Appleton, Wisconsin - The following remarks were delivered by John Dillon, International Paper Chairman and Chief Exectuive Officer, at the Paper Industry International Hall of Fame's Sixth Annual Induction Ceremony in Appleton, Wisconsin, last night...........(edited for space) "Wisconsin has been a leading papermaking state and the backbone of the manufacturing sector for decades. As a result, there is deep concern when we lose household names like Consolidated, Fort Howard, James River, and Scott. Industry consolidation is very visible in your own backyard. And it's something we're well acquainted with at International Paper, as we continue to work through our integration of Union Camp and Champion International. While consolidation understandably causes concern, I think we also have to look at why it is happening and what it will accomplish for the long-term health of the industry. There are at least two factors to consider. First, it centers on the fact that we are now operating within a global marketplace. And if we can't compete globally, or if we can't serve our global customers, we simply can't make it in today's world. As we consolidate and build stronger businesses and companies, we'll be better able to serve our global customers, to compete, and more importantly - to survive, in that global marketplace. Second, and equally important, is the fact shareholders are forcing consolidation and it is this shareholder concern that I would like to devote a few more minutes to this evening. In fact, it is the shareholder issue which I think is the dominant issue facing the industry today. As you know, our shareowners are upset with this industry. They've lost confidence in us. We are increasingly viewed as a low priority investment vehicle for their dollars. We are providing unacceptable performance. Our earnings are not only poor - and highly volatile - they aren't meeting the cost of capital. We have got to make changes. We have got to significantly improve performance. We can't just keep doing the same things we've done in the past. Let me tell you how we at International Paper are making changes in how we do business and in how we think. Two of the changes we're making are: 1) managing our capacity and 2) moving from a commodity-based company to a customer-focused company. Let's start with our capacity management. We're changing International Paper from a belief that every machine and facility must be operated at 100% of capacity to managing capacity consistent with our customer demand for products. This means we operate our facilities so we meet our customers' supply needs while avoiding excess production that builds inventory. It means changing the belief that the only way to make more money is to operate flat out. We call this making more money not making more tons. At IP we believe that our capacity can be managed. It is not something beyond our control. Indeed, International Paper's shareowners have told us there is a price to pay if we ignore the basic supply and demand balance. For years the paper industry has been viewed as highly cyclical almost as if this were some form of law. The fact is earnings are cyclical not because of fundamental demand, but because we choose to operate beyond customer demand, thereby building inventory and driving down revenue to the point where the lack of profitability causes either temporary or permanent capacity closures. As with consolidation, our shareholders are demanding a different view. And they are saying stop operating beyond your order book and stop adding new capacity because customer growth is not likely to match capacity additions. One of the other tools for helping to manage capacity we are using is marginal economics. We apply marginal economics to the operation of our facilities to help us run profitably for sustained periods of time at less than full operating rates. Rather than spreading fixed costs across a larger production base, we focus on reducing absolute costs and finding that "sweet spot" of production - that point of production that is most profitable. For example, in contrast to the "old" thinking, we now know that the "last tons" of paper we produce on a machine cost more money than the average ton produced on the same machine?and usually sell for a lower value. Therefore, simply put, in all but very strong markets we should not be making those last tons. We should be finding the real sweet spot where we make more money not more tons. As was the case during the summer and this fall, a slow down of machines alone is not enough. In which case, we do have to shut down the machines. We took over 500,000 tons of market-related downtime in the third quarter of this year. Here again, International Paper's focus is to manage our capacity to our customers' demand. Whether it's by downtime or slow downs, at IP, we are committed to running efficiently, yet maintaining our flexibility to respond to our customers' needs. I'm sure by now you're convinced I'm from another planet or perhaps another industry and you're saying that my company has the low cost production capacity and therefore we have learned that low cost capacity should operate full all the time. Well, we at International Paper do think about that a little differently. We believe having low cost production units is essential, and in our three core businesses we have the best in the world. However, in times of rapidly declining demand, such as we are experiencing right now, the shareholder driven answer is to match production to customer demand and take the cyclicality out of the earnings stream. This leads to the second big change we're undergoing at International Paper - moving from a commodity-based company to a customer-focused company. In plain and simple terms, we have to pay better attention to our customers. We have to help them grow and become more successful if we are to be more successful. We can't produce more and more of the same old same old and then be surprised when they don't buy it. We've got to listen to customer needs and then work together to solve our customer's customers business needs.