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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

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

The number of shares outstanding of the registrant’s common stock as of ~~November~~May 5, ~~2008~~2009 was


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2008			2007			2008			2007			2009			2008
Net Sales	$	6,808		$	5,541		$	18,283		$	16,049		$	5,668		$	5,668

Costs and Expenses
Cost of products sold		5,154			4,086			13,720			11,818			3,731			4,261
Selling and administrative expenses		507			455			1,438			1,331			500			472
Depreciation, amortization and cost of timber harvested		374			277			965			808			343			286
Distribution expenses		376			255			962			765			279			285
Taxes other than payroll and income taxes		48			42			136			131			50			44
Gain on sale of mineral rights		(261	)		—			(261	)		—
Restructuring and other charges		97			42			152			86			83			42
Forestland sales		(3	)		(9	)		(6	)		(9	)
Net losses (gains) on sales and impairments of businesses		107			1			106			(314	)
Net gains on sales and impairments of businesses														—			(1	)
Interest expense, net		144			77			306			218			164			81

Earnings From Continuing Operations Before Income Taxes, Equity Earnings and Minority Interest		265			315			765			1,215
Earnings From Continuing Operations Before Income Taxes and Equity Earnings														518			198
Income tax provision		118			89			274			321			230			59
Equity earnings, net of taxes		5			—			51			—			(27	)		16
Minority interest expense, net of taxes		3			6			15			17

Earnings From Continuing Operations		149			220			527			877			261			155
Discontinued operations, net of taxes and minority interest		—			(3	)		(18	)		(36	)
Discontinued operations, net of taxes														—			(17	)

Net Earnings	$	149		$	217		$	509		$	841			261			138
Less: Net earnings attributable to noncontrolling interests														4			5

Basic Earnings Per Common Share
Net Earnings Attributable to International Paper Company													$	257		$	133

Basic Earnings Per Share Attributable to International Paper Company Common Shareholders
Earnings from continuing operations	$	0.35		$	0.52		$	1.25		$	2.03		$	0.61		$	0.36
Discontinued operations		—			(0.01	)		(0.04	)		(0.08	)
Discontinued operations, net of taxes														—			(0.04	)

Net earnings	$	0.35		$	0.51		$	1.21		$	1.95		$	0.61		$	0.32

Diluted Earnings Per Common Share
Diluted Earnings Per Share Attributable to International Paper Company Common Shareholders
Earnings from continuing operations	$	0.35		$	0.52		$	1.24		$	2.01		$	0.61		$	0.35
Discontinued operations		—			(0.01	)		(0.04	)		(0.08	)
Discontinued operations, net of taxes														—			(0.04	)

Net earnings	$	0.35		$	0.51		$	1.20		$	1.93		$	0.61		$	0.31

Average Shares of Common Stock Outstanding – assuming dilution		423.4			425.6			424.2			435.7			423.1			423.3

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

Amounts Attributable to International Paper Company Common Shareholders
Earnings from continuing operations													$	257		$	150
Discontinued operations, net of taxes														—			(17	)

Net earnings													$	257		$	133


	September 30, 2008			December 31, 2007			March 31, 2009			December 31, 2008
Assets		(unaudited)						(unaudited)
Current Assets
Cash and temporary investments	$	771		$	905		$	955		$	1,144
Accounts and notes receivable, net		3,864			3,152			3,455			3,288
Inventories		2,766			2,071			2,340			2,495
Assets of businesses held for sale		—			24
Deferred income tax assets		217			213			198			261
Other current assets		272			370			189			172

Total Current Assets		7,890			6,735			7,137			7,360

Plants, Properties and Equipment, net		14,755			10,141			13,802			14,202
Forestlands		712			770			598			594
Investments		1,377			1,276			1,167			1,274
Goodwill		3,877			3,650			2,113			2,027
Deferred Charges and Other Assets		1,558			1,587			1,402			1,456

Total Assets	$	30,169		$	24,159		$	26,219		$	26,913

Liabilities and Common Shareholders’ Equity
Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	800		$	267		$	536		$	828
Accounts payable		2,532			2,145			1,915			2,119
Accrued payroll and benefits		404			400			354			445
Liabilities of businesses held for sale		—			4
Other accrued liabilities		1,219			1,026			1,546			1,363

Total Current Liabilities		4,955			3,842			4,351			4,755

Long-Term Debt		11,232			6,353			10,959			11,246
Deferred Income Taxes		3,124			2,919			1,948			1,957
Pension Benefit Obligation								3,294			3,260
Postretirement and Postemployment Benefit Obligation								657			663
Other Liabilities		1,854			2,145			634			631
Minority Interest		239			228
Common Shareholders’ Equity
Common stock, $1 par value, 493.6 shares in 2008 and 2007		494			494
Equity
Common stock, $1 par value, 2009 – 435.1 shares and 2008 – 433.6 shares								435			434
Paid-in capital		6,710			6,755			5,730			5,845
Retained earnings		4,559			4,375			1,575			1,430
Accumulated other comprehensive loss		(614	)		(471	)		(3,518	)		(3,322	)

		11,149			11,153			4,222			4,387
Less: Common stock held in treasury, at cost, 66.0 shares in 2008 and 68.4 shares in 2007		2,384			2,481
Less: Common stock held in treasury, at cost, 2009-3.3 shares and 2008–6.1 shares								78			218

Total Common Shareholders’ Equity		8,765			8,672
Total Shareholders’ Equity								4,144			4,169

Total Liabilities and Common Shareholders’ Equity	$	30,169		$	24,159
Noncontrolling interests								232			232

Total Equity								4,376			4,401

Total Liabilities and Equity							$	26,219		$	26,913

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 the Company’s financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed herein, 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, ~~2007, and International Paper’s Current Report on Form 8-K filed on May 9,~~ 2008 to update the historical financial statements included in the Company’s Form 10-K for the year ended December 31, 2007 to reflect changes to the Company’s allocation of corporate overhead expenses as described below (collectively the “2007 10-K”), both of which have previously been filed with the Securities and Exchange Commission.

~~Financial information by~~On October 5, 2007, International Paper and Ilim Holding S.A. formed a 50:50 joint venture to operate in Russia. International Paper is accounting for its investment in Ilim, a separate reportable industry segment, ~~is presented on page 22. Effective January 1, 2008,~~using the equity method of accounting. Due to the complex organizational structure of Ilim’s operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company ~~changed~~reports its ~~method~~share of allocating corporate overhead expenses to its business segments to increase the expense amounts allocated to these businesses in reports reviewed by its chief executive officer to facilitate performance comparisons with other companies. Accordingly, the Company has revised its presentation of industry segmentIlim’s operating ~~profit to reflect this change in allocation method, and has adjusted all comparative prior period information~~results on this basis, reducing reported industry segment operating profits for the three months and nine months ended September 30, 2007 by $132 million and $381 million, respectively, with no effect on reported net income.a one-quarter lag basis.

In April 2009, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP) FAS 115-2 and FAS 124-2, which provides a new other-than-temporary impairment model for debt securities. This FSP is effective for financial statements issued in fiscal years (and interim periods) ending after June 15, 2009. The Company is currently evaluating the provisions of this FSP but does not currently anticipate that it will have a material effect on its consolidated financial statements.

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

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, which requires public companies to provide additional disclosures about transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special purpose entities. The disclosures required by this FSP were to be provided in financial statements for the first reporting period ending after December 15, 2008 (calendar year 2008). The Company included the requirements of this FSP in the preparation of the accompanying financial statements.

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

In December 2008, the FASB issued FSP FAS 132(R)-1 which amends Statement 132(R) to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. The disclosures required by this FSP must be provided in the financial statements for fiscal years ending after December 15, 2009 (calendar year 2009). The Company is currently evaluating the provisions of this FSP.

In April 2008, the FASB issued FSP FAS 142-3, which amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset. This FSP was effective for financial statements issued for fiscal years (and interim periods) beginning after December 15, 2008 (calendar year 2009). The application of the requirements of this FSP did not have a material effect on the accompanying consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133.” This statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 was effective for fiscal years (and interim periods) beginning after November 15, 2008 (calendar year 2009). The Company included the disclosures required by this statement in the accompanying financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) establishes principles and requirements for how an acquiring entity in a business combination recognizes and measures the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This statement is effective for business combinations in 2009.

In April 2009, the FASB issued FSP FAS 141(R)-1, which established a model similar to the one entities used under SFAS
No. 141(R), to account for preacquisition contingencies. This FSP is effective prospectively for business combinations in calendar year 2009.

In December 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB 51.” This statement clarifies that a noncontrolling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and noncontrolling interest, with disclosure on the face of the consolidated income statement of the amounts attributable to the parent and to the noncontrolling interest. This statement was effective for fiscal years beginning after December 15, 2008 (calendar year 2009), with presentation and disclosure requirements applied retrospectively to comparative financial statements. The Company included the requirements of this statement in the preparation of the accompanying financial statements.

In February 2008, the FASB issued FSP FAS 157-2 which delayed the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 (calendar year 2009). The Company partially adopted the provisions of this statement with respect to its financial assets and liabilities that are measured at fair value effective January 1, 2008 (see Note 13). The Company adopted the remaining provisions of SFAS No. 157 in the preparation of the accompanying financial statements.

In October 2008, the FASB issued FSP FAS 157-3, which clarifies the application of SFAS No. 157 in cases where the market for the asset is not active. FSP FAS 157-3 was effective upon issuance. The Company considered the guidance provided by this FSP in the preparation of the accompanying financial statements.

In April 2009, the FASB issued FSP FAS 157-4, in accordance with SFAS No. 157, “Fair Value Measurements,” which provides guidance on estimating the fair value of an asset or liability (financial or nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions are not orderly. This FSP is effective for interim and annual periods ending after June 15, 2009.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, which expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107 to interim reporting periods. The disclosures required by this FSP must be provided in financial statements for the first reporting period ending after June 15, 2009. The Company intends to provide these disclosures beginning in the second quarter of 2009.

A summary of the changes in equity for the quarters ended March 31, 2009 and 2008 is provided below:

NOTE 4 - EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON ~~SHARE~~SHAREHOLDERS

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. Diluted earnings per common share from continuing operations are computed assuming that all potentially dilutive securities, including “in-the-money” stock options, ~~are~~were 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 where 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 is as follows:


	Three Months Ended March 31,
*In millions, except per share amounts*	2009		2008
Earnings from continuing operations	$	257	$	150
Effect of dilutive securities (a)		—		—

Earnings from continuing operations – assuming dilution	$	257	$	150

Average common shares outstanding		423.1		420.6
Effect of dilutive securities
Restricted performance share plan (a)		—		2.6
Stock options (b)		—		0.1

Average common shares outstanding – assuming dilution		423.1		423.3

Basic earnings per common share from continuing operations	$	0.61	$	0.36

Diluted earnings per common share from continuing operations	$	0.61	$	0.35

During the ~~third~~first quarter of ~~2008,~~2009, restructuring and other charges totaling ~~$97~~$83 million before taxes ($6065 million after taxes) were recorded, including ~~$35~~a $52 million charge before taxes ($2232 million after taxes) for ~~adjustments to legal reserves (see Note 9), $53~~severance and benefits associated with the Company’s 2008 overhead reduction program, a $23 million charge before taxes ($3328 million after taxes) for closure costs related to ~~write-off supply chain initiative development~~the Inverurie mill in Scotland, a $6 million charge before taxes ($4 million after taxes) for closure costs for ~~U.S. container operations that will not be implemented due to~~ the ~~CBPR acquisition (see Note 4), $8~~Franklin, Virginia, lumber mill, sheet converting plant and converting innovations center, and a $2 million ~~before taxes~~pre-tax charge ($51 million after taxes) for costs associated with the reorganization of the Company’s Shorewood Packaging operations. Additionally, a $20 million charge was recorded related to certain tax adjustments (see Note 10).

The U.S. Internal Revenue Code provides a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. During the 2009 first quarter, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 totaling approximately $516 million that were recorded in Accounts and notes receivable, net, in the accompanying consolidated balance sheet, approximately $145 million of which was received in cash later in the quarter, and accrued approximately $42 million for estimated eligible alternative fuel usage through March 31, 2009 to be included in subsequent filings. Accordingly, the accompanying statement of operations for the three months ended March 31, 2009 includes a credit of approximately $540 million in ~~Canada, and $1 million before taxes~~Cost of products sold ($0330 million after taxes) ~~for severance costs~~, representing eligible alternative fuel mixture credits earned through March 31, 2009, less $18 million of associated ~~with the Company’s Transformation Plan.~~expenses.

2008 restructuring and other charges totaling $13 million before taxes ($9 million after taxes) were recorded related to the reorganization of the Company’s Shorewood operations in Canada, including $10 million before taxes ($7 million after taxes) of severance charges and $3 million before taxes ($2 million after taxes) of accelerated depreciation expense for long-lived assets being removed from service.:

During the first quarter of 2008, restructuring and other charges totaling $42 million before taxes ($26 million after taxes) were recorded, including a $40 million charge before taxes ($25 million after taxes) for adjustments of legal reserves, ~~(see Note 9),~~ a $5 million charge before taxes ($3 million after taxes) related to the reorganization of the Company’s Shorewood operations in Canada and a $3 million credit before taxes ($2 million after taxes) for adjustments to previously recorded reserves associated with the Company’s organizational restructuring programs.

During the third quarter of 2007, restructuring and other charges totaling $42 million before taxes ($26 million after taxes) were recorded. These charges consisted of a pre-tax charge of $27 million ($17 million after taxes) of accelerated depreciation charges for the Terre Haute mill, a pre-tax charge of $10 million ($6 million after taxes) for closure reserves associated with the Terre Haute mill, a pre-tax charge of $3 million ($2 million after taxes) related to the restructuring of the Company’s Brazil operations, and a pre-tax charge of $2 million ($1 million after taxes) for organizational restructuring programs associated with the Company’s Transformation Plan. Additionally, a $3 million increase to the income tax provision was recorded related to the settlement of a prior year tax audit.

During the second quarter of 2007, restructuring and other charges totaling $26 million before taxes ($16 million after taxes) were recorded for organizational restructuring programs associated with the Company’s Transformation Plan, including $17 million before taxes ($11 million after taxes) of accelerated depreciation expense for long-lived assets being removed from service.

During the 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, including $12 million before taxes ($7 million after taxes) of accelerated depreciation charges for long-lived assets being removed from service. Additionally, a $2 million pre-tax credit ($1 million after taxes) was recorded in Interest expense, net, for interest received from the Canadian government on refunds of prior-year softwood lumber duties.

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

The following table summarizes the preliminary allocation of the purchase price, plus direct acquisition costs, to the fair value of assets and liabilities acquired. The final allocation is expected to be completed in the first half of 2009.

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

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

~~Additionally, Selling and administrative expenses for the 2008 third quarter included a $19 million charge before taxes ($12 million after taxes) for integration costs associated with the acquisition.~~

The following unaudited pro forma information for the three months and nine months ended September 30, 2008 and 2007 presents the results of operations of International Paper as if the CBPR acquisition, and the 2007 acquisition and exchange discussed below, had occurred on January 1, 2007. This pro forma information does not purport to represent International Paper’s actual results of operations if the transaction described above would have occurred on January 1, 2007, nor is it necessarily indicative of future results.

~~The CBPR financial position and results of operations have been included in International Paper’s consolidated financial statements since its acquisition date on August 4, 2008.~~

On August 24, 2007, International Paper completed the acquisition of Central Lewmar LLC, a privately held paper and packaging distributor in the United States, for $189 million. During the first quarter of 2008, the Company finalized the allocation of the purchase price to the fair value of the assets and liabilities acquired as follows:

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

~~Central Lewmar’s financial position and results of operations have been included in International Paper’s consolidated financial statements since its acquisition on August 24, 2007.~~

On February 1, 2007, the 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 2006. The Company exchanged its in-progress pulp mill project and 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 improved the Company’s competitive position by adding a globally cost-competitive paper mill, thereby expanding the Company’s uncoated freesheet capacity in Latin America and providing additional growth opportunities in the region. 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 ($164 million after taxes) representing the difference between the fair value and book value of the assets exchanged. This gain is included in Net losses (gains) on sales and impairments of businesses in the accompanying consolidated statement of operations.

~~The following table summarizes the final allocation of the fair value of the assets exchanged to the assets and liabilities acquired.~~

The following unaudited pro forma information for the three months and nine months ended September 30, 2007 presents the results of operations of International Paper as if the Central Lewmar acquisition and the Luiz Antonio asset exchange had occurred on January 1, 2007. This pro forma information does not purport to represent International Paper’s actual results of operations if the transactions described above would have occurred on January 1, 2007, nor is it necessarily indicative of future results.

In millions, except per share amounts
   Three Months Ended
September 30, 2007    Nine Months Ended
September 30, 2007
Net sales
   $ 5,669    $ 16,627
Earnings from continuing operations
   225    886
Net earnings
   222    851
Earnings from continuing operations per common share
   0.53    2.03
Net earnings per common share
   0.52    1.95

On October 5, 2007, International Paper and Ilim Holding S.A. announced the completion of the formation of a 50:50 joint venture to operate in Russia as Ilim Group. To form the joint venture, International Paper purchased 50% of Ilim Holding S.A. (Ilim) for approximately $620 million, including $545 million in cash and $75 million of notes payable, and contributed an additional $21 million in 2008. The Company’s investment in Ilim totaled $765 million at September 30, 2008, which is approximately $350 million higher than the Company’s share of the underlying net assets of Ilim. Based on current estimates, approximately $250 million of this basis difference, principally related to the estimated fair value write-up of Ilim plant, property and equipment, is being amortized as a reduction of reported net income over the estimated remaining useful lives of the related assets. Approximately $100 million of the difference represents estimated goodwill.

