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 ~~November~~May 4, ~~2009~~2010 was ~~433,094,767.~~436,593,816.

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


	September 30, 2009			December 31, 2008			March 31, 2010			December 31, 2009
	(unaudited)						(unaudited)
Assets
Current Assets
Cash and temporary investments	$	1,652		$	1,144		$	1,749		$	1,892
Accounts and notes receivable, net		3,080			3,288			2,867			2,695
Inventories		2,278			2,495			2,145			2,179
Deferred income tax assets		207			261			334			368
Other current assets		300			172			454			417

Total Current Assets		7,517			7,360			7,549			7,551

Plants, Properties and Equipment, net		13,699			14,202			12,235			12,688
Forestlands		749			594			737			757
Investments		1,102			1,274			1,077			1,077
Goodwill		2,288			2,027			2,267			2,290
Deferred Charges and Other Assets		1,326			1,456			1,277			1,185

Total Assets	$	26,681		$	26,913		$	25,142		$	25,548

Liabilities and Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	369		$	828		$	358		$	304
Accounts payable		2,066			2,119			2,217			2,058
Accrued payroll and benefits		466			445			325			473
Other accrued liabilities		1,415			1,363			1,183			1,177

Total Current Liabilities		4,316			4,755			4,083			4,012

Long-Term Debt		9,253			11,246			8,597			8,729
Deferred Income Taxes		2,514			1,957			2,392			2,425
Pension Benefit Obligation		3,303			3,260			2,766			2,765
Postretirement and Postemployment Benefit Obligation		632			663			524			538
Other Liabilities		779			631			728			824
Equity
Common stock, $1 par value, 2009 – 436.6 shares and 2008 – 433.6 shares		437			434
Common stock, $1 par value, 2010 – 437.6 shares and 2009 – 437.0 shares								438			437
Paid-in capital		5,787			5,845			5,749			5,803
Retained earnings		2,062			1,430			1,774			1,949
Accumulated other comprehensive loss		(2,558	)		(3,322	)		(2,115	)		(2,077	)

		5,728			4,387			5,846			6,112
Less: Common stock held in treasury, at cost, 2009 – 3.6 shares and 2008 – 6.1 shares		83			218
Less: Common stock held in treasury, at cost, 2010 – 1.2 shares and 2009 – 3.9 shares								27			89

Total Shareholders’ Equity		5,645			4,169			5,819			6,023

Noncontrolling interests		239			232			233			232

Total Equity		5,884			4,401			6,052			6,255

Total Liabilities and Equity	$	26,681		$	26,913		$	25,142		$	25,548

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


	Nine Months Ended September 30,						Three Months Ended March 31,
	2009			2008			2010			2009
Operating Activities
Net earnings attributable to International Paper Company	$	764		$	509
Net earnings attributable to noncontrolling interests		14			15
Discontinued operations, net of taxes		—			18

Earnings from continuing operations		778			542
Net earnings (loss)							$	(153	)	$	261
Depreciation, amortization and cost of timber harvested		1,088			965			371			343
Deferred income tax expense (benefit), net		585			(51	)
Deferred income tax provision, net								76			70
Restructuring and other charges		313			152			215			83
Payments related to restructuring and legal reserves		(35	)		(71	)		(2	)		(15	)
Net losses on sales and impairments of businesses		48			106
Equity loss (earnings), net		59			(51	)
Equity losses, net								2			27
Periodic pension expense, net		160			89		��	59			61
Gain on sale of forestlands		—			(3	)
Alternative fuel mixture credits receivable		(251	)		—			0			(395	)
Other, net		140			65			(104	)		60
Changes in current assets and liabilities
Accounts and notes receivable		466			(12	)		(206	)		212
Inventories		262			(104	)		(51	)		146
Accounts payable and accrued liabilities		(38	)		255			(14	)		(53	)
Interest payable		21			(12	)		42			18
Other		(26	)		86			(76	)		(24	)

Cash Provided by Operations		3,570			1,956			159			794

Investment Activities
Invested in capital projects		(367	)		(732	)		(120	)		(128	)
Acquisitions, net of cash acquired		(17	)		(6,086	)		0			(8	)
Proceeds from divestitures		—			14
Equity investment in Ilim		—			(21	)
Other		(59	)		(147	)		(31	)		(57	)

Cash Used for Investment Activities		(443	)		(6,972	)		(151	)		(193	)

Financing Activities
Repurchases of common stock and payments of restricted stock tax withholding		(10	)		(47	)		(26	)		(10	)
Issuance of common stock		—			1
Issuance of debt		2,490			6,011			38			486
Reduction of debt		(4,911	)		(627	)		(120	)		(1,036	)
Change in book overdrafts		(5	)		(45	)		(27	)		(80	)
Dividends paid		(129	)		(321	)		(11	)		(108	)
Other		(113	)		(69	)		(3	)		(11	)

Cash (Used for) Provided by Financing Activities		(2,678	)		4,903
Cash Used for Financing Activities								(149	)		(759	)

Effect of Exchange Rate Changes on Cash		59			(21	)		(2	)		(31	)

Change in Cash and Temporary Investments		508			(134	)		(143	)		(189	)
Cash and Temporary Investments
Beginning of period		1,144			905			1,892			1,144

End of period	$	1,652		$	771		$	1,749		$	955

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and 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 ~~nine~~three months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in International Paper’s (the Company) Annual Report on Form 10-K for the year ended December 31, ~~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 guidance issued related to noncontrolling interests in 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. (Ilim), a separate reportable industry segment, using the equity method of accounting. Due to the complex organizational structure of Ilim’s operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company reports its share of Ilim’s operating results on a one-quarter lag basis.

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-01, “Accounting for Distributions to Shareholders with Components of Stock and Cash,” which clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend for purposes of applying Accounting Standards Codification (ASC) 505, “Equity,” and ASC 260, “Earnings Per Share.” This guidance is effective for interim and annual periods ending on or after December 15, 2009 (calendar year 2009), and should be applied on a retrospective basis. The application of the requirements of this guidance had no effect on the accompanying consolidated financial statements.

In January 2010, the FASB issued ASU 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary,” which clarifies the scope of the guidance for the decrease in ownership of a subsidiary in ASC 810, “Consolidations,” and expands the disclosures required for the deconsolidation of a subsidiary or derecognition of a group of assets. This guidance was effective on a retrospective basis to January 1, 2009. The application of the requirements of this guidance had no effect on the accompanying consolidated financial statements.

In September 2009, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ~~Accounting Standards Update~~ASU 2009-13,
~~“Multiple-Deliverable~~ “Multiple-Deliverable Revenue Arrangements,” which amends the multiple-element arrangement guidance under ~~Accounting Standards Codification (ASC)~~ASC 605, “Revenue Recognition.” This guidance amends the criteria for separating consideration offor 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 FASB issued ~~SFAS No. 167, “Amendments~~ASU 2009-17, “Improvements to ~~FASB Interpretation No. 46(R),~~Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amends the consolidation guidance that applies to variable interest entities under ASC 810, ~~“Consolidation” (FIN 46(R), “Consolidation of Variable Interest Entities”). SFAS No. 167~~“Consolidations.” This guidance changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance 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~~adopted this guidance ~~but does~~on January 1, 2010 and it did not ~~anticipate that it will~~ have ~~a material~~an effect on ~~its~~the accompanying consolidated financial statements.

In June 2009, the FASB issued ~~SFAS No. 166,~~ASU 2009-16, “Accounting for Transfers of Financial ~~Assets—An Amendment of FASB Statement No. 140,~~Assets,” which amends the derecognition guidance in ASC 860, “Transfers and ~~Servicing of Financial Assets” (SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”).~~Servicing.” This guidance eliminates the concept of qualifying special-purpose entities, changes the requirements for derecognizing financial assets and requires additional disclosures. This 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~~adopted this guidance ~~but does~~on January 1, 2010 and it did not ~~anticipate that it will~~ have ~~a material~~an effect on ~~its~~the accompanying consolidated financial statements.

In May 2009, the FASB issued 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 guidance is effective prospectively for interim and annual periods ending after June 15, 2009. The Company included the requirements of this guidance in the preparation of the accompanying consolidated financial ~~statements,~~statements.

In February 2010, the FASB issued ASU 2010-09, which amends ASC 855 to address certain implementation issues related to performing and ~~has evaluated~~disclosing subsequent events ~~through November 6, 2009,~~procedures. The Company included the ~~date that~~requirements of this guidance in the preparation of the accompanying consolidated financial ~~statements were issued.~~statements.

In April 2009, the FASB issued new guidance under ASC 320, ~~“Investments—~~“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 guidance was effective for financial statements issued infor fiscal years (and interim periods) ending after June 15, 2009. The application of the requirements of this 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 new guidance under ASC 715, “Defined Benefit Plans—General,” (FSP FAS 132(R)-1, “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 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 guidance.

In April 2008, the FASB issued 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 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 guidance did not have a material effect on the accompanying consolidated financial statements.

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

In December 2007, the FASB issued new guidance under ASC 810, “Consolidation,” (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB 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. The 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 guidance in the preparation of the accompanying consolidated financial statements.

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

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

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

In April 2009, the FASB issued additional guidance under ASC 820, (FSP FAS 157-4, “Determining Fair Value 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 guidance did not have a material effect on the accompanying consolidated financial statements.

~~In April 2009, the FASB issued guidance under ASC 825, “Financial Instruments,” (FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of~~INTERNATIONAL PAPER COMPANY

Condensed Notes to Consolidated Financial Instruments”) which expands the fair value disclosures required for all financial instruments within the scope of ASC 825, “Financial Instruments” (SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”) to interim reporting periods. The disclosures required by this 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 guidance in the accompanying consolidated financial statements.Statements—(Continued)

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

In January 2010, the FASB issued ASU 2010-06, which further amends ASC 820 to add new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. This new guidance also clarifies the level of disaggregation, inputs and valuation techniques used to measure fair value and amends guidance under ASC 715 related to employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. This guidance ~~will be~~was effective ~~for financial statements issued~~ for the first reporting period (including interim periods) beginning after ~~August 27, 2009.~~December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company ~~is currently evaluating~~included the ~~provisions of~~disclosures required by this guidance ~~but does not anticipate that it will have a material effect on its~~in the accompanying consolidated financial statements.

A summary of the changes in equity for the ~~nine~~three month periods ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ is provided below:

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 (loss) per common share, ~~from continuing operations~~ and diluted earnings (loss) per common share ~~from continuing operations~~ is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
*In millions, except per share amounts*	2009		2008		2009		2008		2010			2009
Earnings from continuing operations	$	371	$	149	$	764	$	527
Earnings (loss)									$	(162	)	$	257
Effect of dilutive securities (a)		—		—		—		—		0			0

Earnings from continuing operations – assuming dilution	$	371	$	149	$	764	$	527
Earnings (loss) – assuming dilution									$	(162	)	$	257

Average common shares outstanding		426.1		421.2		424.8		421.0		428.8			423.1
Effect of dilutive securities
Restricted stock performance share plan (a)		2.6		2.2		1.8		3.2
Restricted performance share plan (a)										0			0
Stock options (b)		—		—		—		—		0			0

Average common shares outstanding – assuming dilution		428.7		423.4		426.6		424.2		428.8			423.1

Basic earnings per common share from continuing operations	$	0.87	$	0.35	$	1.80	$	1.25
Basic earnings (loss) per common share									$	(0.38	)	$	0.61

Diluted earnings per common share from continuing operations	$	0.87	$	0.35	$	1.79	$	1.24
Diluted earnings (loss) per common share									$	(0.38	)	$	0.61

During the ~~third~~first quarter of ~~2009,~~2010, restructuring and other charges totaling ~~$151~~$215 million before taxes ($95132 million after taxes) were recorded, including a ~~$102~~$204 million pre-tax charge ~~before taxes~~ ($62124 million after taxes) for closure costs related to the paper mill and associated operations in Franklin, Virginia (including $190 million of accelerated depreciation), a $4 million pre-tax charge ($2 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 pre-tax 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~~reorganization of the Company’s ~~Etienne mill in France,~~Shorewood Packaging operations and ~~a $5~~charges of $4 million ~~charge before taxes ($3 million~~(before and after taxes) for other ~~closure costs.~~items. Additionally, ~~the second quarter income~~a $46 million after-tax charge was recorded for tax ~~provision included a $156 million charge to establish a valuation allowance for deferred tax assets in France and a $26 million credit~~adjustments related to ~~the settlement of certain tax issues~~incentive compensation and postretirement prescription drug coverage (see Note ~~10)~~9).

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)~~9).

The U.S. Internal Revenue Code ~~provides~~provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, iswas refundable to the taxpayer. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. During the 2009 first ~~nine months of 2009,~~quarter, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 totaling approximately ~~$1.5 billion, including $251~~$516 million, ~~recorded in Accounts and notes receivable at September 30, 2009 and $1.3 billion that~~approximately $145 million of which was received in ~~cash.~~cash during the quarter, and accrued approximately $42 million for estimated eligible alternative fuel usage through March 31, 2009 to be included in subsequent filings. Accordingly, the accompanying ~~consolidated~~ statement of operations ~~includes credits of approximately $525 million and $1.5 billion~~ for the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2009 ~~respectively,~~includes a credit of approximately $540 million in Cost of products sold ($~~320 million and $944~~330 million after taxes), representing eligible alternative fuel mixture credits earned through ~~September 30,~~March 31, 2009, less $18 million of associated expenses. This credit expired on December 31, 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 to 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 (CBPR) business ~~(CBPR)~~ for approximately $6 billion in cash, subject to post-closing adjustments. ~~In June 2008, the Company had issued $3 billion of unsecured senior notes in anticipation of the~~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~~are included in International Paper’s North American Industrial Packaging business from the date of acquisition.

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

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

Selling and administrative expenses for the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2009 included charges of ~~$18~~$36 million before taxes ($1122 million after taxes) ~~and $72 million before taxes ($44 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 nine months ended 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
September 30, 2008    Nine Months Ended
September 30, 2008
Net sales
   $ 7,298    $ 21,405
Earnings from continuing operations (1)
   138    411
Net earnings (1)
   138    393
Earnings from continuing operations per common share (1)
   0.33    0.97
Net earnings per common share (1)
   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 and third quarters of 2008, the Company recorded a $3 million gain before taxes ($2 million after taxes) to reduce estimated transaction costs accrued in connection with the 2006 Transformation Plan 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 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 credit, before and after 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 ~~$1.3~~$1.5 billion and ~~$908 million~~$1.6 billion at ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively.


*In millions*	September 30, 2009		December 31, 2008		March 31, 2010		December 31, 2009
Raw materials	$	377	$	405	$	346	$	307
Finished pulp, paper and packaging		1,465		1,658		1,378		1,443
Operating supplies		376		379		365		377
Other		60		53		56		52

Total	$	2,278	$	2,495	$	2,145	$	2,179

Depreciation Expense was $355 million and $335 million for the first three months of 2010 and 2009, respectively.Accumulated depreciation was ~~$16.8~~$18.1 billion at ~~September 30, 2009~~March 31, 2010 and ~~$15.6~~$17.8 billion at December 31, ~~2008.~~2009. Theallowance for doubtful accounts was ~~$136~~$140 million at ~~September 30, 2009~~March 31, 2010 and ~~$121~~$136 million at December 31, ~~2008.~~

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

There was no material activity related toasset retirement obligationsduring either of the first ~~nine months~~quarters of ~~2009~~2010 or ~~2008.~~2009.

