Good morning. My name is Cynthia and I'll be your conference operator today. At this time, I would like to welcome everyone to the International Paper First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn today's call over to Tom Cleves, Vice President of Investor Relations. Please go ahead, Sir.

Thanks, Cynthia. Good morning everyone and thanks for joining International Paper's first quarter 2008 earnings conference call. This call is also being webcast. Our key speakers this morning are Chairman and Chief Executive Officer, John Faraci, and Senior Vice-President and Chief Financial Officer, Tim Nicholls. During this call, we will make forward-looking statements that are subject to risks and uncertainties, which are outlined on slide two of our earnings presentation and at the end of our earning press release. We will also present certain non-U.S GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website at internationalpaper.com under the Investors tab. The website also contains copies of the first quarter earning press release and today's presentation slide. I'll now turn the call over to John.

Thanks, Tom and good morning everybody. As Tom said, we announced our first quarter earnings this morning. First quarter earnings from continuing operations before special items were $0.41 a share. These earnings reflect lower forest products earnings,which we expected, and escalating input cost, which we didn't expect, and they increased at a much greater than expected rate. Putting that $0.41 in the context, it still was the second best first quarter we had in eight years. But relative to the fourth quarter, our results reflect about $150 million or $0.24 a share in reduced forest products earnings. And relative to fourth quarter, input cost also increased by $90 million or $0.14 a share, which is three times the positive impact of pricing we got in the first quarter relative to the fourth. Paper and packaging volumes in North America declined slightly, but these declines were offset by increased volumes outside North America. Our first quarter earnings reflected a 29% sales growth and 18% operating profit growth in our non-U.S. operations, and the EBITDA margins of those non-U.S. operations are about 600 basis points higher than our U.S. EBITDA margins. First quarter earnings also include the positive impact of Ilim's fourth quarter earnings and we're putting those in for the first time. And we'll talk a little bit more about Russia later on. Now I'll ask Tim to comment on our first quarter results in a little more detail and then I'll come back and wrap it up.

Okay, thanks John and good morning everybody. Before I get into some of the slides, I just want to let everyone know that most of the material that I'm going to cover today is going to be on a year-over-year basis. We've included the fourth quarter comparison in the appendix of the presentation, but given the seasonal nature of our business, we think the year-over-year comparison is more meaningful. So, if you look at slide four, it compares our first quarter results with the first quarter of 2007, and we achieved improvements in price and volume and cost mix, but the improvements were largely offset by the rapid rise that John mentioned in input cost, and now it did contribute $0.04 per share to our earnings. And over the next few slides, I'll give you some more details on the different factors that impacted earnings. On slide five, look at volumes. Volumes for most of the businesses improved slightly on a global basis, although there were some differences between regions, we'll cover some of that. Printing papers was flat year-over-year on with North America being down about the same amount as Brazil was up, and Europe was flat. Other businesses were up, but volumes softened near the end of the quarter. We were stronger in January and February than we were in March. And we think there is several factors that led to the lower volumes at the end of the quarter. The economy being one of them, weakening throughout the quarter as we experienced it, but we also think there was buying ahead of price increase announcements, especially in uncoated freesheet. And we also think that the earlier Easter holiday had an impact on shipments towards the end of the quarter. On slide six, we give you a breakdown…

Okay. Thanks, Tim. Before I comment on current business conditions and talk about second quarter, let me give you a brief update on our acquisition of warehouses, industrial packaging business. The integration of these assets give us a great opportunity to create the best containerboard and box businesses scale in the world. We are pretty confident, very confident this is going to generate TCF returns in excess of 15%, a very compelling financial return for this. We've been working on the integration plans over the last month and even more convinced we get into it that there are great opportunities and some of them will come fairly early to realize the operating synergies. With these synergies we're going to increase our EBITDA by more than $1 billion from our 2005 baseline, which is illustrated on slide 23. Another way to think about that, that's all the earnings that went away with divested businesses which we brought in $11 billion in proceeds. So this left hand pie chart on slide 23 shows the composition of our 2005 EBITDA of $2.8 billion. In 2005, forest products and divested businesses generated nearly 50% of our total EBITDA. By the end of 2007, we'd replace all the earnings of the divested businesses even as far as products earnings declined by 35%. The right pie chart shows that with the addition of warehouses and the associated synergies, we are going to increase our EBITDA by 40% and we'll generate nearly 90% of our earnings from these core paper packaging businesses. So, with that, go to slide 24, if you would. Where we are in terms of getting ready for the closing; we filed the regulatory approval papers in early April and meeting with the regulatory agencies to respond to their questions. The integration teams have…

Thanks, John. Cynthia, we are ready to entertain questions please. Question And Answer

[Operator Instructions]. Your first question comes from Chip Dillon with Citi.

