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 Mark Sutton - Senior Vice President of Printing and Communications, Papers of the Americas Thomas Cleves - Vice President of Investor Relations

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

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2010 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Mr. Tom Cleves, you may begin your conference.

Thanks, Melissa. Good morning, everyone. Thanks for joining our fourth quarter earnings conference call today. Our speakers this morning will be John Faraci, Chairman and Chief Executive Officer; and Tim Nicholls, our Senior Vice President and Chief Financial Officer. During the call, we'll make forward-looking statements that are subject to risks and uncertainties. These are outlined on Slide 2 of the presentation. We'll also present certain non-U.S. GAAP financial information. You can find a reconciliation of those figures to U.S. GAAP financial measures on our website. The website also contains copies of the fourth quarter 2010 earnings press release and the slides that we'll use today. And with that, I'll turn the call over to John.

Thanks, Tom, and good morning to everybody. If you'll let me just start off by saying we finished 2010 with a strong quarter. Earnings were almost at $0.68, almost 3x what they were in the fourth quarter last year. It's really on the back of solid volume, on price and cost performance. Margins, and this is important, expanded 240 basis points quarter-over-quarter, and we had very strong earnings in our Ilim joint venture in Russia. Moving to the next slide, to put this in context. The fourth quarter for International Paper was the strongest fourth quarter that we've had in over 10 years. I don't say that to suggest that we're anywhere near our peak. We think we've got quite a bit of runway ahead of us as we go through 2011, which we'll talk about in the call. So just turning to full year results for a minute. The strong fourth quarter wrapped up a very good 2010. We really had, International Paper, a V-shaped recovery while the economy in the U.S. at least was recovering in more of a U-shape. Our low tide mark was the first quarter where we earned $0.05, and we came out of the year with a lot of momentum, with third and fourth quarter performance. The earnings for the year were more than twice what they were last year at just over $2 compared to $0.88, free cash flow of $1.7 billion, margin expansion of 110 basis points. So we kind of ended the year with more margin expansion than we had for the full year, which is a good jumping off point for 2011. And significant return on investment improvement, which we'll talk about. More debt reduction and pension funding, and two increases in the dividend, the one early in the year and one late in the year, have now restored the dividend back to $0.75 from the $0.10 it was coming into the year. 2010 headlines. Sales up 8%, again, both volume and price; strong free cash flow even with higher levels of capital spending in 2010 compared to 2009. And the sales growth which also took -- that and capital took about $800 million of cash, and we still had strong free cash flow. Less than $9 billion of debt, a $4 billion reduction in debt over the last several years since we completed the Weyerhaeuser acquisition, that's over -- close to a 40% reduction in our debt and a healthy cash balance of just over $2 billion. And I think this all demonstrates that International Paper can generate very healthy cash flow in still what is I would characterize a recovering, not a fully recovered, economy. Just the next slide shows you where the revenue growth is coming from. And I think it's important because it underscores the global balance is becoming more and more part of International Paper. Our North American business has performed well. Sales growth was 6%. Outside North America, sales growth was double what it was in North America, 13%. And in our Ilim joint venture, our revenue growth, that's volume and prices, up 33%. So if you include Ilim in the whole package for a minute, our revenue growth outside North America was 3x what it was inside North America. And again, that's both volume and price. Turning to the waterfall chart that shows you the EPS comparison of 2009 to 2010. The big levers stand out here: Price, volume, cost and Ilim. And the one negative, and it was a substantial negative, but we were able to overcome it during the year and still expand our margins, we had input cost pressure, primarily wood and OCC of over $1 a share. So International Paper is a cash flow story and continues to be a cash flow story. Post-transformation plan in International Paper, we built a step-change capability in our free cash flow, and this slide here shows that. We've more than doubled our free cash flow pre-transformation from an average of about $900 million a year to $1.9 billion a year, if you look at the last three years. And this has obviously flowed through to our ability to improve our return on investment, which is a key metric for International Paper. We come out of 2010 going into 2011 with our returns, as we say, in the cost of capital zone. Our run rate ROI for third and fourth quarter was about 8%. That's twice its low point of 4% in the middle of the recession in 2009. And from a macro perspective, I think I would characterize 2010 as a transition year, not nearly a mid-recycle year, because when we look at our Industrial Packaging business, our Coated Board business and xpedx, our three big businesses in North America, we don't see demand yet back to pre-recession levels. Eventually, it’ll get there. So Tim, I'll turn over to you.