Interest payments made during the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ were ~~$444~~$105 million and ~~$321~~$89 million, respectively. Capitalized interest costs were ~~$9 million and $19~~$3 million for both of the ~~nine months~~three month periods ended ~~September 30, 2009~~March 31, 2010 and ~~2008, respectively.~~2009.Total interest expense was ~~$530~~$158 million for the first ~~nine~~three months of ~~2009~~2010 and ~~$374~~$173 million for the first ~~nine~~three months of ~~2008.~~2009.Interest income was ~~$24 million and $68~~$9 million for both of the ~~nine months~~three month periods ended ~~September 30, 2009~~March 31, 2010 and ~~2008, respectively.~~2009. Interest expense and interest income in ~~2009~~2010 and ~~2008~~2009 exclude approximately ~~$98~~$10 million and ~~$179~~$44 million, respectively, related to investments in and borrowings from variable interest entities for which the Company has a legal right of offset.~~Distributions under preferred securities~~An income tax refund~~paid by Southeast Timber, Inc., a consolidated subsidiary~~ of ~~International Paper, were $5~~$7 million ~~and $8 million during the first 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.~~received and~~Income~~income tax payments of ~~$49 million and $104~~$1 million were made during the first ~~nine~~three months of ~~2009~~2010 and ~~2008,~~2009, respectively.

Equity earnings (losses), net of taxes includes the Company’s share of earnings from its investment in Ilim ~~Holding S.A. (a loss~~(losses of ~~$56~~$3 million and ~~earnings of $54~~$26 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively) and certain other smaller investments.

The components of the Company’spostretirement benefit ~~cost~~expensewere as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
*In millions*	2009			2008			2009			2008			2010			2009
Service cost	$	—		$	1		$	1		$	2		$	1		$	1
Interest cost		8			8			23			25			6			8
Actuarial loss		5			7			17			21			4			8
Amortization of prior service cost		(7	)		(9	)		(21	)		(27	)
Amortization of prior service credit														(8	)		(7	)

Net postretirement benefit cost (a)	$	6		$	7		$	20		$	21
Net postretirement benefit expense (a)													$	3		$	10

The following tables present changes in goodwill balances as allocated to each business segment for the ~~nine-month~~three-month periods ended ~~September 30, 2009~~March 31, 2010 and ~~2008:~~2009:

~~In the fourth quarter~~The net carrying amount of ~~2008, the Company performed an interim test for possible~~identifiableintangible assets, excluding goodwill, ~~impairment as of~~was $236 million and $248 million at March 31, 2010 and December 31, ~~2008, and recorded preliminary estimated impairment charges~~2009, respectively. The Company recognized amortization expense related to intangible assets of ~~$379~~approximately $8 million ~~representing all of the goodwill~~ for the ~~U.S. Coated Paperboard business,~~first three months of both 2010 and ~~$1.3 billion, representing all of the goodwill for the U.S. Printing Papers business.~~ 2009.

During the first quarter of ~~2009,~~2010, due to current period transactions and expirations of 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 two quarters~~statutes of ~~2009,~~limitations, unrecognized tax benefits decreased by $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$116 million to ~~$258~~$192 million (with an immaterial impact on earnings) and accrued estimated interest and tax penalties ~~increased~~decreased by $2$9 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.~~$86 million. The Company currently estimates that, as a result of ongoing discussions, pending tax settlements and expirations of statutes of limitations, the amount of unrecognized tax benefits could be reduced by approximately ~~$80~~$30 million during the next ~~twelve~~12 months.

~~During~~In the ~~2009 second~~2010 first quarter, ~~in connection with the ongoing evaluation of the Company’s Etienne mill in France,~~ the Company ~~determined that the future realization~~recorded in Income tax provision (benefit), charges totaling $46 million, consisting of ~~previously recorded~~a $14 million adjustment of deferred income 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 quarterrelating to ~~establish a valuation allowance for 100% of these assets. Additionally~~incentive compensation payments during the quarter and a $32 million charge to reduce deferred income tax assets related to post-retirement prescription drug coverage (Medicare Part D reimbursement) as a result of the ~~agreement on~~recently enacted the ~~2004~~“Healthcare 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 nine months ended September 30, 2009 in the accompanying consolidated statementEducation Reconciliation Act of ~~operations.~~2010.”

During the 2009 first quarter, the Company recorded in ~~income~~Income tax ~~expense~~provision (benefit), charges totaling $20 million, consisting of a $14 million adjustment of deferred income ~~taxes~~tax assets 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 resolved four of the eight pending lawsuits and believes that it has adequate insurance to resolve 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),~~CERCLA, International Paper submitted to the ~~Environmental Protection Agency (EPA)~~EPA a feasibility study for ~~this~~the 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.

~~Exterior Siding~~In April of 2010, the South Carolina Department of Health and ~~Roofing Litigation:~~

~~International Paper has established reserves relating~~Environmental Control (DHEC) issued a proposed consent order to the ~~settlement, during 1998~~Company with a civil penalty of $115,000. The penalty has been levied for self-disclosed failures by the Company’s Georgetown mill to operate within carbon monoxide and ~~1999, of three nationwide class action lawsuits against~~total reduced sulfur emission limits under 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 nine-month period ended September 30, 2009 totaled $35 million. Remaining reserve balances for these settlements totaled $6 million at September 30, 2009.

~~Other Legal Matters:~~mill’s Part 70 (Title V) Air Quality Operating Permit.

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

In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the Timber Notes) totaling approximately $4.8 billion. The Timber Notes, which do not require principal payments prior to their August 2016 maturity, are supported by irrevocable letters of credit obtained by the buyers of the forestlands. During the 2006 fourth quarter, International Paper contributed the Timber Notes to newly formed entities (the Borrower Entities) in exchange for Class A and Class B interests in these entities. Subsequently, International Paper contributed its $200 million Class A interests in the Borrower Entities, along with approximately $400 million of International Paper promissory notes, to other newly formed entities (the Investor Entities, and together with the Borrower Entities, the Entities) in exchange for Class A and Class B interests in these entities, and simultaneously sold its Class A interest in Investor Entities to a third party investor. As a result, at December 31, 2006, International Paper held Class B interests in the Borrower Entities and Class B interests in the Investor Entities valued at approximately $5.0 billion. International Paper has no obligation to make any further capital contributions to these Entities and did not provide any financial support that was not previously contractually required for the three months ended March 31, 2010 and the year ended December 31, 2009.

Also during 2006, the Entities acquired approximately $4.8 billion of International Paper debt obligations for cash, resulting in a total of approximately $5.2 billion of International Paper debt obligations held by the Entities at December 31, 2006. The various agreements entered into in connection with these transactions provide that International Paper has, and International Paper intends to affect, a legal right to offset its obligation under these debt instruments with its investments in the Entities. Accordingly, for financial reporting purposes, International Paper has offset approximately $5.1 billion of Class B interests in the Entities against $5.1 billion of International Paper debt obligations held by these Entities at March 31, 2010 and December 31, 2009. Remaining borrowings of $131 million and $144 million at March 31, 2010 and December 31, 2009, respectively, are included in Long-term debt in the accompanying consolidated balance sheet. Additional debt related to the above transaction of $38 million and $46 million is included in short-term debt at March 31, 2010 and December 31, 2009, respectively.

International Paper also holds variable interests in two financing entities that were used to monetize long-term notes received from the sale of forestlands in 2002 and 2001. International Paper transferred notes (the Monetized Notes) and cash having a value of approximately $1.0 billion to these entities in exchange for

preferred interests, and accounted for the transfers as a sale of the notes with no associated gain or loss. In the same period, the entities acquired approximately $1.0 billion of International Paper debt obligations for cash. International Paper has no obligation to make any further capital contributions to these entities and did not provide any financial support that was not previously contractually required for the three months ended March 31, 2010 and the year ended December 31, 2009. At March 31, 2010, International Paper’s $543 million preferred interest in one of the entities has been offset against related debt obligations since International Paper has, and intends to affect, a legal right of offset to net-settle these two amounts. International Paper’s preferred interest in the remaining entity of $484 million is included in Investments in the accompanying consolidated balance sheets at March 31, 2010 and December 31, 2009. Other outstanding debt related to the above transactions of $445 million and $465 million is included in Long-term debt and $26 million and $7 million is included in short-term debt in the accompanying consolidated balance sheets at March 31, 2010 and December 31, 2009, respectively.

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

In March 2003, Southeast Timber, Inc. (Southeast Timber), a consolidated subsidiary of International Paper, issued $150 million of preferred securities to a private investor with future dividend payments based on LIBOR. Southeast Timber, which through a subsidiary initially held approximately 1.5 million acres of forestlands in the southern United States, was International Paper’s primary vehicle for sales of southern forestlands. As of March 31, 2010, substantially all of these forestlands have been sold. These preferred securities may be put back to International Paper by the private investor upon the occurrence of certain events, and have a liquidation preference that approximates their face amount. The $150 million preferred third-party interest is included in Non-controlling interests in the accompanying consolidated balance sheet. Distributions paid to the third-party investor were $1 million and $2 million for the three months ended March 31, 2010 and 2009, respectively. The expense related to these preferred securities is shown in Net earnings attributable to noncontrolling interests in the accompanying consolidated statement of operations.

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.

2027. Pre-tax early debt retirement costs of ~~$118~~$5 million related to ~~third quarter~~first-quarter debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of ~~operations.~~

~~In May 2009, International Paper issued~~operations (offset by a $1 ~~billion of 9.375% senior unsecured notes with a maturity date~~million gain on associated interest rate swaps as discussed in May 2019. The proceeds from this borrowing were used to repay approximately $875 million of notes with interest rates ranging from 4.0% to 9.25% and original maturities from 2010 to 2012. Also during the second quarter, International Paper Company Europe Ltd, a wholly-owned subsidiary of International Paper, repaid $75 million of notes issued in connection with the Ilim Holdings S.A. joint ventures that matured during the quarter. Pre-tax early debt retirement costs of $25 million related to second quarter debt repayments are included in Restructuring and other charges in the accompanying consolidated statement of operations.Note 13).

In March 2009, International Paper Investments (Luxembourg) S.a.r.l, a wholly-owned subsidiary of 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~~varied 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 2009 third quarter, ~~of 2009,~~ the $468 million loan ~~has been~~was repaid. Other debt activities in the first quarter of 2009 included the repayment of approximately $366 million of notes with interest rates ranging from 4.25% to 5.0% that had matured.

Condensed Notes 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 repaid $125 million of the $2.5 billion long-term debt 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.(Unaudited)

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 ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, International Paper classified ~~$450~~$445 million and ~~$796~~$450 million, respectively, of commercial paper and bank notes and ~~Current~~current maturities of long-term debt as Long-term debt. International Paper has the intent and ability, as evidence by its contractually committed credit facility, to renew or convert these obligations.

At ~~September 30, 2009,~~March 31, 2010, the fair value of International Paper’s ~~$9.6~~$8.96 billion of debt was approximately ~~$10~~$9.81 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 ~~September 30, 2009,~~March 31, 2010, the Company held long-term credit ratings of BBB ~~(negative~~(stable 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~~Subsequent to the first quarter, on April 1, 2010, Moody’s ~~respectively.~~revised its outlook from negative to stable.

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 ~~transactions~~hedges that meet the hedge accounting criteria, International Paper, at inception, formally designates and documents the instrument as a fair value hedge, a cash flow hedge or a net investment hedge of a specific underlying exposure, 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 orand 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~~Accumulated other comprehensive income (AOCI) 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, totaled ~~losses~~a gain of approximately ~~$50 million and $27~~$2 million for the ~~nine~~three months ended March 31, 2010 and a loss of approximately $53 million for the three months ended March 31, 2009. As of March 31, 2010 and December 31, 2009, outstanding undesignated foreign exchange contracts included the following:

Interest rate swap agreements at March 31, 2010, of $1 billion floating-to-fixed notional and an offsetting $1 billion fixed-to-floating notional, do not qualify as hedges under the accounting guidance and mature in September ~~30, 2009 and 2008, respectively.~~2010. Changes in the fair value of these instruments, recognized in earnings, totaled a gain of $7 million for the three months ended March 31, 2010.

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~~fixed-rate debt. At ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, the outstanding notional amounts of interest rate swap agreements that qualify as fully effective fair value hedges were approximately ~~$112~~$374 million and ~~$484~~$1.1 billion, respectively.

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

In the ~~third~~first quarter of 2009, the Company entered into a fixed-to-floating interest rate swap agreement with a notional value of $100 million. The interest rate swap was effective August 2009 and matures April 2015. The interest rate swap is being accounted for as a fair value 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,2010, a previously deferred gain of ~~$17~~$1 million ~~related to earlier swap terminations~~ was recognized in ~~earnings. These gains are~~earnings in connection with early debt retirements. This gain is 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,~~terminated. The termination was not in connection with early retirement of debt. The resulting ~~in a~~ gain of $11 million ~~that~~ was deferred and recorded in Long-term ~~debt. This gain~~debt and will be amortized as an adjustment of interest expense over the life of the underlying debt through 2016.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of ~~Other comprehensive income (OCI)~~AOCI 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. ~~Any previously recognized gains or losses on effective hedges~~The fair value of the hedge instruments are reclassified out of ~~OCI~~AOCI 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 ~~September 30,~~March 31, 2010 and December 31, 2009, 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 qualified as cash flow hedges were approximately $1 billion.~~

In the third quarter of 2009, in connection with various early debt retirements, deferred losses of 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 operations.

In September 2009, the Company undesignated $950 million 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 minimize the earnings exposure from the undesignated swaps.Commodity Risk

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. At ~~September 30, 2009,~~March 31, 2010, the hedged volumes of these energy contracts totaled ~~one million~~600,000 barrels of fuel oil and 2419 million ~~MMBTUs~~

MMBTU (Million British Thermal Units) of natural gas. At December 31, ~~2008,~~2009, the hedged volumes totaled ~~one million~~900,000 barrels of fuel oil and 21 million MMBTUs of natural gas. These contracts had maturities of three years or less as of ~~September 30, 2009.~~March 31, 2010. Deferred losses totaling ~~$17~~$16 million after taxes at ~~September 30, 2009~~March 31, 2010 are expected to be 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. At ~~September 30, 2009,~~March 31, 2010, these contracts have maturities of ~~two~~three years or less. Deferred gains of ~~$17~~$23 million after taxes at ~~September 30, 2009~~March 31, 2010 are expected to be recognized through earnings within the next 12 months. As of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, the following outstanding foreign exchange contracts were entered into as cash flow hedges of forecasted transactions:

International Paper’s financial assets and liabilities that are recorded at fair value on a recurring basis consist of derivative contracts, including interest rate swaps, foreign currency forward contracts, and other financial instruments that are used to hedge exposures to interest rate, commodity and currency risks. In addition, a consolidated subsidiary of International Paper contains an embedded derivative. For these financial instruments and the embedded derivative, fair value is determined at each balance sheet date using an income ~~approach based on~~approach. Below is a ~~discounted cash flow model that takes into account~~description of the ~~present~~valuation calculation and the inputs used for each class of contract:

Interest rate forward contracts are valued using swap curves obtained from an independent market data provider. The market value of ~~future cash flows under~~each contract is the ~~terms~~sum of the ~~contracts using current market information as~~fair value of all future interest payments between the contract counterparties, discounted to present value. The fair value of the ~~reporting date, such~~future interest payments is determined by comparing the contract rate to the derived forward interest rate and present valued using the appropriate derived interest rate curve.

