INTERNATIONAL PAPER CO /NEW/

OVERVIEW

A major factor in International Paper’s liquidity and capital resource planning is generation of operating cash flow,

which is highly sensitive to changes in the pricing and demand for our major products. While changes in key

operating cash costs, such as raw material, energy, mill outage and distribution, have an effect on operating cash

generation, we believe our focus on commercial and operational excellence, as well as our ability to tightly manage

costs and working capital has improved our cash flow generation over an operating cycle.

Use of cash during 2025 was primarily focused on working capital requirements, capital spending into the business

for growth including mill and plant improvements, equipment and new greenfield investments and returning cash to

shareholders through dividends.

CASH PROVIDED BY OPERATING ACTIVITIES

Cash provided by operations, including discontinued operations, totaled$1.7 billion in both 2025 and 2024. Cash

used by working capital components (accounts receivable, contract assets and inventory less accounts payable and

accrued liabilities, interest payable and other) totaled$834 million in 2025, compared with cash used by working

capital components of$10 million in 2024. The change in cash provided by operations in 2025 compared to the

2024 period was primarily due to significant payments made in 2025 that impacted operating cash flow, including

DS Smith transaction costs and severance payments, as well as incentive compensation and other benefit

payments.

INVESTMENT ACTIVITIES

Cash used for investment activities, including discontinued operations, totaled$1.0 billion in 2025 compared with

$808 million in 2024. The increase in cash used for investment activities in 2025 compared to 2024 is mainly due to

higher capital expenditures of $936 million, offset by an increase in proceeds from sale of fixed assets of $127

million, proceeds from divestitures, net of transaction costs of $141 million and net cash acquired from acquisitions

of$414 million.

Including discontinued operations, capital expenditures were$1.9 billion in 2025, or 64% of depreciation and

amortization, compared with$921 million in 2024, or 71% of depreciation and amortization. Capital spending as a

percentage of depreciation and amortization, including discontinued operations, was impacted by accelerated

depreciation of$958 million and$233 million for the years ended December 31, 2025 and December 31, 2024,

respectively, related to mill strategic actions and other 80/20 actions.

The following table shows capital expenditures by business segment for the years ended December 31, 2025 and

2024:

(a) Includes capital expenditures related to Corporate and GCF.

Acquisitions

See Note 7 Acquisitions of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's

acquisitions.

FINANCING ACTIVITIES

Financing activities during 2025 included debt issuances of$409 million and reductions of$255 million for a net

increase of$154 million. Financing activities during 2024 included debt issuances of$102 million and reductions of

$141 million.

There were no early debt extinguishments during the years ended December 31, 2025 and December 31, 2024.

Other financing activities during 2025 included the net issuance of approximately 3.7 million shares of treasury

stock, while repurchases of common stock and payments of restricted stock withholding taxes totaled$65 million.

During 2025, no shares of common stock were repurchased under the Company's share repurchase program.

Through December 31, 2025, the Company had repurchased 119.8 million shares at an average price of $46.23, for

a total of approximately $5.5 billion, since the repurchase program began in September 2013. The Company paid

cash dividends totaling$977 million during 2025.

Other financing activities during 2024 included the net issuance of approximately 2.0 million shares of treasury

stock. Repurchases of common stock and payments of restricted stock withholding taxes totaled $23 million. During

2024, no shares of common stock were repurchased under the Company's share repurchase program. Through

December 31, 2024, the Company has repurchased 119.8 million shares at an average price of $46.23, for a total of

approximately $5.5 billion, since the repurchase program began in September 2013. The Company paid cash

dividends totaling$643 million during 2024.

Interest Rate Swaps

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk,

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt. During 2020,

International Paper terminated its interest rate swaps with a notional amount of$700 million and maturities ranging

from 2024 to 2026 with an approximate fair value of$85 million. Subsequent to the termination of the interest rate

swaps, the fair value basis adjustment is amortized to earnings as interest income over the same period as a debt

premium on the previously hedged debt. The Company had no outstanding interest rate swaps for the years ended

December 31, 2025 and 2024.

Variable Interest Entities

Information concerning variable interest entities is set forth in Note 15 Variable Interest Entities of Item 8. Financial

Statements and Supplementary Data.

LIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2026

We intend to continue making choices for the use of cash that are consistent with our capital allocation framework to

drive long-term value creation. These include maintaining a strong balance sheet and investment grade credit

rating, and creating value with a continued focus on cost reduction and making organic investments to maintain our

world-class system and strengthen our businesses.