Okay. Thanks, John. Good morning, everybody. I'm on Slide 12. So I'm going to start with the fourth quarter and go through a few more of the details. And you can see on this slide, sales growth year-over-year of 9%. Also, look at the EBITDA. We had in the third quarter over $1 billion of EBITDA, but we also had the land sale, and it was a fairly light outage quarter. So what I feel really good about looking at third quarter to fourth quarter, if you adjust for the land sale and you adjust for outages, we would have been at about $960 million of EBITDA in the third quarter and a very solid $870 million in the fourth quarter. Another good quarter of cash flow, as John mentioned, and in that cash flow number of $600 million, there's $130 million of incremental CapEx spending in the quarter. So a really strong way to finish the year. If you look at the next slide, just going from third quarter to fourth quarter, I think you'd look at it and say the momentum continues. We had more outages in the quarter. It's seasonally a slower volume quarter, and we did have a few operational issues late in the quarter, but we ran very well in the third quarter. And then in the fourth quarter, as the season changed and cold weather had some impact, and we had a few one-off items in some of the mills, which we've now recovered from, but we probably left around $15 million on the table from the items that we had. Price was another good story. In a lot of the businesses, box was up. Export pricing was up. Consumer Packaging business had a price increase through the quarter, as well as our European Paper business. And if you look at volume year-on-year, we were up in our Packaging businesses. PNC was down, which we would have expected in North America, and Brazil continue to perform very strong. The one item on tax that I do want to call out, our tax rate in the fourth quarter dropped to 28%, and I think the way to think about that is there was legislation in the fourth quarter in the Extenders Bill that we could not book as we would have normally booked throughout the course of the year, and so it was a catch-up in the fourth quarter. And that's basically for the R&D tax credit that we received, as well as how some of the offshore entities are treated from U.S. tax perspective. So in summary, it's a good quarter. Volume was where we expected it to be. Prices were up. Operations were good, but could have been better, and inputs were trending slightly higher. So if you go to the next page, I've got a breakout on input cost. And the thing that I take away from this is good performance with inputs going out. More than half of the inputs were in our North American business, and more than half of the input increases were in Industrial Packaging. So OCC, up $17 million quarter-on-quarter. We did see wood fiber continue to improve, and really for the first time, we saw chemicals start to jump up as well. So with that, let me turn to the businesses, and I'll start with Industrial Packaging. Solid quarter. We had much higher maintenance outages in the quarter, and some of the operational issues that I mentioned earlier showed up in IPG. And as I said, have now been resolved. Volume was down seasonally, but up 2.8% year-over-year, and box prices moved up $4, and we continue to see export pricing increasing. So when you turn to the next slide, we've shown you this slide before on margins. We saw fourth quarter margins in line with the highest margins in the industry. And I think a really important point, as we exit 2010 fourth quarter, EBITDA margins that are 240 basis points better than the full year average for 2010. We also saw earnings improve, and not only in North America, but in our European business. So our two largest Industrial Packaging businesses had improved performance in 2010. Specifically in North America, we had to work through a pretty significant input cost increase. The bulk of that being OCC, but with close to $400 million of increased inputs, we still improved the business by $100 million. And we ran in the second half of the year at an average margin of 19½% versus the 12% in the first half as we were dealing with the input cost squeeze. International Container had a great year. In Europe, volume was better by $20 million, and our cost was better, largely due to the Etienne mill shutdown, but good performance across all of the business units there. If you turn to Printing Papers. I thought Printing Papers had a very good quarter. Operationally, we ran well in North America. We had a couple of issues outside North America, but the step-down in performance on ops was right in line with our expectations around moving from a warmer season to a colder season. As I mentioned, price in Europe was up. We were stable in the U.S. We did have about $11 million of green energy credits that did not come through. This is in our Poland mill, and it's just a timing issue, so we should pick those up in the first quarter. So overall, Printing Papers had a solid quarter and a really good year. If you look at Slide 19, you can see the margin improvement across all of the businesses. Starting with North America, very stable performance moving from 19% EBITDA margins to 20%. Just a huge amount of improvement in Europe, and it came from demand recovering in a strong way and prices moving up throughout the year, and also good operations throughout the year. And Brazil did a very good job managing its export price. On average, prices through the year were up about $150 a ton. If I turn to the Consumer Packaging business, it ran very well in the quarter also. And if you adjust for the outages, basically had a similar level of earnings in the fourth quarter that it had in the third quarter. Backlogs continue to be strong in our Coated Paper business. We continue to have backlogs that go out about four weeks. That's about a week better than what we had last year, and our year-over-year volume in the fourth quarter was up 9% versus 2009. We also, as I mentioned earlier, got about $15 a ton more in price than the third quarter. So all in all, a really solid quarter for the Consumer Packaging business. If you look at the next slide, I'm showing you what happened through the course of the year. And the low margin level in the first half was really a result of what happened with the wood shortage and the fiber cost increases that happened at the end of 2009 and the beginning of 2010, but a great job recovering from that and also realizing the announced price increases throughout the year and improving ops. We've had a couple of mills where we've had operational issues for a number of years. And second, third and fourth quarter just showed sequential improvements in mill operations for the business. So the business exit 2010 in the fourth quarter 230 basis points better than the full year average. If I turn to xpedx, a lower number than expectations, but for a couple of reasons, and I'll go through those. The good news is the business is continuing to recover. And in the fourth quarter, we had our strongest revenue quarter, if you look at average daily sales for the whole year. So first half of the year was 10% lower than how we ended up in the second half of the year on revenue. And total year EBIT moved from $55 million in 2009 up to $78 million in 2010. Part of the reason for the lower earnings number in the fourth quarter is that the business has been undergoing a strategic review of business improvement opportunities, and after having completed most of the work, decided to take some charges for business segments that they'll be exiting in the retail and printing equipment segments specifically. And we're completing the work this quarter, so we'll have a lot more to talk to you about the earnings improvement runway when we release first quarter earnings. If I turn to the Ilim joint venture, another good quarter building on the third quarter's results. And if you remember, we report Ilim on a one quarter lag. So what you're seeing is our fourth quarter number for Ilim's third quarter. And we have to go back and think about what was happening with pulp prices in the second quarter of this year. We did see a step-down in pulp price from the second quarter to the third quarter, and then it began recovering during the third quarter but did not fully make up the decline through the quarter. That continues into the fourth quarter, and so we expect Ilim's performance to continue moving up. They had good operations, and also the $31 million result that we booked as equity earnings included a $12 million charge for an asset write-off related to a vacant office building that they're no longer using. So that was a one-time item that impacted their third quarter, our fourth quarter. When you look at the three-year history of the Ilim joint venture, we finished 2010 EPS accretive, and we had record earnings for 2010. And over the three-year period, after having a good year the first year of the joint venture and then being hurt by the economic crisis in the second, bounced back, and we're now at earnings levels that are above the pre-crisis level. We've also, since the time of the investment, received $152 million in cash dividends. And the projects, the strategic investment projects, are currently under way and on track. Before I shift from the businesses to other corporate items, let me just touch on Europe for a moment. Europe, as we exited the year for the company, we were approaching cost of capital, Europe was at cost of capital all year long and had a really strong performance across all of the businesses. Our Russian Paper business, the Western European Paper businesses and our Container business, which is in Europe, Middle East and Africa, and ended the year with an ROI of 16%, basically on good demand recovery, good operations and really good price momentum. So with that, I'll switch to debt. And on Slide 26, you can see where we were at the end of 2008 with $12 billion of balance sheet debt and a $3 billion pension gap. And you see the waterfall to our results at the end of 2010, with $8.7 billion of balance sheet debt and a $1.5 billion pension gap. That pension gap is made up of about a $1.1 billion gap in our qualified plan and a $400 million gap in the non-qualified plan. So when we look at this, we say, "Hey, we've made a lot of progress on debt reduction, but we're just getting to the threshold of the targets that we had set for ourselves." On the capital spending front, we're estimating that in 2011 we will spend somewhere between $1.2 billion and $1.3 billion on capital. That's after averaging $650 million on capital for the 2009, 2010 period. And it's going to really come from the result of higher maintenance and higher regulatory. You can see that on the chart, which is primarily related to the boiler MAC requirements. But we're also increasing spending on cost reduction projects and strategic projects. The cost reduction projects, where we're going to spend about $200 million more incrementally than we did in 2010, are primarily around consumption reduction projects and lowering our cost base. The strategic and the biggest one is really the Sun joint venture coated board machine that we announced last year, which there'll be a fair amount of spending on that this year. So with that, we're higher in this year the average that we set over the cycle, but we're still right in line with the $1 billion target of spending on average across the cycle, and we're still committed to that target. So let me end up on Slide 28, and I think this is a good example of what we mean by cost reduction capital. If you look at our energy efficiency progress since 2000, we've reduced our dependence on fossil fuels purchased energy by 45%. Currently, we spend $1 billion-plus on purchased energy a year, and the capital projects that we have pursued over the past decade are not very large projects. In fact, if you look at the 10-year period, we've completed close to 1,000 projects over 10 years. So these tend to be smaller, smaller dollars, quicker to implement and quicker payback. The one area of opportunity that we think we still have, in our legacy mills, we have more opportunity to reduce consumption of purchased energy, but we have a big opportunity in the Weyerhaeuser mills where we've just started implementing some of these projects. So with that, I'll wrap it up and turn it back over to John.

