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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVES AND HEDGING ACTIVITIES As a multinational company, International Paper is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet the hedge accounting criteria at inception, International Paper formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying exposure. Derivative and Hedging Accounting Policy The Company and its subsidiaries are exposed to certain risks relating to its ongoing financial arrangements. The Company uses derivative financial instruments, primarily commodity swaps and forward contracts, to manage currency and commodity risks associated with the Company’s underlying business activities and the financing of these activities. As a matter of policy, we do not use financial instruments for speculative purposes. ASC 815 requires entities to recognize all derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedge accounting relationship and, further, on the type of hedge accounting relationship. For those derivative or nonderivative instruments that are designated and qualify as hedging instruments under ASC 815, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a net investment hedge. Gains or losses on cash flow hedges are deferred as a component of AOCI or losses and are reclassified into earnings at the time the hedged item affects earnings, presented in the same income statement line item as the underlying hedged item (i.e., in “cost of products sold” when the hedged transactions are commodity cash flows associated with energy purchases to facilitate operations). If it becomes probable that a forecasted transaction will not occur, previously deferred gains and losses related to those forecasted transactions would be recognized in earnings in the current period. Gains and losses on net investment hedges are recorded in the cumulative translation adjustment component of AOCI, offsetting the translation adjustment of the net investment being hedged. Any deferred gains or losses previously recorded in the cumulative translation adjustment component of AOCI will remain in AOCI until the hedged net investment is sold or substantially liquidated, at which time the cumulative deferred gains or losses are reclassified into earnings as a component of gain or loss on the sale of the hedged net investment. To qualify for hedge accounting, a specified level of hedge effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. We formally document our risk management objectives, our strategies for undertaking the hedge transactions, the nature of and relationships between the hedging instruments and hedged items, and the method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. Our designated derivative contracts include commodity swap contracts and forward contracts. Commodity swap contracts effectively modify the Company’s exposure to changes in natural gas and electricity prices by allowing the Company to purchase energy on a fixed-rate basis. Forward contracts effectively modify the Company’s exposure to fluctuations in the cost of carbon credits by allowing the Company to purchase carbon credits on a fixed-rate basis. These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate amounts over the life of the agreements. Commodity Risk Management The Company has entered into commodity swap and commodity forward contracts which have been designated as cash flow hedges of commodity price risk associated with forecasted purchases and sales of various commodities used in the Company’s operations. These commodity contracts are used to manage exposure to changes in natural gas, electricity, and carbon credit prices. Individual commodity contracts are entered into up to three years prior to the occurrence of the hedged transactions. Foreign Currency Risk Management The Company and its subsidiaries periodically use non-derivative, foreign currency denominated loans to hedge the Company’s foreign currency exposure related to the translation of its net investment in foreign subsidiaries. Certain of these loans are designated as net investment hedges. The component of the gains and losses on our net investment in these designated foreign operations, driven by changes in foreign exchange rates, are economically offset by remeasurements of our foreign-currency denominated debt. The notional amounts of financial instruments used in hedging transactions were as follows:
In millions | September 30, 2025 |  | December 31, 2024
Electricity contracts (MWh) | 1.9 |  |  | 0.3 |
Natural gas contracts (MWh) | 8.1 |  |  | — |
Carbon credit contracts (tons) | 0.3 |  |  | — |
External debt (EUR) | € | 3,310 |  |  | € | — |
The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments:
| Gain (Loss) Recognized in AOCI on Derivatives
| Three Months Ended September 30, |  | Nine Months Ended September 30,
In millions | 2025 |  | 2024 |  | 2025 |  | 2024
Derivatives in Cash Flow Hedging Relationships: |  |  |  |  |  |  |
Commodity contracts | $ | (2) |  |  | $ | — |  |  | $ | (54) |  |  | $ | — |
Derivatives in Net Investment Hedging Relationships: |  |  |  |  |  |  |
External debt | $ | (86) |  |  | $ | — |  |  | $ | (163) |  |  | $ | — |
Based on our valuation at September 30, 2025, and assuming market rates remain constant through contract maturities, we expect transfers to earnings of the existing gain or losses reported in AOCI on cash flow hedges during the next 12 months to correspond with the current assets and liabilities portion of the derivative as disclosed below. The amounts of gains and losses recognized in the statement of operations on financial instruments used in hedging transactions were as follows:
| Gain (Loss) Reclassified from AOCI Into Income | Location of Gain (Loss) Reclassified from AOCI
| Three Months Ended September 30, |  | Nine Months Ended September 30, |
In millions | 2025 |  | 2024 |  | 2025 |  | 2024 |
Derivatives in Cash Flow Hedging Relationships: |  |  |  |  |  |  |  |
Commodity contracts | $ | (8) |  |  | $ | — |  |  | $ | (14) |  |  | $ | — |  | Cost of products sold
Interest rate contract | — |  |  | — |  |  | (1) |  |  | — |  | Interest expense, net
Total | $ | (8) |  |  | $ | — |  |  | $ | (15) |  |  | $ | — |  |
| Gain (Loss) Recognized in Income | Location of Gain (Loss) In Statement of Operations
| Three Months Ended September 30, |  | Nine Months Ended September 30, |
In millions | 2025 |  | 2024 |  | 2025 |  | 2024 |
Derivatives in Cash Flow Hedging Relationships: |  |  |  |  |  |  |  |
Commodity contracts | $ | (26) |  |  | $ | — |  |  | $ | (49) |  |  | $ | — |  | Cost of products sold
Derivatives Not Designated as Hedging Instruments: |  |  |  |  |  |  |  |
Commodity contracts | 25 |  |  | 2 |  |  | 38 |  |  | (9) |  | Cost of products sold
Fair Value Measurements The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period. International Paper’s derivatives are classified as Level 2 within the fair value hierarchy. Fair value hierarchies are further defined in Note 1 in the Company’s Annual Report. The following table provides a summary of the impact of our derivative instruments in the balance sheet:
| Assets |  | Liabilities |
In millions | September 30, 2025 |  | December 31, 2024 |  | September 30, 2025 |  | December 31, 2024 |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Commodity contracts – cash flow | $ | 5 |  |  | $ | — |  |  | $ | 46 |  |  | $ | — |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
Commodity contracts | 71 |  |  | 3 |  |  | 35 |  |  | — |  |
Total derivatives | $ | 76 |  | (a) | $ | 3 |  | (b) | $ | 81 |  | (c) | $ | — |  |
(a)Includes $45 million recorded in Other current assets and $31 million recorded in Deferred charges and other assets in the accompanying condensed consolidated balance sheet. (b)Includes $3 million recorded in Other current assets in the accompanying condensed consolidated balance sheet. (c)Includes $72 million recorded in Other current liabilities and $9 million recorded in Other liabilities in the accompanying condensed consolidated balance sheet. The above contracts are subject to enforceable master netting arrangements that provide rights of offset with each counterparty when amounts are payable on the same date in the same currency or in the case of certain specified defaults. Management has made an accounting policy election to not offset the fair value of recognized derivative assets and derivative liabilities in the balance sheet. The amounts owed to the counterparties and owed to the Company are considered immaterial with respect to each counterparty and in the aggregate with all counterparties. Credit-Risk-Related Contingent Features International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with the majority of our banks. Certain of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the collateral threshold is generally $15 million. The commodity swap and commodity forward contracts entered into by the Company do not contain collateral posting requirements. If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the Company would be required to post collateral for all of its derivatives in a net liability position, although no derivatives would terminate. There were no derivative instruments containing credit-risk-related contingent features in a net liability position as of September 30, 2025. The Company was not required to post any collateral as of September 30, 2025.

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