INTERNATIONAL PAPER CO /NEW/ (IP) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In addition to historical

consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Forward-Looking Statements.”

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The following generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussion of historical items in 2022, and year-to-year comparisons between 2023 and 2022, can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 16, 2024, under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE SUMMARY

Full-year 2024 net earnings attributable to shareholders were $557 million ($1.57 per diluted share) compared with $288 million ($0.82 per diluted share) for full-year 2023.

In 2024, we initiated our strategy to deliver profitable growth as the low-cost, most reliable and innovative sustainable packaging solutions provider for our customers. Through a disciplined 80/20 approach, we restructured our corporate organization, added resources to the business, reduced structural costs through footprint actions and successfully piloted regional box plant optimization. Our earnings stabilized in the fourth quarter 2024 and we intend to accelerate earnings improvement in 2025. Our Go-to-Market value over volume reset was largely complete in 2024 and we expect the final unfavorable impacts to volume to be behind us later in 2025. There was a significant focus throughout 2024 on cost reduction. This included a zero-up approach to the corporate organization, including shifting resources to the business and reducing corporate staffing to the level required as a public company. We expect this to reduce costs by approximately $120 million on a run rate basis. Additionally, we made the challenging decision to close five box plants and our Global Cellulose Fibers Georgetown, South Carolina mill. These actions are expected to remove roughly another $110 million of annual cost on a run rate basis. Mill reliability was an issue in 2024 resulting in elevated costs throughout the year. This presents a significant cost reduction opportunity and we will continue to improve the reliability at our mills and optimize our mill and box system so that we are able to reduce structural costs. Finally, we completed the acquisition of DS Smith on January 31, 2025, creating a global leader in sustainable packaging solutions, focused on the attractive and growing North American and EMEA regions.

Comparing 2024 financial performance to 2023, sales in our North American Industrial Packaging business were relatively flat versus the prior year. This was due in part to higher price and mix driven by favorable prior index movements and the execution of our go-to-market strategy. The improved price and mix was offset by lower volumes as we worked through

customer contract restructuring. This decline was in line with our expectations. Sales in our Global Cellulose Fibers business were lower compared to prior year. This was due to lower price and mix driven by prior index movements. Volume was relatively flat versus 2023. Cost of products sold in our North American Industrial Packaging business was lower versus the prior year in line with lower sales during 2024 along with lower maintenance outage expenses. This was partially offset by higher costs associated with mill reliability issues along with increased input costs on higher recovered fiber costs. Cost of products sold in our Global Cellulose Fibers business was lower versus the prior year in line with lower sales during 2024 along with lower maintenance outage expenses and lower input costs. Cost of products sold includes higher costs associated with mill reliability issues. Selling and administrative expenses were higher in our North American Industrial Packaging and Global Cellulose Fibers businesses primarily driven by higher employee incentive compensation expense. Distribution expenses were lower in both our North American Industrial Packaging and Global Cellulose Fibers businesses primarily driven by lower freight expense on reduced sales.

Looking ahead to the first quarter 2025 in our North American Industrial Packaging business, as compared to the fourth quarter 2024 and without consideration of the DS Smith acquisition, we expect slightly lower price and mix based on lower export pricing observed to date along with an unfavorable seasonal mix impact. Volume is expected to be slightly higher in the first quarter 2025 due to two more shipping days partially offset by the near-term impact of our go-to-market strategy. Operations and costs are expected to increase earnings driven by the benefits of our box plant optimization as well as the non-repeat of the higher incentive compensation costs and other unfavorable items from the fourth quarter 2024. Maintenance outage expense is expected to be marginally lower relative to the fourth quarter 2024. Input costs are expected to be relatively flat as higher energy costs will be offset by lower recovered fiber costs. Finally, in February we announced our plan to close the containerboard mill in Campti, Louisiana with operations expected to cease by March 31, 2025. We estimate that the closure will result in aggregate pre-tax charges of approximately $357 million, including pre-tax noncash asset write-offs of approximately $311 million (of which $276 million is accelerated depreciation), and pre-tax cash severance and other shutdown charges of approximately $46 million. In our Global Cellulose Fibers business, we expect price and mix to be lower due to unfavorable prior index movements. We expect volume to be relatively flat. Operations and costs are expected to increase earnings due to

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improved mill performance and reliability along with the non-repeat of the higher incentive compensation costs and other unfavorable one-time items from the fourth quarter 2024. Maintenance outage expense is expected to decrease earnings while input costs are expected to be stable relative to the fourth quarter 2024.

