency Economic Powers Act. The Court's ruling

eliminated key tariffs on imports from numerous major trading partners and created uncertainty regarding the status

of various trade agreements and tariff related obligations. The Court did not determine whether importers are owed

refunds for tariffs previously paid, although estimates suggest that potential refunds could be substantial, and

federal agencies must now determine how to administer the ruling. In response to the Supreme Court’s decision,

the government announced new Executive Orders on February 20, 2026, aimed at restructuring U.S. tariff policy

and exploring alternative statutory authorities to impose or maintain tariffs. The scope, timing, and implementation of

these Executive Orders remains uncertain, and may result in new or modified tariff regimes, additional regulatory

requirements, or further trade friction with U.S. trading partners. We may become entitled to refunds of certain tariffs

previously paid; however, whether any refund will be available, and the amount and timing of any such refund,

remain uncertain and subject to ongoing administrative processes and additional federal guidance. We are

continuing to evaluate the impact of both the Supreme Court’s ruling and the new Executive Orders on our supply

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chain, input costs, pricing, capital investments, and overall operating results, and the ultimate impact, if any, on our

business is not yet known.

We may continue to be adversely affected by ongoing geopolitical instability and the economic consequences and

disruptions arising therefrom, including as the result of the military conflict between Russia and Ukraine, the conflict

in the Middle East, and increasing tensions between China and Taiwan. These risks may be further heightened in

the event of the expansion in the scope or escalation of any such conflicts. In addition, changes to economic

sanctions programs, could put us at risk of violating sanctions because of an existing presence in a newly

sanctioned jurisdiction or relationship with a newly sanctioned entity if we fail or are unable to end such presence or

relationship in a timely manner.

In addition, our international operations are subject to laws related to operations in foreign jurisdictions, including

laws prohibiting bribery of government officials and other corrupt practices. Anti-bribery laws such as the U.K.

Bribery Act 2010, the Foreign Corrupt Practices Act of 1977, and similar worldwide anti-corruption laws generally

prohibit companies and their intermediaries from making improper payments to public officials for the purpose of

obtaining or retaining business. Further, the U.S. Department of the Treasury’s Office of Foreign Assets Control and

other non-U.S. government entities maintain economic sanctions targeting various countries, persons and entities.

We are also subject to the laws and regulations of governmental and regulatory agencies. Failure to comply with

domestic or foreign laws could result in various adverse consequences for us including the imposition of civil or

criminal sanctions, reputational damage and the prosecution of executives overseeing international operations.

We are exposed to the translation of the results of overseas subsidiaries into their respective reporting currencies,

as well as the impact of currency fluctuations on their commercial transactions denominated in foreign currencies.

Adverse movements in foreign exchange rates relating to foreign currency denominated commodities, assets and

liabilities, and transactions could have a material impact on our business, financial condition, results of operations

and/or future prospects.

RISKS RELATED TO OUR OPERATIONS

We are subject to a wide variety of laws, regulations and other government requirements that may change

in significant ways, and the cost of compliance with such requirements, or the failure to comply with such

requirements, could impact our business and results of operations.

As a publicly listed company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-

Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the listing requirements of the NYSE. By virtue of our secondary

listing on the LSE, we are also subject to the listing requirements of the LSE, the Market Abuse Regulation and

Disclosure Guidance and Transparency Rules. The Exchange Act requires that we file annual and other reports with

respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among

other things, that we establish and maintain effective internal controls and procedures for financial reporting. Any

failure to maintain effective controls or any difficulties encountered implementing required new or improved controls

could cause us to fail to meet our reporting obligations, which could have a material adverse effect on our business

and the trading price of our common stock.

Our operations are subject to regulation under a wide variety of domestic and international laws, regulations and

other government requirements, including, among others, those relating to the environment, health and safety, labor

and employment, data privacy, tax, trade, competition and corruption and health care. There can be no assurance

that laws, regulations and government requirements will not be changed, applied or interpreted in ways that will

require us to modify our respective operations and objectives or affect our respective returns on investments by

restricting existing activities and products or increasing costs. In addition, any failure or alleged failure to comply

with applicable laws, regulations or other government requirements could have an adverse effect on our reputation

and financial results or may result in, among other things, litigation, revocation of required licenses, internal

investigations, governmental investigations or proceedings, administrative enforcement actions, fines and civil and

criminal liability.

We are subject to increasingly stringent federal, state, local and international laws governing the protection of the

environment that continue to evolve as new guidance is provided by regulatory and governing bodies and as

pending or future litigation is resolved. The changing laws, regulations and standards relating to corporate

governance, sustainability matters and public disclosures in various jurisdictions create uncertainty for public

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companies, increase legal and compliance costs and make activities more time consuming. We have incurred, and,

following completion of our planned separation of the EMEA packaging business, expect to continue to incur and

invest resources, significant capital, operating and other expenditures complying with applicable and forthcoming

environmental laws and regulations, including with respect to GHG emissions and other climate-related matters.

These investments may lead to higher operating expenses as the cost of compliance increases. Our environmental

expenditures include, among other areas, those related to air and water quality, waste disposal and the cleanup of

soil and groundwater, including situations where we have been identified as a potentially responsible party.

Following the separation of our EMEA packaging business, we will evaluate our exposure to international climate

regulations.

There can be no assurance that future remediation requirements and compliance with existing and new laws and

requirements will not require significant expenditures, or that existing reserves for specific matters will be adequate

to cover future costs. We could also incur substantial fines or sanctions, enforcement actions (including orders

limiting 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. Additionally, if our compliance efforts with

new applicable laws, regulations, and standards do not align with the expectations of regulatory or governing bodies

due to ambiguities in their application and implementation, or if they differ from interpretations arising from related

litigation, we may face legal actions. This could negatively impact our business, financial condition, operational

results, and cash flow.

