UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2006~~March 31, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-3157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)


New York		13-0872805
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification No.)

6400 Poplar Avenue, Memphis, TN		38197
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (901) 419-7000

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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ No x

The number of shares outstanding of the registrant’s common stock as of ~~October 31, 2006~~May 4, 2007 was ~~454,969,467.~~435,568,358.

INTERNATIONAL PAPER COMPANY

INDEX


		~~PAGE NO.~~

~~PART I.~~	PAGE NO.
PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements

		Consolidated Statement of Operations - Three Months Ended March 31, 2007 and ~~Nine Months Ended September 30,~~ 2006 ~~and 2005~~	1

		Consolidated Balance Sheet - ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006	2

		Consolidated Statement of Cash Flows - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~	3

		Consolidated Statement of Changes in Common Shareholders’ Equity - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~	4

		Condensed Notes to Consolidated Financial Statements	5

		Financial Information by Industry Segment	2321

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.		Controls and Procedures	42

~~Item 4.~~ PART II.		OTHER INFORMATION

Item 1.		~~Controls and Procedures~~Legal Proceedings	43

~~PART II.~~ Item 1A.	~~OTHER INFORMATION~~	Risk Factors	43

Item 1. 2.	~~Legal Proceedings~~	44

~~Item 1A.~~	~~Risk Factors~~	45

~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	4644

Item 3.		Defaults ~~Upon~~upon Senior Securities	*

Item 4.		Submission of Matters to a Vote of Security Holders	*

Item 5.		Other Information	*

Item 6.		Exhibits	4745

Signatures			4846

*	Omitted since no answer is called for, answer is in the negative or inapplicable.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERNATIONAL PAPER COMPANY

Consolidated Statement of Operations

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2006			2005			2006			2005			2007			2006
Net Sales	$	5,867		$	5,925		$	18,107		$	17,650		$	5,217		$	5,526

Costs and Expenses
Cost of products sold		4,335			4,444			13,513			13,162			3,851			4,168
Selling and administrative expenses		471			459			1,431			1,408			435			472
Depreciation, amortization and cost of timber harvested		308			339			944			1,005			262			314
Distribution expenses		291			261			905			776			256			285
Taxes other than payroll and income taxes		55			58			171			174			42			53
Restructuring and other charges		92			70			192			125			18			44
Insurance recoveries		—			(188	)		(19	)		(223	)		—			(19	)
Net (gains) losses on sales and impairments of businesses		(110	)		5			1,248			65			(314	)		1,283
Reversal of reserves no longer required, net		—			(3	)		—			(3	)
Interest expense, net		144			121			441			444			61			149

Earnings (Loss) From Continuing Operations Before Income Taxes and Minority Interest		281			359			(719	)		717			606			(1,223	)
Income tax provision		163			(377	)		227			(210	)
Income tax provision (benefit)														143			(16	)
Minority interest expense, net of taxes		5			3			14			8			6			5

Earnings (Loss) From Continuing Operations		113			733			(960	)		919			457			(1,212	)
Discontinued operations, net of taxes and minority interest		88			290			39			258			(23	)		(24	)

Net Earnings (Loss)	$	201		$	1,023		$	(921	)	$	1,177		$	434		$	(1,236	)

Basic Earnings (Loss) Per Common Share
Earnings (loss) from continuing operations	$	0.23		$	1.51		$	(1.98	)	$	1.89		$	1.03		$	(2.49	)
Discontinued operations		0.19			0.59			0.08			0.53			(0.05	)		(0.05	)

Net earnings (loss)	$	0.42		$	2.10		$	(1.90	)	$	2.42		$	0.98		$	(2.54	)

Diluted Earnings (Loss) Per Common Share
Earnings (loss) from continuing operations	$	0.23		$	1.46		$	(1.98	)	$	1.85		$	1.02		$	(2.49	)
Discontinued operations		0.19			0.57			0.08			0.51			(0.05	)		(0.05	)

Net earnings (loss)	$	0.42		$	2.03		$	(1.90	)	$	2.36		$	0.97		$	(2.54	)

Average Shares of Common Stock Outstanding - assuming dilution		484.9			507.1			485.2			507.5			448.4			486.3

Cash Dividends Per Common Share	$	0.25		$	0.25		$	0.75		$	0.75		$	0.25		$	0.25

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

INTERNATIONAL PAPER COMPANY

Consolidated Balance Sheet

(Unaudited)

(In millions)


	September 30, 2006			December 31, 2005			March 31, 2007			December 31, 2006
Assets
Current Assets
Cash and temporary investments	$	736		$	1,641		$	2,390		$	1,624
Accounts and notes receivable, net		3,048			2,750			2,924			2,704
Inventories		2,306			2,287			2,009			1,909
Assets of businesses held for sale		270			3,321			100			1,778
Deferred income tax assets		288			279			491			490
Other current assets		136			110			163			132

Total Current Assets		6,784			10,388			8,077			8,637

Plants, Properties and Equipment, net		9,992			10,137			9,992			8,993
Forestlands		357			2,127			637			259
Forestlands Held for Sale		1,575			—
Investments		648			625			631			641
Goodwill		3,661			3,838			3,251			2,929
Assets Held for Exchange								—			1,324
Deferred Charges and Other Assets		1,672			1,656			1,278			1,251

Total Assets	$	24,689		$	28,771		$	23,866		$	24,034

Liabilities and Common Shareholders’ Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	1,399		$	1,181		$	542		$	692
Accounts payable		2,000			1,967			1,911			1,907
Accrued payroll and benefits		401			396			303			466
Liabilities of businesses held for sale		98			238			31			333
Other accrued liabilities		1,137			1,094			1,120			1,243

Total Current Liabilities		5,035			4,876			3,907			4,641

Long-Term Debt		9,051			11,023			6,358			6,531
Deferred Income Taxes		754			711			3,277			2,233
Other Liabilities		3,790			3,599			2,163			2,453
Minority Interest		185			211			236			213
Common Shareholders’ Equity
Common stock, $1 par value, 493.3 shares in 2006 and 490.5 shares in 2005		494			491
Common stock, $1 par value, 493.3 shares in 2007 and 2006								493			493
Paid-in capital		6,710			6,627			6,660			6,735
Retained earnings		1,879			3,172			3,963			3,737
Accumulated other comprehensive loss		(1,817	)		(1,935	)		(1,452	)		(1,564	)

		7,266			8,355			9,664			9,401
Less: Common stock held in treasury, at cost, 2006 - 38.5 shares; 2005 - 0.1 shares		1,392			4
Less: Common stock held in treasury, at cost, 48.4 shares in 2007 and 39.8 shares in 2006								1,739			1,438

Total Common Shareholders’ Equity		5,874			8,351			7,925			7,963

Total Liabilities and Common Shareholders’ Equity	$	24,689		$	28,771		$	23,866		$	24,034

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

INTERNATIONAL PAPER COMPANY

Consolidated Statement of Cash Flows

(Unaudited)

(In millions)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2006			2005			2007			2006
Operating Activities
Net (loss) earnings	$	(921	)	$	1,177
Net earnings (loss)							$	434		$	(1,236	)
Discontinued operations, net of taxes and minority interest		(39	)		(258	)		23			24

Net (loss) earnings from continuing operations		(960	)		919
Earnings (loss) from continuing operations								457			(1,212	)
Depreciation and amortization		944			1,005			262			314
Deferred income tax expense		132			139
Tax benefit - non-cash settlement of IRS audits		—			(553	)
Deferred income tax expense (benefit), net								74			(10	)
Restructuring and other charges		192			125			18			44
Payments related to restructuring and legal reserves		(65	)		(133	)		(22	)		(26	)
Insurance recoveries		(19	)		(223	)		—			(19	)
Reversal of reserves no longer required, net		—			(3	)
Net losses on sales and impairments of businesses held for sale		1,248			65
Net (gains) losses on sales and impairments of businesses								(314	)		1,283
Periodic pension expense, net		283			182			52			93
Other, net		145			167			51			(11	)
Changes in current assets and liabilities
Accounts and notes receivable		(164	)		(91	)		(81	)		(110	)
Inventories		(31	)		(25	)		(129	)		9
Accounts payable and accrued liabilities		90			(609	)		(61	)		(83	)
Other		(201	)		(56	)		(11	)		(87	)

Cash provided by operations - continuing operations		1,594			909			296			185
Cash provided by operations - discontinued operations		44			47
Cash (used for) provided by operations - discontinued operations								(44	)		61

Cash Provided by Operations		1,638			956			252			246

Investment Activities
Invested in capital projects		(802	)		(756	)		(178	)		(168	)
Acquisitions, net of cash acquired		—			(39	)
Proceeds from divestitures		2,163			1,440			1,633			—
Other		(241	)		63			(118	)		(100	)

Cash provided by investment activities - continuing operations		1,120			708
Cash provided by (used for) investment activities - continuing operations								1,337			(268	)
Cash used for investment activities - discontinued operations		(19	)		(219	)		(11	)		(31	)

Cash Provided by Investment Activities		1,101			489
Cash Provided by (Used for) Investment Activities								1,326			(299	)

Financing Activities
Repurchases of common stock								(398	)		—
Issuance of common stock		26			20			30			7
Repurchase of common stock		(1,385	)		—
Issuance of debt		1,259			278
Reduction of debt		(3,156	)		(2,543	)		(362	)		(743	)
Change in book overdrafts		(50	)		(30	)		20			(38	)
Dividends paid		(372	)		(368	)		(114	)		(123	)
Other		(3	)		(44	)		(3	)		4

Cash used for financing activities - continuing operations		(3,681	)		(2,687	)		(827	)		(893	)
Cash used for financing activities - discontinued operations		22			(172	)
Cash provided by financing activities - discontinued operations								—			2

Cash Used for Financing Activities		(3,659	)		(2,859	)		(827	)		(891	)

Effect of Exchange Rate Changes on Cash - Continuing Operations		14			(85	)
Effect of Exchange Rate Changes on Cash - Discontinued Operations		1			(5	)
Effect of Exchange Rate Changes on Cash								15			12

Change in Cash and Temporary Investments		(905	)		(1,504	)		766			(932	)
Cash and Temporary Investments
Beginning of the period		1,641			2,596			1,624			1,641

End of the period		736			1,092		$	2,390		$	709
Less - Cash, End of Period - Discontinued Operations		—			—

Cash, End of Period - Continuing Operations	$	736		$	1,092

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

INTERNATIONAL PAPER COMPANY

Consolidated Statement of Changes in Common Shareholders’ Equity

(Unaudited)

(In millions, except share amounts in thousands)

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2007


	Common Stock Issued			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock					Total Common Shareholders’ Equity
	Shares	Amount		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Shares		Amount			Total Common Shareholders’ Equity
Balance, December 31, 2006	493,340	$	493	$	6,735		$	3,737		$	(1,564	)	39,844		$	1,438		$	7,963
Issuance of stock for various plans, net	2		—		(75	)		—			—		(2,681	)		(97	)		22
Repurchases of stock	—		—		—			—			—		11,231			398			(398	)
Cash dividends - Common stock ($0.25 per share)	—		—		—			(114	)		—		—			—			(114	)
Comprehensive income (loss):
Net earnings	—		—		—			434			—		—			—			434
Amortization of pension and post retirement prior service costs and net loss (less tax of $10)	—		—		—			—			18		—			—			18
Change in cumulative foreign currency translation adjustment (less tax of $0)	—		—		—			—			88		—			—			88
Net gains on cash flow hedging derivatives:
Net gain arising during the period (less tax of $1)	—		—		—			—			10		—			—			10
Less: Reclassification adjustment for gains included in net income (less tax of $0)	—		—		—			—			(4	)	—			—			(4	)

Total comprehensive income																			546
Adoption of FIN 48 (Note 8)	—		—		—			(94	)		—		—			—			(94	)

Balance, March 31, 2007	493,342	$	493	$	6,660		$	3,963		$	(1,452	)	48,394		$	1,739		$	7,925

Three Months Ended March 31, 2006

   Common Stock Issued    Paid-in
Capital    Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
Total
Common
Shareholders’
Equity

   Shares    Amount       Shares Amount
Balance, December 31, 2005
   490,501    $ 491    $ 6,627    $ 3,172 $ (1,935 ) 112 $ 4 $ 8,351
Issuance of stock for various plans, net
   2,802    3    83    —   —   (115 ) (4 ) 90
Repurchase of stock
   —      —      —      —   —   38,465 1,392 (1,392 )
Cash dividends - Common stock ($0.75 per share)
   —      —      —      (372 ) —   —   —   (372 )
Comprehensive income (loss):

Net loss
   —      —      —      (921 ) —   —   —   (921 )
Change in cumulative foreign currency translation adjustment (less tax of $8)
   —      —      —      —   135 —   —   135
Net gains (losses) on cash flow hedging derivatives:

Net loss arising during the period (less tax of $6)
   —      —      —      —   (9 ) —   —   (9 )
Less: Reclassification adjustment for gains included in net income (less tax of $0)
   —      —      —      —   (8 ) —   —   (8 )

Total comprehensive income
            (803 )

Balance, September 30, 2006
   493,303    $ 494    $ 6,710    $ 1,879 $ (1,817 ) 38,462 $ 1,392 $ 5,874

~~Nine Months Ended September 30, 2005~~

   Common Stock Issued    Paid-in
Capital    Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
Total
Common
Shareholders’
Equity

   Shares    Amount       Shares    Amount
Balance, December 31, 2004
   487,495    $ 487    $ 6,562    $ 2,562 $ (1,357 ) 16    $ —      $ 8,254
Issuance of stock for various plans, net
   3,004    3    42    —   —   78    3    42
Cash dividends - Common stock ($0.75 per share)
   —      —      —      (368 ) —   —      —      (368 )
Comprehensive income (loss):

Net earnings
   —      —      —      1,177 —   —      —      1,177
Minimum pension liability adjustment (less tax of $1)
   —      —      —      —   3 —      —      3
Change in cumulative foreign currency translation adjustment (less tax of $1)
   —      —      —      —   (215 ) —      —      (215 )
Net gains (losses) on cash flow hedging derivatives:

Net gain arising during the period (less tax of $13)
   —      —      —      —   38 —      —      38
Less: Reclassification adjustment for gains included in net income (less tax of $29)
   —      —      —      —   (64 ) —      —      (64 )

Total comprehensive income
                  939

Balance, September 30, 2005
   490,499    $ 490    $ 6,604    $ 3,371 $ (1,595 ) 94    $ 3    $ 8,867


	Common Stock Issued			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock					Total Common Shareholders’ Equity
	Shares	Amount		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Shares		Amount			Total Common Shareholders’ Equity
Balance, December 31, 2005	490,501	$	491	$	6,627		$	3,172		$	(1,935	)	112		$	4		$	8,351
Issuance of stock for various plans, net	2,216		2		(28	)		—			—		(79	)		(3	)		(23	)
Cash dividends - Common stock ($0.25 per share)	—		—		—			(123	)		—		—			—			(123	)
Comprehensive income (loss):
Net earnings	—		—		—			(1,236	)		—		—			—			(1,236	)
Change in cumulative foreign currency translation adjustment (less tax of $2)	—		—		—			—			81		—			—			81
Net gains (losses) on cash flow hedging derivatives:
Net gain arising during the period (less tax of $0)	—		—		—			—			—		—			—			—
Less: Reclassification adjustment for gains included in net income (less tax of $1)	—		—		—			—			(1	)	—			—			(1	)

Total comprehensive income																			(1,156	)

Balance, March 31, 2006	492,717	$	493	$	6,599		$	1,813		$	(1,855	)	33		$	1		$	7,049

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

INTERNATIONAL PAPER COMPANY

Condensed Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair presentation of ~~International Paper’s (the Company)~~the Company’s financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed in ~~these Condensed~~the Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Results for the first ~~nine~~three months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in International Paper’s (the Company) Annual Report on Form 10-K for the year ended December 31, ~~2005, and in International Paper’s Current Report on Form 8-K filed on August 14,~~ 2006, to update the historical financial statements included in the Company’s Form 10-K for the year ended December 31, 2005, as amended by Form 10-K/A, to reflect that the Company’s Kraft Papers business is treated as a discontinued operation (collectively the “2005 10-K”), both of which ~~have~~has previously been filed with the Securities and Exchange Commission.

Financial information by industry segment is presented on page ~~23.~~

~~See Note 10 for required pro forma~~21. In connection with sales of businesses under the Transformation Plan and ~~additional disclosures related to stock-based compensation awards.~~

~~Prior-year amounts have been restated to present~~the resulting changes in the Company’s ~~Kraft~~business portfolio, a review of the Company’s operating business segments was conducted during the first quarter of 2007 under the provisions of Statement of Financial Accounting Standards No. 131. While this review resulted in no changes in the Company’s reportable segments, a decision was made to include the Company’s European coated paperboard operations, previously reported in the Printing Papers ~~and Brazilian Coated Papers businesses as discontinued~~segment, with other similar operations ~~(see Note 4).~~in the Consumer Packaging segment. Accordingly, prior period industry segment information has been revised to reflect this presentation.

NOTE 2 - EARNINGS PER COMMON SHARE

~~Earnings~~Basic earnings per common share from continuing operations are computed by dividing earnings from continuing operations by the weighted average number of common shares outstanding. ~~Earnings~~Diluted earnings per common share from continuing operations ~~assuming dilution,~~ are computed assuming that all potentially dilutive securities, including “in-the-money” stock options, are converted into common shares at the beginning of each period. 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 earnings per common share from continuing operations, and diluted earnings per common share from continuing operations ~~assuming dilution,~~ is ~~shown below:~~as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
*In millions, except per share amounts*	2006		2005		2006			2005		2007		2006
Earnings (loss) from continuing operations	$	113	$	733	$	(960	)	$	919	$	457	$	(1,212	)
Effect of dilutive securities		—		7		—			20		—		—

Earnings (loss) from continuing operations - assuming dilution	$	113	$	740	$	(960	)	$	939	$	457	$	(1,212	)

Average common shares outstanding		482.5		486.0		485.2			486.0		445.3		486.3
Effect of dilutive securities
Profit sharing plan		2.1		1.0		—			1.2
Restricted performance share plan											2.7		—
Stock options		0.3		0.1		—			0.3		0.4		—
Zero coupon convertible debentures		—		20.0					20.0

Average common shares outstanding - assuming dilution		484.9		507.1		485.2			507.5		448.4		486.3

Earnings (loss) per common share from continuing operations	$	0.23	$	1.51	$	(1.98	)	$	1.89	$	1.03	$	(2.49	)

Earnings (loss) per common share from continuing operations - assuming dilution	$	0.23	$	1.46	$	(1.98	)	$	1.85
Diluted earnings (loss) per common share from continuing operations										$	1.02	$	(2.49	)

Note:

~~Average common shares outstanding exclude unvested restricted shares. The~~If an amount does not appear in the above table, ~~excludes securities that were~~the security was antidilutive for the ~~periods presented, principally zero-coupon convertible debentures repurchased in June 2006.~~period presented.

In July 2006, in connection with the planned use of projected proceeds from the Company’s Transformation Plan, International Paper’s Board of Directors authorized a share repurchase program to acquire up to $3.0 billion of the Company’s stock. In a modified “Dutch Auction” tender offer completed in September 2006, International Paper purchased 38,465,260 shares of its common stock at a price of $36.00 per share, plus costs to acquire the shares, for a total cost of approximately $1.4 billion. Following the completion of this tender offer, International Paper had approximately 454.8 million shares of common stock outstanding.

NOTE 3 - RESTRUCTURING AND OTHER CHARGES

~~2006~~2007::

During the ~~third~~first quarter of ~~2006,~~2007, restructuring and other charges totaling ~~$92~~$18 million before taxes ($5611 million after taxes) were recorded. These charges consisted of a pre-tax charge of $57 million ($35 million after taxes), including severance and other termination benefit costs of approximately $15 million, $25 million of lease termination costs and $17 million of other chargesrecorded for organizational restructuring programs associated with the Company’s Transformation ~~Plan, and~~Plan. Additionally, a ~~$35~~$2 million pre-tax ~~charge~~credit ($211 million after taxes) was recorded in Interest expense, net, for ~~adjustments to legal reserves (see Note 7).~~interest received from the Canadian government on refunds of prior-year softwood lumber duties.

~~During the second quarter of~~ 2006 restructuring and other charges totaling $54 million before taxes ($33 million after taxes) were recorded, consisting of a pre-tax charge of $50 million ($30 million after taxes), including severance and other termination benefit costs of approximately $31 million and $19 million of other charges associated with the Company’s Transformation Plan, and a $4 million pre-tax charge ($3 million after taxes) for legal settlements.:

During the first quarter of 2006, restructuring and other charges totaling ~~$46~~$44 million before taxes ($2827 million after taxes) were recorded. Included in these charges were a pre-tax charge of ~~$20~~$18 million ($1211 million after taxes) for organizational restructuring programs, principally severance costs associated with the Company’s Transformation Plan, a pre-tax charge of $8 million ($5 million after taxes) for losses on early extinguishment of debt, and a pre-tax charge of $18 million ($11 million after taxes) for adjustments to legal reserves. Also recorded was a pre-tax credit of $19 million ($12 million after taxes) for net insurance recoveries related to the hardboard siding and roofing litigation (see Note 7)9) and a charge of $6$3 million for tax adjustments.

~~2005~~:NOTE 4 – ACQUISITIONS

~~During~~On February 1, 2007, the ~~third~~Company completed the non-cash exchange of certain pulp and paper assets in Brazil with Votorantim Celulose e Papel S.A. (VCP) that had been announced in the fourth quarter of ~~2005, restructuring~~2006. The Company exchanged its in-progress pulp mill project and ~~other charges totaling $70~~certain forestland operations including approximately 100,000 hectares of surrounding forestlands in Tres Lagoas, Brazil, for VCP’s Luiz Antonio uncoated paper and pulp mill and approximately 55,000 hectares of forestlands in the state of Sao Paulo, Brazil. The exchange was accounted for based on the fair value of assets exchanged, resulting in the recognition in the 2007 first quarter of a pre-tax gain of $205 million ~~before taxes~~ ($48164 million after taxes) ~~were recorded. Included~~representing the difference between the fair value and book value of the assets exchanged. This gain is included in ~~this charge were a pre-tax charge~~Net losses (gains) on sales and impairments of ~~$44 million ($32 million after taxes) for organizational restructuring charges and a pre-tax charge of $26 million ($16 million after taxes) for losses on early extinguishment of debt. Also recorded~~businesses in the ~~third~~accompanying consolidated statement of operations. The net assets exchanged were included as Assets held for exchange in the accompanying consolidated balance sheet at December 31, 2006.

Based on preliminary estimates, expected to be finalized during the 2007 second quarter ~~were a pre-tax credit~~upon the completion of ~~$188 million ($109 million after taxes) for insurance recoveries related~~final asset appraisals and any post-closing adjustments, the following table summarizes the allocation of the fair value of the assets exchanged to the ~~hardboard siding~~assets and ~~roofing litigation (see Note 7)~~liabilities acquired:


*In millions*
Accounts receivable	$	55
Inventory		24
Other current assets		40
Plants, properties and equipment, net		1,000
Forestlands		355
Goodwill		304
Other intangible assets		160
Other long-term assets		7

Total assets acquired		1,945

Other current liabilities		20
Deferred taxes		382
Other liabilities		23

Total liabilities assumed		425

Net assets acquired	$	1,520

Net sales and ~~a $3 million pre-tax credit ($2 million after taxes)~~earnings before income taxes for the net adjustment of previously provided reserves. In addition, a $517 million net reduction of the income tax provision was recorded, including a credit from an agreement reached with the U.S. Internal Revenue Service concerning the 1997 through 2000 U.S. federal income tax audits, a charge related to cash repatriations from non-U.S. subsidiaries, and a charge relating to a change in Ohio state tax laws. Interest expense, net, also includes a $43 million pre-tax credit ($26 million after taxes) relating to this agreement.

