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.

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 ~~August 3,~~November 4, 2009 was ~~432,759,889.~~433,094,767.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008			2009			2008			2009		2008			2009			2008
Net Sales	$	5,802		$	5,807		$	11,470		$	11,475		$	5,919	$	6,808		$	17,389		$	18,283

Costs and Expenses
Cost of products sold		3,781			4,305			7,512			8,566			3,758		5,154			11,270			13,720
Selling and administrative expenses		508			459			1,008			931			527		507			1,535			1,438
Depreciation, amortization and cost of timber harvested		367			305			710			591			378		374			1,088			965
Distribution expenses		279			301			558			586			299		376			857			962
Taxes other than payroll and income taxes		47			44			97			88			48		48			145			136
Restructuring and other charges		79			13			162			55			151		97			313			152
Gain on sale of mineral rights														—		(261	)		—			(261	)
Gain on sale of forestlands		—			(3	)		—			(3	)		—		(3	)		—			(6	)
Net losses (gains) on sales and impairments of businesses		48			—			48			(1	)
Net losses on sales and impairments of businesses														—		107			48			106
Interest expense, net		173			81			337			162			169		144			506			306

Earnings From Continuing Operations Before Income Taxes and Equity Earnings		520			302			1,038			500			589		265			1,627			765
Income tax provision		348			97			578			156			212		118			790			274
Equity (losses) earnings, net of taxes		(32	)		30			(59	)		46
Equity earnings (losses), net of taxes														—		5			(59	)		51

Earnings From Continuing Operations		140			235			401			390			377		152			778			542
Discontinued operations, net of taxes		—			(1	)		—			(18	)		—		—			—			(18	)

Net Earnings		140			234			401			372			377		152			778			524
Less: Net earnings attributable to noncontrolling interests		4			7			8			12
Net earnings attributable to noncontrolling interests														6		3			14			15

Net Earnings Attributable to International Paper Company	$	136		$	227		$	393		$	360		$	371	$	149		$	764		$	509

Basic Earnings Per Share Attributable to International Paper Company Shareholders
Earnings from continuing operations	$	0.32		$	0.54		$	0.93		$	0.90		$	0.87	$	0.35		$	1.80		$	1.25
Discontinued operations		—			—			—			(0.04	)		—		—			—			(0.04	)

Net earnings	$	0.32		$	0.54		$	0.93		$	0.86		$	0.87	$	0.35		$	1.80		$	1.21

Diluted Earnings Per Share Attributable to International Paper Company Shareholders
Earnings from continuing operations	$	0.32		$	0.54		$	0.93		$	0.89		$	0.87	$	0.35		$	1.79		$	1.24
Discontinued operations		—			—			—			(0.04	)		—		—			—			(0.04	)

Net earnings	$	0.32		$	0.54		$	0.93		$	0.85		$	0.87	$	0.35		$	1.79		$	1.20

Average Shares of Common Stock Outstanding – assuming dilution		425.4			422.6			424.2			423.9
Average Shares of Common Stock Outstanding – Assuming Dilution														428.7		423.4			426.6			424.2

Cash Dividends Per Common Share	$	0.025		$	0.25		$	0.275		$	0.50		$	0.025	$	0.25		$	0.300		$	0.75

Amounts Attributable to International Paper Company Common Shareholders
Earnings from continuing operations, net of taxes	$	136		$	228		$	393		$	378		$	371	$	149		$	764		$	527
Discontinued operations, net of taxes		—			(1	)		—			(18	)		—		—			—			(18	)

Net earnings	$	136		$	227		$	393		$	360
Net earnings attributable to International Paper Company													$	371	$	149		$	764		$	509


	June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
	(unaudited)						(unaudited)
Assets
Current Assets
Cash and temporary investments	$	1,654		$	1,144		$	1,652		$	1,144
Accounts and notes receivable, net		3,312			3,288			3,080			3,288
Inventories		2,209			2,495			2,278			2,495
Deferred income tax assets		166			261			207			261
Other current assets		208			172			300			172

Total Current Assets		7,549			7,360			7,517			7,360

Plants, Properties and Equipment, net		13,766			14,202			13,699			14,202
Forestlands		691			594			749			594
Investments		1,068			1,274			1,102			1,274
Goodwill		2,240			2,027			2,288			2,027
Deferred Charges and Other Assets		1,326			1,456			1,326			1,456

Total Assets	$	26,640		$	26,913		$	26,681		$	26,913

Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	386		$	828		$	369		$	828
Accounts payable		1,980			2,119			2,066			2,119
Accrued payroll and benefits		419			445			466			445
Other accrued liabilities		1,165			1,363			1,415			1,363

Total Current Liabilities		3,950			4,755			4,316			4,755

Long-Term Debt		10,531			11,246			9,253			11,246
Deferred Income Taxes		2,351			1,957			2,514			1,957
Pension Benefit Obligation		3,294			3,260			3,303			3,260
Postretirement and Postemployment Benefit Obligation		643			663			632			663
Other Liabilities		792			631			779			631
Equity
Common stock, $1 par value, 2009 – 436.0 shares and 2008 – 433.6 shares		436			434
Common stock, $1 par value, 2009 – 436.6 shares and 2008 – 433.6 shares								437			434
Paid-in capital		5,764			5,845			5,787			5,845
Retained earnings		1,701			1,430			2,062			1,430
Accumulated other comprehensive loss		(2,977	)		(3,322	)		(2,558	)		(3,322	)

		4,924			4,387			5,728			4,387
Less: Common stock held in treasury, at cost, 2009 – 3.5 shares and 2008 – 6.1 shares		81			218
Less: Common stock held in treasury, at cost, 2009 – 3.6 shares and 2008 – 6.1 shares								83			218

Total Shareholders’ Equity		4,843			4,169			5,645			4,169

Noncontrolling interests		236			232			239			232

Total Equity		5,079			4,401			5,884			4,401

Total Liabilities and Equity	$	26,640		$	26,913		$	26,681		$	26,913


	Six Months Ended June 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Operating Activities
Net earnings attributable to International Paper Company	$	393		$	360		$	764		$	509
Noncontrolling interests		8			12
Net earnings attributable to noncontrolling interests								14			15
Discontinued operations, net of taxes		—			18			—			18

Earnings from continuing operations		401			390			778			542
Depreciation, amortization and cost of timber harvested		710			591			1,088			965
Deferred income tax expense (benefit), net		539			(113	)		585			(51	)
Restructuring and other charges		162			55			313			152
Payments related to restructuring and legal reserves		(24	)		(42	)		(35	)		(71	)
Net losses (gains) on sales and impairments of businesses		48			(1	)
Net losses on sales and impairments of businesses								48			106
Equity loss (earnings), net		59			(46	)		59			(51	)
Periodic pension expense, net		107			57			160			89
Gain on sale of forestlands								—			(3	)
Alternative fuel mixture credits receivable		(189	)		—			(251	)		—
Other, net		107			33			140			65
Changes in current assets and liabilities
Accounts and notes receivable		195			(27	)		466			(12	)
Inventories		310			(90	)		262			(104	)
Accounts payable and accrued liabilities		(165	)		137			(38	)		255
Interest payable		(32	)		(27	)		21			(12	)
Other		(39	)		93			(26	)		86

Cash Provided by Operations		2,189			1,010			3,570			1,956

Investment Activities
Invested in capital projects		(259	)		(482	)		(367	)		(732	)
Acquisitions, net of cash acquired		(8	)		—			(17	)		(6,086	)
Proceeds from divestitures		—			14			—			14
Equity investment in Ilim		—			(21	)		—			(21	)
Other		(59	)		(159	)		(59	)		(147	)

Cash Used for Investment Activities		(326	)		(648	)		(443	)		(6,972	)

Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding		(10	)		(47	)		(10	)		(47	)
Issuance of common stock		—			1			—			1
Issuance of debt		1,476			3,135			2,490			6,011
Reduction of debt		(2,617	)		(125	)		(4,911	)		(627	)
Change in book overdrafts		(72	)		(53	)		(5	)		(45	)
Dividends paid		(118	)		(218	)		(129	)		(321	)
Other		(35	)		(20	)		(113	)		(69	)

Cash (Used for) Provided by Financing Activities		(1,376	)		2,673			(2,678	)		4,903

Effect of Exchange Rate Changes on Cash		23			39			59			(21	)

Change in Cash and Temporary Investments		510			3,074			508			(134	)
Cash and Temporary Investments
Beginning of period		1,144			905			1,144			905

End of period	$	1,654		$	3,979		$	1,652		$	771

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of ~~Management,~~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 ~~six~~nine 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, 2008, and International Paper’s Current Report on Form 8-K filed on May 13, 2009 to update the historical financial statements included in the Company’s Form 10-K for the year ended December 31, 2008 to reflect the retrospective application of ~~Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests~~guidance issued related to noncontrolling interests in ~~Consolidated Financial Statements”~~consolidated financial statements (collectively the “2008 10-K”), both of which have previously been filed with the Securities and Exchange Commission.

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

In September 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2009-13,
“Multiple-Deliverable Revenue Arrangements,” which amends the multiple-element arrangement guidance under Accounting Standards Codification (ASC) 605, “Revenue Recognition.” This guidance amends the criteria for separating consideration of products or services in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation, and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (calendar year 2011). The Company is currently evaluating the provisions of this guidance but does not anticipate that it will have a material effect on its consolidated financial statements.

In June 2009, the ~~Financial Accounting Standards Board (FASB)~~FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” which amends the consolidation guidance that applies to variable interest entities under ~~FIN~~ASC 810, “Consolidation” (FIN 46(R), “Consolidation of Variable Interest Entities”). SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This ~~statement~~guidance is effective for financial statements issued in fiscal years (and interim periods) beginning after November 15, 2009 (calendar year 2010). The Company is currently evaluating the provisions of this ~~statement~~guidance but does not ~~currently~~ anticipate that it will have a material effect on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—An Amendment of FASB Statement No. 140,” which amends the derecognition guidance in ~~SFAS~~ASC 860, “Transfers and Servicing of Financial Assets” (SFAS No. ~~140.~~140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”). This ~~statement~~guidance eliminates the concept of qualifying special-purpose entities, changes the requirements for derecognizing financial assets and requires additional disclosures. This ~~statement~~guidance is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year beginning after November 15, 2009 (calendar year 2010). The Company is currently evaluating the provisions of this ~~statement~~guidance but does not ~~currently~~ anticipate that it will have a material effect on its consolidated financial statements.

In May 2009, the FASB issued ~~SFAS~~ASC 855, “Subsequent Events” (SFAS No. 165, “Subsequent ~~Events,”~~Events”) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This ~~statement~~guidance is effective prospectively for interim and annual

periods ending after June 15, 2009. The Company included the requirements of this ~~statement~~guidance in the preparation of the accompanying financial statements, and has evaluated subsequent events through ~~August 5,~~November 6, 2009, the date that the accompanying consolidated financial statements were issued.

In April 2009, the FASB issued new guidance under ASC 320, “Investments—Debt and Equity Securities,” (FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Investments”) which provides a new other-than-temporary impairment model for debt securities. This ~~FSP~~guidance was effective for financial statements issued in fiscal years (and interim periods) ending after June 15, 2009. The application of the requirements of this ~~FSP~~guidance did not have a material effect on the accompanying consolidated financial statements.

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

In December 2008, the FASB issued ~~FSP~~new guidance under ASC 715, “Defined Benefit Plans—General,” (FSP FAS 132(R)-1, ~~which amends Statement 132(R)~~“Employers’ Disclosures about Postretirement Benefit Plan Assets”) 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~~guidance 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.~~guidance.

In April 2008, the FASB issued ~~FSP~~new guidance under ASC 350, “Intangibles—Goodwill and Other,” (FSP FAS 142-3, “Determination 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~~guidance 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~~guidance did not have a material effect on the accompanying consolidated financial statements.

In March 2008, the FASB issued ~~SFAS~~new guidance under ASC 815, “Derivatives and Hedging,” (SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. ~~133.” This statement~~133”) that requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. ~~SFAS No. 161~~This guidance was effective for fiscal years (and interim periods) beginning after November 15, 2008 (calendar year 2009). The Company included the disclosures required by this ~~statement~~guidance in the accompanying consolidated financial statements.

In December 2007, the FASB ~~also~~ issued ~~SFAS~~new guidance under ASC 810, “Consolidation,” (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB ~~51.” This statement~~51”) that 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. ItThe guidance 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 statement of operations of the amounts attributable to the parent and to the noncontrolling interest. The Company has retrospectively applied the provisions of this ~~standard~~guidance in the preparation of the accompanying consolidated financial statements.

The effects of the retrospective application of this ~~standard~~guidance were as follows:

In February 2008, the FASB issued ~~FSP~~new guidance under ASC 820, “Fair Value Measurements and Disclosures,” (FSP FAS 157-2, “Effective Date of FASB Statement No. 157”) which delayed the effective date ~~of SFAS No. 157~~for fair value measurement and disclosure for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 (calendar year 2009). The Company partially adopted the provisions of this ~~statement~~guidance with respect to its financial assets and liabilities that are measured at fair value effective January 1, 2008 (see Note 13). The Company included the remaining provisions of ~~SFAS No. 157~~this guidance in the preparation of the accompanying consolidated financial statements.

In October 2008, the FASB issued ~~FSP~~new guidance under ASC 820, (FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”) which clarifies the application of ~~SFAS No. 157~~fair value measurement and disclosure in cases where the market for the asset is not active. ~~FSP FAS 157-3 is~~This guidance was effective upon issuance. The Company considered the guidance ~~provided by the FSP~~ in the preparation of the accompanying consolidated financial statements.

In April 2009, the FASB issued ~~FSP~~additional guidance under ASC 820, (FSP FAS 157-4, ~~in accordance with SFAS No. 157, “Fair~~“Determining Fair Value ~~Measurements,”~~When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”) which provides guidance on estimating the fair value of an asset or liability (financial or nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased, and on identifying transactions that are not orderly. The application of the requirements of this ~~FSP~~guidance did not have a material effect on the accompanying consolidated financial statements.

In April 2009, the FASB issued ~~FSP~~guidance under ASC 825, “Financial Instruments,” (FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”) which expands the fair value disclosures required for all financial instruments within the scope of ~~SFAS~~ASC 825, “Financial Instruments” (SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”) to interim reporting periods. The disclosures required by this ~~FSP~~guidance were to be provided in financial statements for the first reporting period ending after June 15, 2009. The Company included the disclosures required by this ~~FSP~~guidance in the accompanying consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update 2009-05, “Measuring Liabilities at Fair Value,” which further amends ASC 820 by providing clarification for circumstances in which a quoted price in an active market for the identical liability is not available. This guidance will be effective for financial statements issued for the first reporting period beginning after August 27, 2009. The Company is currently evaluating the provisions of this guidance but does not anticipate that it will have a material effect on its consolidated financial statements.