Our global operations are subject to complex and evolving domestic and international data privacy laws and

regulations, such as the European Union’s General Data Protection Regulation, the UK's General Data Protection

Regulation, any supplemental applicable European Union member state or UK national data protection laws,

China’s Personal Information Protection Law and comprehensive privacy laws in many U.S. states. These laws

impose 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 data collection, use and processing activities.

This increasingly restrictive and evolving global regulatory environment 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 business practices, data

processing and security systems, penalties, increased operating costs or other impacts on our business.

Additionally, regulatory bodies and others tasked with enforcing privacy and data protection laws have been actively

engaging in enforcement investigations and actions. 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 use internal and

external resources to monitor compliance with relevant legislation and continually evaluate and, where necessary,

modify data processing practices and policies 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 policies,

procedures and practices will prevent the improper handling of, disclosure of or access to personal data. Any such

unauthorized access, use or disclosure in violation of applicable privacy and data protection laws could cause

reputational harm and loss of consumer confidence and subject us to government enforcement actions (including

fines), or result in private litigation, which could result in loss of revenue, increased costs, liability for monetary

damages, fines and/or criminal prosecution, all of which could negatively affect our business and operating results.

We are also exposed to the risk of changes in tax law and tax rates in a number of jurisdictions. The costs

associated with these laws and regulations are substantial and possible future laws and regulations or changes to

existing laws and regulations (including the imposition of higher taxes) could require us to incur additional expenses

or capital expenditures or result in restrictions on or suspensions of operations. For example, the Organization for

Economic Cooperation and Development (the “OECD”) has issued a framework pursuant to which EU and non-EU

countries (including countries in which we operate) have enacted a 15% global minimum tax applied on a country-

by-country basis (the “Pillar Two rule”). In many of the countries implementing the Pillar Two rule, the first

component of the Pillar Two rule became effective in 2024 and the second component in 2025. In January 2026, the

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OECD/G20 issued administrative guidance modifying application of the Pillar Two rule through a Side-by-Side

system introducing two new Pillar Two safe harbors for US-parented multinational corporations, effective beginning

in 2026. The application of these safe harbors by each country that has implemented Pillar Two now depends on the

respective countries’ enacting the Side-by-Side system. It is possible that the Pillar Two rule could adversely impact

our effective tax rate in future periods. Additionally, administrative guidance with respect to tax law can be

incomplete or vary from legislative intent, and therefore the application of the tax law is uncertain. While we believe

our reported positions comply with relevant tax laws and regulations, taxing authorities could interpret the

application of certain laws and regulations differently. We have been and continue to be subject to tax audits in

various taxing jurisdictions around the world. In some cases, we have appealed, and may continue to appeal,

assessments by taxing authorities, including in the court system. As such, tax controversy matters may result in

previously unrecorded tax expenses, accelerated cash tax payments, higher future tax expenses, or the

assessment of interest and penalties.

AI continues to evolve rapidly, and, as with many technological innovations, it presents risks and challenges that

could affect its adoption and our business. Uncertainty in the global and legal regulatory regime relating to AI may

require significant resources to modify and maintain business practices to comply with international laws, the nature

of which cannot be determined at this time. Multiple jurisdictions, including Europe, the U.S. federal government,

and certain U.S. states, have already proposed or enacted laws, regulations, and other requirements governing AI.

In Europe, the EU AI Act, adopted in May 2024, entered its implementation phase in 2025 and imposes extensive

transparency, risk management and data governance obligations for AI systems, particularly those classified as high

risk, with significant fines for noncompliance. Additional implementing measures are expected. In the United States,

2025 marked a shift in federal AI policy with the government establishing a national AI policy framework aimed at

asserting federal preemption over divergent state AI laws. States continue to adopt AI statutes creating varied

compliance regimes addressing accountability, automated decision-making, transparency, worker protections and

privacy. Changes in regulatory regimes, or the adoption of new or more restrictive requirements, could make it more

difficult to use AI tools, require us to change our business practices, or limit AI usage which may lead to

inefficiencies or competitive disadvantages.

Material disruptions at one of our manufacturing facilities could negatively impact financial results.

We operate facilities in compliance with applicable rules and regulations and take measures to minimize the risks of

disruption. A material disruption at our corporate headquarters, a manufacturing facility or key mill could prevent us

from meeting customer demand, reduce sales and/or negatively impact our financial condition. Any of our

manufacturing facilities or any machines within an otherwise operational facility, could cease operations

unexpectedly due to a number of events, including:

•adverse weather events like fires, floods, earthquakes, hurricanes, winter storms and extreme

temperatures, or other catastrophes (including adverse weather conditions that may be intensified by

climate change);

•the effect of a drought or reduced rainfall on its water supply;

•disruption in the supply of raw materials or other manufacturing inputs;

•terrorism or threats of terrorism, security incidents or other threats to employee safety;

•information system disruptions or failures due to any number of causes, including cyber-attacks;

•domestic and international laws and regulations applicable to us and any of our respective business

partners, including joint venture partners, around the world;

•unscheduled maintenance outages;

•prolonged power failures;

•an equipment failure;

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•a chemical spill or release;

•explosion of a boiler or other equipment;

•damage or disruptions caused by third parties operating on or adjacent to a manufacturing facility;

•disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

•a widespread outbreak of an illness or any other communicable disease, or any other public health crisis or

any impacts related to government regulation as a result thereof;

•failure of third-party service providers and business partners to satisfactorily fulfill their commitments and

responsibilities in a timely manner and in accordance with agreed upon terms;

•labor difficulties; and

•other operational problems.

Any such downtime or facility damage could prevent us from meeting production targets, customer demand and

satisfying customer requirements, which may necessitate unplanned expenditures, resulting in lower sales and have

a negative effect on our financial results.

We operate in a challenging market for talent and may fail to attract and retain qualified personnel,

including key management personnel.