~~During the second quarter of 2005, a pre-tax charge of $31 million ($19 million after taxes)~~Luiz Antonio mill for organizational restructuring charges, and a pre-tax credit of $35 million ($21 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation were recorded. The organizational restructuring charges included $17 million before taxes ($11 million after taxes) recorded in the Printing Papers business segment for severance and other charges associated with the indefinite shutdown of three U.S. paper machines, and $14 million before taxes ($8 million after taxes) in the Forest Products business segment for costs associated with relocating the business headquarters to Memphis, Tennessee from Savannah, Georgia. Additionally, an $82 million increase in the income tax provision was recorded, including approximately $79 million for deferred taxes related to earnings repatriated during the quarter under the American Jobs Creation Act of 2004.

~~During~~ the first quarter of ~~2005,~~2007, and pro-forma amounts as if this transaction has occurred as of the beginning of the period, are not material to consolidated results of operations.

In October and November 2006, International Paper paid approximately $82 million for a ~~special charge~~50% interest in the International Paper & Sun Cartonboard Co., Ltd. joint venture that currently operates two coated paperboard machines in Yanzhou City, China. In December 2006, a 50% interest was acquired in a second joint venture, Shandong International Paper & Sun Coated Paperboard Co., Ltd., for approximately $28 million. The operating results of ~~$24 million before taxes ($15 million after taxes) was recorded for losses~~these consolidated joint ventures did not have a material effect on ~~early extinguishment~~the Company’s consolidated results of ~~high-coupon-rate debt.~~operations in 2007 or 2006.

NOTE 45 - BUSINESSES HELD FOR SALE AND DIVESTITURES

Discontinued Operations:

2007:

During the first quarter of 2007, the Company recorded pre-tax credits of $21 million ($9 million after taxes) and $6 million ($4 million after taxes) relating to the sales of its Wood Products and Kraft Papers businesses, respectively. In addition, a $15 million pre-tax charge ($39 million after taxes) was recorded for adjustments to the loss on the completion of the sale of most of the Beverage Packaging business. Finally, a pre-tax credit of approximately $10 million ($6 million after taxes) was recorded for refunds received from the Canadian government of duties paid by the Company’s former Weldwood of Canada Limited business.

2006:

During the fourth quarter of 2006, the Company entered into an agreement to sell its Beverage Packaging business to Carter Holt Harvey Limited for approximately $500 million, subject to certain adjustments. The sale of the North American Beverage Packaging operations subsequently closed on January 31, 2007, with the sale of the remaining non-U.S. operations expected to close later in 2007.

Also during the fourth quarter of 2006, the Company entered into separate agreements for the sale of 13 lumber mills for approximately $325 million, and five wood products plants for approximately $237 million, both subject to various adjustments at closing. Both of the sales were completed in March 2007.

The Company determined that the accounting requirements for both businesses under Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as discontinued operations were met. Accordingly, the operating results for these businesses are included in Discontinued operations for all periods presented.

Revenues, earnings and earnings per share related to the Beverage Packaging business were as follows:


*In millions, except per share amounts*	Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
Revenues	$	86		$	211

Earnings from discontinued operation
Earnings from operation	$	15		$	11
Income tax expense		(5	)		(4	)

Earnings from operation, net of taxes		10			7

Loss on sales and impairments		(15	)		—
Income tax expense		(24	)		—

Loss on sales and impairments, net of taxes		(39	)		—

Earnings (loss) from discontinued operation, net of taxes	$	(29	)	$	7

Earnings (loss) per common share from discontinued operation - assuming dilution
Earnings from operation	$	0.02		$	0.01
Loss on sales and impairments		(0.08	)		—

Earnings (loss) per common share from discontinued operation, net of taxes and minority interest - assuming dilution	$	(0.06	)	$	0.01


Revenues, earnings and earnings per share related to the Wood Products business were as follows:

*In millions, except per share amounts*	Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
Revenues	$	201		$	394

Earnings (loss) from discontinued operation
Earnings (loss) from operation	$	(22	)	$	36
Income tax benefit (expense)		9			(14	)

Earnings (loss) from operation, net of taxes		(13	)		22

Gain on sales and impairments		21			—
Income tax expense		(12	)		—

Gain on sales and impairments, net of taxes		9			—

Earnings (loss) from discontinued operation, net of taxes	$	(4	)	$	22

Earnings (loss) per common share from discontinued operation - assuming dilution
Earnings (loss) from operation	$	(0.03	)	$	0.05
Gain on sales and impairments		0.02			—

Earnings (loss) per common share from discontinued operation, net of taxes - assuming dilution	$	(0.01	)	$	0.05

During the 2006 third quarter, International Paper completed the ~~previously announced~~ sale of its Brazilian Coated Papers business to Stora Enso Oyj for approximately $420 million, subject to certain post-closing adjustments. The business includes a coated paper mill and lumber mill in Arapoti, Parana State, Brazil, as well as 50,000 hectares (approximately 124,000 acres) of forestland in Parana.business. The operating results of this business ~~for all periods presented~~ are included in Discontinued operations infor all periods presented.

Revenues, earnings and earnings per share related to the ~~accompanying consolidated statement~~Brazilian Coated Papers business were as follows:


*In millions, except per share amounts*	Three Months Ended March 31, 2006
Revenues	$	42

Earnings from discontinued operation
Earnings from operation	$	10
Income tax expense		(6	)

Earnings from operation, net of taxes		4

Gain on sale		—
Income tax expense		—

Gain on sale, net of taxes		—

Earnings from discontinued operation, net of taxes	$	4

Earnings per common share from discontinued operation - assuming dilution
Earnings from operation	$	0.01
Gain on sale		—

Earnings per common share from discontinued operation, net of taxes - assuming dilution	$	0.01

During the first quarter of ~~operations, including~~2006, the Company determined that the accounting requirements under SFAS No. 144 for reporting the Kraft Papers business as a discontinued operation were met. Accordingly, a $100 million pre-tax ~~gain of $101 million~~charge ($8061 million after taxes) was recorded in the 2006 third quarter as a result of the sale. Revenues associated with this business were $33 million and $127 million, respectively for the three-month and nine-month periods ended September 30, 2006. Revenues for the comparable 2005 periods were $57 million and $149 million, respectively.

During the 2006 second quarter, the Company signed a definitive agreement to sell its Kraft Papers business for approximately $155 million in cash, subject to certain closing and post-closing adjustments, and two additional payments totaling up to $60 million payable five years from the date of closing contingent upon business performance. The operating results of this business for all periods presented are included in Discontinued operations in the accompanying consolidated statement of operations, including a pre-tax charge of $101 million ($62 million after taxes) recorded in the 2006 first quarter to reduce the carrying value of the ~~business’s~~ net assets of this business to their estimated fair ~~values. Additionally, a pre-tax charge~~value. The sale of ~~$16 million ($10 million after taxes)~~this business was ~~recorded~~completed in January 2007. The operating results of this business are included in Discontinued operations ~~in the 2006 second quarter to further reduce the carrying value of the assets of this business based on the terms of the definitive agreement~~

for all periods presented.

~~discussed above.~~ Revenues, ~~associated with the Kraft Papers business were $62 million~~earnings and ~~$174 million, respectively for the three-month and nine-month periods ended September 30, 2006. Revenues for the comparable 2005 periods were $54 million and $165 million, respectively.~~

~~Earnings and diluted~~ earnings per share related to the Kraft Papers ~~and Brazilian Coated Papers operations~~business were as follows:

   Three Months Ended
September 30, Nine Months Ended
September 30,
In millions, except per share amounts
   2006 2005 2006 2005
Earnings (loss) from discontinued operations

Earnings from operations
   $ 14 $ 14 $ 49 $ 33
Gain (loss) on sales or impairments
   101 —   (16 ) —
Income tax (expense) benefit
   (27 ) (5 ) 6 (11 )

Earnings from discontinued operations, net of taxes
   $ 88 $ 9 $ 39 $ 22

Earnings (loss) per common share from discontinued operations - assuming dilution

Earnings from operations, net of taxes
   $ 0.02 $ 0.02 $ 0.06 $ 0.05
Gain on sales or impairments, net of taxes
   0.17 —   0.02 —

Earnings per common share from discontinued operations, net of taxes - assuming dilution
   $ 0.19 $ 0.02 $ 0.08 $ 0.05

At September 30, 2006 and December 31, 2005, assets of businesses held for sale totaled $270 million and $3.3 billion, respectively, and liabilities of businesses held for sale totaled $98 million and $238 million, respectively, and included the Kraft Papers business, the Brazilian Coated Papers business, the Coated and Supercalendered Papers business and certain smaller businesses, as follows:
In millions, except per share amounts

Three Months Ended
March 31, 2007

Three Months Ended
March 31, 2006

Revenues
   $ —   $ 55

Earnings from discontinued operation

Earnings from operation
   $ —   $ 7
Income tax expense
   —   (3 )

Earnings from operation, net of taxes
   —   4

Gain (loss) on sales and impairments
   6 (100 )
Income tax (expense) benefit
   (2 ) 39

Gain (loss) on sales and impairments, net of taxes
   4 (61 )

Earnings (loss) from discontinued operation, net of taxes
   $ 4 $ (57 )

Earnings (loss) per common share from discontinued operation - assuming dilution

Earnings from operation
   $ —   $ 0.01
Gain (loss) on sales and impairments
   0.01 (0.13 )

Earnings (loss) per common share from discontinued operation, net of taxes - assuming dilution
   $ 0.01 $ (0.12 )

In millions
   September 30,
2006    December 31,
2005
Accounts receivable, net
   $ 48    $ 176
Inventories
   52    161
Plants, properties and equipment, net
   114    1,664
Forestland
   38    63
Goodwill
   —      1,205
Other assets
   18    52

Assets of businesses held for sale
   $ 270    $ 3,321

Accounts payable
   $ 35    $ 137
Accrued payroll and benefits
   14    37
Other accrued liabilities
   23    29
Other liabilities
   26    35

Liabilities of businesses held for sale
   $ 98    $ 238

~~2005:~~

In the third quarter of 2005, International Paper completed the sale of its 50.5% interest in Carter Holt Harvey Limited (CHH) for approximately U.S. $1.1 billion. The pre-tax gain on the sale of $29 million ($361 million after taxes and minority interest), including a $186 million pre-tax credit from cumulative translation adjustments, was included in Discontinued operations, together with CHH’s operating results prior to the sale. Revenues associated with the discontinued operation were $541 million and $1.7 billion for the three-month and nine-month periods ended September 30, 2005. Earnings and diluted earnings per share related to these operations were as follows:

In millions, except per share amounts
   Three Months Ended
September 30, 2005 Nine Months Ended
September 30, 2005
Earnings (loss) from discontinued operations

Earnings (loss) from operations
   $ (11 ) $ (43 )
Gain on sale of business
   29 29
Income tax expense
   265 242
Minority interest, net of taxes
   (2 ) 8

Loss from discontinued operations, net of taxes and minority interest
   $ 281 $ 236

Earnings (loss) per common share from discontinue operation - assuming dilution

Loss from operations, net of taxes
   $ (0.16 ) $ (0.25 )
Gain on sale, net of taxes and minority interest
   0.71 0.71

Earnings per common share from discontinued operations, net of taxes and minority interest - assuming dilution
   $ 0.55 $ 0.46

Other ~~Transactions:~~Divestitures and Impairments of Businesses:

~~2006~~2007::

During the ~~third~~first quarter of ~~2006,~~2007, a ~~net~~$103 million pre-tax gain ~~of $110 million (a loss of $13~~($96 million after taxes) was recorded for gains (losses) on sales and impairments of businesses. This net gain included pre-tax credits of $304 million ($185 million after taxes) for gains on sales of U.S. forestlands included in the Transformation Plan, the recognition of a previously deferred $110 million pre-tax gain ($68 million after taxes) related to a 2004 sale of forestlands in Maine, pre-tax losses of $165 million and $115 million ($165 million and $82 million after taxes) to adjust the carrying values of the Company’s Wood Products and Beverage Packaging businesses to estimated fair values based on preliminary bids received, a pre-tax charge of $38 million ($23 million after taxes) to reflectupon the completion of the sale of the Company’s ~~Coated and Supercalendered Papers business~~Arizona Chemical business. As part of the transaction, International Paper acquired a minority interest of approximately 10% in the ~~2006 third quarter, and a net pre-tax gain of $14 million (a loss of $2 million after taxes) related to other smaller sales.~~

~~Also during~~resulting new entity. Since the third quarter of 2006, International Paper Investments (Holland) B.V. (IPI), a wholly-owned subsidiary of International Paper, announced that it had entered into an agreement with Votorantim Celulose e Papel S.A. (VCP) to exchange IPI’s pulp mill project being developed in Tres Lagoas, state of Mato Grosso do Sul, Brazil (together with approximately 100,000 hectares of forestlands) for VCP’s Luiz Antonio pulp and uncoated paper mill and approximately 60,000 hectares of forestlands locatedinterest acquired represents significant continuing involvement in the ~~state~~operations of ~~Sao Paulo, Brazil. IPI will fund~~ the ~~Tres Lagoas pulp mill project~~business under U.S. Generally Accepted Accounting Principles, the operating results for Arizona Chemical are included in continuing operations in the ~~amount~~accompanying consolidated statement of ~~U.S. $1.15 billion. This transaction is~~operations. Final sale proceeds are subject to post-closing adjustments, expected to ~~close by February 1, 2007.~~be finalized in the 2007 second quarter.

~~During the second quarter of 2006,~~In addition, a ~~net~~$6 million pre-tax ~~charge of $75 million~~credit ($514 million after taxes) was recorded ~~including a pre-tax credit~~to adjust previously estimated gains/losses of ~~$62 million ($39 million after taxes)~~businesses previously sold.

These gains are included, along with the gain on the exchange for ~~gains~~the Luiz Antonio mill in Brazil (see Note 4), in Net losses (gains) on sales and impairments of ~~U.S. forestlands included~~businesses in the ~~Transformation Plan, a pre-tax charge~~accompanying consolidated statement of $85 million ($53 million after taxes) recorded to adjust the carrying value of the assets of the Company’s Coated and Supercalendered Papers business to their estimated fair value based on the terms of the definitive sales agreement signed in the second quarter, and a pre-tax charge of $52 million ($37 million after taxes) recorded to write down the carrying value of certain assets in Brazil to their estimated fair value. The assets in Brazil were written down to estimated net realizable value upon sale since the sale of these assets was considered probable at June 30, 2006.operations.

2006:

During the first quarter, ~~of 2006,~~ a pre-tax ~~special~~ charge of $1.3 billion was recorded to write down the assets of the Company’s Coated and Supercalendered Papers business to their estimated fair ~~value.~~value, as management had committed to a plan to sell this business. In addition, other pre-tax charges totaling $3 million ($2 million after taxes) were recorded to adjust estimated losses of certain smaller operations ~~that are~~ held for sale.

InAt December 31, 2006, assets and liabilities of businesses held for sale included the ~~2006 first quarter, the Company had reported its Coated and Supercalendered~~Kraft Papers business, ~~as a discontinued operation based on a plan to sell~~ the ~~business. In~~Beverage Packaging business, the ~~second quarter~~Wood Products business, and the Arizona Chemical business, and consisted of:


*In millions*	December 31, 2006
Accounts receivable, net	$	298
Inventories		401
Plants, properties and equipment, net		995
Goodwill		10
Other assets		74

Assets of businesses held for sale	$	1,778

Accounts payable	$	184
Accrued payroll and benefits		50
Other accrued liabilities		32
Other liabilities		67

Liabilities of businesses held for sale	$	333

Assets and liabilities of 2006, the Company signed a definitive agreement to sell this business for approximately $1.4 billion, subject to certain post-closing adjustments, and agreed to acquire a 10% limited partnership interest in CMP Investments L.P., the parent company that will own this business. Since this limited partnership interest will represent significant continuing involvement in the operations of this business under U.S. generally accepted accounting principles, the operating results for Coated and Supercalendered Papers are required to be included in continuing operations in the accompanying consolidated statement of operations. Accordingly, the operating results for this business, including a charge in the first quarter of $1.3 billion before and after taxes to write down the assets of the business to their estimated fair value, are now included in continuing operations for all periods presented. This sale was subsequently completed on August 1, 2006.

In March 2006, International Paper, The Nature Conservancy and The Conservation Fund reached an agreement to sell approximately 218,000 acres of forestlands across 10 U.S. states. The Nature Conservancy will acquire more than 173,000 acres in North Carolina, Virginia, Georgia, Florida, Alabama, Arkansas, Tennessee, Louisiana and Mississippi. The Conservation Fund will acquire more than 5,000 acres in Florida and 500 acres in North Carolina. The two groups will jointly purchase an additional 39,000 acres in South Carolina. Also in March 2006, International Paper announced an agreement to sell 69,000 acres of forestlands in Wisconsin to The Nature Conservancy for approximately $83 million.

On April 4, 2006 International Paper announced definitive agreements with two separate investor groups under which it will sell a total of approximately 5.1 million acres of forestlands for aggregate proceeds of approximately $6.1 billion. Under one of the agreements, International Paper will sell approximately 3.8 million acres of forestlands located in the southern U.S. and 440,000 acres in Michigan to an investor group led by Resource Management Service, LLC (RMS) for approximately $5 billion in cash and notes at closing. Under a separate agreement, International Paper will sell approximately 900,000 acres of forestlands in Louisiana, Texas and Arkansas to an investor group led by TimberStar for approximately $1.1 billion in cash and notes at closing.

On April 11, 2006, International Paper announced a definitive agreement with The Lyme Timber Company, for the benefit of the Lyme Forest Fund L.P., for the sale of approximately 275,000 acres of forestlands in New York’s Adirondack Park for approximately $137 million.

During the third quarter of 2006, the Company completed sales of approximately 477,000 acres of forestlands under the Nature Conservancy, Conservation Fund and Lyme Forest Fund L.P. agreements for approximately $401 million, including an installment note receivable of $136 million, resulting in a pre-tax gain of approximately $304 million ($185 million after taxes). During the second quarter of 2006, the Company completed the sales of approximately 75,000 acres of forestlands under the above agreements for approximately $97 million, resulting in a pre-tax gain of approximately $62 million ($39 million after taxes).

The remaining sales under the agreements discussed above are expected to be completed during the fourth quarter of 2006. This will substantially complete International Paper’s sales of U.S. forestlands identified as part of the Company’s Transformation Plan. Anticipated total proceeds from all of these sale agreements, covering about 5.7 million acres or over 85% of the Company’s U.S. forestland holdings, are approximately $6.6 billion. The carrying value of these forestlands is included in the accompanying consolidated balance sheet as of September 30, 2006 under the caption Forestlandsbusinesses held for ~~sale. The amount of gain that will be recognized~~sale by the Company upon the completion of these transactions will be dependent upon the final amount of proceeds received, costs incurred and transactions terms, and the portion, if any, of the gain that will be required to be deferred under applicable accounting standards. International Paper has retained approximately 660,000 acres of forestlands at September 30, 2006, some of which may be later sold in separate transactions to maximize the proceeds from the land.

business were:

~~2005~~:

~~In the third quarter of 2005, charges totaling $5 million before taxes ($3 million after taxes) were recorded for adjustments of losses on businesses previously sold.~~

In the second quarter of 2005, a $19 million pre-tax credit ($12 million after taxes) was recorded, including a $25 million credit before taxes ($15 million after taxes) from the collection of a note receivable from the 2001 sale of the Flexible Packaging business, final charges related to the sale of Fine Papers and Industrial Papers, as well as net adjustments of losses from businesses previously sold.

During the first quarter of 2005, International Paper announced an agreement to sell its Fine Papers business to Mohawk Paper Mills, Inc. of Cohoes, New York. A $24 million pre-tax loss ($13 million after taxes) was recorded in the first quarter to write down the net assets of the Fine Papers business to their estimated net realizable value. The sale of Fine Papers was completed in the second quarter of 2005.

Also during the first quarter of 2005, International Paper announced that it had signed an agreement to sell its Industrial Papers business to an affiliate of Kohlberg and Company, LLC. A $49 million pre-tax loss ($35 million after taxes) was recorded in the first quarter to write down the net assets of the Industrial Papers business and related corporate assets to their estimated net realizable value. The sale of Industrial Papers was completed in the second quarter of 2005.

~~Also in the first quarter of 2005, charges totaling $6 million before taxes ($4 million after taxes) were recorded for adjustments to estimated losses on sales of certain smaller operations.~~


*In millions*	December 31, 2006
	Assets		Liabilities
Kraft	$	148	$	16
Arizona Chemical		496		159
Beverage Packaging		572		107
Wood Products		562		51

Total	$	1,778	$	333

NOTE 56 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Inventories by major category were:


*In millions*	September 30, 2006		December 31, 2005		March 31, 2007		December 31, 2006
Raw materials	$	380	$	376	$	292	$	265
Finished pulp, paper and packaging products		1,519		1,534		1,398		1,341
Finished lumber and panel products		17		31
Operating supplies		319		276		288		271
Other		71		70		31		32

Total	$	2,306	$	2,287	$	2,009	$	1,909

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled ~~$473 million~~$1.8 billion and $1.4 billion at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, respectively.

Interest payments made during the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ were ~~$507~~$108 million and ~~$630~~$159 million, respectively. ~~The 2005 interest payments include a $52 million payment to the U.S. Internal Revenue Service related to the settlement of the 1997 – 2000 U.S. federal income tax audits.~~ Capitalized net interest costs were ~~$13~~$11 million and $8$3 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively. Total interest expense was ~~$498~~$114 million for the first ~~nine~~three months of ~~2006~~2007 and ~~$507~~$171 million for the first ~~nine~~three months of ~~2005, net of a $43 million credit related to the settlement of the tax audits described above.~~2006. Preferred Securities distributions paid by Southeast Timber, Inc., a consolidated subsidiary of International Paper, were ~~$10 million and $7~~$3 million during the first ~~nine~~three months of ~~2006~~both 2007 and ~~2005, respectively.~~2006. The expense related to these preferred securities was included in minority interest expense in the consolidated statement of operations. Income tax payments of ~~$114~~$33 million and ~~$357~~$37 million were made during the first ~~nine~~three months of 2007 and 2006, ~~and 2005,~~ respectively.

Accumulated depreciation was ~~$17.9~~$14.3 billion at ~~September 30, 2006~~March 31, 2007 and ~~$18.2~~$14.0 billion at December 31, ~~2005.~~2006. The allowance for doubtful accounts was ~~$100~~$86 million at ~~September 30, 2006~~March 31, 2007 and ~~$98~~$85 million at December 31, ~~2005.~~2006.