Okay, Tim. Let me just quickly summarize again the fourth quarter. I think the slide here, and I'm looking at Slide 29, says it all. It was a good end to 2010. Again, I think we had a V-shaped recovery in our earnings performance and cash flow performance in kind of a U-shaped economic environment, certainly here in North America. If we turn to the first quarter outlook, I guess I'd say, it's January. It's seasonally slow like it always is in January from a demand standpoint. You think the first quarter kind of looks like the fourth quarter. On all fronts, things are more or less stable, with the exception of fiber and energy, where we see some increase in cost, and we do see some improvement in the Ilim joint venture, because we're on that one quarter lag, but by and large, a kind of a stable and seasonally slow economic environment as we look at the first quarter. No surprises there. The 2011 outlook I think is quite positive. For a full year basis, we're quite positive to see good momentum. We think about 2011 as a breakout year. 2010 was a transition year coming out of the worst recession we'd had in 70 years and in our view is strong earnings improvement, ROI improvement in the cost of capital zone, and strong free cash flow to go with it. And global balance with all parts of the world contributing to International Paper. I think we'll stop right there, Tom, and take questions.

Okay. Thanks, John. Thanks, Tim. Melissa, we're ready for our first question, please.

[Operator Instructions] Your first question comes from George Staphos with Bank of America.

I guess the first question I had, just thinking about early in the year and in January, now February, what kind of trends are you seeing from a volume standpoint if you have that visibility on some of your key products, box, containerboard, uncoated free sheet?

As I said, George, it's January, it's seasonally slow like it always is, and we don't have all the January numbers wrapped up. Actually, we're going to do that tomorrow morning.

Could you give us a bit more color on what benefit you think you might be able to get from the energy conservation projects within the Weyerhaeuser legacy mills?