On January 23, 2026, the Company completed the previously announced sale of its GCF business to AIP for$1.5

billion, including the issuance of preferred stock with an aggregate initial liquidation preference of$190 million. The

Company plans to use a portion of the proceeds from the sale of the GCF business to pay down existing debt.

As of December 31, 2025, approximately$2.96 billion remain authorized for repurchase under our share

repurchase program, which has no expiration date. We may repurchase shares under such authorization in open

market transactions (including block trades), privately negotiated transactions or otherwise, subject to prevailing

market conditions, our liquidity requirements, applicable securities laws requirements and other factors. In addition,

we have paid regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the

foreseeable future. Each quarterly dividend is subject to review and approval by our Board of Directors.

Long-Term Debt

The following summarizes certain material provisions of our long-term debt facilities and current obligations. The

following description is only a summary, does not purport to be complete and is qualified in its entirety by reference

to the documents governing such indebtedness. For additional information regarding the Company’s credit

agreements, outstanding and assumed indebtedness, see Note 16 Debt and Lines of Credit of Item 8. Financial

Statements and Supplementary Data.

At December 31, 2025, International Paper’s U.S. dollar denominated credit facilities totaled$1.9 billion, comprised

of a$1.4 billion contractually committed bank credit agreement and up to$500 million available under its

receivables securitization program. Management believes these credit agreements provide sufficient liquidity to

manage operating cash flow variability during the current economic cycle. The credit agreements generally provide

for interest rates at a floating rate index plus a pre-determined margin tied to International Paper’s credit rating. At

December 31, 2025, the Company had no borrowings outstanding under the$1.4 billion credit agreement or the

$500 million receivables securitization program. The Company’s credit agreements contain no restrictive covenants

other than the financial covenants as described in Note 16 - Debt and Lines of Credit of Item 8. Financial

Statements and Supplementary Data, and the borrowings under the receivables securitization program being limited

by eligible receivables. The Company was in compliance with all its debt covenants at December 31, 2025 and

within the thresholds stipulated. The financial covenants do not restrict any borrowings under the credit agreements.

Commercial Paper

In addition to the $1.9 billion capacity under the Company's credit agreements, International Paper has a

commercial paper program with a borrowing capacity of $1.0 billion supported by its $1.4 billion credit agreement.

Under the terms of the Company's commercial paper program, individual maturities on borrowings may vary, but not

exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes.

The Company hadno borrowings outstanding as of December 31, 2025 and December 31, 2024 under this

program.

Assumed Debt

In 2025, International Paper assumed foreign denominated debt of DS Smith in various currencies.

Euro Medium Term Notes

Our subsidiary DS Smith initiated consent solicitations with the holders of several series of its outstanding euro- and

sterling denominated notes to approve certain amendments to the notes’ terms and related trust deeds (the “Euro

Medium Term Notes”). The amendments were designed to align DS Smith’s reporting and covenant framework with

that of International Paper following the acquisition, and to provide greater flexibility for the reorganization of DS

Smith’s subsidiaries. As part of the solicitation process, International Paper agreed to provide guarantees of DS

Smith’s obligations under each series of the Euro Medium Term Notes. These amendments and guarantees were

implemented in March 2025 through supplemental trust deeds. All principal amounts of the affected Euro Medium

Term Notes remain outstanding.

Credit and Bank Facilities

The Company amended and restated its £1.25 billion multi-currency credit facility agreement, its €200 million credit

facility and €60 million committed bank facility. The amendments (i) replaced the Company's standalone financial

reporting requirements with International Paper’s financial information; (ii) aligned the facility's financial covenant

with those in International Paper’s existing credit facilities; and (iii) updated certain events of default and

undertakings to reflect International Paper's financing framework and to provide additional flexibility for potential

subsidiary reorganization within the International Paper group.

The £1.25 billion multi-currency credit facility allows for British pound sterling, euro and U.S. dollar-denominated

borrowings at floating rates plus a pre-determined margin, with borrowings generally denominated to match the

Company's cashflows. At December 31, 2025, the Company had€975 million and£10 million (approximately$1.2

billion) borrowings outstanding under the credit facility. The Company’s credit facility agreement is not subject to any

restrictive covenants other than that International Paper must comply with the same negative covenants as per its

existing credit facilities. IP was in compliance with all its debt covenants at December 31, 2025, and was well below

the thresholds stipulated under the covenants as defined in the credit facility agreement. Further the financial

covenants do not restrict any borrowings under the £1.25 billion credit facility agreement.

The €200 million credit facility agreement provides for interest rates at a fixed rate for each facility. At December 31,

2025, the Company had €163 million (approximately $191 million) borrowings outstanding under the credit facility

agreement.