Yes, good morning.

Hey Chip. How are you?

I am doing well. Let me make sure, I just got this right because I think this perhaps demonstrates how the cost have really snagged up on you. I know you mentioned the $161 million in cost year-to-year, did you say $990 million just from the fourth quarter to the first?

Yes, 990.

Okay. And I know you have mentioned there is a lot of uncertainty, obviously we are just a month into the quarter, but if we sort of froze things where they were now assume no new increase or decrease, could you give us a guess as to how much further they would be up in the second versus the first?

No, I can't. I just don't have on my finger tips Chip what our input costs were in March relative to what they were in January and February. But as I've said, if we froze input cost that's first quarter average. And we got some ups and downs in there, so I do not think you generally say they are going up from where they were in markets, some are and GAAP is certainly up, oil is certainly up. But at input cost in the first quarter averaged what they held level; we would expect our second quarter earnings to improve.

Got you. And then can you talk a little bit about the consumer packaging segment? I am assuming that the fluff hope you are increasingly selling out of places like I believe Riegelwood, is actually flowing through printing and writing. So you might confirm that?

It is.

Just talk a little bit about how you see that unfolding this year again not really talking about pricing but maybe with the situation at Shorewood.

Well, Shorewood is in a toughest. A lot of other customers moving from North America to other places like Mexico. We close two plants last year and eight of those cost in operating earnings. We've got $5 million in our first quarter, that's Tim mentioned is closing a big plant in Canada. There is more to come, more cost associated with that, another $20 million that will have to take this year. And having said all that, keep in mind, in Shorewood is less than 2% of our capital and less than 3% of our sales. So, it's not a needle mover, and let me do with our food service business, which is struggling a couple years ago and is now making record profits. And we think we can significantly improve both top line at Shorewood and the bottom line, which is the most important line. On the bleach board side, really what bleached board is getting hit with is there in its input cost price. Regarding cup stock, cup stock prices have moved up, folding carton prices have moved up enough to offset input costs. So those are the three segments that are impacted. Food service is doing well and Shorewood issue is rightsizing its cost structure and getting replacement revenues loss and bleach board is recovering some of the input costs that we had to experience.

Got you. And then just last question, can you talk about sort of what your sort of guess is that this early stage towards directionally what CapEx would do on an consolidated basis for 2009. I would assume the Sun spending will be behind you. I didn't know if there was any early look to what we might see for next year whether it might?

I think we're going to be...our targets is less than a billion dollars with warehouse.

So including warehouse.

Yeah that's the target.

Got you. Thank you.

Hey Chip, if you look in the appendix on slide 33 you'll see the quarter-over-quarter input costs increases.

Got you. Thank you very much.

Your next question comes from Mark Wilde with Deutsche Bank.

Good morning John. I wondered if you could...I wondered if you could talk kind of from the big picture standpoint, and how you'll manage this situation where in right now where we've got kind of the weak volumes, because the economy, but we were in atypical situation where you know there is pressure on commodity prices?

Wellthere is cost side of it and there is the price. On the costs side we're looking to take out transportation miles where we can. We now have the ability to actually understand what transportation miles are with the supply chain improvement particularly to our container board business, so managing transportation now in our industrial packaging business is almost as significant as labor costs. That's one piece. We're redirected our capital budgets significantly to energy consumption reduction projects. They make good sense economically and obviously they make good sense environmentally using less energy. We're doing things like improving our woodyard productivities so we can process round wood, which means we don't have to go to as far to replace wood. Its gone away, because the housing market are in such poor shape that the chip supplier has dried up, and obviously we are managing our cost as tightly as we can, and we think we can do it even tighter. That's the cost side, we're aggressively moving on price wherever and when ever we can.

Okay could you...is it possible to get any additional color from you on kind of where yousee pricing you two biggest businesses over the next kind of three to six months. It doesn't sound to me like your assuming that the this container board hike is going to do anything in the second quarter from the end of the discussion comments that you made?

Well we think in container board prices...our prices did not go up. ALL we can talk about our prices.

