John Faraci - Chairman, Chief Executive Officer and Chairman of Executive Committee Thomas Kadien - Senior Vice President of Consumer Packaging and IP Asia Carol Roberts - Senior Vice President of Industrial Packaging Timothy Nicholls - Chief Financial Officer and Senior Vice President Thomas Cleves - Vice President of Investor Relations

Peter Ruschmeier - Barclays Capital Mark Connelly - Credit Agricole Securities (USA) Inc. Mark Weintraub - Buckingham Research Group Mark Wilde - Deutsche Bank AG George Staphos Richard Skidmore - Goldman Sachs Group Inc. Steven Chercover - D.A. Davidson & Co. Chip Dillon - Crédit Suisse AG Gail Glazerman - UBS Investment Bank

Good morning, my name is LaTrisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the International Paper 2010 Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Tom Cleves, Vice President, Investor Relations. Please go ahead, sir.

Thanks, LaTrisha. Good morning, everyone, and thanks for joining our third quarter conference call. Our speakers this morning are John Faraci, Chairman and Chief Executive Officer; and Tim Nicholls, Senior Vice President and Chief Financial Officer. During our call, we will make forward-looking statements that are subject to risks and uncertainties. These are outlined on Slide 2 of our presentation. 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. The website also contains copies of our third quarter 2010 earnings press release and today's presentation slides. And with that, I'll turn the call over to John.

Thanks, Tom, and good morning, everybody. Thanks for joining us. As we usually do, in these calls, over the next 20 to 30 minutes, Tim and I will review our third quarter results and the performance of our individual businesses. We'll also talk about how we see the fourth quarter shaping up, and then we'll open it up for your questions. I'll just start by saying International Paper had a very good third quarter. We generated strong earnings per share, more than double second quarter levels and also generated very strong free cash flow, over $750 million. Our strong results in the third quarter were broad based, both in terms of business segments and geographic regions. Our results importantly were not just about price, volume was also up in North America and outside North America. And we continue to realize the benefits of our restructuring efforts and operated our mills and converting plants very efficiently. All which led to very solid and meaningful margin expansion. We consider our third quarter results just one more step in our journey to generating sustainable cost-of-capital returns for International Paper over the business cycle. Also during the quarter, we used our strong free cash flow to contribute nearly $1.2 billion to our pension plan and to repay $200 million of balance sheet debt. So third quarter earnings were $0.91 a share compared to $0.42 in the second quarter and $0.37 in the third quarter of 2009. Earnings in all three of our U.S. mill businesses were excellent. In fact, our North American Industrial Packaging business and Coated Paperboard businesses posted record earnings. Our EMEA Paper and Packaging businesses continue to generate strong earnings, and we also received a strong contribution in terms of EPS from our Ilim joint venture. Our earnings also benefited from reduced fixed costs driven by our milling converting plant and Distribution restructuring programs, which were initiated in 2009 and continue to deliver results in 2010. We continue to realize announced price increases. And our mills and converting plants, as I said, operated very well. Volume increases were broad based. 5% up in North America versus third quarter of 2009, and 5% up outside North America versus the third quarter 2009. So third quarter sales were $6.7 billion, up 10% from the second quarter and 14% from the third quarter of last year. EBITDA increased by 33% to $1.1 billion while EBITDA margins improved 16%. Third quarter free cash flow improved to more than $750 million, and this figure includes about $150 million in cash from land sales but also includes about $150 million increase in cash consumed by working capital. So basically, the two offset each other. We ended the quarter with $1.4 billion in cash on hand as we used some of our cash to reduce long-term debt by $200 million and negative $1.2 billion pension plan contribution. Said another way, had we not made that $1.4 billion contribution to pension plan and debt reduction, our cash balance at the end of the quarter would have been close to $2.8 billion. And I just mentioned that to emphasize our cash flow is strong. As International Paper and the industry and all industries continue to recover from the global recession, we continue to improve our return on investment, which is the key metric for International Paper. In the slide you're looking at here, shows that prior to our transformation plan, our return on investment averaged about 4%, and I'll remind you that includes land sales. Since we began to implement our transformation plan, the returns improved steadily until late in 2008. Just before the global recession, we were approaching cost-of-capital returns, then we hit the last part of 2008 and 2009. As we come out of the recession, our returns have recovered and recovered quickly, and we've achieved cost-of-capital returns in the third quarter. As we look ahead, our efforts are focused on maintaining cost-of-capital returns for International Paper over the business cycle. The $0.91 of earnings for the third quarter represents a new record of quarterly earnings for International Paper. And if we exclude earnings from land sales, we earned $0.83 in the third quarter, which is still the highest quarterly earnings ever from our operating businesses. We feel very positive about what a strong EPS we've achieved in the early stage of an economic recovery, just coming out of the deepest and longest recession we've had in the U.S. in over 80 years. We don't see 2010 as a mid-cycle demand environment in our biggest market, which is North America, and the Box business is a good example of why we see it that way. Industry demand is up 6% from the low point during the recession, but it's still 4% below prerecession levels of early 2008. So in this environment, we continue to increase our EBITDA in our margins. The slide you're looking at here, the bars on the left side of the slide, this is Slide 9, show our steadily quarterly progress in 2010, improving our EBITDA margins, and all these exclude earnings from land sales. We ended the third quarter at $3.9 billion annualized EBITDA run rate, 15% EBITDA margins. The bars on the right of this chart compare our annualized nine months year-to-date run rate for 2009 and 2010. So I'll stop here and turn it over to Tim to discuss our third quarter results in more detail and come back at the end. Tim?

