# Table	of	Contents

UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

x ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934	for	the	fiscal	year	ended December	31,	2009

# INTERNATIONAL	PAPER	COMPANY

(Exact	name	of	registrant	as	specified	in	its	charter)

New	York

(State	or	other	jurisdiction	of	incorporation	or	organization)

(I.R.S.	Employer	Identification	No.)

6400	Poplar	Avenue

Memphis,	Tennessee

(Address	of	principal	executive	offices)

(Zip	Code)

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

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	class

# Name	of	each	exchange	on	which	registered

# Securities	Registered	Pursuant	to	Section	12(g)	of	the	Act:	None

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

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

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

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Website,	if	any,	every	Interactive	Data	File	required	to	be	submitted	and	posted	pursuant	to	Rule 405	of	Regulation	S-T	(paragraph	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).	Yes	x				No	¨

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

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

Large	accelerated	filer	x Accelerated	filer	¨ Non-accelerated	filer	¨ Smaller	reporting	company	¨

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

The	aggregate	market	value	of	the	Company's	outstanding	common	stock	held	by	non-affiliates	of	the	registrant,	computed	by	reference	to	the	closing	price	as	reported	on	the	New	York	Stock Exchange,	as	of	the	last	business	day	of	the	registrant's	most	recently	completed	second	fiscal	quarter	(June	30,	2009)	was	approximately	$6,494,044,065.

Documents	incorporated	by	reference:

Portions	of	the	registrant's	proxy	statement	filed	within	120	days	of	the	close	of	the	registrant's	fiscal	year	in	connection	with	registrant's	2010	annual	meeting	of	shareholders	are	incorporated	by reference	into	Parts	III	and	IV	of	this	Form	10-K.

# INDEX	TO	ANNUAL	REPORT	ON	FORM	10-K

# PART	I.

| ITEM	1. | BUSINESS. | 1 |
| :--- | :--- | :--- |
|  | General | 1 |
|  | Financial\tInformation\tConcerning\tIndustry\tSegments | 1 |
|  | Financial\tInformation\tAbout\tInternational\tand\tU.S.\tOperations | 1 |
|  | Competition\tand\tCosts | 2 |
|  | Marketing\tand\tDistribution | 2 |
|  | Description\tof\tPrincipal\tProducts | 2 |
|  | Sales\tVolumes\tby\tProduct | 3 |
|  | Research\tand\tDevelopment | 4 |
|  | Environmental\tProtection | 4 |
|  | Employees | 4 |
|  | Executive\tOfficers\tof\tthe\tRegistrant | 5 |
|  | Raw\tMaterials | 6 |
|  | Forward-looking\tStatements | 6 |
| ITEM\t1A. | \t\t RISK\tFACTORS. | 6 |
| ITEM\t1B. | \t\t UNRESOLVED\tSTAFF\tCOMMENTS. | 9 |
| ITEM\t2. | \t\t PROPERTIES. |  |
|  | Forestlands | 9 |
|  | Mills\tand\tPlants | 9 |
|  | Capital\tInvestments\tand\tDispositions | 9 |
| ITEM\t3. | \t\t LEGAL\tPROCEEDINGS. | 9 |
| ITEM\t4. | \t\t SUBMISSION\tOF\tMATTERS\tTO\tA\tVOTE\tOF\tSECURITY\tHOLDERS. | 9 |
| PART\tII. |  |  |
| ITEM\t5. | MARKET\tFOR\tREGISTRANT'S\tCOMMON\tEQUITY,\tRELATED\tSTOCKHOLDER\tMATTERS\tAND\tISSUER\tPURCHASES\tOF |  |
|  | EQUITY\tSECURITIES. | 10 |
| ITEM\t6.\nITEM\t7. | \t\t SELECTED\tFINANCIAL\tDATA. | 12 |
|  | Executive\tSummary | 16 |
|  | Corporate\tOverview | 18 |
|  | Results\tof\tOperations | 18 |
|  | Description\tof\tIndustry\tSegments | 24 |
|  | Industry\tSegment\tResults | 25 |
|  | Liquidity\tand\tCapital\tResources | 31 |
|  | Critical\tAccounting\tPolicies | 37 |
|  | Significant\tAccounting\tEstimates | 38 |
|  | Recent\tAccounting\tDevelopments | 41 |
|  | Legal\tProceedings | 44 |
|  | Effect\tof\tInflation | 45 |
|  | Foreign\tCurrency\tEffects | 45 |
|  | Market\tRisk | 46 |

# INDEX	TO	ANNUAL	REPORT	ON	FORM	10-K	(Continued)

| ITEM	7A. | QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK. | 46 |
| :--- | :--- | :--- |
| ITEM\t8. | \t\t FINANCIAL\tSTATEMENTS\tAND\tSUPPLEMENTARY\tDATA. |  |
|  | Financial\tInformation\tby\tIndustry\tSegment\tand\tGeographic\tArea | 47 |
|  | Report\tof\tManagement\ton\tFinancial\tStatements,\tInternal\tControls\tover\tFinancial\tReporting\tand\tInternal\tControl |  |
|  | Environment\tand\tBoard\tof\tDirectors\tOversight | 49 |
|  | Reports\tof\tDeloitte\t&\tTouche\tLLP,\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 51 |
|  | Consolidated\tStatement\tof\tOperations | 53 |
|  | Consolidated\tBalance\tSheet | 54 |
|  | Consolidated\tStatement\tof\tCash\tFlows | 55 |
|  | Consolidated\tStatement\tof\tChanges\tin\tEquity | 56 |
|  | Notes\tto\tConsolidated\tFinancial\tStatements | 58 |
|  | Interim\tFinancial\tResults\t(Unaudited) | 94 |
| ITEM\t9. | \t\t CHANGES\tIN\tAND\tDISAGREEMENTS\tWITH\tACCOUNTANTS\tON\tACCOUNTING\tAND\tFINANCIAL\tDISCLOSURE. | 97 |
| ITEM\t9A. | \t\t CONTROLS\tAND\tPROCEDURES. | 97 |
| ITEM\t9B. | \t\t OTHER\tINFORMATION. | 98 |
| PART\tIII. |  |  |
| ITEM\t10. | \t\t DIRECTORS,\tEXECUTIVE\tOFFICERS\tAND\tCORPORATE\tGOVERNANCE. | 98 |
| ITEM\t11. | \t\t EXECUTIVE\tCOMPENSATION. | 98 |
| ITEM\t12. | SECURITY\tOWNERSHIP\tOF\tCERTAIN\tBENEFICIAL\tOWNERS\tAND\tMANAGEMENT\tAND\tRELATED\tSTOCKHOLDER |  |
|  | MATTERS. | 99 |
| ITEM\t13. | \t\t CERTAIN\tRELATIONSHIPS\tAND\tRELATED\tTRANSACTIONS,\tAND\tDIRECTOR\tINDEPENDENCE. | 99 |
| ITEM\t14. | \t\t PRINCIPAL\tACCOUNTANT\tFEES\tAND\tSERVICES. | 99 |
| PART\tIV. |  |  |
| ITEM\t15. | \t\t EXHIBITS\tAND\tFINANCIAL\tSTATEMENT\tSCHEDULES. |  |
|  | Additional\tFinancial\tData | 99 |
|  | Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm\ton\tFinancial\tStatement\tSchedule | 104 |
|  | Schedule\tII\t–\tValuation\tand\tQualifying\tAccounts | 105 |
|  | \t\t SIGNATURES | 106 |

# ITEM	1.	BUSINESS

# GENERAL

International	 Paper	 Company	 (the	 "Company"	 or	 "International	 Paper," which	may	also	be	referred	 to	as	 "we"	 or	 "us")	 is	 a	 global	 paper	 and packaging	 company	 that	 is	 complemented	 by	 an	 extensive	 North American	 merchant	 distribution	 system,	 with	 primary	 markets	 and manufacturing	 operations	 in	 North	 America,	 Europe,	 Latin	 America, Russia,	 Asia	 and	 North	 Africa.	 We	 are	 a	 New	 York	 corporation, incorporated	in	1941	as	the	successor	to	the	New	York	corporation	of	the same	 name	 organized	 in	 1898.	 Our	 home	 page	 on	 the	 Internet	 is www.internationalpaper.com.	You	can	learn	more	about	us	by	visiting	that site.

In	the	United	States	at	December	31,	2009,	the	Company	operated	21 pulp,	paper	and	packaging	mills,	146	converting	and	packaging	plants, 19 recycling	 plants	 and	 three	 bag	 facilities.	 Production	 facilities	 at December	31,	2009	in	Europe,	Asia,	Latin	America	and	South	America included	 nine	 pulp,	 paper	 and	 packaging	 mills, 52 converting	 and packaging	 plants,	 and	 two	 recycling	 plants.	 We	 distribute	 printing, packaging,	graphic	arts,	maintenance	and	industrial	products	principally through	 over	 226	 distribution	 branches	 in	 the	 United	 States	 and	 38 distribution	 branches	 located	 in	 Canada,	 Mexico	 and	 Asia.	 At December	 31,	 2009,	 we	 owned	 or	 managed	 approximately	 200,000 acres	of	forestlands	in	the	United	States,	approximately	250,000	acres	in Brazil	 and	 had,	 through	 licenses	 and	 forest	 management	 agreements, harvesting	 rights	 on	 government-owned	 forestlands	 in	 Russia. Substantially	all	of	our	businesses	have	experienced,	and	are	likely	to continue	to	experience,	cycles	relating	to	industry	capacity	and	general economic	conditions.

For	management	and	financial	reporting	purposes,	our	businesses	are separated	 into	 six	 segments:	 Industrial	 Packaging;	 Printing	 Papers; Consumer	 Packaging;	 Distribution;	 Forest	 Products;	 and	 Specialty Businesses	and	Other.	A	description	of	these	industry	segments	can	be found	on	pages	24	through	25	of	Item	7.	Management's	Discussion	and Analysis	 of	 Financial	 Condition	 and	 Results	 of	 Operations.	 The Company's	50%	equity	interest	in	Ilim	Holding	S.A.	is	also	a	separate reportable	industry	segment.

From	 2005	 through	 2009,	 International	 Paper's capital expenditures approximated	$5.0	billion,	excluding

mergers	 and	 acquisitions.	 These	 expenditures	 reflect	 our	 continuing efforts	to	improve	product	quality	and	environmental	performance,	as	well as	 to	 lower	 costs,	 maintain	 reliability	 of	 operations	 and	 improve forestlands.	 Capital	 spending	 for	 continuing	 operations	 in	 2009	 was approximately	 $534	 million	 and	 is	 expected	 to	 be	 approximately	 $800 million	in	2010.	You	can	find	more	information	about	capital	expenditures on	 page 32 of	 Item	 7.	 Management's	 Discussion	 and	 Analysis	 of Financial	Condition	and	Results	of	Operations.

Discussions	of	acquisitions	can	be	found	on	pages	32	and	33	of	Item	7. Management's	 Discussion	 and	 Analysis	 of	 Financial	 Condition	 and Results	of	Operations.

You	can	find	discussions	of	restructuring	charges	and	other	special	items on	 pages 21 through 23 of	 Item	 7.	 Management's	 Discussion	 and Analysis	of	Financial	Condition	and	Results	of	Operations.

Throughout	 this	 Annual	 Report	 on	 Form	 10-K,	 we	 "incorporate	 by reference"	certain	information	in	parts	of	other	documents	filed	with	the Securities	 and	 Exchange	 Commission	 (SEC).	 The	 SEC	 permits	 us	 to disclose	important	information	by	referring	to	it	in	that	manner.	Please refer	 to	 such	 information.	 Our	 annual	 reports	 on	 Form	 10-K,	 quarterly reports	on	Form	10-Q	and	current	reports	on	Form	8-K,	along	with	all other	reports	and	any	amendments	thereto	filed	with	or	furnished	to	the SEC,	 are	 publicly	 available	 free	 of	 charge	 on	 the	 Investor	 Relations section	of	our	Internet	Website	at	www.internationalpaper.com	as	soon as	reasonably	practicable	after	we	electronically	file	such	material	with,	or furnish	it	to,	the	SEC.	The	information	contained	on	or	connected	to	our Web	site	is	not	incorporated	by	reference	into	this	Form	10-K	and	should not	be	considered	part	of	this	or	any	other	report	that	we	filed	with	or furnished	to	the	SEC.

# FINANCIAL	INFORMATION	CONCERNING	INDUSTRY	SEGMENTS

The	financial	information	concerning	segments	is	set	forth	on	pages	47 and	48	of	Item	8.	Financial	Statements	and	Supplementary	Data.

# FINANCIAL	INFORMATION	ABOUT	INTERNATIONAL	AND	U.S. OPERATIONS

The	 financial	 information	 concerning	 international	 and	 U.S.	 operations and	export	sales	is	set	forth	on	page	48	of	Item	8.	Financial	Statements and	Supplementary	Data.

# COMPETITION	AND	COSTS

Despite	 the	 size	 of	 the	 Company's	 manufacturing	 capacity	 for	 paper, packaging	and	pulp	products,	the	markets	in	all	of	the	cited	product	lines are	large	and	fragmented.	The	major	markets,	both	U.S.	and	non-U.S.,	in which	the	Company	sells	its	principal	products	are	very	competitive.	Our products	compete	with	similar	products	produced	by	other	forest	products companies.	 We	 also	 compete,	 in	 some	 instances,	 with	 companies	 in other	 industries	 and	 against	 substitutes	 for	 wood	 and	 wood-fiber products.

Many	 factors	 influence	 the	 Company's	 competitive	 position,	 including price,	cost,	product	quality	and	services.	You	can	find	more	information about	 the	 impact	 of	 price	 and	 cost	 on	 operating	 profits	 on	 pages	 16 through	31	of	Item	7.	Management's	Discussion	and	Analysis	of	Financial Condition	and	Results	of	Operations.	You	can	find	information	about	the Company's	manufacturing	capacities	on	page	A-4	of	Appendix	II.

# MARKETING	AND	DISTRIBUTION

The	 Company	 sells	 paper,	 packaging	 products	 and	 other	 products directly	to	end	users	and	converters,	as	well	as	through	agents,	resellers and	paper	distributors.	We	own	a	large	merchant	distribution	business that	 sells	 products	 made	 both	 by	 International	 Paper	 and	 by	 other companies	 making	 paper,	 paperboard,	 packaging	 and	 graphic	 arts supplies.	Sales	offices	are	located	throughout	the	United	States	as	well as	internationally.

# DESCRIPTION	OF	PRINCIPAL	PRODUCTS

The	Company's	principal	products	are	described	on	pages	24	and	25	of Item	 7.	 Management's	 Discussion	 and	Analysis	 of	 Financial	 Condition and	Results	of	Operations.

# SALES	VOLUMES	BY	PRODUCT

# (Unaudited)

| In	thousands	of	short	tons | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Industrial\tPackaging |  |  |  |
| Corrugated\tPackaging\t(3) | 7,313 | 5,298 | 3,578 |
| Containerboard\t(3) | 2,258 | 2,305 | 1,776 |
| Recycling\t(3) | 2,280 | 966 | – |
| Saturated\tKraft | 126 | 170 | 167 |
| Bleached\tKraft | 72 | 82 | 73 |
| European\tIndustrial\tPackaging | 1,046 | 1,123 | 1,173 |
| Asian\tIndustrial\tPackaging | 614 | 568 | 477 |
| Industrial\tPackaging | 13,709 | 10,512 | 7,244 |
| Printing\tPapers |  |  |  |
| U.S.\tUncoated\tPapers | 2,882 | 3,397 | 3,788 |
| European\tand\tRussian\tUncoated\tPapers | 1,336 | 1,461 | 1,448 |
| Brazilian\tUncoated\tPapers | 1,007 | 853 | 794 |
| Asian\tUncoated\tPapers | 81 | 27 | 24 |
| Uncoated\tPapers | 5,306 | 5,738 | 6,054 |
| Market\tPulp\t(4) | 1,524 | 1,604 | 1,402 |
| Consumer\tPackaging |  |  |  |
| U.S.\tCoated\tPaperboard | 1,242 | 1,591 | 1,602 |
| European\tCoated\tPaperboard | 354 | 311 | 320 |
| Asian\tCoated\tPaperboard | 859 | 550 | 496 |
| Other\tConsumer\tPackaging | 169 | 178 | 164 |
| Consumer\tPackaging | 2,624 | 2,630 | 2,582 |
| (1) |  |  |  |

(1) Includes	third-party	and	inter-segment	sales	and	excludes	sales	of	equity	investees.

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

(3) Includes	CBPR	volumes	from	date	of	acquisition	in	August	2008.

(4) Includes	internal	sales	to	mills.

# RESEARCH	AND	DEVELOPMENT

The	Company	operates	its	primary	research	and	development	center	in Loveland,	Ohio,	as	well	as	several	product	laboratories.	Additionally,	the Company	 has	 a	 1/3	 interest	 in	 ArborGen,	 LLC,	 a	 joint	 venture	 with certain	 other	 forest	 products	 and	 biotechnology	 companies.	 We	 direct research	 and	 development	 activities	 to	 short-term,	 long-term	 and technical	assistance	needs	of	customers	and	operating	divisions,	and	to process,	equipment	and	product	innovations.	Activities	include	studies	on innovation	 and	 improvement	 of	 pulping,	 bleaching,	 chemical	 recovery, papermaking	 and	 coating	 processes;	 packaging	 design	 and	 materials development;	 reduction	 of	 environmental	 discharges;	 re-use	 of	 raw materials	 in	 manufacturing	 processes;	 recycling	 of	 consumer	 and packaging	paper	products;	energy	conservation;	applications	of	computer controls	 to	 manufacturing	 operations;	 innovations	 and	 improvement	 of products;	and	development	of	various	new	products.	Our	development efforts	specifically	address	product	safety	as	well	as	the	minimization	of solid	waste.	The	cost	to	the	Company	of	its	research	and	development operations	was	$13	million	in	2009,	$22	million	in	2008	and	$24	million	in 2007.	The	decrease	in	cost	in	2009	reflects	cost	cutting	measures.

We	 own	 numerous	 patents,	 copyrights,	 trademarks	 and	 trade	 secrets relating	to	our	products	and	to	the	processes	for	their	production.	We	also license	intellectual	property	rights	to	and	from	others	where	necessary. Many	 of	 the	 manufacturing	 processes	 are	 among	 our	 trade	 secrets. Some	of	our	products	are	covered	by	U.S.	and	non-U.S.	patents	and	are sold	under	well	known	trademarks.	We	derive	a	competitive	advantage by	protecting	our	trade	secrets,	patents,	trademarks	and	other	intellectual property	rights,	and	by	using	them	as	required	to	support	our	businesses.

# ENVIRONMENTAL	PROTECTION

Information	 concerning	 the	 effects	 of	 the	 Company's	 compliance	 with federal,	 state	 and	 local	 provisions	 enacted	 or	 adopted	 relating	 to environmental	 protection	 matters	 is	 set	 forth	 on	 pages	 44	 and	 45	 of Item	 7.	 Management's	 Discussion	 and	Analysis	 of	 Financial	 Condition and	Results	of	Operations.

# EMPLOYEES

imately	24,100	are	hourly,	with	unions	representing	approximately	14,300 employees.	 Approximately 10,200 of	 the	 union	 employees	 are represented	by	the	United	Steel	Workers	(USW).

International	Paper	and	the	USW	entered	into	the	2007	Mill	Agreement	in July	2007,	which	established	 the	 framework	 for	bargaining	 future	 local labor	contracts	at	14	of	our	U.S.	pulp,	paper	and	packaging	mills.	In	April 2008,	we	entered	into	the	2008	Converting	Agreement,	which	similarly establishes	the	framework	for	bargaining	future	local	labor	contracts	at	32 of	our	converting	facilities.	These	two	agreements	cover	several	specific items,	 including	 but	 not	 limited	 to	 wages,	 active	 medical	 benefits, successorship,	employment	security	and	health	and	safety.	If	local	facility agreements	 are	 not	 successfully	 negotiated	 at	 the	 time	 of	 expiration, then,	under	the	2007	Mill	Agreement	and	2008	Converting	Agreement, the	local	facility	agreements	will	automatically	renew	with	the	same	terms in	effect	at	 the	 time	of	expiration.	 Individual	 facilities	continue	 to	have local	agreements	for	other	items	not	covered	by	these	agreements.

During	2009,	labor	agreements	for	four	mills	covered	by	the	2007	Mill Agreement	 expired.	 Of	 those	 four,	 local	 agreements	 at	 Pensacola, Florida	and	Augusta,	Georgia	were	negotiated,	and	local	agreements	at Savannah,	Georgia	and	Ticonderoga,	New	York	were	renewed	with	the same	terms.

In	 November	 2009,	 International	 Paper	 and	 the	 USW	 reached	 an agreement	to	integrate	into	the	2007	Mill	Agreement	the	four	mills	we acquired	from	Weyerhaeuser	Company	in	August	2008.	The	four	mills are	 located	 in	 Pine	 Hill,	 Alabama,	 Red	 River,	 Louisiana,	 Valliant, Oklahoma	and	Port	Hueneme,	California.	The	local	labor	agreement	for the	mill	at	Pine	Hill,	Alabama	renewed	under	the	terms	of	the	2007	Mill Agreement.

Additionally	during	2009,	International	Paper	announced	the	shutdown, and	bargained	the	effects	of	the	closing	of	the	Franklin,	Virginia,	Pineville, Louisiana	and	Albany,	Oregon	mills.

During	2010,	labor	agreements	that	are	scheduled	to	expire	at	the	mills	in Riegelwood,	 North	 Carolina,	 Courtland,	 Alabama,	 Port	 Hueneme, California	and	Red	River,	Louisiana	will	automatically	renew	under	the terms	of	the	2007	Mill	Agreement	if	new	agreements	are	not	reached.

With	regard	to	converting	facilities,	during	2009,	labor	agreements	were renewed	at	Chicago,	Illinois

and	Kalamazoo,	Michigan	pursuant	to	the	2008	Converting	Agreement. Also	 in	 2009,	 labor	 agreements	 were	 negotiated	 at	 seven	 converting facilities	covered	by	the	2008	Converting	Agreement.	Labor	agreements were	also	reached	at	12	converting,	distribution	and	consumer	packaging locations	(two	of	which	were	acquired	from	Weyerhaeuser	Company	in August	2008)	that	were	not	covered	by	the	2008	Converting	Agreement.

Additionally	during	2009,	International	Paper	announced	the	shutdown, and	bargained	the	effects	of	the	closing,	of	the	following	nine	facilities: Vernon,	California,	Cedarburg,	Wisconsin,	Kansas	City,	Kansas,	St.	Paul, Minnesota,	 Chesapeake,	 Virginia,	 Hartford	 City,	 Indiana,	 Howell, Michigan,	Auburndale,	Florida	and	Portland,	Oregon.

During	2010,	32	labor	agreements	are	scheduled	to	be	negotiated	in	36 converting,	distribution	and	consumer	packaging	facilities.	Two	of	these agreements	 will	 automatically	 renew	 under	 the	 terms	 of	 the	 2008 Converting	Agreement	if	new	agreements	are	not	reached.	Thirty	of	these agreements	are	not	covered	by	the	2008	Converting	Agreement.

# EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

John	 V.	 Faraci,	 60,	 chairman	 and	 chief	 executive	 officer	 since	 2003. Mr.	Faraci	joined	International	Paper	in	1974.

John	N.	Balboni,	61,	senior	vice	president	and	chief	information	officer since	2005.	Mr.	Balboni	previously	served	as	vice	president	and	chief information	 officer	 from	 2003	 to	 2005.	 Mr.	 Balboni	 joined	 International Paper	in	1978.

C.	Cato	Ealy,	53,	senior	vice	president	–	corporate	development	since 2003.	Mr.	Ealy	is	a	director	of	Ilim	Holding	S.A.,	a	Swiss	holding	company in	which	International	Paper	holds	a	50%	interest,	and	of	its	subsidiary, Ilim	Group.	Mr.	Ealy	joined	International	Paper	in	1992.

Tommy	 S.	 Joseph, 50, senior	 vice	 president	 –	 manufacturing, technology,	EHS&S	and	global	sourcing	since	January	2010.	Mr.	Joseph previously	served	as	senior	vice	president	–	manufacturing,	technology, EHS&S	 from	 February	 to	 December	 2009,	 and	 vice	 president	 – technology	from	2005	to	February	2009.	He	served	as	vice	president	– specialty	 papers	 business	 from	 2003	 to	 2005.	 Mr.	 Joseph	 joined International	Paper	in	1983.

Thomas	G.	Kadien,	53,	senior	vice	president	–	consumer	packaging	and IP	Asia	since	January	2010.	Mr.	Kadien	previously	served	as	senior	vice president	 and	 president	 –	xpedx	 from	 2005	 to	 2009,	 and	 senior	 vice president-Europe	 from	 2003	 to	 2005.	 Mr.	 Kadien	 joined	 International Paper	in	1978.

Mary	A.	Laschinger,	49,	senior	vice	president	since	2007	and	president	– xpedx since	 January	 2010.	 Ms.	 Laschinger	 previously	 served	 as president	–	IP	Europe,	Middle	East,	Africa	and	Russia	from	2005	to	2009, vice	president	–	wood	products	from	2004	to	2005,	and	vice	president	– pulp	 from	 2001	 to	 2004.	 Ms.	 Laschinger	 joined	 International	 Paper	 in 1992.

Tim	S.	Nicholls,	48,	senior	vice	president	and	chief	financial	officer	since December	 2007.	 Mr.	 Nicholls	 previously	 served	 as	 vice	 president	 and executive	project	leader	of	IP	Europe	during	2007.	Mr.	Nicholls	served	as vice	president	and	chief	financial	officer	–	IP	Europe	from	2005	to	2007, and	 as	 president	 of	 the	 Company's	 former	 Canadian	 pulp	 and	 wood products	business	from	2002	to	2005.	Mr.	Nicholls	joined	International Paper	in	1991.

Maximo	Pacheco,	57,	senior	vice	president	since	2005	and	president	– IP	 Europe,	 Middle	 East,	 Africa	 and	 Russia	 since	 January	 2010. Mr.	Pacheco	previously	served	as	president	–	IP	do	Brasil	from	2004	to 2009.	 Mr.	 Pacheco	 is	 a	 director	 of	 Ilim	 Holding	 S.A.,	 a	 Swiss	 holding company	in	which	International	Paper	holds	a	50%	interest,	and	of	its subsidiary,	Ilim	Group.	Mr.	Pacheco	joined	International	Paper	in	1994.

Carol	L.	Roberts,	50,	senior	vice	president	–	industrial	packaging	since 2008.	 Ms.	 Roberts	 previously	 served	 as	 senior	 vice	 president	 –	 IP packaging	 solutions	 from	 2005	 to	 2008.	 Ms.	 Roberts	 served	 as	 vice president	 –	 container	 the	 Americas	 from	 2000	 to	 2005.	 Ms.	 Roberts joined	International	Paper	in	1981.

Maura	A.	 Smith,	 54,	 senior	 vice	 president,	 general	 counsel,	 corporate secretary	and	global	government	relations	since	2003.	Ms.	Smith	joined International	Paper	in	2003.

Mark	S.	Sutton,	48,	senior	vice	president	–	printing	and	communications papers	 of	 the	 Americas	 since	 January	 2010.	 Mr.	 Sutton	 previously served	as	senior

vice	president	–	supply	chain	from	2008	to	2009,	and	vice	president	– supply	chain	from	2007	until	2008.	Mr.	Sutton	served	as	vice	president	– strategic	 planning	 from	 2005	 to	 2007,	 and	 vice	 president	 and	 general manager	 –	 European	 Corrugated	 Packaging	 Operations	 from	 2002	 to 2005.	Mr.	Sutton	joined	International	Paper	in	1984.

Robert	J.	Grillet,	54,	vice	president	–	finance	and	controller	since	2003. Mr.	Grillet	joined	International	Paper	in	1976.

# RAW	MATERIALS

Raw	materials	essential	to	our	businesses	include	wood	fiber,	purchased in	 the	 form	 of	 pulpwood,	 wood	 chips	 and	 old	 corrugated	 containers (OCC),	 and	 certain	 chemicals,	 including	 caustic	 soda	 and	 starch. Information	 concerning	 fiber	 supply	 purchase	 agreements	 that	 were entered	into	in	connection	with	the	Company's	2006	Transformation	Plan is	presented	in	Note	11	Commitments	and	Contingent	Liabilities	on	page 75	of	Item	8.	Financial	Statements	and	Supplementary	Data.

# FORWARD-LOOKING	STATEMENTS

Certain	statements	in	this	Annual	Report	on	Form	10-K,	and	in	particular, statements	found	in	Item	7.	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.	Below, we	have	listed	specific	risks	and	uncertainties	that	you	should	carefully read	and	consider.	We	undertake	no	obligation	 to	publicly	update	any forward-looking	statements,	whether	as	a	result	of	new	information,	future events	or	otherwise.

# ITEM	1A.	RISK	FACTORS

In	 addition	 to	 the	 risks	 and	 uncertainties	 discussed	 elsewhere	 in	 this Annual	 Report	 on	 Form	 10-K	 (particularly	 in	 Item	 7.	 Management's Discussion	 and	 Analysis	 of	 Financial	 Condition	 and	 Results	 of Operations),	 or	 in	 the	 Company's	 other	 filings	 with	 the	 Securities	 and Exchange	Commission,	the	following

are	 some	 important	 factors	 that	 could	 cause	 the	 Company's	 actual results	 to	 differ	 materially	 from	 those	 projected	 in	 any	 forward-looking statement.

# RISKS	RELATING	TO	INDUSTRY	CONDITIONS

# CHANGES	IN	THE	COST	OR	AVAILABILITY	OF	RAW	MATERIALS, ENERGY AND TRANSPORTATION COULD AFFECT OUR

PROFITABILITY.	 We	 rely	 heavily	 on	 the	 use	 of	 certain	 raw	 materials (principally	 virgin	 wood	 fiber,	 recycled	 fiber,	 caustic	 soda	 and	 starch), energy	sources	(principally	natural	gas,	coal	and	fuel	oil)	and	third-party companies	that	transport	our	goods.	The	market	price	of	virgin	wood	fiber varies	 based	 upon	 availability	 and	 source.	 In	 addition,	 the	 increase	 in demand	 of	 products	 manufactured,	 in	 whole	 or	 in	 part,	 from	 recycled fiber,	on	a	global	basis,	may	cause	an	occasional	tightening	in	the	supply of	recycled	 fiber.	Energy	prices,	 in	particular	prices	 for	oil	and	natural gas,	 have	 fluctuated	 dramatically	 in	 the	 past	 and	 may	 continue	 to fluctuate	in	the	future.	Our	profitability	has	been,	and	will	continue	to	be, affected	by	changes	in	the	costs	and	availability	of	such	raw	materials, energy	sources	and	transportation	sources.

# THE INDUSTRIES IN	 WHICH	 WE	 OPERATE	 EXPERIENCE	 BOTH ECONOMIC CYCLICALITY AND CHANGES IN CONSUMER PREFERENCES.	 FLUCTUATIONS IN	 THE	 PRICES	 OF,	 AND	 THE DEMAND	 FOR,	 OUR	 PRODUCTS	 COULD	 MATERIALLY	 AFFECT OUR FINANCIAL	 CONDITION,	 RESULTS	 OF	 OPERATIONS	 AND

CASH	FLOWS.	 Substantially	 all	 of	 our	 businesses	 have	 experienced, and	 are	 likely	 to	 continue	 to	 experience,	 cycles	 relating	 to	 industry capacity	and	general	economic	conditions.	The	length	and	magnitude	of these	cycles	have	varied	over	time	and	by	product.	In	addition,	changes in	consumer	preferences	may	increase	or	decrease	the	demand	for	our fiber-based	 products	 and	 non-fiber	 substitutes.	 Consequently,	 our operating	cash	flow	is	sensitive	to	changes	in	the	pricing	and	demand	for our	products.

COMPETITION IN	 THE	 UNITED	 STATES	 AND INTERNATIONALLY COULD NEGATIVELY IMPACT	 OUR FINANCIAL RESULTS. 	 We operate	 in	 a	 competitive	 environment,	 both	 in	 the	 United	 States	 and internationally,	 in	 all	 of	 our	 operating	 segments.	 Pricing	 or	 product strategies	pursued	by	competitors	could	negatively	impact	our	financial results.

# RISKS	RELATING	TO	MARKET	AND	ECONOMIC	FACTORS

CONTINUED	ADVERSE	 DEVELOPMENTS	 IN	 GENERAL	 BUSINESS AND	ECONOMIC	CONDITIONS	COULD	HAVE	AN	ADVERSE	EFFECT ON	 THE	 DEMAND	 FOR	 OUR	 PRODUCTS	 AND	 OUR	 FINANCIAL CONDITION	 AND	 RESULTS	 OF	 OPERATION.	 General	 economic conditions	may	adversely	affect	industrial	non-durable	goods	production, consumer	spending,	commercial	printing	and	advertising	activity,	white- collar	employment	levels	and	consumer	confidence,	all	of	which	impact demand	for	our	products.	In	addition,	a	return	to	volatility	in	the	capital and	credit	markets,	which	impacts	interest	rates,	currency	exchange	rates and	the	availability	of	credit,	could	have	a	material	adverse	effect	on	our business,	financial	condition	and	our	results	of	operations.

# CHANGES	 IN	 CREDIT	 RATINGS	 ISSUED	 BY	 NATIONALLY RECOGNIZED	 STATISTICAL	 RATING	 ORGANIZATIONS	 COULD

# ADVERSELY	AFFECT	 OUR	 COST	 OF	 FINANCING	AND	 HAVE	AN ADVERSE	EFFECT	ON	THE	MARKET	PRICE	OF	OUR	SECURITIES.

Maintaining	an	investment-grade	credit	rating	is	an	important	element	of our	financial	strategy,	and	a	downgrade	of	our	Company's	ratings	below investment	grade	may	limit	our	access	to	the	capital	markets,	have	an adverse	effect	on	the	market	price	of	our	securities,	and	increase	our	cost of	 borrowing	 and	 require	 us	 to	 post	 collateral	 for	 derivatives	 in	 a	 net liability	position.	Similarly,	we	are	subject	to	the	risk	that	one	of	the	banks that	 has	 issued	 irrevocable	 letters	 of	 credit	 supporting	 the	 installment notes	issued	in	connection	with	sales	of	our	forestlands	is	downgraded below	 a	 required	 rating.	 If	 this	 were	 to	 happen,	 it	 may	 subject	 the Company	 to	 additional	 costs	 of	 securing	 a	 replacement	 letter-of-credit bank	or	could	result	in	an	acceleration	of	deferred	taxes	if	a	replacement bank	cannot	be	obtained.

# THE	IMPAIRMENT	OF	FINANCIAL	INSTITUTIONS	MAY	ADVERSELY

AFFECT	US.	We	have	exposure	to	counterparties	with	which	we	execute transactions,	 including	 U.S.	 and	 foreign	 commercial	 banks,	 insurance companies,	 investment	 banks,	 investment	 funds	 and	 other	 financial institutions,	 some	 of	 which	 may	 be	 exposed	 to	 ratings	 downgrade, bankruptcy,	liquidity,	default	or	similar	risks,	especially	in	connection	with recent	 financial	 market	 turmoil.	 A	 ratings	 downgrade,	 bankruptcy, receivership,	 default	 or	 similar	 event	 involving	 a	 counterparty	 may adversely	affect	our	access	to	capital,	liquidity	position,	future	business and	results	of	operations.

# OUR	 PENSION	 AND	 HEALTH	 CARE	 COSTS	 ARE	 SUBJECT	 TO NUMEROUS	FACTORS	WHICH	COULD	CAUSE	THESE	COSTS	TO

CHANGE.	We	have	defined	benefit	pension	plans	covering	substantially all	U.S.	salaried	employees	hired	prior	to	July	1,	2004	and	substantially all	hourly	and	union	employees	regardless	of	hire	date.	We	provide	retiree health	 care	 benefits	 to	 certain	 of	 our	 U.S.	 salaried	 and	 certain	 hourly employees.	 Our	 pension	 costs	 are	 dependent	 upon	 numerous	 factors resulting	 from	 actual	 plan	 experience	 and	 assumptions	 of	 future experience.	 Pension	 plan	 assets	 are	 primarily	 made	 up	 of	 equity	 and fixed	income	investments.	Fluctuations	in	actual	equity	market	returns, changes	in	general	interest	rates	and	changes	in	the	number	of	retirees may	 result	 in	 increased	 pension	 costs	 in	 future	 periods.	 Likewise, changes	in	assumptions	regarding	current	discount	rates	and	expected rates	of	return	on	plan	assets	could	also	 increase	pension	and	health care	costs.	Significant	changes	 in	any	of	 these	 factors	may	adversely impact	our	cash	flows,	financial	condition	and	results	of	operations.

# THE	AMOUNT	OF	OUR	DEBT	OBLIGATIONS	COULD	ADVERSELY

AFFECT	OUR	BUSINESS.	As	of	December	31,	2009,	we	had	$9.0	billion of	long-term	debt,	including	notes	payable	and	current	maturities,	and	the amount	of	our	debt	obligations	could	adversely	affect	our	business.	If	we are	unable	to	generate	sufficient	cash	from	operations	to	repay	our	debt, or	 are	 unable	 to	 refinance	 our	 debt	 because	 credit	 market	 conditions become	 volatile,	 this	 may	 have	 an	 adverse	 impact	 on	 our	 cost	 of borrowing,	liquidity,	financial	condition	and	results	of	operations.

# OUR	 PENSION	 PLANS	 ARE	 CURRENTLY	 UNDERFUNDED,	 AND OVER	TIME	WE	WILL	BE	REQUIRED	TO	MAKE	CASH	PAYMENTS TO	 THE	 PLANS,	 REDUCING	 THE	 CASH	 AVAILABLE	 FOR	 OUR

BUSINESS.	We	record	a	liability	associated	with	our	pension	plans	equal to	the	excess	of	the	benefit	obligation	over	the	fair	value	of	plan	assets. The	 benefit	 liability	 recorded	 under	 the	 provisions	 of	 Accounting Standards	 Codification	 (ASC) 715, "Compensation	 –	 Retirement Benefits,"	at	December	31,	2009	was	$2.8	billion.	Although	we	expect	to have	no	obligation	to	fund	our	plans	in	2010,	we	continually	reassess	the amount	and	timing	of	any	discretionary	contributions	and	could	elect	to make	such	a	contribution	 in	2010.	Regardless	of	whether	we	make	a discretionary	 contribution	 in	 2010,	 over	 the	 next	 several	 years	 we	 will make	contributions	to	the	plans	that	are	likely	to	be	material.	The	amount of	such	contributions	will	depend	upon

a	number	of	factors,	principally	the	actual	earnings	and	changes	in	values of	 plan	 assets,	 changes	 in	 interest	 rates	 and	 the	 impact	 of	 possible funding	 relief	 legislation	 currently	 under	 consideration	 in	 the	 U.S. Congress.

CHANGES IN INTERNATIONAL	 CONDITIONS	 COULD	ADVERSELY AFFECT	 OUR	 BUSINESS	 AND	 RESULTS	 OF	 OPERATIONS.	 Our operating	results	and	business	prospects	could	be	substantially	affected by	risks	related	to	the	countries	outside	the	United	States	in	which	we have	 manufacturing	 facilities	 or	 sell	 our	 products.	 Specifically,	 Brazil, Russia,	 Poland	 and	 China,	 where	 we	 have	 substantial	 manufacturing facilities,	 are	 countries	 that	 are	 exposed	 to	 economic	 and	 political instability	in	their	respective	regions	of	the	world.	Downturns	in	economic activity,	 adverse	 tax	 consequences,	 fluctuations	 in	 the	 value	 of	 local currency	versus	the	U.S.	dollar,	nationalization	or	any	change	in	social, political	 or	 labor	 conditions	 in	 any	 of	 these	 countries	 or	 regions	 could negatively	affect	our	financial	results.

# RISKS	RELATING	TO	LEGAL	PROCEEDINGS	AND	COMPLIANCE COSTS

# UNANTICIPATED EXPENDITURES	 RELATED TO THE	 COST	 OF COMPLIANCE	 WITH ENVIRONMENTAL, HEALTH AND SAFETY LAWS	 AND	 REQUIREMENTS	 COULD	 ADVERSELY	 AFFECT	 OUR BUSINESS	 AND	 RESULTS	 OF	 OPERATIONS. 	 Our	 operations	 are subject	 to	 U.S.	 and	 non-U.S.	 laws	 and	 regulations	 relating	 to	 the environment,	 health	 and	 safety.	 There	 can	 be	 no	 assurance	 that compliance	with	existing	and	new	laws	and	requirements,	including	with global	climate	change	 laws	and	regulations,	will	not	require	significant expenditures,	 or	 that	 existing	 reserves	 for	 specific	 matters	 will	 be adequate	to	cover	future	costs.

# RESULTS	 OF	 LEGAL	 PROCEEDINGS	 COULD	 HAVE	A	 MATERIAL ADVERSE EFFECT ON OUR CONSOLIDATED FINANCIAL

STATEMENTS.	The	costs	and	other	effects	of	pending	litigation	against us	 cannot	 be	 determined	 with	 certainty.	Although	 we	 believe	 that	 the outcome	of	any	pending	or	threatened	lawsuits	or	claims,	or	all	of	them combined,	will	not	have	a	material	adverse	effect	on	our	consolidated financial	statements,	there	can	be	no	assurance	that	the	outcome	of	any lawsuit	or	claim	will	be	as	expected.

# RISKS	RELATING	TO	OUR	OPERATIONS

# MATERIAL DISRUPTIONS	 AT	 ONE	 OF	 OUR	 MANUFACTURING FACILITIES COULD NEGATIVELY IMPACT OUR FINANCIAL

RESULTS.	We	operate	our	facilities	in	compliance	with	applicable	rules and	regulations	and	take	measures	to	minimize	the	risks	of	disruption	at our	facilities.	A	material	disruption	at	one	of	our	manufacturing	facilities could	 prevent	 us	 from	 meeting	 customer	 demand,	 reduce	 our	 sales and/or	negatively	impact	our	financial	results.	Any	of	our	manufacturing facilities,	or	any	of	our	machines	within	an	otherwise	operational	facility, could	 cease	 operations	 unexpectedly	 due	 to	 a	 number	 of	 events, including:

•	unscheduled	maintenance	outages;

•	prolonged	power	failures;

•	an	equipment	failure;

•	a	chemical	spill	or	release;

# •	explosion	of	a	boiler;

•	the	effect	of	a	drought	or	reduced	rainfall	on	its	water	supply;

•	labor	difficulties;

•	disruptions	 in	 the	 transportation infrastructure, including roads, bridges,	railroad	tracks	and	tunnels;

•	fires,	floods,	earthquakes,	hurricanes	or	other	catastrophes;

•	terrorism	or	threats	of	terrorism;

•	domestic	 and	 international	 laws	 and	 regulations	 applicable	 to	 our Company	 and	 our	 business	 partners,	 including	 joint	 venture partners,	around	the	world;	and

•	other	operational	problems.

Any	 such	 downtime	 or	 facility	 damage	 could	 prevent	 us	 from	 meeting customer	demand	for	our	products	and/or	require	us	to	make	unplanned capital	expenditures.	If	one	of	these	machines	or	facilities	were	to	incur significant	downtime,	our	ability	to	meet	our	production	targets	and	satisfy customer	requirements	could	be	impaired,	resulting	in	lower	sales	and having	a	negative	effect	on	our	financial	results.

# SEVERAL	 OPERATIONS	ARE	 CONDUCTED	 BY	 JOINT	 VENTURES THAT	WE	CANNOT	OPERATE	SOLELY	FOR	OUR	BENEFIT.	 Several

operations,	 particularly	 in	 emerging	 markets,	 are	 carried	 on	 by	 joint ventures	such	as	 the	 Ilim	 joint	venture	 in	Russia.	 In	 joint	ventures	we share	 ownership	 and	 management	 of	 a	 company	 with	 one	 or	 more parties	who	may	or	may	not	have	the	same	goals,	strategies,	priorities	or resources	 as	 we	 do.	 In	 general,	 joint	 ventures	 are	 intended	 to	 be operated	for	the	benefit	of	all	co-owners,	rather	than	for	our	exclusive benefit.	Operating	a	business	as	a	joint	venture	often	requires	additional organizational	 formalities	 as	 well	 as	 time-consuming	 procedures	 for sharing	 information	 and	 making	 decisions.	 In	 joint	 ventures,	 we	 are required	to	pay	more	attention	to	our	relationship	with	our	co-owners	as well	as	with	the	joint	venture,	and	if	a	co-owner	changes,	our	relationship may	be	adversely	affected.	 In	addition,	 the	benefits	 from	a	successful joint	venture	are	shared	among	the	co-owners,	so	that	we	do	not	receive all	 the	 benefits	 from	 our	 successful	 joint	 ventures.	 For	 additional information	 with	 respect	 to	 our	 Ilim	 joint	 venture,	 see	 "Item 7. Management's	 Discussion	 and	 Analysis	 of	 Financial	 Condition	 and Results	of	Operation	–	Liquidity	and	Capital	Resources	–	 Ilim	Holding S.A.	Shareholders	Agreement"	on	page	37.

# ITEM	1B.	UNRESOLVED	STAFF	COMMENTS

None.

# ITEM	2.	PROPERTIES

# FORESTLANDS

As	 of	 December 31, 2009,	 the	 Company	 owned	 or	 managed approximately 200,000 acres	 of	 forestlands	 in	 the	 United	 States, approximately	 250,000	 acres	 in	 Brazil,	 and	 had,	 through	 licenses	 and forest	management	agreements,	harvesting	rights	on	government-owned forestlands	 in	 Russia.	 All	 owned	 lands	 are	 independently	 third-party certified	 for	 sustainable	 forestry	 (under	 operating	 standards	 of	 the Sustainable	 Forestry	 Initiative	 (SFI™)	 in	 the	 United	 States	 and	 ISO 14001	and	CERFLOR	in	Brazil).	Our

remaining	forestlands	are	being	marketed	to	optimize	the	economic	value to	our	shareholders.	Most	of	these	forestlands	consist	of	properties	that are	likely	to	be	sold	to	investors	and	other	buyers	for	various	uses	or	held for	real	estate	development.

# MILLS	AND	PLANTS

A	listing	of	our	production	facilities,	the	vast	majority	of	which	we	own, can	 be	 found	 in	 Appendix	 I	 hereto,	 which	 is	 incorporated	 herein	 by reference.

The	Company's	facilities	are	in	good	operating	condition	and	are	suited for	the	purposes	for	which	they	are	presently	being	used.	We	continue	to study	the	economics	of	modernization	or	adopting	other	alternatives	for higher	cost	facilities.

# CAPITAL	INVESTMENTS	AND	DISPOSITIONS

Given	 the	 size,	 scope	 and	 complexity	 of	 our	 business	 interests,	 we continually	examine	and	evaluate	a	wide	variety	of	business	opportunities and	 planning	 alternatives,	 including	 possible	 acquisitions	 and	 sales	 or other	dispositions	of	properties.	You	can	find	a	discussion	about	the	level of	 capital	 investments	 for	 2009	 on	 page 32, and	 dispositions	 and restructuring	activities	as	of	December	31,	2009,	on	pages	21	through	23 of	Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition and	Results	of	Operations,	and	on	pages	63	through	66	and	pages	69 through	71	of	Item	8.	Financial	Statements	and	Supplementary	Data.

# ITEM	3.	LEGAL	PROCEEDINGS

Information	concerning	the	Company's	legal	proceedings	is	set	forth	on pages	44	and	45	of	Item	7.	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations,	and	on	pages	75	and	76 of	Item	8.	Financial	Statements	and	Supplementary	Data.

# ITEM	4.	SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY HOLDERS

No	matters	were	submitted	to	a	vote	of	security	holders	during	the	fourth quarter	of	the	fiscal	year	ended	December	31,	2009.

# PART	II.

# ITEM	5.	MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY SECURITIES

Dividend	per	share	data	on	the	Company's	common	stock	and	the	high and	low	sales	prices	for	the	Company's	common	stock	for	each	of	the four	 quarters in	 2009	 and	 2008	 are	 set forth	 on	 page	 94	 of Item	 8. Financial	Statements	and	Supplementary

Data.	As	of	the	filing	of	this	Annual	Report	on	Form	10-K,	the	Company's common	 shares	 are	 traded	 on	 the	 New	 York stock exchange. International	Paper	options	are	traded	on	the	Chicago	Board	of	Options Exchange.	As	of	February	19,	2010,	 there	were	approximately	18,323 record	holders	of	common	stock	of	the	Company.

The	table	below	presents	information	regarding	the	Company's	purchase of	its	equity	securities	for	the	time	periods	presented.

PURCHASES	OF	EQUITY	SECURITIES	BY	THE	ISSUER	AND	AFFILIATED	PURCHASERS.

|  | Total	Number | Average	Price | Yet	Be	Purchased |
| :--- | :--- | :--- | :--- |
|  | of\tShares | Paid\tper | Under\tthe\tPlans\tor |
| Period | Purchased\t(a) | Share | Programs |
| February\t1,\t2009\t-\tFebruary\t28,\t2009 | 1,283,937 | $8.00 | N/A |
| April\t1,\t2009\t-\tApril\t30,\t2009 | 1,162 | 7.43 | N/A |
| June\t1,\t2009\t-\tJune\t30,\t2009 | 2,794 | 15.13 | N/A |

(a) Shares	acquired	from	employees	from	share	withholdings	to	pay	income	taxes	under	the	Company's	restricted	stock	programs.

No	activity	occurred	in	months	not	presented	above.

# PERFORMANCE	GRAPH

The	performance	graph	shall	not	be	deemed	to	be	"soliciting	material"	or to	be	"filed"	with	the	Commission	or	subject	to	Regulation	14A	or	14C,	or to	the	liabilities	of	Section	18	of	the	Exchange	Act	of	1934,	as	amended.

The	following	graph	compares	a	$100	investment	in	Company	stock	on December	 31,	 2004	 with	 a	 $100	 investment	 in	 each	 of	 our	 ROI	 Peer Group	and	the	S&P	500	also	made	on	December	31,	2004.	The	graph portrays	total	return,	2004–2009,	assuming	reinvestment	of	dividends.

(1) The	companies	included	in	the	ROI	Peer	Group	are	Domtar	Inc.,	MeadWestvaco	Corp.,	M-Real	Corp.,	Mondi	Group,	Packaging	Corporation	of	America,	Smurfit	Kappa	Group,	Smurfit-Stone Container	Corp.,	Stora	Enso	Group,	Temple-Inland	Inc.,	and	UPM-Kymmene	Corp.