Yes, I'll be glad to talk about that. We had good opportunity. I'll give you, like, a great example of one that we're implementing this year, and it would be on water conservation. And in our pulp mill IP, we've really optimized the recycling of water through our washers. And in the Weyerhaeuser system, they had not been doing that. So we're talking, George, about a project that's $4 million investment with a 50%-plus ROI, and Valliant's first up for that. So if you kind of scale that across the system, you can see that it's pretty sizable. So really, a lot of the energy projects are around some technologies, some things we put on our boilers and in the pulp mill, and now, of course, we'll continue on conservation. So I think it's still a good opportunity for us to improve the bottom line.

George, that's a great example of 100 projects a year that Tim talked about that are part of our capital spending.

So we should bank on $200 million improvement then?

$200 million of what, George?

Well, I see 100 projects and $200 million benefit here. But just generally speaking, how would you size that opportunity over the next year to two?

They’re not all 50% payback projects, I wish they were. We've got a good pipeline, it's not that good. You will get $100 million a year, and you got to do that to offset all the costs that go up. You got to put your capital to work to save, at least save, and we want to get ahead.

Strategically, and maybe taking a different tack, given that Containerboard and the Uncoated Free Sheet business have become very good returning businesses from the actions that you've taken over the last five years, but also given the fact that they're fairly mature, what do you think it means for the future in terms of you've committed to the $1 billion capital spending target over the course of the cycle, but do you think perhaps the bias on that might be lower, not higher? And similarly, given the cash flow that you're generating in the business might there be a time where you can start to take the leverage up so as to overall improve the return that you provide to your equity holders?

George, I'd add coated paperboard into that question about North America, that's a big important business of International Paper, and it's also in the cost of capital zone, and I'd add Europe, which includes Russia, Eastern Europe and Western Europe as well. So they're not all the big mature businesses. But to your point, we recognize those businesses for what they are. They're large markets. We've got good positions in them. We're going to stay in them, and I’d say that $1 billion is what we think capital spending will be to do two things: Take advantage of those cost-reduction projects, and we think we're pretty good at identifying and doing this stuff, and also keep our facilities competitive. And that's very important in any business, whether it's a mature one or a growing one. As far as leverage goes, we're committed to a balanced use of cash, and we've given you what our debt target is relative to EBITDA. And obviously, as EBITDA goes up, we've got more debt capacity, and we'll see how that plays out over the next several years. But we like where we are.

Your next question comes from Gail Glazerman with UBS. Gail Glazerman - UBS Investment Bank: Carol, can you talk a little bit about what you're seeing in terms of packaging, both in terms of export demand and pricing. And also, in the past, I think you've talked about some contracts, Box contracts that would reset in the new year. Should we expect to see a little bit of incremental pricing from the 2010 initiative in the first quarter?

Yes, I can talk about that. On the packaging demand, I mean John talked about it, it is seasonal. Although I would say that in January, our actual January volume on a year-over-year basis continues to trend up on the same pattern that we've seen. The December data is out now, and December was up 3½%. So we would continue to see modest year-over-year growth on U.S. packaging demand. Relative to export, export demand still remains solid. If you look at all the economic indicators, there's global growth in all regions, and we continue to participate in that, and that's a strategic segment for us. I think as has been publicly acknowledged, there has been some downward pressure on export pricing in the fourth quarter due to some seasonal supply that became available, but I can't speculate on future pricing. But my outlook for supply and demand is that as the U.S. hits the seasonal strong second quarter, married up with strong maintenance outages, that the seasonal balance will get tighter. But overall, I think things are in very good balance with inventories, demand and pricing right now.

Gail, what makes us feel positive about the outlook for the Box business -- these are industry numbers now. Since the first part of 2008, box demand fell by 9% across the U.S. industry. It's up – can’t get around this -- it's up 4% in 2010. So we're still 6% down from pre-recession levels, and the economy is recovering. It's recovering at a slower rate than we'd like, but it's recovering. So we see good demand runway for these businesses in North America, whether it's coated paperboard, whether it's industrial packaging, or whether it's xpedx, as the economy continues to recover. Gail Glazerman - UBS Investment Bank: Carol, can you give a sense of the profitability on those export tons with the price erosion in the fourth quarter and how that might compare to kind of domestic open market sales? Is it relatively attractive?

Yes, Gail. It's definitely still relatively attractive. I would say it probably peaked in that October time frame, but it's still very attractive.

Gail, in some of our markets in the October time frame, we had nil nets above the domestic market, and that's going to differ around the world. So Carol’s right, there's still attractive margins. Gail Glazerman - UBS Investment Bank: And in terms of the operating issues in the fourth quarter, should we really think of those as done as we move into the first quarter? Or just given the extreme weather that we had throughout the first quarter, should we assume that you still have some overhang?

No. I think you assume they’re done. You can always have a mill issue, but most of these were small and hit a series of mills. So I think all of the ones that happened towards the end of the quarter were kind of unique and hopefully not repeating.

The issues have probably moved from operating to customers. Gail Glazerman - UBS Investment Bank: Tim, the adjustments in xpedx, is that something that would continue to be a drag in the first quarter, or again, is that something where we’d start to see some turn already this quarter?

Well, we're going to tell you a lot more in the first quarter about what the plans are. The business has been working for about the past four months on looking segment-by-segment at how they're going to position themselves in the market and around product lines, and they're completing that work. And once we see the completion of that work, we'll know what the upside opportunity will be and what the expected cost to achieve it will be.