The following tables present changes in the goodwill balances as allocated to each business segment for the ~~nine-month~~three-month periods ended ~~September 30, 2006~~March 31, 2007 and ~~2005:~~

2006:


*In millions*	Balance December 31, 2005		Reclassifications and Other (a)		Additions/ (Reductions)			Balance September 30, 2006		Balance December 31, 2006		Reclassifications and Other (a)			Additions/ (Reductions)			Balance March 31, 2007
Printing Papers	$	1,674	$	1	$	—		$	1,675	$	1,500	$	(47	)	$	304	(b)	$	1,757
Industrial Packaging		676		3		11	(b)		690		670		—			(3	)(c)		667
Consumer Packaging		987		1		(28	)(c)		960		451		60			8	(d)		519
Distribution		299		—		—			299		308		—			—			308
Forest Products		191		—		(165	)(c)		26
Corporate		11		—		—			11

Total	$	3,838	$	5	$	(182	)	$	3,661	$	2,929	$	13		$	309		$	3,251

(a)	Represents the effects of foreign currency translations and ~~reclassifications.~~reclassifications, principally $59 million relating to the movement of the European coated paperboard operations from Printing Papers to Consumer Packaging.

(b)	Reflects a $4$304 million increase from the ~~completion of the accounting for the 50% interest~~Luiz Antonio mill transaction in ~~IPPM acquired August 1, 2005,~~February 2007.

(c)

Reflects a ~~$16 million increase from the purchase of an additional 25% interest in IPPM on May 1, 2006, a $4~~$3 million decrease ~~representing the completion of the~~from final purchase ~~accounting for a 66.5% interest acquired in Compagnie Marocaine des Cartons et des Papiers in October 2005 and a $5 million decrease~~adjustments related to the Box USA acquisition.

~~(c)~~(d)

Reflects ~~decreases~~an additional $8 million of ~~$27 million and $165 million representing the writedowns of the carrying values of the assets of the Beverage Packaging and Wood Products businesses, respectively,~~goodwill related to ~~fair value, and a $1 million decrease resulting from the settlement of a contingent purchase adjustment from the purchase of the minority interest~~joint ventures in ~~Shorewood EPC Europe Limited.~~China.

~~2005:~~


*In millions*	Balance December 31, 2004		Reclassifications and Other (a)			Additions/ (Reductions)			Balance September 30, 2005		Balance December 31, 2005		Reclassifications and Other (a)		Additions/ (Reductions)			Balance March 31, 2006
Printing Papers	$	1,671	$	3		$	—		$	1,674	$	1,674	$	—	$	—		$	1,674
Industrial Packaging		591		(5	)		16	(b)		602		677		1		1	(b)		679
Consumer Packaging		1,014		(4	)		51	(c)		1,061		960		—		—			960
Distribution		299		—			—			299		299		—		—			299
Forest Products		190		1			—			191
Corporate		24		—			(13	)(d)		11		11		—		—			11

Total	$	3,789	$	(5	)	$	54		$	3,838	$	3,621	$	1	$	1		$	3,623

(a)	Represents the effects of foreign currency translations and reclassifications.

(b)	Reflects the completion of the accounting for the acquisition of ~~Box USA of $22 million, offset by a $6 million decrease resulting from the sale of Industrial Papers.~~IP Pacific Millennium.

~~(c)~~

Reflects a $5 million adjustment resulting from the acquisition of the minority interest in Shorewood EPC Europe Limited, as well as a $46 million adjustment from the completion of the accounting for the 50% interest in IPPM.

~~(d)~~

~~Reflects the sale of International Paper’s Fine Papers business.~~

Goodwill totaling approximately $1.2 billion at December 31, 2005 relating to the Company’s Coated and Supercalendered Papers business was written off in connection with the 2006 first-quarter $1.3 billion pre-tax charge to reduce the net assets of that business to estimated fair value (see Note 4).

The following table presents an analysis of activity related to the Company’s asset retirement obligations:


	Nine Months Ended September 30,						Three Months Ended March 31,
*In millions*	2006			2005			2007		2006
Asset retirement obligation, January 1	$	33		$	30		$	29	$	33
New liabilities		1			6			—		—
Liabilities settled		(3	)		(4	)		—		(1	)
Net adjustments to existing liabilities		1			(4	)		—		—
Accretion expense		1			1			—		1

Asset retirement obligation, September 30	$	33		$	29
Asset retirement obligation, March 31							$	29	$	33

This obligation is included in Other liabilities in the accompanying consolidated balance sheet.

The components of the Company’s postretirement benefit expense were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
*In millions*													Three Months Ended March 31,
*In millions*	2006			2005			2006			2005			2007			2006
Service cost	$	1		$	1		$	2		$	2		$	—		$	1
Interest cost		8			10			24			29			9			9
Actuarial loss		6			5			17			15			5			4
Amortization of prior service cost		(13	)		(10	)		(37	)		(30	)		(11	)		(9	)

Net postretirement benefit cost (a)	$	2		$	6		$	6		$	16		$	3		$	5

(a)

Excludes a ~~credit of $2.3~~$10 million and net charges of $17.1 million for the three-month and nine-month periods ended September 30, 2006 for curtailments and termination benefits related to Kraft Papers, Coated Papers, and the Transformation initiative that were recorded in Discontinued operations, Net (gains) losses on sales and impairments of businesses and Restructuring and other charges, respectively;credit and a $3$24 million ~~credit for the nine-month period ended September 30, 2005~~charge for curtailments and special termination benefits ~~related to Fine Papers, Industrial Papers~~in 2007 and ~~the Jackson Foodservice plant divestitures and organizational restructurings that were~~2006, respectively, recorded in ~~Net (gains) losses on sales and impairments of businesses and Restructuring and other charges, respectively.~~Discontinued operations.

NOTE 67 – RECENT ACCOUNTING DEVELOPMENTS

~~Employers’ Accounting~~Fair Value Option for ~~Defined Benefit Pension~~Financial Assets and ~~Other Postretirement Plans:~~Financial Liabilities:

In ~~September 2006,~~February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. ~~158, “Employers’ Accounting~~159, “The Fair Value Option for ~~Defined Benefit Pension~~Financial Assets and ~~Other Postretirement Plans~~Financial Liabilities – Including an Amendment of FASB ~~Statements~~Statement No. ~~87, 88, 106, and 132(R).~~115.” This ~~Statement requires a calendar year-end company~~statement permits an entity to measure certain financial assets and financial liabilities at fair value which would result in the reporting of unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with ~~publicly traded equity securities that sponsors a postretirement benefit plan~~few exceptions, as long as it is applied to ~~fully recognize, as an asset or liability,~~ the ~~overfunded or underfunded status of its benefit plan(s)~~instrument in its ~~2006 year-end balance sheet. It also requires a company~~entirety. The statement establishes presentation and disclosure requirements to ~~measure~~help financial statement users understand the effect of an entity’s election on its ~~plan assets and benefit obligations~~earnings, but does not eliminate the disclosure requirements of other accounting standards. This statement will be effective as of ~~its year-end balance sheet date~~the beginning ~~with~~of the first fiscal ~~years ending~~year that begins after ~~December~~November 15, ~~2008.~~2007, and is to be applied prospectively as of the beginning of the year in which it is initially applied. The Company is currently evaluating the provisions of this ~~Statement.~~statement.

Fair Value Measurements:

In September 2006, the FASB ~~also~~ issued SFAS No. 157, “Fair Value Measurements,” 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 priority being quoted prices in active markets. This ~~Statement is~~statement will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, and is to be applied prospectively as of the beginning of the year in which it is initially applied. The Company is currently evaluating the provisions of this statement.

Accounting for Planned Major Maintenance Activities:

In September 2006, the FASB issued ~~FSP~~FASB Staff Position (FSP) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” which ~~prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods. The FSP~~ permits the application of three alternative methods of accounting for planned major maintenance activities: the direct expense, built-in-overhaul, and deferral methods. The FSP iswas effective for the first fiscal year beginning after December 15, 2006. International Paper ~~is currently evaluating~~adopted the direct expense method of accounting for these costs in the first quarter of 2007 with no impact on its annual consolidated financial statements. See Note 13 for a discussion of the effects of ~~implementing the provisions of~~ this ~~FSP.~~accounting change on quarterly financial information.

Accounting for Uncertainty in Income Taxes:

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an ~~interpretation~~Interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This ~~Interpretation~~interpretation also provides guidance on classification, interest and penalties, accounting in interim periods and transition, and significantly expands income tax disclosure requirements. It applies to all tax positions accounted for in accordance with SFAS No. 109 and iswas effective for fiscal years beginning after December 15, 2006. ~~The Company is currently evaluating the effects of implementing~~International Paper applied the provisions of this ~~Interpretation.~~interpretation beginning January 1, 2007. See Note 8 for a discussion of the effects of this accounting change.

Accounting for Certain Hybrid Financial Instruments:

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an Amendment of FASB Statements No. 133 and 140,” which provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with SFAS No. 133. This ~~Statement~~statement allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. This ~~Statement is~~statement was effective for International Paper for all financial instruments acquired, issued, or subject to a remeasurement event occurring after ~~the beginning of an entity’s first fiscal year that begins after September 15, 2006. International Paper believes that the~~January 1, 2007. The adoption of SFAS No. 155 ~~in 2007 will~~did not have a material impact on ~~its~~the Company’s consolidated financial statements.

~~Exchanges of Nonmonetary Assets:~~NOTE 8 – INCOME TAXES

~~In December 2004, the~~International Paper adopted FASB ~~issued SFAS~~Interpretation No. ~~153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29,” that replaces the exception from fair value measurement in APB Opinion No. 29,~~48, “Accounting for ~~Nonmonetary Transactions,~~Uncertainty in Income Taxes,” ~~for nonmonetary exchanges~~on January 1, 2007. The adoption of ~~similar productive assets with~~this standard resulted in a ~~general exception from fair value measurement for exchanges~~charge to the beginning balance of ~~nonmonetary assets~~retained earnings of $94 million at the date of adoption. Including this cumulative effect amount, total unrecognized tax benefits at the date of adoption were $919 million. Of this total, $562 million represents unrecognized tax benefits that, ~~do not have commercial substance. A nonmonetary exchange has commercial substance~~ if recognized, would reduce the ~~future cash flows of~~Company’s effective tax rate.

The major jurisdictions where the ~~entity~~Company files income tax returns are ~~expected~~the United States, Brazil, France, Poland and Russia. Generally, tax years 2001 through 2006 remain open and subject to ~~change significantly as~~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. As a result of tax audit closings, settlements, and the ~~exchange. International Paper applied~~expiration of statutes to examine such returns in various jurisdictions over the ~~provisions~~next 12 months, the Company estimates that the amount of ~~SFAS No. 153 prospectively in the first quarter~~unrecognized tax benefits could be reduced by approximately $150 million.

The Company accrues interest on unrecognized tax benefits as a component of ~~2006, with no material effect on its consolidated financial statements.~~

~~Inventory Costs:~~

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” This Statement requires that abnormal amounts of idle facility expense, freight, handling costs and wasted materialinterest expense. Penalties, if incurred, would be recognized as ~~current-period charges. This Statement also introduces the concept~~a component of ~~“normal capacity” and requires the allocation of fixed production overhead to inventory based on the normal capacity~~income tax expense. As of the ~~production facilities. Unallocated overhead must be recognized as an expense~~date of adoption of this standard, the Company had approximately $88 million of such accrued interest and penalties included in ~~the period in which it is incurred. International Paper adopted SFAS No. 151 in the first quarter of 2006,~~Other accrued liabilities associated with ~~no material effect on its consolidated financial statements.~~unrecognized tax benefits.

~~Share-Based Payment Transactions:~~

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” that requires compensation costs related to share-based payment transactions to be recognized in the financial statements. The amount of the compensation cost is measured 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. This Statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. International Paper adopted SFAS No. 123(R) in the first quarter 2006, with no material effect on its consolidated financial statements. See Note 10 for a further discussion of stock-based compensation plans.

NOTE 79 - COMMITMENTS AND CONTINGENCIES

Under the terms of the sale agreement for the Beverage Packaging business, the purchase price received by the Company is subject to a post-closing adjustment if adjusted annualized earnings of the Beverage Packaging business for the first six months of 2007 are less than a targeted amount. The adjustment, if any, would equal five times the shortfall from the targeted amount. Management does not currently believe that any such adjustment is probable based upon current operating results. However, such an adjustment could be required in 2007 if expected second-quarter results are not met.

Exterior Siding and Roofing Litigation:

International Paper has established reserves relating to the settlement, during 1998 and 1999, of three nationwide class action lawsuits against the Company and Masonite Corp., a former wholly-owned subsidiary of the Company. Those settlements relate to (1) exterior hardboard siding installed during the 1980’s (the ~~“1980’s~~1980’s Hardboard ~~Claims”)~~Claims) and during the 1990’s (the ~~“1990’s~~1990’s Hardboard Claims,” and together with the 1980’s Hardboard Claims, the ~~“Hardboard Claims”)~~Hardboard Claims); (2) Omniwood siding installed during the 1990’s (the ~~“Omniwood Claims”)~~Omniwood Claims); and (3) Woodruf roofing installed during the 1980’s and 1990’s (the ~~“Woodruf Claims”)~~Woodruf Claims). Each of these settlements is discussed in detail in Note 10, Commitments and Contingent Liabilities, to the Financial Statements included in International Paper’s Annual Report on Form 10-K for the year ended December 31, ~~2005 (the “2005 10-K”).~~2006.

Claims Data

~~1980’s Hardboard Claims~~

~~Since 2002,~~Throughout 2006, Omniwood and ~~until 2005, the aggregate~~Woodruf claims activity with respect to the exterior siding and roofing settlements (the “Settlements”) had been in line with the projections prepared by the Company’s third-party consultant. As reported in the 2005 10-K, the number of valid 1980’s Hardboard Claims filed prior to the January 18, 2005 filing deadline significantly exceeded those projections. This increase, together with an increase in the average cost per claim, had resulted in payments by the Company in 2005 of approximately $119 million. These amounts exceeded projections by approximately $40 million.

~~Substantially all of the 1980’s Hardboard Claims were settled as of June 30, 2006, although settlement payments made in 2006 were approximately $8 million more than projected.~~

~~1990’s Hardboard Claims~~

~~In 2005, the number of 1990’s Hardboard Claims filed~~ was in line with projections. However, ~~as reported~~activity for Hardboard claims in the ~~2005 10-K,~~first three quarters of 2006 was in excess of projected amounts. Accordingly, additional pre-tax charges totaling $50 million were recorded in the ~~average cost~~first three quarters of ~~those~~2006 to reflect this higher claims ~~increased above~~activity pending completion of an updated projection by the Company’s third-party consultant. In the fourth quarter of 2006, this updated projection was completed, resulting in an additional pre-tax charge of $40 million to increase the reserve to management’s best estimate of projected ~~levels in 2005. As was~~future claims and expense payments through the ~~case~~end of the Hardboard claims period (January 15, 2008). Claims activity for the ~~1980’s Hardboard Claims, the increased cost was due,~~first quarter of 2007 has been generally in part, to a 2005 increase in the Means Price Data (an inflation-adjusted compensation formula based on replacement and refinishing cost for a particular area that is used in the determination of claims payments) compared to prior years. For the nine months ended September 30, 2006, the number of 1990’s Hardboard Claims filed and the average cost per claim were both higher than projected,line with ~~claims payments totaling approximately $8 million more than projected. The claims filing deadline for the 1990’s Hardboard Claims is January 15, 2008.~~these updated projections.

The following table presents the claims activity of the ~~1980’s and 1990’s~~ Hardboard Claims for the ~~nine-month~~three-month period ended ~~September 30, 2006:~~March 31, 2007:


*In thousands*	Single Family		Multi- Family		Total		Single Family		Multi- Family		Total
December 31, 2005	20.2		3.2		23.4
December 31, 2006							21.8		2.1		23.9
No. of Claims Filed	14.1		0.4		14.5		4.9		0.2		5.1
No. of Claims Paid	(9.9	)	(1.4	)	(11.3	)	(4.5	)	(0.3	)	(4.8	)
No. of Claims Dismissed	(4.0	)	(0.1	)	(4.1	)	(1.3	)	—		(1.3	)

September 30, 2006	20.4		2.1		22.5
March 31, 2007							20.9		2.0		22.9

The average settlement cost per claim for the ~~nine-month~~three-month period ended ~~September 30, 2006~~March 31, 2007 for the Hardboard settlement was ~~$2,369.~~$2,231.

~~Omniwood and Woodruf Claims~~

Throughout 2005, and through September 30, 2006, the Omniwood Claims activity and the Woodruf Claims activity have been in line with projections. The Company expects this trend to continue. The filing deadline for both the Omniwood and Woodruf Claims is January 6, 2009. The following table presents the claims activity of the Omniwood Claims and the Woodruf Claims for the ~~nine-month~~three-month period ended ~~September 30, 2006:~~March 31, 2007:


	Omniwood				Woodruf			Total						Omniwood			Woodruf			Total
*In thousands*	Single Family		Multi- Family		Single Family		Multi- Family	Single Family		Multi- Family		Total		Single Family		Multi- Family	Single Family		Multi- Family	Single Family		Multi- Family	Total
December 31, 2005	2.4		0.5		0.8		0.3	3.2		0.8		4.0
December 31, 2006														2.7		0.6	0.8		0.3	3.5		0.9	4.4
No. of Claims Filed	4.2		0.2		0.4		—	4.6		0.2		4.8		1.4		0.1	—		—	1.4		0.1	1.5
No. of Claims Paid	(3.3	)	(0.2	)	(0.3	)	—	(3.6	)	(0.2	)	(3.8	)	(1.3	)	—	(0.1	)	—	(1.4	)	—	(1.4	)
No. of Claims Dismissed	(0.8	)	—		(0.2	)	—	(1.0	)	—		(1.0	)	(0.3	)	—	—		—	(0.3	)	—	(0.3	)

September 30, 2006	2.5		0.5		0.7		0.3	3.2		0.8		4.0
March 31, 2007														2.5		0.7	0.7		0.3	3.2		1.0	4.2

The average settlement costs per claim for the ~~nine-month~~three-month period ended ~~September 30, 2006~~March 31, 2007 for the Omniwood and Woodruf settlements were ~~$4,571~~$4,363 and ~~$5,765,~~$3,121, respectively.

Reserve Analysis

The following table presents an analysis of the net reserve activity for the ~~nine-month~~three-month period ended ~~September 30, 2006:~~March 31, 2007:

In millions
   Hard-
board Omni-
wood Woodruf Total
Balance, December 31, 2005
   $ 34 $ 74 $ 5 $ 113
Additional Provisions
   50 —   —   50
Payments
   (43 ) (21 ) (2 ) (66 )

Balance, September 30, 2006
   $ 41 $ 53 $ 3 $ 97

During the first quarter of 2006, based on advice from the Company’s third-party consultant, a charge of $15 million was recorded to increase the aggregate hardboard siding and roofing reserve to management’s best estimate of the amount required for future payments. In the second and third quarters of 2006, claims activity for the 1990s Hardboard Claims was in excess of projected amounts as both the number and average cost per claim exceeded projections. At the end of the third quarter, the Company determined that, pending receipt of an updated projection by the third-party consultant that takes into account trends and data through the end of the claims period (January 15, 2008) that is expected to be completed in the fourth quarter, an additional $35 million charge was required to increase the Hardboard Claims reserve balance to reflect these higher claims. Reserve balances at September 30, 2006 for Omniwood and Woodruf Claims continued to be in line with projections. The Company will reevaluate these reserve balances following the completion of the updated projection to determine whether any additional adjustments are required.

~~Hardboard Insurance Matters~~

As discussed in the 2005 10-K, the Company has entered into favorable agreements with various insurance carriers to settle claims relating to their refusal to indemnify and/or defend the Company and Masonite for, among other things, the settlement of Hardboard Claims. In the second quarter, the Company participated in a binding arbitration proceeding with Ace Insurance to resolve the sole remaining coverage dispute. The arbitration panel has now determined that the Company is not entitled to recover any amounts for these claims under the Ace insurance policy.

Cumulative net cash settlements received by the Company through September 30, 2006 in connection with Hardboard insurance settlements totaled approximately $359 million. Total insurance recoveries are expected to be approximately $625 million, with the balance to be received in installments through the end of 2008.

~~Antitrust Matters~~

As disclosed in the 2005 10-K, the Company is party to a class action lawsuit by a group of private landowners alleging that the Company and certain of its fiber suppliers, known as Quality Suppliers, engaged in an unlawful conspiracy to artificially depress the prices at which the Company procures fiber for its mills. While the Company continues to maintain that its Quality Supplier program did not violate any antitrust laws, it agreed to settle this case in the second quarter for a payment by the Company to the class of $12.4 million, including plaintiff counsel fees. An order from the Federal District Court in Columbia, South Carolina approving the settlement was issued on September 27, 2006.

Also as disclosed in the 2005 10-K, the Company was a defendant in a purported antitrust class action brought by purchasers of coated publication papers in various U.S. federal and state courts. The Company has been dismissed from all indirect-purchaser cases, including one previously disclosed California case from which the Company was dismissed during the third quarter.


*In millions*	Hardboard			Omniwood			Woodruf			Total
Balance, December 31, 2006	$	72		$	49		$	3		$	124
Additional Provisions		—			—			—			—
Payments		(14	)		(7	)		(1	)		(22	)

Balance, March 31, 2007	$	58		$	42		$	2		$	102

Other ~~Matters~~Legal Matters:

International Paper is involved ~~from time to time~~ in various other inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, ~~antitrust,~~ personal injury ~~employment~~ and other ~~matters, some of which allege substantial monetary damages.~~matters. While any ~~proceeding~~administrative proceedings, litigation or ~~litigation has the~~claims have an element of uncertainty, International Paper believes that the outcome of any ~~such~~of these matters that are pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial statements.

NOTE 810 - DEBT

In ~~August 2006,~~March 2007, International Paper ~~used approximately $320~~Investments (Luxembourg) S.ar.l, a wholly-owned subsidiary of International Paper, repaid $143 million of ~~cash to repay its maturing 5.375% euro-denominated notes that were designated as~~long-term debt with an interest rate of LIBOR plus 40 basis points and a ~~hedge of euro functional currency net investments.~~maturity date in November 2010. Other debt activity in the ~~third~~ quarter included the repayment of ~~$143~~$198 million of ~~7.875%~~7 5/8% notes ~~and $96 million of 7% debentures, all maturing within~~that matured in the quarter.

On June 20, 2006, International Paper paid approximately $1.2 billion to repurchase substantially all of its zero-coupon convertible debentures at a price equal to their accreted principal value plus interest, using proceeds from divestitures and $730 million of third party commercial paper issued under the Company’s receivables securitization program. As of September 30, 2006, International Paper had reduced this commercial paper borrowing by a net of $30 million, reflecting repayments of second-quarter borrowings less amounts required for the “Dutch Auction” tender offer in September, and plans to repay the remainder by the end of 2006.

In February 2006, International Paper repurchased $195 million 6.4% debentures with an original maturity date of February 2026. Other reductions in the first quarter 2006 included early payment of approximately $495 million of notes with coupon rates ranging from 4% to 8.875% and original maturities from 2007 to 2029. Pre-tax early debt retirement costs of $8 million related to first quarter 2006 debt reductions are included in Restructuring and other charges in the accompanying consolidated statement of operations.