Right

Our inventories are in good shape. Demand for container board impact strong and we don't chase box volume. Box plant utilization is not what International Paper is about in our container business. We'll go to any channels that sell container board and right now there are lots of channels to sell contain board into. Having said that our prices are basically flat. In printing papers our prices have done a better job of offsetting input costs. And we've announced the...we think we're going to realize the announcements got at a [Indiscernible] price across the board.

Okay, do you have any visibility in terms of non-maintenance down time as we look over the next three months. I mean which sounds to me like you re seeing some of the slowdown's in the printing and writing business that we saw in industry data for March?

No or big in printing papers is the absence of Pensacola and we have Pensacola. I think our equipments were down 8% in first quarter compared to the first quarter of last year. Pensacola accounts for about 10% of that, so we were down more than the industry just, because they have less capacity, and our inventories are in good shape. We run our mills to meet demands. We do not run to just, because we can produce, and as you know Mark we do not comment on down time forecast, rather there has been maintenance outages.

And Mark its Tim. If you look at printing papers at Pensacola ear-over-year, the business was actually slightly ahead, so the volume shortfall is almost totally impacted by Pensacola conversion.

Okay, I thought I had heard you when you talked about xpedx mentioning that late in the quarter you have seen some of the slowing from the economy?

Well in printing papers, we have certainly saw at the end of March was slower than the January, and February, so there is no question the economy has slowed, and its having impact on commercial printing, and we think about direct mail. An envelop and the direct mail segment in financial services has really been severally impacted. There are less solicitations for credit cards, less solicitations for home equity loans, so business with Taplon [ph] and Citigroup is way down, and we are seeing the impact to that in our converting the segment that runs that [indiscernible] business. Cap size is okay.

Okay, very good. I'll pass it on. Thank you.

Your next question comes from Gail Glazerman with UBS. Gail Glazerman - UBS (U.S.): Hi.

Gail how are you this morning. Gail Glazerman - UBS (U.S.): Good thanks. Just kind of carrying on. There are questions on demand in to your box business. If I am reading correctly your volumes were up on the same day basis. I am wondering if you can talk a little bit more about what you are seeing specifically in North America box demand?

The box demands reflecting Gail as you would expect what's going on in the economy. It's pretty weak. The durable segment has been and continuously be awful. I mean its housing and auto related. The non-durable segment is better, but its consumers are adjusting their spending habits, because the economy has slowed, I think, I was worried before we were talking our way recession. Now we succeeded. We've been successful. We are in one regardless of what the GDP number is. The consumers believe we are, and I think we're seeing a pullback in spending, which is impacting the box demand. Gail Glazerman - UBS (U.S.): Okay and looking at the printing papers business, as you're raising prices in this sector [ph] environment just carrying it forward. Have you seen any signs of any signs of the kind of price. I mean I guess you are talking about the weakness in financial services direct mailing and of price elasticity, the demand as you are pushing through these increases. How dramatic do you think that could impacting volume or do you think it could?

I don't think it is Gail. Its hard to take a month. The shipment numbers in March were down pretty sharply. The shipment numbers in the first quarter were not down nearly as much as March, they were down like 3% year-over-year, that about in line where we've been, so there has been substitutions going out in the paper segment and some of these grades for long time that going to continue. So, I don't see any real shift and look we've got a lot of input cost inflation flowing through a lot of commodity products, paper being one of them and you just got to pass those through in the form of pricing. Gail Glazerman - UBS (U.S.): Okay and when you look at stronger global growth relative to the U.S. Are you finding it... what type of issues would you have servicing some of that out our U.S. in terms of shipping backlog and is that an issue and are they getting any better or worse?

Well global demand for container board is up 3 to 4%. Our export volumes and container board are up. We've really don't have a whole lot of capacity to move around because we shrunk our footprint. Our whole strategy here is for International Paper not to have more capacity than we need and then when we have low costs capacity to run it, so we've taken out the high costs stuff, and we're going to continue to not build our inventories. So we've been selling products. I mean pulp market obviously been very strong. The container board market partially, but not solely, because of the U.S. dollar has been strong and expect it will continue to be. So, we have some options. In the box business our container board we're more than willing to go to different channels to sell linerboard but we recognize it's a highly competitive market at all ends. Gail Glazerman - UBS (U.S.): Okay, but you haven't done yourself unable to service export demand, because of shipping...a lot shipping since?