It’s a good news story. It's not a one-year implementation, but over the next two, three years, we concluded there's a lot more earnings runway in xpedx than we thought there was.

Your next question comes from Mark Connelly with CLSA. Mark Connelly - Credit Agricole Securities (USA) Inc.: John, just two things. When we look at your earnings in the Industrial Packaging business outside of North America, you don't have the same balance there that you're starting to develop in your Printing Paper and Consumer businesses. And obviously, you've talked about North America and virgin being good place to be. But can you give us a sense of how important it is to you strategically to build up the industrial packaging profitability outside of North America, and whether you're looking for the same kind of contribution there that you're getting in printing papers and consumer?

Well, remember, Mark, that the Industrial Packaging business outside North America is only a box business. And in the integrated business, the margins are much larger. We run on an integrated basis, but if you dissect it, the margins are much larger in the mill system than they are in the converting system. So frankly, our non-U.S. box business in Europe outperforms our U.S. box business, which is a whole lot larger on a return on investment basis. So we really like the position that we developed over there, which is concentrated in Southern Europe, Northern Africa in fruit and vegetables, which is a virgin line of broad-based business. But we also like being a net buyer of recycled board in Europe as well. Mark Connelly - Credit Agricole Securities (USA) Inc.: Does that mean we should not expect you to be looking to grow that business overseas as much? That’s what I'm really trying to get a sense of how important it is to you to grow it.

This is pretty impressive. Box volume in Europe was up 7% in the fourth quarter compared to the fourth quarter last year. In Turkey, our box volume I think was up 20%. So we're growing that business organically, which is obviously the most profitable and best way to do it. And if we had an opportunity to make a bolt-on acquisition that met our financial criteria, we would look at it, but we don't feel we need to be in the board business. Mark Connelly - Credit Agricole Securities (USA) Inc.: One more question on fiber. You mentioned fiber pressure. When we think about Q1 of last year, obviously, there was a ton of fiber pressure because of the weather. Are you getting a sense that we're developing that same sort of problem at this point?

No, not on the wood side. OCC prices obviously has been trending up, but our wood cost are doing the opposite. They don't come down very far in the winter time because of weather, but we've recovered a lot of the wood cost escalation and we’re kind of stuck in a rut now. Until residual chip supplies come back on, we probably can't bring wood cost down a whole lot further. But it will get better as the first quarter moves into the second quarter and we get the weather impact.

Virgin fiber peaked in the late April, early May time frame last year, Mark, and it continued to fall all through the year. So I think we picked up about another $6 million in price improvement in the fourth quarter versus the third.

If you look at Page 61 on the appendix, Mark, you'll see that where we’ve got our fiber cost trends.

Your next question comes from Anthony Pettinari with Citi. Anthony Pettinari - Citigroup Inc: I was wondering if you could talk a little more about uncoated free sheet volumes. North America looked like it was down 12% year-over-year. Could you give us a little color on that decline? Was it below expectations? Did it meet expectations? And are there specific segments, mail, commercial printing, cut size that are doing better than others?

I'll let Mark Sutton, who is here, Anthony, who runs our Printing Papers business in North America, as well as Brazil, talk to that.

The year-over-year minus 12 that's shown on that slide, a portion of that for us was we exported quite a bit more in the fourth quarter of '09 than we did in '10. We also had less capacity as we've shut down the Franklin mill. Outside of that, our experience in International Paper tracks very closely to the market. And that basically is a market that's down a little over 1%, 2010 over 2009. Underneath that, a good recovery in the printing grades, continued slight decline in the cut size paper and kind of a mixed story in envelopes and converting. Forms are down, and envelopes and other forms of converting papers are flat to slightly up. So our experience mirrored that pretty well. Anthony Pettinari - Citigroup Inc: So when you think about North American uncoated free sheet volumes declining in 2011, is it appropriate to think about that as sort of a low-single digit decline or...

Well, we've said before, we believe the structural decline is in that 3% range. But we still believe there's some recovery that can occur, and we think we could see even a flat year or a year that looked very much like 2010, which was for all practical purposes flat, in 2011. There has been virtually no recovery in about 45% of the market, which is the cut size paper, part of that we think is driven by the employment picture. So our view is probably better than a mid-single digit decline. We're looking hopefully at a flattish market.

Your next question comes from Chip Dillon with Credit Suisse. Chip Dillon - Crédit Suisse AG: Maybe you did say this, but if we were to look at the actions in xpedx, and I'm looking more short term, I know there's some long-term things you're looking at. You were down $22 million from the fourth quarter of '09. Would you say that represents the amount of the cost you incurred, or would it have been something more or less than that?

That's not all the cost we incurred. Chip Dillon - Crédit Suisse AG: So you would have done better year-over-year if you hadn't done sort of these actions?

We could have. You have to recall last year, we had, Chip, in the fourth quarter a LIFO benefit. So it's just accounting, but it clouds the numbers a little bit. It made us look a little bit better last year than we otherwise would have.