The credit facility agreements do not impose restrictive covenants other than requiring International Paper to comply

with the same negative covenants applicable to its existing credit facilities. IP was in compliance with all applicable

covenants as of December 31, 2025, and remained well within the thresholds. The financial covenants do not

restrict the Company’s ability to borrow under the credit facility agreement.

The €60 million committed bank facility, maturing in 2026, allows for British pound sterling, euro and US dollar-

denominated borrowings. At December 31, 2025, there were no borrowings outstanding under this agreement. The

Company has a £50 million uncommitted bank facility. At December 31, 2025, the Company had €55 million

(approximately $65 million) borrowings outstanding under this agreement.

During the year ended December 31, 2025, the Company had debt reductions of$255 million in 2025, related

primarily to$26 million of capital leases,$27 million of environmental development bonds ("EDB"),$95 million of

industrial development bonds ("IDB") and$61 million of bonds. In addition, during the year ended December 31,

2025, the Company also had debt issuances of$165 million of industrial development bonds. The Company also

borrowed$244 million under its foreign denominated credit facilities during 2025.

Capital Expenditures

We increased capital spending in 2025 as the Company accelerated several multi-year investments to support our

80/20 approach, enhance mill productivity, expand capacity in key growth markets, and modernize equipment to

improve safety, reliability and energy efficiency. In North America, these 2025 authorizations include investment of

$250 million to convert a machine at the Riverdale mill in Selma, Alabama to produce containerboard and

construction of a new state-of-the-art sustainable packaging box plant in Waterloo, Iowa.

Capital expenditures for 2026 are planned at approximately$1.95 billion to$2.05 billion, or about 98% to 103% of

depreciation and amortization, reflecting continued execution of these strategic projects. The timing and scope of

planned investments will depend on operational needs and the availability of operating cash flows, and certain

projects may be deferred if cash generation or market conditions weaken.

International Paper expects to be able to meet projected capital expenditures, service existing debt, meet working

capital and dividend requirements and make common stock and/or debt repurchases for the next 12 months and for

the foreseeable future thereafter with current cash balances and cash from operations, supplemented as required

by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any

necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital

structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize

financial flexibility and maintain appropriate levels of liquidity to meet our needs while managing balance sheet debt

and interest expense. We have repurchased, and may continue to repurchase, our common stock (under our

existing share repurchase program) and debt (including through open market purchases, privately negotiated

transactions or otherwise) to the extent consistent with this capital structure planning, and subject to prevailing

market conditions, our liquidity requirements, applicable securities laws requirements and other factors. The

majority of International Paper’s debt is accessed through global public capital markets where we have a wide base

of investors.

Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At

December 31, 2025, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook)

by S&P and Moody’s, respectively.

Contractual obligations for future payments under existing debt and lease commitments and purchase obligations at

December 31, 2025, were as follows:

(a)Includes financing lease obligations.

(b)Includes fiber supply and other service and supply agreements.

(c)The table above does not reflect: (i) approximately $344 million of unrecognized tax benefits due to the uncertainty regarding the timing

and amount of payment; (ii) $37 million of Deemed Repatriation Transition Tax under the 2017 Tax Cuts and Jobs Act, which will be

settled in 2026; and (iii) $487 million deferred tax liability related to the Temple-Inland timber monetization, which will be settled with the

maturity of the notes in 2027.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2025, to be permanently

reinvested and, accordingly, no U.S. income taxes have been provided thereon (see Note 13 Income Taxes of Item

8. Financial Statements and Supplementary Data). We do not anticipate the need to repatriate funds to the United

States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs

associated with our domestic debt service requirements.

Pension Obligations and Funding

At December 31, 2025, the projected benefit obligation for the Company’s defined benefit plans determined under

U.S. GAAP was approximately$144 million lower than the fair value of plan assets. Plans that are subject to

minimum funding requirements had plan assets of$486 million higher than the projected benefit obligation. Under

current IRS funding rules, the calculation of minimum funding requirements differs from the calculation of the

present value of plan benefits (the "projected benefit obligation") for accounting purposes. Funding contributions

depend on the funding methods selected by the Company. The selected methods allow for the smoothing of asset

values and interest rates used to measure the funding obligations. The Company continually reassesses the

amount and timing of any discretionary contributions and elected not to make any voluntary contributions in 2023,

2024 or 2025. At this time, we do not expect to have any required contributions to our plans in 2026, although the

Company may elect to make future voluntary contributions. The timing and amount of future contributions, which

could be material, will depend on a number of factors, including the actual earnings and changes in values of plan

assets and changes in interest rates.