InAt March 31, 2007 and December 31, 2006, International Paper ~~replaced~~classified $100 million of current maturities of long-term debt as Long-term debt. International Paper has the intent and ability to renew or refinance these obligations as evidenced by its ~~maturing $750~~contractually committed $1.5 billion bank credit agreement.

At December 31, 2006, International Paper had unused contractually committed bank credit agreements totaling $3.0 billion. In March 2007, International Paper’s 364-day $500 million ~~revolving~~fully-committed bank credit agreement ~~with a 364-day $500 million fully~~expired and was not renewed by the Company after reviewing its liquidity position. This leaves approximately $2.5 billion of committed ~~revolving bank credit agreement that expires in March 2007 and has a facility fee~~liquidity, consisting of ~~0.08% payable quarterly, and replaced its $1.25 billion revolving bank credit agreement with~~ a $1.5 billion ~~fully~~contractually committed ~~revolving~~ bank credit agreement that expires in March 2011, and ~~has~~ a facility fee of 0.10% payable quarterly. The new agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating.

~~On October 25, 2006, the Company amended its existing~~$1.0 billion receivables securitization program that ~~provides for up to $1.2 billion of commercial paper-based financings with a facility fee of 0.20% and an expiration date~~expires in ~~November 2007, to provide up to $1 billion of available commercial paper-based financings with a facility fee of 0.10% and an expiration date of~~ October 2009.

During 2006, the Company entered into a series of fixed-to-floating interest rate agreements with a notional amount of approximately $1.2 billion. The objective of these transactions, all of which qualify as fully effective fair value hedges under SFAS No. 133, was to manage interest rate risks associated with International Paper’s debt. These additional agreements increased the outstanding notional amounts of fully effective fair value interest rate swaps to approximately $3 billion, with a fair value net asset of approximately $18 million as of September 30, 2006.

~~In September 2005, International Paper used proceeds from the sale of its interest in CHH to repay the remaining $250 million portion of a subsidiary’s $650 million long-term debt with~~Maintaining an interest rate of LIBOR plus 62.5 basis points and a maturity date of June 2007, and $312 million of commercial paper that had been issued in the same quarter. Other reductions in the 2005 third quarter included repayment of $662 million of notes with coupon rates ranging from 4% to 7.35% and original maturities from 2009 to 2029, and the repayment of $150 million of 7.10% notes with a maturity date of September 2005. Pre-tax early debt retirement costs of $26 million related to third quarter 2005 debt reductions are included in Restructuring and other charges in the accompanying consolidated statement of operations.

~~In June 2005, International Paper repaid approximately $400 million of a subsidiary’s long-term debt with an interest rate of LIBOR plus 62.5 basis points and a maturity date of June 2007.~~

In February 2005, International Paper redeemed the outstanding $464 million aggregate principal amount of International Paper Capital Trust 5.25% convertible subordinated debentures originally due in July 2025 at 100.5% of par plus accrued interest. Other reductions in the first quarter of 2005 included early payment of approximately $295 million of principal on notes with coupon rates ranging from 4% to 7.875% and original maturities from 2006 to 2015. Pre-tax early debt retirement costs of $24 million related to first quarter 2005 debt reductions are included in Restructuring and other charges in the accompanying consolidated statement of operations.

At December 31, 2005, International Paper had classified as Long-term debt $1.25 billion of tenderable bonds, commercial paper and bank notes and current maturities of long-term debt. International Paper had the intent and ability to renew or convert these obligations as evidenced by credit facilities existing at that date.

~~Maintaining a strong~~ investment-grade credit rating is an important element of International Paper’s ~~corporate finance~~financing strategy. InAt March 31, 2007, the ~~third quarter~~Company held long-term credit ratings of ~~2006,~~BBB (stable outlook) and Baa3 (stable outlook) by Standard & Poor’s ~~revised the outlook on the Company’s long-term~~(S&P) and Moody’s Investor Services (Moody’s), respectively. The Company currently has short-term credit ratings ~~from BBB negative to stable outlook~~by S&P and ~~upgraded its short-term credit rating from A-3 to A-2. At September 30, 2006, the Company also held a long-term credit rating~~Moody’s of ~~Baa3 (stable outlook)~~A-2 and ~~a short-term credit rating of~~ P-3, ~~from Moody’s Investor Services.~~respectively.

NOTE 911 – RETIREMENT PLANS

International Paper maintains pension plans that provide retirement benefits to substantially all domestic employees hired prior to July 1, 2004. These employees generally are eligible to participate in the plans upon completion of one year of service and attainment of age 21. Employees hired after June 30, 2004, who are not eligible for this pension plan, ~~will~~ receive an additional company contribution to their savings plan.

The plans provide defined benefits based on years of credited service and either final average earnings (salaried employees), hourly job rates or specified benefit rates (hourly and union employees). A detailed discussion of these plans is presented in Note 15 to the Financial Statements included in International Paper’s Annual Report on Form 10-K for the year ended December 31, ~~2005.~~2006.

Net periodic pension expense for ~~the Company’s~~our qualified and nonqualified U.S. defined benefit plans consisted of the following:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
*In millions*	2006			2005			2006			2005			2007			2006
Service cost	$	35		$	32		$	106		$	97		$	27		$	36
Interest cost		127			118			380			355			131			126
Expected return on plan assets		(135	)		(139	)		(405	)		(417	)		(159	)		(135	)
Actuarial loss		60			41			182			125			48			59
Amortization of prior service cost		7			8			20			22			5			7

Net periodic pension expense (a)	$	94		$	60		$	283		$	182		$	52		$	93

(a)

Excludes ~~net charges of $3 million and~~ $47 million for the three-month and nine-month periods ended September 30, 2006 for curtailments and termination benefits related to Kraft Papers, Coated Papers, and the Transformation initiative that were recorded in Discontinued operations, Net (gains) losses on sales and impairments of businesses and Restructuring and other charges, respectively; and charges of $1 million and $30 million for the three-month and nine-month periods ended September 30, 2005 for curtailments and special termination benefits ~~related to the divestiture of Fine Papers, Industrial Papers and the Jackson Foodservice plant divestitures and an organizational restructuring that were~~in 2006, recorded in ~~Net (gains) losses on sales and impairments of businesses and Restructuring and other charges, respectively.~~Discontinued operations.

~~While~~For its qualified defined benefit pension plan, International Paper ~~may elect~~makes contributions that are sufficient to fully fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). International Paper made voluntary contributions of $1.0 billion to the qualified defined benefit plan in 2006 and does not expect to make ~~voluntary contributions to its U.S. qualified plan up to the maximum deductible amount per Internal Revenue Service tax regulations in the coming years, it is unlikely that~~ any contributions ~~to the plan will be required before 2007 unless investment performance is negative or International Paper changes its funding policy.~~in 2007. The nonqualified plan is funded to the extent of benefit payments, which equaled ~~$23~~$18 million through ~~September 30, 2006.~~March 31, 2007.

NOTE 1012 – STOCK-BASED COMPENSATION

International Paper has a Long-Term Incentive Compensation Plan (LTICP) that includes a ~~Stock Option Program,~~performance share program, a ~~Restricted Performance Share Program~~service-based restricted stock award program, an executive continuity award program that provides for tandem grants of restricted stock and stock options, and a ~~Continuity Award Program,~~stock option program (discontinued as described below). The LTICP is administered by ~~a committee of independent members~~the Management Development and Compensation

Committee of the Board of Directors (the Committee) who are not eligible for ~~these~~ awards. A detailed discussion of these plans is presented in Note 17 to the Financial Statements included in International Paper’s Annual Report on Form 10-K for the year ended December 31, ~~2005.~~2006. As of ~~September 30, 2006, 22.7~~March 31, 2007, 24.2 million shares were available for grant under the LTICP.

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based ~~Payment,~~Payment.” ~~using~~Compensation expense is recorded over the ~~modified prospective transition method and, accordingly, prior~~related service period amounts have not been restated. This pronouncement requires that compensation costs related to share-based payments be recognized in the financial statements. For equity awards, the amount of compensation cost is measured based on the ~~grant date~~grant-date fair ~~value of the award. The resulting cost is recognized over the period during which an employee is required to provide service~~market value. Since all outstanding options are vested, only replacement option grants will be expensed in exchange for the award, usually the vesting period. Prior to January 1, 2006, the Company applied the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in accounting for its plans.future periods.

Total stock-based compensation cost recognized in Selling and administrative expense in the accompanying consolidated statement of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ was ~~$98.8~~$26 million and ~~$31.5~~$18 million, respectively. The actual tax benefit realized for stock-based compensation costs was ~~$2.5~~$3 million and $1 million for ~~both nine-month~~the three-month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005.~~respectively. At ~~September 30, 2006, $121.1~~March 31, 2007, $211 million, net of estimated forfeitures, of compensation cost related to unvested restricted performance shares, ~~and~~executive continuity awards and restricted stock attributable to future performance had not yet been recognized. This amount will be recognized in expense over a weighted-average period of ~~1.4~~two years.

Performance-Based Restricted ~~Performance~~ Share Program:

~~Restricted~~Under the Performance Share Program (PSP), contingent awards of International Paper common stock are granted by the Committee. Awards are earned based on the achievement of defined performance rankings of return on investment (ROI) and total shareholder return (TSR) compared to aROI and TSR peer ~~group~~groups of companies. ~~For awards issued to non-senior management, the awards~~Awards are weighted 75% for ROI and 25% for ~~TSR. For awards issued to~~TSR for all participants except for certain members of senior management ~~the~~for whom awards are weighted 50% for ROI and 50% for TSR. The ROI component of the PSP awards is valued at the closing stock price on the day prior to the grant date. As the ROI component contains a performance condition, compensation expense, net of estimated forfeitures, is recorded over the requisite service period based on the most probable number of awards expected to vest. The TSR component of the PSP awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the award, risk-free rate, expected dividends, and the expected volatility for the Company and its competitors. The expected term was estimated based on the vesting period of the awards, the risk-free rate was based on the yield on U.S. Treasury securities matching the vesting period, the expected dividends were assumed to be zero for all companies, and the volatility was based on the Company’s historical volatility over the expected term.

The PSP awards issued to the senior management group are liability awards, which are required to be remeasured at fair value at each balance sheet date. The valuation of these PSP liability awards is computed based on the same methodology as the PSP equity awards.

The following table sets forth the assumptions used to determine compensation cost for the market condition component of the PSP plan consistent with the requirements of SFAS No. 123(R):


	Three Months Ended ~~September 30, 2006~~	~~Nine Months Ended~~ ~~September 30, 2006~~March 31, 2007
Expected volatility	~~20.6%~~	~~20.50%~~20.33% - ~~25.20%~~20.46%
Risk-free interest rate	~~4.59%~~4.64% - ~~4.89%~~	~~4.30% - 5.30%~~4.75%

The following summarizes the activity for all performance-based programs for the ~~nine~~three months ended ~~September 30, 2006:~~March 31, 2007:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2005	4,195,317		$	41.47
Outstanding at December 31, 2006					5,504,458		$	38.61
Granted	2,320,858			33.58	2,261,611			33.52
Shares Issued (a)	(378,042	)		35.89	(1,243,350	)		36.26
Forfeited	(50,666	)		39.16	(104,286	)		39.69

Outstanding at September 30, 2006	6,087,467		$	38.83
Outstanding at March 31, 2007					6,418,433		$	37.25

(a)	Includes ~~5,468~~108,966 shares held for payout at the end of the performance period.

Stock Option Program:

The Company discontinued its stock option program in 2004 for members of executive management, and in 2005 for all other eligible U.S. and non-U.S. employees. Stock-based compensation expense totaling ~~$5,000~~$5,300 related to a stock option reload was recorded for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. The expense was calculated under the Black-Scholes option pricing model using ~~19.7%~~20.46% expected volatility, an interest rate of ~~4.97%~~4.92%, a ~~2.7%~~2.74% expected dividend yield and a term of two years. As of ~~September 30, 2006,~~March 31, 2007, all outstanding options were fully vested.

A summary of option activity under the plan as of ~~September 30, 2006~~March 31, 2007 is presented below:


	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic Value (thousands)		Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2005	41,581,598		$	39.49
Outstanding at December 31, 2006								35,982,698		$	39.52
Granted	997			37.06				1,120			36.54
Exercised	(785,628	)		32.61				(905,634	)		33.21
Forfeited	(678,339	)		44.95				(337,528	)		47.15
Expired	(2,299,835	)		41.30				(1,855,395	)		42.78

Outstanding at September 30, 2006	37,818,793		$	39.43	5.18	$	1,491
Outstanding at March 31, 2007								32,885,261		$	39.43	4.84	$	1,296

All options are exercisable as of ~~September 30, 2006.~~March 31, 2007.

Executive Continuity and Restricted Stock Award Program:

The following summarizes the activity of the Executive Continuity and Restricted Stock Award Program for the ~~nine~~three months ended ~~September 30, 2006:~~March 31, 2007:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2005	250,375		$	38.49
Outstanding at December 31, 2006					177,250		$	37.21
Granted	55,000			34.41	3,000			33.70
Shares Issued	(81,958	)		38.74	(7,500	)		38.12
Forfeited	(49,667	)		37.15	—			—

Outstanding at September 30, 2006	173,750		$	37.46
Outstanding at March 31, 2007					172,750		$	37.11

~~Pro Forma Information for Periods Prior to the Adoption of SFAS No. 123(R):~~NOTE 13 – ACCOUNTING CHANGE

Effective January 1, 2007, International Paper adopted FASB Staff Position (FSP) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” Prior to January 1, ~~2006, the Company~~2007, International Paper accounted for ~~stock-based awards under~~ the ~~intrinsic value~~cost of planned major maintenance by expensing the costs ratably throughout the year. Effective January 1, 2007, International Paper adopted the direct expense method ~~which followed~~of accounting whereby all costs for repair and maintenance activities are expensed in the ~~recognition and measurement principles of APB Opinion No. 25. The following table illustrates~~month that the related activity is performed. International Paper retrospectively applied the effect ~~on net~~of the adoption of this FSP resulting in adjustments to prior-period quarterly operating results, resulting in a $1 million reduction in pre-tax earnings net earnings per common share and net earnings per common share, assuming dilution, for the three and nine months ended September 30, 2005 if the Company had applied the fair value recognition provisions of SFAS No. 123.

In millions, except per share amounts
   Three Months Ended
September 30, 2005 Nine Months Ended
September 30, 2005
Net earnings, as reported
   $ 1,023 $ 1,177
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
   (27 ) (55 )

Pro forma net earnings
   $ 996 $ 1,122

Earnings per common share

Basic - as reported
   $ 2.10 $ 2.42

Basic - pro forma
   $ 2.04 $ 2.31

Earnings per common share

Diluted - as reported
   $ 2.03 $ 2.36

Diluted - pro forma
   $ 1.98 $ 2.25

~~NOTE 11 – SUBSEQUENT EVENTS~~

On October 25, 2006, International Paper and Ilim Pulp, the largest forest products enterprise in Russia, announced that a letter of intent had been signed to establish a 50-50 joint venture. If definitive agreements are reached, this joint venture would be the largest foreign-domestic alliance in the ~~Russian forest sector. It is currently contemplated that International Paper will purchase a 50% equity interest in~~first quarter of 2006. However, this accounting change had no effect on previously reported full-year operating results or on the joint venture for approximately $400 million in cash. The total enterprise value of the joint venture is approximately $1.3 billion, excluding approximately $500 million of debt that will be nonrecourse to the joint venture partners. The parties currently expect to finalize the agreement in the next six months, following completion of due diligence, receipt of required regulatory approvals, and the approvals of their respective boards of directors.

~~On October 30,~~December 31, 2006 and November 3, 2006, International Paper completed the previously announced sales of approximately 5.1 million acres of forestlands to TimberStar and Resource Management Service, LLC, respectively, for proceeds totaling approximately $6.1 billion of cash and notes. These sales will result in an estimated special fourth-quarter pre-tax gain in excess of $4 billion.balance sheet.

INTERNATIONAL PAPER COMPANY

Financial Information by Industry Segment

(Unaudited)

(In millions)

Sales by Industry Segment

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2006 2005 (1) 2006 (1) 2005 (1)
Printing Papers
   $ 1,670 $ 1,795 $ 5,385 $ 5,350
Industrial Packaging
   1,250 1,075 3,660 3,455
Consumer Packaging
   855 785 2,425 2,290
Distribution
   1,730 1,645 5,070 4,745
Forest Products
   445 (4) 700 (4) 1,670 (4) 1,915 (4)
Specialty Businesses and Other (2)
   245 220 710 725
Corporate and Inter-segment Sales
   (328 ) (295 ) (813 ) (830 )

Net Sales
   $ 5,867 $ 5,925 $ 18,107 $ 17,650

~~Operating Profit by Industry Segment~~


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2006			2005 (1)			2006 (1)			2005 (1)			2007			2006
Printing Papers	$	249		$	117	(7)	$	615		$	413	(7,9)
Printing Papers (2)													$	1,540		$	1,805
Industrial Packaging		138	(6)		29	(7)		277	(6)		215	(7)		1,235			1,175
Consumer Packaging		64			43	(7)		140			128	(7)
Consumer Packaging (2)														750			615
Distribution		34			23			97			59			1,675			1,650
Forest Products		129	(5)		271	(5,7)		539	(5)		669	(5,7,9)		85			235
Specialty Businesses and Other (2)		22			(8	)(7)		48			9	(7)
Other Businesses (3)														135			225
Corporate and Inter-segment Sales														(203	)		(179	)

Net Sales													$	5,217		$	5,526


Operating Profit by Industry Segment
													Three Months Ended March 31,
													2007			2006 (1)
Printing Papers (2)													$	231		$	105
Industrial Packaging														103			29
Consumer Packaging (2)														61			47
Distribution														29			27
Forest Products														100			190
Other Businesses (3)														6			13

Operating Profit		636			475			1,716			1,493			530			411
Interest expense, net		(144	)		(121	)(8)		(441	)		(444	)(8,10)		(61	)		(149	)
Minority interest (3)		—			—			5			1
Minority interest (4)														5			3
Corporate items, net		(216	)		(140	)		(565	)		(429	)		(164	)		(180	)
Restructuring and other charges		(92	)		(41	)		(192	)		(65	)		(18	)		(44	)
Insurance recoveries		—			188			19			223			—			19
Net (losses) gains on sales and impairments of businesses held for sale		97			(5	)		(1,261	)		(65	)
Reserve adjustments		—			3			—			3
Net gains (losses) on sales and impairments of businesses held for sale														314			(1,283	)

Earnings (loss) from continuing operations before income taxes and minority interest	$	281		$	359		$	(719	)	$	717		$	606		$	(1,223	)

(1)

~~Prior-period industry~~Prior-year information has been ~~restated~~revised to reflect the ~~classification~~retrospective application of ~~the Kraft Papers and Brazilian Coated Papers businesses as discontinued operations.~~a change in accounting for planned major maintenance activities (see Note 13).

(2)	Reflects the reclassification of the European coated paperboard business from Printing Papers to Consumer Packaging in all periods.

(3)	Includes Arizona Chemical ~~European Distribution~~ and certain smaller businesses.

~~(3)~~(4)

Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that segment that are less than wholly owned. The pre-tax minority interest for these subsidiaries is added here to present consolidated earnings before income taxes and minority interest.

~~(4)~~

Includes $135 million, $280 million, $575 million and $715 million for Forest Resources, and $310 million, $420 million, $1,095 million and $1,200 million for Wood Products, in the third quarter of 2006, third quarter of 2005, first nine months of 2006, and first nine months of 2005, respectively.

~~(5)~~

Includes $166 million, $210 million, $517 million and $497 million for Forest Resources, and ($37) million, $61 million, $22 million and $172 million for Wood Products, in the third quarter of 2006, third quarter of 2005, first nine months of 2006, and first nine months of 2005, respectively.

~~(6)~~

~~Includes a 2006 third-quarter gain of $13 million before taxes related to the sale of property in Spain.~~

~~(7)~~

Includes 2005 third-quarter special charges of $6 million before taxes in the Printing Papers segment for severance and other charges related to the indefinite shutdown of three U.S. paper machines, $3 million before taxes in the Printing Papers segment and $1 million before taxes in the Consumer Packaging segment for environmental reserves, $4 million before taxes in the Industrial Packaging segment related to adjust reserve previously provided, $2 million before taxes in the Forest Products segment for costs associated with relocating the headquarters to Memphis, Tennessee from Savannah, Georgia and $13 million before taxes in the Other Businesses segment related to a plant shutdown.

~~(8)~~

~~Includes interest income of $43 million before taxes related to a favorable tax adjustment.~~

~~(9)~~

Includes 2005 second-quarter special charges of $17 million before taxes in the Printing Papers segment for severance and other charges related to the indefinite shutdown of three U.S. paper machines, and $14 million before taxes in the Forest Resources segment for 2005 second-quarter costs associated with relocating the Forest Products headquarters to Memphis, Tennessee from Savannah, Georgia.

~~(10)~~

~~Includes interest income of $11 million before taxes from the collection of a note receivable from the 2001 sale of the Flexible Packaging business.~~

INTERNATIONAL PAPER COMPANY

Sales Volumes By Product (1) (2)

(Unaudited)


	Three Months Ended September 30,			Nine Months Ended September 30,		Three Months Ended March 31,
	2006		2005	2006	2005	2007	2006
Printing Papers (In thousands of short tons)
U.S. Uncoated Papers						982	1,026
Europe & Russia Uncoated Papers						376	379
Brazil Uncoated Papers	121		111	353	330	144	118
Europe & Russia Uncoated Papers	353		342	1,072	1,059
U.S. Uncoated Papers	1,006		940	3,031	2,886
Asia Uncoated Papers						5	3

Uncoated Papers	1,480		1,393	4,456	4,275	1,507	1,526
Coated Papers	220	(4)	582	1,300	1,630	—	502
Market Pulp (3)	282		335	856	938	335	285

Packaging (In thousands of short tons)
Container of the Americas	902		886	2,733	2,682	882	901
European Container (Boxes)	293		262	939	794	307	321
Other Industrial and Consumer Packaging	115		126	354	387	131	146

Industrial and Consumer Packaging	1,310		1,274	4,026	3,863	1,320	1,368
Containerboard	451		466	1,385	1,375	392	496
Bleached Packaging Board	405		341	1,174	1,063	491	338
Coated Bristols	101		101	311	311	100	108
Kraft	62		63	196	185

Forest Products (In millions)
Panels (sq. ft. 3/8” - basis)	404		444	1,219	1,212
Lumber (board feet)	613		675	1,907	1,951
Saturated and Bleached Kraft Papers						53	60

(1)	Sales volumes include third party and inter-segment sales.

(2)	Sales volumes for divested businesses are included through the date of sale, except for discontinued operations.

(3)	Includes internal sales to mills.

