EXECUTIVE SUMMARY

Despite difficult economic conditions during the 2009 first quarter, International Paper Company posted solid operating results. Sales volumes declined compared with the 2008 fourth quarter as we continued to match our production to customer orders while controlling our inventory levels. Our manufacturing operations ran very efficiently, and we realized more than $30 million of overhead cost savings. While average price realizations declined modestly, input costs for raw materials and energy and freight costs were also lower. We generated solid operating cash flow, enabling us to reduce debt balances by $550 million during the quarter, and an additional $390 million in April.

Looking ahead to the second quarter, we expect to continue to face a challenging economic environment. Demand for packaging, printing papers and market pulp improved slightly in early April, although it is unclear if this improvement will prove to be sustainable. Costs for fiber, energy, chemicals and freight should continue to decline. Maintenance outage costs will increase significantly in the second quarter reflecting a seasonal increase in planned maintenance activity, although manufacturing operations should remain strong. Equity earnings from our Ilim joint venture in Russia will be below first-quarter levels, principally due to larger unfavorable U.S. dollar debt currency remeasurement charges. Thus, in summary, we expect that operating earnings for the second quarter will be below first-quarter levels.

RESULTS OF OPERATIONS

For the first quarter of 2009, International Paper Company reported net sales of $5.7 billion, compared with $5.7 billion in the first quarter of 2008 and $6.5 billion in the fourth quarter of 2008.

Net earnings attributable to International Paper totaled $257 million, or $0.61 per share, in the 2009 first quarter. This compared with earnings of $133 million, or $0.31 per share, in the first quarter of 2008 and a loss of $1.8 billion, or $4.25 per share, in the fourth quarter of 2008.

Earnings from continuing operations attributable to International Paper Company (excluding noncontrolling interests) were $257 million in the first quarter of 2009 compared with $150 million in the first quarter of 2008 and a loss of $1.8 billion in the 2008 fourth quarter. Compared with the first quarter of 2008, earnings in the 2009 first quarter benefited from higher average price realizations ($37 million), earnings from the CBPR business acquired in the 2008 third quarter ($81 million), and lower operating costs and a more favorable mix of products sold ($131 million). These benefits were offset by lower sales volumes and higher lack-of-order downtime ($219 million), higher mill outage costs ($14 million), higher raw material and freight costs ($19 million), lower earnings from land sales ($16 million), higher net interest expense ($56 million), higher corporate items and other costs ($21 million), and a higher income tax provision ($2 million) reflecting a higher estimated effective tax rate in 2009. Equity earnings, net of taxes, relating to International Paper's investment in Ilim Holding S.A. were $43 million lower in the 2009 first quarter than in the 2008 first quarter. Net special items were a gain of $223 million in the 2009 first quarter, reflecting a $330 million after-tax gain from alternative fuel mixture credits, versus a loss of $25 million in the first quarter of 2008.

Compared with the fourth quarter of 2008, earnings from continuing operations benefited from lower manufacturing costs ($64 million) and lower raw material and freight costs ($95 million). These benefits were more than offset by lower average price realizations ($18 million), lower sales volumes and higher lack-of-order downtime ($93 million), lower earnings from land sales ($28 million), higher mill outage costs ($15 million), increased corporate items and other costs ($20 million), and a higher income tax provision ($9 million) reflecting a higher estimated effective tax rate in 2009. Net interest expense decreased ($20 million). Fourth-quarter 2008 earnings included income of approximately $26 million after taxes related to the final

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

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

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

                                                                    Three Months Ended
                                                              March 31,           December 31,
In millions                                                2009       2008            2008
Net Earnings (Loss) Attributable to International Paper
Company                                                    $ 257      $ 133      $       (1,791 )
Deduct - Discontinued operations:
Earnings (loss) from operations                               -           1                  (5 )
Loss on sales or impairments                                  -          16                  -

Earnings (Loss) From Continuing Operations Attributable
to International Paper Company                               257        150              (1,796 )
Add back (deduct):
Income tax provision (benefit)                               230         59                (112 )
Equity earnings, net of taxes                                 27        (16 )                 2
Noncontrolling interests, net of taxes                         4          5                 (12 )