In closing, we believe 2025 will be a transformational year. During the first few months, we anticipate earnings will continue the stabilization trend we saw in the fourth quarter 2024. As we progress further in the year, we expect our earnings to progressively ramp up as the commercial contract restructuring is completed and the 80/20 initiatives deliver value. We have an ambitious pipeline of capital projects that we predict will facilitate the regional optimization of our box system and deliver profitable market share growth. We believe we are well on our way to building a performance-driven and customer-centric culture. We are confident we have developed the right strategy and a concrete plan that will deliver customer excellence and drive profitable growth. We believe our actions will drive transformational improvements and create significant value for our shareholders.

Acquisition of DS Smith

On January 31, 2025, the Company, through its indirect wholly owned subsidiary, International Paper UK Holdings Limited, completed the closing (the “Closing”) of its previously announced business combination of the entire issued and to be issued ordinary shares of DS Smith plc, a public limited company registered in England and Wales that has since been re-registered as DS Smith Limited, a private limited company (“DS Smith”). The business combination was effected by means of a court-sanctioned scheme of arrangement between DS Smith and shareholders of DS Smith under Part 26 of the UK Companies Act 2006, as amended.

The consummation followed the Company’s April 16, 2024 announcement pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers disclosing the terms of the business combination (the “Rule 2.7 Announcement”), pursuant to which, for each ordinary share of DS Smith (the “DS Smith Shares”), DS Smith shareholders would receive 0.1285 of a new share of common stock of the Company, par value $1.00 per share (the “Company Common Stock”), resulting in the issuance of 178,126,631 new shares of Company Common Stock (the “New Company Common Stock”).

On January 24, 2025, the European Commission issued its Phase I clearance of the business combination, conditional on International Paper

entering into commitments to divest its plants in Mortagne, Saint-Amand, and Cabourg (France), Over (Portugal) and Bilbao (Spain). As such, the Company has agreed to divest these locations.

On February 4, 2025, the DS Smith Shares were delisted from the London Stock Exchange (the “LSE”) and the shares of New Company Common Stock began trading on the New York Stock Exchange under the symbol “IP” and the shares of Company Common Stock, including the shares of New Company Common Stock, began trading on the LSE via a secondary listing under the symbol “IPC.”

Reconciliation of Net earnings (loss) to Adjusted operating earnings (loss)

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures defined as net earnings (loss) (a GAAP measure) excluding discontinued operations, net special items and non-operating pension expense (income). Net earnings (loss) and Diluted earnings (loss) per share are the most directly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of discontinued operations, non-operating pension expense (income) and net special items, as described in greater detail below, from net earnings (loss) reported under GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses these non-GAAP measures to focus on ongoing operations and believes that such non-GAAP measures are useful to investors in assessing the operational performance of the Company and enabling investors to perform meaningful comparisons of past and present consolidated operating results from continuing operations. The Company believes that using these non-GAAP measures, along with the most directly comparable GAAP measures, provides for a more complete analysis of the Company's results of operations.

Non-operating pension expense (income) represents amortization of prior service cost, amortization of actuarial gains/losses, expected return on assets and interest cost. The Company excludes these amounts from our Adjusted Operating Earnings as the Company does not believe these items reflect ongoing operations. These particular pension cost elements are not directly attributable to current employee service. The Company includes service cost in our non-GAAP measure as it is directly attributable to employee service, and the corresponding employees’ other compensation elements, in connection with ongoing operations.

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The following is a reconciliation of Net earnings (loss) to Adjusted operating earnings (loss) on a total basis. Additional detail is provided below regarding the net special items expense (income) referenced in the charts below.

(a) Adjusted operating earnings (non-GAAP), and adjusted operating earnings per share (non-GAAP) for the year ended December 31, 2023, included in this Annual Report on Form 10-K have been adjusted to include the pre-tax charge of $422 million for accelerated depreciation related to mill strategic actions in the year ended December 31, 2023. This charge was previously treated as a special item and excluded from these non-GAAP earnings measures.

(b) Special items for the year ended December 31, 2024 include a tax benefit of $416 million related to internal legal entity restructuring. This amount also includes tax expense of $10 million on the non-operating pension income and a tax benefit of $72 million associated with special items. Special items for the year ended December 31, 2023 includes a tax benefit of $23 million for the settlement of tax audits and tax expense of $4 million related to internal legal entity restructuring. This amount also includes tax benefit of $13 million on the non-operating pension expense and a tax benefit of $36 million associated with special items.