~~(4)~~

~~Includes one month of production for the U.S. Coated and Supercalendered business that was sold in the third quarter of 2006.~~

Sales Volumes represent supplemental information that is not included in Part I, Item 1. Financial Information.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

For the first quarter of 2007, International Paper reported ~~solid 2006 third quarter~~the strongest first-quarter operating results ~~driven by much~~since 2000. Pricing momentum remained strong during the quarter with improved ~~performance in our key platform North American Paper~~product pricing for European and ~~Packaging businesses. Average product prices improved~~Brazilian paper and global pulp. First-quarter sales volumes were flat compared with the ~~second~~2006 fourth quarter as we shifted product sales across ~~all uncoated~~global markets and took some lack-of-order downtime in North American paper ~~pulp~~ and ~~packaging grades as a number of announced price increases were fully implemented. Sales volumes were solid and generally comparable~~containerboard operations to match production with ~~the second quarter.~~our customers’ demand. Global manufacturing operations continued to perform well, led by record performance in our European operations. Freight and raw material costs were somewhat higher, driven by increased wood costs, but these increases were partially offset by favorable energy costs. Earnings from land sales for the quarter ~~although we continue to be challenged by high input and distribution costs. However, the operating results for our Wood Products business were down sharply~~declined from 2006 fourth-quarter levels. Net interest expense also declined reflecting lower ~~product prices in a weak housing market. The effective~~debt levels. Excluding special items, the income tax rate ~~was lower~~ for the ~~third~~ quarter ~~reflecting a lower projected full-year rate.~~was higher than in both the 2006 fourth and first quarters.

Looking forward to the ~~fourth~~2007 second quarter, ~~sales volumes are expected to be seasonally slower toward the end of the year. For North America,~~ we ~~have realized substantially all of our announced paper and packaging price increases and believe~~expect that we are near the bottom on wood products prices. Input and distribution costs are likely to remain high, although we believe there are some favorable signs on the horizon. Benefits from expected continued improvement in our global manufacturing operations will be somewhat offset by an increase in planned maintenance downtime. Net interest expense should be lower in the quarter due to interest income from the installment notes we will receive as the Transformation Plan forestland sales close. Thus, earnings from continuing operations, ~~before~~excluding special items, will be somewhat higher than in the first quarter. Average price realizations should further improve as we implement previously announced North American, European and Brazilian paper price increases as well as announced second-quarter increases for containerboard and boxes. Sales volumes should be seasonally stronger and should benefit from contributions from the Luiz Antonio mill in Brazil for a full quarter. Input costs for raw materials, energy and freight are expected to remain high, and planned maintenance outage expenses should be higher than in the first quarter. Second quarter earnings from land sales are expected to be slightly lower than in the ~~third~~first quarter.

RESULTS OF OPERATIONS

For the ~~third~~first quarter of ~~2006,~~2007, International Paper reported net sales of ~~$5.9~~$5.2 billion, compared with ~~$5.9~~$5.5 billion in the ~~third~~first quarter of ~~2005~~2006 and ~~$6.2~~$5.3 billion in the ~~second~~fourth quarter of 2006.

Net earnings totaled ~~$201~~$434 million, or ~~$0.42~~$0.97 per share, in the ~~2006 third~~2007 first quarter. This compared with ~~net earnings~~losses of ~~$1.0~~$1.2 billion, or ~~$2.03~~$2.54 per share, in the ~~third~~first quarter of ~~2005~~2006 and ~~$115 million,~~earnings of $2.0 billion, or ~~$0.24~~$4.38 per share, in the ~~second~~fourth quarter of 2006.

LOGO

Earnings from continuing operations were ~~$113~~$457 million in the ~~third~~first quarter of 2007 compared with a loss of $1.2 billion in the first quarter of 2006 ~~compared with~~and earnings of ~~$733 million in the third quarter of 2005 and $112 million~~$2.0 billion in the 2006 ~~second~~fourth quarter. ~~Earnings~~Compared with the first quarter of 2006, earnings in the ~~2006 third~~2007 first quarter benefited from higher average price realizations ($~~127~~134 million), ~~higher sales volumes and decreased market-related downtime ($15 million), and~~ lower operating costs and a more favorable mix of products sold ($~~114~~53 million) ~~compared with the 2005 third quarter. These benefits were partially offset by higher raw material and freight costs~~, lower corporate charges ($5820 million) reflecting lower pension expenses, and lower gains from land sales ($40 million). In addition, corporate items and other costs ($51 million) increased reflecting higher pension costs, incentive compensation and other benefit-related charges and supply chain costs. Netnet interest expense ($1265 million) decreased. The Wood Products business reported significantly lower earnings ($64 million) as a result of lower price realizations. The Coated and Supercalendered business had lower after-tax earnings ($14 million) reflecting the sale of the business on August 1, 2006. Net special items were an expense of $75 million in the 2006 third quarter versus income of $603 million in the third quarter of 2005. Income tax expense was $17 million lower in the 2006 third quarter reflecting a lower estimated effective tax rate.

Compared with the second quarter of 2006, earnings from continuing operations benefited from higher average price realizations ($41 million), higher sales volumes ($7 million), and improved manufacturing costs ($26 million) resulting from cost reduction actions in prior periods.. These benefits were partially offset by higher raw material and freight costs ($14 million), lower gains from land sales ($40 million), higher costs due to mill production outages ($22 million), lower sales volumes and increased lack-of-order downtime ($5 million), reduced business earnings due to the net impact of divestitures/acquisitions ($29 million), and a higher income tax provision ($18 million) reflecting a higher estimated effective tax rate in 2007. Additionally, net special items were a gain of $254 million in the 2007 first quarter versus an expense of $1.3 billion in the first quarter of 2006.

Compared with the fourth quarter of 2006, earnings from continuing operations benefited from improved manufacturing costs ($39 million) resulting from cost reduction actions in prior periods. These benefits were offset by higher raw material costs ($13 million), higher freight costs ($2 million), and higher mill outage costs ($30 million). Corporate ~~and other~~ items increased ($31 million) due to higher incentive compensation and other benefit-related charges. Net interest expense ($3 million) decreased. Wood Products earnings were lower ($41 million) reflecting the sharp decline in price realizations. The Coated and Supercalendered Papers business had lower after-tax earningsdecreased ($18 million) due to lower pension costs, partially offset by higher benefit-related costs and the ~~sale~~effect of a 2006 fourth quarter favorable inventory-related adjustment. Net interest expense decreased ($17 million), while the ~~business. Additionally, compared with~~earnings impact to the ~~2006 second~~businesses of divestitures/acquisitions was lower ($3 million). Income tax expense was $12 million higher in the 2007 first quarter ~~2006 third-quarter earnings reflected benefits from lower special charges ($9 million) and~~reflecting a ~~lower~~higher estimated effective tax ~~rate ($19 million).~~rate. Net special items were a gain of $254 million versus a gain of $1.8 billion in the fourth quarter of 2006.

To measure the performance of the Company’s business segments from period to period without variations caused by special or unusual items, International Paper’s management focuses on business segment operating profit. This is defined as earnings before taxes and minority interest, excluding interest expense, corporate charges and special items that include restructuring charges, early debt extinguishment costs, legal reserves, insurance recoveries, gains (losses) on sales and impairments of businesses, and the reversal of reserves no longer required. ~~Prior-year industry segment~~Prior-period information has been ~~restated to conform to minor changes in the 2006 operational structure and~~revised to reflect the ~~classification~~retrospective application of ~~the Kraft Papers and the Brazilian Coated Papers businesses as discontinued operations.~~a change in accounting for planned major maintenance activities.

The following table presents a reconciliation of International Paper’s net earnings to its operating profit:


	Three Months Ended									Three Months Ended
	September 30,						June 30,			March 31,						Dec. 31,
*In millions*	2006			2005			2006			2007			2006			2006
Net Earnings (Loss)	$	201		$	1,023		$	115		$	434		$	(1,236	)	$	1,979
Deduct - Discontinued operations:
(Earnings) loss from operations		(8	)		71			(13	)
(Gain) loss on sales or impairments		(80	)		(361	)		10
Earnings from operations											(3	)		(37	)		(13	)
Loss on sales or impairments											26			61			81

Earnings From Continuing Operations		113			733			112
Earnings (Loss) From Continuing Operations											457			(1,212	)		2,047
Add back (deduct):
Income tax provision (benefit)		163			(377	)		59
Income tax (benefit) provision											143			(16	)		1,668
Minority interest expense, net of taxes		5			3			5			6			5			3

Earnings From Continuing Operations Before Income Taxes and Minority Interest		281			359			176
Earnings (Loss) From Continuing Operations Before Income Taxes and Minority Interest											606			(1,223	)		3,718
Interest expense, net		144			121			147			61			149			80
Minority interest included in operations		—			—			(2	)		(5	)		(3	)		(3	)
Corporate items		216			140			174			164			180			166
Special items:
Restructuring and other charges		92			41			54			18			44			111
Insurance recoveries		—			(188	)		—			—			(19	)		—
Net (gains) losses on sales and impairments of businesses held for sale		(97	)		5			75
Gains on forestland sales											—			—			(4,422	)
Impairments of goodwill											—			—			759
Net (gains) losses on sales and impairments of businesses											(314	)		1,283			21
Reserve adjustments		—			(3	)		—			—			—			(5	)

	$	636		$	475		$	624		$	530		$	411		$	425

Industry Segment Operating Profit
Printing Papers	$	249		$	117		$	247		$	231		$	105		$	63
Industrial Packaging		138			29			100			103			29			130
Consumer Packaging		64			43			41			61			47			27
Distribution		34			23			36			29			27			31
Forest Products		129			271			184			100			190			162
Specialty Businesses and Other		22			(8	)		16			6			13			12

Total Industry Segment Operating Profit	$	636		$	475		$	624		$	530		$	411		$	425

Industry Segment Operating Profit

LOGO

Industry segment operating profits of $530 million in the 2007 first quarter were higher than both $411 million in the 2006 first quarter and $425 million in the 2006 fourth quarter. Compared with the first quarter of 2006, earnings in the current quarter benefited from higher average prices ($182 million), lower manufacturing operating costs and a more profitable mix of products sold ($72 million), slightly lower raw material costs ($2 million), and other items ($14 million). These benefits were partially offset by lower gains from land sales ($55 million), higher costs due to mill outages ($30 million), higher freight costs ($20 million), and lower sales volumes and increased lack-of-order downtime ($7 million). The impact of acquisitions and divestitures also reduced profits ($39 million).

Compared with the 2006 fourth quarter, operating profits benefited from improved manufacturing operating performance and the impact of cost reduction efforts ($54 million), lower other costs ($27 million), and favorable special charges ($128 million). These benefits were partially offset by higher raw material costs ($18 million), higher freight costs ($3 million), lower gains from land sales ($70 million), and higher costs due to mill outages ($17 million). The impact of acquisitions and divestitures increased profits ($4 million).

During the 2007 first quarter, International Paper took approximately 180,000 tons of downtime, including 35,000 tons for lack-of-order downtime, compared with approximately 165,000 tons of downtime in the first quarter of 2006, which included 28,000 tons of lack-of-order downtime. During the 2006 fourth quarter, International Paper took approximately 235,000 tons of downtime, including 75,000 tons for lack-of-order downtime. Lack-of-order downtime is taken to balance internal supply with our customer demand to help manage inventory levels, while maintenance downtime, which makes up the majority of the difference between total downtime and lack-of-order downtime, is taken periodically during the year.

Discontinued Operations

2007:

2006:

During the 2006 third quarter, International Paper completed the ~~previously announced~~ sale of its Brazilian Coated Papers ~~business to Stora Enso Oyj for approximately $420 million, subject to certain post-closing adjustments.~~business. The operating results of this business ~~for all periods presented~~ are included in Discontinued operations infor all periods presented.

During the ~~accompanying consolidated statement~~first quarter of ~~operations, including~~2006, the Company determined that the accounting requirements under SFAS No. 144 for reporting the Kraft Papers business as a discontinued operation were met. Accordingly, a $100 million pre-tax ~~gain of $101 million~~charge ($8061 million after taxes) ~~recorded in the 2006 third quarter as a result of the sale.~~

~~In the 2006 first quarter, a pre-tax charge of $101 million ($0.13 per share) had been~~was recorded to ~~write down~~reduce the carrying value of the net assets of ~~the Kraft Papers~~this business to their estimated fair value. ~~During the 2006 second quarter, International Paper signed a definitive agreement to sell~~The sale of this business ~~to Stone Arcade Acquisition Corp. and recorded an additional pre-tax charge of $16 million ($0.02 per share) based on the terms~~was completed in January 2007. The operating results of this ~~agreement.~~

business are included in Discontinued operations for ~~the second quarter of 2005 also includes the operating results of Carter Holt Harvey Limited sold in the third quarter of 2005.~~all periods presented.

Income Taxes

The income tax provision was ~~$163~~$143 million for the ~~2006 third~~2007 first quarter. Excluding a ~~$93~~$44 million charge relating to the tax effects of special items, the effective income tax rate for continuing operations was ~~27%~~32% for the quarter.

The income tax provision was $1.7 billion in the 2006 fourth quarter, ~~bringing~~principally reflecting deferred taxes on the 2006 Transformation Plan forestland sales. Excluding the impact of this item and a $99 million tax benefit associated with other special items, the effective tax rate for the ~~2006 nine-month period to 31%, the revised estimated full-year rate for 2006.~~quarter was 28%.

The income tax ~~provision~~benefit was ~~$59~~$16 million in the 2006 ~~second~~first quarter. Excluding a ~~$45~~$38 million ~~credit relating~~benefit related to the tax effects of special items, the effective income tax rate for continuing operations ~~was 34%~~before special items for the ~~quarter.~~first quarter 2006 was 26%.

~~The~~Deferred income ~~tax benefit~~taxes increased from $2.2 billion at December 31, 2006 to $3.3 billion at March 31, 2007, principally due to the effects of ~~$377 million~~the adoption of FIN 48, preliminary purchase accounting for the Luiz Antonio mill, and deferred taxes associated with businesses sold in the third quarter of 2005 included a $553 million non-cash income tax benefit resulting from an agreement reached with the U.S. Internal Revenue Service concerning the Company’s 1997 through 2000 federal income tax audits, a $21 million provision related to cash repatriated from non –U.S. subsidiaries under the American Jobs Creation Act of 2004, and a $15 million provision related to a change in Ohio state tax laws. Excluding these items, and a $73 million charge relating to the tax effects of special items, the effective income tax rate for continuing operations was 34% for the2007 first quarter.

Interest Expense and Corporate Items

Net interest expense for the ~~2006 third~~2007 first quarter was ~~$144~~$61 million ~~slightly lower than the $148~~compared with $80 million infor the 2006 ~~second~~fourth quarter ~~but higher than~~and $149 million for the ~~$121 million in the 2005 third~~2006 first quarter. Net interest expense in the 2005 third quarter included a pre-tax credit of $43 for a reduction of accrued interest related to the agreement with the U.S. Internal Revenue Service discussed above. Excluding this, net interest expense was $164 million. The lower expense ~~in the current quarter~~ reflects lower average debt balances and interest rates due to debt refinancings and repayments and includes $6 million of interest income relating to the collection of a note receivable that had been written off in ~~2005 and 2006.~~prior years.

Corporate items, net, of ~~$216~~$164 million in the ~~2006 third~~2007 first quarter were ~~higher than~~about equal to the 2006 ~~second-quarter~~fourth-quarter net expenses of ~~$174~~$166 million, ~~and~~but were ~~higher~~lower than the net expenses of ~~$140~~$180 million in the ~~third~~first quarter of ~~2005.~~2006. Compared with the fourth quarter of 2006, lower pension expenses were offset by higher benefits-related expenses. Fourth-quarter corporate items also included a favorable one-time inventory-related adjustment. The ~~higher expense~~decrease in expenses compared with the ~~current~~first quarter of 2006 is primarily due ~~primarily~~ to ~~higher incentive compensation and other benefit costs.~~lower pension expenses.

Special Items

Restructuring and Other Charges

2007:

During the ~~third~~first quarter of 2007, restructuring and other charges totaling $18 million before taxes ($11 million after taxes) were recorded for organizational restructuring programs associated with the Company’s Transformation Plan. Additionally, a $2 million pre-tax credit ($1 million after taxes) was recorded in Interest expense for interest received from the Canadian government on refunds of prior-year softwood lumber duties.

2006:

During the first quarter of 2006, restructuring and other charges totaling ~~$92~~$44 million before taxes ($5627 million after taxes) were recorded. Included in these charges were a pre-tax charge of ~~$57~~$18 million ($35 million after taxes), including severance and other charges associated with the Company’s Transformation Plan and a $35 million pre-tax charge ($21 million after taxes) for adjustments to legal reserves.

During the second quarter of 2006, restructuring and other charges totaling $54 million before taxes ($33 million after taxes) were recorded. Included in these charges were a pre-tax charge of $50 million ($30 million after taxes) for severance and other charges associated with the Company’s Transformation Plan and a $4 million pre-tax charge ($3 million after taxes) for legal settlements.

During the first quarter of 2006, restructuring and other charges totaling $46 million before taxes ($28 million after taxes) were recorded. Included in these charges were a pre-tax charge of $20 million ($1211 million after taxes) for organizational restructuring programs, principally severance costs associated with the Company’s Transformation Plan, a pre-tax charge of $8 million ($5 million after taxes) for losses on early extinguishment of debt, and a pre-tax charge of $18 million ($11 million after taxes) for adjustments to legal reserves. Also recorded was a pre-tax credit of $19 million ($12 million after taxes) for net insurance recoveries related to the hardboard siding and roofing litigation (see Note 9) and a charge of $6$3 million for tax adjustments.

During the ~~third~~fourth quarter of ~~2005,~~2006, restructuring and other charges totaling ~~$70~~$111 million before taxes ($4869 million after taxes) were recorded. Included in this charge were a pre-tax charge of ~~$44~~$34 million ($3221 million after taxes) for organizational restructuring ~~charges and~~programs, principally severance costs associated with the Company’s Transformation Plan, a pre-tax charge of ~~$26~~$157 million ($1697 million after taxes) for losses on early extinguishment of ~~debt.~~

~~During the second quarter of 2005,~~debt, a pre-tax charge of ~~$31~~$40 million ($1925 million after taxes) for ~~organizational restructuring charges was recorded. The organizational restructuring charges included $17~~legal reserves, a pre-tax credit of $115 million ($70 million after taxes) for interest received from the Canadian government on refunds of prior-year softwood lumber duties and a $5 million credit before taxes ($114 million after taxes) ~~recorded in the Printing Papers business segment~~ for ~~severance and~~ other charges associated with the indefinite shutdown of three U.S. paper machines, and $14 million before taxes ($8 million after taxes) in the Forest Products business segment for costs associated with relocating the business headquarters to Memphis, Tennessee from Savannah, Georgia.

~~During the first quarter of 2005, a special charge of $24 million before taxes ($15 million after taxes) was recorded for losses on early extinguishment of high-coupon-rate debt.~~items.

~~Insurance Recoveries~~Impairments of Goodwill

During the ~~first~~fourth quarter of 2006, ~~a pre-tax credit~~in connection with annual goodwill impairment testing, charges of ~~$19~~$630 million ~~($12~~and $129 million ~~after taxes) was~~were recorded ~~for net insurance recoveries related~~ to write down the ~~hardboard siding~~carrying values of goodwill of the Company’s coated paperboard and ~~roofing litigation (see Note 7). The second and third quarters~~Shorewood Packaging businesses, respectively, based on the estimated fair values of ~~2005 also included pre-tax credit of $35 million ($21 million after taxes) and $188 million ($109 million after taxes), respectively, for insurance recoveries related to this litigation.~~these businesses determined using the projected future operating cash flows.

Net (Gains) Losses on Sales and Impairments of Businesses

2007:

During the ~~third~~first quarter of ~~2006,~~2007, a ~~net~~$103 million pre-tax gain ~~of $110 million (a loss of $13~~($96 million after taxes) was recorded upon the completion of the sale of the Company’s Arizona Chemical business. As part of the transaction, International Paper acquired a minority interest of approximately 10% in the resulting new entity. Final sale proceeds are subject to post-closing adjustments, expected to be finalized in the 2007 second quarter.

In addition, a $6 million pre-tax credit ($4 million after taxes) was recorded to adjust previously estimated gains/losses of businesses previously sold.

These gains are included, along with the gain on the exchange for the Luiz Antonio mill in Brazil (see Note 4), in Net (gains) losses on sales and impairments of businesses ~~including a $13 million pre-tax gain on sale of property in Spain recorded~~ in the ~~Industrial Packaging business. This net gain included pre-tax credits~~accompanying consolidated statement of $304 million ($185 million after taxes) for gains on sales of U.S. forestlands included in the Transformation Plan, the recognition of a previously deferred $110 million pre-tax gain ($68 million after taxes) related to a 2004 sale of forestlands in Maine, pre-tax losses of $165 million and $115 million ($165 million and $82 million after taxes) to adjust the carrying values of the Company’s Wood Products and Beverage Packaging businesses to estimated fair values, a pre-tax charge of $38 million ($23 million after taxes) to reflect the completion of the sale of the Company’s Coated and Supercalendered Papers business in the 2006 third quarter, and a net pre-tax gain of $14 million (a loss of $2 million after taxes) related to other smaller sales.operations.

During the second quarter of 2006, a net pre-tax charge of $75 million ($51 million after taxes) for net (gains) losses on sales and impairments of businesses was recorded, including a pre-tax credit of $62 million ($39 million after taxes) for gains on sales of U.S. forestlands included in the Transformation Plan, a pre-tax charge of $85 million ($53 million after taxes) to adjust the net assets of the Company’s Coated and Supercalendered Papers business to their estimated fair value based on the terms of the definitive sales agreement signed in the second quarter, and a pre-tax charge of $52 million ($37 million after taxes) to write down the carrying value of certain assets in Brazil to their estimated fair value.2006:

During the first quarter, ~~of 2006,~~ a pre-tax charge of $1.3 billion ~~before and after taxes~~ was recorded to write down the assets of the Company’s Coated and Supercalendered Papers business to their estimated fair ~~value.~~value, as management had committed to a plan to sell this business. In addition, other pre-tax charges totaling $3 million ($2 million after taxes) were recorded to adjust estimated losses of certain smaller operations ~~that are~~ held for sale.

InDuring the ~~third~~fourth quarter of ~~2005, charges totaling $5~~2006, a charge of $21 million before and after taxes was recorded for losses on sales and impairments of businesses. This charge included a pre-tax loss of $18 million ($36 million after taxes) ~~were recorded for adjustments~~relating to the sale of ~~losses on businesses previously sold.~~

Incertain box plants in the ~~second quarter~~United Kingdom and Ireland, and $3 million of ~~2005, a pre-tax gain of $19 million ($12 million after taxes) was recorded for net adjustments of losses on businesses previously sold.~~

~~During the first quarter of 2005,~~ pre-tax charges of $79 million ($52 million after taxes) were recorded, including a $24 million pre-tax loss ($13 million after taxes) to write down the net assets of the Fine Papers business to their estimated net realizable value, $49 million pre-tax loss ($35 million after taxes) to write down the net assets of the Industrial Papers business and related corporate assets to their estimated net realizable value and a(a $6 million ~~charge before taxes ($4 million~~credit after taxes) for ~~adjustments to estimated losses on sales of certain smaller operations.~~

~~INDUSTRY SEGMENT OPERATING PROFIT~~

Industry segment operating profits of $636 million in the 2006 third quarter were higher than both $475 million in the 2005 third quarter and $624 million in the 2006 second quarter. Compared with the third quarter of 2005, earnings in the current quarter benefited from higher average prices ($189 million), higher sales volumes and the impact of reduced market-related downtime ($22 million), lower manufacturing operating costs and a more profitable mix of products sold ($170 million), and other items ($6 million). Additionally, special items ($41 million) were favorable in the quarter. These benefits more than offset the effects of higher raw material and freight costs ($86 million), and lower gains from land sales ($60 million). Wood Products earnings were significantly lower ($98 million) due to dramatically lower price realizations. The Coated and Supercalendered business had lower earnings ($23 million) as a result of the sale of the business on August 1, 2006.