Earnings (Loss) From Continuing Operations Before
Income Taxes and Equity Earnings                             518        198              (1,918 )
Interest expense, net                                        164         81                 186
Noncontrolling interests / equity earnings included in
operations                                                    (6 )       (4 )                13
Corporate items                                               51         21                  21
Special items:
Restructuring and other charges                               52         37                  53
Impairments of goodwill                                       -          -                1,777
Net gains on sales and impairments of businesses              -          (1 )                -

                                                           $ 779      $ 332      $          132

Industry Segment Operating Profit
Industrial Packaging                                       $ 360      $  97      $          111
Printing Papers                                              312        185                 (40 )
Consumer Packaging                                           112          9                  (3 )
Distribution                                                  (7 )       16                  26
Forest Products                                                2         25                  38

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

(1) In addition to operating profit shown above, International Paper recorded an equity loss, net of taxes, of $26 million for the three months ended March 31, 2009, and equity earnings, net of taxes, of $17 million for the three months ended March 31, 2008 and $0 million for the three months ended December 31, 2008, related to its investment in Ilim Holding S.A., a separate reportable industry segment.

Industry Segment Operating Profit

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Industry segment operating profits of $779 million in the 2009 first quarter were higher than both the $332 million in the 2008 first quarter and the $132 million in the 2008 fourth quarter. Compared with the first quarter of 2008, earnings in the current quarter benefited from significantly higher average price realizations ($54 million), earnings from the CBPR business acquired in the 2008 third quarter ($119 million) and lower operating costs and a more favorable mix of products sold ($192 million). These benefits were offset by lower sales volumes and increased lack-of-order downtime ($320 million), higher mill outage costs ($20 million), higher raw material and freight costs ($28 million), lower gains from land sales ($23 million), and higher corporate items and other costs ($5 million). Special items consisted of a gain of $473 million in the 2009 first quarter, including a pre-tax gain of $540 million from alternative fuel mixture credits, compared with a loss of $5 million in the 2008 first quarter.

Compared with the 2008 fourth quarter, operating profits benefited from lower manufacturing costs ($83 million) and lower raw material and freight costs ($124 million). These benefits were offset by lower average price realizations ($24 million), lower sales volumes and increased lack-of-order downtime ($121 million), higher mill outage costs ($20 million), and lower gains from land sales ($36 million). Corporate items and

other costs decreased ($9 million). Fourth-quarter 2008 earnings included income of approximately $33 million related to the final insurance settlement for the Vicksburg mill recovery boiler explosion. Special items consisted of a gain of $473 million in the 2009 first quarter versus a loss of $192 million in the fourth quarter of 2008.

During the 2009 first quarter, International Paper took approximately 1,220,000 tons of downtime, including 1,075,000 tons that were market-related, compared with approximately 120,000 tons of downtime in the first quarter of 2008, which included 17,000 tons of market-related downtime. During the 2008 fourth quarter, International Paper took approximately 1,080,000 tons of downtime, including 998,000 tons that were market-related. Market-related downtime is taken to balance internal supply with our customer demand to help manage inventory levels, while maintenance downtime, which makes up the majority of the difference between total downtime and market-related downtime, is taken periodically during the year.

Discontinued Operations

2008:

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

Income Taxes

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

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

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

Interest Expense and Corporate Items

Net interest expense for the 2009 first quarter was $164 million compared with $186 million for the 2008 fourth quarter and $81 million for the 2008 first quarter. The higher net expense compared with the prior year reflects the issuance of $6 billion of debt, mainly in connection with the acquisition of the CBPR business. The decrease compared with the 2008 fourth quarter reflects repayments of debt during the last two quarters.

Corporate items, net, of $51 million in the 2009 first quarter were higher than the $21 million of net expense in both the 2008 fourth quarter and 2008 first quarter due to increased 2009 pension expenses. Overhead charges allocated to industry segments in the first quarter of 2009 were $23 million higher than in the fourth quarter of 2008 reflecting higher benefit-related costs, partially offset by lower inventory-related and workers' compensation costs. Overhead charges allocated to industry segments in the first quarter of 2009 were $18 million lower than in the first quarter of 2008 due to lower inventory-related costs.