(a) This amount for the three months ended December 31, 2024 includes tax expense of $2 million on the non-operating pension income and a tax benefit of $36 million associated with special items. Special items for the three months ended September 30, 2024 include a tax benefit of $78 million related to internal legal entity restructuring. This amount also includes tax expense of $3 million on the non-operating pension income and a tax benefit of $24 million associated with special items. Special items for the

three months ended December 31, 2023 include tax expense of $4 million related to internal legal entity restructuring. This amount also includes tax benefit of $3 million on the non-operating pension expense and a tax benefit of $30 million associated with special items.

Effects of Net Special Items Expense (Income)

Pre-tax special items included in continuing operations totaling $363 million and $150 million were recorded in 2024 and 2023, respectively. Details of these charges were as follows:

(a) Severance and other closure costs associated with our mill strategic actions recorded in restructuring and other charges, net.

(b) Severance and other costs associated with the Company's 80/20 strategic approach which includes the realignment of resources recorded in restructuring and other charges, net.

(c) Transaction related costs that the Company believes are not reflective of the Company's underlying operations recorded in selling and administrative expenses.

(d) Environmental remediation adjustments associated with remediation work at sites that have been closed/divested that the Company believes are not reflective of the Company's underlying operations recorded in cost of products sold.

(e) The Company's cost for third-party damages associated with a warehouse fire in Morocco recorded in cost of products sold.

(f) Legal reserve adjustment associated with a previously discontinued business recorded in cost of products sold.

(g) Net gains related to the sale of a building at our permanently closed Orange, Texas containerboard mill, miscellaneous land sales and other items that the Company does not believe are reflective of the Company's underlying operations recorded in net (gains) losses on fixed assets.

(h) Settlement associated with an Italian antitrust matter initially recorded as a special item in 2019 recorded in cost of products sold.

(i) Interest income on tax overpayments in prior years associated with the settlement of certain tax audits recorded in interest expense, net.

(j) Revision of severance estimates related to the Company's Build a Better IP initiative recorded in restructuring and other charges, net.

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(k) Other-than-temporary impairment of an equity method investment recorded in equity earnings (loss), net of taxes.

(l) Interest income related to the settlement of the timber monetization restructuring tax matter recorded in interest expense, net.

The following is a reconciliation of Net earnings (loss) to Adjusted operating earnings (loss) on a per share basis.

Cash provided by operations, including discontinued operations, totaled approximately $1.7 billion and $1.8 billion for 2024 and 2023, respectively. The Company generated free cash flow of approximately $757 million in 2024 and $692 million in 2023. Free cash flow is a non-GAAP measure, which equals cash provided by operations less cash invested in capital projects, and the most directly comparable GAAP measure is cash provided by (used for) operations. Management utilizes this measure in connection with managing our business and believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the

business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.

The following are reconciliations of free cash flow to cash provided by operations:

The non-GAAP financial measures presented in this Annual Report on Form 10-K as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP measures in this Annual Report on Form 10-K may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company. Investors are cautioned not to place undue reliance on any non-GAAP financial measures used in this Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

International Paper generated $1.7 billion of cash flow from operations for the year ended December 31, 2024, compared with $1.8 billion, including discontinued operations, in 2023. Capital spending for 2024 totaled $921 million, or 71% of depreciation and amortization expense. Our liquidity position remains strong, supported by approximately $1.9 billion of credit facilities.

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

Net sales

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

Cost of products sold

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

Selling and administrative expenses

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

Depreciation and amortization

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

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Distribution expenses

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

Taxes other than payroll and income taxes

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

Interest expense, net

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

Income tax provision (benefit)

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

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

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

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

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

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

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

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

DISCONTINUED OPERATIONS

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

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

INCOME TAXES

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

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

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

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provision (non-GAAP) for 2023 was $127 million, or 22% of pre-tax earnings before equity earnings.

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

DESCRIPTION OF BUSINESS SEGMENTS

International Paper’s business segments discussed below are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the forest products industry.

INDUSTRIAL PACKAGING

The majority of our business is focused on creating fiber-based packaging that protects and promotes goods, enables worldwide commerce and helps keep consumers safe. We meet our customers’ most challenging sales, shipping, storage and display requirements with sustainable solutions. Our U.S. production capacity is approximately 13 million tons annually.