Our ability to operate and grow our business depends on our ability to attract and retain employees with the skills

necessary to operate and maintain our facilities, produce our products and serve our customers. The market for

both hourly workers and salaried workers continues to be competitive, particularly for employees with specialized

technical and trade experience. This, along with the current competitive labor market and ongoing cost-pressured

conditions, has led to higher labor costs. In addition, we rely on our key executive and management personnel to

manage our business efficiently and effectively. The unanticipated departure of key executive and management

employees, particularly in a challenging market for attracting and retaining employees, could adversely affect our

business. Moreover, changing demographics and labor work-force trends, including evolving expectations around

remote and hybrid work, work-life balance expectations and increased return-to-office requirements, may make it

difficult for us to attract, retain or replace retiring or departing employees. The failure to retain and/or recruit

additional or substitute senior managers and/or other key employees and a failure to identify and resource for future

capability requirements such that there is a gap in skills and knowledge across key business areas, or if higher labor

costs and shortages persist, could have a material adverse effect on our business, financial condition, results of

operations and/or future prospects.

Our failure to maintain good employee or labor relations may affect our respective operations.

Future developments in relation to our business could adversely affect employee or labor relations. Good employee

and labor relations depend on the ability to drive innovation, manage change and engage the workforce, and failure

to do so could have a material adverse effect on our business, financial condition, results of operations and/or future

prospects. Further, labor disputes or other problems could lead to a substantial interruption to our business and

have a material adverse effect on our business, financial condition, results of operations and/or future prospects.

A significant number of our employees located outside of the U.S. are represented by unions, trade unions and

national works councils. We have collective bargaining agreements in place with U.S. and international trade

unions. In the U.S., we may not be able to successfully negotiate new collective bargaining agreements once our

current contracts with unions expire without work stoppages or labor difficulties, or we may be unable to renegotiate

such contracts on favorable terms. The mill master collective bargaining agreement and related mill joint pension

council master agreement with the United Steelworkers union (the "USW") will expire in August 2027 and

September 2027, respectively. The converting master collective bargaining agreements and related converting joint

pension council master agreement which will expire in April and September 2028, respectively. The USW represents

approximately 8,622 employees in our mills and converting facilities. In Europe, we have collective agreements in

place with trade unions, and also have agreements in place with the European Works Council, which brings

together employee representatives from the different European countries in which we operate and provides a forum

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for information sharing and consultation. We have experienced limited work stoppages in the past and may

experience work stoppages in the future. Further, labor organizations may attempt to organize groups of additional

employees from time to time, and recent and potential changes in labor laws could make it easier for them to do so.

If there is a substantial change to the terms of any collective bargaining agreements or an agreement acceptable to

us cannot be reached at all when the collective agreements are renewed, we could face increased labor costs or

disruptions as a result of labor union activity in the future. If we experience any extended interruption of operations

at any of the relevant facilities as a result of strikes or other work stoppages, or if unions, trade unions and national

works councils are able to organize additional groups of our employees, our operating costs could increase and our

operational flexibility could be reduced.

We may be unable to realize the expected benefits and cost savings associated with restructuring

initiatives, including our 80/20 approach.

We have restructured portions of our operations from time to time and have current restructuring initiatives taking

place and planned for North America and EMEA. In 2025, we agreed to sell our Global Cellulose Fibers business,

which we completed in January 2026, and exited the converting bag business. In North America, we actioned

closure of three mills, two recycling facilities, and six box plants, as well as one sheet plant, one sheet feeder, one

molded fiber facility and one box-to-sheet-feeder conversion. In EMEA, we actioned closures of 17 packaging

plants, one mill and one recycling center. Together these actions reduced the workforce by approximately 1,400. On

January 29, 2026, we announced plans to separate our EMEA packaging business into an independent public

company. Through the 80/20 approach, we intend to deliver profitable market share growth by striving to be the

lowest-cost producer, and the most reliable and innovative sustainable packaging solutions provider to our

customers across North America and EMEA. As part of our 80/20 approach, we intend to guide investments and

align resources to win with customers, while reducing complexity and cost across the Company. To that end, we

have been implementing restructuring initiatives. To that end, we have incurred, and expect to incur, charges in

connection with our restructuring initiatives.

We may be unable to realize the expected benefits from these and other restructuring initiatives that we may in the

future undertake. In particular, restructuring activities may divert the attention of management, disrupt operations

and fail to achieve the intended cost and operational benefits. If the Company is unable to realize the expected

benefits from its restructuring initiatives, the Company’s financial results could be adversely impacted. In addition,

because we are unable to predict or control market conditions, including changes in the supply and demand for our

products, product prices or manufacturing costs, we may not be able to predict the appropriate time to undertake

restructurings. Further, cash and non-cash charges may be incurred in connection with restructuring activities,

which may be material. Moreover, judgment is required to estimate restructuring charges, and these estimates, and

the assumptions underlying them, may change as additional information becomes available or facts or

circumstances related to restructuring initiatives change.

We may not achieve the expected benefits from strategic acquisitions, joint ventures, divestitures, spin-

offs, capital investments, capital projects and other corporate transactions that are or will be pursued.

Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to accomplish prudent

acquisitions, joint ventures, divestitures, spin-offs, and other strategic corporate transactions and to realize the

benefits expected from such transactions, including the planned separation of our EMEA packaging business.

Ongoing capital investment is also required to expand, maintain and upgrade existing facilities, to develop new

facilities and to ensure compliance with new regulatory requirements. As part of our 80/20 approach, our capital

spending has increased. Capital projects may experience unanticipated disruptions or delays and the desired

benefits from those projects may not be realized. These risks include a deterioration in macroeconomic conditions,

shortages or higher costs of capital equipment or materials, delays in obtaining permits or other required approvals,

changes in laws and regulations or operational challenges. Our ability to advance capital investments depends on

the availability of cash flow. If our cash flow decreases due to market conditions, increased operating costs,

tightening credit markets, or other factors, we may be required to defer, scale back or cancel planned capital

projects. Such delays or reductions could limit our ability to pursue our strategic priorities, maintain or improve

operational efficiency or respond effectively to competitive or regulatory pressures. We are subject to the risk that

the expected benefits from such transactions and capital investments may not be achieved. This failure could

require an impairment charge to be recorded for goodwill or other intangible assets, which could lead to decreased

assets and reduced net earnings. Among the benefits expected from the strategic separation of our EMEA

packaging business, as well as completed acquisitions and joint ventures are synergies, cost savings, growth

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opportunities and access to new markets (or a combination thereof), and in the case of divestitures, the realization

of proceeds from the sale of businesses and assets to purchasers who place a higher strategic value on such

businesses and assets.

