International Paper 2015 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2015 International Paper annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

68
instrument is reported in Accumulated other
comprehensive income (“AOCI”) and reclassified into
interest expense over the life of the underlying debt.
The ineffective portion for both cash flow and fair value
hedges, which is not material for any year presented,
is immediately recognized in earnings.
FOREIGN CURRENCY RISK MANAGEMENT
We manufacture and sell our products and finance
operations in a number of countries throughout the
world and, as a result, are exposed to movements in
foreign currency exchange rates. The purpose of our
foreign currency hedging program is to manage the
volatility associated with the changes in exchange
rates.
To manage this exchange rate risk, we have historically
utilized a combination of forward contracts, options and
currency swaps. Contracts that qualify are designated
as cash flow hedges of certain forecasted transactions
denominated in foreign currencies. The effective
portion of the changes in fair value of these instruments
is reported in AOCI and reclassified into earnings in the
same financial statement line item and in the same
period or periods during which the related hedged
transactions affect earnings. The ineffective portion,
which is not material for any year presented, is
immediately recognized in earnings.
The change in value of certain non-qualifying
instruments used to manage foreign exchange
exposure of intercompany financing transactions and
certain balance sheet items subject to revaluation is
immediately recognized in earnings, substantially
offsetting the foreign currency mark-to-market impact
of the related exposure.
COMMODITY RISK MANAGEMENT
Certain raw materials used in our production processes
are subject to price volatility caused by weather, supply
conditions, political and economic variables and other
unpredictable factors. To manage the volatility in
earnings due to price fluctuations, we may utilize swap
contracts or forward purchase contracts.
Derivative instruments are reported in the consolidated
balance sheets at their fair values, unless the derivative
instruments qualify for the normal purchase normal sale
("NPNS") exception under GAAP and such exception
has been elected. If the NPNS exception is elected,
the fair values of such contracts are not recognized on
the balance sheet.
Contracts that qualify are designated as cash flow
hedges of forecasted commodity purchases. The
effective portion of the changes in fair value for these
instruments is reported in AOCI and reclassified into
earnings in the same financial statement line item and
in the same period or periods during which the hedged
transactions affect earnings. The ineffective and non-
qualifying portions, which are not material for any year
presented, are immediately recognized in earnings.
The change in the fair value of certain non-qualifying
instruments used to reduce commodity price volatility
is immediately recognized in earnings.
The notional amounts of qualifying and non-qualifying
instruments used in hedging transactions were as
follows:
In millions
December 31,
2015
December 31,
2014
Derivatives in Cash Flow
Hedging Relationships:
Foreign exchange contracts
(Sell / Buy; denominated in sell
notional): (a)
Brazilian real / U.S. dollar -
Forward —166
British pounds / Brazilian real
- Forward —5
European euro / Brazilian real
- Forward —9
European euro / Polish zloty -
Forward 260 280
Mexican peso / U.S. dollar -
Forward 136 —
U.S. dollar / Brazilian real -
Forward —125
Derivatives in Fair Value
Hedging Relationships:
Interest rate contracts (in
USD) 17 230
Derivatives Not Designated as
Hedging Instruments:
Electricity contract (in
Megawatt Hours) 1—
Foreign exchange contracts
(Sell / Buy; denominated in sell
notional):
European euro / British
pounds 25 —
Indian rupee / U.S. dollar 49 43
Mexican peso / U.S. dollar 131 187
U.S. dollar / Brazilian real —11
Interest rate contracts (in USD) 38 —
(a) These contracts had maturities of three years or less as of
December 31, 2015.