Fuel oil forward contracts are valued using the average of two forward fuel oil curves as ~~prevailing~~quoted by third parties. The fair value of each contract is determined by comparing the strike price to the forward price of the corresponding fuel oil contract and present valued using the appropriate interest ~~rates~~rate curve.

All natural gas contracts are traded over-the-counter and settled using the NYMEX last day settle price; therefore, forward contracts are valued using the closing prices of the NYMEX natural gas future contracts. The fair value of each contract is determined by comparing the strike price to the closing price of the corresponding natural gas future contract and present valued using the appropriate interest rate curve.

Foreign currency forward contracts are valued using foreign currency ~~spot~~forward and interest rate curves obtained from an independent market data provider. The forward ~~rates.~~ rates are interpolated for each date a contract matures. The fair value of each contract is determined by comparing the contract rate to the interpolated forward rate. The fair value is present valued using the appropriate derived interest rate curve.

The embedded derivative is valued using a hypothetical interest rate derivative with identical terms. The hypothetical interest rate derivative contracts are fair valued as described above under Interest Rate Contracts.

Since the volume and level of activity of the markets that each of the above contracts are traded in has been normal, the fair value calculations have not been adjusted for inactive markets or disorderly transactions.

The guidance for fair value measurements and disclosures sets out a fair value hierarchy that groups fair value measurement inputs into 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. Transfers between levels are recognized at the end of the reporting period. 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*	September 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008			March 31, 2010			December 31, 2009			March 31, 2010			December 31, 2009
Derivatives designated as hedging instruments
Interest rate contracts – fair value	$	5	(a)	$	27	(b)	$	—		$	—		$	4	(a)	$	5	(e)	$	6	(g)	$	20	(g)
Interest rate contracts – cash flow		—			—			—			39	(c)
Commodity contracts – cash flow		12	(d)		—			47	(e)		75	(f)
Fuel oil contracts – cash flow														12	(b)		16	(f)		2	(h)		4	(h)
Natural gas contracts – cash flow														0			0			52	(i)		38	(k)
Foreign exchange contracts – cash flow		32	(g)		27	(h)		2	(i)		47	(i)		46	(c)		32	(b)		1	(g)		0

Total derivatives designated as hedging instruments	$	49		$	54		$	49		$	161		$	62		$	53		$	61		$	62

Derivatives not designated as hedging instruments
Interest rate contracts	$	—		$	—		$	36	(j)	$	8	(c)	$	1	(b)	$	1	(b)	$	23	(j)	$	29	(l)
Embedded derivatives		7	(a)		8	(a)		—			—			7	(d)		6	(d)		0			0
Foreign exchange contracts		6	(h)		40	(h)		10	(i)		19	(i)		3	(b)		2	(b)		1	(h)		2	(h)

Total derivatives not designated as hedging instruments	$	13		$	48		$	46		$	27		$	11		$	9		$	24		$	31

Total derivatives	$	62		$	102		$	95		$	188		$	73		$	62		$	85		$	93

~~(c)~~

~~Included in Other liabilities in the accompanying consolidated balance sheet.~~

The following table ~~shows~~provides the change in ~~Accumulated other comprehensive income,~~AOCI, net of tax, related to derivative ~~instruments:~~instruments for the three months ended March 31:


	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)						Gain or (Loss) Recognized in AOCI (Effective Portion)						Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)	(Gain) or Loss Reclassified from AOCI into Income (Effective Portion)
	2009			2008				2009			2008			2010			2009				2010			2009
Interest rate contracts	$	(6	)	$	(5	)	Interest expense, net	$	21		$	—		$	0		$	(1	)	Interest expense, net	$	0		$	5
Commodity contracts		(2	)		2		Cost of products sold		27			(10	)
Fuel oil contracts															(1	)		3		Cost of products sold		(1	)		3
Natural gas contracts															(14	)		(18	)	Cost of products sold		6			6
Foreign exchange contracts		39			19		Cost of products sold		(8	)		(51	)		19			(6	)	Cost of products sold		(8	)		3

Total	$	31		$	16			$	40		$	(61	)	$	4		$	(22	)		$	(3	)	$	17

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~~credit risk-related contingent features in a net liability position were ~~$62~~$67 million as of ~~September 30, 2009~~March 31, 2010 and ~~$109~~$65 million as of December 31, ~~2008.~~2009. The Company was required to post $2 million of collateral as of March 31, 2010 and an immaterial amount of collateral as of December 31, 2009 due to exceeding the counterparty’s collateral threshold in the normal course of business. In addition, existing derivative contracts provide for netting across ~~all~~most derivative positions in the event a counterparty defaults on a payment obligation. International Paper currently does not expect any of the counterparties to default on their obligations.

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~~2009 10-K.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
*In millions*	2009			2008			2009			2008			2010			2009
Service cost	$	30		$	28		$	90		$	76		$	29		$	31
Interest cost		134			135			402			404			136			137
Expected return on plan assets		(159	)		(168	)		(475	)		(503	)		(158	)		(158	)
Actuarial loss		40			30			120			90			44			44
Amortization of prior service cost		8			7			23			22			8			7

Net periodic pension expense (a)	$	53		$	32		$	160		$	89		$	59		$	61

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~~expects that no ~~obligation to fund~~cash funding contribution will be required for its domestic qualified plan in ~~2009.~~2010. The Company continually reassesses the amount and timing of any discretionary contributions and could elect to make such a contribution in ~~the next twelve months.~~2010. The nonqualified defined benefit plans are funded to the extent of benefit payments, which totaled ~~$24~~$5 million ~~through September 30, 2009.~~for the quarter ended March 31, 2010.

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 ICP and 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 consolidated financial statements included in International Paper’s ~~2008~~2009 10-K. As of ~~September 30, 2009, 16.6~~March 31, 2010, 16.8 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 ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ was ~~$72~~$7 million and ~~$83~~$17 million, respectively. The actual tax deduction realized for stock-based compensation costs related to non-qualified stock options was $0 ~~and $19,000~~ for both of the ~~nine-month~~three-month periods ended ~~September 30, 2009~~March 31, 2010 and ~~2008, respectively.~~2009. The actual tax deduction realized for stock-based compensation costs related to restricted and performance shares was ~~$28~~$75 million and ~~$130~~$28 million for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. At ~~September 30, 2009, $67~~March 31, 2010, $84 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 ~~1.3~~1.8 years.

Under the Performance Share Program (PSP), contingent awards of International Paper common stock are granted by the Committee to approximately ~~1,100~~1,200 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 iswas estimated based on the vesting period of the awards, the risk-free rate iswas based on the yield on U.S. Treasury securities matching the vesting period, the expected dividends ~~are~~were assumed to be zero for all companies, and the volatility iswas 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:~~PSP plan:

The following summarizes the activity for PSP for the ~~nine~~three months ended ~~September 30, 2009:~~March 31, 2010:


	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
Outstanding at December 31, 2009					6,066,050		$	24.28
Granted	4,100,947			19.09	3,829,233			28.94
Shares Issued (a)	(3,341,161	)		33.44	(2,743,084	)		33.42
Forfeited	(522,974	)		22.78	(130,632	)		20.13

Outstanding at September 30, 2009	6,491,068		$	24.51
Outstanding at March 31, 2010					7,021,567		$	23.33

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 ~~September 30, 2009~~March 31, 2010 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
Outstanding at December 31, 2009								22,217,057		$	39.24
Granted								0			0
Exercised								0			0
Forfeited	(355,321	)		43.84				(3,350	)		35.80
Expired	(1,934,680	)		43.63				(2,078,854	)		57.64

Outstanding at September 30, 2009	22,803,121		$	39.28	3.0	$	—
Outstanding at March 31, 2010								20,134,853		$	37.34	2.8	$	0

All options were fully vested and exercisable as of ~~September 30, 2009.~~March 31, 2010.

The following summarizes the activity of the Executive Continuity and Restricted Stock Award Program for the ~~nine~~three months ended ~~September 30, 2009:~~March 31, 2010:


	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
Outstanding at December 31, 2009					83,000		$	33.93
Granted	5,000			11.80	125,000			26.49
Shares Issued	(4,000	)		28.74	(19,000	)		29.67
Forfeited	—			—	0			0

Outstanding at September 30, 2009	103,000		$	34.23
Outstanding at March 31, 2010					189,000		$	29.44

International Paper’s industry segments, Industrial Packaging, Printing Papers, Consumer Packaging, Distribution and Forest Products, are consistent with the internal structure used to manage these businesses. All segments are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry.

The Company also has a 50% equity interest in Ilim in Russia that is a separate reportable industry segment.

Sales by industry segment for the three months ended March 31, 2010 and 2009 were as follows:

Operating profit by industry segment for the three months ended March 31, 2010 and 2009 were as follows:

On ~~October 22, 2009,~~April 26, 2010, International Paper announced ~~plans~~that it had signed a definitive agreement to ~~close its paper mill~~purchase SCA’s packaging business in Asia for $200 million in cash, subject to post-closing adjustments. The SCA packaging business in Asia consists of 13 corrugated box plants and ~~associated operations~~two specialty packaging facilities, which are primarily in ~~Franklin, Virginia,~~China, along with locations in Singapore, Malaysia and ~~its containerboard mills in Pineville, Louisiana and Albany, Oregon.~~Indonesia. The Company ~~also announced that it would permanently shut down~~expects to complete 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 severance charges of approximately $60 million to be recordedacquisition in the ~~fourth quarter of 2009 and first~~second quarter of 2010, ~~plus additional closure costs~~subject to ~~be determined and recorded as~~regulatory approval of the ~~facilities are closed.~~transaction in China.

~~(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 to estimated fair value.

~~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

InOur 2010 first quarter was a tough quarter, but in line with original expectations, and improved as we exited March. The quarter began with a continuation of the challenges we faced at the end of 2009, ~~third quarter, International Paper Company delivered solid operating results despite still-challenging market~~as a lack of wood caused by unusually wet conditions led to an increase in prices for virgin fiber and ~~economic conditions. While overall demand for the Company’s products was essentially flat~~recycled fiber prices escalated due to higher demand. We experienced increases in other input costs as well, such as natural gas, and absorbed, in total, approximately $144 million of input cost increases compared with second-quarter levels, we began to see signs of improving demand as the third quarter ended. The Company was able to expand margins during the quarter, and generated strong cash flow from operations which was used to reduce long-term debt by $1.3 billion.

~~Looking ahead~~ to the 2009 fourth quarter. Additionally, extreme cold and wet weather conditions in conjunction with the fiber shortages contributed to inefficient and more costly operations at certain of our mills in January and February. Despite an increase in export demand, volumes remained stable with the fourth quarter of 2009 as our export shipments were constrained as the lack of wood contributed to lower production. We did see good results from our European and Asian operations, and price increases announced during the quarter by nearly all of our businesses began to take hold toward the end of March around the world. Fixed cost reductions in our North American mill system and headcount reductions at our xpedx distribution operations also contributed positively to our results during the first quarter. The quarter was also marked by extensive mill maintenance outages as we incurred almost half of our total planned 2010 mill maintenance outages in the first quarter for the industrial packaging segment.

While our results early in the first quarter were disappointing, we saw improvement in March as we realized previously announced price increases and input costs showed signs of easing. Prices for softwood virgin fiber are decreasing more rapidly than hardwood, and recycled fiber price reductions are expected to outpace both. We have seen a decrease in natural gas prices as well. Overall, we expect second quarter input costs will be similar to first quarter costs, on average, but will be trending down during the second quarter. The global economy is showing signs of improving, and we expect second quarter earnings to increase significantly. In addition to the realization of price increases announced in the first quarter, we ~~expect seasonal decreases~~are beginning to realize additional price increases announced in ~~demand~~the second quarter. Demand should remain stable for paper ~~and packaging products~~ in North America and ~~stable to modestly increasing~~Europe and increase in Brazil and Asia. Packaging demand ~~in other global markets. Paper pricing~~ is expected to beimprove in North America and remain stable ~~while pulp prices~~in Europe. We will incur additional expenses of over $20 million for maintenance outages in our mill system in the second quarter, primarily in the paper segment in Europe, North America and Brazil. At the end of the second quarter we plan to have incurred about two-thirds of our maintenance outages for the year. Earnings from xpedx should ~~improve~~remain solid, and ~~box prices should decline~~the contribution from our Ilim Holding S.A. (Ilim) joint venture will return to profitability, reflecting the impact of ~~already published containerboard~~selling price ~~decreases. Planned maintenance outage expenses should increase~~increases that will be partially offset by ~~about $30 million~~higher input costs.

First quarter 2010 earnings per share attributable to International Paper shareholders before special items were $0.04, compared with $0.24 for the fourth quarter of 2009 and $0.08 for the first quarter of 2009. Diluted earnings (loss) per share attributable to International Paper shareholders were $(0.38) in ~~North America, but should decline by about $10 million in Europe. Input costs for natural gas should increase~~the first quarter of 2010, compared with $(0.24) in the fourth quarter ~~due to seasonally higher consumption, while other energy costs remain about flat. Wood costs~~of 2009 and freight costs are expected to increase, while OCC (old corrugated container) and chemical costs remain about flat. Earnings for our xpedx distribution business should remain stable, and we expect some improvement in equity earnings from our investment in Ilim Holding S.A. Additionally, the Company will record significant asset write-off and severance charges$0.61 in the ~~fourth~~first quarter ~~related~~of 2009.

Earnings per share attributable to International Paper shareholders before special items is a non-GAAP measure. Diluted earnings (loss) per share attributable to International Paper shareholders is the ~~recently announced paper~~most direct comparable GAAP measure. The Company calculates earnings per share before special items by excluding the after-tax effect of items considered by management to be unusual from the earnings reported under GAAP. Management uses this measure to focus on on-going operations, and ~~containerboard mill shutdowns. Considering all~~believes that it is useful to investors because it enables them to perform meaningful comparisons of ~~these factors, we expect 2009 fourth-quarter~~past and present operating results. The Company believes that using this information, along with diluted earnings ~~will be significantly less than in~~(loss) per share, provides for a more complete analysis of the ~~third~~results of operations by quarter. The following is a reconciliation of earnings per share attributable to International Paper shareholders before special items to diluted earnings (loss) per share attributable to International Paper shareholders.


	Three Months Ended March 31,						Three Months Ended December 31, 2009
	2010			2009			Three Months Ended December 31, 2009
Earnings Per Share Before Special Items	$	0.04		$	0.08		$	0.24
Restructuring and other charges		(0.31	)		(0.15	)		(1.52	)
CBPR business integration costs		0			(0.05	)		(0.02	)
Alternative fuel mixture credits		0			0.78			1.11
Net losses on sales and impairments of businesses		0			0			(0.02	)
Income tax adjustments		(0.11	)		(0.05	)		(0.03	)

Diluted Earnings (Loss) Per Common Share as Reported	$	(0.38	)	$	0.61		$	(0.24	)

For the ~~third~~first quarter of ~~2009,~~2010, International Paper Company reported net sales of ~~$5.9~~$5.8 billion, compared with ~~$6.8~~$5.7 billion in the ~~third~~first quarter of ~~2008~~2009 and ~~$5.8~~$6.0 billion in the ~~second~~fourth quarter of 2009.