A summary of the changes in equity for the ~~six~~nine month periods ended ~~June~~September 30, 2009 and 2008 is provided below:


	Six Months Ended June 30,																		Nine Months Ended September 30,
	2009									2008									2009									2008
*In millions*	Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interest			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, January 1	$	4,169		$	232		$	4,401		$	8,672		$	228		$	8,900		$	4,169		$	232		$	4,401		$	8,672		$	228		$	8,900
Issuance of stock for various plans, net		68			—			68			80			—			80			91			—			91			99			—			99
Repurchase of stock		(10	)		—			(10	)		(47	)		—			(47	)		(10	)		—			(10	)		(47	)		—			(47	)
Common stock dividends ($0.275 per share in 2009 and $0.50 per share in 2008)		(122	)		—			(122	)		(218	)		—			(218	)
Common stock dividends ($0.30 per share in 2009 and $0.75 per share in 2008)																				(133	)		—			(133	)		(325	)		—			(325	)
Dividends paid to noncontrolling interests by subsidiary		—			(4	)		(4	)		—			(5	)		(5	)		—			(6	)		(6	)		—			(8	)		(8	)
Noncontrolling interests of acquired entities		—			—			—			—			6			6			—			(1	)		(1	)		—			—			—
Comprehensive income:
Net earnings		393			8			401			360			12			372			764			14			778			509			15			524
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans		54			—			54			41			—			41			82			—			82			62			—			62
Non-U.S. plans		7			—			7			3			—			3			7			—			7			3			—			3
Change in cumulative foreign currency translation adjustment		246			—			246			548			4			552			604			—			604			(163	)		4			(159	)
Net losses / gains on cash flow hedging derivatives:
Net gains arising during the period		9			—			9			101			—			101			31			—			31			16			—			16
Less: Reclassification adjustment for losses (gains) included in net income		29			—			29			(37	)		—			(37	)		40			—			40			(61	)		—			(61	)

Total comprehensive income								746									1,032									1,542									385

Balance, June 30	$	4,843		$	236		$	5,079		$	9,503		$	245		$	9,748
Balance, September 30																			$	5,645		$	239		$	5,884		$	8,765		$	239		$	9,004

NOTE 4 - EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON 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, 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 June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
*In millions, except per share amounts*	2009		2008		2009		2008		2009		2008		2009		2008
Earnings from continuing operations	$	136	$	228	$	393	$	378	$	371	$	149	$	764	$	527
Effect of dilutive securities (a)		—		—		—		—		—		—		—		—

Earnings from continuing operations – assuming dilution	$	136	$	228	$	393	$	378	$	371	$	149	$	764	$	527

Average common shares outstanding		425.3		421.1		424.2		420.9		426.1		421.2		424.8		421.0
Effect of dilutive securities
Restricted stock performance share plan (a)		0.1		1.5		—		3.0		2.6		2.2		1.8		3.2
Stock options (b)		—		—		—		—		—		—		—		—

Average common shares outstanding – assuming dilution		425.4		422.6		424.2		423.9		428.7		423.4		426.6		424.2

Earnings per common share from continuing operations	$	0.32	$	0.54	$	0.93	$	0.90
Basic earnings per common share from continuing operations									$	0.87	$	0.35	$	1.80	$	1.25

Diluted earnings per common share from continuing operations	$	0.32	$	0.54	$	0.93	$	0.89	$	0.87	$	0.35	$	1.79	$	1.24

During the third quarter of 2009, restructuring and other charges totaling $151 million before taxes ($95 million after taxes) were recorded, including a $102 million charge before taxes ($62 million after taxes) for costs related to the early extinguishment of debt (see Note 12), a $39 million charge before taxes ($24 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead reduction program, a $7 million charge, before and after taxes, for severance and other costs related to the planned closure of the Company’s Etienne mill in France, and a $3 million charge before taxes ($2 million after taxes) for other closure costs.

charge before taxes ($16 million after taxes) related to early debt extinguishment costs, a $15 million charge, before and after taxes, for severance and other costs related to the planned closure of the Company’s Etienne mill in France, and a $5 million charge before taxes ($3 million after taxes) for other closure costs. Additionally, the second quarter income tax provision included a $156 million charge to establish a valuation allowance for deferred tax assets in France and a $26 million credit related to the settlement of certain tax issues (see Note 10).

During the first quarter of 2009, restructuring and other charges totaling $83 million before taxes ($65 million after taxes) were recorded, including a $52 million charge before taxes ($32 million after taxes) for severance and benefits associated with the Company’s 2008 overhead reduction program, a $23 million charge before taxes ($28 million after taxes) for closure costs related to the Inverurie mill in Scotland, a $6 million charge before taxes ($4 million after taxes) for closure costs for the Franklin, Virginia, lumber mill, sheet converting plant and converting innovations center, and a $2 million pre-tax charge ($1 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 first ~~six~~nine months of

2009, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 totaling approximately ~~$1.0~~$1.5 billion, including ~~$189~~$251 million recorded in Accounts and notes receivable at ~~June~~September 30, 2009 and ~~$833 million~~$1.3 billion that was received in cash. Accordingly, the accompanying consolidated statement of operations includes credits of approximately ~~$482~~$525 million and ~~$1.0~~$1.5 billion for the three months and ~~six~~nine months ended ~~June~~September 30, 2009, respectively, in Cost of products sold ($~~294~~320 million and ~~$624~~$944 million after taxes), representing eligible alternative fuel mixture credits earned through ~~June~~September 30, 2009.

During the third quarter of 2008, restructuring and other charges totaling $97 million before taxes ($60 million after taxes) were recorded, including $35 million before taxes ($22 million after taxes) for adjustments to legal reserves, $53 million before taxes ($33 million after taxes) to write-off supply chain initiative development costs for U.S. container operations that will not be implemented due to the CBPR acquisition (see Note 6), $8 million before taxes ($5 million after taxes) for costs associated with the reorganization of the Company’s Shorewood operations in Canada, and $1 million before taxes ($0 million after taxes) for severance costs associated with the Company’s Transformation Plan.

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 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 ofto 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.

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 final allocation of the purchase price, plus direct acquisition costs, to the fair value of assets and liabilities acquired.


*In millions*
Cash and temporary investments	$	2
Accounts and notes receivable, net		655
Inventories		568
Other current assets		11
Plants, properties and equipment, net		4,816
Goodwill		445
Other intangible assets		65
Deferred charges and other assets		63

Total assets acquired		6,625

Accounts payable and accrued liabilities		463
Other liabilities		85

Total liabilities assumed		548

Net assets acquired	$	6,077

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


*In millions*	Estimated Fair Value		Average Remaining Useful Life (at acquisition date)	Estimated Fair Value		Average Remaining Useful Life (at acquisition date)
Asset Class:
Trade names	$	8	4 -12 years	$	8	4 - 12 years
Patented technology		15	4 -12 years		15	4 - 12 years
Proprietary software		16	4 - 5 years		16	4 - 5 years
Power agreements		20	1 - 7 years		20	1 - 7 years
Water rights		6	Indefinite		6	Indefinite

Total	$	65		$	65

Selling and administrative expenses for the three months and ~~six~~nine months ended ~~June~~September 30, 2009 included charges of $18 million before taxes ($11 million after taxes) and ~~$54~~$72 million before taxes ($3344 million after taxes), respectively, of costs related to the integration of the CBPR business. 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 this acquisition.

The following unaudited pro forma information for the three months and ~~six~~nine months ended ~~June~~September 30, 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.


In millions, except per share amounts	Three Months Ended June 30, 2008		Six Months Ended June 30, 2008		Three Months Ended September 30, 2008		Nine Months Ended September 30, 2008
Net sales	$	7,153	$	14,083	$	7,298	$	21,405
Earnings from continuing operations(1)		191		315		138		411
Net earnings (1)		190		297		138		393
Earnings from continuing operations per common share(1)		0.45		0.74		0.33		0.97
Net earnings per common share (1)		0.45		0.70		0.33		0.93

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, and a $2 million charge before taxes ($1 million after taxes) for operating losses related to certain wood products facilities.

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

During the second quarter of 2009, based on a current strategic plan update of projected future operating results of the Company’s Etienne, France mill, a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a $48 million charge, before and after taxes, was recorded in the Company’s Industrial Packaging industry segment to write down the long-lived assets of the mill to their estimated fair value. This charge is included in Net losses ~~(gains)~~ on sales and impairments of businesses in the accompanying consolidated statement of operations.

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 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~~before and after ~~taxes)~~taxes, was recorded to adjust previously estimated gains/losses of businesses previously sold.

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled ~~$1.5~~$1.3 billion and $908 million at ~~June~~September 30, 2009 and December 31, 2008, respectively.


*In millions*	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Raw materials	$	307	$	405	$	377	$	405
Finished pulp, paper and packaging		1,482		1,658		1,465		1,658
Operating supplies		356		379		376		379
Other		64		53		60		53

Total	$	2,209	$	2,495	$	2,278	$	2,495

Accumulated depreciation was ~~$16.3~~$16.8 billion at ~~June~~September 30, 2009 and $15.6 billion at December 31, 2008. Theallowance for doubtful accounts was ~~$139~~$136 million at ~~June~~September 30, 2009 and $121 million at December 31, 2008.

The gross carrying amount ofIntangible Assets, excluding goodwill, was ~~$297~~$311 million ($~~251~~255 million net of accumulated amortization) and $284 million ($246 million net of accumulated amortization) at ~~June~~September 30, 2009 and December 31, 2008, respectively. The Company recognized amortization expense of intangible assets of approximately ~~$17~~$25 million and ~~$16~~$24 million for the first ~~six~~nine months of 2009 and 2008, respectively.

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

Interest payments made during the ~~six-month~~nine-month periods ended ~~June~~September 30, 2009 and 2008 were ~~$343~~$444 million and ~~$186~~$321 million, respectively. Capitalized interest costs were $7$9 million and ~~$10~~$19 million for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, respectively.Total interest expense was ~~$353~~$530 million for the first ~~six~~nine months of 2009 and ~~$207~~$374 million for the first ~~six~~nine months of 2008.Interest income was ~~$16~~$24 million and ~~$45~~$68 million for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, respectively. Interest expense and interest income in 2009 and 2008 exclude approximately ~~$72~~$98 million and ~~$127~~$179 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 $4$5 million and $5$8 million during the first ~~six~~nine 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 ~~$13~~$49 million and ~~$81~~$104 million were made during the first ~~six~~nine 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~~(a loss of $56 million and earnings of ~~$49~~$54 million for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, respectively) and certain other smaller investments.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
*In millions*	2009			2008			2009			2008			2009			2008			2009			2008
Service cost	$	��		$	1		$	1		$	1		$	—		$	1		$	1		$	2
Interest cost		7			8			15			17			8			8			23			25
Actuarial loss		4			7			12			14			5			7			17			21
Amortization of prior service cost		(7	)		(9	)		(14	)		(18	)		(7	)		(9	)		(21	)		(27	)

Net postretirement benefit cost (a)	$	4		$	7		$	14		$	14		$	6		$	7		$	20		$	21

The following tables present changes in goodwill balances as allocated to each business segment for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2009 and 2008:


*In millions*	Balance December 31, 2008		Reclassifications and Other (a)		Additions/ (Reductions)			Balance June 30, 2009		Balance December 31, 2008		Reclassifications and Other (a)		Additions/ (Reductions)			Balance September 30, 2009
Industrial Packaging	$	989	$	—	$	140	(b)	$	1,129	$	989	$	3	$	140	(b)	$	1,132
Printing Papers		537		84		(11	) (c)		610		537		135		(18	) (c)		654
Consumer Packaging		102		—		—			102		102		—		—			102
Distribution		399		—		—			399		399		—		1			400

Total	$	2,027	$	84	$	129		$	2,240	$	2,027	$	138	$	123		$	2,288


*In millions*	Balance December 31, 2007		Reclassifications and Other (a)		Additions/ (Reductions)			Balance June 30, 2008		Balance December 31, 2007		Reclassifications and Other (a)			Additions/ (Reductions)			Balance September 30, 2008
Industrial Packaging	$	683	$	3	$	2	(b)	$	688	$	683	$	(2	)	$	281	(b)	$	962
Printing Papers		2,043		69		(14	) (c)		2,098		2,043		(43	)		(21	) (c)		1,979
Consumer Packaging		530		6		5	(d)		541		530		6			5	(d)		541
Distribution		394		—		1			395		394		—			1			395

Total	$	3,650	$	78	$	(6	)	$	3,722	$	3,650	$	(39	)	$	266		$	3,877

In the fourth quarter of 2008, the Company performed an interim test for possible goodwill impairment as of December 31, 2008, and recorded preliminary estimated impairment charges of $379 million, representing all of the goodwill for the U.S. Coated Paperboard business, and $1.3 billion, representing all of the goodwill for the U.S. Printing Papers business. During the first quarter of 2009, the Company finalized the testing for these businesses resulting in no changes to the recorded impairment charges.

At December 31, 2008, cumulative unrecognized tax benefits totaled $435 million. During the first ~~quarter of 2009, due to current period transactions, unrecognized tax benefits increased by $9 million and accrued estimated interest and tax penalties increased by $4 million. In the second quarter~~two quarters of 2009, unrecognized tax benefits decreased by ~~$166 million to $278 million, and accrued interest and tax penalties decreased by $4 million to $74~~$157 million, primarily as a result of an agreement reached with the U.S. Internal Revenue Service on the Company’s 2004 and 2005 U.S. federal income tax audits. In the third quarter of 2009, unrecognized tax benefits decreased by $20 million to $258 million, and accrued interest and tax penalties increased by $2 million to $76 million, primarily due to the state tax impact of the settlement of the Company’s 2004 and 2005 U.S. federal tax audits. 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 ~~$40~~$80 million during the next 12twelve months.

During the 2009 second quarter, in connection with the ongoing evaluation of the Company’s Etienne mill in France, the Company determined that the future realization of previously recorded deferred tax assets in France, including net operating loss carryforwards, no longer met the “more likely than not” standard for asset recognition. Accordingly, a charge of $156 million, before and after taxes, was recorded in the quarter to establish a valuation allowance for 100% of these assets. Additionally during the quarter, as a result of the agreement on the 2004 and 2005 U.S. federal income tax audit and related state income tax effects, a $26 million credit was recorded. These two items are included in the Income tax provision for the ~~three months and six~~nine months ended ~~June~~September 30, 2009 in the accompanying consolidated statement of operations.

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 quarter and a $6 million charge relating to 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~~resolved four of the eight pending lawsuits and ~~is on notice of additional claims, and currently~~ believes that it has adequate insurance to resolve ~~these lawsuits and other claims.~~remaining matters. The Company believes that the settlement of these lawsuits will not have a material adverse effect on its consolidated financial statements.