There is no question, yet there is congestion at the ports. We are having a hard time. If the product doesn't arrive at port exactly when it suppose to and that particularly true in pulp, we don't get the shipment out. Brazil the expansion of exports out of Brazil is having a hard time. So there is port congestion kind of everywhere, storage to containers you name it. So from perspective we've got to manage that very carefully to make sure we can get what we want going into right direction at the right time. Gail Glazerman - UBS (U.S.): Okay. Thank you.

Your next question comes from Claudia Hueston with JP Morgan.

Thanks very much. Good morning.

Claudia, how are you?

I'm okay thank you. I just had a couple of questions on costs. I was hoping if you just talk a little bit about the costs situation in printing papers in both Brazil, and Europe. Have power cost in Brazil improved, and may be just comment on what fiber cost in Europe as they stabilizes the dollar. Are they still going at time.

The energy situation in the Brazil has improved dramatically. We were looking at in January about a $60 million annualized cost increased just for electricity, just a one facility. We now think that's going to be probably $20 to $30 million year-over-year.

Okay,

Okay, so still high, still up, but change dramatically which just shows you the volatility of the energy market there. You know costs in Europe are up as they are in U.S, because that are affected by world energy prices. They've been moving up, so we got the same issues around transportation cost, some chemical cost in Europe, different sort of dynamics around wood cost, but generally speaking wood cost in Europe and Russia are up for a different set of reasons and they are up in North America.

Okay.

As I said our profit were up sharply outside North America. Our margins look better.The overall cost structures are good and demand is growing.

Yeah in terms is this your overall energy exposure. Are you hedged on natural gas at all going forward?

Hey Claudi its Tim. We are hedged for 2008 where about 70% hedged on our buy.

Okay and then just on the corporate cost. The guidance I guess is 140 to 160 for the year, but in the first quarter it was a little bit low at $21 million, so how do we think about that trajectory of those cost going forward and them may be just if you could comment a little bit on in terms of thinking about the occasion of the supply chain spending with in the segments in sort of how do you think about that that is been we move in to 2009 and I guess the spending sort of moves from container board of corrugated rubber, the spending is this year to some of the other areas?

Yeah and what we've done is that I mentioned earlier as we tried to push out so there we get, we put the businesses on a more comparable basis to some of peers. The 140 to 160 is probably going to be awaited a little bit heavier to the back end of the year, because of some of the supply chains spending, but that's still planning out. And it's beginning to shift now between we've been largely completed in industrial packaging around the board mills. We're starting the implementation in the printing papers mills and looking forward to 2009, we're going to have to access how warehouse impacts that. So we are trying to work through that analysis now and probably have more to say about in the next quarter.

C; Okay, great thanks very much.

Your next question comes from Mark Connelly with Credit Suisse.

Thank you. Following up on that question, can you gives us Tim a little more of sense of what the categories have expenses that were reallocated were, and what the basis of reallocation is. I guess I'm a little bit surprised even though I do understand that the expenses are shifting that printing and writing is seeing so much of it relative to industrial papers, industrial packaging.

Industrial packaging, it's a combination of things Mark and Tom can walk you through more of the details, but generally what we're doing is we're looking at things that may have been more directly tied to certain types of businesses that had not been allocated in the past. We have [Indiscernible] inventory charges. Some of the stuff is cash, some of it's not cash. And I think if you referencing the printing papers section what we're doing is where allocating in some cases where it's not directly tied to the performance of the business on a capital employed basis. We looked at it with a lot of different methodologies and brand the numbers in different ways and it doesn't really make a whole lot difference in terms basis for allocation, so we are trying to keep it simple.

Okay, thank you, I'll follow-up with Tom. There is just one question for John on what's going on with Russia. We are starting to see some of the Scandinavians announce more projects particularly in pulp in Russia not necessarily a 100% voluntary on their part I suppose, and I am just wondering how you look at over the next five years. Is that going to meaningfully change the competitive dynamics that you guys are looking at?

Well you've got to remember Mark that the...most of these projects in Russia are projects they have been on the drawing board for years, so there is not a lot of brand new ones and there is a huge amount of infrastructure that needs to go into getting those projects off the ground, so the time frame, I suspect is going to be very, very long. It's not impossible, but long, and Russia is sitting on, it's got a huge software [ph] surplus, so the fiber there is available, and eventually that fiber will get used I think, but the time frame. We looked at Greenfield options when we are looking at what to do and it wasn't clear that Ilim's was going to be what we did and we just said through the risk, the time frame on the capital cost is huge, and the Scandinavians may actually do some of those, and I we are also in a steady phase.

