Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~Company~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ~~(paragraph~~(section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ~~(paragraph 229.405 of this chapter)~~(section 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨ Nox

The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, ~~2010)~~2011) was approximately ~~$9,806,064,660.~~$12,935,454,966.

The number of shares outstanding of the Company’s common stock, as of February ~~18, 2011~~17, 2012 was ~~439,740,260.~~437,085,299.

Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s ~~2011~~2012 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

Sales volumes of major products for 2011, 2010 ~~2009~~ and ~~2008~~2009 were as follows:

The principal changes in operating profit by segment were as follows:

Industrial Packaging’s profits of ~~$826 million~~$1.1 billion were ~~$65~~$321 million higher as the benefits of ~~higher sales volumes and decreased lack-of-order downtime,~~ higher average sales price realizations and favorable operating costs were partially offset by ~~higher planned maintenance downtime costs,~~lower sales volumes and higher ~~raw material~~market-related downtime and increased distribution and freight costs. In addition, 2011 operating profits included $20 million of costs associated with the signing of an agreement to purchase Temple-Inland, while 2010 operating profits included $19 million of plant closure costs, while 2009 operating profits included a gain of $849 million relating to alternative fuel mixture credits and $740 million of costs associated with the closures of the Albany, Oregon and Pineville, Louisiana mills, a paper machine at the Valliant, Oklahoma mill and the Etienne mill in France.costs.

Printing Papers’ profits of ~~$481~~$872 million were ~~$610~~$391 million ~~lower.~~higher than in 2010. The benefits of higher sales price realizations, ~~and~~ lower operating costs ~~were partially offset by the net impact of lower sales volumes, higher raw material~~ and freight costs, and higher planned mill maintenance downtime costs. Operating profits included $315 million in 2010 and $223 million in 2009 of costs associated with the closure of the Franklin, Virginia mill. In addition, operating profits in 2009 included $884 million of alternative fuel mixture credits and $34 million of other restructuring costs.

Consumer Packaging’s profits of $207 million were down $226 million as the benefits from higher sales volumes and lower lack-of-order downtime, higher sales price realizations, and lower operating costsa more favorable product mix were partially offset by higher raw material and freight costs. Operating profits in ~~2009~~2011 included ~~$330~~a gain of $21 million related to the reversal of environmental reserves due to the announced repurposing of the Franklin, Virginia mill and $11 million of ~~alternative fuel mixture credits and $67 million of charges~~asset impairment costs associated with the ~~shutdown~~Inverurie, Scotland mill which was closed in 2009. Operating profits in 2010 included $315 million of costs associated with the closure of the Franklin, Virginia mill.

Consumer Packaging’s profits of $163 million, which included costs of $201 million associated with the fixed asset impairment and sale of the Shorewood business, were $44 million lower than in 2010. The benefits from higher sales price realizations, lower operating costs and a more favorable mix of products sold were partially offset by higher raw material and freight costs.

Distribution’s profits of ~~$78~~$34 million ~~increased $28~~were $44 million lower than 2010 primarily due to ~~higher~~$52 million of reorganization expenses. Higher sales ~~volumes and average sales margins partially offset by higher operating costs.~~

price realizations and lower operating costs were mostly offset by lower sales volumes.

Forest ~~Products’ profits~~Products had a profit of $94 million ~~increased $69 million~~in 2010 reflecting a $39 million gain on a mineral rights sale and a $50 million gain on land ~~sales in 2010.~~sales.

Corporate items, net, of $145 million of expense in 2011 were lower than the $226 million of expense in 2010 ~~were higher than the $181 million of expense in 2009~~ due ~~primarily~~ to ~~higher~~lower supply chain initiative expenses and lower pension ~~expenses.~~expense. The increase in 2010 from 2009 ~~versus $103 million of expense in 2008 was due to~~primarily reflects higher pension ~~expenses.~~expense.

Corporate special items, including restructuring and other items ~~impairments of goodwill, gains on Transformation Plan forestland sales~~ and net losses ~~(gains)~~ on sales and impairments of businesses were a loss of $76 million in 2011 compared with a loss of $45 million in 2010 ~~compared with~~and a loss of $334 million in ~~2009 and a loss of $1.9 billion in 2008. The loss in 2008 includes $1.8 billion of goodwill impairment charges.~~2009.

Interest expense, net, was $541 million in 2011 compared with $608 million in 2010 ~~compared with~~and $669 million in ~~2009 and $492 million~~2009. The decrease in ~~2008. The~~2011 reflects lower debt levels throughout much of the year, while the decrease in 2010 reflects the repayment of $3.1 billion of debt in 2009. ~~The increase in 2009 reflects~~

A net income tax provision of $311 million was recorded for 2011, including a tax benefit of $222 million related to the ~~issuance~~reduction of ~~approximately $6.0 billion~~the carrying value of ~~debt in connection~~the Shorewood business and the write-off of a deferred tax liability associated with ~~the~~Shorewood, a $24 million expense related to internal restructurings, a $9 million expense for costs associated with our acquisition of a majority interest in Andhra Pradesh Paper Mills Limited, a $13 million benefit related to the ~~CBPR business in 2008~~release of a deferred tax asset valuation allowance and ~~higher interest rates in 2009 due to refinancing actions taken to extend debt maturities.~~

a $2 million expense for other items. The 2010 income tax provision of $221 million includes a $14 million tax expense for an incentive compensation deferred tax write-off, a $32 million tax expense for a Medicare Part D deferred tax write-off and a $40 million net tax benefit related to cellulosic bio-fuel credits. The 2009 income tax provision of $469 million includes a net $165 million provision related to 2009 special tax adjustment items. ~~The 2008 income tax provision of $162 million includes a net $11 million benefit related to 2008 special tax adjustment items.~~ Excluding the tax effect of all special items, taxes as a percent of pre-tax earnings were 32% in 2011 and 30% in both 2010 and ~~2009 compared with 31.5% in 2008.~~2009. The higher income tax rate in ~~2008~~2011 reflects a higher proportion of earnings in higher tax rate jurisdictions.

Discontinued Operations

In ~~2008, $13~~2011, $49 million of net income adjustments were recorded relating to ~~post-closing adjustments and estimates associated with~~ prior sales of discontinued businesses.

Liquidity and Capital Resources

For the year ended December 31, ~~2010,~~2011, International Paper generated ~~$1.6~~$2.7 billion of cash flow from continuing operations compared with ~~$4.7~~$1.6 billion ~~including $1.7 billion from alternative fuel mixture credits,~~ in ~~2009.~~2010. Capital spending for ~~2010~~2011 totaled ~~$775 million,~~$1.2 billion, or ~~53%~~87% of depreciation and amortization expense. Cash expenditures for acquisitions totaled ~~$152~~$379 million, while net ~~reductions of~~increases in debt totaled ~~$383 million.~~$1.3 billion, primarily representing debt incurred in anticipation of the Temple-Inland acquisition. Our liquidity position remains strong, supported by approximately $2.5 billion of committed credit facilities that we believe are adequate to meet future liquidity requirements. Maintaining an investment-grade credit rating for our long-term debt continues to be an important element in our overall financial strategy.

We expect to generate strong free cash flow again in ~~2011~~2012 and will continue our balanced use of cash through investments in capital projects, the ~~continued~~ reduction of total debt, including the Company’s unfunded pension obligation, returning value to shareholders (including the funding of our previously announced dividend increases) and strengthening our businesses through acquisitions, as appropriate.

Capital spending for ~~2011~~2012 is targeted at ~~$1.2 to $1.3~~$1.5 billion, or about ~~86% to 93%~~102% of depreciation and ~~amortization.~~amortization, including spending at the legacy Temple-Inland facilities.

Critical Accounting Policies and Significant Accounting Estimates

Accounting policies that may have a significant effect on our reported results of operations and financial position, and that can require judgments by management in their application, include accounting for contingent liabilities, impairments of long-lived assets and goodwill, pension and postretirement benefit obligations and income taxes. See pages 45 through 48 for a discussion of the Company’s critical accounting policies and significant accounting estimates.

Legal

See ~~page 45 and~~ Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for a discussion of legal matters.

CORPORATE OVERVIEW

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, Europe, Russia, Latin America, Asia and North Africa. Factors that impact the demand for our products include industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels, and movements in currency exchange rates.

Product prices are affected by general economic trends, inventory levels, currency 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, recycled fiber and chemical costs; energy costs; freight costs; salary and benefits costs, including pensions; and manufacturing conversion costs.

The following is a discussion of International Paper’s results of operations for the year ended December 31, ~~2010,~~2011, and the major factors affecting these results compared to ~~2009~~2010 and ~~2008.~~2009.

RESULTS OF OPERATIONS

For the year ended December 31, ~~2010,~~2011, International Paper reported net sales of ~~$25.2~~$26.0 billion, compared with $25.2 billion in 2010 and $23.4 billion in ~~2009 and $24.8 billion in 2008.~~2009. International net sales (including U.S. exports) totaled ~~$7.5~~$8.7 billion or ~~30%~~33% of total sales in ~~2010.~~2011. This compares towith international net sales of $7.5 billion in 2010 and $6.4 billion in ~~2009 and $6.9 billion in 2008.~~2009.

Full year ~~2010~~2011 net earnings attributable to International Paper Company totaled ~~$644 million~~$1.341 billion ($~~1.48~~3.07 per share), compared with net earnings of $644 million ($1.48 per share) in 2010 and $663 million ($1.55 per share) in ~~2009 and a loss of $1.3 billion ($3.05 per share) in 2008. 2008~~2009. 2011 amounts include the results of discontinued operations.

Earnings from continuing operations attributable to International Paper Company after taxes in ~~2010~~2011 were $1.292 billion, including $63 million of net special items charges, compared with income of $644 million, including $246 million of net special ~~item~~items charges ~~compared with income of~~in 2010, and $663 million, including $285 million of special item credits in ~~2009, and a loss of $1.3 billion in 2008, including $2.1 billion of net special item charges.~~2009. Compared with ~~2009,~~2010, higher ~~mill outage costs, increased average raw material costs, higher distribution costs, a bad debt provision for a large envelope company, higher~~sales price realizations, favorable operating performance and product mix, lower net interest expense, and decreased corporate ~~expenses,~~ and ~~a net special~~ other

items expense ~~in 2010 compared with a net gain in 2009~~ were partially offset by ~~the impact of increased average sales price realizations,~~ higher input costs, lower sales volumes, ~~favorable operating performance, higher earnings~~less income from land ~~and mineral~~ sales, and ~~lower net interest~~higher income tax expense. ~~Additionally, 2010~~In addition, 2011 results included higher equity earnings, net of taxes, relating to the Company’s investment in Ilim Holdings, SA.

See Industry Segment Results on pages 2729 through 3335 for a discussion of the impact of these factors by segment.

~~The following table presents a reconciliation of net earnings (loss) attributable to International Paper Company to its total industry segment operating profit:~~

In millions    2010 2009 2008
Net Earnings (Loss) attributable to International Paper Company
   $ 644    $ 663    $ (1,282 )
Deduct – Discontinued operations:

Loss from operations
   0    0    1
Loss on sales or impairment
   0    0    12
Earnings (Loss) From Continuing Operations Attributable to International Paper Company
   644    663    (1,269 )
Add back (deduct):

Income tax provision
   221    469    162
Equity (earnings) losses, net of taxes
   (64 ) 49    (49 )
Net earnings attributable to noncontrolling interests
   21    18    3
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings
   822    1,199    (1,153 )
Interest expense, net
   608    669    492
Noncontrolling interests / equity earnings included in operations
   (15 ) (23 ) 2
Corporate items
   226    181    103
Special items:

Restructuring and other charges
   70    333    179
Gain on sale of forestlands
   0    0    (6 )
Impairments of goodwill
   0    0    1,777
Net losses (gains) on sales and impairments of businesses
   (25 ) 1    (1 )
   $ 1,686    $ 2,360    $ 1,393
Industry Segment Operating Profit

Industrial Packaging
   $ 826    $ 761    $ 390
Printing Papers
   481    1,091    474
Consumer Packaging
   207    433    17
Distribution
   78    50    103
Forest Products
   94    25    409
Total Industry Segment Operating Profit
   $ 1,686    $ 2,360    $ 1,393

Discontinued Operations

~~2008:~~2011:

In ~~2008,~~2011, $49 million of net ~~after-tax charges totaling $12 million~~income adjustments were recorded ~~for adjustments~~relating to prior sales of ~~net losses (gains) on sales and impairments of~~discontinued businesses, ~~reported as discontinued operations,~~ including a ~~pre-tax charge of $25~~$30 million ~~($16 million after taxes)~~earnout payment received by the Company in the first quarter for the settlement of a post-closing adjustment on the sale of the Beverage Packaging business, and pre-tax gains of $9 million ($5 million after taxes) in the fourth quarter for adjustments to reserves2011 associated with the sale of ~~discontinued businesses.~~the Kraft Papers businesses in 2007 and a $15 million tax benefit for the reversal of local country tax contingency reserves, for which the related statute of limitations has now expired, plus associated interest income of $4 million recorded in 2011 related to the 2006 sale of the Brazilian Coated Papers business.

Income Taxes

A net income tax provision of $311 million was recorded for 2011, including a tax benefit of $222 million related to the reduction of the carrying value of the Shorewood business and the write-off of a deferred tax liability associated with Shorewood, a $24 million expense related to internal restructurings, a $9 million expense for costs associated with our acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a $13 million benefit related to the release of a deferred tax asset valuation allowance, and a $2 million expense for other items. Excluding these items and the tax effect

of other special items, the tax provision was $577 million, or 32% of pre-tax earnings before equity earnings.

A net income tax provision of $221 million was recorded for 2010, including a $14 million tax expense and a $32 million tax expense for incentive compensation and Medicare Part D deferred tax write-offs, respectively, and a net $40 million tax benefit related to cellulosic bio-fuel tax credits. See discussion on ~~pages 33 and 34.~~page 36. Excluding these items and the tax effect of other special items, the tax provision was $364 million, or 30% of pre-tax earnings before equity earnings.

A net income tax provision of $469 million was recorded for 2009, including a $156 million expense for the write-off of deferred tax assets in France, a $15 million write-off of a deferred tax asset for a recycling tax credit in the state of Louisiana, and a $26 million tax benefit related to the settlement of the 2004 and 2005 U.S. federal income tax audits. Excluding these items and the tax effect of other special items, the tax provision was $190 million, or 30% of pre-tax earnings before equity earnings.

A net income tax provision of $162 million was recorded for 2008, including a $40 million tax benefit related to the restructuring of the Company’s international operations and a $29 million charge for estimated U.S. income taxes on a gain recorded by the Company’s Ilim Holding S.A. joint venture related to the sale of a Russian subsidiary. Excluding these items and the tax effect of other special items, the tax provision was $369 million, or 31.5% of pre-tax earnings before equity earnings.

Equity Earnings, Net of Taxes

Equity earnings, net of taxes in 2011, 2010 ~~2009~~ and ~~2008~~2009 consisted principally of the Company’s share of earnings from its 50% investment in Ilim Holding S.A. in Russia (see pages 3234 and ~~33)~~35).

Corporate Items and Interest Expense

Corporate items totaled ~~$226~~$145 million of expense for the ~~twelve months~~year ended December 31, ~~2010~~2011 compared with $226 million in 2010 and $181 million in ~~2009~~2009. The decrease in 2011 from 2010 reflects lower supply chain initiative expenses and ~~$103 million in 2008.~~lower pension expense. The increase in 2010 from 2009 reflects higher supply chain initiative expenses and higher pension expense. ~~The increase in 2009 from 2008 principally reflects higher pension expense.~~

Net interest expense totaled $541 million in 2011, $608 million in 2010 and $669 million in ~~2009 and $492 million~~2009. The decrease in ~~2008.~~2011 compared with 2010 reflects lower average debt levels. The decrease from 2010 to 2009 reflects the repayment of $3.1 billion of debt in 2009. ~~The increase from 2008 to 2009 reflects a higher average debt balance due to~~

the issuance of approximately $6 billion of debt in 2008, mainly in connection with the acquisition of the CBPR business, and higher average interest rates in 2009 due to refinancing actions taken to extend debt maturities.

Net earnings attributable to noncontrolling interests totaled $14 million in 2011 compared with $21 million in 2010 ~~compared with~~and $18 million in ~~2009 and $3 million~~2009. The decrease in ~~2008.~~2011 reflects lower earnings for Shorewood Mexico due to the impairment of the business’ fixed assets. The ~~increases~~increase in 2010 ~~and 2009 reflect~~reflects higher earnings for the International Paper & Sun Containerboard Co., Ltd. joint ventures.

Special Items

Restructuring and Other Charges

International Paper continually evaluates its operations for improvement opportunities targeted to (a) focus our portfolio on our core businesses, (b) rationalize and realign capacity to operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each of our businesses. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to (a) invest additional capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to determine if an impairment of the asset value of the facility has occurred. In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset impairment charges and severance costs. It is possible that additional charges and costs will be incurred in future periods in our core businesses should such triggering events occur.

2011: During 2011, corporate restructuring and other charges totaling $55 million before taxes ($33 million after taxes) were recorded. These charges included:

a $32 million charge before taxes ($19 million after taxes) for costs related to the early extinguishment of debt (see Note 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data),

an $18 million charge before taxes ($12 million after taxes) related to International Paper’s acquisition of a majority share of APPM in India, and

a $5 million charge before taxes ($2 million after taxes) for other items.

In addition, restructuring and other charges totaling $47 million before taxes ($33 million after taxes) were recorded in the Industrial Packaging, Printing Papers, Consumer Packaging and Distribution industry segments including:

a $20 million charge before taxes ($12 million after taxes) for costs associated with the signing of an agreement to acquire Temple-Inland,

a $24 million gain before taxes ($15 million after taxes) related to a change in the estimate of

closure costs related to the Franklin, Virginia mill due to the Company’s decision to repurpose a portion of the mill to produce fluff pulp,

a $49 million charge before taxes ($34 million after taxes) for restructuring costs related to the Company’s xpedx business, and

a $2 million charge before taxes ($2 million after taxes) for other items.

2010: During 2010, corporate restructuring and other charges totaling $52 million before taxes ($32 million after taxes) were recorded. These charges included:

~~a $6 million charge before taxes ($4 million after taxes) for severance and benefit costs associated with the Company’s S&A reduction initiative,~~

a $35 million charge before taxes ($21 million after taxes) for costs related to the early extinguishment of debt (see note 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data), ~~and~~

an $11 million charge before taxes ($7 million after taxes) related to the write-off of an Ohio commercial activity tax ~~receivable.~~receivable, and

a $6 million charge before taxes ($4 million after taxes) for severance and benefit costs associated with the Company’s S&A reduction initiative.

In addition, restructuring and other charges totaling $342 million before taxes ($210 million after taxes) were recorded in the Industrial Packaging, Printing Papers and Consumer Packaging industry segments including:

a $315 million charge before taxes ($192 million after taxes), including $236 million of noncash accelerated depreciation charges, for closure costs related to the Franklin, Virginia mill,

an $8 million charge before taxes ($5 million after taxes) related to the reorganization of the Company’s Shorewood Packaging operations,

a $7 million charge before taxes ($4 million after taxes) related to the closure of the Bellevue, Washington container facility,

~~a $5 million charge before taxes ($3 million after taxes) related to the closure of the Spartanburg, South Carolina container facility,~~

~~a $3 million charge, before and after taxes, for severance and other costs related to the closure of the Etienne mill in France,~~ and

a $4$12 million charge before taxes ($39 million after taxes) for other items.

2009:During 2009, corporate restructuring and other charges totaling $333 million before taxes ($205 million after taxes) were recorded. These charges included:

~~a $148 million charge before taxes ($92 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead reduction initiative, and~~

a $185 million charge before taxes ($113 million after taxes) for costs related to the early extinguishment of debt (see Note 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data)., and

a $148 million charge before taxes ($92 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead reduction initiative.

In addition, restructuring and other charges totaling $1.0 billion before taxes ($648 million after taxes) were recorded in the Industrial Packaging, Printing Papers, Consumer Packaging and Distribution industry segments including:

a $469 million charge before taxes ($286 million after taxes), including $429 million of noncash accelerated depreciation charges, for closure costs related to the Company’s containerboard mill in Albany, Oregon,

a $290 million charge before taxes ($177 million after taxes), including $239 million of noncash accelerated depreciation charges, for closure costs related to the paper mill and associated operations in Franklin, Virginia,

a $102 million charge before taxes ($62 million after taxes), including $75 million of noncash accelerated depreciation charges, for closure costs related to the Company’s containerboard mill in Pineville, Louisiana,

an $82 million charge before taxes ($50 million after taxes), including $78 million of noncash accelerated depreciation charges, for costs related to the permanent shut down of a paper machine at the Company’s Valliant, Oklahoma containerboard mill,

a $31 million charge, before and after taxes, for severance and other costs related to the planned closure of the Company’s Etienne mill in France,

a $23 million charge before taxes ($28 million after taxes) for closure costs related to the Inverurie mill in Scotland, and

a $23 million charge before taxes ($14 million after taxes) for other items.

~~2008:~~~~During 2008, corporate restructuring and other charges totaling $179 million before taxes ($110 million after taxes) were recorded. These charges included:~~

~~a $53 million charge before taxes ($32 million after taxes) for severance and related costs associated with the Company’s 2008 overhead cost reduction initiative,~~

~~a $75 million charge before taxes ($47 million after taxes) for adjustments to legal reserves,~~

a $53 million pre-tax charge ($33 million after taxes) to write off deferred supply chain initiative development costs for U.S. container operations that were not implemented due to the CBPR acquisition, and

~~a $2 million gain, before and after taxes, for adjustments to previously recorded reserves and other charges associated with the Company’s 2006 Transformation Plan.~~

In addition, restructuring and other charges totaling $191 million ($117 million after taxes) were recorded in the Printing Papers, Industrial Packaging and Consumer Packaging industry segments including:

~~a $123 million charge ($75 million after taxes) for costs associated with the shutdown of the Bastrop, Louisiana mill,~~

~~a $30 million charge ($18 million after taxes) for costs associated with the shutdown of a paper machine at the Franklin, Virginia mill,~~

~~a $30 million charge ($19 million after taxes) related to the reorganization of the Company’s Shorewood operations, and~~

~~an $8 million charge ($5 million after taxes) for closure costs associated with the Ace Packaging business.~~

~~A further discussion of restructuring and other charges can be found in Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.~~

~~Gain on Sale of Forestlands~~

~~2008:~~ ~~During the second and third quarters of 2008, a pre-tax gain totaling $6 million ($4 million after taxes) was recorded to adjust reserves related to the 2006 Transformation Plan forestland sales.~~

Impairments of Goodwill

No goodwill impairment charges were recorded in 2011, 2010 or 2009.

Net Losses (Gains) on Sales and Impairments of Businesses

Net losses (gains) on sales and impairments of businesses included in ~~Corporate~~ special items totaled a pre-tax loss of $218 million (a gain of $36 million after taxes and noncontrolling interests) in 2011, a pre-tax gain of $23 million ($13 million after taxes) in 2010 and a pre-tax loss of $59 million ($56 million after taxes) in ~~2009 and a pre-tax loss of $106 million ($83 million after taxes) in 2008.~~2009. The principal components of these gains/losses were:

2011: On August 22, 2011, International Paper announced that it had signed an agreement to sell its Shorewood business to Atlas Holdings, pending regulatory approval and other customary closing conditions. As a result, during 2011, net pre-tax charges of $207 million (after a $246 million tax benefit and a gain of $8 million related to a noncontrolling interest, a gain of $47 million) were recorded in the Consumer Packaging segment to reduce the carrying value of the Shorewood business to fair market value. As part of the transaction, International Paper will retain a minority interest of approximately 40% in the newly combined AGI-Shorewood business outside the U.S. Since the interest retained represents significant continuing involvement in the operations of the business, the operating results of the Shorewood business have been included in continuing operations in the accompanying consolidated statement of operations instead of Discontinued operations. The sale of the U.S. portion of the Shorewood business to Atlas Holdings closed on December 31, 2011. The sale of the remainder of the Shorewood business occurred during January 2012. The assets of the remainder of the Shorewood business, totaling $196 million at December 31, 2011, are included in Assets of businesses held for sale in current assets in the accompanying consolidated balance sheet. The liabilities of the remainder of the Shorewood business totaling $43 million at December 31, 2011 are included in Liabilities of businesses held for sale in current liabilities in the accompanying consolidated balance sheet. Additionally, approximately $33 million of currency translation adjustment was reflected in OCI related to the remainder of the Shorewood business at December 31, 2011.

Also during 2011, the Company recorded charges in the Printing Papers segment totaling $11 million (before and after taxes) to further write down the long-lived assets of its Inverurie, Scotland mill to their estimated fair value.

2010:During ~~the fourth quarter of~~ 2010, the Company recorded a pre-tax gain of $25 million ($15 million after taxes) as a result of the partial redemption of the 10% interest the Company retained in its Arizona Chemical business after the sale of the business in 2006. The Company received $37 million in cash from the redemption of this interest.

Also during the fourth quarter of 2010, a $2 million charge, before and after taxes, was recorded to further write down the long-lived assets of the Company’s Inverurie, Scotland mill which was closed in March 2009.

2009:During ~~the second quarter of~~ 2009, based on a ~~current~~ strategic plan update of projected future operating results of the Company’s Etienne mill in France, ~~mill,~~ a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a ~~$48~~$56 million ~~noncash~~ charge, before and after taxes, was recorded in the Company’s Industrial Packaging industry segment to write down the long-lived assets of the mill to their estimated fair value.

~~During the fourth quarter of 2009, an $8 million noncash charge, before and after taxes, was recorded to further write down the long-lived assets of the Company’s~~ The Etienne ~~France~~ mill ~~which~~ was closed at the end of November ~~2009, to their estimated fair value. In addition, a pre-tax charge of $3 million ($0 million after taxes) was recorded for other items.~~

~~2008:~~~~During the first quarter of 2008, a $1 million credit, (before and after taxes), was recorded to adjust the estimated loss for a business previously sold.~~2009.

~~In addition, a $107 million noncash loss ($84 million after taxes) for the impairment of the Inverurie, Scotland mill was recorded in the Printing Papers industry segment.~~

Industry Segment Operating Profits

Industry segment operating profits of $2.2 billion in 2011 increased from $1.7 billion in 2010 decreased from $2.4 billion in 2009, primarily due to a $344 million net loss from special items in 2010 compared with an $898 million net gain in 2009 (which included the impact of alternative fuel mixture credits).2010. The benefits ~~from~~of higher average ~~prices~~sales price realizations ($~~798~~611 million)~~, higher sales volumes ($269 million),~~ and improved operating performance and a more favorable product mix ($~~154~~370 million) were partially offset by the impacts of lower sales volumes and increased market-related downtime ($54 million), ~~and~~ higher raw material costs ($381 million), lower earnings from land sales ($6994 million) were offset by the impacts of higher energy and raw material costs ($548 million), higher distribution costs ($95 million), a bad debt provision for a large envelope company ($17 million), higher mill outages ($47 million), and other items ($1513 million). Special items were a $253 million net loss in 2011 compared with a net loss of $344 million in 2010.

~~Lack-of-order~~Market-related downtime in ~~2010 decreased~~2011 increased to approximately 421,000 tons from approximately 170,000 ~~tons.~~tons in 2010. In ~~addition,~~2010 capacity was reduced by approximately 2.1 million tons associated with the permanent shutdowns of the Albany, Oregon and Pineville, Louisiana mills and the shutdown of a paper machine at our Valliant, Oklahoma mill in December 2009 and the permanent shutdown of ~~the~~our Franklin, Virginia mill in April 2010. Lack-of-order downtime in 2009 was approximately 3.6 million tons including approximately 450,000 tons associated with the permanent shutdown of the Albany, Oregon and Pineville, Louisiana mills and the shutdown of a paper machine at our Valliant, Oklahoma mill and approximately 600,000 tons associated with the permanent shutdown of our Bastrop, Louisiana mill and the shutdown of an uncoated paper machine at our Franklin, Virginia mill in 2008.

Looking ahead to the ~~2011~~ first quarter of 2012, demand for North American ~~and European~~ paper and packaging ~~products~~is expected to be slightly higher, while demand in Europe and Asia will likely ~~remain~~be stable ~~while a seasonal decrease~~and demand for paper in ~~paper demand~~

Brazil is expected ~~in Brazil.~~to seasonally decrease. Average sales price realizations in North America are expected to be steady in the domestic paper and packaging markets, but export prices are expected to decrease. Paper prices in Europe are likely to decrease slightly, but prices for packaging should be stable. In Brazil, paper prices are expected to be steady ~~with some pressure on prices~~in the domestic market, but lower for sales to export markets. Input costs in North America are expected to increase slightly for ~~purchased pulp~~wood, energy and chemicals. Planned maintenance downtime costs should ~~be slightly lower reflecting a~~ decrease in ~~Europe, partially offset by increased spending~~North America and be at about fourth-quarter 2011 levels in ~~North America.~~our other regions. Earnings from our xpedx distribution business are expected to ~~reflect~~decrease slightly reflecting seasonally lower sales volumes, ~~but improved average margins.~~partially offset by cost reductions resulting from the business reorganization. Equity earnings from our Ilim joint venture are expected to ~~increase~~improve primarily due to ~~improving market demand and higher average sales price realizations for linerboard.~~a less unfavorable currency impact.

DESCRIPTION OF INDUSTRY SEGMENTS

International Paper’s industry 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

International Paper is the largest manufacturer of containerboard in the United States. Our production capacity is about 10 million tons annually. Our products include linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft. About 70% of our production is converted domestically into corrugated boxes and other packaging by our 127 U.S. container plants. Additionally, we recycle approximately one million tons of OCC and mixed and white paper through our 2120 recycling plants. In Europe, our operations include one recycled fiber containerboard mill in Morocco and 20 container plants in France, Italy, Spain, and Morocco. In Asia, our operations include 2119 container plants in China and additional container plants in Indonesia, Malaysia, Singapore, and Thailand. Our container plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives.

Printing Papers

International Paper is one of the world’s leading producers of printing and writing papers. Products in this segment include uncoated and coated papers, market pulp and uncoated bristols.

Uncoated Papers: This business produces papers for use in copiers, desktop and laser printers and digital imaging. End use applications include advertising and promotional materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. Uncoated papers also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms and file folders. Uncoated papers are sold under private label and International Paper brand names that includeHammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet,Rey, Pol, and Svetocopy. The mills producing uncoated papers are located in the United States, France, Poland, Russia, Brazil and ~~Brazil.~~India. The mills have uncoated paper production capacity of approximately ~~4.9~~5 million tons annually. Brazilian operations ~~func-~~

~~tion~~function through International Paper do Brasil, Ltda, which owns or manages approximately ~~250,000~~325,000 acres of forestlands in Brazil.

Market Pulp: Market pulp is used in the manufacture of printing, writing and specialty papers, towel and tissue products and filtration products. Pulp is also converted into products such as diapers and sanitary napkins. Pulp products include fluff, and southern softwood pulp, as well as southern and birch hardwood paper pulps. These products are produced in the United States, France, Poland, Russia, and Brazil and are sold around the world. International Paper facilities have annual dried pulp capacity of about 1.5 million tons.

Consumer Packaging

International Paper is the world’s largest producer of solid bleached sulfate board with annual U.S. production capacity of about 1.7 million tons. Our coated paperboard business produces high quality coated paperboard for a variety of packaging and commercial printing end uses. OurEverest^®, Fortress^®, andStarcote^® brands are used in packaging applications for everyday products such as food, cosmetics, pharmaceuticals, computer software and tobacco products. OurCarolina^® brand is used in commercial printing end uses such as greeting cards, paperback book covers, lottery tickets, direct mail and point-of-purchase advertising. Our U.S. capacity is supplemented by about ~~345,000~~350,000 tons of

capacity at our mills producing coated board in Poland and Russia and by our International Paper & Sun Cartonboard Co., Ltd. joint venture in China which has annual capacity of ~~915,000~~930,000 tons.

Shorewood Packaging Corporation produces premium packaging with high-impact graphics for a variety of markets, including home entertainment, tobacco, cosmetics, general consumer and pharmaceuticals, in 1614 facilities worldwide. The sale of the U.S. portion of the Shorewood business closed on December 31, 2011. The sale of the remainder of the Shorewood business occurred during January 2012.

Our Foodservice business produces cups, lids, food containers and plates through three domestic plants and ~~five~~three international facilities.

Distribution

xpedx, our North American merchant distribution business, distributes products and services to a number of customer markets including: commercial printers with printing papers and graphic pre-press, printing presses and ~~post press~~post-press equipment; building

services and away-from-home markets with facility supplies; manufacturers with packaging supplies and equipment; and to a growing number of customers, we exclusively provide distribution capabilities including warehousing and delivery services.xpedx is the leading wholesale distribution marketer in these customer and product segments in North America, operating ~~120~~101 warehouse locations and ~~128~~76 retail stores in the U.S., Mexico and Canada.

Forest Products

International Paper sold our remaining land portfolio in 2010 and ~~has completed the monetization of our forest land and realty holdings.~~beginning in 2011 is no longer reporting Forest Products as a separate industry segment.

Ilim Holding S.A.

In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to operate a pulp and paper business located in Russia. Ilim’s facilities include three paper mills located in Bratsk, Ust-Ilimsk, and Koryazhma, Russia, with combined total pulp and paper capacity of over ~~2.5~~2.6 million tons. Ilim has exclusive harvesting rights on timberland and forest areas exceeding ~~12.8~~13 million acres ~~(5.2~~(5.3 million hectares).

Products and brand designations appearing in italics are trademarks of International Paper or a related company.

INDUSTRY SEGMENT RESULTS

Industrial Packaging

Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production, as well as with demand for 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, manufacturing efficiency and product mix.

Industrial Packaging ~~results include the CBPR business acquired in the 2008 third quarter. Net~~net sales for ~~2010~~2011 increased ~~11%~~6% to $10.4 billion compared with $9.8 billion in 2010, and 17% compared with $8.9 billion in ~~2009, and 28% compared with $7.7 billion in 2008.~~2009. Operating profits were 9%39% higher in ~~2010~~2011 than in ~~2009~~2010 and ~~more~~51% higher than ~~double 2008 levels.~~in 2009. Excluding ~~alternative fuel mixture credits,~~costs associated with the signing of an agreement to acquire Temple-Inland, facility closure costs and ~~costs associated with the CBPR integration,~~other special items, operating ~~profits~~earnings in ~~2010~~2011 were ~~14%~~37% higher than in ~~2009~~2010 and ~~75%~~57% higher than in ~~2008.~~2009. Benefits from higher sales ~~volumes and decreased~~

~~lack-of-order downtime ($162 million), the effects of higher sales~~ price realizations ($~~313~~305 million), ~~favorable~~lower operating costs ($40186 million), and slightly lower ~~other~~planned maintenance downtime costs ($223 million) were partially offset by lower sales volumes and higher market-related downtime ($39 million), a less favorable mix ($4022 million), ~~higher planned maintenance downtime costs ($16 million) and~~ higher raw material and freight costs ($~~375~~101 million), and other items ($10 million). Additionally, operating profits in 2011 included costs associated with signing an agreement to acquire Temple-Inland of $20 million while operating profits in 2010 included plant closure costs of $19 million, while operating profits in 2009 included a gain of $849 million relating to alternative fuel mixture credits, U.S. plant closure costs of $653 million, integration costs associated with the acquisition of the CBPR business of $87 million and costs associated with the shutdown of the Etienne mill in France of $87 million.


*Industrial Packaging*
In millions	2010		2009		2008		2011		2010		2009
Sales	$	9,840	$	8,890	$	7,690	$	10,430	$	9,840	$	8,890
Operating Profit		826		761		390		1,147		826		761

North American Industrial Packaging ~~results include the~~ net sales ~~and operating profits of the CBPR business since the August 4, 2008 acquisition date. Net sales~~ were $8.6 billion in 2011 compared with $8.4 billion in 2010 ~~compared with~~and $7.6 billion in ~~2009 and $6.2 billion in 2008.~~2009. Operating profits in ~~2010~~2011 were $1.1 billion (both including and excluding costs associated with signing an agreement to acquire Temple-Inland) compared with $763 million ($776 million excluding facility closure costs) ~~compared with~~in 2010 and $791 million ($682 million excluding alternative fuel ~~mixture~~tax credits, mill closure costs and costs associated with the CBPR integration) in ~~2009 and $322 million ($414 million excluding charges related to the write-up of the CBPR inventory to fair value, CBPR integration costs and other facility closure costs) in 2008.~~2009.

Sales volumes ~~increased~~decreased in ~~2010~~2011 compared with ~~2009 due to stronger~~2010 reflecting slightly weaker customer demand for boxes and ~~for exported linerboard.~~lower trade sales. Average sales price realizations were significantly higher ~~reflecting~~as the ~~impact~~ first half

of ~~2010 announced~~2011 benefitted from sales price increases for ~~domestic~~containerboard and ~~exported containerboard. Average sales margins~~ for boxes ~~decreased as box~~that were implemented in the second half of 2010. Market pressures began to impact sales price ~~increases were outpaced by increases in~~realizations for export containerboard toward the ~~raw material cost~~end of ~~containerboard.~~2011. Input costs were ~~sharply~~ higher, primarily for recycled fiber, but also for chemicals, while wood and energy ~~while chemical~~ costs ~~decreased.~~were lower. Freight costs ~~were~~ also ~~higher.~~increased. Planned maintenance downtime costs ~~increased from 2009 levels, while~~were about the same as in 2010. Manufacturing operations improved and other operating costs were ~~significantly lower reflecting the fixed cost savings from the closures of the Albany, Oregon~~favorable due to routine inventory valuation adjustments and ~~Pineville, Louisiana mills in the 2009 fourth quarter and the realization of cost reduction and synergy initiatives in the box plants. Lack-of-order~~other administrative costs. Market-related downtime in ~~2010~~2011 was about 380,000 tons compared with about 130,000 tons in ~~addition to a~~2010. In 2010 capacity ~~reduction of~~was reduced by about

1.5 million tons associated with the closures of ~~the~~our Albany, Oregon and Pineville, Louisiana mills and the idling of a paper machine at ~~the~~our Valliant, Oklahoma mill in December 2009. ~~Lack-of-order downtime~~Operating earnings in ~~2009 was about 2.2~~2011 included charges of $20 million ~~tons including 450,000 tons related~~for costs associated with the signing of an agreement to ~~the idled paper machine at the Valliant, Oklahoma mill~~acquire Temple-Inland and ~~the December 2009 shutdowns of the Albany, Oregon and Pineville, Louisiana mills.~~a $2 million gain for other items while operating earnings in 2010 included $13 million for facility closure costs.

Looking ahead to ~~2011,~~2012, sales volumes in the first quarter are expected to ~~remain at about~~increase from the fourth quarter ~~levels although box volumes may~~of 2011 due to a higher number of shipping days for boxes. The shipments per day should be ~~impacted by adverse weather conditions in the U.S.~~about flat reflecting steady market demand. Average sales price realizations are expected to ~~decrease reflecting a decline in~~reflect lower prices for exported ~~linerboard sales prices, while domestic linerboard sales prices should be about flat and box sales price realizations should show a modest increase.~~containerboard. Input costs for ~~purchased~~recycled fiber are expected to beincrease slightly along with higher ~~on average as first-quarter 2011~~wood and chemical costs. Planned maintenance downtime costs are expected to ~~remain at the late fourth-quarter 2010 level. In addition, wood and energy costs are expected to increase. Planned maintenance downtime costs should~~ be about $27 million higher with outages scheduled at six mills compared with three ~~mills. Operating~~mills in the 2011 fourth quarter. Manufacturing operating costs are expected to be ~~favorable in both the containerboard and box businesses.~~about flat.