International Paper is accounting for its investment in Ilim, a separate reportable industry segment, using the equity method of accounting. Due to the complex organizational structure of Ilim’s operations, and the extended time required for Ilim to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company reports its share of Ilim’s results of operations on a one-quarter lag basis. Accordingly, the accompanying consolidated statement of operations for the three months and nine months ended September 30, 2008 includes the Company’s share of Ilim’s operating results for the three-month and nine-month periods ended June 30, 2008 under the caption Equity earnings, net of taxes.

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

The following table summarizes the preliminary allocation of the purchase price, plus direct acquisition costs, to the fair value of assets and liabilities acquired through March 31, 2009. The final allocation is expected to be completed by the end of the second quarter of 2009.

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

Selling and administrative expenses for the 2009 first quarter included a $36 million charge before taxes ($22 million after taxes) for costs related to the CBPR business integration.

The following unaudited pro forma information for the three months ended March 31, 2008, presents the results of operations of International Paper as if the CBPR acquisition had occurred on January 1, 2008. This pro forma information does not purport to represent International Paper’s actual results of operations if the transaction described above would have occurred on January 1, 2008, nor is it necessarily indicative of future results.

During the first quarter of 2008, the Company recorded a pre-tax charge of $25 million ($16 million after taxes) related to the final settlement of a post-closing adjustment to the purchase price received by the Company for the sale of its Beverage Packaging business, ~~(see Note 9),~~ and a $2 million charge before taxes ($1 million after taxes) for operating losses related to certain wood products facilities.

~~During the third quarter of 2007, the Company completed the sale of the remainder of its non-U.S. Beverage Packaging business.~~

During the second quarter of 2007, the Company recorded pre-tax charges of $6 million ($4 million after taxes) and $5 million ($3 million after taxes) relating to adjustments to estimated losses on the sales of its Wood Products and Beverage Packaging businesses, respectively.

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.

During both the second and third quarters of 2008, the Company recorded a $3 million gain before taxes ($2 million after taxes) to reduce estimated transaction costs accrued in connection with the 2006 Transformation Plan sale of forestlands.

During the third quarter of 2007, a pre-tax gain of $9 million ($5 million after taxes) was recorded to reduce estimated transaction costs accrued in connection with the 2006 Transformation Plan forestlands sales.

During the third quarter of 2008, based on a current strategic plan update of projected future operating results of the Company’s Inverurie mill, a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a $107 million pre-tax charge ($84 million after taxes) was recorded in the Company’s Printing Papers industry segment to write down the long-lived assets of the mill to their estimated fair value. This charge is included in Net losses (gains) on sales and impairments of businesses in the accompanying consolidated statement of operations.

During the first quarter of 2008, a $1 million pre-tax credit ($1 million after taxes) was recorded to adjust previously estimated gains/losses of businesses previously sold.

~~During the third quarter of 2007, a pre-tax charge of $1 million ($1 million credit after taxes) was recorded to adjust previously estimated losses on businesses previously sold.~~

During the second quarter of 2007, a $1 million net pre-tax credit (a $7 million charge after taxes, including a $5 million tax charge in Brazil) was recorded to adjust previously estimated gains/losses of businesses previously sold.

During the first quarter of 2007, a $103 million pre-tax gain ($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. Since the interest acquired represents significant continuing involvement in the operations of the business under accounting principles generally accepted in the United States, the operating results for Arizona Chemical have been included in continuing operations in the accompanying consolidated statement of operations through the date of sale.

~~In addition, during the first quarter of 2007, 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 losses (gains) on sales and impairments of businesses in the accompanying consolidated statement of operations.

~~Temporary investments~~ with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $522 million and $578 million at September 30, 2008 and December 31, 2007, respectively.

~~Accumulated depreciation~~ ~~was $15.5 billion at September 30, 2008 and $14.9 billion at December 31, 2007. The~~~~allowance for doubtful accounts~~ ~~was $122 million at September 30, 2008 and $95 million at December 31, 2007.~~

~~The following tables present changes in~~~~goodwill~~ ~~balances as allocated to each business segment for the nine-month periods ended September 30, 2008 and 2007:~~

~~(a)~~

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

~~There was no material activity related to~~~~asset retirement obligations~~~~during either the first nine months of 2008 or 2007.~~

~~Interest payments~~ made during the nine-month periods ended September 30, 2008 and 2007 were $321 million and $353 million, respectively. Capitalized interest costs were $19 million and $25 million for the nine months ended September 30, 2008 and 2007, respectively.~~Total interest expense~~ ~~was $374 million for the first nine months of 2008 and $342 million for the first nine months of 2007.~~~~Interest income~~ was $68 million and $124 million for the nine months ended September 30, 2008 and 2007, respectively. Interest expense and interest income in 2008 and 2007 exclude approximately $179 million and $256 million, respectively, related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset.~~Distributions under preferred securities~~paid by Southeast Timber, Inc., a consolidated subsidiary of International Paper, were $8 million and $10 million during the first nine months of 2008 and 2007, respectively. The expense related to these preferred securities was included in Minority interest expense in the consolidated statement of operations.~~Income tax payments~~ ~~of $104 million and $243 million were made during the first nine months of 2008 and 2007, respectively.~~

~~Equity earnings, net of taxes~~ includes the Company’s share of earnings from its investment in Ilim Holding S.A. ($5 million and $54 million for the three and nine months ended September 30, 2008, respectively) and certain other smaller investments.

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

In accordance with the provisions of FASB Staff Position FAS 157-2 (see Note 7), the Company has partially applied the provisions of SFAS No. 157 only to its financial assets and liabilities recorded at fair value, which consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, and other financial instruments that are used to hedge exposures to interest rate, commodity and currency risks. For these financial instruments, fair value is determined at each balance sheet date using an income approach, which consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the reporting date, such as prevailing interest rates and foreign currency spot and forward rates. The following table provides a summary of the inputs used to develop these estimated fair values under the hierarchy defined in SFAS No. 157:

   Fair Value Measurements at September 30, 2008 Using
In millions
   Total    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)    Significant Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Assets:

Interest rate swaps (a)
   $ 60    $ —      $ 60    $ —
Commodity forward contracts (b)
   4    —      4    —
Foreign currency forward contracts (c)
   85    —      85    —

Total
   $ 149    $ —      $ 149    $ —

Liabilities:

Interest rate swaps (d)
   $ 8    $ —      $ 8    $ —
Commodity forward contracts (e)
   19       19
Foreign currency forward contracts (f)
   43    —      43    —
Embedded derivatives (g)
   4    —      4    —

Total
   $ 74    $ —      $ 74    $ —

NOTE ~~7 – RECENT ACCOUNTING DEVELOPMENTS~~8 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

~~Accounting~~Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $763 million and $908 million at March 31, 2009 and December 31, 2008, respectively.

Accumulated depreciation was $15.7 billion at March 31, 2009 and $15.6 billion at December 31, 2008. Theallowance for ~~Convertible Debt Securities:~~doubtful accounts was $120 million at March 31, 2009 and $121 million at December 31, 2008.

The gross carrying amount ofIntangible Assets, excluding goodwill, was $278 million ($238 million net of accumulated amortization) and $284 million ($246 million net of accumulated amortization) at March 31, 2009 and December 31, 2008, respectively. The Company recognized amortization expense of intangible assets of approximately $8 million for the first three months of both 2009 and 2008.

There was no material activity related toasset retirement obligationsduring either the first three months of 2009 or 2008.

Interest payments made during the three-month periods ended March 31, 2009 and 2008 were $89 million and $86 million, respectively. Capitalized interest costs were $3 million and $4 million for the three months ended March 31, 2009 and 2008, respectively.Total interest expense was $173 million for the first three months of 2009 and $99 million for the first three months of 2008.Interest income was $9 million and $18 million for the three months ended March 31, 2009 and 2008, respectively. Both interest expense and interest income in 2009 and 2008 exclude approximately $44 million and $74 million, respectively, related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset.Distributions under preferred securitiespaid by Southeast Timber, Inc., a consolidated subsidiary of International Paper, were $2 million and $3 million during the first three months of 2009 and 2008, respectively. The expense related to these preferred securities was included as a component of Net earnings attributable to noncontrolling interests.Income tax payments of $1 million and $19 million were made during the first three months of 2009 and 2008, respectively.

Equity earnings, net of taxes includes the Company’s share of earnings from its investment in Ilim Holding S.A. (losses of $26 million and earnings of $17 million for the three months ended March 31, 2009 and 2008, respectively) and certain other smaller investments.

The following tables present changes in goodwill balances as allocated to each business segment for the three-month periods ended March 31, 2009 and 2008:

In ~~May~~the fourth quarter of 2008, the ~~Financial Accounting Standards Board (FASB) issued FSP APB 14-1, “Accounting~~Company performed an interim test for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” This FSP specifies that issuers that have convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued in fiscal years (and interim periods) beginning after December 15, 2008 (calendar year 2009), and should be applied retrospectively to all past periods presented even if the instrument has matured, has been converted, or has otherwise been extinguishedpossible goodwill impairment as of ~~the FSP’s effective date. The Company currently has no convertible debt instruments that may be settled in cash upon conversion.~~

~~In April~~December 31, 2008, ~~the FASB issued FSP FAS 142-3, “Determination~~and recorded preliminary estimated impairment charges of the Useful Life of Intangible Assets,” which amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset. This FSP is effective for financial statements issued for fiscal years (and interim periods) beginning after December 15, 2008 (calendar year 2009). The Company is currently evaluating the provisions of this FSP.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133.” This statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Statement No. 161 is effective for fiscal years (and interim periods) beginning after November 15, 2008 (calendar year 2009). The Company is currently evaluating the provisions of this statement.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” Statement No. 141(R) establishes principles and requirements for how an acquiring entity in a business combination recognizes and measures the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users$379 million, representing all of the ~~information needed to evaluate~~goodwill for the U.S. Coated Paperboard business, and ~~understand the nature and financial effect~~$1.3 billion, representing all of the ~~business combination. This statement will be effective prospectively~~goodwill for ~~business combinations for which~~ the ~~acquisition date is on or after the beginning of~~U.S. Printing Papers business. During the first ~~annual reporting period beginning on or after December 15, 2008 (calendar year 2009). The~~quarter of 2009, the Company ~~is currently evaluating~~finalized the ~~provisions of this statement.~~

~~Noncontrolling Interests~~testing for these businesses resulting in ~~Consolidated Financial Statements:~~

In December 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB 51.” This statement clarifies that a noncontrolling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and noncontrolling interest, with disclosure on the face of the consolidated income statement of the amounts attributedno changes to the parent and to the noncontrolling interest. This statement will be effective prospectively for fiscal years beginning after December 15, 2008 (calendar year 2009), with presentation and disclosure requirements applied retrospectively to comparative financial statements. The Company is currently evaluating the provisions of this statement.recorded impairment charges.

In September 2006, the FASB 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 disclosures 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. In February 2008, the FASB issued FSP FAS 157-2 which delays the effective date of Statement No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 (calendar year 2009). The Company partially adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities that are measured at fair value effective January 1, 2008 (see Note 6). In October 2008, the FASB issued FSP FAS 157-3, which clarifies the application of SFAS No. 157 in cases where the market for the asset is not active. FSP FAS 157-3 is effective upon issuance. The Company considered the guidance provided by this FSP in the preparation of the accompanying financial statements. The Company is currently evaluating the effects of the remaining provisions of SFAS No. 157.

International Paper adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), on January 1, 2007. ~~The adoption of this standard resulted in a charge to the beginning balance of retained earnings of $94 million at the date of adoption. Total~~At December 31, 2008, cumulative unrecognized tax benefits atunder the ~~date~~provisions of ~~adoption including this cumulative effect charge were $919~~FIN 48 totaled $435 million. ~~At December 31, 2007, unrecognized tax benefits totaled $794 million.~~

During the ~~third~~first quarter of ~~2008,~~2009, due to current period transactions, unrecognized tax benefits increased by $2$9 million to ~~$515~~$444 million and accrued estimated interest and tax penalties increased by $3$4 million to ~~$77~~$78 million. The Company currently estimates that, as a result of ongoing discussions, pending tax settlements and expirations of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately ~~$240~~$160 million during the next 12 months.

~~Also~~During the 2009 first quarter, the Company recorded in income tax expense charges totaling $20 million, consisting of a $14 million adjustment of deferred income taxes relating to incentive compensation payments during the ~~2008 third~~ quarter and a ~~$29~~$6 million charge ~~was recorded for estimated U.S. income taxes on a gain recorded by the Company’s Ilim Holding S.A. joint venture~~ relating to ~~the sale of a Russian subsidiary.~~recent state income tax legislation.

In May 2008, a recovery boiler at the Company’s Vicksburg, Mississippi facility exploded, resulting in one fatality and injuries to employees of contractors working on the site. The Company has been served with several lawsuits and is on notice of additional claims, and currently believes that it has adequate insurance to ~~cover~~resolve these lawsuits and other claims. Additionally, the Company also has property damage and business interruption insurance policies that are expected to be adequate to cover any significant losses resulting from this event. Accordingly, theThe Company believes that ~~neither~~ the settlement of these lawsuits ~~nor the resolution of the property damage and business interruption claims~~ will not have a material adverse effect on its consolidated financial statements.

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 Hardboard Claims) and during the 1990’s (the 1990’s Hardboard Claims, and together with the 1980’s Hardboard Claims, the Hardboard Claims); (2) Omniwood siding installed during the 1990’s (the Omniwood Claims); and (3) Woodruf roofing installed during the 1980’s and 1990’s (the Woodruf Claims). Each of these settlements is discussed in detail in Note ~~10,~~11, Commitments and Contingent Liabilities, to the financial statements included in International Paper’s ~~2007~~2008 10-K. All Hardboard Claims were required to be made by January 15, 2008, while all Omniwood and Woodruf Claims ~~must~~were required to be made by January 6, 2009.

Claims activity for the Hardboard, Omniwood and Woodruf claims during 2007 was generally in line with updated projections made in the fourth quarter of 2006, although in connection with the January 15, 2008 filing deadline for Hardboard siding claims, the Company received a large number of claims at the end of 2007 and the beginning of 2008. During the first quarter of 2008, based on a current estimate of payments to be made for all claims received to date and projected future claim filings, an additional charge of $40 million was recorded to increase the reserve to management’s best estimate of the amount required for future payments. During the third quarter of 2008, the Company completed a revised claims projection taking into account current actual claim settlement costs, recent claim filing activity, and updated projections of claims activity through the end of the settlement period. Based on these projections, the Company recorded a $42 million increase in the reserve balance in the 2008 third quarter to increase the reserve to management’s best

estimate of the amount required for future payments. This increase, together with a $7 million reduction of a related liability, is included in Restructuring and other charges in the accompanying consolidated statement of operations for the three and nine months ended September 30, 2008.

~~The following table presents the claims activity of the Hardboard Claims for the nine-month period ended September 30, 2008:~~

~~The average settlement cost per claim for the nine-month period ended September 30, 2008, for the Hardboard settlement was $2,261.~~

~~The following table presents the claims activity of the Omniwood Claims and the Woodruf Claims for the nine-month period ended September 30, 2008:~~

~~The average settlement costs per claim for the nine-month period ended September 30, 2008, for the Omniwood and Woodruf settlements were $5,294 and $4,138, respectively.~~

The following table presents an analysis of the net reserve activity for these actions for the ~~nine-month~~three-month period ended ~~September 30, 2008:~~March 31, 2009:

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

In ~~August 2008,~~March 2009, International Paper Investments (Luxembourg) S.a.r.l, a wholly-owned subsidiary of International Paper, borrowed ~~$2.5 billion~~$468 million of long-term debt with an initial interest rate of LIBOR plus a margin of ~~162.5~~450 basis ~~points. The margin~~points, that can vary depending upon the credit rating of the ~~Company. The~~Company, and a maturity date in March 2012. International Paper used the $468 million of proceeds from the loan and cash of approximately $170 million to repay its 500 million euro-denominated debt ~~requires quarterly principal payments starting~~(equivalent to $638 million at date of payment) with an original maturity date in August 2009. Other debt activities in the ~~fourth~~first quarter of ~~2008 and has a final maturity in August 2013. Debt issuance costs~~2009 included the repayment of approximately $50 million related to this borrowing were recorded in Deferred charges and other assets in the accompanying consolidated balance sheet and will be amortized over the term of the loan. Also in August 2008, International Paper borrowed approximately $395 million under its receivables securitization program. These funds, together with the $3 billion from the unsecured senior notes borrowed in the second quarter discussed below and other available cash, were used for the CBPR business acquisition in August. A $500 million bridge loan that was available to fund the acquisition was not used by the Company and was cancelled upon the closing of the acquisition.

Also in the third quarter of 2008, International Paper repaid approximately $355 million it had borrowed under its receivables securitization program. The Company also repaid $125 million of the $2.5 billion long-term debt, and repurchased $63.5$366 million of notes with interest rates ranging from 4.25% to ~~8.70% and original maturities from~~5.0% that had matured.