The thing to look at xpedx, Chip, is revenues per day. That's the key indicator, and then our operating expenses. Revenues per day prior to the recession were $30 million a day. They fell to $25 million. The fourth quarter it was $28.5 million. So revenues fell 19%, they're up 13%, but they're still down from pre-recession levels. And our operating expenses are back in the 80% range, which is where we want them in. With that equation, when sales come back, we'll be making some pretty good money. And as I've said, we’ve kind of concluded we have more earnings runway there over the next couple of years than we thought we had from a margin standpoint. Chip Dillon - Crédit Suisse AG: And I guess shifting gears. When you look across your businesses, I mean, certainly the margins in pulp and white paper and containerboard, while they're not back, say, to where we've seen them in the past, they're well on their way back. Bleached board, which is typical, has kind of lagged a bit. And as we look at 2011 versus 2010, would it be fair to expect that consumer packaging to maybe show more of an improvement than maybe the company average? Do you think of it that way just because it has lagged and prices have just more recently started to move up there?

I'll let Tom Kadien comment on that. He runs that business.

Chip, there's a slide in the deck that shows kind of the first half, second half improvement in the EBITDA margins, and you're spot on. I mean we expect to be able to sustain that improvement and actually build on that in 2011. The backlogs are good. We had high wood cost in the first half, and we also didn't operate that well in the first half, and we had a lot of price flow-through. And we had a very much improved second half, and we're going to do better than that in 2011.

Chip, the trick in coated paperboard is get the mix right or run the mills well, and get the commercial side and pricing right and do all three at the same time. And we know how to do all three. We haven't been doing all three at the same time well until recently. We've now had two quarters of getting that right, as Tom said. Our EBITDA margins in that business can be as good as they are in industrial packaging and printing papers. Chip Dillon - Crédit Suisse AG: You’ve had, I guess, several quarters or a couple of quarters of experience with the SCA plants that you bought in China, and can you talk a little bit about how that's going versus your expectations. And maybe as an add-on, what do you think is going to happen in terms of the board dynamics over there, whether it's quality or price, given the increasing tightness of OCC?

This is Tom Kadien again. I've got the Asia businesses. SCA is turning out to be exactly what we thought it would be from an asset standpoint and customer standpoint. The business was in worse shape than we would like when we closed on it July 1. The containerboard pricing ran up significantly over in Asia, if you recall OCC pricing in the second quarter, and we had over a 20% run-up in our input cost. On the IP side, in our legacy plants, we recovered that. In the SCA side in the second quarter, they recovered zero of that. So that's what we walked into on July 1 when we closed. We've been trying to rebuild those margins. We had some shutdown cost of redundant facilities, sheet plants primarily. So the numbers weren't very good. Didn't meet our expectations in the first six months that we owned them, but we're already seeing price improvement. If we look at our fourth quarter delta P on the SCA plants, we were net positive versus again higher containerboard pricing in China. So we're gaining on it, and we still think it will be exactly what we thought it would be when we bought it. The market right now over in Asia for containerboard is kind of quiet. We're in the middle of Chinese New Year. But we think it's going to be -- we think OCC is relatively stable. Carol, maybe you have a better view on that, but we think containerboard pricing is going to remain high, and we still have margin to recapture and rebuild particularly at the SCA plants.

Tom, talk about the volume, because I think what's impressive about China is the volume growth, we got our legacy plants and the opportunity in the SCA plants.

Yes. I mean the puzzling part of it, in our legacy plants, our box sales year-over-year were up 30% in China. And on the SCA side, it was low-single digits. On the price side, we recovered about 16% out of the 20% of the containerboard increase, and on the SCA side, it was low-single digits. So we know what the gap is and we know how to improve it.

So we've got a lot of runway there, Chip.

Your next question comes from Rick Skidmore with Goldman Sachs. Richard Skidmore - Goldman Sachs Group Inc.: First, on your slide for the first quarter outlook, you have the red square on higher fiber and chemicals, is there any way you can provide some color around the potential magnitude of that?

Higher. Well, oil is back up, over $100 a barrel. So that's probably a little higher than we thought it was going to be when we put this together. OCC, Tom said, looks like it's may be going sideways for a bit, so that could be a little bit lower but it’s still going to be higher than the fourth quarter number for sure. So the two drivers of the margin are demand for OCC in China, which we can't predict with a lot of certainty is. Weather, with half the country under two feet of snow, have reason to use more energy, and not ship much product and the price is going to be higher if we did it by truck. Richard Skidmore - Goldman Sachs Group Inc.: And the magnitude on chemicals, are you seeing significant chemical increases, specifically on caustic?

Some on caustic, some on starch and then there's some offsets going the other way. But the meaningful pieces there are the energy-related costs, which would be freight and consumption in the mills. We're not heavily dependent on oil, mostly gas and what we see on fiber. And if fiber stays where it is, it's going to be higher than the fourth quarter number. Richard Skidmore - Goldman Sachs Group Inc.: And then, John, you talked in your prepared comments that IP was a free cash flow story. And you’ve talked about a balanced approach to use of free cash flow between debt and shareholders and M&A over the last couple of years. And in 2010 most of your cash was for debt reduction and pension, with a little bit to the dividend. Did you see that balance shifting away or a little bit more tilted towards either shareholders or M&A in 2011? Or do you think it's kind of a third, a third, a third? Or how should we think about the use of cash?