European Industrial Packagingnet sales were $1.1 billion in 2011 compared with $990 million in 2010 ~~compared with~~and $980 million in ~~2009 and $1.2 billion in 2008.~~2009. Operating profits in ~~2010~~2011 were ~~$70~~$66 million ($7361 million ~~before~~excluding a gain for a bargain purchase price adjustment on an acquisition by our joint venture in Turkey and costs associated with the closure of ~~the~~our Etienne mill in ~~France)~~France in 2009) compared with $70 million ($73 million before closure costs for our Etienne mill) in 2010 and a loss of $30 million (a gain of $57 million excluding closure costs ~~associated with the closure of the~~for our Etienne ~~mill~~mill) in ~~France) in 2009 and earnings of $64 million in 2008.~~ 2009.

Sales volumes in ~~2010~~2011 were slightly higher than in ~~2009 primarily~~2010 reflecting ~~improved~~increased demand for packaging in the agricultural markets due to stronger fruit and vegetable seasons and improved demand for pack-

aging in some industrial markets. Average sales margins decreased as ~~box price~~cost increases ~~only partially offset higher raw material costs~~ for kraft and recycled ~~containerboard.~~containerboard exceeded box sales price increases. Other input costs were ~~about the same in 2010 as in 2009. Operating~~higher, primarily for energy, but operating costs were favorable and the business benefitted from the operating cost savings associated with the closure of the Etienne mill in France in November 2009. Operating earnings included $3 million in 2010 and $87 million in 2009 for closure costs associated with the Etienne, France mill closure.favorable.

Entering the first quarter of ~~2011,~~2012, sales volumes are expected to be ~~lower~~stable reflecting ~~seasonally weaker~~increased demand ~~for~~in agricultural ~~boxes than~~markets, while industrial markets are expected to be affected by the general economic environment in ~~the fourth quarter of 2010.~~Europe. Average sales margins are expected to ~~remain stable as box price increases are expected~~improve due to ~~partly offset containerboard cost increases in Europe.~~lower input costs for containerboard. Other input costs should be about flat. Operating costs are expected to be ~~favorable.~~higher.

Asian Industrial Packagingnet sales and operating earnings include the results of SCA Packaging since the acquisition on June 30, 2010, including the impact of incremental integration costs. Net sales for ~~2010~~the packaging operations were ~~$495~~$410 million in 2011 compared with ~~$325~~$255 million in ~~2009~~2010 and ~~$350~~$90 million in ~~2008.~~2009. Operating earnings for the packaging operations were $2 million in 2011 compared with a loss of $7 million (a loss of $4 million excluding facility closure costs) in 2010 ~~compared with~~and earnings of $3 million in ~~both 2009~~2009. Average sales margins increased in 2011 compared with 2010, and ~~2008. Earnings in 2010 include~~were partially offset by higher raw material costs and operating costs. Looking ahead to the ~~results~~first quarter of ~~SCA Packaging Asia since the acquisition on June 30, 2010, including the impact of incremental integration expenses.~~2012, sales volumes and average sales margins are expected to increase.

~~Operating earnings~~Net sales for the distribution ~~activities of the business~~operations were $285 million in 2011 compared with $240 million in 2010 and $235 million in 2009. Operating earnings were $3 million in 2011 compared with about breakeven ~~for~~in 2010 ~~compared with~~and a loss of $3 million in ~~2009 and earnings of $1 million in 2008.~~2009. In 2009, an expense of $2 million was taken for the impairment of an investment in a joint venture.

Printing Papers

Demand for Printing Papers products is closely correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated cut-size products, with changes in white-collar employment levels that affect the usage of copy and laser printer paper. Market pulp is further affected by changes in currency rates that can enhance or disadvantage producers in different geographic regions. Principal cost drivers include manufacturing efficiency, raw material and energy costs and freight costs.

Printing Papersnet sales for ~~2010~~2011 increased 5% from ~~2009, but decreased 13%~~2010 and 9% from ~~2008.~~2009. Operating profits in

2011 were 81% higher than in 2010, ~~were 56%~~but 20% lower than in ~~2009, but 1% higher than in 2008.~~2009. However, excluding alternative fuel mixture credits, ~~and~~ plant closure costs and impairment costs, operating profits in ~~2010~~2011 were ~~72%~~8% higher than in ~~2009~~2010 and 9%85% higher than in ~~2008.~~2009. Benefits from higher average sales price realizations ($~~365~~173 million), ~~lower operating costs ($126 million) and improved mix ($32 million) were partially offset by~~ the net impact of lower sales volumes and lower market-related downtime ($1310 million), lower operating costs ($77 million), and a more favorable mix ($8 million) were partially offset by higher raw material and freight costs ($~~111 million), higher planned mill maintenance downtime costs ($18~~196 million) and ~~higher~~ other ~~costs~~items ($499 million). In addition, operating profits in 2011 included a $24 million gain related to the announced repurposing of our Franklin, Virginia mill to produce fluff pulp and an $11 million impairment charge related to our Inverurie, Scotland mill that was closed in 2009, while operating earnings in 2010 included $315 million of costs associated with the ~~permanent~~ shutdown of our Franklin, Virginia mill, while operating profits in 2009 included $884 million of alternative fuel mixture credits, $223 million of shutdown costs for the Franklin, Virginia mill, and $34 million of other restructuring costs.mill.

Printing Papers
In millions    2010      2009      2008
Sales
   $ 5,940         $ 5,680         $ 6,810
Operating Profit
   481         1,091         474


*Printing Papers*
In millions	2011		2010		2009
Sales	$	6,215	$	5,940	$	5,680
Operating Profit		872		481		1,091

North American Printing Papersnet sales ~~in 2010~~ were $2.8 billion ~~compared with $2.8 billion~~ in ~~2009~~2011, 2010 and ~~$3.4 billion in 2008.~~2009. Operating earnings in ~~2010~~2011 were $423 million ($399 million excluding a net gain associated with the repurposing of our Franklin, Virginia mill) compared with $18 million ($333 million excluding facility closure costs) ~~compared with~~in 2010 and $746 million ($307 million excluding alternative fuel mixture credits and facility closure costs) in ~~2009 and $405 million ($435 million excluding shutdown costs for a paper machine) in 2008.~~2009.

Sales volumes ~~decreased~~in 2011 were lower than in 2010, compared with 2009 due to reduced production capacity related to the permanent closure of the Franklin, Virginia mill in the second quarter of 2010 and wood supply constraints in the first quarter of 2010.but included a more favorable product mix. Average sales price realizations were significantly higher reflecting the impact of the realization of price increases for domestic uncoated freesheet paper announced in the first half of ~~2010.~~both 2010 and 2011. Input costs for wood were lower, but were more than offset by higher costs for energy, chemicals and purchased ~~pulp were higher, but were partially offset by lower costs for chemicals.~~pulp. Freight costs ~~increased due to higher fuel~~were also higher. Manufacturing operating costs were favorable reflecting strong mill performance and ~~overall higher average miles per shipment following~~ the ~~closure~~intra-segment transfer of ~~the~~our Franklin, Virginia ~~mill. Operating~~mill indirect costs ~~were unfavorable due~~that had previously been recorded in the North American Printing Papers business to ~~higher depreciation expense related to increased production partially offset by cost savings associated with~~ the ~~closure of~~U.S. Market Pulp Business beginning in the ~~Franklin, Virginia mill.~~third quarter. Planned maintenance downtime costs were ~~also higher. Lack-of-order~~slightly lower in 2011. No market-related downtime was taken in ~~2010 was~~2011 compared with approximately 21,000 tons ~~compared with 405,000 tons~~ in ~~2009.~~2010. In addition, capacity was reduced by about 450,000 tons in 2010 due to the closure of ~~the~~our Franklin, Virginia mill in April. ~~Operating~~Operat-

ing earnings in 2011 included ~~charges~~a $24 million gain related to the announced repurposing of our Franklin, Virginia mill to produce fluff pulp, while operating earnings in 2010 included $315 million ~~in 2010 and $223 million in 2009 for~~of costs associated with the ~~closure~~shutdown of ~~the~~our Franklin, Virginia mill. ~~Operating earnings in 2009 also included $671 million of alternative fuel mixture credits and $9 million of other shutdown costs.~~

Entering ~~2011,~~the first quarter of 2012, sales volumes are expected to increase compared with the fourth quarter of 2011 reflecting seasonally stronger demand. Average sales price realizations are expected to be ~~mostly stable.~~under pressure in export markets. Input costs should ~~continue to rise~~increase for wood, energy and ~~chemicals, but wood costs should be about flat.~~chemicals. Planned maintenance downtime costs are expected to be about $24 million lower with an outage scheduled for our Georgetown mill versus outages at two mills in the ~~2011 first-quarter compared with the 2010 fourth-quarter.~~fourth quarter of 2011.

Brazilian Papersnet sales for ~~2010~~2011 of ~~$1.1~~$1.2 billion increased from $1.1 billion in 2010 and $960 million in ~~2009 and $950 million in 2008.~~2009. Operating profits for ~~2010~~2011 were ~~$159~~$169 million compared with $159 million in 2010 and $112 million in ~~2009 and $186 million in 2008.~~2009. Sales volumes in 2011 were higher than in 2010 ~~remained at about 2009 levels.~~reflecting the strengthening of the company position in the Latin American uncoated freesheet paper growing market. Average sales price realizations ~~for uncoated freesheet paper increased~~were significantly higher for shipments to ~~Brazilian~~ export ~~markets. Average sales~~

~~price realizations for pulp~~markets, but were ~~also higher reflecting stronger market demand as well as supply restrictions resulting from the Chilean earthquake~~lower in the ~~first quarter of 2010.~~Brazilian domestic market mainly due to currency exchange rates. Margins were ~~unfavorably~~favorably affected by ~~a higher~~an increased proportion of ~~lower margin export~~ sales ~~when~~to the ~~domestic Brazilian market did not grow as anticipated.~~higher-margin regional market. Raw material costs ~~were lower~~increased for ~~wood~~energy, chemicals, and ~~chemicals, but this benefit was offset by higher~~ purchased ~~pulp costs.~~pulp. Operating costs were ~~lower~~flat in ~~2010,~~2011, but planned maintenance downtime costs were ~~higher.~~higher due to the length of the outages.

~~Entering 2011,~~Looking ahead to 2012, sales volumes in the first quarter are expected to be lower than in the fourth quarter of ~~2010~~2011 due to seasonally weaker customer demand for uncoated freesheet paper. ~~Profit~~Average sales margins are expected to ~~be lower~~decrease reflecting a less favorable geographic ~~sales mix and lower~~mix. Average sales price realizations are expected to increase in the Brazilian domestic ~~market.~~market, but the benefit should be partially offset by some decrease in export markets. Input costs are expected to be ~~slightly~~lower for purchased pulp, but higher for chemicals ~~but operating~~and packaging. Operating costs ~~should~~are expected to be favorable.

European Papersnet sales in ~~2010~~2011 were ~~$1.3~~$1.4 billion compared with $1.3 billion in ~~2009~~both 2010 and ~~$1.7 billion in 2008.~~2009. Operating profits in ~~2010~~2011 were $196 million ($207 million excluding asset impairment charges related to our Inverurie, Scotland mill which was closed in 2009) compared with $197 million ($199

million excluding an asset impairment ~~charge associated with the Inverurie, Scotland mill) compared with~~charge) in 2010 and $92 million ($115 ~~million excluding expenses associated with the closure of the Inverurie, Scotland mill) in 2009 and $39 million ($146~~ million excluding a charge to reduce the carrying value of the assets at ~~the~~our Inverurie, Scotland mill to their estimated realizable value) in ~~2008.~~2009.

Sales volumes for uncoated freesheet paper were lower in both Europe and Russia in 2011 than in 2010, while sales volumes for pulp from Russia were ~~slightly lower than in 2009 largely due to the closure of the Inverurie, Scotland mill in 2009.~~higher. Average sales price realizations for uncoated freesheet paper ~~increased due to improved market conditions and market pulp prices~~ were significantly higher reflecting the benefit of sales price increases implemented in the second half of 2010 due to ~~strong demand as well as supply restrictions resulting from the Chilean earthquake in the first quarter of 2010. Manufacturing operating~~strengthened market demand. Average sales price realizations for pulp decreased. Input costs were ~~favorable due to excellent mill performance~~significantly higher, primarily for wood, energy and ~~operating efficiencies.~~chemicals. Planned maintenance downtime costs were ~~slightly lower. Input~~lower in Europe resulting from no outage being scheduled at the Saillat mill in France during 2011; however, this benefit was offset by higher outage costs in Poland and Russia. Manufacturing operating costs were ~~higher for wood, energy and purchased pulp, but were lower for chemicals. Operating profits in 2010 reflect unfavorable foreign exchange impacts.~~favorable.

~~Looking ahead to 2011,~~Entering 2012, sales volumes in the first quarter are expected to be ~~slightly lower than~~about flat in Europe compared with the fourth quarter of ~~2010 due to~~2011, but be seasonally weaker ~~demand~~in Russia. Average sales price realizations for uncoated freesheet paper are expected to decrease in ~~Russian markets partially offset by increased demand for uncoated freesheet paper~~Europe, but increase in ~~Europe. Average sales~~

~~price realizations~~Russia. Input costs should be higher ~~due to increased prices~~in Russia, especially for ~~board~~wood and ~~newsprint~~energy, but be slightly lower in Europe. ~~Input costs~~No maintenance outages are ~~expected to be higher for wood, energy and chemicals. Planned maintenance downtime costs should be lower with no outages planned~~scheduled for the first ~~quarter~~quarter.

Indian Papers includes the results of ~~2011~~Andhra Pradesh Paper Mills (APPM) of which a 75% interest was acquired October 14, 2011. Net sales for this period were $35 million and operating ~~costs are expected to be favorable.~~earnings were a loss of $3 million.

Asian Printing Papersnet sales were $75 million in 2011, $80 million in 2010 ~~compared with~~and $50 million in ~~2009 and $20 million in 2008.~~2009. Operating earnings were less than $1 million in all periods.

U.S. Market Pulpnet sales were $725 million in 2011 compared with $715 million in 2010 ~~compared with~~and $575 million in ~~2009 and $750~~2009. Operating earnings were $87 million in ~~2008. Operating earnings~~2011 compared with $107 million in 2010 ~~were $107 million compared with~~and $140 million (a loss of $71 million excluding alternative fuel mixture credits and ~~plant~~facility closure costs) in ~~2009 and a loss of $156 million (a loss of $33 million excluding costs associated with the permanent shutdown of the Bastrop, Louisiana mill) in 2008.~~2009.

Sales volumes in 2011 were flat with 2010 ~~increased from 2009~~ levels. Average sales price realizations were ~~significantly~~ higher ~~reflecting~~for fluff pulp due to the impact of ~~stronger market demand coupled with supply constraints in the first half of the year due to the Chilean earthquake.~~sales price increases

implemented during 2010. Average ~~margins improved reflecting an increase in shipments of higher-margin fluff pulp.~~sales price realizations for softwood pulp were lower. Input costs ~~increased~~ for energy and chemicals were higher, but wood ~~and energy, but~~costs were ~~partially offset by lower chemical costs.~~lower. Freight costs increased due to higher fuel costs. Mill operating costs were ~~favorable, but planned~~unfavorable partially due to the intra-segment transfer of our Franklin, Virginia mill indirect costs that had previously been recorded in the North American Printing Papers business to the U.S. Market Pulp Business beginning in the third quarter. Also included were costs associated with pre-construction activities for the new fluff pulp project. Planned maintenance downtime costs were about $8 million higher. ~~Lack-of-order downtime decreased in 2010 to an immaterial amount compared with 58,000 tons in 2009.~~

In the first quarter of ~~2011,~~2012, sales volumes are expected to be about ~~flat.~~flat with the fourth quarter of 2011. Average sales price realizations are expected to ~~decrease reflecting~~stabilize during the first quarter, but will be down slightly compared with the fourth quarter of 2011 due to competitive ~~pressure on paper~~pressure. Input costs should increase for wood and ~~tissue pulp prices. Input~~chemicals. Planned maintenance downtime costs should be about ~~flat. Planned maintenance downtime costs~~$11 million higher than in the 2011 fourth quarter. Costs related to pre-construction and ramp-up of the new fluff pulp project at the Franklin mill will ~~be higher with outages planned during~~continue to grow in the first ~~quarter of 2011 at two mills compared with none in the fourth quarter of 2010.~~quarter.

Consumer Packaging

Demand and pricing for Consumer Packaging products correlate closely with consumer spending and general economic activity. In addition to prices and volumes, major factors affecting the profitability of Consumer Packaging are raw material and energy costs, freight costs, manufacturing efficiency and product mix.

Consumer Packagingnet sales in 2011 increased 9% from 2010 ~~increased 11%~~and 21% from ~~2009 and 6% from 2008.~~2009. Operating profits decreased ~~52% compared~~21% from 2010 and 62% from 2009. Excluding asset impairment and other charges associated with ~~2009, but increased significantly compared with 2008. Excluding~~the sale of the Shorewood business, alternative fuel mixture credits and facility closure costs, ~~2010~~2011 operating earnings were ~~21%~~69% higher than in ~~2009~~2010 and ~~were significantly higher~~more than double earnings in ~~2008.~~2009.

Benefits from higher sales ~~volumes and lower lack-of-order downtime ($76 million), higher sales~~ price realizations ($~~120~~133 million) ~~and~~, lower operating costs ($1377 million), a more favorable mix ($19 million) and other items ($22 million) were partially offset by the net impact of higher sales volumes and increased market-related downtime ($4 million), higher raw material and freight costs ($~~157~~83 million) and higher ~~other~~planned maintenance downtime costs ($157 million). In addition, operating profits in ~~2009~~2011 included ~~$330~~a $129 million ~~of alternative fuel mixture credits~~fixed asset impairment charge for the North American Shore-

wood business and ~~$67~~$72 million ~~of costs~~for other charges associated with the ~~permanent shutdown~~sale of the ~~Franklin, Virginia mill.~~Shorewood business.


*Consumer Packaging*
In millions	2010		2009		2008		2011		2010		2009
Sales	$	3,400	$	3,060	$	3,195	$	3,710	$	3,400	$	3,060
Operating Profit		207		433		17		163		207		433

North American Consumer Packagingnet sales were $2.5 billion in 2011 compared with $2.4 billion in 2010 ~~compared with~~and $2.2 billion in ~~2009 and $2.5 billion in 2008.~~2009. Operating earnings in ~~2010~~2011 were $35 million ($236 million excluding asset impairment and other charges associated with the sale of the Shorewood business) compared with $97 million ($105 million excluding facility closure costs) ~~compared with~~in 2010 and $343 million ($87 million excluding alternative fuel mixture credits and facility closure costs) in ~~2009 and $8 million ($38 million excluding facility closure costs) in 2008.~~2009.

Coated Paperboard sales volumes in 2011 were ~~higher in~~flat with 2010 ~~compared~~ with ~~2009 reflecting stronger market demand. Average sales price realizations improved as sales prices recovered~~volumes in the second half of the year lower than in the first half as a result of weaker market demand due to general economic conditions. Average sales price realizations were significantly higher due to price increases across all major product lines that were implemented in late 2010 ~~after declining~~and continuing during the first half of 2011. Input costs for wood decreased, but were more than offset by increased costs for chemicals and energy. Planned maintenance downtime costs were slightly higher, while manufacturing operating costs were favorable. Market-related downtime was about 38,000 tons in 2011 compared with approximately 17,000 tons in 2010.

Shorewood sales volumes were higher in 2011 than in 2010 primarily due to stronger performance in the Consumer and Tobacco segments in the second half of ~~2009. Raw material~~the year. Average margins were slightly improved reflecting higher input costs more than offset by improved productivity and quality. Operating earnings in 2011 included a $129 million charge and an $8 million non-controlling interest gain for wood, energy and chemicals were higher in 2010 and freight costs also increased. Operating costs were favorable and planned maintenance downtime costs were about even with 2009. The business took approximately 17,000 tons of lack-of-order downtime in 2010 compared with approximately 300,000 tons in 2009. Capacity in 2010 was reduced by 140,000 tons related to the shutdownan impairment of the paperboard machine at the Franklin, Virginia mill at the end of 2009. Operating results in 2009 include income of $330 million for alternative fuel mixture credits and $67 million of expenses for shutdown costsfixed assets for the ~~Franklin, Virginia mill.~~

North American Shorewood ~~sales volumes were lower in 2010 compared with 2009 primarily reflecting weaker demand in~~business and a charge of $78 million to reduce the ~~tobacco segment. Sales volumes in~~

carrying value of the ~~home entertainment segment in 2010 improved compared with 2009, largely due~~business based on the terms of the definitive agreement to a strong fourth quarter. Average sales margins increased reflecting a more favorable mix of products sold, but this benefit was offset by higher operating costs. Both raw material and freight costs were slightly higher. Charges to restructure operations were $8 million in 2010 compared with $7 million in 2009.sell the business.

Foodservice sales volumes increased in ~~2010~~2011 compared with ~~2009 with the majority of the growth coming from new customers and the sale of new products to existing customers.~~2010. Average sales ~~price realizations~~margins were lower in 2010 due to price decreases in the second half of 2009, but sales prices began to recover in the second half of 2010. Raw material costs were higher primarily for board and resins. Freight costs were significantly higher, but operating costs were lower.

~~Entering 2011, Coated Paperboard sales volumes in the first quarter are expected to be at about fourth-quarter levels. Average sales price realizations should be slightly~~ higher reflecting the ~~continued~~ realization of sales price increases ~~announced~~implemented in ~~2010.~~late 2010 and the first half of 2011 as well as a more favorable product mix. Raw material costs for ~~wood~~board and ~~energy are expected~~resins were higher. Operating costs were favorable, but were offset by increased distribution costs.

Looking ahead to ~~increase, but chemical costs should be lower. No planned maintenance downtime is scheduled for~~ the first ~~quarter. Shorewood~~quarter of 2012, Coated Paperboard sales volumes are expected to increase from the fourth quarter of 2011 across all major product lines, reflecting improved, although still weak, demand. Average sales price realizations are expected to be ~~lower reflecting seasonal decreases in home entertainment segment shipments. Operating~~about flat, but margins should benefit from a more favorable product mix. Input costs are expected to be ~~favorable,~~lower for chemicals, but higher for energy and ~~costs for raw materials and freight should be lower.~~wood. No planned maintenance outages are scheduled in the first quarter. Foodservice sales volumes are expected to be seasonally weaker. Average sales margins are expected to increase due to the realization of sales price ~~realizations~~increases effective with our January contract openers. Input costs for board and resin are expected to increase, but should be ~~about flat, while raw material costs should also remain at about fourth-quarter levels.~~offset by lower operating costs. The U.S. Shorewood business was sold December 31, 2011 and the non-U.S. business was sold in January 2012.

European Consumer Packagingnet sales in ~~2010~~2011 were ~~$345~~$375 million compared with $345 million 2010 and $315 million in ~~2009 and $300 million in 2008.~~2009. Operating earnings in ~~2010~~2011 were ~~$76~~$93 million compared with $76 million in 2010 and $66 million in ~~2009 and $22 million in 2008.~~2009. Sales volumes ~~were about flat year-over-year.~~in 2011 decreased from 2010. Average sales price realizations were higher in ~~2010 compared with 2009 in Poland~~both European and ~~Russia reflecting improving market conditions. Raw material~~Russian markets. Input costs increased significantly for wood, energy, and ~~energy.~~chemicals. Planned maintenance downtime costs were slightly higher in 2011 than in 2010.

Looking forward to ~~2011, sales volumes in~~ the first quarter of 2012, sales volumes are expected to increase in Europe, but be ~~slightly higher than~~about flat in ~~the fourth quarter of 2010.~~Russia. Average sales price realizations are expected to be higher in ~~Europe, but about flat in Russia. Input~~both regions. In Russia, input costs for wood ~~energy~~ and chemicals should ~~increase.~~be higher, but in Europe these costs should be lower. No ~~planned~~ maintenance outages are scheduled for the first ~~quarter of 2011.~~quarter.

Asian Consumer Packagingnet sales were $855 million in 2011 compared with $705 million in 2010 ~~compared with~~and $545 million in ~~2009 and $390 million in 2008.~~2009. Operating earnings in ~~2010~~2011 were ~~$34~~$35 million compared with $34 million in 2010 and $24 million in ~~2009 and a loss of $13 million~~2009. Sales volumes increased in ~~2008.~~2011 compared with 2010. Average sales price realizations were ~~significantly~~ higher ~~in 2010 particularly~~reflecting the realization of announced price increases for folding carton board and ~~coated~~ bristols ~~but~~board which were ~~largely offset~~driven by higher ~~raw material~~input costs ~~primarily~~ for pulp. ~~Sales volumes~~Operating costs were ~~higher reflecting solid market demand. Average margins improved due to a more favorable mix of products sold.~~favorable.

In the first quarter of ~~2011,~~2012, sales volumes are expected to ~~be about flat.~~decrease. Average sales price realizations ~~should improve, but~~for folding carton board and bristols board are expected to be ~~mostly offset by higher input costs.~~lower reflecting increased competitive pressures. Input costs should be lower for

pulp and chemicals, but utility costs should be slightly higher. Costs will also be incurred related to the ramp-up of the new coated paperboard machine.

Distribution

xpedx, our distribution business, ~~markets a diverse array~~is one of ~~products~~North America’s leading business-to-business distributors to manufacturers, facility managers and ~~supply chain services to customers in many business segments.~~printers, providing customized solutions that improve efficiency, reduce costs and deliver results. Customer demand is generally sensitive to changes in ~~general~~ economic conditions ~~although the commercial printing~~and consumer behavior, along with segment ~~is also dependent on~~specific activity including corporate advertising and promotional ~~spending.~~spending, government spending and domestic manufacturing activity. Distribution’s margins are relatively stable across an economic cycle. Providing customers with the best choice ~~and~~for value in both products and supply chain services is a key competitive factor. Additionally, efficient customer service, cost-effective logistics and focused working capital management are key factors in this segment’s profitability.


*Distribution*
In millions	2010		2009		2008		2011		2010		2009
Sales	$	6,735	$	6,525	$	7,970	$	6,630	$	6,735	$	6,525
Operating Profit		78		50		103		34		78		50

Distribution’s~~2010~~ 2011 annual sales decreased 2% from 2010, but increased 3%2% from ~~2009, but decreased 15% from 2008 while operating profits~~2009. Operating earnings in 2011 were $34 million ($86 million excluding reorganization costs) compared with $78 million in 2010 ~~increased 56% compared with 2009, but decreased 24% compared with 2008.~~and $50 million ($55 million excluding reorganization costs) in 2009.

Annual sales of printing papers and graphic arts supplies and equipment totaled $4.0 billion in 2011 compared with $4.2 billion in 2010 ~~compared with~~and $4.1 billion in 2009, ~~and $5.2 billion in 2008,~~ reflecting ~~weak economic conditions in 2009 and a slowly recovering 2010 market.~~declining demand. Trade margins as a percent of sales for printing papers were relatively even with 2010 and increased from 2009 ~~and 2008~~ due to a ~~relative increase~~relatively smaller decline in higher margin warehouse sales. Revenue from packaging products ~~was~~grew to $1.6 billion in 2011 compared with $1.5 billion in 2010 ~~compared with~~and $1.3 billion in ~~2009 and $1.7 billion in 2008, but packaging~~2009. Packaging margins declined slightly reflecting a

~~relative increase in orders shipped mill direct which trade at a lower margin.~~increasing sales of commodity products. Facility supplies annual revenue was $1.0 billion in ~~2010~~2011, compared with $1.0 billion in 2010 and $1.1 billion in ~~both~~ 2009 ~~and 2008~~ reflecting a drop in demand among retail customers.

Operating ~~profits~~earnings before reorganization costs in 2011 were ~~$78~~$8 million higher than in 2010 ~~compared with $50~~and $31 million higher than 2009. Reorganization initiatives resulted in ~~2009 and $103 million in 2008. Compared with 2009,~~ operating ~~profits improved due to~~ cost reductions which in turn contributed to the higher earnings.

Operating profits in 2011 included $52 million of reorganization costs for severance, professional services and ~~increased sales.~~asset write-downs. Operating profits in 2010 included costs of approximately $10 million related to exiting certain retail store and printing equipment segments, and for professional fees related to a strategic study of the xpedx business as a whole that will be evaluated during the first half of 2011. Operating profits in 2009 included a $5 million charge for costs associated with the reorganization of the Company’s xpedx operations in New Jersey.whole.

Looking ahead to the 2012 first quarter, ~~of 2011, sales volumes and earnings are expected to~~operating results will be seasonally lower, ~~and could be impacted by adverse weather conditions,~~ but ~~average sales margins are expected~~will continue to ~~improve. Operating costs are expected to decrease.~~

~~Forest Products~~

~~Forest Products operating results are driven by~~reflect the ~~timing and pricing~~benefits of ~~specific forestland tract sales.~~

Forest Products
In millions    2010      2009      2008
Sales
   $ 220         $ 45         $ 200
Operating Profit
   94         25         409

~~Operating profits in 2010 included a $39 million gain on~~ the sale of mineral rights on more than 7 million acres throughout the U.S and a gain of $50 million on the sale of 163,000 acres of land in the southeastern U.S. The Company has substantially completed its land sales and earnings for future land sales are expected to be insignificant. Beginning in 2011, Forest Products will no longer be reported as a separate industry segment.ongoing transformation.

Equity Earnings, Net of Taxes – Ilim Holding S.A.

OnSince October 5, 2007, International Paper and Ilim Holding S.A. ~~(“Ilim”) announced the completion of~~(Ilim) have operated a 50:50 joint venture ~~to operate~~ in Russia. Due to the complex organizational structure of Ilim’s operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company reports its share of Ilim’s operating results on a one-quarter lag basis. Accordingly, the accompanying consolidated statement of operations

for the twelve months ended December 31, ~~2010~~2011 includes the Company’s 50% share of Ilim’s operating results for the period from October 1, ~~2009~~2010 through September 30, ~~2010,~~2011, together with the results of other small equity investments, under the caption Equity earnings, net of taxes. Ilim is reported as a separate reportable industry segment.

The Company recorded equity earnings, net of taxes, related to Ilim of $153 million in 2011 compared with $55 million ~~for Ilim~~ in 2010 ~~compared with~~and an equity loss, net of taxes, of $50 million in ~~2009 and equity earnings, net~~2009. Operating results recorded in 2011 included an after-tax foreign exchange loss of ~~taxes,~~$14 million on the remeasurement of ~~$54 million in 2008.~~U.S. dollar-denominated debt. Operating results recorded in 2010 included an after-tax asset impairment charge of $22 million and an after-tax foreign exchange gain of $2 million on the remeasurement of U.S. dollar-denominated debt. Operating results recorded in 2009 included a $25 million after-tax foreign exchange loss on the remeasurement of U.S. dollar-denominated debt, a $19 million charge, before and after taxes, to write-off project development expenses, and a $5 million provision, before and after taxes, for the write-down of assets.

Sales volumes for the joint venture increased year-over-year for all major product lines, but primarily for pulp, ~~and containerboard,~~ reflecting strong market ~~demand.~~demand in export markets, particularly China, in the first half of the year. Average sales price realizations were ~~significantly~~ higher in ~~2010 than in 2009~~2011 for ~~softwood~~pulp and ~~hardwood pulp~~containerboard in both the Russian domestic market and in export markets, although prices fell sharply in the ~~Chinese export market as well as for linerboard.~~last quarter due to a weakening of demand in China. Input costs increased year-over-year, primarily for ~~wood.~~energy. The

Company received cash dividends from the joint venture of $86 million in 2011 and $33 million in ~~July 2010 and $51 million in December 2009.~~2010.

For Ilim’s ~~2010~~ fourth quarter, which will be reported in the Company’s ~~2011~~2012 first quarter, domestic Russian market demand is expected to ~~steadily improve throughout the quarter.~~remain slow. Average sales price realizations are expected to ~~increase for linerboard, while softwood and hardwood~~be lower reflecting the continued erosion of pulp prices ~~remain steady.~~and decreasing prices for linerboard. Input costs for wood will be seasonally ~~higher and fuel costs are also expected to increase. Operating costs are expected to be favorable, but~~higher. A maintenance outage will occur at the Koryazhma mill. The foreign exchange impact for the quarter is expected to be ~~unfavorable.~~unfavorable, but to a lesser extent than in the prior quarter.

~~A key element of the proposed~~The joint venture ~~strategy is~~initiated a long-term investment program in ~~which~~the second quarter of 2010 whereby the joint venture will invest, through cash from operations and additional borrowings by the joint venture, approximately $1.5 billion in Ilim’s three mills over approximately five years. This ~~planned~~ investment in the Russian pulp and paper industry ~~will be~~is being used to upgrade equipment, increase production capacity and allow for new high-value coated and uncoated paper, pulp and corrugated packaging product development. ~~This~~Ilim’s major capital ~~expansion strategy was initiated~~investments are in ~~the second quarter of 2010 with the announcement of~~ a ~~$670~~$700 million project to build a

new pulp line at Ilim’s Bratsk mill in Siberia, ~~followed~~and in ~~June by the announcement of~~ a $270 million project to ~~install~~construct a ~~new~~ coated and uncoated woodfree paper machine at the Koryazhma mill. Construction is expected to be completed in the last half of 2012 for each of these projects, followed by the planned start-up of the new production facilities in the fourth quarter. These projects are being financed through additional borrowings by the joint venture and cash flow from operations.

LIQUIDITY AND CAPITAL RESOURCES

Overview

A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our major products. While changes in key cash operating costs, such as energy, raw material and transportation costs, do have an effect on operating cash generation, we believe that our focus on cost controls has improved our cash flow generation over an operating cycle.

As part of our continuing focus on improving our return on investment, we have focused our capital spending on improving our key paper and packaging businesses both globally and in North America.

Cash uses during ~~2010~~2011 were primarily focused on voluntary contributions to the Company’s pension plan and higher capital ~~spending.~~spending as well as the APPM acquisition in India.

Cash Provided by Operations

Cash provided by continuing operations totaled $2.7 billion in 2011 compared with $1.6 billion infor 2010 ~~compared with~~and $4.7 billion for ~~2009 and $2.7 billion for 2008.~~2009.

The major components of cash provided by continuing operations are earnings from continuing operations adjusted for non-cash income and expense items and changes in working capital. Earnings from continuing operations, adjusted for non-cash income and expense items, ~~decreased~~increased by ~~$2.1~~$1.1 billion in ~~2010~~2011 versus ~~2009~~2010 driven mainly by ~~$1.7 billion of cash received from alternative fuel mixture credits~~approximately $900 million less in ~~2009.~~pension contributions in 2011. Cash used for working capital components, accounts receivable and inventory less accounts payable and accrued liabilities, interest payable and other totaled $505 million in 2011, $458 million in 2010, ~~down from~~and a source of $479 million in 2009 and a source of $317 million in 2008. The use of cash in 2010 primarily related to higher accounts receivable balances due to an increase in sales and higher inventory levels at year-end in anticipation of mill outages in the 2011 first quarter.2009.

The Company generated free cash flow of approximately $1.7 billion, $1.7 billion and $2.2 billion in 2011, 2010 and ~~$1.7 billion in 2010,~~ 2009, ~~and 2008,~~ respectively. Free cash flow is a

non-GAAP measure and the most comparable GAAP measure is cash provided by operations. Management uses free cash flow as a liquidity metric because it measures the amount of cash generated that is available to maintain our assets, make investments or acquisitions, pay dividends and reduce debt. The following ~~is a reconciliation~~are reconciliations of free cash flow to cash provided by operations:


In millions	2010			2009			2008			2011			2010			2009
Cash provided by operations	$	1,631		$	4,655		$	2,669		$	2,675		$	1,631		$	4,655
Less/Add:
Cash invested in capital projects		(775	)		(534	)		(1,002	)		(1,159	)		(775	)		(534	)
Cash contribution to pension plan, net of taxes		1,042			0			0
Cash received from European accounts receivable monetization		–			(205	)		–
Cash contribution to pension plan, net of tax refunds											300			1,042			0
Cash (received from) used for European accounts receivable securitization program											209			0			(205	)
Tax receivable collected related to pension contributions											(123	)		0			0
Cash received from unwinding a timber monetization											(175	)		0			0
Cash received from alternative fuel mixture credits		(132	)		(1,684	)		0			0			(132	)		(1,684	)
Reduction in cash taxes paid related to cellulosic bio-fuel tax credits		(17	)		0			0			0			(17	)		0
Free Cash Flow	$	1,749		$	2,232		$	1,667		$	1,727		$	1,749		$	2,232


*In millions*	Three Months Ended December 31, 2011			Three Months Ended September 30, 2011			Three Months Ended December 31, 2010
Cash provided by operations	$	637		$	876		$	1,044
Less/Add:
Cash invested in capital projects		(434	)		(315	)		(318	)
Cash contribution to pension plan, net of tax refunds		300			0			(108	)
Cash received from unwinding a timber monetization		(175	)		0			0
Reduction in cash taxes paid related to cellulosic bio-fuel tax credits		0			0			(17	)
Free Cash Flow	$	328		$	561		$	601

Alternative Fuel Mixture Credits

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. For the year ended December 31, 2009, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 through October 25, 2009 totaling approximately $1.7 billion, all of which had been received in cash at December 31, 2009. Additionally, the Company recorded $379 million of alternative fuel mixture credits as a reduction of income taxes payable at December 31, 2009. The Company recorded these credits using the accrual method of accounting based on the estimated eligible volumes reflected in its filed claims. Accordingly, the accompanying consolidated statement of operations includes credits of approximately $2.1 billion for the year ended December 31, 2009 in Cost of products sold ($1.4 billion after taxes), representing eligible alternative fuel mixture credits earned through December 31, 2009, when the credit expired.

Cellulosic Bio-fuel Tax Credit

In a memorandum dated June 28, 2010, the IRS concluded that black liquor would also qualify for the cellulosic bio-fuel tax credit of $1.01 per gallon produced in 2009. On October 15, 2010, the IRS ruled

that companies may qualify in the same year for both the $0.50 per gallon alternative fuel mixture credit and the $1.01 cellulosic bio-fuel tax credit for 2009, but not for the same ~~gallons.~~gallons produced and consumed. To the extent a taxpayer changes ~~their~~its position and ~~uses~~elects the $1.01 credit, ~~they~~it must re-pay the refunds ~~they~~ received as alternative fuel mixture credits attributable to the gallons converted to the cellulosic bio-fuel credit. The repayment of this refund must include interest.

One important difference between the two credits is that the $1.01 credit must be credited against a company’s Federal ~~taxable earnings,~~tax liability, and the credit may be carried forward ~~against taxable earnings~~ through 2015. In contrast, the $0.50 credit was refundable in cash. The cellulosic bio-fuel credit is required to be included in Federal taxable income.

The Company filed an application with the IRS on November 18, 2010, to receive the required registration code to become a registered cellulosic bio-fuel producer. ~~At present, the~~The Company ~~has not~~ received this registration ~~code; however, the Company believes approval of the application for the registration~~ code ~~to be ministerial in nature.~~on February 28, 2011.

The Company has evaluated the optimal use of the two credits with respect to gallons produced in 2009. Considerations include uncertainty around future federal taxable income, the taxability of the alternative fuel mixture credit, future liquidity and uses of cash such as, but not limited to, acquisitions, debt ~~re-payments~~repayments and voluntary pension contributions versus repayment of alternative fuel mixture credits with interest. At the present time, the Company does not intend to convert any gallons under the alternative fuel mixture credit to gallons under the cellulosic bio-fuel credit. ~~The~~On July 19, 2011, the Company ~~will continue evaluating~~filed an amended 2009 tax return claiming alternative fuel mixture tax credits as non-taxable. If that amended position is not upheld, the Company would reevaluate its position with regard to ~~the previously claimed~~ alternative fuel mixture ~~credit~~ gallons produced in 2009. This continued evaluation may result in the Company repaying some or all of the cash received with respect to the $0.50 credit, and amendment of the Company’s 2009 tax return. Due to the aforementioned considerations, the Company cannot quantify the value of additional cellulosic bio-fuel credits, but it could be significant.