Okay. Thanks, John, and good morning, everyone. We did have a very strong quarter. And the earnings that I'm about to cover resulted in cost of capital or better returns in North America and our European businesses, including Industrial Packaging, Coated Paperboard and our Printing Papers businesses. We posted modest increases in volume, coming from North American Printing Papers, Consumer Packaging and xpedx. But equally important was a very strong performance out of Europe, where we didn't see as large a seasonal drop as we normally do from second to third quarter for both our Box business and Printing Papers business. Price realizations continue for our businesses, and they're nearer to completion of the announced price increases from earlier this year. Additionally, we have increases out for North American Coated Paperboard and our European Papers businesses in the fourth quarter. Operations continue to perform very well, and we have fewer maintenance outages in the quarter. In the second quarter, you recall, we recorded a $33 million receivables write-off for North American Printing Papers business. In the third quarter, we were able to recover $16 million of that bad debt, and so the net change quarter-on-quarter is an improvement of $0.08. The Ilim joint venture delivered earnings improvement in line with our expectations, which resulted in $17 million of improved earnings to equity, equity earnings. And finally, you'll notice that on the chart there's no bar for input costs, which were essentially flat quarter-on-quarter. If you go to Slide 11, I'll cover earnings performance on a year-over-year basis. Earnings more than doubled in the first nine months of the year versus last year, and that's even with a very large increase in input cost, nearly $500 million. Volume improvements account for about 1/3 of the earnings improvement, and in North America it's been a slow gradual recovery. Outside North America, it's been a quicker recovery and a stronger recovery. In our European Box business, shipments are up 8% year-over-year, and Brazil and Asia are up double digits. Selling prices have improved as we expected. And operations, after getting off to a very slow start in the first quarter where we had low wood inventories and weather issues resulting in both mill problems and ability to run for lack of wood, have recovered quite nicely. Our manufacturing team since then have delivered $150 million in year-over-year improvement that really came in the second and the third quarter of this year. Input costs, as I mentioned, increased. We've managed to increase more than double earnings increase by $0.72 even with $0.76 in input costs headwinds, and 90% of the $475 million year-over-year input costs inflation was due to the higher fibers that I mentioned earlier. Finally, the Ilim joint venture added $81 million to our results, swinging from a loss of $56 million in the first nine months of 2009 to $25 million in equity earnings in 2010. You turn to Slide 12, it shows the changes in input costs relative to the second quarter. As I said, we had basically a flat level of inputs quarter-on-quarter. Wood and OCC [old corrugated containers] costs declined but were offset by higher energy freight and chemicals. Wood continue to decrease through the quarter. OCC dropped early and then increased near the end of the quarter. And our energy costs, on a unit-cost basis, increased in July and August but then ended up at the end of the quarter below second quarter levels. Chemical costs increased primarily due to increases in caustic soda and cornstarch. So with that overview, let me turn to the segment business performance, and I'll start with Industrial Packaging. Industrial Packaging's earnings increased 72%. Volumes were down slightly. This was really a seasonal drop. We now have such a large agricultural mix, not only in the U.S, but, as we've had historically, in Europe. That the second quarter is now seasonally our strongest quarter for corrugated packaging demand. Our operations remains strong but we had higher overhead accruals, primarily for incentive compensation and also for LIFO by about $18 million. Earnings continue to reflect the ongoing merger benefits in our operations, and the improved fixed costs results from mill and box plant rationalizations. Earnings improved to the continued realization of announced price increases and to the significant reduction in maintenance outages due to timing. On Slide 14, it shows that our volumes in North American Box business declined 1% from the second quarter, reflecting the end of the agricultural season. Box price increased by $38 during the third quarter, and North American Box volumes were up 4% versus the third quarter of '09. Box volumes in our Europe, Middle Eastern and Africa business were up 6% year-over-year. So from the end of 2009, our average box price in North America has increased by $95 per ton. All of that led to higher margins in the quarter. You can see that in the third quarter, Industrial Packaging in North America posted EBITDA margins of 21% in the quarter as compared with 22% from one competitor and 17% from the other. And in the third quarter, our North American Industrial Packaging business generated an 11% return on investment. Let me turn to Printing Papers. And I thought Printing Papers had an outstanding quarter as well. Stronger volumes, primarily in the Market Pulp business and improved price and mix, increased earnings by $60 million. Also in Europe, the third quarter is normally a seasonally lower quarter but our volumes were actually slightly higher than the second quarter. Earnings also increased due to price realizations in North America, Europe and Brazil. And I think it's important, in Europe, since the end of the year, our prices are up about EUR 80 per ton, but we're still not back at the precrisis levels of 2008. In Brazil, we continue to see price increases for export shipments to Latin America and Europe at higher input costs, mostly in Brazil and Europe. And the $49 million improvement on the chart is the swing in bad debt that I discussed earlier. So if you exclude that, Printing Papers' earnings were up about 40%. We had improvements in all regions. And 85% of the improvement came from the North American Printing Papers business, which was evenly split between both Paper and Pulp earnings. Consumer Packaging on Slide 17. Earnings increased from $49 million to $71 million in the third quarter. Improved volumes contributed $7 million, and price and mix improvements contributed $10 million. And we continue to see strong backlogs of unmade orders currently running at about four weeks of supply. Overall, we ran well, although we had higher operating costs in Shorewood. And that was the primary driver of the $8 million unfavorable number there, and we did have fewer outages in the quarter. xpedx had, again, a good quarter as it recovers its business from the crisis. It earned $22 million. Volumes improved steadily as the quarter progressed, but the unfavorable impact was somewhat offset by a margin squeeze as paper producers increased selling prices more quickly than the xpedx resale prices increase. It was encouraging, though, to see volumes increase through the quarter. We saw volumes for the Printing segment increased by 9%. In Packaging and Facility Supplies, it grew at 7% and 4%, respectively. And on a revenue-per-day basis, we averaged $29 million per day but ended the quarter at $29 million per day in September, which was the highest level since the fourth quarter of 2008. We also completed in the quarter the last significant land sale. We received $160 million in cash and extended a three-year loan for $39 million. We also retained a small interest in the partnership. So with this transaction, we've essentially completed the land sales. And at the end of this year, we'll stop reporting on the Forest Products segment. Let me turn to the Ilim joint venture, which, as you recall, we report on a one quarter lag. Sales at the Ilim joint venture increased to $465 million, and our share of the earnings increased from $5 million in the second quarter to $22 million in the third. Third quarter volumes, our third quarter, their second, were lower due to maintenance at the Bratsk mill and lower pulp shipments to China, primarily in June. Operations improved in the quarter, reflecting lower seasonal energy consumption, and we did see a significant improvement in price for both Market Pulp and Containerboard. And as we exit our third quarter looking into the fourth, we're expecting some more performance out of the Ilim joint venture for the quarter. Now I turn back to Europe, Middle East and Africa on Slide 21, and just take a minute to highlight what I thought was outstanding performance by all of the businesses there. Our operations are on track to have a record year this year. And it's important to understand that from 2008, this business was the only one that did not see a drop in earnings year-over-year. Earnings in 2010 are $364 million versus $249 million in 2009, an improvement of nearly 50%. Strong earnings have been driven by continued demand recovery, good pricing momentum and very good manufacturing and converting operations. And if you look at the table in the lower right-hand corner of the slide, it shows the returns for all of the businesses, all generating above cost-of-capital returns for the year. Let me switch gears a minute and talk about fuel credits for a moment. There's been a lot of news about what will be allowed or maybe allowed. We're currently looking at the potential of the Cellulosic Biofuel Tax Credits [CBTC]. The recent IRS ruling that companies may qualify for both the alternative fuel mixture credits [AFMTC] and cellulosic biofuel tax credits within 2009 means that International Paper may now qualify, which would be used as an offset against future income tax. We're currently assessing where we are. We can't quantify the potential benefit of the cellulosic tax credits at this time, but we think that, potentially, it could be significant. So I'll end my comments on the capital allocation slide. As John mentioned, during the first quarter, we contributed $1.2 billion to our pension plan and continue to repay balance sheet debt. And all the decisions that we're making are a reflection of our commitment to increasing shareowner value through a balanced use of capital. So with that, I'll just wrap up with a brief summary of the quarter. I thought we had great results overall both market performance and in our operations. Our execution was strong, and the organization remains focused on continuing improvement. So as we look out to the end of this year and into next year, we're focused on more operational improvements, mix improvements and cost savings opportunities. And the focus of the organization is about sustaining the level of performance that we have quarter-by-quarter. So we had a great quarter. But it's the first step on the path of building sustainable returns. And with that, I'll turn it back over to John.