(2) Mondi	Group	and	Smurfit	Kappa	Group	became	publicly	traded	companies	in	June	2007	and	March	2007,	respectively.	Their	results	are	included	in	the	ROI	Peer	Group	from	these	dates	forward.

# ITEM	6.	SELECTED	FINANCIAL	DATA

# FIVE-YEAR	FINANCIAL	SUMMARY	(a)

# FINANCIAL	GLOSSARY

Current	ratio— current	assets	divided	by	current	liabilities.

Total	debt	to	capital	ratio—

long-term	debt	plus	notes	payable	and	current	maturities	of	long-term debt	divided	by	long-term	debt,	notes	payable	and	current	maturities	of long-term	debt	plus	total	shareholders'	equity.

Return	on	shareholders'	equity—

net	 earnings	 attributable	 to	 International	 Paper	 Company	 divided	 by average	shareholders'	equity	(computed	monthly).

Return	on	investment—

the	 after-tax	 amount	 of	 earnings	 from	 continuing	 operations	 before interest	divided	by	the	average	of	total	assets	minus	accounts	payable and	accrued	liabilities	(computed	monthly).

# FOOTNOTES	TO	FIVE-YEAR	FINANCIAL	SUMMARY

(a) All	 periods	 presented	 have	 been	 recast	 to	 reflect	 the	 Carter	 Holt Harvey	Limited,	Weldwood	of	Canada	Limited,	Kraft	Papers,	Brazilian Coated	 Papers,	 Beverage	 Packaging,	 and	 Wood	 Products businesses	as	discontinued	operations.

(b) Includes	restructuring	and	other	charges	of	$1.4	billion	before	taxes ($853	million	after	taxes),	including	pre-tax	charges	of	$469	million ($286	million	after	taxes),	$290	million	($177	million	after	taxes),	and $102	 million ($62	 million	 after	 taxes)	 for	 shutdown	 costs	 for	 the Albany,	Franklin	and	Pineville	mills,	respectively,	a	pre-tax	charge	of $82	million	($50	million	after	taxes)	for	costs	related	to	the	shutdown of	 a	 paper	 machine	 at	 the	 Valliant	 mill,	 a	 pre-tax	 charge	 of	 $148 million	 ($92	 million	 after	 taxes)	 for	 severance	 and	 benefit	 costs associated	 with	 the	 Company's	 2008	 overhead	 cost	 reduction initiative,	a	pre-tax	charge	of	$185	million	($113	million	after	taxes) for	early	debt	extinguishment	costs,	a	pre-tax	charge	of	$23	million ($28	 million after	 taxes)	 for	 closure	 costs	 associated	 with	 the Inverurie,	 Scotland	 mill,	 a	 charge	 of	 $31	 million	 (before	 and	 after taxes)	 for	 severance	 and	 other	 costs	 associated	 with	 the	 planned closure	of	the	Etienne	mill	in

France,	and	a	pre-tax	charge	of	$23	million	($14	million	after	taxes) for	other	items.	Also	included	are	a	pre-tax	gain	of	$2.1	billion	($1.4 billion	after	taxes)	related	to	alternative	fuel	mixture	credits,	a	pre-tax charge	of	$87	million	($54	million	after	 taxes)	 for	 integration	costs associated	with	the	CBPR	acquisition,	a	charge	of	$56	million	(before and	 after	 taxes)	 to	 write	 down	 the	 assets	 at	 the	 Etienne	 mill	 to estimated	fair	value	and	other	costs,	and	pre-tax	charge	of	$3	million ($0	million	after	taxes)	for	other	items.

(c) Includes	a	$156	million	tax	expense	for	the	write-off	of	deferred	tax assets	 in	 France,	 a	 $15	 million	 tax	 expense	 for	 the	 write-off	 of	 a deferred	tax	asset	for	a	recycling	credit	in	the	state	of	Louisiana	and a	$26	million	tax	benefit	related	to	the	settlement	of	the	2004	and 2005	 U.S.	 federal	 income	 tax	 audit	 and	 related	 state	 income	 tax effects.

(d) Includes	restructuring	and	other	charges	of	$370	million	before	taxes ($227	million	after	taxes),	including	a	pre-tax	charge	of	$123	million ($75	million	after	taxes)	for	shutdown	costs	for	the	Louisiana	mill,	a pre-tax	 charge	 of $30	 million ($18	 million after	 taxes)	 for	 the shutdown	of	a	paper	machine	at	the	Franklin	mill,	a	charge	of	$53 million	 before	 taxes	 ($32	 million	 after	 taxes)	 for	 severance	 and related	 costs	 associated	 with	 the	 Company's	 2008	 overhead	 cost reduction	initiative,	a	charge	of	$75	million	before	taxes	($47	million after	taxes)	for	adjustments	to	legal	reserves,	a	pre-tax	charge	of	$30 million ($19	 million after	 taxes)	 for	 costs	 associated	 with	 the reorganization	 of	 the	 Company's	 Shorewood	 operations,	 a	 pre-tax charge	of	$53	million	($33	million	after	taxes)	to	write	off	deferred supply	 chain	 initiative	 development	 costs	 for	 U.S.	 container operations	that	will	not	be	implemented	due	to	the	CBPR	acquisition, a	charge	of	$8	million	before	taxes	($5	million	after	taxes)	for	closure costs	 associated	 with	 the	Ace	 Packaging	 business,	 and	 a	 pre-tax gain	of	$2	million	($2	million	after	taxes)	for	adjustments	to	previously recorded	reserves	and	other	charges	associated	with	the	Company's 2006	Transformation	Plan.	Also	included	are	a	charge	of	$1.8	billion (before	 and	 after	 taxes)	 for	 the	 impairment	 of	 goodwill	 in	 the Company's	 U.S.	 Printing	 Papers	 and	 U.S.	 and	 European	 Coated Paperboard	businesses,	a	pre-tax	charge	of	$107	million	($84	million after	taxes)	to	write

down	 the	 assets	 of	 the	 Inverurie,	 Scotland	 mill	 to	 estimated	 fair value,	 a	 pre-tax	 gain	 of $6	 million ($4	 million after	 taxes)	 for adjustments	 to	 estimated	 transaction	 costs	 accrued	 in	 connection with	 the	 2006	 Transformation	 Plan	 forestland	 sales,	 a	 $39	 million charge	before	taxes	($24	million	after	taxes)	relating	to	the	write-up of	 inventory	 to	 fair	value	 in	connection	with	 the	CBPR	acquisition, and	a	$45	million	charge	before	taxes	($28	million	after	taxes)	for integration	costs	associated	with	the	CBPR	acquisition.

(e) Includes	a	pre-tax	charge	of	$25	million	($16	million	after	taxes)	for the	 settlement	 of	 a	 post-closing	 adjustment	 on	 the	 sale	 of	 the Beverage	Packaging	business,	pre-tax	gains	of	$9	million	($5	million after	taxes)	for	adjustments	to	reserves	associated	with	the	sale	of discontinued	businesses,	and	the	operating	results	of	certain	wood products	facilities.

(f) Includes	a	$40	million	tax	benefit	related	to	the	restructuring	of	the Company's	international	operations.

(g) Includes	restructuring	and	other	charges	of	$95	million	before	taxes ($59	million	after	taxes),	including	a	$30	million	charge	before	taxes ($19	 million	 after	 taxes)	 for	 organizational	 restructuring	 and	 other charges	 principally	 associated	 with	 the	 Company's	 2006 Transformation	Plan,	a	charge	of	$60	million	before	taxes	($38	million after	taxes)	of	accelerated	depreciation	charges,	a	$10	million	charge before	 taxes ($6 million	 after	 taxes)	 for	 environmental	 costs associated	with	a	mill	closure,	and	a	pre-tax	gain	of	$5	million	($4 million	after	taxes)	for	other	items.	Also	included	are	a	$9	million	pre- tax	gain	($5	million	after	taxes)	to	reduce	estimated	transaction	costs accrued	in	connection	with	the	2006	sale	of	U.S.	forestlands	included in	the	Company's	2006	Transformation	Plan;	and	a	$327	million	gain before	 taxes	($267	million	after	 taxes)	 for	net	gains	on	sales	and impairments	of	businesses	including	a	pre-tax	gain	of	$113	million ($102	 million after	 taxes)	 on	 the	 sale	 of	 the	 Arizona	 Chemical business,	 a	 gain	 of	 $205	 million	 before	 taxes	 ($159	 million	 after taxes)	 related	 to	 the	 asset	 exchange	 for	 the	 Luiz	Antonio	 mill	 in Brazil,	 and	 a	 pre-tax	 gain	 of	 $9	 million	 ($6	 million	 after	 taxes)	 for other	items.

(h) Includes	a	pre-tax	gain	of	$20	million	($8	million	after	taxes)	relating to	 the	sale	of	 the	Wood	Products	business,	a	pre-tax	 loss	of	$30 million	($48	million	after	 taxes)	 for	adjustments	 to	 the	 loss	on	 the sale	of	the	Beverage	Packaging	business,	a	pre-tax	gain	of	$6	million ($4	million	after	taxes)	for	adjustments	to	the	loss	on	the	sale	of	the Kraft	Papers	business,	and	a	net	$6	million	pre-tax	credit	($4	million after	 taxes)	 for	 payments	 received	 relating	 to	 the	 Company's Weldwood	 of	 Canada	 Limited	 business,	 and	 the	 year-to-date operating	 results	 of	 the	 Beverage	 Packaging	 and	 Wood	 Products businesses.

(i) Includes	a	$41	million	tax	benefit	relating	to	the	effective	settlement of	certain	income	tax	audit	issues.

(j) Includes	restructuring	and	other	charges	of	$300	million	before	taxes ($184	 million	 after	 taxes),	 including	 a	 $157	 million	 charge	 before taxes	 ($95	 million	 after	 taxes)	 for	 organizational	 restructuring	 and other	 charges	 principally	 associated	 with	 the	 Company's	 2006 Transformation	 Plan,	 a	 charge	 of	 $165	 million	 before	 taxes	 ($102 million	after	 taxes)	 for	 losses	on	early	debt	extinguishment,	a	$97 million	 charge	 before	 taxes ($60	 million after	 taxes)	 for	 legal reserves,	a	$115	million	gain	before	taxes	($70	million	after	taxes)	for payments	 received	 relating	 to	 the	 Company's	 participation	 in	 the U.S.	 Coalition	 for	 Fair	 Lumber	 Imports,	 and	 a	 credit	 of	 $4	 million before	taxes	($3	million	after	taxes)	for	other	items.	Also	included	are a	$4.8	billion	gain	before	taxes	($2.9	billion	after	taxes)	from	sales	of U.S.	 forestlands	 included	 in	 the	 Company's	 2006	 Transformation Plan;	 a	 charge	 of $759	 million before	 and	 after	 taxes	 for	 the impairment	 of	 goodwill	 in	 the	 Coated	 Paperboard	 and	 Shorewood businesses;	a	$1.5	billion	pre-tax	charge	($1.4	billion	after	taxes)	for net	 losses	on	sales	and	 impairments	of	businesses	 including	$1.4 billion	before	taxes	($1.3	billion	after	taxes)	for	the	U.S.	Coated	and Supercalendered	 Papers	 business,	 $52	 million	 before	 taxes ($37 million	 after	 taxes)	 for	 certain	 assets	 in	 Brazil,	 and	 $128	 million before	taxes	($84	million	after	taxes)	for	the	Company's	Saillat	mill	in France	to	reduce	the	carrying	value	of	net	assets	to	their	estimated fair	value;	the	recognition	of	a	previously	deferred	$110	million	gain before	taxes	($68	million	after	taxes)

related	to	a	2004	sale	of	forestlands	in	Maine;	and	a	pre-tax	charge of	$21	million	(zero	after	taxes)	for	other	smaller	items.

(k) Includes	a	gain	of	$100	million	before	taxes	($79	million	after	taxes) from	the	sale	of	the	Brazilian	Coated	Papers	business,	and	pre-tax charges	of	$116	million	($72	million	after	taxes)	for	the	Kraft	Papers business, $269	 million ($234	 million after	 taxes)	 for	 the	 Wood Products	business	and	$121	million	($90	million	after	taxes)	for	the Beverage	Packaging	business	to	reduce	the	carrying	value	of	these businesses	 to	 their	 estimated	 fair	 value,	 and	 the	 2006	 operating results	of	the	Kraft	Paper,	Brazilian	Coated	Papers,	Wood	Products and	Beverage	Packaging	businesses.

(l) Includes	restructuring	and	other	charges	of	$340	million	before	taxes ($213	 million	 after	 taxes),	 including	 a	 $256	 million	 charge	 before taxes	($162	million	after	taxes)	for	organizational	restructuring	and other	 charges	 principally	 associated	 with	 the	 Company's	 2006 Transformation	Plan,	a	$57	million	charge	before	taxes	($35	million after	taxes)	for	early	extinguishment	of	debt,	and	a	$27	million	charge before	 taxes ($16	 million after	 taxes)	 for	 legal	 reserves.	 Also included	are	a	$258	million	pre-tax	credit	($151	million	after	taxes)	for net	insurance	recoveries	related	to	the	hardboard	siding	and	roofing litigation,	a	$4	million	credit

before	 taxes ($3	 million after	 taxes)	 for	 the	 net	 reversal	 of restructuring	reserves	no	longer	required,	a	pre-tax	charge	of	$111 million ($73	 million after	 taxes)	 for	 net	 losses	 on	 sales	 and impairments	of	businesses	sold	or	held	for	sale,	and	interest	income of	$54	million	before	 taxes	($33	million	after	 taxes),	 including	$43 million	before	taxes	($26	million	after	taxes)	related	to	a	settlement with	the	U.S.	Internal	Revenue	Service	concerning	the	1997	through 2000	U.S.	federal	income	tax	audit,	and	$11	million	before	taxes	($7 million	after	taxes)	related	to	the	collection	of	a	note	receivable	from the	2001	sale	of	a	business.

(m) Includes	a	gain	of	$29	million	before	taxes	($361	million	after	taxes) from	 the	2005	sale	of	Carter	Holt	Harvey	Limited,	as	well	as,	 the 2005	 operating	 results	 of	 the	 Carter	 Holt	 Harvey	 Limited,	 Kraft Papers,	 Brazilian	 Coated	 Papers,	 Wood	 Products	 and	 Beverage Packaging	businesses.

(n) Includes	 a $454	 million reduction	 in	 the	 income	 tax	 provision, including	a	reduction	of	$627	million	from	a	settlement	reached	with the	U.S.	Internal	Revenue	Service	concerning	the	1997	through	2000 U.S.	federal	income	tax	audit,	a	charge	of	$142	million	for	deferred taxes	 related	 to	 earnings	 repatriations	 under	 the	 American	 Jobs Creation	Act	of	2004,	and	$31	million	of	other	tax	charges.

# ITEM	7.	MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF

# FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

# EXECUTIVE	SUMMARY

International	Paper	Company	reported	net	sales	of	$23.4	billion	in	2009, compared	 with	 $24.8	 billion	 in	 2008	 and	 $21.9	 billion	 in	 2007.	 Net earnings	totaled	$663	million	in	2009,	including	$1.4	billion	of	alternative fuel	mixture	credits	and	$853	million	of	charges	to	restructure	ongoing businesses,	compared	with	a	loss	of	$1.3	billion	in	2008,	which	included a	$1.8	billion	goodwill	impairment	charge.	Net	earnings	in	2007	totaled $1.2	billion.

The	Company	performed	well	in	2009	considering	the	magnitude	of	the challenges	 it	 faced,	 both	 domestically	 and	 around	 the	 world.	 Despite weak	global	economic	conditions,	the	Company	generated	record	cash flow	from	operations,	enabling	us	to	reduce	long-term	debt	by	$3.1	billion while	 increasing	 cash	 balances	 by	 approximately	 $800	 million.	 Also during	 2009,	 the	 Company	 incurred 3.6	 million tons	 of	 downtime, including	 1.1	 million	 tons	 associated	 with	 the	 shutdown	 of	 production capacity	 in	 our	 North	American	 mill	 system	 to	 continue	 to	 match	 our production	to	our	customers'	needs.	These	actions	should	result	in	higher operating	rates,	lower	fixed	costs	and	lower	payroll	costs	in	2010	and beyond.	Furthermore,	the	realization	of	integration	synergies	in	our	U.S. Industrial	Packaging	business	and	overhead	reduction	initiatives	across the	Company	position	 International	Paper	 to	benefit	 from	a	 lower	cost profile	in	future	years.

As	2010	begins,	we	expect	that	first-quarter	operations	will	continue	to	be challenging.	In	addition	to	being	a	seasonally	slow	quarter	for	many	of	our businesses,	poor	harvesting	weather	conditions	 in	 the	U.S.	South	and increasing	competition	for	limited	supplies	of	recycled	fiber	are	expected to	 lead	 to	 further	 increases	 in	 fiber	 costs	 for	 our	 U.S.	 mills.	 Planned maintenance	outage	expenses	will	also	be	higher	than	in	the	2009	fourth quarter.	However,	we	have	announced	product	price	increases	for	our major	global	manufacturing	businesses,	and	while	these	actions	may	not have	 a	 significant	 effect	 on	 first-quarter	 results,	 we	 believe	 that	 the benefits	beginning	in	the	second	quarter	will	be	significant.	Additionally, we	expect	to	benefit	from	the	capacity	management,	cost	reduction	and integration	synergy	actions	taken	during	2009.	As	a	result,	the	Company remains	positive	about	projected	operating	results	in	2010,	with	improved earnings	versus	2009	expected

in	 all	 major	 businesses.	 We	 will	 continue	 to	 focus	 on	 aggressive	 cost management	and	strong	cash	flow	generation	as	2010	progresses.

# Results	of	Operations

Industry	 segment	 operating	 profits	 are	 used	 by	 International	 Paper's management	 to	 measure	 the	 earnings	 performance	 of	 its	 businesses. Management	believes	that	this	measure	allows	a	better	understanding	of trends	 in	 costs,	 operating	 efficiencies,	 prices	 and	 volumes.	 Industry segment	operating	profits	are	defined	as	earnings	before	taxes,	equity earnings,	noncontrolling	interests,	interest	expense,	corporate	items	and corporate	special	items.	Industry	segment	operating	profits	are	defined	by the	 Securities	 and	 Exchange	 Commission	 as	 a	 non-GAAP	 financial measure,	 and	 are	 not	 GAAP	 alternatives	 to	 net	 income	 or	 any	 other operating	 measure	 prescribed	 by	 accounting	 principles	 generally accepted	in	the	United	States.

International	 Paper	 operates	 in	 six	 segments:	 Industrial	 Packaging, Printing	Papers,	Consumer	Packaging,	Distribution,	Forest	Products,	and Specialty	Businesses	and	Other.

The	 following	 table	 shows	 the	 components	 of	 net	 earnings	 (loss) attributable	 to	 International	 Paper	 Company	 for	 each	 of	 the	 last	 three years:

* Corporate special items include restructuring and other charges, goodwill impairment charges,	gains	on	Transformation	Plan	forestland	sales	and	net	losses	(gains)	on	sales	and impairments	of	businesses.

Industry	segment	operating	profits	of	$2.4	billion	were	$967	million	higher in	2009	than	in	2008.	Operating	profits	benefited	from	lower	energy	and raw	material	costs	($447	million),	lower	distribution	costs	($142	million), favorable	 manufacturing	 operating	 costs	 ($481	 million),	 incremental earnings	from	the	CBPR	business	acquired	in	the	third	quarter	of	2008 ($202	 million),	 and	 other	 items	 ($35	 million),	 offset	 by	 lower	 average sales	price	realizations	($444	million),	lower	sales	volumes	and	increased lack-of-order	downtime	($684	million),	unfavorable

The	 principal	 changes in	 2009	 operating	 profit	 by	 segment	 were	 as follows:

•	Industrial	Packaging's	profits	of	$761	million	were	$371	million	higher as	the	benefits	of	increased	sales	volumes	(including	sales	from	the CBPR	acquisition),	favorable	operating	costs	and	lower	raw	material and	freight	costs	were	partially	offset	by	lower	average	sales	price realizations	and	integration	costs	associated	with	the	acquisition	of the	CBPR	business.	In	addition,	operating	profits	in	2009	included	a gain	of	$849	million	relating	to	alternative	fuel	mixture	credits	and $740	 million	 of	 costs	 associated	 with	 the	 closures	 of	 the	Albany, Oregon	 and	 Pineville,	 Louisiana	 mills,	 a	 paper	 machine	 at	 the Valliant,	Oklahoma	mill,	and	the	Etienne	mill	in	France.

•	Printing	Papers'	 profits	 of	 $1.1	 billion	 increased	 $617	 million.	The benefits	 of	 favorable	 mill	 operating	 costs,	 lower	 raw	 material	 and energy	costs,	lower	freight	costs	and	slightly	lower	facility	shutdown costs	were	more	than	offset	by	the	effects	of	lower	sales	volumes and	 increased	 lack-of-order	 downtime,	 lower	 average	 sales	 price realizations,	 and	 a	 less	 favorable	 mix	 of	 products	 sold.	 However, operating	profits	in	2009	also	included	a	gain	of	$884	million	relating to	alternative	fuel	mixture	credits.

•	Consumer	Packaging's	profits	of	$433	million	were	up	$416	million as	 the	 benefits	 from	 lower	 raw	 material	 and	 energy	 costs,	 lower freight	 costs,	 higher	 average	 sales	 price	 realizations	 and	 lower charges	associated	with	the	reorganiza	-

tion	 of	 the	 Shorewood	 business	 more	 than	 offset	 lower	 sales volumes	 and	 increased	 lack-of-order	 downtime,	 unfavorable operating	costs,	and	charges	associated	with	the	shutdown	of	the Franklin,	Virginia	mill.	In	addition,	operating	profits	in	2009	included a	gain	of	$330	million	relating	to	alternative	fuel	mixture	credits.

•	Distributions'	 profits	 of	 $50	 million	 were	 down	 $53	 million	 due	 to lower	sales	volumes	and	average	sales	margins	partially	offset	by improved	 operating	 costs	 and	 a	 favorable	 inventory	 valuation adjustment.

•	Forest	 Products' profits	 of $25	 million decreased $384	 million reflecting	lower	forestland	and	real	estate	sales	in	2009,	and	$261 million	of	profits	on	mineral	rights	sales	realized	in	2008.

Corporate	items,	net,	of	$181	million	of	expense	in	2009	were	higher	than the	$103	million	of	expense	in	2008	due	to	higher	pension	expenses.	The decrease	in	2008	versus	$206	million	of	expense	in	2007	reflects	lower pension	expenses.

Corporate	 special	 items,	 including	 restructuring	 and	 other	 items, impairments	of	goodwill,	and	net	losses	(gains)	on	sales	and	impairments of	businesses,	were	a	loss	of	$334	million	in	2009	compared	with	a	loss of	$1.9	billion	in	2008	and	a	gain	of	$241	million	in	2007.	The	loss	in	2008 includes	$1.8	billion	of	goodwill	impairment	charges.

Interest	 expense,	 net,	 was	 $669	 million	 in	 2009	 compared	 with	 $492 million	in	2008	and	$297	million	in	2007.	The	increases	in	2009	and	2008 reflect	the	issuance	of	approximately	$6.0	billion	of	debt	in	connection with	the	acquisition	of	the	CBPR	business	in	2008	and	higher	interest rates	in	2009	due	to	refinancing	actions	taken	to	extend	debt	maturities.

The	2009	income	tax	provision	of	$469	million	includes	a	net	$165	million provision	related	to	2009	special	tax	adjustment	items.	The	2008	income tax	provision	of	$162	million	includes	a	net	$11	million	benefit	related	to 2008	 special	 tax	 adjustment	 items.	The	 2007	 income	 tax	 provision	 of $415	million includes	a	$41	million	benefit	related	 to	2007	special	 tax adjustment	items.	Excluding	the	tax	effect	of	all	special	items,	taxes	as	a percent	of	pre-tax	earnings	were	30%	in	2009	compared	with	31.5%	in 2008	and	30%	in	2007.	The	higher	income	tax	rate	in	2008	reflects	a higher	proportion	of	earnings	in	higher	tax	rate	jurisdictions.

# Discontinued	Operations

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

During	 2007,	 the	 Company	 completed	 the	 sale	 of	 its	 Wood	 Products, Beverage	Packaging	and	Kraft	Papers	operations.	As	a	result	of	these actions,	 the	 operating	 results	 of	 these	 businesses	 and	 the	 associated gains/losses	on	the	sales	are	reported	in	discontinued	operations	for	all applicable	periods	presented.

# Liquidity	and	Capital	Resources

For	the	year	ended	December	31,	2009,	International	Paper	generated $4.7	billion	of	cash	flow	from	continuing	operations,	including	$1.7	billion from	alternative	fuel	mixture	credits,	compared	with	$2.7	billion	in	2008. Capital	 spending	 from	 continuing	 operations	 for	 2009	 totaled $534 million,	 or 36% of	 depreciation	 and	 amortization	 expense.	 Cash expenditures	for	acquisitions	totaled	$17	million,	while	net	reductions	of debt	totaled	$3.1	billion.	Our	liquidity	position	remains	strong,	supported by	approximately	$2.5	billion	of	committed	credit	facilities	that	we	believe are	 adequate	 to	 meet	 future	 liquidity	 requirements.	 Maintaining	 an investment-grade	credit	rating	for	our	long-term	debt	continues	to	be	an important	element	in	our	overall	financial	strategy.

Our	focus	in	2010	will	be	to	maximize	free	cash	flow,	and	we	will	use	that cash	to	invest	in	high-return	consumption-reduction	capital	projects	and to	 reduce	 total	 debt,	 including	 the	 Company's	 unfunded	 pension obligation.

Capital	spending	for	2010	is	targeted	at	$800	million,	or	about	55%	of depreciation	and	amortization.

# Critical	Accounting	Policies	and	Significant	Accounting	Estimates

Accounting	 policies	 that	 may	 have	 a	 significant	 effect	 on	 our	 reported results	 of	 operations	 and	 financial	 position,	 and	 that	 can	 require judgments	 by	 management	 in	 their	 application,	 include	 accounting	 for contingent	 liabilities,	 impairments	 of	 long-lived	 assets	 and	 goodwill, pension	and	postretirement	benefit	obligations	and	income	taxes.

# Legal

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

# CORPORATE	OVERVIEW

While	 the	 operating	 results	 for	 International	 Paper's	 various	 business segments	are	driven	by	a	number	of	business-specific	factors,	changes	in International	 Paper's	 operating	 results	 are	 closely	 tied	 to	 changes	 in general	 economic	 conditions	 in	 North	America,	 Europe,	 Russia,	 Latin America,	Asia	and	North	Africa.	Factors	that	impact	the	demand	for	our products	 include	 industrial	 non-durable	 goods	 production,	 consumer spending,	 commercial	 printing	 and	 advertising	 activity,	 white-collar employment	levels	and	movements	in	currency	exchange	rates.

Product	prices	are	affected	by	general	economic	trends,	inventory	levels, currency	 movements	 and	 worldwide	 capacity	 utilization.	 In	 addition	 to these	revenue-related	factors,	net	earnings	are	impacted	by	various	cost drivers,	 the	 more	 significant	 of	 which	 include	 changes	 in	 raw	 material costs,	principally	wood,	recycled	fiber	and	chemical	costs;	energy	costs; freight	 costs;	 salary	 and	 benefits	 costs,	 including	 pensions;	 and manufacturing	conversion	costs.

The	following	is	a	discussion	of	International	Paper's	results	of	operations for	the	year	ended	December	31,	2009,	and	the	major	factors	affecting these	results	compared	to	2008	and	2007.

Full	year	2009	net	earnings	attributable	to	International	Paper	Company totaled	 $663	 million	 ($1.55	 per	 share),	 compared	 with	 a	 loss	 of	 $1.3 billion	($3.05	per	share)	in	2008	and	income	of	$1.2	billion	($2.70	per share)	in	2007.	Amounts	include	the	results	of	discontinued	operations.

Earnings	 from	 continuing	 operations	 attributable	 to	 International	 Paper Company,	after	taxes,	in	2009	were	$663	million,	including	$285	million	of net

special	items	charges,	compared	with	a	loss	of	$1.3	billion,	including	$2.1 billion	of	net	special	items	charges,	in	2008	and	income	of	$1.2	billion, including	$252	million	of	net	special	item	income,	in	2007.	Compared	with 2008,	 lower	 average	 raw	 material	 costs,	 favorable	 operating performance,	incremental	earnings	from	the	CBPR	business	acquired	in the	2008	third	quarter,	lower	distribution	costs,	lower	tax	expense,	and the	 incremental	 gain	 from	 special	 items	 were	 offset	 by	 the	 impact	 of lower	 average	 sales	 price	 realizations,	 lower	 sales	 volumes,	 lower earnings	from	land	and	mineral	sales,	higher	net	interest	expense	and higher	 corporate	 expenses.	 Additionally,	 2009	 results	 included	 lower equity	earnings,	net	of	taxes,	relating	to	the	Company's	investment	in	Ilim Holding	S.A.

See	Industry	Segment	Results	on	pages	25	through	31	for	a	discussion of	the	impact	of	these	factors	by	segment.

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

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Net\tEarnings\t(Loss)\tattributable\tto |  |  |  |
| International\tPaper\tCompany | $663 | $(1,282) | $1,168 |
| Deduct\t–\tDiscontinued\toperations: |  |  |  |
| Loss\tfrom\toperations | – | 1 | 11 |
| Loss\ton\tsales\tor\timpairment | – | 12 | 36 |
| Earnings\t(Loss)\tFrom\tContinuing |  |  |  |
| Operations\tAttributable\tto\tInternational\tPaper |  |  |  |
| Company | 663 | (1,269) | \t 1,215 |
| Add\tback\t(deduct): |  |  |  |
| Income\ttax\tprovision | 469 | 162 | 415 |
| Equity\t(earnings)\tlosses,\tnet\tof\ttaxes | 49 | (49) | – |
| Net\tearnings\tattributable\tto\tnoncontrolling\ninterests | 18 | 3 | 24 |
| Earnings\t(Loss)\tFrom\tContinuing |  |  |  |
| Operations\tBefore\tIncome\tTaxes\tand |  |  |  |
| Equity\tEarnings | \t 1,199 | (1,153) | \t 1,654 |
| Interest\texpense,\tnet | 669 | 492 | 297 |
| Noncontrolling\tinterests\t/\tequity\tearnings\tincluded\tin |  |  |  |
| operations | (23) | 2 | (19) |
| Corporate\titems | 181 | 103 | 206 |
| Special\titems: |  |  |  |
| Restructuring\tand\tother\tcharges | 333 | 179 | 95 |
| Gain\ton\tsale\tof\tforestlands | – | (6) | (9) |
| Impairments\tof\tgoodwill | – | 1,777 | – |
| Net\tlosses\t(gains)\ton\tsales\tand\timpairments |  |  |  |
| of\tbusinesses | 1 | (1) | (327) |
|  | $2,360 | $ 1,393 | $1,897 |
| Industry\tSegment\tOperating\tProfit |  |  |  |
| Industrial\tPackaging | $761 | $390 | $374 |
| Printing\tPapers | \t 1,091 | 474 | 839 |
| Consumer\tPackaging | 433 | 17 | 112 |
| Distribution | 50 | 103 | 108 |
| Forest\tProducts | 25 | 409 | 458 |
| Specialty\tBusinesses\tand\tOther | – | – | 6 |
| Total\tIndustry\tSegment\tOperating\tProfit | $2,360 | $ 1,393 | $1,897 |

2008:	In	2008,	net	after-tax	charges	totaling	$12	million	were	recorded	for adjustments of net losses (gains) on sales and impairments of businesses reported as discontinued operations, including a pre-tax charge	of	$25	million	($16	million	after	taxes)	in	the	first	quarter	for	the settlement	 of	 a	 post-closing	 adjustment	 on the	 sale	 of the	 Beverage Packaging	 business,	 and	 pre-tax	 gains	 of	 $9	 million ($5	 million	 after taxes)	in	the	fourth	quarter	for	adjustments	to	reserves	associated	with the	sale	of	discontinued	businesses.

2007:	In	 2007,	 after	 tax	 charges	 totaling	 $36	 million	 were	 recorded	 for adjustments	 of	 net	 losses	 (gains)	 on	 sales	 and	 impairments	 of businesses	reported	as	discontinued	operations.

During	 the	 fourth	 quarter	 of	 2007,	 the	 Company	 recorded	 a	 pre-tax charge	of	$9	million	($6	million	after	 taxes)	and	a	pre-tax	credit	of	$4 million	($3	million	after	taxes)	for	adjustments	to	estimated	losses	on	the sales	 of	 its	 Beverage	 Packaging	 and	 Wood	 Products	 businesses, respectively.

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

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

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

Additionally,	 a	 $4	 million	 pre-tax	 charge	 ($3	 million	 after	 taxes)	 was recorded	 for	 additional	 taxes	 associated	 with	 the	 Company's	 former Weldwood	of	Canada	Limited	business.

Discontinued	 operations	 also	 includes	 the	 operating results for these businesses	for	all	applicable	periods	presented.

# Income	Taxes

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

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

In	 2007,	 a	 net	 income	 tax	 provision	 of	 $415	 million	 was	 recorded, including	a	$41	million	tax	benefit	relating	to	the	effective	settlement	of certain	income	tax	audit	issues	and	other	special	tax	adjustment	items. Excluding	 this	 item	 and	 the	 tax	 effect	 of	 other	 special	 items,	 the	 tax provision	 was	 $423	 million,	 or	 30%	 of	 pre-tax	 earnings	 before	 equity earnings.

The	 higher	 income	 tax	 rate	 in	 2008 reflects	 a	 higher	 proportion	 of earnings	in	higher	tax	rate	jurisdictions.

# Equity	Earnings,	Net	of	Taxes

Equity	earnings,	net	of	taxes	in	2009	and	2008	consisted	principally	of	the Company's	 share	 of	 earnings	 from	 its	 50%	 investment	 in	 Ilim	 Holding S.A.	in	Russia	(see	pages	30	and	31).

# Corporate	Items	and	Interest	Expense

Corporate	items	totaled	$181	million	of	expense	for	the	twelve	months ended	December	31,	2009	compared	with	$103	million	in	2008	and	$206 million	in	2007.	The	increase	in	2009	principally	reflects	higher	pension expenses.	 The	 decrease	 in	 2008	 from	 2007	 primarily	 reflects	 lower pension	expenses.

Net	 interest	 expense	 totaled	 $669	 million	 in	 2009	 and	 $492	 million	 in 2008.	 In	 2007,	 net	 interest	 expense	 totaled	 $297	 million	 ($299	 million excluding	 a	 pre-tax	 credit	 of	 $2	 million	 for	 interest	 received	 from	 the Canadian	government	on	refunds	of	prior-year	softwood	lumber	duties). The	increases	from	2008	to	2009	and	from	2007	to	2008	reflect	a	higher average	debt	balance	due	to	the	issuance	of	approximately	$6	billion	of debt	 in	 2008,	 mainly	 in	 connection	 with	 the	 acquisition	 of	 the	 CBPR business,	and	higher	average	interest	rates	in	2009	due	to	refinancing actions	taken	to	extend	debt	maturities.

Net	earnings	attributable	to	noncontrolling	interests	totaled	$18	million	in 2009	 compared	 with	 $3	 million	 in	 2008	 and	 $24	 million	 in	 2007.	 The increase	in	2009	reflects	higher	earnings	for	the	International	Paper	&

Sun	 Cartonboard	 Co.,	 Ltd.	 joint	 ventures.	The	 decrease	 in	 2008	 from 2007	 reflected	 lower	 earnings	 for	 the	 International	 Paper	 &	 Sun Cartonboard	 Co.,	 Ltd.	 joint	 ventures	 in	 2008	 and	 the	 Company's acquisition	 of	 the	 remaining	 shares	 of	 a	 Moroccan	 packaging	 joint venture	in	the	third	quarter	of	2007.

# Special	Items

# Restructuring	and	Other	Charges

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

During	2009,	the	Company	closed	or	announced	the	pending	closure	of five	 mills	 globally,	 closed	 24	 converting	 or	 distribution	 locations,	 and reduced	overhead	headcount	through	a	program	initiated	in	2008.	These actions	will	allow	the	Company	to	reduce	its	fixed	costs,	reduce	payroll costs	 due	 to	 a	 reduction	 in	 headcount	 by	 6,000,	 and	 should	 result	 in higher	 operating	 rates	 in	 2010	 and	 beyond.	 We	 expect	 the	 annual savings	from	these	actions	to	approximate	$650	million.

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

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

•	a	$185	million	charge	before	taxes	($113	million	after	taxes)	for	costs related	to	the	early	extinguishment	of	debt	(see	Notes	13	and	14	of the	Notes	to	Consolidated	Financial	Statements	in	Item	8.	Financial Statements	and	Supplementary	Data),

In	addition,	restructuring	and	other	charges	 totaling	$1.0	billion	before taxes ($648 million	 after	 taxes)	 were	 recorded	 in	 the	 Industrial Packaging,	Printing

Papers, Consumer Packaging and Distribution industry segments including:

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

•	a $290	 million charge	 before	 taxes ($177	 million after	 taxes), including	$239	million	of	noncash	accelerated	depreciation	charges, for	closure	costs	related	to	the	paper	mill	and	associated	operations in	Franklin,	Virginia	(additional	charges	of	approximately	$320	million before	taxes	will	be	incurred	in	2010	prior	to	final	closure),

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

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

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

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

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

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

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

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

•	a $2	 million gain	 (before	 and	 after	 taxes)	 for	 adjustments	 to previously	recorded	reserves	and	other	charges	associated	with	the Company's	2006	Transformation	Plan.

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

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

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

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

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

2007:	During	 2007, total	 restructuring	 and	 other	 charges	 of	 $95	 million before taxes ($59	 million	 after taxes)	 were recorded.	 These	 charges included:

•	a $30	 million charge before taxes ($19	 million after taxes) for organizational	restructuring	programs,	principally	associated	with	the Company's	2006	Transformation	Plan,

•	a $27	 million pre-tax charge ($17	 million after taxes) for the accelerated	 depreciation	 of long-lived	 assets	 being removed from service,

•	a $33	 million charge before taxes ($21	 million after taxes) for accelerated	depreciation	charges	for	the	Terre	Haute	mill	that	was shut	down	as	part	of	the	2006	Transformation	Plan,

•	a $10	 million charge before taxes ($6	 million after taxes) for environmental	costs	associated	with	the	Terre	Haute	mill,

•	a	$4	million	charge	before	taxes	($2	million	after	taxes)	related	to	the restructuring	of	the	Company's	Brazilian	operations,	and

•	a	 pre-tax	 gain	 of	 $9	 million ($6	 million	 after taxes) for	 an	 Ohio Commercial	Activity	tax	adjustment.

A	further	discussion	of	restructuring	and	other	charges	can	be	found	in Note	 5	 of the	 Notes to	 Consolidated	 Financial	 Statements in Item	 8. Financial	Statements	and	Supplementary	Data.

# Gain	on	Sale	of	Forestlands

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

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

# Impairments	of	Goodwill

In	 the	 fourth	 quarter	 of	 2008,	 in	 conjunction	 with	 annual	 testing	 of	 its reporting	units	for	possible	goodwill	impairments	as	of	the	beginning	of the	fourth	quarter,	the	Company	recorded	a	$59	million	charge	to	write	off all	 recorded	 goodwill	 of	 its	 European	 Coated	 Paperboard	 business. Subsequent	 to	 this	 testing	 date,	 and	 based	 on	 interim	 goodwill impairment	tests	performed	as	of	December	31,	2008,	additional	goodwill impairment	charges	of	$1.3	billion	and	$379	million	were	recorded	for	the Company's	 U.S.	 Printing	 Papers	 business	 and	 its	 U.S.	 Coated Paperboard	business,	respectively.

No	goodwill	impairment	charges	were	recorded	in	2009	or	2007.

# Net	Losses	(Gains)	on	Sales	and	Impairments	of	Businesses

Net	losses	(gains)	on	sales	and	impairments	of	businesses	included	in Corporate	special	items	totaled	a	pre-tax	loss	of	$1	million	(a	gain	of	$2 million	after	taxes)	in	2009,	a	gain	of	$1	million,	before	and	after	taxes,	in 2008	and	a	pre-tax	gain	of	$327	million	($267	million	after	taxes)	in	2007. The	 principal	 components	 of	 these	 gains/losses	 and	 other	 net gains/losses	included	in	the	industry	operating	segment	results	were:

2009:	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	noncash	charge,	before	and	after	taxes, was	 recorded	 to	 write	 down	 the	 long-lived	 assets	 of	 the	 mill	 to	 their estimated	fair	value.

During	the	fourth	quarter	of	2009,	an	$8	million	noncash	charge,	before and	after	taxes,	was

recorded	related	to	the	Company's	Etienne,	France	mill	which	was	closed at	the	end	of	November	2009.	In	addition,	a	pre-tax	charge	of	$3	million ($0	million	after	taxes)	was	recorded	for	other	items,	of	which	a	$2	million charge	(before	and	after	taxes)	was	recorded	in	the	Industrial	Packaging segment.

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

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

2007:	During	the	fourth	quarter	of	2007,	a	$13	million	net	pre-tax	credit	($9 million	 after	 taxes)	 was	 recorded	 to	 adjust	 estimated	 gains/losses	 of businesses	 previously	 sold,	 including	 a	 $7	 million	 pre-tax	 credit ($5 million	after	taxes)	to	adjust	the	estimated	loss	on	the	sale	of	box	plants in	the	United	Kingdom	and	Ireland,	and	a	$5	million	pre-tax	credit	($3 million	 after	 taxes)	 to	 adjust	 the	 estimated	 loss	 on	 the	 sale	 of	 the Maresquel	mill	in	France.

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

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

During	the	first	quarter	of	2007,	a	$103	million	pre-tax	gain	($96	million after	 taxes)	 was	 recorded	 upon	 the	 completion	 of	 the	 sale	 of	 the Company's	 Arizona	 Chemical	 business.	 As	 part	 of	 the	 transaction, International	Paper	acquired	an	equity	interest	of	approximately	10%	in the	resulting	new	entity.	Since	the	interest	acquired	represents	significant continuing	 involvement	 in	 the	 operations	 of	 the	 business	 under accounting	 principles	 generally	 accepted	 in	 the	 United	 States,	 the operating	results	for	Arizona	Chemical	have	been	included	in	continuing operations	 in	 the	 accompanying	 consolidated	 statement	 of	 operations through	the	date	of	sale.

In	addition,	during	the	first	quarter	of	2007,	a	$6	million	pre-tax	credit	($4 million	 after	 taxes)	 was	 recorded	 to	 adjust	 previously	 estimated gains/losses	of	businesses	previously	sold.

These	gains	are	included,	along	with	a	$205	million	pre-tax	gain	($159 million	after	taxes)	on	the

exchange	for	the	Luiz	Antonio	mill	in	Brazil	(see	Note	6	of	the	Notes	to Consolidated	Financial	Statements	in	Item	8.	Financial	Statements	and Supplementary	Data),	in	Net	losses	(gains)	on	sales	and	impairments	of businesses	in	the	accompanying	consolidated	statement	of	operations.

# Industry	Segment	Operating	Profits

Industry	segment	operating	profits	of	$2.4	billion	in	2009	increased	from both	$1.4	billion	in	2008	and	$1.9	billion	in	2007	reflecting	a	$898	million net	 gain	 from	 special	 items	 in	 2009	 versus	 a	 $382	 million	 net	 loss	 in 2008.	The	benefits	of	lower	energy	and	raw	material	costs	($447	million), lower	distribution	costs	($142	million),	favorable	manufacturing	operating costs	 ($481	 million),	 incremental	 earnings	 from	 the	 CBPR	 business acquired	in	the	third	quarter	of	2008	($202	million),	and	other	items	($35 million)	 were	 offset	 by	 lower	 average	 sales	 price	 realizations ($444 million),	 lower	 sales	 volumes	 and	 increased	 lack-of-order	 downtime ($684	million),	unfavorable	mix	of	products	sold	($109	million)	and	lower earnings	from	land	and	mineral	rights	sales	($383	million).

Lack-of-order	downtime	 in	2009	 increased	 to	approximately	3.6	million tons	compared	with	approximately	one	million	tons	in	2008	and	50,000 tons	 in	 2007.	 The	 2009	 total	 includes	 approximately 400,000 tons associated	with	the	shutdown	of	a	paper	machine	at	our	Valliant	mill	in 2009,	and	50,000	tons	associated	with	the	permanent	shutdown	of	our Pineville	and	Albany	mills	at	 the	end	of	 the	 fourth	quarter	of	2009.	 In addition,	approximately	600,000	tons	are	included	in	the	2009	total	and 105,000 tons	 are	 included	 in	 the	 2008	 total	 associated	 with	 the permanent	 shutdown	 of	 our	 Bastrop	 mill	 and	 the	 shutdown	 of	 an uncoated	paper	machine	at	our	Franklin	mill	in	the	fourth	quarter	of	2008.

Looking	ahead	to	the	2010	first	quarter,	operating	conditions	in	January and	February	are	expected	to	be	difficult.	The	first	quarter	is	typically	a seasonally	slow	period,	and	we	anticipate	only	modest	U.S.	economic recovery.	 Input	cost	 inflation	experienced	 in	 the	2009	 fourth	quarter	 is expected	to	continue,	reflecting	poor	wood	harvesting	conditions	in	the U.S.	South	due	 to	unusually	cold	and	wet	weather,	and	strong	global competition	for	recycled	fiber	primarily	due	to	a	reduction	in	supply	for recycled	fiber	caused	by	the	global	recession	in	2009.	Demand	for	North American	 paper	 and	 packaging	 should	 improve	 slightly,	 while	 slight seasonal	decreases	are	expected	in	other	global	markets.	Pulp	prices	are expected	 to	 continue	 to	 improve,	 and	 we	 expect	 to	 realize	 previously announced	price

increases	on	paper	and	packaging	grades	as	the	first	quarter	progresses. Planned	maintenance	outage	costs	in	the	United	States	are	expected	to increase	while	remaining	about	flat	in	Europe	and	Brazil.	Earnings	from our	xpedx	 distribution	 business	 will	 reflect	 seasonally	 lower	 shipments and	 the	 absence	 of	 a	 favorable	 inventory	 valuation	 adjustment	 in	 the 2009	 fourth	 quarter.	 Equity	 earnings	 from	 our	 Ilim	 joint	 venture	 are expected	 to	 decrease,	 reflecting	 higher	 input	 costs,	 an	 extended	 mill outage	and	foreign	exchange	losses.

# DESCRIPTION	OF	INDUSTRY	SEGMENTS

International	Paper's	industry	segments	discussed	below	are	consistent with	 the	 internal	 structure	 used	 to	 manage	 these	 businesses.	 All segments	 are	 differentiated	 on	 a	 common	 product,	 common	 customer basis	consistent	with	 the	business	segmentation	generally	used	 in	 the Forest	Products	industry.

# Industrial	Packaging

International	Paper	is	the	largest	manufacturer	of	containerboard	in	the United	States.	Our	production	capacity	is	about	10	million	tons	annually. Our	products	include	linerboard,	medium,	whitetop,	recycled	linerboard, recycled	medium	and	saturating	kraft.	About	70%	of	our	production	 is converted	domestically	into	corrugated	boxes	and	other	packaging	by	our 129	 U.S.	 container	 plants.	Additionally,	 we	 recycle	 approximately	 one million	tons	of	OCC	and	mixed	and	white	paper	through	our	21	recycling plants.	In	Europe,	our	operations	include	one	recycled	containerboard	mill in	Morocco	and	21	container	plants	in	France,	Italy,	Spain,	and	Morocco. In	Asia,	 our	 operations	 include	 11	 container	 plants	 in	 China	 and	 one container	 plant	 in	 Thailand.	 Our	 container	 plants	 are	 supported	 by regional	design	centers,	which	offer	total	packaging	solutions	and	supply chain	initiatives.

# Printing	Papers

International	 Paper	 is	 one	 of	 the	 largest	 manufacturers	 of	 uncoated freesheet	 printing	 papers	 in	 the	 world.	 Products	 in	 this	 segment principally	include	uncoated	papers	and	market	pulp.	We	also	produce coated	papers	and	uncoated	bristols.

UNCOATED	 PAPERS:	 This	 business	 produces	 papers	 for	 use	 in	 copiers, desktop	 and	 laser	 printers	 and	 digital	 imaging.	 End-use	 applications include	 advertising	 and	 promotional	 materials	 such	 as	 brochures, pamphlets,	 greeting	 cards,	 books,	 annual	 reports	 and	 direct	 mail. Uncoated	papers	also	produces	a	variety	of	grades	that	are	converted	by our

customers	 into	 envelopes,	 tablets,	 business	 forms	 and	 file	 folders. Uncoated	 papers	 are	 sold	 under	 private	 label	 and	 International	 Paper brand	 names that include	Hammermill,	 Springhill,	 Williamsburg, Postmark,	Accent,	Great	White,	Chamex,	Ballet,	Rey,	Pol	and	Svetocopy.

The	mills	producing	uncoated	papers	are	located	in	the	United	States, France,	 Poland,	 Russia	 and	 Brazil.	 The	 mills	 have	 uncoated	 paper production	capacity	of	approximately	5.3	million	tons	annually.	Brazilian operations	 function	 through	 International	 Paper	 do	 Brasil,	 Ltda,	 which owns	or	manages	approximately	250,000	acres	of	forestlands	in	Brazil.

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

# Consumer	Packaging

International	 Paper	 is	 the	 world's	 largest	 producer	 of	 solid	 bleached sulfate	board	with	annual	U.S.	production	capacity	of	about	1.7	million tons.	 Our	 coated	 paperboard	 business	 produces	 high	 quality	 coated paperboard	for	a	variety	of	packaging	and	commercial	printing	end	uses. Our	Everest ®,	 Fortress^® and	Starcote ®	 brands	 are	 used	 in	 packaging applications	 for	 everyday	 products	 such	 as	 food,	 cosmetics, pharmaceuticals,	 computer	 software	 and	 tobacco	 products.	 Our Carolina ®	brand	is	used	in	commercial	printing	end	uses	such	as	greeting cards,	paperback	book	covers,	 lottery	 tickets,	direct	mail	and	point-of- purchase	 advertising.	 Our	 U.S.	 capacity	 is	 supplemented	 by	 about 330,000	tons	of	capacity	at	our	mills	producing	coated	board	in	Poland and	Russia,	and	by	our	International	Paper	&	Sun	Cartonboard	Co.,	Ltd. joint	venture	in	China	which	has	an	annual	capacity	of	915,000	tons.

Shorewood	 Packaging	 Corporation	 produces	 premium	 packaging	 with high-impact	 graphics	 for	 a	 variety	 of	 markets,	 including	 home entertainment, tobacco, cosmetics, general consumer and pharmaceuticals,	in	16	facilities	worldwide.