So when you think about the resources you are going to need, the people, and the equipment, you are not worried that any of these projects are going to come out in the same time frame and make that more difficult for you?

No, it's tough. Capital projects in Russia are tough now, because of equipment and people. So there is no question of Russia. We start of our BT&T project, is doing great. We started up six months late though and most of that was around delivery equipment, and getting labor into get the project finished. Now we are selling. All we can make at higher prices and producing more than we thought, but it came on six month late. So that's just a snap shot of capital projects in Russia and it's the same across a lot of industries.

And I would just add to that Mark, that one region of Russia can be dramatically different than a lot of region in terms of labor availability, and mobile that labor is, so.

The other thing Mark I would say that it gives us an advantage of having a Russian partner is a big help. That's going to feel very differently doing it with some of those who has been there and done that, and someone is trying to do the first time.

Great, thanks very much I appreciated.

Your next question comes from George Staphos with Banc of America Securities.

Thanks everyone good morning.

How are you?

Pretty good John. I wonder if you could to give us to get a little more detail on the improvement. I think you mentioned in operations you expect in the second quarter and again if you could give us a little bit more color in terms of the sequential increase and maintenance outages in 2Q. Any larger projects behind that. A related question, I didn't see much of the benefit this quarter if I read the slides right from non-price improvement, if that's correct. What was going on there and what should we expect in 2Q and then I have some follow-ons?

Do you want to take Staphos?

Yes in term of the maintenances outages George, its simply one way to thin about is in term of timing, because we have to take the charge in the quarter and so its just as the mill maintenance schedules play out and I think we have a slide in the appendix, but if you look at our planned maintenance outages for the year we are very much front half of the year weighted. So if I reveal the numbers, we're going to about two-thirds of the way through in the first half with lighter schedules in the third and fourth quarter.

38 and 39.

Yes pages 38 and pages 39. In terms of non-price improvement we make good progress in term of volume and mix in the first quarter. And on the manufacturing side given the inflation that we experienced. So, it's really we think the volume and the mix initiatives will continue to play out in the second quarter. It's going to depend on what happens with input costs and certainly a lot of the initiatives are based on how we run and at this point we think we're running well. Now we think will run better in the second quarter we did in the first.

We left $25 million on the table in operations in the first quarter. We did not have a good running quarter in Jan, February is better in January, March is better than February and April is going better than March, but we didn't run well in the first quarter at all.

Why that was related us to as you as you said, I thought you said in pulp John in the first quarter.

Well we as we [Indiscernible] didn't impact pulp, but [indiscernible] did. We will have some production on the table at Georgetown Pensacola So we had couple issue in Europe. So by and large we typically run very well all the time. This was the quarter when we didn't and we're on it.

Thanks. As far as early April trends John, could you gives us any sense for what you're seeing in uncoated [Indiscernible] in particular realizing in month-to-month demand can swing fairly very volatile

Looks likes the end of March.

A: Yeah.

And the end of March was not as good as the beginning of March.

Okay I guess you would attribute it to then more to the macro earnings else. Stepping back you said year-to-date isn't running much below wit the normal trends has been in uncoated free sheet for the last several years, but I also remember in the past that you'd expecting maybe a little more of a boost this year because the elections, because of the easy comparison, so is there any shift ha you're seeing versus entirely due to the macro economic environment as you see right now.

I think sounds the macro economic environment for sure. You think about what going on display I was thinking about direct mail. Typically when there is a postal increase which it was. There is an impact on paper consumption and then that leaped off after a couple of quarters. Now we've had couple new segment and user segments like direct mail in the financial services area really pull back sharply as those end users like financial institutions adjust what there doing to reflect the problems that financial services sector is having. The election, now quarter is going to help but there are bunch of plusses and minuses. I don't think we ever said we thought the year-over-year comps were easy and we think that structurally this business is one is not showing growth doesn't look like newsprint but its were managing to what it is which is a big important business that's of showing negative growth patterns to it.

Okay. I appreciate that. We'll comeback at a later point. I guess last question in term of what you're seeing in Europe. I think you'd made some comments that for the box business and may be little bit of agriculture and Mediterranean that will be seasonal I guess, but some color there would be helpful and you also mentioned I though that some of the industrial end markets were little bit weaker if I heard you right an you give us some color there, thanks good luck in the quarter.