During the 2009 third quarter, in connection with an environmental site remediation action under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), International Paper submitted to the Environmental Protection Agency (EPA) a feasibility study for this site. The EPA has indicated that, during the fourth quarter of 2009, it intends to select a proposed remedial action alternative from those identified in the study and to present this proposal for public comment. Since it is not currently possible to determine the final remedial action that will be required, the Company has accrued, as of September 30, 2009, an estimate of the minimum costs that could be required for this site. When the remediation plan is finalized by the EPA, it is possible that the remediation costs could be significantly higher than amounts currently recorded.

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 and 1990’s (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 11, Commitments and Contingent Liabilities, to the financial statements included in International Paper’s 2008 10-K. All Hardboard Claims were required to be made by January 15, 2008, while all Omniwood and Woodruf Claims were required to be made by January 6, 2009. Net settlement payments for the ~~six-month~~nine-month period ended ~~June~~September 30, 2009 totaled ~~$24~~$35 million. Remaining reserve balances for these settlements totaled ~~$17~~$6 million at ~~June~~September 30, 2009.

International Paper is involved in various other inquiries, administrative proceedings and litigation relating to contracts, real property, intellectual property, environmental, safety, tax, antitrust, personal injury, labor and employment and other matters. 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.

During the nine months ended September 30, 2009, International Paper repaid approximately $1.4 billion ($1.1 billion in the third quarter) of the $2.5 billion long-term debt issued in connection with the CBPR business acquisition.

Pre-tax early debt retirement costs of $118 million related to third quarter debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In May 2009, International Paper issued $1 billion of 9.375% senior unsecured notes with a maturity date in May 2019. The proceeds from this borrowing were used ~~along with available cash,~~ to repay approximately $875 million of notes with interest rates ranging from 4.0% to 9.25% and original maturities from 2010 to ~~2012 and $268 million of long-term debt issued in the first quarter of 2009 by International Paper Investments (Luxembourg) S.a.r.l, a wholly-owned subsidiary of International Paper.~~2012. Also during the second quarter, ~~International Paper repaid $313 million of the $2.5 billion long-term debt issued in connection with the CBPR business acquisition, and~~ International Paper Company Europe Ltd, a wholly-owned subsidiary of International Paper, repaid $75 million of notes issued in connection with the Ilim Holdings S.A. joint ventures that matured during the quarter. Pre-tax early debt retirement costs of $25 million related to ~~these~~second quarter debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations.

In ~~June~~March 2009, International Paper ~~entered into~~Investments (Luxembourg) S.a.r.l, a ~~series~~wholly-owned subsidiary of fixed-to-floating interest rate swap agreements with a notional amount of $500 million due in 2014 to manage interest rate exposure. These interest rate swaps qualify for fair value hedge accounting in accordance with SFAS No. 133.

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

~~Also~~In August 2008, International Paper borrowed $2.5 billion of long-term debt with an initial interest rate of LIBOR plus a margin of 162.5 basis points. The margin can vary depending upon the credit rating of the Company. The debt requires quarterly principal payments, which started in the ~~first~~fourth quarter of ~~2009, International Paper terminated an interest rate swap with~~2008, and has a ~~notional value~~final maturity in August 2013. Debt issuance costs of ~~$100~~approximately $50 million ~~designated as a fair value hedge, resulting in a gain of $11 million that was deferred and~~related to this borrowing were recorded in ~~Long-term debt~~Deferred charges and other assets in the accompanying consolidated balance ~~sheet. As the swap agreement was terminated early, the resulting gain will be~~sheet and are being amortized over the ~~life~~term of the ~~related~~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. As of December 2008, all of the borrowings under the receivables securitization program were repaid.

Also in the third quarter of 2008, the Company repaid $125 million of the $2.5 billion long-term debt ~~through April 2016.~~discussed above, and repurchased $63.5 million of notes with interest rates ranging from 4.25% to 8.70% and original maturities from 2009 to 2038.

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 this debt were recorded in Deferred charges and other assets in the accompanying consolidated balance sheet and will be amortized over the term of the notes.

At ~~June~~September 30, 2009 and December 31, 2008, International Paper classified $450 million and $796 million, respectively, of 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.

At ~~June~~September 30, 2009, the fair value of International ~~Paper had $10.9~~Paper’s $9.6 billion of debt ~~with a fair value of~~was approximately ~~$10.3~~$10 billion. The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~June~~September 30, 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~~transactions that meet the hedge accounting 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, Deferred charges and other assets, Other accrued liabilities ~~and~~or 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.~~totaled losses of approximately $50 million and $27 million for the nine months ended September 30, 2009 and 2008, respectively.

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 ~~June~~September 30, 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 ~~$533~~$112 million and $484 million, respectively.

In the ~~second~~third quarter of 2009, the Company entered into a ~~series of~~ fixed-to-floating interest rate swap ~~agreements~~agreement with a notional ~~amount~~value of ~~$500~~$100 million. The ~~fixed-to-floating~~interest rate ~~swaps were~~swap was effective ~~in June~~August 2009 and ~~mature in June 2014. These~~matures April 2015. The interest rate ~~swaps are~~swap is being accounted for as a fair value ~~hedges in accordance with SFAS No. 133 as hedges~~hedge of the benchmark interest rate.

Also in the third quarter of 2009, in connection with various early debt retirements, interest rate swap hedges with a notional value of $520 million, including $500 million of the swaps issued in the second quarter, were terminated or undesignated as an effective fair value hedge resulting in a gain of approximately $9 million. In addition, a previously deferred gain of $17 million related to earlier swap terminations was recognized in earnings. These gains are included in Restructuring and other charges in the accompanying consolidated statement of operations.

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~~terminated, resulting in ~~connection with early retirement of debt.~~

~~The resulting~~a gain of $11 million that was deferred and recorded in Long-term ~~debt and~~debt. This gain 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~~Any previously recognized gains or losses on effective hedges 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 ~~June~~September 30, 2009, ~~and~~there were no outstanding interest rate swap agreements that qualified as cash flow hedges. At December 31, 2008, the outstanding notional amounts of interest rate swap agreements that ~~qualify~~qualified as cash flow hedges ~~under SFAS No. 133~~ were approximately $1 billion. As

In the third quarter of ~~June 30,~~ 2009, ~~these contracts had maturities~~in connection with various early debt retirements, deferred losses of ~~two years or less. Losses~~approximately $10 million related to earlier swap terminations were reclassified from Other comprehensive loss and included in Restructuring and other charges in the accompanying consolidated statement of ~~$17~~operations.

In September 2009, the Company undesignated $950 million ~~after taxes are expected~~of interest rate swaps that qualified as cash flow hedges and entered into an offsetting $950 million fixed-to-floating interest rate swap with a maturity date in September 2010 to ~~be reclassified to~~minimize the earnings ~~within~~exposure from the ~~next 12 months.~~undesignated swaps.

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 June~~At September 30, 2009, the hedged volumes of these energy contracts totaled one million barrels of fuel oil and 24 million MMBTUs (Million British Thermal Units) of natural gas. ~~As of~~At 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 ~~June~~September 30, 2009. ~~Losses of $24~~Deferred losses totaling $17 million after taxes at September 30, 2009 are expected to be ~~reclassified to~~recognized through 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 June~~At September 30, 2009, these contracts have maturities of two years or less. ~~Gains~~Deferred gains of $4$17 million after taxes at September 30, 2009 are expected to be ~~reclassified to~~recognized through earnings within the next 12 months. As of ~~June~~September 30, 2009 and December 31, 2008, the following outstanding foreign exchange contracts were entered into as cash flow hedges of forecasted transactions:


*In millions*	June 30, 2009	December 31, 2008	September 30, 2009	December 31, 2008
Sell / Buy	Sell Notional	Sell Notional	Sell Notional	Sell Notional
European euro / Brazilian real	16	21	16	21
US dollar / Brazilian real	130	166	212	166
British pounds / Brazilian real	8	—	8	—
European euro / Polish zloty	96	96	133	96

International ~~Paper applies the provisions of SFAS No. 157 to its~~Paper’s 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. For these financial instruments, fair value is determined at each balance sheet date using an income approach ~~which consists of~~based on 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. ~~SFAS No. 157~~The guidance for fair value measurements and disclosures 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:


	Assets						Liabilities						Assets						Liabilities
*In millions*	June 30, 2009			December 31, 2008			June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
Derivatives designated as hedging instruments under SFAS 133
Derivatives designated as hedging instruments
Interest rate contracts – fair value	$	13	(a)	$	27	(b)	$	—		$	—		$	5	(a)	$	27	(b)	$	—		$	—
Interest rate contracts – cash flow		—			—			32	(c)		39	(c)		—			—			—			39	(c)
Commodity contracts – cash flow		13	(f)		—			62	(d)		75	(e)		12	(d)		—			47	(e)		75	(f)
Foreign exchange contracts – cash flow		14	(f)		27	(f)		9	(g)		47	(g)		32	(g)		27	(h)		2	(i)		47	(i)

Total derivatives designated as hedging instruments under SFAS 133	$	40		$	54		$	103		$	161
Total derivatives designated as hedging instruments													$	49		$	54		$	49		$	161

Derivatives not designated as hedging instruments under SFAS 133
Derivatives not designated as hedging instruments
Interest rate contracts	$	—		$	—		$	5	(c)	$	8	(c)	$	—		$	—		$	36	(j)	$	8	(c)
Embedded derivatives		5	(a)		8	(a)		—			—			7	(a)		8	(a)		—			—
Foreign exchange contracts		4	(f)		40	(f)		5	(g)		19	(g)		6	(h)		40	(h)		10	(i)		19	(i)

Total derivatives not designated as hedging instruments under SFAS 133	$	9		$	48		$	10		$	27
Total derivatives not designated as hedging instruments													$	13		$	48		$	46		$	27

Total derivatives	$	49		$	102		$	113		$	188		$	62		$	102		$	95		$	188

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


	Gain or (Loss) Recognized in OCI (Effective Portion)					Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)		(Gain) or Loss Reclassified from OCI into Income (Effective Portion)							Gain (Loss) Recognized in OCI (Effective Portion)								Location of Gain (Loss) Reclassified from OCI into Income (Effective Portion)		(Gain) Loss Reclassified from OCI into Income (Effective Portion)
	2009			2008			2009			2008				2009				2008						2009				2008
Interest rate contracts	$	(3	)	$	1		Interest expense, net		$	10		$	—			$	(6	)		$	(5	)		Interest expense, net		$	21			$	—
Commodity contracts		(3	)		63	Cost of products sold			18			(5	)			(2	)			2			Cost of products sold			27				(10	)
Foreign exchange contracts		15			37	Cost of products sold			1			(32	)			39				19			Cost of products sold			(8	)			(51	)

Total	$	9		$	101			$	29		$	(37	)		$	31			$	16					$	40			$	(61	)

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 ~~$74~~$62 million as of ~~June~~September 30, 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. Salaried 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 16 to the financial statements included in International Paper’s 2008 10-K.

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
*In millions*	2009			2008			2009			2008			2009			2008			2009			2008
Service cost	$	29		$	23		$	60		$	48		$	30		$	28		$	90		$	76
Interest cost		131			136			268			269			134			135			402			404
Expected return on plan assets		(158	)		(168	)		(316	)		(335	)		(159	)		(168	)		(475	)		(503	)
Actuarial loss		36			30			80			60			40			30			120			90
Amortization of prior service cost		8			8			15			15			8			7			23			22

Net periodic pension expense (a)	$	46		$	29		$	107		$	57		$	53		$	32		$	160		$	89

The $15 million decrease in pension expense in the 2009 second quarter compared with the 2009 first quarter reflects the finalization of full-year 2009 pension expense based on actual versus estimated year-end census data. Full-year 2009 pension expense for these plans is now expected to total approximately $215 million.

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 2009. The Company continually reassesses the amount and timing of any discretionary ~~contributions.~~contributions and could elect to make such a contribution in the next twelve months. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$11~~$24 million through ~~June~~September 30, 2009.

International Paper has an Incentive Compensation Plan (ICP) which, upon the approval by the Company’s shareholders in May 2009, replaced the Company’s Long-Term Incentive Compensation Plan (LTICP). The ICP authorizes the grants of restricted stock, restricted or deferred stock units, performance awards payable in cash or stock upon the attainment of specified performance goals, dividend equivalents, stock options, stock appreciation rights, other stock-based awards in the discretion of the Committee, and cash-based awards. The ICP is administered by the Management Development and Compensation Committee of the Board of Directors (the Committee). A detailed discussion of the LTICP, including the stock option program and executive continuity award program that provided for tandem grants of restricted stock and stock options, is presented in Note 18 to the financial statements included in International Paper’s 2008 10-K. As of ~~June~~September 30, 2009, ~~16.1~~16.6 million shares were available for grant under the ICP.

Total stock-based compensation cost recognized in Selling and administrative expenses in the accompanying consolidated statement of operations for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008 was ~~$47~~$72 million and ~~$51~~$83 million, respectively. The actual tax deduction realized for stock-based compensation costs related to non-qualified stock options was $0 and $19,000 for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2009 and 2008, respectively. The actual tax deduction realized for stock-based compensation costs related to restricted and performance shares was $28 million and $130 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2009 and 2008, respectively. At ~~June~~September 30, 2009, ~~$82~~$67 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 ~~1.4~~1.3 years.

Under the Performance Share Program (PSP), contingent awards of International Paper common stock are granted by the Committee to approximately 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~~is estimated based on the vesting period of the awards, the risk-free rate ~~was~~is based on the yield on U.S. Treasury securities matching the vesting period, the expected dividends ~~were~~are assumed to be zero for all companies, and the volatility ~~was~~is based on the Company’s historical volatility over the expected term.

PSP awards issued to certain members of senior management are accounted for as 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):~~PSP:

The following summarizes the activity for PSP for the ~~six~~nine months ended ~~June~~September 30, 2009:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2008	6,254,256		$	32.69	6,254,256		$	32.69
Granted	4,100,080			19.09	4,100,947			19.09
Shares Issued (a)	(3,233,764	)		33.56	(3,341,161	)		33.44
Forfeited	(402,203	)		23.59	(522,974	)		22.78

Outstanding at June 30, 2009	6,718,369		$	24.51
Outstanding at September 30, 2009					6,491,068		$	24.51

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 for the remaining options under the plan as of ~~June~~September 30, 2009 is presented below:


	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic Value (millions)		Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2008	25,093,122		$	39.68				25,093,122		$	39.68
Forfeited	(235,978	)		43.84				(355,321	)		43.84
Expired	(1,714,330	)		44.31				(1,934,680	)		43.63

Outstanding at June 30, 2009	23,142,814		$	39.29	3.3	$	—
Outstanding at September 30, 2009								22,803,121		$	39.28	3.0	$	—

The following summarizes the activity of the Executive Continuity and Restricted Stock Award Program for the ~~six~~nine months ended ~~June~~September 30, 2009:


	Nonvested Shares		Weighted Average Grant Date Fair Value		Nonvested Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2008	102,000		$	35.11	102,000		$	35.11
Granted	5,000			11.80	5,000			11.80
Shares Issued	(4,000	)		28.74	(4,000	)		28.74
Forfeited	—			—	—			—

Outstanding at June 30, 2009	103,000		$	34.23
Outstanding at September 30, 2009					103,000		$	34.23

~~In August~~On October 22, 2009, ~~the~~International Paper announced plans to close its paper mill and associated operations in Franklin, Virginia, and its containerboard mills in Pineville, Louisiana and Albany, Oregon. The Company ~~announced that it had priced $1.0 billion of 7.50% senior unsecured notes due in 2021, and~~ also announced that it ~~had commenced~~would permanently shut down the previously idled No. 3 machine at its Valliant, Oklahoma containerboard mill. The Valliant mill’s other two machines will continue to operate. These permanent shutdowns will reduce the Company’s North American paper and containerboard capacity by 2.1 million tons. The closures will impact about 1,600 employees.