Net ~~earnings~~losses attributable to International Paper totaled ~~$371~~$162 million, or ~~$0.87~~$0.38 per share, in the ~~2009 third~~2010 first quarter. This compared with earnings of ~~$149~~$257 million, or ~~$0.35~~$0.61 per share, in the ~~third~~first quarter of ~~2008~~2009 and ~~$136~~a loss of $101 million, or ~~$0.32~~$0.24 per share, in the ~~second~~fourth quarter of 2009.

Compared with the ~~third~~first quarter of ~~2008,~~2009, earnings in the ~~2009 third~~2010 first quarter benefited from higher sales volumes and lower lack-of-order downtime ($117 million), lower operating costs, partially offset by an unfavorable mix of products sold ($6433 million), ~~lower mill outage costs~~slightly higher earnings from land and mineral sales ($~~20 million), lower raw material and freight costs ($196~~4 million), and a lower ~~income tax provision~~net interest expense ($611 million). These benefits were offset by lower average sales price realizations ($~~132~~119 million), ~~lower sales volumes~~higher mill outage costs ($20 million), higher raw material and ~~higher lack-of-order downtime~~freight costs ($~~128~~59 million), ~~lower earnings from land~~ and ~~mineral sales ($204 million),~~ higher corporate items and other costs ($~~2 million), and higher net interest expense ($14~~7 million). Equity earnings, net of taxes, relating to International Paper’s investment in Ilim ~~Holding S.A.~~ were $5$23 million ~~lower~~higher in the ~~2009 third~~2010 first quarter than in the ~~2008 third~~2009 first quarter. Net special items were a loss of $178 million in the 2010 first quarter, compared with a gain of ~~$214~~$224 million in the 2009 ~~third quarter, compared with a loss of $207 million in the 2008 third~~first quarter.

Compared with the ~~second~~fourth quarter of 2009, earnings ~~from continuing operations~~ benefited from higher average sales price realizations ($39 million) and lower operating costs and a more favorable mix of products sold ($80 million). These benefits were more than offset by the net impact of lower sales volumes ~~and~~partially offset by lower lack-of-order downtime ($3930 million), ~~lower~~higher raw material and freight costs ($11112 million), ~~lower~~higher mill outage costs ($4527 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 lower earnings from land and mineral sales ($18 million)., increased corporate items and other costs ($23 million), and a higher income tax provision ($4 million) reflecting a higher estimated effective tax rate in the first quarter of 2010. Net interest expense decreased ($38 million). Equity earnings, net of taxes for Ilim ~~Holding, S.A. increased~~decreased by ~~$30~~$9 million versus the ~~second~~fourth quarter. Net special items were a ~~gain~~loss of ~~$214~~$178 million in the ~~2009 third~~2010 first quarter versus a ~~gain~~loss of ~~$50~~$203 million in the ~~second~~fourth quarter of 2009.

To measure the performance of the Company’s business segments from period to period without variations caused by ~~special or unusual~~certain items, International Paper’s management focuses on business segment operating profit. This is defined as earnings before taxes, equity earnings and noncontrolling interests net of taxes, excluding interest expense, corporate charges and corporate special items that include restructuring charges, and gains (losses) on sales and impairments of ~~businesses, and the reversal of reserves no longer required.~~businesses.

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


	Three Months Ended									Three Months Ended
	September 30,						June 30,			March 31,						December 31, 2009
*In millions*	2009			2008			2009			2010			2009			December 31, 2009
Net Earnings Attributable to International Paper Company	$	371		$	149		$	136
Net Earnings (Loss) Attributable to International Paper Company										$	(162	)	$	257		$	(101	)
Add back (deduct):
Income tax provision		212			118			348
Equity earnings, net of taxes		—			(5	)		32
Income tax provision (benefit)											(24	)		230			(321	)
Equity (earnings) loss, net of taxes											2			27			(10	)
Noncontrolling interests, net of taxes		6			3			4			9			4			4

Earnings From Continuing Operations Before Income Taxes and Equity Earnings		589			265			520
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings											(175	)		518			(428	)
Interest expense, net		169			144			173			149			164			163
Noncontrolling interests / equity earnings included in operations		(5	)		1			(8	)		(8	)		(6	)		(4	)
Corporate items		46			40			44			51			51			40
Special items:
Restructuring and other charges		141			89			59			3			52			81
Sale of forestlands		—			(3	)		—
Net loss on sales and impairments of businesses											0			0			1

	$	940		$	536		$	788		$	20		$	779		$	(147	)

Industry Segment Operating Profit
Industrial Packaging	$	410		$	95		$	382		$	41		$	360		$	(391	)
Printing Papers		363			103			279			(78	)		312			137
Consumer Packaging		144			(2	)		114			28			112			63
Distribution		21			35			10			21			(7	)		26
Forest Products		2			305			3			8			2			18

Total Industry Segment Operating Profit (1)	$	940		$	536		$	788		$	20		$	779		$	(147	)

Industry segment operating profits of ~~$940~~$20 million in the 2010 first quarter were lower than the $779 million in the 2009 ~~third~~first quarter, ~~were~~but higher than ~~both $536 million in~~ the ~~2008 third quarter and $788~~loss of $147 million in the 2009 ~~second~~fourth quarter. Compared with the ~~third~~first quarter of ~~2008,~~2009, earnings in the current quarter benefited from higher sales volumes and decreased lack-of-order downtime ($175 million), lower operating costs, partially offset by a less favorable mix of products sold ($~~93 million), lower mill outage costs ($30 million), lower raw material and freight costs ($290~~50 million), and ~~lower corporate items~~higher gains from land and ~~other costs~~mineral sales ($96 million). These benefits were offset by lower average sales price realizations ($~~196~~179 million), higher mill outage costs ($30 million), higher raw material and freight costs ($88 million), and higher corporate items and other costs ($8 million). Special items consisted of a loss of $212 million in the 2010 first quarter, compared with a gain of $473 million in the 2009 first quarter.

Compared with the 2009 fourth quarter, operating profits benefited from higher average sales price realizations ($50 million) and lower operating costs and a favorable mix of products sold ($103 million). These benefits were more than offset by the net impact of lower sales volumes and ~~increased~~lower lack-of-order downtime ($~~189~~39 million), higher mill outage costs ($35 million), higher raw material and freight costs ($144 million), lower gains from land and mineral sales ($~~303~~10 million), and higher corporate items and other costs ($14 million). Special items consisted of ~~a gain~~losses of ~~$497~~$212 million in the ~~2009 third~~2010 first quarter ~~including a pre-tax gain of $525 million from alternate fuel mixture credits, compared with a loss of $173~~and $468 million in the ~~2008 third quarter.~~

Compared with the 2009 second quarter, operating profits benefited from higher sales volumes and decreased lack-of-order downtime ($59 million), lower raw material and freight costs ($17 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 lower gains from land and mineral sales ($1 million). Special items consisted of gains of $497 million in the 2009 third quarter versus $396 million in the secondfourth quarter of 2009.

During the ~~2009 third~~2010 first quarter, International Paper took approximately ~~715,000~~665,000 tons of downtime, including ~~555,000~~approximately 52,000 tons ~~that were market-related,~~of combined lack-of-order and lack-of-wood downtime, and 412,000 tons related to the permanent shutdowns of our Pineville and Albany mills and the permanent shutdowns of paper machines at our Franklin and Valliant mills, compared with approximately ~~360,000~~1.5 million tons of downtime in the ~~third~~first quarter of ~~2008,~~2009, including ~~55,000~~1.3 million tons that were market-related. The market-related downtime in the first quarter of 2009 included 98,000 tons related to the shutdown of a paper machine at our Valliant mill and 150,000 tons related to the shutdown of a paper machine at our Franklin mill and the permanent shutdown of our Bastrop mill in 2008. During the 2009 ~~second~~fourth quarter, International Paper took ~~approximately 1,025,000~~808,000 tons of downtime, including ~~775,000~~654,000 tons that were market-related. The market-related downtime in the fourth quarter of 2009 included 98,000 tons related to the shutdown of a paper machine at our Valliant mill, 54,000 tons related to the permanent shutdowns of our Pineville and Albany mills, and 150,000 tons related to the shutdown of a paper machine at our Franklin mill and the permanent shutdown of our Bastrop mill in 2008. Market-related downtime is taken to balance internal supply with our customer demand to help manage inventory levels, while maintenance downtime, which makes up the majority of the difference between total downtime and market-related downtime, is taken periodically during the year.

~~During~~Sales volumes of major products for the first ~~quarter~~three months 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,2010 and ~~a $2 million charge before taxes ($1 million after taxes) for operating losses related to certain wood products facilities.~~2009 were as follows:

An income tax benefit of $24 million was recorded for the 2010 first quarter. Excluding a $32 million expense to reduce deferred income tax assets related to postretirement prescription drug coverage (Medicare Part D reimbursements), a $14 million expense to reduce deferred income tax assets relating to incentive compensation payments and a benefit of $83 million relating to the tax effects of special items, the effective tax rate for operations was 32%.

In the 2009 fourth quarter there was an income tax benefit of $321 million. Excluding a $15 million expense relating to the write-off of a deferred income tax asset for a recycling tax credit in the state of Louisiana and a benefit of $363 million relating to the tax effects of special items, the effective tax rate for operations was 22% for the quarter. This rate reflected benefits from non-U.S. tax incentives and adjustments of tax estimates upon the filing of the Company’s 2008 non-U.S. income tax returns.

The income tax provision was ~~$212~~$230 million for the 2009 ~~third~~first quarter. Excluding a $14 million expense attributable to an adjustment of deferred income tax assets relating to incentive compensation payments, a $6 million expense relating to recent state income tax legislative changes and an expense of ~~$142~~$178 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 net operating loss carryforwards in France, a $26 million benefit relating to the completion of the Internal Revenue Service examination of the Company’s 2005 and 2004 federal income tax 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.~~

The income tax provision was $118 million in the 2008 third quarter. Excluding a $52 million benefit relating to the tax effects of special items, the effective income tax rate for continuing operations was 32.5% for the quarter.

Net interest expense for the ~~2009 third~~2010 first quarter was ~~$169~~$149 million compared with ~~$173~~$163 million ~~for~~in the 2009 ~~second~~fourth quarter and ~~$144~~$164 million ~~for~~in the ~~2008 third~~2009 first quarter. The ~~higher~~lower net expense ~~versus~~compared with the ~~2008 third~~fourth quarter ~~reflects~~of 2009 relates primarily to higher interest expense recorded on unrecognized tax benefits in the ~~issuance~~fourth quarter of $62009. The lower net expense compared with the first quarter of 2009 is due to the repayment of $2.5 billion of debt ~~mainly~~ in ~~connection with the acquisition of the CBPR business.~~2009.

Corporate items, net, ~~totaled $46~~of $51 million in the ~~third~~2010 first quarter were higher than the $40 million of net expense in the 2009 fourth quarter, but were even with the $51 million of net expense in the 2009 first quarter. The increase compared with ~~$44 million in~~ the ~~second~~prior quarter ~~of 2009 and $40 million in the third quarter of 2008. The slight increase versus the second-quarter~~ was due to ~~slightly~~ higher pension expense, while the increase from the 2008 third quarter reflects higher pension expense, partially offset by lower supply chain initiative costs. Overhead charges allocated to industry segments in the third quarter of 2009 were $24 million 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.expense.

During the ~~third~~first quarter of ~~2009,~~2010, restructuring and other charges totaling ~~$151~~$215 million before taxes ($95132 million after taxes) were recorded, including a ~~$102~~$204 million pre-tax charge ~~before taxes~~ ($62124 million after taxes) for closure costs related to the paper mill and associated operations in Franklin, Virginia (including accelerated depreciation of $190 million), a $4 million pre-tax charge ($2 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 pre-tax 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 closurereorganization of the Company’s ~~Etienne mill in France,~~Shorewood Packaging operations and ~~a $5~~charges of $4 million ~~charge before taxes ($3 million~~(before and after taxes) for other ~~closure costs.~~items. Additionally, ~~the second quarter income~~a $46 million after-tax charge was recorded for tax ~~provision included a $156 million charge to establish a valuation allowance for deferred tax assets in France, and a $26 million credit~~adjustments related to ~~the settlement of certain tax issues (see Note 10).~~incentive compensation and postretirement prescription drug coverage.

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~~related to the shutdown of certain operations at 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~~for certain tax ~~adjustments (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 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 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.

~~During the first quarter of 2008, a $1 million credit, before and after taxes, was recorded to adjust previously estimated gains/losses of businesses previously sold.~~adjustments.

The following presents business segment discussions for the ~~third~~first quarter of ~~2009.~~2010.


	2009						2008						2010		2009
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	2,230	$	2,270	$	6,680	$	2,320	$	1,470	$	5,235	$	2,220	$	2,180	$	2,210
Operating Profit		410		382		1,152		95		87		279
Operating Profit (Loss)														41		360		(391	)

Industrial Packaging net sales for the ~~third~~first quarter of ~~2009~~2010 were ~~2% lower than in~~about even with the ~~second~~fourth quarter of 2009 and ~~4% lower~~2% higher than in the ~~third~~first quarter of ~~2008.~~2009. Operating profits in the ~~third and second quarters~~first quarter of 2010 included $5 million of additional expenses related to facility closures that were executed in the fourth quarter of 2009, while operating profits in the fourth quarter of 2009 included ~~gains~~a gain of ~~$221~~$212 million ~~and $208 million, respectively,~~ relating to alternative fuel mixture ~~credits. Operating profits also included $7~~credits, expenses of $653 million for U.S. mill and ~~$63~~paper machine shutdown costs, $17 million offor costs inrelated to the ~~2009 third and second quarters, respectively, associated with the planned~~ closure of the Etienne mill in France, $15 million for integration costs associated with the CBPR acquisition and ~~costs~~$2 million for the impairment of ~~$18 million~~an investment in ~~both the 2009 third and second quarters and $58 million~~a joint venture in Asia. Operating profits in the ~~2008 third~~first quarter of 2009 included a gain of $208 million relating to alternative fuel mixture credits and expenses of $36 million for CBPR integration costs. Excluding these items, operating profits in the ~~third~~first quarter of ~~2009 of $214 million~~2010 were ~~16%~~45% lower than ~~$255 million~~ in the ~~second~~fourth quarter of 2009 and ~~40% higher~~76% lower than ~~$153 million~~ in the ~~third~~first quarter of ~~2008. Sales and profits for all of 2009 and the 2008 third quarter include the operating results of the CBPR business acquired on August 4, 2008.~~2009.

North American Industrial Packagingnet sales were $1.9 billion in the ~~third~~first quarter of ~~2009 compared with $2.0 billion in the second~~2010, fourth quarter of 2009 and ~~$1.9 billion in the third~~first quarter of ~~2008.~~2009. Operating earnings were ~~$404~~$20 million ($~~201~~23 million excluding facility closure costs) in the first quarter of 2010 compared with a loss of $391 million (a gain of $65 million excluding alternative fuel mixture credits, facility and paper machine closure costs and CBPR integration costs) in the fourth quarter of 2009 and $347 million ($175 million excluding alternative fuel mixture credits and CBPR integration costs) in the ~~third~~first quarter of 2009.