Okay, Tim, thanks. I'm on Slide 24 now. And looking ahead to the fourth quarter, we expect to continue to generate strong earnings and free cash flow but at seasonally lower levels than the third quarter, and that's why a lot of this chart you're looking at shows yellow. We're into the fourth quarter, and we all know from experience that November, December and January are usually the seasonally slowest quarters in our industry. We expect Paper Packaging volumes to decline in line with those seasonal demand trends. We expect stable Paper Packaging pricing. Maintenance outages are going to be about $30 million higher at fourth quarter than they were in the third. We do expect higher OCC costs because we ended the quarter with higher OCC costs, and we expect slightly higher cost, cornstarch costs in the fourth quarter. xpedx earnings, like the rest of our Paper Packaging businesses in North America, will also experience a seasonal slowdown after we get through October. And we expect stable contributions from Ilim, again remember, that's on a one quarter lag. And obviously, since we completed the last of our forest land sales, Forest Products' earnings are going to be off by $50 million. So this is the last slide I have here, and this just summarizes our third quarter results and our outlook for the fourth quarter. Volumes continue to recover in line with economic recovery and finished stronger at the end of the third quarter. Our average selling prices increase as the quarter progressed, reflecting a continued realization of our announced price increases. Our mills and converting plants continue to operate very well. Input costs, primarily OCC and chemicals, at the end of the quarter were flat but slightly higher than we expected. We've capitalized and continue to capitalize on the restructuring efforts, and that shows up in our increased margins and in generation of very strong earnings and free cash flow. Looking ahead to the fourth quarter, we expect to be strong but seasonally slower as I said. We anticipate that the fourth quarter performance will basically be similar to the third quarter after we adjust for the seasonal volume declines and the higher maintenance outages, some minimal input cost inflation and the impact of the recurring items, which we talked about, including the land sales and the bad debt recovery. So I'll just sum up saying, we're very pleased with our postrecession progress. Our earnings and free cash flow come back faster and stronger than prior recovery periods despite the fact that this latest recession was the deepest and longest in 80 years. And I call 2010 a transition year, not a full recovery year. So as Tim said, I think we're setting the stage for a continued improvement in earnings, free cash flow and returns as we go into 2011. And with that, Tom, I guess we'll open it up for questions.