During 2009, the Company ~~did produce~~produced 64 million gallons of black liquor that were not eligible for the alternative fuel mixture credit. The Company ~~does intend to claim~~claimed these gallons for the cellulosic bio-fuel credit by amending the Company’s 2009 tax return. The impact of this amendment ~~is a net $40 million credit to~~was included in the Company’s 2010 Income tax provision (benefit) ~~for 2010.~~, resulting in a $40 million net credit to tax expense.

As is the case with other tax credits, taxpayer claims are subject to possible future review by the IRS which has the authority to propose adjustments to the amounts claimed, or credits received.

Investment Activities

Investment activities in ~~2010~~2011 were up from ~~2009~~2010 reflecting an increase in capital spending and the acquisition of ~~SCA Packaging Asia.~~APPM in India. The Company maintains an average capital spending target of $1.0 billion per year over the course of an economic cycle. Capital spending for continuing operations was $1.2 billion in 2011, or 87% of depreciation and amortization, compared with $775 million in 2010, or 53% of depreciation and amortization, ~~compared with~~and $534 million, ~~in 2009,~~ or 36% of depreciation and amortization ~~and $1.0 billion, or 74% of depreciation and amortization~~ in ~~2008.~~2009. Across our businesses, capital spending as a percentage of depreciation and amortization ranged from ~~38%~~57% to ~~70%~~144% in ~~2010.~~2011.

The following table shows capital spending for continuing operations by business segment for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008.~~2009.


In millions	2010		2009		2008		2011		2010		2009
Industrial Packaging	$	301	$	183	$	282	$	426	$	301	$	183
Printing Papers		283		218		383		364		283		218
Consumer Packaging		159		126		287		310		159		126
Distribution		5		6		9		8		5		6
Forest Products		3		1		2		0		3		1
Subtotal		751		534		963		1,108		751		534
Corporate and other		24		0		39		51		24		0
Total from continuing operations	$	775	$	534	$	1,002	$	1,159	$	775	$	534

Capital expenditures in ~~2011~~2012 are currently expected to be about ~~$1.2 to $1.3~~$1.5 billion, or ~~86% to 93%~~102% of depreciation and ~~amortization.~~amortization, including spending at the legacy Temple-Inland facilities.

Acquisitions

On February 13, 2012, upon regulatory approval, International Paper completed the previously announced acquisition of Temple-Inland. International Paper acquired all of the outstanding common stock of Temple-Inland for $32.00 per share in cash and assumed approximately $700 million of Temple-Inland’s debt. The total transaction is valued at approximately $4.5 billion. As a condition to allowing the transaction to proceed, the Antitrust Division of the U.S. Department of Justice entered into an agreement with the Company that requires us to divest three containerboard mills, with approximately 970,000 tons of aggregate containerboard capacity, within four months of closing (with the possibility of two 30-day extensions).

The combination brings together two strong North American corrugated packaging businesses to create

an even stronger company and is consistent with International Paper’s focus on achieving and sustaining cost of capital returns throughout the cycle.

International Paper will account for the acquisition under ASC 805, “Business Combinations” and Temple-Inland’s results of operations will be included in International Paper’s consolidated financial statements for periods ending after the date of acquisition. Given the date of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed. The Company anticipates providing a preliminary purchase price allocation and a qualitative description of factors that make up goodwill to be recognized in our Form 10-Q to be filed on or before May 10, 2012.

On October 14, 2011, International Paper completed the acquisition of a 75% interest in Andhra Pradesh Paper Mills Limited (APPM). The Company purchased 53.5% of APPM’s outstanding shares from the controlling shareholders for approximately $226 million in cash plus assumed debt from private investors. These sellers have also entered into a covenant not to compete for which they received a cash payment of $58 million. International Paper also acquired an additional 21.5% of the outstanding shares of APPM in a public tender offer completed on October 8, 2011 for approximately $105 million in cash. International Paper recognized an unfavorable currency transaction loss of $9 million due to strengthening of the dollar against the Indian Rupee prior to the closing date, resulting from cash balances deposited in Indian Rupee denominated escrow accounts.

International Paper has appealed a direction from the Securities and Exchange Board of India (SEBI) that International Paper pay to the tendering shareholders the same non-compete payment that was paid to the previous controlling shareholders. The appeal is still pending, and International Paper has deposited approximately $25 million into an escrow account to fund the additional non-compete payments in the event SEBI’s direction is upheld. The November 2011 appeal disclosed in the third quarter was delayed on several occasions and the hearing on the appeal has been extended indefinitely pending the appointment of a presiding officer on the Indian Securities Appellate Tribunal. APPM is one of the leading integrated paper manufacturers in India, with two mills that have a combined capacity of about 250,000 tonnes of uncoated freesheet papers annually. This transaction positions International Paper as the first global paper and packaging company with a significant position in India’s fast grow-

ing economy. Both APPM and the India paper and packaging industry are growing at substantial rates, and this acquisition, along with International Paper’s global operations and technical expertise, can accelerate that growth and create value for International Paper.

On June 30, 2010, International Paper completed the acquisition of SCA Packaging Asia (SCA) for a preliminary purchase price of $205 million, including $171 million in cash plus assumed debt of $34 ~~million, subject to post-closing adjustments.~~million. The SCA packaging business in Asia consists of 13 corrugated box plants and two specialty packaging facilities, which are primarily in China, along with locations in Singapore, Malaysia and Indonesia.

Joint Ventures

On ~~August 4, 2008,~~April 15, 2011, International Paper ~~completed~~and Sun Paper Industry Co. Ltd. entered into a Cooperative Joint Venture agreement to establish Shandong IP & Sun Food Packaging Co., Ltd. in China. During December 2011, the ~~acquisition~~business license was obtained and International Paper contributed $55 million in cash for a 55% interest in the joint venture and Sun Paper Industry Co. Ltd. contributed land-use rights valued at approximately $33 million, representing a 45% interest. The purpose of the ~~assets~~joint venture is to build and operate a new production line to manufacture coated paperboard for food packaging with a designed annual production capacity of ~~Weyerhaeuser Company’s Containerboard, Packaging~~400,000 tons. The financial position and ~~Recycling (CBPR) business for approximately $6 billion in cash, subject to post-closing adjustments. In June 2008, the Company had issued $3 billion~~results of

~~unsecured senior notes in anticipation~~ operations of the acquisition. The remainder of the purchase price was financed through borrowings under a $2.5 billion bank term loan, $0.4 billion of borrowings under a receivables securitization program and existing cash balances. The CBPR operating results arethis joint venture have been included in International Paper’s ~~North American Industrial Packaging business~~consolidated financial statements from the date of ~~acquisition.~~formation in December 2011.

Additionally, during 2011 the Company recorded a gain of $7 million (before and after taxes) related to a bargain purchase price adjustment on an acquisition by our joint venture in Turkey. This gain is included in equity earnings (losses), net of taxes in the accompanying consolidated statement of operations.

Financing Activities

2011: Financing activities during 2011 included debt issuances of $1.8 billion and retirements of $517 million, for a net increase of $1.3 billion.

In November 2011, International Paper issued $900 million of 4.75% senior unsecured notes with a maturity date in February 2022 and $600 million of 6% senior unsecured notes with a maturity date in November 2041. Subsequent to the balance sheet date, in February 2012, International Paper issued a $1.2 billion term loan with an interest rate of LIBOR

plus 138 basis points and a $200 million term loan with an interest rate of LIBOR plus 175 basis points, both with maturity dates in 2017. The proceeds from these borrowings were used, along with available cash, to fund the acquisition of Temple-Inland.

In the third quarter of 2011, approximately $464 million of fixed-to-floating interest rate swaps were terminated. These terminations were not in connection with early debt retirements. The resulting $27 million gain was deferred and will be amortized over the life of the associated debt.

During the fourth, third and second quarters of 2011, International Paper had no early debt extinguishment.

During the first quarter of 2011, International Paper repaid approximately $129 million of notes with interest rates ranging from 6.20% to 9.375% and original maturities from 2018 to 2025. Pre-tax early debt retirement costs of $32 million related to these debt repayments, net of gains on previous swap terminations, are included in Restructuring and other charges in the accompanying consolidated statement of operations.

International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense. At December 31, 2011, International Paper had interest rate swaps with a total notional amount of $150 million and maturities in 2013 (see Note 13 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data). During 2011, existing swaps decreased the weighted average cost of debt from 7.1% to an effective rate of 6.9%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 6.26%.

Other financing activities during 2011 included the issuance of approximately 0.3 million shares of treasury stock for various incentive plans and the acquisition of 1.0 million shares of treasury stock primarily related to restricted stock tax withholding. Payment of restricted stock withholding taxes totaled $30 million.

In March 2011, International Paper announced that the quarterly dividend would be increased from $0.1875 per share to $0.2625 per share, effective for the 2011 second quarter. In January 2011, International Paper announced that the quarterly dividend would be increased from $0.125 per share to $0.1875 per share, effective for the 2011 first quarter.

2010: Financing activities during 2010 included debt issuances of $193 million and retirements of $576 million, for a net reduction of $383 million.

In November 2010, International Paper repaid approximately $54 million of notes with interest rates ranging from 7.3% to 9.375% and original maturities from 2018 to 2039. Pre-tax early debt retirement costs of $13 million related to these debt payments are included in Restructuring and other charges in the accompanying consolidated statement of operations.

During the third quarter ended September 30, 2010, International Paper repaid approximately $111 million of notes with interest rates ranging from 5.375% to 6.8% and original maturities from 2016 to 2024.

In May 2010, International Paper repaid approximately $108 million of notes with interest rates ranging from 5.3% to 9.375% and original maturities from 2015 to 2019. In connection with these early debt extinguishments, interest rate swap hedges with a notional value of $2 million were undesignated as effective fair value hedges. The resulting gain was immaterial. Pre-tax early debt retirement costs of $18 million related to these debt repayments, net of gains on swap terminations, are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In June 2010, interest rate swap agreements issued in the fourth quarter of 2009 and designated as fair value hedges with a notional value of $100 million were terminated. The termination was not in connection with the early retirement of debt. The resulting gain of $3 million was deferred and recorded in Long-term debt and will be amortized as an adjustment of interest expense over the life of the underlying debt through 2019.

During the first quarter of 2010, International Paper repaid approximately $120 million of notes with interest rates ranging from 5.25% to 7.4% and original maturities from 2010 to 2027. In connection with these early debt retirements, previously deferred gains of $1 million related to earlier swap terminations were recognized in earnings. Pre-tax early

debt retirement costs of $4 million related to these debt repayments, net of gains on swap terminations, are included in Restructuring and other charges in the accompanying consolidated statement of operations.

Also in the first quarter of 2010, approximately $700 million of fixed-to-floating interest rate swaps, issued

in 2009, were terminated. These terminations were not in connection with early debt retirements. The resulting $2 million gain was deferred and recorded in Long-term debt and is being amortized as an adjustment of interest expense over the life of the underlying debt through April 2015.

~~International Paper utilizes interest rate swaps to change the mix of fixed and variable rate debt and manage interest expense.~~ At December 31, 2010, International Paper had interest rate swaps with a total notional amount of $428 million and maturities ranging from one to six years. During 2010, existing swaps increased the weighted average cost of debt from 7.22% to an effective rate of 7.26%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 6.86%.

Other financing activities during 2010 included the issuance of approximately 2.6 million shares of treasury stock, net of restricted stock withholding, and 1.8 million shares of common stock for various plans. Payments of restricted stock withholding taxes totaled $26 million.

In April 2010, International Paper announced that the quarterly dividend would be increased from $0.025 per share to $0.125 per share, effective for the 2010 second quarter. Additionally, in January 2011, International Paper announced that the quarterly dividend would be increased from $0.125 per share to $0.1875 per share, effective with the dividend payable March 15, 2011 to shareholders of record on February 15, 2011.

2009:Financing activities during 2009 included debt issuances of $3.2 billion and retirements of $6.3 billion, for a net reduction of $3.1 billion.

In December 2009, International Paper issued $750 million of 7.3% senior unsecured notes with a maturity date in November 2039. The proceeds from this borrowing, along with available cash, were used to repay the remaining $1 billion of the $2.5 billion long-term debt issued in connection with the CBPR business acquisition. During 2009, additional payments related to this debt totaled approximately $1.4

billion. Also in connection with the above debt repayment, International Paper undesignated $1 billion of interest rate swaps entered into in 2008 that qualified as cash flow hedges, resulting in a $24 million loss. This loss was reclassified from Accumulated other comprehensive loss and included in Restructuring and other charges in the accompanying consolidated statement of operations.

Also in the fourth quarter of 2009, the Company entered into various fixed-to-floating interest rate swap agreements with a notional amount of approximately $1 billion to hedge existing debt. These interest rate swaps mature within a range of five to ten years.

In December 2009, International Paper Investments (Luxembourg) S.a.r.l, a wholly-owned subsidiary of International Paper, repaid $214 million of notes with an interest rate of LIBOR plus 40 basis points and an original maturity in 2010. Other debt activity in the fourth quarter of 2009 included the repayment of approximately $235 million of notes with interest rates ranging from 4.0% to 9.375% and original maturities from 2009 to 2038.

Additional pre-tax early debt retirement costs of $34 million related to fourth-quarter debt repayments and swap activity are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In August 2009, International Paper issued $1 billion of 7.5% senior unsecured notes with a maturity date in August 2021. The proceeds from this borrowing were used to repay approximately $942 million of notes with interest rates ranging from 5.125% to 7.4% and original maturities from 2012 to 2026.

Also during the third quarter in connection with these early debt retirements, interest rate swaps with a notional value of $520 million, including $500 million of swaps issued in the second quarter of 2009, were terminated or undesignated as effective fair value hedges, resulting in a gain of approximately $9 million. In addition, previously deferred net gains of $7 million related to earlier swap terminations were recognized in earnings. Pre-tax early debt retirement costs of $102 million related to these debt repayments, net of the gains on swap terminations, are included in Restructuring and other charges in the accompanying consolidated statement of operations.

Also in August 2009, International Paper entered into a fixed-to-floating interest rate swap agreement with a notional amount of $100 million due in 2015 to manage interest rate exposure.

In May 2009, International Paper issued $1 billion of 9.375% senior unsecured notes with a maturity date in May 2019. The proceeds from this borrowing were used to repay approximately $875 million of notes with interest rates ranging from 4.0% to 9.25% and original maturities from 2010 to 2012. Also during the second quarter, International Paper Company Europe Ltd, a wholly-owned subsidiary of International Paper, repaid $75 million of notes issued in connection with the Ilim Holding S.A. joint venture that matured during the quarter. Pre-tax early debt retirement costs of $25 million related to second quarter debt repayments and swap activity are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In March 2009, Luxembourg borrowed $468 million of long-term debt with an initial interest rate of LIBOR plus a margin of 450 basis points that varied depending upon the credit rating of the Company, and a maturity date in March 2012. International Paper used the $468 million of proceeds from the loan and cash of approximately $170 million to repay its 500 million euro-denominated debt (equivalent to $638 million at date of payment) with an original maturity date in August 2009. As of the end of the third quarter of 2009, the $468 million loan was repaid. Other debt activities in the first quarter of 2009 included the repayment of approximately $366 million of notes with interest rates ranging from 4.25% to 5.0% that had matured.

Also in the first quarter of 2009, International Paper terminated an interest rate swap with a notional value of $100 million designated as a fair value hedge, resulting in a gain of $11 million that was deferred and recorded in Long-term debt in the accompanying consolidated balance sheet. As the swap agreement was terminated early, the resulting gain will be amortized to earnings over the life of the related debt through April 2016.

At December 31, 2009, International Paper had interest rate swaps with a total notional amount of $3.2 billion and maturities ranging from one to nine years. During 2009, existing swaps increased the weighted average cost of debt from 6.55% to an effective rate of 6.67%. The inclusion of the offsetting interest income from short-term investments reduced this effective rate to 6.36%.

Other financing activities during 2009 included the issuance of approximately 2.2 million shares of treasury stock, net of restricted stock withholding, and 3.5 million shares of common stock for various plans. Payments of restricted stock withholding taxes totaled $10 million.

~~2008:Financing activities during 2008 included debt issuances of $6.0 billion and retirements of $696 million, for a net issuance of $5.3 billion.~~

In August 2008, International Paper borrowed $2.5 billion of long-term debt with an initial interest rate of LIBOR plus a margin of 162.5 basis points. The margin varied depending upon the credit rating of the Company. Debt issuance costs of approximately $50 million related to this borrowing were recorded in Deferred charges and other assets in the accompanying consolidated balance sheet and were being amortized until the debt was repaid in 2009. Also in August 2008, International Paper borrowed approximately $395 million under its receivables securitization program. These funds, together with the $3 billion from unsecured senior notes borrowed in the second quarter discussed below and other available cash, were used for the CBPR business acquisition in August 2008. As of December 31, 2008, all of the borrowings under the receivables securitization program were repaid.

Also in the third quarter of 2008, International Paper repaid $125 million of the $2.5 billion long-term debt and repurchased $63.5 million of notes with interest rates ranging from 4.25% to 8.70% and original maturities from 2009 to 2038.

The Company also entered into a series of forward-starting floating-to-fixed interest rate swap agreements with a notional amount of $1.5 billion in anticipation of borrowing for the purchase of the CBPR business. The floating-to-fixed interest rate swaps were effective September 2008 and matured in September 2010. These forward-starting interest rate swaps were accounted for as cash flow hedges in accordance with ASC 815. In the fourth quarter of 2008, the Company terminated $550 million of these floating-to-fixed interest rate swap agreements resulting in a loss of approximately $17 million recorded in Accumulated other comprehensive loss in the accompanying consolidated balance sheet (see Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).

In the second quarter of 2008, International Paper issued $3 billion of unsecured senior notes consisting of $1 billion of 7.4% notes due in 2014, $1.7 billion of 7.95% notes due in 2018, and $300 million of 8.7% notes due in 2038. Debt issuance costs of approximately $20 million related to the new debt were recorded in Deferred charges and other assets in the accompanying consolidated balance sheet and were amortized over the terms of the respective notes.

Also in the second quarter of 2008, International Paper entered into a series of fixed-to-floating interest rate swap agreements, with a notional amount of $1 billion and maturities in 2014 and 2018, to manage interest rate exposures associated with the new $3 billion of unsecured senior notes. These interest rate swaps were terminated in December 2008 along with other existing fixed-to-floating interest rate swaps, resulting in a gain of $127 million that was deferred and recorded in Long-term debt in the accompanying consolidated balance sheet. This gain will be amortized over the life of the related debt through June 2018 (see Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).

At December 31, 2008, International Paper had interest rate swaps with a total notional amount of $1.4 billion and maturities ranging from one to eight years. During 2008, existing swaps decreased the weighted average cost of debt from 6.41% to an effective rate of 6.07%. The inclusion of the offsetting interest income from short-term investments further reduced this effective rate to 5.21%.

Other financing activities during 2008 included the issuance of approximately 2.4 million shares of treasury stock for various incentive plans, including stock option exercises that generated approximately $1 million of cash and restricted stock that did not generate cash. Payments of restricted stock withholding taxes totaled $47 million.

Off-Balance Sheet Variable Interest Entities

~~During 2006 in~~In connection with the 2006 sale of approximately 5.6 million acres of forestlands, ~~under the Company’s 2006 Transformation Plan, the Company exchanged~~International Paper received installment notes (the Timber Notes) totaling approximately $4.8 ~~billion~~billion. The Timber Notes, which do not require principal payments prior to their August 2016 maturity, are supported by irrevocable letters of credit obtained by the buyers of the forestlands.

During 2006, International Paper contributed the Timber Notes to newly formed entities (the Borrower Entities) in exchange for Class A and Class B inter-

ests in these entities. Subsequently, International Paper contributed its $200 million Class A interests in the Borrower Entities, along with approximately $400 million of International Paper promissory notes, to other newly formed entities (the Investor Entities, and together with the Borrower Entities, the Entities) in exchange for Class A and Class B interests in ~~entities formed to monetize the notes. International Paper determined that it was not the primary beneficiary of~~ these entities, and ~~therefore should~~simultaneously sold its Class A interest in the Investor Entities to a third party investor. As a result, at December 31, 2006, International Paper held Class B interests in the Borrower Entities and Class B interests in the Investor Entities valued at approximately $5.0 billion. International Paper has no obligation to make any further capital contributions to these Entities and did not ~~consolidate these entities. During~~provide any financial support that was not previously contractually required for the years ended December 31, 2011, 2010 or 2009.

Following the 2006 ~~these~~sale of forestlands and creation of the Entities discussed above, the Timber Notes were used as collateral for borrowings from a third party lender, which effectively monetized the Timber Notes. Certain provisions of the respective loan agreements require any bank issuing letters of credit supporting the Timber Notes to maintain a credit rating above a specified threshold. In the event the credit rating of a letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days by letters of credit from a qualifying institution. The Company, retained to provide management services for the third-party entities that hold the Timber Notes, has, as required by the loan agreements, successfully replaced banks that fell below the specified threshold.

Also during 2006, the Entities acquired ~~an additional~~approximately $4.8 billion of International Paper debt ~~securities~~obligations for cash, resulting in a total of approximately $5.2 billion of International Paper debt obligations held by ~~these entities~~the Entities at December 31, 2006. ~~Since~~The various agreements entered into in connection with these transactions provide that International Paper has, and intends to ~~affect,~~effect, a legal right to offset its ~~obligations~~obligation under these debt instruments with its investments in the ~~entities,~~Entities. Accordingly, for financial reporting purposes, International Paper has offset ~~$5.1~~approximately $5.2 billion of ~~interest~~Class B interests in the ~~entities~~Entities against ~~$5.1~~$5.2 billion of International Paper debt obligations held by ~~the entities as of~~these Entities at December 31, 2011 and 2010. Despite the offset treatment, these remain debt obligations of International Paper. Remaining borrowings of $92 million and $129 million at December 31, 2011 and 2010, ~~and 2009.~~respectively, are included in floating rate notes due 2011 – 2017 in the summary of long-term debt in Note 12. Additional debt related to the above trans-

action of $38 million is included in short-term notes in the summary of long-term debt in Note 12 for both 2011 and 2010.

On February 5, 2010, Moody’s Investor Services reduced its credit rating of senior unsecured long-term debt of the Royal Bank of Scotland N.V. (formerly ABN AMRO Bank N.V.), which issued letters of credit that support $1.4 billion of ~~installment notes received in connection with~~ the ~~Company’s 2006 sale of forestlands discussed above. Following this sale,~~Timber Notes, below the ~~installment notes were contributed to third-party entities that used them as collateral for borrowings from a third-party lender.~~specified threshold. The ~~related loan agreements require that if the credit rating of any bank issuing~~ letters of credit ~~is downgraded below a specified level, these letters of credit must be~~were successfully replaced ~~within 60 days by~~with letters of credit from another qualifying institution.

On October 7, 2011, Moody’s Investor Services reduced its credit rating of senior unsecured long-term debt of the Royal Bank of Scotland Group Plc, which issued letters of credit that support $1.6 billion of the Timber Notes, below the specified threshold. Letters of credit worth $842 million were successfully replaced with letters of credit from other qualifying institutions. The Company ~~retained to provide management services~~and a third party managing member instituted a replacement waiver for the ~~third-party entities~~remaining $797 million.

On November 29, 2011, Standard & Poors reduced its credit rating of senior unsecured long-term debt of Lloyds TSB Bank Plc, which issues letters of credit that ~~hold~~support $1.2 billion of the ~~installment notes,~~Timber Notes, below the specified threshold. The letters of credit were successfully replaced with letters of credit from another qualifying institution.

On January 23, 2012, Standard & Poors reduced its credit rating of senior unsecured long-term debt of Société Générale SA, which issues letters of credit that support $666 million of the Timber Notes, below the specified threshold. The Company expects that the replacement of the letters of credit will be completed within the required 60-day period.

Activity between the Company and the Entities was as follows:


In millions	2011		2010		2009
Revenue (loss) (a)	$	49	$	42	$	112
Expense (a)		79		79		150
Cash receipts (b)		28		32		96
Cash payments (c)		79		82		190

(a)

The net expense related to the Company’s interest in the Entities is included in Interest expense, net in the accompanying consolidated statement of operations, as International Paper has and intends to effect its legal right to offset as discussed above.

(b)

The cash receipts are equity distributions from the Entities to International Paper.

(c)

The semi-annual payments include both interest and principal on the associated debt obligations discussed above.

Based on an analysis of the Entities discussed above under guidance that considers the potential magni-

tude of the variability in the structures and which party has a controlling financial interest, International Paper determined that it is not the primary beneficiary of the Entities, and therefore, should not consolidate its investments in these entities. It was also determined that the source of variability in the structure is the value of the Timber Notes, the assets most significantly impacting the structure’s economic performance. The credit quality of the Timber Notes is supported by irrevocable letters of credit obtained by third party buyers which are 100% cash collateralized. International Paper analyzed which party has control over the economic performance of each entity, and concluded International Paper does not have control over significant decisions surrounding the Timber Notes and letters of credit and therefore is not the primary beneficiary. The Company’s maximum exposure to loss equals the value of the Timber Notes; however, an analysis performed by the Company concluded the likelihood of this exposure is remote.

International Paper also ~~holds~~held variable interests in two financing entities that were used to monetize long-term notes received from the sale of forestlands in 2001 and 2002. International Paper transferred notes (the Monetized ~~Notes,~~Notes), with an original maturity of 10 years from ~~inception)~~inception and cash having a value of approximately $1.0 billion to these entities in exchange for preferred interests, and accounted for the transfers as a sale of the notes with no associated gain or loss. In the same period, the entities acquired approximately $1.0 billion of International Paper debt obligations for cash. ~~At December 31, 2010, International Paper’s $542 million preferred interest in one of the entities has been offset against related debt obligations since~~ International Paper has no obligation to make any further capital contributions to these entities and ~~intends to affect, a legal right of offset to net-settle these two amounts.~~did not provide any financial support that was not previously contractually required during the years ended December 31, 2011, 2010 or 2009.

Activity between the Company and the 2001 financing entities was as follows:


In millions	2011		2010			2009
Revenue (loss) (a)	$	1	$	(1	)	$	1
Expense (a)		3		12			13
Cash receipts (b)		0		4			8
Cash payments (c)		3		12			22

(a)

The net expense related to the Company’s interest in the 2001 financing entities is included in Interest expense, net in the accompanying consolidated statement of operations, as International Paper has and intends to effect its legal right to offset as discussed above.

(b)

The cash receipts are equity distributions from the 2001 financing entities to International Paper.

(c)

The cash payments include both interest and principal on the associated debt obligations.

The 2001 Monetized Notes of $499 million ~~the 2001~~matured on March 16, 2011. Following their maturity, International Paper ~~debt obligations of $563 million, and $167 million of~~purchased the ~~2002 Monetized Notes, mature in March, June, and the second half of 2011, respectively. International Paper intends to liquidate its~~Class A preferred interest in the 2001 financing entities from an external third party for $21 million. As a result of the purchase, effective March 16, 2011, International Paper owned 100% of the 2001 financing entities. ~~The~~Based on an analysis performed by the Company after the purchase, under guidance that considers the potential magnitude of the variability in the structure and which party has a controlling financial interest, International Paper determined that it was the primary beneficiary of the 2001 financing entities ~~preferred interest liquidation will reduce~~and thus consolidated the entities effective March 16, 2011.

Due to the maturity of the 2001 Monetized Notes ~~Payable~~and consolidation of the 2001 financing entities, Notes payable and current maturities of long-term debt decreased by $21 million in the first quarter of 2011. Deferred tax liabilities associated with the 2001 ~~forestland~~forestlands sales ~~will be reduced~~decreased by ~~$155~~$164 million. Effective April 30, 2011, International Paper liquidated its interest in the 2001 financing entities.

The Company retained no interest in the 2001 financing entities at December 31, 2011, but retained a preferred interest in the entities of $542 million at December 31, 2010, which was offset against related debt obligations since International Paper had, and intended to effect, a legal right of offset to net-settle these two amounts. Outstanding debt related to the 2001 financing entities of $2 million is included in short-term notes, and $19 million is included in floating rate notes due 2011-2017 in the summary of long-term debt in Note 12 for 2010.

Activity between the Company and the 2002 financing entities was as follows:


In millions	2011		2010		2009
Revenue (loss) (a)	$	2	$	5	$	6
Expense (b)		3		8		11
Cash receipts (c)		192		3		4
Cash payments (d)		244		8		9

(a)

The revenue is included in Equity earnings (losses) in the accompanying consolidated statement of operations.

(b)

The expense is included in Interest expense, net in the accompanying consolidated statement of operations.

(c)

The cash receipts are equity distributions from the 2002 financing entities to International Paper and cash receipts from the maturity of the 2002 Monetized Notes.

(d)

The payments include both interest and principal on the associated debt obligations.

On May 31, 2011, the third-party equity holder of the 2002 financing entities retired its Class A interest in the entities for $51 million. As a result of the ~~liquidation.~~retirement, effective May 31, 2011, International Paper owns 100% of the 2002 financing entities. Based on an analysis performed by the Company after the retirement, under guidance that considers the potential magnitude of the variability in the structure and which party has controlling financial interest, International Paper determined that it is the primary beneficiary of the 2002 financing entities and thus consolidated the entities effective May 31, 2011.

Due to the consolidation of the 2002 financing entities, Notes payable and current maturities of long-term debt increased $165 million and Long-term debt decreased $211 million. In addition, Investments decreased $486 million due to the elimination of the Company’s variable interest in the 2002 financing entities, while Accounts and notes receivable, net increased $441 million due to the consolidation of the 2002 Monetized Notes.

During the year ended December 31, 2011, approximately $191 million of the 2002 Monetized Notes matured. As a result of the maturities, Accounts and notes receivable, net and Notes payable and current maturities of long-term debt decreased $191 million and Deferred tax liabilities associated with the 2002 forestlands sales decreased $50 million.

Outstanding debt related to the 2002 financing entities of $2 million is included in short-term notes in the summary of long-term debt in Note 12 at December 31, 2010. Additional debt related to these entities of $158 million and $445 million is included in floating rate notes due 2011 to 2017 in the summary of long-term debt in Note 12 at December 31, 2011 and 2010, respectively. The Company retained no investment interest in the 2002 financing entities at December 31, 2011 but retained an interest of $486 million at December 31, 2010, which is ~~currently analyzing~~included in Investments in the ~~cash impact~~accompanying consolidated balance sheet. The 2002 Monetized Notes of $252 million are included in Accounts and notes receivable, net in the accompanying consolidated balance sheet at December 31, 2011.

The use of the ~~liquidation, but does not expect it~~above entities facilitated the monetization of the credit enhanced Timber and Monetized Notes in a cost effective manner by increasing the borrowing capacity and lowering the interest rate while continuing to ~~significantly impact liquidity.~~preserve the tax deferral that resulted from the forestlands installment sales and the offset accounting treatment described above.

See Note 11 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for a further discussion of these transactions.

Liquidity and Capital Resources Outlook for ~~2011~~2012

Capital Expenditures and Long-Term Debt

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during ~~2011~~2012 through current cash balances and cash from operations. Additionally, the Company has existing credit facilities ~~totalling~~totaling $2.5 billion.

The Company was in compliance with all its debt covenants at December 31, ~~2010.~~2011. The Company’s financial covenants require the maintenance of a minimum net worth of $9 billion and a ~~total-debt-to-capital~~total debt-to-capital ratio of less than 60%. Net worth is defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock plus any cumulative goodwill impairment charges. The calculation also excludes accumulated other comprehensive income/loss. The ~~total-debt-to-capital~~total debt-to-capital ratio is defined as total debt divided by the sum of total debt plus net worth. At December 31, ~~2010,~~2011, International Paper’s net worth was ~~$12.4~~$13.3 billion, and the total-debt-to-capital ratio was ~~41.2%~~43%.

The Company will continue to rely upon 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 preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

In February 2011, the Company entered into various fixed-to-floating interest rate swap agreements with a notional amount of approximately $100 million to hedge existing debt. The interest rate swaps were effective February 2011 and mature within the next three to four years. These interest rate swaps were designated as fully effective fair value hedges of the benchmark interest rate.

Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At December 31, ~~2010,~~2011, the Company held long-term credit ratings of BBB (stable outlook) and Baa3 (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, ~~2010,~~2011, were as follows:


In millions	2011		2012		2013		2014		2015		Thereafter		2012		2013		2014		2015		2016		Thereafter
Maturities of long-term debt (a)	$	313	$	324	$	135	$	559	$	786	$	6,554	$	719	$	168	$	571	$	455	$	452	$	7,543
Debt obligations with right of offset (b)		542		0		0		0		0		5,122		0		0		0		0		5,159		0
Lease obligations		162		135		110		87		75		158		160		129		103		86		63		146
Purchase obligations (c)		2,564		749		616		524		515		3,174		2,647		637		559		544		530		2,484
Total (d)	$	3,581	$	1,208	$	861	$	1,170	$	1,376	$	15,008	$	3,526	$	934	$	1,233	$	1,085	$	6,204	$	10,173

(a)

Total debt includes scheduled principal payments only. The 2011 debt maturities reflect the reclassification of $100 million of Notes payable and current maturities of long-term debt to Long-term debt based on International Paper’s intent and ability to renew or convert these obligations, as evidenced by the Company’s available bank credit agreements.

(b)

Represents debt obligations borrowed from non-consolidated variable interest entities for which International Paper has, and intends to ~~affect,~~effect, a legal right to offset these obligations with investments held in the entities. Accordingly, in its consolidated balance sheet at December 31, ~~2010,~~2011, International Paper has offset approximately ~~$5.7~~$5.2 billion of interests in the entities against this ~~$5.7~~$5.2 billion of debt obligations held by the entities (see Note 11 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).

(c)

Includes ~~$2.3~~$3.8 billion relating to fiber supply agreements entered into at the time of the 2006 Transformation Plan forestland ~~sales.~~sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business.

(d)

Not included in the above table due to the uncertainty as to the amount and timing of the payment are unrecognized tax benefits of approximately ~~$188~~$271 million.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2011, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2011, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $920 million. 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, ~~2010,~~2011, the projected benefit obligation for the Company’s U.S. defined benefit plans determined under U.S. GAAP was approximately ~~$1.5~~$2.4 billion higher than the fair value of plan assets. Approximately ~~$1.1~~$2.0 billion of this amount relates to plans that are subject to minimum funding requirements. Under current IRS funding rules, the calculation of minimum funding requirements differs from the calculation of the present value of plan benefits ~~(the~~

(the projected benefit obligation) for accounting purposes. In December 2008, the Worker, Retiree and Employer Recovery Act of 2008 (WERA) was passed by the U.S. Congress which provided for pension funding relief and technical corrections. Funding contributions depend on the funding method selected by the Company, and the timing of its implementation, as well as on actual demographic data and the targeted funding level. The Company continually reassesses the amount and timing of any discretionary contributions and elected to make

voluntary contributions totaling $300 million and $1.15 billion for the ~~year~~years ended December 31, ~~2010.~~2011 and 2010, respectively. At this time, we do not expect that the finalization of the funded status as of December 31, ~~2010~~2011 will require the Company to make cash contributions to its plans in ~~2011,~~2012, 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.

Ilim Holding S.A. Shareholder’s Agreement

In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, ~~(Ilim),~~ International Paper entered into a ~~shareholders’~~shareholder’s agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time after the second anniversary of the formation of Ilim, either the Company or its partners may commence procedures specified under the deadlock provisions. Under certain circumstances, the Company would be required to purchase its partners’ 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, International Paper estimates that the current purchase price for its partners’ 50% interests would be approximately ~~$550 million~~$1.0 billion to ~~$600 million,~~$1.05 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company’s option. Any such purchase by International Paper would result in the consolidation of Ilim’s financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provision of the shareholders’ agreement, although they have the right to do so.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 judgments about matters that are inherently uncertain.

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that

affect their application, include the accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions, postretirement benefits other than pensions, stock options and income taxes. The ~~following is a discussion~~Company has discussed the selection of critical accounting policies and the effect of significant estimates with the Audit Committee of the ~~impact~~Company’s Board of ~~these accounting policies on International Paper:~~Directors.

Contingent Liabilities

Accruals for contingent liabilities, including legal and environmental 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 experience and recommendations of legal counsel. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. International Paper determines these estimates after a detailed evaluation of each site.

Impairment of Long-Lived Assets and Goodwill

An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through cash flows from future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of goodwill and intangible asset balances is required

annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and 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, and various other projected operating economic factors. As these key factors change in future periods, the Company will update its impairment analyses to reflect its latest estimates and projections.

~~Pension and Postretirement Benefit Obligations~~

~~The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with 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, health care cost trend rates and mortality rates.~~

~~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 a recent court case that addresses the matter.

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 evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.

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.

~~SIGNIFICANT ACCOUNTING ESTIMATES~~

~~Goodwill Impairment Analysis~~

Under the provisions of Accounting Standards Codification (ASC) 350, “Intangibles – Goodwill and Other,” the testing of goodwill for possible impairment is a two-step process. In the first step, the fair value of the Company’s reporting units is compared with their carrying value, including goodwill. If fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a reporting unit is below the carrying value, then step two is performed to measure the amount of the goodwill impairment loss for the reporting unit. This analysis requires the determination of the fair value of all of the individual assets and liabilities of the reporting unit, including any currently unrecognized

intangible assets, as if the reporting unit had been purchased on the analysis date. Once these fair values have been determined, the implied fair value of the unit’s goodwill is calculated as the excess, if any, of the fair value of the reporting unit determined in step one over the fair value of the net assets determined in step two. The carrying value of goodwill is then reduced to this implied value, or to zero if the fair value of the assets exceeds the fair value of the reporting unit, through a goodwill impairment charge.

The impairment analysis requires a number of judgments by management. In calculating the estimated fair value of its reporting units in step one, the Company uses the projected future cash flows to be generated by each unit over the estimated remaining useful operating lives of the unit’s assets, discounted using the estimated cost-of-capital discount rate for each reporting unit. These calculations require many estimates, including discount rates, future growth rates, and cost and pricing trends for each reporting unit. Subsequent changes in economic and operating conditions can affect these assumptions and could result in additional interim testing and goodwill impairment charges in future periods. Upon completion, the resulting estimated fair values are then analyzed for reasonableness by comparing them to earnings multiples for historic industry business transactions, and by comparing the sum of

the reporting unit fair values and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s market price per share on the analysis date.

During 2008, as in prior years, the Company performed the required annual goodwill testing for impairment as of the beginning of the fourth quarter, resulting in a $59 million impairment charge to write off all goodwill for the Company’s European Coated Paperboard business. Subsequent to this testing date, the Company performed an interim test as of December 31, 2008 and recalculated the estimated fair value of its reporting units as of that date using updated future cash flow projections and higher cost-of-capital discount rates. Based on this testing, step two testing for possible impairment was required for the Company’s U.S. Printing Papers business and its U.S. Coated Paperboard business. Based on management’s preliminary estimates, an additional goodwill impairment charge of $379 million was recorded, representing all of the goodwill for the U.S. Coated Paperboard business, as this was management’s best estimate of the minimum impairment charge that would be required upon the completion of detailed step two analyses. In Febru-

ary 2009, based on additional work performed to date, management determined that it was probable that all of the $1.3 billion of recorded goodwill for the U.S. Printing Papers business would be impaired when testing was completed. Accordingly, an additional goodwill impairment charge of $1.3 billion was recorded as a charge to operating results for the year ended December 31, 2008. During the first quarter of 2009, the Company finalized the testing for these businesses resulting in no changes to the recorded impairment charges.

No goodwill impairment charges were recorded in 2011, 2010 or 2009.

Pension and Postretirement Benefit ~~Accounting~~Obligations

The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with 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, health care cost trend rates and mortality rates.