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

# Distribution

xpedx,	 our	 North	American	 merchant	 distribution	 business,	 distributes products	 and	 services	 to	 a	 number	 of	 customer	 markets	 including: commercial	printers	with	printing	papers	and	graphic	pre-press,	printing presses	 and	 post-press	 equipment;	 building	 services	 and	 away-from- home	 markets	 with	 facility	 supplies;	 manufacturers	 with	 packaging supplies	 and	 equipment;	 and	 to	 a	 growing	 number	 of	 customers,	 we exclusively	 provide	 distribution	 capabilities	 including	 warehousing	 and delivery	services.	xpedx	is	the	leading	wholesale	distribution	marketer	in these	customer	and	product	segments	in	North	America,	operating	122 warehouse	locations	and	130	retail	stores	in	the	United	States,	Mexico and	Canada.

# Forest	Products

International	Paper	owns	and	manages	approximately	200,000	acres	of forestlands	and	development	properties	in	the	United	States,	mostly	in the	 South.	 Our	 remaining	 forestlands	 are	 managed	 as	 a	 portfolio	 to optimize	the	economic	value	to	our	shareholders.	Most	of	our	portfolio represents	 properties	 that	 are	 likely	 to	 be	 sold	 to	 investors	 and	 other buyers	for	various	purposes.

# Specialty	Businesses	and	Other

CHEMICALS:	This	business	was	sold	in	the	first	quarter	of	2007.

# Ilim	Holding	S.A.

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

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

# INDUSTRY	SEGMENT	RESULTS

Demand	for	Industrial	Packaging	products	is	closely	correlated	with	non- durable	 industrial	 goods	 production,	 as	 well	 as	 with	 demand	 for processed	foods,

poultry,	meat	and	agricultural	products.	In	addition	to	prices	and	volumes, major	 factors	 affecting	 the	 profitability	 of	 Industrial	 Packaging	 are	 raw material	 and	 energy	 costs,	 freight	 costs,	 manufacturing	 efficiency	 and product	mix.

INDUSTRIAL	 PACKAGING results	 for	 2009	 and	 2008	 include	 the	 CBPR business	acquired	in	the	2008	third	quarter.	Net	sales	for	2009	increased 16% to $8.9 billion	 compared	 with $7.7 billion	 in	 2008,	 and 69% compared	with	$5.2	billion	in	2007.	Operating	profits	were	95%	higher	in 2009	 than	 in	 2008	 and	 more	 than	 double	 2007	 levels.	 Benefits	 from higher	total	year-over-year	shipments,	including	the	impact	of	the	CBPR business,	 ($11	 million),	 favorable	 operating	 costs	 ($294	 million),	 and lower	raw	material	and	freight	costs	($295	million)	were	partially	offset	by the	 effects	 of	 lower	 price	 realizations	 ($243	 million),	 higher	 corporate overhead	 allocations ($85 million),	 incremental	 integration	 costs associated	with	 the	acquisition	of	 the	CBPR	business	($3	million)	and higher	 other	 costs	 ($7	 million).	 Additionally,	 operating	 profits	 in	 2009 included	a	gain	of	$849	million	relating	to	alternative	fuel	mixture	credits, U.S.	plant	closure	costs	of	$653	million,	and	costs	associated	with	the shutdown	of	the	Etienne	mill	in	France	of	$87	million.

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Sales | $8,890 | $7,690 | $5,245 |
| Operating\tProfit | 761 | 390 | 374 |

# NORTH	AMERICAN	INDUSTRIAL	PACKAGING	results	include	the	net	sales	and

operating	 profits	 of	 the	 CBPR	 business	 from	 the	 August 4, 2008 acquisition	date.	Net	sales	were	$7.6	billion	in	2009	compared	with	$6.2 billion	in	2008	and	$3.9	billion	in	2007.	Operating	profits	in	2009	were $791	million	($682	million	excluding	alternative	fuel	mixture	credits,	mill closure	costs	and	costs	associated	with	the	CBPR	integration)	compared with	$322	million	($414	million	excluding	charges	related	to	the	write-up	of CBPR	inventory	to	fair	value,	CBPR	integration	costs	and	other	facility closure	costs)	in	2008	and	$305	million	in	2007.

Excluding	 the	 effect	 of	 the	 CBPR	 acquisition,	 containerboard	 and	 box shipments	 were	 lower	 in	 2009	 compared	 with	 2008	 reflecting	 weaker customer	 demand.	 Average	 sales	 price	 realizations	 were	 significantly lower	 for	 both	 containerboard	 and	 boxes	 due	 to	 weaker	 world-wide economic	conditions.	However,	average	sales	margins	for	boxes

increased,	 reflecting	 a	 slower	 decline	 in	 box	 prices	 than	 in	 the	 raw material	cost	of	containerboard,	and	CBPR	integration	benefits.	Full-year input	costs	for	wood,	energy	and	chemicals	were	lower,	although	costs for	fiber	and	energy	increased	significantly	in	the	fourth	quarter	of	2009. Freight	 costs	 were	 also	 lower.	 Planned	 maintenance	 downtime	 costs decreased	 slightly	 from	 2008	 levels,	 and	 operating	 costs	 were significantly	lower,	particularly	in	the	box	plants,	reflecting	benefits	from cost	control	 initiatives.	Lack-of-order	downtime	 totaled	2.2	million	 tons, including	approximately	450,000	tons	related	to	the	idled	paper	machine at	the	Valliant,	Oklahoma	mill	and	the	late	December	shutdowns	of	the Albany,	 Oregon	 and	 Pineville,	 Louisiana	 mills	 in	 2009,	 compared	 with 700,000	tons	in	2008.

Looking	forward	to	the	first	quarter	of	2010,	sales	volumes	are	expected to	be	slightly	higher	than	in	the	fourth	quarter	of	2009	and	average	sales price	 realizations	 are	 expected	 to	 improve	 by	 the	 end	 of	 the	 quarter, reflecting	 the	 impact	 of	 previously	 announced	 price	 increases	 for containerboard.	 However,	 input	 costs	 are	 expected	 to	 be	 significantly higher	 for	 energy	 as	 well	 as	 for	 wood	 and	 recycled	 fiber	 due	 to	 poor harvesting	weather	conditions	in	the	U.S.	South	and	strong	competition for	 recycled	 fiber.	 Planned	 maintenance	 downtime	 costs	 will	 also	 be higher	 with	 outages	 scheduled	 at	 five	 mills.	 Manufacturing	 operating costs	are	expected	to	be	lower,	reflecting	benefits	of	the	mill	closures	in December	and	improved	operations.

EUROPEAN INDUSTRIAL	 PACKAGING	 net	 sales for	 2009	 were	 $980	 million compared	with	$1.2	billion	in	2008,	and	$1.1	billion	in	2007.	Operating profits	in	2009	were	a	loss	of	$30	million	(a	gain	of	$57	million	excluding costs	associated	with	the	closure	of	the	Etienne	mill	in	France)	compared with	 earnings	 of	 $64	 million	 in	 2008	 and	 $67	 million	 in	 2007.	 Sales volumes	 in	 2009	 were	 lower	 than	 in	 2008,	 principally	 reflecting	 weak customer	 demand	 for	 industrial	 packaging	 containers	 throughout	 the region.	 Sales	 margins	 improved	 as	 reductions	 in	 kraft	 and	 recycled containerboard	 costs	 were	 greater	 than	 declines	 in	 box	 prices.	 Input costs	 were	 favorable,	 primarily	 for	 energy,	 but	 operating	 costs	 were unfavorable.	 The	 operating	 loss	 in	 2009	 includes	 $87	 million	 of	 costs associated	with	the	closure	of	the	Etienne	mill	in	November	2009.

Entering	 the	 first	 quarter	 of	 2010,	 sales	 volumes	 are	 expected	 to	 be lower,	 reflecting	 seasonally	 weaker	 demand	 for	 agricultural	 boxes	 and continued	weak	demand	for	industrial	packaging	boxes.	Average	sales price	realizations	for	boxes	are	expected	to

improve,	but	costs	for	containerboard	are	expected	to	increase.

ASIAN INDUSTRIAL PACKAGING net	 sales	 for	 2009	 were $325	 million compared	with	$350	million	in	2008	and	$265	million	in	2007.	Operating profits	in	2009	were	about	breakeven	(earnings	of	$2	million	excluding the	impairment	of	an	investment	in	a	joint	venture)	compared	with	profits of	$4	million	in	2008	and	$2	million	in	2007.

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

PRINTING	PAPERS	net	sales	for	2009	decreased	17%	from	2008	and	13% from	2007.	Operating	profits	in	2009	were	more	than	double	profits	in 2008	and	30%	higher	than	in	2007.	However,	excluding	alternative	fuel mixture	credits	and	plant	closure	costs,	operating	profits	 in	2009	were 37% lower	 than	 in	 2008	 and	 45%	 lower	 than	 in	 2007.	 Benefits	 from improved	 manufacturing	 operations	 ($144	 million),	 lower	 raw	 material and	 energy	 costs	 ($130	 million),	 lower	 freight	 costs	 ($61	 million), favorable	foreign	exchange	impacts	($22	million)	and	other	items	($11 million)	 were	 more	 than	 offset	 by	 lower	 sales	 volumes	 and	 increased lack-of-order	 downtime ($215 million),	 lower	 average	 sales	 price realizations	($341	million)	and	an	unfavorable	mix	of	products	sold	($82 million).	Operating	profits	in	2009	included	$884	million	of	alternative	fuel mixture	 credits,	 $223	 million	 of	 costs	 associated	 with	 the	 permanent shutdown	of	our	Franklin	mill	and	$34	million	of	other	restructuring	costs, while	2008	operating	profits	included	a	charge	of	$123	million	for	costs associated	 with	 the	 permanent	 shutdown	 of	 our	 Bastrop	 mill,	 a	 $107 million	impairment	charge	to	reduce	the	carrying	value	of	the	fixed	assets at	our	Inverurie,	Scotland	mill	and	$30	million	of	costs	associated	with	the shutdown	of	a	paper	machine	at	our	Franklin	mill.	The	printing	papers segment	took	1.4	million	tons	of	downtime	in	2009	including	1.1	million tons	of	lack-of-order	downtime	of	which	approximately	600,000	tons	were related	to	the	shutdowns	of	our	Bastrop	mill	and	a	paper	machine	at	our Franklin

NORTH	 AMERICAN	 PRINTING	 PAPERS 	 net	 sales in	 2009	 were	 $2.8	 billion compared	with	$3.4	billion	in	2008	and	$3.5	billion	in	2007.	Operating earnings	 in	2009	were	$746	million	($307	million	excluding	alternative fuel	mixture	credits	and	plant	closure	costs)	compared	with	$405	million ($435	million	excluding	shutdown	costs	for	a	paper	machine)	in	2008	and $415	 million in	 2007.	 Sales	 volumes	 decreased	 significantly	 in	 2009 compared	 with	 2008	 reflecting	 weak	 customer	 demand	 and	 reduced production	capacity	resulting	from	the	shutdown	of	a	paper	machine	at the	Franklin	mill	in	December	2008	and	the	conversion	of	the	Bastrop	mill to	pulp	production	in	June	2008.	Average	sales	price	realizations	were lower	reflecting	slight	declines	for	uncoated	freesheet	paper	in	domestic markets	and	significant	declines	 in	export	markets.	Margins	were	also unfavorably	affected	by	a	higher	proportion	of	shipments	to	lower-margin export	markets.	Input	costs,	however,	were	favorable	due	to	lower	wood and	chemical	costs	and	significantly	 lower	energy	costs.	Freight	costs were	 also	 lower.	 Planned	 maintenance	 downtime	 costs	 in	 2009	 were comparable	 with	 2008.	 Operating	 costs	 were	 favorable,	 reflecting	 cost control	efforts	and	strong	machine	performance.	Lack-of-order	downtime increased	to	525,000	tons	in	2009,	including	120,000	tons	related	to	the shutdown	 of	 a	 paper	 machine	 at	 our	 Franklin	 mill	 in	 the	 2008	 fourth quarter,	from	135,000	tons	in	2008.	Operating	earnings	in	2009	included $671	 million	 of	 alternative	 fuel	 mixture	 credits,	 $223	 million	 of	 costs associated	with	the	shutdown	of	our	Franklin	mill	and	$9	million	of	other shutdown	costs,	while	operating	earnings	in	2008	included	$30	million	of costs	for	the	shutdown	of	a	paper	machine	at	our	Franklin	mill.

Looking	 ahead	 to	 2010,	 first-quarter	 sales	 volumes	 are	 expected	 to increase	 slightly	 from	 fourth-quarter	 2009	 levels.	 Average	 sales	 price realizations	should	be	higher,	reflecting	the	full-quarter	impact	of	sales price	 increases	 announced	 in	 the	 fourth	 quarter	 for	 converting	 and envelope	grades	of	uncoated	freesheet	paper	and	an	increase	in	prices to	export	markets.	However,	input	costs	for	wood,	energy	and	chemicals are	 expected	 to	 continue	 to	 increase.	 Planned	 maintenance	 downtime costs	should	be	lower	and	operating	costs	should	be	favorable.

BRAZILIAN	PAPERS	net	sales	for	2009	of	$960	million	increased	from	$950 million	in	2008	and	$850	million	in	2007.	Operating	profits	for	2009	were $112	million	compared	with	$186	million	in	2008	and	$174	million	in	2007. Sales	volumes	increased	in	2009	compared	with	2008	for	both	paper	and pulp	reflecting	higher	export	shipments.	Average	sales	price	realizations were	lower	due	to	strong	competitive	pressures	in	the	Brazilian	domestic market	 in	 the	 second	 half	 of	 the	 year,	 lower	 export	 prices	 and unfavorable	foreign	exchange	rates.	Margins	were	unfavorably	affected by	a	higher	proportion	of	lower	margin	export	sales.	Input	costs	for	wood and	chemicals	were	favorable,	but	these	benefits	were	partially	offset	by higher	energy	costs.	Planned	maintenance	downtime	costs	were	lower, and	 operating	 costs	 were	 also	 favorable.	 Earnings	 in	 2009	 were adversely	impacted	by	unfavorable	foreign	exchange	effects.

Entering	 2010,	 sales	 volumes	 are	 expected	 to	 be	 seasonally	 lower compared	with	the	fourth	quarter	of	2009.	Profit	margins	are	expected	to be	slightly	higher	reflecting	a	more	favorable	geographic	sales	mix	and improving	sales	price	realizations	 in	export	markets,	partially	offset	by higher	planned	maintenance	outage	costs.

EUROPEAN	PAPERS	net	sales	in	2009	were	$1.3	billion	compared	with	$1.7 billion	in	2008	and	$1.5	billion	in	2007.	Operating	profits	in	2009	of	$92 million	($115	million	excluding	expenses	associated	with	the	closure	of the	Inverurie	mill)	compared	with	$39	million	($146	million	excluding	a charge	to	reduce	the	carrying	value	of	the	fixed	assets	at	the	Inverurie, Scotland	mill	to	their	estimated	realizable	value)	in	2008	and	$171	million in	2007.	Sales	volumes	in	2009	were	lower	than	in	2008	primarily	due	to reduced	sales	of	uncoated	freesheet	paper	following	the	closure	of	the Inverurie	 mill	 in	 2009.	 Average	 sales	 price	 realizations	 decreased significantly	 in	 2009	 across	 most	 of	 Western	 Europe,	 but	 margins increased	 in	 Poland	 and	 Russia	 reflecting	 the	 effect	 of	 local	 currency devaluations.	 Input	 costs	 were	 favorable	 as	 lower	 wood	 costs, particularly	in	Russia,	were	only	partially	offset	by	higher	energy	costs	in Poland	and	higher	chemical	costs.	Planned	maintenance	downtime	costs were	higher	in	2009	than	in	2008,	while	manufacturing	operating	costs were	 lower.	 Operating	 profits	 in	 2009	 also	 reflect	 favorable	 foreign exchange	impacts.

Looking	 ahead	 to	 2010,	 sales	 volumes	 are	 expected	 to	 decline	 from strong	 2009	 fourth-quarter	 levels	 despite	 solid	 customer	 demand. Average	 sales	 price	 realizations	 are	 expected	 to	 increase	 over	 the quarter,	primarily	in	Eastern	Europe,	as	price	increases

for	uncoated	freesheet	paper	and	market	pulp	announced	at	the	end	of 2009	 become	 effective.	 Input	 costs	 are	 expected	 to	 be	 higher	 due	 to wood	supply	constraints	at	the	Kwidzyn	mill	and	annual	tariff	increases on	energy	in	Russia.	Planned	maintenance	outage	costs	are	expected	to be	about	flat,	while	operating	costs	should	be	favorable.

ASIAN	PRINTING	PAPERS	net	sales	were	approximately	$50	million	in	2009 compared	 with	 approximately $20	 million in	 both	 2008	 and	 2007. Operating	earnings	increased	slightly	in	2009	compared	with	2008,	but were	less	than	$1	million	in	all	periods.

U.S.	 MARKET	 PULP	net	sales	in	2009	totaled	$575	million	compared	with $750	million	in	2008	and	$655	million	in	2007.	Operating	earnings	in	2009 were	$140	million	(a	loss	of	$71	million	excluding	alternative	fuel	mixture credits	and	plant	closure	costs)	compared	with	a	loss	of	$156	million	(a loss	 of $33	 million excluding	 costs	 associated	 with	 the	 permanent shutdown	of	the	Bastrop	mill)	in	2008	and	earnings	of	$78	million	in	2007.

Sales	volumes	in	2009	decreased	from	2008	levels	due	to	weaker	global demand.	Average	sales	price	realizations	were	significantly	lower	as	the decline	in	demand	resulted	in	significant	price	declines	for	market	pulp and	 smaller	 declines	 in	 fluff	 pulp.	 Input	 costs	 for	 wood,	 energy	 and chemicals	 decreased,	 and	 freight	 costs	 were	 significantly	 lower.	 Mill operating	costs	were	favorable	across	all	mills,	and	planned	maintenance downtime	costs	were	lower.	Lack-of-order	downtime	in	2009	increased	to approximately 540,000 tons,	 including 480,000 tons	 related	 to	 the permanent	shutdown	of	our	Bastrop	mill	in	the	fourth	quarter	of	2008, compared	with	135,000	tons	in	2008.

In	 the	 first	 quarter	 of	 2010,	 sales	 volumes	 are	 expected	 to	 increase slightly,	 reflecting	 improving	 customer	 demand	 for	 fluff	 pulp,	 offset	 by slightly	seasonally	weaker	demand	for	softwood	and	hardwood	pulp	in China.	 Average	 sales	 price	 realizations	 are	 expected	 to	 improve, reflecting	the	realization	of	previously	announced	sales	price	increases for	fluff	pulp,	hardwood	pulp	and	softwood	pulp.	Input	costs	are	expected to	increase	for	wood,	energy	and	chemicals,	and	freight	costs	may	also increase.	 Planned	 maintenance	 downtime	 costs	 will	 be	 higher,	 but operating	costs	should	be	about	flat.

Demand	and	pricing	for	Consumer	Packaging	products	correlate	closely with	 consumer	 spending	 and	 general	 economic	 activity.	 In	 addition	 to prices	and

volumes,	major	factors	affecting	the	profitability	of	Consumer	Packaging are	raw	material	and	energy	costs,	freight	costs,	manufacturing	efficiency and	product	mix.

CONSUMER	 PACKAGING	 net	 sales in	 2009	 decreased	 4%	 compared	 with 2008	and	increased	1%	compared	with	2007.	Operating	profits	increased significantly	 compared	 with	 both	 2008	 and	 2007.	 Excluding	 alternative fuel	mixture	credits	and	facility	closure	costs,	2009	operating	profits	were significantly	higher	than	2008	and	57%	higher	than	2007.	Benefits	from higher	average	sales	price	realizations	($114	million),	lower	raw	material and	energy	costs	($114	million),	lower	freight	costs	($21	million),	lower costs	associated	with	the	reorganization	of	the	Shorewood	business	($23 million),	favorable	foreign	exchange	effects	($14	million)	and	other	items ($12	million)	were	partially	offset	by	lower	sales	volumes	and	increased lack-of-order	 downtime	 ($145	 million)	 and	 costs	 associated	 with	 the permanent	 shutdown	 of	 the	 Franklin	 mill	 ($67	 million).	 Additionally, operating	profits	in	2009	included	$330	million	of	alternative	fuel	mixture credits.

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Sales | $3,060 | $3,195 | $3,015 |
| Operating\tProfit | 433 | 17 | 112 |

NORTH AMERICAN CONSUMER PACKAGING net	 sales	 were $2.2 billion compared	with	$2.5	billion	in	2008	and	$2.4	billion	in	2007.	Operating earnings	in	2009	were	$343	million	($87	million	excluding	alternative	fuel mixture	credits	and	facility	closure	costs)	compared	with	$8	million	($38 million	excluding	facility	closure	costs)	in	2008	and	$70	million	in	2007.

Coated	Paperboard	sales	volumes	were	 lower	 in	2009	compared	with 2008	 reflecting	 weaker	 market	 conditions.	 Average	 sales	 price realizations	were	significantly	higher,	reflecting	the	full-year	realization	of price	increases	implemented	in	the	second	half	of	2008.	Raw	material costs	for	wood,	energy	and	chemicals	were	significantly	lower	in	2009, while	freight	costs	were	also	favorable.	Operating	costs,	however,	were unfavorable	 and	 planned	 maintenance	 downtime	 costs	 were	 higher. Lack-of-order	downtime	increased	to	300,000	tons	in	2009	from	15,000 tons	 in	 2008	 due	 to	 weak	 demand.	 Operating	 results	 in	 2009	 include income	of	$330	million	for	alternative	fuel	mixture	credits	and	$67	million of	expenses	for	shutdown	costs	for	the	Franklin	mill.

Foodservice	 sales	 volumes	 were	 lower	 in	 2009	 than	 in	 2008	 due	 to generally	 weak	 world-wide	 economic	 conditions.	 Average	 sales	 price realizations	were

higher	in	the	first	half	of	the	year,	but	declined	during	the	second	half	of the	 year	 reflecting	 the	 pass-through	 to	 customers	 of	 lower	 resin	 input costs.	However,	average	margins	benefitted	from	a	more	favorable	mix of	 products	 sold.	 Raw	 material	 costs	 were	 lower,	 primarily	 for	 resins. Freight	costs	were	also	favorable,	while	operating	costs	increased.

Shorewood	sales	volumes	in	2009	declined	from	2008	levels	reflecting weaker	demand	in	the	home	entertainment	segment	and	a	decrease	in tobacco	segment	orders	as	customers	have	shifted	production	outside	of the	United	States,	partially	offset	by	higher	shipments	in	the	consumer products	 segment.	Average	 sales	 margins	 improved	 reflecting	 a	 more favorable	mix	of	products	sold.	Raw	material	costs	were	higher,	but	were partially	 offset	 by	 lower	 freight	 costs.	 Operating	 costs	 were	 favorable, reflecting	 benefits	 from	 business	 reorganization	 and	 cost	 reduction actions	 taken	 in	 2008	 and	 2009.	 Charges	 to	 restructure	 operations totaled	$7	million	in	2009	and	$30	million	in	2008.

Entering	 2010,	 Coated	 Paperboard	 sales	 volumes	 are	 expected	 to increase,	while	average	sales	price	realizations	should	be	comparable	to 2009	 fourth-quarter	 levels.	 Raw	 material	 costs	 are	 expected	 to	 be significantly	 higher	 for	 wood,	 energy	 and	 chemicals,	 but	 planned maintenance	downtime	costs	will	decrease.	Foodservice	sales	volumes are	expected	to	remain	about	flat,	but	average	sales	price	realizations should	improve	slightly.	Input	costs	for	resins	should	be	higher,	but	will be	partially	offset	by	lower	costs	for	bleached	board.	Shorewood	sales volumes	are	expected	to	decline	reflecting	seasonal	decreases	in	home entertainment	segment	shipments.	Operating	costs	are	expected	to	be favorable	reflecting	the	benefits	of	business	reorganization	efforts.

EUROPEAN	 CONSUMER	 PACKAGING	 net	 sales in	 2009	 were	 $315	 million compared	with	$300	million	in	2008	and	$280	million	in	2007.	Operating earnings	in	2009	of	$66	million	increased	from	$22	million	in	2008	and $30	million in	2007.	Sales	volumes	 in	2009	were	higher	 than	 in	2008 reflecting	increased	shipments	to	export	markets.	Average	sales	margins declined	due	to	increased	shipments	to	lower-margin	export	markets	and lower	average	sales	prices	in	Western	Europe.

Entering	2010,	sales	volumes	for	the	first	quarter	are	expected	to	remain strong.	Average	margins	should	improve	reflecting	increased	sales	price realizations	and	a	more	favorable	geographic	mix	of	products	sold.	Input costs	are	expected	to	be	higher	due	to	increased	wood	prices	in	Poland and	annual	energy	tariff	increases	in	Russia.

ASIAN CONSUMER PACKAGING net	 sales	 were $545	 million in	 2009 compared	with	$390	million	in	2008	and	$330	million	in	2007.	Operating earnings	in	2009	were	$24	million	compared	with	a	loss	of	$13	million	in 2008	 and	 earnings	 of	 $12	 million	 in	 2007.	 The	 improved	 operating earnings	in	2009	reflect	increased	sales	volumes,	higher	average	sales margins	and	lower	input	costs,	primarily	for	chemicals.	The	loss	in	2008 was	primarily	due	to	a	$12	million	charge	to	revalue	pulp	inventories	at our	Shandong	International	Paper	and	Sun	Coated	Paperboard	Co.,	Ltd. joint	venture	and	start-up	costs	associated	with	the	joint	venture's	new folding	box	board	paper	machine.

xpedx,	our	distribution	business,	markets	a	diverse	array	of	products	and supply	 chain	 services	 to	 customers	 in	 many	 business	 segments. Customer	demand	is	generally	sensitive	to	changes	in	general	economic conditions,	although	the	commercial	printing	segment	is	also	dependent on	 consumer	 advertising	 and	 promotional	 spending.	 Distribution's margins	 are	 relatively	 stable	 across	 an	 economic	 cycle.	 Providing customers	with	the	best	choice	and	value	in	both	products	and	supply chain	services	is	a	key	competitive	factor.	Additionally,	efficient	customer service,	cost-effective	logistics	and	focused	working	capital	management are	key	factors	in	this	segment's	profitability.

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Sales | $6,525 | $7,970 | $7,320 |
| Operating\tProfit | 50 | 103 | 108 |

Annual	sales	of	printing	papers	and	graphic	arts	supplies	and	equipment totaled	$4.1	billion	in	2009	compared	with	$5.2	billion	in	2008	and	$4.7 billion	 in	 2007,	 reflecting	 weak	 economic	 conditions	 in	 2009.	 Trade margins	as	a	percent	of	sales	for	printing	papers	increased	from	2008	but decreased	 from	 2007	 due	 to	 a	 higher	 mix	 of	 lower	 margin	 direct shipments	from	manufacturers.	Revenue	from	packaging	products	was $1.3	billion	in	2009	compared	with	$1.7	billion	in	2008	and	$1.5	billion	in 2007.	Trade	margins	as	a	percent	of	sales	for	packaging	products	were higher	 than	 in	 the	 past	 two	 years	 reflecting	 an	 improved	 product	 and service	mix.	Facility	supplies	annual	revenue	was	$1.1	billion	 in	2009, essentially

even	with	2008	and	2007	levels.	Operating	profit	decreased	to	$50	million in	2009	from	$103	million	in	2008	and	$108	million	in	2007	primarily	due to	the	weak	U.S.	economy.	Earnings	in	2009	benefited	from	a	$17	million fourth-quarter	 favorable	 inventory	 valuation	 adjustment.	 In	 addition, operating	 earnings	 in	 2009	 include	 a $5	 million charge	 for	 costs associated	with	the	reorganization	of	the	Company's	xpedx	operations	in New	Jersey.

Looking	ahead	to	the	first	quarter	of	2010,	sales	volumes	and	earnings are	expected	to	be	seasonally	lower.	The	business	will	continue	to	focus on	 efficiency	 and	 productivity	 initiatives	 to	 mitigate	 the	 effect	 of	 the demand	decline.	Also,	the	favorable	inventory	valuation	adjustment	that impacted	fourth-quarter	2009	earnings	will	not	recur	in	the	first	quarter	of 2010.

Forest	Products	currently	manages	nearly	200,000	acres	of	forestlands	in the	United	States.	Operating	results	are	driven	by	the	timing	and	pricing of	specific	 forestland	 tract	sales.	Future	operations	will	continue	 to	be driven	by	pricing	and	demand	for	forestland	and	real	estate	sales.

Sales	in	2009	decreased	78%	from	2008	and	91%	from	2007.	Operating profits	were	down	94%	from	2008	and	95%	from	2007.	As	part	of	the Company's	 2006	Transformation	 Plan,	 5.6	 million	 acres	 of	 forestlands were	sold	in	2006,	resulting	in	a	significant	decline	in	forestland	acreage. The	Company	intends	to	focus	future	operations	on	maximizing	the	value from	 the	 sale	 of	 its	 remaining	 forestland	 and	 real	 estate	 properties. Operating	profits	in	2008	included	$261	million	from	the	sale	of	13,000 net	acres	of	subsurface	mineral	rights	in	Louisiana.	In	the	first	quarter	of 2010,	a	previously	announced	agreement	to	sell	143,000	acres	expired	in accordance	with	its	terms	and	will	not	be	completed.

Looking	forward	to	2010,	the	amount	and	timing	of	operating	earnings	will reflect	the	periodic	sales	of	remaining	acreage	and	mineral	rights	and	can be	expected	to	vary	from	quarter	to	quarter.

The	 Specialty	 Businesses	 and	 Other	 segment	 principally	 included	 the operating	 results	 of	 the	Arizona	 Chemical	 business	 as	 well	 as	 certain smaller	 businesses.	 The	 Arizona	 Chemical	 business	 was	 sold	 in February	2007.

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Sales | $– | $– | $135 |
| Operating\tProfit | – | – | 6 |

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

In	 October	 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	structure	of	Ilim's	operations,	and	the	extended	time required	to	prepare	consolidated	financial	information	in	accordance	with accounting	 principles	 generally	 accepted	 in	 the	 United	 States,	 the Company	reports	its	share	of	Ilim's	operating	results	on	a	one-quarter	lag basis.	 Accordingly,	 the	 accompanying	 consolidated	 statement	 of operations	for	the	twelve	months	ended	December	31,	2009	includes	the Company's	 50%	 share	 of	 Ilim's	 operating	 results	 for	 the	 period	 from October	1,	2008	through	September	30,	2009,	together	with	the	results	of other	 small	 equity	 investments,	 under	 the	 caption	 Equity	 earnings (losses),	net	of	taxes.	Ilim	is	reported	as	a	separate	reportable	industry segment.

The	Company	recorded	an	equity	loss,	net	of	taxes,	of	$50	million	for	Ilim in	2009	compared	with	equity	earnings,	net	of	 taxes,	of	$54	million	 in 2008.	Operating	results	recorded	in	2009	included	a	$25	million	after-tax foreign	exchange	loss	on	the	remeasurement	of	U.S.	dollar-denominated debt,	a	$19	million	charge	to	write-off	project	development	expenses,	and a	 $5	 million	 provision	 for	 the	 write-down	 of	 assets.	 Operating	 results recorded	in	2008	included	a	$4	million	after-tax	foreign	exchange	gain	on the	remeasurement	of	U.S.	dollar-denominated	debt,	a	$3	million	after- tax	 charge	 to	 write	 off	 a	 share	 repurchase	 option,	 and	 a	 one-time	 $6 million	after-tax	charge	reflecting	the	write-up	of	finished	goods	and	work- in-process	 inventory	 to	 fair	value	as	of	 the	acquisition	date.	 In	August 2008,	Ilim	sold	its	56%	investment	in	the	Saint	Petersburg	Cartonboard and	Printing	Mill	(KPK)	for	$238	million.	No	gain	or	loss	was	realized	by the	Company	on	the	sale	of	KPK	because	the	fair	value	assigned	to	that business	by	the	Company	at	the	acquisition	date	was	equal	to	the	sales proceeds.

Sales	volumes	for	the	joint	venture	decreased	year-over-year,	principally for	market	pulp,	reflecting	significantly	weaker	customer	demand	in	2009, particularly	 in	 China,	 although	 demand	 strengthened	 in	 China	 in	 the second	and	third	quarters	of	2009.	Average	sales	price	realizations	were lower	in	2009	across	all	product	lines.	Softwood	and	hardwood

pulp	prices	declined	sharply	in	the	fourth	quarter	of	2008,	but	began	to recover	 in	 the	 second	 quarter	 of	 2009.	 Mill	 operating	 costs	 were favorable,	 and	 input	 costs	 for	 wood,	 chemicals	 and	 energy	 were	 also favorable.	The	Company	received	cash	dividends	from	the	joint	venture of	$51	million	in	December	2009	and	$67	million	in	December	2008.

For	Ilim's	2009	fourth	quarter,	which	will	be	reported	in	the	Company's 2010	first	quarter,	demand	in	China	is	expected	to	remain	good,	while demand	 in	 European	 and	 Russian	 markets	 should	 improve	 slightly. Average	 sales	 price	 realizations	 are	 expected	 to	 reflect	 slight improvement	 in	 pulp	 prices	 in	 China	 and	 Europe.	 However,	 operating earnings	 are	 expected	 to	 decrease	 due	 to	 higher	 input	 costs,	 mill downtime	costs	and	unfavorable	foreign	exchange	impacts.

A	 key	 element	 of	 the	 proposed	 joint	 venture	 strategy	 is	 a	 long-term investment	program	in	which	the	joint	venture	will	invest,	through	cash from	 operations	 and	 additional	 borrowings	 by	 the	 joint	 venture, approximately	 $1.5	 billion	 in	 Ilim's	 three	 mills	 over	 approximately	 five years.	This	planned	investment	in	the	Russian	pulp	and	paper	industry will	 be	 used	 to	 upgrade	 equipment,	 increase	 production	 capacity	 and allow	for	new	high-value	uncoated	paper,	pulp	and	corrugated	packaging product	development.	This	capital	expansion	strategy	is	expected	to	be initiated	 in	 the	second	half	of	2010,	subject	 to	 Ilim	obtaining	 financing sufficient	to	fund	the	project.

# Overview

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

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

Financing	activities	in	2009	focused	on	strengthening	our	balance	sheet by	reducing	debt	by	$3.1	billion	and	refinancing	$2.8	billion	in	long-term debt.

# Cash	Provided	by	Operations

The	 major	 components	 of	 cash	 provided	 by	 continuing	 operations	 are earnings	from	continuing	operations	adjusted	for	non-cash	income	and expense	items	and	changes	in	working	capital.	Earnings	from	continuing operations,	adjusted	for	non-cash	income	and	expense	items,	increased by	$1.8	billion	in	2009	versus	2008	driven	mainly	by	$1.7	billion	of	cash received	 from	 alternative	 fuel	 mixture	 credits.	 This	 compares	 with	 a decrease	 of	 $135	 million	 for	 2008	 versus	 2007.	 Changes	 in	 working capital	 components,	 accounts	 receivable	 and	 inventory	 less	 accounts payable	and	accrued	liabilities,	contributed	$479	million	of	cash	in	2009 compared	to	$317	million	of	cash	contributed	in	2008,	and	a	$539	million use	of	cash	in	2007.	Included	in	the	2009	changes	in	working	capital	is $211	million	of	cash	from	the	sale	of	accounts	receivable	in	Europe.

# Alternative	Fuel	Mixture	Credits

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

# Investment	Activities

Investment	activities	in	2009	were	down	significantly	from	2008	reflecting reduced	 capital	 spending	 and	 no	 significant	 acquisitions.	 Capital spending	for	continuing	operations	was	$534	million	in	2009,	or	36%	of depreciation	 and	 amortization,	 compared	 with	 $1.0	 billion	 in	 2008,	 or 74%	 of	 depreciation	 and	 amortization,	 and	 $1.3	 billion,	 or	 119%	 of depreciation	and	amortization	in	2007.

The	following	table	shows	capital	spending	for	continuing	operations	by business	segment	 for	 the	years	ended	December	31,	2009,	2008	and 2007.

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Industrial\tPackaging | $183 | $282 | $405 |
| Printing\tPapers | \t 218 | 383 | 556 |
| Consumer\tPackaging | \t 126 | 287 | 276 |
| Distribution | 6 | 9 | 6 |
| Forest\tProducts | 1 | 2 | 22 |
| Subtotal | \t 534 | 963 | \t 1,265 |
| Corporate\tand\tother | – | 39 | 23 |
| Total\tfrom\tcontinuing\toperations | $534 | $1,002 | $1,288 |

Capital	expenditures	 in	2010	are	currently	expected to	be	about	$800 million,	or	55%	of	depreciation	and	amortization.

# Acquisitions

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

On	August	 24,	 2007,	 International	 Paper	 completed	 the	 acquisition	 of Central	Lewmar	LLC,	a	privately	held	paper	and	packaging	distributor	in the	United	States,	for	$189	million.	Central	Lewmar's	results	of	operations have	 been	 included	 in	 International	 Paper's	 consolidated	 financial statements	since	its	acquisition.

On	July	31,	2007,	International	Paper	purchased	the	remaining	shares	of Compagnie	Marocaine	des

Cartons	et	des	Papiers	(CMCP)	in	Morocco	for	approximately	$40	million. In	 October	 2005,	 the	 Company	 had	 acquired	 approximately	 65%	 of CMCP	 for	 approximately	 $80	 million	 in	 cash	 plus	 assumed	 debt	 of approximately	 $40	 million.	 The	 Moroccan	 packaging	 company	 is	 now wholly	owned	by	International	Paper	and	fully	managed	as	part	of	the Company's	European	Container	business.

# Exchanges

On	February	1,	2007,	the	Company	completed	the	non-cash	exchange	of certain	pulp	and	paper	assets	in	Brazil	with	Votorantim	Celulose	e	Papel S.A.	(VCP)	that	had	been	announced	in	the	fourth	quarter	of	2006.	The Company	 exchanged	 its	 in-progress	 pulp	 mill	 project	 and	 certain forestland	 operations,	 including	 approximately 100,000 hectares	 of surrounding	forestlands	in	Tres	Lagoas,	Brazil,	for	VCP's	Luiz	Antonio uncoated	 paper	 and	 pulp	 mill	 and	 approximately	 55,000	 hectares	 of forestlands	in	the	state	of	Sao	Paulo,	Brazil.	The	exchange	improved	the Company's	 competitive	 position	 by	 adding	 a	 globally	 cost-competitive paper	 mill,	 thereby	 expanding	 the	 Company's	 uncoated	 freesheet capacity	in	Latin	America	and	providing	additional	growth	opportunities	in the	region.	The	exchange	was	accounted	for	based	on	the	fair	value	of assets	exchanged,	resulting	in	the	recognition	in	the	2007	first	quarter	of a	pre-tax	gain	of	$205	million	($159	million	after	taxes)	representing	the difference	 between	 the	 fair	 value	 and	 book	 value	 of	 the	 assets exchanged.	 This	 gain	 is	 included	 in	 Net	 losses	 (gains)	 on	 sales	 and impairments	of	businesses	in	the	accompanying	consolidated	statement of	operations.

# Joint	Ventures

In	October	2007,	International	Paper	and	Ilim	Holding	S.A.	announced the	 completion	 of	 the	 formation	 of	 a	 50:50	 joint	 venture	 to	 operate	 in Russia	 as	 Ilim	 Group.	 To	 form	 the	 joint	 venture,	 International	 Paper purchased	50%	of	Ilim	Holding	S.A.	(Ilim)	for	approximately	$620	million, including	 $545	 million	 in	 cash	 and	 $75	 million	 of	 notes	 payable,	 and contributed	 an	 additional	 $21	 million	 in	 2008.	 A	 key	 element	 of	 the proposed	 joint	 venture	 strategy	 is	 a	 long-term	 investment	 program	 in which	 the	 joint	 venture	 will	 invest,	 through	 cash	 from	 operations	 and additional	borrowings	by	the	joint	venture,	approximately	$1.5	billion	in Ilim's	three	mills	over	approximately	five	years.	This	planned	investment in	 the	 Russian	 pulp	 and	 paper	 industry	 will	 be	 used	 to	 upgrade equipment,	 increase	 production	 capacity	 and	 allow	 for	 new	 high-value uncoated	paper,	pulp	and	 corrugated	 packaging	 product	 development. This	capital

expansion	strategy	is	expected	to	be	initiated	in	the	second	half	of	2010, subject	to	Ilim	obtaining	financing	sufficient	to	fund	the	project.

International	 Paper	 is	 accounting	 for	 its	 investment	 in	 Ilim	 using	 the equity	 method	 of	 accounting.	 Due	 to	 the	 complex	 structure	 of	 Ilim's operations,	 and	 the	 extended	 time	 required	 to	 prepare	 consolidated financial	information	in	accordance	with	accounting	principles	generally accepted	 in	 the	 United	 States,	 the	 Company	 is	 reporting	 its	 share	 of Ilim's	results	of	operations	on	a	one-quarter	lag	basis.	The	Company's investment	 in	 Ilim	 is	 included	 in	 the	 caption	 Investments	 in	 the accompanying	consolidated	balance	sheet.

# Financing	Activities

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

In	 December	 2009,	 International	 Paper	 issued	 $750	 million	 of	 7.3% senior	 unsecured	 notes	 with	 a	 maturity	 date	 in	 November	 2039.	 The proceeds	from	this	borrowing,	along	with	available	cash,	were	used	to repay	the	remaining	$1	billion	of	the	$2.5	billion	long-term	debt	issued	in connection	with	the	CBPR	acquisition.	During	2009,	additional	payments related	to	this	debt	totaled	approximately	$1.4	billion.	Also	in	connection with	 the	 above	 debt	 repayment,	 International	 Paper	 undesignated	 $1 billion	of	interest	rate	swaps	entered	into	in	2008	that	qualified	as	cash flow	hedges,	resulting	 in	a	$24	million	 loss.	This	 loss	was	reclassified from	 Accumulated	 other	 comprehensive	 loss	 and	 included in Restructuring	 and	 other	 charges	 in	 the	 accompanying	 consolidated statement	of	operations.

Also	 in	 the	 fourth	 quarter	 of	 2009,	 the	 Company	 entered	 into	 various fixed-to-floating	interest	rate	swap	agreements	with	a	notional	amount	of approximately	$1	billion	to	hedge	existing	debt.	These	interest	rate	swaps mature	within	a	range	of	five	to	ten	years.	Subsequently	in	January	2010, approximately	$600	million	of	 these	swaps	and	 the	$100	million	swap entered	into	in	August	2009	(discussed	below)	were	terminated.	These terminations	 were	 not	 in	 connection	 with	 early	 debt	 retirements.	 The resulting	 $2	 million	 gain	 was	 recorded	 in	 Long-term	 debt	 and	 will	 be amortized	 as	 an	 adjustment	 of	 interest	 expense	 over	 the	 life	 of	 the underlying	debt	through	April	2015.

In	 December	 2009,	 International Paper Investments (Luxembourg) S.a.r.l,	a	wholly-owned	subsidiary	of

International	Paper,	repaid	$214	million	of	notes	with	an	interest	rate	of LIBOR	plus	40	basis	points	and	an	original	maturity	in	2010.	Other	debt activity	 in	 the	 fourth	 quarter	 of	 2009	 included	 the	 repayment	 of approximately	$235	million	of	notes	with	interest	rates	ranging	from	4.0% to	9.375%	and	original	maturities	from	2009	to	2038.

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

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

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

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

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

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

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

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

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

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

In	August	2008,	 International	Paper	borrowed	$2.5	billion	of	 long-term debt	with	an	initial	interest	rate	of	LIBOR	plus	a	margin	of	162.5	basis points.	 The	 margin	 varied	 depending	 upon	 the	 credit	 rating	 of	 the Company.	Debt	 issuance	costs	of	approximately	$50	million	related	 to this	borrowing	were	recorded	in	Deferred	charges	and	other	assets	in	the accompanying	consolidated	balance	sheet	and	were	being

amortized	 until	 the	 debt	 was	 repaid	 in	 2009.	 Also	 in	 August	 2008, International	 Paper	 borrowed	 approximately $395	 million under	 its receivables	 securitization	 program.	 These	 funds,	 together	 with	 the	 $3 billion	 from	 unsecured	 senior	 notes	 borrowed	 in	 the	 second	 quarter (discussed	 below)	 and	 other	 available	 cash,	 were	 used	 for	 the	 CBPR business	acquisition	in	August	2008.	As	of	December	31,	2008,	all	of	the borrowings	under	the	receivables	securitization	program	were	repaid.

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

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

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

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

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

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

2007:	 Financing	 activities	 during	 2007	 included	 debt	 issuances	 of	 $78 million	and	retirements	of	$875	million,	for	a	net	reduction	of	$797	million.

In	December	2007,	International	Paper	repurchased	$96	million	of	6.65% notes	with	an	original	maturity	date	of	December	2037.	Other	reductions in	the	fourth	quarter	of	2007	included	the	repayment	of	$147	million	of maturing	6.5%	debentures,	and	the	payment	of	$42	million	for	various environmental	 and	 industrial	 development	 bonds	 with	 coupon	 rates ranging	from	4.25%	to	5.75%	that	also	matured	within	the	quarter.

In	October	2007,	Luxembourg	issued	$75	million	of	long-term	notes	with an	initial	interest	rate	of	LIBOR	plus	100	basis	points	and	a	maturity	date in	April	2009,	in	connection	with	its	investment	in	the	Ilim	Holding	S.A. joint	venture.

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

In	March	2007,	Luxembourg	repaid	$143	million	of	long-term	debt	with	an interest	 rate	 of	 LIBOR	 plus	 40	 basis	 points	 and	 a	 maturity	 date	 in November	 2010.	 Other	 debt	 activity	 in	 the	 first	 quarter	 included	 the repayment	 of	 $198	 million	 of	 7.625%	 notes	 that	 matured	 within	 the quarter.

At	December	31,	2007,	International	Paper	had	interest	rate	swaps	with	a total	notional	amount	of	$1.7	billion	and	maturities	ranging	from	one	to nine	years.	During	2007,	existing	swaps	increased	the	weighted	average cost	of	debt	from	6.51%	to	an	effective	rate	of	6.62%.	The	inclusion	of	the offsetting	 interest	 income	 from	 short-term	 investments	 reduced	 this effective	rate	to	4.36%.

Other	financing	activity	in	2007	included	the	repurchase	of	33.6	million shares	 of	 International	 Paper	 common	 stock	 for	 approximately	 $1.2 billion,	and	a	net	issuance	of	5.2	million	shares	under	various	incentive plans,	 including	 stock	 option	 exercises	 that	 generated	 $128	 million	 of cash.

# Off-Balance	Sheet	Variable	Interest	Entities

During	2006	in	connection	with	the	sale	of	approximately	5.6	million	acres of	 forestlands	 under	 the	 Company's	 2006	 Transformation	 Plan,	 the Company	exchanged	installment	notes	totaling	approximately	$4.8	billion and	approximately	$400	million	of	International	Paper	promissory	notes for	interests	in	entities	formed	to	monetize	the	notes.	International	Paper determined	that	it	was	not	the	primary	beneficiary	of	these	entities,	and therefore	 should	 not	 consolidate	 these	 entities.	 During	 2006,	 these entities	 acquired	 an	 additional	 $4.8	 billion	 of	 International	 Paper	 debt securities	 for	 cash,	 resulting	 in	 a	 total	 of	 approximately	 $5.2	 billion	 of International	 Paper	 debt	 obligations	 held	 by	 these	 entities	 at December	31,	2006.	Since	International	Paper	has,	and	intends	to	affect, a	legal	right	to	offset	its	obligations	under	these	debt	instruments	with	its investments	in	the	entities,	International	Paper	has	offset	$5.1	billion	of interest	 in	 the	 entities	 against	 $5.1	 billion	 of	 International	 Paper	 debt obligations	held	by	the	entities	as	of	December	31,	2009	and	2008.

International	Paper	also	holds	variable	interests	in	two	financing	entities that	 were	 used	 to	 monetize	 long-term	 notes	 received	 from	 sales	 of forestlands	in	2002	and	2001.

See	Note	12	of	the	Notes	to	Consolidated	Financial	Statements	in	Item	8. Financial	Statements	and	Supplementary	Data	for	a	further	discussion	of these	transactions.

# Liquidity	and	Capital	Resources	Outlook	for	2010

# Capital	Expenditures	and	Long-Term	Debt

International	 Paper	 expects	 to	 be	 able	 to	 meet	 projected	 capital expenditures,	 service	 existing	 debt	 and	 meet	 working	 capital	 and dividend	requirements	during	2010	 through	current	cash	balances	and cash	from	operations,	supplemented	as	required	by	its	various	existing credit	facilities.

At	December	31,	2009,	International	Paper	had	approximately	$1.9	billion in	cash	and	$2.5	billion	of	committed	liquidity	facilities,	including	a	$1.5 billion

contractually	committed	revolving	bank	credit	agreement	and	$1.0	billion of	 commercial	 paper-based	 financing	 based	 on	 eligible	 receivable balances	under	a	receivables	securitization	program,	which	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.	In	November 2009,	International	Paper	replaced	its	$1.5	billion	revolving	bank	credit agreement	that	was	scheduled	to	expire	in	March	2011	with	a	new	$1.5 billion	 fully	 committed	 revolving	 bank	 credit	 agreement	 that	 expires	 in November	2012	and	has	a	facility	fee	of	0.50%	payable	quarterly.	The liquidity	 facilities	 also	 include	 up	 to	 $1.0	 billion	 of	 commercial	 paper- based	 financings	 on	 eligible	 receivable	 balances ($816	 million at December	31,	2009)	under	a	receivables	securitization	program	that	was scheduled	 to	 expire	 in	 January	 2010	 with	 a	 facility	 fee	 of	 0.75%.	 On January	13,	2010,	 the	Company	amended	 this	program	 to	extend	 the maturity	 date	 from	 January	 2010	 to	 January	 2011.	 The	 amended agreement	has	a	facility	fee	of	0.50%	payable	monthly.	At	December	31, 2009,	there	were	no	borrowings	under	either	the	bank	credit	agreements or	receivables	securitization	program.