~~The Company also entered into a series of forward floating-to-fixed~~International Paper terminated an interest rate swap ~~agreements~~ with a notional ~~amount~~value of ~~$1.5 billion~~$100 million designated as a fair value hedge, resulting in ~~anticipation~~a gain of ~~borrowing against the $3 billion committed bank credit agreement for the purchase of the CBPR business. The floating-to-fixed interest rate swaps were effective September 2008~~$11 million that was deferred and mature in September 2010. These forward interest rate swaps are being accounted for as cash flow hedges in accordance with SFAS No. 133 as hedges of the benchmark interest rate of future interest payments related to any borrowing under the bank credit agreement.

In the second quarter of 2008, International Paper issued $3 billion of unsecured senior notes consisting of $1 billion of 7.4% notes due in 2014, $1.7 billion of 7.95% notes due in 2018 and $300 million of 8.7% notes due in 2038. Debt issuance costs of approximately $20 million related to the new debt were recorded in ~~Deferred charges and other assets~~Long-term debt in the accompanying consolidated balance ~~sheet and~~sheet. As the swap agreement was terminated early, the resulting gain will be amortized over the ~~term~~life of the ~~notes.~~related debt through April 2016.

~~Also in the second quarter of~~At March 31, 2009 and December 31, 2008, International Paper entered into a series of fixed-to-floating interest rate swap agreements with a notional amount of $1 billion and maturities ranging from 2014 to 2018 to manage interest rate exposures associated with the new $3 billion of unsecured senior notes. These interest rate swaps are being accounted for as fair value hedges in accordance with SFAS No. 133.

~~In the second quarter of 2007, International Paper repurchased $35 million of 5.85% notes with an original maturity in October 2012.~~

In March 2007, International Paper Investments (Luxembourg) S.ar.l, a wholly-owned subsidiary of International Paper, repaid $143 million of long-term debt with an interest rate of LIBOR plus 40 basis points and a maturity date in November 2010. Other debt activity in the first quarter included the repayment of $198 million of 7.625% notes that matured in the quarter.

~~At September 30, 2008 and December 31, 2007, International Paper~~ classified ~~$806~~$100 million and ~~$112~~$796 million, respectively, of ~~tenderable bonds,~~ commercial paper and bank notes and Current maturities of long-term debt as Long-term debt. International Paper has the intent and ability, as evidence by its contractually committed credit facility, to renew or convert these ~~obligations, as evidenced by its contractually committed $1.5 billion bank credit agreement.~~obligations.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~September 30, 2008,~~March 31, 2009, the Company held long-term credit ratings of BBB (negative outlook) and Baa3 (negative outlook) by Standard and Poor’s (S&P) and Moody’s Investor Services (Moody’s), respectively. The Company currently has short-term credit ratings of A-3 and P-3 by S&P and Moody’s, respectively.

International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. International Paper does not hold or issue financial instruments for trading purposes. For hedges that meet the criteria under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” International Paper, at inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying

exposure, as well as the risk management objective and strategy for undertaking each hedge transaction. Derivatives are recorded in the consolidated balance sheet at fair value, determined using available market information or other appropriate valuation methodologies, in Other current assets, Other assets, Other accrued liabilities and Other liabilities. The earnings impact resulting from changes in the fair value of derivative instruments is recorded in the same line item in the consolidated statement of operations as the underlying exposure being hedged or in Other comprehensive income for derivatives that qualify as cash flow hedges. Any ineffective portion of a financial instrument’s change in fair value is recognized currently in earnings together with changes in the fair value of any derivatives not designated as hedges.

Foreign exchange contracts are used by International Paper to offset the earnings impact relating to the variability in exchange rates on certain monetary assets and liabilities denominated in non-functional currencies and are not designated as hedges. Changes in the fair value of these instruments, recognized currently in earnings to offset the remeasurement of the related assets and liabilities, were not significant.

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

International Paper utilizes interest rate swaps as fair value hedges of the benchmark interest rates of fixed rate debt. At March 31, 2009 and December 31, 2008, the outstanding notional amounts of interest rate swap agreements that qualify as fully effective fair value hedges under SFAS No. 133 were approximately $34 million and $484 million, respectively.

In the first quarter of 2009, an interest rate swap agreement designated as a fair value hedge with a notional value of $100 million was terminated. The termination was not in connection with early retirement of debt. The resulting gain of $11 million was deferred and recorded in Long-term debt and will be amortized as an adjustment of interest expense over the life of the underlying debt through 2016.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Other comprehensive income (OCI) and reclassified into earnings in the same period or periods in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the hedge instruments are reclassified out of OCI to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable.

International Paper utilizes interest rate swaps as cash flow hedges of the benchmark interest rate of future interest payments. At March 31, 2009 and December 31, 2008, the outstanding notional amounts of interest rate swap agreements that qualify as cash flow hedges under SFAS No. 133 were approximately $1 billion. As of March 31, 2009, these contracts had maturities of two years or less. Losses of $15 million after taxes are expected to be reclassified to earnings within the next 12 months.

To minimize volatility in earnings due to large fluctuations in the price of commodities, International Paper utilizes swap contracts to manage risks associated with market fluctuations in energy prices. These contracts are designated as cash flow hedges of forecasted commodity purchases. As of March 31, 2009, the hedged volumes of these energy contracts totaled one million barrels of fuel oil and 23 million MMBTU (Million British Thermal Units) of natural gas. As of December 31, 2008, the hedged volumes totaled one million barrels of fuel oil and 21 million MMBTUs of natural gas. These contracts had maturities of three years or less as of March 31, 2009. Losses of $35 million after taxes are expected to be reclassified to earnings within the next 12 months.

Foreign exchange contracts (including forward, swap and purchase option contracts) are also used as cash flow hedges of certain forecasted transactions denominated in foreign currencies, to manage volatility associated with these transactions and to protect International Paper from currency fluctuations between the contract date and ultimate settlement. As of March 31, 2009, these contracts have maturities of one year or less, with expected losses totaling $12 million after taxes to be reclassified to earnings. As of March 31, 2009 and December 31, 2008, the following outstanding foreign exchange contracts were entered into as cash flow hedges of forecasted transactions:

International Paper applies the provisions of SFAS No. 157 to its financial assets and liabilities that are recorded at fair value, which consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, and other financial instruments that are used to hedge exposures to interest rate, commodity and currency risks. SFAS No. 157 sets out a fair value hierarchy that groups fair value measurement inputs into three classifications: Level 1, Level 2 and Level 3. Level 1 inputs are quoted prices in an active market for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. All of International Paper’s fair value measurements use Level 2 inputs. The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:

(b)	Includes $2 million recorded in Other current assets, $3 million recorded in Accounts and notes receivable, net and $22 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

The following table provides the change in Accumulated other comprehensive income, net of tax, related to derivative instruments:

International Paper evaluates credit risk by monitoring its exposure with each counterparty to ensure that exposure stays within acceptable policy limits. Credit risk is also mitigated by contractual provisions with the majority of our banks. Most of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. Based on the Company’s current credit rating, the collateral threshold is generally $10 million. If the lower of the Company’s credit rating by Moody’s or S&P were to drop below investment grade, the Company would be required to post collateral for all derivatives in a net liability position, although no derivatives would terminate. The fair values of derivative instruments containing credit-risk-related contingent features in a net liability position were $118 million as of March 31, 2009 and $109 million as of December 31, 2008. In addition, existing derivative contracts provide for netting across all derivative positions in the event a counterparty defaults on a payment obligation. International Paper currently does not expect any of the counterparties to default on their obligations.

International Paper maintains pension plans that provide retirement benefits to substantially all salaried U.S. employees hired prior to July 1, 2004 and substantially all hourly and union employees regardless of hire date. 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 these pension plans, receive an additional company contribution to their individual savings plans.

The pension 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 1516 to the financial statements included in International Paper’s ~~2007~~2008 10-K.

Net periodic pension expense for 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*	2008			2007			2008			2007			2009			2008
Service cost	$	28		$	28		$	76		$	85		$	31		$	25
Interest cost		135			130			404			390			137			133
Expected return on plan assets		(168	)		(158	)		(503	)		(475	)		(158	)		(167	)
Actuarial loss		30			48			90			143			44			30
Amortization of prior service cost		7			5			22			15			7			7

Net periodic pension expense (a)	$	32		$	53		$	89		$	158		$	61		$	28

The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flows generated by the Company, and other factors. The Company has no obligation to fund its domestic qualified plan in ~~2008.~~2009. The Company continually reassesses the amount and timing of any discretionary contributions. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$21~~$7 million through ~~September 30, 2008.~~March 31, 2009.

International Paper has a Long-Term Incentive Compensation Plan (LTICP) that includes a performance share program, a service-based restricted stock award program, an executive continuity award program that provides for tandem grants of restricted stock and stock options, and a stock option program that has been discontinued as described below. The LTICP is administered by the Management Development and Compensation Committee of the Board of Directors (the Committee). Non-employee directors are not eligible for awards under the LTICP. A detailed discussion of these plans is presented in Note 1718 to the ~~Financial Statements~~financial statements included in International Paper’s ~~2007~~2008 10-K. As of ~~September 30, 2008, 27.4~~March 31, 2009, 26.8 million shares were available for grant under the LTICP.

Total stock-based compensation cost recognized in Selling and administrative expenses in the accompanying consolidated statement of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ was ~~$83~~$17 million and ~~$94~~$29 million, respectively. The actual tax deduction realized for stock-based compensation costs

related to non-qualified stock options was ~~$19,000~~$0 and ~~$15 million~~$19,000 for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively. The actual tax deduction realized for stock-based compensation costs related to restricted and performance shares was ~~$130~~$28 million and ~~$60~~$130 million for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively. At ~~September 30, 2008, $97~~March 31, 2009, $74 million, net of estimated forfeitures, of compensation cost related to unvested restricted performance shares, 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 ~~one year.~~1.5 years.

Under the Performance Share Program (PSP), contingent awards of International Paper common stock are granted by the Committee to approximately ~~900~~1,100 employees. Awards are earned based on the achievement of defined performance rankings of return on investment (ROI) and total shareholder return (TSR) compared to peer groups. Awards are weighted 75% for ROI and 25% for TSR for all participants except for officers 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, the 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.

PSP awards issued to certain members of senior management 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 other PSP awards.

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

The following summarizes the activity for PSP for the ~~nine~~three months ended ~~September 30, 2008:~~March 31, 2009:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2007	6,217,012		$	35.67
Outstanding at December 31, 2008					6,254,256		$	32.69
Granted	3,984,146			36.26	4,097,913			19.08
Shares Issued (a)	(3,585,430	)		41.65	(3,111,896	)		33.67
Forfeited	(262,354	)		34.64	(170,022	)		26.24

Outstanding at September 30, 2008	6,353,374		$	32.71
Outstanding at March 31, 2009					7,070,251		$	24.53

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.

A summary of option activity under the plan as of ~~September 30, 2008~~March 31, 2009 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 (millions)
Outstanding at December 31, 2007	28,013,735		$	39.81
Outstanding at December 31, 2008								25,093,122		$	39.68
Granted	—			—				—			—
Exercised	(14,800	)		31.55				—			—
Forfeited	(92,648	)		44.40				(52,433	)		43.34
Expired	(2,217,875	)		41.92				(1,363,910	)		41.24

Outstanding at September 30, 2008	25,688,412		$	39.62	3.90	$	—
Outstanding at March 31, 2009								23,676,779		$	39.58	3.5	$	—

All options were fully vested and exercisable as of ~~September 30, 2008.~~March 31, 2009.

The following summarizes the activity of the Executive Continuity and Restricted Stock Award Program for the ~~nine~~three months ended ~~September 30, 2008:~~March 31, 2009:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2007	122,625		$	37.18
Outstanding at December 31, 2008					102,000	$	35.11
Granted	18,000			28.34	5,000		11.80
Shares Issued	(28,625	)		38.80	—		—
Forfeited	(3,000	)		33.70	—		—

Outstanding at September 30, 2008	109,000		$	35.39
Outstanding at March 31, 2009					107,000	$	34.03

On May 4, 2009, the Company announced that it had priced $1.0 billion of 9.35% senior unsecured notes due in 2019. The Company intends to use the net proceeds from the sale of the notes primarily to repay and extend the maturities of other long-term debt.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2008			2007			2008			2007			2009			2008
Industrial Packaging													$	2,180		$	1,445
Printing Papers	$	1,800		$	1,660		$	5,305		$	4,810			1,325			1,715
Industrial Packaging		2,320			1,305			5,235			3,855
Consumer Packaging		830			775			2,395			2,235			715			770
Distribution		2,075			1,880			6,030			5,275			1,590			1,985
Forest Products		55			120			135			295			5			25
Other Businesses (6)		—			—			—			135
Corporate and Inter-segment Sales		(272	)		(199	)		(817	)		(556	)		(147	)		(272	)

Net Sales	$	6,808		$	5,541		$	18,283		$	16,049		$	5,668		$	5,668


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2008			2007 (2)			2008			2007 (2)			2009			2008
Industrial Packaging													$	360	(2,3)	$	97
Printing Papers	$	103	(3)	$	241		$	514	(3)	$	596			312	(2,4)		185
Industrial Packaging		95	(4)		84			279	(4)		265
Consumer Packaging		(2	)(5)		27			20	(5)		97			112	(2,5)		9	(5)
Distribution		35			30			77			80			(7	)		16
Forest Products		305			96			371			287			2			25
Other Businesses (6)		—			—			—			6

Operating Profit (1)		536			478			1,261			1,331			779			332
Interest expense, net		(144	)		(77	)		(306	)		(218	)		(164	)		(81	)
Minority interest/equity earnings adjustment (7)		(1	)		4			11			15
Noncontrolling interest/equity earnings adjustment (6)														6			4
Corporate items, net		(40	)		(56	)		(82	)		(150	)		(51	)		(21	)
Restructuring and other charges		(89	)		(42	)		(126	)		(86	)		(52	)		(37	)
Sale of forestlands		3			9			6			9
Net (gains) losses on sales and impairments of businesses		—			(1	)		1			314			—			1

Earnings from continuing operations before income taxes, equity earnings and minority interest	$	265		$	315		$	765		$	1,215
Earnings from continuing operations before income taxes and equity earnings													$	518		$	198

Equity earnings, net of taxes – Ilim Holding S.A. (1)	$	5		$	—		$	54		$	—		$	(26	)	$	17


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended March 31,
*In thousands of short tons*	2008	2007	2008	2007	2009	2008
Industrial Packaging
Corrugated Packaging (3)					1,776	882
Containerboard (3)					471	506
Recycling (3)					595	—
Saturated Kraft					21	46
Bleached Kraft					13	19
European Industrial Packaging					270	295
Asia Industrial Packaging					88	138

Industrial Packaging					3,234	1,886

Printing Papers
U.S. Uncoated Papers	875	940	2,653	2,871	693	910
European and Russian Uncoated Papers	355	351	1,101	1,081	370	373
Brazilian Uncoated Papers	217	225	638	567	180	210
Asian Uncoated Papers	6	6	21	18	3	8

Uncoated Papers	1,453	1,522	4,413	4,537	1,246	1,501

Market Pulp (3)	448	348	1,218	1,020

Industrial Packaging
Corrugated Packaging (4)	1,641	896	3,419	2,683
Containerboard (4)	686	466	1,686	1,315
Recycling (4)	397	—	397	—
Saturated Kraft	45	42	130	124
Bleached Kraft	24	19	65	53
European Industrial Packaging	261	274	844	879
Asia Industrial Packaging	154	116	443	329

Industrial Packaging	3,208	1,813	6,984	5,383
Market Pulp (4)					317	354

Consumer Packaging
U.S. Coated Paperboard	403	413	1,202	1,200	290	400
European Coated Paperboard	81	79	235	238	87	81
Asia Coated Paperboard	138	127	386	371	189	125
Other Consumer Packaging	48	42	136	125	46	41

Consumer Packaging	670	661	1,959	1,934	612	647

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

Despite difficult ~~market~~economic conditions during the 2009 first quarter, International Paper ~~delivered~~Company posted solid operating ~~results in~~results. Sales volumes declined compared with the 2008 ~~third quarter. The Company achieved improvements in~~fourth quarter as we continued to match our production to customer orders while controlling our inventory levels. Our manufacturing operations ran very efficiently, and we realized more than $30 million of overhead cost savings. While average price realizations ~~for most major products; however this favorable effect was offset by higher~~declined modestly, input costs for ~~wood,~~raw materials and energy and ~~chemicals and higher~~ freight ~~costs. Results~~costs were also ~~benefited from reduced~~lower. We generated solid operating ~~costs, contributions from our global operations and the addition of the containerboard, packaging and recycling business acquired on August 4, 2008 from Weyerhaeuser Company. Finally,~~ cash ~~provided~~flow, enabling us to reduce debt balances by ~~operations increased significantly to nearly $950~~$550 million ~~well above the $250 million used for capital expenditures~~ during the ~~quarter.~~quarter, and an additional $390 million in April.