Sales volumes in the first quarter of 2010 decreased compared with the fourth quarter of 2009 compared with $431 million ($241 million excluding alternative fuel mixture credits and CBPR integration costs) in the second quarter of 2009 and $82 million ($140 million excluding CBPR integration costs) in the 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~~a reduction in sales of containerboard to export markets ~~but~~reflecting supply constraints from annual maintenance outages at the mills and fiber availability. Sales of containerboard to domestic markets increased and box sales volumes were ~~more than offset by lower box volumes, although box shipments did strengthen toward the end of the quarter.~~higher. Average sales price realizations were higher reflecting the partial realization of price increases for both containerboard and boxes ~~declined~~effective in ~~line with previously announced published containerboard price decreases. Margins~~January 2010. Input costs were sharply higher for ~~boxes decreased~~wood and recycled fiber and also higher for energy. Operating costs were significantly lower due to ~~higher containerboard costs.~~the removal of fixed costs from the mill system with the closures of the Pineville and Albany mills in the fourth quarter of 2009. Planned maintenance downtime costs were ~~significantly lower~~about $45 million higher than in the fourth quarter of 2009 due to outages at the Savannah, Red River and Mansfield mills. In the first quarter of 2010, capacity was reduced by 377,000 tons related to the 2009 shutdowns of the Albany and Pineville mills and the idling of a paper machine at the Valliant mill and 15,000 tons of lack-of-wood downtime was taken. Lack-of-order downtime was approximately 380,000 tons in the fourth quarter of 2009, including approximately 150,000 tons related to the shutdowns of the Albany and Pineville mills and the shutdown of a paper machine at the Valliant mill.

Compared with the first quarter of 2009, sales volumes in the first quarter of 2010 improved as customer demand for boxes has begun to recover. Average sales price realizations were significantly lower reflecting the cumulative 2009 price declines. Input costs have increased sharply, primarily for wood and recycled fiber. Manufacturing operating costs were favorable due to the closures of the two mills in the 2009 fourth quarter and the realization of cost reduction and synergy initiatives in the box plants. Planned maintenance downtime costs were about $26 million higher than in the first quarter of 2009 when outages were taken at two mills. Lack-of-order downtime in the first quarter of 2009 was approximately 830,000 tons, including approximately 100,000 tons related to the idled paper machine at the Valliant mill.

Entering the second quarter of 2010, sales volumes are expected to increase as the demand for boxes continues to improve. Average sales price realizations should increase significantly as the January price increases for containerboard and boxes are fully realized and a second price increase announced in March is realized during the 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 of 680,000 tons, of which 550,000 tons related to lack of orders.

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

~~Looking ahead to the 2009 fourth quarter, sales volumes~~ are expected to ~~decline for containerboard despite higher export shipments, while box volumes should decrease slightly due to fewer fourth-quarter sales days. Average sales price realizations~~be lower, and ~~margins~~recycled fiber costs which peaked in March are expected to ~~reflect continued competitive pressures and a less favorable geographic sales mix. Planned~~decrease. Costs related to planned maintenance downtime ~~costs will~~should be ~~significantly higher, while input~~about $26 million lower, and manufacturing operating costs are ~~also~~ expected to be ~~unfavorable due to rising energy costs as we enter the winter months.~~favorable.

European Industrial Packagingnet sales were ~~$240 million in both the third and second quarters of 2009 compared with $285~~$245 million in the ~~third~~first quarter of ~~2008. Operating earnings were $6~~2010 compared with $260 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 (a gain of $14 million excluding costs associated with the Etienne mill) in the second~~fourth quarter of 2009 and ~~a gain of $11~~$240 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings were $22 million ($24 million excluding facility closure costs) in the first quarter of 2010 compared with about breakeven ($17 million excluding facility closure costs) in the fourth quarter of 2009 and $13 million in the first quarter of 2009.

Sales volumes in the ~~third~~first quarter of ~~2009~~2010 were ~~only~~ slightly lower than in the ~~second~~fourth quarter of 2009 reflecting seasonality in the ~~impact of a strong summer~~ agricultural markets, although the winter fruit and vegetable season in ~~France~~Morocco and ~~Italy which largely offset the weak~~Spain was solid. Demand for packaging for industrial ~~market segments.~~products was about even with fourth quarter levels. Sales margins ~~were flat~~decreased, but remained at a high level as ~~slight reductions in kraft and recycled containerboard costs early in the quarter offset softer box pricing. Input costs for energy were~~ higher ~~but freight costs decreased.~~

Compared with the 2008 third quarter, sales volumes in the 2009 third quarter were slightly higher, reflecting the strong summer agricultural season in France and Italy. Sales margins were also higher as costs for kraft and recycled containerboard ~~declined more than~~were partially offset by box ~~prices. Input costs were favorable, primarily for energy, while operating~~price increases. Other input costs were about flat.

~~Entering~~ Operating costs were lower reflecting the absence of Moroccan restructuring costs and maintenance costs that occurred in the fourth quarter of 2009. Also, the removal of fixed costs associated with the Etienne mill favorably impacted earnings.

Compared with the first quarter of 2009, sales volumes increased significantly reflecting improved demand for packaging in the industrial markets and a much stronger fruit and vegetable season. Sales margins were slightly higher due to the current box price increases combined with lower containerboard costs year-over-year. Other input costs, primarily energy, were slightly favorable.

Looking ahead to the second quarter of 2010, sales volumes are expected to ~~increase due to the winter~~remain at solid levels. The summer agricultural season ~~in Morocco~~will begin toward the second half of the quarter and ~~Spain, while~~demand for industrial ~~market segments~~packaging should ~~continue to be weak. Sales~~remain solid. Average sales margins ~~at box plants should be lower as board costs~~ are expected to ~~continue to increase while~~reflect continuing increases in containerboard costs, partially offset by the realization of previously announced box ~~prices improve slightly.~~sales price increases.

Asian Industrial Packagingnet sales were ~~$100~~$85 million in the ~~third~~first quarter of ~~2009~~2010 compared with ~~$75~~$95 million in the ~~second~~fourth quarter of 2009 and ~~$100~~$55 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings for the distribution activities of the business were a loss of $1 million in the first quarter of 2010 compared with a gain of $1 million in the fourth quarter of 2009 and about breakeven in the first quarter of 2009. Operating earnings for the packaging operations were about breakeven ~~in both~~for the ~~third~~first quarter of 2010 and ~~second quarters~~the first quarter of 2009, ~~but were $2~~and a gain of $1 million in the ~~third~~fourth quarter of ~~2008.~~2009. In addition, an expense of $2 million was taken in the fourth quarter of 2009 for the impairment of an investment in a joint venture.


	2009						2008						2010			2009
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter			1^st Quarter		4^th Quarter
Sales	$	1,470	$	1,360	$	4,155	$	1,800	$	1,790	$	5,305	$	1,405		$	1,325	$	1,525
Operating Profit		363		279		954		103		226		514
Operating Profit (Loss)														(78	)		312		137

Printing Papers net sales for the ~~third~~first quarter of 2010 were 8% lower than in the fourth quarter of 2009, ~~were 8%~~but 6% higher than in the ~~second~~first quarter of ~~2009, but were 18% lower than in the third quarter of 2008.~~2009. Operating profits in the ~~third~~first quarter of ~~2009~~2010 included ~~a $226~~$204 million ~~gain relating to alternative fuel mixture credits and $1 million of facility~~for closure costs for the Franklin mill, while operating profits in the ~~second~~fourth quarter of 2009 included a gain of ~~$197~~$221 million ~~relating to~~for alternative fuel mixture credits and $4closure costs for the Franklin mill of $223 million. Operating profits in the first quarter of 2009 included a gain of $240 million offor alternative fuel mixture credits and facility closure costs ~~and operating profits in the third quarter~~ of ~~2008 included a $107 million impairment charge to write down the assets of the Inverurie, Scotland mill.~~$29 million. Excluding these items, operating profits in the ~~third~~first quarter of 2010 were 9% lower than in the fourth quarter of 2009, ~~of $138 million~~but were ~~60%~~25% higher than ~~$86 million~~ in the ~~second~~first quarter of ~~2009 and 34% lower than $210 million in the third quarter of 2008.~~2009.

North American Printing Papersnet sales were ~~$725 million in the third quarter of 2009 compared with~~ $685 million in the ~~second~~first quarter of 2010 compared with $700 million in the fourth quarter of 2009 and ~~$905~~$705 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings were ~~$254~~a loss of $134 million (a gain of $70 million excluding facility closure costs) in the first quarter of 2010 compared with $11 million ($9270 million excluding alternative fuel mixture credits and facility closure costs) in the ~~third~~fourth quarter of 2009 ~~compared with $205~~and $276 million ($6184 million excluding alternative fuel mixture credits and facility closure costs) in the ~~second~~first quarter of ~~2009 and $131 million in the third quarter of 2008.~~2009.

Sales volumes in the third quarter of 2009 were higher than in the second quarter of 2009 reflecting increased shipments to both domestic and export markets. Average sales price realizations for uncoated freesheet paper declined slightly in domestic markets, but improved in export markets. Input costs for wood, energy and chemicals were favorable. Planned maintenance downtime costs were about flat, reflecting outages at three mills in the third quarter versus four mills in the second quarter. Manufacturing operating costs were favorable as a result of cost control efforts and 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 related to lack-of-order downtime.

Compared with the third quarter of 2008, sales volumes were significantly lower reflecting weak customer demand. Average sales price realizations for uncoated freesheet paper decreased in domestic markets and were significantly lower in export markets. Lack-of-order downtime in the current quarter was higher than in the third quarter of 2008 when about 5,000 tons was taken. Input costs were lower due to a significant decrease in energy costs coupled with lower costs for wood and chemicals. Freight costs were also lower. Manufacturing costs were favorable reflecting cost reduction efforts and strong operating performance, while planned maintenance downtime costs were higher than in the 2008 third quarter.

~~Looking ahead to~~ the fourth quarter of 2009, sales volumes in the first quarter of 2010 decreased as export shipments were curtailed due to reduced production resulting from 18,000 tons of lack-of-wood downtime. Unusually wet weather in the southern U.S. in winter and early spring severely impacted the supply of wood during the fourth quarter of 2009 and the first quarter of 2010. Average sales price realizations increased reflecting the partial realization of an announced price increase for offset paper rolls and cut-size commodity paper. Average margins also improved due to a more favorable geographic mix of products sold. Input costs for wood, chemicals and energy were higher, while freight and distribution costs also increased. Manufacturing operating costs were unfavorable largely due to the effects of extreme weather conditions at certain of our facilities and due to inefficiencies caused by the wood supply shortages. We incurred lack-of-order downtime of 110,000 tons in the fourth quarter of 2009, including 30,000 tons related to the shutdown of a paper machine at the Franklin mill at the end of 2008. There was no lack-of-order downtime in the current quarter.

Sales volumes in the first quarter of 2010 increased slightly from the first quarter of 2009. Average sales price realizations were lower reflecting sales price declines experienced during 2009. Additionally, average margins decreased due to an increase in lower-margin export shipments. Input costs for wood, purchased pulp and energy were higher, but were partially offset by lower costs for chemicals. Planned maintenance downtime costs were higher in the first quarter of 2010, while operating costs were favorable. Lack-of-order downtime in the first quarter of 2009 was 182,000 tons, including 30,000 tons related to shutdown of a paper machine at the Franklin mill.

Entering the second quarter of 2010, domestic sales volumes are expected to be ~~seasonally lower.~~stable, but export shipments will decline due to wood supply constraints and lower production due to planned maintenance downtime. Average sales price realizations should ~~be comparable to third-quarter levels with~~improve reflecting the full-quarter impact of the price increase announced in February and the partial realization of a ~~slight~~second quarter increase ~~expected~~ in uncoated freesheet prices. ~~Input costs for wood, energy and chemicals~~Average margins are expected to ~~be higher. Planned maintenance expenses will be lower~~improve as increasing demand in the ~~fourth~~domestic market allows for a more favorable geographic mix. Planned mill maintenance downtime costs should be about $21 million higher than in the first quarter ~~when only one outage is scheduled.~~of 2010. Input costs are expected to decrease reflecting lower wood costs partially offset by higher energy costs.

European Printing Papersnet sales were ~~$300 million in the third quarter of 2009 compared with~~ $315 million in the ~~second~~first quarter of 2010 compared with $340 million in the fourth quarter of 2009 and ~~$425~~$325 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings ~~in the third quarter of 2009~~ were ~~$28 million compared with $16~~$48 million in the ~~second~~first quarter of 2010 compared with $46 million in the fourth quarter of 2009 and ~~a loss of $78~~$2 million ~~(a gain of $29~~($25 million excluding ~~an impairment charge to write down the assets of~~closure costs for the Inverurie, Scotland ~~mill to estimated fair value)~~mill) in the ~~third~~first quarter of ~~2008.~~2009.

Sales volumes in the ~~third~~first quarter of ~~2009~~2010 were lower than in the ~~second~~fourth quarter of 2009 reflecting reduced sales of uncoated freesheet paper, ~~following~~particularly in Russia, primarily due to the ~~closure of the Inverurie, Scotland mill.~~holiday season in January. Average sales price realizations for uncoated freesheet paper ~~declined~~started to strengthen during the quarter across ~~Western Europe~~Europe. Pulp sales volumes and ~~Russia.~~average sales price realizations increased, reflecting market conditions resulting from the supply reductions caused by the Chilean earthquake. Manufacturing costs were ~~favorable~~unfavorable due to ~~improved~~seasonally higher energy consumption and lower wood yield, despite good operating performance ~~and lower planned maintenance downtime costs. Wood and chemical costs were lower~~ in all three ~~geographic areas, but~~mills. Input costs for energy ~~costs~~and wood were ~~higher in Russia. Foreign~~higher. Operating earnings were also adversely impacted by unfavorable foreign exchange ~~movements were slightly unfavorable during the quarter.~~effects.

Compared with the ~~2008 third~~2009 first quarter, sales volumes in the ~~2009 third~~2010 first quarter ~~declined primarily~~were significantly lower due to the ~~lack~~closure of ~~uncoated freesheet paper volumes shipped in 2008 from~~ the Inverurie, Scotland mill ~~in Scotland.~~at the end of the 2009 first quarter. Average sales price realizations ~~were significantly lower across most~~for uncoated freesheet paper remained stable, while market pulp prices improved sharply from cyclically low levels in the first quarter of ~~Western Europe, but remained higher in Poland and Russia~~2009. Manufacturing costs improved considerably, largely due to ~~local currency devaluations. Manufacturing~~the absence of planned mill maintenance downtime in the 2010 first quarter compared with a maintenance outage at the Saillat mill in France in the 2009 first quarter. In addition, input costs in France were favorable, while chemical costs were also favorable in Russia and Poland. Foreign exchange effects had a slightly negative impact on earnings in the first quarter of 2010.