The	 Company	 was	 in	 compliance	 with	 all	 of	 its	 debt	 covenants	 at December	 31,	 2009.	 The	 Company's	 financial	 covenants	 require	 the maintenance	of	a	minimum	net	worth	of	$9	billion	and	a	 total-debt-to- capital	ratio	of	less	than	60%.	Net	worth	is	defined	as	the	sum	of	common stock,	paid-in	capital	and	retained	earnings,	less	treasury	stock	plus	any cumulative	goodwill	impairment	charges.	The	calculation	also	excludes accumulated	other	comprehensive	loss.	The	total-debt-to-capital	ratio	is defined	as	total	debt	divided	by	the	sum	of	total	debt	plus	net	worth.	At December	31,	2009,	 International	Paper's	net	worth	was	$11.8	billion, and	the	total-debt-to-capital	ratio	was	43.3%.

The	Company	will	continue	to	rely	upon	debt	and	capital	markets	for	the majority	of	any	necessary	long-term	funding	not	provided	by	operating cash	 flows.	 Funding	 decisions	 will	 be	 guided	 by	 our	 capital	 structure planning	objectives.	The	primary	goals	of	the	Company's	capital	structure planning	are	to	maximize	financial	flexibility	and	preserve	liquidity	while reducing	interest	expense.	The	majority	of	International	Paper's	debt	is accessed	through	global	public	capital	markets	where	we	have	a	wide base	of	investors.

Maintaining	an	investment	grade	credit	rating	is	an	important	element	of International	 Paper's	 financing	 strategy.	 At	 December	 31,	 2009,	 the Company	 held	 long-term	 credit	 ratings	 of	 BBB	 (negative	 outlook)	 and Baa3	(negative	outlook)	and	short-term	credit	ratings	of	A-3	and	P-3	by S&P	and	Moody's,	respectively.

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.	The	Company	expects	that	the	issuer	of	installment	notes	will complete	this	replacement	within	the	required	60-day	period.

Contractual	obligations	for	future	payments	under	existing	debt	and	lease commitments	and	purchase	obligations	at	December	31,	2009,	were	as follows:

| In	millions | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Maturities\tof\tlong-term\tdebt\t(a) | $304 | $574 | $199 | $131 | $562 | $7,263 |
| Debt\tobligations\twith\tright\tof\toffset\t(b) | 519 | 28 | – | – | – | 5,108 |
| Lease\tobligations | 177 | 148 | \t 124 | 96 | 79 | 184 |
| Purchase\tobligations\t(c) | \t 2,262 | 657 | \t 623 | \t 556 | 532 | 3,729 |
| Total\t(d) | $3,262 | $1,407 | $946 | $783 | $1,173 | $16,284 |

(a)Total	debt	includes	scheduled	principal	payments	only.	The	2010	debt	maturities	reflect	the reclassification	of	$450	million	of	Notes	payable	and	current	maturities	of	long-term	debt	to Long-term	debt	based	on	International	Paper's	intent	and	ability	to	renew	or	convert	these obligations,	as	evidenced	by	the	Company's	available	bank	credit	agreements. (b)Represents	debt	obligations	borrowed	from	non-consolidated	variable	interest	entities	for which	International	Paper	has,	and	intends	to	affect,	a	legal	right	to	offset	these	obligations with	 investments	 held	 in	 the	 entities.	 Accordingly,	 in	 its	 consolidated	 balance	 sheet	 at December	31,	2009,	International	Paper	has	offset	approximately	$5.7	billion	of	interests	in the	entities	against	this	$5.7	billion	of	debt	obligations	held	by	the	entities	(see	Note	12	of	the Notes	 to	 Consolidated	 Financial	 Statements	 in	 Item 8. Financial	 Statements	 and Supplementary	Data).

(c) Includes	$2.8	billion	relating	to	fiber	supply	agreements	entered	into	at	the	time	of	the	2006 Transformation	Plan	forestland	sales.

(d)Not	included	in	the	above	table	due	to	the	uncertainty	as	to	the	amount	and	timing	of	the payment	are	unrecognized	tax	benefits	of	approximately	$225	million.

# Pension	Obligations	and	Funding

At	 December 31, 2009,	 the	 projected	 benefit	 obligation	 for	 the Company's	U.S.	defined	benefit	plans	determined	under	U.S.	Generally Accepted	 Accounting	 Principles	 was	 approximately	 $2.8	 billion	 higher than	 the	 fair	 value	 of	 plan	 assets.	 Approximately	 $2.4	 billion	 of	 this amount	 relates	 to	 plans	 that	 are	 subject	 to	 minimum	 funding requirements.	 Under	 current	 IRS	 funding	 rules,	 the	 calculation	 of minimum	funding	requirements	differs	from	the	calculation	of	the	present value	 of	 plan	 benefits	 (the	 projected	 benefit	 obligation)	 for	 accounting purposes.	 In	 December	 2008,	 the	 Worker,	 Retiree	 and	 Employer Recovery	Act	of	2008	(WERA)	was	passed	by	the	U.S.	Congress	which provided	 for	 pension	 funding	 relief	 and	 technical	 corrections.	 Funding contributions	depend	on	the	funding	method	selected	by	the	Company, and	the	timing	of	its	implementation,	as	well	as	on	actual	demographic data	and	the	targeted	funding	level.	At	this	time,	we	do	not	expect	that the	finalization	of	the	funded	status	as	of	December	31,	2009	will	require the	Company	to	make	cash	contributions	to	its	plans	in	2010,	although the	 Company	 may	 elect	 to	 make	 future	 voluntary	 contributions.	 The timing	and	amount	of	future	contributions,	which	could	be	material,	will depend	 on	 a	 number	 of	 factors,	 including	 the	 actual	 earnings	 and changes	 in	 values	 of	 plan	 assets,	 changes	 in	 interest	 rates	 and	 the possible	impact	of	funding	relief	proposals	that	may	be	adopted	by	the U.S.	Congress.

# Ilim	Holding	S.A.	Shareholders'	Agreement

In	October	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.	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	provision	of	the	shareholders'	agreement, although	they	have	the	right	to	do	so,	and	they	are	no	longer	discussing	a deferral	of	the	timeframe	to	commence	those	procedures.

# CRITICAL	ACCOUNTING	POLICIES

The	 preparation	 of	 financial	 statements	 in	 conformity	 with	 accounting principles	generally	accepted	in	the	United	States	requires	International Paper	to	establish	accounting	policies	and	to	make	estimates	that	affect both	 the	 amounts	 and	 timing	 of	 the	 recording	 of	 assets,	 liabilities, revenues	 and	 expenses.	 Some	 of	 these	 estimates	 require	 judgments about	matters	that	are	inherently	uncertain.

Accounting	policies	whose	application	may	have	a	significant	effect	on the	reported	results	of	operations	and	financial	position	of	International Paper,	and	that	can	require	judgments	by	management	that	affect	their application,	 include	 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	following	is	a	discussion	of	the	impact	of	these	accounting	policies	on International	Paper:

CONTINGENT	 LIABILITIES	Accruals for	 contingent	 liabilities,	 including	 legal and	 environmental	 matters,	 are	 recorded	 when	 it	 is	 probable	 that	 a liability	has	been	incurred	or	an	asset	impaired	and	the	amount	of	the loss	can	be	reasonably	estimated.	Liabilities	accrued	 for	 legal	matters require	judgments	regarding	projected	outcomes	and	range	of	loss	based on	historical	experience	and	recommendations	of	legal	counsel.	Liabilities for	environmental	matters	require	evaluations	of	relevant	environmental regulations

and	estimates	of	future	remediation	alternatives	and	costs.	International Paper	 determines	 these	 estimates	 after	 a	 detailed	 evaluation	 of	 each site.

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

PENSION	AND	POSTRETIREMENT	BENEFIT	OBLIGATIONS	The	charges	recorded for	pension	and	other	postretirement	benefit	obligations	are	determined annually	in	conjunction	with	International	Paper's	consulting	actuary,	and are	dependent	upon	various	assumptions	 including	 the	expected	 long- term	 rate	 of	 return	 on	 plan	 assets,	 discount	 rates,	 projected	 future compensation	increases,	health	care	cost	trend	rates	and	mortality	rates.

INCOME	TAXES	International	Paper	records	its	global	tax	provision	based on	the	respective	tax	rules	and	regulations	for	the	jurisdictions	in	which	it operates.	Where	the	Company	believes	that	a	tax	position	is	supportable for	income	tax	purposes,	the	item	is	included	in	its	income	tax	returns. Where	treatment	of	a	position	is	uncertain,	a	liability	is	recorded	based upon	 the	 expected	 most	 likely	 outcome	 taking	 into	 consideration	 the technical	merits	of	the	position	based	on	specific	tax	regulations	and	facts of	each	matter.	Changes	to	recorded	liabilities	are	only	made	when	an identifiable	 event	 occurs	 that	 changes	 the	 likely	 outcome,	 such	 as settlement	 with	 the	 relevant	 tax	 authority,	 the	 expiration	 of	 statutes	 of limitation	for	the	subject	tax	year,	change	in	tax	laws,	or	a	recent	court case	that	addresses	the	matter.

Valuation	allowances	are	recorded	to	reduce	deferred	tax	assets	when	it is	more	likely	than	not	that	a	tax	benefit	will	not	be	realized.	Significant judgment	 is	 required	 in	 evaluating	 the	 need	 for	 and	 magnitude	 of appropriate	 valuation	 allowances	 against	 deferred	 tax	 assets.	 The realization	 of	 these	 assets	 is	 dependent	 on	 generating	 future	 taxable income,	 as	 well	 as	 successful	 implementation	 of	 various	 tax	 planning strategies.

While	International	Paper	believes	that	these	judgments	and	estimates are	 appropriate	 and	 reasonable	 under	 the	 circumstances,	 actual resolution	of	these	matters	may	differ	from	recorded	estimated	amounts.

# SIGNIFICANT	ACCOUNTING	ESTIMATES

GOODWILL IMPAIRMENT ANALYSIS Under	 the	 provisions	 of	 Accounting Standards	Codification	(ASC)	350,	"Intangibles–Goodwill	and	Other,"	the testing	of	goodwill	for	possible	impairment	is	a	two-step	process.	In	the first	step,	 the	 fair	value	of	 the	Company's	reporting	units	 is	compared with	 their	 carrying	 value,	 including	 goodwill.	 If	 fair	 value	 exceeds	 the carrying	value,	goodwill	is	not	considered	to	be	impaired.	If	the	fair	value of	a	reporting	unit	is	below	the	carrying	value,	then	step	two	is	performed to	measure	the	amount	of	the	goodwill	impairment	loss	for	the	reporting unit.	This	analysis	requires	the	determination	of	the	fair	value	of	all	of	the individual	 assets	 and	 liabilities	 of	 the	 reporting	 unit,	 including	 any currently	unrecognized	intangible	assets,	as	if	the	reporting	unit	had	been purchased	 on	 the	 analysis	 date.	 Once	 these	 fair	 values	 have	 been determined,	the	implied	fair	value	of	the	unit's	goodwill	is	calculated	as the	excess,	if	any,	of	the	fair	value	of	the	reporting	unit	determined	in step	one	over	the	fair	value	of	the	net	assets	determined	in	step	two.	The carrying	value	of	goodwill	is	then	reduced	to	this	implied	value,	or	to	zero if	the	fair	value	of	the	assets	exceeds	the	fair	value	of	the	reporting	unit, through	a	goodwill	impairment	charge.

The	 impairment	 analysis	 requires	 a	 number	 of	 judgments	 by management.	In	calculating	the	estimated	fair	value	of	its	reporting	units in	 step	 one,	 the	 Company	 uses	 the	 projected	 future	 cash	 flows	 to	 be generated	by	each	unit	over	 the	estimated	remaining	useful	operating lives	of	the	unit's	assets,	discounted	using	the	estimated	cost-of-capital discount	 rate	 for	 each	 reporting	 unit.	These	 calculations	 require	 many estimates,	 including	 discount	 rates,	 future	 growth	 rates,	 and	 cost	 and pricing	trends	for	each	reporting	unit.	Subsequent	changes	in	economic and	operat	-

ing	conditions	can	affect	these	assumptions	and	could	result	in	additional interim	testing	and	goodwill	impairment	charges	in	future	periods.	Upon completion,	 the	 resulting	 estimated	 fair	 values	 are	 then	 analyzed	 for reasonableness	 by	 comparing	 them	 to	 earnings	 multiples	 for	 historic industry	 business	 transactions,	 and	 by	 comparing	 the	 sum	 of	 the reporting	unit	fair	values	and	other	corporate	assets	and	liabilities	divided by	diluted	common	shares	outstanding	to	the	Company's	market	price per	share	on	the	analysis	date.

During	 2008,	 as	 in	 prior	 years,	 the	 Company	 performed	 the	 required annual	goodwill	testing	for	impairment	as	of	the	beginning	of	the	fourth quarter,	 resulting	 in	 a	 $59	 million	 impairment	 charge	 to	 write	 off	 all goodwill	 for	 the	 Company's	 European	 Coated	 Paperboard	 business. Subsequent	to	this	testing	date,	the	Company	performed	an	interim	test as	of	December	31,	2008	and	recalculated	the	estimated	fair	value	of	its reporting	units	as	of	that	date	using	updated	future	cash	flow	projections and	higher	cost-of-capital	discount	rates.	Based	on	this	testing,	step	two testing	 for	 possible	 impairment	 was	 required	 for	 the	 Company's	 U.S. Printing	 Papers	 business	 and	 its	 U.S.	 Coated	 Paperboard	 business. Based	 on	 management's	 preliminary	 estimates,	 an	 additional	 goodwill impairment	charge	of	$379	million	was	recorded,	representing	all	of	the goodwill	 for	 the	 U.S.	 Coated	 Paperboard	 business,	 as	 this	 was management's	 best	 estimate	 of	 the	 minimum	 impairment	 charge	 that would	be	required	upon	the	completion	of	detailed	step	two	analyses.	In February	 2009,	 based	 on	 additional	 work	 performed	 to	 date, management	determined	that	it	was	probable	that	all	of	the	$1.3	billion	of recorded	 goodwill	 for	 the	 U.S.	 Printing	 Papers	 business	 would	 be impaired	when	testing	was	completed.	Accordingly,	an	additional	goodwill impairment	charge	of	$1.3	billion	was	recorded	as	a	charge	to	operating results	for	the	year	ended	December	31,	2008.	During	the	first	quarter	of 2009,	the	Company	finalized	the	testing	for	these	businesses	resulting	in no	changes	to	the	recorded	impairment	charges.

PENSION	 AND	 POSTRETIREMENT	 BENEFIT	 ACCOUNTING 	 The calculations	 of pension	 and	 postretirement	 benefit	 obligations	 and	 expenses	 require decisions	about	a	number	of	key	assumptions	that	can	significantly	affect liability	and	expense	amounts,	including	the	expected	long-term	rate	of return	on	plan	assets,	the	discount	rate	used	to	calculate	plan	liabilities, the	projected	rate	of	future	compensation	increases	and	health	care	cost trend	rates.

Benefit	obligations	and	 fair	values	of	plan	assets	as	of	December	31, 2009,	for	International	Paper's	pension	and	postretirement	plans	are	as follows:

|  | Benefit | Fair	Value	of |
| :--- | :--- | :--- |
| In\tmillions | Obligation | Plan\tAssets |
| U.S.\tqualified\tpension | $9,224 | $6,784 |
| U.S.\tnonqualified\tpension | 320 | – |
| U.S.\tpostretirement | 473 | – |
| Non-U.S.\tpension | 186 | 150 |
| Non-U.S.\tpostretirement | 18 | – |

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

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

|  | 2009 | 2008 |
| :--- | :--- | :--- |
| Health\tcare\tcost\ttrend\trate\tassumed\tfor\tnext\tyear | 9.00% | 9.50% |
| Rate\tthat\tthe\tcost\ttrend\trate\tgradually\tdeclines\tto | 5.00% | 5.00% |
| Year\tthat\tthe\trate\treaches\tthe\trate\tit\tis\tassumed\tto\tremain | 2017 | 2017 |

International	 Paper	 determines	 these	 actuarial	 assumptions,	 after consultation	with	our	actuaries,	on	December	31	of	each	year	to	calculate liability	 information	 as	 of	 that	 date	 and	 pension	 and	 postretirement expense	 for	 the	 following	 year.	 The	 discount	 rate	 assumption	 is determined	based	on	a	yield	curve	that	incorporates	approximately	500 Aa-graded	bonds.	The	plan's	projected	cash	payments	are	then	matched to	this	yield	curve	to	develop	the	discount	rate.	The	expected	long-term rate	of	return	on	plan	assets	reflects	projected	returns	for	an	investment mix	determined	upon	completion	of	a	detailed	asset/liability	study	 that meets	the	plans'	investment	objectives.

Increasing	 (decreasing)	 the	 expected	 long-term	 rate	 of	 return	 on	 U.S. plan	 assets	 by	 an	 additional	 0.25%	 would	 decrease	 (increase)	 2010 pension	 expense	 by	 approximately	 $19	 million,	 while	 a	 (decrease) increase	of	0.25%	in	the	discount	rate	would	(increase)	decrease	pension expense	by	approximately	$29	million.	The	effect	on	net	postretirement benefit	 cost	 from	 a	 1%	 increase	 or	 decrease	 in	 the	 annual	 trend	 rate would	be	approximately	$2	million.

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

The	annualized	time-weighted	rate	of	return	earned	on	U.S.	pension	plan assets	was	5.9%	and	5.6%	for	the	last	five	and	ten	years,	respectively. The	 following	 graph	 shows	 the	 growth	 of	 a $1,000 investment	 in International	 Paper's	 U.S.	 Pension	 Plan	 Master	 Trust.	 The	 graph portrays	the	time-weighted	rate	of	return	from	1999-2009.

ASC	715,	"Compensation	–	Retirement	Benefits,"	provides	for	delayed recognition	of	actuarial	gains	and	losses,	including	amounts	arising	from changes	 in	 the	 estimated	 projected	 plan	 benefit	 obligation	 due	 to changes	in	the	assumed	discount	rate,	differences	between	the	actual and	 expected	 return	 on	 plan	 assets,	 and	 other	 assumption	 changes. These	 net	 gains	 and	 losses	 are	 recognized	 in	 pension	 expense prospectively	 over	 a	 period	 that	 approximates	 the	 average	 remaining service	period	of	active	employees	expected	to	receive	benefits	under the	plans	(approximately	9	years)	to	the	extent	that	they	are	not	offset	by gains	and	losses	in	subsequent	years.	The	estimated	net	loss	and	prior service	 cost	 that	 will	 be	 amortized	 from	 accumulated	 other comprehensive	loss	into	net	periodic	pension	cost	for	the	U.S.	pension plans	 over	 the	 next	 fiscal	 year	 are $178	 million and	 $30	 million, respectively.

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

| In	millions | 2009 | 2008 | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Pension\texpense |  |  |  |  |  |
| U.S.\tplans\t(non-cash) | $213 | $123 | $210 | $377 | $243 |
| Non-U.S.\tplans | 3 | 4 | 5 | 17 | 15 |
| Postretirement\texpense |  |  |  |  |  |
| U.S.\tplans | 27 | 28 | 15 | 7 | 20 |
| Non-U.S.\tplans | 3 | 3 | 8 | 3 | 3 |
| Net\texpense | $246 | $158 | $238 | $404 | $281 |

The	 increase	 in	 2009	 U.S.	 pension expense principally reflects a decrease	in	the	assumed	discount

Assuming	that	discount	rates,	expected	long-term	returns	on	plan	assets and	rates	of	future	compensation	increases	remain	the	same	as	in	2009, projected	future	net	periodic	pension	and	postretirement	plan	expenses would	be	as	follows:

| In	millions | 2011	(a) | 2010	(a) |
| :--- | :--- | :--- |
| Pension\texpense |  |  |
| U.S.\tplans\t(non-cash) | $282 | $234 |
| Non-U.S.\tplans | 5 | 4 |
| Postretirement\texpense |  |  |
| U.S.\tplans | 13 | 13 |
| Non-U.S.\tplans | 1 | 1 |
| Net\texpense | $301 | $252 |

The	 Company	 estimates	 that	 it	 will	 record	 net	 pension	 expense	 of approximately	$234	million	for	its	U.S.	defined	benefit	plans	in	2010,	with the	increase	from	expense	of	$213	million	in	2009	principally	reflecting higher	amortization	of	actuarial	losses	and	a	decrease	in	the	assumed discount	rate	to	5.80%	in	2010	from	6.00%	in	2009.	Net	postretirement benefit	 costs	 in	 2010	 will	 decrease	 primarily	 as	 a	 result	 of	 a	 plan amendment	which	increased	cost	sharing	for	a	subgroup	of	retirees	and more	 favorable	 terms	 from	 the	 pharmacy	 benefit	 manager	 for prescription	drugs.

The	market	value	of	plan	assets	for	International	Paper's	U.S.	qualified pension	plan	at	December	31,	2009	totaled	approximately	$6.8	billion, consisting	of	approximately	49%	equity	securities,	32%	debt	securities, and	 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	plan,	tax	deductibility, the	 cash	 flows	 generated	 by	 the	 Company,	 and	 other	 factors.	 The Company	 expects	 to	 have	 no	 obligation	 to	 fund	 its	 domestic	 qualified plan	 in	 2010	 and	 made	 no	 contributions	 in	 2009.	 The	 Company continually	 reassesses	 the	 amount	 and	 timing	 of	 any	 discretionary contributions	and	could	elect	to	make	such	a	contribution	in	the	next	12 months.	The	nonqualified

defined	benefit	plans	are	funded	to	the	extent	of	benefit	payments,	which totaled	$35	million	for	the	year	ended	December	31,	2009.

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

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

INCOME	 TAXES	The	Company's	effective	income	tax	rates,	before	equity earnings	 and	 discontinued	 operations,	 were	 39%,	 (14)%	 and	 25%	 for 2009,	2008	and	2007,	respectively.	These	effective	tax	rates	include	the tax	 effects	 of	 certain	 special	 items	 that	 can	 significantly	 affect	 the effective	income	tax	rate	in	a	given	year,	but	may	not	recur	in	subsequent years.	Management	believes	that	the	effective	tax	rate	computed	after excluding	these	special	items	may	provide	a	better	estimate	of	the	rate that	might	be	expected	in	future	years	if	no	additional	special	items	were to	 occur	 in	 those	 years.	 Excluding	 these	 special	 items,	 the	 effective income	 tax	rate	 for	2009	was	30%	of	pre-tax	earnings	compared	with 31.5%	in	2008	and	30%	in	2007.	The	higher	rate	in	2008	reflects	a	higher proportion	of	earnings	in	higher	tax	rate	jurisdictions.	We	estimate	that the	2010	effective	income	tax	rate	will	be	approximately	30-32%	based on	expected	earnings	and	business	conditions.

# RECENT	ACCOUNTING	DEVELOPMENTS

The	following	represent	recently	issued	accounting	pronouncements	that will	affect	reporting	and	disclosures	in	future	periods.

ACCOUNTING	 FOR	 DECREASES IN	 OWNERSHIP	 OF	 A	 SUBSIDIARY In	 January 2010,	the	Financial

Accounting	 Standards	 Board	 (FASB)	 issued	 Accounting	 Standards Update	 (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	January	1,	2009.	The	application	of	the	requirements	of	this guidance	 had	 no	 effect	 on	 accompanying	 consolidated	 financial statements.

ACCOUNTING	 FOR	 DISTRIBUTIONS	 TO	 SHAREHOLDERS In	 January	 2010,	 the FASB	issued	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	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.

REVENUE	ARRANGEMENTS	WITH	MULTIPLE	DELIVERABLES	In	September	2009, the	 FASB	 issued	 ASU	 2009-13,	 "Multiple-Deliverable	 Revenue Arrangements,"	 which	 amends	 the	 multiple-element	 arrangement guidance	 under	 ASC 605, "Revenue	 Recognition."	 This	 guidance amends	the	criteria	for	separating	consideration	for	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.

VARIABLE	INTEREST	ENTITIES	In	June	2009,	the	FASB	issued	ASU	2009-17, "Improvements	 to	 Financial	 Reporting	 by	 Enterprises	 Involved	 with Variable	Interest	Entities,"	which	amends	the	consolidation	guidance	that applies	to	variable	interest	entities	under	ASC	810,	"Consolidation."	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	 application	 of	 the requirements	 of	 this	 guidance	 will	 not	 have	 a	 material	 effect	 on	 the consolidated	financial	statements.

TRANSFERS	 OF	 FINANCIAL	 ASSETS In	 June	 2009,	 the	 FASB	 issued	ASU 2009-16,	"Accounting	for	Transfers	of	Financial	Assets,"	which	amends the	derecognition	guidance	in	ASC	860,	"Transfers	and	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	application of	the	requirements	of	this	guidance	will	not	have	a	material	effect	on	the consolidated	financial	statements.

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

# OTHER-THAN-TEMPORARY	IMPAIRMENT	FOR	DEBT	SECURITIES	In	April	2009,	the

FASB	issued	new	guidance	under	ASC	320,	"Investments	–	Debt	and Equity	 Securities,"	 which	 provides	 a	 new	 other-than-temporary impairment	 model	 for	 debt	 securities.	 This	 guidance	 was	 effective	 for financial	statements	issued	in	fiscal	years	(and	interim	periods)	ending after	June	15,	2009.	The	application	of	the	requirements	of	this	guidance did	not	have	a	material	effect	on	the	accompanying	consolidated	financial statements.

ASSET TRANSFERS, VARIABLE INTEREST ENTITIES	 AND	 QUALIFYING SPECIAL PURPOSE	ENTITIES	In	December	2008,	the	FASB	issued	new

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

INTANGIBLE	ASSETS	In	April	2008,	the	FASB	issued	new	guidance	under ASC	350,	"Intangibles	–	Goodwill	and	Other,"	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.

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

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

preparation	of	the	accompanying	consolidated	financial	statements.

FAIR VALUE	 OPTION FOR FINANCIAL	 ASSETS	 AND FINANCIAL LIABILITIES In February	2007,	 the	FASB	 issued	guidance	under	ASC	825,	"Financial Instruments,"	which	permits	an	entity	to	measure	certain	financial	assets and	financial	liabilities	at	fair	value,	which	would	result	in	the	reporting	of unrealized	gains	and	 losses	 in	earnings	at	each	subsequent	reporting date.	 The	 fair	 value	 option	 may	 be	 elected	 on	 an	 instrument-by- instrument	 basis,	 with	 few	 exceptions,	 as	 long	 as	 it	 is	 applied	 to	 the instrument	 in	 its	 entirety.	 The	 guidance	 establishes	 presentation	 and disclosure	requirements	to	help	financial	statement	users	understand	the effect	of	an	entity's	election	on	its	earnings,	but	does	not	eliminate	the disclosure	requirements	of	other	accounting	guidance.	This	guidance	was effective	 January	 1,	 2008.	The	 Company	 elected	 not	 to	 apply	 the	 fair value	option	to	any	of	its	financial	assets	or	liabilities.

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

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

In	February	2008,	the	FASB	issued	new	guidance	under	ASC	820	which delayed	the	effective	date	for	fair	value	measurement	and	disclosure	for all	 nonrecurring	 fair	 value	 measurements	 of	 nonfinancial	 assets	 and liabilities	until	fiscal	years	beginning	after	November	15,	2008	(calendar year	2009).	The	Com	-

pany	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	14	of	 the	Notes	 to	Consolidated	Financial Statements	 in	 Item	8.	Financial	Statements	and	Supplementary	Data). The	Company	included	the	remaining	provisions	of	this	guidance	in	the preparation	of	the	accompanying	consolidated	financial	statements.

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

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

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

ACCOUNTING	 FOR	 UNCERTAINTY IN INCOME	 TAXES 	In	June	2006,	the	FASB issued	guidance	under	ASC	740,	"Income	Taxes"	(formerly	FIN	48).	This guidance	prescribes	a	recognition	threshold	and	measurement	attribute for	the	financial	statement	recognition	and	measurement	of	a	tax	position taken	or	expected	to	be	taken	in	tax	returns.	Specifically,	the	financial statement	effects	of	a	 tax	position	may	be	recognized	only	when	 it	 is determined	that	it	is	"more	likely	than	not"	that,	based	on	its	technical merits,	 the	 tax	 position	 will	 be	 sustained	 upon	 examination	 by	 the relevant	tax	authority.	The	amount	recognized	shall	be	measured	as	the largest	amount	of	 tax	benefits	 that	exceed	a	50%	probability	of	being recognized.	 This	 guidance	 also	 expands	 income	 tax	 disclosure requirements.	International	Paper	applied	the	provisions	of	this	guidance beginning	 in	 the	 first	 quarter	 of	 2007.	 The	 adoption	 of	 this	 guidance resulted	in	a	charge	to	the	beginning	balance	of	retained	earnings	of	$94 million	at	the	date	of	adoption.

# LEGAL	PROCEEDINGS

International	 Paper	 is	 subject	 to	 extensive	 federal	 and	 state environmental	 regulation	 as	 well	 as	 similar	 regulations	 internationally. Our	continuing	objectives	are	 to:	(1)	control	emissions	and	discharges from	our	facilities	into	the	air,	water	and	groundwater	to	avoid	adverse impacts	 on	 the	 environment,	 (2)	 make	 continual	 improvements	 in environmental	 performance,	 and	 (3)	 maintain	 100%	 compliance	 with applicable	laws	and	regulations.	A	total	of	$15	million	was	spent	in	2009 for	 capital	 projects	 to	 control	 environmental	 releases	 into	 the	 air	 and water,	and	to	assure	environmentally	sound	management	and	disposal	of waste.	We	expect	to	spend	approximately	$55	million	in	2010	for	similar capital	projects.	The	capital	forecast	for	2010	reflects	increased	spending due	 to	 recent	 environmental	 regulatory	 changes	 including	 the Greenhouse	 Gas	 Mandatory	 Reporting	 Rule	 and	 the	 effect	 of	 the Startup/Shutdown/Malfunction	 pro-	 visions	 being	 vacated	 by	 the	 D.C. circuit	court.

Amounts	to	be	spent	for	environmental	control	projects	in	future	years	will depend	on	new	laws	and	regulations	and	changes	in	legal	requirements and	environmental	concerns.	Taking	these	uncertainties	into	account,	our preliminary	 estimate	 for	 additional	 environmental	 expenditures	 is approximately	$92	million	 for	2011	and	approximately	$151	million	 for 2012.	 The	 Environmental	 Protection	 Agency	 (EPA)	 is	 continuing	 the development	 of	 new	 programs	 and	 standards	 such	 as	 Boiler	 MACT, additional	 wastewater	 discharge	 allocations,	 water	 intake	 structure requirements	and	national	ambient	air	quality	standards.	When	regulatory requirements	for	new	and	changing	standards	are	finalized,	we	will	add any	resulting	future	requirements	to	our	expenditure	forecast.

International	Paper	has	been	named	as	a	potentially	responsible	party	in environmental	remediation	actions	under	various	federal	and	state	laws, including	 the	 Comprehensive	 Environmental	 Response,	 Compensation and	 Liability	 Act	 (CERCLA).	 Most	 of	 these	 proceedings	 involve	 the cleanup	 of	 hazardous	 substances	 at	 large	 commercial	 landfills	 that received	 waste	 from	 many	 different	 sources.	 While	 joint	 and	 several liability	 is	 authorized	 under	 CERCLA	 and	 equivalent	 state	 laws,	 as	 a practical	matter,	 liability	 for	CERCLA	cleanups	 is	allocated	among	 the many	potential	responsible	parties.	Based	upon	previous	experience	with respect	to	the	cleanup	of	hazardous	substances	using	presently	available information,	International	Paper	believes	that	its	liability	is	not	likely	to	be significant	at	55	such	sites,	and	that	its	liability	at	47	other	sites	is	likely	to be

significant	but	not	material	to	International	Paper's	consolidated	financial statements.	Related	costs	are	recorded	in	the	financial	statements	when they	are	probable	and	reasonably	estimable.	International	Paper	believes that	 the	 probable	 liability	 associated	 with	 these 102 matters	 is approximately	$58	million.

During	the	2009	third	quarter,	in	connection	with	an	environmental	site remediation	action	under	CERCLA,	International	Paper	submitted	to	the EPA	a	feasibility	study	for	this	site.	The	EPA	has	indicated	that	it	intends to	select	a	proposed	remedial	action	alternative	from	those	identified	in the	study	and	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	 December	 31,	 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.

In	addition	to	the	above	proceedings,	other	remediation	costs,	typically associated	 with	 the	 cleanup	 of	 hazardous	 substances	 at	 International Paper	 current	 or	 former	 facilities,	 and	 recorded	 as	 liabilities	 in	 the balance	 sheet,	 totaled	 approximately	 $46	 million.	 Completion	 of	 these actions	 is	 not	 expected	 to	 have	 a	 material	 adverse	 effect	 on	 our consolidated	financial	statements.

As	of	January	31,	2010,	there	were	no	other	pending	judicial	proceedings brought	by	government	authorities	against	International	Paper	for	alleged violations	of	applicable	environmental	laws	or	regulations.

# Climate	Change	Regulation

Since	 1997,	 when	 an	 international	 conference	 on	 global	 warming concluded	an	agreement	known	as	the	Kyoto	Protocol,	which	called	for reductions	 of	 certain	 emissions	 that	 may	 contribute	 to	 increases	 in atmospheric	greenhouse	gas	concentrations,	there	have	been	a	range	of international,	 national	 and	 sub-national	 regulations	 proposed	 or implemented	 focusing	 on	 greenhouse	 gas	 reduction.	 These	 actual	 or proposed	 regulations	 do	 or	 will	 apply	 in	 countries	 where	 we	 currently have,	or	may	in	the	future	have,	manufacturing	facilities	or	investments.

In	 the	 United	 States,	 on	 the	 federal	 level,	 the	 U.S.	 Congress	 is considering	 legislation	 to	 reduce	 emissions	 of	 greenhouse	 gases.	 In addition,	several	states	have	already	taken	legal	measures	to	require	the reduction	of	emissions	of	greenhouse	gases	by	companies	and	public utilities,	primarily	through	the

planned	development	of	greenhouse	gas	emission	inventories	or	regional greenhouse	gas	cap-and-trade	programs.

It	is	possible	that	Congress,	various	states,	the	Environmental	Protection Agency	or	analogous	state	regulators	may	adopt	legislation	or	rules	that restrict	emissions	of	greenhouse	gases.	Since	the	outcome	of	the	current climate	change	debate	is	unclear,	it	is	not	possible	at	this	time	to	assess the	impact,	if	any,	and	the	scope	of	such	legislation	or	regulations	on	our operations	in	the	United	States.	However,	it	is	unlikely	that	we	will	be disproportionately	 affected	 compared	 with	 owners	 of	 comparable operations	in	the	United	States.

The	 European	 Union,	 under	 the	 European	 Emissions	 Trading	 System (EUETS),	 has	 committed	 to	 greenhouse	 gas	 reductions.	 International Paper	has	two	sites	which	will	be	covered	by	the	EUETS	in	2010.	We believe	that	the	EUETS	reduction	requirements	will	not	have	a	material effect	on	our	European	operations	in	2010,	although	they	may	have	a material	 effect	 in	 the	 future.	 We	 have	 taken	 and	 will	 continue	 to	 take action	as	appropriate	to	minimize	any	such	impact.	As	in	the	U.S.,	it	is unlikely	that	we	will	be	disproportionately	affected	compared	with	owners of	comparable	operations	in	the	European	Union.

The	framework	of	the	Kyoto	Protocol,	which	expires	in	2012,	does	not apply	 to	 "underdeveloped	 nations."	 Brazil,	 Morocco,	 and	 China,	 three countries	 where	 we	 have	 operations,	 are	 considered	 underdeveloped nations	by	the	Kyoto	Protocol.	A	successor	to	the	Kyoto	Protocol	is	being discussed	by	representatives	of	various	developed	and	underdeveloped countries,	and	it	is	unclear	whether	agreement	among	various	countries will	 be	 reached.	 Moreover,	 countries	 that	 currently	 do	 not	 regulate greenhouse	gases	may	adopt	their	own	regulations	in	the	future,	whether or	not	they	are	signatories	to	a	successor	protocol.	Due	to	the	lack	of clarity	around	any	post-	2012	climate	change	regime,	it	is	not	possible	at this	time	to	assess	the	potential	impacts,	if	any,	of	future	international agreements	or	national	legislation	on	International	Paper's	operations.

In	summary,	regulation	of	greenhouse	gases	continues	to	evolve	in	all countries	 in	 which	 we	 do	 business.	 While	 there	 may	 be	 increased regulation	relating	to	greenhouse	gases	and	climate	change,	at	this	stage it	is	not	possible	to	predict	what,	if	any,	regulations	will	be	adopted,	or	to estimate	either	the	timing	for	implementation,	or	our	costs	of	compliance.

Other	than	the	regulatory	risks,	we	have	identified	no	clear	patterns	of physical,	social,	or	market	related	risks	associated	with	climate	change.

# Other	Legal	Matters

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

# EFFECT	OF	INFLATION

While	inflationary	increases	in	certain	input	costs,	such	as	energy,	wood fiber	and	chemical	costs,	have	an	impact	on	the	Company's	operating results,	 changes	 in	 general	 inflation	 have	 had	 minimal	 impact	 on	 our operating	 results	 in	 each	 of	 the	 last	 three	 years.	 Sales	 prices	 and volumes	are	more	strongly	influenced	by	economic	supply	and	demand factors	 in	 specific	 markets	 and	 by	 exchange	 rate	 fluctuations	 than	 by inflationary	factors.

# FOREIGN	CURRENCY	EFFECTS

International	 Paper	 has	 operations	 in	 a	 number	 of	 countries.	 Its operations	in	those	countries	also	export	to,	and	compete	with,	imports from	other	regions.	As	such,	currency	movements	can	have	a	number	of direct	and	indirect	impacts	on	the	Company's	financial	statements.	Direct impacts	include	the	translation	of	international	operations'	local	currency financial	statements	into	U.S.	dollars.	Indirect	impacts	include	the	change in	competitiveness	of	imports	into,	and	exports	out	of,	the	United	States (and	 the	 impact	 on	 local	 currency	 pricing	 of	 products	 that	 are	 traded internationally).	In	general,	a	lower	U.S.	dollar	and	stronger	local	currency is	beneficial	 to	 International	Paper.	The	currencies	 that	have	 the	most impact	are	the	European	euro,	the	Brazilian	real,	the	Polish	zloty	and	the Russian	ruble.

# MARKET	RISK

We	use	financial	instruments,	including	fixed	and	variable	rate	debt,	to finance	 operations,	 for	 capital	 spending	 programs	 and	 for	 general corporate	purposes.	Additionally,	financial	instruments,	including	various derivative	 contracts,	 are	 used	 to	 hedge	 exposures	 to	 interest	 rate, commodity	 and	 foreign	 currency	 risks.	 We	 do	 not	 use	 financial instruments	 for	 trading	 purposes.	 Information	 related	 to	 International Paper's	 debt	 obligations	 is	 included	 in	 Note 13 of	 the	 Notes	 to Consolidated	Financial	Statements	in	Item	8.	Financial	Statements	and Supplementary	Data.	A	discussion	of	derivatives	and	hedging	activities	is included	in	Note	14	of	the	Notes	to	Consolidated	Financial	Statements	in Item	8.	Financial	Statements	and	Supplementary	Data.

The	fair	value	of	our	debt	and	financial	instruments	varies	due	to	changes in	market	interest	and	foreign	currency	rates	and	commodity	prices	since the	 inception	 of	 the	 related	 instruments.	 We	 assess	 this	 market	 risk utilizing	 a	 sensitivity	 analysis.	 The	 sensitivity	 analysis	 measures	 the potential	 loss	 in	 earnings,	 fair	 values	 and	 cash	 flows	 based	 on	 a hypothetical 10% change	 (increase	 and	 decrease)	 in	 interest	 and currency	rates	and	commodity	prices.

# Interest	Rate	Risk

Our	exposure	to	market	risk	for	changes	in	interest	rates	relates	primarily to	short-	and	long-term	debt	obligations	and	investments	in	marketable securities.	 We	 invest	 in	 investment-grade	 securities	 of	 financial institutions	 and	 money	 market	 mutual	 funds	 with	 a	 minimum	 rating	 of AAA	and	limit	exposure	to	any	one	issuer	or	fund.	Our	investments	in marketable	securities	at	December	31,	2009	are	stated	at	cost,	which approximates	market	due	to	their	short-term	nature.	Our	interest	rate	risk exposure	related	to	these	investments	was	not	material.

We	 issue	 fixed	 and	 floating	 rate	 debt	 in	 a	 proportion	 consistent	 with International	Paper's	targeted	capital	structure,	while	at	the	same	time taking	advantage	of	market	opportunities	to	reduce	interest	expense	as appropriate.	Derivative	instruments,	such	as	interest	rate	swaps,	may	be used	 to	 implement	 this	 capital	 structure.	 At	 December	 31,	 2009	 and 2008,	the	net	fair	value	liability	of	financial	instruments	with	exposure	to interest	 rate	 risk	 was	 approximately $7.7 billion	 and $6.4 billion, respectively.	 The	 potential	 loss	 in	 fair	 value	 resulting	 from	 a 10% adverse	 shift	 in	 quoted	 interest	 rates	 would	 have	 been	 approximately $394	 million and $366	 million at	 December 31, 2009	 and	 2008, respectively.

# Commodity	Price	Risk

The	objective	of	our	commodity	exposure	management	 is	 to	minimize volatility	in	earnings	due	to	large	fluctuations	in	the	price	of	commodities. Commodity	swap	and	option	contracts	have	been	used	to	manage	risks associated	with	market	fluctuations	in	energy	prices.	The	net	fair	value liability	 of	 such	 outstanding	 energy	 hedge	 contracts	 at	 December	 31, 2009	 and	 2008	 was	 approximately $26 million	 and $75 million, respectively.	 The	 potential	 loss	 in	 fair	 value	 resulting	 from	 a 10% adverse	 change	 in	 the	 underlying	 commodity	 prices	 would	 have	 been approximately	 $20	 million	 and	 $18	 million	 at	 December	 31,	 2009	 and 2008,	respectively.

# Foreign	Currency	Risk

International	Paper	 transacts	business	 in	many	currencies	and	 is	also subject	 to	 currency	 exchange	 rate	 risk	 through	 investments	 and businesses	 owned	 and	 operated	 in	 foreign	 countries.	 Our	 objective	 in managing	the	associated	foreign	currency	risks	is	to	minimize	the	effect of	adverse	exchange	rate	 fluctuations	on	our	after-tax	cash	 flows.	We address	 these	 risks	 on	 a	 limited	 basis	 by	 financing	 a	 portion	 of	 our investments	in	overseas	operations	with	borrowings	denominated	in	the same	currency	as	the	operation's	functional	currency,	or	by	entering	into cross-currency	and	interest	rate	swaps,	or	foreign	exchange	contracts.	At December	 31,	 2009	 and	 2008,	 the	 net	 fair	 value	 asset	 of	 financial instruments	with	exposure	to	foreign	currency	risk	was	approximately	$32 million	and	$2	million,	respectively.	The	potential	 loss	 in	 fair	value	 for such	financial	instruments	from	a	10%	adverse	change	in	quoted	foreign currency	exchange	rates	would	have	been	approximately	$73	million	and $105	million	at	December	31,	2009	and	2008,	respectively.

# ITEM	7A.	QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES ABOUT	MARKET	RISK

See	the	preceding	discussion	and	Note	14	of	the	Notes	to	Consolidated Financial	Statements	in	Item	8.	Financial	Statements	and	Supplementary Data.

# ITEM	8.	FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# FINANCIAL	INFORMATION	BY	INDUSTRY	SEGMENT	AND GEOGRAPHIC	AREA

International	 Paper's	 industry	 segments,	 Industrial	 Packaging,	 Printing Papers,	 Consumer	 Packaging,	 Distribution,	 Forest	 Products	 and Specialty	Businesses	and	Other,	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.

For	 management	 purposes,	 International	 Paper	 reports	 the	 operating performance	 of	 each	 business	 based	 on	 earnings	 before	 interest	 and income	taxes	(EBIT)	excluding	special	and	extraordinary	items,	gains	or losses	 on	 sales	 of	 businesses	 and	 cumulative	 effects	 of	 accounting changes.	 Intersegment	 sales	 and	 transfers	 are	 recorded	 at	 current market	prices.

External	sales	by	major	product	is	determined	by	aggregating	sales	from each	segment	based	on	similar	products	or	services.	External	sales	are defined	as	those	that	are	made	to	parties	outside	International	Paper's consolidated	group,	whereas	sales	by	segment	in	the	Net	Sales	table	are determined	 using	 a	 management	 approach	 and	 include	 intersegment sales.

The	 Company	 also	 has	 a	 50%	 equity	 interest	 in	 Ilim	 Holding	 S.A.	 in Russia	 that	 is	 a	 separate	 reportable	 industry	 segment.	 The	 Company recorded	equity	losses,	net	of	taxes,	of	$50	million	and	equity	earnings, net	of	taxes,	of	$54	million	for	Ilim	in	2009	and	2008,	respectively.

# INFORMATION	BY	INDUSTRY	SEGMENT

# NET	SALES

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Industrial\tPackaging | $8,890 | $7,690 | $5,245 |
| Printing\tPapers | 5,680 | 6,810 | 6,530 |
| Consumer\tPackaging | 3,060 | 3,195 | 3,015 |
| Distribution | 6,525 | 7,970 | 7,320 |
| Forest\tProducts | 45 | 200 | 485 |
| Specialty\tBusinesses\tand\tOther\t(a) | – | – | 135 |
| Corporate\tand\tIntersegment\tSales | (834) | (1,036) | (840) |
| Net\tSales | $23,366 | $24,829 | $21,890 |

# OPERATING	PROFIT

# CAPITAL	SPENDING

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Industrial\tPackaging | $183 | $282 | $405 |
| Printing\tPapers | \t 218 | 383 | 556 |
| Consumer\tPackaging | \t 126 | 287 | 276 |
| Distribution | 6 | 9 | 6 |
| Forest\tProducts | 1 | 2 | 22 |
| Subtotal | \t 534 | 963 | \t 1,265 |
| Corporate\tand\tother | – | 39 | 23 |
| Total\tfrom\tContinuing\tOperations | $534 | $1,002 | $1,288 |

# DEPRECIATION	AND	AMORTIZATION	(d)

# INFORMATION	BY	GEOGRAPHIC	AREA

(a)Includes	Arizona	Chemical	and	certain	other	smaller	businesses	identified	in	the	Company's divestiture	program.

(b)Operating	profits	 for	 industry	segments	 include	each	segment's	percentage	share	of	 the profits	of	subsidiaries	included	in	that	segment	that	are	less	than	wholly-owned.	The	pre-tax noncontrolling	interests	and	equity	earnings	for	these	subsidiaries	is	added	here	to	present consolidated	earnings	from	continuing	operations	before	income	taxes	and	equity	earnings. (c) Includes	corporate	assets	and	assets	of	businesses	held	for	sale.

(d)Includes	cost	of	timber	harvested;	excludes	accelerated	depreciation	related	to	closure	of mills.

(e)Includes	sales	of	products	not	included	in	our	major	product	lines.

(f) Net	sales	are	attributed	to	countries	based	on	the	location	of	the	seller.

(h)Long-Lived	Assets	includes	Forestlands	and	Plants,	Properties	and	Equipment,	net.

# REPORT	OF	MANAGEMENT	ON:

# 		FINANCIAL	STATEMENTS

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

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

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

# INTERNAL	CONTROLS	OVER	FINANCIAL	REPORTING

The	management	of	International	Paper	Company	is	also	responsible	for establishing	 and	 maintaining	 adequate	 internal	 controls	 over	 financial reporting	 including	 the	 safeguarding	 of	 assets	 against	 unauthorized acquisition,	use	or	disposition.	These	controls	are	designed	 to	provide reasonable	 assurance	 to	 management	 and	 the	 Board	 of	 Directors regarding	preparation	of	reliable	published	financial	statements	and	such asset	safeguarding.	All	internal	control	systems	have	inherent	limitations, including	the	possibility	of	circumvention	and	overriding	of	controls,	and therefore	 can	 provide	 only	 reasonable	 assurance	 as	 to	 such	 financial statement	preparation

and	 asset	 safeguarding.	 The	 Company's	 internal	 control	 system	 is supported	 by	 written	 policies	 and	 procedures,	 contains	 self-monitoring mechanisms,	and	 is	audited	by	 the	 internal	audit	 function.	Appropriate actions	 are	 taken	 by	 management	 to	 correct	 deficiencies	 as	 they	 are identified.

The	Company	has	assessed	the	effectiveness	of	its	internal	control	over financial	reporting	as	of	December	31,	2009.	In	making	this	assessment, it	used	the	criteria	described	in	"Internal	Control	–	Integrated	Framework" issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway Commission	(COSO).	Based	on	this	assessment,	management	believes that,	 as	 of	 December	 31,	 2009,	 the	 Company's	 internal	 control	 over financial	reporting	is	effective.

The	Company's	independent	registered	public	accounting	firm,	Deloitte	& Touche	LLP,	has	issued	its	report	on	the	effectiveness	of	the	Company's internal	control	over	financial	reporting.	The	report	appears	on	page	52.

# INTERNAL	CONTROL	ENVIRONMENT	AND	BOARD	OF DIRECTORS	OVERSIGHT

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

The	Board	of	Directors,	assisted	by	 the	Audit	and	Finance	Committee (Committee),	monitors	the	integrity	of	the	Company's	financial	statements and	 financial	reporting	procedures,	 the	performance	of	 the	Company's internal	audit	function	and	independent	auditors,	and	other	matters	set forth	 in	 its	 charter.	 The	 Committee,	 which	 currently	 consists	 of	 five independent	directors,	meets	regularly	with

representatives	of	management,	and	with	the	independent	auditors	and	the	Internal	Auditor,	with	and	without	management	representatives	in	attendance, to	review	their	activities.	The	Committee's	Charter	takes	into	account	the	New	York	Stock	Exchange	rules	relating	to	Audit	Committees	and	the	SEC rules	and	regulations	promulgated	as	a	result	of	the	Sarbanes-Oxley	Act	of	2002.	The	Committee	has	reviewed	and	discussed	the	consolidated	financial statements	for	the	year	ended	December	31,	2009,	including	critical	accounting	policies	and	significant	management	judgments,	with	management	and the	independent	auditors.	The	Committee's	report	recommending	the	inclusion	of	such	financial	statements	in	this	Annual	Report	on	Form	10-K	will	be set	forth	in	our	Proxy	Statement.

# JOHN	V.	FARACI

# CHAIRMAN	AND	CHIEF	EXECUTIVE	OFFICER

TIM	S.	NICHOLLS

SENIOR	VICE	PRESIDENT	AND	CHIEF	FINANCIAL	OFFICER

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

To	the	Shareholders	of	International	Paper	Company:

We	 have	 audited	 the	 accompanying	 consolidated	 balance	 sheets	 of International	 Paper	 Company	 and	 subsidiaries	 (the	 "Company")	 as	 of December	31,	2009	and	2008,	and	the	related	consolidated	statements of	operations,	changes	in	equity,	and	cash	flows	for	each	of	the	three years	 in	 the	 period	 ended	 December 31, 2009.	 These	 financial statements	 are	 the	 responsibility	 of	 the	 Company's	 management.	 Our responsibility	 is	 to	 express	 an	 opinion	 on	 these	 financial	 statements based	on	our	audits.