LaTrisha, we're now ready for our first question.

Our first question comes from the line of Rick Skidmore with Goldman Sachs. Richard Skidmore - Goldman Sachs Group Inc.: Coming back to the balanced capital allocation I mean, 2010, it looks like most of the free cash flow went to either pension and debt reduction, a little bit to dividends. Can you talk about how that might change in 2011? Will you be a little bit more tilted through returning cash to shareholders or more focused on debt reduction and pension?

Well, that's a good point, Rick. We talked about balance, that doesn't mean it comes in a sequential fashion. Clearly, we're making progress on debt reduction, and we're nearing the targets that we have set for ourselves. Dividends continue to be a priority, and I'd say that nothing has changed in our thinking there. What we're trying to do is make choices that drive shareowner value longer term, and we want to get to a dividend level that's affordable, sustainable for the long term. We will be talking to our board about that as we exit the year this year and go into 2011, and we'll talk about that when changes have been made. But I just remind everyone, it feels like the second quarter was a long time ago but that's when we took the last action on the dividend to increase it to the $0.50 level. So it's only been one quarter at this point.

Let me just step in and, I guess, say what Tim's already said. Part of our capital allocation process is returning cash to shareowners. That's why we want to be really clear with shareowners about that. And as we move into 2011, we'll be speaking with the Board of Directors about moving our dividend from where it is to a higher level, which we think is sustainable over the cycle. Richard Skidmore - Goldman Sachs Group Inc.: Maybe just one follow-up on the pension contribution. Tim, do you expect that there would be any need for pension contribution in 2011? And then can you just remind us what, if any, share repurchase authorization you have outstanding?

Well, on the share repurchase, I think we still have $250 million or $300 million from the last authorization, which goes back, I guess, to the 2007 time frame. On the pension, we don't expect any required cash contribution in 2011. And at the moment, we really don't expect any significant one in 2012. Based on need, we could continue to make voluntary contributions as we go into next year.

Your next question comes from George Staphos with Bank of America.

First of all, as you look at the business and the fact that you're now more or less earning cost of capital and the fact that you want to sustain that level of performance, John, do you see any areas perhaps across the businesses, even though they're performing well right now, that might be candidates for further disinvestment or perhaps some capacity closures whether it's in making paper or shutting conversion capacity?

I wouldn't want to speculate, George, about what we're going to do going forward. I would say we've sized our footprint in North America and in Europe to what we think is demand, and that's having a huge impact on company's cost structure. We're now running full instead of taking a lot of downtime. We're going to continue to manage our capacity very carefully. The good thing about International Paper, at this point in time, is we've got a set of businesses that can earn cost-of-capital returns over the cycle. I don't think the cycle has disappeared. But hopefully, the cycles aren't as volatile as they had been given our geographic balance and the fact that we're managing our capacity very closely to demand.

Switching gears, John -- I appreciate that color. If we look at Europe, what do you attribute the, if you would, better-than-expected demand in shipment trends there to? And how sustainable do you think that trend is and more broadly within Papers? I realize you don't think you're at peak here then. We're not even at mid-cycle yet, but do you worry perhaps that Papers, in aggregate, might be closer to a peak?