In the 2010 second quarter, average sales price realizations are expected to continue to improve as previously announced sales price increases begin to be realized. In Russia, planned maintenance downtime costs ~~were lower due to the shorter duration of the annual Kwidzyn mill outage. Input costs were favorable as lower wood costs, particularly in Russia, more than offset~~should be higher, ~~energy costs in Poland~~ and ~~Russia. Favorable foreign exchange movements significantly improved the margins at the Kwidzyn mill in Poland.~~

~~In the 2009 fourth quarter,~~ sales volumes are expected to be ~~higher than~~lower due to the associated reduction in ~~the third quarter reflecting a seasonal improvement~~production, but energy costs should decline due to seasonally lower tariffs and reduced consumption. Sales volumes in ~~demand. Average sales price realizations may decline slightly during the fourth quarter, but should be more stable than in the previous three quarters. Planned maintenance downtime expenses~~Poland are expected to ~~be significantly lower, while input costs~~decline as inventories are ~~expected to increase due to seasonally higher wood and energy costs.~~built in anticipation of a third quarter outage.

Brazilian Printing Papersnet sales were ~~$275~~$225 million in the ~~third~~first quarter of ~~2009~~2010 compared with ~~$215~~$300 million in the ~~second~~fourth quarter of 2009 and ~~$255~~$170 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings ~~in the third quarter of 2009~~ were ~~$36 million compared with $23~~$11 million in the ~~second~~first quarter of 2010 compared with $33 million in the fourth quarter of 2009 and ~~$58~~$20 million in the ~~third~~first quarter of ~~2008.~~2009.

Sales volumes in the ~~third~~first quarter of ~~2009 increased compared with~~2010 were lower than in the ~~second~~fourth quarter of 2009 reflecting ~~increased shipments to both Brazilian~~seasonally weaker demand for uncoated freesheet paper which was worsened by a lower than expected back-to-school season in the domestic ~~and export markets in Europe.~~market. Average sales price realizations ~~in the Brazilian~~improved slightly as higher export paper and pulp prices were partially offset by lower domestic ~~market declined due to strong competitive pressures and lower-priced imported~~ paper ~~while prices in export markets~~prices. Average margins were ~~also lower. Average sales margins decreased, reflecting~~negatively affected by an increased proportion of lower-margin export sales. Input costs ~~were favorable~~increased due to ~~lower wood, chemical and~~higher costs for purchased pulp and energy. Operating costs ~~partially offset by higher energy costs. Planned maintenance downtime costs~~were favorable. Operating earnings in the ~~third~~first quarter ~~increased, reflecting an outage at the Luis Antonio mill, but manufacturing operating costs were favorable.~~of 2010 included a charge of $15 million for uncollectible accounts receivable while fourth-quarter 2009 results included a charge of $10 million related to a value-added-tax contingency.

Compared with the ~~third~~first quarter of ~~2008,~~2009, sales volumes were higher due to increased ~~reflecting higher shipments to~~ export ~~markets.~~market sales. Average sales ~~price realizations~~margins, however, were ~~significantly lower as prices declined in both Brazilian domestic and export markets~~unfavorable reflecting ~~weak economic conditions. Average margins also declined due to an~~the increased proportion of sales to lower-margin export ~~sales. However, input~~markets. Input costs were higher reflecting increased costs for wood and energy, ~~and chemicals decreased. Planned maintenance downtime~~partially offset by lower costs ~~were lower, and~~for chemicals. Manufacturing operating costs were ~~also favorable.~~significantly favorable due to strong performance at the mills and the absence of the start-up costs associated with a new paper machine at the Tres Lagoas mill in the first quarter of 2009.

~~Looking ahead to~~Entering the ~~fourth~~2010 second quarter, sales volumes are expected to ~~improve, reflecting a further~~ increase ~~in shipments~~due to ~~export markets.~~seasonally stronger domestic customer demand for uncoated freesheet paper. Average sales price realizations should improve substantially with the realization of announced price increases. Costs associated with planned maintenance downtime will be higher ~~reflecting an announced price increase in Latin American markets. Profit margins~~with outages scheduled at the Mogi Guacu and Tres Lagoas mills. Input costs are ~~also~~ expected to ~~reflect lower input costs partially offset by an unfavorable geographic mix. Planned maintenance outage expenses should decrease as no outages are scheduled.~~increase, primarily for purchased pulp.

Asian Printing Papersnet sales were ~~$15~~$25 million in both the ~~third~~first quarter of 2010 and the fourth quarter of 2009 compared with ~~$10 million~~minimal sales in the ~~second~~first quarter of ~~2009 and $5 million in the third quarter of 2008.~~2009. Operating earnings were about breakeven ~~for~~in all periods presented.

U.S. Market Pulpnet sales were $155 million in the ~~third~~first quarter of ~~2009~~2010 compared with ~~$135~~$160 million in the ~~second~~fourth quarter of 2009 and ~~$210~~$125 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings were ~~$45~~a loss of $3 million in the first quarter of 2010 compared with income of $46 million (a loss of ~~$18~~$11 million excluding alternative fuel mixture ~~credits and facility closure costs)~~credits) in the ~~third~~fourth quarter of 2009 ~~compared with $35~~and $14 million (a loss of ~~$14~~$28 million excluding alternative fuel mixture ~~credits and facility closure costs)~~credits) in the ~~second~~first quarter of ~~2009 and a loss of $9 million in the third quarter of 2008.~~2009.

Sales volumes in the ~~third~~first quarter of 2010 decreased compared with the fourth quarter of 2009, however, average margins improved, reflecting an increase in shipments of higher-margin fluff pulp and a decrease in shipments of roll pulp. Average sales price realizations were ~~about equal~~higher for softwood, hardwood and fluff pulp. Input costs increased for wood, energy and chemicals, and freight costs also increased due to higher rates for shipping overseas. Planned maintenance downtime costs were higher in the first quarter of 2010 with outages at the Georgetown and Pensacola mills.

Compared with the first quarter of 2009, sales volumes increased and lack-of-order downtime decreased from 48,000 tons in the first quarter of 2009 to none in the first quarter of 2010. Average sales price realizations increased reflecting the impact of recovering demand coupled with supply constraints resulting from the Chilean earthquake. Input costs for wood and energy were higher, but were partially offset by lower costs for chemicals. Planned maintenance downtime costs were higher in the first quarter of 2010, while operating costs decreased.

Looking ahead to the second quarter of ~~2009 levels. During the third quarter, no lack-of-order downtime was taken compared with 10,000 tons in the second quarter. Average~~2010, average sales price realizations ~~were slightly higher reflecting~~are expected to improve as previously announced price increases ~~on pulp shipped to Europe.~~are realized. Planned maintenance downtime costs ~~were about flat, while manufacturing operations were unfavorable. Input costs for wood~~will increase with outages scheduled at the Pensacola and ~~chemicals decreased, while freight costs were also lower.~~

Compared with the third quarter of 2008, sales volumes were lower due to weaker 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. Input costs for energy, chemicals and wood decreased, and freight costs were significantly lower. In the third quarter of 2009, no lack-of-order downtime was taken compared with 17,000 tons in the third quarter of 2008.

~~Entering the 2009 fourth quarter, pulp sales~~Riegelwood mills. Sales volumes are expected to ~~remain at about third-quarter~~be slightly lower than first-quarter 2010 levels ~~although~~as a result of the sales mix should include a greater proportion of higher-margin fluff pulp. Average sales price realizations for softwood pulp, hardwood pulp and fluff pulp are all expected to improve. However, planned maintenance downtime will increase with an outage scheduled at the Riegelwood mill in the fourth quarter, while input costs for energy, chemicals and wood and freightreduced production caused by these outages. Freight costs are expected to ~~increase slightly.~~increase.


	2009						2008							2010		2009
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter			2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	790	$	770	$	2,275	$	830		$	795	$	2,395	$	805	$	715	$	785
Operating Profit		144		114		370		(2	)		13		20		28		112		63

Consumer Packaging net sales for the ~~third~~first quarter of ~~2009~~2010 were 3% higher than in the ~~second~~fourth quarter of 2009 ~~but 5% lower~~and 13% higher than in the ~~third~~first quarter of ~~2008.~~2009. Operating ~~profits included income of $78 million and $77 million relating to alternative fuel mixture credits~~earnings in the ~~third and second quarters~~first quarter of ~~2009, respectively, and~~2010 included $3 million of costs associated with the reorganization of the Shorewood business, while operating earnings in the fourth quarter of 2009 included a gain of $83 million for alternative fuel mixture credits, Franklin mill shutdown costs of $67 million and $2 million of Shorewood reorganization costs. Operating earnings in the first quarter of 2009 included a gain of $92 million for alternative fuel mixture credits and Shorewood reorganization costs of $2 ~~million, $1 million and $8 million in the 2009 third quarter, the 2009 second quarter and the 2008 third quarter, respectively.~~million. Excluding these items, operating ~~profits~~earnings in the ~~third~~first quarter of 2010 were 37% lower than in the fourth quarter of 2009, ~~of $68 million were 79%~~but 41% higher than ~~$38 million~~ in the ~~second~~first quarter of ~~2009 and significantly higher than $6 million in the third quarter of 2008.~~2009.

North American Consumer Packagingnet sales were ~~$565 million in both the third and second quarters of 2009 compared with $645~~$550 million in the ~~third~~first quarter of ~~2008.~~2010 compared with $540 million in the fourth quarter of 2009 and $530 million in the first quarter of 2009. Operating earnings in the ~~third~~first quarter of ~~2009~~2010 were ~~$120~~a loss of $4 million ~~($44~~(a loss of $1 million excluding ~~the alternative fuel mixture credits and~~ Shorewood reorganization costs) compared with ~~$93~~income of $36 million ($1722 million excluding alternative fuel mixture credits, Franklin mill shutdown costs and Shorewood reorganization costs) in the fourth quarter of 2009 and $94 million ($4 million excluding alternative fuel mixture credits and Shorewood reorganization costs) in the ~~second~~first quarter of 2009.

Coated Paperboard sales volumes in the first quarter of 2010 increased compared with the fourth quarter of 2009 ~~and a loss of $1 million (a gain of $7 million excluding the Shorewood reorganization costs) in the third quarter of 2008.~~

~~Coated paperboard~~across all product lines, but average sales price realizations declined ~~slightly~~slightly. Demand showed an improving trend as the quarter progressed. Input costs were significantly higher due to the impact of the wood shortage as well as higher costs for energy and chemicals. Planned maintenance downtime costs were lower with an outage at only one mill compared with two mills in the ~~third~~fourth quarter of 2009. Manufacturing costs were unfavorable reflecting low wood availability at the Texarkana mill and increased energy usage due to the winter weather. During the first quarter of 2010, the mills took 17,000 tons of combined lack-of-wood and lack-of-order downtime as well as 35,000 tons of reduced capacity related to the shutdown of a paper machine at the Franklin mill in the fourth quarter of 2009.

Compared with the first quarter of 2009, ~~compared~~higher sales volumes reflected recovering market demand. In the first quarter of 2009, the business took 127,000 tons of lack-of-order downtime. Average sales price realizations were lower reflecting price decreases experienced in the second and third quarters of 2009. Input cost increases for wood and energy were partially offset by cost decreases for chemicals. Manufacturing operating costs were unfavorable due to inefficiencies related to the low wood availability at the Texarkana mill as well as reliability issues at the Augusta mill.

Shorewood sales volumes in the first quarter of 2010 were lower than in the fourth quarter of 2009 reflecting a seasonal decline in the home entertainment segment and lower shipments in the tobacco segment, partially offset by consumer products segment growth. Average margins were flat. Operating costs were favorable, reflecting the impact of business reorganization and cost reduction efforts. Compared with the first quarter of 2009, sales volumes were lower due to decreased sales in the tobacco segment. Average margins improved due to a more favorable mix of products sold and profit improvement from international growth.

Foodservice sales volumes in the first quarter of 2010 were lower than in the fourth quarter of 2009 due to normal seasonal factors, but trended up significantly throughout the quarter. Average margins decreased slightly. Input costs were higher, primarily for resins, but operating costs improved. Compared with the first quarter of 2009, sales volumes in the first quarter of 2010 decreased. Average margins decreased as a result of lower average sales price realizations and higher input costs, primarily for resins. However, these factors were partially offset by a more favorable mix of products sold reflecting a greater proportion of hot cup sales and lower operating costs.

Looking forward to the second quarter of ~~2009 reflecting lower average prices for~~2010, coated ~~bristols, while average prices~~paperboard sales volumes are expected to improve as customer demand continues to grow. Average sales price realizations should increase as sales price increases for folding carton board, cup stock and ~~tobacco board remained stable. Sales volumes increased modestly~~coated bristols that were announced in the ~~third~~first quarter while total downtime decreased to 51,000 tons, all of which related to lack-of-order downtime, compared with 110,000 tons of downtime in the second quarter, of which 82,000 tons was due to lack-of-orders. There was no plannedare realized. Planned maintenance downtime ~~in the third quarter resulting in a $19 million decrease in these charges compared with the previous quarter. Input~~ costs ~~for wood, energy, and chemicals were lower than in the second quarter, while manufacturing operating costs were slightly unfavorable.~~

Compared with the third quarter of 2008, average sales price realizations continued to be significantly higher, reflecting the realization of price increases implemented 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 third quarter of 2008. Manufacturing operating costs were unfavorable, but planned maintenance downtime expenses were about $10 million lower.

Shorewood sales volumes increased slightly in the third quarter of 2009 from second quarter levels reflecting a seasonal increase in the home entertainment segment and higher shipments in the consumer products segment, partially offset by a decline in tobacco segment shipments. Average sales margins were about flat, but reflected a less favorable mix of products sold. Raw material costs in the third quarter of 2009 were slightly higher than in the second quarter of 2009, while favorable benefits from cost reduction initiatives were more than offset by higher benefits-related costs. Third quarter results included $2 million of expenses related to the reorganization of Shorewood’s operations versus $1 million in the second quarter. Compared with the 2008 third quarter, sales volumes in the 2009 third quarter were lower, reflecting weaker home entertainment and tobacco segment shipments, but average sales margins 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 third quarter also included $8 million of expenses related to the business reorganization.

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

~~Looking ahead to the 2009 fourth quarter, coated paperboard sales volumes should reflect a slight seasonal decrease, and average sales price realizations~~ are expected to be about ~~flat.~~$13 million higher than in the first quarter with outages planned for the Riegelwood and Texarkana mills. Input costs, especially for hardwood, are expected to ~~remain at about third-quarter levels, while planned maintenance downtime will be significantly higher with annual outages planned at the Texarkana and Riegelwood mills.~~increase. Shorewood’s sales volumes are expected to increase reflecting ~~seasonally~~ higher ~~home entertainment shipments, partially offset by lower tobacco segment shipments. Operating results should also reflect improved average sales margins~~demand in all ~~segments~~product segments. Average margins and ~~lower~~ operating ~~costs.~~costs should improve while input costs will be up slightly. Sales volumes for Foodservice ~~operating results~~should improve due to seasonal increases in cold cup shipments as well as increased demand in the quick service restaurant market. However, the higher cold cup mix will reduce average margins. Sales price realizations are expected to ~~reflect seasonally lower sales volumes~~be favorable, and ~~decreased average sales price realizations 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.~~improve.

European Consumer Packagingnet sales were ~~$80~~$85 million in both the ~~third~~first quarter of 2010 and ~~second quarters~~the fourth quarter of 2009 and $70 million in the ~~third~~first quarter of ~~2008.~~2009. Operating earnings were ~~$17~~$20 million in the ~~third~~first quarter of 2010 compared with $21 million in the fourth quarter of 2009 ~~compared with~~and $14 million in the ~~second~~first quarter of ~~2009 and about breakeven in the third quarter of 2008.~~2009.