Compared with the 2006 second quarter, operating profits benefited from higher average prices ($62 million), higher sales volumes ($11 million), improved manufacturing operating performance and the impact of cost reduction efforts ($39 million), favorable special charges ($13 million) and lower other costs ($1 million). These benefits were partially offset by higher raw material and freight costs ($22 million). Wood Products earnings declined ($61 million) due to lower price realizations; while the Coated and Supercalendered business had lower earnings ($31 million) because of the sale of the business.

During the 2006 third quarter, International Paper took approximately 130,000 tons of downtime, including 28,000 tons for market-related downtime, compared with approximately 400,000 tons of downtime in the third quarter of 2005, which included 270,000 tons of market-related downtime. During the 2006 second quarter, International Paper took approximately 240,000 tons of downtime, including 25,000 tons for market-related downtime. Market-related downtime is taken to balance internal supply with our customer demand to help manage inventory levels, while maintenance downtime, which makes up the majority of the difference between total downtime and market-related downtime, is taken periodically during the year. The costs for annual planned maintenance downtime are charged to expense evenly in each quarter. Market-related downtime costs are expensed in the periods in which the downtime is taken.small asset sales.

BUSINESS SEGMENT OPERATING RESULTS

The following presents segment discussions for the ~~third~~first quarter of ~~2006.~~2007.

Printing Papers


	2006						2005						2007		2006
*In millions*	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		1st Quarter		1st Quarter		4th Quarter
Sales	$	1,670	$	1,860	$	5,385	$	1,795	$	1,725	$	5,350	$	1,540	$	1,805	$	1,475
Operating Profit		249		247		615		117		128		413		231		105		63

Printing Papers net sales for the ~~third~~first quarter of 2007 were 4% higher than the fourth quarter of 2006, ~~were 10%~~but 15% lower than the ~~second~~first quarter of 2006. Operating profits in the first quarter of 2007 were more than double those of both the fourth and first quarters of 2006.

North American Printing Papersnet sales were $885 million in the first quarter of 2007 compared with $870 million in the fourth quarter of 2006 and ~~7% lower than~~$1.2 billion in the ~~third~~first quarter of ~~2005.~~2006. Operating ~~profits~~earnings of $124 million were improved compared with $115 million in the ~~third~~fourth quarter of 2006 ~~were only slightly above profits~~and $58 million in the ~~second~~first quarter of ~~2006, but were more than double profits~~2006.

Sales volumes in the ~~third~~first quarter of ~~2005.~~

~~U.S. Uncoated Papers~~ ~~earnings increased substantially in the third quarter of 2006 versus the second quarter of 2006 to record levels. Sales volumes~~2007 were flat as increases in printing paper and form shipments were offset by decreases in cut size and envelope paper shipments. Average price realizations were up for uncoated freesheet papers reflecting the full realization of previously announced price increases for both roll and cut-size paper product lines. Input costs for wood and energy were unfavorable during the quarter. Freight costs remained high, while manufacturing operations were favorable for the quarter reflecting seasonally lower energy consumption and fewer planned maintenance outages.

~~Earnings were also significantly~~ higher than in the third quarter of 2005. Average sales prices were higher reflecting the benefits from price increases announced earlier in 2006. Sales volumes were up, reflecting improvements in cut size and printing papers and envelopes, while forms volumes declined slightly. Strong product demand in the 2006 quarter resulted in virtually no market-related downtime, compared with 173,000 tons taken in the third quarter of 2005. However, wood, energy and freight costs were all above 2005 levels. Manufacturing operations were favorable, benefiting from improved machine performance and energy conservation efforts. In addition, operating results for the third quarter of 2005 included a $6 million special charge for severance and other charges related to the indefinite shutdown of three paper machines, and a $3 million special charge for environmental reserves.

~~Looking ahead to the 2006~~ fourth quarter, earnings are expected to be slightly lower. Average sales price realizations will be slightly higher with a full quarter of realizations of previous price announcements. Scheduled maintenance outages are expected to increase costs, as will seasonally higher energy consumption. Natural gas prices are expected to average slightly lower.

~~European Papers~~ ~~earnings for the third~~ quarter of 2006 ~~were essentially flat with the 2006 second quarter. Sales volumes increased primarily in Eastern Europe as the inventory supply constraints that limited the~~

~~second-quarter shipments were eliminated. Average sales prices were lower as a result of an increased mix of lower price exports. Input costs were favorable~~ due to ~~lower energy~~strong domestic market demand for cut size papers and ~~wood costs. Manufacturing operations costs were higher due~~increased sales to planned maintenance outages. Earnings improved versus the 2005 third quarter as higher average price realizations and higher sales volumes were only partially offset by increased input costs for energy and wood.

Entering the 2006 fourth quarter, European Papers’ earnings are expected to improve, primarily as a result of higher sales volumes for pulp and paper and higher average sales price realizations. Some increases in manufacturing costs are anticipated due to seasonally higher energy usage plus higher input costs for wood.

~~Brazilian Paper~~earnings for the third quarter of 2006 were lower than the 2006 second quarter, which had benefited from an $8 million favorable settlement of a Brazilian tax matter. Sales volumes increased due to higher uncoated freesheet paper and chip shipments. Average sales price realizations for wood chips and exported uncoated freesheet paper also increased, and input costs were favorable due to lower natural gas prices. Compared to the third quarter of 2005, earnings declined in the third quarter of 2006. Sales volumes were lower, reflecting the absence of a large bulk timber sale that occurred in the third quarter of 2005 and lower wood chip shipments, partially offset by higher uncoated freesheet paper sales.export markets. Average sales price realizations for uncoated freesheet paper ~~and wood chips~~ were ~~higher.~~flat compared to the prior quarter despite competitive pressures. Manufacturing ~~operations and raw material~~ costs were ~~slightly favorable.~~

With the completion of the sale of the Brazilian Coated Papers business in the 2006 third quarter, the operating results of this business are now included in discontinued operations for all periods presented.

~~Looking ahead to~~higher compared with the fourth quarter earnings are expected to be lower reflecting costs associated with a planned recovery boiler outage. Excluding these costs, earnings would be higher than in the third quarter of 2006. Sales volumes and average sales price realizations are expected to improve, primarily for uncoated freesheet paper, while input costs should be about flat.

~~Market Pulp~~~~earnings in the U.S. in the third quarter~~ of 2006 due primarily to an $8 million increase in planned maintenance shutdown expenses. Input costs were ~~higher than in the second quarter of 2006. Sales volumes decreased slightly as~~favorable, reflecting lower ~~fluff pulp volume was~~

average costs for gas and oil, partially offset by higher ~~paper~~starch and ~~tissue pulp shipments. However, average price realizations were up over the prior quarter, reflecting an increase in both softwood and hardwood pulp prices~~wood costs. The business took 41,000 tons of downtime in the ~~second quarter and an additional increase in softwood pulp prices in the third quarter. Raw material costs were slightly favorable, but were offset by higher freight costs. Compared with the third~~first quarter of ~~2005, earnings in the third quarter~~2007 of ~~2006 improved due largely to higher average sales price realizations. Sales volumes declined~~which 19,000 tons were due to ~~lower paper and tissue pulp shipments, partially offset by higher fluff pulp shipments. Input costs for wood increased. Earnings are expected to be essentially flat~~lack of orders. This compares with 71,000 tons of downtime in the fourth quarter of 2006 asof which 41,000 were due to lack of orders.

In the ~~benefits from further realizations~~first quarter of 2006, net sales and earnings included the ~~softwood pulp price increase announced in September are offset by higher wood costs.~~

~~The~~ ~~U.S.~~ Coated and Supercalendered Papersbusiness which was sold in the third quarter of 2006. ~~Earnings for~~Excluding the ~~quarter include the operating results for~~impact of this business, sales volumes were lower in the first quarter of 2007 compared with the first quarter of 2006, which benefited from increased customer purchases in advance of announced price increases. In addition, declines occurred in coated bristols papers and coated kraft papers sales volumes as the result of competitive pressures from imports. Average sales price realizations were up significantly in the first quarter of 2007 as price increases implemented in 2006 have been fully realized. Freight costs were higher as the result of an increase in rail rates during 2006 and increased export shipments. Manufacturing operating expenses were slightly unfavorable as the impact of improved operating performance only partially offset an increase of $11 million in maintenance shutdown expenses. Higher raw material costs for starch and wood were more than offset by favorable energy and caustic soda costs. Total downtime taken by the ~~month~~business in the first quarter of ~~July. Earnings for~~2006 was 15,000 tons, none of which was due to lack of orders.

Looking ahead to the second quarter, earnings are expected to be comparable to the first quarter. Sales volumes are forecasted to increase primarily due to strong demand for imaging papers and a seasonal increase in demand for bleached kraft papers. Average sales price realizations are expected to improve as recently announced price increases for imaging papers and several specialty grades will be partially realized during the quarter. Manufacturing operating expenses will reflect an additional $14 million for planned maintenance shutdown expenses. These negative factors should be partially offset by the impact of improved operations at the mills. Raw material costs for wood are expected to decline, but should be more than offset by higher costs for natural gas and starch.

European Printing Papers net sales were $355 million in the first quarter of 2007 compared with $345 million in the fourth quarter of 2006 and $305 million in the first quarter of 2006. Operating earnings in the first quarter of 2007 were a first-quarter record $50 million compared with a loss of $86 million in the fourth quarter of 2006 and earnings of $13 million in the first quarter of 2006.

Sales volumes in the first quarter of 2007 were down from the fourth quarter of 2006 reflecting the seasonal impact of the Russian New Year holiday period. Average sales price realizations improved in the first quarter as prices increased in Russia toward the end of the quarter and rose steadily throughout the quarter in Western Europe. Manufacturing costs were favorable due to strong operating performance. Raw material costs for wood were higher throughout Europe, and were further impacted by supply availability issues in Russia which caused an increased use of purchased pulp at the Svetogorsk mill. The fourth quarter of 2006 also included a $128 million special charge to reduce the carrying value of the assets of our Saillat mill in France to their estimated fair value.

Compared with the first quarter of 2006, sales volumes in the first quarter of 2007 improved largely due to higher market pulp sales. Sales volumes of uncoated freesheet paper were lower than the first quarter of 2006 as the impact of the closure of the Marasquel mill in France more than offset higher sales in Russia and Eastern Europe. Average sales price realizations were significantly higher due to the realization of price increases implemented in the latter part of 2006 and during the first quarter of 2007. Manufacturing costs were favorable as the result of strong operating performance and a reduction in planned maintenance shutdown expenses. Input costs were unfavorable due to higher wood costs, partially offset by lower energy costs in Western Europe and lower energy usage due to milder winter weather.

In the second quarter, earnings are expected to continue to be equally strong. Sales volumes will be down slightly reflecting planned production outages, but average sales price realizations will be higher as price increases in Russia and Western Europe are realized. Maintenance shutdown expenses will be higher and raw material costs will continue to be impacted by high wood costs.

Brazilian Printing Papersnet sales were $140 million in the first quarter of 2007 compared with $130 million in both the fourth and first quarters of 2006. Operating earnings in the first quarter of 2007 were $36 million compared with $18 million in the fourth quarter of 2006 and $36 million in the first quarter of 2006. The Company completed the previously announced asset exchange to acquire the Luiz Antonio mill on February 1, 2007.

Excluding the impact of the Luiz Antonio exchange, sales volumes in the first quarter of 2007 declined slightly compared with the fourth quarter of 2006, principally for uncoated freesheet paper reflecting normal seasonality and accelerated purchases by customers in the fourth quarter in anticipation of higher prices. Average sales price realizations were higher as the price increases for cutsize paper and offset paper that were announced in December were realized. In the fourth quarter of 2006, a mill optimization project outage had negatively impacted manufacturing costs by $11 million compared with the current quarter. Shipments from the Luiz Antonio mill were in line with expectations. Earnings from Luiz Antonio were $8 million for the ~~third~~quarter as income recognition was delayed for in-transit shipments to Europe and the United States.

Compared with the first quarter of ~~2005 reflected full three-month operations.~~2006, excluding the impact from the Luiz Antonio exchange, sales volumes were essentially flat. Average sales price realizations improved reflecting the price increases for uncoated freesheet paper realized during 2006. Manufacturing costs were favorable, but were partially offset by higher input and transportation costs. In the first quarter of 2006, earnings also included the favorable impact from tax credits.

Looking ahead to the second quarter, earnings are expected to increase significantly. Sales volumes will reflect an additional month of sales from the Luiz Antonio mill. Average sales price realizations should be higher as price increases for domestic cutsize and offset paper begin to be realized. Manufacturing costs should also be favorable, more than offsetting the impact of a small planned maintenance outage at the Luiz Antonio mill.

Asian Printing Papers net sales were $5 million in the first quarter of 2007 compared with $5 million in the fourth quarter of 2006 and $2 million in the first quarter of 2006. Operating earnings were close to breakeven for all periods presented.

U.S. Market Pulpnet sales of $155 million in the first quarter of 2007 were higher than the net sales of $125 million in both the fourth and first quarters of 2006. Operating earnings were $21 million in the first quarter of 2007 compared with $16 million in the fourth quarter of 2006 and a loss of $2 million in the first quarter of 2006.

Sales volumes in the first quarter of 2007 improved compared with the fourth quarter of 2006 due to increased paper and tissue pulp shipments resulting from improved production at the Riegelwood mill. Shipments of fluff pulp were essentially unchanged. Average sales price realizations increased for softwood pulp in both North American and European markets. Average price realizations for fluff pulp were flat. Manufacturing operating expenses were unfavorable despite improvements at Riegelwood, although maintenance shutdown costs were $2 million lower than in the 2006 fourth quarter.

Compared with the first quarter of 2006, sales volumes increased slightly primarily for paper and tissue pulp and for fluff pulp. Average sales price realizations improved as prices for softwood pulp were up significantly due to supply constraints in the market. Freight costs were higher due to the impact of a rail rate increase in 2006 and increased shipments to our European warehouses to build inventories to better service customers. Maintenance shutdown expenses were $4 million favorable in the current quarter.

Entering the second quarter, earnings are expected to improve. Sales volumes for fluff pulp should increase slightly, but sales volumes for paper and tissue pulp will be flat. A previously announced price increase for softwood pulp is expected to be realized during the quarter. Maintenance shutdown expenses are expected to be lower compared with the first quarter. Raw material costs will reflect higher chemical and natural gas costs partially offset by lower wood costs.

Industrial Packaging


	2006						2005						2007		2006
*In millions*	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		1st Quarter		1st Quarter		4th Quarter
Sales	$	1,250	$	1,240	$	3,660	$	1,075	$	1,165	$	3,455	$	1,235	$	1,175	$	1,265
Operating Profit		138		100		277		29		84		215		103		29		130

Industrial Packaging net sales for the ~~third~~first quarter of ~~2006~~2007 were ~~about even with~~2% lower than the ~~second~~fourth quarter of 2006, but ~~were 16%~~5% higher than in the ~~third~~first quarter of ~~2005.~~2006. Operating profits in the ~~third~~first quarter of 2007 were 21% lower than in the fourth quarter of 2006, but more than double the first quarter of 2006.

North American Industrial Packaging net sales were ~~38% higher than~~$925 million in the ~~second~~first quarter of 2007 compared with $945 million in the fourth quarter of 2006 and ~~significantly higher than~~$885 million in the ~~third~~first quarter of ~~2005.~~

~~Containerboard~~2006. Operating earnings were $82 million compared with $114 million in the ~~third~~fourth quarter of 2006 ~~increased significantly~~and $13 million in the first quarter of 2006.

Containerboard sales volumes decreased compared with the ~~second~~fourth quarter of ~~2006.~~2006 reflecting lower production resulting from planned maintenance outages. Average sales price realizations ~~increased during the quarter, reflecting the full realization of previously announced price increases. Third-party sales volumes~~ were ~~higher due to increased availability of product resulting from higher mill production. Raw material~~flat although an improved customer mix had a favorable impact on margins. Maintenance shutdown costs were favorable, reflecting lower average wood, coal and natural gas costs. Manufacturing costs were also favorably impacted by improved machine performance and fewer planned maintenance outages. However, freight costs remained high during the quarter. Earnings increased significantly$44 million higher in the ~~2006 third~~first quarter compared with the 2005 third quarter. Sales volumes were higher as no market-related downtime was taken in the 2006 third quarter versus 50,000 tons of market related downtime taken in the third quarter of 2005. Average sales prices were significantly higher, reflecting the realization of price increases in late 2005 and 2006. The impacts of higher costs for freight and energy were more than offset by lower costs for raw materials and the benefits from improved manufacturing operations.

Entering the fourth quarter, earnings are expected to decline slightly. Sales volumes and average sales price realizations for the quarter should improve. However, raw material costs are expected to be higher, and manufacturing costs are projected to rise reflecting planned maintenance ~~outages.~~

~~U.S. Converting~~ ~~earnings for the 2006 third quarter~~shutdowns at our Savannah, Mansfield and Vicksburg mills. Other costs of manufacturing operations were ~~significantly lower than in the second quarter of 2006. Sales volumes decreased~~favorable due to ~~softer demand in the southeastern~~improved performance. Input costs were higher primarily for wood and south central markets. Improved average sales prices for container products reflected the partial realization of previously announced price increases; however, these increases lagged increases in the cost of linerboard, resulting in lower average margins. Manufacturing operationsenergy. Purchased fiber costs were unfavorable due to higher ~~maintenance spending. Input~~demand and costs for ~~utilities, raw materials and distribution~~post-consumer old corrugated containers. The mills took 95,000 tons of downtime in the first quarter of which 16,000 tons were ~~higher.~~ due to lack of orders as compared with 14,000 tons of downtime in the fourth quarter, none of which was due to lack of orders.

Compared with the ~~third~~first quarter of ~~2005,~~2006, sales volumes in the first quarter of 2007 were lower reflecting the oversold conditions existing in the prior-year quarter. Average sales price realizations were significantly higher, however, due to the price increases implemented during 2006. Maintenance shutdown expenses were $26 million higher in the current quarter, more than offsetting the favorable impact of improved manufacturing performance. Raw material costs were lower due to decreased costs for fuel and caustic soda, although this was more than offset by the higher cost of purchased pulp.

U.S. Converting sales volumes in the first quarter of 2007 were lower than in the fourth quarter of 2006 due to seasonally slower market conditions and reduced demand for boxes early in the quarter. Sales margins improved reflecting an improved product and customer mix. Manufacturing costs were favorable while utility and raw material costs were unfavorable, primarily due to increased costs for starch and seasonal increases in energy consumption. These costs were partially offset by the favorable impact of higher prices for sales of waste fiber. Compared with the first quarter of 2006, sales volumes in the first quarter of 2007 were lower due to softer demand. Improved manufacturing costs were largely due to improvements in operating efficiencies and better spending controls. Input costs were unfavorable due to increased costs for starch and wax, partially offset by lower energy costs.

Looking ahead to the second quarter, earnings for North American Industrial Packaging are expected to improve. Sales volumes should increase as customer demand for boxes strengthens, although this impact will be partially offset by a slightly less favorable product mix. Average sales prices for the quarter should remain essentially flat as announced price increases begin to take effect late in the quarter. Maintenance shutdown expenses are forecasted to be $29 million lower in the second quarter. However, the conversion of the Pensacola mill from the production of uncoated free sheet paper to containerboard in the second quarter as part of our previously announced Transformation Plan will negatively impact Industrial Packaging’s earnings while the mill is shut down for the transition. Raw material costs will be slightly favorable, principally for utilities.

European Industrial Packagingnet sales were $265 million for the first quarter of 2007 compared with $275 million for the fourth quarter of 2006 and $240 million for the first quarter of 2006. Operating earnings were $20 million in the first quarter of 2007 compared with $15 million in both the fourth and first quarters of 2006. The 2006 results include contributions from the box plants in the United Kingdom and Ireland which were sold at the end of the year.

Sales volumes in the first quarter of 2007 were slightly higher than in the fourth quarter of 2006 due to seasonal improvements in Morocco and a strong fruit and vegetable box season in Italy. Sales margins increased over the fourth quarter due to a favorable product mix in Morocco and fewer export sales in the first quarter of 2007. Conversion costs were favorable reflecting higher production volumes and the implementation of manufacturing improvement programs.

Compared to the first quarter of 2006, sales volumes improved in the first quarter of 2007 due to strong container demand in Italy and Spain. Sales margins were higher in the current year due to a stronger product mix in Morocco. Conversion costs were favorable, reflecting the impact of the manufacturing improvement programs as well as a reduction in energy costs. Favorable foreign exchange rates also had a positive impact on earnings in the third quarter of 2006 were also lower. Sales volumes were higher, but average margins were down as average sales prices were not sufficient to offset increased board costs. Input costs for raw materials and distribution were higher as were the costs of manufacturing operations.current quarter.

Entering the ~~fourth~~second quarter, earnings are expected to improve slightly. Sales volumes should remain essentially flat with ~~slightly higher average~~the first quarter, but sales margins will improve due to the realization of sales price ~~realizations~~increases in Morocco and ~~better~~France as well as stronger market demand for the recycled board produced at our Etienne mill. Conversion costs should be favorable due to the continuing impact of our manufacturing ~~operations.~~improvement initiatives. In addition, earnings from our operations in Turkey are expected to be stronger in the second quarter.

~~European Container~~Asian Industrial Packaging net sales were $45 million in the first quarter of 2007 compared with $45 million in the fourth quarter of 2006 and $50 million in the first quarter of 2006. Operating earnings ~~for~~were $1 million in the ~~2006 third~~first quarter of 2007 as well as the fourth and first quarters of 2006. The benefits from increased sales volumes in the first quarter of 2007 compared with the ~~second~~fourth quarter of 2006 due principally to a $13 million pre-tax gain on the sale of property in Spain. Sales volumes decreased, reflecting seasonal softness in the European agricultural business mainly affecting operations in Spainwere offset by higher raw material and Morocco. The impact of lower volume was softened by an increase in margins. Input costs for energy were favorable for the second quarter in a row. Compared with the third quarter of 2005, earnings increased due to the property sale in Spain. Otherwise, sales volumes were lower and containerboard cost increases were greater than the increase in container average sales prices, resulting in lower margins. Energy costs were also higher than 2005. Looking ahead to the fourth quarter, excluding the effect of the third-quarter gain in Spain, earnings are expected to improve significantly as sales volumes benefit from the European fruit and vegetable season and margins also improve. Energy costs are expected to average about the same as in the third quarter.freight costs.

Consumer Packaging


	2006						2005						2007		2006
*In millions*	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter		2nd Quarter		Nine Months		1st Quarter		1st Quarter		4th Quarter
Sales	$	855	$	795	$	2,425	$	785	$	790	$	2,290	$	750	$	615	$	735
Operating Profit		64		41		140		43		53		128		61		47		27

Consumer Packaging net sales for the ~~third~~first quarter of ~~2006~~2007 were 8%2% higher than in the ~~second~~fourth quarter of 2006 and 9%22% higher than in the ~~third~~first quarter of ~~2005.~~2006. Operating profits in the first quarter of 2007 were significantly higher than in the fourth quarter of 2006 and 30% higher than in the first quarter of 2006.