Looking ahead to the ~~2008 fourth~~second quarter, the recent decline in economic conditions, weakness in global financial markets, and global currency fluctuations have created difficult fourth-quarter market conditions. Average price realizations should improve for uncoated freesheet, containerboard, corrugated boxes and coated paperboard products in North America as we continue to realize announced price increases. Price realizations in Brazil for uncoated freesheet should also move higher, but prices in Europe are expected to be about flat. Global market prices for pulp, however, are expectedexpect to continue to ~~decline.~~face a challenging economic environment. Demand for ~~paper~~packaging, printing papers and ~~packaging products in North America, and for~~ market pulp ~~globally, weakened sharply toward the end of the third quarter,~~improved slightly in early April, although it is unclear if this improvement will prove to be sustainable. Costs for fiber, energy, chemicals and ~~are expected~~freight should continue to ~~remain weak during the fourth quarter. Printing papers demand is expected to remain stable in Brazil. While prices for natural gas, electricity and fuel oil have declined, prices for other input~~decline. Maintenance outage costs ~~are expected to remain high or to~~will increase ~~with no significant decrease in total input costs expected~~significantly in the ~~fourth quarter.~~

Insecond quarter reflecting a seasonal increase in planned maintenance activity, although manufacturing operations should remain strong. Equity earnings from our Ilim joint venture in Russia will be below first-quarter levels, principally due to larger unfavorable U.S. dollar debt currency remeasurement charges. Thus, in summary, we expect that operating ~~profits~~earnings for the ~~fourth~~second quarter will be less than third-quarter earnings, with the amount of the decline dependent upon global economic activity and its impact on demand for our major products as we continue to manage our production to meet our customers’ needs and to maximize cash flow.below first-quarter levels.

For the ~~third~~first quarter of ~~2008,~~2009, International Paper Company reported net sales of ~~$6.8~~$5.7 billion, compared with ~~$5.5~~$5.7 billion in the ~~third~~first quarter of ~~2007~~2008 and ~~$5.8~~$6.5 billion in the ~~second~~fourth quarter of 2008.

Net earnings attributable to International Paper totaled ~~$149~~$257 million, or ~~$0.35~~$0.61 per share, in the ~~2008 third~~2009 first quarter. This compared with earnings of ~~$217~~$133 million, or ~~$0.51~~$0.31 per share, in the ~~third~~first quarter of ~~2007~~2008 and ~~earnings~~a loss of ~~$227 million,~~$1.8 billion, or ~~$0.54~~$4.25 per share, in the ~~second~~fourth quarter of 2008.

Earnings from continuing operations attributable to International Paper Company (excluding noncontrolling interests) were ~~$149~~$257 million in the ~~third~~first quarter of 2009 compared with $150 million in the first quarter of 2008 ~~compared with $220 million in the third quarter~~and a loss of ~~2007 and $228 million~~$1.8 billion in the 2008 ~~second~~fourth quarter. Compared with the ~~third~~first quarter of ~~2007,~~2008, earnings in the ~~2008 third~~2009 first quarter benefited from higher average price realizations ($~~118~~37 million), ~~higher sales volumes ($52 million), including sales~~earnings from the ~~former Weyerhaeuser Company~~ CBPR business acquired in the 2008 third quarter ($81 million), and lower operating costs and a more favorable mix of products sold ($~~72 million), higher earnings from land and mineral rights sales ($149 million), and slightly lower corporate items and other costs ($3~~131 million). These benefits were offset by lower sales volumes and higher lack-of-order downtime ($219 million), higher mill outage costs ($814 million), ~~significantly~~ higher raw material and freight costs ($~~204~~19 million), lower earnings from land sales ($16 million), higher net interest expense ($56 million), higher corporate items and other costs ($21 million), and a higher income tax provision ($202 million) reflecting a higher estimated effective tax rate in 2008, and higher net interest expense ($48 million). Costs associated with the extended shutdown of the Vicksburg mill caused by a recovery boiler explosion during the second quarter also reduced earnings ($6 million). The 2008 third-quarter results included equity2009. Equity earnings, net of taxes, relating to International Paper’s investment in Ilim Holding S.A. ~~($5 million). Additionally, net~~were $43 million lower in the 2009 first quarter than in the 2008 first quarter. Net special items were a ~~loss~~gain of ~~$207~~$223 million in the ~~2008 third~~2009 first quarter, reflecting a $330 million after-tax gain from alternative fuel mixture credits, versus a loss of ~~$23~~$25 million in the ~~third~~first quarter of ~~2007.~~2008.

Compared with the ~~second~~fourth quarter of 2008, earnings from continuing operations benefited from higher average price realizations ($41 million), higher sales volumes ($45 million), including sales from the CBPR business acquired in the 2008 third quarter, higher earnings from land and mineral sales ($176 million), and lower ~~mill outage costs ($16 million). These benefits were partially offset by higher~~ manufacturing costs ($764 million)~~, higher~~ and lower raw material and freight costs ($6795 million). These benefits were more than offset by lower average price realizations ($18 million), lower sales volumes and higher lack-of-order downtime ($93 million), lower earnings from land sales ($28 million), higher mill outage costs ($15 million), increased corporate items and other costs ($1420 million)., and a higher income tax provision ($9 million) reflecting a higher estimated effective tax rate in 2009. Net interest expense ~~increased~~decreased ($4420 million). ~~Earnings were positively impacted by lower costs associated with~~Fourth-quarter 2008 earnings included income of approximately $26 million after taxes related to the ~~extended shutdown of~~final

insurance settlement for the Vicksburg mill ~~($2 million).~~recovery boiler explosion. Equity earnings, net of taxes, for Ilim Holding S.A. decreased by ~~$27~~$26 million versus the ~~second~~fourth quarter. Net special items were a ~~loss~~gain of ~~$207~~$223 million in the ~~2008 third~~2009 first quarter versus a loss of ~~$7 million~~$1.9 billion in the ~~second~~fourth quarter of ~~2008.~~2008, which included a $1.8 billion goodwill impairment charge.

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 equity earnings and ~~minority interest~~noncontrolling interests net of taxes, 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.

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


	Three Months Ended									Three Months Ended
	September 30,						June 30, 2008			March 31,						December 31, 2008
*In millions*	2008			2007			June 30, 2008			2009			2008			December 31, 2008
Net Earnings	$	149		$	217		$	227
Net Earnings (Loss) Attributable to International Paper Company										$	257		$	133		$	(1,791	)
Deduct – Discontinued operations:
Losses from operations		—			3			—
Earnings (loss) from operations											—			1			(5	)
Loss on sales or impairments		—			—			1			—			16			—

Earnings From Continuing Operations		149			220			228
Earnings (Loss) From Continuing Operations Attributable to International Paper Company											257			150			(1,796	)
Add back (deduct):
Income tax provision		118			89			97
Income tax provision (benefit)											230			59			(112	)
Equity earnings, net of taxes		(5	)		—			(30	)		27			(16	)		2
Minority interest expense, net of taxes		3			6			7
Noncontrolling interests, net of taxes											4			5			(12	)

Earnings From Continuing Operations Before Income Taxes, Equity Earnings and Minority Interest		265			315			302
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings											518			198			(1,918	)
Interest expense, net		144			77			81			164			81			186
Minority interest / equity earnings included in operations		1			(4	)		(8	)
Noncontrolling interests / equity earnings included in operations											(6	)		(4	)		13
Corporate items		40			56			21			51			21			21
Special items:
Restructuring and other charges		89			42			—			52			37			53
Sale of forestlands		(3	)		(9	)		(3	)
Net losses on sales and impairments of businesses		—			1			—
Impairments of goodwill											—			—			1,777
Net gains on sales and impairments of businesses											—			(1	)		—

	$	536		$	478		$	393		$	779		$	332		$	132

Industry Segment Operating Profit
Industrial Packaging										$	360		$	97		$	111
Printing Papers	$	103		$	241		$	226			312			185			(40	)
Industrial Packaging		95			84			87
Consumer Packaging		(2	)		27			13			112			9			(3	)
Distribution		35			30			26			(7	)		16			26
Forest Products		305			96			41			2			25			38

Total Industry Segment Operating Profit (1)	$	536		$	478		$	393		$	779		$	332		$	132

Industry segment operating profits of ~~$536~~$779 million in the ~~third~~2009 first quarter were higher than both the ~~$478 million in the 2007 third quarter and the $393~~$332 million in the 2008 ~~second~~first quarter and the $132 million in the 2008 fourth quarter. Compared with the ~~third~~first quarter of ~~2007,~~2008, earnings in the current quarter benefited from significantly higher average price realizations ($~~166~~54 million), ~~higher sales volumes ($73 million), including sales~~earnings from the CBPR business acquired in the 2008 third quarter ($119 million) and lower operating costs and a more favorable mix of products sold ($~~101 million), and higher gains from land and mineral sales ($209~~192 million). These benefits were ~~partially~~ offset by lower sales volumes and increased lack-of-order downtime ($320 million), higher mill outage costs ($1120 million), ~~significantly~~ higher raw material and freight costs ($~~286~~28 million), lower gains from land sales ($23 million), and higher corporate items and other costs ($~~12 million). Costs associated with the extended shutdown of the Vicksburg mill caused by a recovery boiler explosion during the second quarter also reduced earnings ($9~~5 million). Special items consisted of a gain of $473 million in the 2009 first quarter, including a pre-tax gain of $540 million from alternative fuel mixture credits, compared with a loss of ~~$173~~$5 million in the 2008 ~~third~~first quarter.

Compared with the 2008 ~~second~~fourth quarter, operating profits benefited from ~~higher average price realizations ($60 million), higher sales volumes ($67 million), including sales from the CBPR business acquired in the 2008 third quarter, significantly~~ lower ~~mill outage~~manufacturing costs ($2383 million), and ~~higher gains from land~~lower raw material and ~~mineral sales~~freight costs ($~~261~~124 million). These benefits were offset by lower average price realizations ($24 million), lower sales volumes and increased lack-of-order downtime ($121 million), higher ~~manufacturing~~mill outage costs ($1120 million), and ~~higher raw material and freight costs~~lower gains from land sales ($9936 million). Corporate items and

other costs ~~increased~~decreased ($19 million). ~~Profits were also positively impacted by lower costs associated with~~Fourth-quarter 2008 earnings included income of approximately $33 million related to the ~~extended shutdown of~~final insurance settlement for the Vicksburg mill ~~($3 million).~~recovery boiler explosion. Special items consisted of a ~~loss~~gain of ~~$173~~$473 million in the ~~2008 third~~2009 first quarter versus a loss of ~~$13~~$192 million in the ~~second~~fourth quarter of 2008.

During the ~~2008 third~~2009 first quarter, International Paper took approximately ~~315,000~~1,220,000 tons of downtime, including ~~35,000~~1,075,000 tons that were market-related, compared with approximately ~~105,000~~120,000 tons of downtime in the ~~third~~first quarter of ~~2007,~~2008, which included ~~7,000~~17,000 tons of market-related downtime. During the 2008 ~~second~~fourth quarter, International Paper took approximately ~~270,000~~1,080,000 tons of downtime, including ~~2,000~~998,000 tons that were market-related. 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.

During the first quarter of 2008, the Company recorded a pre-tax charge of $25 million ($16 million after taxes) related to the final settlement of a post-closing adjustment of the purchase price received by the Company for the sale of its Beverage Packaging business, ~~(see Note 9),~~ and a $2 million charge before taxes ($1 million after taxes) for operating losses related to certain wood products facilities.

~~During the third quarter of 2007, the Company completed the sale of the remainder of its non-U.S. Beverage Packaging business.~~

The income tax provision was ~~$118~~$230 million for the ~~2008 third~~2009 first quarter. Excluding a ~~$52~~$14 million ~~benefit~~expense attributable to an adjustment of deferred income taxes relating to incentive compensation payments, a $6 million expense relating to recent state income tax legislative changes and an expense of $178 million relating to the tax effects of special items, the effective income tax rate for continuing operations was ~~32.5%~~33% for the quarter.

In the 2008 ~~second~~fourth quarter ~~the~~there was an income tax ~~provision was $97~~benefit of $112 million. Excluding a $3$40 million benefit relating to the restructuring of the Company’s international operations and a benefit of $96 million relating to the tax effects of special items, the effective tax rate for continuing operations was ~~32.5%~~23% for the quarter.

The income tax provision totaled ~~$89~~$59 million in the ~~2007 third~~2008 first quarter. Excluding ~~an $11~~a $16 million benefit related to the tax effects of special items, the effective income tax rate for continuing operations before special items was ~~29%~~31.5%.

Net interest expense for the ~~third~~2009 first quarter ~~of 2008~~ was ~~$144~~$164 million compared with $186 million for the 2008 fourth quarter and $81 million for the ~~second quarter of~~ 2008 ~~and $77 million for~~first quarter. The higher net expense compared with the ~~2007 third quarter, reflecting~~prior year reflects the issuance of $6 billion of debt, mainly in connection with the acquisition of the CBPR business.

Corporate items, net, were $40 million in the third quarter of 2008 compared with $21 million in the second quarter of 2008 and $56 million in the third quarter of 2007. Compared with the prior quarter, the higher costs reflect a $10 million settlement of a multi-employer pension fund liability and an $11 million gain in the second quarter resulting from the sale of the former Natchez, MS mill site. The decrease compared with the ~~comparable prior-year~~2008 fourth quarter ~~primarily~~ reflects ~~lower~~repayments of debt during the last two quarters.

Corporate items, net, of $51 million in the 2009 first quarter were higher than the $21 million of net expense in both the 2008 fourth quarter and 2008 first quarter due to increased 2009 pension ~~costs.~~

expenses. Overhead charges allocated to industry segments in the ~~third~~first quarter of ~~2008~~2009 were ~~$28~~$23 million higher than in the ~~second~~fourth quarter of 2008 reflecting higher ~~incentive~~benefit-related costs, partially offset by lower inventory-related and workers’ compensation ~~and inventory-related~~ costs. Overhead charges allocated to industry segments in the ~~third~~first quarter of ~~2008~~2009 were ~~$28~~$18 million lower than in the ~~2007 third~~first quarter ~~primarily~~of 2008 due to lower ~~benefits-related costs and gains on natural gas hedges.~~inventory-related costs.

During the ~~third~~first quarter of ~~2008,~~2009, restructuring and other charges totaling ~~$97~~$83 million before taxes ($6065 million after taxes) were recorded, including ~~$35~~a $52 million charge before taxes ($2232 million after taxes) for ~~adjustments to legal reserves, $53~~severance and benefits associated with the Company’s 2008 overhead reduction program, a $23 million charge before taxes ($3328 million after taxes) ~~to write-off supply chain initiative development~~for closure costs ~~for U.S. container operations that will not be implemented due~~related to the ~~CBPR acquisition, $8~~Inverurie mill in Scotland, a $6 million charge before taxes ($54 million after taxes) related to the shutdown of certain operations at the Franklin, Virginia mill, and a $2 million charge before taxes ($1 million after taxes) for costs associated with the reorganization of the Company’s Shorewood ~~operations in Canada, and $1~~Packaging operations. Additionally, a $20 million ~~($0 million after taxes)~~charge was recorded for ~~severance costs associated with the Company’s Transformation Plan.~~certain tax adjustments
(see Note 10).

~~During the second quarter of~~ 2008 restructuring and other charges totaling $13 million before taxes ($9 million after taxes) were recorded related to the reorganization of the Company’s Shorewood operations in Canada, including $10 million before taxes ($7 million after taxes) of severance charges and $3 million before taxes ($2 million after taxes) of accelerated depreciation expense for long-lived assets being removed from service.:

During the first quarter of 2008, restructuring and other charges totaling $42 million before taxes ($26 million after taxes) were recorded, including a $40 million charge before taxes ($25 million after taxes) for adjustments of legal reserves, a $5 million charge before taxes ($3 million after taxes) related to the reorganization of the Company’s Shorewood operations in Canada and a $3 million credit before taxes ($2 million after taxes) for adjustments to previously recorded reserves associated with the Company’s organizational restructuring programs.

During the first quarter of 2008, a $1 million pre-tax credit ($1 million after taxes) was recorded to adjust previously estimated gains/losses of businesses previously sold.

~~During the third quarter of 2007, a pre-tax charge of $1 million ($1 million credit after taxes) was recorded to adjust previously estimated losses on businesses previously sold.~~

~~In addition, during the first quarter of 2007, 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 $205 million pre-tax gain ($164 million after taxes) on the exchange for the Luiz Antonio mill in Brazil (see Note 4), in Net losses (gains) on sales and impairments of businesses in the accompanying consolidated statement of operations.

The following presents business segment discussions for the first ~~nine months of 2008.~~

~~Printing Papers net sales for the third~~ quarter of 2008 were 1% higher than the second quarter of 2008 and 8% higher than the third quarter of 2007. Operating profits in the third quarter of 2008 were 54% lower than the second quarter of 2008, and 57% lower than the third quarter of 2007. Operating profits for the third quarter of 2008 included a $107 million impairment charge to write down the assets of a mill in Europe to estimated fair value.

~~North American Printing Papers~~net sales were $905 million in the third quarter of 2008 compared with $880 million in the second quarter of 2008 and $870 million in the third quarter of 2007. Operating earnings were $131 million in the third quarter of 2008 compared with $125 million in the second quarter of 2008 and $135 million in the third quarter of 2007.

Average sales prices for uncoated freesheet were significantly higher than the second quarter, due to price increases during the period. However, this favorable pricing impact was largely offset by higher input costs for wood, energy and chemicals and higher freight costs. Sales volumes were slightly higher than in the second quarter. Mill operations improved further from a strong second quarter, resulting in favorable operating costs. In addition, planned maintenance downtime costs were about $9 million lower than in the second quarter reflecting third-quarter outages at only three mills compared with four in the prior quarter.

Compared with the third quarter of 2007, average sales price realizations were up significantly in the third quarter of 2008 reflecting the realization of price increases implemented in the second half of 2007 and in the first three quarters of 2008. However, these improvements were largely offset by significantly higher input costs for wood, energy and chemicals and increased transportation expenses. Sales volumes were lower in the third quarter of 2008 as production was kept in balance with customer demand, including the conversions of the uncoated freesheet machine at the Pensacola, Florida mill to linerboard production in the summer of 2007 and the Bastrop, Louisiana mill to 100% pulp production in June 2008. Manufacturing costs improved reflecting these conversions. Planned maintenance downtime costs were $13 million higher in the current quarter, with outages at three mills versus one in the 2007 third quarter.