No, I don't, George, for this reason: We're really tilted in Europe to the East. Our European business is heavily weighted to Eastern Europe and Russia, Poland. Our facility in Svetogorsk, where Eastern Europe demand growth is still positive and the markets are growing. And the Box business there, our unit volume is up 7% at the least. And we really positioned ourselves in the ag business in Southern Europe, Northern Africa and Turkey. Our Turkey volume is up 20% year-over-year. And we're also doing a good job in the industrial markets, in places like France, in winning business. So with a focused sales effort, even in a weak economy, we've been winning some business. So clearly, Western Europe, and we got 1 mill in Western Europe now, Saillat, which is France, is serving a market that is mature, like the U.S. market, although it didn't look like it got the same structural decline underlying it, maybe down one to two. So we think we're well positioned over there. And as I say, what's contributed in improving the returns are really three things: we've done restructuring to get two mills that were high cost and losing money out of the system, we've improved our mix at Svetogorsk significantly by making more liquid packaging board and aseptic packaging and we're growing our volume in the Box business. And those three things, internally, have really been a big driver of the earnings in addition to the price improvement.

Consumer Packaging. What two or three elements of the strategy do you expect should get you to close to cost of capital or above that in the next year or two?

Over there and the biggest piece of Consumer Packaging was the Coated Paperboard business. That's where the capital is tied up. The Foodservice is right on the edge. And we're pretty confident that we've got plans there on, really, volume and mix to get the cost-of-capital returns. Our challenge is Shorewood. But Shorewood got very little capital tied up in Shorewood, so it's not a needle mover. And what we need to do is stabilize revenues there and rightsize the North American footprints to the level of demand we have.

The next question comes from Mark Connelly with CLSA. Mark Connelly - Credit Agricole Securities (USA) Inc.: Following on George's question, if we disaggregate some of the business segments and just look at containerboard to mills and boxes together, can you give us a rough estimate of where the cost-to-capital return is? Where the return is there relative to cost to capital? And the second question, just a bigger picture, what is your medium-term view on the outlook for North American Containerboard demand? We've just gone through a decade where demand really didn't do much of anything and RICI [Rogers International Commodity Index] is talking about steady growth over the next decade. And I'm wondering how you think about preparing for the next 10 years of Containerboard domestically.

Well, we run the business, the Containerboard business on an integrated basis, Mark. Although we measure all of the box plants on their own standalone profitability because those general manager challenge to make standalone profit with a capital tied up there. But the end of the day, you look at the return for all the capital we have invested in the business because we're about 80% integrated. And so on that basis, as Tim said, we made an 11% return in the third quarter, and we think we can build on that going forward. As far as box demand goes, I mean, you may even kind of draw these charts anyway you want. I think the simplest way to do it is just look at U.S. Box shipments over the last 15, 20 years, and 2008 was not a great year for box demand. I think the box demand was down relative to the 2004, '05, '06, and '07, so we kind of say that maybe represents the mid-cycle year. And we're still 4% below where we were the first part of 2008, and that's with 20% of the market, which is the durable segment, being really, really soft. I mean, take the housing-related sectors, we're not going to have 500,000 housing starts forever. Who knows when they're going to return to more of a normal level but that normal level is like 1.5. And so I think there's a lot of pent-up box demand associated with the U.S. economy over time returning to its more normal level of economic activity. So we don't see the Box business as the one that can't have 1% to 3% growth over the next 5 to 10 years. There'll be up cycle in it for sure. But I mean, using that comparison I gave you of today versus beginning of 2008, I think, is a good reference point.

The next question comes from Mike Wilde with Deutsche Bank. Mark Wilde - Deutsche Bank AG: It's Mark Wilde. One is just on the Asian Packaging business. I wondered if you can address both profitability in that business, which still seems to me to be relatively low, and then kind of growth plans in the business. You bought the SCA business, and I think you're in the process of building another very large machine in the Sun joint venture.

Though we've announced that machine, we haven't started it yet. In the Box business, the objective is not to grow. The objective is to make money, so we've got plenty of capacity. The SCA plant is running at about 40% of capacity. So the objective there is to profitably sell that volume out, and we think we can do that. Our legacy business, that was part of our packaging business over there, was growing at double-digit levels this year. And we think, going forward, we can get the SCA business do the same thing.

And I think, Mark, if you look at it, we see some of the same types of opportunities, combining those two businesses, that we saw around the synergies and warehouse and combining it with our legacy business. So we've had it for 90 days. And I think it takes time, but I think it'll come quickly. Mark Wilde - Deutsche Bank AG: And then I have just a couple of questions around Industrial Packaging. One, I wondered if you could just give us some sense of whether the business over in Europe just got squeezed is kind of containerboard prices have run up so sharply in Europe and Europe, mainly non-integrated, so you're buying containerboard and selling boxes. And then secondly, in the North American business, it strikes me, if you look at the EBITDA margins for you and some of your competitors in the third quarter, and I'm thinking about one that had a 22% margin in the third quarter, if I go back and look at, say, 2000, when containerboard prices averaged about $450, actually EBITDA margins were higher than, than we've got right now with containerboard price just north of $600. Have cost gone up that much or is there something that's going on with the margins in the converting business?

