DERIVATIVES AND HEDGING ACTIVITIES Footnote

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities [Note Text Block]

As a multinational company International Paper is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices.

The notional amounts of qualifying and non-qualifying financial instruments used in hedging transactions were as follows:

In millions	June 30, 2019		December 31, 2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (a)	$	463	$	407
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	700		700
Derivatives in Net Investment Hedging Relationships:
Interest rate contracts	475		—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	1		8
Foreign exchange contracts	23		19

(a) These contracts had maturities of two years or less as of June 30, 2019.

The following table shows gains or losses recognized in AOCI, net of tax, related to derivative instruments: 

	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended June 30,					Six Months Ended June 30,
In millions	2019		2018			2019		2018
Foreign exchange contracts	$	4	$	(18	)	$	4	$	(18	)
Interest rate contracts	—		—			—		(3		)
Total	$	4	$	(18	)	$	4	$	(21	)

During the next 12 months, the amount of the June 30, 2019 AOCI balance, after tax, that is expected to be reclassified to earnings is a gain of $2 million.

The amounts of gains and losses recognized in the statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions were as follows:

	Gain (Loss) Reclassified from AOCI (Effective Portion)										Location of Gain (Loss) Reclassified from AOCI (Effective Portion)
	Three Months Ended June 30,					Six Months Ended June 30,
In millions	2019		2018			2019			2018
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	—	$	(2	)	$	(1	)	$	—	Cost of products sold
Total	$	—	$	(2	)	$	(1	)	$	—

	Gain (Loss) Recognized											Location of Gain (Loss) In  Statement of Operations
	Three Months Ended June 30,					Six Months Ended June 30,
In millions	2019			2018		2019			2018
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	19		$	—	$	31		$	—		Interest expense, net
Debt	(19		)	—		(31		)	—			Interest expense, net
Total	—			—		—			—
Derivatives Not Designated as Hedging Instruments:
Electricity contract	1			1		5			(1		)	Cost of products sold
Foreign exchange contracts	1			1		1			1
Total	$	2		$	2	$	6		$	—

Fair Value Measurements

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period.

The following table provides a summary of the impact of our derivative instruments in the balance sheet:

Fair Value Measurements

Level 2 – Significant Other Observable Inputs

 

	Assets						Liabilities
In millions	June 30, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Derivatives designated as hedging instruments
Foreign exchange contracts – cash flow	$	9		$	3		$	7		$	10
Interest rate contracts - fair value	48			16			—			—
Total derivatives designated as hedging instruments	57		(a)	19		(b)	7		(c)	10		(d)
Derivatives not designated as hedging instruments
Electricity contract	—			—			—			4
Foreign exchange contracts	—			—			1			1
Total derivatives not designated as hedging instruments	—			—			1		(d)	5		(d)
Total derivatives	$	57		$	19		$	8		$	15

(a) Includes $7 million recorded in Other current assets and $50 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(b) Includes $2 million recorded in Other current assets and $17 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(c) Includes $6 million recorded in Other accrued liabilities and $1 million recorded in Other liabilities in the accompanying consolidated balance sheet.

(d) Included in Other current liabilities in the accompanying consolidated balance sheet.

The above contracts are subject to enforceable master netting arrangements that provide rights of offset with each counterparty when amounts are payable on the same date in the same currency or in the case of certain specified defaults. Management has made an accounting policy election to not offset the fair value of recognized derivative assets and derivative liabilities in the balance sheet. The amounts owed to the counterparties and owed to the Company are considered immaterial with respect to each counterparty and in the aggregate with all counterparties.