Containerboard includes linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. Approximately 75% of our production is converted into corrugated packaging and other packaging by our 168 North American corrugated packaging plants. Additionally, we recycle approximately one million tons of OCC and mixed and white paper through our 16 U.S. recycling plants. Our corrugated packaging plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives. In EMEA, our operations include one recycled fiber containerboard mill in Morocco and one in Spain and 23 corrugated packaging plants in France, Italy, Spain, Morocco and Portugal.

GLOBAL CELLULOSE FIBERS

Cellulose fibers are a sustainable, renewable raw material used in a variety of products people depend on every day. We create safe, quality pulp for a wide range of applications like diapers, towel and tissue products, feminine care, incontinence and other

personal care products that promote health and wellness. In addition, our innovative specialty pulps serve as a sustainable raw material used in textiles, construction materials, paints, coatings and more. Our products are made in the United States and Canada and sold around the world. International Paper facilities have annual dried pulp capacity of about 3 million metric tons.

BUSINESS SEGMENT RESULTS

The Company currently operates in two segments: Industrial Packaging and Global Cellulose Fibers. On September 18, 2023, the Company completed the sale of its Ilim equity investment and, as a result, all historical results of the Ilim investment are presented as Discontinued Operations, net of taxes and our equity investment is no longer a separate reportable segment.

The following tables present net sales and business segment operating profit (loss), which is the Company's measure of segment profitability. Business segment operating profit (loss) is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280 - "Segment Reporting". During 2024, business segment operating profits (losses) used by the chief operating decision maker were adjusted to include accelerated depreciation as part of the measure of business performance. As such, results for the year ended December 31, 2023 have been recast to reflect $422 million for accelerated depreciation related to mill strategic actions in business segment operating profit (losses). For additional information regarding business segment operating profit (loss), including a description of the manner in which business segment operating profit (loss) is calculated, see Note 20 - Financial Information by Business Segment starting on page 95 of Item 8. Financial Statements and Supplementary Data.

INDUSTRIAL PACKAGING

Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, as well as with demand for e-commerce, processed foods, poultry, meat and agricultural products. In addition to prices and volumes, major factors affecting the profitability of Industrial Packaging are raw material and energy costs, freight costs, mill outage costs, manufacturing efficiency and product mix.

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Industrial Packaging net sales for 2024 decreased to $15.5 billion compared with $15.6 billion in 2023. Operating profits in 2024 were 3% higher than in 2023. Comparing 2024 with 2023, benefits from higher sales prices net of an unfavorable mix ($310 million), lower maintenance outage costs ($17 million) and lower accelerated depreciation expense ($336 million) were partially offset by lower sales volumes ($128 million), higher operating costs ($390 million) and higher input costs ($113 million).

(a) Includes intra-segment sales of $114 million for 2024 and $95 million for 2023.

North American Packaging Solutions' net sales were flat as the benefits of higher prices for both containerboard and corrugated boxes were offset by an unfavorable geographic mix and lower sales volumes. Sales volumes decreased in 2024 compared with 2023 for corrugated boxes reflecting the impact of our box go-to-market strategy. Total maintenance and economic downtime was about 1.2 million short tons lower in 2024 compared with 2023, primarily due to economic downtime that was favorably impacted by the mill strategic actions taken in the fourth quarter of 2023. Cost of products sold decreased by $53 million and was impacted by higher operating costs, lower planned maintenance downtime costs and higher input costs. Operating costs were higher primarily due to increased costs on materials and services, increased spending on maintenance and reliability and higher employee benefits costs, partially offset by lower economic downtime. Input costs were higher, driven by higher recovered fiber costs, partially offset by lower energy, freight and wood costs. Selling and administrative expenses were $347 million higher due to higher incentive compensation expense. Distribution costs were $64 million lower driven by lower sales volumes.

Looking ahead to the first quarter of 2025, compared with the fourth quarter of 2024, sales volumes for corrugated boxes are expected to be higher. Average sales margins are expected to be lower. Operating costs are expected to be lower. Planned maintenance downtime costs are expected to be lower. Input costs are expected to be lower, primarily for recovered fiber.

EMEA Industrial Packaging's net sales were lower in 2024 than in 2023 reflecting lower average sales prices partially offset by a favorable product mix and higher sales volumes. Cost of products sold decreased $55 million and was impacted by higher operating costs, higher planned maintenance downtime costs and lower input costs. Operating costs were negatively impacted by a warehouse fire in Morocco and higher administrative spend. Input costs were lower in 2024, driven by energy and chemical costs mostly offset by higher purchased pulp costs. Input costs benefited from an energy subsidy in both 2024 and 2023. Selling and administrative expenses were $26 million higher driven by incentive compensation expense. Distribution expenses were flat.