Let me talk about Europe for a minute. We are non-integrated there, Mark, and our earnings in Europe are up significantly year-over-year even with higher containerboard prices. So it's called delta P, difference between price of paper and the selling price. We've done a great job of managing the mix of business, so that we've had marginal erosion on delta P because there's no way we could have improve our earnings by almost 50% in that business year-over-year just on volume. It's on being able to maintain margins. I think the industry, both in paper in North America -- and I'll let Carol jump in here, Carol Roberts, if she wants to add anything. But in both those businesses, the nature of the business and the industry has change. So I don't think looking back at history is necessarily the determining factor in saying what margins will be or can be. I think it's all about what the industry shape and that supply and demand look like going forward. And we were dramatically different company in terms of our structure and what we think about the business than we were five, 10 years ago. And that's true both in paper and in packaging. So I don't think the past is any indicator of what margins will be or could be. They're going to be determined by what happens going forward. Mark Wilde - Deutsche Bank AG: And as finally, John, would you have any thoughts on just the recent weakening we've seen in the dollar, and how you think that's going to affect IP over the next few quarters?

Well, the full-on effect really impacts our customers more directly than it impacts us. It certainly has second-order effect implications of keeping products out of the U.S. because of the other stronger currencies, let's say, in Europe, but to the extent that our customers are export oriented. And then our Consumer Packaging business and our Industrial Packaging business, we have a lot of customers who are export oriented. That help them grow their business, and that helps us grow our business because obviously our business is going to be as good as our customers. The next challenge is, Mark, in Brazil.

The next question come from Gail Glazerman with UBS. Gail Glazerman - UBS Investment Bank: I was wondering if you can talk a little bit more about the current environment in Industrial Packaging. Where you stand in terms of your inventories? And also just how the market feels compared to maybe six months ago?

Carol, do you want to take that?

Gail, I would say the current environment still feels very good. We saw pretty good demand in the third quarter. The industry stats, up 2.6% year-over-year, and we've seen that growth continue. September was a strong month. So as I look at the overall picture, the things that we say are important, balancing our supply to our demand, remains the number one priority. So when you look across, you see slow steady Box growth. We see strong export demand. We see still inventory at still historically low levels, particularly on weeks of supply. So it's still feels very much imbalance for us, and we're going to continue to manage that. So I feel very good about the fundamentals in Industrial Packaging right now. Gail Glazerman - UBS Investment Bank: And just a quick follow-on on that, can you talk a little bit about the export opportunities for board? Are those holding up? Is it still something that would be a potentially better mill nets than what you're seeing domestically?

Well, Gail, as you know, even when we went through the tight times, we view exports strategically as an important part of our portfolio, with a 10-million ton footprint. So we did not exit the export markets through this past year. So our export shipments have held up pretty well. We did get an opportunity to grow with that this past year, which has been good. So we've been in those markets this whole time. And as everybody knows, the pricing in those markets has gone up due to supply-demand balance, and that's been good for us. So those markets remained good. They remained strong for us, and the fact that we were there throughout has helped us with our customer relation.

And some of the markets, Gail, the mill nets are better than they are domestically, but that typically the spot market in export not, as Carol said, the strategic market. But margins have improved there to where they're comparable, which is what you would expect in a tight supply-demand market globally. That's where we are for kraft liner board. Gail Glazerman - UBS Investment Bank: And just a couple of questions on costs. You talked about OCC. You talked about chemicals. Can you talk a little bit about your outlook for wood costs moving forward?

Gail, we expect this as -- it's been coming down since the peak during the second quarter. And right now, we've got great conditions to keep managing it down. So I think it'll keep drifting down through the fourth quarter and into the first, unless, all of a sudden, the weather changes dramatically. But if you recall, this time last year, the mid-South and Southeast was pretty much underwater. We couldn't even get into the woods to harvest. We took the opportunity during the summer to build better inventory levels going into the wet season, and now we've had the benefit of the wet season not coming so quickly. So I expect it'll keep moving down into next year.

There's probably going to be a drift down, Gail, because we've had a step change in wood costs. We don't see another step change in wood costs until chips supply has come back on. There's a huge chunk of the wood supply in the South that's still on the sidelines because of the weak demand in housing, and that's the big source of our fiber. When we don't have that, we got to go further to get wood. So I don't think there's going to be -- even though we have good inventories and big step change in wood costs, it'd just be a drift. Gail Glazerman - UBS Investment Bank: On the compensation accruals, in aggregate, did those come in, in line with what you expected? And how should we think about that as the swing factor moving into the fourth quarter?

They did come in pretty much in line with what we were expecting, and they're reflected in all of the businesses results. What didn't come through quite as much as we thought it would, would be the change in LIFO expense, and that can be somewhat volatile. But that came in a little bit better than what we were thinking. Gail Glazerman - UBS Investment Bank: And for the fourth quarter, is there some thing [ph] that should come down or is it going to remain kind of at that level?

I think it'll be at the same level. I don't want to expect a big quarter-on-quarter delta.