Corporate transactions of this nature that we may pursue involve a number of special risks, including with respect to

the inability to realize business goals with such transactions as noted above, including our assumptions, the focus of

management’s attention on these transactions, the assimilation or separation of businesses, the demands on

financial, operational and information technology systems, our ability to integrate and separate personnel, labor

models, financials, customer relationships, supply chain and logistics, IT and other systems successfully, business

culture compatibility, the possibility of becoming responsible for substantial contingent or unanticipated legal

liabilities as the result of corporate transactions, and changes in our geographic footprint and in the complexity of

our operations.

Moreover, effective internal controls are necessary to provide reliable and accurate financial reports, and the

planned separation of our North America and EMEA businesses may create complexity in our financial systems and

internal controls and make them more difficult to manage. Further regional integration of businesses into our internal

control system could cause us to fail to meet our financial reporting obligations. Moreover, any failure to integrate

the regional businesses, or delay in integrating the regional businesses, or IT systems of regional businesses could

create an increased risk of cybersecurity incidents. Following our regional integration, efforts may not produce the

expected margins or cash flows. Furthermore, we may finance these strategic transactions by incurring additional

debt or issuing equity, which could increase leverage or impact our ability to access capital in the future.

We are subject to cybersecurity and information technology risks related to breaches of security pertaining

to sensitive company, customer, employee and vendor information as well as breaches in the technology

used to manage operations and other business processes.

Our business operations rely on securely managed information technology systems, some of which are provided or

managed by third parties, for data capture, processing, storage and reporting. We have invested in information

technology security initiatives and risk management, as well as incident response, business continuity and disaster

recovery plans, but it is not possible to eliminate all systematic or external risk. Further, the development and

maintenance of information technology security measures is costly and requires ongoing monitoring, testing and

updating as technologies and processes change, and efforts to overcome security measures become increasingly

sophisticated. Additionally, the global regulatory environment surrounding information security, data privacy and data

protection is becoming increasingly restrictive and is evolving frequently.

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 operations. In this regard, we have experienced cyber threats and events from time to

time, although none have materially affected us, including our results of operations or financial condition. Given the

current cyber threat environment, the volume and intensity of cybersecurity attacks and attempted intrusions are

expected to increase in the future. We work with a large and increasing number of third-party vendors, suppliers,

platforms, software, applications, and technologies, each of which may be subject to a cybersecurity incident or

information technology failure that impacts our business or operations. We may be required to spend significant

resources to verify the implementation of cybersecurity controls by our vendors and suppliers. In addition, despite

careful security and controls design, implementation, updating, monitoring and independent third-party verification,

our information technology systems, together with those of our third-party providers or joint venture partners, have

been and could again be compromised or disrupted due to factors such as employee error or malfeasance, cyber-

attacks, including ransomware, malware, phishing attacks, advanced persistent threats, social engineering,

credential stuffing or distributed denial-of-service attacks or data or security breaches by malicious actors such as

common hackers, criminal groups or nation-state organizations or social activist (“hacktivist”) organizations,

disruptions resulting from geopolitical events, natural disasters, failures or impairments of telecommunications

networks or other catastrophic events. Such attacks are increasing in complexity, and the rapid evolution and

increased adoption of AI technologies may intensify cybersecurity risks by making cyber-attacks more difficult to

detect, contain, and mitigate. Furthermore, remote working and personal device use increases the risks of cyber

incidents and the improper dissemination of personal or confidential information. Moreover, the 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, cybersecurity-related threats may remain undetected for an extended period of time.

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Any cybersecurity attack, data or security breach, other security incident, compromise, damage, disruption, outage

or shutdown to our or the information technology systems or networks, or those of any businesses with which we

interact could result in lost sales, business delays, negative publicity or reputational impact, and a loss of customer

confidence, and have a material adverse effect on our business or financial results. Any such incident or breach

could also result in operational or supply chain disruptions, data loss, corruption or manipulation, or information

misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of

applications required by customers to conduct business, the acquisition, use or disclosure of data or inability to

access data, the release of confidential information about our operations, and subject us to litigation and

government enforcement actions. Further, in such event, access to applications required to plan 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 also stem from such incidents. Moreover, any significant cybersecurity event

could require us to devote significant management time and resources in response to such event, interfere with the

pursuit of other important business strategies and initiatives, and cause us to incur additional expenditures, which

could be material, including to investigate and remediate such event, recover lost data, prevent future compromises

and adapt systems and practices in response to such events. There is no assurance that any remedial actions will

meaningfully limit the success of future attempts to breach our information systems, particularly because malicious

actors are increasingly sophisticated and utilize tools and techniques specifically designed to circumvent security

measures, avoid detection and obfuscate forensic evidence, which means we may be unable to identify, investigate

or remediate effectively or in a timely manner. Further, we are subject to an increasing number of cybersecurity

reporting obligations in different jurisdictions that vary in their scope and application, which may add complexities in

providing complete and reliable information about cybersecurity incidents to customers, counterparties, and

regulators, as well as the public. Corporate actions may impact our cybersecurity risk profile. As part of the strategic

separation of our EMEA packaging business, we intend to assess and address these cybersecurity risks to ensure

robust protection of our operations and data assets. Additionally, while insurance coverage designed to address

certain aspects of cyber risks may be 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.

