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

Mark Connelly - Credit Agricole Securities (USA) Inc. Mark Wilde - Deutsche Bank AG George Staphos Richard Skidmore - Goldman Sachs Group Inc. Gail Glazerman - UBS Investment Bank Mark Weintraub - Buckingham Research Group, Inc.

Good morning. My name is Lori, and I'll be your conference operator. At this time, I would like to welcome everyone to the International Paper First Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Tom Cleves, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Lori. Good morning, everyone, and thanks for joining International Paper's First Quarter Earnings Conference Call. Our key speakers this morning are John Faraci, Chairman and Chief Executive Officer; and Tim Nicholls, Senior Vice President and Chief Financial Officer. Mary Laschinger, Senior Vice President and President of xpedx will also participate in today's call. During the call, we will make forward-looking statements that are subject to risks and uncertainties. These are outlined on Slide 2 of the 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. Our website also contains copies of the first quarter 2011 earnings press release and today's presentation slides. I'll now turn the call over to John Faraci.

Okay. Thanks, Tom. And just before I get started, you're moving off to another assignment shortly. Thank you for your work with investors over the last 3-plus years.

Thank you, John.

Okay. For the first quarter, we characterize this a good solid quarter for International Paper. The momentum that we talked about with you last year that started to build in the second quarter of 2010 continues. One of the things that really made a difference for International Paper, it has made a difference, and continues to make a difference is our global balance. And as we talk about our performance during, as Tim will, you'll see that global balance really starting to pay off in our results. First quarter were solid returns, again, in the cost of capital range. Operating EPS of $0.74 versus $0.04 a year ago and up 18% sequentially quarter-to-quarter. During the quarter, as you know, we also increased our dividend for the third time and increased it to slightly above prerecession levels. And during the quarter, we announced a strategic entry into the India paper and packaging markets. So just turning to that slide here, a brief financial snapshot before I turn it over to Tim. Sales were up 10%; we improved EBITDA margins up 400 basis points over the first quarter, 60 points -- 60 basis points over the fourth quarter; we continued very strong free cash flow; and a first quarter that always is and was seasonally weak. And this time is impacted by quite a bit of bad weather in the January-February timeframe; continued debt reduction; and continue to have a strong cash balance on the balance sheet. So with that, I'll turn it over to Tim to take you through the first quarter in somewhat more detail.