The calculations of pension and postretirement benefit obligations and expenses 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, the discount rate used to calculate plan liabilities, the projected rate of future compensation increases and health care cost trend rates.

Benefit obligations and fair values of plan assets as of December 31, ~~2010,~~2011, for International Paper’s pension and postretirement plans were as follows:


In millions	Benefit Obligation		Fair Value of Plan Assets		Benefit Obligation		Fair Value of Plan Assets
U.S. qualified pension	$	9,486	$	8,344	$	10,197	$	8,185
U.S. nonqualified pension		338		0		358		0
U.S. postretirement		425		0		425		0
Non-U.S. pension		183		156		183		155
Non-U.S. postretirement		24		0		23		0

The table below shows assumptions used by International Paper to calculate U.S. pension expenses for the years shown:


	2010			2009			2008			2011			2010			2009
Discount rate		5.80	%		6.00	%		6.20	%		5.60	%		5.80	%		6.00	%
Expected long-term return on plan assets		8.25	%		8.25	%		8.50	%		8.25	%		8.25	%		8.25	%
Rate of compensation increase		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%

Additionally, health care cost trend rates used in the calculation of U.S. postretirement obligations for the years shown were:


	2010			2009			2011			2010
Health care cost trend rate assumed for next year		8.50	%		9.00	%		8.00	%		8.50	%
Rate that the cost trend rate gradually declines to		5.00	%		5.00	%		5.00	%		5.00	%
Year that the rate reaches the rate it is assumed to remain		2017			2017			2017			2017

International Paper determines these actuarial assumptions, after consultation with our actuaries, on December 31 of each year to calculate liability information as of that date and pension and postretirement expense for the following year. The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. The discount rate assumption was determined based on a ~~yield curve that incorporates approximately 500 Aa-graded~~hypothetical settlement portfolio selected from a universe of high quality corporate bonds. ~~The plan’s projected cash flows were then matched to the yield curve to develop the discount rate.~~

Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) ~~2011~~2012 pension expense by approximately ~~$22~~$21 million, while a (decrease) increase of 0.25% in the discount rate would (increase) decrease pension expense by approximately ~~$29~~$27 million. The effect on net postretirement benefit cost from a 1% increase or decrease in the annual trend rate would be approximately $1 million.

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


Year	Return			Year	Return			Return			Year	Return
2011									2.5	%	2006		14.9	%
2010		15.1	%	2005		11.7	%		15.1	%	2005		11.7	%
2009		23.8	%	2004		14.1	%		23.8	%	2004		14.1	%
2008		(23.6	)%	2003		26.0	%		(23.6	)%	2003		26.0	%
2007		9.6	%	2002		(6.7	)%		9.6	%	2002		(6.7	)%
2006		14.9	%	2001		(2.4	)%

The annualized time-weighted rate of return earned on U.S. pension plan assets was ~~6.5%~~4.1% and ~~7.2%~~7.7 for the past five and ten years, respectively. The following graph shows the growth of a $1,000 investment in International Paper’s U.S. Pension Plan Master Trust. The graph portrays the time-weighted rate of return from ~~2000-2010.~~2001 – 2011.

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 (approximately nine years) to the extent that they are not offset by gains and losses in subsequent years. The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost for the U.S. pension plans over the next fiscal year are ~~$204~~$303 million and ~~$31~~$32 million, respectively.

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


In millions	2010		2009		2008		2007		2006		2011		2010		2009		2008		2007
Pension expense
U.S. plans (non-cash)	$	231	$	213	$	123	$	210	$	377	$	195	$	231	$	213	$	123	$	210
Non-U.S. plans		0		3		4		5		17		1		0		3		4		5
Postretirement expense
U.S. plans		6		27		28		15		7		7		6		27		28		15
Non-U.S. plans		1		3		3		8		3		2		1	��	3		3		8
Net expense	$	238	$	246	$	158	$	238	$	404	$	205	$	238	$	246	$	158	$	238

The ~~increase~~decrease in ~~2010~~2011 U.S. pension expense principally reflects ~~a decrease in the assumed discount rate to 5.80% in 2010 from 6.00% in 2009 and higher amortization of unrecognized actuarial losses.~~

Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as in 2010, projected future net periodic pension and postretirement plan expenses would be as follows:

In millions 2012 (a)    2011 (a)
Pension expense

U.S. plans (non-cash)
$ 232       $ 179
Non-U.S. plans
2       2
Postretirement expense

U.S. plans
8       7
Non-U.S. plans
2       2
Net expense
$ 244       $ 190

~~(a)~~

~~Based on assumptions at December 31, 2010.~~

The Company estimates that it will record net pension expense of approximately $179 million for its U.S. defined benefit plans in 2011, with the decrease from expense of $231 million in 2010 reflecting increased plan assets in 2011 as a result of a $1.15 billion voluntary contribution and higher than expected asset returns in 2010, partially offset by a decrease in the assumed discount rate to 5.60% in 2011 from 5.80% in 2010. ~~Net postretirement benefit costs~~

Assuming that discount rates, expected long-term returns on plan assets and rates of future compensation increases remain the same as in 2011, ~~are~~ projected tofuture net periodic pension and postretirement plan expenses would be as follows:


In millions	2013 (1)		2012 (1)
Pension expense
U.S. plans (non-cash)	$	402	$	315
Non-U.S. plans		2		2
Postretirement expense
U.S. plans		2		(2	)
Non-U.S. plans		1		1
Net expense	$	407	$	316

(1)

Based on assumptions at December 31, 2011.

The Company estimates that it will record net pension expense of approximately $315 million for its U.S. defined benefit plans in 2012, with the increase ~~primarily~~from expense of $195 million in 2011 reflecting decreased plan assets in 2012 as a result of lower than expected asset returns in 2011, benefit payments offset by a $300 million voluntary contribution

in 2011, and a decrease in the assumed discount rate to ~~5.30%~~5.10% in ~~2011~~2012 from ~~5.40%~~5.60% in ~~2010, partially offset by a decrease in per capita healthcare costs~~2011. The post retirement plan was remeasured on January 31, 2012 due to ~~changes~~a negative plan amendment which reduced our obligation by $43 million in ~~plan provisions.~~the first quarter of 2012 and reduced the 2012 expected benefit cost by $11 million.

The market value of plan assets for International Paper’s U.S. qualified pension plan at December 31, ~~2010~~2011 totaled approximately ~~$8.3~~$8.2 billion, consisting of approximately ~~49%~~43% equity securities, ~~31%~~34% debt securities, and ~~20%~~23% real estate and other assets. Plan assets include an immaterial amount of International Paper common stock.

The Company’s funding policy for its qualified pension plans 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. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$37~~$19 million for the year ended December 31, ~~2010.~~2011.

Accounting for Stock Options

International Paper follows ASC 718, “Compensation – Stock Compensation,” in accounting for stock options. Under this guidance, expense for stock options is recorded over the related service period based on the grant-date fair market value.

During each reporting period, diluted earnings per share is calculated by assuming that “in-the-money” options are exercised and the exercise proceeds are used to repurchase shares in the marketplace. When options are actually exercised, option proceeds are credited to equity and issued shares are included in the computation of earnings per common share, with no effect on reported earnings. Equity is also increased by the tax benefit that International Paper will receive in its tax return for income reported by the optionees in their individual tax returns.

At December 31, 2011 and 2010, ~~and 2009, 18.2~~15.6 million options and ~~22.2~~18.2 million options, respectively, were outstanding with exercise prices ranging from $32.54 to $43.12 per share for ~~2010~~both 2011 and ~~$29.31~~2010.

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 ~~$66.69 per share~~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 ~~2009.~~the subject tax year, change in tax laws, or a recent court case that addresses the matter.

~~Income Taxes~~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 evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. 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 effective income tax rates, before equity earnings and discontinued operations, were ~~27%~~21%, 27% and 39% for 2011, 2010 and ~~(14)% for 2010,~~ 2009, ~~and 2008,~~ respectively. These effective tax rates include the tax effects of certain special items that can significantly affect the effective income tax rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate computed after excluding these special items may provide a better estimate of the rate that might be expected in future years if no additional special items were to occur in those years. Excluding these special items, the effective income tax rate for ~~2010~~2011 was ~~30%~~32% of pre-tax earnings compared with 30% in ~~2009~~2010 and ~~31.5%~~30% in ~~2008. The higher rate in 2008 reflects a higher proportion of earnings in higher tax rate jurisdictions.~~2009. We estimate that the ~~2011~~2012 effective income tax rate will be approximately ~~32-34%~~33-35% based on expected earnings and business conditions.

RECENT ACCOUNTING DEVELOPMENTS

~~The following represent recently issued~~There were no new accounting pronouncements ~~that will affect reporting and disclosures in future periods.~~

~~Revenue Arrangements With Multiple Deliverables~~

~~In September 2009,~~issued or effective during the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, “Multiple-Deliverable Revenue Arrangements,”~~fiscal year which ~~amends the multiple-element arrangement guidance under ASC 605, “Revenue Recognition.” This guidance amends the criteria for separating consideration for products~~have had or services in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation, and requires that arrangement consideration be allocated at the inception of the arrangementare expected to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or

~~after June 15, 2010 (calendar year 2011). The application of the requirements of this guidance will not~~ have a material ~~effect~~impact on the ~~consolidated financial statements.~~

~~Variable Interest Entities~~

In June 2009, the FASB issued ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amends the consolidation guidance that applies to variable interest entities under ASC 810, “Consolidations.” This guidance changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance was effective for financial statements issued in fiscal years (and interim periods) beginning after November 15, 2009 (calendar year 2010). The Company adopted this guidance on January 1, 2010 and it did not have an effect on the accompanying consolidated financial statements.

~~Subsequent Events~~

In May 2009, the FASB issued ASC 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective prospectively for interim and annual periods ending after June 15, 2009. The Company included the requirements of this guidance in the preparation of the accompanying consolidated financial statements.

~~Asset Transfers, Variable Interest Entities and Qualifying Special Purpose Entities~~

In December 2008, the FASB issued new guidance under ASC 860, “Transfers and Servicing” which requires public companies to provide additional disclosures about transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special purpose entities. The Company included the requirements of this guidance in the preparation of the accompanying consolidated financial statements.

~~Derivative Instruments and Hedging Activities~~

about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This guidance was effective for fiscal years (and interim periods) beginning after November 15, 2008 (calendar year 2009). The Company included the disclosures required by this guidance in the accompanying consolidated financial statements.

~~Business Combinations~~

In December 2007, the FASB issued new guidance under ASC 805, “Business Combinations,” which establishes principles and requirements for how an acquiring entity in a business combination recognizes and measures the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance was effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (calendar year 2009). The Company included the provisions of this guidance in the preparation of the accompanying consolidated financial statements.

~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans~~

In December 2008, the FASB issued new guidance under ASC 715, “Compensation – Retirement Benefits,” to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. The disclosures required by this guidance must be provided in financial statements for fiscal years ending after December 15, 2009 (calendar year 2009). The Company included the provisions of this guidance in the preparation of the accompanying consolidated financial statements.

~~Fair Value Measurements~~

fair value to measure assets and liabilities. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest level being quoted prices in active markets.

In February 2008, the FASB issued new guidance under ASC 820 which delayed the effective date for fair value measurement and disclosure for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 (calendar year 2009). The Company partially adopted the provisions of this guidance with respect to its financial assets and liabilities that are measured at fair value effective January 1, 2008 (see Note 13). The Company included the remaining provisions of this guidance in the preparation of the accompanying consolidated financial statements.

In October 2008, the FASB issued new guidance under ASC 820 which clarifies the application of fair value measurement and disclosure in cases where the market for the asset is not active. This guidance was effective upon issuance. The Company considered the guidance in the preparation of the accompanying consolidated financial statements.

In April 2009, the FASB issued additional guidance under ASC 820 which provides guidance on estimating the fair value of an asset or liability (financial or nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased, and on identifying transactions that are not orderly. The application of the requirements of this guidance did not have a material effect on the accompanying consolidated financial statements.

In August 2009, the FASB issued ASU 2009-05, “Measuring Liabilities at Fair Value,” which further amends ASC 820 by providing clarification for circumstances in which a quoted price in an active market for the identical liability is not available. The Company included the disclosures required by this guidance in the accompanying consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements.” which further amends ASC 820 to add new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. This new guidance also clarifies the level of disaggregation, inputs and valuation techniques used to measure fair value and amends

guidance under ASC 715 related to employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. This guidance was effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company included the disclosures required by this guidance in the accompanyingCompany’s consolidated financial statements. ~~The Company does not anticipate that the adoption~~See Note 1 of the ~~remaining requirements~~Notes to Consolidated Financial

Statements in Item 8. Financial Statements and Supplementary Data for a discussion of ~~this guidance will have a material effect on its consolidated financial statements.~~new accounting pronouncements.

LEGAL PROCEEDINGS

International Paper has been named as a potentially responsible party in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Most of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many potential responsible parties. Based upon previous experience with respect to the cleanup of hazardous substances using presently available information, International Paper believes that its liability is not likely to be significant at 5447 such sites, and that its liability at 45each of the 44 other sites is likely to be significant but not material to International Paper’s consolidated financial statements. Remedial costs are recorded in the financial statements when they become probable and reasonably estimable. International Paper believes that the probable liability associated with these 9991 matters is approximately ~~$76 million.~~$98 million in the aggregate.

One of the ~~sites referred to~~91 matters described above isincludes a closed wood treating facility located in Cass Lake, Minnesota. During 2009, in connection with an environmental site remediation action under CERCLA, weInternational Paper submitted to the EPA a site remediation feasibility study. In ~~November 2010,~~June 2011, the EPA ~~provided comments that limited~~selected and published a proposed soil remedy at the ~~number~~site with an estimated cost of ~~acceptable remedial action alternatives that the Company may be allowed to pursue and adopted more restrictive clean up requirements for the site.~~$46 million. As a result, the Company

~~increased its~~ has adjusted the overall remediation reserve for ~~this~~the site ~~from $6~~to $51 million to ~~$24 million in~~address this recent selection of an alternative for the ~~fourth quarter~~soil remediation component of ~~2010. The final remediation plan for this~~the overall site ~~has not been approved by~~remedy. In October 2011, the EPA ~~and of~~released a public statement indicating that the ~~five alternatives,~~final soil remedy decision would be delayed. In the ~~Company’s reserve reflects the low end of the range of estimated remediation costs, since, at this time, no one of the alternatives proposed by~~unlikely event that the EPA ~~is any~~changes its proposed soil remedy and approves instead a more ~~likely than the others to be approved. If the most~~ expensive ~~of the~~ clean-up ~~alternatives were approved by the EPA,~~alternative, the remediation costs could be material, and significantly higher than amounts currently recorded.

In addition to the above ~~proceedings,~~91 matters, other remediation costs, typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet, totaled

approximately ~~$48~~$47 million. Other than as described ~~above,~~below, completion of required remedial actions is not expected to have a material adverse effect on our consolidated financial statements.

The Company is a potentially responsible party with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site (Kalamazoo River Superfund Site) in Michigan. The EPA asserts that the site is contaminated primarily by PCBs as a result of discharges from various paper mills located along the river, including a paper mill formerly owned by St. Regis. The Company is a successor in interest to St. Regis. International Paper has not received any orders from the EPA with respect to the site and is in the process of collecting information from the EPA and other parties relative to the Kalamazoo River Superfund Site to evaluate the extent of its liability, if any, with respect to the site. Accordingly, it is premature to estimate a loss or range of loss with respect to this site.

Also in connection with the Kalamazoo River Superfund Site, the Company was named as a defendant by Georgia Pacific Consumers Products LP, Fort James Corporation and Georgia Pacific LLC in a contribution and cost recovery action for alleged pollution at the Kalamazoo River Superfund Site. The suit seeks contribution under CERCLA for $79 million in costs purportedly expended to date by plaintiffs, and for future remediation costs. The suit alleges that a mill, during the time it was allegedly owned and operated by St. Regis, discharged PCB contaminated solids and paper residuals resulting from paper de-inking and recycling. Also named as defendants in the suit are NCR Corporation and Weyerhaeuser Company. In mid-2011, the suit was transferred from the District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan. The Company is involved in the early phases of discovery and believes it is premature to predict the outcome or to estimate the amount or range of loss, if any, which may be incurred.

International Paper and McGinnis Industrial Maintenance Corporation, a subsidiary of Waste Management, Inc., are potentially responsible parties at the San Jacinto River Superfund Site in Harris County, Texas, and have been actively participating in investigation and remediation activities at this Superfund Site.

In December, 2011, Harris County, Texas filed a suit against the Company in Harris County District Court seeking civil penalties with regard to the alleged

discharge of dioxin into the San Jacinto River since 1965 from the San Jacinto River Superfund Site. Also named as defendants in this action are McGinnis Industrial Maintenance Corporation, Waste Management, Inc. and Waste Management of Texas, Inc. Harris County is seeking civil penalties pursuant to the Texas Water Code, which provides for the imposition of civil penalties between $50 and $25,000 per day.

On April 8, 2011, the United States District Court for the Northern District of Illinois denied motions by the Company and eight other U.S. and Canadian containerboard producers to dismiss a lawsuit alleging that these producers violated the Sherman Act by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the lawsuit seek certification of a nationwide class of direct purchasers of containerboard products, treble damages, and costs, including attorneys’ fees. In January 2011, the Company was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee alleging that the Company and other containerboard producers violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the lawsuit seek certification of a class of Tennessee indirect purchasers of containerboard products, damages, and costs, including attorneys’ fees. The Company believes the allegations in both lawsuits are without merit, but both lawsuits are in preliminary stages and the costs and other effects of pending litigation cannot be reasonably estimated. Although we believe the outcome of these lawsuits will not have a material adverse effect on our business or consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will be as expected.

The Company is currently the beneficiary of a Value Added Tax (VAT) incentive issued by the Brazilian state of Mato Grosso do Sul. On August 8, 2011, the Brazilian Supreme Court officially issued a decision judging unconstitutional several VAT incentive programs that were enacted without the approval of the Confederation of State VAT Authorities. At this time, it does not appear that the Company’s incentive is affected by the decision. The cumulative benefit recorded by the Company through December 31, 2011 was $45 million.

Other Legal Matters

The Company is ~~also~~ involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, contracts, sales of

property, intellectual property, personal injury, labor and employment and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of the lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature), will not have a material adverse effect on its consolidated financial statements.

EFFECT OF INFLATION

While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general inflation have had minimal impact on our operating results in each of the last three years. Sales prices and volumes are more strongly influenced by economic supply and demand factors in specific markets and by exchange rate fluctuations than by 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. 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 lower U.S. dollar and stronger local currency is beneficial to International Paper. The currencies that have the most impact are the Euro, the Brazilian real, the Polish zloty and the Russian ruble.

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 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. A discussion of derivatives and hedging ~~activities~~activ-

ities is included in Note 13 of the Notes to Consolidated Financial Statements in 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 issuer or fund. Our investments in marketable securities at December 31, 2011 and 2010 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 consistent with International Paper’s targeted capital structure, while at the same time taking advantage of market opportunities to reduce interest expense as appropriate. Derivative instruments, such as interest rate swaps, may be used to implement this capital structure. At December 31, ~~2010~~2011 and ~~2009,~~2010, the net fair value liability of financial instruments with exposure to interest rate risk was approximately ~~$8.5~~$10.5 billion and ~~$7.7~~$8.5 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately ~~$373~~$505 million and ~~$394~~$373 million at December 31, ~~2010~~2011 and ~~2009,~~2010, 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 and option contracts have been used to manage risks associated with market fluctuations in energy prices. The net fair value liability of such outstanding energy hedge contracts at December 31, ~~2010~~2011 and ~~2009~~2010 was approximately ~~$29~~$10 million and ~~$26~~$29 million, respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would have been approximately $7$2 million and ~~$20~~$7 million at December 31, ~~2010~~2011 and ~~2009,~~2010, 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. 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 financing a portion of our investments in overseas operations with borrowings denominated in the same currency as the operation’s functional currency, or by entering into cross-currency and interest rate swaps, or foreign exchange contracts. At December 31, ~~2010~~2011 and ~~2009,~~2010, the net fair value ~~asset~~ of financial instruments with exposure to foreign currency risk was approximately

a $52 million liability and a $13 million ~~and $32 million,~~asset, respectively. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would have been approximately ~~$37~~$59 million and ~~$73~~$37 million at December 31, 2011 and 2010, ~~and 2009,~~ respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the preceding discussion and Note 13 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT ON:

Financial Statements

The management of International Paper Company is responsible for the preparation of the consolidated financial statements in this annual report and for establishing and maintaining adequate internal controls over financial reporting. The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances to present fairly the Company’s consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements.

As can be expected in a complex and dynamic business environment, some financial statement amounts are based on estimates and judgments. Even though estimates and judgments are used, measures have been taken to provide reasonable assurance of the integrity and reliability of the financial information contained in this annual report. We have formed a Disclosure Committee to oversee this process.

The accompanying consolidated financial statements have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During its audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the board of directors and all committees of the board. Management believes that all representations made to the independent auditors during their audits were valid and appropriate.

Internal Control Over Financial Reporting

The management of International Paper Company is also responsible for establishing and maintaining adequate internal ~~controls~~control over financial reporting. Internal ~~controls~~control over financial reporting is the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes. All internal control

systems have inherent limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.

The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, ~~2010.~~2011. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, ~~2010,~~2011, the Company’s internal control over financial reporting was effective.

The ~~company~~Company completed the acquisition of ~~SCA Packaging Asia~~Andhra Pradesh Paper Mills Limited (APPM) in ~~July, 2010.~~October 2011. Due to the timing of the acquisition we have excluded ~~SCA Packaging Asia~~APPM from our evaluation of the effectiveness of internal control over financial reporting. For the period ended December 31, ~~2010, SCA Packaging Asia~~2011, APPM net sales and assets represented approximately 1%0.13% of net sales and 1%2% of total assets.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting. The report appears on page ~~51.~~55.

Internal Control Environment And Board Of Directors Oversight

Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, which have been distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or International Paper’s policy; and an office of ethics and business practice. The internal control system further includes careful selection and training of supervisory and management personnel, ~~appropriate~~appro-

priate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout International Paper, and an extensive program of internal audits with management follow-up.

The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which currently consists of five independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, ~~2010,~~2011, including critical accounting policies and significant management judgments, with management and the independent auditors. The Committee’s report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement.

JOHN V. FARACI

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

~~TIM S. NICHOLLS~~

CAROL L. ROBERTS

SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of International Paper Company:

We have audited the accompanying consolidated balance sheets of International Paper Company and subsidiaries (the “Company”) as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the related consolidated statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, ~~2010. These~~2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2).These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of International Paper Company and subsidiaries as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2010,~~2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, ~~2010,~~2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February ~~25, 2011~~27, 2012, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Memphis, Tennessee

February ~~25, 2011~~27, 2012

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of International Paper Company:

We have audited the internal control over financial reporting of International Paper Company and subsidiaries (the “Company”) as of December 31, ~~2010,~~2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Report of Management on Internal ~~Controls~~Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting ~~of the SCA Packaging Asia business~~at The Andhra Pradesh Paper Mills Limited (“APPM”) which was acquired on ~~June 30, 2010 whose financial statements constitute approximately 1%~~October 14, 2011. APPM constitutes .13% of total net sales and 1%2% of total assets of the consolidated financial ~~statement amounts~~statements as of and for the year ended December 31, ~~2010.~~2011. Accordingly our audit did not include ~~the~~ internal control over financial reporting ~~of the SCA Packaging Asia business.~~at APPM. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Controls ~~Over~~over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of

directors, management, and other personnel to provide reasonable assurance regarding the reliability of

financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes

those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2010,~~2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, ~~2010~~2011 of the Company and our report dated February ~~25, 2011,~~27, 2012 expressed an unqualified opinion on those financial ~~statements.~~statements and financial statement schedule.

Memphis, Tennessee

February ~~25, 2011~~27, 2012

CONSOLIDATED STATEMENT OF OPERATIONS


In millions, except per share amounts, for the years ended December 31	2010			2009			2008			2011		2010			2009
NET SALES	$	25,179		$	23,366		$	24,829		$	26,034	$	25,179		$	23,366
COSTS AND EXPENSES
Cost of products sold (Notes 1 and 4)		18,482			15,220			18,742			18,960		18,482			15,220
Selling and administrative expenses		1,930			2,031			1,947			1,887		1,930			2,031
Depreciation, amortization and cost of timber harvested		1,456			1,472			1,347			1,332		1,456			1,472
Distribution expenses		1,318			1,175			1,286			1,390		1,318			1,175
Taxes other than payroll and income taxes		192			188			182			146		192			188
Restructuring and other charges		394			1,353			370			102		394			1,353
Gain on sale of mineral rights		0			0			(261	)
Gain on sale of forestlands		0			0			(6	)
Impairments of goodwill		0			0			1,777	��
Net (gains) losses on sales and impairments of businesses		(23	)		59			106			218		(23	)		59
Interest expense, net		608			669			492			541		608			669
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS		822			1,199			(1,153	)		1,458		822			1,199
Income tax provision (benefit)		221			469			162			311		221			469
Equity earnings (losses), net of taxes		64			(49	)		49			159		64			(49	)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS		665			681			(1,266	)		1,306		665			681
Discontinued operations, net of taxes		0			0			(13	)		49		0			0
NET EARNINGS (LOSS)	$	665		$	681		$	(1,279	)		1,355		665			681
Less: Net earnings (loss) attributable to noncontrolling interests		21			18			3			14		21			18
NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY	$	644		$	663		$	(1,282	)	$	1,341	$	644		$	663
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	1.50		$	1.56		$	(3.02	)	$	2.99	$	1.50		$	1.56
Discontinued operations, net of taxes		0			0			(0.03	)		0.11		0			0
Net earnings (loss)	$	1.50		$	1.56		$	(3.05	)	$	3.10	$	1.50		$	1.56
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	1.48		$	1.55		$	(3.02	)	$	2.96	$	1.48		$	1.55
Discontinued operations, net of taxes		0			0			(0.03	)		0.11		0			0
Net earnings (loss)	$	1.48		$	1.55		$	(3.05	)	$	3.07	$	1.48		$	1.55
AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	644		$	663		$	(1,269	)	$	1,292	$	644		$	663
Discontinued operations, net of taxes		0			0			(13	)		49		0			0
Net earnings (loss)	$	644		$	663		$	(1,282	)	$	1,341	$	644		$	663

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED BALANCE SHEET


In millions, except per share amounts, at December 31	2010			2009			2011			2010
ASSETS
Current Assets
Cash and temporary investments	$	2,073		$	1,892		$	3,994		$	2,073
Accounts and notes receivable, less allowances of $129 in 2010 and $136 in 2009		3,039			2,695
Accounts and notes receivable, less allowances of $126 in 2011 and $129 in 2010								3,486			3,039
Inventories		2,347			2,179			2,320			2,347
Deferred income tax assets		339			368			296			339
Assets of businesses held for sale								196			0
Other current assets		230			417			164			230
Total Current Assets		8,028			7,551			10,456			8,028
Plants, Properties and Equipment, net		12,002			12,688			11,817			12,002
Forestlands		747			757			660			747
Investments		1,092			1,077			632			1,092
Goodwill		2,308			2,290			2,346			2,308
Deferred Charges and Other Assets		1,191			1,185			1,082			1,191
*Total Assets*	$	25,368		$	25,548		$	26,993		$	25,368
LIABILITIES AND EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt	$	313		$	304		$	719		$	313
Accounts payable		2,556			2,058			2,500			2,556
Accrued payroll and benefits		471			473			467			471
Liabilities of businesses held for sale								43			0
Other accrued liabilities		1,163			1,177			1,009			1,163
Total Current Liabilities		4,503			4,012			4,738			4,503
Long-Term Debt		8,358			8,729			9,189			8,358
Deferred Income Taxes		2,793			2,425			2,497			2,793
Pension Benefit Obligation		1,482			2,765			2,375			1,482
Postretirement and Postemployment Benefit Obligation		499			538			476			499
Other Liabilities		649			824			758			649
Commitments and Contingent Liabilities (Note 10)
Equity
Common stock $1 par value, 2010 – 438.9 shares and 2009 – 437.0 shares		439			437
Common stock $1 par value, 2011 – 438.9 shares and 2010 – 438.9 shares								439			439
Paid-in capital		5,829			5,803			5,908			5,829
Retained earnings		2,416			1,949			3,330			2,416
Accumulated other comprehensive loss		(1,822	)		(2,077	)		(3,005	)		(1,822	)
		6,862			6,112			6,672			6,862
Less: Common stock held in treasury, at cost, 2010 – 1.2 shares and 2009 – 3.9 shares		28			89
Less: Common stock held in treasury, at cost, 2011 – 1.9 shares and 2010 – 1.2 shares								52			28
Total Shareholders’ Equity		6,834			6,023			6,620			6,834
Noncontrolling interests		250			232			340			250
Total Equity		7,084			6,255			6,960			7,084
*Total Liabilities and Equity*	$	25,368		$	25,548		$	26,993		$	25,368

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS


In millions for the years ended December 31	2010			2009			2008			2011			2010			2009
OPERATING ACTIVITIES
Net earnings attributable to International Paper Company										$	1,341		$	644		$	663
Noncontrolling interests											14			21			18
Discontinued operations, net of taxes and noncontrolling interests											(49	)		0			0
Earnings (loss) from continuing operations	$	665		$	681		$	(1,266	)		1,306			665			681
Depreciation, amortization, and cost of timber harvested		1,456			1,472			1,347			1,332			1,456			1,472
Deferred income tax provision (benefit), net		422			160			(81	)		317			422			160
Restructuring and other charges		394			1,353			370			102			394			1,353
Payments related to a restructuring and legal reserve		(2	)		(38	)		(87	)
Pension plan contribution		(1,150	)		0			0			(300	)		(1,150	)		0
Cost of forestlands sold		143			0			0			0			143			0
Periodic pension expense, net		231			213			123			195			231			213
Net (gains) losses on sales and impairments of businesses		(23	)		59			106			218			(23	)		59
Equity (earnings) losses, net		(64	)		49			(49	)		(159	)		(64	)		49
Gain on sale of forestlands		0			0			(3	)
Impairments of goodwill		0			0			1,777
Other, net		17			227			115			169			15			189
Changes in current assets and liabilities
Accounts and notes receivable		(327	)		604			451			(128	)		(327	)		604
Inventories		(186	)		316			48			(56	)		(186	)		316
Accounts payable and accrued liabilities		(52	)		(321	)		(317	)		(389	)		(52	)		(321	)
Interest payable		3			(8	)		(31	)		6			3			(8	)
Other		104			(112	)		166			62			104			(112	)
*Cash Provided by (Used for) Operations*		1,631			4,655			2,669			2,675			1,631			4,655
INVESTMENT ACTIVITIES
Invested in capital projects		(775	)		(534	)		(1,002	)		(1,159	)		(775	)		(534	)
Acquisitions, net of cash acquired		(152	)		(17	)		(6,086	)		(379	)		(152	)		(17	)
Proceeds from divestitures		0			0			14			50			0			0
Equity investment in Ilim		0			0			(21	)
Escrow arrangement											(25	)		0			0
Other		93			(42	)		(102	)		26			93			(42	)
*Cash Provided by (Used for) Investment Activities*		(834	)		(593	)		(7,197	)		(1,487	)		(834	)		(593	)
FINANCING ACTIVITIES
Repurchase of common stock and payments of restricted stock tax withholding		(26	)		(10	)		(47	)		(30	)		(26	)		(10	)
Issuance of common stock		0			0			1
Issuance of debt		193			3,229			6,024			1,766			193			3,229
Reduction of debt		(576	)		(6,318	)		(696	)		(517	)		(576	)		(6,318	)
Change in book overdrafts		38			20			(36	)		(29	)		38			20
Dividends paid		(175	)		(140	)		(428	)		(427	)		(175	)		(140	)
Other		(42	)		(157	)		41			(21	)		(42	)		(157	)
*Cash Provided by (Used for) Financing Activities*		(588	)		(3,376	)		4,859			742			(588	)		(3,376	)
*Effect of Exchange Rate Changes on Cash*		(28	)		62			(92	)		(9	)		(28	)		62
*Change in Cash and Temporary Investments*		181			748			239			1,921			181			748
*Cash and Temporary Investments*
Beginning of the period		1,892			1,144			905			2,073			1,892			1,144
End of the period	$	2,073		$	1,892		$	1,144		$	3,994		$	2,073		$	1,892

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		00,000			00,000			00,000			00,000			00,000			00,000			00,000			00,000
*In millions*	Common Stock Issued			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity			Common Stock Issued		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
*BALANCE, JANUARY 1, 2008*	$	494		$	6,755		$	4,375		$	(471	)	$	2,481		$	8,672		$	228		$	8,900
Issuance of stock for various plans, net		0			(34	)		0			0			(143	)		109			0			109
Repurchase of stock		0			0			0			0			47			(47	)		0			(47	)
Retirement of treasury stock		(60	)		(876	)		(1,231	)		0			(2,167	)		0			0			0
Cash dividends – Common Stock		0			0			(432	)		0			0			(432	)		0			(432	)
Dividends paid to noncontrolling interests by subsidiary		0			0			0			0			0			0			(10	)		(10	)
Noncontrolling interests of acquired entities		0			0			0			0			0			0			9			9
Comprehensive income (loss):
Net earnings (loss)		0			0			(1,282	)		0			0			(1,282	)		3			(1,279	)
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $58)		0			0			0			82			0			82			0			82
Pension and postretirement liability adjustments:
U.S. plans (less tax of $1,128)		0			0			0			(1,857	)		0			(1,857	)		0			(1,857	)
Non-U.S. plans (less tax of $1)		0			0			0			(26	)		0			(26	)		0			(26	)
Change in cumulative foreign currency translation adjustment		0			0			0			(889	)		0			(889	)		2			(887	)
Net gains (losses) on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $61)		0			0			0			(106	)		0			(106	)		0			(106	)
Less: Reclassification adjustment for (gains) losses included in net earnings (less tax of $16)		0			0			0			(55	)		0			(55	)		0			(55	)

Total comprehensive income (loss)																							(4,128	)
*BALANCE, DECEMBER 31, 2008*		434			5,845			1,430			(3,322	)		218			4,169			232			4,401
*BALANCE, JANUARY 1, 2009*																									$	434	$	5,845		$	1,430		$	(3,322	)	$	218		$	4,169		$	232		$	4,401
Issuance of stock for various plans, net		3			(42	)		0			0			(139	)		100			0			100			3		(42	)		0			0			(139	)		100			0			100
Repurchase of stock		0			0			0			0			10			(10	)		0			(10	)		0		0			0			0			10			(10	)		0			(10	)
Cash dividends – Common Stock		0			0			(144	)		0			0			(144	)		0			(144	)		0		0			(144	)		0			0			(144	)		0			(144	)
Dividends paid to noncontrolling interests by subsidiary		0			0			0			0			0			0			(17	)		(17	)		0		0			0			0			0			0			(17	)		(17	)
Noncontrolling interests of acquired entities		0			0			0			0			0			0			(1	)		(1	)		0		0			0			0			0			0			(1	)		(1	)
Comprehensive income (loss):
Net earnings (loss)		0			0			663			0			0			663			18			681			0		0			663			0			0			663			18			681
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $75)		0			0			0			109			0			109			0			109			0		0			0			109			0			109			0			109
Pension and postretirement liability adjustments:
U.S. plans (less tax of $259)		0			0			0			351			0			351			0			351			0		0			0			351			0			351			0			351
Non-U.S. plans (less tax of $3)		0			0			0			19			0			19			0			19			0		0			0			19			0			19			0			19
Change in cumulative foreign currency translation adjustment		0			0			0			672			0			672			0			672			0		0			0			672			0			672			0			672
Net gains (losses) on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $17)		0			0			0			40			0			40			0			40			0		0			0			40			0			40			0			40
Plus: Reclassification adjustment for (gains) losses included in net earnings (less tax of $41)		0			0			0			54			0			54			0			54
Reclassification adjustment for (gains) losses included in net earnings (less tax of $41)																										0		0			0			54			0			54			0			54

Total comprehensive income (loss)																							1,926																							1,926
*BALANCE, DECEMBER 31, 2009*																										437		5,803			1,949			(2,077	)		89			6,023			232			6,255
Issuance of stock for various plans, net																										2		38			0			0			(87	)		127			0			127
Repurchase of stock																										0		0			0			0			26			(26	)		0			(26	)
Cash dividends – Common Stock																										0		0			(177	)		0			0			(177	)		0			(177	)
Dividends paid to noncontrolling interests by subsidiary																										0		0			0			0			0			0			(6	)		(6	)
Noncontrolling interests of acquired entities																										0		0			0			0			0			0			9			9
Acquisition of noncontrolling interests																										0		(12	)		0			0			0			(12	)		(8	)		(20	)
Comprehensive income (loss):
Net earnings (loss)																										0		0			644			0			0			644			21			665
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $73)																										0		0			0			114			0			114			0			114
Pension and postretirement liability adjustments:
U.S. plans (less tax of $54)																										0		0			0			85			0			85			0			85
Non-U.S. plans (less tax of $3)																										0		0			0			(4	)		0			(4	)		0			(4	)
Change in cumulative foreign currency translation adjustment																										0		0			0			68			0			68			2			70
Net gains (losses) on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $9)																										0		0			0			23			0			23			0			23
Reclassification adjustment for (gains) losses included in net earnings (less tax of $4)																										0		0			0			(31	)		0			(31	)		0			(31	)

Total comprehensive income (loss)																																														922

The accompanying notes are an integral part of these financial statements.

		00,000		00,000			00,000			00,000			00,000			00,000			00,000			00,000
*In millions*	Common Stock Issued		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity			Common Stock Issued		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
*BALANCE, DECEMBER 31, 2009*		437		5,803			1,949			(2,077	)		89			6,023			232			6,255
*BALANCE, DECEMBER 31, 2010*																									439		5,829		2,416			(1,822	)		28			6,834			250			7,084
Issuance of stock for various plans, net		2		38			0			0			(87	)		127			0			127			0		79		0			0			(6	)		85			0			85
Repurchase of stock		0		0			0			0			26			(26	)		0			(26	)		0		0		0			0			30			(30	)		0			(30	)
Cash dividends – Common Stock		0		0			(177	)		0			0			(177	)		0			(177	)		0		0		(427	)		0			0			(427	)		0			(427	)
Dividends paid to noncontrolling interests by subsidiary		0		0			0			0			0			0			(6	)		(6	)		0		0		0			0			0			0			(5	)		(5	)
Noncontrolling interests of acquired entities		0		0			0			0			0			0			9			9			0		0		0			0			0			0			37			37
Acquisition of noncontrolling interests		0		(12	)		0			0			0			(12	)		(8	)		(20	)		0		0		0			0			0			0			40			40
Comprehensive income (loss):
Net earnings (loss)		0		0			644			0			0			644			21			665			0		0		1,341			0			0			1,341			14			1,355
Amortization of pension and postretirement prior service costs and net loss:
U.S. plans (less tax of $73)		0		0			0			114			0			114			0			114
U.S. plans (less tax of $88)																									0		0		0			139			0			139			0			139
Pension and postretirement liability adjustments:
U.S. plans (less tax of $54)		0		0			0			85			0			85			0			85
U.S. plans (less tax of $498)																									0		0		0			(783	)		0			(783	)		0			(783	)
Non-U.S. plans (less tax of $3)		0		0			0			(4	)		0			(4	)		0			(4	)		0		0		0			(5	)		0			(5	)		0			(5	)
Change in cumulative foreign currency translation adjustment		0		0			0			68			0			68			2			70			0		0		0			(499	)		0			(499	)		4			(495	)
Net gains (losses) on cash flow hedging derivatives:
Net gains (losses) arising during the period (less tax of $9)		0		0			0			23			0			23			0			23
Less: Reclassification adjustment for (gains) losses included in net earnings (less tax of $4)		0		0			0			(31	)		0			(31	)		0			(31	)
Net gains (losses) arising during the period (less tax of $17)																									0		0		0			(43	)		0			(43	)		0			(43	)
Reclassification adjustment for (gains) losses included in net earnings (less tax of $8)																									0		0		0			8			0			8			0			8

Total comprehensive income (loss)																						922																						176
*BALANCE, DECEMBER 31, 2010*	$	439	$	5,829		$	2,416		$	(1,822	)	$	28		$	6,834		$	250		$	7,084
*BALANCE, DECEMBER 31, 2011*																								$	439	$	5,908	$	3,330		$	(3,005	)	$	52		$	6,620		$	340		$	6,960

The accompanying notes are an integral part of these financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

International Paper (the Company) is a global paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions.

FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require the use of management’s estimates. Actual results could differ from management’s estimates.

CONSOLIDATION

The consolidated financial statements include the accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled subsidiaries. All significant intercompany balances and transactions are eliminated.

International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting. Due to the complex organizational structure of Ilim’s operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company reports its share of Ilim’s operating results on a one-quarter lag basis.

Investments in affiliated companies where the Company has significant influence over their operations are accounted for by the equity method. International Paper’s share of affiliates’ ~~earnings~~results of operations totaled earnings of $159 million, earnings of $64 million and a loss of $49 million in 2011, 2010 and ~~earnings of $49 million in 2010,~~ 2009, ~~and 2008,~~ respectively.

REVENUE RECOGNITION

Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for

terms designated f.o.b. (free on board) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer.

ALTERNATIVE FUEL MIXTURE CREDITS – COST OF PRODUCTS SOLD

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. As these credits represent a reduction of energy costs at the Company’s U.S. manufacturing facilities, the credits are included as a reduction of Cost of products sold in 2009 in the accompanying consolidated statement of operations. See the Alternative Fuel Mixture Credits discussion in Note 4 for a further discussion of these credits.

SHIPPING AND HANDLING COSTS

Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution expenses in the consolidated statement of operations. When shipping and handling costs are included in the sales price charged for our products, they are recognized in net sales.

ANNUAL MAINTENANCE COSTS

Costs for repair and maintenance activities are expensed in the month that the related activity is performed under the direct expense method of accounting.

TEMPORARY INVESTMENTS

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost, which approximates market.

INVENTORIES

Inventories are valued at the lower of cost or market and include all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products are generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or average cost methods.

PLANTS, PROPERTIES AND EQUIPMENT

Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the straight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings –— 2 1/2% to 8 1/2%, and for machinery and equipment –— 5% to 33%.

FORESTLANDS

At December 31, ~~2010,~~2011, International Paper and its subsidiaries owned or managed approximately ~~250,000~~325,000 acres of forestlands in Brazil, and through licenses and forest management agreements, had harvesting rights on government-owned forestlands in Russia. Costs attributable to timber are charged against income as trees are cut. The rate charged is determined annually based on the relationship of incurred costs to estimated current merchantable volume.

GOODWILL

Goodwill relating to a single business reporting unit is included as an asset of the applicable segment, while goodwill arising from major acquisitions that involve multiple business segments is classified as a corporate asset for segment reporting purposes. For goodwill impairment testing, this goodwill is allocated to reporting units. Annual testing for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim testing performed when management believes that it is more likely than not events or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill.

In performing this testing, the Company estimates the fair value of its reporting units using the projected future cash flows to be generated by each unit

over the estimated remaining useful operating lives of the unit’s assets, discounted using the estimated cost of capital for each reporting unit. These estimated fair values are then analyzed for reasonableness by comparing them to historic market transactions for businesses in the industry, and by comparing the sum of the reporting unit fair values and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s traded stock price on the testing date. For reporting units whose recorded value of net assets plus goodwill is in excess of their estimated fair

values, the fair values of the individual assets and liabilities of the respective reporting units are then determined to calculate the amount of any goodwill impairment charge ~~required (see~~required. See Note ~~8).~~8 for further discussion.

IMPAIRMENT OF LONG-LIVED ASSETS

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, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair ~~value (see~~value. See Note ~~6).~~6 for further discussion.

INCOME TAXES

International Paper uses the asset and liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are remeasured to reflect new tax rates in the periods rate changes are enacted.

International Paper records its worldwide 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 the technical merits of the position based on specific tax regulations and the facts of each matter. Changes to recorded liabilities are made only when an ~~identifiable~~identifi-

able 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, a change in tax laws, or a recent court case that addresses the matter.

While the judgments and estimates made by the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by consultation with outside consultants, historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual resolution

of these matters may differ from recorded estimated amounts, resulting in charges or credits that could materially affect future financial statements.

STOCK-BASED COMPENSATION

Compensation costs resulting from all stock-based compensation transactions are measured and recorded in the consolidated financial statements based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are remeasured each reporting period. Compensation cost is recognized over the period that an employee provides service in exchange for the award.

ENVIRONMENTAL REMEDIATION COSTS

Costs associated with environmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable.

ASSET RETIREMENT OBLIGATIONS

A liability and an asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists and the liability can be reasonably estimated. The liability is accreted over time and the asset is depreciated over the life of the related equipment or facility. International ~~Paper's~~Paper’s asset retirement obligations principally relate to closure costs for landfills. Revisions to the liability could occur due to changes in the estimated costs or timing of closures, or possible new federal or state regulations affecting these closures.

In connection with potential future closures or redesigns of certain production facilities, it is possible that the Company may be required to take steps to remove certain materials from these facilities. Applicable regulations and standards provide that the removal of certain materials would only be required if the facility were to be demolished or underwent major renovations. At this time, any such obligations have an indeterminate settlement date, and the Company believes that adequate information does not exist to apply an expected-present-value technique to estimate any such potential obligations. Accordingly, the Company does not record a liability

for such remediation until a decision is made that allows reasonable estimation of the timing of such remediation.

TRANSLATION OF FINANCIAL STATEMENTS

Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive loss.

NOTE 2 RECENT ACCOUNTING DEVELOPMENTS

Other than as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the consolidated financial statements.

~~REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES~~INTANGIBLES – GOODWILL AND OTHER

In September ~~2009,~~2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2009-13, “Multiple-Deliverable Revenue Arrangements,” which amends the multiple-element arrangement guidance under ASC 605, “Revenue Recognition.~~2011-08, “Intangibles – Goodwill and Other.” This guidance ~~amends~~provides an entity the ~~criteria for separating consideration for products~~option to first assess qualitative factors to determine whether the existence of events or ~~services in multiple-deliverable arrangements. This guidance establishes~~circumstances leads to a ~~selling price hierarchy for determining~~determination that it is more likely than not that the ~~selling price~~fair value of a ~~deliverable, eliminates~~reporting unit is less than its carrying amount. If, after assessing the ~~residual method~~totality of ~~allocation, and requires~~

events or circumstances, an entity determines it is not more likely than not that ~~arrangement consideration be allocated at~~ the ~~inception~~fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the ~~arrangement to all deliverables using~~two-step impairment test by calculating the ~~relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements.~~fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. This guidance is effective ~~prospectively~~ for ~~revenue arrangements entered into or materially modified in~~annual and interim

goodwill impairment tests performed for fiscal years beginning ~~on or~~ after ~~June~~December 15, ~~2010 (calendar year 2011). The application of the requirements of this guidance will not have a material effect on the consolidated financial statements.~~

~~VARIABLE INTEREST ENTITIES~~

~~issued in fiscal years (and interim periods) beginning after November 15, 2009 (calendar year 2010).~~2011. The Company adopted ~~this guidance on January 1, 2010 and it did not have an effect on the accompanying consolidated financial statements.~~

~~SUBSEQUENT EVENTS~~

~~ASSET TRANSFERS, VARIABLE INTEREST ENITITES AND QUALIFYING SPECIAL PURPOSE ENTITIES~~

In December 2008, the FASB issued new guidance under ASC 860, “Transfers and Servicing,” which requires public companies to provide additional disclosures about transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special purpose entities. The Company included the requirements of this guidance in the preparation of the accompanying consolidated financial statements.

~~DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES~~

In March 2008, the FASB issued new guidance under ASC 815, “Derivatives and Hedging,” that requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This guidance was effective for fiscal years (and interim periods) beginning after November 15, 2008 (calendar year 2009). The Company included the disclosures required by this guidance in the accompanying consolidated financial statements.

~~BUSINESS COMBINATIONS~~

liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance was effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (calendar year 2009). The Company included the provisions of this guidance in ~~the preparation of the accompanying consolidated financial statements.~~January 2012.

~~EMPLOYERS’ ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS~~COMPREHENSIVE INCOME

In ~~December 2008,~~June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities should present comprehensive income in their financial statements. The new guidance ~~under ASC 715, “Compensation – Retirement Benefits,”~~requires entities to ~~require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories~~report components of ~~plan assets, concentrations~~comprehensive income in either (1) a continuous statement of ~~risk within plan assets, and valuation techniques used to measure the fair value of plan assets. The disclosures required by this~~comprehensive income or (2) two separate but consecutive statements. This guidance ~~must be provided in financial statements~~is effective for fiscal years, ~~ending~~and interim periods within those years, beginning after December 15, ~~2009 (calendar year 2009).~~2011. The Company ~~included~~adopted the provisions of this guidance in January 2012.

In December 2011, the ~~preparation~~FASB issued ASU 2011-12, “Presentation of Comprehensive Income,” which defers certain provisions of ASU 2011-05 that require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements). This requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date. The Company does not anticipate that the adoption of the ~~accompanying~~remaining requirements of this guidance will have a material effect on its consolidated financial statements.

FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued guidance under ASC 820, “Fair Value Measurements and Disclosures,” which provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest level being quoted prices in active markets.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” which further amends ASC 820 to add new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. This new guidance also clarifies the level of disaggregation, inputs and valuation techniques used to measure fair value and amends guidance under ASC 715 related to employers’ ~~disclosures~~dis-

closures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. This guidance was effective for the first reporting period ~~(including interim periods)~~ beginning after December 15, 2009, except for the requirement to provide the separate disclosure about Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which ~~will be~~was effective for ~~fiscal years~~the first reporting period beginning after December 15, ~~2010, and for interim periods within those fiscal years.~~2010. The ~~Company included the disclosures required by this guidance in the accompanying consolidated financial statements. The Company does not anticipate that the adoption~~application of the ~~remaining~~ requirements of this guidance ~~will~~did not have a material effect on the consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop converged guidance on how to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP; however, it expands existing disclosure requirements for fair value measurements and makes other amendments, many of which eliminate unnecessary wording differences between U.S. GAAP and IFRS. This ASU is effective for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the effects that this guidance will have on its consolidated financial statements.

NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per common share from continuing operations ~~are~~is computed by dividing earnings from continuing operations by the weighted average number of common shares outstanding. Diluted earnings per common share from continuing operations ~~are~~is computed assuming that all potentially dilutive securities, including “in-the-money” stock options, were converted into common shares at the beginning of each year. In addition, the computation of diluted earnings per share reflects the inclusion of contingently convertible securities in periods when dilutive.

A reconciliation of the amounts included in the computation of basic earnings per common share from continuing operations, and diluted earnings per common share from continuing operations is as follows:


In millions, except per share amounts	2010		2009		2008			2011		2010		2009
Earnings (loss) from continuing operations	$	644	$	663	$	(1,269	)	$	1,292	$	644	$	663
Effect of dilutive securities (a)		0		0		0			0		0		0
Earnings (loss) from continuing operations – assuming dilution	$	644	$	663	$	(1,269	)	$	1,292	$	644	$	663
Average common shares outstanding		429.8		425.3		421.0			432.2		429.8		425.3
Effect of dilutive securities Restricted performance share plan (a)		4.4		2.7		0
Effect of dilutive securities (a):
Restricted performance share plan									4.8		4.4		2.7
Stock options (b)		0		0		0			0		0		0
Average common shares outstanding – assuming dilution		434.2		428.0		421.0			437.0		434.2		428.0
Basic earnings (loss) per common share from continuing operations	$	1.50	$	1.56	$	(3.02	)	$	2.99	$	1.50	$	1.56
Diluted earnings (loss) per common share from continuing operations	$	1.48	$	1.55	$	(3.02	)	$	2.96	$	1.48	$	1.55

(a)

Securities are not included in the table in periods when antidilutive.

(b)

Options to purchase 15.6 million, 18.2 million ~~22.2 million~~ and ~~25.1~~22.2 million shares for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, were not included in the computation of diluted common shares outstanding because their exercise price exceeded the average market price of the Company’s common stock for each respective reporting date.

NOTE 4 RESTRUCTURING CHARGES AND OTHER ITEMS

~~This footnote discusses restructuring charges and other items recorded for each of the three years included in the period ended December 31, 2010. It~~

includes a summary of activity for each year, a rollforward associated with severance and other cash costs arising in each year, and tables presenting details of the 2010, 2009 and 2008 organizational restructuring programs.

RESTRUCTURING AND OTHER CHARGES

2011: During 2011, total restructuring and other charges of $102 million before taxes ($66 million after taxes) were recorded. These charges included:


In millions	Before-Tax Charges			After-Tax Charges
xpedx restructuring (a)	$	49		$	34
Early debt extinguishment costs (see Notes 12 and 13)		32			19
Temple-Inland merger agreement		20			12
APPM acquisition		18			12
Franklin, Virginia mill – closure costs (b)		(24	)		(15	)
Other		7			4
Total	$	102		$	66

(a)

Includes pre-tax charges of $19 million for severance.

(b)

Includes a pre-tax credit of $21 million related to the reversal of an environmental reserve.

Included in the $102 million of organizational restructuring and other charges is $25 million of severance charges.

The following table presents a rollforward of the severance and other costs for approximately 629 employees included in the 2011 restructuring charges:


In millions	Severance and Other
Opening balance (recorded first quarter 2011)	$	7
Additions and adjustments		18
Cash charges in 2011		(16	)
Balance, December 31, 2011	$	9

As of December 31, 2011, 454 employees had left the Company under these programs.

2010: During 2010, total restructuring and other charges of $394 million before taxes ($242 million after taxes) were recorded. These charges included:

In millions
Before-Tax
Charges

After-Tax
Charges

Franklin, Virginia mill – closure costs
$ 315    $ 192
Early debt extinguishment costs (see Notes 12 and 13)
35    21
Write-off of Ohio Commercial Activity tax receivable
11    7
Shorewood Packaging reorganization
8    5
Bellevue, Washington container facility – closure costs
7    4
S&A reduction initiative
6    4
Spartanburg, South Carolina container facility – closure costs
5    3
Etienne mill – severance and other costs
3    3
Other
4    3
Total
$ 394    $ 242

~~The following table presents the $394 million restructuring and other charges by business:~~

In millions
First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
Total
Industrial Packaging
$ 5 ^(a,b⁾ $ 1 ^(b) $ 0    $ 13 ^(c) $ 19
Printing Papers
204 ^(d) 111 ^(d) 0    0    315
Consumer Packaging
3 ^(e) 1 ^(e) 0    4 ^(e⁾ 8
Corporate
3    31    0    18    52
Total
$ 215    $ 144    $ 0    $ 35    $ 394


In millions	Before-Tax Charges		After-Tax Charges
Franklin, Virginia mill – closure costs (a)	$	315	$	192
Early debt extinguishment costs (see Notes 12 and 13)		35		21
Write-off of Ohio Commercial Activity tax receivable		11		7
Shorewood Packaging reorganization		8		5
Bellevue, Washington container facility – closure costs		7		4
S&A reduction initiative		6		4
Other		12		9
Total	$	394	$	242

(a)

Includes ~~$2 million~~pre-tax charges of ~~other charges related to the shutdown of the Pineville, Louisiana mill and $1 million of other charges related to the shutdown of a paper machine at the Valliant, Oklahoma mill.~~

~~(b)~~

~~Includes $3 million of severance charges related to the shutdown of the Etienne mill in France.~~

~~(c)~~

Includes a gain of $2 million related to the shutdown of the Albany, Oregon mill; a $3 million charge to write down the value of land, $2 million of accelerated depreciation and $2 million of severance charges related to the closure of the Bellevue, Washington container facility; $1 million of accelerated depreciation, $2 million of severance charges and $2 million of other charges related to the closure of the Spartanburg, South Carolina container facility; and $2 million of severance charges and $1 million of other costs related to the closure of certain of the Company’s Asian box plants.

~~(d)~~

~~Includes~~ $236 million offor accelerated depreciation, $36 million offor environmental closure costs and $30 million ~~of severance charges and $13 million of other charges related to the shutdown of the Franklin, Virginia mill.~~for severance.

~~(e)~~

~~Includes $3 million of accelerated depreciation, $1 million of severance charges and $4 million of other charges related to the reorganization of the Company’s Shorewood operations.~~

Included in the $394 million of organizational restructuring and other charges is $46 million of severance charges.

The following table presents a ~~roll forward~~rollforward of the severance and other costs for approximately 1,650 employees included in the 2010 restructuring charges:

In millions
Severance
and Other

Opening balance (recorded first quarter 2010)
   $ 20
Additions (second quarter 2010)
   15
Additions (third quarter 2010)
   0
Additions (fourth quarter 2010)
   11
2010 activity

Cash charges
   (32 )
Balance, December 31, 2010
   $ 14


In millions	Severance and Other
Opening balance (recorded first quarter 2010)	$	20
Additions and adjustments		26
Cash charges in 2010		(32	)
Cash charges in 2011		(8	)
Balance, December 31, 2011	$	6

As of December 31, ~~2010, 1,388~~2011, 1,618 employees had left the Company under these programs.

2009: During 2009, total restructuring and other charges of $1.4 billion before taxes ($853 million after taxes) were recorded. These charges included:

In millions
Before-Tax
Charges

After-Tax
Charges

Albany, Oregon containerboard mill – closure costs
$ 469    $ 286
Franklin, Virginia paper mill and associated operations – closure costs
290    177
Early debt extinguishment costs (see Notes 12 and 13)
185    113
2008 overhead reduction program – severance and benefits
148    92
Pineville, Louisiana containerboard mill – closure costs
102    62
Valliant, Oklahoma containerboard mill – paper machine shutdown costs
82    50
Etienne mill – severance and other costs
31    31
Inverurie mill – closure costs
23    28
Other
23    14
Total
$ 1,353    $ 853

~~The following table presents the $1.4 billion restructuring and other charges by business:~~

In millions
First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
Total
Industrial Packaing
$ 0    $ 15 ^(a) $ 7 ^(a) $ 662 ^(a,b⁾ $ 684
Printing Papers
29 ⁽^c,d) 4 ^(d) 1 ^(d) 223 ^(e) 257
Consumer Packaging
2 ^(f) 1 ^(f) 2 ^(f) 69 ⁽^f,g) 74
Distribution
0    0    0    5    5
Corporate
52    59    141    81    333
Total
$ 83    $ 79    $ 151    $ 1,040    $ 1,353


In millions	Before-Tax Charges		After-Tax Charges
Albany, Oregon containerboard mill – closure costs (a)	$	469	$	286
Franklin, Virginia paper mill and associated operations – closure costs (b)		290		177
Early debt extinguishment costs (see Notes 12 and 13)		185		113
2008 overhead reduction program – severance and benefits		148		92
Pineville, Louisiana containerboard mill – closure costs (c)		102		62
Valliant, Oklahoma containerboard mill – paper machine shutdown costs (d)		82		50
Etienne mill – severance and other costs (e)		31		31
Inverurie mill – closure costs (f)		23		28
Other		23		14
Total	$	1,353	$	853

(a)

Includes ~~$19~~pre-tax charges of $438 million offor accelerated depreciation and other non cash charges, $21 million for severance ~~charges~~ and ~~$12~~benefit costs and $9 million ~~of other charges related to the shutdown of the Etienne mill in France.~~for environmental reserves.

(b)

Includes ~~$82~~pre-tax charges of $258 million ~~of accelerated depreciation and other noncash charges, $9 million of severance charges, $10 million of environmental charges and $1 million of other charges~~

related to the shutdown of the Pineville, Louisiana mill; $438 million of accelerated depreciation and other noncash charges, $21 million of severance charges and benefit costs, $9 million of environmental charges and $1 million of other charges related to the shutdown of the Albany, Oregon mill; and $81 million offor accelerated depreciation and other noncash charges and $1$30 million ~~of other charges related to the shutdown of a paper machine at the Valliant, Oklahoma mill.~~for severance.

(c)

Includes ~~$17~~pre-tax charges of $82 million offor accelerated depreciation and other noncash charges, $9 million for severance ~~charges~~ and $6$10 million ~~of other charges related to the shutdown of the Inverurie mill in Scotland.~~for environmental reserves.

(d)

Includes $5pre-tax charges of $81 million ~~of severance charges~~for accelerated depreciation and ~~$3 million of~~ other charges related to the shutdown of the Franklin, Virginia lumber mill, sheet converting plant and converting innovations center and $3 million of charges related to the shutdown of the Bastrop, Louisiana mill.noncash charges.

(e)

Includes ~~$199~~pre-tax charges of $19 million ~~of accelerated depreciation and other noncash charges, $23 million of severance charges and $1 million of other charges related to the shutdown of the Franklin, Virginia mill.~~for severance.

(f)

Includes $2pre-tax charges of $17 million ~~of accelerated depreciation charges, $2 million of severance charges and $3 million of other charges related to the reorganization of the Company’s Shorewood operations.~~for severance.

~~(g)~~

Includes $59 million of accelerated depreciation charges and other noncash charges, $7 million of severance charges and $1 million of other charges related to the shutdown of the Franklin, Virginia mill.

Included in the $1.4 billion of organizational restructuring and other charges is $166 million of severance charges and $85 million of related benefits for approximately 3,175 employees. As of December 31, 2010, all of these employees had been terminated.

The following table presents a rollforward of the severance and other costs included in the 2009 restructuring charges:

In millions
Severance
and Other

Opening balance (recorded first quarter 2009)
   $ 74
Additions (second quarter 2009)
   48
Additions (third quarter 2009)
   45
Additions (fourth quarter 2009)
   84
2009 activity

Cash charges
   (82 )
Pension and postretirement termination benefits
   (85 )
2010 activity
Cash charges
   (84 )
Balance, December 31, 2010
   $ 0


In millions	Severance and Other
Opening balance (recorded first quarter 2009)	$	74
Additions and adjustments		177
Cash charges in 2009		(82	)
Pension and postretirement termination benefits		(85	)
Cash charges in 2010		(84	)
Balance, December 31, 2010	$	0

~~2008:~~~~During 2008, total restructuring and other charges of $370 million before taxes ($227 million after taxes) were recorded. These charges included:~~

In millions
Before-Tax
Charges

After-Tax
Charges

Bastrop, Louisiana mill – shutdown costs
   $ 123    $ 75
Legal reserve adjustments (see Note 10)
   75    47
2008 overhead reduction program – severance and benefits
   53    32
Write-off of supply chain initiative development costs for U.S. container operations
   53    33
Franklin, Virginia mill – paper machine shutdown costs
   30    18
Shorewood Packaging Canada – restructuring costs
   30    19
Ace Packaging – closure costs
   8    5
Other
   (2 ) (2 )
Total
   $ 370    $ 227

~~The following table presents the $370 million restructuring and other charges by business:~~

In millions
First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
Total
Industrial Packaging
$ 0    $ 0    $ 0    $ 8 (a) $ 8
Printing Papers
0    0    0    153 (b) 153
Consumer Packaging
5 (c) 13 (c) 8 (c) 4 (c) 30
Corporate
37    0    89    53    179
Total
$ 42    $ 13    $ 97    $ 218    $ 370

~~(a)~~

~~Includes $2 million of accelerated depreciation charges, $2 million of severance charges and $4 million of other charges related to the closure of the Ace Packaging business.~~

~~(b)~~

Includes $71 million of accelerated depreciation charges, $32 million of severance charges, $11 million of environmental expenses and $9 million of other charges related to the shutdown of the Bastrop, Louisiana mill, and $23 million of accelerated depreciation charges, $6 million of severance charges and $1 million of other charges related to the shutdown of a paper machine at the Franklin, Virginia mill.

~~(c)~~

~~Includes $22 million of severance charges, $7 million of accelerated depreciation charges and $1 million of other charges related to the reorganization of the Company’s Shorewood operations.~~

Included in the $370 million of organizational restructuring and other charges is $38 million of severance charges and $15 million of related benefits for approximately 1,675 employees related to the Company’s 2008 overhead cost reduction initiative. As of December 31, 2009, all of these employees had been terminated.

~~The following table presents a roll forward of the severance and other costs included in the 2008 restructuring charges:~~

In millions
Severance
and Other

Opening balance (recorded first quarter 2008)
   $ 7
Additions (second quarter 2008)
   11
Additions (third quarter 2008)
   5
Additions (fourth quarter 2008)
   97
2008 activity

Cash charges
   (24 )
2009 activity

Cash charges
   (96 )
Balance, December 31, 2009
   $ 0

~~Alternative Fuel Mixture Credits~~ALTERNATIVE FUEL MIXTURE CREDITS

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. For the year ended December 31, 2009, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 through October 25, 2009 totaling approximately $1.7 billion, all of which had been received in cash at December 31, 2009. Additionally, the Company had recorded $379 million of alternative fuel mixture credits as a reduction of income taxes payable at December 31, 2009. Accordingly, the accompanying consolidated statement of operations includes credits of approximately $2.1 billion for the year ended December 31, 2009 in Cost of products sold ($1.4 billion after taxes), representing eligible alternative fuel mixture credits earned through December 31, 2009, when the credit expired.

~~Cellulosic Bio-fuel Tax Credit~~CELLULOSIC BIO-FUEL TAX CREDIT

In a memorandum dated June 28, 2010, the IRS concluded that black liquor would ~~also~~ qualify for the cellulosic bio-fuel tax credit of $1.01 per gallon produced in 2009. On October 15, 2010, the IRS ruled that companies may qualify in the same year for the $0.50 per gallon alternative fuel mixture credit and the $1.01 cellulosic bio-fuel tax credit for 2009, but not for the same ~~gallons.~~gallons of fuel produced and consumed. To the extent a taxpayer changes ~~their~~its position and uses the $1.01 credit, ~~they~~it must re-pay the refunds they received as alternative fuel mixture credits attributable to the gallons converted to the cellulosic bio-fuel credit. The repayment of this refund must include interest.

One important difference between the two credits is that the $1.01 credit must be credited against a ~~company's~~company’s Federal taxable ~~earnings,~~liability, and the credit may be carried forward ~~against taxable earnings~~ through 2015. In contrast, the $0.50 credit is refundable in cash. ~~The~~Also, the cellulosic bio-fuel credit is required to be included in Federal taxable income.

The Company filed an application with the IRS on November 18, 2010, to receive the required registration code to become a registered cellulosic bio-fuel producer. ~~At present, the~~The Company ~~has not~~ received ~~this registration code; however, the Company believes approval of the application for the~~its registration code ~~to be ministerial in nature.~~on February 28, 2011.

The Company has evaluated the optimal use of the two credits with respect to gallons produced in 2009. Considerations include uncertainty around future ~~federal~~Federal taxable income, the taxability of the alternative fuel mixture credit, future liquidity and uses of cash such as, but not limited to, acquisitions, debt ~~re-payments~~repayments and voluntary pension contributions versus repayment of alternative fuel mixture credits with interest. At the present time, the Company does not intend to convert any gallons under the alternative fuel mixture credit to gallons under the cellulosic bio-fuel credit. ~~The~~On July 19, 2011 the Company filed an amended 2009 tax return claiming alternative fuel mixture tax credits as non-taxable income. If that amended position is not upheld, the Company will ~~continue evaluating~~re-evaluate its position with regard to ~~the previously claimed~~ alternative fuel mixture ~~credit~~ gallons produced in 2009. ~~This continued evaluation may result in the Company repaying some or all of the cash received with respect to the $0.50 credit, and amendment of the Company’s 2009 tax return.~~

During 2009, the Company ~~did produce~~produced 64 million gallons of black liquor that were not eligible for the alternative fuel mixture credit. The Company ~~does intend to claim~~claimed these gallons for the cellulosic bio-fuel credit by amending the Company’s 2009 tax return. The impact of this amendment ~~which has been~~was included in the Company’s 2010 fourth quarter Income tax provision (benefit), isresulting in a $40 million net credit to tax expense.

As is the case with other tax credits, taxpayer claims are subject to possible future review by the IRS which has the authority to propose adjustments to the amounts claimed, or credits received.

NOTE 5 ACQUISITIONS AND JOINT VENTURES

ACQUISITIONS

2011:On February 13, 2012, upon regulatory approval, International Paper completed the previously announced acquisition of Temple-Inland. International Paper acquired all of the outstanding common stock of Temple-Inland for $32.00 per share in cash and assumed approximately $700 million of Temple-Inland’s debt. The total transaction is valued at approximately $4.5 billion. As a condition to allowing the transaction to proceed, the Antitrust Division of the U.S. Department of Justice entered into an agreement with the Company that requires us to divest three containerboard mills, with approximately 970,000 tons of aggregate containerboard capacity, within four months of closing (with the possibility of two 30-day extensions).

International Paper will account for the acquisition under ASC 805, “Business Combinations” and Temple-Inland’s results of operations will be

included in International Paper’s consolidated financial statements beginning with the date of acquisition. Given the date of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed. The Company anticipates providing a preliminary purchase price allocation and a qualitative description of factors that make up goodwill to be recognized in our Form 10-Q to be filed on or before May 10, 2012.

The following unaudited pro forma information for the years ended December 31, 2011, 2010 and 2009 represents the results of operations of International Paper as if the Temple-Inland acquisition had occurred on January 1, 2009. This information is based on historical results of operations, adjusted for certain estimated acquisition accounting adjustments and does not purport to represent International Paper’s actual results of operations as if the transaction described above would have occurred on January 1, 2009, nor is it necessarily indicative of future results.


In millions at December 31	2011		2010		2009
Net sales	$	29,946	$	28,921	$	26,891
Earnings (loss) from continuing operations (1)		1,177		649		661
Net earnings (loss) (1)		1,226		649		661
Diluted earnings (loss) from continuing operations per common share (1)		2.69		1.49		1.54
Diluted net earnings (loss) per common share (1)		2.81		1.49		1.54

(1)

Attributable to International Paper Company common shareholders.

On October 14, 2011, International Paper completed the acquisition of a 75% stake in Andhra Pradesh Paper Mills Limited (APPM). The Company purchased 53.5% of APPM for a purchase price of $226 million in cash plus assumed debt from private investors. These sellers also entered into a covenant not to compete for which they received a cash payment of $58 million. The Company also purchased a 21.5% stake of APPM in a public tender offer completed on October 8, 2011 for $105 million in cash. International Paper recognized an unfavorable currency transaction loss of $9 million due to strengthening of the dollar against the Indian Rupee prior to the closing date, resulting from cash balances deposited in Indian Rupee denominated escrow accounts.

deposited approximately $25 million into an escrow account to fund the additional non-compete payments in the event SEBI’s direction is upheld. The November 2011 appeal disclosed in the third quarter was delayed on several occasions and the hearing on the appeal has been extended indefinitely pending the appointment of a presiding officer on the Indian Securities Appellate Tribunal.

The following table summarizes the preliminary allocation of the purchase price to the fair value of assets and liabilities acquired as of October 14, 2011.


In millions
Cash and temporary investments	$	3
Accounts and notes receivable, net		7
Inventory		43
Other current assets		13
Plants, properties and equipment, net		352
Goodwill		117
Deferred tax asset		4
Other intangible assets		91
Other long-term assets		1
Total assets acquired		631
Accounts payable and accrued liabilities		67
Long-term debt		47
Other liabilities		11
Deferred tax liability		90
Total liabilities assumed		215
Noncontrolling interest		37
Net assets acquired	$	379

The purchase price allocation is expected to be finalized once the matter regarding the tending shareholder non-compete appeal is resolved.

The identifiable intangible assets acquired in connection with the APPM acquisition included the following:


In millions	Estimated Fair Value		Average Remaining Useful Life
Asset Class:				(at acquisition date	)
Non-compete agreement	$	58		6 years
Tradename		20		Indefinite
Fuel supply agreements		5		2 years
Power purchase arrangements		5		5 years
Wholesale distribution network		3		18 years
Total	$	91

Pro forma information related to the acquisition of APPM has not been included as it does not have a material effect on the Company’s consolidated results of operations.

2010:On June 30, 2010, International Paper completed the acquisition of SCA Packaging Asia (SCA) for a preliminary purchase price of ~~$205~~$202 million, including ~~$171~~$168 million in cash plus assumed debt of

~~$34 million, subject to post-closing adjustments.~~ $34 million. The SCA packaging business in Asia consists of 13 corrugated box plants and two specialty packaging facilities, which are primarily in China, along with locations in Singapore, Malaysia and Indonesia. SCA’s results of operations are included in the consolidated financial statements from the date of acquisition on June 30, 2010.

The following table summarizes the ~~preliminary~~final allocation of the purchase price to the fair value of assets and liabilities ~~acquired.~~acquired as of June 30, 2010.

In millions
Cash and temporary investments
   $ 19
Accounts and notes receivable, net
   71
Inventory
   24
Other current assets
   5
Plants, properties and equipment, net
   102
Goodwill
   23
Deferred tax asset
   1
Other intangible assets
   38
Total assets acquired
   283
Accounts payable and accrued liabilities
   65
Deferred tax liability
   5
Non-controlling interest
   8
Total liabilities assumed
   78
Net assets acquired
   $ 205

~~The purchase price allocation will be finalized in the first half of 2011.~~


In millions
Cash and temporary investments	$	19
Accounts and notes receivable, net		70
Inventory		24
Other current assets		2
Plants, properties and equipment, net		103
Goodwill		30
Other intangible assets		38
Total assets acquired		286
Accounts payable and accrued liabilities		66
Deferred tax liability		7
Other liabilities		3
Total liabilities assumed		76
Noncontrolling interest		8
Net assets acquired	$	202

The identifiable intangible assets acquired in connection with the SCA acquisition included the following:


In millions	Estimated Fair Value		Average Remaining Useful Life		Estimated Fair Value		Average Remaining Useful Life
Asset Class:				(at acquisition date)				(at acquisition date	)
Land-use rights	$	29		39 years	$	29		39 years
Customer relationships		9		16 years		9		16 years
Total	$	38			$	38

~~2008:~~On August 4, 2008, International Paper completed the acquisition of the assets of Weyerhaeuser Company’s Containerboard, Packaging and Recycling (CBPR) business for approximately $6 billion in cash, subject to post-closing adjustments. In June 2008, the Company had issued $3 billion of unsecured senior notes in anticipation of the acquisition. The remainder of the purchase price was financed through borrowings under a $2.5 billion bank term loan, $0.4 billion of borrowings under a receivables securitization program and existing cash

~~balances. The CBPR operating results are included in International Paper’s North American Industrial Packaging business from the date of acquisition.~~

~~The following table summarizes the final allocation of the purchase price, plus direct acquisition costs, to the fair value of assets and liabilities acquired.~~

In millions
Cash and temporary investments
   $ 2
Accounts and notes receivable, net
   655
Inventory
   568
Other current assets
   11
Plants, properties and equipment, net
   4,816
Goodwill
   445
Other intangible assets
   65
Deferred charges and other assets
   63
Total assets acquired
   6,625
Accounts payable and accrued liabilities
   463
Other liabilities
   85
Total liabilities assumed
   548
Net assets acquired
   $ 6,077

~~The identifiable intangible assets acquired in connection with the CBPR acquisition included the following:~~

In millions
Estimated
Fair Value

Average
Remaining
Useful Life

Asset Class:

(at acquisition
date
)
Tradenames
   $ 8       4 - 12 years
Patented technology
   15       4 - 12 years
Proprietary software
   16       4 - 5 years
Power agreements
   20       1 - 7 years
Water rights
   6       Indefinite
Total
   $ 65

In connection with the purchase price allocation, inventories were written up by approximately $39 million before taxes ($24 million after taxes) to their estimated fair value. As the related inventories were sold during the 2008 third quarter, this amount was included in Cost of products sold for the quarter.

Additionally, Selling and administrative expenses for the years ended 2009 and 2008 included $87 million in charges before taxes ($54 million after taxes) and $45 million in charges before taxes ($28 million after taxes), respectively, for integration costs associated with the acquisition.

~~The following unaudited pro forma information for the year ended December 31, 2008 represents the results of operations of International Paper as if the~~

CBPR acquisition had occurred on January 1, 2008. This pro forma information does not purport to represent International Paper’s actual results of operations if the transaction described above would have occurred on January 1, 2008, nor is it necessarily indicative of future results. Pro forma information related to the acquisition of SCA Packaging Asia has not been included as it does not have a material effect on the Company’s consolidated results of operations.

JOINT VENTURES

In millions, except per share amounts    2008
Net sales
   $ 27,920
Earnings (loss) from continuing operations
   (1,348 )
Net earnings (loss) (1)
   (1,361 )
Earnings (loss) from continuing operations per common share
   (3.20 )
Net earnings (loss) per common share (1)
   (3.23 )

On April 15, 2011, International Paper and Sun Paper Industry Co. Ltd. entered into a Cooperative Joint Venture agreement to establish Shandong IP &

~~(1)~~

~~Attributable to International Paper Company common shareholders.~~

Sun Food Packaging Co., Ltd. in China. During December 2011, the business license was obtained and International Paper contributed $55 million in cash for a 55% interest in the joint venture and Sun Paper Industry Co. Ltd. contributed land-use rights valued at approximately $33 million, representing a 45% interest. The purpose of the joint venture is to build and operate a new production line to manufacture coated paperboard for food packaging with a designed annual production capacity of 400,000 tons. The financial position and results of operations of this joint venture have been included in International Paper’s consolidated financial statements from the date of formation in December 2011.

NOTE 6 BUSINESSES HELD FOR SALE, DIVESTITURES AND IMPAIRMENTS

DISCONTINUED OPERATIONS

~~2008:~~2011:~~During~~ The sale of the ~~three months ended December 31, 2008,~~Company’s Kraft Papers business that closed in January 2007 contained an earnout provision that could have required KapStone to make an additional payment to International Paper in 2012. Based on the results through the first four years of the earnout period, KapStone concluded that the threshold would be attained and the full earnout payment would be due to International Paper in 2012. On January 3, 2011, International Paper signed an agreement with KapStone to allow KapStone to pay the Company ~~recorded pre-tax gains~~on January 4, 2011, the discounted amount of $9$50 million before taxes ($530 million after taxes) ~~for adjustments to reserves associated with~~that otherwise would have been owed in full under the ~~sale~~agreement in 2012. This amount has been included in Discontinued operations, net of ~~discontinued~~taxes in the accompanying consolidated statement of operations.

~~During~~In the ~~three months ended March 31, 2008,~~third quarter of 2006, the Company ~~recorded a pre-tax charge of $25 million ($16 million after taxes) related to the final settlement of a post-closing adjustment to the purchase price received by the Company for~~completed the sale of its ~~Beverage Packaging~~Brazilian Coated Papers business and restated its financial statements to reflect this business as a $3discontinued operation. Included in the results for this business in 2005 and 2006 were local country tax contingency reserves for which the related statute of limitations has now expired. A $15 million ~~charge before taxes ($2 million after taxes)~~tax benefit for ~~2008 operating losses related to certain wood products facilities.~~

~~FORESTLANDS~~

~~2008:~~ ~~During both~~ the ~~three months ended June 30, 2008 and the three months ended September 30, 2008, a pre-tax gain totaling~~reversal of these reserves plus associated interest income of $6 million ($4 million after taxes) was recorded ~~to adjust reserves related to~~in March 2011, and is included in Discontinued operations, net of taxes in the ~~Company’s 2006 Transformation Plan forestland sales.~~accompanying consolidated statement of operations.