Looking ahead to the fourth quarter of 2008, average sales price realizations are expected to improve slightly, reflecting the full realization of third-quarter sales price increases. Sales volumes are expected to decline as we continue to balance production with our customers’ demand, reflecting overall slowdown in the economy. Although energy costs should be lower, costs for wood and chemicals are expected to continue to rise. Planned maintenance expenses will be lower in the fourth quarter as the majority of the 2008 planned outages have been completed.

~~European Printing Papers~~net sales were $425 million in the third quarter of 2008 compared with $445 million in the second quarter of 2008 and $370 million in the third quarter of 2007. Operating earnings in the third quarter of 2008 were a loss of $78 million (including an impairment charge of $107 million to write down the assets of the Inverurie, Scotland mill to estimated fair value) compared with earnings of $39 million in the second quarter of 2008 and $34 million in the third quarter of 2007.

Average sales price realizations in the third quarter of 2008 improved for uncoated freesheet paper in Russia and the UK, but declined for pulp compared with the second quarter of 2008. Sales volumes were lower due to decreased sales of uncoated freesheet paper in Western Europe. However, the earnings impact of this decline was partially offset by improved sales volumes in Russia at higher average margins. Manufacturing costs were higher during the quarter due to the annual maintenance outage at our Kwidzyn mill in Poland. Raw material costs were higher as lower wood costs in Russia only partially offset the effect of higher energy costs in the UK. Operating earnings were also lower due to unfavorable foreign exchange effects, particularly the impact caused by the strengthening of the Polish Zloty.

Compared with the third quarter of 2007, average sales price realizations were significantly higher. Sales volumes in the third quarter of 2008 declined slightly despite higher sales of uncoated freesheet in Russia and Central Europe and higher pulp sales from the new BCTMP facility in Svetogorsk. Manufacturing costs were favorable reflecting the timing of the annual maintenance outage at the Saillat mill in France. Input costs, however, were significantly higher for energy, wood and chemicals. Operating earnings were also lower due to unfavorable foreign exchange effects.

Entering the 2008 fourth quarter, sales volumes of uncoated freesheet paper are expected to increase seasonally, but sales of BCTMP will be lower reflecting weaker pulp demand. Average sales price realizations for uncoated freesheet papers should improve slightly due to the full implementation of the UK and Russian price increases, but pulp prices are expected to be significantly lower. Manufacturing costs will be favorable as there are no annual maintenance outages scheduled for the fourth quarter, but raw material costs are expected to continue to increase due to higher energy costs.

~~Brazilian Printing Papers~~net sales were $255 million in both the third and second quarters of 2008 compared with $250 million in the third quarter of 2007. Operating earnings in the third quarter of 2008 were $58 million compared with $51 million in the second quarter of 2008 and $54 million in the third quarter of 2007.

Average sales price realizations in the third quarter of 2008 were higher than in the second quarter of 2008 reflecting higher prices in both domestic and export markets. Sales volumes increased slightly due to stronger domestic cut-size paper sales and increased pulp shipments. Margins were positively affected by an increased proportion of higher-margin domestic sales. Input costs were higher reflecting a full-quarter impact of a 38% increase in natural gas prices at the end of the second quarter and increases in pulp and chemicals costs in the third quarter. Manufacturing costs were higher due to the planned pulp mill outage at the Luiz Antonio mill. Third-quarter results benefited from the 20% devaluation of the Brazilian Real toward the end of the quarter.

Compared with the third quarter of 2007, average sales price realizations increased reflecting higher prices in both domestic and export markets. Sales volumes were down slightly from last year for both pulp and paper reflecting reduced demand in export markets. Margins were positively impacted by an increased proportion of higher-margin domestic sales. Input costs were significantly higher, primarily for electricity, natural gas and chemicals. Manufacturing operating costs were higher as a result of the planned pulp mill outage at the Luiz Antonio mill.

Looking ahead to the fourth quarter, average sales price realizations are expected to continue to improve in both domestic and export markets with the full-quarter impact of third quarter price increases and the partial realization of an announced price increase on domestic cut-size and offset paper effective in November. Sales volumes should be seasonally higher for cut-size paper and pulp. Input costs are expected to be slightly higher reflecting the full-quarter impact of chemical cost increases.

~~Asian Printing Papers~~net sales were approximately $5 million for all periods presented. Operating earnings in the third quarter of 2008 were $1 million compared with breakeven for the second quarter of 2008 and the third quarter of 2007.

~~U.S. Market Pulp~~net sales were $210 million in the third quarter of 2008 compared with $205 million in the second quarter of 2008 and $165 million in the third quarter of 2007. Operating earnings were a loss of $9 million in the third quarter of 2008 compared with earnings of $11 million in the second quarter of 2008 and $18 million in the third quarter of 2007.

Sales volumes in the third quarter of 2008 were higher than in the second quarter of 2008 reflecting additional pulp production at the Louisiana mill which shifted to 100% pulp production in June 2008. However as demand weakened during the quarter, 17,000 tons of lack-of-order downtime was taken to balance inventory levels. Average sales price realizations for market pulp declined during the quarter, while fluff pulp prices were generally stable. Manufacturing costs were slightly higher, reflecting costs associated with the conversion of the Louisiana mill. Input costs for wood, energy and chemicals increased, and freight costs were also higher.

Compared with the third quarter of 2007, sales volumes were higher reflecting the increased pulp production at the Louisiana mill and the ramp-up of fluff pulp production at the Riegelwood mill. However, the lack-of-order downtime taken in the quarter partially offset these volume increases. Average sales price realizations were significantly higher reflecting sales price increases implemented during 2007 and in the first three quarters of 2008. Manufacturing operating costs increased reflecting the increased pulp production at the Louisiana mill. Wood, energy, chemicals and freight costs were also higher.

Entering the 2008 fourth quarter, weakening market demand for pulp is expected to result in further lack-of-order downtime to balance production with customer demand. Average sales prices for market pulp are expected to soften as slowing demand puts pressure on sales prices. Fluff pulp shipments are expected to decline, but average sales prices should remain at third-quarter levels. Planned mill maintenance downtime costs will be lower; however, input costs are expected to be higher than the third quarter, with the benefits of lower domestic energy prices being offset by higher wood and export freight costs.2009.


	2008						2007						2009		2008
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	2,320	$	1,470	$	5,235	$	1,305	$	1,315	$	3,855	$	2,180	$	1,445	$	2,455
Operating Profit		95		87		279		84		108		265		360		97		111

Industrial Packaging net sales for the ~~third~~first quarter of 2009 were 11% lower than in the fourth quarter of 2008 ~~were 58%~~and 51% higher than in the ~~second~~first quarter of 2008. Operating profits in the first quarter of 2009 included a gain of $208 million relating to alternative fuel mixture credits and $36 million for CBPR integration costs, while operating profits in the fourth quarter of 2008 included $34 million of CBPR integration and other closure costs. Excluding these items, operating profits in the first quarter of 2009 were 30% higher than in the fourth quarter of 2008 and ~~78%~~94% higher than in the ~~third~~first quarter of ~~2007. Operating~~2008. Sales and profits ~~in the third quarter of 2008 were 9% higher than in the second quarter of 2008, and 13% higher than the third quarter of 2007. Results~~ for the 2009 first quarter and 2008 ~~third~~fourth quarter include the operating results of the CBPR business acquired on August 4, 2008.

North American Industrial Packagingnet sales were $1.9 billion in the ~~third~~first quarter of ~~2008~~2009 compared with ~~$1.1~~$2.1 billion in the ~~second~~fourth quarter of 2008 and ~~$975 million~~$1.05 billion in the ~~third~~first quarter of ~~2007.~~2008. Operating earnings were ~~$82~~$347 million ($175 million excluding alternative fuel mixture credits and the CBPR integration costs) in the ~~third~~first quarter of ~~2008~~2009 compared with ~~$65~~$96 million ($130 million excluding CBPR integration and other closure costs) in the ~~second~~fourth quarter of 2008 and ~~$74~~$79 million in the ~~third~~first quarter of 2007. Sales and profits for the third quarter of 2008 include the operating results of the CBPR acquisition from the August 4 acquisition date. Operating profits also included a charge of $39 million related to the write-up of CBPR inventory to fair value and a charge of $19 million for CBPR integration costs, and $9 million of costs, net of insurance recoveries, related to the second-quarter Vicksburg recovery boiler explosion.2008.

Sales volumes in the ~~third~~first quarter of ~~2008~~2009 compared with the ~~second~~fourth quarter of 2008 were ~~slightly~~ lower asreflecting weaker customer ~~demand began to weaken late in the quarter.~~demand. Average sales price realizations ~~improved versus second-quarter levels reflecting~~for domestic and export containerboard declined. Average sales price realizations for boxes were higher than in the ~~partial realization of a $55 per ton containerboard price increase effective~~2008 fourth quarter although box prices began to decline during the quarter. Planned maintenance downtime costs were ~~lower than~~$23 million higher in the ~~second~~2009 first quarter ~~when significant maintenance projects were completed.~~with outages at the Mansfield and Savannah mills. Input costs for wood, recycled fiber, energy, wax and chemicals continued to ~~move substantially higher.~~decline. Freight costs also declined due to better utilization and lower fuel costs. Manufacturing costs were favorable reflecting the realization of CBPR acquisition synergies and cost control initiatives. The business took 730,000 tons of lack-of-order downtime in the first quarter of 2009 compared with 702,000 tons in the fourth quarter of 2008. Fourth-quarter 2008 results also included approximately $33 million of income related to the final insurance settlement for the Vicksburg mill recovery boiler explosion.

Compared with the ~~third~~first quarter of ~~2007,~~2008, excluding the ~~effects of~~added volumes from the CBPR acquisition, sales volumes for both containerboard and boxes were ~~about flat while box volumes declined.~~lower due to weaker customer demand. Average sales price realizations were significantly higher ~~due to~~reflecting sales price increases ~~implemented in late 2007 and~~during 2008. Manufacturing costs were significantly lower, particularly in the ~~2008 third quarter. However,~~box plants, reflecting the benefits of these price increases were more than offset by higher costs for wood, energy, and chemicals. Freight costs also increased significantly reflecting higher fuel costs. Costs associated with planned maintenancefrom cost control initiatives. There was no lack-of-order downtime ~~were $5 million lower than~~taken in the ~~third~~first quarter of ~~2007. Results~~2008 compared with the 730,000 tons taken in the ~~third quarter of 2007 had also included $23 million of expenses related to the conversion of the Pensacola mill to linerboard production.~~2009 first quarter.

Looking ahead to the ~~2008 fourth~~2009 second quarter, sales volumes are expected to ~~decline as weakening economic conditions cause customer box demand to soften, and containerboard production is balanced with customer orders. Average sales price realizations should~~ improve slightly for both containerboard and boxes, ~~with the full-quarter impact of price increases implemented in the third quarter.~~and lack-of-order downtime should be lower. Profit margins are expected to reflect continued pressures. Costs associated with planned maintenance outages should be ~~somewhat~~ higher in the ~~fourth~~second quarter with outages planned for ~~the Pensacola and Prattville~~five mills. Input costs are expected to ~~remain high in the fourth quarter as wood costs increase while recycled fiber costs moderate. Fourth-quarter results should benefit from the additional insurance recoveries related~~continue to ~~the Vicksburg recovery boiler explosion and the start-up of the mill .~~decline, principally for energy.

European Industrial Packagingnet sales were ~~$285~~$240 million in the ~~third~~first quarter of 2009 compared with $255 million in the fourth quarter of 2008 ~~compared with~~and $315 million in the ~~second~~first quarter of 2008. Operating earnings were $13 million in the first quarter of 2009 compared with $15 million in the fourth quarter of 2008 and ~~$265 million for the third quarter of 2007. Operating earnings were $11~~$18 million in the ~~third~~first quarter of 2008 compared with $20 million in the second quarter of 2008 and $10 million in the third quarter of 2007. The Company completed the purchase of the minority shares of its operations in Morocco during the 2007 third quarter.2008.

Sales volumes in the ~~third~~first quarter of ~~2008~~2009 were lower than in the ~~second~~fourth quarter of 2008 ~~principally~~ reflecting ~~a seasonal decline~~weaker demand in ~~demand~~packaging markets for ~~boxes in the fruit and vegetable markets and weaker~~ industrial ~~markets~~products throughout Europe. Sales margins improved as reductions in kraft and recycled containerboard costs were greater than the declines in box prices. Operating expenses were favorable reflecting ~~a larger proportion~~the benefits of ~~higher-margin sales in France. Box prices held generally steady during the quarter. Unfavorable~~cost reduction initiatives, but were partially offset by unfavorable operating ~~expenses reflected the planned annual maintenance outage~~costs at the Etienne mill. ~~Energy~~Input costs ~~were higher quarter over quarter.~~decreased slightly due to lower energy costs.

Compared with the ~~third~~2008 first quarter, ~~of 2007,~~ sales volumes in the ~~2008 third~~2009 first quarter were lower, reflecting athe weaker market for industrial ~~products throughout Europe, particularly in Spain and Italy, and lower~~packaging. Agricultural box sales ~~of banana boxes in Morocco.~~volumes were seasonally strong. Sales margins were higher ~~reflecting stronger pricing and declining~~as the result of lower costs for kraft and recycled ~~containerboard. These benefits~~containerboard combined with strong box prices. Input costs were ~~partially offset by higher energy and~~about flat, while operating ~~costs.~~costs were favorable.

Entering the ~~fourth~~second quarter, sales volumes are expected to be ~~higher reflecting~~about flat due to continued weakness in industrial markets and seasonally ~~stronger~~slower agricultural ~~markets for citrus fruits~~business in ~~Spain and~~ Morocco and ~~apples~~Spain, partially offset by additional fruit and ~~kiwi fruit~~vegetable box volume in ~~Italy, although industrial markets throughout Europe are expected to continue to remain weak.~~France. Sales margins are expected to reflect competitive pressure on box prices.

Asian Industrial Packagingnet sales were ~~$100~~$55 million in the ~~third~~first quarter of 2009 compared with $75 million in the fourth quarter of 2008 and $80 million in the first quarter of 2008. Operating earnings were about breakeven in all periods.

Printing Papers net sales for the first quarter of 2009 were 12% lower than in the fourth quarter of 2008 and 23% lower than in the first quarter of 2008. Operating profits in the first quarter of 2009 included a gain of $240 million relating to alternative fuel mixture credits and $29 million of facility closure costs, while operating profits in the fourth quarter of 2008 included $153 million of shutdown costs for the Louisiana mill and a paper machine at the Franklin mill. Excluding these items, operating profits in the first quarter of 2009 were 11% lower than in the fourth quarter of 2008 and 45% lower than in the first quarter of 2008.

North American Printing Papersnet sales were $705 million in the first quarter of 2009 compared with ~~$95~~$765 million in the fourth quarter of 2008 and $885 million in the first quarter of 2008. Operating earnings were $276 million ($84 million excluding alternative fuel mixture credits and facility closure costs) in the first quarter of 2009 compared with $43 million ($73 million excluding closure costs) in the fourth quarter of 2008 and $106 million in the first quarter of 2008.

Sales volumes in the first quarter of 2009 were lower than in the fourth quarter of 2008 reflecting weaker customer demand. The business took 152,000 tons of lack-of-order downtime in the first quarter compared with 127,000 tons in the fourth quarter. Average sales price realizations for uncoated freesheet paper declined moderately. Input costs for wood, energy and chemicals and freight costs were significantly lower. Planned maintenance downtime costs were about $6 million lower reflecting an outage at the Georgetown mill in the 2009 first quarter compared with three mills in the 2008 fourth quarter. Manufacturing operating costs were favorable due to the impact of cost reduction efforts and excellent machine performance.

Compared with the first quarter of 2008, average sales price realizations were up significantly in the first quarter of 2009, reflecting the realization of price increases implemented during 2008. Sales volumes, however, were significantly lower reflecting weak customer demand, the reduction in capacity resulting from the conversion of the Louisiana mill to pulp production in June 2008, and the shutdown of the Franklin paper machine. Lack-of-order downtime in the current quarter was higher than in the first quarter of 2008 when none was taken. Input costs were higher for wood and chemicals, partially offset by lower energy costs. Freight costs were also lower. Manufacturing costs were favorable reflecting cost reduction efforts, strong operations, and the absence of the higher-cost Louisiana mill. Planned maintenance downtime costs were $9 million lower in the current quarter, with an outage at one mill versus two in the 2008 first quarter.

Looking ahead to the second quarter of 2009, sales volumes are expected to be about flat. Input costs for wood, energy and chemicals are expected to continue to decrease. Planned maintenance expenses will be higher in the second quarter with planned outages at the Courtland, Franklin, Eastover and Riverdale mills.

European Printing Papersnet sales were $325 million in the first quarter of 2009 compared with $350 million in the fourth quarter of 2008 and ~~$65~~$435 million in the ~~third~~first quarter of 2008. Operating earnings in the first quarter of 2009 were $2 million ($25 million excluding expenses associated with the closure of the Inverurie, Scotland mill at the end of the quarter) compared with earnings of $36 million in the fourth quarter of 2008 and $42 million in the first quarter of 2008.