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

In	our	opinion,	such	consolidated	financial	statements	present	fairly,	in	all material	respects,	the	financial	position	of	International	Paper	Company and	subsidiaries	as	of	December	31,	2009	and	2008,	and	the	results	of their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the period	 ended	 December 31, 2009,	 in	 conformity	 with	 accounting principles	generally	accepted	in	the	United	States	of	America.

As	discussed	in	Notes	2	and	10	to	the	consolidated	financial	statements, the	Company	changed	the	manner	in	which	it	accounts	for	uncertainty	in income	taxes,	effective	January	1,	2007.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public Company	Accounting	Oversight	Board	(United	States),	 the	Company's internal	control	over	financial	reporting	as	of	December	31,	2009,	based on	 the	 criteria	 established	 in	 Internal	 Control	 –	 Integrated	 Framework issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway Commission	 and	 our	 report	 dated	 February	 25,	 2010	 expressed	 an unqualified	 opinion	 on	 the	 Company's	 internal	 control	 over	 financial reporting.

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

We	 have	 audited	 the	 internal	 control	 over	 financial	 reporting	 of International	 Paper	 Company	 and	 subsidiaries	 (the	 "Company")	 as	 of December	31,	2009,	based	on	criteria	established	in	Internal	Control	— Integrated	 Framework	 issued	 by	 the	 Committee	 of	 Sponsoring Organizations	 of	 the	 Treadway	 Commission.	 The	 Company's management	is	responsible	for	maintaining	effective	internal	control	over financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal control	over	financial	reporting,	included	in	the	accompanying	Report	of Management	 on	 Internal	 Controls	 Over	 Financial	 Reporting.	 Our responsibility	is	to	express	an	opinion	on	the	Company's	internal	control over	financial	reporting	based	on	our	audit.

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

A	 company's	 internal	 control	 over	 financial	 reporting	 is	 a	 process designed	 by,	 or	 under	 the	 supervision	 of,	 the	 company's	 principal executive	and	principal	financial	officers,	or	persons	performing	similar functions,	 and	 effected	 by	 the	 company's	 board	 of	 directors, management,	 and	 other	 personnel	 to	 provide	 reasonable	 assurance regarding	 the	 reliability	 of	 financial	 reporting	 and	 the	 preparation	 of financial	statements	for	external	purposes	in	accordance	with	generally accepted	 accounting	 principles.	 A	 company's	 internal	 control	 over financial	reporting	includes	those	policies	and	procedures	that	(1)	pertain to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and fairly	 reflect	 the	 transactions	 and	 dispositions	 of	 the	 assets	 of	 the company;

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

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

In	 our	 opinion,	 the	 Company	 maintained,	 in	 all	 material	 respects, effective	 internal	 control	 over	 financial	 reporting	 as	 of	 December	 31, 2009,	based	on	the	criteria	established	in	Internal	Control	—	Integrated Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the Treadway	Commission.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public Company	Accounting	Oversight	Board	(United	States),	the	consolidated financial	statements	as	of	and	for	the	year	ended	December	31,	2009	of the	 Company	 and	 our	 report	 dated	 February	 25,	 2010	 expressed	 an unqualified	opinion	on	those	financial	statements.

# CONSOLIDATED	STATEMENT	OF	OPERATIONS

| In	millions,	except	per	share	amounts,	for	the	years	ended	December	31 | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| NET\tSALES | $23,366 | $24,829 | $21,890 |
| COSTS\tAND\tEXPENSES |  |  |  |
| Cost\tof\tproducts\tsold\t(Notes\t1\tand\t5) | \t 15,220 | \t 18,742 | \t 16,060 |
| Selling\tand\tadministrative\texpenses | 2,031 | 1,947 | 1,831 |
| Depreciation,\tamortization\tand\tcost\tof\ttimber\tharvested | 1,472 | 1,347 | 1,086 |
| Distribution\texpenses | 1,175 | 1,286 | 1,034 |
| Taxes\tother\tthan\tpayroll\tand\tincome\ttaxes | 188 | 182 | 169 |
| Restructuring\tand\tother\tcharges | 1,353 | 370 | 95 |
| Gain\ton\tsale\tof\tmineral\trights | – | (261) | – |
| Gain\ton\tsale\tof\tforestlands | – | (6) | (9) |
| Impairments\tof\tgoodwill | – | 1,777 | – |
| Net\tlosses\t(gains)\ton\tsales\tand\timpairments\tof\tbusinesses | 59 | 106 | (327) |
| Interest\texpense,\tnet | 669 | 492 | 297 |
| EARNINGS\t(LOSS)\tFROM\tCONTINUING\tOPERATIONS\tBEFORE\tINCOME\tTAXES\tAND\tEQUITY\tEARNINGS | 1,199 | (1,153) | 1,654 |
| Income\ttax\tprovision | 469 | 162 | 415 |
| Equity\tearnings\t(losses),\tnet\tof\ttaxes | (49) | 49 | – |
| EARNINGS\t(LOSS)\tFROM\tCONTINUING\tOPERATIONS | 681 | (1,266) | 1,239 |
| Discontinued\toperations,\tnet\tof\ttaxes | – | (13) | (47) |
| NET\tEARNINGS\t(LOSS) | $681 | $ (1,279) | $1,192 |
| Less:\tNet\tearnings\tattributable\tto\tnoncontrolling\tinterests | 18 | 3 | 24 |
| NET\tEARNINGS\t(LOSS)\tATTRIBUTABLE\tTO\tINTERNATIONAL\tPAPER\tCOMPANY | $663 | $ (1,282) | $1,168 |
| BASIC\tEARNINGS\t(LOSS)\tPER\tSHARE\tATTRIBUTABLE\tTO\tINTERNATIONAL\t PAPER\tCOMPANY\tCOMMON\tSHAREHOLDERS |  |  |  |
| Earnings\t(loss)\tfrom\tcontinuing\toperations | $1.56 | $(3.02) | $2.83 |
| Discontinued\toperations,\tnet\tof\ttaxes | – | (0.03) | (0.11) |
| Net\tearnings\t(loss) | $1.56 | $(3.05) | $2.72 |
| DILUTED\tEARNINGS\t(LOSS)\tPER\tSHARE\tATTRIBUTABLE\tTO\nINTERNATIONAL\tPAPER\tCOMPANY\tCOMMON\tSHAREHOLDERS |  |  |  |
| Earnings\t(loss)\tfrom\tcontinuing\toperations | $1.55 | $(3.02) | $2.81 |
| Discontinued\toperations,\tnet\tof\ttaxes | – | (0.03) | (0.11) |
| Net\tearnings\t(loss) | $1.55 | $(3.05) | $2.70 |
| AMOUNTS\tATTRIBUTABLE\tTO\tINTERNATIONAL\tPAPER\tCOMPANY\tCOMMON\tSHAREHOLDERS |  |  |  |
| Earnings\t(loss)\tfrom\tcontinuing\toperations | $663 | $ (1,269) | $1,215 |
| Discontinued\toperations,\tnet\tof\ttaxes | – | (13) | (47) |
| Net\tearnings\t(loss) | $663 | $ (1,282) | $1,168 |

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

# CONSOLIDATED	BALANCE	SHEET

| In	millions,	except	per	share	amounts,	at	December	31 | 2009 | 2008 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tAssets |  |  |
| Cash\tand\ttemporary\tinvestments | $1,892 | $1,144 |
| Accounts\tand\tnotes\treceivable,\tless\tallowances\tof\t$136\tin\t2009\tand\t$121\tin\t2008 | 2,695 | 3,288 |
| Inventories | 2,179 | 2,495 |
| Deferred\tincome\ttax\tassets | 368 | 261 |
| Other\tcurrent\tassets | 417 | 172 |
| Total\tCurrent\tAssets | 7,551 | 7,360 |
| Plants,\tProperties\tand\tEquipment,\tnet | \t 12,688 | \t 14,202 |
| Forestlands | 757 | 594 |
| Investments | 1,077 | 1,274 |
| Goodwill | 2,290 | 2,027 |
| Deferred\tCharges\tand\tOther\tAssets | 1,185 | 1,456 |
| Total\tAssets | $25,548 | $26,913 |
| LIABILITIES\tAND\tEQUITY |  |  |
| Current\tLiabilities |  |  |
| Notes\tpayable\tand\tcurrent\tmaturities\tof\tlong-term\tdebt | $304 | $828 |
| Accounts\tpayable | 2,058 | 2,119 |
| Accrued\tpayroll\tand\tbenefits | 473 | 445 |
| Other\taccrued\tliabilities | 1,177 | 1,363 |
| Total\tCurrent\tLiabilities | 4,012 | 4,755 |
| Long-Term\tDebt | 8,729 | \t 11,246 |
| Deferred\tIncome\tTaxes | 2,425 | 1,957 |
| Pension\tBenefit\tObligation | 2,765 | 3,260 |
| Postretirement\tand\tPostemployment\tBenefit\tObligation | 538 | 663 |
| Other\tLiabilities | 824 | 631 |
| Commitments\tand\tContingent\tLiabilities\t(Note\t11) |  |  |
| Equity |  |  |
|  | 437 | 434 |
| Paid-in\tcapital | 5,803 | 5,845 |
| Retained\tearnings | 1,949 | 1,430 |
| Accumulated\tother\tcomprehensive\tloss | (2,077) | (3,322) |
|  | 6,112 | 4,387 |
|  | 89 | 218 |
| Total\tShareholders'\tEquity | 6,023 | 4,169 |
| Noncontrolling\tinterests | 232 | 232 |
| Total\tEquity | 6,255 | 4,401 |
| Total\tLiabilities\tand\tEquity | $25,548 | $26,913 |

# CONSOLIDATED	STATEMENT	OF	CASH	FLOWS

| In	millions	for	the	years	ended	December	31 | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| OPERATING\tACTIVITIES |  |  |  |
| Net\tearnings\t(loss)\tattributable\tto\tInternational\tPaper\tCompany | $663 | $(1,282) | $ 1,168 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | 18 | 3 | 24 |
| Discontinued\toperations,\tnet\tof\ttaxes | – | 13 | 47 |
| Earnings\t(loss)\tfrom\tcontinuing\toperations | 681 | (1,266) | 1,239 |
| Depreciation,\tamortization,\tand\tcost\tof\ttimber\tharvested | 1,472 | 1,347 | 1,086 |
| Deferred\tincome\ttax\tprovision\t(benefit),\tnet | 160 | (81) | 232 |
| Restructuring\tand\tother\tcharges | 1,353 | 370 | 95 |
| Payments\trelated\tto\trestructuring\tand\tlegal\treserves | (38) | (87) | (78) |
| Periodic\tpension\texpense,\tnet | 213 | 123 | 210 |
| Net\tlosses\t(gains)\ton\tsales\tand\timpairments\tof\tbusinesses | 59 | 106 | (327) |
| Equity\t(earnings)\tlosses,\tnet | 49 | (49) | – |
| Gain\ton\tsale\tof\tforestlands | – | (3) | (9) |
| Impairments\tof\tgoodwill | – | 1,777 | – |
| Other,\tnet | 227 | 115 | 39 |
| Changes\tin\tcurrent\tassets\tand\tliabilities |  |  |  |
| Accounts\tand\tnotes\treceivable | 604 | 451 | (141) |
| Inventories | 316 | 48 | (82) |
| Accounts\tpayable\tand\taccrued\tliabilities | (321) | (317) | (212) |
| Interest\tpayable | (8) | (31) | 122 |
| Other | (112) | 166 | (226) |
| Cash\tprovided\tby\toperations\t–\tcontinuing\toperations | 4,655 | 2,669 | 1,948 |
| Cash\tused\tfor\toperations\t–\tdiscontinued\toperations | – | – | (61) |
| Cash\tProvided\tby\tOperations | 4,655 | 2,669 | 1,887 |
| INVESTMENT\tACTIVITIES |  |  |  |
| Invested\tin\tcapital\tprojects |  |  |  |
| Continuing\toperations | (534) | (1,002) | (1,288) |
| Businesses\tsold\tor\theld\tfor\tsale | – | – | (4) |
| Acquisitions,\tnet\tof\tcash\tacquired | (17) | (6,086) | (239) |
| Proceeds\tfrom\tdivestitures | – | 14 | 1,675 |
| Equity\tinvestment\tin\tIlim | – | (21) | (578) |
| Other | (42) | (102) | – |
| Cash\tused\tfor\tinvestment\tactivities\t–\tcontinuing\toperations | (593) | (7,197) | (434) |
| Cash\tused\tfor\tinvestment\tactivities\t–\tdiscontinued\toperations | – | – | (12) |
| Cash\tUsed\tfor\tInvestment\tActivities | (593) | (7,197) | (446) |
| FINANCING\tACTIVITIES |  |  |  |
| Repurchase\tof\tcommon\tstock\tand\tpayments\tof\trestricted\tstock\ttax\twithholding | (10) | (47) | (1,224) |
| Issuance\tof\tcommon\tstock | – | 1 | 128 |
| Issuance\tof\tdebt | 3,229 | 6,024 | 78 |
| Reduction\tof\tdebt | (6,318) | (696) | (875) |
| Change\tin\tbook\toverdrafts | 20 | (36) | 77 |
| Dividends\tpaid | (140) | (428) | (436) |
| Other | (157) | 41 | – |
| Cash\tprovided\tby\t(used\tfor)\tfinancing\tactivities\t–\tcontinuing\toperations | (3,376) | 4,859 | (2,252) |
| Effect\tof\tExchange\tRate\tChanges\ton\tCash | 62 | (92) | 92 |
| Change\tin\tCash\tand\tTemporary\tInvestments | 748 | 239 | (719) |
| Cash\tand\tTemporary\tInvestments |  |  |  |
| Beginning\tof\tthe\tperiod | 1,144 | 905 | 1,624 |
| End\tof\tthe\tperiod | $ 1,892 | $ 1,144 | $905 |

# CONSOLIDATED	STATEMENT	OF	CHANGES	IN	EQUITY

|  |  |  |  |  |  | Total |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Accumulated |  | International |  |  |
|  | Common |  |  | Other |  | Paper |  |  |
|  | Stock | Paid-in | Retained | Comprehensive | Treasury | Shareholders' | Noncontrolling | Total |
| In\tmillions | Issued | Capital | Earnings | Income\t(Loss) | Stock | Equity | Interest | Equity |
| BALANCE,\tJANUARY\t1,\t2007 | $493 | $6,735 | $3,737 | $(1,564) | $1,438 | $7,963 | $213 | $ 8,176 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | 1 | 20 | – | – | (181) | 202 | – | 202 |
| Repurchase\tof\tstock | – | – | – | – | 1,224 | (1,224) | – | (1,224) |
| Cash\tdividends\t–\tCommon\tStock | – | – | (436) | – | – | (436) | – | (436) |
| Dividends\tpaid\tto\tnoncontrolling\tinterests\tby\tsubsidiary | – | – | – | – | – | – | (10) | (10) |
| Repurchase\tof\tnoncontrolling\tinterests | – | – | – | – | – | – | (28) | (28) |
| Noncontrolling\tinterests\tof\tacquired\tentities | – | – | – | – | – | – | 25 | 25 |
| Comprehensive\tincome\t(loss): |  |  |  |  |  |  |  |  |
| Net\tearnings | – | – | 1,168 | – | – | 1,168 | 24 | 1,192 |
| Pension\tand\tpostretirement\tdivestitures, |  |  |  |  |  |  |  |  |
| amortization\tof\tprior\tservice\tcosts\tand\tnet |  |  |  |  |  |  |  |  |
| loss: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$72) | – | – | – | 98 | – | 98 | – | 98 |
| Pension\tand\tpostretirement\tliability\tadjustments: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$228) | – | – | – | 367 | – | 367 | – | 367 |
| Non-U.S.\tplans\t(less\ttax\tof\t$7) | – | – | – | 26 | – | 26 | – | 26 |
| Change\tin\tcumulative\tforeign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment | – | – | – | 591 | – | 591 | 4 | 595 |
| Net\tgains\ton\tcash\tflow\thedging\tderivatives: |  |  |  |  |  |  |  |  |
| Net\tgain\tarising\tduring\tthe\tperiod\t(less\ttax\tof |  |  |  |  |  |  |  |  |
| $5) | – | – | – | 33 | – | 33 | – | 33 |
| Less:\tReclassification\tadjustment\tfor\tgains |  |  |  |  |  |  |  |  |
| included\tin\tnet\tearnings\t(less\ttax\tof\t$3) | – | – | – | (22) | – | (22) | – | (22) |
| Total\tcomprehensive\tincome |  |  |  |  |  |  |  | 2,289 |
| Adoption\tof\tFIN\t48\t(Note\t2) | – | – | (94) | – | – | (94) | – | (94) |
| BALANCE,\tDECEMBER\t31,\t2007 | 494 | \t 6,755 | 4,375 | (471) | 2,481 | 8,672 | 228 | 8,900 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | – | (34) | – | – | (143) | 109 | – | 109 |
| Repurchase\tof\tstock | – | – | – | – | 47 | (47) | – | (47) |
| Retirement\tof\ttreasury\tstock | (60) | (876) | (1,231) | – | (2,167) | – | – | – |
| Cash\tdividends\t–\tCommon\tStock | – | – | (432) | – | – | (432) | – | (432) |
| Dividends\tpaid\tto\tnoncontrolling\tinterests\tby\tsubsidiary | – | – | – | – | – | – | (10) | (10) |
| Noncontrolling\tinterests\tof\tacquired\tentities | – | – | – | – | – | – | 9 | 9 |
| Comprehensive\tincome\t(loss): |  |  |  |  |  |  |  |  |
| Net\tearnings\t(loss) | – | – | (1,282) | – | – | (1,282) | 3 | (1,279) |
| Amortization\tof\tpension\tand\tpostretirement\tprior |  |  |  |  |  |  |  |  |
| service\tcosts\tand\tnet\tloss: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$58) | – | – | – | 82 | – | 82 | – | 82 |
| Pension\tand\tpostretirement\tliability\tadjustments: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$1,128) | – | – | – | (1,857) | – | (1,857) | – | (1,857) |
| Non-U.S.\tplans\t(less\ttax\tof\t$1) | – | – | – | (26) | – | (26) | – | (26) |
| Change\tin\tcumulative\tforeign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment | – | – | – | (889) | – | (889) | 2 | (887) |
| Net\tlosses\ton\tcash\tflow\thedging\tderivatives: |  |  |  |  |  |  |  |  |
| Net\tlosses\tarising\tduring\tthe\tperiod\t(less\ttax |  |  |  |  |  |  |  |  |
| of\t$61) | – | – | – | (106) | – | (106) | – | (106) |
| Less:\tReclassification\tadjustment\tfor\tgains |  |  |  |  |  |  |  |  |
| included\tin\tnet\tearnings\t(less\ttax\tof |  |  |  |  |  |  |  |  |
| $16) | – | – | – | (55) | – | (55) | – | (55) |
| Total\tcomprehensive\tincome |  |  |  |  |  |  |  | (4,128) |

# CONSOLIDATED	STATEMENT	OF	CHANGES	IN	EQUITY—(Continued)

|  |  |  |  |  |  | Total |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Accumulated |  | International |  |  |
|  | Common |  |  | Other |  | Paper |  |  |
|  | Stock | Paid-in | Retained | Comprehensive | Treasury | Shareholders' | Noncontrolling | Total |
| In\tmillions | Issued | Capital | Earnings | Income\t(Loss) | Stock | Equity | Interest | Equity |
| BALANCE,\tDECEMBER\t31,\t2008 | 434 | \t 5,845 | 1,430 | (3,322) | 218 | 4,169 | 232 | \t 4,401 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | 3 | (42) | – | – | (139) | 100 | – | 100 |
| Repurchase\tof\tstock | – | – | – | – | 10 | (10) | – | (10) |
| Cash\tdividends\t–\tCommon\tStock | – | – | (144) | – | – | (144) | – | (144) |
| Dividends\tpaid\tto\tnoncontrolling\tinterests\tby\tsubsidiary | – | – | – | – | – | – | (17) | (17) |
| Noncontrolling\tinterests\tof\tacquired\tentities | – | – | – | – | – | – | (1) | (1) |
| Comprehensive\tincome\t(loss): |  |  |  |  |  |  |  |  |
| Net\tearnings\t(loss) | – | – | 663 | – | – | 663 | 18 | 681 |
| Amortization\tof\tpension\tand\tpostretirement\tprior |  |  |  |  |  |  |  |  |
| service\tcosts\tand\tnet\tloss: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$75) | – | – | – | 109 | – | 109 | – | 109 |
| Pension\tand\tpostretirement\tliability\tadjustments: |  |  |  |  |  |  |  |  |
| U.S.\tplans\t(less\ttax\tof\t$259) | – | – | – | 351 | – | 351 | – | 351 |
| Non-U.S.\tplans\t(less\ttax\tof\t$3) | – | – | – | 19 | – | 19 | – | 19 |
| Change\tin\tcumulative\tforeign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment | – | – | – | 672 | – | 672 | – | 672 |
| Net\tgains\ton\tcash\tflow\thedging\tderivatives: |  |  |  |  |  |  |  |  |
| Net\tgains\tarising\tduring\tthe\tperiod\t(less\ttax\tof |  |  |  |  |  |  |  |  |
| $17) | – | – | – | 40 | – | 40 | – | 40 |
| Plus:\tReclassification\tadjustment\tfor\tlosses |  |  |  |  |  |  |  |  |
| included\tin\tnet\tearnings\t(less\ttax\tof\t$41) | – | – | – | 54 | – | 54 | – | 54 |
| Total\tcomprehensive\tincome |  |  |  |  |  |  |  | \t 1,926 |
| BALANCE,\tDECEMBER\t31,\t2009 | $437 | $5,803 | $1,949 | $(2,077) | $89 | $6,023 | $232 | $6,255 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# NOTE	1	SUMMARY	OF	BUSINESS	AND	SIGNIFICANT	ACCOUNTING POLICIES

# NATURE	OF	OUR	BUSINESS

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

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

# CONSOLIDATION

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

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

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

# REVENUE	RECOGNITION

Revenue	is	recognized	when	the	customer	takes	title	and	assumes	the risks	 and	 rewards	 of	 ownership.	 Revenue	 is	 recorded	 at	 the	 time	 of shipment	for	terms	designated	f.o.b.	(free	on	board)	shipping	point.	For sales	transactions	designated	f.o.b.

destination,	 revenue	 is	 recorded	 when	 the	 product	 is	 delivered	 to	 the customer's	 delivery	 site,	 when	 title	 and	 risk	 of	 loss	 are	 transferred. Timber	and	timberland	sales	revenue	is	generally	recognized	when	title and	risk	of	loss	pass	to	the	buyer.

# ALTERNATIVE	FUEL	MIXTURE	CREDITS	–	COST	OF	PRODUCTS	SOLD

The	U.S.	Internal	Revenue	Code	provides	a	tax	credit	for	companies	that use	 alternative	 fuel	 mixtures	 to	 produce	 energy	 to	 operate	 their businesses.	As	these	credits	represent	a	reduction	of	energy	costs	at	the Company's	U.S.	manufacturing	 facilities,	 the	credits	are	 included	as	a reduction	 of	 Cost	 of	 products	 sold	 in	 the	 accompanying	 consolidated statement	of	operations.	See	Alternative	Fuel	Mixture	Credits	in	Note	5 for	a	further	discussion	of	these	credits.

# SHIPPING	AND	HANDLING	COSTS

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

# ANNUAL	MAINTENANCE	COSTS

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

# TEMPORARY	INVESTMENTS

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

# INVENTORIES

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

# PLANTS,	PROPERTIES	AND	EQUIPMENT

Plants,	properties	and	equipment	are	stated	at	cost, less	accumulated depreciation.	Expenditures	for

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

At	December	31,	2009,	International	Paper	and	its	subsidiaries	owned	or managed	 about 200,000 acres	 of	 forestlands	 in	 the	 United	 States, approximately	250,000	acres	in	Brazil,	and	through	licenses	and	forest management	agreements,	had	harvesting	rights	on	government-owned forestlands	 in	Russia.	Costs	attributable	 to	 timber	are	charged	against income	as	trees	are	cut.	The	rate	charged	is	determined	annually	based on	the	relationship	of	incurred	costs	to	estimated	current	merchantable volume.

# GOODWILL

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

In	performing	 this	 testing,	 the	Company	estimates	 the	 fair	value	of	 its reporting	units	using	the	projected	future	cash	flows	to	be	generated	by each	unit	over	the	estimated	remaining	useful	operating	lives	of	the	unit's assets,	discounted	using	the	estimated	cost	of	capital	for	each	reporting unit.	These	estimated	fair	values	are	then	analyzed	for	reasonableness by	comparing	them	to	historic	market	transactions	for	businesses	in	the industry,	and	by	comparing	the	sum	of	the	reporting	unit	fair	values	and other	corporate	assets	and	liabilities	divided	by	diluted	common	shares outstanding	to	the	Company's	traded	stock	price	on	the	testing	date.	For reporting	units	whose	recorded	value	of	net	assets	plus	goodwill	 is	 in excess	 of	 their	 estimated	 fair	 values,	 the	 fair	 values	 of	 the	 individual assets	and	liabilities	of	the	respective	reporting	units	are	then	determined to	calculate	the	amount	of	any	goodwill	impairment	charge	required	(see Note	9).

# IMPAIRMENT	OF	LONG-LIVED	ASSETS

Long-lived	assets	are	reviewed	for	impairment	upon	the	occurrence	of events	or	changes	in	circumstances	that	indicate	that	the	carrying	value of	the	assets	may	not	be	recoverable,	measured	by	comparing	their	net book	value	to	the	undiscounted	projected	future	cash	flows	generated	by their	use.	Impaired	assets	are	recorded	at	their	estimated	fair	value	(see Note	7).

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

International	 Paper	 records	 its	 worldwide	 tax	 provision	 based	 on	 the respective	 tax	 rules	 and	 regulations	 for	 the	 jurisdictions	 in	 which	 it operates.	Where	the	Company	believes	that	a	tax	position	is	supportable for	income	tax	purposes,	the	item	is	included	in	its	income	tax	returns. Where	treatment	of	a	position	is	uncertain,	liabilities	are	recorded	based upon	 the	 Company's	 evaluation	 of	 the	 "more	 likely	 than	 not"	 outcome considering	 the	 technical	 merits	 of	 the	 position	 based	 on	 specific	 tax regulations	and	the	facts	of	each	matter.	Changes	to	recorded	liabilities are	made	only	when	an	identifiable	event	occurs	that	changes	the	likely outcome,	 such	 as	 settlement	 with	 the	 relevant	 tax	 authority,	 the expiration	of	statutes	of	limitation	for	the	subject	tax	year,	a	change	in	tax laws,	or	a	recent	court	case	that	addresses	the	matter.

While	the	judgments	and	estimates	made	by	the	Company	are	based	on management's	evaluation	of	the	technical	merits	of	a	matter,	assisted	as necessary	by	consultation	with	outside	consultants,	historical	experience and	other	assumptions	that	management	believes	are	appropriate	and reasonable	 under	 current	 circumstances,	 actual	 resolution	 of	 these matters	may	differ	from	recorded	estimated	amounts,	resulting	in	charges or	credits	that	could	materially	affect	future	financial	statements.

# STOCK-BASED	COMPENSATION

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

# ENVIRONMENTAL	REMEDIATION	COSTS

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

# ASSET	RETIREMENT	OBLIGATIONS

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

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

# TRANSLATION	OF	FINANCIAL	STATEMENTS

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

# NOTE	2	RECENT	ACCOUNTING	DEVELOPMENTS

# ACCOUNTING	FOR	DECREASES	IN	OWNERSHIP	OF	A	SUBSIDIARY

In	 January	 2010,	 the	 Financial	 Accounting	 Standards	 Board	 (FASB) issued	Accounting	Standards	Update	(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	Accounting	Standards	Codification	(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 January	1,	2009.	The	application	of	 the	requirements	of	 this	guidance had	no	effect	on	accompanying	consolidated	financial	statements.

# ACCOUNTING	FOR	DISTRIBUTIONS	TO	SHAREHOLDERS

In	 January	 2010,	 the	 FASB	 issued	 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 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.

# REVENUE	ARRANGEMENTS	WITH	MULTIPLE	DELIVERABLES

In	September	2009,	the	FASB	issued	ASU	2009-13,	"Multiple-Deliverable Revenue	Arrangements,"

which	amends	 the	multiple-element	 arrangement	 guidance	 under	ASC 605, "Revenue	 Recognition."	 This	 guidance	 amends	 the	 criteria	 for separating	consideration	for	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.

# VARIABLE	INTEREST	ENTITIES

In	 June	 2009,	 the	 FASB	 issued	 ASU	 2009-17,	 "Improvements	 to Financial	 Reporting	 by	 Enterprises	 Involved	 with	 Variable	 Interest Entities,"	 which	 amends	 the	 consolidation	 guidance	 that	 applies	 to variable	interest	entities	under	ASC	810,	"Consolidation."	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	 application	 of	 the	 requirements	 of	 this guidance	 will	 not	 have	 a	 material	 effect	 on	 the	 consolidated	 financial statements.

# TRANSFERS	OF	FINANCIAL	ASSETS

In	June	2009,	the	FASB	issued	ASU	2009-16,	"Accounting	for	Transfers of	Financial	Assets,"	which	amends	the	derecognition	guidance	in	ASC 860,	"Transfers	and	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	application	of	the	requirements	of	this guidance	 will	 not	 have	 a	 material	 effect	 on	 the	 consolidated	 financial statements.

# SUBSEQUENT	EVENTS

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

# OTHER-THAN-TEMPORARY	IMPAIRMENT	FOR	DEBT	SECURITIES

In	 April	 2009,	 the	 FASB	 issued	 new	 guidance	 under	 ASC 320, "Investments–Debt	and	Equity	Securities,"	which	provides	a	new	other- than-temporary	impairment	model	for	debt	securities.	This	guidance	was effective	 for	 financial	 statements	 issued	 in	 fiscal	 years	 (and	 interim periods)	ending	after	June	15,	2009.	The	application	of	the	requirements of	 this	 guidance	 did	 not	 have	 a	 material	 effect	 on	 the	 accompanying consolidated	financial	statements.

# ASSET	TRANSFERS,	VARIABLE	INTEREST	ENTITIES	AND	QUALIFYING	SPECIAL PURPOSE	ENTITIES

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

# INTANGIBLE	ASSETS

In	 April	 2008,	 the	 FASB	 issued	 new	 guidance	 under	 ASC 350, "Intangibles–Goodwill	and	Other,"	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.

# DERIVATIVE	INSTRUMENTS	AND	HEDGING	ACTIVITIES

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

# BUSINESS	COMBINATIONS

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

# FAIR	VALUE	OPTION	FOR	FINANCIAL	ASSETS	AND	FINANCIAL	LIABILITIES

In	February	2007,	the	FASB	issued	guidance	under	ASC	825,	"Financial Instruments,"	which	permits	an	entity	to	measure	certain	financial	assets and	financial	liabilities	at	fair	value,	which	would	result	in	the	reporting	of unrealized	gains	and	 losses	 in	earnings	at	each	subsequent	reporting date.	 The	 fair	 value	 option	 may	 be	 elected	 on	 an	 instrument-by- instrument	 basis,	 with	 few	 exceptions,	 as	 long	 as	 it	 is	 applied	 to	 the instrument	 in	 its	 entirety.	 The	 guidance	 establishes	 presentation	 and disclosure	requirements	to	help	financial	statement	users	understand	the effect	of	an	entity's	election	on	its	earnings,	but	does	not	eliminate	the disclosure	requirements	of	other	accounting	guidance.	This	guidance	was effective	January	1,

2008.	The	Company	elected	not	to	apply	the	fair	value	option	to	any	of	its financial	assets	or	liabilities.

# EMPLOYERS'	ACCOUNTING	FOR	DEFINED	BENEFIT	PENSION	AND	OTHER POSTRETIREMENT	PLANS

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

# FAIR	VALUE	MEASUREMENTS

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

In	February	2008,	the	FASB	issued	new	guidance	under	ASC	820	which delayed	the	effective	date	for	fair	value	measurement	and	disclosure	for all	 nonrecurring	 fair	 value	 measurements	 of	 nonfinancial	 assets	 and liabilities	until	fiscal	years	beginning	after	November	15,	2008	(calendar year	 2009).	 The	 Company	 partially	 adopted	 the	 provisions	 of	 this guidance	 with	 respect	 to	 its	 financial	 assets	 and	 liabilities	 that	 are measured	 at	 fair	 value	 effective	 January	 1,	 2008	 (see	 Note	 14).	 The Company	 included	 the	 remaining	 provisions	 of	 this	 guidance	 in	 the preparation	of	the	accompanying	consolidated	financial	statements.

# ACCOUNTING	FOR	UNCERTAINTY	IN	INCOME	TAXES

In	 June	 2006,	 the	 FASB	 issued	 guidance	 under	 ASC	 740,	 "Income Taxes"	 (formerly	 FIN 48). This	 guidance	 prescribes	 a	 recognition threshold	 and	 measurement	 attribute	 for	 the	 financial	 statement recognition	and	measurement	of	a	tax	position	taken	or	expected	to	be taken	in	tax	returns.	Specifically,	the	financial	statement	effects	of	a	tax position	may	be	recognized	only	when	it	is	determined	that	it	is	"more likely	than	not"	that,	based	on	its	technical	merits,	the	tax	position	will	be sustained	upon	examination	by	 the	relevant	 tax	authority.	The	amount recognized	shall	be	measured	as	the	largest	amount	of	tax	benefits	that exceed	 a 50% probability	 of	 being	 recognized.	 This	 guidance	 also expands	income	tax	disclosure	requirements.	International	Paper	applied the	provisions	of	this	guidance	beginning	in	the	first	quarter	of	2007.	The adoption	of	this	guidance	resulted	in	a	charge	to	the	beginning	balance	of retained	earnings	of	$94	million	at	the	date	of	adoption.

# NOTE	3	INDUSTRY	SEGMENT	INFORMATION

Financial	information	by	industry	segment	and	geographic	area	for	2009, 2008	and	2007	is	presented	on	pages	47	and	48.	Effective	January	1, 2008,	the	Company	changed	its	method	of	allocating	corporate	overhead expenses	 to	 its	 business	 segments	 to	 increase	 the	 expense	 amounts allocated	to	these	businesses	in	reports	reviewed	by	its	chief	executive officer	 to	 facilitate	 performance	 comparisons	 with	 other	 companies. Accordingly,	 the	 Company	 has	 revised	 its	 presentation	 of	 industry segment	operating	profit	to	reflect	this	change	in	allocation	method,	and has	adjusted	all	comparative	prior	period	information	on	this	basis.

# 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	 year.	 In	 addition,	 the	 computation	 of	 diluted	 earnings	 per	 share reflects	 the	 inclusion	 of	 contingently	 convertible	 securities	 in	 periods when	dilutive.

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

| In	millions	except	per	share	amounts | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Earnings\t(loss)\tfrom\tcontinuing\toperations | $663 | $(1,269) | $1,215 |
| Effect\tof\tdilutive\tsecurities\t(a) | – | – | – |
| Earnings\t(loss)\tfrom\tcontinuing\noperations\t–\t\tassuming\tdilution | $663 | $(1,269) | $1,215 |
| Average\tcommon\tshares\toutstanding | \t 425.3 | 421.0 | \t 428.9 |
| Effect\tof\tdilutive\tsecurities\nRestricted\tperformance\tshare\tplan\t(a) | 2.7 | – | 3.7 |
| Stock\toptions\t(b) | – | – | 0.4 |
| Average\tcommon\tshares\toutstanding\t–\n\t\tassuming\tdilution | \t 428.0 | 421.0 | \t 433.0 |
| Basic\tearnings\t(loss)\tper\tcommon\tshare\nfrom\tcontinuing\toperations | $1.56 | $(3.02) | $2.83 |
| Diluted\tearnings\t(loss)\tper\tcommon\tshare\nfrom\tcontinuing\toperations | $1.55 | $(3.02) | $2.81 |

(a)Securities	are	not	included	in	the	table	in	periods	when	antidilutive.

(b)Options	to	purchase	22.2	million,	25.1	million	and	17.5	million	shares	for	the	years	ended December	31,	2009,	2008	and	2007,	respectively,	were	not	included	in	the	computation	of diluted	 common	 shares	 outstanding	 because	 their	 exercise	 price	 exceeded	 the	 average market	price	of	the	Company's	common	stock	for	each	respective	reporting	date.

# NOTE	5	RESTRUCTURING	AND	OTHER	CHARGES

This	 footnote	 discusses	 restructuring	 and	 other	 charges	 recorded	 for each	of	the	three	years	included	in	the	period	ended	December	31,	2009. It

includes	a	summary	of	activity	 for	each	year,	a	rollforward	associated with	 severance	 and	 other	 cash	 costs	 arising	 in	 each	 year,	 and	 tables presenting	 details	 of	 the	 2009,	 2008	 and	 2007	 organizational restructuring	programs.

•	a	$185	million	charge	before	taxes	($113	million	after	taxes)	for	costs related	to	the	early	extinguishment	of	debt	(see	Notes	13	and	14),

•	a	 $469	 million	 charge	 before	 taxes	 ($286	 million	 after	 taxes)	 for closure	 costs	 related	 to	 the	 Company's	 containerboard	 mill	 in Albany,	Oregon,

•	a	 $290	 million	 charge	 before	 taxes	 ($177	 million	 after	 taxes)	 for closure	costs	related	to	the	paper	mill	and	associated	operations	in Franklin,	Virginia	(additional	charges	of	approximately	$320	million before	taxes	will	be	incurred	prior	to	final	closure),

•	a	 $102	 million	 charge	 before	 taxes	 ($62	 million	 after	 taxes)	 for closure	 costs	 related	 to	 the	 Company's	 containerboard	 mill	 in Pineville,	Louisiana,

•	an	$82	million	charge	before	taxes	($50	million	after	taxes)	for	costs related	 to	 the	 permanent	 shut	 down	 of	 a	 paper	 machine	 at	 the Company's	Valliant,	Oklahoma	containerboard	mill,

The	following	table	presents	a	detail	of	the	$1.4	billion	restructuring	and other	charges	by	business:

|  |  | First | Second | Third |  | Fourth |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| In\tmillions | In\tmillions | Quarter | Quarter | Quarter |  | Quarter | Total |
| Industrial\tPackaing | Industrial\tPackaing | $– | $\t15^(a) | $\t7(a) |  | $\t662^(a,b) | $684 |
| Printing |  |  |  |  |  |  |  |
| Papers | Papers | 29^(c,d) | 4(d) | 1(d | ) | 223^(e) | 257 |
| Consumer | Packaging | 2(f) | 1(f) | 2(f) |  | 69^(f,g) | 74 |
| Distribution | Distribution | – | – | – |  | 5 | 5 |
| Corporate | Corporate | 52 | 59 | 141 |  | 81 | 333 |
| Total |  | $83 | $79 | $151 |  | $1,040 | $1,353 |

(a)Includes	$19	million	of	severance	charges	and	$12	million	of	other	charges	related	to	the shutdown	of	the	Etienne	mill	in	France.

(b)Includes	$82	million	of	accelerated	depreciation	and	other	noncash	charges,	$9	million	of severance	charges,	$10	million	of	environmental	charges	and	$1	million	of	other	charges related	 to	 the	 shutdown	 of	 the	 Pineville,	 Louisiana	 mill; $438	 million of	 accelerated depreciation	 and	 other	 noncash	 charges,	 $21	 million	 of	 severance	 charges	 and	 benefit costs,	$9	million	of	environmental	charges	and	$1	million	of	other	charges	related	to	the shutdown	of	the	Albany,	Oregon	mill;	and	$81	million	of	accelerated	depreciation	and	other noncash	 charges	 and	 $1	 million	 of	 other	 charges	 related	 to	 the	 shutdown	 of	 a	 paper machine	at	the	Valliant,	Oklahoma	mill.

(c) Includes	$17	million	of	severance	charges	and	$6	million	of	other	charges	related	to	the shutdown	of	the	Inverurie	mill	in	Scotland.

(d)Includes	 $5	 million	 of	 severance	 charges	 and	 $3	 million	 of	 other	 charges	 related	 to	 the shutdown	 of	 the	 Franklin,	 Virginia	 lumber	 mill,	 sheet	 converting	 plant	 and	 converting innovations	 center	 and	 $3	 million	 of	 charges	 related	 to	 the	 shutdown	 of	 the	 Bastrop, Louisiana	mill.

(e)Includes	$199	million	of	accelerated	depreciation	and	other	noncash	charges,	$23	million	of severance	charges	and	$1	million	of	other	charges	related	to	the	shutdown	of	the	Franklin, Virginia	mill.

(f) Includes	$2	million	of	accelerated	depreciation	charges,	$2	million	of	severance	charges	and $3	 million	 of	 other	 charges	 related	 to	 the	 reorganization	 of	 the	 Company's	 Shorewood operations.

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

Included in the	 $1.4	 billion	 of	 organizational restructuring	 and	 other charges	is	$166	million	of	severance	charges	and	$85	million	of	related benefits.

The following table	 presents	 a	 rollforward	 of the	 severance	 and	 other costs for approximately 3,175 employees included in the 2009 restructuring	charges:

As	of	December	31,	2009	1,833	employees	had	left	the	Company	under these	programs.

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

•	a	$123	million	charge	before	taxes	($75	million	after	taxes)	related	to the	shutdown	of	the	Company's	Bastrop,	Louisiana	mill,

•	a	$30	million	charge	before	taxes	($18	million	after	taxes)	related	to the shutdown of a paper	 machine at the	 Company's Franklin, Virginia	mill,

•	a	$53	million	charge	before	taxes	($32	million	after	taxes)	related	to a	2008	initiative	to	reduce	its	overhead	cost	structure	and	reduce	its global salaried workforce by approximately 1,000 to 1,500 employees	by	the	end	of	2009,

•	a	$53	million	charge	before	taxes	($33	million	after	taxes)	to	write-off all supply chain initiative development costs for	 U.S. container operations	that	will	not	be	implemented	due	to	the	CBPR	acquisition,

•	a $75	 million charge before taxes ($47	 million after taxes) for adjustments	of	legal	reserves	(see	Note	11),

•	a	$30	million	charge	before	taxes	($19	million	after	taxes)	related	to the restructuring of the Company's Shorewood operations in Canada,

•	a	pre-tax	charge	of	$8	million	($5	million	after	taxes)	for	closure	costs associated	with	the	Ace	Packaging	business,	and

•	a	 $2	 million	 credit	 before taxes ($2	 million	 credit	 after taxes) for organizational	restructuring	programs,	principally	associated	with	the Company's	2006	Transformation	Plan.

The	following	table	presents	a	detail	of	the	$370	million	restructuring	and other	charges	by	business:

|  | First | Second | Third | Fourth |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| In\tmillions | Quarter | Quarter | Quarter | Quarter | Total |
| Printing\tPapers | $– | $– | $– | $\t153^(a) | $153 |
| Industrial\tPackaging | – | – | – | 8(b) | 8 |
| Consumer\tPackaging | 5(c) | 13^(c) | 8(c) | 4(c) | 30 |
| Corporate | 37 | – | 89 | 53 | \t 179 |
| Total | $42 | $13 | $97 | $218 | $370 |

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

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

(c) Includes	$22	million	of	severance	charges,	$7	million	of	accelerated	depreciation	charges and	$1	million	of	other	charges	related	to	the	reorganization	of	the	Company's	Shorewood operations.

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

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

|  | Severance |
| :--- | :--- |
| In\tmillions | and\tOther |
| Opening\tbalance\t(recorded\tfirst\tquarter\t2008) | $7 |
| Additions\t(second\tquarter\t2008) | 11 |
| Additions\t(third\tquarter\t2008) | 5 |
| Additions\t(fourth\tquarter\t2008)\n2008\tactivity | 97 |
| Cash\tcharges | (24) |
| 2009\tactivity |  |
| Cash\tcharges | (96) |
| Balance,\tDecember\t31,\t2009 | $– |

•	a	$27	million	charge	before	 taxes	($17	million	after	 taxes)	 for	 the accelerated	 depreciation	 of	 long-lived	 assets	 being	 removed	 from service,

•	a $33	 million charge	 before	 taxes ($21	 million after	 taxes)	 for accelerated	depreciation	charges	for	the	Terre	Haute	mill	which	was shut	down	as	part	of	the	Company's	2006	Transformation	Plan,

•	a	$4	million	charge	before	taxes	($2	million	after	taxes)	related	to	the restructuring	of	the	Company's	Brazil	operations,	and

The	following	table	presents	a	detail	of	the	$95	million	of	restructuring and	other	charges	by	business:

|  | First | Second | Third | Fourth |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| In\tmillions | Quarter | Quarter | Quarter | Quarter | Total |
| Printing\tPapers | $\t14^(a) | $\t12^(a) | $4 | $\t11^(a) | $41 |
| Industrial |  |  |  |  |  |
| Packaging | – | 12^(b) | 37^(b) | 7 | 56 |
| Forest |  |  |  |  |  |
| Products | – | – | 1 | 1 | 2 |
| Corporate | 4 | 2 | – | (10) | (4) |
| Total | $18 | $26 | $42 | $9 | $95 |

(a)Includes	$12	million,	$11	million	and	$4	million	in	the	2007	first,	second	and	fourth	quarters, respectively,	of	accelerated	depreciation	charges	related	to	equipment	being	removed	from service.

(b)Includes	$6	million	in	the	2007	second	quarter	and	$27	million	in	the	2007	third	quarter	of accelerated	depreciation	charges	related	to	the	closure	of	the	Terre	Haute,	Indiana	mill,	and $10	million	in	the	third	quarter	for	Terre	Haute	environmental	expenses.

Included	 in	 the	 $30	 million	 of	 organizational	 restructuring	 and	 other charges	is	$18	million	of	severance	charges	for	449	employees	related	to the

Company's	2006	Transformation	Plan.	As	of	December	31,	2008,	all	449 employees	had	been	terminated.

The	following	table	presents	a	roll	forward	of	the	severance	and	other costs	included	in	the	2007	restructuring	plans:

|  | Severance |
| :--- | :--- |
| In\tmillions | and\tOther |
| Opening\tbalance\t(recorded\tfirst\tquarter\t2007) | $6 |
| Additions\t(second\tquarter\t2007) | 9 |
| Additions\t(third\tquarter\t2007) | 4 |
| Additions\t(fourth\tquarter\t2007) | 11 |
| 2007\tactivity |  |
| Cash\tcharges\n2008\tactivity | (23) |
| Cash\tcharges | (7) |
| Balance,\tDecember\t31,\t2008 | $– |

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

# NOTE	6	ACQUISITIONS,	EXCHANGES	AND	JOINT	VENTURES

2008:	On	August	4,	2008,	International	Paper	completed	the	acquisition	of the	assets	of	Weyerhaeuser

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

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

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

|  |  | Average |
| :--- | :--- | :--- |
|  | Estimated | Remaining |
| In\tmillions | Fair\tValue | Useful\tLife |
|  |  | (at\tacquisition |
| Asset\tClass: |  | date\n) |
| Tradenames | $8 | 4\t-\t12\tyears |
| Patented\ttechnology | 15 | 4\t-\t12\tyears |
| Proprietary\tsoftware | 16 | 4\t-\t5\tyears |
| Power\tagreements | 20 | 1\t-\t7\tyears |
| Water\trights | 6 | Indefinite |
| Total | $65 |  |

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

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

2007:	On	August	24,	2007,	International	Paper	completed	the	acquisition of	Central	Lewmar	LLC,	a	privately	held	paper	and	packaging	distributor in	 the	United	States,	 for	$189	million.	 International	Paper's	distribution business,	xpedx,	now	operates	Central	Lewmar	as	a	business	within	its multiple	brand	strategy.	Central	Lewmar's	financial	position	and	results	of operations	 have	 been	 included	 in	 International	 Paper's	 consolidated financial	statements	since	its	acquisition.

During	the	first	quarter	of	2008,	the	Company	finalized	the	allocation	of the	purchase	price	to	the	fair	value	of	the	assets	and	liabilities	acquired as	follows:

| In	millions |  |
| :--- | :--- |
| Accounts\treceivable,\tnet | $116 |
| Inventory | 31 |
| Other\tcurrent\tassets | 7 |
| Plants,\tproperties\tand\tequipment,\tnet | 2 |
| Goodwill | 81 |
| Deferred\ttax\tasset | 2 |
| Other\tintangible\tassets | 33 |
| Total\tassets\tacquired | \t 272 |
| Other\tcurrent\tliabilities | 79 |
| Other\tliabilities | 4 |
| Total\tliabilities\tassumed | 83 |
| Net\tassets\tacquired | $189 |

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

|  | Estimated | Remaining |
| :--- | :--- | :--- |
| In\tmillions | Fair\tValue | Useful\tLife |
| Asset\tClass: |  | (at\tacquisition\ndate\n) |
| Customer\tlists | $18 | 13\tyears |
| Non-compete\tcovenants | 7 | 5\tyears |
| Tradenames | 8 | 15\tyears |
| Total | $33 |  |

On	July	31,	2007,	International	Paper	purchased	the	remaining	shares	of Compagnie	Marocaine	des	Cartons	et	des	Papiers	(CMCP)	in	Morocco for	 approximately	 $40	 million.	 In	 October	 2005,	 the	 Company	 had acquired	approximately	65%	of	CMCP

for	approximately	$80	million	in	cash	plus	assumed	debt	of	approximately $40	million.	The	Moroccan	packaging	company	is	now	wholly	owned	by International	Paper	and	managed	as	part	of	 the	Company's	European Container	business.