The Company estimates that these closures will result in noncash asset write-off and accelerated depreciation charges of approximately $1.1 billion and cash ~~tender offers~~severance charges of approximately $60 million to ~~repurchase any~~be recorded in the fourth quarter of 2009 and ~~all~~first quarter of ~~its outstanding 7.40% notes due 2014,~~2010, plus additional closure costs to be determined and ~~some or all of its 7.20% notes due 2026 and 5.50% notes due 2014 up to a maximum of $1.0 billion less~~recorded as the ~~principal amount of any repurchases of the 7.40% notes.~~facilities are closed.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008			2009			2008			2009			2008
Industrial Packaging	$	2,270		$	1,470		$	4,450		$	2,915		$	2,230		$	2,320		$	6,680		$	5,235
Printing Papers		1,360			1,790			2,685			3,505			1,470			1,800			4,155			5,305
Consumer Packaging		770			795			1,485			1,565			790			830			2,275			2,395
Distribution		1,595			1,970			3,185			3,955			1,665			2,075			4,850			6,030
Forest Products		10			55			15			80			5			55			20			135
Corporate and Inter-segment Sales		(203	)		(273	)		(350	)		(545	)		(241	)		(272	)		(591	)		(817	)

Net Sales	$	5,802		$	5,807		$	11,470		$	11,475		$	5,919		$	6,808		$	17,389		$	18,283


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008			2009			2008			2009			2008
Industrial Packaging	$	382	(2,3,4)	$	87		$	742	(2,3,4)	$	184		$	410	(2,3,4)	$	95	(5)	$	1,152	(2,3,4)	$	279	(5)
Printing Papers		279	(2,5)		226			591	(2,5)		411			363	(2,6)		103	(7)		954	(2,6)		514	(7)
Consumer Packaging		114	(2,6)		13	(6)		226	(2,6)		22	(6)		144	(2,8)		(2	)(8)		370	(2,8)		20	(8)
Distribution		10			26			3			42			21			35			24			77
Forest Products		3			41			5			66			2			305			7			371

Operating Profit ~~(1)~~		788			393			1,567			725			940			536			2,507			1,261
Interest expense, net		(173	)		(81	)		(337	)		(162	)		(169	)		(144	)		(506	)		(306	)
Noncontrolling interests/equity earnings adjustment ~~(7)~~(9)		8			8			14			12			5			(1	)		19			11
Corporate items, net		(44	)		(21	)		(95	)		(42	)		(46	)		(40	)		(141	)		(82	)
Restructuring and other charges		(59	)		—			(111	)		(37	)		(141	)		(89	)		(252	)		(126	)
Sale of forestlands		—			3			—			3			—			3			—			6
Net gains on sales and impairments of businesses		—			—			—			1			—			—			—			1

Earnings from continuing operations before income taxes and equity earnings	$	520		$	302		$	1,038		$	500		$	589		$	265		$	1,627		$	765

Equity earnings (loss) in Ilim Holding S.A., net of taxes (1)	$	(30	)	$	32		$	(56	)	$	49		$	—		$	5		$	(56	)	$	54

(2)

Includes gains of ~~$208~~$221 million and ~~$416~~$637 million for the Industrial Packaging segment, ~~$197~~$226 million and ~~$437~~$663 million for the Printing Papers segment, and ~~$77~~$78 million and ~~$169~~$247 million for the Consumer Packaging segment for the three months and ~~six~~nine months ended ~~June~~September 30, 2009, respectively, relating to alternative fuel mixture credits.

(4)

Includes charges of $7 million and $22 million for the three months and nine months ended September 30, 2009, respectively, for severance and other costs related to the planned closure of the Etienne mill in France, and a charge of $48 million for the nine months ended September 30, 2009 to write down the assets at the Etienne mill ~~in France~~ to estimated fair ~~value and $15 million for severance and other costs related to the Etienne mill.~~value.


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
*In thousands of short tons*	2009	2008	2009	2008	2009	2008	2009	2008
Industrial Packaging
Corrugated Packaging (4)	1,899	896	3,675	1,778	1,856	1,641	5,531	3,419
Containerboard (4)	530	493	1,001	999	580	686	1,581	1,686
Recycling (4)	598	—	1,193	—	566	397	1,759	397
Saturated Kraft	29	39	50	85	33	45	83	130
Bleached Kraft	17	22	30	41	22	24	52	65
European Industrial Packaging	268	288	538	583	252	261	790	844
Asia Industrial Packaging	139	152	227	290	200	154	427	443

Industrial Packaging	3,480	1,890	6,714	3,776	3,509	3,208	10,223	6,984

Printing Papers
U.S. Uncoated Papers	702	868	1,395	1,778	753	875	2,148	2,653
European and Russian Uncoated Papers	332	373	702	746	304	355	1,006	1,101
Brazilian Uncoated Papers	234	211	414	421	282	217	696	638
Asian Uncoated Papers	12	7	15	15	25	6	40	21

Uncoated Papers	1,280	1,459	2,526	2,960	1,364	1,453	3,890	4,413

Market Pulp (3)	375	416	692	770	422	448	1,114	1,218

Consumer Packaging
U.S. Coated Paperboard	318	399	608	799	324	403	932	1,202
European Coated Paperboard	92	73	179	154	86	81	265	235
Asia Coated Paperboard	218	123	407	248	221	138	628	386
Other Consumer Packaging	42	46	88	87	42	48	130	136

Consumer Packaging	670	641	1,282	1,288	673	670	1,955	1,959

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~~In the ~~continuation of challenging global economic conditions,~~2009 third quarter, International Paper Company ~~posted outstanding~~delivered solid operating results despite still-challenging market and economic conditions. While overall demand for the ~~2009 second quarter. While earnings remained well below 2008~~Company’s products was essentially flat compared with second-quarter levels, ~~earnings before special items for~~we began to see signs of improving demand as the third quarter improved from the 2009 first quarter. Compared with the prior quarter, benefits from higher sales volumes were about offset by lower average selling prices. However, lower wood, chemical and energy costs, continued strong manufacturing operating performance and solid progress on cost reduction initiatives contributedended. The Company was able to ~~the earnings increase. We also generated solid operating cash flow~~expand margins during the quarter, ~~enabling us~~and generated strong cash flow from operations which was used to reduce long-term debt ~~balances~~ by ~~$600 million during the quarter, with an additional $600 million reduction in July.~~$1.3 billion.

Looking ahead to the ~~third~~2009 fourth quarter, we expect ~~to continue to face challenging economic conditions. However, it appears that~~seasonal decreases in demand for ~~our major~~paper and packaging products ~~has stabilized. Demand for printing papers~~ in North America and stable to modestly increasing demand in other global ~~market~~markets. Paper pricing is expected to be stable, while pulp prices should ~~be similar to second-quarter levels, with slight increases in uncoated freesheet shipments expected outside~~improve and box prices should decline reflecting the ~~United States. Demand~~impact of already published containerboard price decreases. Planned maintenance outage expenses should increase by about $30 million in North America, but should decline by about $10 million in Europe. Input costs for ~~containerboard and boxes~~natural gas should increase in the fourth quarter due to seasonally higher consumption, while other energy costs remain about flat. Wood costs and ~~containerboard export shipments should be higher. Seasonal decreases~~freight costs are ~~anticipated~~expected to increase, while OCC (old corrugated container) and chemical costs remain about flat. Earnings for European box shipments. Price realizations for uncoated freesheet should remain at or near second-quarter levels, while global pulp prices should continue to increase. North American containerboard pricesour xpedx distribution business should remain stable, but box price realizations are expected to decline, reflecting containerboard price decreases published in the second quarter. Planned maintenance expenses should decrease, although input costs for wood, chemicals and ~~energy are expected to increase. We also~~we expect ~~solid~~some improvement in equity earnings from our investment in Ilim ~~joint venture~~Holding S.A. Additionally, the Company will record significant asset write-off and severance charges in ~~Russia.~~the fourth quarter related to the recently announced paper and containerboard mill shutdowns. Considering all of these factors, we expect ~~third-quarter~~2009 fourth-quarter earnings ~~should~~will be ~~similar to second-quarter levels.~~significantly less than in the third quarter.

For the ~~second~~third quarter of 2009, International Paper reported net sales of ~~$5.8~~$5.9 billion, compared with $6.8 billion in the third quarter of 2008 and $5.8 billion in the second ~~quarter of 2008 and $5.7 billion in the first~~ quarter of 2009.

Net earnings attributable to International Paper totaled $371 million, or $0.87 per share, in the 2009 third quarter. This compared with earnings of $149 million, or $0.35 per share, in the third quarter of 2008 and $136 million, or $0.32 per share, in the ~~2009~~ second ~~quarter. This compared with net earnings of $227 million, or $0.54 per share, in the second quarter of 2008 and $257 million, or $0.61 per share, in the first~~ quarter of 2009.

Earnings from continuing operations attributable to International Paper (excluding noncontrolling interests) were $136 million in the second quarter of 2009 compared with $228 million in the second quarter of 2008 and $257 million in the 2009 first quarter. Compared with the ~~second~~third quarter of 2008, earnings in the 2009 ~~second~~third quarter benefited from ~~earnings from the CBPR business acquired in the 2008 third quarter ($56 million),~~ lower operating costs, ~~and a more favorable~~partially offset by an unfavorable mix of products sold ($5764 million), lower mill outage costs ($320 million), ~~and~~ lower raw material and freight costs ($87196 million), and a lower income tax provision ($6 million). These benefits were offset by lower average price realizations ($22132 million), lower sales volumes and higher lack-of-order downtime ($~~155~~128 million), lower earnings from land and mineral sales ($~~26 million), higher net interest expense ($61~~204 million), higher corporate items and other costs ($242 million), and a higher ~~income tax provision~~net interest expense ($214 million) ~~reflecting a slightly higher estimated effective tax rate in 2009.~~. Equity earnings, net of taxes, relating to International Paper’s investment in Ilim Holding S.A. were ~~$62~~$5 million lower in the 2009 ~~second~~third quarter than in the 2008 ~~second~~third quarter. Net special items were a gain of ~~$50~~$214 million in the 2009 ~~second~~third quarter, compared with a loss of $7$207 million in the 2008 ~~second~~third quarter.

Compared with the ~~first~~second quarter of 2009, earnings from continuing operations benefited from higher sales volumes and lower lack-of-order downtime ($~~84 million), lower manufacturing costs ($31~~39 million), lower raw material and freight costs ($5111 million), lower mill outage costs ($45 million), decreased corporate items and other costs ($6 million), and a lower income tax provision ($8 million) reflecting a lower estimated effective tax rate in 2009. These benefits were partially offset by lower average price realizations ($53 million), a less favorable mix of products sold, partially offset by lower operating costs ($17 million), and slightly ~~higher~~lower earnings from land and mineral sales ($1 million). ~~These benefits were offset by lower average price realizations ($80 million) and higher mill outage costs ($26 million).~~ Net interest expense ~~increased~~decreased ($53 million). Equity earnings, net of taxes for Ilim

Holding, S.A. ~~decreased~~increased by $4$30 million versus the ~~first~~second quarter. Net special items were a gain of ~~$50~~$214 million in the 2009 ~~second~~third quarter versus a gain of ~~$223~~$50 million in the ~~first~~second quarter of 2009.

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 noncontrolling ~~interest~~interests net of taxes, excluding interest expense, corporate charges and special items that include restructuring charges, gains (losses) on sales and impairments of businesses, and the reversal of reserves no longer required.

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


	Three Months Ended									Three Months Ended
	June 30,						March 31,			September 30,						June 30,
*In millions*	2009			2008			2009			2009			2008			2009
Net Earnings Attributable to International Paper Company	$	136		$	227		$	257		$	371		$	149		$	136
Discontinued operations		—			1			—

Earnings From Continuing Operations Attributable to International Paper Company		136			228			257
Add back (deduct):
Income tax provision		348			97			230			212			118			348
Equity losses (earnings), net of taxes		32			(30	)		27
Equity earnings, net of taxes											—			(5	)		32
Noncontrolling interests, net of taxes		4			7			4			6			3			4

Earnings From Continuing Operations Before Income Taxes and Equity Earnings		520			302			518			589			265			520
Interest expense, net		173			81			164			169			144			173
Noncontrolling interests / equity earnings included in operations		(8	)		(8	)		(6	)		(5	)		1			(8	)
Corporate items		44			21			51			46			40			44
Special items:
Restructuring and other charges		59			—			52			141			89			59
Sale of forestlands		—			(3	)		—			—			(3	)		—

	$	788		$	393		$	779		$	940		$	536		$	788

Industry Segment Operating Profit
Industrial Packaging	$	382		$	87		$	360		$	410		$	95		$	382
Printing Papers		279			226			312			363			103			279
Consumer Packaging		114			13			112			144			(2	)		114
Distribution		10			26			(7	)		21			35			10
Forest Products		3			41			2			2			305			3

Total Industry Segment Operating Profit (1)	$	788		$	393		$	779		$	940		$	536		$	788

Industry segment operating profits of $940 million in the 2009 third quarter were higher than both $536 million in the 2008 third quarter and $788 million in the 2009 second ~~quarter were higher than both the $393 million in the 2008 second quarter and the $779 million in the 2009 first~~ quarter. Compared with the ~~second~~third quarter of 2008, earnings in the current quarter benefited from ~~earnings from the CBPR business acquired in the 2008 third quarter ($83 million),~~ lower operating costs, ~~and~~partially offset by a ~~more~~less favorable mix of products sold ($8593 million), lower mill outage costs ($430 million), ~~and~~ lower raw material and freight costs ($~~129~~290 million), and lower corporate items and other costs ($9 million). These benefits were offset by lower average price realizations ($33196 million), lower sales volumes and increased lack-of-order downtime ($~~230~~189 million), and lower gains from land and mineral sales ($~~39 million), and higher corporate items and other costs ($13~~303 million). Special items consisted of a gain of ~~$396~~$497 million in the 2009 ~~second~~third quarter, including a pre-tax gain of ~~$482~~$525 million from alternate fuel mixture credits, compared with a loss of ~~$13~~$173 million in the 2008 ~~second~~third quarter.