Sales volumes in the first quarter of 2009 were higher than in the fourth quarter of 2008 reflecting increased sales of uncoated freesheet paper, particularly in Russia, following a very weak fourth quarter. Average sales price realizations declined significantly across most of Western Europe but increased in the UK, Poland and Russia. Manufacturing costs were unfavorable, despite improved operating performance, as the Saillat mill in

France commenced an 18 month maintenance outage in late March. Energy costs were also higher, particularly in Poland. Foreign exchange movements during the quarter significantly improved the margins at the Kwidzyn mill in Poland but this was partially offset by higher foreign exchange translation losses on U.S. dollar-denominated loans at the Svetogorsk mill in Russia.

Compared with the 2008 first quarter, sales volumes in the 2009 first quarter were slightly lower due to reduced shipments from the Inverurie, Scotland mill, partially offset by higher uncoated freesheet paper shipments from the Svetogorsk mill in Russia to Western Europe. Average sales price realizations were significantly lower across most of Western Europe but remained higher in the UK, Poland and Russia due to local currency devaluations. The unfavorable impact of the start of the Saillat mill maintenance outage in late March was more than offset by improved operating performance. Input costs were unfavorable as higher energy costs in Poland and Russia and higher chemical costs in Russia more than offset significantly lower wood costs. Foreign exchange movements during the quarter significantly improved the margins at the Kwidzyn mill in Poland, but this was almost entirely offset by translation losses on the U.S. dollar loans at the Svetogorsk mill in Russia.

In the 2009 second quarter, sales volumes are expected to be lower than in the first quarter reflecting the closure of the Inverurie mill in Scotland and lower shipments from the Svetogorsk mill in Russia to Western Europe. Average sales price realizations are expected to continue to be under pressure in Western Europe but should improve in Russia. Planned maintenance downtime expenses are expected to be higher, but energy costs should decline due to seasonally lower tariffs and reduced consumption.

Brazilian Printing Papersnet sales were $170 million in the first quarter of 2009 compared with $215 million in the fourth quarter of 2008 and $225 million in the first quarter of 2008. Operating earnings in the first quarter of 2009 were $20 million compared with $44 million in the fourth quarter of 2008 and $33 million in the first quarter of 2008.

Average sales price realizations in the first quarter of 2009 were lower than in the fourth quarter of 2008 as higher prices in the domestic market were more than offset by lower prices in export markets, primarily Europe. Sales volumes decreased reflecting seasonally weaker uncoated freesheet paper demand in both the domestic and export markets. Average margins were negatively affected by an increased proportion of lower-margin export sales. Input costs were slightly favorable due to lower fuel oil and chemical costs. Planned maintenance downtime costs in the first quarter were higher than in the fourth quarter. Manufacturing operating costs were unfavorable reflecting costs associated with the start-up of a new paper machine at Tres Lagoas. Additionally, earnings were impacted by unfavorable foreign exchange effects.

Compared with the first quarter of 2008, sales volumes decreased reflecting weaker customer demand for uncoated freesheet paper. Average sales price realizations were higher in the domestic market, but were lower in export markets. Input costs for wood, energy and chemicals increased. Manufacturing operating costs were also higher due to the start-up of the Tres Lagoas paper machine.

Looking ahead to the second quarter of 2009, sales volumes are expected to improve reflecting seasonally stronger customer demand for uncoated freesheet paper. Profit margins are expected to reflect continued competitive pressure on price realizations, offset by lower input costs for chemicals and energy. Planned maintenance outage expenses should also decline. Earnings are expected to be negatively affected by unfavorable foreign exchange rates.

Asian Printing Papersnet sales were minimal in the first quarter of 2009 compared with $5 million in both the fourth and first quarters of 2008. Operating earnings were about breakeven for all periods presented.

U.S. Market Pulpnet sales were $125 million in the first quarter of 2009 compared with $170 million in the fourth quarter of 2008 and $165 million in the first quarter of 2007. Operating earnings were $2$14 million (a loss of $28 million excluding alternative fuel mixture credits) in the first quarter of 2009 compared with a loss of $162 million (a loss of $39 million excluding costs associated with the shutdown of the Louisiana mill) in the fourth quarter of 2008 and earnings of $4 million in ~~both~~ the ~~third and second quarters~~first quarter of 2008.

Sales volumes in the first quarter of 2009 were slightly lower than in the fourth quarter of 2008 ~~up from about breakeven~~reflecting weaker customer demand. During the quarter, 48,000 tons of lack-of-order downtime was taken compared with 120,000 tons in the ~~third~~fourth quarter of ~~2007.~~

Compared with the first quarter of 2008, sales volumes were lower and lack-of-order downtime was higher due to weaker customer demand. Average sales price realizations were significantly lower as the decline in customer demand caused prices for market pulp and fluff pulp to fall. Manufacturing operating costs decreased and planned maintenance downtime costs were also lower. Higher wood and chemical costs were partially offset by lower energy costs, while freight costs increased slightly.

Entering the 2009 second quarter, sales volumes are expected to remain at about first-quarter levels as the Riegelwood mill continues to ramp up its production of fluff pulp. Costs associated with planned maintenance outages are expected to be less in the second quarter, while operating costs should remain flat. Input costs for wood, energy and chemicals and freight costs should be slightly favorable.


	2008							2007						2009		2008
*In millions*	3^rd Quarter			2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	830		$	795	$	2,395	$	775	$	745	$	2,235	$	715	$	770	$	800
Operating Profit		(2	)		13		20		27		30		97
Operating Profit (Loss)															112		9		(3	)

Consumer Packaging net sales for the ~~third~~first quarter of ~~2008~~2009 were ~~4% higher~~11% lower than in the ~~second~~fourth quarter of 2008, and 7% ~~higher~~lower than in the ~~third~~first quarter of ~~2007.~~2008. Operating profits in the ~~third~~first quarter of ~~2008 resulted in~~2009 included a ~~small loss compared~~gain of $92 million relating to alternative fuel mixture credits, and included costs associated with ~~earnings~~the reorganization of the Shorewood business of $2 million, $4 million and $5 million in the ~~second~~2009 first quarter, the 2008 fourth quarter and the 2008 first quarter, respectively. Excluding these items, operating profits in the first quarter of ~~2008~~2009 were higher than in both the fourth and ~~the third quarter~~first quarters of ~~2007.~~2008.

North American Consumer Packagingnet sales were ~~$645~~$530 million in the ~~third~~first quarter of ~~2008~~2009 compared with ~~$625~~$635 million in the ~~second~~fourth quarter of 2008 and ~~$620~~$600 million in the ~~third~~first quarter of ~~2007.~~2008. Operating earnings in the ~~third~~first quarter of ~~2008~~2009 were ~~a loss of $1~~$94 million ($4 million excluding the alternative fuel mixture credits and Shorewood reorganization costs) compared with ~~about breakeven~~$12 million ($16 million excluding Shorewood reorganization costs) in the ~~second~~fourth quarter of 2008 and a loss of $3 million (a gain of ~~$20~~$2 million excluding Shorewood reorganization costs) in the ~~third~~first quarter of ~~2007.~~2008.

Coated paperboard average sales ~~prices~~price realizations improved in the ~~third~~first quarter of 2009 compared with the fourth quarter of 2008 ~~compared with the second quarter of 2008 with the realization of~~reflecting price increases for cup stock, folding carton board and coated bristols. Sales volumes, ~~were up slightly as~~however, decreased for all product lines, and 127,000 tons of lack-of-order downtime was taken to balance supply with customer demand ~~remained steady.~~compared with 14,000 tons of lack-of-order downtime in the fourth quarter. Demand softened during the quarter reflecting a decline in consumer spending. Planned maintenance downtime costs were $2$10 million lower than in the ~~second~~previous quarter. Costs for wood, energy, and chemicals were ~~significantly higher~~lower than in the ~~second quarter. Manufacturing~~fourth quarter, while manufacturing operating costs were ~~also unfavorable.~~ about flat.

Compared with the ~~third~~first quarter of ~~2007,~~2008, average sales ~~prices~~price realizations were significantly higher ~~with~~reflecting the realization of price increases implemented ~~in late 2007~~during 2008. However, sales volumes decreased and inlack-of-order downtime increased reflecting weaker market conditions. Input costs were comparable to the first ~~three quarters~~quarter of ~~2008. Sales volumes were up slightly. However, input~~2008 as higher energy costs were ~~significantly higher, particularly~~largely offset by lower costs for ~~energy and chemicals,~~chemicals. Manufacturing operating costs were favorable while planned maintenance downtime expenses were about $3 million higher.

Shorewood sales volumes in the ~~third~~first quarter of ~~2008 increased~~2009 decreased from the ~~second~~fourth quarter of 2008 reflecting a seasonal ~~increase~~decline in demand in the home entertainment segment and ~~slightly~~weak general economic conditions, partially offset by higher shipments in the tobacco segment. Average margins ~~benefited from~~were lower as a ~~higher proportion~~result of lower sales volume in the higher-margin home entertainment ~~market.~~segment. Raw material costs in the first quarter of 2009 were ~~higher reflecting continuing~~about the same as in the fourth quarter of 2008, but the benefits from cost ~~increases for coated paperboard. Third quarter~~reduction initiatives had a favorable impact on earnings. First-quarter results included $8$2 million of expenses related to the reorganization of Shorewood’s ~~Canadian~~ operations versus ~~$13~~$4 million in the ~~second~~fourth quarter. Compared with the ~~third~~2008 first quarter, ~~of 2007,~~ sales volumes in the ~~third~~2009 first quarter ~~of 2008 were~~decreased slightly, reflecting lower ~~reflecting softer demand in the tobacco and display segments, partially offset by improvement~~shipments in the home entertainment ~~segment.~~and tobacco segments. Average sales margins improved ~~primarily~~reflecting a more favorable mix of products sold. Earnings also improved due to ~~an increase~~increased efficiencies from the business reorganization actions undertaken in ~~higher-margin products within the home entertainment segment. Results for the~~ 2008 third quarter included the $8 million charge related to the reorganization of the Canadian operations, while the third quarter of 2007 included $4 million of costs related to the closures of the Edison, NJ and ~~the Waterbury, CT plants.~~2009.

Foodservice sales volumes in the ~~third~~first quarter of ~~2008~~2009 were ~~seasonally~~ slightly lower than in the ~~second~~fourth quarter of ~~2008.~~2008 due to normal seasonal factors and the impact of the weak economy. Average margins improved as the result of higher contract price realizations coupled with stable board and lower resin costs. Operating costs were about flat. Compared with the first quarter of 2008, sales volumes in the 2009 first quarter decreased, while average margins increased reflecting improved average sales price realizations ~~improved with the full-quarter realization~~and a more favorable mix of ~~a second quarter price increase and contract price increases during the quarter. Converting operating costs were unfavorable due to increased waste and operating costs.~~products sold. Raw material costs were higher reflecting continued increases in board and resin costs. Compared with the third quarter of 2007, sales volumes in the 2008 third quarter increased, while average sales prices were also higher. However, raw material costs increasedlower, primarily for ~~board and~~ resins, ~~and freight~~but operating costs were ~~also~~ higher.

Looking ahead to the ~~fourth~~2009 second quarter, coated paperboard sales volumes ~~are expected~~should increase, although lack-of-order downtime will be taken as needed to ~~seasonally decrease. Average sales price realizations should continue to improve~~balance supply with ~~a full-quarter impact of price increases announced in the third quarter for folding carton board, cup stock and coated bristols.~~customer demand. Input costs are expected to ~~rise slightly as energy costs and chemical costs should moderate while wood costs continue to increase. Manufacturing costs are expected to reflect improved operations, but planned~~decrease. Planned maintenance ~~costs~~downtime will be higher in the second quarter with ~~outages planned~~downtime scheduled at three ~~mills compared with one mill in the third quarter.~~mills. Shorewood’s

sales volumes are expected to ~~be ahead of third quarter, but slightly behind prior year, due to softer tobacco segment demand, particularly in Asia.~~increase, reflecting higher home entertainment and consumer products shipments. Operating results should also improve inwith the ~~fourth quarter with seasonally stronger sales volumes in the home entertainment segment and significantly lower expenses related to the~~completion of Shorewood’s business reorganization ~~of the Canadian operations.~~initiatives. Foodservice operating results should benefit from seasonally higher sales volumes, the full-quarter realization of January sales price increases and a more favorable product ~~mix, although input~~mix. Input costs ~~for coated board~~ and ~~resin~~operating costs are expected to ~~continue to increase.~~remain about flat.

European Consumer Packagingnet sales were ~~$80~~$70 million in the ~~third~~first quarter of 2009 compared with $70 million in the fourth quarter of 2008 ~~compared with~~and $75 million in the ~~second~~first quarter of 2008. Operating earnings were $14 million in the first quarter of 2009 compared with $5 million in the fourth quarter of 2008 and ~~$70~~$9 million in the ~~third~~first quarter of ~~2007. Operating earnings were about breakeven in the third quarter of 2008 compared with $8 million in the second quarter of 2008 and $3 million in the third quarter of 2007.~~2008.

Sales volumes in the ~~third~~first quarter of 2009 were higher than the fourth quarter of 2008, ~~were higher than in the second quarter of 2008, and~~while average sales price realizations ~~improved.~~declined. Manufacturing costs were ~~significantly higher during the quarter due to expenses related to the annual maintenance outage at the Kwidzyn mill in Poland. Operating earnings were also~~favorable, reflecting strong operating performance and lower ~~due to unfavorable foreign exchange effects, particularly the impact caused by the strengthening of the Polish Zloty.~~lack-of-order downtime. Compared with the ~~third~~first quarter of ~~2007,~~2008, sales volumes ~~and average~~in the first quarter of 2009 were higher reflecting increased sales to export markets. Average sales price realizations ~~were higher,~~declined, due in part to the increase in lower-margin export sales, but ~~this benefit was more than offset by higher annual maintenance and raw material costs.~~ also due to lower sales prices in European domestic markets.

Operating results ~~for~~in the ~~2008 fourth~~2009 second quarter ~~should improve as there are no~~will reflect costs associated with the annual planned maintenance ~~outages scheduled.~~shutdown of the Svetogorsk mill.

Asian Consumer Packagingnet sales were ~~$105~~$115 million in the ~~third~~first quarter of ~~2008~~2009 compared with $95 million in both the ~~second~~fourth and first quarters of 2008. Operating earnings in the first quarter of 2009 were $4 million compared with a loss of $20 million in the fourth quarter of 2008 and ~~$85~~a gain of $3 million in the ~~third~~first quarter of ~~2007. Operating earnings in the third quarter of 2008 were a loss of $1 million compared with gains of $5 million in the second quarter of 2008 and $4 million in the third quarter of 2007.~~2008. Costs related to the start-up of the Shandong International Paper ~~and~~& Sun Coated Paperboard Co., Ltd. joint venture’s new folding box board paper machine and weaker demand in China led to the ~~earnings decrease.~~loss in the fourth quarter of 2008.


	2008						2007						2009			2008
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter			1^st Quarter		4^th Quarter
Sales	$	2,075	$	1,970	$	6,030	$	1,880	$	1,720	$	5,275	$	1,590		$	1,985	$	1,940
Operating Profit		35		26		77		30		30		80
Operating Profit (Loss)														(7	)		16		26

Distribution’s~~2008 second~~2009 first quarter sales were ~~5% higher~~18% lower than in the ~~second~~fourth quarter of 2008 ~~while~~and 20% lower than the first quarter of 2008. Weak U.S. economic conditions were the major factor in the decline in operating ~~profits increased 35%. Compared to the 2007 third quarter,~~profits.

~~While unit demand remained weak, third-quarter 2008 revenues~~ of ~~printing~~ papers and graphic arts supplies and equipment totaled ~~$1.4~~$1.0 billion ~~an increase from~~compared with $1.2 billion in the fourth quarter of 2008 and $1.3 billion in the ~~second quarter of~~ 2008 first quarter. First-quarter 2009 revenues reflect a decline in shipments to publishing and ~~$1.2 billion~~commercial printers corresponding to reduced published industry trade activity. Mill direct sales were down more than 20% compared with prior quarters while stock sales were also down significantly. Credit tightness, a reduction in ~~the 2007 third quarter due to price increases~~print advertising, and contributions from Central Lewmar sales in 2008. Print volumes improved over the second quarter. Publication printing activity (magazines, catalogs and books) continued to outpace commercial printing. Trade margins decreased as a result of changes in product mix in the third quarter 2008, but otherwise held firm as supplier cost increases were passed throughgeneral economic conditions all contributed to the ~~marketplace.~~reduction in demand.

Packaging sales were ~~$0.4 billion~~$300 million in the ~~third~~first quarter of ~~2008, up 6% versus the second quarter of 2008 and up 3% versus the third quarter of 2007. Trade margins for packaging products decreased~~2009 compared with $400 million in both the ~~second quarter~~fourth and first quarters of ~~2008 and third quarter of 2007 reflecting a change in product and service mix.~~

2008. Sales of facility supply products ~~were $0.3 billion~~totaled $250 million in the ~~second~~first quarter of ~~2008, up 9% versus~~2009, compared with $300 million in both the ~~second~~fourth and first quarters of 2008.

Operating results fell to a $7 million loss in the first quarter of 2009 compared with profit of $26 million in the fourth quarter of 2008 and 7% versus the third quarter of 2007. Strong re-distribution sales growth and national accounts activity led the improvement in this segment. However, trade margins for facility supplies were lower than the second quarter of 2008 and third quarter 2007 reflecting a less favorable product mix.

~~Operating profits totaled $35~~$16 million in the ~~third~~first quarter of ~~2008 compared with $26 million in the second quarter of 2008 and $30 million in the third quarter of 2007. Increased~~2008. Lower sales ~~and lower operating costs~~volumes were the ~~major factors~~principal cause of the earnings decline compared to both prior quarters. First-quarter 2009 earnings were also affected by lower prices, margin pressure and higher bad debt levels. Cost reduction efforts initiated in ~~the improvement over prior periods.~~2008 partially mitigated these unfavorable earnings effects.