I think you should think of it as balanced. We've been on a very consistent path over the past couple of years. You mentioned debt. We're just now hitting the threshold of the target debt that we're aiming for. If you look at the dividend, we took it from $0.10 to $0.75, and we've said we're on a path to restore it to where we were before the crisis. We're going to spend some more on capital this year. We think that's the right thing to do. We've kind of held back on good, solid projects over the past couple of years. And investments, if we see selective investments that meet the criteria and will strengthen a business that we have, then those are opportunities too. So I think it's balanced, and we want to look at that balance, Rick, over time and not try to fit ourselves into a hard formula because opportunities don't come that way. Richard Skidmore - Goldman Sachs Group Inc.: And maybe just a follow-up on the M&A side. Given the significant free cash flow that you see in your business in 2011, do you see a relatively sizable pipeline, or do you see a meaningful pipeline of M&A opportunities that provide the same type of cash return opportunities as buying back your stock given the free cash flow that you see in your business?

Rick, let me just jump in and say, I think Tim said it very well. We're committed to a balanced use of cash. Just because our free cash flow is strong, we're not saying our view is we need to have a big M&A pipeline. That's not the case at all. If we see things that make International Paper better and meet our financial criteria in businesses we're in, we have been looking at things like that, and we'll continue to do so. And the balanced use of cash isn't quarter-to-quarter, it's over time. So as we pay down debt, obviously, we're going to be opportunistic looking about buying back, repaying debt early if the opportunity presents itself. And if we have free cash flow that we don't think we see opportunities for, the thing to do is to look for ways to effectively get it back to shareowners.

Your next question comes from Mark Wilde with Deutsche Bank. Mark Wilde - Deutsche Bank AG: Tim, just to start out. The number on CapEx was a little bit higher than I expected for 2011, higher than I thought I was hearing you guys hint at a couple of months ago. I wondered a, was there any rollover from 2010 into 2011? And also incrementally, what had you really added over the last few months?

Mark, it's pretty much in line with what we've been thinking. There's always a little bit of carryover. One of the items is the board machine in China, which took a little bit longer for us to get ourselves organized and get permits in place to make sure we've got all our ducks in a row. So that's going to shift from 2010 into 2011. But it's also just managing a pipeline that we had drawn down significantly in '09 and '10. And during the course of '10, we started building that pipeline up in terms of project development. So as I said, we're going to average $1 billion over the cycle. We've been at $650 million average the past couple of years, and this by no means takes us above that average $1 billion number. We can spend $1.2 billion to $1.3 billion this year and next year and still be right on that target. So I think we're being very consistent with what we've said.

Mark, what we don't know is what the boiler MAC spending is going to be this year, because we don't know what the regulations are, and there's a pretty big swing there. That's why we're telling investors that $1.2 billion to $1.3 billion is probably where we're going to end up. We usually give you a more specific number, but we just don't know what the regulatory spending is going to be. Mark Wilde - Deutsche Bank AG: You raised China. And John, I wondered just if you could take a minute to step back and just kind of compare your experience, Russia versus China. You've got big joint ventures in both places. And from the outside, it seems like Russia maybe actually going a little better.

Well, they’re two very different markets. Someone told me a number of years ago that you can't lose a lot of money in China unless you're there. So we've got to remember that. So we've been very selective in what we do. China is a very, very competitive market, and Russia is competitive too. But there aren't that many competitors in Russia, and there are loads of competitors in China. And the capacity additions in China, whether it's cement, steel, you name it, buildings or paper are significant. So again, it's all about supply and demand. For different reasons, it's tough to be successful in both those markets. I would say that part of the reason we're doing better in Russia is because we're selling to China. 2/3, or not 2/3, 80% of what Ilim makes is for export, and 90% of that goes to China. So in a way, the two are related, but the operating environment is very, very different. Russia is a tough operating environment, but for a different set of reasons. Mark Wilde - Deutsche Bank AG: And then from just a little bigger perspective. When we went through the waterfall, still one of the biggest levers was just pricing movement. And I just wondered, now as the economy kind of starts to return toward normal, is there anything you can do in your businesses going forward to reduce that pricing volatility and to perhaps just create more stable earnings, more stable cash flows?

Well, we've been pretty consistent, Mark, talking about matching our supplies to our demand. And we think that is the discipline that we need to have and we'll continue to have. We took roughly 70,000 tons of downtime in the fourth quarter, again, to match supply and demand. And if you look back -- I don't want to try to forecast prices because I can't and I shouldn't and I won't. But if you look back at pricing over this last cycle, which is the most severe cycle we've had in 70 years, the pricing volatility in bleached board, in paper and in containerboard was a whole lot less than it had ever been in prior cycles which weren’t nearly as severe because of I think supply, demand management. Mark Wilde - Deutsche Bank AG: And I'm just wondering too, John, could you see kind of a change in the nature of kind of customer relationships particularly in the Packaging business? Maybe make it a little more of -- create a little more stable pricing or maybe mechanisms that pass cost on to customers more efficiently.

Well, all customers are different. They have different business models. We have different business models. Our experience is with the type of input cost we have, having certainty around pricing without having certainty around input costs has got a lot of downsides to it. And the flip side also holds true. So hypothetically, if we could match pricing to cost and get certainty around margins, that would be something we’d want to consider. Mark Wilde - Deutsche Bank AG: Did you take any market downtime in the fourth quarter? And are you seeing any weather fallout here in the first quarter? Valliant I think would have been right in the line of that snowstorm.

Well, in the fourth quarter, we took how much downtime?

We didn't have any in consumer packaging or printing papers, and, Carol, you had about 68,000.