Sure George, the economy is pretty much overall. We are in primarily Western Europe on the industrial side and so you have got France, Italy, and Spain. Just hasn't been as robust. It's not as bad a North America but it hasn't been as robust as we would like it to be. On the agricultural side, the crops kind of come through quarter-by-quarter, so what's grown in one quarter shifts to a different crop. Citrus has been weak, but we picked up volume in other areas, tomatoes have been strong. So, it's just going to as we shift from first quarter to second quarter to obey rotation of crops that we'll be factoring. We'll have to see how those play out in the quarter.

All right. Thanks, guys.

Your next question comes from Rick Skidmore with Goldman Sachs.

Good morning, thank you.

Good morning, Rick.

John, just wanted to ask quickly on the land side, how much land is remaining in the four segment and it's the mix that we saw in the first quarter representative of what's remaining or is it more likely you have been selling in the fourth quarter?

We have got about 300,000 acres left Rick and the mix is going to be all over the place.

Okay.

I think as Tim said we have appraisals on all the land. We got some high value lands, some low value lands left in the portfolio. And take it this way we've got less than 5% of our land left. So, fundamentally were and I say we are out of land business obviously we can set the maximize the value of that last 300,000 acres and whether we do over the long tail or do it all at once, is going to be function of we are indifferent about that but we want maximize the value on it. And this was happened to be a late quarter or better quarter slightly as well. So, it's going to very choppy when those land sales command over the next couple of years, and maybe choppy up or choppy down.

And then just following up on one of the earlier questions on the inflation, as I look at your slides, the account slides 45 to 48. They go through the respective cost of starch and energy and wood fiber and what not. The trend clearly is up in the first quarter through March.

All right. First let's do that.

I am just wondering John you mentioned that if the frosty average in the first quarter of inflation that you'd expect second quarter to be better, but it looks like the trend is clearly higher in March versus the average. Have you seen inflation costs level off, come down continue up into April?

I can't tell you, Rick, just haven't looked the I some have I mean the price of oil is been dancing around and that affects through fuel surcharges, a lot of what we do. Natural gas prices as Tim said were hedged on a big chunk of our natural gas and some of these commodities like wax, like caustic soda, like starch, we are not pricing them for order, we are pricing them on a quarterly basis. I don't think much of it's on a monthly basis. So it's the answer is a little bit of yes and a little bit of no.

Okay. And then John just bigger pictures as we are in this

But I'd say Rick, we are not expect we are not expecting big increases. I mean we've already had explosion of input cost $90 million quarter-over-quarter. So, I don't want to predict we hit ceiling but we are the best guess we can make is they stay where are in the first quarter.

And I think that's the way we have approached to this. We look at the performance of our businesses; we are not expecting them to fall back to the levels that were at the end of the fourth quarter.

And then John just bigger pictures as you look at what's happening with inflations. Is there any view or any ability to start thinking about pricing such that you can build in the inflation areas, the pressures that you are seeing or the more firm on pricing or is the trade up between being much more aggressive on pricing and the lost volumes such as lost volumes have bigger impact?

Lots the way we think about it is lost volume is not the biggest impact. And we manage our pricing looking at what makes this most money, now what shifts just the most volume, and like I was saying about the box business. We don't run to fully utilize box plans as they get impossible to do that. If you look at pricing and printing papers we have been very successful of getting through pricing offset and input cost in a business to start business they are all very competitive. The printing paper business bleached board, containerboard. So competition is the only doubt there which is an recognizant effort, we don't chase its volume, we chase profitability.

Thanks John.

Your next question comes from our Mark Weintraub with Buckingham Research.

Thank you. On the corporate expense allocations, at onetime I think you had anticipated that the corporate expense would be coming down $150 million, $200 million once the supply chain spending was all done etc. So, is that improvement now going to show up in the segments and when might we expect that to occur and I have recognized that having warehouse that might changes a little bit but if we treat warehouses separately for now.

Hey Mark, it's Tim. We have said that peak cash spending on the supply chain project is going to be this year and peak expense next year and then winding down 2010-2011. And that hasn't changed if you look at IP ex-warehouses. And you would see some of that most of that decreased in the business segments as it happens. You will see a smaller piece of it at corporate remaining and we'll have to see how warehouse replace that.

And is the other types of numbers that we had been thinking about the possibility that spending or at least what gets expensed would go down by about a $150 million or so, is that so?

Yes. That's still a good number to use.

Okay, great. Thank you.

Your next question comes from Peter Ruschmeier with Lehman Brothers.

Good morning.

How are you?