Looking ahead to the ~~2008 fourth~~2009 second quarter, ~~revenue and earnings growth~~operating results are expected to ~~slow reflecting declining economic activity~~benefit from improved sales volumes and ~~seasonal patterns.~~continued benefits from cost reduction actions.


	2008						2007						2009		2008
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	55	$	55	$	135	$	120	$	90	$	295	$	5	$	25	$	65
Operating Profit		305		41		371		96		94		287		2		25		38

Forest Products ~~net~~sales and profits are driven by forestland sales, which can vary from quarter to quarter due to various factors. Net sales in the ~~third~~first quarter of 2009 were 92% lower than in the fourth quarter of 2008 and 80% lower than in the first quarter of 2008. Operating earnings in the first quarter of 2008 were ~~even with the second quarter of 2008, but 54%~~95% lower than in the ~~third quarter of 2007. Operating earnings in the second quarter of 2008 were significantly higher than in both the second~~fourth quarter of 2008 and ~~the third quarter of 2007.~~

~~Forest Products~~earnings from harvest and recreational income and the sales of mineral rights increased $266 million versus the second quarter, including $261 million from the sale of 13,000 net acres of subsurface mineral rights in Louisiana. Earnings from forestland sales in the third quarter of 2008 were $7 million92% lower than in the ~~second~~first quarter of ~~2008 due~~2008. Second quarter results are currently projected to be similar to the timing of the completion of sale transactions. Forestland operating expenses were $2 million lower, while profits from the sales of real estate properties increased $3 million. Compared with the 2007 third quarter, earnings from harvest and recreational income and sales of mineral rights increased $267 million, while earnings from forestland sales declined $60 million. Forestland operating expenses were $2 million lower than in the third quarter of 2007, while profits from sales of real estate properties were unchanged. Operating results in the 2008 fourth quarter are expected be significantly below third-quarter levels, reflecting lower earnings from forestland and mineral rights sales.

The Other Businesses segment principally included the operating results of Arizona Chemical, as well as certain smaller businesses. The Arizona Chemical business was sold in February 2007; and thus operating results in 2007 reflect only two months of activity.first quarter.

On October 5, 2007, International Paper and Ilim Holding S.A. ~~(“Ilim”)~~(Ilim) announced the completion of a 50:50 joint venture to operate in Russia. Due to the complex organizational structure of Ilim’s operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company ~~is reporting~~reports its share of Ilim’s operating results on a one-quarter lag basis. Accordingly, the accompanying consolidated statement of operations for the three months ended ~~September 30, 2008~~March 31, 2009 includes the Company’s 50% share of Ilim’s operating results for the three-month period ended ~~June 30,~~December 31, 2008 under the caption ~~“Equity~~Equity earnings, net of taxes.” Ilim is reported as a separate reportable industry segment.

The Company recorded an equity ~~earnings for Ilim,~~loss, net of taxes, of $5$26 million in the first quarter of 2009 compared with about breakeven results in the fourth quarter of 2008. Sales volumes in the fourth quarter of 2008 decreased compared with the third quarter of 2008, principally for market pulp, reflecting significantly weaker customer demand, particularly in markets in China. Sales price realizations decreased across all product lines, but most sharply for softwood and hardwood pulp. Input costs increased for wood, chemicals and energy. The business took 106,000 metric tons of lack-of-order downtime during the fourth quarter compared with ~~$32 million~~none in the ~~second~~third quarter. In addition, fourth-quarter results included a $19 million charge to write-off project development expenses and a $5 million provision for the write-down of assets. Additionally, foreign exchange losses on the remeasurement of U.S. dollar-denominated debt were $5 million higher compared with the third quarter of 2008. ~~Earnings~~

In the first quarter of 2008, the Company had recorded equity earnings, net of taxes, of $17 million related to operations in the fourth quarter of 2007. Sales volumes in the 2007 fourth quarter reflected strong customer demand for ~~the second quarter had~~both pulp and containerboard. Average sales price realizations were also strong for both Russian domestic and export sales. Equity earnings also included a ~~$14~~$4 million ~~after-tax~~ foreign exchange gain on the remeasurement of U.S. ~~dollar denominated~~dollar-denominated debt into Russian rubles and a $3$6 million ~~after-tax~~ charge to ~~write off a share repurchase option.~~write-up inventory to its fair value as of the acquisition date.

~~Compared with~~Looking ahead to the second quarter ~~sales volumes for paper were about flat, but were lower for pulp primarily due~~of 2009, demand in both the domestic and export markets is expected to ~~the reduced production volumes resulting from annual maintenance outages at the Bratsk and Ust-Ilimsk mills.~~remain weak, although lack-of-order downtime is expected to moderate slightly. Average sales price realizations improved for both domestic and export sales, but pulp prices declined late in the quarter. Input costs increased for wood, chemicals and energy. Distribution costs decreased slightly reflecting lower volumes, a more favorable geographical mix and the effect of supply chain initiatives. A small exchange loss and higher income tax expense also contributed to the earnings decrease.

~~For the 2008 third quarter to be reported in the Company’s fourth quarter, strong domestic market conditions~~ are expected to continue but demand in China will be reduced due to impacts from the Olympics. Production volume will be affected by a partial maintenance shutdown at the Kotlas mill. Average sales price realizations should remain solid, except for some expected price erosion for exported hardwood and softwood pulp. Input costs for wood, chemicals and energy are expected to remain ~~high. A large~~weak, especially in the Russian domestic market. The strengthening of the U.S. dollar versus the Russian ruble will result in an additional unfavorable foreign exchange ~~loss~~remeasurement impact on ~~remeasurement of U.S. dollar debt will also lead to lower overall results.~~earnings.

Cash provided by continuing operations totaled ~~$2.0 billion~~$794 million for the first ~~nine~~three months of ~~2008,~~2009, up from ~~$1.4 billion~~$434 million for the comparable ~~2007 nine-month~~2008 three-month period. Earnings from ~~continuing~~ operations adjusted for non-cash charges were ~~$1.7 billion~~$495 million for the first ~~nine~~three months of ~~2008~~2009 compared to ~~$1.8 billion~~$418 million for the first ~~nine~~three months of ~~2007.~~2008. Cash provided by working capital components totaled ~~$213~~$299 million for the first ~~nine~~three months of ~~2008,~~2009, up from ~~a use of $409~~$16 million for the comparable ~~2007 nine-month~~2008 three-month period.

Cash used for acquisitions for the first nine months of 2008 totaled $6.1 billion, including the acquisition of the assets of the CBPR business from Weyerhaeuser Company in the third quarter. Cash proceeds from divestitures totaled approximately $14 million for the first nine months of 2008, relating to the sales of certain remaining Wood Products facilities during the first quarter. Investments in capital projects totaled ~~$732~~$128 million in the first ~~nine~~three months of ~~2008~~2009 compared to ~~$804~~$215 million in the first ~~nine~~three months of ~~2007.~~2008. Full-year ~~2008~~2009 capital spending is currently expected to be approximately ~~$1.1 billion,~~$600 million, or about ~~80%~~40% of depreciation and amortization expense for our current businesses.

Financing activities for the first ~~nine~~three months of ~~2008~~2009 included a ~~$5.4 billion~~$550 million net ~~increase~~reduction in debt versus a ~~$513~~$57 million net ~~decrease~~increase during the comparable ~~2007 nine-month~~2008 three-month period.

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

In April 2009, subsequent to the end of the first quarter, International Paper repaid $313 million of the $2.5 billion long-term debt issued in connection with the CBPR business acquisition. The debt has an initial interest rate of LIBOR plus a margin of 162.5 basis ~~points. The margin~~points that can vary depending upon the credit rating of the Company. The debt requires quarterly principal payments ~~starting in the fourth quarter of 2008~~ and has a final maturity in August 2013. Debt issuance costs of approximately $50 million related to this borrowing were recorded in Deferred charges and other assets in the accompanying consolidated balance sheet and will be amortized over the term of the loan. Also in August 2008, International Paper borrowed approximately $395 million under its receivables securitization program. These funds, together with the $3 billion from unsecured senior notes borrowed in the second quarter discussed below and other available cash, were used for the CBPR business acquisition in August. A $500 million bridge loan that was available to fund the acquisition was not used by the Company and was cancelled upon the closing of the acquisition.

Also in the third quarter of 2008, International Paper repaid approximately $355 million it had borrowed under its receivables securitization program. The Company also repaid $125 million of the $2.5 billion long-term debt and repurchased $63.5 million of notes with interest rates ranging from 4.25% to 8.70% and original maturities from 2009 to 2038.

The Company also entered into a series of forward starting floating-to-fixed interest rate swap agreements with a notional amount of $1.5 billion in anticipation of borrowing against the $3 billion committed bank credit agreement for the purchase of the CBPR business. The floating-to-fixed interest rate swaps were effective September 2008 and mature in September 2010. These forward starting interest rate swaps are being accounted for as cash flow hedges in accordance with SFAS No. 133 as hedges of the benchmark interest rate of future interest payments related to any borrowing under the bank credit.

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

Also in the second quarter of 2008, International Paper entered into a series of fixed-to-floating interest rate swap agreements, with a notional amount of $1 billion and maturities in 2014 and 2018, to manage interest rate exposures associated with the new $3 billion of unsecured senior notes. These interest rate swaps are being accounted for as fair value hedges in accordance with SFAS No. 133.

~~In the second quarter of 2007, International Paper repurchased $35 million of 5.85% notes with an original maturity in October 2012.~~

~~In March 2007, International Paper Investments (Luxembourg) S.ar.l.,~~Additionally, IP Co Europe Ltd, a wholly-owned subsidiary of International Paper, repaid ~~$143~~$75 million of ~~long-term debt~~notes issued in connection with the investment in Ilim. These notes had an initial interest rate of LIBOR plus 40100 basis points and a maturity date in ~~November 2010. Other debt activity~~April 2009.

On May 4, 2009, the Company announced that it had priced $1.0 billion of 9.375% senior unsecured notes due in 2019. The Company intends to use the ~~first quarter included~~net proceeds from the ~~repayment~~sale of ~~$198 million~~the notes primarily to repay and extend the maturities of ~~7.625% notes that matured within the quarter.~~other long-term debt.

At ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007,~~2008, International Paper classified ~~$806~~$100 million and ~~$112~~$796 million, respectively, of ~~tenderable bonds,~~ commercial paper and bank notes and ~~current~~Current maturities of long-term debt as Long-term debt. International Paper has the intent and ability, as evidenced by its ~~contractually~~fully committed ~~$1.5 billion bank~~ credit ~~agreement,~~facility, to renew or convert these obligations.

During the first ~~nine~~three months of ~~2008,~~2009, International Paper issued approximately ~~2.4~~4.0 million shares of treasury stock for various incentive plans. Payments of restricted stock withholding taxes totaled $10 million. During the first three months of 2008, the Company issued approximately 2.5 million shares of treasury stock for various incentive plans, including stock option exercises that generated approximately $1 million of cash and restricted stock that did not generate cash. Payments of restricted stock withholding taxes totaled $47 million. During the first nine months of 2007, the Company purchased 30.6 million shares of its common stock through open market purchases for approximately $1.1 billion, and issued approximately 5.0 million shares of treasury stock for various incentive plans, including stock option exercises that generated approximately $122 million of cash and restricted stock that did not generate cash. Common stock dividend payments totaled ~~$321~~$108 million and ~~$330~~$112 million for the first ~~nine~~three months of ~~2008~~2009 and ~~2007,~~2008, respectively. Dividends were ~~$.75~~$0.25 per share for the first ~~nine~~three months in both ~~years.~~

~~Contractual obligations for payments of future debt maturities by calendar year at September 30, 2008 were as follows (in millions): $10~~2009 and 2008. In March 2009, the Company announced that the quarterly dividend would be reduced to $0.025 per share in ~~2008; $853 in 2009; $1,339 in 2010; $1,403 in 2011; $967 in 2012; $1,503 in 2013; and $5,959 thereafter.~~the 2009 second quarter.

At ~~September 30, 2008,~~March 31, 2009, International Paper had approximately $2.5 billion of committed liquidity facilities, including a $1.5 billion contractually committed bank credit agreement that expires in March 2011 and $1 billion of commercial paper-based financings based on eligible receivable balances ($870 million at March 31, 2009) under a receivables securitization ~~program that expires in October 2009. There were approximately $40 million of outstanding borrowings under~~program. On January 23, 2009, the Company amended the receivables securitization program ~~and no outstanding borrowings under~~to extend the ~~fully committed bank credit~~maturity date from October 2009 to January 2010. The amended agreement ~~at September 30, 2008.~~has a facility fee of 0.75% payable quarterly.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements through ~~2008~~2009 using existing cash balances plus cash from operations, supplemented as required by its existing credit facilities. Funding decisions will be guided by our capital structure planning and debt 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.

While the recent disruption in the credit market and increased risk associated with financial institutions has increased market volatility and the cost of credit, the Company does not believe that these conditions currently have had a significant impact on its liquidity. The Company believes it can borrow as needed on its committed credit and receivables securitization facilities.

The U.S. Internal Revenue Code provides a ~~$47 million investment~~tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in ~~a money market fund that~~the mixture, is ~~currently being liquidated. As a result of~~refundable to the ~~liquidation process, the timing of redemptions from the fund is uncertain, but~~taxpayer. In January 2009, the Company ~~does not expect~~received notification that its application to be registered as an alternative fuel mixer had been approved. During the ~~liquidation~~2009 first quarter, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to ~~have a material impact on its financial condition or results of operations. The Company has classified $24~~November 2008 totaling approximately $516 million ~~of its investment~~that were recorded in ~~this fund as Other current assets~~Accounts and notes receivable, net, in the accompanying consolidated balance sheet, ~~since~~approximately $145 million of which was received in cash later in the ~~timing of receipt of these funds is uncertain.~~

~~A further discussion of potential future effects of any ongoing disruption of capital~~quarter, and ~~credit markets is~~accrued approximately $42 million for estimated eligible alternative fuel usage through March 31, 2009 to be included in ~~Item 1A Risk Factors.~~subsequent filings. Accordingly, the accompanying statement of operations for the three months ended March 31, 2009 includes a credit of approximately $540 million in Cost of products sold ($330 million after taxes), representing eligible alternative fuel mixture credits earned through March 31, 2009, less $18 million of associated expenses. An additional $403 million was received for these credits after March 31, 2009.

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 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 ~~2007~~2008 Form 10-K 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. ~~While the~~The Company has not made any changes in these critical accounting policies during the first ~~nine~~three months of 2008, the discussion of accounting for possible impairments of long-lived assets and goodwill, as shown below, has been modified to emphasize certain key judgments and estimates required by management.

An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes, operating, raw material, energy and freight costs, and various other projected operating and economic factors. As these key factors change in future periods, the Company will update its impairment analyses to reflect its latest estimates and projections.

Net pension expense totaled approximately ~~$89~~$61 million for International Paper’s U.S. plans for the ~~nine~~three months ended ~~September 30, 2008,~~March 31, 2009, or about ~~$69~~$33 million ~~less~~more than the pension expense for the first ~~nine~~three months of ~~2007.~~2008. Net pension expense for non-U.S. plans was about $2 million ~~and $3 million~~ for the first ~~nine~~three months of ~~2008~~both 2009 and ~~2007, respectively.~~2008. The ~~decrease~~increase in U.S. plan pension expense was principally due to ~~an increase~~a decrease in the assumed discount rate to 6.00% in 2009 from 6.20% in 2008, ~~from 5.75% in 2007 and lower~~higher amortization of unrecognized actuarial ~~losses.~~losses and the addition of CBPR employees.

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~~500 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. At ~~September 30, 2008,~~March 31, 2009, the market value of plan assets for International Paper’s U.S. plans totaled approximately ~~$7.1~~$5.6 billion, consisting of approximately ~~44%~~39% equity securities, ~~36%~~39% fixed income securities, and ~~20%~~22% real estate and other assets.

The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flow generated by the Company, and other factors. The Company has no obligation to fund its domestic qualified plans in ~~2008.~~2009, and does not currently expect any required cash contributions until 2011. The Company continually reassesses the amount and timing of any discretionary contributions. The U.S. nonqualified plans are only funded to the extent of benefits paid which are expected to be ~~$26~~$24 million in ~~2008.~~

~~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 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 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. 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.”2009.