OTHER DIVESTITURES AND IMPAIRMENTS

2011:On August 22, 2011, International Paper announced that it had signed an agreement to sell its Shorewood business to Atlas Holdings, pending regulatory approval and other customary closing conditions. As a result, during 2011, net pre-tax charges of $207 million (after a $246 million tax benefit and a gain of $8 million related to a noncontrolling interest, a net gain of $47 million) were recorded to reduce the carrying value of the Shorewood business to fair market value. As part of the transaction, International Paper will retain a minority interest of approximately 40% in the newly combined AGI-Shorewood business outside the U.S. Since the interest retained represents significant continuing involvement in the operations of the business, the operating results of the Shorewood business have been included in continuing operations in the accompanying consolidated statement of operations instead of Discontinued operations. The sale of the U.S. portion of the Shorewood business to Atlas Holdings closed on December 31, 2011. The sale of the remainder of the Shorewood business occurred during January 2012. The assets of the remainder of the Shorewood business, totaling $196 million at December 31, 2011, are included in Assets of businesses held for sale in current assets in the accompanying consolidated balance sheet. The liabilities of the remainder of the Shorewood business totaling $43 million at December 31, 2011 are included in Liabilities of businesses held for sale in current liabilities in the accompanying consolidated balance sheet. Additionally, approximately $33 million of currency translation adjustment was reflected in OCI related to the remainder of the Shorewood business at December 31, 2011.

Also during 2011, the Company recorded charges totaling $11 million (before and after taxes) to further write down the long-lived assets of its Inverurie, Scotland mill to their estimated fair value.

The net 2011 loss totaling $218 million related to other divestitures and impairments is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

2010:During ~~the three months ended December 31,~~ 2010, the Company recorded a pre-tax gain of $25 million ($15 million after taxes) as a result of the

partial redemption of the 10% interest the Company retained in its Arizona Chemical business after the sale of the business in 2006. The Company received $37 million in cash from the redemption of this interest.

Also, during the three months ended December 31, 2010, a $2 million charge, before and after taxes, was recorded to further write down the long-lived assets of the Company’s Inverurie, Scotland mill, which was closed in March 2009.

The net 2010 gain totaling $23 million ~~discussed above~~related to other divestitures and impairments is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

2009:During ~~the three months ended June 30,~~ 2009, based on a ~~current~~ strategic plan update of projected future operating results of the Company’s Etienne mill in France, a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a ~~$48~~$56 million charge, before and after taxes, was recorded in the Company’s Industrial Packaging industry segment to write down the long-lived assets of the mill to their estimated fair value.

~~During the three months ended December 31, 2009, an $8 million charge, before and after taxes, was recorded in the Company’s Industrial Packaging segment related to the Company’s~~ The Etienne mill ~~in France, which~~ was closed at the end of November 2009. ~~In addition, a pre-tax charge of $3 million ($0 million after taxes) was recorded for other items, of which $2 million, before and after taxes, was recorded in the Industrial Packaging segment.~~

The net 2009 ~~losses~~loss totaling $59 million ~~discussed above are~~related to other divestitures and impairments is included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

~~2008:~~During the three months ended September 30, 2008, based on a current strategic plan update of projected future operating results of the Company’s Inverurie, Scotland mill, a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a $107 million pre-tax charge ($84 million after taxes) was recorded in the Company’s Printing Papers industry segment to write down the long-lived assets

~~of the mill to their estimated fair value. In February 2009, a decision was made to close the mill by the end of March 2009.~~

~~During the three months ended March 31, 2008, a $1 million credit, before and after taxes, was recorded to adjust previously estimated gains/losses of businesses previously sold.~~

~~The net 2008 pre-tax losses totaling $106 million discussed above are included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations.~~

NOTE 7 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

TEMPORARY INVESTMENTS


In millions at December 31	2011		2010
Temporary Investments	$	2,904	$	1,752

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable, net of allowances, by classification were:


In millions at December 31	2010		2009		2011		2010
Accounts and notes receivable:
Trade	$	2,854	$	2,476	$	3,039	$	2,854
Other		185		219		447		185
Total	$	3,039	$	2,695	$	3,486	$	3,039

INVENTORIES

~~Inventories by major category were:~~


In millions at December 31	2010		2009		2011		2010
Raw materials	$	419	$	307	$	368	$	419
Finished pulp, paper and packaging products		1,505		1,443		1,503		1,505
Operating supplies		364		377		390		364
Other		59		52		59		59
Inventories	$	2,347	$	2,179	$	2,320	$	2,347

The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories.

Approximately ~~69%~~70% of total raw materials and finished products inventories were valued using this method. If the first-in, first-out method had been used, it would have increased total inventory balances by approximately ~~$334~~$350 million and ~~$306~~$334 million at December 31, 2011 and 2010, ~~and 2009,~~ respectively.

PLANTS, PROPERTIES AND EQUIPMENT

~~Plants, properties and equipment by major classification were:~~


In millions at December 31	2011		2010
Pulp, paper and packaging facilities
Mills	$	22,494	$	22,935
Packaging plants		6,358		6,534
Other plants, properties and equipment		1,556		1,524
Gross cost		30,408		30,993
Less: Accumulated depreciation		18,591		18,991
Plants, properties and equipment, net	$	11,817	$	12,002

In millions at December 31    2010    2009
Pulp, paper and packaging facilities

Mills
   $ 22,935       $ 22,615
Packaging plants
   6,534       6,348
Other plants, properties and equipment
   1,524       1,542
Gross cost
   30,993       30,505
Less: Accumulated depreciation
   18,991       17,817
Plants, properties and equipment, net
   $ 12,002       $ 12,688

~~Depreciation expense was $1.4 billion for each of the years ended December 31, 2010 and 2009, and $1.3 billion for the year ended December 31, 2008.~~


In millions	2011		2010		2009
Depreciation expense	$	1,263	$	1,396	$	1,416

INTEREST

Cash payments related to interest were as follows:


In millions	2010		2009		2008		2011		2010		2009
Interest payments	$	657	$	656	$	597	$	629	$	657	$	656

Amounts related to interest were as follows:


In millions	2010		2009		2008		2011		2010		2009
Interest expense (a)	$	643	$	702	$	572	$	596	$	643	$	702
Interest income (a)		35		33		80		55		35		33
Capitalized interest costs		14		12		27		22		14		12

(a)

Interest expense and interest income exclude approximately $49 million, $44 million and $117 million in 2011, 2010 and ~~$233 million in 2010,~~ 2009, ~~and 2008,~~ respectively, related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset (see Note 11).

SALE OF FORESTLANDS

On September 23, 2010, the Company finalized the sale of 163,000 acres of properties located in the southeastern United States to an affiliate of Rock Creek Capital (the Partnership) for $199 million, resulting in a $50 million pre-tax gain ($31 million after taxes), after expenses. Cash of $160 million was received at closing, with the balance of $39 million, plus interest, to be received no later than three years from closing. In addition, the Company has ~~received~~retained a 20% ~~profits~~profit interest in the Partnership. The gain on this sale is included in Cost of products sold in the accompanying consolidated statement of operations.

NOTE 8 GOODWILL AND OTHER INTANGIBLES

GOODWILL

The following tables present changes in the goodwill balances as allocated to each business segment for the years ended December 31, ~~2010~~2011 and ~~2009:~~2010:


In millions	Industrial Packaging			Printing Papers			Consumer Packaging			Distri- bution		Total			Industrial Packaging			Printing Papers			Consumer Packaging			Distribution		Total
Balance as of January 1, 2010
Balance as of January 1, 2011
Goodwill	$	1,131		$	2,423		$	1,765		$	400	$	5,719		$	1,151		$	2,418		$	1,768		$	400	$	5,737
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)		0			(1,765	)		(1,664	)		0		(3,429	)
	$	1,131		$	658		$	101		$	400	$	2,290		$	1,151		$	653		$	104		$	400	$	2,308
Reclassifications and other (b)		(3	)		22			3			0		22			(1	)		(67	)		5			0		(63	)
Additions/ reductions		23	(c)		(27	)(d)		0			0		(4	)
Balance as of December 31, 2010
Additions/reductions																7	(c)		88	(d)		6	(e)		0		101
Balance as of December 31, 2011
Goodwill		1,151			2,418			1,768			400		5,737			1,157			2,439			1,779			400		5,775
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)		0			(1,765	)		(1,664	)		0		(3,429	)
Total	$	1,151		$	653		$	104		$	400	$	2,308		$	1,157		$	674		$	115		$	400	$	2,346

(a)

Represents accumulated goodwill impairment charges since the adoption of ASC 350, “Intangibles – Goodwill and Other” in 2002.

(b)

Represents the effects of foreign currency translations and reclassifications.

(c)

Represents purchase price adjustments related to the finalization of the SCA Packaging Asia acquisition.

(d)

Reflects an increase related to the acquisition of Andhra Pradesh Paper Mills in India partially offset by a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.

(e)

Represents the joint venture between IP Asia and Sun Paper Industry Co, Ltd.


In millions	Industrial Packaging			Printing Papers			Consumer Packaging			Distribution		Total
Balance as of January 1, 2010
Goodwill	$	1,131		$	2,423		$	1,765		$	400	$	5,719
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)
	$	1,131		$	658		$	101		$	400	$	2,290
Reclassifications and other (b)		(3	)		22			3			0		22
Additions/reductions		23	(c)		(27	)(d)		0			0		(4	)
Balance as of December 31, 2010
Goodwill		1,151			2,418			1,768			400		5,737
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)
Total	$	1,151		$	653		$	104		$	400	$	2,308

(a)

Represents accumulated goodwill impairment charges since the adoption of ASC 350, “Intangibles – Goodwill and Other” in 2002.

(b)

Represents the effects of foreign currency translations and reclassifications.

(c)

Represents ~~the preliminary~~ purchase price ~~allocation~~adjustments related to the ~~acquisition of~~ SCA Packaging ~~Asia.~~Asia acquisition.

(d)

Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.

No goodwill impairment charges were recorded in 2011, 2010 or 2009.

In millions
Industrial
Packaging
Printing
Papers
Consumer
Packaging
Distri-
bution Total
Balance as of January 1, 2009

Goodwill
$ 989    $ 2,302    $ 1,766    $ 399    $ 5,456
Accumulated impairment losses (a)
0    (1,765 ) (1,664 ) 0    (3,429 )
$ 989    $ 537    $ 102    $ 399    $ 2,027
Reclassifications and other (b)
2    146    0    0    148
Additions/
reductions
140 (c) (25 )(d) (1 ) 1    115
Balance as of
December 31, 2009

Goodwill
1,131    2,423    1,765    400    5,719
Accumulated impairment losses (a)
0    (1,765 ) (1,664 ) 0    (3,429 )
Total
$ 1,131    $ 658    $ 101    $ 400    $ 2,290

OTHER INTANGIBLES

Identifiable intangible assets were comprised of the following:


	2011				2010
In millions at December 31	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships and lists	$	227	$	82	$	245	$	74
Non-compete agreements		72		19		20		18
Tradenames, patents and trademarks		51		21		33		10
Land and water rights		60		3		24		3
Fuel and power agreements		30		16		21		12
Software		37		29		38		25
Other		27		13		40		18
Total (a)	$	504	$	183	$	421	$	160

(a)

~~Represents accumulated goodwill impairment charges since~~The increase in 2011 is primarily due to the ~~adoption~~acquisition of ~~ASC 350, “Intangibles – Goodwill~~APPM and ~~Other”~~the establishment of the Shandong IP & Sun Food Packaging Co., Ltd. joint venture in ~~2002.~~China.

~~(b)~~

~~Represents the effects of foreign currency translations and reclassifications.~~

~~(c)~~

~~Reflects purchase accounting adjustments related to the CBPR acquisition.~~

~~(d)~~

~~Reflects a reduction from tax benefits generated by the deduction of goodwill amortization for tax purposes in Brazil.~~

In the fourth quarter of 2008, in conjunction with annual testing of its reporting units for possible goodwill impairments as of the beginning of the fourth quarter, the Company recorded a $59 million charge to write off all recorded goodwill of its European Coated Paperboard business. Subsequent to this testing date, the Company’s market capitalization declined through December 31, 2008. The Company determined that this decline, and the deterioration during the fourth quarter in economic conditions, represented indicators that required interim testing at year end for possible additional goodwill impairment. As a result, the Company performed an interim test as of December 31, 2008 and recalculated the estimated fair value of its reporting units as of that date using updated future cash flow projections and higher cost-of-capital discount rate assumptions, which resulted in the goodwill for two additional business units, the Company’s U.S. Printing Papers business and its U.S. Coated Paperboard business, being potentially impaired. Based on management’s preliminary estimates, an additional goodwill impairment charge of $379 million was recorded, representing all of the goodwill for the U.S. Coated Paperboard business, as this was management’s best estimate of the minimum impairment charge that would be required upon the completion of a detailed allocation of the business unit fair values to the individual assets and liabilities of each of the respective reporting units. In February 2009, based on additional work performed to date, management determined that it was probable that all of the $1.3 billion of recorded goodwill for the U.S. Printing Papers business would be impaired when testing was completed. Accordingly, an additional goodwill impairment charge of $1.3 billion was recorded as a charge to operating results for the year ended December 31, 2008. During the first quarter of 2009, the Company finalized the testing for these businesses resulting in no changes to the recorded impairment charges.

~~No goodwill impairment charges were recorded in 2010 or 2009.~~

~~OTHER INTANGIBLES~~

~~The net carrying amount of identifiable intangible assets (such as trade names, customer lists, patented technology, etc.), excluding goodwill, was as follows:~~

In millions at December 31 2010 2009
Intangible assets
$ 261 $ 248

The Company recognized the following amounts as amortization expense related to intangible assets:


In millions	2010		2009		2008		2011		2010		2009
Amortization expense related to intangible assets	$	31	$	34	$	36	$	32	$	31	$	34

Based on current intangibles subject to amortization, estimated amortization expense for each of the ~~suc –ceeding~~succeeding years is as follows: ~~2011~~2012 – ~~$31 million, 2012 - $28~~$39 million, 2013 – ~~$22~~$36 million, 2014 – ~~$21~~$33 million, 2015 – ~~$19~~$27 million, 2016 – $26 million, and cumulatively thereafter – ~~$140~~$160 million.

NOTE 9 INCOME TAXES

The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were:


In millions	2010		2009		2008		��	2011		2010		2009
Earnings (loss)
U.S.	$	198	$	905	$	(1,365	)	$	874	$	198	$	905
Non-U.S.		624		294		212			584		624		294
Earnings (loss) from continuing operations before income taxes and equity earnings	$	822	$	1,199	$	(1,153	)	$	1,458	$	822	$	1,199

The provision (benefit) for income taxes by taxing jurisdiction was:


In millions	2010			2009			2008			2011			2010			2009
Current tax provision (benefit)
U.S. federal	$	(249	)	$	228		$	159		$	(78	)	$	(249	)	$	228
U.S. state and local		(19	)		7			(2	)		(19	)		(19	)		7
Non-U.S.		67			74			86			91			67			74
	$	(201	)	$	309		$	243		$	(6	)	$	(201	)	$	309
Deferred tax provision (benefit)
U.S. federal	$	301		$	(63	)	$	(26	)	$	207		$	301		$	(63	)
U.S. state and local		45			41			(16	)		46			45			41
Non-U.S.		76			182			(39	)		64			76			182
	$	422		$	160		$	(81	)	$	317		$	422		$	160
Income tax provision	$	221		$	469		$	162		$	311		$	221		$	469

The Company’s deferred income tax provision (benefit) includes an $8 million benefit, a $0 million provision and a $1 million provision for 2011, 2010 and ~~a $14 million provision for 2010,~~ 2009, ~~and 2008,~~ respectively, for the effect of changes in non-U.S. and U.S. state tax rates.

International Paper made income tax payments, net of refunds, of $44 million, $(135) million and $97 million in 2011, 2010 and ~~$131 million in 2010,~~ 2009, ~~and 2008,~~ respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:


In millions	2010			2009			2008			2011			2010			2009
Earnings (loss) from continuing operations before income taxes and equity earnings	$	822		$	1,199		$	(1,153	)	$	1,458		$	822		$	1,199
Statutory U.S. income tax rate		35	%		35	%		35	%		35	%		35	%		35	%
Tax expense (benefit) using statutory U.S. income tax rate		288			420			(404	)		510			288			420
State and local income taxes		15			32			(12	)		16			15			32
Tax rate and permanent differences on non-U.S. earnings		(69	)		162			(30	)		(34	)		(69	)		162
Net U.S. tax on non-U.S. dividends		16			11			46			23			16			11
Tax benefit on export sales and manufacturing activities		3			(2	)		(13	)
Tax benefit on manufacturing activities											(8	)		3			(2	)
Non-deductible business expenses		8			7			4			6			8			7
Sales of non-strategic assets and goodwill impairments		0			0			622
Sales of non-strategic businesses											(195	)		0			0
Retirement plan dividends		(2	)		(2	)		(3	)		(5	)		(2	)		(2	)
Alternative fuel mixture credits		0			(133	)		0			0			0			(133	)
Cellulosic bio-fuel credits		(40	)		0			0			0			(40	)		0
Tax credits		(25	)		(11	)		(22	)		(7	)		(25	)		(11	)
Medicare subsidy		29			(7	)		(8	)		0			29			(7	)
Tax audits		0			(16	)		(4	)		0			0			(16	)
Other, net		(2	)		8			(14	)		5			(2	)		8
Income tax provision	$	221		$	469		$	162		$	311		$	221		$	469
Effective income tax rate		27	%		39	%		(14	)%		21	%		27	%		39	%

The tax effects of significant temporary differences, representing deferred tax assets and liabilities at December 31, ~~2010~~2011 and ~~2009,~~2010, were as follows:

In millions    2010 2009
Deferred tax assets:

Postretirement benefit accruals
   $ 256    $ 301
Pension obligations
   616    1,104
Alternative minimum and other tax credits
   416    192
Net operating loss carryforwards
   541    534
Compensation reserves
   185    238
Other
   268    265
Gross deferred tax assets
   2,282    2,634
Less: valuation allowance
   (366 ) (346 )
Net deferred tax assets
   $ 1,916    $ 2,288
Deferred tax liabilities:

Plants, properties and equipment
   $ (2,174 ) $ (2,099 )
Forestlands and related installment sales
   (2,061 ) (2,045 )
Gross deferred tax liabilities
   $ (4,235 ) $ (4,144 )
Net deferred tax liability
   $ (2,319 ) $ (1,856 )


In millions	2011			2010
Deferred tax assets:
Postretirement benefit accruals	$	242		$	256
Pension obligations		954			616
Alternative minimum and other tax credits		478			416
Net operating loss carryforwards		536			541
Compensation reserves		189			185
Other		173			268
Gross deferred tax assets		2,572			2,282
Less: valuation allowance		(424	)		(366	)
Net deferred tax assets	$	2,148		$	1,916
Deferred tax liabilities:
Plants, properties and equipment	$	(2,383	)	$	(2,174	)
Forestlands and related installment sales		(1,833	)		(2,061	)
Gross deferred tax liabilities	$	(4,216	)	$	(4,235	)
Net deferred tax liability	$	(2,068	)	$	(2,319	)

Deferred tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred income tax assets, Deferred charges and other assets, Other accrued liabilities, ~~and~~ Deferred income ~~taxes.~~taxes, Assets of businesses held for

sale and Liabilities of businesses held for sale. The ~~decrease~~increase in ~~2010~~2011 in deferred tax assets principally relates to the tax impact of changes in recorded qualified pension liabilities. The ~~increase~~decrease in deferred income tax liabilities principally relates to timberlands installment sale gain recognition offset by more tax depreciation taken on the Company’s assets ~~purchased~~placed in ~~2010.~~service in 2011. Certain tax attributes reflected on our tax returns as filed, differ significantly from those reflected in the deferred tax accounts due to uncertain tax benefits.

The valuation allowance for deferred tax assets as of December 31, 2011 was $424 million. The net change in the total valuation allowance for the year ended December 31, ~~2010,~~2011, was an increase of ~~$20 million which~~$58 million. The increase consists primarily of an allowance applied to state tax ~~credits~~capital losses generated in the current ~~year.~~year and non-U.S. deferred tax assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008~~2009 is as follows:


In millions	2010			2009			2008			2011			2010			2009
Balance at January 1	$	(308	)	$	(435	)	$	(794	)	$	(199	)	$	(308	)	$	(435	)
Additions based on tax positions related to current year		(12	)		(28	)		(14	)		(2	)		(12	)		(28	)
Additions for tax positions of prior years		(50	)		(82	)		(66	)		(719	)		(50	)		(82	)
Reductions for tax positions of prior years		97			72			67			29			97			72
Settlements		0			174			352			2			0			174
Expiration of statutes of limitations		70			2			3			25			70			2
Currency translation adjustment		4			(11	)		17			7			4			(11	)
Balance at December 31	$	(199	)	$	(308	)	$	(435	)	$	(857	)	$	(199	)	$	(308	)

Included in the balance at December 31, 2011, 2010 and 2009 ~~and 2008~~ are $9 million, $13 million ~~$56 million~~ and $9$56 million, respectively, for tax positions for which the ultimate benefits are highly certain, but for which there is uncertainty about the timing of such benefits. However, except for the possible effect of any penalties, any disallowance that would change the timing of these benefits would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately ~~$100~~$88 million and ~~$95~~$100 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 2011 and 2010, ~~and 2009,~~ respectively.

The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years 2002 through 2010 remain open and subject to ~~examina-~~

~~tion~~examination by the relevant tax authorities. The Company is typically engaged in various tax examinations at any given time, both in the United States and overseas. Currently, the Company is engaged in discussions with the U.S. Internal Revenue Service regarding the examination of tax years 2006 ~~and 2007.~~through 2009. As a result of these discussions, other pending tax audit settlements, and the expiration of statutes of limitation, the Company currently estimates that the amount of unrecognized tax benefits could be reduced by up to ~~$75~~$45 million during the next twelve months. During ~~2010,~~2011, unrecognized tax benefits ~~decreased~~increased by ~~$109~~$658 million. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.

Included in the Company’s 2011, 2010 ~~2009~~ and ~~2008~~2009 income tax ~~provisions~~provision (benefit) are $(266) million, $(143) million ~~$279 million~~ and ~~$(207)~~$279 million, respectively, related to special items. The components of the net provisions related to special items were as follows:


In millions	2010			2009			2008			2011			2010			2009
Special items and other charges:
Restructuring and other charges	$	(159	)	$	(534	)	$	(175	)	$	(293	)	$	(149	)	$	(534)
Alternative fuel mixture credit		0			650			0			0			0			650
Redemption of Arizona Chemical interest		10			0			0
Tax-related adjustments:
Internal restructurings											24			0			0
India deal costs											9			0			0
IP UK valuation allowance release											(13	)		0			0
Settlement of tax audits and legislative changes											5			0			(26	)
Incentive plan deferred tax write-off		14			0			0			0			14			0
Medicare D deferred tax write-off		32			0			0			0			32			0
Cellulosic bio-fuel credits											0			(40	)		0
Valuation allowance for Louisiana recycle credits											0			0			15
Valuation allowance for net deferred tax assets in France		0			156			0			0			0			156
Settlement of federal tax audits		0			(26	)		0
Valuation allowance for Louisiana recycling credits		0			15			0
Restructuring of international operations		0			0			(40	)
Impairment of certain non-U.S. assets		0			0			(23	)
Cellulosic bio-fuel credits		(40	)		0			0
Tax on Ilim joint venture gain		0			0			29
Other tax adjustments		0			18			2			2			0			18
Income tax provision (benefit) related to special items	$	(143	)	$	279		$	(207	)	$	(266	)	$	(143	)	$	279

Excluding the impact of special items, the 2011, 2010 ~~2009~~ and ~~2008~~2009 tax provisions were $577 million, $364 million ~~$190 million~~ and ~~$369~~$190 million, respectively, or ~~30%~~32%, 30% and ~~31.5%~~30%, respectively, of pre-tax earnings before equity earnings.

The following details the scheduled expiration dates of the Company’s net operating loss and tax credit carryforwards:


In millions	2011 Through 2020		2021 Through 2030		Indefinite		Total		2012 Through 2021		2022 Through 2031		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	14	$	13	$	344	$	371	$	15	$	414	$	344	$	773
State taxing jurisdiction NOLs		106		135		0		241		152		159		0		311
U.S. federal, non- U.S. and state tax credit carryforwards		81		20		399		500		166		81		371		618
State capital loss carryforwards		1		0		0		1		25		0		0		25
Total	$	202	$	168	$	743	$	1,113	$	358	$	654	$	715	$	1,727

Deferred income taxes are not provided for temporary differences of approximately $4.5 billion, $4.3 billion ~~$3.5 billion~~ and ~~$2.6~~$3.5 billion as of December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, representing earnings of non-U.S. subsidiaries intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences is not practicable.

NOTE 10 COMMITMENTS AND CONTINGENT LIABILITIES

PURCHASE COMMITMENTS AND OPERATING LEASES

Certain property, machinery and equipment are leased under cancelable and non-cancelable agreements.

Unconditional purchase obligations have been entered into in the ordinary course of business, principally for capital projects and the purchase of certain pulpwood, logs, wood chips, raw materials, energy and services, including fiber supply agreements to purchase pulpwood that were entered into concurrently with the Company’s 2006 Transformation Plan forestland ~~sales.~~sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business.

At December 31, ~~2010,~~2011, total future minimum commitments under existing non-cancelable operating leases and purchase obligations were as follows:


In millions	2011		2012		2013		2014		2015		Thereafter		2012		2013		2014		2015		2016		Thereafter
Lease obligations	$	162	$	135	$	110	$	87	$	75	$	158	$	160	$	129	$	103	$	86	$	63	$	146
Purchase obligations (a)		2,564		749		616		524		515		3,174		2,647		637		559		544		530		2,484
Total	$	2,726	$	884	$	726	$	611	$	590	$	3,332	$	2,807	$	766	$	662	$	630	$	593	$	2,630

(a)

Includes ~~$2.3~~$3.8 billion relating to fiber supply agreements entered into at the time of the Company’s 2006 Transformation Plan forestland ~~sales.~~sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company’s Containerboard, Packaging and Recycling business.

Rent expense was $205 million, $210 million and $216 million for 2011, 2010 and ~~$205 million for 2010,~~ 2009, ~~and 2008,~~ respectively.

GUARANTEES

In connection with sales of businesses, property, equipment, forestlands and other assets, International Paper commonly makes representations and warranties relating to such businesses or assets, and may agree to indemnify buyers with respect to tax and environmental liabilities, breaches of representations and warranties, and other matters. Where liabilities for such matters are determined to be probable and subject to reasonable estimation, accrued liabilities are recorded at the time of sale as a cost of the transaction.

In May 2008, a recovery boiler at the Company’s Vicksburg, Mississippi facility exploded, resulting in one fatality and injuries to employees of contractors working on the site. The Company has resolved all of the eight original lawsuits arising from this matter. However, a new matter was filed January 4, 2011. Nevertheless, the Company believes it has adequate insurance to resolve any remaining matters, and the settlement of these lawsuits will not have a material adverse effect on its consolidated financial statements.LITIGATION

International Paper has been named as a potentially responsible party in ~~various~~ environmental remediation actions ~~(See Legal Proceedings on page 45)~~under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Most of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is typically allocated among the many potentially responsible parties. Remedial costs are recorded in the consolidated financial statements when they become probable and reasonably estimable. International Paper has estimated the probable liability associated with these matters to be approximately $98 million in the aggregate.

One of the matters referenced above is a closed wood treating facility located in Cass Lake, Minnesota. During 2009, in connection with an environmental

site remediation action under CERCLA, International Paper submitted to the EPA a feasibility ~~study for a closed wood treating facility located in Cass Lake, Minnesota.~~study. In ~~November 2010~~June 2011, the EPA ~~provided comments that required International Paper to narrow~~selected and published a proposed soil remedy at the ~~remedial action alternatives identified in the study.~~site with an estimated cost of $46 million. As a result, ~~of this recent information,~~ the Company ~~increased its~~has adjusted the overall remediation reserve for ~~this~~the site ~~from $6~~to $51 million to ~~$24 million in~~address this recent selection of an alternative for the ~~fourth quarter~~soil remediation component of ~~2010. The final remediation plan for this~~the overall site ~~has not been approved by~~remedy. In October 2011, the EPA ~~and of~~released a public statement indicating that the ~~five alternatives,~~final soil remedy decision would be delayed. In the ~~Company’s reserve reflects the low end of the range of estimated remediation costs, since, at this time, no one of the alternatives proposed by~~unlikely event that the EPA ~~is any~~changes its proposed soil remedy and approves instead a more ~~likely than the others to be approved. If the most~~ expensive ~~of the~~ clean-up ~~alternatives were approved by the EPA,~~alternative, the remediation costs could be material, and significantly higher than amounts currently recorded.

In ~~June 2010, the South Carolina Department of Health and Environmental Control (DHEC) finalized its previously proposed consent order~~addition to the above matters, other remediation costs typically associated with the cleanup of hazardous substances at the Company’s current, closed or formerly-owned facilities, and recorded as liabilities in the balance sheet, totaled approximately $47 million. Other than as described above, completion of required remedial actions is not expected to have a material effect on our consolidated financial statements.

paper de-inking and recycling. Also named as defendants in the suit are NCR Corporation and Weyerhaeuser Company. In mid-2011, the suit was transferred from District Court for the Eastern District of Wisconsin to the District Court for the Western District of Michigan. The Company is involved in the early phases of discovery and believes it is premature to predict the outcome or to estimate the amount or range of loss, if any, which may be incurred.

In December, 2011, Harris County, Texas filed a suit against the Company in Harris County District Court seeking civil ~~penalty~~penalties with regard to the alleged discharge of ~~$115,000. The penalty was levied~~dioxin into the San Jacinto River since 1965 from the San Jacinto River Superfund Site. Also named as defendants in this action are McGinnis Industrial Maintenance Corporation, Waste Management, Inc. and Waste Management of Texas, Inc. Harris County is seeking civil penalties pursuant to the Texas Water Code, which provides for ~~self-disclosed failures~~the imposition of civil penalties between $50 and $25,000 per day.

On April 8, 2011, the United States District Court for the Northern District of Illinois denied motions by the ~~Company’s Georgetown, South Carolina mill~~Company and eight other U.S. and Canadian containerboard producers to ~~operate~~dismiss a lawsuit alleging that these producers violated the Sherman Act by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the lawsuit seek certification of a nationwide class of direct purchasers of containerboard products, treble damages, and costs, including attorneys’ fees. In January 2011, the Company was named as a defendant in a lawsuit filed in state court in Cocke County, Tennessee alleging that the Company and other containerboard producers violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the lawsuit seek certification of a class of Tennessee indirect purchasers of containerboard products, damages, and costs, including attorneys’ fees. The Company believes the allegations in both lawsuits are without merit, but both lawsuits are in preliminary stages and the costs and

~~within carbon monoxide and total reduced sulfur emission limits under~~other effects of pending litigation cannot be reasonably estimated. Although we believe the ~~mill’s Part 70 (Title V) Air Quality Operating Permit.~~outcome of these lawsuits will not have a material adverse effect on our business or consolidated financial statements, there can be no assurance that the outcome of any lawsuit or claim will be as expected.

~~SUMMARY~~OTHER

The Company is ~~also~~ involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, contracts, sales of property, intellectual property, personal injury, labor and employment and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any of the lawsuits or claims that are pending or threatened or all of them combined (other than those that cannot be assessed due to their preliminary nature), will not have a material ~~adverse~~ effect on its consolidated financial statements.

NOTE 11 VARIABLE INTEREST ENTITIES AND PREFERRED SECURITIES OF SUBSIDIARIES

VARIABLE INTEREST ENTITIES

In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the Timber Notes) totaling approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their August 2016 maturity, are supported by irrevocable letters of credit obtained by the buyers of the forestlands.

During ~~the three months ended December 31,~~ 2006, International Paper contributed the Timber Notes to newly formed entities (the Borrower Entities) in exchange for Class A and Class B interests in these entities. Subsequently, International Paper contributed its $200 million Class A interests in the Borrower Entities, along with approximately $400 million of International Paper promissory notes, to other newly formed entities (the Investor Entities,

and together with the Borrower Entities, the Entities) in exchange for Class A and Class B interests in these entities, and simultaneously sold its Class A interest in the Investor Entities to a third party investor. As a result, at December 31, 2006, International Paper held Class B interests in the Borrower Entities and Class B interests in the Investor ~~entities~~Entities valued at approximately $5.0 billion. International Paper has no obligation to make any further capital contributions to these Entities and did not provide any financial support that was not previously contractually required for the years ended December 31, 2011, 2010 ~~2009~~ or ~~2008.~~2009.

Following the 2006 sale of forestlands and creation of the Entities discussed above, the Timber Notes were used as collateral for borrowings from a third party lender, which effectively monetized the Timber Notes. Certain provisions of the respective loan agreements required any bank issuing letters of credit supporting the Timber Notes to maintain a credit rating above a specified threshold. In the event the credit rating of a letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days by letters of credit from a qualifying institution. The Company, retained to provide management services for the third-party entities that hold the Timber Notes, has, as required by the loan agreements, successfully replaced banks that fell below the specified threshold.

Also during 2006, the Entities acquired approximately $4.8 billion of International Paper debt obligations for cash, resulting in a total of approximately $5.2 billion of International Paper debt obligations held by the Entities at December 31, 2006. The various agreements entered into in connection with these transactions provide that International Paper has, and intends to ~~affect,~~effect, a legal right to offset its obligation under these debt instruments with its investments in the Entities. Accordingly, for financial reporting purposes, International Paper has offset approximately ~~$5.1~~$5.2 billion of Class B interests in the ~~entities~~Entities against ~~$5.1~~$5.2 billion of International Paper debt obligations held by these Entities at December 31, ~~2010~~2011 and ~~2009.~~2010. Despite the offset treatment, these remain debt obligations of International Paper. Remaining borrowings of $92 million and $129 million at December 31, 2011 and ~~$144 million for~~ 2010, ~~and 2009,~~ respectively, are included in floating rate notes due 2011 – ~~2016~~2017 in the summary of long-term debt in Note 12. Additional debt related to the above transaction of $38 million ~~and $46 million~~ is included in short-term notes in the summary of long-term debt in Note 12 for both 2011 and 2010.

On February 5, 2010, Moody’s Investor Services reduced its credit rating of senior unsecured long-term debt of the Royal Bank of Scotland N.V. (formerly ABN AMRO Bank N.V.), which issued letters of credit that support $1.4 billion of the Timber Notes, below the specified threshold. The letters of credit were successfully replaced with letters of credit from another qualifying institution.

On October 7, 2011, Moody’s Investor Services reduced its credit rating of senior unsecured long-term debt of the Royal Bank of Scotland Group Plc, which issued letters of credit that support $1.6 billion of the Timber Notes, below the specified threshold. Letters of credit worth $842 million were successfully replaced with letters of credit from other qualifying institutions. The Company and ~~2009, respectively.~~third party managing member instituted a replacement waiver for the remaining $797 million.

On November 29, 2011, Standard and Poors reduced its credit rating of senior unsecured long-term debt of Lloyds TSB Bank Plc, which issues letters of credit that support $1.2 billion of the Timber Notes, below the specified threshold. The letters of credit were successfully replaced with letters of credit from another qualifying institution.

On January 23, 2012, Standard and Poors reduced its credit rating of senior unsecured long-term debt of Société Générale SA, which issues letters of credit that support $666 million of the Timber Notes, below the specified threshold. The Company expects that the replacement of the letters of credit will be completed within the required 60-day period.

Activity between the Company and the Entities was as follows:


In millions	2011		2010		2009
Revenue (loss) (a)	$	49	$	42	$	112
Expense (a)		79		79		150
Cash receipts (b)		28		32		96
Cash payments (c)		79		82		190

(a)

(b)

The cash receipts are equity distributions from the Entities to International Paper.

(c)

The semi-annual payments include both interest and principal on the associated debt obligations discussed above.

Based on an analysis of the Entities discussed above under guidance that considers the potential magnitude of the variability in the structures and which party has a controlling financial interest, International Paper determined that it is not the primary beneficiary of the Entities, and therefore, should not consolidate its investments in these entities. It was also determined that the source of variability in the structure is the value of the Timber Notes, the assets most significantly impacting the structure’s economic performance. The credit quality of the Timber Notes is supported by irrevocable letters of credit obtained by third party buyers which are 100% cash collateralized. International Paper analyzed which party has control over the economic performance of each entity, and concluded International Paper does not have control over significant decisions surrounding the Timber Notes and letters of credit and therefore is not the primary beneficiary. The Company’s maximum exposure to loss equals the value of the Timber Notes; however, an analysis performed by the Company concluded the likelihood of this exposure is remote.

International Paper also ~~holds~~held variable interests in two financing entities that were used to monetize long-term notes received from the sale of forestlands in 2001 and 2002. International Paper transferred notes (the Monetized Notes, with an original maturity of 10 years from inception) and cash having a value of approximately $1.0 billion to these entities in exchange for preferred interests, and accounted for the transfers as a sale of the notes with no associated gain or loss. In the same period, the entities acquired approximately $1.0 billion of International Paper debt obligations for cash. International Paper has no obligation to make any further capital contributions to these entities and did not provide any financial support that was not previously contractually required during the years ended December 31, 2011, 2010 ~~2009~~ or ~~2008. At~~2009.

Activity between the Company and the 2001 financing entities was as follows:


In millions	2011		2010			2009
Revenue (loss) (a)	$	1	$	(1	)	$	1
Expense (a)		3		12			13
Cash receipts (b)		0		4			8
Cash payments (c)		3		12			22

(a)

(b)

The cash receipts are equity distributions from the 2001 financing entities to International Paper.

(c)

The cash payments include both interest and principal on the associated debt obligations.

The 2001 Monetized Notes of $499 million matured on March 16, 2011. Following their maturity, International Paper purchased the Class A preferred interest in the 2001 financing entities from an external third party for $21 million. As a result of the purchase, effective March 16, 2011, International Paper owned 100% of the 2001 financing entities. Based on an analysis performed by the Company after the purchase, under guidance that considers the potential magnitude of the variability in the structure and which party has a controlling financial interest, International Paper determined that it was the primary beneficiary of the 2001 financing entities and thus consolidated the entities effective March 16, 2011.

Due to the maturity of the 2001 Monetized Notes and consolidation of the 2001 financing entities, Notes payable and current maturities of long-term debt decreased by $21 million in the first quarter of 2011. Deferred tax liabilities associated with the 2001 forestlands sales decreased by $164 million. Effective April 30, 2011, International Paper liquidated its interest in the 2001 financing entities.

The Company retained no interest in the 2001 financing entities at December 31, 2011, but retained a preferred interest in the entities of $542 million at December 31, 2010, ~~International Paper’s $542 million preferred interest in one of the entities has been~~which was offset against related debt obligations since International Paper ~~has,~~had, and ~~intends~~intended to ~~affect,~~effect, a legal right of offset to net-settle these two amounts. ~~Other outstanding~~Outstanding debt related to the ~~above transactions~~2001 financing entities of ~~$464~~$2 million is included in short-term notes, and ~~$465~~$19 million is included in floating rate notes due 2011 – ~~2016,~~2017 in the summary of long-term debt in Note 12 for 2010.

Activity between the Company and $4the 2002 financing entities was as follows:


In millions	2011		2010		2009
Revenue (loss) (a)	$	2	$	5	$	6
Expense (b)		3		8		11
Cash receipts (c)		192		3		4
Cash payments (d)		244		8		9

(a)

The revenue is included in Equity earnings (losses) in the accompanying consolidated statement of operations.

(b)

The expense is included in Interest expense, net in the accompanying consolidated statement of operations.

(c)

The cash receipts are equity distributions from the 2002 financing entities to International Paper and cash receipts from the maturity of the 2002 Monetized Notes.

(d)

The payments include both interest and principal on the associated debt obligations.