Hi John. Good Thanks. Many questions for Tim if I could on working capital, I'm curious on your expectation as you go through the year on how much of an opportunity or not you see in working capital?

Well, we budgeted improvement. There is a lot of factors going on. We still think that we're going to show year-over-year improvements, and the good news here is the cash flow increase even with higher capital spending in the quarters. So, last year we had a number of issues on the working capital side as it related to growing the business outside the U.S. I think we're doing a better job of that now and the trick of our working capital is making sure it's sustainable. And we're trying to put programs in place, business-by-business so that we capture working capital improvements and sustain them. And we've shown a tremendous progress in working capital management. Since mid 2005 and we had another increment improvement about 70 to 100 basis points improvement budgeted through this year.

And just better, our cash flow generation in the first quarter in both in the businesses and then managing our working capital.

Okay. And serving the 100 basis points improvement that's on revenues?

Yes.

Okay. All right, that's helpful, thanks. Also wanted to ask if I could in Ilim, John I curious about your views on the Russian log export terrace and how you think it's going to; a) how you think it's going to play out and b) how you think it's going to impact international paper?

Well, I can't predict how it's going to play out other than to say the there is a lot of negotiation going on but at the end of the day there is going to be a tariff. Now how much; when it goes in; what's grant funded and what's not. I mean there are a whole bunch of discussions around Russia getting into the WTO, they are tied up in that but everything I have heard, the Russian government has said there is going to be tariff. And so, I think there is going to be one and in fact in some cases I think the tariffs already gone in, but it's kind of hard to figure out all the exactly what's happening but the bottom line is you can't hurt us, it can only help us. We are sitting in Russia. All the wood we use in Western Russia goes right by our gates to Finland. We process all our wood in Russia, sell our products in Russia which is what the Russian government wants and in our joint venture we did the same thing. So, we are it's not uniquely, where one is just a small handful of companies that is doing just what the Russian government put this duty in your tax and to encourage which is processing Russia.

Okay that's helpful. And my last question was on slide 49, back on the cost inputs, just to clarify that the non-U.S. cost that you list, I presume is Europe and Brazil, but excludes Asia, as in foot note says. So that's both Russia and China would be excluded from these numbers?

Well, they are exclusive joint ventures that we equity account.

Right. Yes, we wouldn't have element there, would have our European, Eastern and Western operations and it would have Brazil.

Okay. And John, I don't want to split hairs on this but, if many of these cost inputs are bought on a quarterly basis, and if spot prices up sharply today, to suggest that your cost might be flat for the first quarter, does that imply you expect this spot to rollover or?

No. That's not putting here. I didn't say that at all. I didn't say I was forecasting flat input cost, nothing, I'm not. I just suggesting it in terms of second quarter. This input cost reflects, we would expect our second quarter earning to be higher than our first quarter.

Okay. I understood. And would you say that the average lag on these, I know they very but would it be about a quarter on this various contracts about the one quarter lag and what's going on in the actual market. I think some things volume be longer than that maybe cold, might even be 12 months?

Yes, its all over the map. And we've got some contracted customers that allow for pass-through, some that don't, some of them have re-openers and so you get the pass-through but you don't get it immediately because it might be two re-openers a year. So, it's all over the map on that but you are absolutely right. That's not put in here as, input cost are high and may go higher.

Okay. All right. Good luck with the quarter. Thanks John.

Your next question comes from Steve Chercover with D. A. Davidson.

Thanks. Many of my questions have been touched on so I guess the so do elaborations. Starting with the wood situation in Russia, why is it up being used for heating or pallets because I guess I though that the tariffs would have already decreased exports and therefore provided better supply within.

What's happened to Russia is it's mostly weather related and weather related in the west for us and set it for us [ph] it's a big chunk of it. And then in the East in the joint venture, we are spending capital as Tim mention on forestry, infrastructural and productivity so that we can reduce our wood cost. So, when you have one weather it mean the logging roads in the Russia aren't made to be year around. They are made on the expectations as they are freeze, so you give in the winter. So, if you don't have a normal winter which we haven't had for a couple of winters in Western Russia you can't get down on the logging roads which means you have to go further to get wood which drives the cost up.

Okay. And so are your presumably there is still and some sort of spring breakup now. Are your wood supplies adequate for second quarter? Is that going to be an on going issue?

Supplies are excellent. It's just the price we have to pay for it.

Okay. And then going back to the situation in freesheet where we saw substantially higher drop in March than the quarter average. Can you comment on what that might have been? Was the economy did substitution in all of a sudden increase and I guess is 10% the new 5%?