Entering the first quarter of 2025, compared with the fourth quarter of 2024, sales volumes are expected to be stable. Average sales margins are expected to be lower, reflecting higher containerboard costs. Operating costs are expected to be lower. Planned maintenance outage costs are expected to be lower. Other input costs are expected to be lower. Earnings will be impacted by the non-repeat of an energy subsidy received in the fourth quarter 2024.

GLOBAL CELLULOSE FIBERS

Demand for Cellulose Fibers products is closely correlated with changes in demand for absorbent hygiene products, primarily driven by the demographics and income growth in various geographic regions. It is further affected by changes in currency rates that can benefit or hurt producers in different geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs, mill outage costs, and freight costs.

Global Cellulose Fibers net sales for 2024 decreased 3% to $2.8 billion, compared with $2.9 billion in 2023. Operating profits in 2024 decreased compared to 2023. Comparing 2024 with 2023, benefits from higher sales volumes ($9 million), lower operating costs ($11 million), lower planned maintenance outage costs ($50 million) and lower input costs ($43 million) were more than offset by lower average sales price net of a favorable mix

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($100 million) and higher accelerated depreciation expense ($147 million).

Net sales in 2024 compared with 2023 were lower, driven by lower average sales prices. Total maintenance and economic downtime was about 535,000 short tons lower in 2024 compared with 2023, due to both economic and maintenance downtime. Economic downtime was impacted by the mill strategic actions taken in the second half of 2023 and the fourth quarter of 2024. Cost of products sold decreased by $138 million and was impacted by higher operating costs, lower planned downtime costs and lower input costs. Operating costs increased, driven by higher costs on materials and services and reliability incidents. Input costs were lower, driven by energy, chemicals, freight and wood. Selling and administrative expenses increased $51 million driven by higher incentive compensation expense. Distribution costs were lower by $40 million.

Entering the first quarter of 2025, compared with the fourth quarter of 2024, sales volumes are expected to be stable. Average sales margins are expected to be lower. Operating costs are expected to be lower. Planned maintenance outage costs are expected to be higher than in the fourth quarter of 2024. Input costs are expected to be stable. Operating profit will benefit from the non-repeat of accelerated depreciation expense in the fourth quarter of 2024.

LIQUIDITY AND CAPITAL RESOURCES

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 2024 was primarily focused on working capital requirements, capital spending and returning cash to shareholders through dividends.

CASH PROVIDED BY OPERATING ACTIVITIES

Cash provided by operations, including discontinued operations, totaled $1.7 billion in 2024, compared with $1.8 billion for 2023. Cash used by working capital components (accounts receivable, contract assets and inventory less accounts payable and accrued liabilities, interest payable and other) totaled $10 million in 2024, compared with cash used by

working capital components of $2 million in 2023. Cash dividends received from equity investments were $13 million in 2023. There were no cash dividends received from equity method investments in 2024. The change in cash provided by operations in 2024 compared to the 2023 period was primarily due to lower accounts receivable cash receipts due to the timing of sales, partially offset by higher incentive compensation.

INVESTMENT ACTIVITIES

Cash used for investment activities totaled $808 million in 2024 compared with $668 million in 2023. The increase in cash used for investment activities in 2024 compared to 2023 is mainly due to proceeds from sales of equity method investments of $472 million received in 2023. Additionally, 2024 includes lower capital spending and proceeds from insurance recoveries and the sale of fixed assets.

Capital spending was $921 million in 2024, or 71% of depreciation and amortization, compared with $1.1 billion in 2023, or 80% of depreciation and amortization. Capital spending as a percentage of depreciation and amortization was impacted by accelerated depreciation of $233 million and $422 million for the years ended December 31, 2024 and December 31, 2023, respectively, related to mill strategic actions and other 80/20 strategic actions.

The following table shows capital spending by business segment for the years ended December 31, 2024 and 2023:

Acquisitions

See Note 7 Acquisitions on page 72 of Item 8. Financial Statements and Supplementary Data for a discussion of the Company's acquisitions.

FINANCING ACTIVITIES

Financing activities during 2024 included debt issuances of $102 million and reductions of $141 million for a net decrease of $39 million. Financing activities during 2023 included debt issuances of $783 million and reductions of $780 million.

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There were no early debt extinguishments during the years ended December 31, 2024 and December 31, 2023.