Next question comes from Chip Dillon with Credit Suisse. Chip Dillon - Crédit Suisse AG: Tim, the first question is, you've put quite a bit into the pension plan this year and obviously a headwind as we look at 2011 as the lower corporate interest rates. But as you look at it today, can you give us a rough idea? Do you think that with the contributions that you put in this year of $1.2 billion, that your pension expense has a shot at coming down next year if we sort of look at where the markets were today and interest rates?

I think it does, but we'll see at the end of the year when we remeasure everything. I mean, on a net-net-net basis, I think we've made some ground with pension contributions this year. Our performance, return on assets, has been pretty good. Right now, if I had to estimate it, I'd say we're somewhere between 10% and 11% return on assets and the plan. So we'll see what happens with the interest rates. That's the number that can move the GAAP dramatically, but I feel pretty good about where we are right now. Chip Dillon - Crédit Suisse AG: And then I noticed on the slide you were looking for stable packaging prices, which in containerboard is pretty obvious. But when you look at bleached board, we've seen a lot of strength there, including the October pricing data from RICI. And I know you guys are close to 400,000 tons here. I don't know if any of the European paperboard is bleached, but I mean, could that be a slight up if you look at just bleached board? And it would seem like you could see $50 a ton there on average at least in the fourth quarter versus the third.

Why don't you let Tom jump in on that because he's here.

Well, just to clarify, in the European piece of it, it is bleached board.

Yes, Chip, right now, the backlogs are very strong here in North America. We're still over 500,000 tons unmade orders. We will get some realization on the folding increase that is announced and in, in the marketplace already in the month of October. So that our exit rate will be higher coming out of the fourth quarter than it was coming out of the third. And we feel pretty good going into next year from a demand and from a pricing standpoint. Chip Dillon - Crédit Suisse AG: As you guys look at the whole black liquor situation, at least as a thought process where you decide sort of if and how much you want to switch from the alternative minimum to the cellulosic biofuels, you would then take the $0.50 that you do switch and, in essence, you'd have to pay that back to the government and then you would have to, I guess, apply for the higher credit. And if you did that, would that first have to go against an amended '09 return? Or could you use it, in fact, to reduce your estimated taxes on '10 or '11?

Yes, you can carry it forward, and that's exactly what we would look to do. And if we see that there's a benefit there that we can realize, we'll try to time it, such that anything that we're giving back is timed close to when we would file an amended return and get the benefit from the cellulosic biofuel credit.

Next question comes from Peter Ruschmeier with Barclays Capital. Peter Ruschmeier - Barclays Capital: I was curious if you could help us with the exit prices of some of the key products relative to the third quarter averages?

Without going through the number by number, we were realizing price increases right through the quarter. So I don't know if each of the Business Manager wants to speak to their own piece. But I guess the way I'd summarize it, Pete, is we're pleased with where we are. In containerboard, for instance, on a year-to-date basis, we're up $95 through the end of the quarter. So we had a very large number of announced increases. And I think, at this point, we're 85% of those announced increases for the operating businesses.

Pete, I'm just looking here, I'd say Europe was up. Boxes were up. At this end of the quarter in our Boxes were up. Pulp was down. Bleach board, Tom just talked about, was up. In Asia, bleach board was down. And in export markets, it was kind of stable. Export markets, paper out of Brazil and containerboard out of the U.S. Peter Ruschmeier - Barclays Capital: Maybe a question for Carol on Industrial Packaging. Clearly, very strong performance. As I look at this business on a year-over-year basis, it looks like you're up $72 year-on-year on price, and I think you mentioned 5% on volume. So I would think that the price variance and the volume variance, alone, would drive at least the kind of variance we saw, not to mention you had some cost-cutting. Are there certain cost elements, as I look at this year-over-year, that kind of held that back? Anything onetime that held back the third quarter or any light you can shed on that comparison?

Yes, Pete. That's a good question. If you look at the operations, where we have done better, we've got the full benefit of the rationalization. Our consumption cost in our mills for fiber, energy are down. And I'm sitting next to my boss here, but what really held us back is if you just look at the incentive comp and the fuller [ph] corporate charges year-over-year, they are quite different. And that's kind of masking a bit the on-the-ground improvement that we're getting in our Box plants and in our mills. But I think, over time, that, that will become transparent and work its way out. But those are kind of put into the same bucket because they are costs from wherever they come from. But I do feel good about the progress we're making in our operations and in the cost lines that matter over time.

Pete, if you look at the -- it's in the appendix, I think it's Slide 47. You see what pattern the OCC price is indexed, and OCC prices in 2009 were a huge tailwind. This year, there are headwind. That said, we actually benefit from higher OCC prices because it moved the cost curve up. And we're running 35% OCC relative to virgin fiber. Peter Ruschmeier - Barclays Capital: John, you mentioned earlier that you had taken steps to rightsize the footprint even uncoated free sheet, you're still enjoying growth in Eastern Europe, Russia, Brazil. Can you share your views, though, on a secular basis? I mean, is the growth in these emerging markets enough to offset the mature nature of Western Europe and the U.S. for uncoated free sheet? And how do you think about, on a going forward basis, managing supply along the lines of what you've done at Franklin?