The	identifiable	intangible	assets	acquired	in	connection	with	both	of	the CMCP	acquisitions	included	the	following:

|  | Estimated | Remaining |
| :--- | :--- | :--- |
| In\tmillions | Fair\tValue | Useful\tLife |
|  |  | (at\tacquisition |
| Asset\tClass: |  | date\n) |
| Trademarks\tand\ttradenames | $2 | 3\tyears |
| Customer\tlists | 22 | 23\tyears |
| Total | $24 |  |

On	February	1,	2007,	the	Company	completed	the	non-cash	exchange	of certain	pulp	and	paper	assets	in	Brazil	with	Votorantim	Celulose	e	Papel S.A.	(VCP)	that	had	been	announced	in	the	fourth	quarter	of	2006.	The Company	 exchanged	 its	 in-progress	 pulp	 mill	 project	 and	 certain forestland	 operations,	 including	 approximately 100,000 hectares	 of surrounding	forestlands	in	Tres	Lagoas,	Brazil,	for	VCP's	Luiz	Antonio uncoated	 paper	 and	 pulp	 mill	 and	 approximately	 55,000	 hectares	 of forestlands	in	the	state	of	Sao	Paulo,	Brazil.	The	exchange	improved	the Company's	 competitive	 position	 by	 adding	 a	 globally	 cost-competitive paper	 mill,	 thereby	 expanding	 the	 Company's	 uncoated	 freesheet capacity	in	Latin	America	and	providing	additional	growth	opportunities	in the	region.	The	exchange	was	accounted	for	based	on	the	fair	value	of assets	exchanged,	resulting	in	the	recognition	in	2007	of	a	pre-tax	gain

of	 $205	 million ($159	 million	 after taxes) representing the	 difference between the fair	value	and	book	value	of the	assets	exchanged.	This gain is included in	 Net losses (gains)	 on	 sales	 and impairments	 of businesses	in	the	accompanying	consolidated	statement	of	operations. The following table	 summarizes the	 allocation	 of the fair	 value	 of the assets	exchanged	to	the	assets	and	liabilities	acquired.

Identifiable	intangible	assets	included	the	following:

|  | Estimated | Average |
| :--- | :--- | :--- |
|  | Fair | Remaining |
| In\tmillions | Value | Useful\tLife |
|  |  | (at\tacquisition |
| Asset\tClass: |  | date\n) |
| Non-competition\tagreement | $10 | 2\tyears |
| Customer\tlists | 144 | 10\t–\t20\tyears |
| Total | $154 |  |

The	 following	 unaudited	 pro	 forma	 information	 for	 the	 years	 ended December	 31,	 2008	 and	 2007	 presents	 the	 results	 of	 operations	 of International	Paper	as	if	the	CBPR	and	Central	Lewmar	acquisitions,	and the	Luiz	Antonio	asset	exchange,	had	occurred	on	January	1,	2007.	This pro	forma	information	does	not	purport	to	represent	International	Paper's actual	 results	 of	 operations	 if	 the	 transactions	 described	 above	 would have	 occurred	 on	 January	 1,	 2007,	 nor	 is	 it	 necessarily	 indicative	 of future	results.

| In	millions,	except	per	share	amounts | 2008 | 2007 |
| :--- | :--- | :--- |
| Net\tsales | $27,920 | $27,489 |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |
| operations | (1,348) | 1,083 |
| Net\tearnings\t(loss)\t(1) | (1,361) | 1,052 |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |
| operations\tper\tcommon\tshare | (3.20) | 2.50 |
| Net\tearnings\t(loss)\tper\tcommon\tshare^(1) | (3.23) | 2.43 |

# (1)Attributable	to	International	Paper	Company	common	shareholders.

In	October	2007,	International	Paper	and	Ilim	Holding	S.A.	announced the	 completion	 of	 the	 formation	 of	 a	 50:50	 joint	 venture	 to	 operate	 in Russia	 as	 Ilim	 Group.	 To	 form	 the	 joint	 venture,	 International	 Paper purchased	50%	of	Ilim	Holding	S.A.	(Ilim)	for	approximately	$620	million, including	 $545	 million	 in	 cash	 and	 $75	 million	 of	 notes	 payable,	 and contributed	an	additional	$21	million	in	2008.	The	Company's	investment in	Ilim	totaled	approximately	$465	million	at	December	31,	2009,	which	is approximately	 $190	 million	 higher	 than	 the	 Company's	 share	 of	 the underlying	net	assets	of	Ilim.	This	basis	difference	primarily	consists	of the	estimated	fair	value	write-up	of	Ilim	plant,	property	and	equipment	of $150	million	that	is	being	amortized	as	a	reduction	of	reported	net	income over	the	estimated	remaining	useful	lives	of	the	related	assets,	goodwill of $90	 million and	 other	 basis	 differences	 of	 $50	 million,	 including deferred	taxes.

A	 key	 element	 of	 the	 proposed	 joint	 venture	 strategy	 is	 a	 long-term investment	program	in	which	the	joint	venture	will	invest,	through	cash from	 operations	 and	 additional	 borrowings	 by	 the	 joint	 venture, approximately	 $1.5	 billion	 in	 Ilim's	 three	 mills	 over	 approximately	 five years.	This	planned	investment	in	the	Russian	pulp	and	paper	industry will	 be	 used	 to	 upgrade	 equipment,	 increase	 production	 capacity	 and allow	for	new	high-value	uncoated	paper,	pulp	and	corrugated	packaging product	development.	This	capital	expansion	strategy	is	expected	to	be ini	-

tiated	 in	 the	 second	 half	 of	 2010,	 subject to Ilim	 obtaining financing sufficient	to	fund	the	project.

# NOTE	7	BUSINESSES	HELD	FOR	SALE,	DIVESTITURES	AND IMPAIRMENTS

2008:	During	the	fourth	quarter	of	2008,	the	Company	recorded	pre-tax gains	of	$9	million	($5	million	after	 taxes)	 for	adjustments	 to	reserves associated	with	the	sale	of	discontinued	operations.

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	$3	million	charge before	taxes	($2	million	after	taxes)	for	2008	operating	losses	related	to certain	wood	products	facilities.

2007:	During	the	fourth	quarter	of	2007,	the	Company	recorded	a	pre-tax charge	of	$9	million	($6	million	after	 taxes)	and	a	pre-tax	credit	of	$4 million	($3	million	after	taxes)	relating	to	adjustments	to	estimated	losses on	the	sales	of	its	Beverage	Packaging	and	Wood	Products	businesses, respectively.	Additionally,	during	the	fourth	quarter,	a	$4	million	pre-tax charge ($3	 million after	 taxes)	 was	 recorded	 for	 additional	 taxes associated	with	the	sale	of	the	Company's	former	Weldwood	of	Canada Limited	business.

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

duties	 paid	 by the	 Company's former	 Weldwood	 of	 Canada	 Limited business.

Revenues,	earnings	(loss)	and	earnings	(loss)	per	share	related	to	the Beverage	 Packaging,	 Wood	 Products,	 Brazilian	 Coated	 Papers,	 Kraft Papers	and	Weldwood	of	Canada	Limited	businesses	for	2007	were	as follows:

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

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

# OTHER	DIVESTITURES	AND	IMPAIRMENTS

2009:	During the	second	quarter	of	2009,	based	on	a	current	strategic plan	 update	 of	 projected	 future	 operating	 results	 of	 the	 Company's Etienne	mill	in	France,	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.

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

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

2008:	During	the	third	quarter	of	2008,	based	on	a	current	strategic	plan update	of	projected	future	operating	results	of	the	Company's	Inverurie, Scotland	mill,	a	determination	was	made	that	the	current	book	value	of the	mill's	long-lived	assets	exceeded	their	estimated	fair	value,	calculated using	 the	 probability-weighted	 present	 value	 of	 projected	 future	 cash flows.	As	a	result,	a	$107	million	pre-tax	charge	($84	million	after	taxes) was	 recorded	 in	 the	 Company's	 Printing	 Papers	 industry	 segment	 to write	down	the	long-lived	assets	of	the	mill	to	their	estimated	fair	value. This	charge	is	included	in	Net	losses	(gains)	on	sales	and	impairments	of businesses	in	the	accompanying	consolidated	statement	of	operations.	In February	 2009,	 a	 decision	 was	 made	 to	 close	 the	 mill	 by	 the	 end	 of March	2009.

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

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

The	 net	 2007	 pre-tax	 gains	 totaling	 $122	 million	 discussed	 above	 are included,	along	with	the	$205	million	gain	on	the	exchange	for	the	Luiz Antonio	mill	in	Brazil	(see	Note	5),	in	Net	losses	(gains)	on	sales	and impairments	of	businesses	in	the	accompanying	consolidated	statement of	operations.

# NOTE	8	SUPPLEMENTARY	FINANCIAL	STATEMENT	INFORMATION

Inventories	by	major	category	were:

| In	millions	at	December	31 | 2009 | 2008 |
| :--- | :--- | :--- |
| Raw\tmaterials | $307 | $405 |
| Finished\tpulp,\tpaper\tand\tpackaging\tproducts | \t 1,443 | \t 1,658 |
| Operating\tsupplies | 377 | 379 |
| Other | 52 | 53 |
| Inventories | $2,179 | $2,495 |

The	 last-in,	 first-out	 inventory	 method	 is	 used	 to	 value	 most	 of International	 Paper's	 U.S.	 inventories.	Approximately	 72%	 of	 total	 raw materials	 and	 finished	 products	 inventories	 were	 valued	 using	 this method.	 If	 the	 first-in,	 first-out	 method	 had	 been	 used,	 it	 would	 have increased	 total	 inventory	 balances	 by	 approximately	 $306	 million	 and $313	million	at	December	31,	2009	and	2008,	respectively.

# Plants,	properties	and	equipment	by	major	classification	were:

| In	millions	at	December	31 | 2009 | 2008 |
| :--- | :--- | :--- |
| Pulp,\tpaper\tand\tpackaging\tfacilities |  |  |
| Mills | $22,615 | $21,819 |
| Packaging\tplants | 6,348 | 6,485 |
| Other\tplants,\tproperties\tand\tequipment | 1,542 | 1,511 |
| Gross\tcost | \t 30,505 | \t 29,815 |
| Less:\tAccumulated\tdepreciation | \t 17,817 | \t 15,613 |
| Plants,\tproperties\tand\tequipment,\tnet | $12,688 | $14,202 |

The	gross	carrying	amount	of	Intangible	Assets,	excluding	goodwill,	was $360	 million ($248	 million	 net	 of	 accumulated	 amortization)	 and	 $284 million	($246	million	net	of	accumulated	amortization)	at	December	31, 2009	 and	 2008,	 respectively.	 The	 Company	 recognized	 amortization expense	for	intangible	assets	of	approximately	$34	million,	$36	million and	$27	million	in	2009,	2008	and	2007,	respectively.	Based	on	current intangibles	subject	 to	amortization,	estimated	amortization	expense	 for each	of	the	succeeding	years	is	as	follows:	2010	–	$34	million,	2011	– $31	million,	2012	–	$24	million,	2013	–	$20	million,	2014	–	$20	million, and	cumulatively	thereafter	–	$117	million.

Interest	costs	related	to	the	development	of	certain	long-term	assets	are capitalized	and	amortized	over	the	related	assets'	estimated	useful	lives. Capitalized	 net interest	 costs	were	$12	million,	$27	million	and	$30 million	in	2009,	2008	and	2007,	respectively.	Interest	payments	made during	2009,	2008	and	2007	were	$656	million,	$597	million	and	$452 million,	 respectively.	Total interest expense	was	 $702	 million,	 $572 million	and	$451	million	in	2009,	2008	and	2007,	respectively.	Interest income	was	$33	million,	$80	million	and	$154	million	in	2009,	2008	and 2007,	 respectively.	 Interest	 expense	 and	 interest	 income	 exclude approximately $117 million	 and $233 million	 in	 2009	 and	 2008, respectively,	 related	 to	 investments	 in	 and	 borrowings	 from	 variable interest	entities	for	which	the	Company	has	a	legal	right	of	offset	(see Note	12).

Equity	earnings,	net	of	taxes	includes	the	Company's	share	of	earnings from	its	investment	in	Ilim	Holding	S.A.	($50	million	of	losses	and	$54 million	of	earnings	for	the	years	ended	December	31,	2009	and	2008, respectively)	and	certain	other	smaller	investments.

# NOTE	9	GOODWILL

The	 following	 tables	 present	 changes	 in	 the	 goodwill balances as allocated	to	each	business	segment	for	the	years	ended	December	31, 2009	and	2008:

|  | Industrial | Printing | Consumer |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| In\tmillions | Packaging | Papers | Packaging | Distribution | Total |
| Balance\tas\tof\tJanuary\t1, |  |  |  |  |  |
| 2009 |  |  |  |  |  |
| Goodwill | $989 | $ 2,302 | $1,766 | $399 | $ 5,456 |
| Accumulated |  |  |  |  |  |
| impairment |  |  |  |  |  |
| losses\t(a) | – | (1,765) | (1,664) | – | (3,429) |
|  | $989 | $537 | $102 | $399 | $ 2,027 |
| Reclassifications\tand\nother\t(b) | 2 | 146 | – | – | 148 |
| Additions/reductions | 140(c) | (25)(d) | (1) | 1 | 115 |
| Balance\tas\tof |  |  |  |  |  |
| December\t31,\t2009 |  |  |  |  |  |
| Goodwill | 1,131 | 2,423 | 1,765 | 400 | 5,719 |
| Accumulated |  |  |  |  |  |
| impairment |  |  |  |  |  |
| losses\t(a) | – | (1,765) | (1,664) | – | (3,429) |
| Total | $1,131 | $658 | $101 | $400 | $ 2,290 |

(a)Represents	 accumulated	 goodwill	 impairment	 charges	 since the	 adoption	 of	 ASC	 350, "Intangibles—Goodwill	and	Other"	in	2002.

(b)Represents	the	effects	of	foreign	currency	translations	and	reclassifications. (c) Reflects	purchase	accounting	adjustments	related	to	the	CBPR	acquisition. (d)Reflects	a	reduction	from	tax	benefits	generated	by	the	deduction	of	goodwill	amortization for	tax	purposes	in	Brazil.

|  | Industrial | Printing | Consumer |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| In\tmillions | Packaging | Papers | Packaging | Distribution | Total |
| Balance\tas\tof\tJanuary\t1, |  |  |  |  |  |
| 2008 |  |  |  |  |  |
| Goodwill | $683 | $ 2,469 | $1,756 | $394 | $ 5,302 |
| Accumulated |  |  |  |  |  |
| impairment |  |  |  |  |  |
| losses\t(a) | – | (426) | (1,226) | – | (1,652) |
|  | $683 | $ 2,043 | $530 | $394 | $ 3,650 |
| Reclassifications\tand\nother\t(b) | (2) | (140) | 6 | – | (136) |
| Additions/reductions | 308(c) | (27)(d) | 4(f) | 5 | 290 |
| Impairment\tlosses | – | (1,339)(e) | (438)(g) | – | (1,777) |
| Balance\tas\tof |  |  |  |  |  |
| December\t31,\t2008 |  |  |  |  |  |
| Goodwill | 989 | 2,302 | 1,766 | 399 | 5,456 |
| Accumulated |  |  |  |  |  |
| impairment |  |  |  |  |  |
| losses\t(a) | – | (1,765) | (1,664) | – | (3,429) |
| Total | $989 | $537 | $102 | $399 | $ 2,027 |

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

(c) Reflects	$306	million	in	purchase	accounting	adjustments	related	to	the	CBPR	acquisition, and	a	$2	million	purchase	accounting	adjustment	related	to	the	Compagnie	Marocaine	des Cartons	et	des	Papiers	(CMCP)	exchange.

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

(e)Reflects	 charges	 related to the interim impairment testing	 of the	 U.S.	 Printing	 Papers business.

(f) Reflects	additional	goodwill	related	to	joint	ventures	in	China. (g)Reflects	 charges	 related	 to	 the	 impairment	 testing	 of the	 U.S.	 and	 European	 Coated Paperboard	businesses.

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

# NOTE	10	INCOME	TAXES

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

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Earnings\t(loss) |  |  |  |
| U.S. | $905 | $(1,365) | $801 |
| Non-U.S. | 294 | 212 | 853 |
| Earnings\t(loss)\tfrom\tcontinuing\toperations\tbefore\nincome\ttaxes\tand\tequity\tearnings | $1,199 | $(1,153) | $1,654 |

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

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Current\ttax\tprovision\t(benefit) |  |  |  |
| U.S.\tfederal | $228 | $159 | $67 |
| U.S.\tstate\tand\tlocal | 7 | (2) | 20 |
| Non-U.S. | 74 | 86 | 96 |
|  | $309 | $243 | $183 |
| Deferred\ttax\tprovision\t(benefit) |  |  |  |
| U.S.\tfederal | $ (63) | $ (26) | $163 |
| U.S.\tstate\tand\tlocal | 41 | (16) | (17) |
| Non-U.S. | \t 182 | (39) | 86 |
|  | $160 | $ (81) | $232 |
| Income\ttax\tprovision | $469 | $162 | $415 |

The	 Company's	 deferred	 income	 tax	 provision	 (benefit)	 includes	 a	 $1 million	provision,	a	$14	million	provision	and	a	$2	million	provision	for 2009,	2008	and	2007,	respectively,	for	the	effect	of	changes	in	non-U.S. and	U.S.	state	tax	rates.

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

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |  |
| operations\tbefore\tincome\ttaxes\tand |  |  |  |
| equity\tearnings | $1,199 | $(1,153) | $1,654 |
| Statutory\tU.S.\tincome\ttax\trate | 35% | 35% | 35% |
| Tax\texpense\t(benefit)\tusing\tstatutory\tU.S. |  |  |  |
| income\ttax\trate | 420 | (404) | 579 |
| State\tand\tlocal\tincome\ttaxes | 32 | (12) | 2 |
| Tax\trate\tand\tpermanent\tdifferences\ton\tnon- |  |  |  |
| U.S.\tearnings | 162 | (30) | (124) |
| Net\tU.S.\ttax\ton\tnon-U.S.\tdividends | 11 | 46 | 13 |
| Tax\tbenefit\ton\texport\tsales\tand |  |  |  |
| manufacturing\tactivities | (2) | (13) | (3) |
| Non-deductible\tbusiness\texpenses | 7 | 4 | 5 |
| Sales\tof\tnon-strategic\tassets\tand\tgoodwill\nimpairments | – | 622 | 9 |
| Retirement\tplan\tdividends | (2) | (3) | (6) |
| Alternative\tfuel\tmixture\tcredits | (133) | – | – |
| Tax\tcredits | (11) | (22) | (10) |
| Medicare\tsubsidy | (7) | (8) | (8) |
| Tax\taudits | (16) | (4) | (36) |
| Other,\tnet | 8 | (14) | (6) |
| Income\ttax\tprovision | $469 | $162 | $415 |
| Effective\tincome\ttax\trate | 39% | (14)% | 25% |

The	tax	effects	of	significant	temporary	differences,	representing	deferred tax	 assets	 and	 liabilities	 at	 December	 31,	 2009	 and	 2008,	 were	 as follows:

| In	millions | 2009 | 2008 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets: |  |  |
| Postretirement\tbenefit\taccruals | $301 | $376 |
| Pension\tobligations | 1,104 | 1,275 |
| Alternative\tminimum\tand\tother\ttax\tcredits | 192 | 398 |
| Net\toperating\tloss\tcarryforwards | 534 | 604 |
| Compensation\treserves | 238 | 176 |
| Legal\treserves | 1 | 16 |
| Other | 264 | 286 |
| Gross\tdeferred\ttax\tassets | 2,634 | 3,131 |
| Less:\tvaluation\tallowance | (346) | (72) |
| Net\tdeferred\ttax\tassets | $ 2,288 | $ 3,059 |
| Deferred\ttax\tliabilities: |  |  |
| Plants,\tproperties\tand\tequipment | $(2,099) | $(2,317) |
| Forestlands\tand\trelated\tinstallment\tsales | (2,045) | (1,990) |
| Gross\tdeferred\ttax\tliabilities | $(4,144) | $(4,307) |
| Net\tdeferred\ttax\tliability | $(1,856) | $(1,248) |

Deferred	 tax	 assets	 and	 liabilities	 are	 recorded	 in	 the	 accompanying consolidated	 balance	 sheet	 under	 the	 captions	 Deferred	 income	 tax assets,	Deferred	charges	and	other	assets,	Other	accrued	liabilities	and Deferred	 income	 taxes.	 The	 decrease	 in	 2009	 in	 deferred	 tax	 assets principally	 relates	 to	 the	 tax	 impact	 of	 changes	 in	 recorded	 qualified pension	liabilities,	minimum	tax	credit	utilization	and	an	increase	in	the valuation	 allowance.	 The	 decrease	 in	 deferred	 income	 tax	 liabilities principally	relates	to	less	tax	depreciation	taken	on	the	Company's	assets purchased	in	2009.

The	valuation	allowance	for	deferred	tax	assets	as	of	December	31,	2008 was	$72	million.	The	net	change	in	the	total	valuation	allowance	for	the year	ended	December	31,	2009,	was	an	increase	of	$274	million.	The increase	of	$274	million	consists	primarily	of:	(1)	$211	million	related	to the	Company's	French	operations,	including	a	valuation	allowance	of	$55 million	against	net	deferred	tax	assets	from	current	year	operations	and $156	million	recorded	in	the	second	quarter	of	2009	for	the	establishment of	a	valuation	allowance	against	previously	recorded	deferred	tax	assets, (2)	$10	million	for	net	deferred	tax	assets	arising	from	the	Company's United	Kingdom	current	year	operations,	and	(3)	$47	million	related	to	a reduction	of	previously	recorded	U.S.	state	deferred	tax	assets,	including $15	million	recorded	in	the	fourth	quarter	of	2009	for	Louisiana	recycling credits.	 The	 effect	 on	 the	 Company's	 effective	 tax	 rate	 of	 the aforementioned	$211	million	and	$10	million	is	included	in	the	line	item "Tax	rate	and	permanent	differences	on	non-U.S.	earnings."

International	Paper	adopted	the	provisions	of	new	guidance	under	ASC 740, "Income	 Taxes,"	 on	 January 1, 2007	 related	 to	 uncertain	 tax positions.	As	a	result	of	 the	 implementation	of	 this	new	guidance,	 the Company	 recorded	 a	 charge	 to	 the	 beginning	 balance	 of	 retained earnings	of	$94	million,	which	was	accounted	for	as	a	reduction	to	the January	1,	2007	balance	of	retained	earnings.

A	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	tax benefits	for	the	year	ending	December	31,	2009	and	2008	is	as	follows:

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1 | $(435) | $(794) | (919) |
| Additions\tbased\ton\ttax\tpositions\trelated\tto\tcurrent\tyear | (28) | (14) | (12) |
| Additions\tfor\ttax\tpositions\tof\tprior\tyears | (82) | (66) | (30) |
| Reductions\tfor\ttax\tpositions\tof\tprior\tyears | 72 | 67 | 74 |
| Settlements | 174 | 352 | 112 |
| Expiration\tof\tstatutes\tof\tlimitations | 2 | 3 | 5 |
| Currency\ttranslation\tadjustment | (11) | 17 | (24) |
| Balance\tat\tDecember\t31 | $(308) | $(435) | $(794) |

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

The	 Company	 accrues	 interest	 on	 unrecognized	 tax	 benefits	 as	 a component	of	interest	expense.	Penalties,	if	incurred,	are	recognized	as	a component	of	income	tax	expense.	The	Company	had	approximately	$95 million	and	$74	million	accrued	for	the	payment	of	estimated	interest	and penalties	 associated	 with	 unrecognized	 tax	 benefits	 at	 December	 31, 2009	and	2008,	respectively.

The	major	jurisdictions	where	the	Company	files	income	tax	returns	are the	 United	 States,	 Brazil,	 France,	 Poland	 and	 Russia.	 Generally,	 tax years	2002	through	2009	remain	open	and	subject	to	examination	by	the relevant	tax	authorities.	The	Company	is	typically	engaged	in	various	tax examinations	at	any	given	time,	both	in	the	United	States	and	overseas. Currently,	the	Company	is	engaged	in	discussions	with	the	U.S.	Internal Revenue	Service	regarding	the	examination	of	tax	years	2006	and	2007. As	a	result	of	these	discussions,	other	pending	tax	audit	settlements,	and the	expiration	of	statutes	of	limitation,	the	Company	currently	estimates that	the	amount	of	unrecognized	tax	benefits	could	be	reduced	by	up	to $125	million	during	the	next	twelve	months.	During	2009,	unrecognized tax	benefits	decreased	by	$127	million.	While	the	Company	believes	that it	 is	 adequately	 accrued	 for	 possible	 audit	 adjustments,	 the	 final resolution	of	these	examinations	cannot	be	determined	at	this	time	and could	result	in	final	settlements	that	differ	from	current	estimates.

The	Company's	2009	income	tax	provision	of	$469	million	included	$279 million	related	to	special	items	and	other	charges,	consisting	of	a	$534 million	 tax	 benefit	 related	 to	 restructuring	 and	 other	 charges,	 a	 $650 million	 tax	 expense	 for	 the	 alternative	 fuel	 mixture	 credit,	 and	 $163 million	of	tax-related	adjustments	including	a	$156	million	tax	expense	to establish	a	valuation	allowance	 for	net	operating	 loss	carryforwards	 in France,	a	$26	million	tax	benefit	for	the	effective	settlement	of	federal	tax audits,	a	$15	million	tax	expense	to	establish	a	valuation	allowance	for Louisiana	 recycling	 credits,	 and $18	 million of	 other	 income	 tax adjustments.	Excluding	the	impact	of	special	items,	the	tax	provision	was

$190	million,	or	30%	of	pre-tax	earnings	before	equity	earnings.

During	the	2009	second	quarter,	in	connection	with	the	evaluation	of	the Company's	 Etienne	 mill	 in	 France,	 the	 Company	 determined	 that	 the future	realization	of	previously	recorded	deferred	tax	assets	in	France, including	net	operating	loss	carryforwards,	no	longer	met	the	"more	likely than	not"	standard	for	asset	recognition.	Accordingly,	a	charge	of	$156 million,	 before	 and	 after	 taxes,	 was	 recorded	 to	 establish	 a	 valuation allowance	for	100%	of	these	assets.	Additionally	in	2009,	as	a	result	of agreements	on	the	2004	and	2005	U.S.	federal	income	tax	audits,	and related	state	income	tax	effects,	a	$26	million	credit	was	recorded.

The	2008	income	tax	provision	of	$162	million	included	a	$207	million benefit	related	to	special	items	which	included	a	$175	million	tax	benefit related	to	restructuring	and	other	charges,	a	$23	million	tax	benefit	for	the impairment	of	certain	non-U.S.	assets,	a	$29	million	tax	expense	for	U.S. taxes	on	a	gain	 in	 the	Company's	 Ilim	 joint	venture,	a	$40	million	 tax benefit	 related	 to	 the	 restructuring	 of	 the	 Company's	 international operations,	 and	 $2	 million	 of	 other	 expense.	 Excluding	 the	 impact	 of special	 items,	 the	 tax	provision	was	$369	million,	or	31.5%	of	pre-tax earnings	before	equity	earnings.

The	Company	recorded	an	income	tax	provision	for	2007	of	$415	million, including	a	$41	million	benefit	related	to	the	effective	settlement	of	tax audits,	 and	 $8	 million	 of	 other	 tax	 benefits.	 Excluding	 the	 impact	 of special	 items,	 the	 tax	 provision	 was	 $423	 million,	 or	 30%	 of	 pre-tax earnings	before	equity	earnings.

International	 Paper	 has	 U.S.	 federal	 and	 non-U.S.	 net	 operating	 loss carryforwards	of	approximately	$452	million	that	expire	as	follows:	2010 through	2019	–$8	million,	years	2020	 through	2029	–	$29	million	and indefinite	 carryforwards	 of	 $415	 million.	 International	 Paper	 has	 tax benefits	 from	 net	 operating	 loss	 carryforwards	 for	 state	 taxing jurisdictions	of	approximately	$204	million	 that	expire	as	 follows:	2010 through	 2019	 –	 $75	 million	 and	 2020	 through	 2029	 –	 $129	 million. International	Paper	also	has	approximately	$273	million	of	U.S.	federal, non-U.S.	and	state	tax	credit	carryforwards	that	expire	as	follows:	2010 through	 2019	 –	 $54	 million,	 2020	 through	 2029	 –	 $32	 million,	 and indefinite	carryforwards	–	$187	million.	Further,	International	Paper	has $2	million	of	state	capital	loss	carryforwards	that	expire	in	2010	through 2019.

Deferred	 income	 taxes	 are	 not	 provided for temporary	 differences	 of approximately	$3.5	billion,	$2.6

billion	 and $3.7 billion	 as	 of	 December 31, 2009,	 2008	 and	 2007, respectively,	representing	earnings	of	non-U.S.	subsidiaries	intended	to be	 permanently	 reinvested.	 Computation	 of	 the	 potential	 deferred	 tax liability	 associated	 with	 these	 undistributed	 earnings	 and	 other	 basis differences	is	not	practicable.

# NOTE	11	COMMITMENTS	AND	CONTINGENT	LIABILITIES

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

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

At	December	31,	2009,	total	future	minimum	commitments	under	existing non-cancelable	 operating	 leases	 and	 purchase	 obligations	 were	 as follows:

| In	millions | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Lease\tobligations | $177 | $148 | $124 | $96 | $79 | $184 |
| Purchase\tobligations\t(a) | \t 2,262 | \t 657 | \t 623 | \t 556 | \t 532 | 3,729 |
| Total | $2,439 | $805 | $747 | $652 | $611 | $3,913 |

(a)Includes	 $2.8	 billion relating to fiber	 supply	 agreements	 entered into	 at the time	 of the Company's	2006	Transformation	Plan	forestland	sales.

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

In	May	2008,	a	recovery	boiler	at	the	Company's	Vicksburg,	Mississippi facility	 exploded,	 resulting	 in	 one	 fatality	 and	 injuries	 to	 employees	 of contractors

working	 on	 the	 site.	 The	 Company	 resolved	 five	 of	 the	 eight	 pending lawsuits	 arising	 from	 this	 matter	 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.

# EXTERIOR	SIDING	AND	ROOFING	LITIGATION

International	Paper	has	established	reserves	relating	to	the	settlement, during	1998	and	1999,	of	three	nationwide	class	action	lawsuits	against the	Company	and	Masonite	Corp.,	a	former	wholly-owned	subsidiary	of the	Company.	Those	settlements	relate	to	(1)	exterior	hardboard	siding installed	 during	 the 1980's 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).	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.

The	following	table	presents	an	analysis	of	total	reserve	activity	related	to the	Hardboard,	Omniwood	and	Woodruf	settlements	for	the	years	ended December	31,	2009,	2008	and	2007:

| In	millions | Total |
| :--- | :--- |
| Balance,\tDecember\t31,\t2006 | $124 |
| Payments | (78) |
| Balance,\tDecember\t31,\t2007 | 46 |
| Additional\tprovision | 82 |
| Payments | (87) |
| Balance,\tDecember\t31,\t2008 | 41 |
| Payments | (38) |
| Balance,\tDecember\t31,\t2009 | $3 |

The	Company	believes	that	the	aggregate	reserve	balance	remaining	at December	31,	2009	is	adequate	to	cover	the	final	settlement	of	remaining claims.

# SUMMARY

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

# NOTE	12	VARIABLE	INTEREST	ENTITIES	AND	PREFERRED SECURITIES	OF	SUBSIDIARIES

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)	in	exchange	for	Class	A	and	Class	B	interests	in these	entities,	and	simultaneously	sold	its	Class	A	interest	in	the	Investor Entities	 to	 a	 third	 party	 investor.	As	 a	 result,	 at	 December	 31,	 2006, International	Paper	held	Class	B	interests	in	the	Borrower	Entities	and Class	B	 interests	 in	 the	 Investor	entities	valued	at	approximately	$5.0 billion.	International	Paper	has	no	obligation	to	make	any	further	capital contributions	 to	 these	 entities	 and	 did	 not	 provide	 financial	 or	 other support	during	2009,	2008	or	2007	that	was	not	previously	contractually required.	 Based	 on	 an	 analysis	 of	 these	 entities	 under	 guidance	 that considers	the	potential	magnitude	of	the	variability	in	the	structure	and which	party	bears	a	majority	of	the	gains	or	losses,	International	Paper determined	that	it	is	not	the	primary	beneficiary	of	these	entities,

and	therefore,	should	not	consolidate	its	investments	in	these	entities.	It was	also	determined	that	the	source	of	variability	in	the	structure	comes from	changes	in	the	value	of	the	Timber	Notes.	The	credit	quality	of	the Timber	 Notes	 are	 enhanced	 by	 irrevocable	 letters	 of	 credit	 which	 are 100%	cash	collateralized	to	loss	as	a	result	of	its	involvement	with	the structure.

Also	 during	 2006,	 the	 Borrower	 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	Borrower	and	Investor	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	 December	 31,	 2009	 and	 2008. Remaining	 borrowings	 of	 $144	 million	 and	 $154	 million	 for	 2009	 and 2008,	respectively,	are	included	in	floating	rate	notes	due	2010	–	2016	in the	summary	of	long-term	debt	in	Note	13.	Additional	debt	related	to	the above	transaction	of	$46	million	and	$48	million	is	included	in	commercial paper	and	bank	notes	in	the	summary	of	long-term	debt	in	Note	13	for 2009	and	2008,	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	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	does	not	consolidate	the	entities because	it	is	not	the	primary	beneficiary	of	the	entities.	At	December	31, 2009,	International	Paper's	$547	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.	Other	outstanding	debt	related	to	the	above transactions	of	$465	million	and	$458	million	is	included	in	floating	rate notes	due	2010	–	2016,	and	$7	million	and	$18	million	 is	 included	 in commercial	paper	and	bank	notes	in	the	summary	of	long-term	debt	in Note	13	for	2009	and	2008,	respectively.

# PREFERRED	SECURITIES	OF	SUBSIDIARIES

In	 March	 2003,	 Southeast	 Timber,	 Inc.	 (Southeast	 Timber),	 a consolidated	 subsidiary	 of	 International	 Paper,	 issued	 $150	 million	 of preferred	securities	to	a	private	investor	with	future	dividend	payments based	on	LIBOR.	Southeast	Timber,	which	through	a	subsidiary	initially held	approximately	1.5	million	acres	of	forestlands	in	the	southern	United States,	was	International	Paper's	primary	vehicle	for	sales	of	southern forestlands.	 As	 of	 December 31, 2009,	 substantially	 all	 of	 these forestlands	have	been	sold.	These	preferred	securities	may	be	put	back to	 International	 Paper	 by	 the	 private	 investor	 upon	 the	 occurrence	 of certain	events,	and	have	a	liquidation	preference	that	approximates	their face	amount.	The	$150	million	preferred	third-party	interest	is	included	in Noncontrolling	 interests	 in	 the	 accompanying	 consolidated	 balance sheet.	Distributions	paid	to	the	third-party	investor	were	$6	million,	$10 million	 and $13	 million in	 2009,	 2008	 and	 2007,	 respectively.	 The expense	related	to	these	preferred	securities	is	shown	in	Net	earnings attributable	to	noncontrolling	interests	in	the	accompanying	consolidated statement	of	operations.

# NOTE	13	DEBT	AND	LINES	OF	CREDIT

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

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

Pre-tax	early	debt	retirement	costs	of	$36	million	related	to	fourth-quarter debt	repayments	are	included	in	Restructuring	and	other	charges	in	the accompanying	consolidated	statement	of	operations.

In	 August	 2009,	 International	 Paper issued	 $1	 billion	 of	 7.5%	 senior unsecured	notes	with	a	maturity	date

in	August	2021.	The	proceeds	from	this	borrowing	were	used	to	repay approximately	 $942	 million	 of	 notes	 with	 interest	 rates	 ranging	 from 5.125%	to	7.4%	and	original	maturities	from	2012	to	2026.

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

In	 May	 2009,	 International	 Paper	 issued	 $1	 billion	 of	 9.375%	 senior unsecured	notes	with	a	maturity	date	in	May	2019.	The	proceeds	from this	borrowing	were	used	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	 venture	 that	 matured	 during	 the	 quarter.	 Pre-tax	 early	 debt retirement	costs	of	$46	million	related	to	second	quarter	debt	repayments are	 included	 in	 Restructuring	 and	 other	 charges	 in	 the	 accompanying consolidated	statement	of	operations.

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

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	 and	 an	 original	 maturity	 in	 August	 2013.	 The	 margin	 varied depending	upon	the	credit	rating	of	the	Company.	Debt	issuance	costs	of approximately	 $50	 million	 related	 to	 this	 borrowing	 were	 recorded	 in Deferred	 charges	 and	 other	 assets	 in	 the	 accompanying	 consolidated balance	 sheet	 and	 were	 being	 amortized	 until	 the	 debt	 was	 repaid	 in 2009.	Also,	in	August	2008,	International	Paper	borrowed	approximately $395	million	under	its	receivables	securitization	program.	These	funds, together	with	the	$3	billion	from	unsecured	senior	notes	borrowed	in	the second

quarter	 discussed	 below	 and	 other	 available	 cash,	 were	 used	 for	 the CBPR	business	acquisition	in	August	2008.	As	of	December	2008,	all	of the	borrowings	under	the	receivables	securitization	program	were	repaid.

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.

A	summary	of	long-term	debt	follows:

| In	millions	at	December	31 | 2009 | 2008 |
| :--- | :--- | :--- |
| 8.7%\tto\t10%\tnotes\t-\tdue\t2038 | $280 | $298 |
| 9\t3/8%\tnote\tdue\t2019 | 939 | – |
| 9.25%\tdebentures\t-\tdue\t2011 | 9 | 44 |
| 7.95%\tdebentures\t-\tdue\t2018 | \t 1,653 | 1,700 |
| 7.5%\tnotes\t-\tdue\t2021 | 999 | – |
| 7.4%\tdebentures\t-\tdue\t2014 | 309 | 998 |
| 7.3%\tnotes\tdue\t2039 | 748 | – |
| 6\t7/8%\tnotes\t-\tdue\t2023\t-\t2029 | 130 | 130 |
| 6.65%\tto\t6.75%\tnotes\t-\tdue\t2011 | 36 | 199 |
| 6.4%\tto\t7.75%\tdebentures\tdue\t2025\t-\t2027 | 158 | 258 |
| 5.85%\tnotes\t-\tdue\t2012 | 38 | 249 |
| 5.25%\tto\t5.5%\tnotes\t-\tdue\t2014\t-\t2016 | 732 | 832 |
| 5\t1/8%\tdebentures | – | 121 |
| 3.8%\tto\t4.25%\tnotes | – | 776 |
| Medium-term\tnotes\t(a) | – | 30 |
| Floating\trate\tnotes\t-\tdue\t2010\t-\t2016\t(b) | 637 | 3,897 |
| Environmental\tand\tindustrial\tdevelopment |  |  |
| bonds\t-\tdue\t2010\t-\t2033\t(c) | \t 1,992 | 1,947 |
| Commercial\tpaper\tand\tbank\tnotes\t(d) | 224 | 260 |
| Other\t(e) | 149 | 335 |
| Total\t(f) | \t 9,033 | \t 12,074 |
| Less:\tcurrent\tmaturities | 304 | 828 |
| Long-term\tdebt | $8,729 | $11,246 |

(a)The	weighted	average	interest	rate	on	these	notes	was	8.1%	in	2008.

million	at	December	31,	2008	related	to	non-U.S.	denominated	borrowings	with	a	weighted average	interest	rate	of	4.8%	in	2009	and	6.2%	in	2008.

In	addition	to	the	long-term	debt	obligations	shown	above,	International Paper	has	$5.7	billion	of	debt	obligations	payable	 to	non-consolidated variable	interest	entities	having	principal	payments	of	$519	million	due	in 2010,	 $28	 million	 due	 2011	 and	 $5.1	 billion	 due	 in	 2016,	 for	 which International	Paper	has,	and	intends	to	affect,	a	legal	right	to	offset	these obligations	with	Class	B	interests	held	in	the	entities.	Accordingly,	in	the accompanying	consolidated	balance	sheet,	as	allowed	under	ASC	210, International	Paper	has	offset	the	$5.7	billion	of	debt	obligations	with	$5.7 billion	of	Class	B	interests	in	these	entities	as	of	December	31,	2009	(see Note	12).

Total	maturities	of	 long-term	debt	over	 the	next	 five	years	are	2010	– $304	 million;	 2011	 –	 $574	 million;	 2012	 –	 $199	 million;	 2013	 –	 $131 million;	 and	 2014	 –	 $562	 million.	 At	 December	 31,	 2009	 and	 2008, International	Paper	classified	$450	million	and	$796	million,	respectively, of	commercial	paper	and	bank	notes	and	Current	maturities	of	long-term debt	as	Long-term	debt.	International	Paper	has	the	intent	and	ability	to renew	or	convert	these	obligations,	as	evidenced	by	the	available	bank credit	agreements	described	below.

At	 December	 31,	 2009,	 International	 Paper's	 contractually	 committed bank	credit	agreements	 totaled	$2.5	billion.	The	agreements	generally provide	for	interest	rates	at	a	floating	rate	index	plus	a	pre-determined margin	dependent	upon	International	Paper's	credit	rating.	In	November 2009,	International	Paper	replaced	its	$1.5	billion	revolving	bank	credit agreement	that	was	due	to	expire	March	2011	with	a	new	$1.5	billion	fully committed	revolving	bank	credit	agreement	that	expires	November	2012 and	has	a	facility	fee	of	0.50%	payable	quarterly.	These	agreements	also include	up	to	$1.0	billion	of	available	commercial	paper-based	financings ($816	million	as	of	December	31,	2009)	under	a	receivables	securitization program	that	was	scheduled	to	expire	in	January	2010	with	a	facility	fee of

0.75%.	At	December	31,	2009,	there	were	no	borrowings	under	either	the bank	credit	agreements	or	receivables	securitization	program.

On	 January 13, 2010,	 the	 Company	 amended	 the	 receivables securitization	program	to,	among	other	things,	extend	the	maturity	date from	 January	 2010	 to	 January	 2011.	 The	 amended	 agreement	 has	 a facility	fee	of	0.50%	payable	monthly.

At	December	31,	2009,	outstanding	debt	 included	approximately	$224 million	 of	 commercial	 paper	 and	 bank	 notes	 with	 interest	 rates	 that fluctuate	based	on	market	conditions	and	the	Company's	credit	rating.

# NOTE	14	DERIVATIVES	AND	HEDGING	ACTIVITIES

International	 Paper	 periodically	 uses	 derivatives	 and	 other	 financial instruments	to	hedge	exposures	to	interest	rate,	commodity	and	currency risks.	International	Paper	does	not	hold	or	issue	financial	instruments	for trading	 purposes.	 For	 transactions	 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	or	Other	liabilities.	The earnings	 impact	 resulting	 from	 changes	 in	 the	 fair	 value	 of	 derivative instruments	 is	 recorded	 in	 the	 same	 line	 item	 in	 the	 consolidated statement	of	operations	as	the	underlying	exposure	being	hedged	or	in 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	in	earnings	to	offset	the	remeasurement	of	the related	assets	and	liabilities,	totaled	a	loss	of	approximately	$50	million and	 $30	 million	 for	 the	 years	 ended	 December	 31,	 2009	 and	 2008, respectively,	and	a	gain	of	$20	million	for	the	year	ended	December	31, 2007.	As	 of	 December	 31,	 2009	 and	 2008,	 outstanding	 undesignated foreign	exchange	contracts	included	the	following:

|  | December	31, | December	31, |
| :--- | :--- | :--- |
| In\tmillions | 2009 | 2008 |
| Sell\t/\tBuy | Sell\tNotional | Sell\tNotional |
| U.S.\tdollar\t/\tEuropean\teuro | 108 | 618 |
| U.S.\tdollar\t/\tSwiss\tfranc | – | 68 |
| European\teuro\t/\tGreat\tBritish\tpounds | 29 | 58 |
| European\teuro\t/\tPolish\tzloty | 39 | 5 |
| European\teuro/\tU.S.\tdollar | 9 | 65 |
| South\tKorean\twon/\tU.S.\tdollar | 3,629 | – |
| Chinese\trenminbi/\tU.S.\tdollar | – | 62 |
| Russian\truble/\tU.S.\tdollar | – | 570 |

# Fair	Value	Hedges

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

International	Paper	utilizes	interest	rate	swaps	as	fair	value	hedges	of	the benchmark	interest	rates	of	fixed	rate	debt.	At	December	31,	2009	and December	31,	2008,	 the	outstanding	notional	amounts	of	 interest	rate swap	agreements	 that	qualify	as	 fully	effective	 fair	value	hedges	were approximately	$1.1	billion	and	$484	million,	respectively.

In	the	fourth	quarter	of	2009,	the	Company	entered	into	various	fixed-to- floating	 interest	 rate	 swap	 agreements	 with	 a	 notional	 amount	 of approximately	$1	billion	to	hedge	existing	debt.	The	interest	rate	swaps were	effective	December	2009	and	mature	within	a	range	of	five	to	ten years.	Also	 in	August	 of	 2009,	 the	 Company	 entered	 into	 a	 fixed-to- floating	 interest	 rate	 swap	 agreement	 with	 a	 notional	 value	 of	 $100 million.	The	interest	rate	swap	was	effective	August	2009	and	matures April	2015.	These	interest	rate	swaps	were	designated	as	fully	effective fair	 value	 hedges	 of	 the	 benchmark	 interest	 rate	 under	 ASC 815. Subsequently	in	January	2010,	approximately	$700	million	of	these	fixed- to-floating

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

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	 swaps	 issued	 in	 the	 second	 quarter, were	 terminated	 or	 undesignated	 as	 an	 effective	 fair	 value	 hedge resulting	in	a	gain	of	approximately	$9	million.	This	gain	is	included	in Restructuring	 and	 other	 charges	 in	 the	 accompanying	 consolidated statement	of	operations.

During	2009,	an	interest	rate	swap	agreement	designated	as	a	fair	value hedge	with	a	notional	value	of	$100	million	was	terminated,	resulting	in	a gain	of	$11	million	that	was	deferred	and	recorded	in	Long-term	debt. This	gain	will	be	amortized	as	an	adjustment	of	interest	expense	over	the life	of	the	underlying	debt	through	2016.	Also,	previously	deferred	gains of	 $40	 million	 related	 to	 earlier	 swap	 terminations	 were	 recognized	 in earnings	 in	 connection	 with	 early	 debt	 retirements.	 These	 gains	 are included	 in	 Restructuring	 and	 other	 charges	 in	 the	 accompanying consolidated	statement	of	operations.

During	2008,	interest	rate	contracts	designated	as	fair	value	hedges	with a	notional	value	of	$1.8	billion	were	terminated,	including	$41	million	that related	to	early	debt	retirements,	resulting	in	a	$1	million	gain	that	was recorded	in	earnings.	Gains	totaling	$127	million	not	related	to	early	debt retirements	were	recorded	in	Long-term	debt	and	are	being	amortized	as an	adjustment	of	 interest	expense	over	 the	 life	of	 the	underlying	debt through	June	2018.

# Cash	Flow	Hedges

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	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. The	fair	value	of	the	hedge	instruments	are	reclassified	out	of	AOCI	to earnings	 if	 the	 hedge	 ceases	 to	 be	 highly	 effective	 or	 if	 the	 hedged transaction	is	no	longer	probable.

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

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

In	 the	 second	 quarter	 of	 2008,	 the	 Company	 entered	 into	 a	 series	 of forward-starting	 floating-to-fixed	 interest	 rate	 swap	 agreements	 with	 a notional	amount	of	$1.5	billion	in	anticipation	of	borrowing	against	the	$3 billion	committed	bank	credit	agreement	for	the	purchase	of	the	CBPR business.	 The	 floating-to-fixed	 interest	 rate	 swaps	 were	 effective September	 2008.	 These	 forward-starting	 interest	 rate	 swaps	 were designated	as	cash	flow	hedges	of	the	benchmark	interest	rate	of	future interest	 payments	 related	 to	 any	 borrowings	 under	 the	 bank	 credit agreement.	In	the	fourth	quarter	of	2008,	interest	rate	swap	agreements designated	 as	 cash	 flow	 hedges	 with	 a	 notional	 value	 of	 $550	 million were	terminated.	These	terminations	were	not	in	connection	with	early debt	 retirements.	 The	 resulting	 loss	 of	 approximately	 $17	 million	 was recorded	in	AOCI	to	be	amortized	as	an	adjustment	of	interest	expense over	 the	 life	 of	 the	 underlying	 debt.	As	 of	 December	 31,	 2009,	 these interest	rate	swaps	designated	as	cash	flow	hedges	were	undesignated and	 the	 related	 deferred	 loss	 was	 recognized	 in	 earnings	 as	 stated above.

In	 the	 fourth	quarter	of	2009,	 the	Company	entered	 into	 treasury	rate lock	agreements	to	fix	interest	rates	on	an	anticipated	issuance	of	debt. Upon	 issuance	 of	 the	 debt	 later	 in	 the	 quarter,	 these	 agreements generated	a	pre-tax	loss	of	$3	million	that	was	recorded	in	AOCI.	This amount	is	being	amortized	to	interest	expense	over	the	term	of	the	bonds through	August	2039,	yielding	an	effective	interest	rate	of	7.3%.