Other financing activities during 2024 included the net issuance of approximately 2.0 million shares of treasury stock, while repurchases of common stock and payments of restricted stock withholding taxes totaled $23 million. During the year ended December 31, 2024, the Company did not repurchase any shares of common stock under our share repurchase program. Through December 31, 2024, 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 $643 million during 2024.

Other financing activities during 2023 included the net issuance of approximately 1.6 million shares of treasury stock. Repurchases of common stock and payments of restricted stock withholding taxes totaled $218 million, including $197 million related to shares repurchased under the Company's share repurchase program. The Company paid cash dividends totaling $642 million during 2023.

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, 2024 and 2023.

Variable Interest Entities

Information concerning variable interest entities is set forth in Note 14 Variable Interest Entities on pages 83 and 84 of Item 8. Financial Statements and Supplementary Data. In connection with the 2006 International Paper installment sale of forestlands, we received $4.8 billion of installment notes. These installment notes were used by variable interest entities as collateral for borrowings from third-party lenders. These variable interest entities were restructured in 2015 (the "2015 Financing Entities") when the installment notes and third-party loans were extended. The 2015 Financing Entities held installment notes of $4.8 billion and third-party loans

of $4.2 billion which both matured in August 2021. We settled the third-party loans at their maturity with the proceeds from the installment notes. This resulted in cash proceeds of approximately $630 million representing our equity in the 2015 Financing Entities. Maturity of the installment notes and termination of the monetization structure also resulted in a $72 million tax liability that was paid in the fourth quarter of 2021. On September 2, 2022, the Company and the Internal Revenue Service agreed to settle the 2015 Financing Entities timber monetization restructuring tax matter. Under this agreement, the Company agreed to fully resolve the matter and pay $252 million in U.S. federal income taxes. As a result, interest was charged upon closing of the audit. The amount of interest expense recognized in 2022 was $58 million. As of December 31, 2023, $252 million in U.S. federal income taxes and $58 million in interest expense have been paid as a result of the settlement agreement. The Company has now fully satisfied the payment terms of the settlement agreement regarding the 2015 Financing Entities timber monetization restructuring tax matter. The reversal of the Company’s remaining deferred tax liability associated with the 2015 Financing Entities of $604 million was recognized as a one-time tax benefit in the third quarter of 2022.

LIQUIDITY AND CAPITAL RESOURCES OUTLOOK FOR 2025

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 October 11, 2022, our Board of Directors approved an additional $1.5 billion under our share repurchase program. This program does not have an expiration date and has approximately $2.96 billion aggregate amount of shares of common stock remaining authorized for purchase as of December 31, 2024. 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.

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Capital Expenditures and Long-Term Debt

Capital spending for 2025 is planned at approximately $1.2 billion, or about 117% of depreciation and amortization.

At December 31, 2024, International Paper’s credit agreements totaled $1.9 billion, which is comprised of the $1.4 billion contractually committed bank credit agreement and up to $500 million under the receivables securitization program. In June 2023, the Company amended and restated its credit agreement to, among other things (i) reduce the size of the contractually committed bank facility from $1.5 billion to $1.4 billion, (ii) extend the maturity date from June 2026 to June 2028, and (iii) replace the LIBOR-based rate with a SOFR-based rate. Management believes these credit agreements are adequate to cover expected 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 dependent upon International Paper’s credit rating. At December 31, 2024, 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 are not subject to any restrictive covenants other than the financial covenants as disclosed on pages 84 and 85 in Note 15 - 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, 2024 and was well below the thresholds stipulated under the covenants as defined in the credit agreements. Further the financial covenants do not restrict any borrowings under the credit agreements.

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 had no borrowings outstanding as of December 31, 2024 and December 31, 2023 under this program.

During the year ended December 31, 2024, the Company had debt reductions of $141 million in 2024, related primarily to $14 million of capital leases and $127 million of environmental development bonds ("EDB"). In addition, during the year ended

December 31, 2024, the Company also had debt issuances of $102 million of EDBs.

For additional information regarding the Company’s credit agreements and outstanding indebtedness, see Note 15 Debt and Lines of Credit on pages 84 and 85 of Item 8. Financial Statements and Supplementary Data.

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, 2024, 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, 2024, were as follows:

(a)Includes financing lease obligations.

(b)Includes $3.2 billion relating to fiber supply agreements.