On May 31, 2011, the third-party equity holder of the 2002 financing entities retired its Class A interest in the entities for $51 million. As a result of the retirement, effective May 31, 2011, International Paper owns 100% of the 2002 financing entities. Based on an analysis performed by the Company after the retirement, under guidance that considers the potential magnitude of the variability in the structure and which party has controlling financial interest, International Paper determined that it is the primary beneficiary of the 2002 financing entities and thus consolidated the entities effective May 31, 2011.

Due to the consolidation of the 2002 financing entities, Notes payable and current maturities of long-term debt increased $165 million and $7Long-term debt decreased $211 million. In addition, Investments decreased $486 million due to the elimination of the Company’s variable interest in the 2002 financing entities, while Accounts and notes receivable, net increased $441 million due to the consolidation of the 2002 Monetized Notes.

During the year ended December 31, 2011 approximately $191 million of the 2002 Monetized Notes matured. As a result of the maturities, Accounts and notes receivable, net and Notes payable and current maturities of long-term debt decreased $191 million and Deferred tax liabilities associated with the 2002 forestlands sales decreased $50 million.

Outstanding debt related to the 2002 financing entities of $2 million is included in short-term notes in the summary of long-term debt in Note 12 ~~for 2010 and 2009, respectively.~~

~~Based on an analysis of~~at December 31, 2010. Additional debt related to these entities ~~under guidance that considers the potential magnitude~~ of ~~the variability~~$158 million and $445 million is included in floating rate notes due 2011 – 2017 in the ~~structures~~summary of long-term debt in Note 12 at December 31, 2011 and 2010, respectively. The Company retained no investment interest in the 2002 financing entities at December 31, 2011 but retained an interest of $486 million at December 31, 2010, which ~~party has a controlling financial interest, International Paper determined that it~~ is ~~not~~included in Investments in the ~~primary beneficiary~~accompanying consolidated balance sheet. The 2002 Monetized Notes of $252 million are included in Accounts and notes receivable, net in the accompanying consolidated balance sheet at December 31, 2011.

The use of the above entities facilitated the monetization of the credit enhanced Timber and ~~therefore, should not con-~~Monetized Notes in a cost effective manner by increasing

~~solidate its investments in these entities. It was also determined~~the borrowing capacity and lowering the interest rate while continuing to preserve the tax deferral that resulted from the ~~source of variability in~~forestlands installment sales and the structure is the value of the Timber Notes and Monetized Notes, the assets most significantly impacting each structure’s economic performance. The credit quality of the Timber Notes and Monetized Notes are supported by irrevocable letters of credit obtained by third party buyers which are 100% cash collateralized. International Paper analyzed which party has control over the economic performance of each entity, and concluded International Paper does not have control over significant decisions surrounding the Timber Notes, Monetized Notes and letters of credit and therefore is not the primary beneficiary. The Company’s maximum exposure to loss equals the value of the Timber Notes and Monetized Notes; however, an analysis performed by the Company concluded the likelihood of this exposure is remote.offset accounting treatment described above.

PREFERRED SECURITIES OF SUBSIDIARIES

In March 2003, Southeast Timber, Inc. (Southeast Timber), a consolidated subsidiary of International Paper, issued $150 million of preferred securities to a private investor with future dividend payments based on LIBOR. Southeast Timber, which through a subsidiary initially held approximately 1.5 million acres of forestlands in the southern United States, was International Paper’s primary vehicle for sales of southern forestlands. As of December 31, ~~2010,~~2011, substantially all of these forestlands have been sold. These preferred securities may be put back to International Paper by the private investor upon the occurrence of certain events, and have a liquidation preference that approximates their face amount. The $150 million preferred third-party interest is included in Noncontrolling interests in the accompanying consolidated balance sheet. Distributions paid to the third-party investor were $5 million, $5 million and $6 million in 2011, 2010 and ~~$10 million in 2010,~~ 2009, ~~and 2008,~~ respectively. The expense related to these preferred securities is shown in Net earnings (loss) attributable to noncontrolling interests in the accompanying consolidated statement of operations.

NOTE 12 DEBT AND LINES OF CREDIT

~~During the three months ended September 30, 2010, International Paper repaid approximately $111 mil-~~

~~lion of notes with interest rates ranging from 5.375% to 6.8% and original maturities from 2016 to 2024.~~

In May 2010, International Paper repaid approximately $108 million of notes with interest rates ranging from 5.3% to 9.375% and original maturities from 2015 to 2019. Pre-tax early debt retirement costs of $21 million related to these debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations (offset by a $3 million gain on associated interest rate swaps as discussed in Note 13).

During the three months ended March 31, 2010, International Paper repaid approximately $120 million of notes with interest rates ranging from 5.25% to 7.4% and original maturities from 2010 to 2027. Pre-tax early debt retirement costs of $5 million related to these debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations (offset by a $1 million gain on associated interest rate swaps as discussed in Note 13).

~~In December 2009,~~2011, International Paper issued ~~$750~~$900 million of ~~7.3%~~4.75% senior unsecured notes with a maturity date in February 2022 and $600 million of 6% senior unsecured notes with a maturity date in November ~~2039. The proceeds from this borrowing, along with available cash, were used~~2041. Subsequent to ~~repay~~ the ~~remaining $1 billion of the $2.5 billion long-term debt issued~~balance sheet date, in ~~connection with the CBPR business acquisition. During 2009, additional repayments related to this debt totaled approximately $1.4 billion.~~

~~Also in December 2009,~~February 2012, International Paper ~~Investments (Luxembourg) S.a.r.l.,~~issued a ~~wholly-owned subsidiary of International Paper, repaid $214 million of notes~~$1.2 billion term loan with an interest rate of LIBOR plus ~~a margin of 40~~138 basis points and ~~an original maturity in 2010. Other debt activity during the three months ended December 31, 2009 included the repayment of approximately $235~~a $200 million ~~of notes~~term loan with interest rates ranging from 4.0% to 9.375% and original maturities from 2009 to 2038. Pre-tax early debt retirement costs of $36 million related to these debt repayments during the three months ended December 31, 2009 are included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~related to these debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations.~~

In May 2009, International Paper issued $1 billion of 9.375% senior unsecured notes with a maturity date in May 2019. The proceeds from this borrowing were used to repay approximately $875 million of notes with interest rates ranging from 4.0% to 9.25% and original maturities from 2010 to 2012. Also in April 2009, International Paper Company Europe Ltd, a wholly-owned subsidiary of International Paper, repaid $75 million of notes issued in connection with the Ilim Holding S.A. joint venture that had matured. Pre-tax early debt retirement costs of $46 million related to debt repayments during the three months ended June 30, 2009 are included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~In March 2009, Luxembourg borrowed $468 million of long-term debt with~~ an ~~initial~~ interest rate of LIBOR plus ~~a margin of 450~~175 basis points, ~~that varied depending upon the credit rating of the Company, and a~~both with maturity ~~date~~dates in ~~March 2012. International Paper used the $468 million of~~2017. The proceeds from these borrowings were used, along with available cash, to fund the ~~loan and cash~~acquisition of ~~approximately $170 million~~Temple-Inland.

Amounts related to ~~repay its 500 million euro-denominated~~early debt ~~(equivalent to $638 million at date of payment) with an original maturity date in August 2009. As of September 30, 2009, the $468 million loan was repaid. Other debt activity~~extinguishment during the ~~three months~~years ended ~~March~~December 31, 2011, 2010 and 2009 ~~included the repayment of approximately $366 million of notes with interest rates ranging from 4.25% to 5.0% that had matured.~~were as follows:


In millions	2011		2010		2009
Debt reductions (a)	$	129	$	393	$	5,089
Pre-tax early debt extinguishment costs (b)		32		39		185

(a)

Reductions related to notes with interest rates ranging from 4.00% to 9.375% with original maturities from 2010 to 2039 for the years ended December 31, 2011, 2010 and 2009.

(b)

Amounts are included in Restructuring and other charges in the accompanying consolidated statements of operations.

A summary of long-term debt follows:

In millions at December 31    2010 �� 2009
8.7% to 10% notes - due 2038
   $ 274       $ 280
9 3/8% note - due 2019
   907       939
9.25% debentures - due 2011
   9       9
7.95% debentures - due 2018
   1,561       1,653
7.5% notes - due 2021
   999       999
7.4% debentures - due 2014
   303       309
7.3% notes - due 2039
   725       748
6 7/8% notes - due 2023 - 2029
   130       130
6.65% to 6.75% notes - due 2011
   36       36
6.4% to 7.75% debentures due 2025 - 2027
   141       158
5.85% notes - due 2012
   38       38
5.25% to 5.5% notes - due 2014 - 2016
   701       732
Floating rate notes - due 2011 - 2016 (a)
   593       637
Environmental and industrial development bonds - due 2011 - 2034 (b)
   1,892       1,992
Short-term notes (c)
   210       224
Other (d)
   152       149
Total (e)
   8,671       9,033
Less: current maturities
   313       304
Long-term debt
   $ 8,358       $ 8,729


In millions at December 31	2011		2010
8.7% to 10% notes – due 2038	$	273	$	274
9 3/8% note – due 2019		844		907
9.25% debentures – due 2011		0		9
7.95% debentures – due 2018		1,505		1,561
7.5% notes – due 2021		999		999
7.4% debentures – due 2014		303		303
7.3% notes – due 2039		725		725
6 7/8% notes – due 2023 – 2029		130		130
6.65% to 6.75% notes – due 2011 & 2037		4		36
6.4% to 7.75% debentures due 2025 – 2027		141		141
6.0% notes – due 2041		600		0
5.85% notes – due 2012		38		38
5.25% to 5.5% notes – due 2014 – 2016		701		701
4.75% notes – due 2022		900		0
Floating rate notes – due 2011 – 2017 (a)		356		593
Environmental and industrial development bonds – due 2011 – 2035 (b)		1,958		1,892
Short-term notes (c)		279		210
Other (d)		152		152
Total (e)		9,908		8,671
Less: current maturities		719		313
Long-term debt	$	9,189	$	8,358

(a)

The weighted average interest rate on these notes was 1.9% in 2011 and 1.5% in ~~2010 and 2.0% in 2009.~~2010.

(b)

The weighted average interest rate on these bonds was 5.5% in 2011 and 5.6% in ~~2010 and 2009.~~2010.

(c)

The weighted average interest rate was 5.0% in 2011 and 3.2% in ~~2010~~2010. Includes $173 million at December 31, 2011 and ~~4.1% in 2009. Includes~~ $146 million at December 31, 2010 ~~and $161 million at December 31, 2009~~ related to non-U.S. denominated borrowings with a weighted average interest rate of 5.9% in 2011 and 4.3% in ~~2010 and 4.8% in 2009.~~2010.

(d)

Includes anno unamortized gain ~~of $8 million~~or loss at December 31, ~~2010~~2011 and ~~a loss of $18~~an $8 million gain at December 31, ~~2009,~~2010, related to interest rate swaps treated as fair value hedges. Also includes $79 million at December 31, 2011 and $70 million at December 31, 2010, ~~and $80 million at December 31, 2009,~~ related to the unamortized gain on interest rate swap unwinds (see Note 13).

(e)

The fair market value was approximately $11.2 billion at December 31, 2011 and $9.7 billion at December 31, ~~2010 and December 31, 2009.~~2010.

In addition to the long-term debt obligations shown above, International Paper has ~~$5.7~~$5.2 billion of debt obligations payable to non-consolidated variable interest entities having principal payments of ~~$542 million due 2011 and $5.1~~$5.2 billion due in 2016, for which International Paper has, and intends to ~~affect,~~effect, a legal right to offset these obligations with Class B interests held in the entities. Accordingly, in the accompanying consolidated balance sheet, International Paper has offset the ~~$5.7~~$5.2 billion of debt obligations with ~~$5.7~~$5.2 billion of Class B interests in these entities as of December 31, ~~2010~~2011 (see Note 11).

Total maturities of long-term debt over the next five years are ~~2011 – $313 million;~~ 2012 – ~~$324~~$719 million; 2013 – ~~$135~~$168 million; 2014 ~~- $559~~– $571 million; 2015 – $455 million; and ~~2015~~2016 – ~~$786~~$452 million. At December 31, 2010, ~~and 2009,~~ International Paper classified $100 million ~~and $450 million, respectively,~~ of current maturities of long-term debt as Long-term debt. International Paper has the intent and ability to renew or convert these obligations, as evidenced by the available bank credit agreements described below.

At December 31, ~~2010,~~2011, International Paper’s contractually committed credit facilities (the Agreements) totaled $2.5 billion. The Agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The Agreements include a $1.5 billion contractually committed bank facility that expires in ~~November 2012~~August 2016 and has a facility fee of ~~0.50%~~0.175% payable quarterly. The Agreements also include up to $1.0 billion of commercial paper-based financings based on eligible receivables balances ($~~877~~919 million available as of December 31, ~~2010)~~2011) under a receivables securitization program. On January ~~12, 2011,~~11, 2012, the Company amended the

receivables securitization ~~programs~~program to extend the maturity date from January ~~2011~~2012 to January ~~2012.~~2013. The amended agreement has a facility fee of ~~0.40%~~0.35% payable monthly. At December 31, ~~2010,~~2011, there were no borrowings under either the bank facility or receivables securitization program.

NOTE 13 DERIVATIVES AND HEDGING ACTIVITIES

International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet the hedge accounting criteria, International Paper, at inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying ~~exposure,~~exposure.

INTEREST RATE RISK MANAGEMENT

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.

Interest rate swaps that meet specific accounting criteria are accounted for as ~~well as the risk management objective and strategy for undertaking each hedge transaction. Derivatives are recorded in the consolidated balance sheet at~~ fair value ~~determined using available market information~~ or ~~other appropriate valuation methodologies, in Other current assets, Deferred charges and other assets, Other accrued liabilities or Other liabilities. The earnings impact resulting from~~cash flow hedges. For fair value hedges, the changes in the fair value of ~~derivative~~both the hedging instruments ~~is recorded in the same line item in the consolidated statement of operations as~~and the underlying ~~exposure being hedged or~~debt obligations are immediately recognized in ~~Accumulated other comprehensive income (AOCI) for derivatives that qualify as~~interest expense. For cash flow ~~hedges. Any ineffective~~hedges, the effective portion of ~~a financial instrument’s change in fair value is recognized currently in earnings together with~~the changes in the fair value of ~~any derivatives not designated as hedges.~~

~~Foreign exchange contracts are used by International Paper to offset~~ the ~~earnings impact relating to the variability~~hedging instrument is reported in ~~exchange rates on certain monetary assets~~Accumulated Other Comprehensive Income (“AOCI”) and liabilities denominated in non-functional currencies and are not designated as hedges. Changes in the fair value of these instruments, recognized in earnings to offset the remeasurement of the related assets and liabilities, totaled a gain of approximately $33 million for the year ended December 31, 2010 and a loss of $50 million and $30 million for the years ended December 31, 2009 and

~~2008, respectively. As of December 31, 2010 and 2009, the outstanding undesignated foreign exchange contracts included the following:~~

~~UNDESIGNATED VOLUMES~~

In millions
December 31,
2010

December 31,
2009

Sell / Buy Sell Notional Sell Notional
U.S. dollar / European euro
109    108
European euro / British pounds
0    29
European euro / Polish zloty
0    39
European euro / U.S. dollar
85    9
South Korean won / U.S. dollar
8,076    3,629

Interest rate swap agreements of $1 billion floating-to-fixed notional and an offsetting $1 billion fixed-to-floating notional that did not qualify as hedges under the accounting guidance during 2010 and matured in September 2010 resulted in a $22 million gain that was recognized in earnings for the year ended December 2010.

~~FAIR VALUE HEDGES~~

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings.

International Paper utilizes interest rate swaps as fair value hedges of the benchmark interest rates of fixed rate debt. At December 31, 2010 and December 31, 2009, the outstanding notional amounts of interest rate swap agreements that qualify as fully effective fair value hedges were approximately $274 million and $1.1 billion, respectively.

During the three months ended June 30, 2010, in connection with early debt extinguishment, interest rate swap agreements that were issued in the fourth quarter of 2009 with a notional value of $2 million were undesignated as effective fair value hedges. The resulting gain was immaterial. Also related to early debt extinguishment, deferred gains of $3 million related to previously terminated effective interest rate swaps were recognized in earnings. This gain is included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~gain of $3 million was deferred and recorded in Long-term debt and is being amortized as an adjustment of~~reclassified into interest expense over the life of the underlying ~~debt through 2019.~~

In January 2010, approximately $700 million of fixed-to-floating interest rate swaps that were issued in 2009 were terminated. These terminations were not in connection with early debt retirements. The resulting $2 million gain was deferred and recorded in Long-term debt and is being amortized as an adjustment of interest expense over the life of the underlying debt through April 2015.

During the three months ended March 31, 2010, a previously deferred gain of $1 million was recognized in earnings in connection with early debt retirements. This gain is included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~During the three months ended December 31, 2009, the Company entered into various fixed-to-floating interest rate swap agreements with a notional amount of approximately $1 billion to hedge existing~~ debt. The ~~interest rate swaps were effective December 2009~~ineffective portion for both cash flow and would have matured within a range of five to ten years. Also in August of 2009, the Company entered into a fixed-to-floating interest rate swap agreement with a notional value of $100 million. The interest rate swap was effective August 2009 with an original maturity date in April 2015. These interest rate swaps were designated as fully effective fair value hedges, ~~of the benchmark interest rate under ASC 815. Subsequently~~which is not material for any year presented, is immediately recognized in ~~2010, the majority of these interest rate swaps were terminated or undesignated. See above for a discussion of the 2010 activity.~~earnings.

During the three months ended September 30, 2009, in connection with various early debt retirements, interest rate swap hedges with a notional value of $520 million, including $500 million of swaps issued during the three months ended June 30, 2009, were terminated or undesignated as an effective fair value hedge resultingFOREIGN CURRENCY RISK MANAGEMENT

We manufacture and sell our products and finance operations in a ~~gain~~number of ~~approximately $9 million. This gain is included in Restructuring~~countries throughout the world and, ~~other charges in the accompanying consolidated statement of operations.~~

~~During 2009, an interest rate swap agreement designated~~ as a ~~fair value hedge~~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 ~~notional value~~combination of ~~$100 million was terminated, resulting in a gain of $11 million~~forward contracts, options and currency swaps. Contracts that ~~was deferred and recorded in Long-term debt. This gain will be amortized as an adjustment of interest expense over the life of the underlying debt through 2016. Also, previously~~

deferred gains of $40 million related to earlier swap terminations were recognized in earnings in connection with early debt retirements. These gains are included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~CASH FLOW HEDGES~~

~~For derivative instruments that~~qualify are designated ~~and qualify~~ as cash flow hedges ~~the~~of certain forecasted transactions denominated in foreign currencies. The effective portion of the ~~gain or loss on the derivative~~changes in fair value of these instruments is reported ~~as a component of~~in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods induring which the related hedged ~~transaction affects~~transactions affect earnings. ~~Financial~~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 ~~designated as cash flow hedges are assessed both at inception~~used to manage foreign exchange exposure of intercompany financing transactions and ~~quarterly thereafter~~certain balance sheet items subject to ~~ensure they are effective~~revaluation is immediately recognized in earnings, substantially offsetting ~~changes in~~ the ~~cash flows~~foreign currency mark-to-market impact of the related ~~underlying exposures. The fair value of the hedge instruments are reclassified out of AOCI to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable.~~

~~Interest Rate Risk~~

International Paper utilizes interest rate swaps as cash flow hedges of the benchmark interest rate of future interest payments. At December 31, 2010 and 2009, there were no outstanding interest rate swap agreements that qualified as cash flow hedges.

In September 2009, the Company undesignated the $1 billion of interest rate swaps that qualified as cash flow hedges and entered into an offsetting $1 billion fixed-to-floating interest rate swap with a maturity date in September 2010 to minimize the earnings exposure from the undesignated swaps. Subsequently in December 2009 in connection with early debt retirements, a $24 million loss related to the fair value of these swaps was reclassified from AOCI and included in Restructuring and other charges in the accompanying consolidated statement of operations.

Also, during the three months ended September 30, 2009, in connection with various early debt retirements, unamortized deferred losses of approximately $10 million related to earlier swap terminations were reclassified from AOCI and included in Restructuring and other charges in the accompanying consolidated statement of operations.

During the three months ended December 31, 2009, the Company entered into treasury rate lock agreements to fix interest rates on an anticipated issuance of debt. Upon issuance of the debt later in the quarter, these agreements generated a pre-tax loss of $3 million that was recorded in AOCI. This amount isexposure.

~~being amortized~~COMMODITY RISK MANAGEMENT

Certain raw materials used in our production processes are subject to ~~interest expense over~~price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the ~~term of the bonds through August 2039, yielding an effective interest rate of 7.3%.~~

~~Commodity Risk~~

~~To minimize~~ volatility in earnings due to ~~large~~price fluctuations, ~~in the price of commodities, International Paper utilizes~~we may utilize swap ~~contracts to manage risks associated with market fluctuations in energy prices.~~contracts. These contracts are designated as cash flow hedges of forecasted commodity purchases. ~~At December 31, 2010,~~The effective portion of the ~~hedged volumes of~~changes in fair value for these ~~energy contracts totaled 200,000 barrels of fuel oil~~instruments is reported in AOCI and 12 Million British Thermal Units (MMBTUs) of natural gas. These contracts had maturities of two years or less as of December 31, 2010. At December 31, 2009, the hedged volumes totaled 900,000 barrels of fuel oil and 21 MMBTUs of natural gas. Deferred losses totaling $15 million after taxes at December 31, 2010 are expected to be recognized throughreclassified into earnings ~~within the next 12 months.~~

~~Foreign Currency Risk~~

Foreign exchange contracts are also used as cash flow hedges of certain forecasted transactions denominated in foreign currencies to manage volatility associated with these transactions and to protect International Paper from currency fluctuations between the contract date and ultimate settlement. At December 31, 2010, these contracts have maturities of three years or less. Deferred gains of $10 million after taxes at December 31, 2010 are expected to be recognized through earnings within the next 12 months. As of December 31, 2010 and December 31, 2009, the following outstanding foreign exchange contracts were entered into as cash flow hedges of forecasted transactions:

~~DESIGNATED VOLUMES~~

In millions
December 31,
2010

December 31,
2009

Sell / Buy Sell Notional Sell Notional
European euro / Brazilian real
4    11
U.S. dollar / Brazilian real
74    265
British pounds / Brazilian real
8    12
European euro / Polish zloty
223    164

On June 30, 2010, foreign exchange contracts to sell 123 million U.S. dollars and buy Brazilian reals were undesignated as cash flow hedges of an International Paper wholly-owned subsidiary’s foreign exchange risk due to the forecasted transactions not being probable. In July 2010, the undesignated for-

~~eign exchange contracts were terminated resulting in cash received of $5 million. The change, a $3 million gain,~~ in the ~~fair value of~~same financial statement line item and in the contracts since they were undesignated was recognized in earnings. The fair value of the contracts when they were undesignated, a $1 million gain after taxes, was deferred in AOCI since the forecasted transactions remained reasonably possible. The deferred gain will be reclassified out of AOCI to earnings when the forecasted transactions are no longer reasonably possiblesame period or ~~when~~periods during which the hedged transactions affect earnings. AsThe ineffective and non-qualifying portions, which are not material for any year presented, are immediately recognized in earnings.

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


In millions, except for fuel oil contracts notional	December 31, 2011			December 31, 2010
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (Sell / Buy; denominated in sell notional): (a)
British pounds / Brazilian real		26			8
European euro / Brazilian real		16			4
European euro / Polish zloty		233			223
U.S. dollar / Brazilian real		344			74
U.S. dollar / European euro		13			0
Fuel oil contracts (in barrels)		0			200,000
Natural gas contracts (in MMBTUs)		3	(b)		12
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts (in USD)		0			274
Derivatives Not Designated as Hedging Instruments:
Embedded derivative (in USD)		150			150
Foreign exchange contracts (Sell / Buy; denominated in sell notional):
European euro / U.S. dollar		0			85
Indian rupee / U.S. dollar		904			0
South Korean won / U.S. dollar		0			8,076
U.S. dollar / European euro		0			109
Interest rate contracts (in USD)		150	(c)		154	(c)

(a)

These contracts had maturities of three years or less as of December 31, 2011.

(b)

These contracts had maturities of one year or less as of December 31, 2011.

(c)

Includes $150 million floating-to-fixed interest rate swap notional to offset the embedded derivative.

The following table shows gains or losses recognized in accumulated other comprehensive income (AOCI), net of tax, related to derivative instruments:


	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
In millions	2011			2010			2009
Foreign exchange contracts	$	(39	)	$	37		$	51
Fuel oil contracts		2			(1	)		23
Interest rate contracts		0			0			(8	)
Natural gas contracts		(6	)		(13	)		(26	)
Total	$	(43	)	$	23		$	40

During the next 12 months, the amount of the December 31, ~~2010,~~2011 AOCI balance, after tax, that is expected to be reclassified to earnings is a loss of $26 million.

The amounts of gains and losses recognized in the ~~forecasted~~consolidated statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions ~~remained reasonably possible.~~were as follows:


	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)									Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
In millions	2011			2010			2009
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	8		$	42		$	19		Cost of products sold
Fuel oil contracts		4			4			(5	)	Cost of products sold
Interest rate contracts		0			0			(40	)(a)	Interest expense, net
Natural gas contracts		(20	)		(15	)		(28	)	Cost of products sold
Total	$	(8	)	$	31		$	(54	)


	Gain (Loss) Recognized in Income									Location of Gain (Loss) in Consolidated Statement of Operations
In millions	2011			2010			2009
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	(10	)	$	25		$	(39	)	Interest expense, net
Debt		10			(25	)		39		Interest expense, net
Total	$	0		$	0		$	0
Derivatives Not Designated as Hedging Instruments:
Embedded derivatives	$	(3	)	$	3		$	(3	)	Interest expense, net
Foreign exchange contracts		(14	)(b)		33			(50	)	Cost of products sold
Interest rate contracts		3			20	(c)		52	(d)	Interest expense, net
Total	$	(14	)	$	56		$	(1	)

(a)

In September 2009, the Company undesignated $1 billion of interest rate swaps that qualified as cash flow hedges and entered into an offsetting $1 billion fixed-to-floating interest rate swap with a maturity date in September 2010 to minimize the earnings exposure for the undesignated swaps. Subsequently in December 2009, in connection with early debt retirements, a $24 million loss related to the fair value of these swaps was reclassified from AOCI and included in Restructuring and other charges in the accompanying consolidated statement of operations. Also in 2009, in connection with various early debt retirements, unamortized deferred losses of approximately $10 million related to earlier swap terminations were reclassified from AOCI and included in Restructuring and other charges in the accompanying consolidated statement of operations.

(b)

Premium costs of $5 million in connection with the acquisition of APPM are included in Restructuring and other charges in the accompanying consolidated statement of operations.

(c)

Includes a gain of $22 million due to changes in the fair value of interest rate swap agreements of $1 billion floating-to-fixed notional and an offsetting $1 billion fixed-to-floating notional that did not qualify as hedges under the accounting guidance and matured in September 2010.

(d)

Previously deferred gains of $40 million related to earlier swap terminations and a $9 million gain resulting from 2009 terminations or undesignated effective fair value hedges are recorded in Restructuring and other charges in the accompanying consolidated statement of operations.

The following activity is related to fully effective interest rate swaps designated as fair value hedges:


	2011								2010
In millions	Issued			Terminated			Undesignated		Issued		Terminated			Undesignated
Fourth Quarter	$	0		$	0		$	0	$	0	$	0		$	0
Third Quarter		0			464	(b)		0		0		0			0
Second Quarter		100	(a)		0			0		0		100	(c)		2	(d)
First Quarter		100	(a)		0			0		0		700	(c)		0
Total	$	200		$	464		$	0	$	0	$	800		$	2

(a)

Fixed-to-floating interest rate swaps were effective when issued and were terminated in the third quarter of 2011.

(b)

Terminations of fixed-to-floating interest rate swaps were not in connection with early debt retirements. The resulting $27 million gain was deferred and recorded in Long-term debt and is being amortized as an adjustment of Interest expense over the life of the respective underlying debt through June 2014, March 2015 or March 2016.

(c)

Terminations were not in connection with early debt retirements. The resulting gains were immaterial.

(d)

Undesignated in connection with early debt retirements. The resulting gain was immaterial.

Fair Value Measurements

International Paper’s financial assets and liabilities that are recorded at fair value consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, and other financial instruments that are used to hedge exposures to interest rate, commodity and currency risks. In addition, a consolidated subsidiary of International Paper has an embedded derivative. For these financial instruments and the embedded derivative, fair value is determined at each balance sheet date using an income approach. Below is a description of the valuation calculation and the inputs used for each class of contract:

Interest Rate Contracts

Interest rate contracts are valued using swap curves obtained from an independent market data provider. The market value of each contract is the sum of the fair value of all future interest payments between the contract counterparties, discounted to present value. The fair value of the future interest payments is determined by comparing the contract rate to the derived forward interest rate and present valued using the appropriate derived interest rate curve.

Fuel Oil Contracts

Fuel oil contracts are valued using the average of two forward fuel oil curves as quoted by third parties. The fair value of each contract is determined by comparing the strike price to the forward price of the corresponding fuel oil contract and present valued using the appropriate interest rate curve.

Natural Gas Contracts

Natural gas contracts are traded ~~over-the- counter~~over-the-counter and settled using the NYMEX last day settle price; therefore, forward contracts are valued using the closing prices of the NYMEX natural gas future contracts. The fair value of each contract is determined by comparing the strike price to the closing price of the corresponding natural gas future contract and present valued using the appropriate interest rate curve.

Foreign Exchange Contracts

Foreign currency forward contracts are valued using ~~the~~ foreign currency forward and interest rate curves obtained from an independent market data provider. The fair value of each contract is determined by comparing the contract rate to the forward rate. The fair value is present valued using the applicable interest rate from an independent market data provider.

Embedded Derivative

Embedded ~~Derivatives~~derivatives are valued using a hypothetical interest rate derivative with identical terms. The hypothetical interest rate derivative contracts are fair valued as described above under Interest Rate Contracts.

Since the volume and level of activity of the markets that each of the above contracts are traded in has been normal, the fair value calculations have not been

adjusted for inactive markets or disorderly transactions.

The guidance for fair value measurements and disclosures sets out a fair value hierarchy that groups fair value measurement inputs into the following three classifications:

Level ~~1, Level 2 and Level 3. Level 1 inputs are quoted~~1: Quoted market prices in an active ~~market~~markets for identical assets or liabilities.

Level ~~2 inputs are~~2: Observable market-based inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level ~~3 inputs are unobservable~~3: Unobservable inputs for the asset or ~~liability.~~ liability reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

Transfers between levels are recognized at the end of the reporting period. All of International Paper’s derivative fair value measurements use Level 2 inputs.

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

Fair Value Measurements

Level 2 – Significant Other Observable Inputs


	Assets						Liabilities						Assets						Liabilities
In millions	December 31, 2010			December 31, 2009			December 31, 2010			December 31, 2009			December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Derivatives designated as hedging instruments
Interest rate contracts – fair value	$	10	(a)	$	5	(e)	$	0		$	20	(h)	$	0		$	10	(c)	$	0		$	0
Foreign exchange contracts – cash flow														0			18	(d)		53	(e)		1	(g)
Fuel oil contracts – cash flow		3	(b)		16	(f)		0			4	(i)		0			3	(b)		0			0
Natural gas contracts – cash flow		0			0			32	(g)		38	(j)		0			0			10	(f)		32	(h)
Foreign exchange contracts – cash flow		18	(c)		32	(b)		1	(h)		0
Total derivatives designated as hedging instruments	$	31		$	53		$	33		$	62		$	0		$	31		$	63		$	33
Derivatives not designated as hedging instruments
Interest rate contracts	$	0		$	1	(b)	$	8	(h)	$	29	(k)
Embedded derivatives		8	(d)		6	(d)		0			0		$	5	(a)	$	8	(a)	$	0		$	0
Foreign exchange contracts		1	(b)		2	(b)		5	(i)		2	(i)		1	(b)		1	(b)		0			5	(f)
Interest rate contracts														0			0			5	(g)		8	(g)
Total derivatives not designated as hedging instruments	$	9		$	9		$	13		$	31		$	6		$	9		$	5		$	13
Total derivatives	$	40		$	62		$	46		$	93		$	6		$	40		$	68		$	46

(a)

~~Includes $3 million recorded in Accounts and notes receivable, net, and $7 million recorded~~Included in Deferred charges and other assets in the accompanying consolidated balance sheet.

(b)

Included in Other current assets in the accompanying consolidated balance sheet.

(c)

Includes $3 million recorded in Accounts and notes receivable, net, and $7 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(d)

Includes $13 million recorded in Other current assets and $5 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

~~(d)~~(e)

~~Included~~Includes $32 million recorded in ~~Deferred charges~~Other accrued liabilities and ~~other assets~~$21 million recorded in Other liabilities in the accompanying consolidated balance sheet.

~~(e)~~

~~Includes $2 million recorded in Accounts and notes receivable, net, and $3 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.~~

(f)

~~Includes $13 million recorded~~Included in Other ~~current assets and $3 million recorded in Deferred charges and other assets~~accrued liabilities in the accompanying consolidated balance sheet.

(g)

Included in Other liabilities in the accompanying consolidated balance sheet.

(h)

Includes $27 million recorded in Other accrued liabilities and $5 million recorded in Other liabilities in the accompanying consolidated balance sheet.

~~(h)~~

~~Included in Other liabilities in the accompanying consolidated balance sheet.~~

~~(i)~~

~~Included in Other accrued liabilities in the accompanying consolidated balance sheet.~~

~~(j)~~

~~Includes $26 million recorded in Other accrued liabilities and $12 million recorded in Other liabilities in the accompanying consolidated balance sheet.~~

~~(k)~~

~~Includes $23 million recorded in Other accrued liabilities and $6 million recorded in Other liabilities in the accompanying consolidated balance sheet.~~

~~The following table shows the change in AOCI, net of tax, related to derivative instruments:~~

Gain or (Loss)
Recognized in OCI
(Effective Portion)

Location of Gain or
(Loss) Reclassified
from OCI into Income
(Effective Portion)

(Gain) or Loss
Reclassified from
OCI into Income
(Effective Portion)

      2010 2009 2008            2010 2009 2008
Interest rate contracts
   $ 0    $ (8 ) $ (34 )      Interest expense, net    $ 0    $ 40    $ 1
Fuel oil contracts
   (1 ) 23    (23 )      Cost of products sold    (4 ) 5    3
Natural gas contracts
   (13 ) (26 ) (15 )      Cost of products sold    15    28    (8 )
Foreign exchange contracts
   37    51    (34 )      Cost of products sold    (42 ) (19 ) (51 )
Total
   $ 23    $ 40    $ (106 )         $ (31 ) $ 54    $ (55 )

Credit-Risk-Related Contingent Features

International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with the majority of our banks. Most of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the collateral threshold is generally $10 million.

If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the Company would be required to post collateral for all of its derivatives in a net liability position, although no derivatives would terminate. The fair values of derivative instruments containing credit-risk-related contingent features in a net liability position were $67 million as of December 31, 2011 and $32 million as of December 31, ~~2010 and $65 million as of December 31, 2009.~~2010. The Company was not required to post any collateral as of December 31, ~~2010 and an immaterial amount of collateral was posted as of December 31, 2009 due to exceeding the counterparty’s collateral threshold in the normal course of business.~~2011 or 2010. In addition, existing derivative contracts (except foreign exchange contracts) provide for netting across most derivative positions in the event a counterparty defaults on a payment obligation. International Paper currently does not expect any of the counterparties to default on their obligations.

NOTE 14 CAPITAL STOCK

The authorized capital stock at both December 31, ~~2010~~2011 and ~~2009,~~2010, consisted of 990,850,000 shares of common stock, $1 par value; 400,000 shares of cumulative $4 preferred stock, without par value (stated value $100 per share); and 8,750,000 shares of serial preferred stock, $1 par value. The serial preferred

stock is issuable in one or more series by the Board of Directors without further shareholder action.

~~In December 2008, the Company retired 60,000,000 shares of its common stock held in treasury.~~

The following is a rollforward of shares of common stock ~~activity~~ for the three years ended December 31, 2011, 2010 ~~2009~~ and ~~2008:~~2009:


	Common Stock						Common Stock
In thousands	Issued			Treasury			Issued		Treasury
Balance at January 1, 2008		493,556			68,436
Issuance of stock for various plans, net		0			(3,840	)
Repurchase of stock		0			1,462
Retirement of treasury stock		(60,000	)		(60,000	)
Balance at December 31, 2008		433,556			6,058
Balance at January 1, 2009								433,556		6,058
Issuance of stock for various plans, net		3,466			(3,484	)		3,466		(3,484	)
Repurchase of stock		0			1,288			0		1,288
Balance at December 31, 2009		437,022			3,862			437,022		3,862
Issuance of stock for various plans, net		1,849			(3,796	)		1,849		(3,796	)
Repurchase of stock		0			1,168			0		1,168
Balance at December 31, 2010		438,871			1,234			438,871		1,234
Issuance of stock for various plans, net								1		(326	)
Repurchase of stock								0		1,013
Balance at December 31, 2011								438,872		1,921

NOTE 15 RETIREMENT ~~PLANS~~

~~U.S. DEFINED BENEFIT~~ PLANS

International Paper sponsors and maintains the Retirement Plan of International Paper Company (the “Pension Plan”), a tax-qualified defined benefit pension plan that provides retirement benefits to substantially all U.S. salaried employees and hourly employees (receiving salaried benefits) hired prior to July 1, 2004, and substantially all other U.S. hourly and union employees who work at a participating business unit regardless of hire date. These employees generally are eligible to participate in the Pension Plan upon attaining 21 years of age and completing one year of eligibility service. U.S. salaried employees

and hourly employees (receiving salaried benefits) hired after June 30, 2004 are not eligible to participate in the Pension Plan, but receive a company contribution to their individual savings plan accounts (see “Other U.S. Plans” on page ~~85)~~90). The Pension Plan provides defined pension benefits based on years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees).

Former Weyerhaeuser Company salaried and hourly employees acquired by International Paper in the CBPR acquisition became participants in the Pension Plan if they were hired by Weyerhaeuser prior to July 1, 2004. Acquired salaried employees and hourly employees (receiving salaried benefits) hired by Weyerhaeuser after June 30, 2004 are not eligible to participate in the Pension Plan and instead receive a company contribution to their savings plan accounts.

In connection with the CBPR acquisition, International Paper assumed sponsorship in 2008 of the Western Kraft, Albany, Oregon, Hourly Employees’ Retirement Plan, a defined benefit pension plan covering hourly employees at the Albany, Oregon mill. The assets and liabilities of that plan were merged into the Pension Plan as of December 31, 2009.

The Company’s funding policy for the 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 plans, tax deductibility, cash flow generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions. Voluntary contributions totaling $1.15 billion were made by the Company in 2010. No contributions were made in 2009 or 2008.

The Company also has two unfunded nonqualified defined benefit pension plans: a Pension Restoration Plan available to employees hired prior to July 1, 2004 that provides retirement benefits based on eligible compensation in excess of limits set by the Internal Revenue Service, and a supplemental retirement plan for senior managers (SERP), which is an alternative retirement plan for salaried employees who are senior vice presidents and above or who are designated by the chief executive officer as participants. These nonqualified plans are only funded to

the extent of benefits paid, which totaled $19 million, $37 million and $35 million in 2011, 2010 and ~~$24 million in 2010,~~ 2009, ~~and 2008,~~ respectively, and which are expected to be ~~$36~~$33 million in 2012.

Many non-U.S. employees are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes.