Sales volumes in the ~~2009 third~~first quarter of 2010 were ~~lower~~slightly higher than in the 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 thirdfourth quarter of 2009. Average sales price realizations ~~improved~~increased in local currency, but due to foreign exchange translation factors, decreased

in U.S. dollars. Manufacturing operating costs at both the Svetogorsk and Kwidzyn mills were favorable, reflecting strong performance. Compared with the first quarter of 2009, sales volumes in the first quarter of 2010 were higher reflecting increasing market demand. Average sales price realizations increased significantly and economic conditions in Russia ~~but were lower in Western Europe. Favorable foreign exchange movements significantly improved the margins at the Kwidzyn mill in Poland.~~ have improved.

Operating ~~profits~~results in the ~~2009 fourth~~2010 second quarter ~~are expected to be adversely affected by seasonally higher input~~will reflect costs ~~but will benefit from a reduction in~~associated with the planned maintenance ~~downtime expenses.~~shutdown of the Svetogorsk mill.

Asian Consumer Packagingnet sales were ~~$145~~$170 million in the ~~third~~first quarter of 2010 compared with $160 million in the fourth quarter of 2009 and $115 million in the first quarter of 2009. Operating earnings were $12 million in the first quarter of 2010 compared with ~~$125~~$6 million in the fourth quarter of 2009 and $4 million in the first quarter of 2009.

Compared with the fourth quarter of 2009, the increase in operating earnings in the first quarter of 2010 is primarily related to the realization of sales price increases implemented during the quarter. Market demand for coated board was strong and manufacturing operations were solid. Compared with the first quarter of 2009, sales volumes increased reflecting improved market demand. Average sales price realizations were higher, but were partially offset by increased input costs, primarily for pulp.

Entering the second quarter of ~~2009~~2010, sales volumes are expected to remain strong. Average sales price realizations should increase with the full-quarter impact of the first quarter price increases and ~~$105 million in~~ the ~~third quarter~~partial realization of ~~2008. Operating earnings in both the third and second quarters of 2009 were $7 million compared with a loss of $1 million in the third quarter of 2008.~~additional price increases; however average margins may be negatively impacted by higher input costs for pulp.


	2009						2008						2010		2009
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter			4^th Quarter
Sales	$	1,665	$	1,595	$	4,850	$	2,075	$	1,970	$	6,030	$	1,580	$	1,590		$	1,675
Operating Profit		21		10		24		35		26		77
Operating Profit (Loss)														21		(7	)		26

Distribution’s~~2009 third~~2010 first quarter sales were ~~4% higher~~6% lower than in the ~~second~~fourth quarter of 2009 ~~while operating profit improved by $11 million. Compared~~and 1% lower than in the first quarter of 2009. Earnings in the fourth quarter of 2009 included $5 million of costs related to the ~~third~~reorganization of the Company’s xpedx operations in New Jersey. Excluding this item, operating earnings in the first quarter of ~~2008, sales decreased 20% and operating profit declined $14 million. Weak U.S. economic conditions and selling price deflation~~2010 were ~~the major factors~~32% lower than in the ~~decline~~fourth quarter of 2009, but significantly higher than in ~~operating profits.~~the first quarter of 2009.

~~Third-quarter 2009~~First-quarter 2010 sales of papers and graphic arts supplies and equipment totaled ~~approximately $1.1~~$1.0 billion, unchanged when compared with ~~$1.0 billion~~both the fourth and first quarters of 2009. Trade margins as a percent of sales for printing papers increased from both the fourth and first quarters of 2009 due to shifts between warehouse sales and lower-margin sales shipped directly from the manufacturer. Packaging sales were $300 million in the ~~second~~first quarter of 2010 compared with $400 million in the fourth quarter of 2009 and ~~$1.4 billion~~$300 million in the ~~2008 third quarter. Third quarter 2009 mill direct sales were up 6% over the second~~first quarter of 2009. ~~Stock sales also increased slightly. Compared to the third quarter~~Trade margins as a percent of ~~2008, both mill direct and stock~~ sales for packaging products increased from both the ~~printing business were down over 20%. A reduction in print advertising, selling price erosion~~fourth and ~~weaker general economic conditions all contributed to the reduction in demand.~~

~~Packaging sales were approximately $350~~first quarters of 2009 reflecting changing product and service mix. Sales of facility supply products totaled $250 million in the ~~third~~first quarter of ~~2009~~2010 compared with $300 million in the ~~second~~fourth quarter of 2009 and ~~$400~~$250 million in the ~~2008 third quarter. Sales of facility supply products totaled $300 million in the third~~first quarter of ~~2009, compared with $300 million in both the second quarter of 2009 and third quarter of 2008.~~2009.

Operating profits were $21 million in the ~~third~~first quarter of ~~2009~~2010 compared with ~~$10~~$26 million in the ~~second~~fourth quarter of 2009 and ~~$35~~a loss of $7 million in the ~~third~~first quarter of ~~2008. The increase~~2009. Earnings in the fourth quarter of 2009 benefited from a $17 million favorable inventory valuation adjustment that did not recur in the 2010 first quarter. Excluding this item, compared with the ~~second~~fourth quarter of 2009, ~~was~~improved trade margins and benefits from xpedx’s cost reduction program contributed to a substantial improvement in operations despite seasonally lower sales volume. Compared with the first quarter of 2009, operating profits increased principally due to higher sales ~~volumes. Lower sales volumes~~volume, cost reduction initiatives and lower ~~prices were the primary factors in the earnings decline compared with the 2008 third quarter. Benefits from cost reduction efforts partially mitigated these unfavorable earnings effects.~~costs.

Looking ahead to the ~~2009 fourth~~2010 second quarter, operating results are expected to ~~reflect improved sales revenue~~continue to benefit from continued margin and ~~continued benefits from~~ cost ~~reduction actions.~~improvements.


	2009						2008						2010		2009
*In millions*	3^rd Quarter		2^nd Quarter		Nine Months		3^rd Quarter		2^nd Quarter		Nine Months		1^st Quarter		1^st Quarter		4^th Quarter
Sales	$	5	$	10	$	20	$	55	$	55	$	135	$	10	$	5	$	25
Operating Profit		2		3		7		305		41		371		8		2		18

Forest Products sales and profits are driven by forestland and mineral rights sales, which can vary from quarter to quarter due to various factors. Net sales in the ~~third~~first quarter of ~~2009~~2010 were ~~50%~~60% lower than in the ~~second~~fourth quarter of 2009, ~~and 91%~~but double the level of the 2009 first quarter. Operating earnings in the first quarter of 2010 were 56% lower than in the ~~third quarter of 2008. Operating earnings in the third~~fourth quarter of 2009, ~~were 33% lower~~but significantly higher than in the ~~second~~first quarter of ~~2009 due to lower forestland~~2009.

For the remainder of 2010, the amount and timing of operating earnings will reflect the periodic sales ~~and 99% lower than in the third quarter~~ of ~~2008, reflecting the sale of certain oil~~remaining acreage and ~~gas~~ mineral rights ~~in 2008. Fourth~~and will vary from quarter ~~results are currently projected~~ to ~~be somewhat above third-quarter totals, reflecting higher forestlands sales.~~quarter.

On October 5, 2007, International Paper and Ilim ~~Holding S.A. (“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 ~~September 30, 2009~~March 31, 2010 includes the Company’s 50% share of Ilim’s operating results for the three-month period ended ~~June 30,~~December 31, 2009 under the caption ~~“Equity~~Equity earnings (losses), net of taxes.” Ilim is reported as a separate reportable industry segment.

The Company recorded an equity ~~earnings,~~loss, net of taxes, of ~~about breakeven~~$3 million in the ~~third~~first quarter of 2010 related to operations in the fourth quarter of 2009 compared with a ~~loss~~gain of ~~$30~~$6 million recorded in the ~~second~~fourth quarter of 2009 related to operations in the third quarter of 2009. Sales volumes ~~for Ilim’s second~~in the fourth quarter of 2009 increased from the prior quarter due to higher market pulp shipments partially offset by lower containerboard shipments. Average sales price realizations increased for market pulp, linerboard and other paper products in both domestic and export markets, reflecting a strengthening of demand in the Russian and Chinese markets. Input costs were unfavorable due to seasonally higher energy consumption and costs as well as seasonally higher wood costs. Additionally, foreign exchange losses of $2 million were recorded in the fourth quarter of 2009 compared with a gain of $2 million in the third quarter of 2009.

In the first quarter of 2009, ~~across all product lines~~the Company had recorded an equity loss, net of taxes, for Ilim of $26 million related to operations in the fourth quarter of 2008. Compared to the fourth quarter of 2008, sales volumes in the fourth quarter of 2009 increased primarily for market pulp and containerboard reflecting ~~a strengthening of market demand, particularly in markets in China.~~strong demand. Average sales price realizations ~~remained weak, although export~~were favorable for softwood ~~and hardwood~~ pulp ~~prices showed improvement late~~ in the ~~quarter. Operating costs were favorable. No~~domestic and Chinese export markets. The business took 106,000 metric tons of lack-of-order downtime ~~was taken~~during the 2008 fourth quarter. In addition, operating results in the ~~second~~fourth quarter ~~but planned annual maintenance downtime was taken at the Ust-Ilimsk mill. Additionally, the second quarter~~of 2008 included a ~~$10~~$19 million ~~foreign~~charge to write-off project development expenses and a $5 million provision for the write-down of assets. Foreign exchange ~~gain~~losses on the remeasurement of U.S. dollar-denominated debt ~~compared with a $22~~were $15 million ~~loss~~ in the ~~first~~fourth quarter of ~~2009.~~2008.

~~In the third quarter of 2008, the Company had recorded equity earnings, net of taxes, for Ilim totaling $5 million related~~Looking forward to ~~operations in~~ the second quarter of 2008. Sales volumes in the 2008 second quarter reflected good market demand for both pulp and containerboard. Average sales price realizations were also strong for both Russian domestic and export sales.

Looking ahead to the fourth quarter of 2009, demand in China is expected to remain strong, while demand in European markets should improve slightly. Domestic Russian demand is expected to remain weak. Average2010, average sales price realizations are expected to ~~continue~~be significantly higher as demand for pulp in China continues to ~~remain at about prior-quarter levels, although softwood~~grow and hardwood pulp ~~export~~ prices ~~should~~in Europe also improve. Input costs will increase reflecting announced cost increases for gas, electricity and railway freight charges. The foreign exchange impact is not expected to be significant.

Cash provided by continuing operations totaled $3.6 billion for the first nine months of 2009, up from $2.0 billion for the comparable 2008 nine-month period. Earnings from continuing operations adjusted for non-cash charges were $2.9 billion for the first nine months of 2009 compared with $1.7 billion for the first nine months of 2008. Cash provided by working capital components totaled $685$159 million for the first ~~nine~~three months of ~~2009, up from $213~~2010, compared with $794 million for the comparable ~~2008 nine-month period. Cash provided by continuing operations for~~2009 three-month period, reflecting the ~~first nine months~~absence of ~~2009 included $1.3 billion~~cash received from alternative fuel mixture credits and ~~$205~~an increase in cash used for working capital items in 2010. Earnings from operations adjusted for non-cash charges were $464 million for the first three months of 2010 compared to $495 million for the first three months of 2009. Cash used for working capital components totaled $305 million for the first three months of 2010, down from a source of $299 million for the ~~sale~~comparable 2009 three-month period.

The Company generated free cash flow of ~~accounts receivable~~approximately $39 million and $521 million in ~~Europe.~~the first three months of 2010 and 2009, respectively. Free cash flow is a non-GAAP measure and the most comparable GAAP measure is cash provided by operations. Management uses free cash flow as a liquidity metric because it measures the amount of cash generated that is available to maintain our assets, make investments or acquisitions, pay dividends and reduce debt. The following is a reconciliation of free cash flow to cash provided by operations:

Investments in capital projects totaled ~~$367~~$120 million in the first ~~nine~~three months of ~~2009~~2010 compared to ~~$732~~$128 million in the first ~~nine~~three months of ~~2008.~~2009. Full-year ~~2009~~2010 capital spending is currently expected to be approximately ~~$600~~$800 million, or about ~~40%~~55% of depreciation and amortization expense for our current businesses.

Financing activities for the first ~~nine~~three months of ~~2009~~2010 included ~~a $2.4 billion~~an $82 million net ~~decrease~~reduction in debt versus a ~~$5.4 billion~~$550 million net ~~increase~~reduction in debt during the comparable ~~2008 nine-month~~2009 three-month period.

In ~~August 2009,~~the first quarter of 2010, 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~~repaid approximately ~~$942~~$120 million of notes with interest rates ranging from ~~5.125%~~5.25% to 7.4% and original maturities from ~~2012~~2010 to ~~2026. Also during the third quarter in~~2027. 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$1 million related to earlier swap terminations ~~was~~were recognized in earnings. Pre-tax early debt retirement costs of ~~$102~~$4 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~~the first quarter of 2010, approximately $700 million 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~~were issued 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~~were terminated. These terminations were not in connection with ~~the CBPR business acquisition.~~

In May 2009, International Paper issued $1 billion of 9.375% senior unsecured notes with a maturity date in May 2019. The proceeds from this borrowing were used to repay approximately $875 million of notes with interest rates ranging from 4.0% to 9.25% and original maturities from 2010 to 2012. Also during the second quarter, International Paper Company Europe Ltd, a wholly-owned subsidiary of International Paper, repaid $75 million of notes issued in connection with the Ilim Holdings S.A. joint ventures that matured during the quarter. Pre-tax early debt ~~retirement costs~~retirements. The resulting gains of ~~$25~~$2 million ~~related to second quarter~~were deferred and recorded in Long-term debt ~~repayments~~and are ~~included in Restructuring and other charges in~~being amortized as an adjustment of interest expense over the ~~accompanying consolidated statement~~life of ~~operations.~~the underlying debt through April 2015.

In March 2009, International Paper Investments (Luxembourg) S.a.r.l, a wholly-owned subsidiary of 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~~varied depending upon the credit rating of the Company, and a maturity date in March 2012. International Paper used the $468 million of proceeds from the loan and cash of approximately $170 million to repay its 500 million euro-denominated debt (equivalent to $638 million at the 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~~was repaid. Other debt ~~activities~~activity 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.~~debt. As the swap agreement was terminated early, the resulting gain ~~will be~~is being 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 credit rating of the 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 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 were terminated in December 2008 along with other existing fixed-to-floating interest rate swaps, resulting in a gain of $127 million that was deferred and recorded in Long-term debt in the accompanying consolidated balance sheet. This gain will be amortized over the life of the related debt through June 2018.

At ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, International Paper classified ~~$450~~$445 million and ~~$796~~$450 million, respectively, of commercial paper and bank notes and ~~Current~~current maturities of long-term debt as Long-term debt. International Paper has the intent and ability, as evidenced by its fully committed credit facility, to renew or convert these obligations.