Okay. Thanks, John. Good morning, everybody. As John said, we did have a very strong quarter in the first quarter, but not without some headwinds. Volume was seasonally weak. We are typically slower in Russia, slower in Brazil, slower in North America. But we did have the weather-related impact in North America that hit us as well, and I'll speak more about that when I come to the Industrial Packaging business. We also had higher input cost, and I'll speak more about those in details. But we were really carried by the strength of our operations, and it wasn't just here in North America, it was really around the world. The other notable item on this page was the really strong results from Ilim, and I'll share some more details with you in just a few minutes about their fourth quarter, our first quarter reported. If you turn to the next page, we've got our normal input costs breakout, and we had close to $50 million in the first quarter. It was really in line with our expectations weighted towards North America. We had about 80% of the increase in North America and then 20% in Europe. The Packaging businesses were able to cover the input costs increases with operational improvements. Printing Papers was hit disproportionately in the quarter by energy, chemicals and wood, and I'll talk a little bit more about that when we get to the Printing Papers segment. So let me turn to each of the segments now, and I'll start with Industrial Packaging. We had a really solid first quarter even with the weather impacts and the rising costs. We had purposely pulled back a little bit on export shipments towards the end of last year for the first quarter anticipating higher box demand in the U.S., and then the weather got in the way. But I think it was a real strength that the business was able to react quickly, take the market-related downtime that they needed to. And so if you look at the volume bucket there, 10 million of that 14 million was really related to market-related downtime around North American box. Had very solid operations, really across all the mills and converting facilities, not just here in the U.S. but globally. Turning to the next page, we look at margins. In North America, the ability of the business to really react quickly led to the highest margins in the industry in the first quarter. If you look at the blue bar. And if you look at the shifts, the delta between the green, which was first quarter of last year and the blue, first quarter this year, we have the largest improvement year-over-year at over 900 basis points. I think the real strength of the business and our ability to react quickly is highlighted on the next page, where we are really different from most in terms of how we're positioned across multiple channels to market. And you can see in the green boxes, we're integrated to a level of about 80% that includes both the U.S. channel and our box brands overseas. And we have about 20% of volume going to the open market, both here in North America and in the export channels. And really what the business is doing is focusing on the right channel mix, period-by-period to maximize value, and that focus has led us to be a consistent long-term supplier in all of these channels over time. Last slide on North American Industrial Packaging, on the next page, is just some data points to highlight the strength of the quarter. It's not our seasonally strongest quarter, it's probably our seasonally weakest quarter because of our heavy orientation to agriculture packaging. And that's really a second quarter event. But we had a really strong quarter with improved margins, and part of that margin improvement has come from the realization of price increases from the announcements that we made last year. If you look at it year-over-year, first quarter-to-first quarter, we've realized just over $90 per ton in price increases. So we feel really good about that. We also generated cost of capital returns in the first quarter, running at an operating rate of 93%. So the way we think about it, we look at it and we say, "Hey, there's still some earnings runway here." We took almost 100,000 tons of market downtime in the quarter and still had a cost of capital return. To turn to Printing Papers on the next page. Another great quarter in Printing Papers, and it was really balanced around the world. Printing Papers incurred almost half of the total company input costs increases driven by energy and chemicals. We have volumes up in North America and Europe in uncoated free sheet. We're seasonally weak in Russia and Brazil, as I mentioned. It's really the weakest quarters they have. And we had stable prices, and a slightly negative mix impact. That's kind of a normal occurrence in the first quarter given our customer mix in Brazil. And again, strong operating results in both Europe and Brazil. Let me turn to Consumer Packaging now. And I thought Consumer Packaging just had an excellent quarter. They benefited from lighter outage quarter, but even if you exclude that, still had earnings up 30% in the quarter. And it was really on the strength of all of the businesses. John mentioned the global balance, and this is a pretty good example of it. Volumes in North America were up 9%. Backlogs continue to be strong. We're still running at 5-plus weeks. Prices were up in all of the regions quarter-on-quarter. And if you look at price levels year-on-year, North America's up $92 a ton. Our Asia business is up $80 and Europe we’re up EUR 130 per ton in Europe. Operations, again, strong in all of the regions including North America, where we struggled with mill performance over the past few years. Our Augusta mill finally turned the corner, and we had the first favorable operating results since 2006 in Augusta. So if we concentrated first on North American Coated Paperboard. Let me just show you some history on the improvement. If you go back to 2008, we’ve had a 900-basis-point improvement through the end of last year. And it's really a combination of 3 things: it's restructured commercial contracts and better performance there, its improving operating results in the mills here and it's managing the supply chain better. And now you can see, we're at a marginal level in the first quarter, a run rate of 23%. Again, it's a light outage quarter, but I think the business has positioned itself to be able to achieve margins in the low 20s throughout the year. Turn to the next page, and I'll talk about what I call the other Packaging business. We spent a lot of time talking about Industrial Packaging business but Coated Paperboard is a global business for us. It's a large business at about 3 million tons globally, and North America is a big part of that but it's only part. We also have a very attractive business in Eastern Europe, Russia, and we have our Sun joint venture in Asia. And you can see the margins for all 3 regions. Asia looks low at 11%, but all our earning cost-of-capital returns in Asia gets there by way of a lower capital base and higher turns. So Asia's turning their capital roughly 2x versus a little over one in North America. Now let me turn to xpedx where we had a slightly better quarter in the first quarter than in the fourth quarter of last year, but we were well behind the first quarter of last year. And really, there's several major factors to that. First of all, paper pricing is increasing, and so there's been a little bit of a margin squeeze from that. But we've also seen higher freight and higher fuel cost that hit margins in the first quarter, and then there was a negative LIFO accounting charge in the quarter that we didn't have last year. So all in all, a better quarter in the first quarter but not where we think the business will run on a more normalized basis. And as I mentioned on our last quarterly call, the business team has been undergoing a strategic review to dramatically improve earnings. And today, we have Mary Laschinger, who is the President of xpedx, with us to share some of those plans. so Mary, I'll turn it over to you.