The ~~Company adopted the~~ provisions of FIN 48 ~~on January 1, 2007. This interpretation requires~~require 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.~~

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~~that 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 a similar ~~import.~~nature. 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. Factors that could cause actual results to differ include, among other things, the following: our ability to realize the expected benefits of our acquisition of the containerboard, packaging and recycling business of Weyerhaeuser Company in light of integration difficulties and other challenges; changes in the cost or availability of raw materials, energy and ~~energy;~~transportation; economic cyclicality and changes in ~~transportation availability or costs;~~consumer preferences in the industries in which we operate; changes in the pricing and demand for our products; the effects of competition ~~from foreign~~in the United States and ~~domestic producers; changes~~internationally; continued adverse developments in ~~our product mix; delays in implementing previously announced price increases; the strength of demand for our product~~general business and ~~changes in overall demand; changes~~economic conditions; downgrades in credit ~~ratings issued by nationally recognized statistical rating organizations;~~ratings; the ~~availability~~impairment of ~~credit;~~financial institutions with which we execute transactions; pension and health care costs; ~~changes related to international economic conditions;~~pension plan funding obligations that could be material

over the next several years; changes in ~~currency exchange rates;~~international conditions; the amount of our debt obligations and our ability to refinance or repay our debt; unanticipated expenditures relating to the cost of compliance with environmental and other governmental regulations; results of legal proceedings; ~~whether we experience a~~ material ~~disruption~~disruptions at one of our manufacturing facilities; ~~whether expected non-price improvements can be realized; increases~~risks related to operations conducted by joint ventures and changes in ~~interest rates; our substantial indebtedness; our ability to meet our debt service obligations and the bankruptcy or event of default by one of our counterparties.~~tax laws. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Information relating to quantitative and qualitative disclosures about market risk is shown on page 4246 of International Paper’s ~~2007~~2008 10-K, which information is incorporated herein by reference. In June 2008, in anticipation of the CBPR business acquisition, International Paper issued $3 billion of unsecured senior notes and entered into $1 billion of fixed-to-floating interest rate swaps to hedge the new debt. At September 30, 2008, the fair value of the new unsecured bonds still exposed to interest rate risk was approximately $1.8 billion. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would have been approximately $114 million at September 30, 2008. There have been no ~~other~~ material changes in the Company’s exposure to market risk since December 31, ~~2007.~~

International Paper evaluates credit risk by monitoring its exposure with each counterparty and ensuring that exposure stays within the Company’s policy limits. Credit risk is also mitigated by contractual provisions with the majority of our banks. Most of the contracts include a credit support annex that requires the posting of collateral by the counterparty or International Paper based on each party’s rating and level of exposure. In addition, our derivative contracts provide for netting across all derivative positions in the event a counterparty defaults on a payment obligation. International Paper currently does not expect any of the counterparties to default on their obligations.2008.

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.

There have been no changes in our internal ~~control over financial reporting~~controls during the quarter ended ~~September 30, 2008~~March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

~~During the~~In August 2008, ~~third quarter,~~ the Company completed the acquisition of the Containerboard, Packaging and Recycling business (CBPR) from Weyerhaeuser ~~Company’s CBPR business.~~Company. Integration activities, including a preliminary assessment of internal controls over financial reporting, are currently in process. The initial annual assessment of internal controls over financial reporting for the CBPR business will be conducted over the course of our 2009 assessment cycle.

During the 2007 first quarter, the Company completed the non-cash exchange of assets for the Luiz Antonio mill in Brazil. During the 2007 third quarter, the Company completed the acquisition of Central Lewmar LLC. The integration of financial processes and business systems is continuing for these two operations. We are in the process of conducting our annual assessment of internal controls over financial reporting over the course of our 2008 assessment cycle. These two operations contributed approximately 3% of net sales for the year ended December 31, 2007, and approximately 4% of total assets as of December 31, 2007.

The Company has 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 controls over financial reporting as these initiatives continue.

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 911 to the Financial Statements in this Form 10-Q.

The Company’s ~~2007~~2008 10-K 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 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 Company has identified the following additional risk factor to supplement those set forth in the ~~2007~~2008 10-K:

~~The Impairment~~Changes in Tax Laws May Have a Material Effect on Our Future Cash Flows and Results of ~~Financial Institutions Could Adversely Affect Us~~Operations

Our earnings in the first quarter of 2009 included an excise tax credit of $540 million before taxes for alternative fuel mixtures produced for use as a fuel in our business. Cash provided by operations in the first quarter of 2009 included $145 million relating to this credit. The ~~capital and~~ credit ~~markets~~is scheduled to expire December 31, 2009. If this excise tax credit were to be terminated or materially changed prior to December 31, 2009, this may have been experiencing volatility and disruption for more than twelve months. In the past several months, volatility and disruptions have increased and recently reached unprecedented levels. We have exposure to counterparties with which we routinely execute transactions. Such counterparties include commercial banks, insurance companies, investment banks, investment funds and other financial institutions, some of which may be exposed to bankruptcy or liquidity risks. While we have not realized any significant losses to date, a ~~bankruptcy or illiquidity event by one of~~material effect on our ~~significant counterparties may materially and adversely affect our access to capital,~~ future ~~business~~cash flows and results of operations.

~~These risk factors do~~

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No activity occurred in months 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 2007 10-K and in the Company’s other filings with the Securities and Exchange Commission.presented above.

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.


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

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


		PAGE NO.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statement of Operations - Three Months Ended March 31, 2009 and ~~Nine Months Ended September 30,~~ 2008 ~~and 2007~~	1

	Consolidated Balance Sheet - ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007~~2008	2

	Consolidated Statement of Cash Flows - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~	3

	~~Consolidated Statement of Changes in Common Shareholders’ Equity - Nine Months Ended September 30, 2008 and 2007~~	4

	Condensed Notes to Consolidated Financial Statements	54

	Financial Information by Industry Segment	2220

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4339

Item 4.	Controls and Procedures	4440

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4541

Item 1A.	Risk Factors	4541

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*42

Item 3.	Defaults upon Senior Securities	*

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

Item 5.	Other Information	*

Item 6.	Exhibits	4643

Signatures		4744


	Nine Months Ended September 30,
	2008			2007
Operating Activities
Net earnings	$	509		$	841
Discontinued operations, net of taxes and minority interest		18			36

Earnings from continuing operations		527			877
Depreciation, amortization and cost of timber harvested		965			808
Deferred income tax (benefit) expense, net		(51	)		125
Restructuring and other charges		152			86
Payments related to restructuring and legal reserves		(71	)		(60	)
Net losses (gains) on sales and impairments of businesses		106			(314	)
Equity earnings, net		(51	)		—
Gains on sales of forestlands		(3	)		(9	)
Periodic pension expense, net		89			158
Other, net		80			145
Changes in current assets and liabilities
Accounts and notes receivable		(12	)		(6	)
Inventories		(104	)		(91	)
Accounts payable and accrued liabilities		243			(313	)
Other		86			1

Cash provided by operations – continuing operations		1,956			1,407
Cash used for operations – discontinued operations		—			(56	)

Cash Provided by Operations		1,956			1,351

Investment Activities
Invested in capital projects		(732	)		(804	)
Acquisitions, net of cash acquired		(6,086	)		(227	)
Proceeds from divestitures		14			1,675
Equity investment in Ilim		(21	)		—
Other		(147	)		(135	)

Cash (used for) provided by investment activities – continuing operations		(6,972	)		509
Cash used for investment activities – discontinued operations		—			(12	)

Cash (Used for) Provided by Investment Activities		(6,972	)		497

Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding		(47	)		(1,124	)
Issuance of common stock		1			122
Issuance of debt		6,011			15
Reduction of debt		(627	)		(528	)
Change in book overdrafts		(45	)		(3	)
Dividends paid		(321	)		(330	)
Other		(69	)		—

Cash Provided by (Used for) Financing Activities		4,903			(1,848	)

Effect of Exchange Rate Changes on Cash		(21	)		78

Change in Cash and Temporary Investments		(134	)		78
Cash and Temporary Investments
Beginning of period		905			1,624

End of period	$	771		$	1,702


*In millions*
Cash and temporary investments	$	2
Accounts and notes receivable, net		662
Inventory		611
Other current assets		15
Plants, properties and equipment, net		4,920
Goodwill		279
Other intangible assets		48
Deferred charges and other assets		61

Total assets acquired		6,598

Accounts payable and accrued liabilities		471
Deferred income taxes		8
Other liabilities		50

Total liabilities assumed		529

Net assets acquired	$	6,069


*In millions*	Estimated Fair Value		Average Remaining Useful Life (at acquisition date)
Asset Class:
Trade names	$	5	4 - 12 years
Patented technology		9	4 - 12 years
Proprietary software		16	4 - 5 years
Power agreements		16	1 - 7 years
Water rights		2	Indefinite

Total	$	48


										Accumulated Other Comprehensive Income (Loss)								Total Common Shareholders’ Equity
	Common Stock Issued			Paid-in Capital			Retained Earnings						Treasury Stock
	Shares	Amount		Paid-in Capital			Retained Earnings						Shares		Amount
Balance, December 31, 2007	493,556	$	494	$	6,755		$	4,375		$	(471	)	68,436		$	2,481		$	8,672
Issuance of stock for various plans, net	—		—		(45	)		—			—		(3,899	)		(144	)		99
Repurchase of stock	—		—		—			—			—		1,472			47			(47	)
Common stock dividends	—		—		—			(325	)		—		—			—			(325	)
Comprehensive income (loss):
Net earnings	—		—		—			509			—		—			—			509
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans (less tax of $43)	—		—		—			—			62		—			—			62
Non-U.S. plans (less tax of $0)	—		—		—			—			3		—			—			3
Change in cumulative foreign currency translation adjustment (less tax of $0)	—		—		—			—			(163	)	—			—			(163	)
Net gains on cash flow hedging derivatives:
Net gains arising during the period (less tax of $3)	—		—		—			—			16		—			—			16
Less: Reclassification adjustment for gains included in net income (less tax of $22)	—		—		—			—			(61	)	—			—			(61	)

Total comprehensive income																			366

Balance, September 30, 2008	493,556	$	494	$	6,710		$	4,559		$	(614	)	66,009		$	2,384		$	8,765


	Quarter Ended March 31,
	2009									2008
*In millions*	Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity
Balance, January 1	$	4,169		$	232		$	4,401		$	8,672		$	228		$	8,900
Issuance of stock for various plans, net		36			—			36			14			—			14
Repurchase of stock		(10	)		—			(10	)		—			—			—
Common stock dividends ($0.25 per share)		(112	)		—			(112	)		(112	)		—			(112	)
Dividends paid to noncontrolling interests by subsidiary		—			(4	)		(4	)		—			(3	)		(3	)
Comprehensive income (loss):
Net earnings		257			4			261			133			5			138
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans		31			—			31			20			—			20
Non-U.S. plans		7			—			7			3			—			3
Change in cumulative foreign currency translation adjustment		(229	)		—			(229	)		246			4			250
Net losses/gains on cash flow hedging derivatives:
Net (losses) gains arising during the period		(22	)		—			(22	)		36			—			36
Less: Reclassification adjustment for losses (gains) included in net income		17			—			17			(13	)		—			(13	)

Total comprehensive income								65									434

Balance, March 31	$	4,144		$	232		$	4,376		$	8,999		$	234		$	9,233


*In millions*	��
Accounts receivable	$	116
Inventory		31
Other current assets		7
Plants, properties and equipment, net		2
Goodwill		81
Deferred tax asset		2
Other intangible assets		33

Total assets acquired		272

Other current liabilities		79
Other liabilities		4

Total liabilities assumed		83

Net assets acquired	$	189


*In millions, except per share amounts*	Three Months Ended September 30, 2007		Nine Months Ended September 30, 2007
Net sales	$	5,669	$	16,627
Earnings from continuing operations		225		886
Net earnings		222		851
Earnings from continuing operations per common share		0.53		2.03
Net earnings per common share		0.52		1.95


*In millions, except per share amounts*	Three Months Ended March 31, 2008
Net sales	$	6,930
Earnings from continuing operations		125
Net earnings		108
Earnings from continuing operations per common share		0.29
Net earnings per common share		0.25


*In millions*	Balance December 31, 2007		Reclassifications and Other (a)			Additions/ (Reductions)			Balance September 30, 2008
Printing Papers	$	2,043	$	(43	)	$	(21	) (b)	$	1,979
Industrial Packaging		683		(2	)		281	(c)		962
Consumer Packaging		530		6			5	(d)		541
Distribution		394		—			1	(e)		395

Total	$	3,650	$	(39	)	$	266		$	3,877


*In millions*	Balance December 31, 2006		Reclassifications and Other (a)		Additions/ (Reductions)			Balance September 30, 2007
Printing Papers	$	1,441	$	81	$	531	(b)	$	2,053
Industrial Packaging		670		3		(6	) (c)		667
Consumer Packaging		510		4		14	(d)		528
Distribution		308		—		96	(e)		404

Total	$	2,929	$	88	$	635		$	3,652


*In millions*	Balance December 31, 2008		Reclassifications and Other (a)			Additions/ (Reductions)			Balance March 31, 2009
Industrial Packaging	$	989	$	(1	)	$	92	(b)	$	1,080
Printing Papers		537		2			(5	) (c)		534
Consumer Packaging		102		—			—			102
Distribution		399		(2	)		—			397

Total	$	2,027	$	(1	)	$	87		$	2,113


*In thousands*	Single Family		Multi- Family		Total
December 31, 2007	29.8		2.2		32.0
No. of Claims Filed	8.7		1.5		10.2
No. of Claims Paid	(14.1	)	(1.0	)	(15.1	)
No. of Claims Dismissed	(17.9	)	(0.3	)	(18.2	)

September 30, 2008	6.5		2.4		8.9


	Omniwood				Woodruf			Total
*In thousands*	Single Family		Multi- Family		Single Family		Multi- Family	Single Family		Multi- Family		Total
December 31, 2007	3.1		0.6		1.0		0.3	4.1		0.9		5.0
No. of Claims Filed	4.6		0.1		0.9		—	5.5		0.1		5.6
No. of Claims Paid	(3.4	)	(0.1	)	(0.3	)	—	(3.7	)	(0.1	)	(3.8	)
No. of Claims Dismissed	(0.8	)	(0.1	)	(0.4	)	—	(1.2	)	(0.1	)	(1.3	)

September 30, 2008	3.5		0.5		1.2		0.3	4.7		0.8		5.5


*In millions*	Hardboard			Omniwood			Woodruf			Total
Balance, December 31, 2007	$	20		$	25		$	1		$	46
Additional Provisions		45			29			8			82
Payments		(49	)		(20	)		(3	)		(72	)

Balance, September 30, 2008	$	16		$	34		$	6		$	56


*In millions*	March 31 2009	December 31, 2008
Sell / Buy	Sell Notional	Sell Notional
European euro / Brazilian real	17	21
US dollar / Brazilian real	127	166
European euro / Polish zloty	73	96


	Assets						Liabilities
*In millions*	March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008
Derivatives designated as hedging instruments under SFAS 133
Interest rate contracts – fair value	$	4	(a)	$	27	(b)	$	—		$	—
Interest rate contracts – cash flow		—			—			35	(c)		39	(c)
Commodity contracts - cash flow		2	(a)		—			87	(d)		75	(e)
Foreign exchange contracts – cash flow		11	(f)		27	(f)		33	(g)		47	(g)

Total derivatives designated as hedging instruments under SFAS 133	$	17		$	54		$	155		$	161

Derivatives not designated as hedging instruments under SFAS 133
Interest rate contracts	$	—		$	—		$	8	(c)	$	8	(c)
Embedded derivatives		8	(a)		8	(a)		—			—
Foreign exchange contracts		6	(f)		40	(f)		8	(g)		19	(g)

Total derivatives not designated as hedging instruments under SFAS 133	$	14		$	48		$	16		$	27

Total derivatives	$	31		$	102		$	171		$	188


	Gain or (Loss) Recognized in OCI (Effective Portion)					Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)	(Gain) or Loss Reclassified from OCI into Income (Effective Portion)
	2009			2008			2009		2008
Interest rate contracts	$	(1	)	$	—	Interest expense, net	$	5	$	—
Commodity contracts		(15	)		22	Cost of products sold		9		—
Foreign exchange contracts		(6	)		14	Cost of products sold		3		(13	)

Total	$	(22	)	$	36		$	17	$	(13	)


	~~Three��~~Three Months Ended ~~September 30, 2008~~March 31, 2009		~~Nine~~Three Months Ended ~~September 30,~~March 31, 2008
Expected volatility	~~22.083%~~33.83% - ~~40.389~~89.60	%	~~19.567% - 40.389~~19.57% -25.46	%
Risk-free interest rate	~~1.759%~~0.540% - ~~3.497~~1.274	%	1.199% ~~- 3.497~~-3.497	%


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
February 1, 2009 – February 28, 2009	1,283,937	$	8.00	—	—



10.1		Pension Restoration Plan for salaried employees.

10.2		Loan Agreement, dated March 12, 2009, by and among International Paper Investments (Luxembourg) S.à r.l., International Paper Company as guarantor, the Lenders party thereto and BNP Paribas as administrative agent (incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K dated March 16, 2009).

10.3		Amendment No.1, dated as of January 23, 2009, to the Second Amended and Restated Credit and Security Agreement dated as of March 13, 2008. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

10.4		Amendment No. 12, dated ~~August 29, 2008,~~January 23, 2009 to the Receivables Sale and Contribution Agreement dated as of March 13, 2008.

~~10.2~~10.5		Amendment No. 1,2, dated ~~July 31, 2008,~~February 26, 2009, to the Credit Agreement among International Paper Company and the Lenders parties thereto dated as of June 16, 2008.

~~10.3~~		~~International Paper Company Industrial Packaging Group Special Incentive Plan.~~

~~10.4a~~		~~Form of Restricted Stock Unit award (cash settled) under the Long Term Incentive Compensation Plan.~~

~~10.4b~~		~~Form of Restricted Stock Unit award (stock settled) under the Long Term Incentive Compensation Plan.~~

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.


	INTERNATIONAL PAPER COMPANY
	(Registrant)

Date: ~~November~~May 7, ~~2008~~2009	By	/s/ TIM S. NICHOLLS
		Tim S. Nicholls
		Senior Vice President and Chief Financial Officer

Date: ~~November~~May 7, ~~2008~~2009	By	/s/ ROBERT J. GRILLET
		Robert J. Grillet
		Vice President – Finance and Controller