Yes, Mark. We had some downtime in the fourth quarter. I think that's also maybe one of the lexicons we probably need to not talk about. We ran our mills to our demand and that resulted in an operating rate of 94%. We had outages. So that meant that we didn't run everything because we didn't need to. And the math would say that, that was about 80,000 tons of production that we didn't run because we didn't have orders because of the seasonal demand.

Carol, what about commenting on how the snowfall might be affecting your ability to cut out and ship box.

Yes. The snowstorm of this week is definitely a big event. We have a lot of box plants as does most of the country through the Midwest starting all the way over from Kansas, all the way up through to the Northeast. And we've had a sizable portion of our system that's been down yesterday, today. And my guess is that we could lose a day or so of aggregate production through that. What really matters is our customers. We need to run when our customers start their factories and plants back up, whether we call that back, whether they have the capacity call that back is yet to be seen. But one day out of 20 is probably sizing it up.

There’s a trucking component to that, so that's gotten all messed up. I would say there's no snow on the ground in Memphis, looking out the window here. Mark Wilde - Deutsche Bank AG: So can you just based on these storms we've had, do you think there's going to be a first quarter impact from all that? Because we've actually had a couple of other pretty severe storms here in the Northeast in January.

I would say this storm is a little different in that it's so widespread and it’s really shut down large portions of the interstate and people can't get to work. So I think there's definitely, there's a lot of factories, not only ours, but our customers that are down for more days than the other storms created. So I think this one has more impact. And for us, I'd say it could be one day. So think about that as 4% February impact to us.

And the quarter is only 30-days old. The whole logistic system from New Mexico to Boston got affected by this last one, just look at pictures in the newspaper. So we don't know what the full-on trucking and transportation effect is yet. It’ll pass. It's a temporary thing. But we have to work our way through it.

Your next question comes from Mark Weintraub with Buckingham Research. Mark Weintraub - Buckingham Research Group, Inc.: If we make the assumption of consensus earnings as roughly the base, can you give us any help on what your cash tax is or cash tax rate in 2011 might be? And also on that slide 44, where you talk about black liquor and the potential to change the methodology used to collect on. Again if we were to just assume consensus type of numbers for the next few years, what the magnitude of the impact from that shift might possibly be?

It's Tim. Let me start with the credit. I can't actually do what you're suggesting simply because there's a lot of variables that are in play, and let me go through a couple of them. You mentioned earnings. We could assume what First Call says and move from there. But there's other factors. There's the possibility of pension contributions that would weigh on that. There's also the issue of whether we determine at the end of the day, we think the alternative fuel mixture credit is a taxable credit or a non-taxable credit. And there's some reason to believe that the proper conclusion may be non-taxable. If we come to that conclusion, then economically it just doesn't make sense to refund or pay back the credit that we've already received and apply for the CB credit. So we've got more work to do. It's going to take us into 2011 to really nail down where we think we are. And what we took in the fourth quarter was just the benefit on black liquor gallons that we ran in 2009 but did not mix. So those were never applied for, for the alternative fuel mixture credit. And then the first part of your question was what again? Mark Weintraub - Buckingham Research Group, Inc.: Just cash tax rate for 2011?

Well, we've been right around $100 million in terms of cash taxes the past few years. We're going to see it step up a little bit, $200 million, $300 million, just based on better earnings among other things. It's not a huge step up, but we do expect to see an uptick over the next year or two. Mark Weintraub - Buckingham Research Group, Inc.: If you do determine that the alternative mixture credit would be non-taxable, what would that -- would that be roughly a $500 million benefit, or what would the magnitude of that benefit be?

We haven't totally quantified it, but it would be several hundred million dollars, yes.

Your question comes from Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co.: We know that you have to use a balanced approach to deploying your free cash flow. My question is, is the pension getting to a point where market appreciation or a potential rise in the discount rate would address the shortfalls so you’d lean more towards the debt than the pension?

Yes, I may have missed – I was having a hard time hearing the first part of your question. But you're asking about discount rates on pension? Steven Chercover - D.A. Davidson & Co.: Yes, I'm just wondering if between market appreciation and a rising discount rate that the pensions shortfall would take care of itself? You don't want to overfund it?

No, we definitely don't want to be in a terribly overfunded position. So you're absolutely right. And that's one of the things that will take a little bit of time to determine. But 100 basis point movement in discount rate means $1 billion, $1.1 billion in terms of change in liability. So something we're watching. Steven Chercover - D.A. Davidson & Co.: My other quick question, which is on the Middle East. I think your operations are primarily in Turkey. But if the whole region goes into mayhem, how big is that for you in aggregate?

We've got a joint venture box business in Turkey, which is a couple of hundred million dollars. And Turkey is in the Middle East, but it's kind of at one book-end, and we've got a wholly owned box business in Morocco, which is the other end of the Middle East. Both are good businesses, and we've seen no impact of what's going on in Egypt and Tunisia in terms of our business.

I think in Turkey, I think most people realize this. But Turkey is a secularist democracy and it has been a democracy for a long time. So it seems to be and has been a more stable country to operate in.

I will now turn the call back over to Mr. Cleves for closing remarks.

Thanks, Melissa. Thanks to everybody for joining us today. Emily and I will be available by phone for further follow-up questions. Thank you.

This concludes today's conference call. You may now disconnect.