OBLIGATIONS AND FUNDED STATUS

The following table shows the changes in the benefit obligation and plan assets for 2011 and 2010, and the plans’ funded status. The U.S. combined benefit obligation as of December 31, 2011 increased by $731 million, principally as a result of a decrease in the discount rate assumption used in computing the estimated benefit obligation. U.S. plan assets decreased by $159 million, reflecting unfavorable investment results and benefit payments offset by a $300 million voluntary contribution in 2011.


	2011						2010
In millions	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Change in projected benefit obligation:
Benefit obligation, January 1	$	9,824		$	183		$	9,544		$	186
Service cost		121			2			116			3
Interest cost		544			12			541			12
Curtailments		0			0			0			(3	)
Settlements		0			(2	)		0			(14	)
Actuarial loss		692			0			264			11
Acquisitions		0			4			0			0
Plan merger		5			0			0			0
Benefits paid		(631	)		(9	)		(646	)		(7	)
Restructuring		0			0			(2	)		0
Plan amendments		0			0			7			0
Effect of foreign currency exchange rate movements		0			(7	)		0			(5	)
Benefit obligation, December 31	$	10,555		$	183		$	9,824		$	183
Change in plan assets:
Fair value of plan assets	$	8,344		$	156		$	6,784		$	150
Actual return on plan assets		152			4			1,019			21
Company contributions		319			12			1,187			8
Benefits paid		(631	)		(9	)		(646	)		(7	)
Settlements		0			(2	)		0			(14	)
Plan merger		1			0			0			0
Effect of foreign currency exchange rate movements		0			(6	)		0			(2	)
Fair value of plan assets, December 31	$	8,185		$	155		$	8,344		$	156
Funded status, December 31	$	(2,370	)	$	(28	)	$	(1,480	)	$	(27	)
Amounts recognized in the consolidated balance sheet:
Non-current asset	$	0		$	11		$	0		$	13
Current liability		(32	)		(2	)		(36	)		(2	)
Non-current liability		(2,338	)		(37	)		(1,444	)		(38	)
	$	(2,370	)	$	(28	)	$	(1,480	)	$	(27	)
Amounts recognized in accumulated other comprehensive income under ASC 715 (pre- tax):
Prior service cost	$	156		$	0		$	183		$	0
Net actuarial loss		4,453			10			3,412			1
	$	4,609		$	10		$	3,595		$	1

The components of the $1 billion and $9 million increase related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during 2011 consisted of:


In millions	U.S. Plans			Non- U.S. Plans
Current year actuarial (gain) loss	$	1,253		$	8
Amortization of actuarial loss		(212	)		0
Current year prior service cost		4			0
Amortization of prior service cost		(31	)		0
Settlements		0			1
	$	1,014		$	9

The accumulated benefit obligation at December 31, 2011 and 2010 was $10.3 billion and $9.6 billion, respectively, for our U.S. defined benefit plans and $171 million at both December 31, 2011 and 2010 for our non-U.S. defined benefit plans.

The following table summarizes information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2011 and 2010.


	2011				2010
In millions	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Projected benefit obligation	$	10,555	$	40	$	9,824	$	42
Accumulated benefit obligation		10,275		33		9,594		34
Fair value of plan assets		8,185		2		8,344		2

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 prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans (approximately 9 years as of December 31, 2011 for the U.S. plans) to the extent that they are not offset by gains in subsequent years. The estimated net loss and prior service cost that will be amortized from AOCI into net periodic pension cost for the U.S. plans during the next fiscal year are expected to be $303 million and $32 million, respectively.

~~Net Periodic Pension Expense~~NET PERIODIC PENSION EXPENSE

Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from the investment of plan assets using an estimated long-term rate of return.

Net periodic pension expense for qualified and nonqualified U.S. defined benefit plans comprised the following:


										2011						2010						2009
In millions	2010			2009			2008			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Service cost	$	116		$	120		$	105		$	121		$	2		$	116		$	3		$	120		$	4
Interest cost		541			537			540			544			12			541			12			537			12
Expected return on plan assets		(631	)		(634	)		(672	)		(713	)		(12	)		(631	)		(11	)		(634	)		(10	)
Actuarial loss		174			160			121
Actuarial loss / (gain)											212			0			174			0			160			(2	)
Amortization of prior service cost		31			30			29			31			0			31			0			30			0
Curtailment gain											0			0			0			(2	)		0			(1	)
Settlement gain											0			(1	)		0			(2	)		0			0
Net periodic pension expense (a)	$	231		$	213		$	123		$	195		$	1			231		$	0		$	213		$	3

(a)

Excludes ~~$1.1~~$83.2 million in ~~2008 in curtailment losses, and $83.2 million and $13.9 million in~~ 2009 ~~and 2008, respectively,~~ of termination benefits, in connection with cost reduction programs and facility rationalizations, that were recorded in Restructuring and other charges in the consolidated statement of operations.

The ~~increase~~decrease in 2011 pension expense reflects increased plan assets and higher than expected asset returns in 2010 ~~pension expense reflects~~partially offset by a decrease in the ~~assumed~~ discount ~~rate to 5.80% in 2010 from 6.00% in 2009 and higher amortization of unrecognized actuarial losses.~~rate.

ASSUMPTIONS

International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements for employers’ accounting for pensions. These assumptions are used to calculate benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation as of December 31, ~~2010~~2011 was also the discount rate used to determine net pension expense for the ~~2011~~2012 year).

Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit plans are presented in the following table:


	2011						2010						2009
	U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans			U.S. Plans			Non- U.S. Plans
Actuarial assumptions used to determine benefit obligations as of December 31
Discount rate		5.10	%		5.98	%		5.60	%		6.01	%		5.80	%		6.45	%
Rate of compensation increase		3.75	%		3.12	%		3.75	%		3.07	%		3.75	%		4.06	%
Actuarial assumptions used to determine net periodic pension cost for years ended December 31
Discount rate		5.60	%		6.01	%		5.80	%		6.45	%		6.00	%		6.37	%
Expected long-term rate of return on plan assets		8.25	%		7.79	%		8.25	%		8.20	%		8.25	%		8.88	%
Rate of compensation increase		3.75	%		3.07	%		3.75	%		4.06	%		3.75	%		3.81	%

~~Weighted average assumptions used to determine net pension expense for 2010, 2009 and 2008 were as follows:~~

      2010 2009 2008
Discount rate
   5.80 % 6.00 % 6.20 %
Expected long-term rate of return on plan assets
   8.25 % 8.25 % 8.50 %
Rate of compensation increase
   3.75 % 3.75 % 3.75 %

~~Weighted average assumptions used to determine benefit obligations as of December 31, 2010 and 2009, were as follows:~~

      2010 2009
Discount rate
   5.60 % 5.80 %
Rate of compensation increase
   3.75 % 3.75 %

The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption was determined ~~based on~~from a ~~yield curve that incorporates approximately 500 Aa-graded~~universe of high quality corporate bonds. ~~The plan’s projected cash flows were then~~A settlement portfolio is selected and matched to the ~~yield curve to develop~~present value of the ~~discount rate.~~plan’s projected benefit payments. To calculate pension expense for ~~2011,~~2012, the Company will use an expected long-term rate of return on plan assets of ~~8.25%~~8.00%, a discount rate of ~~5.60%~~5.10% and an assumed rate of compensation increase of 3.75%. The Company estimates that it will record net pension expense of approximately ~~$179~~$315 million for its U.S. defined benefit plans in ~~2011,~~2012, with the ~~decrease~~increase from expense of ~~$231~~$195 million in ~~2010~~2011 reflecting ~~increased plan assets and higher~~lower than expected asset returns in ~~2010, partially offset by~~2011 and a decrease in the discount ~~rate.~~rate and return on asset assumptions.

For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.

The following illustrates the effect on pension expense for ~~2011~~2012 of a 25 basis point decrease in the above assumptions:

In millions    2011
Expense/(Income):

Discount rate
   $ 29
Expected long-term rate of return on plan assets
   22
Rate of compensation increase
   (4 )


In millions	2012
Expense/(Income):
Discount rate	$	27
Expected long-term rate of return on plan assets		21
Rate of compensation increase		(5	)

~~Investment Policy / Strategy~~PLAN ASSETS

International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk. The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. Investments are diversified across classes and within each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic reviews are made of investment policy objectives and investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed income securities.

International Paper’s U.S. pension allocations by type of fund at December 31, and target allocations were as follows:


Asset Class	2010			2009			Target Allocations		2011			2010			Target Allocations
Equity accounts		49	%		49	%		40% - 51%		43	%		49	%		40% - 51	%
Fixed income accounts		31	%		32	%		30% - 40%		34	%		31	%		30% - 40	%
Real estate accounts		8	%		7	%		7% - 13%		11	%		8	%		7% - 13	%
Other		12	%		12	%		9% - 18%		12	%		12	%		9% - 18	%
Total		100	%		100	%				100	%		100	%

The fair values of International Paper’s pension plan assets at December 31, 2011 and 2010 by asset class are shown below. Plan assets included an immaterial amount of International Paper common stock at December 31, 2011 and 2010. ~~No International Paper shares were included in plan assets in 2009.~~ Hedge funds disclosed in the following table are allocated equally between equity and fixed income accounts for target allocation purposes. Cash and cash equivalent portfolios are

allocated to the types of account from which they originated. ~~Mortgage backed securities~~Commodities were transferred from significant unobservable inputs (Level 3) in ~~2009~~2010 to significant observable inputs (Level 2) in ~~2010 as a result of identifying observable market data for~~2011 because the ~~securities.~~investments can be withdrawn in the near term at their net asset value.


Fair Value Measurement at December 31, 2011
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	1,889	$	1,130	$	758	$	1
Equities – international		1,231		959		272		0
Common collective funds – fixed income		293				293		0
Corporate bonds		744		0		744		0
Government securities		983		0		983		0
Mortgage backed securities		124		0		124		0
Other fixed income		25		0		16		9
Commodities		213		0		213		0
Hedge funds		699		0		0		699
Private equity		473		0		0		473
Real estate		872		0		0		872
Derivatives		303		0		0		303
Cash and cash equivalents		336		2		334		0
Total Investments	$	8,185	$	2,091	$	3,737	$	2,357

The fair value measurements using significant unobservable inputs (Level 3) at December 31, ~~2010 were~~2011 are as follows:


New York		13-0872805
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Title of each class		Name of each exchange on which registered
Common Stock, $1 per share par value		New York Stock Exchange


Large accelerated filerx	Accelerated filer¨	Non-accelerated filer¨	Smaller reporting company¨
		(Do not check if a smaller reporting company)


PART I.		1

ITEM 1.	BUSINESS.	1
	General	1
	Financial Information Concerning Industry Segments	1
	Financial Information About International and U.S. Operations	1
	Competition and Costs	2
	Marketing and Distribution	2
	Description of Principal Products	2
	Sales Volumes by Product	3
	Research and Development	4
	Environmental Protection	4
	Climate Change	5
	Employees	6
	Executive Officers of the Registrant	6
	Raw Materials	7
	Forward-looking Statements	7

ITEM 1A.	RISK FACTORS.	8

ITEM 1B.	UNRESOLVED STAFF COMMENTS.	1012

ITEM 2.	PROPERTIES.	1012
	Forestlands	1012
	Mills and Plants	1112
	Capital Investments and Dispositions	1112

ITEM 3.	LEGAL PROCEEDINGS.	1113

ITEM 4.	~~REMOVED AND RESERVED~~MINE SAFETY DISCLOSURES..	1113

PART II.		1214

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	12 14

ITEM 6.	SELECTED FINANCIAL DATA.	1416

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1820
	Executive Summary	1820
	Corporate Overview	2124
	Results of Operations	2124
	Description of Industry Segments	2628
	Industry Segment Results	2729
	Liquidity and Capital Resources	3335
	Critical Accounting Policies	39
	and Significant Accounting Estimates	4045
	Recent Accounting Developments	4348
	Legal Proceedings	4548
	Effect of Inflation	4650
	Foreign Currency Effects	4650
	Market Risk	4650



ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	4751

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	52
	Report of Management on Financial Statements, Internal ~~Controls~~Control over Financial Reporting and Internal Control Environment and Board of Directors Oversight	4852
	Reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm	5054
	Consolidated Statement of Operations	5256
	Consolidated Balance Sheet	5357
	Consolidated Statement of Cash Flows	5458
	Consolidated Statement of Changes in Equity	5559
	Notes to Consolidated Financial Statements	5761
	Interim Financial Results (Unaudited)	9296

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	9599

ITEM 9A.	CONTROLS AND PROCEDURES.	9599

ITEM 9B.	OTHER INFORMATION.	96100

PART III.		96100

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	96100

ITEM 11.	EXECUTIVE COMPENSATION.	97101

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	97101

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	97101

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.	97101

PART IV.		97101

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.	97101
	Additional Financial Data	97
	~~Report of Independent Registered Public Accounting Firm on Financial Statement Schedule~~	~~102~~101
	Schedule II – Valuation and Qualifying Accounts	~~103~~107

	SIGNATURES	~~104~~108

APPENDIX I	~~2010~~2011 LISTING OF FACILITIES	A-1

APPENDIX II	~~2010~~2011 CAPACITY INFORMATION	~~A-4~~A-3


In thousands of short tons	2010		2009		2008		2011		2010		2009
Industrial Packaging
Corrugated Packaging ~~(3)~~		7,525		7,313		5,298		7,424		7,525		7,313
Containerboard ~~(3)~~		2,458		2,258		2,305		2,371		2,458		2,258
Recycling ~~(3)~~		2,486		2,280		966		2,435		2,486		2,280
Saturated Kraft		176		126		170		161		176		126
Bleached Kraft		85		72		82		95		85		72
European Industrial Packaging		1,040		1,046		1,123		1,047		1,040		1,046
Asian Box ~~(4)~~(2)		307		149		137		444		307		149
Asian Distribution		360		465		431
Industrial Packaging		14,437		13,709		10,512		13,977		14,077		13,244

Printing Papers
U.S. Uncoated Papers		2,695		2,882		3,397		2,616		2,695		2,882
European and Russian Uncoated Papers		1,235		1,336		1,461		1,218		1,235		1,336
Brazilian Uncoated Papers		1,081		1,007		853		1,141		1,081		1,007
Asian Uncoated Papers		96		81		27
Indian Uncoated Papers (3)								49		0		0
Uncoated Papers		5,107		5,306		5,738		5,024		5,011		5,225
Market Pulp (5)		1,422		1,524		1,604
Market Pulp (4)								1,410		1,422		1,524

Consumer Packaging
U.S. Coated Paperboard		1,398		1,242		1,591		1,375		1,398		1,242
European Coated Paperboard		351		354		311		332		351		354
Asian Coated Paperboard		870		859		550		998		870		859
Other Consumer Packaging		174		169		178		185		174		169
Consumer Packaging		2,793		2,624		2,630		2,890		2,793		2,624


Period	Total Number of Shares Purchased (a)		Average Price Paid per Share		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
February 1, 2010 - February 28, 2010		1,151,550	$	22.67		N/A
April 1, 2010 - April 30, 2010		1,282		25.91		N/A
June 1, 2010 - June 30, 2010		7,346		23.23		N/A
August 1, 2010 - August 31, 2010		3,079		21.01		N/A
October 1, 2010 - October 31, 2010		3,015		21.75		N/A
November 1, 2010 - November 30, 2010		905		25.28		N/A
December 1, 2010 - December 31, 2010		858		24.97		N/A
		1,168,035


Dollar amounts in millions, except per share amounts and stock prices	2010			2009			2008			2007			2006			2011			2010			2009			2008			2007
RESULTS OF OPERATIONS
Net sales	$	25,179		$	23,366		$	24,829		$	21,890		$	21,995		$	26,034		$	25,179		$	23,366		$	24,829		$	21,890
Costs and expenses, excluding interest		23,749			21,498			25,490			19,939			18,286			24,035			23,749			21,498			25,490			19,939
Earnings (loss) from continuing operations before income taxes and equity earnings		822	^(b)		1,199	^(d)		(1,153	)^(f)		1,654	⁽ⁱ⁾		3,188	^(l)		1,458	^(b)		822	^(e)		1,199	^(g)		(1,153	)⁽ⁱ⁾		1,654	^(l)
Equity earnings (losses), net of taxes		64			(49	)		49			0			0			159			64			(49	)		49			0
Discontinued operations		0			0			(13	)^(g)		(47	)^(j)		(232	)^(m)
Discontinued operations, net of taxes																	49	^(c)		0			0			(13	)^(j)		(47	)^(m)
Net earnings (loss)		665	^(b-c)		681	^(d-e)		(1,279	)^(f-h)		1,192	^(i-k)		1,067	^(l-m)		1,355	^(b-d)		665	^(e-f)		681	^(g-h)		(1,279	)^(i-k)		1,192	^(l-n)
Noncontrolling interests, net of taxes		21			18			3			24			17			14			21			18			3			24
Net earnings (loss) attributable to International Paper Company		644	^(b-c)		663	^(d-e)		(1,282	)^(f-h)		1,168	^(i-k)		1,050	^(l-m)		1,341	^(b-d)		644	^(e-f)		663	^(g-h)		(1,282	)^(i-k)		1,168	^(l-n)
FINANCIAL POSITION
Working capital	$	3,525		$	3,539		$	2,605		$	2,893		$	3,996		$	5,718		$	3,525		$	3,539		$	2,605		$	2,893
Plants, properties and equipment, net		12,002			12,688			14,202			10,141			8,993			11,817			12,002			12,688			14,202			10,141
Forestlands		747			757			594			770			259			660			747			757			594			770
Total assets		25,368			25,548			26,913			24,159			24,034			26,993			25,368			25,548			26,913			24,159
Notes payable and current maturities of long-term debt		313			304			828			267			692			719			313			304			828			267
Long-term debt		8,358			8,729			11,246			6,353			6,531			9,189			8,358			8,729			11,246			6,353
Total shareholders’ equity		6,834			6,023			4,169			8,672			7,963			6,620			6,834			6,023			4,169			8,672
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	1.50		$	1.56		$	(3.02	)	$	2.83		$	2.69		$	2.99		$	1.50		$	1.56		$	(3.02	)	$	2.83
Discontinued operations		0			0			(0.03	)		(0.11	)		(0.48	)		0.11			0			0			(0.03	)		(0.11	)
Net earnings (loss)		1.50			1.56			(3.05	)		2.72			2.21			3.10			1.50			1.56			(3.05	)		2.72
DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS
Earnings (loss) from continuing operations	$	1.48		$	1.55		$	(3.02	)	$	2.81		$	2.65		$	2.96		$	1.48		$	1.55		$	(3.02	)	$	2.81
Discontinued operations		0			0			(0.03	)		(0.11	)		(0.47	)		0.11			0			0			(0.03	)		(0.11	)
Net earnings (loss)		1.48			1.55			(3.05	)		2.70			2.18			3.07			1.48			1.55			(3.05	)		2.70
Cash dividends		0.400			0.325			1.00			1.00			1.00			0.9750			0.400			0.325			1.00			1.00
Total shareholders’ equity		15.62			13.91			9.75			20.40			17.56			15.15			15.62			13.91			9.75			20.40
COMMON STOCK PRICES
High	$	29.25		$	27.79		$	33.77		$	41.57		$	37.98		$	33.01		$	29.25		$	27.79		$	33.77		$	41.57
Low		19.33			3.93			10.20			31.05			30.69			21.55			19.33			3.93			10.20			31.05
Year-end		27.24			26.78			11.80			32.38			34.10			29.60			27.24			26.78			11.80			32.38
FINANCIAL RATIOS
Current ratio		1.8			1.9			1.5			1.7			1.9			2.2			1.8			1.9			1.5			1.7
Total debt to capital ratio		0.56			0.59			0.73			0.43			0.47			0.60			0.56			0.59			0.73			0.43
Return on shareholders’ equity		10.6	%^(b-c)		13.6	%^(d-e)		(14.9	)%^(f-h)		14.8	%^(i-k)		14.6	%^(l-m)		18.2	%^(b-d)		10.6	%^(e-f)		13.6	%^(g-h)		(14.9	)%^(i-k)		14.8	%^(l-n)
Return on investment from continuing operations attributable to International Paper Company		5.0	%^(b-c)		5.0	%^(d-e)		(4.0	)%^(f-h)		7.2	%^(i-k)		8.1	%^(l-m)		7.6	%^(b-d)		5.0	%^(e-f)		5.0	%^(g-h)		(4.0	)%^(i-k)		7.2	%^(l-n)
CAPITAL EXPENDITURES	$	775		$	534		$	1,002		$	1,292		$	1,073		$	1,159		$	775		$	534		$	1,002		$	1,292
NUMBER OF EMPLOYEES		59,500			56,100			61,700			51,500			60,600			61,500			59,500			56,100			61,700			51,500


	Three Months Ended December 31, 2011			Three Months Ended September 30, 2011			Three Months Ended December 31, 2010
Earnings Per Share Before Special Items	$	0.66		$	0.92		$	0.68
Restructuring and other charges		(0.03	)		(0.07	)		(0.07	)
Net gains (losses) on sales and impairments of businesses		0			0.34			0.03
Interest income		0.01			0			0
Income tax adjustments		(0.05	)		0			0.09
Diluted Earnings (Loss) per Common Share	$	0.59		$	1.19		$	0.73


In millions	2012 (a)		2011 (a)
Pension expense
U.S. plans (non-cash)	$	232	$	179
Non-U.S. plans		2		2
Postretirement expense
U.S. plans		8		7
Non-U.S. plans		2		2
Net expense	$	244	$	190


In millions	First Quarter			Second Quarter			Third Quarter		Fourth Quarter			Total
Industrial Packaging	$	5	^(a,b⁾	$	1	^(b)	$	0	$	13	^(c)	$	19
Printing Papers		204	^(d)		111	^(d)		0		0			315
Consumer Packaging		3	^(e)		1	^(e)		0		4	^(e⁾		8
Corporate		3			31			0		18			52
Total	$	215		$	144		$	0	$	35		$	394


	Gain or (Loss) Recognized in OCI (Effective Portion)									Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)	(Gain) or Loss Reclassified from OCI into Income (Effective Portion)
	2010			2009			2008				2010			2009			2008
Interest rate contracts	$	0		$	(8	)	$	(34	)	Interest expense, net	$	0		$	40		$	1
Fuel oil contracts		(1	)		23			(23	)	Cost of products sold		(4	)		5			3
Natural gas contracts		(13	)		(26	)		(15	)	Cost of products sold		15			28			(8	)
Foreign exchange contracts		37			51			(34	)	Cost of products sold		(42	)		(19	)		(51	)
Total	$	23		$	40		$	(106	)		$	(31	)	$	54		$	(55	)


In millions	Equities- Domestic			Equities- International			Fixed Income Common Collective Funds			Corporate Bonds			Government Securities			Mortgage Backed Securities			Other Fixed Income			Comm- odities		Hedge Funds			Private Equity			Real Estate		Deriv- atives			Total
Beginning balance at December 31, 2009	$	4		$	1		$	29		$	2		$	3		$	175		$	24		$	174	$	668		$	344		$	457	$	269		$	2,150
Actual return on plan assets:
Relating to assets still held at the reporting date		3			0			0			0			(1	)		0			(3	)		37		33			30			43		68			210
Relating to assets sold during the period		(2	)		0			3			0			0			0			2			0		6			(4	)		0		65			70
Purchases, sales and settlements		(1	)		0			(18	)		(2	)		(2	)		0			(18	)		23		(45	)		45			150		(64	)		68
Transfers in and/or out of Level 3 (a)		0			(1	)		0			0			0			(175	)		0			0		0			0			0		0			(176	)
Ending balance at December 31, 2010	$	4		$	0		$	14		$	0		$	0		$	0		$	5		$	234	$	662		$	415		$	650	$	338		$	2,322


In millions
Curtailment effects	$	(2	)
Current year actuarial gain		(123	)
Amortization of actuarial loss		(174	)
Current year prior service cost		7
Amortization of prior service cost		(31	)
	$	(323	)


In millions
Current year actuarial loss	$	1
Curtailment effects		(1	)
Settlements		2
	$	2


In millions	Benefit Payments		Subsidy Receipts		Benefit Payments		Subsidy Receipts
2011	$	59	$	11
2012		55		12	$	55	$	11
2013		52		11		52		11
2014		49		11		49		9
2015		47		10		47		9
2016 – 2020		199		37
2016						44		7
2017 – 2021						189		32


	Options (a,b)			Weighted Average Exercise Price		Weighted Average Remaining Life (years)		Aggregate Intrinsic Value (thousands)		Options (a,b)			Weighted Average Exercise Price		Weighted Average Remaining Life (years)		Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2007		28,013,735		$	39.81		4.40	$	1,115
Granted		0			0
Outstanding at December 31, 2008											25,093,122		$	39.68		3.66	$	0
Forfeited											(558,470	)		44.40
Expired											(2,317,595	)		42.74
Outstanding at December 31, 2009											22,217,057			39.24		2.73		0
Forfeited											(43,068	)		34.36
Expired											(3,928,736	)		46.29
Outstanding at December 31, 2010											18,245,253			37.73		2.30		0
Exercised		(14,800	)		31.55						(1,850	)		32.54
Forfeited		(189,158	)		43.44						(21,070	)		35.21
Expired		(2,716,655	)		40.83						(2,665,547	)		35.45
Outstanding at December 31, 2008		25,093,122			39.68		3.66		0
Granted		0			0
Exercised		0			0
Forfeited		(558,470	)		44.40
Expired		(2,317,595	)		42.74
Outstanding at December 31, 2009		22,217,057			39.24		2.73		0
Granted		0			0
Exercised		0			0
Forfeited		(43,068	)		34.36
Expired		(3,928,736	)		46.29
Outstanding at December 31, 2010		18,245,253		$	37.73		2.30	$	0
Outstanding at December 31, 2011											15,556,786		$	38.13		1.55	$	0


	Twelve Months Ended December 31, ~~2010~~2011
Expected volatility		~~33.83%~~34.35% - ~~62.33%~~62.58%
Risk-free interest rate		~~0.26% -1.49%~~0.12% - 0.99%


	Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2007		6,217,012		$	35.67
Granted		3,984,146			36.26
Shares issued		(3,639,012	)		41.54
Forfeited		(307,890	)		34.50
Outstanding at December 31, 2008		6,254,256			32.69
Granted		4,102,197			19.10
Shares issued		(3,576,109	)		33.21
Forfeited		(714,294	)		23.41
Outstanding at December 31, 2009		6,066,050			24.28
Granted		3,842,626			28.93
Shares issued (a)		(2,807,388	)		33.25
Forfeited		(288,694	)		21.83
Outstanding at December 31, 2010		6,812,594		$	23.31


	Shares/ Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2008		6,254,256		$	32.69
Granted		4,102,197			19.10
Shares issued		(3,576,109	)		33.21
Forfeited		(714,294	)		23.41
Outstanding at December 31, 2009		6,066,050			24.28
Granted		3,842,626			28.93
Shares issued		(2,807,388	)		33.25
Forfeited		(288,694	)		21.83
Outstanding at December 31, 2010		6,812,594			23.31
Granted		4,314,376			28.04
Shares issued (a)		(2,565,971	)		32.43
Forfeited		(500,940	)		25.07
Outstanding at December 31, 2011		8,060,059		$	22.83


In millions, except per share amounts and stock prices	1^st Quarter			2^nd Quarter			3^rd Quarter			4^th Quarter			Year			1^st Quarter			2^nd Quarter			3^rd Quarter			4^th Quarter			Year
2011
Net sales																$	6,387		$	6,648		$	6,632		$	6,367		$	26,034
Gross margin (a)																	1,762			1,768			1,839			1,705			7,074
Earnings (loss) from continuing operations before income taxes and equity earnings																	368	(b)		293	(e)		381	(f)		416	(h)		1,458	(b,e,f,h)
Gain from discontinued operations																	49	(c)		0			0			0			49	(c)
Net earnings (loss) attributable to International Paper Company																	342	(b-d)		224	(e)		518	(f,g)		257	(h,i)		1,341	(b-i)
Basic earnings (loss) per share attributable to International Paper Company common shareholders:
Earnings (loss) from continuing operations																$	0.68	(b,d)	$	0.52	(e)	$	1.20	(f,g)	$	0.59	(h,i)	$	2.99	(b,d,e,f,g,h,i)
Gain from discontinued operations																	0.11	(c)		0			0			0			0.11	(c)
Net earnings (loss)																	0.79	(b-d)		0.52	(e)		1.20	(f,g)		0.59	(h,i)		3.10	(b-i)
Diluted earnings (loss) per share attributable to International Paper Company common shareholders:
Earnings (loss) from continuing operations																	0.67	(b,d)		0.52	(e)		1.19	(f,g)		0.59	(h,i)		2.96	(b,d,e,f,g,h,i)
Gain from discontinued operations																	0.11	(c)		0			0			0			0.11	(c)
Net earnings (loss)																	0.78	(b-d)		0.52	(e)		1.19	(f,g)		0.59	(h,i)		3.07	(b-i)
Dividends per share of common stock																	0.1875			0.2625			0.2625			0.2625			0.975
Common stock prices
High																$	30.44		$	33.01		$	31.57		$	29.85		$	33.01
Low																	24.88			26.25			22.90			21.55			21.55

2010
Net sales	$	5,807		$	6,121		$	6,720		$	6,531		$	25,179		$	5,807		$	6,121		$	6,720		$	6,531		$	25,179
Gross margin (a)		1,343			1,631			1,962			1,761			6,697			1,343			1,631			1,962			1,761			6,697
Earnings (loss) from continuing operations before income taxes and equity earnings		(175	)(b)		118	(d)		547			332	(e)		822	(b,d,e)		(175	)(j)		118	(l)		547			332	(m)		822	(j,l,m)
Net earnings (loss) attributable to International Paper Company		(162	)(b,c)		93	(d)		397			316	(e,f)		644	(b-f)		(162	)(j,k)		93	(l)		397			316	(m,n)		644	(j-n)
Basic earnings (loss) per share attributable to International Paper Company common shareholders	$	(0.38	)(b,c)	$	0.22	(d)	$	0.92		$	0.74	(e,f)	$	1.50	(b-f)	$	(0.38	)(j,k)	$	0.22	(l)	$	0.92		$	0.74	(m,n)	$	1.50	(j-n)
Diluted earnings (loss) per share attributable to International Paper Company common shareholders		(0.38	)(b,c)		0.21	(d)		0.91			0.73	(e,f)		1.48	(b-f)		(0.38	)(j,k)		0.21	(l)		0.91			0.73	(m,n)		1.48	(j-n)
Dividends per share of common stock		0.025			0.125			0.125			0.125			0.400			0.025			0.125			0.125			0.125			0.400
Common stock prices
High	$	28.61		$	29.25		$	25.79		$	27.50		$	29.25		$	28.61		$	29.25		$	25.79		$	27.50		$	29.25
Low		21.66			20.50			19.33			21.44			19.33			21.66			20.50			19.33			21.44			19.33

2009
Net sales	$	5,668		$	5,802		$	5,919		$	5,977		$	23,366
Gross margin (a)		1,937			2,021			2,161			2,027			8,146
Earnings (loss) from continuing operations before income taxes and equity earnings		518	(g)		520	(h)		589	(j)		(428	)(k)		1,199	(g,h,j,k)
Net earnings (loss) attributable to International Paper Company		257	(g)		136	(h,i)		371	(j)		(101	)(k,l)		663	(g-l)
Basic earnings (loss) per share attributable to International Paper Company common shareholders	$	0.61	(g)	$	0.32	(h,i)	$	0.87	(j)	$	(0.24	)(k,l)	$	1.56	(g-l)
Diluted earnings (loss) per share attributable to International Paper Company common shareholders		0.61	(g)		0.32	(h,i)		0.87	(j)		(0.24	)(k,l)		1.55	(g-l)
Dividends per share of common stock		0.25			0.025			0.025			0.025			0.325
Common stock prices
High	$	12.74		$	15.96		$	25.30		$	27.79		$	27.79
Low		3.93			6.80			13.82			20.38			3.93



(a)	(1)	Financial Statements – See Item 8. Financial Statements and Supplementary Data.

	(2)	Financial Statement Schedules – The following additional financial data should be read in conjunction with the consolidated financial statements in Item 8. Schedules not included with this additional financial data have been omitted because they are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto.


~~Report of Independent Registered Public~~ ~~Accounting Firm on Financial Statement~~ ~~Schedule for 2010, 2009 and 2008~~	~~102~~
Consolidated Schedule: II-Valuation and Qualifying ~~Accounts~~Accounts.		~~103~~108



		(3.1)		Restated Certificate of Incorporation of International Paper Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 16, 2008).

		(3.2)		By-laws of International Paper Company, as amended through May 10, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 14, 2010).

		(4.1)		Indenture,dated as of April 12, 1999, between International Paper and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2000).

		(4.2)		Supplemental Indenture (including the form of Notes), dated as of June 4, 2008, between International Paper Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 4, 2008).



		(4.3)		Supplemental Indenture (including the form of Notes), dated as of May 11, 2009, between International Paper Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated May 11, 2009).

		(4.4)		Supplemental Indenture (including the form of Notes), dated as of August 10, 2009, between International Paper Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated August 10, 2009).

		(4.5)		Supplemental Indenture (including the form of Notes), dated as of December 7, 2009, between International Paper Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated December 7, 2009).

		(4.6)		Supplemental Indenture (including the form of Notes), dated as of November 16, 2011, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated November 16, 2011).

		(4.7)		In accordance with Item 601 (b) (4) (iii) (A) of Regulation S-K, certain instruments respecting long-term debt of the Company have been omitted but will be furnished to the Commission upon request.

		(10.1)		2009 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K dated May 12, 2009). +

		(10.2)		2010 Management Incentive Plan, amended and restated as of January 1, 2010 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010). +

		~~(10.3)~~		2011 Management Incentive Plan, amended and restated as of January 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 11, 2011). +

		(10.3)		2012 Management Incentive Plan, amended and restated as of January 1, 2012. * +



		(10.4)		2009 Executive Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company Current Report on Form 8-K dated May 12, 2009). +



		(10.5)		~~2010 Exhibits to the 2009 Executive Management Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010). +~~

		~~(10.6)~~		2011 Exhibits to the 2009 Executive Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 11, 2011). +

		(10.6)		2012 Exhibits to the 2009 Executive Management Incentive Plan.*+

		(10.7)		Restricted Stock and Deferred Compensation Plan for Non-Employee Directors, Amended and Restated as of May 10, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010). +

		(10.8)		Form of individual non-qualified stock option award agreement under the LTICP (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001). +

		(10.9)		Form of individual executive continuity award under the LTICP (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999). +

		(10.10)		Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009). +

		(10.11)		Form of Restricted Stock Unit Award Agreement (cash settled) (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009). +

		(10.12)		Form of Restricted Stock Unit Award Agreement (stock settled) (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009). +



		(10.13)		Form of Performance Share Plan award certificate. *certificate (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011). +

		(10.14)		Pension Restoration Plan for Salaried Employees (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009). +

		(10.15)		Unfunded Supplemental Retirement Plan for Senior Managers, as amended and restated effective January 1, 2008 (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007). +

		(10.16)		Amendment No. 1 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective October 13, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated October 17, 2008). +

		(10.17)		Amendment No. 2 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective October 14, 2008 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated October 17, 2008). +

		(10.18)		Amendment No. 3 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective December 8, 2008 (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). +

		(10.19)		Amendment No. 4 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). +



		(10.20)		Amendment No. 5 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective October 31, 2009 (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009). +

		(10.21)		Amendment No. 6 to the International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, effective January 1, 2012. *+

		(10.22)		Form of Non-Competition Agreement, entered into by certain Company employees (including named executive officers) who have received restricted stock (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). +

		~~(10.22)~~(10.23)		Form of Non-Solicitation Agreement, entered into by certain Company employees (including named executive officers) who have received restricted stock (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). +

		~~(10.23)~~(10.24)		Form of Change of Control Agreement—Tier I, approved July 2010 (incorporated by reference to Exhibit 10.1 ~~to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010). +~~

		~~(10.24)~~		~~Form of Change of Control Agreement—Tier II, approved July 2010 (incorporated by reference to Exhibit 10.2~~ to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010). +

		(10.25)		Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003). +



		(10.26)		Board Policy on Severance Agreements with Senior Executives (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 17, 2005). +



		(10.27)		Board Policy on Change of Control Agreements (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 17, 2005). +

		(10.28)		~~Executive Employment~~Time Sharing Agreement, dated December 16, 2010, by and between John V. Faraci and the Company (amended and ~~Paul Herbert, effective October 1, 2007~~restated as of May 16, 2011) (incorporated by reference to Exhibit ~~10.31~~99.1 to the Company’s ~~Annual~~Current Report on Form ~~10-K for the fiscal year ended December 31, 2007)~~8-K/A (Amendment No. 1) filed on August 24, 2011). +

		(10.29)		International Paper Company Industrial Packaging Group Special Incentive Plan, effective January 1, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008). +

		~~(10.30)~~		Consulting Agreement, dated February 19, 2010, by and between International Paper Company and Michael Balduino (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).

		~~(10.31)~~		Time Sharing Agreement, dated December 16, 2010, by and between International Paper Company and John V. Faraci (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 22, 2010). +

		~~(10.32)~~		Letter of Understanding between International Paper Company and Maximo Pacheco dated December 10, ~~2009.~~2009 (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011). + *

		~~(10.33)~~(10.30)		~~3-Year~~Five-Year Credit Agreement dated as of ~~November 20, 2009, between~~August 26, 2011, among International Paper Company, ~~the Subsidiary Guarantors, the Lenders party hereto, and~~ JPMorgan Chase Bank, N.A., individually and as ~~Administrative Agent.~~administrative agent, and certain lenders (incorporated by reference to Exhibit ~~10.1~~99.1 to the Company’s Current Report on Form 8-K dated ~~November 24, 2009)~~August 26, 2011).



		~~(10.34)~~(10.31)		Second Amended and Restated Credit and Security Agreement, dated as of March 13, 2008, among Red Bird Receivables, LLC, as Borrower, International Paper Company, as Servicer, the Conduits and Liquidity Banks from time to time a party thereto, The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as Gotham Agent, JPMorgan Chase Bank, N.A., as PARCO Agent, BNP Paribas, acting through its New York Branch, as Starbird Agent, Citicorp North America, Inc., as CAFCO Agent and as Administrative Agent. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).



		~~(10.35)~~(10.32)		Amendment No. 1, dated as of January 23, 2009, to the Second Amended and Restated Credit and Security Agreement dated as of March 13, 2008. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).

		~~(10.36)~~(10.33)		Omnibus Amendment No. 1 dated June 26, 2009, comprised of Amendment No. 2 to Second Amended and Restated Credit and Security Agreement, and Amendment No. 1 to Fee Letters (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009).



		~~(10.37)~~(10.34)		Amendment No. 3, dated as of January 13, 2010, to the Second Amended and Restated Credit and Security Agreement dated as of March 13, 2008 by and among Red Bird Receivables, LLC, as Borrower, International Paper Company as Servicer, the Conduits and Liquidity Banks from time to time parties thereto, and the agents’ parties thereto. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).



		~~(10.38)~~(10.35)		Amendment No. 4, dated as of January 12, 2011, to the Second Amended and Restated Credit and Security Agreement dated as of March 13, 2008 by and among Red Bird Receivables, LLC, as borrower, International Paper Company as services, the conduits and Liquidity Banks from time to time parties thereto, and the agents’ parties thereto. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).

		(10.36)		Receivables Sale and Contribution Agreement, dated as of March 13, 2008, between International Paper Company and Red Bird Receivables, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).

		~~(10.39)~~ (10.37)		Amendment No. 1, dated August 29, 2008, to the Receivables Sale and Contribution Agreement dated as of March 13, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).

		~~(10.40)~~ (10.38)		Amendment No. 2, dated January 23, 2009, to the Receivables Sale and Contribution Agreement dated as of March 13, 2008 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).

		~~(10.41)~~(10.39)		IP Debt Security, dated December 7, 2006, issued by International Paper Company to Basswood Forests LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 13, 2006).