During the first ~~nine~~three months of 2010, International Paper issued approximately 3.8 million shares of treasury stock for various incentive plans. Payments of restricted stock withholding taxes totaled $26 million. During the first three months of 2009, International Paper issued approximately ~~2.4~~4.0 million shares of treasury stock for various incentive plans. Payments of restricted stock withholding taxes totaled $10 million. During the first nine months of 2008, the Company issued approximately 2.4 million shares of treasury stock for various incentive plans, including stock option exercises that generated approximately $1 million of cash and restricted stock that did not generate cash. Payments of restricted stock withholding taxes totaled $47 million. Common stock dividend payments totaled ~~$133~~$11 million and ~~$325~~$108 million for the first ~~nine~~three months of ~~2009~~2010 and ~~2008,~~2009, respectively. Dividends were ~~$0.30~~$.025 per share and ~~$0.75~~$0.25 per share for the first ~~nine~~three months in ~~2009~~2010 and ~~2008,~~2009, 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. In April 2010, International Paper announced that the quarterly common stock dividend would be increased from $0.025 per share to $0.125 per share, effective for the dividend payable June 15, 2010 to shareholders of record on May 17, 2010.

At ~~September 30, 2009,~~March 31, 2010, contractual obligations for future payments of debt maturities by calendar year were as ~~follows (in millions): $69 in 2009; $542~~follows: $320 million in 2010; ~~$555~~$565 million in 2011; ~~$223~~$224 million in 2012; ~~$1,085~~$134 million in 2013; ~~$566~~$561 million in 2014; $446 million in 2015; and ~~$6,582~~$6.7 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At ~~September 30, 2009,~~March 31, 2010, the Company held long-term credit ratings of BBB ~~(negative~~(stable 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~~Subsequent to the first quarter, on April 1, 2010, Moody’s revised its outlook from negative to stable.

At March 31, 2010, International Paper’s contractually committed bank credit ~~ratings of A-3 and P-3 by S&P and Moody’s, respectively.~~

~~At September 30, 2009, International Paper had approximately~~agreements totaled $2.5 billion, ofwhich management believes are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The committed liquidity facilities ~~including~~include a $1.5 billion contractually committed revolving bank credit agreement that expires in ~~March 2011~~November 2012 and $1has a facility fee of 0.50% payable quarterly. The liquidity facilities also include up to $1.0 billion of commercial paper-based financings based on eligible receivable balances ($~~942~~928 million at ~~September 30, 2009)~~March 31, 2010) under a receivables securitization program. On January 13, 2010, the Company amended the receivables securitization program ~~that is currently scheduled~~ to, ~~expire in~~among other things, extend the maturity date from January ~~2010. This~~2010 to January 2011. The amended agreement has ~~an annual~~a facility fee of ~~0.75%~~0.50% 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 during 2010 through ~~2009 using existing~~current cash balances ~~plus~~and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning ~~and debt management practices.~~objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

On February 5, 2010, Moody’s Investor Services reduced its credit rating of senior unsecured long-term debt of The Royal Bank of Scotland N.V. (formerly ABN AMRO Bank N.V.), which had issued letters of credit that support $1.4 billion of installment notes received in connection with the Company’s 2006 sale of

forestlands. Following this sale, the installment notes were contributed to third-party entities that used them as collateral for borrowings from a third-party lender. The related loan agreements require that if the credit rating of any bank issuing letters of credit is downgraded below a specified level, these letters of credit must be replaced within 60 days by letters of credit from another qualifying institution. Subsequent to the first quarter, on April 1, 2010, the issuer of installment notes completed the replacement.

The U.S. Internal Revenue Code ~~provides~~provided 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, iswas 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 2009 first ~~nine months of 2009,~~quarter, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 totaling approximately ~~$1.5 billion, including $251~~$516 million, ~~recorded in Accounts and notes receivable at September 30, 2009 and $1.3 billion that~~approximately $145 million of which was received in ~~cash.~~cash during the quarter, and accrued approximately $42 million for estimated eligible alternative fuel usage through March 31, 2009 to be included in subsequent filings. Accordingly, the accompanying consolidated statement of operations ~~includes credits of approximately $525 million and $1.5 billion~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 ~~respectively,~~includes a credit of approximately $540 million in Cost of products sold ($~~320 million and $944~~330 million after taxes), representing eligible alternative fuel mixture credits earned through ~~September 30,~~March 31, 2009, less $18 million of associated expenses. This credit expired on December 31, 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 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 ~~the~~ accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions, postretirement benefits other than pensions, and income taxes.

The Company has included in its ~~2008~~2009 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 ~~nine~~three months of ~~2009.~~2010.

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 ~~$160~~$59 million for International Paper’s U.S. plans for the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, or about ~~$71~~$2 million ~~more~~less than the pension expense for the first ~~nine~~three months of ~~2008.~~2009. Net pension expense for non-U.S. plans was about $5$1 million and $2 million for the first ~~nine~~three months of 2010 and 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~~payments are then matched to the yield curve to develop the discount rate. The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. At ~~September 30, 2009,~~March 31, 2010, the market value of plan assets for International Paper’s U.S. plans totaled approximately ~~$6.7~~$6.8 billion, consisting of approximately ~~49%~~47% equity securities, ~~33%~~34% fixed income securities, and ~~18%~~19% real estate and other assets. Plan assets did not include International Paper common stock.

The Company’s funding policy for its qualified pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flow generated by the Company, and other factors. The Company ~~has~~expects that no ~~obligation to fund~~cash funding contribution will be required for its domestic qualified plans in ~~2009, and does not currently expect any required cash contributions until 2011.~~2010. The Company continually reassesses the amount and timing of any discretionary contributions and could elect to make such a contribution in ~~the next twelve months.~~2010. The U.S. nonqualified plans are only funded to the extent of benefits paid which are expected to ~~total approximately $40~~be $41 million in ~~2009.~~2010.

The 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; the amount of our debt obligations and our ability to refinance or repay our debt; pension plan funding obligations that could be material over the next several years; changes in international

conditions; 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; and risks related to operations conducted by joint ~~ventures and changes in tax laws.~~ventures. 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~~2009 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.~~2009.

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 ~~September 30, 2009~~March 31, 2010 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 1110 to the ~~Financial Statements~~financial statements in this Form 10-Q.

~~The Company’s 2008 10-K contains important risk factors that could cause~~PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

No activity occurred in months during the ~~Company’s actual results to differ materially from those projected in any forward-looking statement. Forward-looking statements are statements that are~~quarter 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 $525 million and $1.5 billion before taxes for the three months and nine months ended September 30, 2009 for alternative fuel mixtures produced for use as a fuel in our business. Cash provided by operations for the nine months ended September 30, 2009 included approximately $1.3 billion relating to this credit. The credit is scheduled to expire December 31, 2009.

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 Refinance or 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 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.~~presented above.

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


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


		PAGE NO.
PART I.			FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statement of Operations -– Three Months Ended March 31, 2010 and ~~Nine Months Ended September 30,~~ 2009 ~~and 2008~~	1

	Consolidated Balance Sheet ~~- September 30, 2009~~– March 31, 2010 and December 31, ~~2008~~2009	2

	Consolidated Statement of Cash Flows ~~- Nine~~– Three Months Ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~	3

	Condensed Notes to Consolidated Financial Statements	4

	~~Financial Information by Industry Segment~~	23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2622

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4541

Item 4.	Controls and Procedures	4642

PART II.			OTHER INFORMATION

Item 1.	Legal Proceedings	4743

Item 1A.	Risk Factors	47*

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*43

Item 3.	Defaults upon Senior Securities	*

Item 4.	~~Submission of Matters to a Vote of Security Holders~~ [Removed and Reserved]	*

Item 5.	Other Information	*

Item 6.	Exhibits	4844

Signatures		4945


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

Total	$	65


*In millions*	Industrial Packaging			Printing Papers			Consumer Packaging			Distribution		Total
Balance as of January 1, 2010
Goodwill	$	1,131		$	2,423		$	1,765		$	400	$	5,719
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)

	$	1,131		$	658		$	101		$	400	$	2,290

Reclassifications and other (b)		(2	)		(14	)		0			0		(16	)
Additions/reductions		0			(7	)(c)		0			0		(7	)

Balance as of March 31, 2010
Goodwill		1,129			2,402			1,765			400		5,696
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0		(3,429	)

Total	$	1,129		$	637		$	101		$	400	$	2,267


	Nine Months Ended September 30,
	2009									2008
*In millions*	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
Issuance of stock for various plans, net		91			—			91			99			—			99
Repurchase of stock		(10	)		—			(10	)		(47	)		—			(47	)
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		—			(6	)		(6	)		—			(8	)		(8	)
Noncontrolling interests of acquired entities		—			(1	)		(1	)		—			—			—
Comprehensive income:
Net earnings		764			14			778			509			15			524
Amortization of pension and post-retirement prior service costs and net loss:
U.S. plans		82			—			82			62			—			62
Non-U.S. plans		7			—			7			3			—			3
Change in cumulative foreign currency translation adjustment		604			—			604			(163	)		4			(159	)
Net losses / gains on cash flow hedging derivatives:
Net gains arising during the period		31			—			31			16			—			16
Less: Reclassification adjustment for losses (gains) included in net income		40			—			40			(61	)		—			(61	)

Total comprehensive income								1,542									385

Balance, September 30	$	5,645		$	239		$	5,884		$	8,765		$	239		$	9,004


	Three Months Ended March 31,
	2010									2009
*In millions, except per share amounts*	Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity			Total International Paper Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, January 1	$	6,023		$	232		$	6,255		$	4,169		$	232		$	4,401
Issuance of stock for various plans, net		47			0			47			36			0			36
Repurchase of stock		(26	)		0			(26	)		(10	)		0			(10	)
Common stock dividends ($0.025 per share in 2010 and $0.25 per share in 2009)		(13	)		0			(13	)		(112	)		0			(112	)
Dividends paid to noncontrolling interests by subsidiary		0			(1	)		(1	)		0			(4	)		(4	)
Acquisition of noncontrolling interests		(12	)		(7	)		(19	)		0			0			0
Comprehensive income (loss):
Net earnings (loss)		(162	)		9			(153	)		257			4			261
Amortization of pension and post- retirement prior service costs and net loss:
U.S. plans		30			0			30			31			0			31
Non-U.S. plans		0			0			0			7			0			7
Change in cumulative foreign currency translation adjustment		(69	)		0			(69	)		(229	)		0			(229	)
Net gains/losses on cash flow hedging derivatives:
Net gains (losses) arising during the period		4			0			4			(22	)		0			(22	)
Less: Reclassification adjustment for (gains) losses included in net earnings (loss)		(3	)		0			(3	)		17			0			17

Total comprehensive income (loss)								(191	)								65

Balance, March 31	$	5,819		$	233		$	6,052		$	4,144		$	232		$	4,376


*In millions, except per share amounts*	Three Months Ended September 30, 2008		Nine Months Ended September 30, 2008
Net sales	$	7,298	$	21,405
Earnings from continuing operations (1)		138		411
Net earnings (1)		138		393
Earnings from continuing operations per common share (1)		0.33		0.97
Net earnings per common share (1)		0.33		0.93


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

Total	$	2,027	$	138	$	123		$	2,288


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

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


In millions	Industrial Packaging			Printing Papers			Consumer Packaging			Distribution			Total
Balance as of January 1, 2009
Goodwill	$	989		$	2,302		$	1,766		$	399		$	5,456
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0			(3,429	)

	$	989		$	537		$	102		$	399		$	2,027

Reclassifications and other (b)		(1	)		2			0			(2	)		(1	)
Additions/reductions		92	(c)		(5	)(d)		0			0			87

Balance as of March 31, 2009
Goodwill		1,080			2,299			1,766			397			5,542
Accumulated impairment losses (a)		0			(1,765	)		(1,664	)		0			(3,429	)

Total	$	1,080		$	534		$	102		$	397		$	2,113


	Three Months Ended ~~September 30, 2009~~March 31, 2010	~~Nine~~Three Months Ended ~~September 30,~~March 31, 2009
Expected volatility	33.83% - ~~71.11%~~61.62%	33.83% - ~~99.39%~~89.60%
Risk-free interest rate	~~0.17%~~0.28% - ~~1.24%~~1.49%	~~0.17%~~0.54% - 1.27%


	Three Months Ended September 30,		Nine Months Ended September 30,
*In thousands of short tons*	2009	2008	2009	2008
Industrial Packaging
Corrugated Packaging (4)	1,856	1,641	5,531	3,419
Containerboard (4)	580	686	1,581	1,686
Recycling (4)	566	397	1,759	397
Saturated Kraft	33	45	83	130
Bleached Kraft	22	24	52	65
European Industrial Packaging	252	261	790	844
Asia Industrial Packaging	200	154	427	443

Industrial Packaging	3,509	3,208	10,223	6,984

Printing Papers
U.S. Uncoated Papers	753	875	2,148	2,653
European and Russian Uncoated Papers	304	355	1,006	1,101
Brazilian Uncoated Papers	282	217	696	638
Asian Uncoated Papers	25	6	40	21

Uncoated Papers	1,364	1,453	3,890	4,413

Market Pulp (3)	422	448	1,114	1,218

Consumer Packaging
U.S. Coated Paperboard	324	403	932	1,202
European Coated Paperboard	86	81	265	235
Asia Coated Paperboard	221	138	628	386
Other Consumer Packaging	42	48	130	136

Consumer Packaging	673	670	1,955	1,959


	Three Months Ended March 31
	2010			2009
Cash provided by operations	$	159		$	794
Less:
Cash invested in capital projects		(120	)		(128	)
Cash received from alternative fuel mixture credits		0			(145	)

Free Cash Flow	$	39		$	521


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
February 1, 2010 – February 28, 2010	1,150,550	$	22.67	0	0


*In millions*	March 31, 2010	December 31, 2009
Sell / Buy	Sell Notional	Sell Notional
U.S. dollar / European euro	45	108
European euro / Great British pounds	30	29
European euro / Polish zloty	41	39
European euro/ U.S. dollar	3	9
South Korean won / U.S. dollar	3,629	3,629


~~4.1~~ 10.1		~~Supplemental Indenture (including the form of Notes),~~Amendment No. 3, dated as of ~~August 10, 2009,~~January 13, 2010, to the Second Amended and Restated Credit and Security Agreement dated as of March 13, 2008 (the “Agreement”) by and among Red Bird Receivables, LLC, as borrower, International Paper Company as services, the conduits and Liquidity Banks (as such terms are defined in the Agreement) from time to time parties thereto, and the agents’ parties thereto. Certain confidential portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

10.2		Consulting Agreement, dated February 19, 2010, by and between International Paper Company and ~~The Bank of New York Mellon, as trustee. (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated August 10, 2009).~~Michael Balduino.

~~10.1~~ 10.3		~~Amendment No. 4 to Unfunded Supplemental Retirement Plan for Senior Managers.~~2010 Management Incentive Plan.

10.4		2010 Exhibits to the 2009 Executive Management Incentive Plan.

11		Statement of Computation of Per Share Earnings.

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

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

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

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

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 Taxonomy Extension Presentation Linkbase.*


	INTERNATIONAL PAPER COMPANY
		(Registrant)

Date: ~~November~~6~~, 2009~~May 7, 2010	By	/S/ TIM S. NICHOLLS
			Tim S. Nicholls
			Senior Vice President and Chief Financial Officer


Date: ~~November~~6~~, 2009~~May 7, 2010	By	/S/ ROBERT J. GRILLET
			Robert J. Grillet
			Vice President – Finance and Controller

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller company