Tom Cleves - VP of IR John Faraci - Chairman & CEO Marianne Parrs - EVP & CFO Brian McDonald - Deputy CEO -Ilim

Gail Glazerman - UBS Mark Wilde - Deutsche Bank Claudia Shank - JP Morgan Chip Dillon - Citi Mark Connelly - Credit Suisse George Staphos - Banc of America Richard Skidmore - Goldman Sachs Peter Ruschmeier - LehmanBrothers Mark Weintraub- BuckinghamResearch Steve Chercover - D.A. Davidson John Tomazo - John TomazosEndophagic Research

Good morning. My name is Amandaand I will be your conference operator today. At this time, I would like towelcome everyone to the International Paper Third Quarter 2007 Earnings Call.All lines have been placed on mute to prevent any background noise. After thespeakers' remarks there will be a question-and-answer session. (OperatorInstructions). Thank you. I would now like to turn the callover to Tom Cleves, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Amanda. Good morning, andthank you for joining International Paper's third quarter 2007 earningsconference call. This call is also being webcast. Our key speakers this morning areChairman and Chief Executive Officer, John Faraci; and Chief Financial Officer,Marianne Parrs. During this call, we will makeforward-looking statements that are subject to risks and uncertainties. Theserisks and uncertainties are outlined on slide 2 of our earnings presentation andat the end of our earnings press release. Please go to our website underthe investors tab to find copies of our third quarter 2007 earnings pressrelease, the presentation slides, and a reconciliation of non-GAAP financial measuresto Generally Accepted Accounting Principles. I'll now turn it over to John.

Thanks Tom, and good morning.This morning as usual Marianne and I are going to do a couple of things. We'llreview our third quarter 2007 earnings results and the performance of ourindividual businesses. We'll discuss the fourth quarter outlook, we'll talkabout where International Paper is and its transformation plans. And then,we'll take your questions. We had a solid third quarter, infact our best absolute quarter since the second quarter of 2000. For the thirdconsecutive quarter, we posted the best absolute earnings in the last sevenyears. North America printing papers, posted its best quarter since 1995,benefiting from average prices, reduced maintenance outage cost and good costperformance all around the system. Brazil's EBIT improvedsignificantly driven by higher average prices, improved volume and mix. Onceagain, xpedx reported solid quarterly earnings benefiting from higher prices,increased volumes and market share, and the addition of some Central Lewmar earnings which we bought into the company in the thirdquarter. Product pricing improved versussecond quarter and uncoated papers, pulp and packaging grades has realized someor all of the announced price increases. Overall operations were fair, butI think we can do better. We began producing lightweight linerboard inSeptember, at Pensacola.I was there on Monday, and were already ahead of our ramp plan. Raw material cost particularly inNorth America continue to be somewhat higher driven by increasing chemical,wood and waste cost, a little bit offset by favorable energy cost. I think it'svery important and we feel good about the fact we were able to offset thesecost increases with increased realizations. In volume, land sales and tax ratewas flat quarter-to-quarter. Slide 5 shows our dilutedearnings per share from continuing operations before special items. We reportedthird quarter earnings of $0.57, 10% higher than the second quarter of $0.52and 26% above our last years third quarter of $0.45. We are pleased with our progresson increasing earnings and improving our global paper and packaging businesses.We said two years ago that a key element of our transformation plan wasimproving margins and improving earnings in our existing businesses, and overthe last two years as you can see from the slide, we've done just that. But wewant you to know we are not finished yet, we still have more earnings runwayand even as our forestland sales tell-off over the next few years. Next, turn to slide 6, some highlighthow we performed in each global region in the third quarter versus the secondquarter. As I said earlier, we had strong performance in the US andBrazilian printing papers and that drove our earnings improvement over thesecond quarter. We did not expect a strong third quarter in Europe, even havingsaid that, we still expect very good earnings for Europeversus 2006, when it's all set and done. I'll now ask Marianne to commenton our third quarter results by business in little more detail.

Thanks, John and good morningeveryone. Slide 7, compares diluted earnings per share from continuingoperations and before special items for the nine months of 2007 versus the ninemonth of 2006. Moving from left to right, paper and packaging prices weresignificantly higher on average in 2007 and this added $0.51 per share to ourearnings. Year-over-year, we have improved our prices more than our input costsby $0.33 per share. Slightly lower volumes reducedearnings by $0.02 per share in 2007. Volume increases in Brazil, European papers and US pulp wereoffset by lower North American paper and packaging volume. We've intentionally passedon volume in favor of balancing our capacity with customer's demand and thishas enabled us to realize higher average selling prices. America joined very well in 2007,with manufacturing cost and mix, $0.22 per share favorable versus 2006.One-time Pensacolamachine conversion expenses reduced earnings by $0.06 per share. Input addistribution costs were unfavorable reducing earnings by $0.19 per share or$129 million and I will give you that in a little bit more detail in a moment.Lower land sales in 2007 reduced earnings $0.17 per share versus 2006. The combination of lower interestexpense, lower share count and earnings from selected reinvestment increasedearnings by $0.59 per share. Unallocated and other expenses favorably impactedresults by $0.15 per share year-over-year and this is driven primarily by lowerpension expenses. Plant closure cost in our packagingbusinesses reduced earnings by $0.03 per share and lost earnings from sales atArizona Chemical and coated paper and the loss of harvest incomes from the saleof our forestlands reduced earnings by $0.33 per share. This chart on slide 8 nowcompares third quarter results with second quarter results. Moving left toright. Higher average price realization for our paper grades across all regionimproved earnings by $0.04 per share. Third quarter volumes were flat. Strongpaper volumes in Brazilwere partially offset by weaker volume seasonally in European container. In the third quarter, our millsran as well as in the second quarter. Cost mix improved by $0.04 per share dueto lower maintenance outage expansion partially offset by higher cost in ourconverting systems. Expenses related to theconversion of the Pensacolamachine to lightweight linerboard reduced earnings by $0.02 per sharequarter-to-quarter. Chemicals and wood costs were unfavorable reducing earningsby another penny. Land sales were flat quarter-to-quarter, and as you knowbelow our original guidance of $110 million to $140 million. Lower interest expense increasedearnings by $0.01 per share and other items decreased earnings by $0.01. Slide nine provides details onthe $129 million increase in input and distribution costs for the nine monthsof 2007 versus the same period for 2006. We’ve actually increased ouryear-over-year EPS by $0.67, despite this $0.19 in input cost headwind. Wood cost increased by $59million due primarily to the south central west weather conditions. As you knowit’s been very wet there, tight supplies and lower inventories. And I did wantto note that this slide does not include OCC, Old Corrugated Containers. Our OCC cost this year is upabout $29 million on a net basis, increased cost to the mills, higherrealization and sales from our box plant. For more information on inputcosts, see slides 38 to 41 in the appendix. Now, let me turn to how ourbusiness has performed in the third quarter and slide 10 shows that earnings inprinting papers improved from $249 million in the second quarter to $307million in the third quarter, and that was due to improved results both in North America uncoated and in Brazilian papers. North America uncoated paper earnings were 45% higher in the thirdquarter versus the second quarter. Earnings improved primarily due to lowermaintenance outages expenses and higher average uncoated free sheet prices.These savings were partially offset by higher raw material cost and slightlylower volume. Pulp earnings were flat during the quarter, it benefits fromhigher average prices and improved operation were offset by higher cost of plannedmaintenance outages. European papers earnings declinedby 19% and that was again due to higher maintenance outage expenses at our Saillatand Kwidzyn mills partially offset by higher prices and favorable foreignexchange. Brazil earnings improved due togreater volume, higher prices, better mix and a $7 million book timber sales.We currently estimate fourth quarter earnings in Brazil to be about flat with thirdquarter results and that fourth quarter 2007 EBITDA run rate to beapproximately $375 million. Slide 11, shows our global paperearnings by region. And as you can see, lower European paper earnings resultedfrom higher maintenance outage expenses that I mentioned are partially offsetby higher prices and favorable foreign exchange. And if you'd like to see moredetailed information on earnings by region, please turn to slide 35 in theappendix. Slide 12, shows that industrialpackaging earnings declined from $139 million in the second quarter to $115million in the third quarter. So, let's turn to slide 14, foradditional detail on our industrial packaging results. The lower industrialpackaging earnings were driven primarily by seasonally lower European containervolumes as expected. Towards American container volumes were down slightly versusthe second quarter but were better than the industry average. High other items including higherraw material cost were partially offset by lower maintenance outage expenses. Pensacola conversionstartup cost also impacted earnings by $10 million versus last quarter, and weincurred restructuring cost to $7 million, which is early rationalization. Export container board marketsremained strong, our inventory levels are low, our backlogs are strong and weare realizing our announced box price increases. In fact in October, ouraverage price per box has increased by almost $30 a ton versus our Septemberaverage. We expect Pensacolaconversion cost to be about $5 million to $10 million less in the fourth thanthe third quarter of 2007. Turning to slide 14, consumerpackaging earnings were essentially flat. US coated paperboard benefited fromimproved pricing and lower maintenance outage expenses but this was offsetsomewhat by higher input cost, especially wood. Looking at the convertingbusinesses, food services earnings were slightly lower than the seasonallystrong second quarter driven by slightly higher raw material and manufacturingcost and show all these results were about flat quarter-to-quarter. On slide 15, xpedx continues tobuild momentum posting another strong quarter. Third quarter operating profitswere $40 million compared with $38 million in the second quarter. This marks eightconsecutive quarter of record earnings for xpedx. Earnings included about $2million from our Central Lewmar acquisition. Slide 16, shows the forestproducts earnings were relatively flat, as you know, land sales can be lumpyand hard to predict, precisely because transactions can move fromquarter-to-quarter. We do expect full year 2007 earnings from land sales to beapproximately $450 million. Our objective continues to maximize value not thetiming of sales. At the end of the third quarter, we had about 390,000 acresremaining in our portfolio. Turning to cash flow on slide 17.We were not pleased with our working capital performance in the second quarter,but in the third quarter our working capital metrics improved and we generatedmore than $380 million in free cash flow. As sales increased and pricesincreased the value of our inventories and receivables increased as well butour ending working capital and as excluding cash and current debt maturities asa percent of sales declined from 11.2% in the second quarter to 10.3% in thethird quarter. I should note, we now expect fullyear CapEx to be about $1.3 billion and that will include $210 million ofspending on our new Tres Lagoas paper machine in Brazil, the third Sun joint venturepaper machine and the Svetogorsk BCTMP mill. Looking ahead to 2008, we expectCapEx including the Tres Lagoas and Sun Joint venture spending to be roughlyequal to depreciation and amortization. There are no spending numbers for Ilim includedin these numbers. I also want to mention that wehave updated some other full year key financial statistics, in the appendix, onslide 13. And slide 18, third quarterspecial items and discounted operations are detailed. Special items after taxin the third quarter of 2007 totaled a loss of $23 million or $0.05 per share. Slide 19 shows you how you getfrom the $0.57 of diluted earnings from continuing operations and beforespecial items to the $0.51 per share of net earnings that we reported thismorning. Now, before I turn this back toJohn, let me remind you that we expect to report the Ilim joint venture resultson a one quarter left. So, the joint venture's fourth quarter 2007 results willbe included in our first quarter 2008 results. There will be no impact from Ilimin our fourth quarter 2007 earnings. So, now let me turn this back toJohn.

Thanks, Marianne. I am on slide20 for those who are following along. Another one to start with, just show theEBIT margin percentages over the last several years and as you can see westeadily increased margins in our core businesses and when I say corebusinesses, I mean, all of our businesses with the exception of forestproducts, forest resources and our divested businesses. These improvements as you can seehere have been significantly consistent and even in North America where market conditions and cost pressures has been challenging.We remained focused on our non-price improvement initiatives, but the mostimportant thing we can do is continue to expand their margins, that’s why we'vebeen aggressively balancing our supply with our customers demand resulting insignificant price improvement here in North Americaand lower costs. Earnings both in Brazil and Eastern Europewere also contributing to this overall margin expansion. For example, our ninemonths EBITDA margins in Brazilare in the 40% range and in Eastern Europe in the 30% range, well above North America. Our increasing mix of global earnings isalso helping to balance our earnings capacity. Slide 21 shows that we continueto increase our North American EBITDA, which we expect will account for 30% ofour total EBITDA this year versus only 20% in 2002. Where is it growing? Well,it’s growing in Brazil withthe addition of Luiz Antonio, it will further increase with the addition of TresLagoas Paper Machine in 2009; that capacity will be primarily dedicated to Latin America. EBITDA is growing in Asia, but it’s still growing from a small number. Weexpect Sun Joint Venture's third coated paperboard machine to start-up later in2008. We are increasing our EBITDA in Eastern Europe and Russia. Our BCTMP line is expectedto start up in December of this year, that’s being built permission to Svetogorskand we've closed on our Ilim Joint Venture and as Marianne said, we will reportthe earnings for Ilim on a one quarter lag. Slide 22 shows how the transformationplan is making a difference for International Paper and it shareholders. We arenow nine months to the year and our year-to-date earnings had surpassed ourfull year 2006 earnings of $1.34 a share. We are not getting the volume weexpected in North America, but we are growingmargins and EBIT and we are trading volume for price by matching again oursupply to our customers demand. The largest component as thisslide shows of our improvement, it has been the improvement of our corebusinesses which has added $0.69 shared earnings on a year-over-year basis.Lower interest cost and lower share count have also contributed significantlythe improvement, but as you can see here, we’ve been able to offset all theearnings the one away with the best of businesses. Looking at the fourth quarter, weexpect the fourth quarter will be better than the fourth quarter of last yearand slightly better than the third quarter. North America's containerboardvolumes will benefit from the Pensacolacapacity, as Marianne said, we’ve already gotten $30 of box price increase intoour October results. Europevolumes will be better, seasonally the fourth quarter is better than thirdquarter. But all the other segments, we expect to slow down, as we move intothe quarter, Thanksgiving is right around the corner and we know once we getpassed Thanksgiving, it gets pretty slow until we pull out of January. In addition to the box pricing, wewill be getting some improvements in pricing in pulp and paper. We expect woodand transportation cost to continue to increase and we think energy is going tostay high, so with that all said, we do expect fourth quarter earnings to beslightly better than the third quarter and we expect forest resources earningswill be higher than the third quarter levels, as well. Interest and taxes will also behigher, interest will be higher because of debtless cash, so less interestincome and as we look at our tax-rate and sources of earnings our tax-rate willprobably be a little bit higher in the fourth quarter. So, summing up, as I said, weexpect earnings from continuing operations and before special items in thefourth quarter would be slightly better than they were this quarter. Looking beyond 2007, slide 24shows how we're building the capacity to continue to increase our earnings.Taking our cost and improving mix that's about $0.28 a share year-to-datebefore the outage impact. So, that continues to be a big, big lever, plus, weare selectively reinvesting in high margin, low cost and high growth areas withprojects to produce good returns and let me talk about few of them. The Luiz Antonio mill will have afull year benefit next year, it will be ramping up our production in LightweightLinerboard of Pensacola, Riegelwood will be on Fluff Pulp and that's sold outalready. And we'll have the BCTMP mill at Svetogorsk running. And our share of Ilimearnings will contribute to our 2008 results. Beyond 2008, our earnings willcontinue to benefit in the addition of the third coated paperboard machine atour Sun Joint venture in Shandong province andour new uncoated freesheet machines as far as it goes in Brazil. So, in closingbefore we go to your questions, our goal is what it has been for the lastcouple of years continuing to be a more profitable cost of capital earningscompany in our global paper and packaging businesses that has superior returnson an absolute and related basis over the cycle. So Tom, lets open it up toquestions.

Thanks John. Amanda, we are nowready to take questions, please.

(Operator Instructions). Yourfirst question is from Gail Glazerman with UBS. Gail Glazerman - UBS: Good morning. I was wondering ifyou could talk in a little bit more detail about the decline in uncoated freesheetdemand in North America the last couple ofmonths. And I think you'd mention that your box volumes, your order books arepretty strong, I think you may be talk about that as well?

Well, uncoated freesheet demandGail it has been weak all years, so I don’t think there is any pronounced trendhere at all. We are seeing more of the same, top-line off the cliff, but itsdown, I think the real numbers in terms of commercial print are down quite thatmuch because you've got some other uncoated freesheet grades that are goinginto the low-end of commercial print, but there is no question theyear-over-year numbers are negative. They have been negative for a couple of yearsand we are planning that the market is not going to grow in North America. On the box side, our box volumeis down about little less than 2% year-to-date. On a quarter-to-quarter basis,our box volume was up about 1%, but you have to adjust that for the number ofdays, as well. So, box volume is certainly in better shape if you just look atthe overall market than uncoated freesheet. Gail Glazerman - UBS: Okay. Just on the North Americanprinting papers, can you quantify Marianne the benefit from less downtime inthe quarter, was that a big contributor to the earnings improvement?

The benefit of less outages, isthat what you are talking about, maintenance outages? Gail Glazerman - UBS: It is, yes.

Third quarter to second quarterit was approximately $17 million. We've got big price realizations in thequarter, prices were up about $22 million, so that was the single strongestdriver of improvement quarter-to-quarter. Gail Glazerman - UBS: Okay. Thank you.

Your next question is from MarkWilde with Deutsche Bank. Mark Wilde - Deutsche Bank: Good morning.

Hi, Mark. Mark Wilde - Deutsche Bank: The numbers in Europestill seem kind of weak to me even with that seasonal stuff that you mentioned andin light of the OpEx?

Mark, you are talking about boxesor paper? Mark Wilde - Deutsche Bank: Talking more about the packagingside of the business, John.

Okay. Alright. Mark Wilde - Deutsche Bank: I think you exited the UK and I don’t know how much of that UK exitcontributes to that year-over-year volume drop in the European containerbusiness?

Well, it does contribute to,remember we had a fire at a plant in Turkey. So, we lost a big chunk at Turkey -- our capacity in Turkey, thatplant has been rebuilt and is starting up now. So, you were on our way tohaving a record year in the box business in Europe, Northern Africa and theMiddle East, Turkeyand we are in pretty good shape there. So, I’m not worried about the box volumein Europe. Mark Wilde - Deutsche Bank: Okay, and John. Any sense withthese ISM numbers out yesterday that continue to soften in North America, are you seeing any reflection of that in any of yourpacking-related businesses?

Well, it’s a mix bag, Mark. Thejobs numbers this morning was very good. We'll have to say that that’s probablya sign that people feel optimistic about the holiday season with retail salesstandpoint. The weak dollar is helping us in some segments because ourcustomers in the box packaging businesses are more export competitive. We'vegot an overweight slightly in our durables component of our box business and themarket is about 80, 20 and we are probably 25% durable, so that segment is stillvery weak. And I think that the purchasing index suggest that manufacturersdoesn’t feel like 4% GDP growth, I guess this is where I’ll be at. Mark Wilde - Deutsche Bank: Okay. And last thing, John just afollow up. Can you talk a little bit about the uncoated freesheet pricingbecause your quarter-to-quarter gains seemed a little smaller than I would haveexpected, yet your earnings were up nicely?

Well, we ran well and it wascontinuing to take cost out, the uncoated freesheet the roll side of thepricing increase really is a fourth quarter number. We got about $10 a ton onoffset in October versus September and about $30 and on below. So, we get inthat price increase as flowing through which is flowing through in the fourthquarter. Mark Wilde - Deutsche Bank: Okay, very good. Thanks John.

Your next question is from ClaudiaShank with JP Morgan Claudia Shank - JP Morgan: Hi, thanks very much, goodmorning.

Hi, Claudia. Claudia Shank - JP Morgan: Could you just provide a littlebit more color on the consumer packaging business and how should think aboutthat going into next quarter? List prices for bleach board keep moving up,volumes little bit better than I thought and then there was less maintenance inthird quarter, so I guess even with --

You said an important word thereClaudia, list prices. What really important. Claudia Shank - JP Morgan: So, what's going on?

Our transaction prices, its up,there are couple of different segments, you've cup stock, you've got foldingcarton, and then you've got tobacco board and some of the grades, tobacco boardtends to be priced on an annual basis, cup stock has been moving up, but therehave been a lot of cost increases in cup stock and folding carton prices havebeen moving up, but they are a lot stickier because there is a lot morecompetition, there are alternative materials. So, list prices going up is thegood thing, but what we need to get is transaction prices up to same as listprices. For us, we got significant more outages coming up in the fourth quarterand we expect sure we would have a better fourth quarter than third quarterfood service will tail-up with the seasonal part of this and we are alsoincurring some restructuring cost and I’m sure which is substantially shutdown,two plants in North America and in the third quarter as we are transitioningmore of that business to Mexico, and I believe the cost to doing that wereabout $7 million. Claudia Shank - JP Morgan: And how, so you still got alittle bit of a seasonal pick up and ensure right what you would think in thefourth quarter?

Yeah. Food service is going to beweaker, because we are going into the weak time of the year and we've gotoutages coming up in consumer and in the bleach board system. Claudia Shank - JP Morgan: Okay. That's helpful. And then Iwas just hoping -- I know it's little early but can you provide any guidanceson corporate expense for next year. I think in the slide you said that supplychain expense is going to be about $200 million this year, which I think is alittle bit lower than what you've said before so, does that mean next year it goesto sort of I think you've been talking about 225 numbers for this year so doesthat mean that you got a little bit more next year on that supply chaininitiative?

Claudia, we are just in theprocess of finalizing the budgets for next year. So, directionally you areright. Supply chain spending was little bit lower this year than we hadexpected at the beginning of the year. And directionally, it's partly going tobe roughly the same but we haven't finalized the budgets, yet. I will be ableto share more information with you on the next quarterly call and what we thinkcorporate will be. Claudia Shank - JP Morgan: Okay. Thanks a lot.

Your next question is from ChipDillon with Citi. Chip Dillon - Citi: Yes. Good morning. What do yousee the land, you mentioned that your land portfolio and what do you think thatacreage will be at year end?

Well, it's 300,000 plus acres now.

90,000 at the end of thirdquarter. Chip Dillon - Citi: And then how many more acres youthink will be sold by year end?

I just don't know, Chip. Thosesales were coming in now. Pretty lumpy, not so much related to the market, justit is much smaller portfolio and the sales were a lot more targeted. So, Iwould want to make a forecast about the acres we have are up, we are only doingdeals that we think that is the right values. Chip Dillon - Citi: Got you.

And the values have kept up verywell, compared to what we expected in appraisals.

That's an important point. Wehaven't seen any value leakage at all in selling. Chip Dillon - Citi: And could you give us just some ballparkas to what, I mean, I know this is mainly real estate higher better usage or issomething that is several times what straight timberland is worth on a per acrebasis or is it may be twice as much.

It really depends Chip, and Iwouldn’t characterize, it's not really near-term real estate. A lot of it isrecreational land, a lot of it is landowners blocking up where we've gotadjacent ownership and some of it is longer-term development. When I saylonger-term development five years plus. You are getting over $2000 an acre onaverage for that land but the range will be very high, it will be from 1,500over 4,000 and then you've got different parcel sizes. Chip Dillon – Citi: Got you. And last just as follow-up.You mentioned that you would see 450 for this year, if I understood you, doesthat not mean that you will have somewhat of an increase in the fourth quarter.It looks like if you did 297 so far this year, you'd get like a 150 or so inthe fourth, is that reasonable?

I think you can do the math, butyou don't get it. Chip Dillon - Citi: Yeah. Okay just want to make someour calculator works. Thank you.

Your next question is from MarkConnelly with Credit Suisse. Mark Connelly - Credit Suisse: Thanks. Just one question, John. Withrespect to Brazil,you talked about all the good things that are going on there, and clearly boththe volume and the price realizations are stronger. Can you talk a little bitabout where that paper is going and whether it is principally a domestic marketissue? And can you talk a little bit about what you are seeing cost wise theyare relative to North America?

About 50% of this is domestic,Mark. And then, the big chunk of what's not domestic is in the region. And thenthe third largest piece would be or kind of that, after that would come Europeand North America. I remember, BCP was sellinga lot of paper into Europe and in North America, we are selling less in NorthAmerica now, maybe a little bit more into the Europebut what's really important is the Latin American markets are growing, so theyare increasingly taking a bigger share of total production into the region. Mark Connelly - Credit Suisse: So, as you look at the bump involumes you got is most of that bump coming in the region, that’s what I am reallytrying to get at?

Yes. Remember we had a lot ofpipeline filling so, we weren’t selling our production and actually we oversoldour production, I think in the third quarter, we grew that inventories. On the cost side, we are gettinghit with higher energy costs that I believe is in a global phenomenon it’s justthat what’s going on in Brazil and currency is not going our way becauseobviously we've got Rial cost base and we've got some portion of our revenuesare dollar denominated. Mark Connelly - Credit Suisse: Okay. That’s very helpful. Thankyou.

Having said that Mark, our EBITDAmargins still on the 40% range.

And also we are getting very goodproduction out of Luiz Antonio, the Luiz Antonio's mill has been performingvery well. Mark Connelly - Credit Suisse: Perfect. Thanks for your help.

Your next question is from GeorgeStaphos of Banc of America George Staphos - Banc of America: Hi everyone, good morning. I amwondering, my first question piggy back on Mark’s question regarding Europe youhad said in your comments that the box business slowed seasonally and then asfar as the papers business where that maintenance spending was largely thefactor for profits being lower. Were there any other factors John, Marianne interms of profits being it’s typically within papers lower than last year, werethere any businesses or trends that are little bit below, where you would haveexpected them three months ago? And seasonally, as we look out to the fourthquarter, you are obviously looking for better performance, but does it looklike Europe will be up on a year-on-yearbasis?

Absolutely. George, Europe is going to be way up on a year-on-year basis. Year-to-dateat Europe it’s just severe and we are running almost double last year’searnings in Europe through the first ninemonths. George Staphos - Banc of America: Okay. But….

And then container even thoughwe’ve sold some of them mentioned, we sold our UK box plants. Our packagingearnings in Europe are up about 20%year-to-date versus last year. So, in both businesses, run away to having arecord year. It's not gangbusters growth in Western Europe, what it is, is growthin Russia, we're selling more of the board that we are producing in Poland andwe’ve had a capital project to build more folding box board, we sign more thatin Eastern Europe with those export end, which is improving our realizationsand we are getting some pricing, we got some pricing improvement in Europe aswell, but its not a Western Europe volume driven thing at all. George Staphos - Banc of America: John, the best that you cananalyze this if you could on a same store or same business basis, will themarkets be up on a demand basis, Europe is notgangbuster as you mentioned?

In the fourth quarter? George Staphos - Banc of America: Yeah.

Yeah. George Staphos - Banc of America: Okay. Now, just on non-priceimprovement you've done remarkable job there over the last several years,you've had a very good year this year, but when I compare the slide on the ninemonths versus the 3Q basis, it looks like the performance there slowed a littlebit in the quarter, was that largely just driven by the volumes being sluggishin a couple of businesses? Were there some other factors there? Thanks.

Well, one of the things is we hada fantastic second quarter. George Staphos - Banc of America: Right.

Really, it mean, we wayoutperformed our budget in the second quarter. We kind of came on budget in thethird quarter, which meant the third quarter wasn’t that much better than thesecond quarter. George Staphos - Banc of America: Okay. Thanks, I'll be back guys.

Your next question is fromRichard Skidmore of Goldman Sachs. Richard Skidmore - Goldman Sachs: Good morning, John and Marianne.John, can you just talk about the strategy of International Paper withincontainerboard in North America, and somewhat specifically with regards to thevolume that's coming up in Pensacolaand where that volume is going?

Well, the volume coming out of Pensacola which is in theLightweight Linerboard, so it's very targeted to specific customers they weren'tLightweight Linerboard. The export markets are quite good for Linerboard now.So, not specifically the Pensacola although we think we will export some out ofPensacola to selected markets but we will rebalance the system and we took theirhoe down so, that came out and as Pensacola ramps up, there will be someaddition to our containerboard production capacity, but as we look out in themarketplace where inventories are where orders are domestically and globally wefeel very good about being able to sell what we are making? Richard Skidmore - Goldman Sachs: Thanks. And as following up onthat and as you look to the recent weakness of the US dollar versus the Euro,are you seeing a lot more opportunities for exports both in containerboard andin paper to Europe from North America?

Well. We've seen that for the lastcouple of quarters where the dollar has been related to other global currencies,it has been good for exporting from the US, but that's all function the demandand we are matching our supply to our demand on a global basis and there is noquestion that dollar word is helping US producer to be more export competitive. Richard Skidmore - Goldman Sachs: Okay. And is that having much ofan impact on your European business particularly in the packaging business, isthat part of the reason that packaging in Europewas a bit weaker?

No. I think its probably puttingmore pressure on the paper side in terms of the capacity in Europe and some ofthat was exported, has been exported, with the strong Euro the margins on exportingpaper from Europe to other parts of the world aren't as good, so that paper istending to stay, in Western Europe which a lots of the operating rates and theinventories in Western Europe. Richard Skidmore - Goldman Sachs: Okay. Thank you very much.

Your next question is from PeterRuschmeier with Lehman Brothers. Peter Ruschmeier - Lehman Brothers: Hi, thanks, good morning. John, Iwanted to ask if I could about Ilim, if you could give us a little more color,update on Ilim, both in terms of how you plan to report results in terms ofconsolidating, where we might find that in the income statement. Andimportantly I guess, remind us about the spending plans going forward and whatkind of growth trajectory we should expect from Ilim?

Well, let me just comment on thefirst part of that Pete, then Brian McDonald happens to be here today, who isheading up one of the big piece of Ilim. So, let him talk about how he seesbusiness there right now. As Marianne said, we are going to report Ilim on aone quarter lag. We haven't decided yet, how we are going to account for Ilimand we are working that through, and so we'll back to you probably when we geton our next quarterly call, when get that resolved, but it will be on a onequarter lag. So, the fourth quarter results for Ilim you will see in our firstquarter results. So, Brian why don't you talk about what you see, you just gotback from Russia.

I just got back Pete from couple ofweeks in Russia and a weekin China,visiting with our customers and I would say business over there is very robustand our customers and our employees in Group Ilim are very excited about thepartnership with International Paper and Ilim Group. Our partners in China where wedo almost the 1 million tons a year from Ilim understand the value thatInternational Paper can bring to the partnership and ability to produce moreproducts to produce better products and to improve service levels. So, it’s avery different dynamic and I think you get a flavor for that InternationalPaper when John went through how good Brazil was in the quarter. We seethe same things in Russiaand we see the same things in China,its very strong right now.

Pete on the capital spending side,we are still finalizing our plans but I think the good news here is Ilim is earninggood money and so the more money it earns, it just gives us more debt capacity,more cash flow to finance the capital program and I suspect at the end of theday, the speed of the capital program is going to be making sure we got theprojects really well defined not financing, but we'll have to see. Peter Ruschmeier - Lehman Brothers: How about on a trailing basis,John, can you remind us the LTM EBITDA for the business and what the CapEx kindof run rate has been?

Well, the Ilim's EBITDA is runningat over $400 million. So, I think our share of that is $200 million and we'veinvested slightly over $600 million for a 50% stake in a company that's earningover $400 million EBITDA.

That still have to be adjustedfor US GAAP. Peter Ruschmeier - Lehman Brothers: All right.

And what was the CapEx spendingin kind of base loaded Ilim?

Pretty low, it would be a 100ishless than a $100 million. Peter Ruschmeier - LehmanBrothers: Okay.

So, company has been spendingless than $100 million. We want to make sure that we are well organized to stepthat up because we anticipate it will step up quite a bit on specific projectsand the race isn't here to spend as fast as we can, it is to spend it well andspend it on the right things. Peter Ruschmeier - LehmanBrothers: Okay. Just last question if I could on that, John. At a high level,I know you haven't committed to all this, but I believe you have indicated inthe past that over a multiyear period is it roughly $1.05 billion type ofspending at the JV, I understand it's non-recourse to IP, but is that theballpark to number and ballpark what kinds of the million tons goes that whatkind of number over roughly what timeframe?

Well, the $1.05 billion is stillthe number. You know, roughly in five year timeframe and the projects some of themwill be capacity expansion, other part would be printed paper in Russia, pulp for China. There will be productquality upgrades around paper for Russia and there may be somecontainerboard expansion. Most of these will be bottlenecks. It's not big newpaper machines. They are going to be upgrading what we have and there will be alot of cost reduction. Peter Ruschmeier - LehmanBrothers: John thanks very much.

Your next question is from MarkWeintraub with Buckingham Research.

Good morning, Mark. Mark Weintraub- Buckingham Research: Good morning. Just real quick Marianne,just wanted to make sure when you said the EBITDA are not adjusted for US GAAP,et cetera. I assume that when you do make those adjustments, you are not havingbig changes, not more than 10% or something like that, is that fair?

It would be things likedepreciation. Mark Weintraub- Buckingham Research: Which shouldn’t affect theEBITDA.

Yeah. It doesn’t affect cash. Mark Weintraub- Buckingham Research: Okay.

As the key way to think about it,it's just switch in how the numbers on a non-cash basis might look. Mark Weintraub- Buckingham Research: Okay. Just pursuing the impact ofthe weak dollar a little bit more, do you have a sense John, of where mill netsare selling say liner or for that matter the uncoated free sheet products thatmight get exported? Will they compare now for your European experts or is thisyour domestic business?

Well, I think where prices areright now in Europe and in North America, it still doesn’t make sense for mostEuropeans to ship from Europe to the US. There is more profitability inEurope than there is -- and maybe with one or two exceptions, mill would havegreat logistics going into the US.And that's why understanding global pricing and we are in a great position todo that since we are selling in all markets, Asia, Brazil,Russia, Eastern Europe,Western Europe and North America. And I'd sayright, now pricing is at a point where it makes sense for the regionalproducers to be focusing on their local markets. Mark Weintraub- BuckinghamResearch: Okay. So, it doesn’t make sense quite yet for US mills andlinerboard to be shipping it to Europe.

I was talking about paper, Mark.On linerboard, the US dollar for virgin linerboard, the US dollar puts US linerboardproducers in very good shape because on the virgin side, we've got acompetitive cost structure and we are mostly virgin we don't have a highrecycle component. Mark Weintraub- Buckingham Research: Right. And so, mill nets to Europe might be fairly comparable now to anything?

Yeah, we are not shipping much toAsia at all. At any place for mill mets arelittle bit lower than our North America and Latin America. Mark Weintraub- Buckingham Research: Okay. And then just lastly Idon't know if you have a perspective on this but the spread between test linerand class liner in Europe is unusually now actually maybe even test liners arelittle higher than class liner? What implications, what relevance might thathave, is this we are thinking about this business from your perspective?

Just looking around Mark, to seeif anybody knows more about that than I do, may be Tim Nichols -- love to getback to you on that. Mark Weintraub- Buckingham Research: Okay. Thank you.

Your next question comes fromSteve Chercover with D.A. Davidson. Steve Chercover - D.A. Davidson: Good morning. It looks like yourprofits are kind of ramping towards $3 hopefully on the sustainable basis, andyou had a great balance sheet. Is you are at point at which you are going tostart to reconsider the dividend?

Yeah. There is. I don't think weare right there, right now but that's something we have been, and we will continueto talk to our board about. Steve Chercover - D. A. Davidson: Thank you.

Your next question is from [John Tomazowith John Tomazos Endophagic Research]. John Tomazo - John Tomazos Endophagic: Could you just walk us throughthe capital to be employed and seven important growth projects on your slide 24.And in the aggregate, were the 20% return for EBIT return be a reasonable goalon the aggregate capital employed in this projects?

Could you just walk us throughthe capital to be employed and seven important growth projects on your slide 24.And in the aggregate, were the 20% return for EBIT return be a reasonable goalon the aggregate capital employed in this projects?

Well, let me just go through thenumbers with you, John on the projects. The Pensacola conversion is about $350 millionand the Riegelwood fluff pulp project was about $80 million, Svetogorsk BCTMP about$150 million. The Sun joint venture machine, the last piece of that was 70 or80 is in my head, $70million or $80 million for that machine and then TresLagoas is about $290 million. John Tomazo - John Tomazos Endophagic: Of course buying into Brazil and buying into Russia were big commitments?

Of course buying into Brazil and buying into Russia were big commitments?

Luiz Antonio, I think about thatas there was a big swap, where we swapped trees, swapped the project throughthat VCP you've got to routine with $1.1 billion in capital and got LuizAntonio mill, plus all the timberland around the area and then we talked aboutthe Ilim joint ventures. So the returns on those projectsare all well above the cost to capital and they do vary, but they are all veryhealthy returns well into high double-digits or better. And the good news isthe fluff pulp projects are already sold out. BCTMP markets in Eastern Europe are very strong. The Sun joint venturemachine we are ready to sell that. Pensacola,we've got more orders right now in containerboards than we can ship and TresLagoas starts up in 2009. So they are not, they are reallynot North American driven projects with the exception of fluff pulp I would sayand like I said we've already have got all that volumes sold in the contract,that answer your question John. John Tomazo - John Tomazos Endophagic: Yes, thank you very much.

Yes, thank you very much.

We have a follow-up question fromMark Wilde with Deutsche Bank. Mark Wilde - Deutsche Bank Securities: Yeah. Hi. I wondered Marianne ifit's possible for you to estimate just the FX translation effect that you'vehad in the third quarter and then through nine months?

It's not a very big number. Thereare pluses and minuses. It's pretty much a wash. There are pluses and minusesif you go around the world. Mark Wilde - Deutsche Bank Securities: Well, it would seem like thedollar is weaker against almost every currency around the world, so it seemslike on a translation of offshore earnings it should be a net positive thisyear.

One of the things that makes it alittle bit more complex than that is if you take a country like Brazil forexample, Brazil exports in dollar, so you don't get all the benefit that youmight be thinking of the weak US dollar for the translation effect of earnings.It does benefit Europe and then in Europe we have cross-country translation aswell, so we will have the translation effect of shipping from Eastern Europe,Europe or Poland intoWestern Europe, or into Russia.So the plays of currency are a little bit more complicated than they might seemon the surface and when you let everything out, it may be a small cost,$5million to $10 million. Mark Wilde - Deutsche BankSecurities: Okay. All right. And John, you've talked about bringing down theoverhead in IP as you can shrink the domestic footprint. Can you just give ussome sense of where you are adding that process right now?

Our total overhead is runningflat year-on-year, that's total overhead dollars. As a percent of sales we area little bit lower than we were last year and I would say every time, we stillgot about a percent of sales of overhead that we are going to get out over a periodof time. We are going to do that through attrition, through Europefacilities and/or midst to doing that right now and in Shorewood in the containerdivision and in xpedx. Mark Wilde - Deutsche BankSecurities: Okay.

Mark, I'd also just come back toyour question on currency, there is a big flaw on effective currency in ourpackaging business and despite the fact that box business is down the market isdown 1.9% or close to 2% year-to-date I think with the dollar where were it waswe would be looking at different numbers. So that doesn't show up in ourfinancial statements as a FX line but it's really there.

I think it also helps pulppricing the weak dollar. Mark Wilde - Deutsche Bank Securities: Yeah, I think it' going to helppulp and a lot of other things next year if we stay where, we are [ahead] rightnow.

I agree with you. Mark Wilde - Deutsche Bank Securities: Okay, thanks John, thanksMarianne.

We have time for one finalquestion. Your last question is a follow-up from George Staphos with Banc ofAmerica. George Staphos - Banc of America: Just a quick one, I really thisisn't the outlook right now, but if you're in a weaker environment next year,would we expect distribution earnings xpedx to be following pretty much on pacewith what you had be seeing in paper or board, do you think that given whatyou've onto restructure of the business, asset business improve it through NPIas well that it should be a fairly, trend line stay business against the otherbusinesses?

George, as Tom Kadien, who runsthat business is sitting right here so I am going to let him answer that. George Staphos - Banc of America: Hey, Tom.

Hi, George. I think we can dobetter than the trend line that you would be watching for uncoated or coatedpaper. We have many restructuring activities going on throughout xpedx, Johnmentioned the S&A we were down year-over-year significantly in headcountand yet we are growing the business relative to the markets we are competingin, we are gaining some share, so I think we can do better than the marketsthat you'd looking at for say uncoated free sheet or coated paper. George Staphos - Banc of America: For kind of just dampened growthbut not a whole heck of a lot of volatility on the downside of impact that'swhat we had last -- next year.

Yes. I would agree with that. George Staphos - Banc of America: Okay. Thanks very much guys. Goodluck in the quarter.

Well let me before we hang uphere to say that IR is able to answer any additional question for us, so I justwant to take this opportunity to tell you this will be Marianne's last earningscall and as I think all of you know Marianne is retiring after 33 years withInternational Paper. I don't have to tell you she is been an influential leaderin our organization throughout her carrier and from my perspective she has beena valued colleague and advisor and a personal friend and then very variable toour transformation plans. So I know all of you will join me in wishing her wellin the next chapter of whatever is coming next so. Marianne if want to addanything to that you can.

All right. I would add to that isthat Tim Nicholls is going to be taking over CFO the 1st of December. I havebeen working with him for several months now here back in the United Stateand I think you all are going to find that he is extremely good for you to workwith and you'll enjoy it.

Okay. Thank you everybody. That'sit.

This concludes today's conferencecall. You may now disconnect.

Thank you, Amanda.