# Commodity	Risk

To	minimize	volatility	in	earnings	due	to	large	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 December	 31,	 2009,	 the	 hedged	 volumes	 of	 these	 energy	 contracts totaled	nine	hundred	thousand	barrels	of	fuel	oil	and	21	million	MMBTUs (Million	British	Thermal	Units)	of	natural	gas.	At	December	31,	2008,	the hedged	 volumes	 totaled	 one	 million	 barrels	 of	 fuel	 oil	 and	 21	 million MMBTUs	of	natural	gas.	These	contracts	had	maturities	of	three	years	or less	as	of	December	31,	2009.	Deferred	losses	totaling	$10	million	after taxes	 at	 December	 31,	 2009	 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	 December	 31,	 2009,	 these	 contracts	 have	 maturities	 of three	 years	 or	 less.	 Deferred	 gains	 of $20	 million after	 taxes	 at December	 31,	 2009	 are	 expected	 to	 be	 recognized	 through	 earnings within	the	next	12	months.	As	of	December	31,	2009	and	December	31, 2008,	the	following	outstanding	foreign	exchange	contracts	were	entered into	as	cash	flow	hedges	of	forecasted	transactions:

|  | December	31, | December	31, |
| :--- | :--- | :--- |
| In\tmillions | 2009 | 2008 |
| Sell\t/\tBuy | Sell\tNotional | Sell\tNotional |
| European\teuro\t/\tBrazilian\treal | 11 | 21 |
| U.S.\tdollar\t/\tBrazilian\treal | 265 | 166 |
| British\tpounds\t/\tBrazilian\treal | 12 | – |
| European\teuro\t/\tPolish\tzloty | 164 | 96 |

International	Paper's	financial	assets	and	liabilities	that	are	recorded	at fair	value	consist	of	derivative	contracts,	 including	 interest	rate	swaps, foreign	currency	forward	contracts,	and	other	financial	instruments	that are	used	to	hedge	exposures	to	interest	rate,	commodity	and	currency risks.	For	 these	 financial	 instruments,	 fair	value	 is	determined	at	each balance	sheet	date	using	an	income	approach	based	on	a	discounted cash	flow	model	that	takes	into	account	the	present	value	of	future	cash flows	under	the	terms	of	the	contracts	using	current	market	information as	 of	 the	 reporting	 date,	 such	 as	 prevailing	 interest	 rates	 and	 foreign currency	spot	and	forward	rates.	The	guidance	for	fair	value	measure	-

ments	 and	 disclosures	 sets	 out	 a	 fair	 value	 hierarchy	 that	 groups	 fair value	measurement	inputs	into	three	classifications:	Level	1,	Level	2	and Level	3.	Level	1	inputs	are	quoted	prices	in	an	active	market	for	identical assets	or	liabilities.	Level	2	inputs	are	inputs	other	than	quoted	prices included	within	Level	1	that	are	observable	for	the	asset	or	liability,	either directly	or	indirectly.	Level	3	inputs	are	unobservable	inputs	for	the	asset or	liability.	All	of	International	Paper's	fair	value	measurements	use	Level 2	inputs.	The	following	table	provides	a	summary	of	the	impact	of	our derivative	instruments	in	the	consolidated	balance	sheet:

# Level	2	–	Significant	Other	Observable	Inputs

|  | December	31, | December	31, | December	31, | December	31, |
| :--- | :--- | :--- | :--- | :--- |
| In\tmillions | 2009 | 2008 | 2009 | 2008 |
| Derivatives\tdesignated\tas\thedging\tinstruments |  |  |  |  |
| Interest\trate\tcontracts\t–\tfair\tvalue | $5(a) | $27(e) | $20(f) | $– |
| Interest\trate\tcontracts\t–\tcash\tflow | – | – | – | 39(f) |
| Commodity\tcontracts\t–\tcash\tflow | 16(b) | – | 42(g) | 75(j) |
| Foreign\texchange\tcontracts\t–\tcash\tflow | 32(c) | 27(c) | – | 47(i) |
| Total\tderivatives\tdesignated\tas\thedging\tinstruments | $53 | $54 | $62 | $161 |
| Derivatives\tnot\tdesignated\tas\thedging\tinstruments |  |  |  |  |
| Interest\trate\tcontracts | $1(c) | $– | $29(h) | $8(f) |
| Embedded\tderivatives | 6(d) | 8(d) | – | – |
| Foreign\texchange\tcontracts | 2(c) | 40(c) | 2(i) | 19(i) |
| Total\tderivatives\tnot\tdesignated\tas\thedging\tinstruments | $9 | $48 | $31 | $27 |
| Total\tderivatives | $62 | $102 | $93 | $188 |

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

(b)Includes	$13	million	recorded	in	Other	current	assets	and	$3	million	recorded	in	Deferred charges	and	other	assets	in	the	accompanying	consolidated	balance	sheet.

(c) Included	in	Other	current	assets	in	the	accompanying	consolidated	balance	sheet.

(d)Included	in	Deferred	charges	and	other	assets	in	the	accompanying	consolidated	balance sheet.

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

(f) Included	in	Other	liabilities	in	the	accompanying	consolidated	balance	sheet.

(g)Includes	$30	million	recorded	in	Other	accrued	liabilities	and	$12	million	recorded	in	Other liabilities	in	the	accompanying	consolidated	balance	sheet.

(h)Includes	$23	million	recorded	in	Other	accrued	liabilities	and	$6	million	recorded	in	Other liabilities	in	the	accompanying	consolidated	balance	sheet.

(i) Included	in	Other	accrued	liabilities	in	the	accompanying	consolidated	balance	sheet.

(j) Includes	$47	million	recorded	in	Other	accrued	liabilities	and	$28	million	recorded	in	Other liabilities	in	the	accompanying	consolidated	balance	sheet.

The	following	table	shows	the	change	in	AOCI,	net	of	tax,	related	to	derivative	instruments:

|  |  |  |  | Location	of	Gain	or |  | (Gain)	or	Loss | (Gain)	or	Loss |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Gain\tor\t(Loss) | Gain\tor\t(Loss) | (Loss)\tReclassified\tfrom |  | Reclassified\tfrom | Reclassified\tfrom |
|  |  | Recognized\tin\tAOCI\n(Effective\tPortion) | Recognized\tin\tAOCI\n(Effective\tPortion) | AOCI\tinto\tIncome\n(Effective\tPortion) | (Effective\tPortion) | AOCI\tinto\tIncome | AOCI\tinto\tIncome |
|  | 2009 | 2008 | 2007 |  | 2009 | 2008 | 2007 |
| Interest\trate\tcontracts | $(8) | $(34) | $– | Interest\texpense,\tnet | $40 | $1 | $– |
| Commodity\tcontracts | (3) | (38) | – | Cost\tof\tproducts\tsold | 33 | (5) | 8 |
| Foreign\texchange\tcontracts | 51 | (34) | 33 | Cost\tof\tproducts\tsold | (19) | (51) | (30) |
| Total | $40 | $(106) | $33 |  | $54 | $ (55) | $ (22) |

# Credit-Risk-Related	Contingent	Features

International	Paper	evaluates	credit	risk	by	monitoring	its	exposure	with each	counterparty	to	ensure	that	exposure	stays	within	acceptable	policy limits.	 Credit	 risk	 is	 also	 mitigated	 by	 contractual	 provisions	 with	 the majority	 of	 our	 banks.	 Most	 of	 the	 contracts	 include	 a	 credit	 support annex	 that	 requires	 the	 posting	 of	 collateral	 by	 the	 counterparty	 or International	Paper	based	on	each	party's	rating	and	level	of	exposure. Based	on	the	Company's	current	credit	rating,	the	collateral	threshold	is generally	 $10	 million.	 If	 the	 lower	 of	 the	 Company's	 credit	 rating	 by Moody's	 or	 S&P	 were	 to	 drop	 below	 investment	 grade,	 the	 Company would	be	required	to	post	collateral	for	the	majority	of	its	derivatives	in	a net	 liability	 position,	 although	 no	 derivatives	 would	 terminate.	 The	 fair values	of	derivative	instruments	containing	credit-risk-related	contingent features	in	a	net	liability	position	were	$65	million	as	of	December	31, 2009	 and	 $109	 million	 as	 of	 December	 31,	 2008.	The	 Company	 was required	to	post	an	immaterial	amount	of	collateral	as	of	December	31, 2009	 and	 $12	 million	 of	 collateral	 as	 of	 December	 31,	 2008	 due	 to exceeding	the	counterparty's	collateral	threshold	in	the	normal	course	of business.	 In	 addition,	 existing	 derivative	 contracts	 provide	 for	 netting across	most	derivative	positions	in	the	event	a	counterparty	defaults	on	a payment	obligation.	International	Paper	currently	does	not	expect	any	of the	counterparties	to	default	on	their	obligations.

# NOTE	15	CAPITAL	STOCK

The	 authorized	 capital	 stock	 at	 both	 December	 31,	 2009	 and	 2008, consisted	of	990,850,000	shares	of	common	stock,	$1	par	value;	400,000 shares	of	cumulative	$4	preferred	stock,	without	par	value	(stated	value $100	per	share);	and	8,750,000	shares	of	serial	preferred	stock,	$1	par value.	The	serial	preferred	stock	is	issuable	in	one	or	more	series	by	the Board	of	Directors	without	further	shareholder	action.

During	2007,	the	Company	purchased	33.6	million	shares	of	its	common stock	on	the	open	market	for	an	average	price	of	$36.43	per	share,	plus costs	to	acquire	the	shares,	for	a	total	cost	of	$1.2	billion.	In	December 2008,	the	Company	retired	60	million	shares	of	its	common	stock	held	in treasury.

The	following	is	a	rollforward	of	common	stock	activity	for	the	three	years ended	December	31,	2009,	2008	and	2007:

|  |  | Common	Stock |
| :--- | :--- | :--- |
| In\tthousands | Issued | Treasury |
| Balance\tat\tJanuary\t1,\t2007 | 493,340 | 39,844 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | 216 | (4,991) |
| Repurchase\tof\tstock | – | 33,583 |
| Balance\tat\tDecember\t31,\t2007 | 493,556 | 68,436 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | – | (3,840) |
| Repurchase\tof\tstock | – | 1,462 |
| Retirement\tof\ttreasury\tstock | (60,000) | (60,000) |
| Balance\tat\tDecember\t31,\t2008 | 433,556 | 6,058 |
| Issuance\tof\tstock\tfor\tvarious\tplans,\tnet | 3,466 | (3,484) |
| Repurchase\tof\tstock | – | 1,288 |
| Balance\tat\tDecember\t31,\t2009 | 437,022 | 3,862 |

# NOTE	16	RETIREMENT	PLANS

# U.S.	Defined	Benefit	Plans

International	 Paper	 maintains	 pension	 plans	 that	 provide	 retirement benefits	to	substantially	all	salaried	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,	are	not	eligible	for	these	pension plans	but	receive	an	additional	company	contribution	to	their	savings	plan (see	"Other	Plans"	on	page	89).	The	plans	provide	defined	benefits	based on	years	of	credited	service	and	either	final	average	earnings	(salaried employees),	hourly	job	rates	or	specified	benefit	rates	(hourly	and	union employees).

Former	 Weyerhaeuser	 salaried	 employees	 acquired	 by	 International Paper	 in	 the	 CBPR	 acquisition	 became	 participants	 in	 International Paper's	pension	plans	if	they	had	been	hired	by	Weyerhaeuser	prior	to July	1,	2004.	Acquired	salaried	employees	hired	by	Weyerhaeuser	after June 30, 2004	 are	 not	 eligible	 and	 instead	 received	 an	 additional company	contribution	to	their	savings	plan.

The	 Company	 makes	 required	 minimum	 funding	 contributions	 to	 its qualified	 defined	 benefit	 pension	 plans	 to	 meet	 legal	 funding requirements,	plus	any	additional	amounts	that	the	Company	may determine	to	be	appropriate	considering	the	funded	status	of	the	plans, tax	deductibility,	cash	flow	generated	by	the	Company,	and	other	factors. The	Company	expects	that	no	cash	funding	contribution	will	be	required for	this	plan	in	2010,	and	no	con	-

tributions	 were	 made	 in	 2009	 or	 2008.	 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.

An	additional	plan	was	acquired	in	2008	with	the	CBPR	acquisition.	The plan	covers	hourly	workers	at	the	Albany,	Oregon	mill	and	was	merged with	the	Retirement	Plan	of	International	Paper	as	of	December	31,	2009.

The	 Company	 also	 has	 two	 unfunded	 nonqualified	 defined	 benefit pension	plans:	a	Pension	Restoration	Plan	available	to	employees	hired prior	to	July	1,	2004	that	provides	retirement	benefits	based	on	eligible compensation	 in	excess	of	 limits	set	by	 the	 Internal	Revenue	Service, and	a	supplemental	retirement	plan	for	senior	managers	(SERP),	which is	an	alternative	retirement	plan	for	salaried	employees	who	are	senior vice	presidents	and	above	or	who	are	designated	by	the	chief	executive officer	as	participants.	These	nonqualified	plans	are	only	funded	to	the extent	of	benefits	paid,	which	 totaled	$35	million,	$24	million	and	$29 million	in	2009,	2008	and	2007,	respectively,	and	which	are	expected	to be	$41	million	in	2010.

# Net	Periodic	Pension	Expense

Service	cost	is	the	actuarial	present	value	of	benefits	attributed	by	the plans'	benefit	formula	to	services	rendered	by	employees	during	the	year. Interest	cost	represents	the	increase	in	the	projected	benefit	obligation, which	is	a	discounted	amount,	due	to	the	passage	of	time.	The	expected return	 on	 plan	 assets	 reflects	 the	 computed	 amount	 of	 current-year earnings	from	the	investment	of	plan	assets	using	an	estimated	long-term rate	of	return.

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

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $ 120 | $ 105 | $ 113 |
| Interest\tcost | 537 | 540 | 520 |
| Expected\treturn\ton\tplan\tassets | (634) | (672) | (633) |
| Actuarial\tloss | 160 | 121 | 190 |
| Amortization\tof\tprior\tservice\tcost | 30 | 29 | 20 |
| Net\tperiodic\tpension\texpense\t(a) | $ 213 | $ 123 | $ 210 |

grams	and	facility	rationalizations	that	were	recorded	in	Restructuring	and	other	charges	in the	consolidated	statement	of	operations.

The	 increase	 in	 2009	 pension	 expense	 reflects	 a	 decrease	 in	 the assumed	discount	rate	to	6.00%	in	2009	from	6.20%	in	2008,	a	decrease in	the	assumed	return	on	plan	assets	to	8.25%	in	2009	from	8.50%	in 2008	 and	 higher	 amortization	 of	 unrecognized	 actuarial	 losses.	 The decrease	in	2008	expense	compared	with	2007	reflects	an	increase	in the	assumed	discount	rate	to	6.20%	from	5.75%	and	lower	amortization of	unrecognized	actuarial	losses.

International	 Paper	 evaluates	 its	 actuarial	 assumptions	 annually	 as	 of December	31	(the	measurement	date)	and	considers	changes	in	these long-term	factors	based	upon	market	conditions	and	the	requirements	for employers'	 accounting	 for	 pensions.	 These	 assumptions	 are	 used	 to calculate	benefit	obligations	as	of	December	31	of	the	current	year	and pension	expense	to	be	recorded	in	the	following	year	(i.e.,	the	discount rate	used	to	determine	the	benefit	obligation	as	of	December	31,	2008 was	also	the	discount	rate	used	to	determine	net	pension	expense	for	the 2009	year).

Weighted	average	assumptions	used	to	determine	net	pension	expense for	2009,	2008	and	2007	were	as	follows:

|  | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 6.00% | 6.20% | 5.75% |
| Expected\tlong-term\trate\tof\treturn\ton\tplan\tassets | 8.25% | 8.50% | 8.50% |
| Rate\tof\tcompensation\tincrease | 3.75% | 3.75% | 3.75% |

Weighted	average	assumptions	used	to	determine	benefit	obligations	as of	December	31,	2009	and	2008,	were	as	follows:

The	 expected	 long-term	 rate	 of	 return	 on	 plan	 assets	 is	 based	 on projected	 rates	 of	 return	 for	 current	 and	 planned	 asset	 classes	 in	 the plan's	 investment	 portfolio.	 Projected	 rates	 of	 return	 are	 developed through	an	asset/liability	study	in	which	projected	returns	for	each	of	the plan's	asset	classes	are	determined	after	analyzing	historical	experience and	 future	 expectations	 of	 returns	 and	 volatility	 of	 the	 various	 asset classes.	Based	on	the	target	asset	allocation	for	each	asset	class,	the overall	expected	rate	of	return	for	the	portfolio	is	developed	considering

the	effects	of	active	portfolio	management	and	expenses	paid	from	plan assets.	The	 discount	 rate	 assumption	 is	 determined	 based	 on	 a	 yield curve	that	incorporates	approximately	500	Aa-graded	bonds.	The	plan's projected	cash	flows	are	then	matched	to	the	yield	curve	to	develop	the discount	rate.	To	calculate	pension	expense	for	2010,	the	Company	will use	 an	 expected	 long-term	 rate	 of	 return	 on	 plan	 assets	 of	 8.25%,	 a discount	rate	of	5.80%	and	an	assumed	rate	of	compensation	increase	of 3.75%.	The	Company	estimates	that	it	will	record	net	pension	expense	of approximately	$234	million	for	its	U.S.	defined	benefit	plans	in	2010,	with the	 increase	 from	 expense	 of	 $213	 million	 in	 2009	 reflecting	 higher amortization	of	actuarial	losses	and	a	decrease	in	the	assumed	discount rate.

The	following	illustrates	the	effect	on	pension	expense	for	2010	of	a	25 basis	point	decrease	in	the	above	assumptions:

| In	millions | 2010 |
| :--- | :--- |
| Expense/(Income): |  |
| Discount\trate | $29 |
| Expected\tlong-term\trate\tof\treturn\ton\tplan\tassets | 19 |
| Rate\tof\tcompensation\tincrease | (4) |

# Investment	Policy	/	Strategy

International	 Paper's	 Board	 of	 Directors	 has	 appointed	 a	 Fiduciary Review	Committee	that	is	responsible	for	overseeing	the	operations	of the	Plan,	approving	its	investment	policy	and	reviewing	the	management and	control	of	plan	assets.	Plan	assets	are	invested	to	maximize	returns within	 prudent	 levels	 of	 risk.	 The	 Plan	 maintains	 a	 strategic	 asset allocation	 policy	 that	 designates	 target	 allocations	 by	 asset	 class. Investments	 are	 diversified	 across	 classes	 and	 within	 each	 class	 to minimize	the	risk	of	large	losses.	Derivatives,	including	swaps,	forward and	 futures	 contracts,	 may	 be	 used	 as	 asset	 class	 substitutes	 or	 for hedging	or	other	risk	management	purposes.	Periodic	reviews	are	made of	investment	policy	objectives	and	investment	manager	performance.

International	 Paper's	 pension	 allocations	 by	 type of account at December	31,	and	target	allocations	were	as	follows:

|  |  |  | Target |
| :--- | :--- | :--- | :--- |
| Asset\tClass | 2009 | 2008 | Allocations |
| Equity\taccounts | 49% | 39% | 40%\t-51% |
| Fixed\tincome\taccounts | 32% | 39% | 30%\t-40% |
| Real\testate\taccounts | 7% | 10% | 7%\t-\t13% |
| Other | 12% | 12% | 9%\t-\t18% |
| Total | 100% | 100% |  |

The	 fair	 values	 of	 International	 Paper's	 pension	 plan	 assets	 at December	31,	2009	by	asset	class	are	shown	below.	No	 International Paper	Company	shares	were	included	in	plan	assets	in	2009	or	2008. Hedge	 funds	 disclosed	 in	 the	 following	 table	 are	 allocated	 equally between	equity	and	fixed	income	accounts	for	target	allocation	purposes. Cash	and	cash	equivalent	portfolios	are	allocated	to	the	types	of	account from	which	they	originated.

|  |  | Quoted |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Prices |  |  |
|  |  | in |  |  |
|  |  | Active |  |  |
|  |  | Markets |  |  |
|  |  | for |  |  |
|  |  | Identical | Significant | Significant |
|  |  | Assets | Observable | Unobservable |
| Asset |  | (Level | Inputs | Inputs |
| Class | Total | 1) | (Level\t2) | (Level\t3) |
| In\tmillions |  |  |  |  |
| Equities\t-\tdomestic | $1,260 | $692 | $564 | $4 |
| Equities\t-\tinternational | \t 1,413 | 853 | 559 | 1 |
| Corporate\tbonds | 635 | – | 633 | 2 |
| Common\tcollective\tfunds |  |  |  |  |
| -\tfixed\tincome | 299 | – | 270 | 29 |
| Government\tsecurities | 676 | – | 673 | 3 |
| Mortgage\tbacked |  |  |  |  |
| securities | 175 | – | – | 175 |
| Other\tfixed\tincome | 34 | – | 10 | 24 |
| Hedge\tfunds | 668 | – | – | 668 |
| Real\testate | 457 | – | – | 457 |
| Private\tequity | 344 | – | – | 344 |
| Derivatives | 269 | – | – | 269 |
| Commodities | 192 | – | 18 | 174 |
| Other | 7 | 7 | – | – |
| Cash\tand\tcash |  |  |  |  |
| equivalents | 355 | 2 | 353 | – |
| Total\tinvestments | $6,784 | $1,554 | $3,080 | $2,150 |

Equity	securities	consist	primarily	of	publicly	traded	U.S.	and	international companies.	Publicly	traded	equities	are	valued	at	closing	prices	reported in	the	active	market	in	which	the	individual	securities	are	traded.

Fixed	 income	 consists	 of	 corporate	 bonds,	 government	 securities, mortgage	backed	securities,	and	common	collective	funds.	Government securities	are	valued	at	closing	prices	reported	in	the	active	market	in which	the	individual	security	is	traded.	Corporate	bonds	are	valued	using either	the	yields	currently	available	on	comparable	securities	of	issuers with	similar	credit	ratings	or	using	a	discounted	cash

flow	approach	that	utilizes	observable	inputs,	such	as	current	yields	of similar	instruments,	but	includes	adjustments	for	certain	risks	that	may not	be	observable,	such	as	credit	and	liquidity	risks.

Other	 investments	 are	 valued	 at	 net	 asset	 value,	 which is	 calculated using	the	most	recent	partnership	financial	reports.

Common	collective	 funds	are	valued	at	 the	net	asset	value	per	share multiplied	by	the	number	of	shares	held	as	of	the	measurement	date.

Private	equity	consists	of	interests	in	partnerships	that	invest	in	U.S.	and non-U.S.	debt	and	equity	secu	-

rities.	 Partnership	 interests	 are	 valued	 using	 the	 most	 recent	 general partnership	 statement	 of	 fair	 value,	 updated	 for	 any	 subsequent partnership	interest	cash	flows.

Commodities	 consist	 of	 commodity-linked	 notes	 and	 commodity-linked derivative	 contracts.	 Commodities	 are	 valued	 at	 closing	 prices determined	by	calculation	agents	for	outstanding	transactions.

Derivative	investments	such	as	futures,	forward	contracts,	options,	and swaps	 are	 used	 to	 help	 manage	 risks.	 Derivative	 instruments	 are generally	valued	by	investment	managers	or	in	certain	instances	by	third party	pricing	sources.

The	fair	value	measurements	using	significant	unobservable	inputs	(Level	3)	at	December	31,	2009	are	as	follows:

# Fair	Value	Measurements	Using	Significant

# Unobservable	Inputs	(Level	3)

|  |  |  | Common |  |  | Mortgage | Other |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Equities- | Equities- | Collective | Corporate | Government | Backed | Fixed | Comm- | Hedge | Private | Real | Deriv- |  |
| In\tmillions | Domestic | International | Funds | Bonds | Securities | Securities | Income | odities | Funds | Equity | Estate | atives | Total |
| Beginning\tbalance\tat\tDecember\t31, |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2008 | $4 | $\t1 | $61 | $– | $– | $257 | $12 | $149 | $595 | $345 | $598 | $236 | $2,258 |
| Actual\treturn\ton\tplan\tassets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Relating\tto\tassets\tstill\theld\tat\tthe |  |  |  |  |  |  |  |  |  |  |  |  |  |
| reporting\tdate | 2 | 3 | (18) | – | 1 | 50 | 6 | 44 | 102 | (17) | (168) | 35 | 40 |
| Relating\tto\tassets\tsold\tduring\tthe |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period | (2) | (2) | 20 | – | – | (16) | – | (2) | (8) | (15) | – | 6 | (19) |
| Purchases,\tsales\tand\tsettlements | – | (1) | (34) | 1 | 1 | (129) | – | (17) | (21) | 31 | 27 | (8) | (150) |
| Transfers\tin\tand/or\tout\tof\tLevel\t3 | – | – | – | 1 | 1 | 13 | 6 | – | – | – | – | – | 21 |
| Ending\tbalance\tat\tDecember\t31,\t2009 | $4 | $1 | $29 | $2 | $3 | $175 | $24 | $174 | $668 | $344 | $457 | $269 | $2,150 |

At	 December 31, 2009,	 projected	 future	 pension benefit payments, excluding	any	termination	benefits,	are	as	follows:

# Pension	Plan	Asset	/	Liability

As	 required	 by	ASC	 715,	 "Compensation	 –	 Retirement	 Benefits,"	 the pension	 plan	 funded	 status	 must	 be	 recorded	 on	 the	 consolidated balance	sheet.	Therefore,	pension	plan	gains	or	losses	and	prior	service costs	not	yet	recognized	in	net	periodic	cost	are	recognized	on	a	net-of- tax	basis	in	OCI.	These	amounts	will	be	subject	to	amortization	in	the future.	 At	 December	 31,	 2009,	 the	 fair	 value	 of	 plan	 assets	 for	 the domestic	 qualified	 pension	 plan	 was	 less	 than	 the	 projected	 benefit obligation	(PBO).	However,	the	deficit	was	lower	than	at	December	31, 2008,	resulting	in	a	decrease	in	the	recorded	minimum	pension	obligation of	$468	million	and	an	after-tax	credit	to	OCI	of	$318	million.	An	after-tax charge	to	OCI	of	$1.8	billion	and	an	after-tax	credit	of	$361	million	had been	 recorded	 for	 2008	 and	 2007,	 respectively.	 For	 the	 unfunded nonqualified	 plans,	 changes	 in	 the	 liabilities	 resulted	 in	 an	 after-tax charge	to	OCI	of	$9	million	in	2009	and	an	after-tax	charge	to	OCI	of	$5 million	and	an	after-tax	credit	to	OCI	of	$10	million	in	2008	and	2007, respectively.	In	2008,	in	conjunction	with	the	CBPR	business	acquisition, the	Company	acquired	a	small	overfunded	pension	plan	covering	hourly employees	 at	 the	 Albany,	 Oregon	 mill.	 For	 this	 plan,	 the	 Company recorded	an	after-tax	charge	to	OCI	of	$13	million	at	December	31,	2008.

The	accumulated	benefit	obligation	for	all	defined	benefit	plans	was	$9.3 billion	and	$9.0	billion	at	December	31,	2009	and	2008,	respectively.

The	 following	 table	 summarizes	 information	 for	 pension	 plans	 with	 an accumulated	benefit	obligation	in	excess	of	plan	assets	at	December	31, 2009	and	2008.

# Unrecognized	Actuarial	Losses

ASC	 715,	 "Compensation	 –	 Retirement	 Benefits"	 provides	 for	 delayed recognition	of	actuarial	gains	and	losses,	including	amounts	arising	from changes	 in	 the	 estimated	 projected	 plan	 benefit	 obligation	 due	 to changes	in	the	assumed	discount	rate,	differences	between	the	actual and	 expected	 return	 on	 plan	 assets	 and	 other	 assumption	 changes. These	net	gains	and	losses	are	recognized	prospectively	over	a	period that	 approximates	 the	 average	 remaining	 service	 period	 of	 active employees	expected	to	receive	benefits	under	the	plans	(approximately	9 years	as	of	December	31,	2009)	to	the	extent	that	they	are	not	offset	by gains	in	subsequent	years.	The	estimated	net	loss	and	prior	service	cost that	will	be	amortized	from	AOCI	into	net	periodic	pension	cost	during	the next	 fiscal	 year	 are	 expected	 to	 be $178	 million and	 $30	 million, respectively.

The	following	table	shows	the	changes	in	the	benefit	obligation	and	plan assets for	 2009	 and	 2008,	 and the	 plans' funded	 status.	 The	 benefit obligation	as	of	December	31,	2009	increased	by	$269	million,	principally as	 a result	 of	 a	 decrease in the	 discount rate	 assumption	 used in computing the	 estimated	 benefit	 obligation.	 Plan	 assets increased	 by $705	million,	reflecting	favorable	investment	results.	The	fair	value	of	plan assets is	 determined	 using	 quoted	 closing	 market	 prices for	 publicly traded securities, where available. Investments without readily determinable	market	prices	are	valued	at	their	estimated	fair	values.

| In	millions | 2009 | 2008 |
| :--- | :--- | :--- |
| Change\tin\tprojected\tbenefit\tobligation: |  |  |
| Benefit\tobligation,\tJanuary\t1 | $ 9,275 | $ 8,783 |
| Service\tcost | 120 | 105 |
| Interest\tcost | 537 | 540 |
| Actuarial\tloss | 134 | 327 |
| Benefits\tpaid | (617) | (580) |
| Divestitures | – | 71 |
| Restructuring | 2 | (2) |
| Special\ttermination\tbenefits | 83 | 14 |
| Plan\tamendments | 10 | 17 |
| Benefit\tobligation,\tDecember\t31 | $ 9,544 | $ 9,275 |
| Change\tin\tplan\tassets: |  |  |
| Fair\tvalue\tof\tplan\tassets,\tJanuary\t1 | $ 6,079 | $ 8,540 |
| Actual\treturn\ton\tplan\tassets | 1,287 | (2,001) |
| Company\tcontributions | 35 | 25 |
| Benefits\tpaid | (617) | (580) |
| Acquisitions | – | 95 |
| Fair\tvalue\tof\tplan\tassets,\tDecember\t31 | $ 6,784 | $ 6,079 |
| Funded\tstatus,\tDecember\t31 | $(2,760) | $(3,196) |
| Amounts\trecognized\tin\tthe\tconsolidated\tbalance\tsheet: |  |  |
| Non-current\tasset | $– | $26 |
| Current\tliability | (41) | (24) |
| Non-current\tliability | (2,719) | (3,198) |
|  | $(2,760) | $(3,196) |
| Amounts\trecognized\tin\taccumulated\tother |  |  |
| comprehensive\tincome\tunder\tASC\t715 |  |  |
| (pre-tax): |  |  |
| Net\tactuarial\tloss | $ 3,712 | $ 4,389 |
| Prior\tservice\tcost | 206 | 226 |
|  | $ 3,918 | $ 4,615 |

The	components	of	the	$697	million	decrease	in	the	amounts	recognized in	OCI	during	2009	consisted	of:

# NON-U.S.	DEFINED	BENEFIT	PLANS

Generally,	International	Paper's	non-U.S.	pension	plans	are	funded	using the	 projected	 benefit	 as	 a	 target,	 except	 in	 certain	 countries	 where funding	of	benefit	plans	is	not	required.	Net	periodic	pension	expense	for non-U.S.	plans	was	as	follows:

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $4 | $7 | $8 |
| Interest\tcost | 12 | 11 | 11 |
| Expected\treturn\ton\tplan\tassets | (10) | (13) | (13) |
| Actuarial\tgain | (2) | (1) | (1) |
| Curtailment\tgain | (1) | – | – |
| Net\tperiodic\tpension\texpense\t(a) | $3 | $4 | $5 |

(a) Excludes	$3.4	million	in	curtailment	gains	in	2007,	primarily	related	to	the	sale	of	Beverage Packaging	and	Arizona	Chemical.

|  | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 6.37% | 6.40% | 5.66% |
| Expected\tlong-term\trate\tof\treturn |  |  |  |
| on\tplan\tassets | 8.88% | 8.87% | 8.37% |
| Rate\tof\tcompensation\tincrease | 3.81% | 3.55% | 3.52% |

| In	millions | 2009 | 2008 |
| :--- | :--- | :--- |
| Change\tin\tprojected\tbenefit\tobligation: |  |  |
| Benefit\tobligation,\tJanuary\t1 | $168 | $180 |
| Service\tcost | 4 | 7 |
| Interest\tcost | 12 | 11 |
| Participants'\tcontributions | – | 1 |
| Acquisitions | – | 6 |
| Curtailments | (5) | – |
| Actuarial\tloss | – | 10 |
| Benefits\tpaid | (12) | (8) |
| Plan\tamendments | – | (1) |
| Effect\tof\tforeign\tcurrency\texchange |  |  |
| rate\tmovements | 19 | (38) |
| Benefit\tobligation,\tDecember\t31 | $186 | $168 |
| Change\tin\tplan\tassets: |  |  |
| Fair\tvalue\tof\tplan\tassets,\tJanuary\t1 | $115 | $162 |
| Actual\treturn\ton\tplan\tassets | 20 | (13) |
| Company\tcontributions | 7 | 8 |
| Benefits\tpaid | (12) | (8) |
| Participants'\tcontributions | – | 1 |
| Effect\tof\tforeign\tcurrency\texchange\trate\tmovements | 20 | (35) |
| Fair\tvalue\tof\tplan\tassets,\tDecember\t31 | $150 | $115 |
| Funded\tstatus,\tDecember\t31 | $ (36) | $ (53) |
| Amounts\trecognized\tin\tthe\tconsolidated\tbalance\tsheet: |  |  |
| Non-current\tasset | $12 | $11 |
| Current\tliability | (2) | (2) |
| Non-current\tliability | (46) | (62) |
|  | $ (36) | $ (53) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tincome |  |  |
| (pre-tax): |  |  |
| Prior\tservice\tcost | $– | $– |
| Net\tactuarial\t(gain)\tloss | (1) | 13 |
|  | $(1) | $13 |

The	portion	of	the	change	in	the	funded	status	that	was	recognized	in either	net	periodic	benefit	cost	or	OCI	was	$(11)	million,	$40	million	and $(41)	million	for	2009,	2008	and	2007,	respectively.

For	non-U.S.	plans	with	accumulated	benefit	obligations	in	excess	of	plan assets,	the	projected	benefit	obligations,	accumulated	benefit	obligations and	fair	values	of	plan	assets	totaled	$129	million,	$121	million	and	$81 million,	 respectively,	 at	 December 31, 2009.	 Plan	 assets	 consist principally	of	common	stock	and	fixed	income	securities.

# OTHER	PLANS

International	Paper	sponsors	defined	contribution	plans	(primarily	401(k) plans)	 to	 provide	 substantially	 all	 U.S.	 salaried	 and	 certain	 hourly employees	of	International	Paper	an	opportunity	to	accumulate	personal funds,	 and	 to	 provide	 additional	 benefits	 to	 employees	 hired	 after June	 30,	 2004	 for	 their	 retirement.	 Contributions	 may	 be	 made	 on	 a before-tax	or	after-tax	basis	to	substantially	all	of	these	plans.

As	 determined	 by	 the	 provisions	 of	 each	 plan,	 International	 Paper matches	the	employees'	elective	contributions	and,	for	employees	hired after	 June 30, 2004,	 contributes	 an	 additional	 percentage	 of	 pay. Beginning	 in	 February	 2009,	 matching	 contributions	 to	 the	 salaried savings	 plan	 were	 made	 in	 Company	 stock.	 Company	 matching contributions	to	the	plans	totaled	approximately	$121	million,	$80	million and	 $91	 million	 for	 the	 plan	 years	 ending	 in	 2009,	 2008	 and	 2007, respectively.

# NOTE	17	POSTRETIREMENT	BENEFITS

# U.S.	POSTRETIREMENT	BENEFITS

International	Paper	provides	certain	retiree	health	care	and	life	insurance benefits	 covering	 certain	 U.S.	 salaried	 and	 hourly	 employees.	 These employees	 are	 generally	 eligible	 for	 benefits	 upon	 retirement	 and completion	of	a	specified	number	of	years	of	creditable	service.	Excluded from	company-provided	medical	benefits	are	salaried	employees	whose age	plus	years	of	employment	with	the	Company	totaled	less	than	60	as of	January	1,	2004.	International	Paper	does	not	fund	these	benefits	prior to	payment	and	has	the	right	to	modify	or	terminate	certain	of	these	plans in	the	future.

The	components	of	postretirement	benefit	expense	in	2009,	2008	and 2007,	were	as	follows:

| In	millions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $2 | $3 | $1 |
| Interest\tcost | 31 | 34 | 34 |
| Actuarial\tloss | 23 | 29 | 23 |
| Amortization\tof\tprior\tservice\tcredits | (29) | (38) | (43) |
| Net\tpostretirement\tbenefit\texpense\t(a) | $27 | $28 | $15 |

(a)Excludes	$0.8	million	and	$0.7	million	of	curtailment	gains	in	2008	and	2007,	respectively, and	$2.8	million	and	$0.5	million	of	 termination	benefits	 in	2009	and	2008,	respectively, related	 to	 cost	 reduction	 programs	 and	 facility	 rationalizations	 that	 were	 recorded	 in Restructuring	and	other	charges	in	the	consolidated	statement	of	operations.	Also	excludes $13.2	million	in	curtailment	gains	in	2007	and	$3.3	million	of	termination	benefits	in	2007    related	to	certain	divestitures	recorded	in	Net	losses	(gains)	on	sales	and	impairments	of    businesses	in	the	consolidated	financial	statements.

International	 Paper	 evaluates its	 actuarial	 assumptions	 annually	 as	 of December	31	(the	measurement	date)	and	considers	changes	in	these long-term	factors	based	upon	market	conditions	and	the	requirements	of employers'	accounting	for	postretirement	benefits	other	than	pensions.

The	weighted	average	assumptions	used	to	determine	the	benefit obligation	at	December	31,	2009	and	2008	were	as	follows:

A	1%	increase	in	the	assumed	annual	health	care	cost	trend	rate	would have increased the	 accumulated	 postretirement	 benefit	 obligation	 at December	31,	2009	by	approximately	$24	million.	A	1%	decrease	in	the annual	trend	rate	would	have	decreased	the	accumulated	postretirement benefit	obligation	at	December	31,	2009	by	approximately	$21	million. The	 effect	 on	 net	 postretirement	 benefit	 cost from	 a	 1% increase	 or decrease	would	be	approximately	$2	million.

The	plan	is	only	funded	in	an	amount	equal	to	benefits	paid.	The	following table	presents	the	changes	in	benefit	obligation	and	plan	assets	for	2009 and	2008:

The non-current portion of the liability is included with the postemployment	liability	in	the	accompanying	consolidated	balance	sheet under Postretirement and postemployment benefit obligation. In accordance	 with	 guidance	 under	ASC	 715,	 an	 after-tax	 credit	 of	 $41 million and an after-tax charge of $16	 million	 was recorded as of December	31,	2009	and	2008,	respectively.

The	portion	of	the	change	in	the	funded	status	that	was	recognized	in either	net	periodic	benefit	cost	or	OCI	was	$(70)	million,	$10	million	and $94	million	in	2009,	2008	and	2007,	respectively.

The	estimated	amount	of	net	 loss	and	prior	service	credit	 that	will	be amortized	 from	 OCI	 into	 net	 postretirement	 benefit	 cost	 in	 2010	 are expected	to	be	$18	million	and	$31	million,	respectively.

At	 December	 31,	 2009,	 estimated	 total	 future	 postretirement	 benefit payments,	net	of	participant	contributions	and	estimated	future	Medicare Part	D	subsidy	receipts,	are	as	follows:

|  | Benefit | Subsidy |
| :--- | :--- | :--- |
| In\tmillions | Payments | Receipts |
| 2010 | $58 | $12 |
| 2011 | 58 | 12 |
| 2012 | 57 | 13 |
| 2013 | 61 | 15 |
| 2014 | 60 | 16 |
| 2015\t–\t2019 | 276 | 83 |

# NON-U.S.	POSTRETIREMENT	BENEFITS

In	addition	to	the	U.S.	plan,	certain	Canadian,	Brazilian	and	Moroccan employees	are	eligible	for	retiree	health	care	and	life	insurance	benefits. Net	postretirement	benefit	cost	for	our	non-U.S.	plans	was	$3	million	for 2009,	$3	million	for	2008	and	$8	million	for	2007.	The	benefit	obligation for	 these	plans	was	$18	million	 in	2009,	$19	million	 in	2008	and	$28 million	in	2007.

# NOTE	18	INCENTIVE	PLANS

International	Paper	currently	has	an	Incentive	Compensation	Plan	(ICP) that,	upon	 the	approval	by	 the	Company's	shareholders	 in	May	2009, replaced	 the	 Company's	 Long-Term	 Incentive	 Compensation	 Plan (LTICP).	 The	 ICP	 authorizes	 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,	 and	 cash-based awards	 at	 the	 discretion	 of	 the	 Management	 Development	 and Compensation	Committee	of	the	Board	of	Directors	(the	Committee)	that administers	the	ICP.	Additionally,	stock	appreciation	rights	(SAR's)	have been	awarded	to	employees	of	a	non-U.S.	subsidiary,	with	3,310	rights outstanding	 at	 December	 31,	 2009	 and	 2008.	 Restricted	 stock	 units (RSU's)	were	also	awarded	to	certain	non-U.S.	employees	in	2008	with 44,100	and	59,100	units	outstanding	at	December	31,	2009	and	2008, respectively.	Additionally,	 restricted	 stock,	 which	 may	 be	 deferred	 into RSU's,	 may	 be	 awarded	 under	 a	 Restricted	 Stock	 and	 Deferred Compensation	Plan	for	Non-Employee	Directors.

# STOCK	OPTION	PROGRAM

International	 Paper	 accounts	 for	 stock	 options	 in	 accordance	 with guidance	 under	 ASC 718, "Compensation	 –	 Stock	 Compensation." Compensation	 expense	 is	 recorded	 over	 the	 related	 service	 period based	on	the	grant-date	fair	market	value.	Since	all	outstanding	options were	vested	as	of	July	14,	2005,	only	replacement	option	grants	were expensed	 in	 2007.	 No	 replacement	 options	 were	 granted	 in	 2008	 or 2009.

Under	 the	program,	upon	exercise	of	an	option,	a	replacement	option may	be	granted	under	certain	circumstances	with	an	exercise	price	equal to	the	market	price	at	the	time	of	exercise	and	with	a	term	extending	to the	expiration	date	of	the	original	option.

The	 Company	 has	 discontinued	 the	 issuance	 of	 stock	 options	 for	 all eligible	 U.S.	 and	 non-U.S.	 employees.	 In	 the	 United	 States,	 the	 stock option	program	was	replaced	with	a	performance-based	restricted	share program	 to	 more	 closely	 tie	 long-term	 incentive	 compensation	 to Company	 performance	 on	 two	 key	 performance	 drivers:	 return	 on investment	(ROI)	and	total	shareholder	return	(TSR).

The	fair	market	value	of	each	option	grant	has	been	estimated	on	the date	of	the	grant	using	the	Black-Scholes	option	pricing	model	with	the following	weighted	average	assumptions	used	for	grants	in	2007:

|  | 2007 |
| :--- | :--- |
| Replacement\tOptions\t(a) |  |
| Risk-free\tinterest\trate | 4.92% |
| Price\tvolatility | 20.46% |
| Dividend\tyield | 2.74% |
| Expected\tterm\tin\tyears | 2.00 |

(a)The	average	fair	market	values	of	replacement	option	grants	during	2007	was	$4.68.

The	following	summarizes	the	status	of	the	Stock	Option	Program	and the	changes	during	the	three	years	ending	December	31,	2009:

|  | Options<br>(a,b) | Weighted<br>Average<br>Exercise<br>Price | Weighted<br>Average<br>Remaining<br>Life<br>(years) | Aggregate<br>Intrinsic<br>Value<br>(thousands) |
| :--- | :--- | :--- | :--- | :--- |
| Outstanding\tat\tDecember\t31,\n2006 | 35,982,698 | $39.52 | 5.08 | $1,422 |
| Granted | 1,120 | 36.54 |  |  |
| Exercised | (3,538,171) | 34.40 |  |  |
| Forfeited | (457,200) | 46.97 |  |  |
| Expired | (3,974,712) | 41.18 |  |  |
| Outstanding\tat\tDecember\t31, |  |  |  |  |
| 2007 | 28,013,735 | 39.81 | 4.40 | 1,115 |
| Granted | – | – |  |  |
| Exercised | (14,800) | 31.55 |  |  |
| Forfeited | (189,158) | 43.44 |  |  |
| Expired | (2,716,655) | 40.83 |  |  |
| Outstanding\tat\tDecember\t31, |  |  |  |  |
| 2008 | 25,093,122 | 39.68 | 3.66 | – |
| Granted | – | – |  |  |
| Exercised | – | – |  |  |
| Forfeited | (558,470) | 44.40 |  |  |
| Expired | (2,317,595) | 42.74 |  |  |
| Outstanding\tat\tDecember\t31,\n2009 | 22,217,057 | $39.24 | 2.73 | $– |

(a)The	table	does	not	include	Continuity	Award	tandem	stock	options	described	below.	No	fair market	value	is	assigned	to	these	options	under	ASC	718.	The	tandem	restricted	shares accompanying	these	options	are	expensed	over	their	vesting	period.

(b)The	table	includes	options	outstanding	under	an	acquired	company	plan	under	which	options may	no	longer	be	granted.

# PERFORMANCE-BASED	RESTRICTED	SHARES

Under	 the	 Performance	 Share	 Program	 (PSP),	 contingent	 awards	 of International	Paper	common	stock	are	granted	by	the	Committee.	The PSP	 awards	 are	 earned	 over	 a	 three-year	 period.	 One-fourth	 of	 the award	 is	 earned	 during	 each	 twelve-month	 period,	 with	 the	 final	 one- fourth	segment	earned	over	the	full	three-year	period.	PSP	awards	are earned	based	on	 the	achievement	of	defined	performance	rankings	of return	on	investment	(ROI)	and	total	shareholder	return	(TSR)	compared to	ROI	and	TSR	peer	groups	of	companies.	Awards	are	weighted	75% for	ROI	and	25%	for	TSR	for	all	participants	except	for	officers	for	whom the	 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,	a	risk-free	rate,	expected	dividends,	and	the	expected volatility	 for	 the	 Company	 and	 its	 competitors.	 The	 expected	 term	 is estimated	based	on	the	vesting	period	of	the	awards,	the	risk-free	rate	is based	 on	 the	 yield	 on	 U.S.	 Treasury	 securities	 matching	 the	 vesting period,	the	expected	dividends	are	assumed	to	be	zero	for	all	companies, and	the	volatility	is	based	on	the	Company's	historical	volatility	over	the expected	term.

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

The	 following	 table	 sets	 forth	 the	 assumptions	 used	 to	 determine compensation	cost	for	the	market	condition	component	of	the	PSP	plan:

The	 following	 summarizes	 PSP activity for the three years ending December	31,	2009:

|  |  | Weighted |
| :--- | :--- | :--- |
|  |  | Average |
|  |  | Grant\tDate |
|  | Shares | Fair\tValue |
| Outstanding\tat\tDecember\t31,\t2006 | 5,504,458 | $38.61 |
| Granted | 2,494,055 | 33.76 |
| Shares\tissued | (1,562,174) | 42.55 |
| Forfeited | (219,327) | 38.74 |
| Outstanding\tat\tDecember\t31,\t2007 | 6,217,012 | 35.67 |
| Granted | 3,984,146 | 36.26 |
| Shares\tissued | (3,639,012) | 41.54 |
| Forfeited | (307,890) | 34.50 |
| Outstanding\tat\tDecember\t31,\t2008 | 6,254,256 | 32.69 |
| Granted | 4,102,197 | 19.10 |
| Shares\tissued\t(a) | (3,576,109) | 33.21 |
| Forfeited | (714,294) | 23.41 |
| Outstanding\tat\tDecember\t31,\t2009 | 6,066,050 | $24.28 |

(a)Includes	585,709	shares	related	to	retirements	or	terminations	that	are	held	for	payout	until the	end	of	the	performance	period.

# EXECUTIVE	CONTINUITY	AND	RESTRICTED	STOCK	AWARD	PROGRAMS

The	 Executive	 Continuity	Award	 program	 provides	 for	 the	 granting	 of tandem	awards	of	restricted	stock	and/or	nonqualified	stock	options	to key	 executives.	 Grants	 are	 restricted	 and	 awards	 conditioned	 on attainment	of	a	specified	age.	The	awarding	of	a	tandem	stock	option results	in	the	cancellation	of	the	related	restricted	shares.

The	service-based	Restricted	Stock	Award	program	(RSA),	designed	for recruitment,	retention	and	special	recognition	purposes,	also	provides	for awards	of	restricted	stock	to	key	employees.

The	following	summarizes	the	activity	of	the	Executive	Continuity	Award program	 and	 RSA	 program	 for	 the	 three	 years	 ending	 December	 31, 2009:

|  |  | Weighted |
| :--- | :--- | :--- |
|  |  | Average |
|  |  | Grant\tDate |
|  | Shares | Fair\tValue |
| Outstanding\tat\tDecember\t31,\t2006 | 177,250 | $37.21 |
| Granted | 14,000 | 33.85 |
| Shares\tissued | (68,625) | 36.57 |
| Forfeited | – | – |
| Outstanding\tat\tDecember\t31,\t2007 | 122,625 | 37.18 |
| Granted | 18,000 | 28.34 |
| Shares\tissued | (35,625) | 38.91 |
| Forfeited | (3,000) | 33.70 |
| Outstanding\tat\tDecember\t31,\t2008 | 102,000 | 35.11 |
| Granted | 5,000 | 11.80 |
| Shares\tissued | (4,000) | 28.74 |
| Forfeited | (20,000) | 35.49 |
| Outstanding\tat\tDecember\t31,\t2009 | 83,000 | $33.93 |

Total	 stock-based	 compensation	 cost	 recognized	 in	 Selling	 and administrative	expense	in	the	accompanying	consolidated	statement	of operations	for	the	years	ended	December	31,	2009,	2008	and	2007	was $100	million,	$66	million	and	$124	million,	respectively.	The	actual	tax deduction	realized	 for	stock-based	compensation	costs	related	 to	non- qualified	 stock	 options	 was	 $0,	 $19,000	 and	 $15	 million	 for	 the	 years ended	December	31,	2009,	2008	and	2007,	respectively.	The	actual	tax deduction	 realized	 for	 stock-based	 compensation	 costs	 related	 to restricted	and	performance	shares	was	$28	million,	$130	million	and	$60 million	 for	 the	 years	 ended	 December 31, 2009,	 2008	 and	 2007, respectively.	At	December	31,	2009,	$49.7	million	of	compensation	cost, net	of	estimated	forfeitures,	related	to	unvested	restricted	performance shares,	executive	continuity	awards	and	restricted	stock	attributable	 to future	 performance	 had	 not	 yet	 been	 recognized.	This	 amount	 will	 be recognized	in	expense	over	a	weighted-average	period	of	1.4	years.