Compared with the 2009 ~~first~~second quarter, operating profits benefited from ~~lower manufacturing costs ($47 million),~~ higher sales volumes and decreased lack-of-order downtime ($~~126~~59 million), lower raw material and freight costs ($7717 million), lower mill outage costs ($67 million), and lower Corporate items and other costs ($16 million). These benefits were partially offset by lower average price realizations ($79 million), an unfavorable mix of products sold, partially offset by lower operating costs ($28 million), and slightly ~~higher~~lower gains from land and mineral sales ($1 million). ~~These benefits were offset by lower average price realizations ($120 million) and higher mill outage costs ($39 million). Corporate items and other costs increased ($6 million).~~ Special items consisted of gains of $497 million in the 2009 third quarter versus $396 million in the ~~2009~~ second ~~quarter versus $473 million in the first~~ quarter of 2009.

During the 2009 third quarter, International Paper took approximately 715,000 tons of downtime, including 555,000 tons that were market-related, compared with approximately 360,000 tons of downtime in the third quarter of 2008, including 55,000 tons that were market-related. During the 2009 second quarter, International Paper took approximately ~~925,000~~1,025,000 tons of downtime, including ~~675,000~~775,000 tons that were lack-of-order related, compared with approximately 270,000 tons of downtime in the second quarter of 2008, which included essentially no tons of lack-of-order related downtime. During the 2009 first quarter, International Paper took approximately 1,220,000 tons of downtime, including 1,075,000 tons that were lack-of-order related.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 ~~lack-of-order related~~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, and a $2 million charge before taxes ($1 million after taxes) for operating losses related to certain wood products facilities.

The income tax provision was $212 million for the 2009 third quarter. Excluding an expense of $142 million relating to the tax effects of special items, the effective income tax rate for continuing operations was 30% for the quarter. The decrease versus the 2009 second quarter rate reflects adjustments of prior-year income tax estimates upon the filing of the Company’s 2008 income tax return.

The income tax provision was $348 million for the 2009 second quarter. Excluding a $156 million charge to establish a valuation allowance for ~~deferred tax assets~~net operating loss carryforwards in France, a $26 million benefit relating to the completion of the ~~2004~~Internal Revenue Service examination of the Company’s 2005 and ~~2005 U.S.~~2004 federal income tax ~~audit and related state income tax effects,~~returns, and an expense of $157 million relating to the tax effects of special items, the effective income tax rate for continuing operations was 33% for the quarter.

~~In the 2009 first quarter, the~~The income tax provision ~~totaled $230 million.~~was $118 million in the 2008 third quarter. Excluding a ~~$14~~$52 million 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 millionbenefit relating to the tax effects of special items, the effective income tax rate for continuing operations was ~~33%~~32.5% for the quarter.

The income tax provision was $97 million in the 2008 second quarter. Excluding a $3 million benefit related to the tax effects of special items, the effective income tax rate for continuing operations before special items was 32.5%.

Net interest expense for the 2009 ~~second~~third quarter was ~~$173~~$169 million compared with ~~$164~~$173 million for the 2009 ~~first~~second quarter and ~~$81~~$144 million for the 2008 ~~second~~third quarter. The higher net expense versus the ~~prior year~~2008 third quarter reflects the issuance of $6 billion of debt, mainly in connection with the acquisition of the CBPR business. ~~The increase compared with the 2009 first quarter reflects slightly lower interest income.~~

Corporate items, net, ~~were~~totaled $46 million in the third quarter of 2009 compared with $44 million ~~of net expense~~ in the second quarter of 2009 ~~compared with $51~~and $40 million in the ~~first quarter of 2009 and $21 million in the second~~third quarter of 2008. The ~~decline compared with~~slight increase versus the ~~first-quarter principally reflects the finalization of full-year 2009~~second-quarter was due to slightly higher pension expense, ~~based on actual versus estimated year-end census data. The~~while the increase from the 2008 ~~second~~third quarter reflects higher pension expense, partially offset by lower supply chain initiative costs and the effect of an $11 million gain on the sale of the former Natchez mill site in 2008. Overhead charges allocated to industry segments in the second quarter of 2009 were about even with the first quarter of 2009 as higher benefit-related costs were offset by lower inventory-related costs. Overhead charges allocated to industry segments in the ~~second~~third quarter of 2009 were ~~$34~~$24 million

~~higher~~ lower than in the second quarter of 2009 as lower inventory-related costs were partially offset by higher workers’ compensation costs. Overhead charges allocated to industry segments in the third quarter of 2009 were lower than in the third quarter of 2008 reflecting lower inventory-related costs, partially offset by higher benefit-related costs and hedging ~~expenses, partially offset by lower inventory-related costs.~~expenses.

During the third quarter of 2009, restructuring and other charges totaling $151 million before taxes ($95 million after taxes) were recorded, including a $102 million charge before taxes ($62 million after taxes) for costs related to the early extinguishment of debt (see Note 12), a $39 million charge before taxes ($24 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead reduction program, a $7 million charge, before and after taxes, for severance and other costs related to the planned closure of the Company’s Etienne mill in France, a $3 million charge before taxes ($2 million after taxes) for other closure costs.

During the second quarter of 2009, restructuring and other charges totaling $79 million before taxes ($55 million after taxes) were recorded, including a $34 million charge before taxes ($21 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead reduction program, a $25 million charge before taxes ($16 million after taxes) related to early debt extinguishment costs, a $15 million charge, before and after taxes, for severance and other costs related to the closure of the Company’s Etienne mill in France, and a $5 million charge before taxes ($3 million after taxes) for other closure costs. Additionally, the second quarter income tax provision included a $156 million charge to establish a valuation allowance for deferred tax assets in France, and a $26 million credit related to the settlement of certain tax issues (see Note 10).

During the third quarter of 2008, restructuring and other charges totaling $97 million before taxes ($60 million after taxes) were recorded, including $35 million before taxes ($22 million after taxes) for adjustments to legal reserves, $53 million before taxes ($33 million after taxes) to write-off supply chain initiative development costs for U.S. container operations that will not be implemented due to the CBPR acquisition, $8 million before taxes ($5 million after taxes) for costs associated with the reorganization of the Company’s Shorewood operations in Canada, and $1 million before taxes ($0 million after taxes) for severance costs associated with the Company’s Transformation Plan.

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

During the second quarter of 2009, based on a current strategic plan update of projected future operating results of the Company’s Etienne, France mill, a determination was made that the current book value of the mill’s long-lived assets exceeded their estimated fair value, calculated using the probability-weighted present value of projected future cash flows. As a result, a $48 million charge, before and after taxes, was recorded 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 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 Paper’s industry segment to write down the long-lived assets of the mill to their estimated fair value. This charge is included in Net losses on sales and impairments of businesses in the accompanying consolidated statement of operations.

The following presents business segment discussions for the ~~second~~third quarter of 2009.


	2009					2008						2009						2008
*In millions*	2^nd Quarter		1^st Quarter		Six Months	2^nd Quarter		1^st Quarter		Six Months		3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months
Sales	$	2,270	$	2,180	4,450	$	1,470	$	1,445	$	2,915	$	2,230	$	2,270	$	6,680	$	2,320	$	1,470	$	5,235
Operating Profit		382		360	742		87		97		184		410		382		1,152		95		87		279

Industrial Packaging net sales for the ~~second~~third quarter of 2009 were ~~4% higher than in the first quarter of 2009, and 54% higher~~2% lower than in the second quarter of 2009, and 4% lower than in the third quarter of 2008. Operating profits in ~~both~~ the ~~second~~third and ~~first~~second quarters of 2009 included gains of $221 million and $208 million, respectively, relating to alternative fuel mixture credits. Operating profits also included $7 million and $63 million of costs in the 2009 third and second quarters, respectively, associated with the planned closure of the Etienne mill in France, ~~in the 2009 second quarter,~~ and costs of $18 million in both the 2009 third and ~~$36~~second quarters and $58 million in the ~~2009 second and first quarters, respectively,~~2008 third quarter for CBPR integration costs. Excluding these items, operating profits in the third quarter of 2009 of $214 million were 16% lower than $255 million in the second quarter of 2009 ~~were 36%~~and 40% higher than $153 million in the ~~first quarter of 2009 and significantly higher than the second~~third quarter of 2008. Sales and profits for all of 2009 and the ~~2009 second and first quarters~~2008 third 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 quarter of 2009 compared with $2.0 billion in the second quarter of 2009 ~~compared with~~and $1.9 billion in the ~~first quarter of 2009 and $1.0 billion in the second~~third quarter of 2008. Operating earnings were $404 million ($201 million excluding alternative fuel mixture credits and CBPR integration costs) in the third quarter of 2009 compared with $431 million ($241 million excluding alternative fuel mixture credits and CBPR integration costs) in the second quarter of 2009 ~~compared with $347~~and $82 million ($~~175~~140 million excluding ~~alternative fuel mixture credits and~~ CBPR integration costs) in the ~~first quarter of 2009 and $65 million in the second~~third quarter of 2008.

Sales volumes decreased slightly in the third quarter of 2009 compared with the second quarter of 2009. Containerboard volumes increased due to higher shipments to export markets, but were more than offset by lower box volumes, although box shipments did strengthen toward the end of the quarter. Average sales price realizations for boxes declined in line with previously announced published containerboard price decreases. Margins for boxes decreased due to higher containerboard costs. Planned maintenance downtime costs were significantly lower than in the 2009 second quarter. Input costs for wood, wax and chemicals were lower, but were more than offset by higher recycled fiber costs. Freight costs increased reflecting higher fuel costs. Manufacturing costs were unfavorable compared with the prior quarter as benefits from operating efficiencies and cost control initiatives were more than offset by the effects of a fire at one of our mills. In the third quarter of 2009, the business took about 520,000 tons of downtime, of which 465,000 tons related to lack of orders, compared with total downtime in the second quarter of 2009 ~~compared with the first quarter~~ of 2009 due to some seasonal improvement in box volumes and higher shipments to export markets. Average price realizations for both containerboard and boxes declined although margins improved with higher acquisition synergies, less downtime and the impact of lower input costs and cost control measures. Planned maintenance downtime costs were about even with the 2009 first quarter. Input costs for wood, recycled fiber, energy, wax and chemicals were lower, and freight costs also decreased reflecting lower fuel costs. Manufacturing costs were favorable reflecting increased efficiencies and benefits from cost control initiatives. In the second quarter of 2009, the business took 580,000 tons of downtime of which 450,000 tons related to lack of orders compared

~~with total downtime in the first quarter of 2009 of 805,000~~680,000 tons, of which ~~730,000~~550,000 tons related to lack of orders.

Compared with the ~~second~~third quarter of 2008, sales volumes and average sales price realizations were lower for both containerboard and boxes ~~were lower (excluding the impact of the CBPR acquisition)~~ reflecting weaker customer ~~demand. Average sales price realizations for containerboard~~demand and ~~boxes were lower due to weak~~poor economic conditions. Manufacturing costs were significantly lower ~~particularly~~ in both the mills and box plants reflecting ~~the~~ benefits from cost control initiatives and acquisition synergies. Costs associated with planned mill maintenance downtime were lower in the 2009 ~~second~~third quarter, and input costs ~~particularly~~ for wood, energy, recycled fiber and ~~energy,~~chemicals were ~~also~~significantly lower. NoAbout 35,000 tons of lack-of-order downtime was taken in the ~~second~~third quarter of 2008.

Looking ahead to the 2009 ~~third~~fourth quarter, sales volumes are expected to ~~improve~~decline for containerboard ~~due to~~despite higher export shipments, while box volumes should ~~remain about even with the second quarter. Total mill downtime is expected~~decrease slightly due to ~~be lower with~~ fewer ~~maintenance outages and less lack-of-order downtime.~~fourth-quarter sales days. Average sales price realizations and margins are expected to reflect continued competitive pressures and a less favorable geographic sales mix. ~~Input~~Planned maintenance downtime costs will be significantly higher, while input costs are also expected to be ~~higher for recycled fiber and~~unfavorable due to rising energy ~~while~~ costs ~~for chemicals should continue to decline.~~as we enter the winter months.

European Industrial Packagingnet sales were $240 million in both the ~~second~~third and ~~first~~second quarters of 2009 compared with ~~$315~~$285 million in the ~~second~~third quarter of 2008. Operating earnings were $6 million ($13 million excluding costs associated with the planned closure of the Etienne mill in France) in the third quarter of 2009 compared with a loss of $49 million ~~(earnings~~(a gain of $14 million excluding costs associated with the Etienne ~~mill in France)~~mill) in the second quarter of 2009 ~~compared with earnings~~and a gain of ~~$13~~$11 million in the ~~first quarter of 2009 and $20 million in the second~~third quarter of 2008.

Sales volumes in the ~~second~~third quarter of 2009 were only slightly lower than in the ~~first~~second quarter of 2009 reflecting ~~seasonally weaker fruit~~the impact of a strong summer agricultural season in France and ~~vegetable box demand~~Italy which largely offset ~~by a strong start to~~ the ~~summer agricultural season. Demand for boxes for~~weak industrial ~~segments remained weak.~~market segments. Sales margins ~~improved~~were flat as slight reductions in kraft and recycled containerboard costs ~~continued to exceed~~early in the ~~declines in~~quarter offset softer box ~~prices. Operating expenses were unfavorable reflecting higher bad debt charges.~~pricing. Input costs ~~decreased due to lower~~for energy ~~prices and reduced consumption.~~were higher, but freight costs decreased.

Compared with the 2008 ~~second~~third quarter, sales volumes in the 2009 ~~second~~third quarter were ~~lower,~~slightly higher, reflecting the ~~weak demand for industrial packaging containers. Agricultural box sales volumes were slightly higher.~~strong summer agricultural season in France and Italy. Sales margins were also higher ~~as box prices did not decline as much~~ as costs for kraft and recycled ~~containerboard.~~containerboard declined more than box prices. Input costs were favorable, primarily for energy, while operating costs were about flat.

Entering the ~~third~~fourth quarter, sales volumes are expected to ~~decline~~increase due to ~~seasonally slower~~the winter agricultural ~~business combined with continued weakness~~season in Morocco and Spain, while industrial ~~segments.~~market segments should continue to be weak. Sales margins at box plants should be lower as board costs are expected to continue to ~~be favorable despite some erosion in~~increase while box ~~prices.~~prices improve slightly.

Asian Industrial Packagingnet sales were $100 million in the third quarter of 2009 compared with $75 million in the second quarter of 2009 ~~compared with $55~~and $100 million in the ~~first quarter of 2009 and $95 million in the second~~third quarter of 2008. Operating earnings were about breakeven in both the ~~second~~third and ~~first~~second quarters of 2009, but were $2 million in the ~~second~~third quarter of 2008.


	2009						2008
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months
Sales	$	1,470	$	1,360	$	4,155	$	1,800	$	1,790	$	5,305
Operating Profit		363		279		954		103		226		514

Printing Papers net sales for the ~~second~~third quarter of 2009 were 3%8% higher ~~than in the first quarter of 2009, but were 24% lower~~ than in the second quarter of 2009, but were 18% lower than in the third quarter of 2008. Operating profits in the third quarter of 2009 included a $226 million gain relating to alternative fuel mixture credits and $1 million of facility closure costs, while operating profits in the second quarter of 2009 included a gain of $197 million ~~gain~~ relating to alternative fuel mixture credits and $4 million of facility closure costs, ~~while~~and operating profits in the ~~first~~third quarter of ~~2009~~2008 included a ~~gain~~$107 million impairment charge to write down the assets of ~~$240 million relating to alternative fuel mixture credits and $29 million of facility closure costs.~~the Inverurie, Scotland mill. Excluding these items, operating profits in the third quarter of 2009 of $138 million were 60% higher than $86 million in the second quarter of 2009 ~~were 15%~~and 34% lower than $210 million in the ~~first quarter of 2009 and 62% lower than in the second~~third quarter of 2008.

North American Printing Papersnet sales were $725 million in the third quarter of 2009 compared with $685 million in the second quarter of 2009 ~~compared with $705~~and $905 million in the ~~first quarter of 2009 and $880 million in the second~~third quarter of 2008. Operating earnings were ~~$205~~$254 million ($6192 million excluding alternative fuel mixture credits and facility closure costs) in the ~~second~~third quarter of 2009 compared with ~~$276~~$205 million ($8461 million excluding alternative fuel mixture credits and closure costs) in the ~~first~~second quarter of 2009 and ~~$125~~$131 million in the ~~second~~third quarter of 2008.

Sales volumes in the third quarter of 2009 were higher than in the second quarter of 2009 ~~were only slightly higher than in the first quarter of 2009 as~~reflecting increased shipments to both domestic and export ~~shipments partially offset lower domestic shipments.~~markets. Average sales price realizations for uncoated freesheet paper declined slightly in domestic markets, but ~~were significantly lower~~improved in export markets. Input costs for wood, energy and chemicals were favorable. Planned maintenance downtime costs were about ~~$21 million higher,~~flat, reflecting outages at three mills in the third quarter versus four mills in the second ~~quarter versus one mill in the first~~ quarter. Manufacturing operating costs were favorable ~~reflecting the impact~~as a result of cost control efforts and ~~excellent~~strong machine performance. The business took total downtime of 72,000 tons in the third quarter, of which 42,000 tons were due to lack-of-order downtime, compared with total downtime of 166,000 tons in the second quarter, of which 132,000 tons ~~were~~related to lack-of-order ~~downtime compared with total downtime of 161,000 tons, of which 152,000 tons were lack-of-order downtime, in the first quarter.~~downtime.

Compared with the ~~second~~third quarter of 2008, sales volumes 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 a paper machine at the Franklin mill in December 2008.~~demand. Average sales price realizations for uncoated freesheet paper ~~increased slightly~~decreased in domestic markets ~~but~~and were significantly lower in export markets. Lack-of-order downtime in the current quarter was higher than in the ~~second~~third quarter of 2008 when ~~almost none~~about 5,000 tons was taken. Input costs were lower ~~with~~due to a significant decrease in energy costs ~~partially offset by higher~~coupled with lower costs for wood ~~costs.~~and chemicals. Freight costs were also lower. Manufacturing costs were favorable reflecting cost reduction efforts and strong ~~operations, and the absence of the higher-cost Louisiana mill. Planned~~operating performance, while planned maintenance downtime costs were ~~about flat with~~higher than in the 2008 ~~second~~third quarter.

Looking ahead to the ~~third~~fourth quarter of 2009, sales volumes are expected to be ~~up slightly reflecting a seasonal increase in specialty papers shipments and higher exports.~~seasonally lower. Average sales price realizations should ~~continue~~be comparable to ~~be under pressure, particularly for~~third-quarter levels with a slight increase expected in uncoated freesheet ~~paper in domestic markets.~~prices. Input costs for wood, energy and chemicals are expected to be ~~favorable while energy and chemical costs should be about flat.~~higher. Planned maintenance expenses will be lower in the ~~third~~fourth quarter when only one outage is scheduled.

European Printing Papersnet sales were $300 million in the third quarter of 2009 compared with $315 million in the second quarter of 2009 ~~compared with $325~~and $425 million in the ~~first quarter of 2009 and $445 million in the second~~third quarter of 2008. Operating earnings in the third quarter of 2009 were $28 million compared with $16 million in the second quarter of 2009 ~~were $16~~and a loss of $78 million ~~compared with earnings~~(a gain of ~~$2 million ($25~~$29 million excluding ~~expenses associated with~~an impairment charge to write down the ~~closure~~assets of the Inverurie, Scotland ~~mill)~~mill to estimated fair value) in the ~~first quarter of 2009 and $39 million in the second~~third quarter of 2008.

Sales volumes in the ~~second~~third quarter of 2009 were lower than in the ~~first~~second quarter of 2009 reflecting reduced sales of uncoated freesheet paper following the closure of the Inverurie, Scotland mill. Average sales price realizations for uncoated freesheet paper declined ~~significantly~~ across ~~most of~~ Western Europe ~~but increased in the U.K.~~ and Russia. Manufacturing costs were ~~unfavorable~~favorable due to improved operating performance and lower planned maintenance downtime ~~costs were higher with outages at the Saillat mill in France and the Svetogorsk mill in Russia. Energy, wood~~costs. Wood and chemical costs were lower in all three geographic ~~areas.~~areas, but energy costs were higher in Russia. Foreign exchange movements were ~~favorable~~slightly unfavorable during the quarter.

Compared with the 2008 ~~second~~third quarter, sales volumes in the 2009 ~~second~~third quarter declined primarily due to ~~lower~~the lack of uncoated freesheet paper volumes shipped in 2008 from the Inverurie mill in Scotland. Average sales price realizations were significantly lower across most of Western Europe, but remained higher in Poland and Russia due to local currency devaluations. Manufacturing costs were ~~unfavorable~~favorable, and planned maintenance downtime costs were ~~higher~~lower due to the ~~Saillat~~shorter duration of the annual Kwidzyn mill outage. Input costs were favorable as lower wood costs, particularly in Russia, more than offset higher energy costs in ~~Poland.~~Poland and Russia. Favorable foreign exchange movements significantly improved the margins at the Kwidzyn mill in Poland.

In the 2009 ~~third~~fourth quarter, sales volumes are expected to be ~~lower~~higher than in the ~~second~~third quarter reflecting a seasonal ~~slowdown~~improvement in ~~demand and lower shipments from the Svetogorsk mill in Russia to Western Europe.~~demand. Average sales price realizations may ~~ease~~decline slightly during the ~~third~~fourth quarter, but should be more stable than ~~experienced~~ in the previous ~~two~~three quarters. Planned maintenance downtime expenses are expected to be significantly lower, while input costs ~~should remain about flat.~~are expected to increase due to seasonally higher wood and energy costs.

Brazilian Printing Papersnet sales were $275 million in the third quarter of 2009 compared with $215 million in the second quarter of 2009 ~~compared with $170 million in the first quarter of 2009~~ and $255 million in the ~~second~~third quarter of 2008. Operating earnings in the third quarter of 2009 were $36 million compared with $23 million in the second quarter of 2009 ~~were $23 million compared with $20~~and $58 million in the ~~first quarter of 2009 and $51 million in the second~~third quarter of 2008.

Sales volumes in the ~~second~~third quarter of 2009 increased compared with the ~~first~~second quarter of 2009, reflecting ~~seasonally higher demand for~~increased shipments to both ~~uncoated freesheet paper~~Brazilian domestic and ~~pulp.~~export markets in Europe. Average sales price realizations ~~were slightly lower~~ in the Brazilian domestic market declined due to strong competitive pressures and ~~significantly lower~~lower-priced imported paper, while prices in export ~~markets.~~markets were also lower. Average sales margins ~~were lower~~decreased, reflecting an increased proportion of lower-margin export sales. Input costs were favorable due to lower wood, chemical ~~energy~~ and purchased pulp costs, partially offset by higher energy costs. Planned maintenance downtime costs in the ~~second~~third quarter ~~were lower than in~~increased, reflecting an outage at the ~~first quarter, while~~Luis Antonio mill, but manufacturing operating costs were ~~also~~ favorable. ~~Earnings in the 2009 second quarter were adversely impacted by unfavorable foreign exchange effects.~~

Compared with the ~~second~~third quarter of 2008, sales volumes ~~decreased~~increased reflecting ~~weaker demand for uncoated freesheet paper. Overall, average~~higher shipments to export markets. Average sales price realizations were significantly lower as prices declined ~~as increased prices for~~in both Brazilian domestic ~~sales were offset by decreases in prices for exports. Input~~and export markets reflecting weak economic conditions. Average margins also declined due to an increased proportion of lower-margin export sales. However, input costs for wood, ~~decreased slightly, but were more than offset by higher~~energy and chemicals ~~costs. Operating~~decreased. Planned maintenance downtime costs were ~~about flat with the prior-year quarter.~~lower, and operating costs were also favorable.

Looking ahead to the ~~third~~fourth quarter, sales volumes are expected to ~~significantly~~ improve, reflecting ~~some seasonal improvement~~a further increase in ~~domestic markets for uncoated freesheet paper and pulp and stronger~~shipments to export ~~sales.~~markets. Average sales price realizations should be higher reflecting an announced price increase in Latin American markets. Profit margins are also expected to reflect ~~continued competitive pressure on prices,~~lower input costs partially offset by an ~~improved~~unfavorable geographic ~~mix and lower input costs for chemicals.~~mix. Planned maintenance outage expenses should ~~increase due to a planned outage at the Luis Antonio mill.~~decrease as no outages are scheduled.

Asian Printing Papersnet sales were $15 million in the third quarter of 2009 compared with $10 million in the second quarter of 2009 ~~compared with a minimal amount in the first quarter of 2009~~ and $5 million in the ~~second~~third quarter of 2008. Operating earnings were about breakeven for all periods presented.

U.S. Market Pulpnet sales were $155 million in the third quarter of 2009 compared with $135 million in the second quarter of 2009 ~~compared with $125~~and $210 million in the ~~first quarter of 2009 and $205 million in the second~~third quarter of 2008. Operating earnings were $45 million (a loss of $18 million excluding alternative fuel mixture credits and facility closure costs) in the third quarter of 2009 compared with $35 million (a loss of $14 million excluding alternative fuel mixture credits and facility closure costs) in the second quarter of 2009 ~~compared with $14 million (a~~and a loss of ~~$28 million excluding alternative fuel mixture credits) in the first quarter of 2009 and $11~~$9 million in the ~~second~~third quarter of 2008.

Sales volumes in the third quarter of 2009 were about equal to the second quarter of 2009 ~~were slightly higher than in the first quarter of 2009 reflecting soft customer demand.~~levels. During the ~~second~~third quarter, ~~10,000 tons of~~no lack-of-order downtime was taken compared with ~~48,000~~10,000 tons in the ~~first~~second quarter. Average sales price realizations ~~declined, primarily for fluff pulp.~~were slightly higher reflecting price increases on pulp shipped to Europe. Planned maintenance downtime costs were ~~lower reflecting no planned outages in the second quarter of 2009 compared with an outage at one mill in the first quarter. Manufacturing~~about flat, while manufacturing operations ~~continued to be~~

~~favorable reflecting benefits from cost reduction efforts and excellent operating performance.~~were unfavorable. Input costs for wood and chemicals decreased, while freight costs were also lower.

Compared with the ~~second~~third quarter of 2008, sales volumes were lower due to weaker ~~customer~~market demand. Average sales price realizations were significantly lower as the decline in customer demand led to sharp price declines for both market and fluff pulp. Manufacturing operating costs decreased, and planned maintenance downtime costs were also lower. ~~Lower~~Input costs for energy, chemicals and ~~chemical~~wood decreased, and freight costs were ~~partially offset by higher wood costs, while freight costs decreased significantly.~~significantly lower. In the ~~second~~third quarter of 2009, ~~10,000 tons of~~no lack-of-order downtime was taken compared with ~~none~~17,000 tons in the ~~second~~third quarter of 2008.

Entering the 2009 ~~third~~fourth quarter, pulp sales volumes are expected to ~~be slightly lower than second-quarter~~remain at about third-quarter levels, although the sales mix should include a greater proportion of higher-margin fluff pulp. Average sales price realizations for softwood pulp, ~~and~~ hardwood pulp and fluff pulp are all expected to ~~improve, while fluff pulp prices are expected to remain under pressure. No~~improve. However, planned maintenance ~~outages are~~downtime will increase with an outage scheduled ~~for~~at the ~~third quarter. Input~~Riegelwood mill in the fourth quarter, while input costs for energy, chemicals and ~~chemicals~~wood and freight costs are expected to increase slightly.


	2009						2008						2009						2008
*In millions*	2^nd Quarter		1^st Quarter		Six Months		2^nd Quarter		1^st Quarter		Six Months		3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter			2^nd Quarter		Nine Months
Sales	$	770	$	715	$	1,485	$	795	$	770	$	1,565	$	790	$	770	$	2,275	$	830		$	795	$	2,395
Operating Profit		114		112		226		13		9		22		144		114		370		(2	)		13		20

Consumer Packaging net sales for the ~~second~~third quarter of 2009 were 8%3% higher ~~than in the first quarter of 2009, but 3% lower~~ than in the second quarter of 2009, but 5% lower than in the third quarter of 2008. Operating profits included ~~gains~~income of ~~$77~~$78 million and ~~$92~~$77 million relating to alternative fuel mixture credits in the ~~second~~third and ~~first~~second quarters of 2009, respectively, and costs associated with the reorganization of the Shorewood business of $2 million, $1 million ~~$2 million~~ and ~~$13~~$8 million in the 2009 ~~second~~third quarter, the 2009 ~~first~~second quarter and the 2008 ~~second~~third quarter, respectively. Excluding these items, operating profits in the third quarter of 2009 of $68 million were 79% higher than $38 million in the second quarter of 2009 ~~were 73%~~and significantly higher than $6 million in the ~~first quarter of 2009 and 46% higher than in the second~~third quarter of 2008.