Our continued growth will depend on our ability to retain existing customers and attract new customers.

Our future growth will depend on our ability to retain existing customers, attract new customers as well as make

existing customers and new customers increase their volume commitments. There can be no assurance that

customers will continue to use our products or that they will be able to continue to attract new volumes at the same

rate as in the past.

A customer’s use of our products may decrease for a variety of reasons, including the customer’s level of

satisfaction with our products and services, the expansion of business to offer new products, the effectiveness of

our support services, the pricing of our products, the pricing, range and quality of competing products, the effects of

global economic conditions, regulatory limitations, trust, perception and interest in the paper and packaging industry

and in their products. Furthermore, customers can and do switch purchases between competing packaging

providers.

Any failure by us to retain existing customers, attract new customers, and increase revenue from both new and

existing customers could have a material adverse effect on our business, results of operations, financial condition

and/or future prospects. These efforts may require substantial financial expenditures, commitments of resources,

developments of processes, and other investments and innovations without a guarantee that existing customers will

be retained and/or new customers will be attracted.

Uninsured losses or losses in excess of our insurance coverage for various risks could have an adverse

financial effect on our business.

We maintain business insurance that we consider to be adequate and appropriate for our business and activities.

Certain types of risks such as losses due to natural disasters, riots, acts of war or terrorism are, however, either

uninsurable or not economically insurable. In addition, even if a loss is insured, we may be required to pay a

significant deductible on any claim for recovery of such loss prior to the insurer being obliged to reimburse the loss,

or the amount of the loss may exceed the coverage for the loss. Any uninsured losses could have a material

adverse effect on our business, financial condition, results of operations and/or future prospects.

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We may not be able to adequately secure and protect our intellectual property rights, which could harm our

competitive advantage.

We rely on intellectual property laws to protect our rights to certain aspects of our systems, products and processes

including product designs, proprietary technologies, research and concepts. For example, our packaging business

owns hundreds of patents covering our designs and products. Trademarks and licenses and their effective

management play an important role in protecting intellectual property rights. The actions taken by us to protect our

respective proprietary rights may be inadequate to prevent imitation or unauthorized use. The laws of various

countries offer different levels of protection for intellectual property rights and there can be no assurance that our

intellectual property rights will not be challenged, invalidated, misappropriated or circumvented by third parties. Any

of these possibilities could have a material adverse effect on our business, financial condition, results of operations

and/or future prospects.

We may fail to identify, prioritize or implement digital and/or AI transformation initiatives.

We may fail to identify, prioritize or implement digital and/or AI transformation initiatives across our operations,

including areas such as product design, materials sourcing, manufacturing, logistics, and customer delivery. Our

failure to adopt or scale these capabilities in a timely manner could impair our ability to meet evolving customer

expectations or may result in us falling behind our competitors with regards to innovation, speed to market,

manufacturing efficiency, and service performance. Any such shortfall could have a material adverse effect on our

business, financial condition, results of operations and/or future growth prospects.

RISKS RELATED TO THE SEPARATION

The proposed separation of our EMEA packaging business may not be completed, on the terms or the

timeline announced, if at all, and we may fail to realize some or all of the potential benefits of the proposed

separation.

On January 29, 2026, we announced our intention to create two independent, publicly traded companies:

International Paper will be comprised of its current business in North America including both legacy IP and DS

Smith assets, and the EMEA packaging business will be comprised of both legacy DS Smith and IP assets in

EMEA. The separation is expected to be structured as a spin-off of the combined EMEA Packaging business to

shareholders and is expected to be completed within 12-15 months, subject to the satisfaction of certain customary

conditions, including final approval by the IP Board of Directors as well as the filing and effectiveness of a

registration statement with the U.S. Securities and Exchange Commission and the publication of a prospectus

approved by the U.K. Financial Conduct Authority.

Executing the proposed separation will require significant amounts of time and effort, which could divert

management attention, disrupt the activities of our employees and have negative implications for our relationships

with our customers and other third parties. We also expect to incur additional costs and expenses in connection with

the separation.

The proposed separation is complex, and completion of the proposed separation and the timing of its completion

will be subject to a number of factors and conditions, including the readiness of the new company to operate as an

independent public company, the successful integration of both legacy DS Smith and International Paper

businesses in EMEA into one packaging business and finalization of the capital structure of the new company. The

complexity and magnitude of the restructuring and regional integration efforts associated with the separation are

significant and will continue to result in substantial costs. The restructuring and regional integration processes could

cause an interruption of, or loss of momentum in, the other activities of the Company, and our failure to meet the

challenges involved in successfully restructuring and regionally integrating legacy DS Smith and International Paper

businesses in North America and EMEA, respectively, could adversely affect the ability to separate and our

business financial condition, results of operations, and cash flows. Further, unanticipated developments could delay,

prevent or otherwise adversely affect the proposed separation, including disruptions in general or financial market

conditions, material adverse changes in business or industry conditions, unanticipated costs and potential problems

or delays in obtaining various regulatory and tax approvals or clearances. There can be no assurances regarding

the ultimate timing or structure of the proposed separation or that we will be able to complete the proposed

separation on the terms or on the timeline that was announced, if at all. In the event that the separation is not

completed, we will have incurred and may continue to incur, certain significant non-recurring costs related to the

separation without realizing the anticipated benefits.

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If the separation is completed, we may not be able to achieve the full strategic and financial benefits that are

expected to result from the separation. An inability to realize some or all of the anticipated benefits of the separation,

as well as any delays encountered in the process, could have an adverse effect on our business, financial condition,

results of operations and cash flows. There can be no assurance that the combined value of the common stock and

ordinary shares of the two companies will be equal or exceed the value that our common stock might have been

had the proposed separation not occurred.

RISKS RELATED TO OUR INDEBTEDNESS

Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely

affect our cost of financing and have an adverse effect on the market price of our securities.