North American Consumer Packagingnet sales were $605 million in the first quarter of 2007 compared with $615 million in the fourth quarter of 2006 and $565 million in the first quarter of 2006. Operating earnings were $42 million in the first quarter of 2007 compared with $15 million in the fourth quarter of 2006 and $35 million in the first quarter of 2006.

Coated Paperboard sales volumes improved in the first quarter of 2007 compared with the fourth quarter of 2006 due to very strong market conditions for folding carton board. Average sales prices increased reflecting the partial realization of announced price increases for cupstock board and folding carton board. Compared

with the 2006 fourth quarter, maintenance shutdown costs were $20 million lower in the first quarter of 2007 due to the timing of the outages. Other manufacturing operating costs were slightly favorable due to improved operations at our Riegelwood mill. Input costs were higher, primarily for wood, but energy and freight costs were also higher. Compared with the first quarter of 2006, sales volumes were up slightly. Strong demand for folding carton board was offset by weaker demand for coated bristols and cupstock board. Average sales prices were significantly higher due to the realization of sales price increases during the latter part of 2006. Maintenance shutdown expenses were flat. Manufacturing operations were favorable. Freight costs were higher due to rail rate increases in the third quarter of 2006 and increased fuel costs. Input costs were ~~56%~~lower due to decreases in costs for energy and polyethylene, partially offset by higher ~~than~~wood costs.

Shorewood Packaging’s sales volumes in the ~~second~~first quarter of 2007 declined from the fourth quarter of 2006 due to seasonally slower demand and ~~48% higher than~~additional weakness in the ~~third quarter~~home entertainment segment. A slight increase in sales prices was realized, but this impact was offset by lower margins resulting from a decrease in sales of ~~2005.~~

~~Coated Paperboard~~higher margin home entertainment and consumer products. Operating costs were favorable reflecting the favorable impact of personnel reductions. Raw material costs were slightly higher due to an increase in bleached board costs, while freight costs were lower due to reduced shipping volumes and lower expedited freight costs. In addition, earnings ~~for bleached packaging board and coated bristols~~ in the ~~third~~2006 fourth quarter included a $13 million one-time non-cash charge. Compared with the first quarter of 2006, ~~exceeded second-quarter 2006 levels. Sales~~sales volumes ~~increased, primarily~~ in the ~~folding carton board product line.~~first quarter of 2007 were lower due to softer demand for home entertainment and tobacco products, partially offset by stronger demand for consumer products and displays. Average sales prices were ~~also up, mainly~~slightly higher, but these benefits were offset by a decline in sales margins caused by a less profitable mix and a lower average margin for ~~cupstock and folding carton board. Input~~consumer products. Favorable operating costs ~~however, were unfavorable, reflecting higher wood and polyethylene costs. Manufacturing operations were favorable, due to~~reflect improved energy usage and significantly better system performance and reliability. Compared with the 2005 third quarter, earnings in the third quarter of 2006 were significantly higher. The favorable impacts of increased sales volumes, higher average sales prices and improved manufacturing operations more than offset the effects of higher distribution and input costs. Operating results are expected to soften in the 2006 fourth quarter. Sales volumes for bleached board products and coated bristols are expected to be seasonally lower, but average price realizations should continue to improve. Planned maintenance outages should also unfavorably impact manufacturing costs.

~~Foodservice Packaging~~earnings increased in the third quarter of 2006 compared with the second quarter of 2006. Sales volumes were seasonally lower, but average sales prices increased slightly as price increases were implemented in certain annual contracts.operating performance. Raw material costs were slightly higher due to cost increases for bleached board.

The Foodservice business’s sales volumes in the first quarter of 2007 were lower than in the fourth quarter of 2006 due to seasonally lighter demand. Average price realizations and margins increased, reflecting ~~resin and uncoated bleached board cost increases. Operating~~the impact of contract price renegotiations as well as lower rebates. Converting operating costs were ~~favorable.~~favorable as a result of higher production volumes in anticipation of upcoming seasonal sales volume increases. Lower raw material costs reflected decreases in polyethylene and polystyrene costs, while board costs were flat. Compared with the ~~third~~first quarter of ~~2005,~~2006, sales volumes were ~~down, but average~~slightly higher. Average sales prices were higher ~~as a result~~reflecting price increases realized throughout 2006 and in the first quarter of ~~the realization of announced price increases.~~2007. Converting operation costs improved due to increased efficiencies and higher production volumes. Raw material costs were unfavorable due to ~~higher bleached~~ board ~~and resin costs. Entering~~cost increases.

Looking ahead to the ~~2006 fourth~~second quarter, ~~sales volumes~~coated paperboard earnings are expected to decline primarily due to a $15 million increase in maintenance costs associated with planned maintenance shutdowns at our Texarkana and Augusta mills. These higher costs will be ~~flat. Average~~somewhat mitigated by increased sales volumes and the continued realization of previously announced price ~~realizations should~~increases. In addition, operations at the Riegelwood mill are expected to continue to ~~increase, as will~~improve. However, raw material costs ~~with a full-quarter impact of a September increase~~should be higher due to increases in ~~coated bleached board~~energy, starch and polyethylene costs. ~~As a result, overall~~Shorewood earnings are expected to improve due to increased market demand for consumer products. Foodservice earnings are expected to be ~~slightly lower than~~flat with the first quarter. Sales volumes should be seasonally higher, but sales margins will decline with an increase in lower-margin cold cup sales. Raw material costs will be higher due to increases in polyethylene and polystyrene costs and a March cost increase in coated cupstock.

European Consumer Packagingnet sales were $70 million in the ~~third quarter.~~

~~Shorewood Packaging~~ ~~earnings for~~first quarter of 2007 compared with $70 million in the ~~third~~fourth quarter of 2006 ~~improved~~and $50 million in the first quarter of 2006. Operating earnings were $16 million in the first quarter of 2007 compared with $10 million in the ~~second~~fourth quarter of 2006 ~~which had included a write-off of equipment that was removed from production. Sales volumes increased~~and $12 million in the tobacco, consumer products and home entertainment segments; however, this benefit was partially offset by lower demand in the display segment. A weaker mix in the home entertainment segment resulted in lower margins. Manufacturing operating costs were favorable due to efficiency gains and performance improvements at the home entertainment plants. Compared with the third quarter of 2005, the benefits from stronger tobacco and consumer products demand were partially offset by the effects of weaker display and home entertainment sales. Operating costs were flat, while raw material costs were unfavorable due to bleached board cost increases. As the 2006 fourth quarter begins, earnings are expected to increase, although seasonal improvement in sales volumes in the home entertainment segment are anticipated to be weaker than in previous years.

~~Beverage Packaging~~~~earnings increased in the third quarter of 2006 compared with the second~~first quarter of 2006. Sales volumes ~~for converted products~~in the first quarter of 2007 were ~~flat, however third-party sales volumes improved with increases in liquid packaging board and coated groundwood papers shipments~~down from the ~~Pine Bluff, Arkansas~~fourth quarter of 2006 due to wood supply availability issues in Russia which led to some production downtime at the Svetogorsk mill. ~~Input~~Average sales price realizations improved in the first quarter due to a better geographic mix of sales. Manufacturing costs were ~~slightly higher, primarily due to higher polyethylene prices. Manufacturing operations were~~ favorable ~~reflecting reduced maintenance spending and improved energy usage. Converting plant operations were unfavorable in both North America and Asia.~~as a result of strong operating performance. Compared with the ~~third~~first quarter of ~~2005, earnings for~~2006, sales volumes in the ~~2006 third~~first quarter of 2007 improved significantly reflecting the

increased market share achieved following the capacity expansion of both coated paperboard machines. Average sales price realizations were ~~higher largely~~lower due to ~~higher average prices for liquid packaging board and coated groundwood papers. Sales volumes were lower across~~increased sales to export markets. In the business. Mill manufacturing costs were favorable due to improved productivity and energy efficiency improvements. Raw material costs for polyethylene and board were higher. Looking forward to the 2006 fourth2007 second quarter, earnings are expected to ~~decrease principally~~be lower due to ~~seasonally lower shipments~~a seasonal decline in demand and the annual planned maintenance shutdown at the Svetogorsk mill.

Asian Consumer Packaging net sales were $75 million in the first quarter of ~~coated groundwood papers.~~2007. International Paper acquired a 50% ownership interest in Shandong International Paper & Sun Cartonboard Ltd. during the fourth quarter of 2006. Net sales for the two-month period of ownership in 2006 were $50 million. Operating earnings in the first quarter of 2007 were $3 million compared with $2 million for the fourth quarter of 2006.

Distribution

   2006    2005
In millions
   3rd Quarter    2nd Quarter    Nine Months    3rd Quarter    2nd Quarter    Nine Months
Sales
   $ 1,730    $ 1,690    $ 5,070    $ 1,645    $ 1,570    $ 4,745
Operating Profit
   34    36    97    23    18    59

   2007    2006
In millions
   1st Quarter    1st Quarter    4th Quarter
Sales
   $ 1,675    $ 1,650    $ 1,715
Operating Profit
   29    27    31

Distribution’s ~~2006 third-quarter~~2007 first quarter sales were up 2% below the fourth quarter of 2006 while operating profits were down 6%. Compared to the 2006 first quarter, sales rose 1% while operating profits increased 7% to record first quarter levels.

Sales of printing papers and graphic arts supplies and equipment were $1.07 billion in the first quarter of 2007 compared with $1.06 billion in both the ~~second~~fourth quarter of 2006 and ~~up 5% compared with~~ the ~~third~~first quarter of ~~2005. Operating profits~~2006. Revenues were ~~down 6%~~slightly higher in the ~~third~~first quarter of 2007 than the fourth quarter of 2006 reflecting two additional shipping days. Adjusting for this factor, revenues were down about 1% versus the fourth quarter. Trade margins for printing papers were down slightly in the first quarter of 2007 compared with both the ~~second~~fourth quarter of 2006 and ~~48% higher~~the first quarter of 2006 as the result of an increase in lower-margin direct shipments. Compared to the fourth quarter of 2006, trade margins for the first quarter of 2007 declined because of mix, reflecting an increase in lower-margin mill direct shipments. Compared to the first quarter of 2006, margins declined slightly as increases in resale prices trailed cost increases.

Revenue from packaging products was $358 million in the first quarter of 2007 compared to $384 million in the fourth quarter of 2006 and $355 million in the first quarter of 2006. Revenues were seasonally lower than the fourth quarter of 2006 as activity with customers in retail and related segments peak in the fourth quarter. Trade margins for packaging products increased in the first quarter of 2007 compared with both the ~~third~~fourth quarter of ~~2005.~~2006 and the first quarter of 2006 reflecting a more favorable product and service mix.

~~Compared with the very strong 2006 second quarter, earnings~~Facility supplies revenues were ~~only slightly lower~~$245 million in the ~~2006 third quarter. Sales volumes were flat overall as volume increases~~first quarter of 2007 compared to $273 million in the ~~packaging segment~~fourth quarter of 2006 and $235 million in the first quarter of 2006. Revenues were ~~offset by declines~~seasonally lower than the fourth quarter of 2006 as activity with customers in ~~other segments. Average sales prices were higher~~retail and related segments peak in ~~all segments, however~~the fourth quarter. Trade margins ~~were slightly lower. Operating expenses~~for facility supplies products in the first quarter of 2007 were essentially ~~flat. Compared with~~unchanged from the ~~third~~fourth quarter of ~~2005, earnings~~2006 and the first quarter of 2006.

Operating profit was $29 million in the first quarter of 2007 compared to $31 million in the fourth quarter of 2006 and $27 million in the first quarter of 2006. The seasonal decline in revenues was the primary cause for the ~~2006 third~~lower operating profit compared to the fourth quarter ~~were much higher. Sales volumes were up with increases~~of 2006. However, lower administrative costs in the ~~packaging segment only partially offset by decreases~~first quarter helped mitigate the earnings effect of lower revenues. Compared to the first quarter of 2006, the increase in ~~the printing~~revenues combined with lower operating expenses, reflecting lower personnel costs and facility supplies segments. Average sales prices increased approximately 5% across all segments. Operating expenses were favorable, reflecting lower current period labor costs as a result of restructuring activities, the absence of the prior year charges incurredrationalizations, to ~~accomplish this restructuring, and lower legal expenses.~~increase operating profits.

Looking forward, operating results in the ~~fourth~~second quarter are expected to ~~decline~~improve due to ~~seasonally weaker sales volume.~~continued revenue growth.

Forest Products


	2006									2005									2007			2006
In millions	3rd Quarter			2nd Quarter			Nine Months			3rd Quarter			2nd Quarter			Nine Months			1st Quarter			1st Quarter			4th Quarter
Sales	$	445		$	595		$	1,670		$	700		$	605		$	1,915		$	85		$	235		$	190

Operating Profit:
Forest Resources-
Sales of Forestlands		125			101			329			125			67			261		$	90		$	103		$	118
Harvest & Recreational Income		63			61			196			63			62			194
Harvest & Recreational
Income																				12			72			26
Forestland Expenses		(27	)		(31	)		(87	)		(43	)		(39	)		(116	)		(4	)		(30	)		(27	)
Real Estate Operations		5			29			79			65			39			158			2			45			45
Wood Products		(37	)		24			22			61			62			172

Operating Profit	$	129		$	184		$	539		$	271		$	191		$	669		$	100		$	190		$	162

Forest Products net sales in the ~~third~~first quarter of ~~2006~~2007 were ~~25%~~55% lower than in the ~~second~~fourth quarter of 2006 and ~~36%~~64% lower than in the ~~third~~first quarter of ~~2005.~~2006. Operating ~~profits~~earnings in the ~~third~~first quarter of ~~2006~~2007 were ~~30%~~38% and 47% lower than in the ~~second~~fourth and first quarters of 2006, respectively. These reductions reflect the impact of the 5.6 million acres of forestland sold in 2006 as part of the Company’s Transformation Plan, primarily in the fourth quarter that significantly reduced the Company’s forestland acreage.

Forest Products gross margins from forestland sales in the first quarter of 2007 decreased by $28 million compared with the fourth quarter of 2006 ~~and were 52% lower than~~due to a decrease in the ~~third quarter of 2005.~~

~~Forest Resources~~acreage sold. U.S. harvest and recreational income ~~increased slightly~~declined $14 million versus the 2006 ~~second~~fourth quarter, reflecting ~~a slight increase in harvest volumes. Gross margins from~~the impact of the 2006 forestland ~~and timber lease sales in the third quarter of 2006 increased by $24 million, but this benefit was offset by a $24 million decrease in profits~~sales. Profits from sales of ~~higher-and-better-use~~higher and better use real estate ~~properties.~~properties decreased by $43 million. Forestland operating expenses were $23 million lower due to the reduced level of business operations. Compared with the ~~2005 third~~2006 first quarter, ~~harvest and recreational income was flat although harvest volumes were higher. Gross~~gross margins on forestland sales ~~were also flat, but earnings from sales of higher-and-better use properties were down~~declined $13 million. Harvest and recreational income decreased $60 million. Forestland operating expenses ~~in the third quarter of 2006~~ were ~~$16~~$26 million lower than in the ~~third~~first quarter of ~~2005, reflecting~~2006. In the ~~effects of operational improvements implemented since 2005 and some non-recurring 2005 cost items. Looking ahead to the 2006 fourth~~2007 second quarter, ~~the anticipated closing of the remaining announced Transformation Plan forestland sales~~earnings are expected to ~~eliminate over 85% of timberland ownership during the fourth quarter. Forestland sales from remaining holdings should remain strong~~decline with a further decrease in ~~the fourth quarter, however future earnings can be expected to begin to decline due to the lower contributions from~~ harvest and recreation income and slightly lower forestland ~~sales~~sales. However, the timing and ~~lower recreational income.~~

In March and April of 2006, the Company announced agreements for the future sales of approximately 5.7 million acres, or over 85% of its U.S. forestlands, for proceeds of approximately $6.6 billion. A portionamount of these sales were completed in the third quarter 2006 for proceeds of $400 million, resulting in a pre-tax gain of $304 million. In the second quarter of 2006, sales totaling of $97 million were completed, resulting in a pre-tax gain of $62 million. These gains are included in Net (gains) losses on sales and impairments of businesses in the accompanying consolidated statement of operations. The remaining sales are expectedcan change due to ~~be completed during the fourth quarter of 2006. The completion of these sales transactions can be expected to significantly reduce the future operating earnings of this segment.~~

~~Wood Products~~earnings in the third quarter of 2006 decreased significantly compared with the second quarter of 2006 as sales prices for both lumber and plywood declined to the lowest levels of the current cycle. Sales volumes were also down, and manufacturing costs were unfavorably impacted by a reduced production schedule. However, input costs for wood and chips were favorable. Compared with the third quarter of 2005, earnings were also significantly lower as the result of the declines in sales prices. The impacts of lower sales volumes and higher manufacturing costs were partially offset by lower input costs for wood and chips. Entering the fourth quarter, average sales prices are expected to average lower than in the 2006 third quarter, although market prices for lumber and plywood are not expected to decline much below third-quarter levels. Manufacturing costs will continue to reflect the negative impact of reduced production levels as well as holiday scheduling. Input costs should continue to be favorable.various factors.

Specialty Businesses and Other


	2006						2005							2007		2006
*In millions*	3rd Quarter		2nd Quarter		Nine Months		3rd Quarter			2nd Quarter		Nine Months		1st Quarter		1st Quarter		4th Quarter
Sales	$	245	$	235	$	710	$	220		$	230	$	725	$	135	$	225	$	225
Operating Profit		22		16		48		(8	)		7		9		6		13		12

The Specialty Businesses and Other segment principally includes the operating results of Arizona Chemical, as well as certain smaller businesses. The Arizona Chemical business was sold in February 2007; thus 2007 operating results reflect only two months of activity. Net sales ~~for~~in the ~~third~~first quarter of ~~2006~~2007 were ~~4% higher~~40% lower than in both the ~~second quarter~~fourth and first quarters of ~~2006, and 11% higher than in the third quarter of 2005.~~2006. Earnings in the ~~2006 third~~2007 first quarter were ~~up 38% from the second quarter of 2006, and were up significantly~~down 50% compared with ~~the third quarter of 2005.~~

Earnings for Arizona Chemical for the third quarter of 2006 improved from the second quarter of 2006 as average sales price realizations increased in both the U.S. and Europe. This favorable impact was largely offset by the effects of higher input costs for energy and crude tall oil (CTO), lower sales volumes, and higher manufacturing costs in Europe. Gains from property and equipment sales in the 2006 third quarter accounted for essentially all of the improvement in earnings. Compared with the third quarter of 2005, earnings improved due to higher average sales prices and favorable manufacturing costs, and the gain on land and equipment sales, partially offset by lower sales volumes and increased costs for CTO. The third quarter of 2005 also included a $13 million special charge related to a plant shutdown in Norway. Looking ahead to the fourth quarter of 2006 ~~earnings are expected to decrease as input costs continue to increase. However, improved average sales price realizations~~ and ~~better manufacturing operations should be favorable factors.~~54% compared with the first quarter of 2006.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by continuing operations totaled ~~$1.6 billion~~$296 million for the first ~~nine~~three months of ~~2006,~~2007, up from ~~$0.9 billion~~$185 million for the comparable ~~2005 nine-month~~2006 three-month period reflecting higher earnings after adjustments for non-cash ~~charges and lower increases in~~charges. Cash used for working capital ~~requirements.~~components was about the same for both three-month periods.

Cash proceeds from divestitures totaled approximately $1.6 billion for the 2007 first quarter, relating to the sales of the Kraft Papers, Beverage Packaging, Wood Products, and Arizona Chemical businesses closed during the quarter. Investments in capital projects totaled ~~$802 million for the first nine months of 2006 compared with $756~~$178 million in the 2007 first ~~nine months of 2005.~~quarter compared with $168 million in the 2006 first quarter. Full-year ~~2006~~2007 capital spending is currently expected to be approximately $1.2 billion, or about equal to estimated depreciation and amortization expense. ~~Also during the 2006 nine-month period, approximately $2.2 billion of cash was generated from divestitures compared with approximately $1.4 billion in the first nine months of 2005.~~

Financing activities for the first ~~nine~~three months of ~~2006~~2007 included a ~~$1.9 billion net decrease~~$362 million reduction in debt ~~compared with~~versus a ~~$2.3 billion net~~$743 million decrease induring the ~~2005 nine-month~~comparable 2006 three-month period. ~~In August 2006,~~First quarter 2007 activity included repayment by International Paper ~~used~~

~~approximately $320~~Investments (Luxembourg) S.ar.l, a wholly-owned subsidiary of International Paper, of $143 million of ~~cash to repay its maturing 5.375% euro-denominated notes that were designated as~~long-term debt with an interest rate of LIBOR plus 40 basis points and a ~~hedge of euro functional currency net investments.~~maturity date in November 2010. Other debt activity in the ~~third~~ quarter included the repayment of ~~$143~~$198 million of ~~7.875%~~7 5/8% notes ~~and $96 million of 7% debentures, all maturing~~that matured within the quarter.

~~In June~~ First quarter 2006 ~~International Paper paid approximately $1.2 billion to~~activity included the repurchase ~~substantially all~~ of its zero-coupon convertible debentures at a price equal to their accreted principal value plus interest, using proceeds from divestitures and $730 million of third party commercial paper issued under the Company’s receivables securitization program. As of September 30, 2006, International Paper had reduced this commercial paper borrowing by a net of $30 million, reflecting repayments of second-quarter borrowings less amounts required for the “Dutch Auction” tender offer in September, and plans to repay the remainder by the end of 2006.

~~In February 2006, International Paper repurchased~~ $195 million 6.4% debentures with an original maturity date of February ~~2026. Other reductions in the first quarter 2006 included~~2026, and early payment of approximately $495 million of notes with coupon rates ranging from 4% to 8.875% and original maturities from 2007 to 2029. Pre-tax early debt retirement costs of $8 million related to first quarter 2006 debt reductions are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In September 2005, International Paper used some of the proceeds from the CHH sale to repay the remaining $250 million portion of a subsidiary’s $650 million long-term debt with an interest rate of LIBOR plus 62.5 basis points and a maturity date of JuneAt March 31, 2007 and $312 million of commercial paper that had been issued in the same quarter. Other reductions in the third quarter of 2005 included $662 million of notes with coupon rates ranging from 4% to 7.35% and original maturities from 2009 to 2029, and the repayment of $150 million of 7.10% notes with a maturity of September 2005.

In the second quarter of 2005, International Paper repatriated approximately $1.2 billion in cash from certain of its foreign subsidiaries, including amounts under the American Jobs Creation Act of 2004. In June 2005, International Paper used approximately $400 million of cash available after the repatriations to repay a portion of a subsidiary’s long-term debt with an interest rate of LIBOR plus 62.5 basis points and a maturity date of June 2007. First-quarter 2005 activity included the redemption in February of the outstanding $464 million of International Paper Capital Trust 5.25% convertible subordinated debentures at 100.5% of par plus accrued interest, and early payment of approximately $295 million of notes with coupon rates ranging from 4% to 7.875% and original maturities from 2006 to 2015.