(c)Not included in the above table due to the uncertainty of the amount and timing of the payment are unrecognized tax benefits of approximately $199 million. Also not included in

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the above table is $67 million of Deemed Repatriation Transition Tax associated with the 2017 Tax Cuts and Jobs Act which will be settled from 2025 - 2026. Additionally, the deferred tax liability of $486 million related to the Temple-Inland timber monetization is not included in the table above. It will be settled with the maturity of the notes in 2027.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2024, to be permanently reinvested and, accordingly, no U.S. income taxes have been provided thereon (see Note 12 Income Taxes on pages 77 through 79 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, 2024, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately $156 million higher than the fair value of plan assets, excluding non-U.S. plans. Plans that are subject to minimum funding requirements had plan assets of $92 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 2022, 2023 or 2024. At this time, we do not expect to have any required contributions to our plans in 2025, 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.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require subjective judgments about matters that are inherently uncertain.

Accounting policies whose application has had or is reasonably likely to have a material impact on the reported results of operations and financial position of International Paper, and that can require a significant level of estimation or uncertainty by management that affect their application, include the accounting for contingencies, impairment or disposal of long-lived assets and goodwill, pensions and income taxes. Management has discussed the selection of critical accounting policies and the effect of significant estimates with the Audit and Finance Committee of the Company’s Board of Directors and with its independent registered public accounting firm.

CONTINGENT LIABILITIES

Accruals for contingent liabilities, including personal injury, product liability, environmental, asbestos and other legal matters, are recorded when it is probable that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical litigation and settlement experience and recommendations of legal counsel and, if applicable, other experts. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. The Company estimated the probable liability associated with environmental matters to be approximately $279 million and $251 million in the aggregate as of December 31, 2024 and 2023, respectively. Liabilities for asbestos-related matters require reviews of recent and historical claims data. The Company's total recorded liability with respect to pending and future asbestos-related claims was $100 million and $97 million, net of estimated insurance recoveries, as of December 31, 2024 and 2023, respectively. The Company utilizes its in-house legal counsel and environmental experts to develop estimates of its legal, environmental and asbestos obligations, supplemented as needed by third-party specialists to analyze its most complex contingent liabilities.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable. A recoverability test is performed by comparing the undiscounted cash flows to carrying value of the assets. If the carrying amount is less than the undiscounted cash flows, the fair value of the assets is compared to the carrying value to determine if they are impaired. An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value.

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We perform an annual goodwill impairment as of October 1. Additionally, interim assessments of possible impairments of goodwill are also made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value.

The amount and timing of goodwill and long-lived asset impairment charges based on these assessments requires the estimation of future cash flows or the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes, operating, raw material, energy and freight costs, various other projected operating economic factors and other intended uses of the assets.

ASU 2011-08, "Intangibles - Goodwill and Other," allows entities testing goodwill for impairment the option of performing a qualitative assessment before performing the quantitative goodwill impairment test. If a qualitative assessment is performed, an entity is not required to perform the quantitative goodwill impairment test unless the entity determines that, based on that qualitative assessment, it is more likely than not that its fair value is less than its carrying value.

The North America Industrial Packaging reporting unit is the Company’s only reporting unit with goodwill. As of October 1, 2024, we performed our annual goodwill impairment test for this reporting unit through a quantitative goodwill impairment test. For the 2024 quantitative assessment, the estimated fair value of the reporting unit was calculated using a weighted approach based on discounted future cash flows, market multiples and transaction multiples. The determination of fair value using the discounted cash flow approach requires management to make significant estimates and assumptions including forecasts of revenues, operating profit margins, and discount rates. The determination of fair value using market multiples and transaction multiples requires management to make significant assumptions related to revenue multiples and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples. The results of our quantitative goodwill impairment test indicated that the carrying amount did not exceed the estimated fair value of the North America Industrial Packaging reporting unit.

PENSION BENEFIT OBLIGATIONS

The calculation of the pension benefit obligation and corresponding expense amounts are determined annually, with involvement of International Paper’s consulting actuary, and are dependent upon various assumptions including the expected long-term rate of return on plan assets, discount rates, projected future compensation increases and mortality rates.

The calculations of pension benefit obligations and expense require decisions about a number of key assumptions that can significantly affect liability and expense amounts, including the expected long-term rate of return on plan assets and the discount rate used to calculate plan liabilities.

Benefit obligations and fair values of plan assets as of December 31, 2024, for International Paper’s pension plan were as follows:

The table below shows the discount rate used by International Paper to calculate U.S. pension obligations for the years shown:

International Paper determines the actuarial assumptions to calculate liability information as of December 31 each year or more frequently if required and pension expense for the following year. International Paper consults with our third-party actuary in determining these actuarial assumptions. The expected long-term rate of return on plan assets is based on projected rates of return for current asset classes in the plan’s investment portfolio. The discount rate assumption was determined based on a hypothetical settlement portfolio selected from a universe of high-quality corporate bonds.