Maintaining an investment-grade credit rating is an important element of our financial strategy. A downgrade of

ratings below investment grade will likely eliminate our ability to access the commercial paper market, may limit

access to the capital markets, have an adverse effect on the market price of our securities, increase borrowing

costs and require us to post collateral for derivatives in a net liability position. The desire to maintain an investment

grade rating may cause us to take certain actions designed to improve our respective cash flow, including the sale

of assets, suspension or reduction of dividends and reductions in capital expenditures and working capital.

Certain of our debt agreements provide for an interest rate increase in case of a credit rating downgrade. This

applies to agreements governing approximately $4.0 billion of our debt as of December 31, 2025. As a result, a

downgrade in credit rating may lead to an increase in interest expenses. There can be no assurance that our credit

ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or

withdrawn entirely by the rating agencies if, in each rating agency’s judgment, circumstances so warrant. Any such

downgrade, suspension or withdrawal of credit ratings could adversely affect our cost of borrowing, limit access to

the capital markets or result in more restrictive covenants in agreements governing the terms of any future

indebtedness that we may incur.

The level of our indebtedness could adversely affect our financial condition and impair our ability to

operate our business.

As of December 31, 2025, we had approximately $9.8 billion of outstanding indebtedness. The level of our

indebtedness could have important consequences to our financial condition, operating results and business,

including the following:

•it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures,

product development, dividends, share repurchases, debt service requirements, acquisitions and general

corporate or other purposes;

•a portion of our cash flows from operations will be dedicated to payments on indebtedness and will not be

available for other purposes, including operations, capital expenditures and future business opportunities;

•the debt service requirements of our indebtedness could make it more difficult for us to satisfy other

obligations;

•it may limit our ability to adjust to changing market conditions, including taking actions in connection with

changes in interest rates (such as in the current elevated interest rate environment), and place us at a

competitive disadvantage compared to our competitors that have less debt;

•it may increase our exposure to risks related to fluctuations in foreign currency as we earn profits in a

variety of currencies around the world and our debt is denominated in U.S. dollars, British pounds and

Euros;

•it may increase our exposure to the risk of increased interest rates insofar as we are compelled to refinance

indebtedness in an environment where rates, despite moderating in 2025, remain elevated and subject to

ongoing volatility; and

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•it may increase our vulnerability to a downturn in general economic conditions or in our business and may

make us unable to carry out capital spending that is important to our growth.

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 are subject to risks associated with variable rate debt.

We are subject to interest rate risk associated with short-term cash investments, variable rate debts, supply chain

financing and short-term debt. We are also exposed to interest rate risk in relation to our installment notes and loans

in the Temple Inland timber monetization special purpose entities. We have variable rate debt in the aggregate

amount of approximately $2.1 billion as of December 31, 2025. Interest rates rose significantly during 2022-2024

but declined in 2025 following adjustments made by the Federal Reserve in response to economic conditions.

Interest rates could remain volatile in 2026. Changes in interest rates impact the earnings on our short-term cash

investments, the interest rate payable on our variable rate debt and credit agreements, the cost of supply chain

financing and the refinance rate on our short-term debt.

Downgrades in the credit ratings of banks issuing certain letters of credit will increase our cost of

maintaining certain indebtedness and may result in the acceleration of deferred taxes.

We are subject to the risk that a bank with currently issued irrevocable letters of credit supporting installment notes

in connection with Temple Inland’s 2007 sales of forestlands, may be downgraded below the required rating. Prior to

2013, certain banks had fallen below the required ratings threshold and were successfully replaced, or waivers were

obtained regarding their replacement. As a result of continuing uncertainty in the banking environment, the three

letter-of-credit banks currently in place remain subject to risk of downgrade and the number of qualified replacement

banks remains limited. The downgrade of one or more of these banks may subject us to additional costs of securing

a replacement letter-of-credit bank or could result in an acceleration of deferred income taxes of $487 million if

replacement banks cannot be obtained.

RISKS RELATED TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS

Results of legal proceedings could have a material effect on our consolidated financial results.

We are a party to various legal, regulatory and governmental proceedings and other related matters, including with

respect to antitrust and environmental matters. In addition, we are and may become subject to other loss

contingencies, both known and unknown, which may relate to past, present and future facts, events, circumstances

and occurrences. Should an unfavorable outcome occur in connection with the legal, regulatory or governmental

proceedings or our other loss contingencies or we become subject to any such loss contingencies in the future,

there could be a material adverse impact on our financial results. See Note 14 - Commitments and Contingent

Liabilities of Item 8. Financial Statements and Supplementary Data for further information.

For example, we (through both International Paper and our DS Smith legacy subsidiaries operating in Italy) are

among several of companies operating in the paper packaging industry subject to a decision by the Italian

Competition Authority concerning anti-competitive behavior in Italy. We are further subject to a number of actual and

threatened claims for compensation arising out of or relating to the decision by the Italian Competition Authority. In

addition, International Paper has been named as a defendant in a purported class action complaint that alleges civil

violation of Sections 1 and 3 of the Sherman Act. The complaint alleges that the defendants, beginning on

November 1, 2020 through the present, conspired to fix, raise, maintain, and/or stabilize prices of containerboard

products and seeks to recover treble damages, injunctive relief, attorneys’ fees and actual damages.

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The Company is defending and intends to continue to defend robustly against such claims. It is too early to predict

or reasonably estimate the overall outcome or ultimate potential liability (if any) that might be incurred in connection

therewith, and there can be no guarantee that the aggregate of possible damages could not have a material impact

on our financial condition.

We could be exposed to liability for Brazilian taxes under our agreements with Sylvamo Corporation.