Thanks, Tim. Good morning, everyone. We're going to use the next few slides to provide an overview of the xpedx profit improvement plan that was mentioned during the fourth quarter earnings call earlier this year. Just a little bit of background. Our Distribution business in North America is comprised primarily of independent paper and packaging distributors that were acquired by International Paper over the last many years. Prior to the 2009 recession, we were making significant progress and achieving the synergies from all of those acquisitions through increasing our sales revenue and, most importantly, improving the bottom line, which is shown on Slide 17. And we were showing great progress towards generating cost-of-capital return. Then the recession hit in 2009, and our sales declined by more than 15%. And demand in our primary segment, Commercial Print, was especially hit hard, and our earnings dropped by about 25%. And so the organization and the business went into aggressively reducing operating costs. And you can see, we started to see improvement in 2010, but we're still performing below expectations and what we believe to be our potential. But this reset in the business in 2009 caused us to initiate a strategic review of the business. So over the last 6 months, we've been conducting that strategy review, and we've confirmed that this business still has significant improvement opportunities. Also, as part of the study, we benchmarked other distribution companies as shown in Slide 18. And the data shows that although our asset turns are best in class, our margins lag. We're pleased with our position in terms of against other packaging and paper distributors, but our goal is to become one of the best among all distributors. The external benchmarking and the internal analysis confirmed that we have potential, significantly, to generate significantly better returns. And therefore, our plans are to accelerate the profit improvement plans that we had started prior to the recession. Our strategy for the business remains the same. We're committed to maintaining our position as the largest supplier to the print segment, and we're going to continue to invest in the higher growth segments of packaging and facility solutions. But to support the strategy and to achieve the step change in earnings, we are going to be focusing our change effort around the 3 key drivers in the Distribution business, which are outlined on Slide 19. We believe by focusing improvements on these key drivers, we can improve our earnings by over $140 million annually. If you look at our Distribution business, what we do is we buy products from mills and manufacturers. We handle these products through our network of warehouses and our delivery truck fleet, and we sell these products to a variety of customers. In order for us to achieve significantly better returns, we've got to be operationally excellent in all 3 of these functions, and that's what our goal is. For example, in the buy function, we have further opportunity to centralize our procurement processes and decision-making so that we can more effectively leverage our size and scale and, most importantly, provide a consistent product and service offering to our customers. For example, today in our Packaging segment, we have about 150 tape suppliers and over 1,200 SKUs. By rationalizing the number of suppliers to a few strategic suppliers and reducing the total number of SKUs, we have the opportunity to improve our asset turns and improve our margins. In the handle function, we manage and operate over 100 warehouses across North America. We have further opportunity to optimize our warehouse network and inventory around our customer demand, which will allow us to streamline our operations with fewer, more efficient facilities. For example, we recently announced our plan to consolidate 3 facilities in the Salt Lake City area to one larger, more efficient facility, which will be centrally located to support our customer needs. We are also in the process of implementing world-class warehouse management systems and fleet routing and tracking systems. With all of these initiatives, we have the ability to further reduce our operating costs and improve service to our customers. It is our intent to continue to service all of the geographic markets that we currently serve. Finally, in our selling function, we have opportunities to increase productivity of our sales force and invest in additional field marketing capability for the higher growth Packaging and facility solutions segments. For us to achieve the $140 million of earnings improvement, we're going to incur about $100 million of net cash costs over about a 3-year time period. We're very confident in our ability to implement the plan and improving the earnings and, most importantly, generate greater than cost-of-capital return over the next 3 years. So with that, Tim, I'll turn it back to you.

Thanks, Mary. Let me turn to Ilim and talk about what was a great quarter. Again, this is Ilim's fourth quarter, our first quarter, because we report on a one-quarter lag, but -- volume was up slightly, price was essentially flat on Pulp and operations had a record quarter. So all in all, Ilim turned in the result we expected, and we expect that result to continue to improve as we go into our second quarter, their first. And just to recap for you, we did -- John mentioned the dividend we received in the first quarter that now brings the total dividends received from Ilim over the history of the joint venture to right at $200 million on a $650 million investment. So if you look at Ilim's results today, and we recorded on an equity accounting basis, but if we were consolidating, Ilim would have the highest return on investment in the company at right at 25% with 30%-plus EBITDA margins. So one last slide before I turn it back over to John, and this is really a summary slide. We look at the transformation plan, which happens 3 or 4 years ago, what we say that, that transformation plan is really working. And if you go back to 2008, we thought we were on pace to have a cost-of-capital year in 2009 before the crisis had. So as we come through 2010 and recover faster than probably what most expectations were, we positioned ourselves in the second half of last year to have a cost-of-capital year in 2011. And in the first quarter, we're in that zone, and we see the momentum continuing. So we expect that in 2011, we'll have the year we expected to have in 2009. And with that, I'll turn it back over to John for the outlook.