Special Items

Restructuring and Other Charges

2009:

During the first quarter of 2009, restructuring and other charges totaling $83 million before taxes ($65 million after taxes) were recorded, including a $52 million charge before taxes ($32 million after taxes) for severance and benefits associated with the Company's 2008 overhead reduction program, a $23 million charge before taxes ($28 million after taxes) for closure costs related to the Inverurie mill in Scotland, a $6 million charge before taxes ($4 million after taxes) related to the shutdown of certain operations at the Franklin, Virginia mill, and a $2 million charge before taxes ($1 million after taxes) for costs associated with the reorganization of the Company's Shorewood Packaging operations. Additionally, a $20 million charge was recorded for certain tax adjustments
(see Note 10).

2008:

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

Net Gains on Sales and Impairments of Businesses

2008:

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.

BUSINESS SEGMENT OPERATING RESULTS

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

Industrial Packaging



                                   2009                    2008
            In millions         1st Quarter     1st Quarter     4th Quarter
            Sales              $       2,180   $       1,445   $       2,455
            Operating Profit             360              97             111

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

North American Industrial Packaging net sales were $1.9 billion in the first quarter of 2009 compared with $2.1 billion in the fourth quarter of 2008 and $1.05 billion in the first quarter of 2008. Operating earnings were $347 million ($175 million excluding alternative fuel mixture credits and the CBPR integration costs) in the first quarter of 2009 compared with $96 million ($130 million excluding CBPR integration and other closure costs) in the fourth quarter of 2008 and $79 million in the first quarter of 2008.

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

Compared with the first quarter of 2008, excluding the added volumes from the CBPR acquisition, sales volumes for both containerboard and boxes were lower due to weaker customer demand. Average sales price realizations were significantly higher reflecting sales price increases during 2008. Manufacturing costs were significantly lower, particularly in the box plants, reflecting the benefits from cost control initiatives. There was no lack-of-order downtime taken in the first quarter of 2008 compared with the 730,000 tons taken in the 2009 first quarter.

Looking ahead to the 2009 second quarter, sales volumes are expected to improve slightly for both containerboard and boxes, and lack-of-order downtime should be lower. Profit margins are expected to reflect continued pressures. Costs associated with planned maintenance outages should be higher in the second quarter with outages planned for five mills. Input costs are expected to continue to decline, principally for energy.

European Industrial Packaging net sales were $240 million in the first quarter of 2009 compared with $255 million in the fourth quarter of 2008 and $315 million in the first quarter of 2008. Operating earnings were $13 million in the first quarter of 2009 compared with $15 million in the fourth quarter of 2008 and $18 million in the first quarter of 2008.

Sales volumes in the first quarter of 2009 were lower than in the fourth quarter of 2008 reflecting weaker demand in packaging markets for industrial products throughout Europe. Sales margins improved as reductions in kraft and recycled containerboard costs were greater than the declines in box prices. Operating expenses were favorable reflecting the benefits of cost reduction initiatives, but were partially offset by unfavorable operating costs at the Etienne mill. Input costs decreased slightly due to lower energy costs.

Compared with the 2008 first quarter, sales volumes in the 2009 first quarter were lower, reflecting the weaker market for industrial packaging. Agricultural box sales volumes were seasonally strong. Sales margins were higher as the result of lower costs for kraft and recycled containerboard combined with strong box prices. Input costs were about flat, while operating costs were favorable.

Entering the second quarter, sales volumes are expected to be about flat due to continued weakness in industrial markets and seasonally slower agricultural business in Morocco and Spain, partially offset by additional fruit and vegetable box volume in France. Sales margins are expected to reflect competitive pressure on box prices.

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

Printing Papers



                                      2009                    2008
        In millions                1st Quarter     1st Quarter     4th Quarter
        Sales                     $       1,325   $       1,715   $       1,505
        Operating Profit (Loss)             312             185             (40 )

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

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

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

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

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

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

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

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

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

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

. . .