North American Consumer Packagingnet sales were $565 million in both the third and second ~~quarter~~quarters of 2009 compared with ~~$530~~$645 million in the ~~first quarter of 2009 and $625 million in the second~~third quarter of 2008. Operating earnings in the ~~second~~third quarter of 2009 were $120 million ($44 million excluding the alternative fuel mixture credits and Shorewood reorganization costs) compared with $93 million ($17 million excluding the alternative fuel mixture credits and Shorewood reorganization costs) ~~compared with $94 million ($4 million excluding the alternative fuel mixture credits and Shorewood reorganization costs)~~ in the ~~first~~second quarter of 2009 and ~~about breakeven ($13~~a loss of $1 million (a gain of $7 million excluding the Shorewood reorganization costs) in the ~~second~~third quarter of 2008.

Coated paperboard average sales price realizations declined slightly in the ~~second~~third quarter of 2009 compared with the ~~first~~second quarter of 2009 reflecting ~~price decreases~~lower average prices for ~~cup stock,~~coated bristols, while average prices for folding carton board, cup stock and ~~coated bristols toward the end of the second quarter. However, sales~~tobacco board remained stable. Sales volumes increased modestly in the ~~second~~third quarter, ~~and~~while total downtime decreased to ~~110,000~~51,000 tons, all of which ~~82,000 tons~~ related to lack-of-order downtime, compared with ~~130,000~~110,000 tons of downtime in the ~~first~~second quarter, of which ~~127,000~~82,000 tons ~~related~~was due to ~~lack-of-order. Planned~~lack-of-orders. There was no planned maintenance downtime ~~costs were $16~~in the third quarter resulting in a $19 million ~~higher than~~decrease in these charges compared with the previous quarter. Input costs for wood, energy, and chemicals were lower than in the ~~first~~second quarter, ~~and~~while manufacturing operating costs were ~~favorable.~~slightly unfavorable.

Compared with the ~~second~~third quarter of 2008, average sales price realizations ~~remain~~continued to be significantly higher, reflecting the realization of price increases implemented ~~during~~in the second half of 2008. However, sales volumes decreased and lack-of-order downtime increased reflecting weaker market conditions. Input costs for wood, energy and chemicals were significantly lower compared with the ~~second~~third quarter of 2008. Manufacturing operating costs were unfavorable, ~~and~~but planned maintenance downtime expenses were about $7$10 million ~~higher.~~lower.

Shorewood sales volumes increased slightly in the ~~second~~third quarter of 2009 from ~~first~~second quarter levels reflecting a seasonal increase in the home entertainment segment and higher shipments in the consumer products ~~and~~segment, partially offset by a decline in tobacco ~~segments. Home entertainment sales improved for games packaging, but were lower for DVD and electronics packaging.~~segment shipments. Average sales margins were ~~higher as~~about flat, but reflected a ~~result of a more~~less favorable mix of products ~~sold~~sold. Raw material costs in the ~~tobacco segment and~~third quarter of 2009 were slightly higher ~~sales in the home entertainment segment. Raw material costs~~than in the second quarter of 2009, ~~were about the same as in the first quarter of 2009, but the~~while favorable benefits from cost reduction initiatives ~~had a favorable impact on earnings. Second~~were more than offset by higher benefits-related costs. Third quarter results included $1$2 million of expenses related to the reorganization of Shorewood’s operations versus $2$1 million in the ~~first~~second quarter. Compared with the 2008 ~~second~~third quarter, sales volumes in the 2009 ~~second~~third quarter were lower, reflecting ~~lower shipments in the~~weaker home entertainment and tobacco ~~segments. Average~~segment shipments, but average sales margins ~~improved slightly. Earnings also improved~~improved. Operating costs were favorable, reflecting benefits from the business reorganization and cost reduction actions undertaken in 2008 and 2009. Operating results in the 2008 ~~second~~third quarter also included ~~$13~~$8 million of expenses related to the business reorganization.

Foodservice sales volumes in the ~~second~~third quarter of 2009 were slightly seasonally ~~higher~~lower than in the ~~first~~second quarter of 2009. Average margins improved reflecting a more favorable mix of products ~~sold,~~sold; however, average sales price realizations decreased due to price adjustments associated with lower resin input costs. Operating costs were ~~favorable.~~unfavorable reflecting the seasonal change from cold cup to hot cup production. Compared with the ~~second~~third quarter of 2008, sales volumes in the 2009 ~~second~~third quarter decreased ~~while average margins increased, reflecting improved average~~due to generally weak economic conditions. Average sales price realizations ~~and~~declined due to the effect of the resin price adjustment, but average margins benefitted from a more favorable mix of product sold. Raw material costs were lower ~~primarily~~ for resins, ~~but operating~~partially offset by higher board costs. Operating costs were higher.

Looking ahead to the 2009 ~~third~~fourth quarter, coated paperboard sales volumes should ~~increase, although~~reflect a slight seasonal decrease, and average sales price realizations are expected to ~~continue to experience competitive pressures.~~be about flat. Input costs ~~should~~are expected to remain at about ~~flat in the third quarter~~third-quarter levels, while planned maintenance downtime will be ~~lower.~~significantly higher with annual outages planned at the Texarkana and Riegelwood mills. Shorewood’s sales volumes are expected to increase, reflecting seasonally higher home entertainment ~~and consumer products~~shipments, partially offset by lower tobacco segment shipments. Operating results should also reflect ~~higher~~improved average sales margins ~~for sales to the tobacco segment.~~in all segments and lower operating costs. Foodservice operating results are expected to reflect ~~flat~~seasonally lower sales volumes and decreased average sales price realizations ~~due to competitive pressures.~~with the full-quarter impact of third-quarter price adjustments. Input costs for resins are expected to increase, but operating costs should remain about flat.

European Consumer Packagingnet sales were $80 million in both the third and second quarters of 2009 and in the third quarter of 2008. Operating earnings were $17 million in the third quarter of 2009 compared with ~~$70 million in the first quarter of 2009 and $75~~$14 million in the second quarter of ~~2008. Operating earnings were $14 million in both the second~~2009 and ~~first quarters of 2009 compared with $8 million~~about breakeven in the ~~second~~third quarter of 2008.

Sales volumes in the ~~second~~2009 third quarter ~~of 2009~~ were ~~higher~~lower than in the ~~first~~2009 second quarter primarily due to reduced shipments to overseas export markets. Average sales price realizations improved during the quarter, complemented by a more favorable geographic sales mix. Manufacturing costs and planned maintenance downtime costs were about the same as in the second quarter. Compared with the third quarter of 2008, sales volumes and product mix improved in the third quarter of 2009. Average sales price realizations ~~declined,~~improved in Russia, but ~~this was more than offset by an~~were lower in Western Europe. Favorable foreign exchange movements significantly improved ~~mix of products sold. Manufacturing costs were unfavorable reflecting~~ the ~~annual maintenance outage~~margins at the ~~Svetogorsk~~Kwidzyn mill in Russia. Compared with the second quarter of 2008, sales volumes in the second quarter of 2009 were higher reflecting increased domestic sales as well as improved export sales. Average sales price realizations remained relatively constant.Poland. Operating ~~results~~profits in the 2009 ~~third~~fourth quarter are expected to be ~~impacted~~adversely affected by ~~lower sales volumes~~seasonally higher input costs, but ~~should reflect an improved mix due to~~will benefit from a ~~declining proportion of export shipments. Planned~~reduction in planned maintenance downtime ~~costs are expected to be about the same as the second quarter with the planned annual maintenance outage at the Kwidzyn mill in the third quarter.~~expenses.

Asian Consumer Packagingnet sales were $145 million in the third quarter of 2009 compared with $125 million in the second quarter of 2009 ~~compared with $115~~and $105 million in the ~~first quarter of 2009 and $95 million in the second~~third quarter of 2008. Operating earnings in both the third and second ~~quarter~~quarters of 2009 ~~improved to~~were $7 million compared with $4a loss of $1 million in the ~~first quarter of 2009 and $5 million in the second~~third quarter of 2008.


	2009							2008						2009						2008
*In millions*	2^nd Quarter		1^st Quarter			Six Months		2^nd Quarter		1^st Quarter		Six Months		3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months
Sales	$	1,595	$	1,590		$	3,185	$	1,970	$	1,985	$	3,955	$	1,665	$	1,595	$	4,850	$	2,075	$	1,970	$	6,030
Operating Profit		10		(7	)		3		26		16		42		21		10		24		35		26		77

Distribution’s2009 ~~second~~third quarter sales were ~~about even with~~4% higher than the ~~first~~second quarter of 2009 while operating profit improved by ~~$17~~$11 million. Compared to the ~~second~~third quarter of 2008, sales decreased ~~19% while~~20% and operating profit ~~decreased $16~~declined $14 million. Weak U.S. economic conditions and selling price deflation were the major ~~factor~~factors in the decline in operating profits.

~~Second-quarter~~Third-quarter 2009 sales of papers and graphic arts supplies and equipment totaled ~~$1.0~~approximately $1.1 billion compared with $1.0 billion in the ~~first~~second quarter of 2009 and ~~$1.3~~$1.4 billion in the 2008 ~~second~~third quarter. ~~Although units shipped improved from~~Third quarter 2009 mill direct sales were up 6% over the ~~first quarter, declining prices, particularly for coated paper products, offset the revenue effect of these volume gains. Total printing revenues nearly were even with the first~~second quarter of ~~2009, but~~2009. Stock sales also increased slightly. Compared to the third quarter of 2008, both mill direct and stock sales for the printing business were down ~~more than~~over 20% ~~from the 2008 second quarter.~~. A reduction in print advertising, selling price erosion and weaker general economic conditions ~~both~~all contributed to the reduction in demand.

Packaging sales were ~~$300~~approximately $350 million in the ~~second~~third quarter of 2009 compared with $300 million in the ~~first~~second quarter of 2009 and $400 million in the 2008 ~~second~~third quarter. Sales of facility supply products totaled $300 million in the ~~second~~third quarter of 2009, compared with ~~$250~~$300 million in both the ~~first~~second quarter of 2009 and ~~$300 million in the second~~third quarter of 2008.

Operating profits were $21 million in the third quarter of 2009 compared with $10 million in the second quarter of 2009 ~~compared with a loss of $7~~and $35 million in the ~~first~~third quarter of ~~2009 and profit of $26 million in~~2008. The increase compared with the second quarter of ~~2008. Compared with the first quarter of~~ 2009 ~~operating profits increased~~was principally due to ~~lower operating costs, reflecting cost control initiatives implemented in 2008 and 2009, and a reduction in bad debt charges.~~higher sales volumes. Lower sales volumes and lower prices were the ~~principal cause of~~primary factors in the earnings decline compared with the 2008 ~~second~~third quarter. ~~Second quarter 2009 earnings were also affected by lower prices and margin pressure, however, benefits~~Benefits from cost reduction efforts partially mitigated these unfavorable earnings effects.

Looking ahead to the 2009 ~~third~~fourth quarter, operating results are expected to reflect improved ~~seasonal~~ sales ~~volumes~~revenue and continued benefits from cost reduction actions.


	2009						2008						2009						2008
*In millions*	2^nd Quarter		1^st Quarter		Six Months		2^nd Quarter		1^st Quarter		Six Months		3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months
Sales	$	10	$	5	$	15	$	55	$	25	$	80	$	5	$	10	$	20	$	55	$	55	$	135
Operating Profit		3		2		5		41		25		66		2		3		7		305		41		371

Forest Products sales and profits are driven by forestland sales, which can vary from quarter to quarter due to various factors. Net sales in the ~~second~~third quarter of 2009 were ~~about double net sales in the first quarter of 2009, but 82%~~50% lower than in the second quarter of 2009, and 91% lower than in the third quarter of 2008. Operating earnings in the ~~second~~third quarter of 2009 were ~~50% higher than in the first quarter of 2009, but 93%~~33% lower than in the second quarter of 2009 due to lower forestland sales and 99% lower than in the third quarter of 2008, reflecting the sale of certain oil and gas mineral rights in 2008. ~~Third~~Fourth quarter results are currently projected to be ~~similar to the second quarter.~~somewhat above third-quarter totals, reflecting higher forestlands sales.

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 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 ~~June~~September 30, 2009 includes the Company’s 50% share of Ilim’s operating results for the three-month period ended ~~March 31,~~June 30, 2009 under the caption ~~Equity (losses)~~“Equity earnings, net of taxes.” Ilim is reported as a separate reportable industry segment.

The Company recorded an equity ~~loss,~~earnings, net of taxes, of about breakeven in the third quarter of 2009 compared with a loss of $30 million in the second quarter of ~~2009 compared with a loss of $26 million in the first quarter of~~ 2009. Sales volumes for Ilim’s second quarter of 2009 increased compared with the first quarter of 2009 ~~decreased compared with the fourth quarter of 2008~~ across all product lines reflecting ~~significantly weaker~~a strengthening of market demand, particularly in markets in China. ~~Sales~~Average sales price realizations ~~continued to decrease across all product lines, but~~remained weak, although export softwood and hardwood pulp ~~and paper~~ prices ~~began to stabilize toward the end of~~showed improvement late in the quarter. ~~Input costs decreased for wood, chemicals and fuel oil and operating~~Operating costs were ~~also~~ favorable. ~~Lack-of-order~~No lack-of-order downtime was ~~lower~~taken in the ~~first~~second quarter, ~~compared with~~but planned annual maintenance downtime was taken at the ~~fourth quarter. In addition, first-quarter results~~Ust-Ilimsk mill. Additionally, the second quarter included a $2$10 million provision for the write-down of assets to be permanently shut down while 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~~gain on the remeasurement of U.S. dollar-denominated debt ~~were $7 million unfavorable~~ compared with a $22 million loss in the ~~fourth~~first quarter of ~~2008.~~2009.

In the ~~second~~third quarter of 2008, the Company had recorded equity earnings, net of taxes, for Ilim totaling ~~$32~~$5 million related to operations in the ~~first~~second quarter of 2008. Sales volumes in the 2008 ~~first~~second quarter reflected ~~strong~~good market demand for both pulp and containerboard. Average sales price realizations were also strong for both Russian domestic and export sales. Equity earnings also included a $14 million after-tax foreign exchange gain on the remeasurement of U.S. dollar denominated debt, and a $3 million after-tax charge to write off a share repurchase option.

Looking ahead to the ~~third~~fourth quarter of 2009, demand in ~~both the domestic and export markets~~China is expected to remain ~~stable.~~strong, while demand in European markets should improve slightly. Domestic Russian demand is expected to remain weak. Average sales price realizations are expected to continue to remain ~~weak,~~at about prior-quarter levels, although softwood and hardwood pulp export prices should ~~improve, reflecting a price increase announced in April. The strengthening of the Russian ruble versus the U.S. dollar will result in a foreign exchange remeasurement gain for the quarter.~~improve.