We're still committed to managing our supply base, wherever we are, and we don't see a -- Franklin was a very tough decision. It was a hard one to make because of the impact on the community and the employees, but we needed to make it. And the benefits of having made that tough decision are showing up now. We really haven't looked at demand offsetting what's going on in the U.S. because the only supply position we have is kind of inter region, it's Brazil and the Europe. And that's replacing the high costs of mill, non-integrated mill we shut down on Scotland. And we're going to pull that volume back into Latin America, and so Latin American region grows. We're practically out of capacity in Russia. So between Ilim and International Paper looking at how we can meet the demand in that market, we continue with Eastern Europe grows. All we do is we just tighten up our mix to the highest margin markets for paper and bleach board out of Poland. And we know that Western Europe is going to be flat at best, and the U.S., over time, is going to decline. But this year next year, it could be flat to up, at least. Flat was unemployment at 10%. And with cut size being attach to white collar employment in terms of consumption, that's pretty good outcome.

Next question comes from Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co.: Wondering how much integration benefits do you yet have to be realized within the containerboard system?

On the integration benefits, we pretty much have gotten the integration benefits. So we're not calling that integration anymore. We really completed that fast and early. What we're working on now is continuing to unlock the potential of the combined business, so that's our continuing improvement efforts. And there's still a lot yet to be done. Examples are great rationalizations through the system, the closure of the two mills that we did. We just, in the Box side, announced the tough stuff that we did, another plant closure in Spartanburg, a downsizing at Shreveport. So we still got a lot of opportunity of what the combined businesses can do together and what we can leverage, both in the market and on the cost side. But I would say that from integration perspective, we're done.

Steve, across International Paper, the future earnings runway is not just volume and price. We've got pretty healthy and sizable margin expansion strategies in each of the business, which are independent on what happens to volume and price, which is good news because it means we've got a platform for improving our margin and earnings going forward, no matter what the macro environment is. Steven Chercover - D.A. Davidson & Co.: I guess it's also pertains to containerboard. But philosophically, if you are earning your cost to capital in containerboard in Q3, would it be reasonable to say that you're seeking economic rents with the third price increase?

Pricing in this business and all other business is a function of demand, supply and inventory levels. And I guess I would just say, we don't think about it as economic rents. We think about what are the fundamentals of the business. Export demand remains healthy. Inventories, as Carol said, are at historic lows. And Box demand in the U.S., it's positive, and those are all good.

Last question comes from Mark Weintraub with Buckingham Research. Mark Weintraub - Buckingham Research Group: First, just quick follow-up on that cellulosic biofuel question. In terms of timing, do you have to make a decision on whether you're going to make a shift by a certain point? And does it all have to be at once? Or basically as you see how profitable you are, can you be making piecemeal decisions along the way?

I think we'll be going to look at it kind of year-by-year, Mark. That doesn't mean that we won't come to potentially a determination at a point in time and say what we think the overall benefit it and then reflect that in our earnings, but we're still sorting through all of that. So it's just not clear at this point whether they'll be one quarter where we estimate the benefit and take the benefit or whether we'll work it out over time. The benefit itself, if it comes, will likely be over time. Mark Weintraub - Buckingham Research Group: And is there a date by which that benefit will have to have been accomplished where essentially...

By 2015. Mark Connelly - Credit Agricole Securities (USA) Inc.: And then second, I guess mostly for Carol. Were you surprised that, that third price increase -- as you were looking at your business, did you come away with anything instructive as to how that third price increase ultimately did not get put in place or got rescinded? And were you surprised, and just maybe help provide some color on your thoughts on that whole process.

Sure, Mark. To be honest, yes, we were surprised that the increase was rescinded. We had announced and implemented with our board customers and we were actively talking to our box customers. That said, we have not changed our view of what we believe is important for International Paper, which is balancing our supply to our demand. And today, once again, we see slow steady box growth, we see strong export demand. We see historically low levels of inventory, given the current box demand. And these are all good indicators for the health of our business and the actions that we're going to take going forward. And you have to remember, we're running fairly full right now, but it's in a footprint that's 10% smaller than it was when we started this journey. So it's not going to change that path that we stay on and what we're trying to get done here. Mark Weintraub - Buckingham Research Group: And so is it fair to say that there was an experience that's going to necessarily make you gun shy related to having to rethink when markets are appropriate to be raising prices, et cetera?

I think you just have to evaluate points in time for the merits of them at that point in time. And I think John said earlier, history isn't necessarily the dictator of the future, and you just have to manage your business as it presents itself. And our fundamentals and our beliefs say they're pretty clear.

That was the last question. Are there any closing remarks?

The only thing I could say is thanks for joining our call today, and Emily Nix and I will be available by phone for follow-up questions. Thanks, LaTrisha.

Thank you for participating in today's conference call. You may now disconnect.