Yes, I think some of that is where Easter fell during the quarter, and there are probably some pre-buying to head of the entered freesheet increase. I mean Tom Kadien is sitting here who runs xpedx. Maybe he can talk about how he feels it.

Sure. The calendar and the way it laid out with shipments and customers throughout the distribution channels really didn't it wasn't our plan in the month of March. We had a 21 day March which is short of a typical 22 or 23 day month and March is really when we get our biggest shipments. So loosing the days and then having the Easter fall where it did in the calendar impacted the March shipment numbers. I'd say by a couple of percent.

Okay, thanks. And final question, I understand how the election cycle can theoretically or used theoretically benefit newsprint consumption. But I've heard today in the previous presentation from you how the election cycle might impact uncoated freesheet and I'm not sure I get it. So, maybe you could explain that?

Used it see theoretically, the way we think about it. Typically there been pretty strong correlations between the Olympics and paper consumption where the Olympics are being held and election years and paper consumption. Because of the Verizon direct mail that all of this get all the time. So, if we see paper consumption going down in the election year which we never said we thought there be strong growth just because election year we said theory required might not be as sharp. What we're seeing now is we got a basically a significant downturn on top of this that impacts advertising and it affects consumer behavior that affects just what the banks are doing. So, I mean when Citigroup and Cap Align [ph] and all these financial institutions decide to cut back on advertising because they really going through a lot of financial difficulties and feel like it doesn't make sense of solicit for home equity loans now where having prices are going down. A new credit card usage when their bad debts are going up, that impacts printing demand and it impacts envelope demand. And uncoated freesheet also tracks like color unemployment levels still relatively low, they had been inching up a bit.

Got it.

But you got to back all that stuffs goes into the hopper.

Understood. Thanks very much.

Your final question for today comes from Don Roberts with CIBC World Markets.

Thank you. John, two quick questions, first of all I guess with the secular concern with the energy and chemical prices, especially if we see pricing of carbon in the future, what's your view if you sit back in the table and say over the next 3 to 5 years, the opportunity to run your facilities increasingly as bio-refiners that produce more energy in chemicals in addition to your core pulp and paper products?

Well, remember we are 60% energy self-sufficient on average, across our businesses and we are pushing for to use less BTUs, to make a ton of paper or packaging grade products and we've a taken of couple of $100 million out of our cost structure. Whether it makes more sense to turn some of these units into energy sellers as opposed to paper makers is there is a set of economics that could lead you down that path. I mean it's already happened in aluminum industry, I know some aluminum companies in Brazil and when energy prices spike, stop making aluminum products and started to selling power to the grid. We might see ourselves in that position but I think it would take a significant step change from where we are and anything possible, if you look at our Mellon oil is going to go $15 a barrel when it did and no one thought it was going to go to $120 a barrel and it did. I think what I take away from that is it's a mistake to look at things and say they'll never change, whether they are high or low.

So when you look at it, is it just pretty energy or are your sort of R&D folks saying there is an array of chemicals side that your markets as you go look at it over time as well?

I am not sure I understood the question Don.

Well, when you are looking at I mean energy is one opportunity here.

Right

I am just thinking as we look at these in a craft pulp platform, energy is one output; there is series of industrial chemicals as well. I am just wondering if I look at the 3 to 5 years and say we got this potentially strong headwind, especially at carbon pricing, they get serious on it. It is their ways to take this existing asset base that you are looking at and I guess do that step function. Is that an area that you are focusing onto some extend?

I wouldn't say it's a big focus for us because we have looked at the impact of say lots like ethanol both on wood cost but also the technology say you lot to get ethanol. And think that's it may develop over time, but I think there will be other non-fossil fuel sources of the energy that have good economics ahead of say a lots of wood based, say a lot to get on that switch grass is in other residues or another story. We are not spending a lot of R&D time trying to figure how we can make pub mills and do power plants. They already are and you get energy to make our products and I think we'll be able to continue to do that because even if we have high energy costs.

Okay. Got another question but I'll follow that offline given the time.

Okay.

I would now like to turn the call back over to Tom Cleves for closing remarks.

Thank you, Cynthia. Thanks everyone for participating in the call. And as I said Investor Relations operators are standing by for additional questions as giving time claim for extra questions. Thanks.

Ladies and gentlemen, this concludes today's International Paper first quarter 2008 earning conference call. You may now disconnect.