In connection with the spin-off of Sylvamo Corporation (“Sylvamo”), we previously entered into agreements with

Sylvamo and its subsidiaries, including among others a tax matters agreement. Under the tax matters agreement,

we could have significant payment obligations in connection with certain Brazilian tax matters. Under this

agreement, we have agreed to pay 60% of the first $300 million of any liability resulting from the resolution of these

Brazilian tax matters (with Sylvamo paying the remaining 40% of the first $300 million of any such liability) and

100% of any liability resulting from the Brazilian tax matters over $300 million. These Brazilian tax matters relate to

assessments for the tax years 2007-2015 of approximately $106 million in tax (adjusted for variation in currency

exchange rates) and approximately $288 million in interest, penalties, and fees (adjusted for variation in currency

exchange rates). Accordingly, the assessments total approximately $394 million (adjusted for variation in currency

exchange rates), although interest, penalties and fees continue to accrue. Under the tax matters agreement, our

potential liability for such assessments would currently be approximately $274 million (adjusted for variation in

currency exchange rates). If we were found liable to pay such amounts, this could have an adverse effect on our

business, financial condition, results of operations and/or cash flow. See Note 14 - Commitments and Contingent

Liabilities of Item 8. Financial Statements and Supplementary Data for further information.

DS Smith previously identified material weaknesses in its internal controls over financial reporting,

including its Information Technology General Control environment, that, if not properly remediated, could

increase the costs, expenses and management time required to meet the standards required by Section 404

of the Sarbanes-Oxley Act, and therefore adversely affect the business of the Company and its share price.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,

such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated

financial statements will not be prevented or detected on a timely basis.

Prior to January 31, 2025, DS Smith was not required to comply with Section 404 of the Sarbanes-Oxley Act or to

formally assess the effectiveness of its internal controls over financial reporting for that purpose. As described under

Item 8 “Report of Management on Financial Statements” and Item 9A. "Controls and Procedures," in connection

with the preparation of the acquisition proxy statement, the independent auditors identified material weaknesses in

DS Smith's internal control environment including Information Technology General Controls ("ITGCs") in fiscal years

ended April 30, 2022, April 30, 2023, and April 30, 2024, which would have constituted material weaknesses under

Section 404 of the Sarbanes-Oxley Act. DS Smith’s ITGCs were not consistently operating effectively due to

inappropriate user and administrative access, ineffective change-management, inadequate third-party management,

and insufficient authentication and security protocols.

In accordance with SEC guidance, our management’s assessment of the effectiveness of the Company’s internal

control over financial reporting as of December 31, 2025, excluded DS Smith. During 2025, International Paper

worked to incorporate the internal controls and procedures for DS Smith into the Company’s internal control

environment and will continue to incorporate the internal controls and procedures for the legacy DS Smith assets in

North America post separation. Management is focused on remediating the DS Smith ITGC deficiencies, and has

initiated a redesign of ITGCs across DS Smith systems, including enhancing governance over user access and

system changes, by delivering training across DS Smith to further educate and upskill control and process owners.

Management intends to implement the redesigned control framework in 2026.

These remediation measures may be time consuming and costly and there is no assurance that these initiatives will

ultimately have the intended effects. The deficiencies in DS Smith’s internal control over financial reporting will not

be considered remediated until the controls operate for a sufficient period and management has concluded, through

testing that these controls operate effectively. If we do not successfully remediate the deficiencies, or if other

deficiencies are identified or arise in the future, we may incur additional costs and expenses and will be required to

dedicate management's time to meeting the standards required by Section 404 of the Sarbanes-Oxley Act. In such

case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic

reports, in addition to applicable stock exchange listing requirements and requirements under certain of our

agreements, which could adversely affect investor confidence in us, our business, and the trading price of our

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common stock. In addition, these DS Smith ITGC deficiencies may also have the effect of heightening other risks

described in this “Risk Factors” section.

RISKS RELATED TO CLIMATE AND WEATHER AND SOCIAL AND ENVIRONMENTAL IMPACT REPORTING

We are subject to risks associated with climate change and other sustainability matters and global, regional

and local weather conditions as well as by legal, regulatory, and market responses to climate change.

Climate change impacts, including rising temperatures, extreme temperature events (such as prolonged heat or

freezing conditions) and the increasing severity and/or frequency of adverse weather conditions, may result in

operational impacts on our facilities, as well as supply chain disruptions and increased raw material and other costs.

These adverse weather conditions and other physical impacts which may be exacerbated as the result of climate

change include floods, hurricanes, tornadoes, earthquakes, hailstorms, wildfires, snow, ice storms and drought.

Climate change may also contribute to the decreased productivity of forests, a key source in the production of paper

products, and adverse impacts on the distribution and abundance of species, and the spread of disease and insect

epidemics, any of which developments could adversely affect forestland management and the availability of energy

and water resources. The effects of climate change and global, regional and local weather conditions, including the

resulting financial costs of compliance with legal or regulatory initiatives, could have a material adverse effect on our

results of operations and business.

In recent years, there has been a heightened focus, including from investors, customers, the general public,

domestic and foreign governmental (including but not limited to the United Kingdom and the European Union) and

nongovernmental authorities, regarding sustainability matters, including with respect to climate change, greenhouse

gas (“GHG”) emissions, packaging and waste, sustainable supply chain practices, biodiversity, deforestation, land,

energy and water use, and human capital matters. This heightened focus on sustainability matters, including climate

change, has resulted in more prescriptive reporting requirements with respect to sustainability metrics and other

new requirements, an increased expectation that such metrics will be voluntarily disclosed by companies such as

ours, and increased pressure with respect to making commitments, setting targets, or establishing goals, and taking

action to meet them, which has caused and is expected to continue to cause the Company to incur increased

compliance costs. As the result of this increased focus and commitment to sustainability matters, we (either

voluntarily and/or as required by applicable law and regulation) have provided disclosure and established targets

and goals with respect to various sustainability matters, including climate change. For example, we have publicly

committed to reducing our Scope 1, 2 and 3 GHG emissions by 35% from 2019 to 2030. Meeting these and other

sustainability targets and goals have increased our capital and operational costs. Further, we may continue to

establish, increase and/or revise such disclosure, targets and goals in the future. For example, as we prepare to

separate our EMEA operations, we intend to assess International Paper’s 2030 goals and adapt our existing targets

and timelines. Efforts to achieve our initiatives and goals, including collecting, measuring, and reporting

sustainability information, involve operational, reputational, financial, legal, and other challenges and may result in

additional costs or delays related to achieving our 2030 goals. Such efforts may have a negative impact on us,

including our brand name, reputation, and the market price of our common stock.