Cash provided by continuing operations totaled ~~$2.2~~$3.6 billion for the first ~~six~~nine months of 2009, up from ~~$1.0~~$2.0 billion for the comparable 2008 ~~six-month~~nine-month period. Earnings from continuing operations adjusted for non-cash charges were ~~$1.9~~$2.9 billion for the first ~~six~~nine months of 2009 compared ~~to $924 million~~with $1.7 billion for the first ~~six~~nine months of 2008. Cash provided by working capital components totaled ~~$269~~$685 million for the first ~~six~~nine months of 2009, up from ~~$86~~$213 million for the comparable 2008 ~~six-month~~nine-month period. Cash provided by continuing operations for the first ~~six~~nine months of 2009 included ~~$833 million~~$1.3 billion received from alternative fuel mixture ~~credits.~~credits and $205 million from the sale of accounts receivable in Europe.

Investments in capital projects totaled ~~$259~~$367 million in the first ~~six~~nine months of 2009 compared to ~~$482~~$732 million in the first ~~six~~nine months of 2008. Full-year 2009 capital spending is currently expected to be approximately $600 million, or about 40% of depreciation and amortization expense for our current businesses.

Financing activities for the first ~~six~~nine months of 2009 included a ~~$1.1~~$2.4 billion net decrease in debt versus a $3$5.4 billion net increase during the comparable 2008 ~~six-month~~nine-month period.

In August 2009, International Paper issued $1 billion of 7.5% senior unsecured notes with a maturity date in August 2021. The proceeds from this borrowing were used to repay approximately $942 million of notes with interest rates ranging from 5.125% to 7.4% and original maturities from 2012 to 2026. Also during the third quarter in connection with these early debt retirements, interest rate swaps with a notional value of $520 million, including $500 million of swaps issued in the second quarter, were terminated or undesignated as effective fair value hedges, resulting in a gain of approximately $9 million. In addition, previously deferred net gains of $7 million related to earlier swap terminations was recognized in earnings. Pre-tax early debt retirement costs of $102 million related to these debt repayments, net of the gains on swap terminations, are included in Restructuring and other charges in the accompanying consolidated statement of operations.

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

In September 2009, International Paper undesignated its $950 million floating-to-fixed interest rate swaps that qualified as cash flow hedges and entered into an offsetting $950 million fixed-to-floating interest rate swap due in 2010 to minimize the earnings exposure from undesignated swaps.

During the nine months ended September 30, 2009, International Paper repaid approximately $1.4 billion of the $2.5 billion long-term debt issued in connection with the CBPR business acquisition.

second quarter debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations.

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

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

In August 2008, International Paper borrowed $2.5 billion of long-term debt with an initial interest rate of LIBOR plus a margin of 162.5 basis points. The margin can vary depending upon the ~~end~~credit rating of the ~~2009~~Company. The debt requires quarterly principal payments which started 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 are being 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. As of December 2008, all of the borrowings under the receivables securitization program were repaid.

Also in the third quarter of 2008, the Company announced that it had priced $1.0 billion of 7.50% senior unsecured notes due in 2021, and also announced that it had commenced cash tender offers to repurchase any and all of its outstanding 7.40% notes due 2014, and some or all of its 7.20% notes due 2026 and 5.50% notes due 2014 up to a maximum of $1.0 billion less the principal amount of any repurchases of the 7.40% notes. Additionally, Luxembourg repaid ~~the remaining $200 million of the $468 million long-term debt issued in the first quarter of 2009, and International Paper repaid $375~~$125 million of the $2.5 billion long-term debt ~~issued in connection~~discussed above, and repurchased $63.5 million of notes with ~~the CBPR acquisition.~~interest rates ranging from 4.25% to 8.70% and original maturities from 2009 to 2038.

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 ranging from 2014 to 2018 to manage interest rate exposure associated with the $3 billion of unsecured senior notes. These interest rate swaps ~~are being accounted for as fair value hedges~~were terminated in ~~accordance~~December 2008 along with ~~SFAS No. 133.~~other existing fixed-to-floating interest rate swaps, resulting in a gain of $127 million that was deferred and recorded in Long-term debt in the accompanying consolidated balance sheet. This gain will be amortized over the life of the related debt through June 2018.

At ~~June~~September 30, 2009 and December 31, 2008, International Paper classified $450 million and $796 million, respectively, of bank notes and Current maturities of long-term debt as Long-term debt. International Paper has the intent and ability, as evidenced by its fully committed credit facility, to renew or convert these obligations.

During the first ~~six~~nine months of 2009, International Paper issued approximately ~~2.5~~2.4 million shares of treasury stock for various incentive plans. Payments of restricted stock withholding taxes totaled $10 million. During the first ~~six~~nine months of 2008, the Company issued approximately ~~2.5~~2.4 million shares of treasury stock for various incentive plans, including stock option exercises that generated approximately $1 million of cash and restricted stock that did not generate cash. Payments of restricted stock withholding taxes totaled $47 million. Common stock dividend payments totaled ~~$118~~$133 million and ~~$218~~$325 million for the first ~~six~~nine months of 2009 and 2008, respectively. Dividends were ~~$0.275~~$0.30 per share and ~~$0.50~~$0.75 per share for the first ~~six~~nine months in 2009 and 2008, respectively. In March 2009, the Company had announced that the quarterly dividend would be reduced to $0.025 per share in the 2009 second quarter.

At ~~June~~September 30, 2009, contractual obligations for future payments of debt maturities by calendar year were as follows (in millions): ~~$222~~$69 in 2009; ~~$417~~$542 in 2010; ~~$839~~$555 in 2011; ~~$874~~$223 in 2012; ~~$1,508~~$1,085 in 2013; ~~$1,337~~$566 in 2014; and ~~$5,720~~$6,582 thereafter.

At ~~June~~September 30, 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 $1 billion of commercial paper-based financings based on eligible receivable balances ($~~890~~942 million at ~~June~~September 30, 2009) under a receivables securitization ~~program. On January 23, 2009, the Company amended the receivables securitization~~ program that is currently scheduled to ~~extend the maturity date from October 2009 to~~expire in January 2010. ~~The amended~~This agreement has aan annual facility fee of 0.75% payable monthly. The Company believes it can borrow as needed on its committed credit and receivables securitization facilities.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements through 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 tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. As is the case with other tax credits, claims are subject to possible future review by the U.S. Internal Revenue Service, who has the authority to propose adjustments to the amounts claimed. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. During the first ~~six~~nine months of 2009, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 totaling approximately ~~$1.0~~$1.5 billion, including ~~$189~~$251 million recorded in Accounts and notes receivable at ~~June~~September 30, 2009 and ~~$833 million~~$1.3 billion that was received in cash. Accordingly, the accompanying consolidated statement of operations includes credits of approximately ~~$482~~$525 million and ~~$1.0~~$1.5 billion for the three and ~~six~~nine months ended ~~June~~September 30, 2009, respectively, in Cost of products sold ($~~294~~320 million and ~~$624~~$944 million after taxes), representing eligible alternative fuel mixture credits earned through ~~June~~September 30, 2009.

On October 4, 2007, in connection with the formation of the Ilim Holding S.A. joint venture (Ilim), International Paper entered into a shareholders’ agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time after the second anniversary of the formation of Ilim, either the Company or its partners may commence procedures specified under the deadlock provisions of the shareholders’ agreement. Under certain circumstances, the Company would be required to purchase its partners’ 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, International Paper estimates that the current purchase price for its partners’ 50% interests would be approximately $350 million to $400 million, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company’s option. Any such purchase by International Paper would result in the consolidation of Ilim’s financial position and results of operations in all subsequent periods.

The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholders’ agreement, although they have the right to do so. Additionally, the parties are discussing a possible renegotiation of the terms of the ~~shareholders’ agreement~~Shareholders’ Agreement to defer the parties’ options to commence procedures specified under the deadlock provisions of the shareholders’ agreement until a future date beyond the expected completion of a planned capital investment program.

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~~the accounting for ~~Contingencies,” SFAS No. 144, “Accounting for the Impairment~~contingencies, impairment or ~~Disposal~~disposal of ~~Long-Lived Assets,” SFAS No. 142, “Goodwill~~long-lived assets, 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. 132other intangible assets, pensions, postretirement benefits other than pensions, 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.”income taxes.

The Company has included in its 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. The Company has not made any changes in these critical accounting policies during the first ~~six~~nine months of 2009.

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 ~~$107~~$160 million for International Paper’s U.S. plans for the ~~six~~nine months ended ~~June~~September 30, 2009, or about ~~$50~~$71 million more than the pension expense for the first ~~six~~nine months of 2008. Net pension expense for non-U.S. plans was about $3$5 million and $2 million for the first ~~six~~nine months of 2009 and 2008, respectively. The increase in U.S. plan pension expense was principally due to a decrease in the assumed discount rate to 6.00% in 2009 from 6.20% in 2008, higher amortization of unrecognized actuarial 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 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 ~~June~~September 30, 2009, the market value of plan assets for International Paper’s U.S. plans totaled approximately ~~$6.1~~$6.7 billion, consisting of approximately ~~45%~~49% equity securities, ~~35%~~33% fixed income securities, and ~~20%~~18% 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 2009, and does not currently expect any required cash contributions until 2011. The Company continually reassesses the amount and timing of any discretionary ~~contributions.~~contributions and could elect to make such a contribution in the next twelve months. The U.S. nonqualified plans are only funded to the extent of benefits paid which are expected to betotal approximately $40 million in 2009.

The ~~provisions of FIN 48 require~~guidance for accounting for uncertainty in income taxes requires management to make judgments regarding the probability that certain income tax positions taken by the Company in filing tax returns in the various jurisdictions in which it operates will be sustained upon examination by the respective tax authorities based on the technical merits of these tax positions, and to make estimates of the amount of tax benefits that will be realized upon the settlement of these positions.

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, 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 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: changes in the cost or availability of raw materials, energy and transportation; economic cyclicality and changes in consumer preferences in the industries in which we operate; changes in the pricing and demand for our products; the effects of competition in the United States and internationally; continued adverse developments in general business and economic conditions; downgrades in credit ratings; the impairment of financial institutions with which we execute transactions; pension and health care costs; pension plan funding obligations that could be material over the next several years; changes in 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; material disruptions at one of our manufacturing facilities; risks related to operations conducted by joint ventures and changes in 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 46 of International Paper’s 2008 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 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 controls during the quarter ended ~~June~~September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

In August 2008, the Company completed the acquisition of the Containerboard, Packaging and Recycling business (CBPR) from Weyerhaeuser 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.

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

The Company’s 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 2008 10-K:

Changes in Tax Laws May Have a Material Effect on Our Future Cash Flows and Results of Operations

Our earnings included excise tax credits of ~~$482~~$525 million and ~~$1.0~~$1.5 billion before taxes for the three months and ~~six~~nine months ended ~~June~~September 30, 2009 for alternative fuel mixtures produced for use as a fuel in our business. Cash provided by operations for the ~~six~~nine months ended ~~June~~September 30, 2009 included approximately ~~$833 million~~$1.3 billion relating to this credit. The credit is scheduled to expire December 31, 2009. ~~If this excise tax credit were~~

In addition, the risks detailed in the Company’s 2008 10-K under the heading “The Amount of Our Debt Obligations Could Adversely Affect Our Business. Our Ability to ~~be terminated~~Refinance or ~~materially changed prior~~Repay Our Debt is Dependent Upon Our Ability To Generate Cash From Operations and Conditions in the Credit Markets and the Availability of Credit Generally” are no longer significant risks to ~~December 31, 2009, this may have a material effect on our future cash flows and results of operations.~~the Company due to its improved liquidity position.

There are no other significant changes to the risk factors described in the Company’s 2008 10-K.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

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 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 and ~~Six~~Nine Months Ended ~~June~~September 30, 2009 and 2008	1

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

	Consolidated Statement of Cash Flows - ~~Six~~Nine Months Ended ~~June~~September 30, 2009 and 2008	3

	Condensed Notes to Consolidated Financial Statements	4

	Financial Information by Industry Segment	2123

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2426

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4245

Item 4.	Controls and Procedures	4346

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4447

Item 1A.	Risk Factors	4447

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45*

Item 3.	Defaults upon Senior Securities	*

Item 4.	Submission of Matters to a Vote of Security Holders	46*

Item 5.	Other Information	*

Item 6.	Exhibits	4748

Signatures		4849


	Three Months Ended ~~June~~September 30, 2009		~~Six~~Nine Months Ended ~~June~~September 30, 2009
Expected volatility	33.83% - ~~99.39~~	% 71.11%	33.83% - ~~99.39~~	% 99.39%
Risk-free interest rate	~~0.3%~~0.17% - ~~1.274~~	% 1.24%	~~0.3%~~0.17% - ~~1.274~~	% 1.27%


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
April 1, 2009 – April 30, 2009	1,162	$	7.43	—	—

June 1, 2009 – June 30, 2009	2,794		15.13	—	—

Total	3,956


	For	Withheld
John V. Faraci	276,096,516	92,822,334
Stacey J. Mobley	357,576,979	11,341,871
William G. Walter	249,464,695	119,454,155
J. Steven Whisler	273,520,955	95,397,895


For	Against	Abstain	Broker Non-Vote
364,931,520	3,313,857	673,470	0


~~3.1~~		~~By-Laws, as amended through May 11, 2009 (incorporated by reference to Exhibit 3.1 to the Company Current Report on Form 8-K dated May 12, 2009).~~

4.1		Supplemental Indenture (including the form of Notes), dated as of ~~May 11,~~August 10, 2009, between International Paper Company and The Bank of New York Mellon, as trustee. (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated ~~May 11,~~August 10, 2009).

10.1		~~Omnibus~~ Amendment No. ~~1 dated June 26, 2009 and comprised of Amendment No. 2~~4 to ~~Second Amended and Restated Credit and Security Agreement, and Amendment No. 1 to Fee Letters.~~Unfunded Supplemental Retirement Plan for Senior Managers.

~~10.2~~		~~2009 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K dated May 12, 2009).~~

~~10.3~~		~~Executive Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company Current Report on Form 8-K dated May 12, 2009).~~

~~10.4~~		~~Restricted Stock and Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K dated May 12, 2009).~~

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.

101.INS		XBRL Instance Document. *

101.SCH		XBRL Taxonomy Extension Schema. *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase. *

101.LAB		XBRL Taxonomy Extension Label Linkbase. *

101.PRE		XBRL Extension Presentation Linkbase. *


	INTERNATIONAL PAPER COMPANY
	(Registrant)

Date: ~~August 5,~~November6, 2009	By	/~~s/ TIM~~S/ TIM S. ~~NICHOLLS~~NICHOLLS
		Tim S. Nicholls
		Senior Vice President and Chief Financial Officer

Date: ~~August 5,~~November6, 2009	By	/~~s/ ROBERT~~S/ ROBERT J. ~~GRILLET~~GRILLET
		Robert J. Grillet
		Vice President – Finance and Controller