The expected long-term rate of return on U.S. pension plan assets used to determine net periodic cost for the year ended December 31, 2024 was 7.00%.

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Increasing the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease 2025 pension expense by approximately $20 million, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease pension expense by approximately $14 million.

Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were:

ASC 715, “Compensation – Retirement Benefits,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains and losses in subsequent years.

Net periodic pension plan expenses, calculated for all of International Paper’s plans, were as follows:

The decrease in 2024 pension expense primarily reflects higher asset returns, lower interest cost due to a lower discount rate, and lower actuarial loss.

Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as of December 31, 2024, projected future net periodic pension plan expense (income) would be as follows:

The Company estimates that it will record net pension expense of approximately $36 million for its U.S. defined benefit plans in 2025, compared to expense of $1 million in 2024.

The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, 2024 totaled approximately $8.2 billion, consisting of approximately 62% hedging assets and 38% return seeking assets. The Company’s funding policy for its qualified pension plan is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions and could elect to make voluntary contributions in the future. There were no required contributions to the U.S. qualified plan in 2024. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled $23 million for the year ended December 31, 2024.

INCOME TAXES

International Paper records its global tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering technical merits of the position based on specific tax regulations and facts of each matter. Changes to recorded liabilities are only made when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, change in tax laws, or recent court cases that are relevant to the matter. Accrued interest related to these uncertain tax positions is recorded in our consolidated statement of operations in Interest expense, net. The Company's uncertain tax positions were $204 million and $173 million at December 31, 2024 and 2023, respectively.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in assessing the need for and magnitude of appropriate valuation allowances against deferred tax assets. This assessment is completed by tax jurisdiction and relies on both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative reported pre-tax income is considered objectively verifiable positive

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evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. The Company's valuation allowance was $1.2 billion and $848 million at December 31, 2024 and 2023, respectively.

While International Paper believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.

LEGAL PROCEEDINGS

Information concerning certain legal proceedings involving the Company is set forth on pages 79 through 83 of Item  8. Financial Statements and Supplementary Data, which is incorporated by reference herein. Except as set forth in Note 13 Commitments and Contingent Liabilities, the Company is not subject to any administrative or judicial proceeding arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that is likely to result in monetary sanctions of $1 million or more.

RECENT ACCOUNTING DEVELOPMENTS

See Note 2 Recent Accounting Developments starting on page 66 of Item 8. Financial Statements and Supplementary Data for a discussion of new accounting pronouncements.

EFFECT OF INFLATION

Inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, can impact the Company’s operating results as can general inflationary conditions, including labor market conditions, economic activity, consumer behavior, and supply shortages and disruptions. During 2024, inflationary pressures stabilized and moderated over the year and did not have a significant impact on our

operating results. The Company's operating results are more strongly influenced by economic supply and demand factors in specific markets due to the impact on sales prices and volumes and exchange rate fluctuations when compared to inflationary factors.

FOREIGN CURRENCY EFFECTS

International Paper has operations in a number of countries. Its operations in those countries also export to, and compete with imports from other regions. As such, currency movements can have a number of direct and indirect impacts on the Company’s financial statements. Direct impacts include the translation of international operations’ local currency financial statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing of products that are traded internationally). In general, a weaker U.S. dollar and stronger local currency is beneficial to International Paper. The currency that has the most impact is the Euro.

MARKET RISK

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 15 Debt and Lines of Credit on pages 84 and 85 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 of financial institutions and money market mutual funds with a minimum rating of AAA and limit exposure to any one

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issuer or fund. Our investments in marketable securities at December 31, 2024 and 2023 are stated at cost, which approximates market due to their short-term nature. 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, 2024 and 2023, the fair value of the net liability of financial instruments with exposure to interest rate risk was approximately $4.0 billion and $4.3 billion, respectively. The potential increase in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $206 million and $301 million at December 31, 2024 and 2023, 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, 2024 and 2023, the net fair value of these contracts was $3 million asset and $27 million asset. The potential loss in fair value from a 10% adverse change in quoted commodity prices for these contracts would have been approximately $1 million and $4 million at December 31, 2024 and 2023, 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 currency that has the most impact is the Euro. 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. We address these risks on a limited basis by entering into cross-currency interest rate swaps, or foreign exchange contracts.

At December 31, 2024 and 2023, the net fair value of financial instruments with exposure to foreign currency risk 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.