There also continues to be a lack of consistency in implementation expectations of legal and regulatory initiatives

regarding climate change across jurisdictions and various governmental entities. Additional expenses are expected

to be incurred because of domestic and international regulators requiring additional disclosures regarding GHG

emissions. Further, there can be no assurance regarding the extent to which our climate and other sustainability

targets can be achieved, and the achievement of these targets is subject to various risks and uncertainties, some of

which are outside our control. Moreover, there is no assurance that investments made in furtherance of achieving

such targets and goals will meet investor expectations or any binding or non-binding legal standards regarding

sustainability performance. If we are unable to meet climate and other sustainability targets and goals, on projected

timelines or at all, or if such goals and targets are perceived negatively, including the perception that they are not

sufficiently robust or, conversely, are too costly or not otherwise in our best interests, investor, customer and other

stakeholder relationships could be damaged, which could adversely impact our reputation, business and results of

operations. Moreover, not all our competitors establish climate or other sustainability targets and goals at

comparable levels, which could result in competitors having lower supply chain or operating costs as well as

reduced reputational risks associated with not meeting such goals.

We may be unable to manage energy demand needs within our sustainability targets and certain of our respective

acquisitions may bring new sustainability challenges. Such inability to manage sustainability demands and

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challenges could have a significant impact on our business, financial condition, results of operations and/or future

prospects. Other climate-related business risks that we face, include risks related to the transition to a lower-carbon

economy, such as increased prices for fossil fuels; the introduction of a carbon tax; increased regulation of

operations and products, and the resulting potential for increased litigation; and more stringent and/or complex

environmental and other permitting requirements. To the extent that climate-related business risks materialize,

particularly if we are unprepared for them, we may incur unexpected costs, and our business may be materially and

adversely affected.

Additionally, sustainability reporting is becoming more broadly expected by regulators, investors, shareholders, and

other third parties. If we do not adapt to or comply with such investor, customer, or other stakeholder expectations,

or if we are perceived to have not responded appropriately or quickly enough to growing sustainability related

concerns for sustainability issues, regardless of whether there is a regulatory or legal requirement to do so, we may

suffer reputational damage or be precluded from doing business with certain customers. Our business, financial

condition, and/or the market price of our common stock could be materially and adversely affected. Further, our

sustainability and goals may not be favored by certain stakeholders, whose priorities and expectations may not align

or may be opposed to one another, which could result in public scrutiny or reputational damage, and could impact

the attraction and retention of investors, customers, and employees.

RISKS RELATED TO OUR PENSION AND HEALTHCARE COSTS

Our pension and health care costs are subject to numerous factors which could cause these costs to

change.

We have defined benefit pension plans covering substantially all U.S. salaried employees hired prior to July 1, 2004,

and substantially all hourly union and non-union employees regardless of hire date. We froze participation for U.S.

salaried employees under these plans, including credited service and compensation on or after January 1, 2019;

however, the pension freeze does not affect benefits accrued through December 31, 2018.

We continue to provide retiree health care benefits to certain former U.S. employees, as well as financial assistance

toward the cost of individual retiree medical coverage for certain former U.S. salaried employees. Prior to the

acquisition, DS Smith and its predecessor entities maintained a number of separate defined benefit pension

arrangements for different employee groups. These plans were closed or frozen at different times and, in some

cases, were subsequently terminated or transitioned to multiemployer plans. For certain union represented groups,

we continue to make required contributions or other payments tied to historical withdrawal liabilities or plan funding

obligations. We also assumed a small legacy retiree life insurance benefit for a limited group of former employees,

which will continue only for the remaining covered participants through 2027. DS Smith did not provide retiree health

care benefits to its U.S. employees, and no new retiree health care obligations were created as part of the

acquisition.

Pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions of

future experience. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations

in actual market returns on plan assets, changes in general interest rates and in the number of retirees may impact

pension costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected

rates of return on plan assets could increase pension costs. However, the impact of market fluctuations has been

reduced as a result of investments in our pension plan asset portfolio which hedge the impact of changes in interest

rates on the plan’s funded status. Drivers for fluctuating health costs include unit cost changes, health care

utilization by participants, and potential changes in legal requirements and government oversight. If any of these

factors cause pension costs or health care benefits to increase in future periods, this could have an adverse effect

on our business, financial condition, results of operations and/or cash flow.

Our U.S. and UK funded pension plans are currently fully funded on a projected benefit obligation basis;

however, the possibility exists that over time we may be required to make cash payments to the plans,

reducing the cash available for our business.

We record an asset or a liability associated with our pension plans equal to the surplus of the fair value of plan

assets above the benefit obligation or the excess of the benefit obligation over the fair value of plan assets. As of

December 31, 2025, we had an overfunded U.S. qualified pension with a surplus of $366 million and an overfunded

UK qualified pension with a surplus of $112 million. When aggregated with U.S. nonqualified pension obligations,

the benefit surplus recorded under the provisions of Accounting Standards Codification 715, “Compensation –

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Retirement Benefits,” as of December 31, 2025 was $148 million. The amount and timing of future contributions,

which could be material, will depend upon a number of factors, including the actual earnings, changes in values of

plan assets and changes in interest rates. If benefit obligations under the qualified pensions exceed the value of

plan assets by more than permitted under applicable statutory minimum funding requirements, then we may be

required to make additional contributions. Such contributions may have an adverse effect on our operational results

and cash flow.