At December 31, ~~2005,~~2006, International Paper classified ~~as Long-term debt $1.25 billion~~$100 million of ~~tenderable bonds, commercial paper and bank notes and~~ current maturities of long-term debt as Long-term debt. International Paper ~~had~~has the intent and ability, ~~through~~as evidenced by its fully committed credit ~~facilities,~~facility, to renew or convert these obligations.

In ~~July 2006, in connection with~~ the ~~planned use~~first three months of projected proceeds from the Company’s Transformation Plan, International Paper’s Board of Directors authorized a share repurchase program to acquire up to $3.0 billion of the Company’s stock. In a modified “Dutch Auction” tender offer completed in September 2006, International Paper2007, purchased ~~38,465,260~~11.2 million shares of its common stock ~~at a price~~through open market purchases for approximately $398 million, and issued approximately 2.7 million shares of ~~$36.00 per share, plus costs to acquire the shares,~~treasury stock for ~~a total cost~~various incentive plans, including stock option exercises that generated approximately $30 million of ~~approximately $1.4 billion.~~

Incash and restricted stock that did not generate cash. During the first ~~nine~~three months of 2006, approximately ~~2.8~~2.2 million shares of common stock were issued for various incentive plans, including stock option exercises that generated $26 million of cash and restricted stock that did not generate cash. During the first nine months of 2005, approximately 3.0 million shares of common stock were issued for various incentive plans, including stock option exercises that generated $20$7 million of cash and restricted stock that did not generate cash. Common stock dividend payments totaled ~~$372~~$114 million and ~~$368~~$123 million for the first ~~nine~~three months of ~~2006~~2007 and ~~2005,~~2006, respectively. Dividends were ~~$.75~~$.25 per share for both periods.

Maintaining ~~a strong~~an investment-grade credit rating is an important element of International Paper’s ~~corporate finance~~financing strategy. InAt March 31, 2007, the ~~third quarter~~Company held long-term credit ratings of ~~2006,~~BBB (stable outlook) and Baa3 (stable outlook) by Standard & Poor’s (S&P) ~~revised the outlook on the Company’s long-term~~and Moody’s Investor Services (Moody’s), respectively. The Company currently has short-term credit ratings ~~from BBB negative to stable outlook~~by S&P and ~~upgraded its short-term credit rating from A-3 to A-2. At September 30, 2006, the Company also held a long-term credit rating~~Moody’s of ~~Baa3 (stable outlook)~~A-2 and ~~a short-term credit rating~~ P-3, ~~from Moody’s Investor Services.~~respectively.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during ~~2006~~2007 through cash from operations and divestiture proceeds, supplemented as required by its ~~various~~ existing credit facilities.

At ~~September 30, 2006,~~March 31, 2007, International Paper has approximately ~~$3.2~~$2.5 billion of committed liquidity, including contractually committed bank credit agreements and a receivables securitization program. In March 2006, International Paper replaced its maturing $750 million revolving bank credit agreement with a 364-day $500 million fully committed revolving bank credit agreement that expires in March 2007 and has a facility fee of 0.08% payable quarterly, and replaced its $1.25 billion revolving bank credit agreement with a $1.5 billion ~~fully~~contractually committed ~~revolving~~ bank credit agreement that expires in March 2011 and ~~has~~ a ~~facility fee of 0.10% payable quarterly~~.The new agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. At September 30, 2006, International Paper had $700 million of outstanding borrowings under its receivables securitization program ~~and~~that expires in October 2009. In March 2007, the Company did not renew its maturing $500 million 364-day fully committed bank credit agreement after reviewing its liquidity position. There were no outstanding borrowings under the fully committed ~~revolving~~ bank credit ~~agreements.~~ agreement or the receivables securitization program at March 31, 2007.

Additionally, International Paper Investments (Luxembourg) S.ar.l aand International Paper (Europe) S.A., both wholly-owned ~~subsidiary~~subsidiaries of International Paper, ~~has~~jointly have a $100 million ~~revolving~~ bank credit agreement ~~that expires~~maturing in ~~November 2006~~December 2007, with ~~approximately $46 million in associated~~no borrowings outstanding as of ~~September 30, 2006.~~

On October 25, 2006, the Company amended its existing receivables securitization program that provided up to $1.2 billion of commercial paper-based financings with a facility fee of 0.20% and an expiration date in November 2007, to provide up to $1 billion of available commercial paper-based financings with a facility fee of 0.10% and an expiration date in October 2009.March 31, 2007.

The Company will continue to rely upon debt and capital markets for the majority of any necessary funding not provided by operating cash flow or divestiture proceeds. Funding decisions will be guided by our capital structure planning and liability management practices. 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.

TRANSFORMATION PLAN

In July, 2005, International Paper announced a plan to transform its business portfolio to concentrate on two key global platform businesses: Uncoated Papers (including Distribution) and Packaging. The plan also focuses on improving shareholder return through mill realignments in those two businesses, additional cost improvements and exploring strategic options for other businesses, including possible sale or spin-off.

~~In connection with this plan,~~During the first quarter of 2007, the Company completed the ~~sale~~sales of its 50.5% interest in Carter Holt Harvey Limited for $1.1 billion in the third quarter of 2005. In addition, in March and April of 2006, International Paper announced agreements for future sales in 2006 of approximately 5.7 million acres of U.S. forestlands for proceeds of approximately $6.6 billion. During the second and third quarters of 2006, the Company completed sales of approximately 552,000 acres of these forestlands for approximately $498 million, including an installment note receivable of $136 million, resulting in pre-tax gains of approximately $366 million. In October and November, following the end of the 2006 third quarter, International Paper completed two additional previously announced sales of approximately 5.1 million acres of forestlands for proceeds totaling approximately $6.1 billion of cash and notes. These sales will result in an estimated special fourth-quarter pre-tax gain in excess of $4 billion. With the closing of this sale, proceeds from Transformation Plan forestlands sales now total $6.6 billion.

~~In the 2006 second quarter, the Company announced the signing of definitive agreements to sell its Coated and Supercalendered Papers business for approximately $1.4 billion, and~~North American Beverage Packaging operations, its Kraft Papers business, ~~for~~its Arizona Chemical business, and most of its Wood Products business. This substantially completes divestitures under the Company’s Transformation Plan, resulting in total proceeds of approximately $155 million plus two additional future payments of up to $60 million contingent upon business performance, with the estimated proceeds from both sales subject to certain closing and post-closing adjustments. The sale$11.3 billion. As part of the Coated and Supercalendered Papers business was completed in the 2006 third quarter, with the Kraft Papers sale expected to close in late 2006 or early 2007. Also in the third quarter, the Company completed the sale of its Brazilian Coated Papers business to Stora Enso Oyj forPlan, these proceeds have been used to: (1) reduce long-term debt by approximately ~~$420 million, subject to certain post-closing adjustments. The Company continues to evaluate strategic options for its Beverage Packaging, Wood Products and Arizona Chemical businesses.~~

~~International Paper currently estimates that after-tax proceeds from the above announced and possible future divestitures will total approximately $11~~$6.2 billion and ~~expects that~~fund a $1.0 billion voluntary contribution to the ~~proceeds from these sales plus additional free cash flow generated from operations will be used as follows:~~

~~Up to $3 billion to~~Company’s U.S. qualified pension plan, (2) return value to shareholders

~~$6 to $7~~ through the purchase of 50.9 million shares for $1.8 billion ~~to strengthen the balance sheet~~ through ~~debt repayment~~March 31, 2007, and ~~possible voluntary cash contributions to its U.S. pension plan,~~

~~A range of $2 to $4 billion~~(3) for identified selective reinvestment opportunities totaling approximately $2.0 billion, including ~~possible uncoated papers and packaging options~~the exchange of assets in Brazil ~~uncoated papers or packaging opportunities~~with VCP completed in ~~China, and expanded pulp, paper and packaging operations~~February 2007. Additional share repurchases are being made in ~~Russia in addition to current operations at Svetogorsk.~~

~~As part of~~ the ~~planned debt reduction,~~2007 second quarter under the Company’s share repurchase program. The Company is ~~planning~~continuing to make ~~voluntary contributions~~progress on its three-year $1.2 billion non-price improvement program to the U.S. qualified pension fund in the range of $500 million to $1.0 billion to begin satisfying longer-term funding requirements and to lower future pension expense. Pension obligations are viewed by the ratings agencies as equivalent to debt.

During the 2006 third quarter, in connection with the planned use of the above projected proceeds, the Company purchased through a modified “Dutch Auction” tender offer, 38,465,260 shares (or approximately 6%) of its common stock at a price of $36.00 per share, plus costs to acquire the shares, for a total cost of approximately $1.4 billion. Following the completion of this tender offer, International Paper had approximately 454.8 million shares of common stock outstanding.

Also during the quarter, the Company entered into an agreement to exchange a pulp mill project being developed in the state of Mato Grosso do Sul, Brazil (together with approximately 100,000 hectares of forestlands) for the existing Luiz Antonio pulp and uncoated paper mill and approximately 60,000 hectares of forestlands located in the state of Sao Paulo, Brazil. The Company will fund the pulp mill project in the amount of U.S. $1.15 billion. This exchange transaction is expected to close by February 1, 2007.

Finally, subsequent to the end of the 2006 third quarter, International Paper and Ilim Pulp, the largest forest products enterprise in Russia, announced that a letter of intent had been signed to establish a 50-50 joint venture. If definitive agreements are reached, this joint venture would be the largest foreign-domestic alliance in the Russian forest sector. It is currently contemplated that International Paper will purchase a 50% equity interest in the joint venture for approximately $400 million in cash. The total enterprise value of the joint venture is approximately $1.3 billion. The parties currently expect to finalize the agreement in the next six months, following completion of due diligence, receipt of required regulatory approvals, and the approvals of their respective boards of directors.enhance business profitability.

CRITICAL ACCOUNTING POLICIES

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 SFAS No. 5, “Accounting for Contingencies,” SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” SFAS No. 142, “Goodwill and Other Intangible Assets,” SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as amended by SFAS No. 132 and ~~132R,~~132(R), “Employers’ Disclosures About Pension and Other Postretirement Benefits,” SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” and SFAS No. 109, “Accounting for Income Taxes,” including recent accounting requirements under FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.”

The Company has included in its Annual Report on Form 10-K for the year ended December 31, ~~2005,~~2006, a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. ~~The~~Other than the adoption of FIN 48, the Company has not made any changes in any of these critical accounting policies during the first ~~nine months~~quarter of ~~2006.~~2007.

SIGNIFICANT ACCOUNTING ESTIMATES

Pension Accounting. Net pension expense totaled approximately ~~$283~~$52 million for International Paper’s U.S. plans for the ~~nine~~three months ended ~~September 30, 2006,~~March 31, 2007, or about ~~$101~~$41 million ~~higher~~less than the pension expense

recorded for the first ~~nine~~three months of ~~2005.~~2006. Net pension expense for non-U.S. plans was about ~~$13~~$1 million and ~~$11~~$4 million for the first ~~nine months~~quarter of ~~2006~~2007 and ~~2005,~~2006, respectively. The ~~increase~~decrease in U.S. plan pension expense was principally due to earnings on a ~~change~~$1 billion contribution made to the plan in the ~~mortality assumption to use the Retirement Protection Act 2000 Table, an increase in the~~fourth quarter of 2006, lower amortization of unrecognized actuarial losses, ~~over a shorter average remaining service period,~~ and ~~a decrease~~an increase in the assumed discount rate to 5.75% in 2007 from 5.50% in ~~2006 from 5.75% in 2005.~~2006.

After consultation with our actuaries, International Paper determines key actuarial assumptions on December 31 of each year that are used to calculate liability information as of that date and pension expense for the following year. Key assumptions affecting pension expense include the discount rate, the expected long-term rate of return on plan assets, the expected rate of future salary increases, and various demographic assumptions including expected mortality. The discount rate assumption is determined based on a yield curve that incorporates approximately 500-550 Aa-graded bonds. The plan’s projected cash flows are then matched to the yield curve to develop the discount rate. 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.

In 2006, International Paper modified its investment policy to use interest rate swap agreements to extend the duration of the Plan’s bond portfolio to better match the duration of the pension obligation, thus helping to stabilize the ratio of assets to liabilities when interest rates change. Thus, when interest rates fall, the value of the swap agreements increases directionally with increases in the pension obligation. The current portfolio is hedged at approximately 35% of the Plan’s liability, with plans to increase this ratio to 50% by no later than the end of 2008. This new strategy is not expected to alter the long-term rate of return on Plan assets. At ~~September 30, 2006,~~March 31, 2007, the market value of plan assets for International Paper’s U.S. plans totaled approximately ~~$7.1~~$8.4 billion, consisting of approximately ~~59%~~61% equity securities, ~~31%~~30% fixed income securities, and ~~10%~~9% real estate and other assets.

For its U.S. qualified defined benefit pension plan, International Paper makes contributions that are sufficient to fully fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). ~~While~~ International Paper ~~may elect to make~~made voluntary contributions to its U.S. qualified plan up to the maximum deductible amount per IRS tax regulations in the coming years, it is unlikely that any contributions to the plan will be required before 2007 unless investment performance is negative or International Paper changes its funding policy. In connection with the use of ~~projected proceeds from the Company’s Transformation Plan, International Paper is planning to make voluntary contributions to the U.S. qualified pension fund in the range of $500 million to~~ $1.0 billion to ~~begin satisfying longer-term funding requirements~~the qualified defined benefit plan in 2006 and does not expect to ~~lower future pension expense.~~make any contributions in 2007. The U.S. nonqualified plans are only funded to the extent of benefits paid which are expected to be ~~$31~~$41 million in ~~2006.~~2007.

Accounting for Share-Based Compensation Plans. The Company discontinued its stock option program in 2004 for members of executive management, and in 2005 for all other eligible U.S. and non-U.S. employees. In the United States, the stock option program was replaced with a performance-based restricted share program for approximately 1,250 employees to more closely tie long-term compensation to Company performance on two key performance drivers: return on investment (ROI) and total shareholder return (TSR). As part of this shift in focus away from stock options to performance-base restricted stock, the Company accelerated the vesting of all 14 million unvested stock options to July 12, 2005. The Company also considered the benefit to employees and the income statement impact in making its decision to accelerate vesting of these options. Based on the market value of the Company’s common stock on July 12, 2005, the exercise prices of all such stock options were above the market value and, accordingly, the Company recorded no expense as a result of this action.

The Company adopted SFAS No. 123(R), “Share-Based Payment,” effective January 1, 2006 using the modified prospective transition method. This standard requires that compensation cost related to share-based payments be recognized in the financial statements. The amount of compensation cost is measured based on the grant date fair value of the ~~award less estimated forfeitures.~~award. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. The adoption of SFAS No. 123(R) resulted in a $1 million increase in stock-based compensation expense for the three months ended March 31, 2006, with no effect on prior periods. Prior to January 1, 2006, the Company had accounted for share-based compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees.”

Accounting for Uncertainty in Income Taxes.

The Company adopted the provisions of FIN 48 on January 1, 2007. This interpretation requires management to make judgments regarding the probability that certain income tax positions taken by the Company in filing tax returns in the various jurisdictions in which it operates will be sustained upon examination by the respective tax authorities based on the technical merits of these tax positions, and to make estimates of the amount of tax benefits that will be realized upon the settlement of these positions. The adoption of this interpretation resulted in a charge to the 2007 beginning balance of retained earnings of $94 million.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, and in particular, statements found in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are not historical in nature may constitute forward-looking statements. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of similar import. Such statements reflect the current views of International Paper with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2005~~2006 contains a specific list of risks and uncertainties that you should carefully read and consider. That list has been updated in Part II, Item 1A. Risk Factors contained in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosures about market risk is shown on ~~pages 34 and 35~~page 42 of International Paper’s Annual Report on Form 10-K for the year ended December 31, ~~2005,~~2006, which information is incorporated herein by reference. There have

been no material changes in information relating to quantitative and qualitative disclosures about market risk since the end of the 2006 fiscal year.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and completely and accurately reported (and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure) within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the ~~Exchange~~ Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal ~~Control~~Controls over Financial Reporting:

~~During the period covered by this report, there~~There were no changes in our internal controls over financial reporting or other factors that have materially affected or are reasonably likely to materially affect ~~our~~these internal ~~control~~controls over financial ~~reporting.~~reporting during the period covered by this report.

During the 2007 first quarter, the Company completed the non-cash exchange of assets for the Luiz Antonio mill in Brazil. Integration activities, including an assessment of internal controls over financial reporting, are currently in process and are expected to be completed by the end of 2007.

The Company does have ongoing initiatives to standardize and upgrade its financial, operating and supply chain systems. The system upgrades will be implemented in stages, by business, over the next several years. Management believes the necessary procedures are in place to maintain effective internal ~~control~~controls over financial reporting as these initiatives continue.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A discussion of material developments in the Company’s litigation and settlement matters occurring in the period covered by this report is found in Note 79 to the Financial Statements in this Form ~~10-Q which information is incorporated in this Item 1 by reference.~~10-Q.

ITEM 1A. RISK FACTORS

The Company’s Annual Report on Form 10-K for the year ended December 31, ~~2005 (the 2005 10-K)~~2006 (Annual Report) contains important risk factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statement. ~~Forward-looking statements are statements that are not historical~~Since the Company has substantially completed the divestitures under its Transformation Plan, the Company no longer faces the risks described in nature and are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature.

~~The information presented below updates the risk factors set forth in the 2005 10-K, adding the following factors~~our Annual Report under the heading ~~“Risks Relating To The Company’s Transformation Plan”:~~

~~The ability~~“The Ability to ~~successfully negotiate satisfactory sale terms for assets that are contemplated for sale but are not currently under contract.~~ ~~The Company may be unable to divest or spin-off businesses under evaluation on terms that are satisfactory to the Company.~~

~~The ability to successfully execute sale transactions currently under contract.~~ The Company’s ability to successfully execute sales transactions under contract and realize the anticipated sales proceeds thereunder is dependent upon many factors, including the ability to successfully consummate the transactions without a purchase price adjustment, the successful fulfillment (or waiver) of all conditions set forth in the sale agreements, the successful closing of the transactions within the estimated timeframes and the ability to monetize the non-cash portion of the sale proceeds, if any.

~~The ability to invest proceeds with attractive financial returns.~~The Company will selectively seek attractive investment opportunities for a portion of the proceeds from the divestitures. The Company may be unable to identify and negotiate acceptable investments with attractive returns.

These risk factors do not represent a comprehensive list of factors that could cause our results to differ from those that are currently anticipated and should be read together with the risk factors set forth in the 2005 10-K and in the Company’s other filings with the Securities and Exchange Commission.Successfully Execute Sales Transactions Currently Under Contract.”

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)	Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Period
   Total Number
of Shares
Purchased Average Price Paid per
Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs    Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased Under the Plans or
Programs
August 1, 2006 -
August 31, 2006
   1,777 $ 34.31 0    0
September 1, 2006 - September 30, 2006
   38,465,784 (a) 36.00 (b) 38,465,260    0


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2007 - January 31, 2007	1,597,549	33.55	(b)	—	—
February 1, 2007 - February 28, 2007	2,639,944	36.20	(b)	—	—
March 1, 2007 - March 31, 2007	7,614,929	35.63	(b)	—	—

Total	11,852,422	—		—	—

(a)

~~On August 15, 2006,~~Principally open-market repurchases, including 11,231,000 shares purchased as part of the ~~Company commenced a tender offer~~Company’s Transformation Plan, and 621,000 shares acquired from employees from share withholdings to ~~buy back up to 41,666,667 shares of its common stock.~~

~~The tender offer expired on September 13, 2006, following~~pay income taxes under the ~~purchase of 38,465,260 shares.~~Company’s restricted stock programs.

(b)	Excludes costs to acquire the shares.

~~No activity occurred in months not presented above.~~

ITEM 6. EXHIBITS


(a)		Exhibits


		~~3.1~~		By-laws of International Paper Company, as amended through October 10, 2006 (filed as an exhibit to the Registrant’s Current Report on Form 8-K dated October 16, 2006 and incorporated herein by reference)

		10.1		~~Exchange~~Omnibus Amendment (Amendment No. 3 to Receivables Sale Agreement ~~dated September 19, 2006 by~~ and ~~between Votorantim Celulose E Papel S.A.~~Amendment No. 5 to Receivables Sale and ~~International Paper Investments (Holland) B.V. (filed as an exhibit to the Registrant’s Current Report on Form 8-K dated September 25, 2006 and incorporated herein by reference)~~

		~~10.2~~		~~Second Amendment, dated~~Contribution Agreement) entered into as of October 25, 2006, to the Amended and Restated Credit and Security Agreement, by and among Red Bird Receivables, Inc., as Borrower, International Paper Financial Services, Inc., as Servicer, International Paper Company, as Performance Guarantor, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (formerly known as The Bank of Tokyo-Mitsubishi, Ltd., New York Branch), as a Co-Agent, JPMorgan Chase Bank, N.A., as a Co-Agent, BNP Paribas, New York Branch, as a Co-Agent, Starbird Funding Corporation, Citicorp North America, Inc., as a Co-Agent and Wachovia Bank, National Association, as a Co-Agent and as Administrative Agent.February 28, 2007.


		~~10.3~~		First Amendment, dated October 30, 2006, to Purchase Agreement, dated as of April 4, 2006, among TimberStar Southwest Parent LLC, TimberStar Southwest LLC, International Paper Company and the other selling parties listed on Schedule A thereto.

		~~10.4~~		Amendment, dated November 3, 2006, to Amended and Restated Purchase Agreement, dated as of May 26, 2006, among Red Mountain Timberlands LLC, Forest Investment Associates L.P., Red Mountain Investments LLC, FIA Investments LLC, RMS Timberlands LLC, RMS Texas Timberlands I LP, Red Mountain Operations LLC, International Paper Company and the other selling parties listed on Schedule A thereto.

		11		Statement of Computation of Per Share Earnings


		12		Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends


		31.1		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


		31.2		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


		32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INTERNATIONAL PAPER COMPANY
	(Registrant)

Date: ~~November 8, 2006~~May 9, 2007	By	/s/ MARIANNE M. PARRS
		Marianne M. Parrs
		Executive Vice President and Chief Financial Officer

Date: ~~November 8, 2006~~May 9, 2007	By	/s/ ROBERT J. GRILLET
		Robert J. Grillet
		Vice President – Finance and Controller

4846


*In millions, except per share amounts*	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Earnings (loss) from discontinued operations
Earnings (loss) from operations	$	(11	)	$	(43	)
Gain on sale of business		29			29
Income tax expense		265			242
Minority interest, net of taxes		(2	)		8

Loss from discontinued operations, net of taxes and minority interest	$	281		$	236

Earnings (loss) per common share from discontinue operation - assuming dilution
Loss from operations, net of taxes	$	(0.16	)	$	(0.25	)
Gain on sale, net of taxes and minority interest		0.71			0.71

Earnings per common share from discontinued operations, net of taxes and minority interest - assuming dilution	$	0.55		$	0.46


*In millions*	Hard- board			Omni- wood			Woodruf			Total
Balance, December 31, 2005	$	34		$	74		$	5		$	113
Additional Provisions		50			—			—			50
Payments		(43	)		(21	)		(2	)		(66	)

Balance, September 30, 2006	$	41		$	53		$	3		$	97


Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
August 1, 2006 - August 31, 2006	1,777		$	34.31		0	0
September 1, 2006 - September 30, 2006	38,465,784	(a)		36.00	(b)	38,465,260	0