# INTERIM	FINANCIAL	RESULTS	(UNAUDITED)

| prices | Quarter | Quarter | Quarter | Quarter |  | Year |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2009 |  |  |  |  |  |  |  |
| Net\tsales | $5,668 | $5,802 | $5,919 | $5,977 |  | $23,366 |  |
| Gross\tmargin\t(a) | 1,937 | 2,021 | 2,161 | 2,027 |  | 8,146 |  |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |  |  |  |  |  |
| operations\tbefore\tincome\ttaxes |  |  |  |  |  |  |  |
| and\tequity\tearnings | 518\t^(b) | 520\t^(c) | 589^\t\t(e) | (428)^\t(f) | (428)^\t(f) | 1,199^\t(b,c,e,f) | 1,199^\t(b,c,e,f) |
| Net\tearnings\t(loss)\tattributable\tto |  |  |  |  |  |  |  |
| International\tPaper\tCompany | 257\t^(b) | 136^\t(c,d) | 371\t^(e) | (101)^\t(f,g) | (101)^\t(f,g) | 663\t^(b-g) | 663\t^(b-g) |
| Basic\tearnings\t(loss)\tper\tshare |  |  |  |  |  |  |  |
| attributable\tto\tInternational\tPaper |  |  |  |  |  |  |  |
| Company\tcommon\tshareholders | $\t0.61\t^(b) | $\t0.32\t^(c,d) | $\t0.87^\t(e) | $(0.24)^\t(f,g) | $(0.24)^\t(f,g) | $1.56^\t(b-g) | $1.56^\t(b-g) |
| Diluted\tearnings\t(loss)\tper\tshare |  |  |  |  |  |  |  |
| attributable\tto\tInternational\tPaper |  |  |  |  |  |  |  |
| Company\tcommon\tshareholders | 0.61\t^(b) | 0.32\t^(c,d) | 0.87^\t(e) | (0.24)\t^(f,g) | (0.24)\t^(f,g) | 1.55\t^(b-g) | 1.55\t^(b-g) |
| Dividends\tper\tshare\tof\tcommon |  |  |  |  |  |  |  |
| stock | 0.25 | 0.025 | 0.025 | 0.025 |  | 0.325 |  |
| Common\tstock\tprices |  |  |  |  |  |  |  |
| High | $12.74 | $15.96 | $25.30 | $27.79 |  | $27.79 |  |
| Low | 3.93 | 6.80 | 13.82 | 20.38 |  | 3.93 |  |
| 2008 |  |  |  |  |  |  |  |
| Net\tsales | $5,668 | $5,807 | $6,808 | $6,546 |  | $24,829 |  |
| Gross\tmargin\t(a) | 1,407 | 1,502 | 1,654 | 1,524 |  | 6,087 |  |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |  |  |  |  |  |
| operations\tbefore\tincome\ttaxes\tand |  |  |  |  |  |  |  |
| equity\tearnings | 198\t^(h) | 302\t^(j) | 265\t^(k) | (1,918)\t^(l) | (1,918)\t^(l) | (1,153)\t^(h,j,k,l) | (1,153)\t^(h,j,k,l) |
| Gain\t(loss)\tfrom\tdiscontinued |  |  |  |  |  |  |  |
| operations | (17)\t^(i) | (1) | – | 5\t(m) | 5\t(m) | (13)\t^(i,m) | (13)\t^(i,m) |
| Net\tearnings\t(loss)\tattributable\tto |  |  |  |  |  |  |  |
| International\tPaper\tCompany | 133\t^(h,i) | 227\t^(j) | 149\t^(k) | (1,791)\t^(l,m,n) | (1,791)\t^(l,m,n) | (1,282)\t^(h-n) | (1,282)\t^(h-n) |
| Basic\tearnings\t(loss)\tper\tshare |  |  |  |  |  |  |  |
| attributable\tto\tInternational\tPaper |  |  |  |  |  |  |  |
| Company\tcommon\tshareholders: |  |  |  |  |  |  |  |
| Earnings\t(loss)\tfrom\tcontinuing |  |  |  |  |  |  |  |
| operations | $\t0.36\t^(h) | $\t0.54\t^(j) | $\t0.35\t^(k) | $(4.26)\t^(l) | $(4.26)\t^(l) | $(3.02)\t^(h,j,k,l) | $(3.02)\t^(h,j,k,l) |
| Gain\t(loss)\tfrom\tdiscontinued |  |  |  |  |  |  |  |
| operations | (0.04)\t^(i) | – | – | 0.01\t^(m) | 0.01\t^(m) | (0.03)\t^(i,m) | (0.03)\t^(i,m) |
| Net\tearnings\t(loss) | 0.32\t^(h,i) | 0.54\t^(j) | 0.35\t^(k) | (4.25)\t^(l,m,n) | (4.25)\t^(l,m,n) | (3.05)\t^(h-n) | (3.05)\t^(h-n) |
| Diluted\tearnings\t(loss)\tper\tshare |  |  |  |  |  |  |  |
| attributable\tto\tInternational\tPaper |  |  |  |  |  |  |  |
| Company\tcommon\tshareholders: |  |  |  |  |  |  |  |
| Earnings\t(loss)\tfrom\tcontinuing | $\t0.35\t^(h) | $\t0.54\t^(j) | $\t0.35\t^(k) | $(4.26)\t^(l) | $(4.26)\t^(l) | $(3.02)\t^(h,j,k,l) | $(3.02)\t^(h,j,k,l) |
| operations |  |  |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued |  |  |  |  |  |  |  |
| operations | (0.04)\t^(i) | – | – | 0.01\t^(m) | 0.01\t^(m) | (0.03)\t^(i,m) | (0.03)\t^(i,m) |
| Net\tearnings\t(loss) | 0.31\n(h,i) | 0.54\t^(j) | 0.35\t^(k) | (4.25\t) | (l,m,n) | (3.05) | (h-n) |
| Dividends\tper\tshare\tof\tcommon\tstock | 0.25 | 0.25 | 0.25 | 0.25 |  | 1.00 |  |
| Common\tstock\tprices |  |  |  |  |  |  |  |
| High | $33.77 | $29.37 | $31.07 | $26.64 |  | $33.77 |  |
| Low | 26.59 | 23.14 | 21.66 | 10.20 |  | 10.20 |  |

Note:	Since	basic	and	diluted	earnings	per	share	are	computed	independently	for	each	period	and	category,	full	year	per	share	amounts	may	not	equal	the	sum	of	the	four	quarters.

# Footnotes	to	Interim	Financial	Results

(a) Gross	 margin	 represents	 net	 sales	 less	 cost	 of	 products	 sold, excluding	depreciation,	amortization	and	cost	of	timber	harvested.

(b) Includes	 a	 pre-tax	 gain	 of	 $540	 million	 ($330	 million	 after	 taxes) related	 to	 alternative	 fuel	 mixture	 credits,	 a	 pre-tax	 charge	 of	 $36 million	($22	million	after	taxes)	for	integration	costs	associated	with the	 Containerboard,	 Packaging	 and	 Recycling	 business	 (CBPR) acquired	in	August	2008,	a	pre-tax	charge	of	$52	million	($32	million after	 taxes)	 for	 severance	 and	 benefit	 costs	 associated	 with	 the Company's	2008	overhead	cost	reduction	initiative,	a	pre-tax	charge of	$23	million	($28	million	after	taxes)	for	closure	costs	associated with	the	Inverurie,	Scotland	mill,	a	pre-tax	charge	of	$6	million	($4 million	after	taxes)	for	shutdown	costs	associated	with	the	Franklin, Virginia	 lumber	 mill,	 sheet	 converting	 plant	 and	 converting innovations	center,	and	a	pre-tax	charge	of	$2	million	($1	million	after taxes)	for	shutdown	costs	associated	with	the	reorganization	of	the Company's	Shorewood	operations.

(c) Includes	 a	 pre-tax	 gain	 of	 $482	 million	 ($294	 million	 after	 taxes) related	 to	 alternative	 fuel	 mixture	 credits,	 a	 pre-tax	 charge	 of	 $18 million	($11	million	after	taxes)	for	integration	costs	associated	with the	CBPR	acquisition,	a	pre-tax	charge	of	$34	million	($21	million after	 taxes)	 for	 severance	 and	 benefit	 costs	 associated	 with	 the Company's	2008	overhead	cost	reduction	initiative,	a	pre-tax	charge of	$25	million	($16	million	after	taxes)	for	early	debt	extinguishment costs,	a	charge	of	$15	million	(before	and	after	taxes)	for	severance and	other	costs	associated	with	the	planned	closure	of	the	Etienne mill	in	France,	a	pre-tax	charge	of	$48	million	(before	and	after	taxes) to	write	down	the	assets	of	the	Etienne	mill	to	estimated	fair	value and	a	pre-tax	charge	of	$5	million	($3	million	after	taxes)	for	other items.

(d) Includes	a	$156	million	tax	expense	for	the	write-off	of	deferred	tax assets	 in	 France	 and	 a $26	 million tax	 benefit	 related	 to	 the settlement	of	the	2004	and	2005	U.S.	federal	income	tax	audit	and related	income	tax	effects.

($11	 million	 after	 taxes)	 for	 integration	 costs	 associated	 with	 the CBPR	acquisition,	a	pre-tax	charge	of	$39	million	($24	million	after taxes)	 for	 severance	 and	 benefit	 costs	 associated	 with	 the Company's	2008	overhead	cost	reduction	initiative,	a	pre-tax	charge of	$102	million	($62	million	after	taxes)	for	early	debt	extinguishment costs,	 a	 charge	 of	 $7	 million	 (before	 and	 after	 taxes)	 for	 costs associated	with	 the	planned	closure	of	 the	Etienne	mill	 in	France, and	a	pre-tax	charge	of	$3	million	($2	million	after	taxes)	for	other items.

(f) Includes	 a	 pre-tax	 gain	 of	 $516	 million	 ($469	 million	 after	 taxes) related	 to	 alternative	 fuel	 mixture	 credits,	 a	 pre-tax	 charge	 of	 $15 million	($10	million	after	taxes)	for	integration	costs	associated	with the	CBPR	acquisition,	pre-tax	charges	of	$469	million	($286	million after	taxes),	$290	million	($177	million	after	taxes)	and	$102	million ($62	million	after	taxes)	for	shutdown	costs	for	the	Albany,	Oregon, Franklin,	Virginia,	and	Pineville,	Louisiana	mills,	respectively,	a	pre- tax	charge	of	$82	million	($50	million	after	taxes)	for	costs	related	to the	shutdown	of	a	paper	machine	at	the	Valliant,	Oklahoma	mill,	a pre-tax	charge	of	$23	million	($15	million	after	taxes)	for	severance and	 benefit	 costs	 associated	 with	 the	 Company's	 2008	 overhead cost	reduction	initiative,	a	pre-tax	charge	of	$58	million	($35	million after	 taxes)	 for	 early	 debt	 extinguishment	 costs,	 a	 charge	 of	 $9 million	 (before	 and	 after	 taxes)	 for	 severance	 and	 other	 costs associated	with	the	planned	closure	of	the	Etienne	mill	in	France,	a pre-tax	charge	of	$8	million	(before	and	after	taxes)	related	to	the Company's	Etienne,	France	mill,	pre-tax	charges	of	$5	million	($3 million	after	taxes)	and	$2	million	($1	million	after	taxes)	for	costs associated	 with	 the	 reorganization	 of	 the	 Company's	xpedx	 and Shorewood	 operations,	 respectively,	 and	 a	 pre-tax	 charge	 of	 $3 million	($0	million	after	taxes)	for	other	items.

(g) Includes	a	$15	million	write-off	of	a	deferred	tax	asset	for	a	recycling tax	credit	in	the	state	of	Louisiana.

(h) Includes	 a	 $40	 million	 pre-tax	 charge	 ($25	 million	 after	 taxes)	 for adjustments	 to	 legal	 reserves,	 a	 pre-tax	 charge	 of	 $5	 million ($3 million	after	taxes)	for	costs	associated	with	the	reorganization	of	the Company's	Shorewood	operations	in	Canada,	and	a	pre-tax	gain	of $3	million	($2	million	after	taxes)	for

adjustments	 to	 previously	 recorded reserves	 associated	 with the Company's	2006	Transformation	Plan.

(i) Includes	a	pre-tax	charge	of	$25	million	($16	million	after	taxes)	for the	 settlement	 of	 a	 post-closing	 adjustment	 on	 the	 sale	 of	 the Beverage	Packaging	business	and	 the	operating	results	of	certain wood	products	facilities	during	the	quarter.

(j) Includes	a	pre-tax	charge	of	$13	million	($9	million	after	taxes)	for costs	 associated	 with	 the	 reorganization	 of	 the	 Company's Shorewood	operations	in	Canada,	and	a	pre-tax	gain	of	$3	million ($2	 million after	 taxes)	 for	 an	 adjustment	 to	 the	 gain	 on	 the Company's	2006	Transformation	Plan	forestland	sales.

(k) Includes	a	pre-tax	charge	of	$107	million	($84	million	after	taxes)	to write	down	the	assets	at	the	Inverurie,	Scotland	mill	to	estimated	fair value,	a	pre-tax	charge	of	$39	million	($24	million	after	taxes)	relating to	the	write-up	of	inventory	to	fair	value	in	connection	with	the	CBPR acquisition,	a	pre-tax	charge	of	$35	million	($22	million	after	taxes) for	an	adjustment	to	legal	reserves,	a	pre-tax	charge	of	$19	million ($12	 million	 after	 taxes)	 for	 integration	 costs	 associated	 with	 the CBPR	 acquisition,	 a	 pre-tax	 charge	 of	 $8	 million	 ($5	 million	 after taxes)	for	costs	associated	with	the	reorganization	of	the	Company's Shorewood	operations	 in	Canada,	a	pre-tax	charge	of	$53	million ($33	million	after	taxes)	to	write	off	deferred	supply	chain	initiative development	 costs	 for	 U.S.	 container	 operations	 that	 will	 not	 be implemented	 due	 to	 the	 CBPR	 acquisition,	 a	 charge	 of	 $1	 million (before	and	after	taxes)	for

severance costs associated with the Company's 2006 Transformation	Plan,	and	a	$3	million	pre-tax	gain	($2	million	after taxes)	 for	 adjustments	 of	 estimated	 transaction	 costs	 accrued	 in connection	with	the	2006	Transformation	Plan	forestland	sales.

(l) Includes	charges	of	$1.3	billion,	$379	million	and	$59	million	(before and	after	taxes)	for	the	impairment	of	goodwill	of	the	Company's	U.S. Printing	 Papers	 and	 U.S.	 and	 European	 Coated	 Paperboard businesses,	a	pre-tax	charge	of	$123	million	($75	million	after	taxes) for	shutdown	costs	for	the	Bastrop,	Louisiana	mill,	a	pre-tax	charge of	$30	million	($18	million	after	taxes)	for	the	shutdown	of	a	paper machine	at	the	Franklin,	Virginia	mill,	a	pre-tax	charge	of	$26	million ($16	 million	 after	 taxes)	 for	 integration	 costs	 associated	 with	 the CBPR	acquisition,	a	pre-tax	charge	of	$53	million	($32	million	after taxes)	 for	 severance	 and	 benefit	 costs	 associated	 with	 the Company's	2008	overhead	cost	reduction	initiative,	a	pre-tax	charge of	$8	million	($5	million	after	taxes)	for	closure	costs	associated	with the	Ace	Packaging	business,	and	a	pre-tax	charge	of	$4	million	($2 million	after	taxes)	for	costs	associated	with	the	reorganization	of	the Company's	Shorewood	operations.

(m) Includes	 pre-tax	 gains	 of $9	 million ($5	 million after	 taxes)	 for adjustments	 to	 reserves	 associated	 with	 the	 sale	 of	 discontinued businesses.

(n) Includes	 a	 $40	 million	 tax	 benefit related to restructuring	 of the Company's	international	operations.

# ITEM	9.	CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# ITEM	9A.	CONTROLS	AND	PROCEDURES

# EVALUATION	OF	CONTROLS	AND	PROCEDURES:

As	 of	 December	 31,	 2009,	 an	 evaluation	 was	 carried	 out	 under the supervision	 and	 with the	 participation	 of the	 Company's	 management, including	our	Chief	Executive	Officer	and	Chief	Financial	Officer,	of	the effectiveness	of	the	design	and	operation	of	our	disclosure	controls	and procedures,	pursuant	to	Rule	13a-15	under	the	Securities	Exchange	Act (the	Act).	Based	upon this	evaluation, the	Chief	Executive	Officer	and Chief	 Financial	 Officer	 have	 concluded that the	 Company's	 disclosure controls	and	procedures	are	effective	to	ensure	that	information	required to	 be	 disclosed	 by	 us in reports	 we file	 under the	 Act is recorded, processed, summarized, and reported by the	 management of the Company	 on	 a timely	 basis in	 order to	 comply	 with the	 Company's disclosure	obligations	under	the	Act	and	the	SEC	rules	thereunder.

# MANAGEMENT'S	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

Our management is responsible for establishing and maintaining adequate internal controls	 over	 our financial reporting, including the safeguarding of assets against unauthorized acquisition, use or disposition. These controls are designed to provide reasonable assurance to	 management and the Board of Directors regarding preparation	 of reliable	 published financial	 statements	 and	 such	 asset safeguarding, and the preparation of our consolidated financial statements	in	accordance	with	accounting	principles	generally	accepted in	the	United	States	(GAAP).	Our	internal	control	over	financial	reporting includes	those	policies	and	procedures	that:

•	pertain to the	 maintenance	 of records that, in reasonable	 detail, accurately	and	fairly	reflect	the	transactions	and	dispositions	of	our assets;

•	provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance	with	GAAP,	and	that	our	receipts	and	expenditures	are being made only in accordance with authorizations of our management	and	directors;

•	provide	 reasonable	 assurance	 regarding	 prevention	 or	 timely detection	 of	 unauthorized	 acquisition,	 use,	 or	 disposition	 of	 our assets	that	could	have	a	material	effect	on	our	consolidated	financial statements;	and

•	provide	reasonable	assurance	as	to	the	detection	of	fraud.

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

As	of	December	31,	2009,	management	has	assessed	the	effectiveness of	 the	 Company's	 internal	 control	 over	 financial	 reporting.	 In	 a	 report included	on	pages	49	and	50,	management	concluded	that,	based	on	its assessment,	 the	 Company's	 internal	 control	 over	 financial	 reporting	 is effective	as	of	December	31,	2009.

In	making	 this	assessment,	we	used	 the	criteria	described	 in	"Internal Control	–	Integrated	Framework"	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission.

Our	 independent	 registered	 public	 accounting	 firm,	 Deloitte	 &	 Touche LLP,	with	direct	access	to	our	Board	of	Directors	through	our	Audit	and Finance	 Committee,	 has	 audited	 the	 consolidated	 financial	 statements prepared	by	us.	Their	report	on	the	consolidated	financial	statements	is included	in	Part	II,	Item	8.	Financial	Statements	and	Supplementary	Data. Deloitte	&	Touche	LLP	has	issued	an	attestation	report	on	our	internal controls	over	financial	reporting.

# MANAGEMENT'S	PROCESS	TO	ASSESS	THE	EFFECTIVENESS	OF	INTERNAL CONTROL	OVER	FINANCIAL	REPORTING

To	comply	with	the	requirements	of	Section	404	of	the	Sarbanes-Oxley Act	of	2002,	we	followed	a	comprehensive	compliance	process	across the	 enterprise	 to	 evaluate	 our	 internal	 control	 over	 financial	 reporting, engaging	employees	at	all	levels	of	the	organization.	Our	internal	control environment	includes	an	enterprise-wide	attitude	of	integrity	and

control	consciousness	that	establishes	a	positive	"tone	at	the	top."	This	is exemplified	by	our	ethics	program	that	includes	long-standing	principles and	 policies	 on	 ethical	 business	 conduct	 that	 require	 employees	 to maintain	 the	highest	ethical	and	 legal	standards	 in	 the	conduct	of	our business,	 which	 have	 been	 distributed	 to	 all	 employees;	 a	 toll-free telephone	 helpline	 whereby	 any	 employee	 may	 report	 suspected violations	 of	 law	 or	 our	 policy;	 and	 an	 office	 of	 ethics	 and	 business practice.	 The	 internal	 control	 system	 further	 includes	 careful	 selection and	 training	 of	 supervisory	 and	 management	 personnel,	 appropriate delegation	 of	 authority	 and	 division	 of	 responsibility,	 dissemination	 of accounting	 and	 business	 policies	 throughout	 the	 Company,	 and	 an extensive	 program	 of	 internal	 audits	 with	 management	 follow-up.	 Our Board	 of	 Directors,	 assisted	 by	 the	 Audit	 and	 Finance	 Committee, monitors	the	integrity	of	our	financial	statements	and	financial	reporting procedures,	 the	 performance	 of	 our	 internal	 audit	 function	 and independent	 auditors,	 and	 other	 matters	 set	 forth	 in	 its	 charter.	 The Committee,	which	currently	consists	of	five	independent	directors,	meets regularly	with	representatives	of	management,	and	with	the	independent auditors	 and	 the	 Internal	 Auditor,	 with	 and	 without	 management representatives	in	attendance,	to	review	their	activities.

# CHANGES	IN	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

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.

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

# ITEM	9B.	OTHER	INFORMATION

# PART	III.

# ITEM	10.	DIRECTORS,	EXECUTIVE	OFFICERS	AND	CORPORATE

# GOVERNANCE

Information	concerning	our	directors	is	hereby	incorporated	by	reference to	our	definitive	proxy	statement	that	will	be	filed	with	the	Securities	and

Exchange	Commission	(SEC)	within	120	days	of	the	close	of	our	fiscal year.	The	Audit	and	Finance	Committee	of	the	Board	of	Directors	has	at least	one	member	who	is	a	financial	expert,	as	that	term	is	defined	in Item	 401(d)(5)	 of	 Regulation	 S-K.	 Further	 information	 concerning	 the composition	of	the	Audit	and	Finance	Committee	and	our	audit	committee financial	 experts	 is	 hereby	 incorporated	 by	 reference	 to	 our	 definitive proxy	statement	that	will	be	filed	with	the	SEC	within	120	days	of	the close	of	our	fiscal	year.	Information	with	respect	to	our	executive	officers is	 set	 forth	 on	 pages	 5	 and	 6	 in	 Part	 I	 of	 this	 Form	 10-K	 under	 the caption,	"Executive	Officers	of	the	Registrant."

Executive	officers	of	International	Paper	are	elected	to	hold	office	until	the next	 annual	 meeting	 of	 the	 Board	 of	 Directors	 following	 the	 annual meeting	of	shareholders	and,	until	the	election	of	successors,	subject	to removal	by	the	Board.

The	 Company's	 Code	 of	 Business	 Ethics	 (Code)	 is	 applicable	 to	 all employees	 of	 the	 Company,	 including	 the	 chief	 executive	 officer	 and senior	financial	officers,	as	well	as	the	Board	of	Directors.	We	disclose any	amendments	to	our	Code	and	any	waivers	from	a	provision	of	our Code	granted	to	our	directors,	chief	executive	officer	and	senior	financial officers	on	our	Internet	Web	site	within	four	business	days	following	such amendment	 or	 waiver.	 To	 date,	 no	 waivers	 of	 the	 Code	 have	 been granted.

We	 make available free of charge	 on	 our	 Internet	 Web	 site	 at www.internationalpaper.com, and	 in	 print	 to	 any	 shareholder	 who requests	 them,	 our	 Corporate	 Governance	 Principles,	 our	 Code	 of Business	Ethics	and	the	Charters	of	our	Audit	and	Finance	Committee, Management	Development	and	Compensation	Committee,	Governance Committee	and	Public	Policy	and	Environment	Committee.	Requests	for copies	 may	 be	 directed	 to	 the	 corporate	 secretary	 at	 our	 corporate headquarters.

Information	 with	 respect	 to	 compliance	 with	 Section	 16(a)	 of	 the Securities	and	Exchange	Act	and	our	corporate	governance	 is	hereby incorporated	by	reference	to	our	definitive	proxy	statement	that	will	be filed	with	the	SEC	within	120	days	of	the	close	of	our	fiscal	year.

# ITEM	11.	EXECUTIVE	COMPENSATION

Information	with	respect	to	the	compensation	of	executives	and	directors of	 the	 Company	 is	 hereby	 incorporated	 by	 reference	 to	 our	 definitive proxy	statement	that	will	be	filed	with	the	SEC	within	120	days	of	the close	of	our	fiscal	year.

# ITEM	12.	SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL

# OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER MATTERS

A	description	of	the	security	ownership	of	certain	beneficial	owners	and management	 and	 equity	 compensation	 plan	 information	 is	 hereby incorporated	by	reference	to	our	definitive	proxy	statement	that	will	be filed	with	the	SEC	within	120	days	of	the	close	of	our	fiscal	year.

# ITEM	13.	CERTAIN	RELATIONSHIPS	AND	RELATED TRANSACTIONS,	AND	DIRECTOR	INDEPENDENCE

A	description	of	certain	relationships	and	related	transactions	is	hereby incorporated	by	reference	to	our	definitive	proxy	statement	that	will	be filed	with	the	SEC	within	120	days	of	the	close	of	our	fiscal	year.

# ITEM	14.	PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

Information	with	respect	to	fees	paid	to,	and	services	rendered	by,	our principal	accountant,	and	our	policies	and	procedures	for	pre-approving those	services,	is	hereby	incorporated	by	reference	to	our	definitive	proxy statement	that	will	be	filed	with	the	SEC	within	120	days	of	the	close	of our	fiscal	year.

# PART	IV.

# ITEM	15.	EXHIBITS	AND	FINANCIAL	STATEMENT	SCHEDULES

(a) (1) Financial	 Statements	 –	 See	 Item 8. Financial Statements	and	Supplementary	Data.

# Additional	Financial	Data

	(3.1)		Restated	Certificate	of	Incorporation	of	International	Paper	Company	(incorpora 	(3.2)		By-laws	of	International	Paper	Company,	as	amended	through	May	11,	2009	(in 	(4.1)		Indenture,	dated	as	of	April	12,	1999,	between	International	Paper	and	The	Ban 	(4.2)		Supplemental	Indenture	(including	the	form	of	Notes),	dated	as	of	June	4,	2008 	(4.3)		Supplemental	Indenture	(including	the	form	of	Notes),	dated	as	of	May	11,	2009 	(4.4)		Supplemental	Indenture	(including	the	form	of	Notes),	dated	as	of	August	10,	2 	(4.5)		Supplemental	Indenture	(including	the	form	of	Notes),	dated	as	of	December	7,

	(4.6) 		In	accordance	with	Item	601	(b)	(4)	(iii)	(A)	of	Regulation	S-K,	certain	instruments	respecting	long-term	debt	of	the	Company	have	been	omitted	but	will	be	fu 	(10.1)		Purchase	Agreement	between	International	Paper	Company	and	Weyerhaeuser	Company	dated	as	of	March	15,	2008	(incorporated	by	reference	to	Exhibit 	(10.2)		2009	Management	Incentive	Plan,	amended	and	restated	as	of	January	1,	2009.	+	* 	(10.3)		2009	Incentive	Compensation	Plan	(incorporated	by	reference	to	Exhibit	10.1	to	the	Company	Current	Report	on	Form	8-K	dated	May	12,	2009).	+ 	(10.4)		Executive	Management	Incentive	Plan	(incorporated	by	reference	to	Exhibit	10.2	to	the	Company	Current	Report	on	Form	8-K	dated	May	12,	2009).	+ 	(10.5)		Restricted	Stock	and	Deferred	Compensation	Plan	for	Non-Employee	Directors	(incorporated	by	reference	to	Exhibit	10.3	to	the	Company	Current	Report	on 	(10.6)		Form	of	individual	non-qualified	stock	option	award	agreement	under	the	LTICP	(incorporated	by	reference	to	Exhibit	10.6	to	the	Company's	Annual	Report	o 	(10.7)		Form	of	individual	executive	continuity	award	under	the	LTICP	(incorporated	by	reference	to	Exhibit	10.9	to	the	Company's	Annual	Report	on	Form	10-K	for * (10.11) Pension	 Restoration	 Plan	 for	 Salaried	 Employees (incorporated	 by	 reference	 to	 Exhibit 10.1 to	 the quarter	ended	March	31,	2009).	+ (10.12) Unfunded	 Supplemental	 Retirement	 Plan	 for	 Senior and	 restated	 effective 10.21	to	the	Company's	Annual	Report	on	Form	10-K

(10.13) Amendment	 No. 1 to	 the	 International	 Paper Company	 Unfunded	 Supplemental	 Retirement	 Plan for	 Senior	 Managers,	 effective	 October 13, 2008 (incorporated	 by	 reference	 to	 Exhibit 10.3 to	 the Company's	 Current	 Report	 on	 Form 8-K dated October	17,	2008).	+

(10.15) Amendment	 No. 3 to	 the	 International	 Paper Company	 Unfunded	 Supplemental	 Retirement	 Plan for	 Senior	 Managers,	 effective	 December	 8,	 2008. (incorporated	 by	 reference	 to	 Exhibit	 10.20	 to	 the Company's	Annual	Report	on	Form	10-K	for	the	fiscal year	ended	December	31,	2008).	+

(10.16) Amendment	 No. 4 to	 Unfunded	 Supplemental Retirement	 Plan	 for	 Senior	 Managers,	 effective January	1,	2009	(incorporated	by	reference	to	Exhibit 10.1	to	the	Company's	Quarterly	Report	on	Form	10- Q	for	the	quarter	ended	September	30,	2009).	+

(10.18) Form	of	Non-Competition	Agreement,	entered	into	by certain	 Company	 employees	 (including	 named executive	officers)	who	have	received	restricted	stock (incorporated	 by	 reference	 to	 Exhibit	 10.22	 to	 the Company's	Annual	Report	on	Form	10-K	for	the	fiscal year	ended	December	31,	2008).	+

(10.19) Form	 of	 Non-Solicitation	Agreement	 entered	 into	 by certain	 Company	 employees	 (including	 named executive	officers)	who	have	received	restricted	stock (incorporated	 by	 reference	 to	 Exhibit 10.5 to	 the Company's	 Quarterly	 Report	 on	 Form	 10-Q	 for	 the quarter	ended	March	31,	2006).	+ (10.20) Form	 of	 Change	 of	 Control	 Agreement—Tier I, effective	October	15,	2008	(incorporated	by	reference to	Exhibit	10.1	to	the	Company's	Current	Report	on Form	8-K/A	dated	January	28,	2009).	+

(10.22) Form	 of	 Indemnification	 Agreement	 for	 Directors (incorporated	 by	 reference	 to	 Exhibit	 10.13	 to	 the Company's	Annual	Report	on	Form	10-K	for	the	fiscal year	ended	December	31,	2003).	+

(10.23) Board	Policy	on	Severance	Agreements	with	Senior Executives	(incorporated	by	reference	to	Exhibit	10.1 to	the	Company's	Current	Report	on	Form	8-K	filed on	October	17,	2005).	+

(10.25) Executive	 Employment	 Agreement	 between	 the Company	and	Paul	Herbert,	effective	October	1,	2007 (incorporated	 by	 reference	 to	 Exhibit	 10.31	 to	 the Company's	Annual	Report	on	Form	10-K	for	the	fiscal year	ended	December	31,	2007).	+

(10.26) International	 Paper	 Company	 Industrial	 Packaging Group	 Special	 Incentive	 Plan	 (incorporated	 by reference	to	Exhibit	10.3	to	the	Company's	Quarterly Report	 on	 Form 10-Q for	 the	 quarter	 ended September	30,	2008).	+

(10.27) 3-Year	Credit	Agreement,	dated	as	of	November	20, 2009,	 between	 International	 Paper	 Company,	 the Subsidiary	Guarantors,	the	Lenders	party	hereto,	and JPMorgan	Chase	Bank,	N.A.,	as	administrative	Agent. (incorporated	 by	 reference	 to	 Exhibit 10.1 to	 the Company's	 Current	 Report	 on	 Form 8-K dated November	24,	2009).

(10.28) Second	Amended	and	Restated	Credit	and	Security Agreement,	dated	as	of	March	13,	2008,	among	Red Bird	 Receivables,	 LLC,	 as	 Borrower,	 International Paper	 Company,	 as	 Servicer,	 the	 Conduits	 and Liquidity	Banks	from	time	to	time	a	party	thereto,	The Bank	of	Tokyo-Mitsubishi,	Ltd.,	New	York	Branch,	as Gotham	 Agent,	 JPMorgan	 Chase	 Bank,	 N.A.,	 as PARCO	Agent,	BNP	Paribas,	acting	through	its	New York	 Branch,	 as	 Starbird	 Agent,	 Citicorp	 North America,	Inc.,	as	CAFCO	Agent	and	as	Administrative Agent.	Certain	confidential	portions	have	been	omitted and	filed	separately	with	the	Securities	and	Exchange Commission	 pursuant	 to	 a	 request	 for	 confidential treatment	(incorporated	by	reference	to	Exhibit	10.4	to the	Company's	Quarterly	Report	on	Form	10-Q	for	the quarter	ended	March	31,	2008).

(10.31) Receivables	Sale	and	Contribution	Agreement,	dated as	 of	 March	 13,	 2008,	 between	 International	 Paper Company and Red Bird Receivables,	 LLC (incorporated	 by	 reference	 to	 Exhibit 10.5 to	 the Company's	 Quarterly	 Report	 on	 Form	 10-Q	 for	 the quarter	ended	March	31,	2008).

Debt	Commitment	Letter	by	and	among	International Paper	 Company	 and	 JPMorgan	 Chase	 Bank,	 N.A., Bank	 of	 America,	 N.A.,	 UBS	 Loan	 Finance	 LLC, Deutsche	 Bank	 AG	 New	 York	 Branch,	 The	 Royal Bank	 of	 Scotland	 PLC,	 J.P.	 Morgan	 Securities	 Inc., Banc	 of	 America	 Securities	 LLC,	 Deutsche	 Bank Securities	Inc.,	UBS	Securities	LLC,	Deutsche	Bank AG	 Cayman	 Islands	 Branch	 and	 RBS	 Securities Corporation	 d/b/a	 RBS	 Greenwich	 Capital	 dated March	15,	2008	(incorporated	by	reference	to	Exhibit 10.2	to	the	Company's	Current	Report	on	Form	8-K dated	March	20,	2008).

(10.37) Credit	Agreement,	dated	as	of	June	16,	2008,	by	and among	the	Company,	the	Lenders	a	party	thereto,	the subsidiary	 guarantors	 party	 thereto	 and	 JPMorgan Chase Bank, N.A. as Administrative	 Agent (incorporated	 by	 reference	 to	 Exhibit 10.1 to	 the Company's	 Current	 Report	 on	 Form 8-K dated June	20,	2008).

(10.39) Amendment	No.	2,	dated	February	26,	2009,	to	the Credit	 Agreement	 among International	 Paper Company	and	the	Lenders	parties	thereto	dated	as	of June	16,	2008	(incorporated	by	reference	 to	Exhibit 10.5	to	the	Company's	Quarterly	Report	on	Form	10- Q	for	the	quarter	ended	March	31,	2009).

(10.40) IP	Debt	Security,	dated	December	7,	2006,	issued	by International	 Paper	 Company	 to	 Basswood	 Forests LLC	(incorporated	by	reference	to	Exhibit	4.1	to	the Company's	 Current	 Report	 on	 Form 8-K dated December	13,	2006).

(10.41) IP	Hickory	Note,	dated	December	7,	2006,	issued	by International	Paper	Company	to	Hickory	Forests	LLC (incorporated	 by	 reference	 to	 Exhibit 4.2 to	 the Company's	 Current	 Report	 on	 Form 8-K dated December	13,	2006).

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

Certification	 by	 John	 V.	 Faraci,	 Chairman	 and Chief	Executive	Officer,	pursuant	to	Section	302 of	the	Sarbanes-Oxley	Act	of	2002.*

(31.2) Certification	 by	 Tim	 S.	 Nicholls,	 Chief	 Financial Officer,	pursuant	to	Section	302	of	the	Sarbanes- Oxley	Act	of	2002.*

(101.INS) XBRL	Instance	Document	(furnished	herewith)

(101.SCH) XBRL	 Taxonomy	 Extension	 Schema (furnished herewith)

(101.CAL) XBRL	Taxonomy	Extension	Calculation	Linkbase (furnished	herewith)

(101.DEF) XBRL	 Taxonomy	 Extension	 Definition	 Linkbase (furnished	herewith) (101.LAB) XBRL	 Taxonomy Extension Label Linkbase (furnished	herewith) (101.PRE) XBRL Extension Presentation Linkbase (furnished	herewith)

* Filed	herewith.

+ Management	contract	or	compensatory	plan	or	arrangement.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM	ON	FINANCIAL	STATEMENT	SCHEDULE

We	have	audited	the	consolidated	financial	statements	of	International	Paper	Company	and	subsidiaries	(the	"Company")	as	of	December	31,	2009	and 2008,	and	 for	each	of	 the	 three	years	 in	 the	period	ended	December	31,	2009,	and	 the	Company's	 internal	control	over	 financial	reporting	as	of December	31,	2009,	and	have	issued	our	reports	thereon	dated	February	25,	2010	(which	report	on	the	consolidated	financial	statements	expresses	an unqualified	opinion	and	includes	an	explanatory	paragraph	regarding	the	Company's	adoption	of	a	new	accounting	standard);	such	consolidated	financial statements	and	reports	are	included	elsewhere	in	this	Form	10-K.	Our	audits	also	included	the	consolidated	financial	statement	schedule	of	the	Company listed	 in	 Item	15	(a)(2).	This	consolidated	 financial	statement	schedule	 is	 the	responsibility	of	 the	Company's	management.	Our	responsibility	 is	 to express	an	opinion	based	on	our	audits.	 In	our	opinion,	 such	 consolidated	 financial	 statement	 schedule,	 when	 considered	 in	 relation	 to	 the	 basic consolidated	financial	statements	taken	as	a	whole,	presents	fairly,	in	all	material	respects,	the	information	set	forth	therein.

# SCHEDULE	II	–	VALUATION	AND	QUALIFYING	ACCOUNTS

# SCHEDULE	II

# INTERNATIONAL	PAPER	COMPANY	AND	CONSOLIDATED	SUBSIDIARIES

# (In	millions)

|  | Balance<br>at<br>Beginning<br>of	Period | Additions<br>Charged	to<br>Earnings | Additions<br>Charged	to<br>Other<br>Accounts | Deductions<br>from<br>Reserves | Balance<br>at	End	of<br>Period |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Description |  |  |  |  |  |
| Reserves\tApplied\tAgainst\tSpecific\tAssets |  |  |  |  |  |
| Shown\ton\tBalance\tSheet: |  |  |  |  |  |
| Doubtful\taccounts\t–\tcurrent | $121 | $54 | $– | $(39)(a) | $136 |
| Restructuring\treserves | 96 | 251 | – | (263)(b) | 84 |

(a)	Includes	write-offs,	less	recoveries,	of	accounts	determined	to	be	uncollectible	and	other	adjustments.

(b)	Includes	payments	and	deductions	for	reversals	of	previously	established	reserves	that	were	no	longer	required.

(c)	Allowance	for	doubtful	accounts	acquired	in	the	Weyerhaeuser	Containerboard,	Packaging	and	Recycling	acquisition.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Act	of	1934,	the	Registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by the	undersigned,	thereunto	duly	authorized.

# /S/				MAURA	ABELN	SMITH

# Maura	Abeln	Smith

# Senior	Vice	President,	General	Counsel

# and	Corporate	Secretary

# POWER	OF	ATTORNEY

KNOW	ALL	MEN	BY	THESE	PRESENTS,	that	each	person	whose	signature	appears	below	constitutes	and	appoints	Maura	Abeln	Smith	and	Sharon	R. Ryan	as	his	or	her	true	and	lawful	attorney-in-fact	and	agent,	acting	alone,	with	full	power	of	substitution	and	resubstitution	for	him	or	her	and	in	his	or	her name,	place	and	stead,	in	any	and	all	capacities,	to	sign	any	or	all	amendments	to	this	annual	report	on	Form	10-K,	and	to	file	the	same,	with	all	exhibits thereto	and	other	documents	in	connection	therewith,	with	the	Securities	and	Exchange	Commission,	granting	unto	said	attorney-in-fact	full	power	and authority	to	do	and	perform	each	and	every	act	and	thing	requisite	or	necessary	to	be	done,	hereby	ratifying	and	confirming	all	that	said	attorney-in-fact and	agent,	or	his	or	her	substitute	or	substitutes,	may	lawfully	do	or	cause	to	be	done	by	virtue	hereof.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the registrant	and	in	the	capacities	and	on	the	dates	indicated:

| /S/				DAVID	J.	BRONCZEK | Director | February	25,	2010 |
| :--- | :--- | :--- |
| David\tJ.\tBronczek |  |  |
| /S/\t\t\t\tLYNN\tLAVERTY\tELSENHANS | Director | February\t25,\t2010 |
| Lynn\tLaverty\tElsenhans |  |  |
| /S/\t\t\t\tSAMIR\tG.\tGIBARA | Director | February\t25,\t2010 |
| Samir\tG.\tGibara |  |  |
| /S/\t\t\t\tSTACEY\tJ.\tMOBLEY | Director | February\t25,\t2010 |
| Stacey\tJ.\tMobley |  |  |
| /S/\t\t\t\tJOHN\tL.\tTOWNSEND\tIII | Director | February\t25,\t2010 |
| John\tL.\tTownsend\tIII |  |  |
| /S/\t\t\t\tJOHN\tF.\tTURNER | Director | February\t25,\t2010 |
| John\tF.\tTurner |  |  |
| /S/\t\t\t\tWILLIAM\tG.\tWALTER | Director | February\t25,\t2010 |
| William\tG.\tWalter |  |  |
| /S/\t\t\t\tALBERTO\tWEISSER | Director | February\t25,\t2010 |
| Alberto\tWeisser |  |  |
| /S/\t\t\t\tJ.\tSTEVEN\tWHISLER | Director | February\t25,\t2010 |
| J.\tSteven\tWhisler |  |  |
| /S/\t\t\t\tTIM\tS.\tNICHOLLS | Senior\tVice\tPresident\tand\tChief\tFinancial\tOfficer | February\t25,\t2010 |

APPENDIX	I

# 2009	LISTING	OF	FACILITIES

# (all	facilities	are	owned	except	noted	otherwise)

# Uncoated	Papers	and	Pulp

(Riverdale	Mill)

       Ontario,	California	leased

       Cantonment,	Florida

(Pensacola	Mill)

        Springhill,	Louisiana

      Ticonderoga,	New	York

       Riegelwood,	North	Carolina

       Hazleton,	Pennsylvania

       Eastover,	South	Carolina

       Georgetown,	South	Carolina

       Sumter,	South	Carolina

#     International:

       Luiz	Antonio,	Sao	Paulo,	Brazil

       Tres	Lagoas,	Mato	Grosso	do	Sul,	Brazil

       Hyderabad,	India	leased

(Sales	Office)

       Svetogorsk,	Russia        Singapore	(2	locations)	leased (Sales	Offices)

Containerboard

Mansfield,	Louisiana

Vicksburg,	Mississippi

Valliant,	Oklahoma

Springfield,	Oregon

*-	On	October	22,	2009,	the	Company	announced	the	closure	of	this	mill.

Veracruz,	Mexico

Kenitra,	Morocco

Corrugated	Container

Butler,	Indiana

Fort	Wayne,	Indiana

Hammond,	Indiana

Indianapolis,	Indiana	(2	locations)

Cedar	Rapids,	Iowa Bay	Minette,	Alabama Waterloo,	Iowa Decatur,	Alabama Bowling	Green,	Kentucky Dothan,	Alabama	leased Lexington,	Kentucky Huntsville,	Alabama Louisville,	Kentucky Bentonville,	Arkansas Walton,	Kentucky Conway,	Arkansas Lafayette,	Louisiana Fort	Smith,	Arkansas Shreveport,	Louisiana Jonesboro,	Arkansas Springhill,	Louisiana Russellville,	Arkansas	(2	locations) Auburn,	Maine Tolleson,	Arizona Kalamazoo,	Michigan Yuma,	Arizona Three	Rivers,	Michigan Anaheim,	California Arden	Hills,	Minnesota Camarillo,	California Austin,	Minnesota Carson,	California Fridley,	Minnesota Compton,	California Minneapolis,	Minnesota Elk	Grove,	California White	Bear	Lake,	Minnesota Exeter,	California Houston,	Mississippi	leased Los	Angeles,	California	leased Jackson,	Mississippi Modesto,	California	(2	locations) Magnolia,	Mississippi Salinas,	California Olive	Branch,	Mississippi Sanger,	California Kansas	City,	Missouri San	Leandro,	California	leased Maryland	Heights,	Missouri Santa	Paula,	California North	Kansas	City,	Missouri	leased Stockton,	California St.	Joseph,	Missouri Golden,	Colorado Omaha,	Nebraska Putnam,	Connecticut Bellmawr,	New	Jersey Jacksonville,	Florida	leased Barrington,	New	Jersey Lake	Wales,	Florida Rochester,	New	York Plant	City,	Florida Charlotte,	North	Carolina Tampa,	Florida (2	locations)	1	leased Columbus,	Georgia Lumberton,	North	Carolina Forest	Park,	Georgia Newton,	North	Carolina Griffin,	Georgia Statesville,	North	Carolina Kennesaw,	Georgia Byesville,	Ohio Lithonia,	Georgia Delaware,	Ohio Savannah,	Georgia Eaton,	Ohio Tucker,	Georgia Mt.	Vernon,	Ohio Aurora,	Illinois Newark,	Ohio Bedford	Park,	Illinois	(2	locations) Solon,	Ohio

1	leased

Belleville,	Illinois

Chicago,	Illinois	(2	locations)

Des	Plaines,	Illinois

Wooster,	Ohio

Oklahoma	City,	Oklahoma

Beaverton,	Oregon

Hillsboro,	Oregon

Portland,	Oregon Salem,	Oregon	leased Eighty-four,	Pennsylvania Lancaster,	Pennsylvania

Mount	Carmel,	Pennsylvania Georgetown,	South	Carolina Laurens,	South	Carolina Spartanburg,	South	Carolina Cleveland,	South	Carolina Morristown,	Tennessee Murfreesboro,	Tennessee    Amarillo,	Texas    Dallas,	Texas     Edinburg,	Texas	(2	locations)    El	Paso,	Texas    Ft.	Worth,	Texas	leased    Grand	Prairie,	Texas    Hidalgo,	Texas    McAllen,	Texas    San	Antonio,	Texas    Sealy,	Texas     Lynchburg,	Virginia

   Richmond,	Virginia    Bellevue,	Washington

   Moses	Lake,	Washington    Olympia,	Washington    Yakima,	Washington    Fond	du	Lac,	Wisconsin

   Manitowoc,	Wisconsin

   Las	Palmas,	Canary	Islands

    Tenerife,	Canary	Islands

   Rancagua,	Chile     Beijing,	China Chengdu,	China Chongqing,	China Dalian,	China Dongguan,	China Foshan	City,	China Guangzhou,	China Shanghai,	China Shenyang,	China Tianjin,	China

Wuxi,	China

Arles,	France

Chalon-sur-Saone,	France

Creil,	France

LePuy,	France

Mortagne,	France

Guadeloupe,	French	West	Indies

Bellusco,	Italy

Catania,	Italy

Pomezia,	Italy

San	Felice,	Italy

Ixtaczoquitlan,	Mexico

Juarez,	Mexico	leased

Puebla,	Mexico	leased

Silao,	Mexico

Villa	Nicolas	Romero,	Mexico

Agadir,	Morocco Casablanca,	Morocco Kenitra,	Morocco Monterrey,	Nuevo	Leon	leased Alcala,	Spain	leased

Almeria,	Spain Barcelona,	Spain Bilbao,	Spain Gandia,	Spain Valladolid,	Spain

Bangkok,	Thailand

# Recycling

Phoenix,	Arizona Fremont,	California Norwalk,	California West	Sacramento,	California Denver,	Colorado Itasca,	Illinois Des	Moines,	Iowa Wichita,	Kansas

Baltimore,	Maryland

New	Brighton,	Minnesota

Omaha,	Nebraska Charlotte,	North	Carolina Beaverton,	Oregon

Eugene,	Oregon

Carrollton,	Texas

Salt	Lake	City,	Utah

Richmond,	Virginia

Kent,	Washington

Veracruz,	Mexico	(2	locations)

Buena	Park,	California Beaverton,	Oregon

Grand	Prairie,	Texas

# Coated	Paperboard

(C&D	Center)

Augusta,	Georgia

Sturgis,	Michigan

Greensboro,	North	Carolina

Hammond,	Indiana	leased

Prosperity,	South	Carolina

Texarkana,	Texas Franklin,	Virginia	*

# Foodservice

Visalia,	California Shelbyville,	Illinois

Kenton,	Ohio

Shanghai,	China Bogota,	Columbia Cheshire,	England	leased D.N.	Ashrat,	Israel Mexico	City,	Mexico	leased (Sales	Office)

# Shorewood	Packaging

Indianapolis,	Indiana Louisville,	Kentucky Carlstadt,	New	Jersey	leased West	Deptford,	New	Jersey Hendersonville,	North	Carolina Weaverville,	North	Carolina Danville,	Virginia

Newport	News,	Virginia

Smith	Falls,	Ontario,	Canada Toronto,	Ontario,	Canada Guangzhou,	China Kunshan,	China Aguascalientes,	Mexico Torun,	Poland Sacheon,	South	Korea

Ebbw	Vale,	Wales,	United	Kingdom

xpedx

U.S.: Stores	Group Chicago,	Illinois 122	locations	nationwide

West	Region Denver,	Colorado 46	branches	in	the	Rocky	Mountain,

Northwest	and	Pacific	States

East	Region Hartford,	Connecticut

49	branches	in	New	England,	Upper

Midwest,	Southeast,	and	Middle

Atlantic	States

National	Group

Loveland,	Ohio

9	locations	in	Georgia,	Kansas,

Ohio,	New	York,	Illinois	and Missouri

all	leased

Canada	(6	locations) all	leased

Mexico	(20	locations)

# IP	Asia

China	(8	locations)

Malaysia

Taiwan

Thailand

Vietnam

# Forest	Resources

Brazil

# SPECIALTY	BUSINESSES	AND

# OTHER

# IP	Mineral	Resources

Houston,	Texas	leased

# APPENDIX	II

# 2009	CAPACITY	INFORMATION

# CONTINUING	OPERATIONS

|  |  |  | Americas, |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | other |  |  |
| (in\tthousands\tof\tshort\ttons) | U.S. | Europe | than\tU.S. | Asia | Total |
| Industrial\tPackaging |  |  |  |  |  |
| Containerboard | 9,951 | 43 | 24 | – | 10,018 |
| Printing\tPapers |  |  |  |  |  |
| Uncoated\tFreesheet | 2,880 | 1,190 | 930 | – | 5,000 |
| Bristols | 260 | – | – | – | 260 |
| \t\t\t\tUncoated\tPapers\tand\tBristols | 3,140 | 1,190 | 930 | – | 5,260 |
| Dried\tPulp | 1,015 | 280 | 170 |  | 1,465 |
| Newsprint | – | 128 | – | – | 128 |
| \t\t\t\tTotal\tPrinting\tPapers | 4,155 | 1,598 | 1,100 | – | 6,853 |
| Consumer\tPackaging |  |  |  |  |  |
| Coated\tPaperboard | 1,739 | 329 | – | 915 | 2,983 |

We	own,	manage	or	have	an	interest	in	approximately	600,000	acres	of

| Forest	Resources |  |
| :--- | :--- |
| We\town,\tmanage\tor\thave\tan\tinterest\tin\tapproximately\t600,000\tacres\tof |  |
| forestlands\tworldwide.\tThese\tforestlands\tand\tassociated\tacres\tare\tlocated |  |
| in\tthe\tfollowing\tregions: | (M\tAcres) |
| South | 180 |
| North | – |
| \t\t\t\tTotal\tU.S. | 180 |
| Brazil | 252 |
| \t\t\t\tTotal | 432 |
| We\thave\tharvesting\trights\tin: |  |
| Russia | 205 |
| \t\t\t\tTotal | 637 |



Question: what percentage of contractual obligations for future payments under existing debt and lease commitments and purchase obligations at december 31 , 2009 due in 2012 are maturities of long-term debt?
Answer: 21%