INTERNATIONAL PAPER CO /NEW/

We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending

programs and for general corporate purposes. Additionally, financial instruments, including various derivative

contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We do not use

financial instruments for trading purposes. Information related to International Paper’s debt obligations is included in

Note 16 Debt and Lines of Credit of Item 8. Financial Statements and Supplementary Data.

The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency

rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing a

sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows

based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity prices.

INTEREST RATE RISK

Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations

and investments in marketable securities. We invest in investment‑grade securities issued by financial institutions

and in AAA‑rated money market mutual funds, while limiting our exposure to any one issuer or fund. Our

investments in marketable securities at December 31, 2025 and 2024 are stated at cost, which approximates

market due to their short-term nature. At December 31, 2025, our interest rate risk exposure related to these

investments was not material.

We issue fixed and floating rate debt in a proportion that management deems appropriate based on current and

projected market conditions. Derivative instruments, such as interest rate swaps, may be used to execute this

strategy. At December 31, 2025 and 2024, the fair value of the net liability of financial instruments with exposure to

interest rate risk was approximately$7.1 billion and$4.0 billion, respectively. The potential increase in fair value

resulting from a 10% adverse shift in quoted interest rates would have been approximately$895 million and$206

million at December 31, 2025 and 2024, respectively.

COMMODITY PRICE RISK

The objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations

in the price of commodities. Commodity swap or forward purchase contracts may be used to manage risks

associated with market fluctuations in energy prices. At December 31, 2025 and 2024, the net fair value of these

contracts was$21 million liability and$3 million asset. The potential loss in fair value from a 10% adverse change in

quoted commodity prices for these contracts would have been approximately$40 million and$2 million at

December 31, 2025 and 2024, respectively.

FOREIGN CURRENCY RISK

International Paper transacts business in many currencies and is also subject to currency exchange rate risk

through investments and businesses owned and operated in foreign countries. The currencies that have the most

impact are the euro and pound sterling. Our objective in managing the associated foreign currency risks is to

minimize the effect of adverse exchange rate fluctuations on our after-tax cash flows as well as financial statement

impact. We address these risks on as needed basis by entering into cross-currency interest rate swaps, foreign

exchange contracts, or foreign currency denominated debt designated as net investment hedges.

At December 31, 2025 and 2024, the net fair value of foreign currency derivative instruments was immaterial. The

potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency

exchange rates was also immaterial.