Hey, Tim, thanks. I'm going to start the quarter by just repeating what Tim just said. The momentum continues. Despite the input cost headwinds that we got, we got the right businesses in the right places with good discipline and focus execution. And what that's leading to is continued strong earnings per share results, free cash flow and ROI. So I'm now on the chart that shows all the red, yellow and green that is really how we think about the outlook going forward. Near term is more of the same. We're going to get some seasonal volume improvement. That's around the world not just in North America. Some sales pricing improvement. Another solid quarter at Ilim. We got 2 significant changes in the second quarter, one, internal that we managed and that's -- we're going to the second quarter with a lot of outages that were planned as the -- our heavy-outage quarter. So that's going to cost us about $0.11 a share, kind of quarter-over-quarter. And we see more input cost headwinds, specifically transportation. As Tim said, we had $50 million in the first quarter this year versus the fourth quarter. And the second quarter, we don't know how it's going to turn out but it could easily be another $50 million. So with that though, we still expect the second quarter to be solid. We expect good operations. We expect strong cash flow, and we expect good solid return on investment across the International Paper portfolio. And with that, I think we'll -- I'll turn it back to you, Tom, for questions.

Thanks, John. Thanks, Tim and Mary. One personal note, this'll be my final quarterly earnings call as the Head of Investor Relations at IP. I've enjoyed working with the investment community over the last 4 years, and I appreciate your support. I'm turning the IR reins over to a good friend of mine, Glenn Landau. Glenn has been with IP for more than 20 years. He has worked in our U.S. and European Container businesses. He headed up strategic planning for our Forest Products business and for the last 4 years, he's been running our Containerboard and Recycling businesses. I look forward to introducing Glenn to many of you in person. Glenn and Emily and I will be available after the Q&A for follow-up questions. With that, I'll turn the call over to Lori for the first question.

[Operator Instructions] Your first question comes from the line of Chip Dillon of Credit Suisse.

I had a question actually about Ilim. You mentioned how you pulled almost $200 million out of that investment. And could you just remind us how the footprint of Ilim has changed since you made the investment in '07, and I know that's going to continue into '12 with the pulp expansion, and what have their balance sheet changes been?

Well, the footprint, Chip, hasn't changed a whole lot. It's in the process of changing. We did sell an interest in a bleached board mill that we had that was part of Ilim, but the 3 big assets that we purchased, the uncoated free sheet and containerboard facility in the north, northwest to Kotlas, and the 2 Siberian pulp mills, are -- they're still in the portfolio. We built a box plant. That's new. And we're right at, I'd say, the first third of the modernization strategy that was part of the whole acquisition that where there's a project going on at Kotlas in the northwest at a paper machine and a coater. The paper machine was relocated from a mill that IP shut down, Inverurie in the U.K. And then the big pulp modernization and expansion project in Bratsk is underway. So the footprint is in the process of changing. Ilim is funding that capital project through its own balance sheet and through the free cash flow they're generating. So their debt, their balance sheet debt is going up but it's on their balance sheet, and it's well within Ilim's financial capability to service that debt.

And then just a quick follow-up on Consumer Packaging. It's nice to see the bleached board business coming back to levels like we used to see it back in the '80s and '90s, and I've noticed the improvement is mostly in the U.S. I saw that Europe did well, is up as well. But as you look ahead, as you look at the Asian number, which seems to be stuck somewhere in the 10 million per quarter range in terms of it's operating income, how could that improve going forward consistent with what we've seen recently in North America and Europe? Or is it sort of at its potential right now?

Chip, it's Tom Kadien, who oversees the bleached board business around the world, is here. So I'll just let him take that question.

Our business in China, the JV, is essentially sold out. So we're capped on through-put. If you look, we're selling about 200,000, somewhat 220,000 tons a quarter, I think. We were flat year-over-year in terms of output. It's a nonintegrated facility. We have to manage our margins there, and we did a great job recovering our margins in the first quarter after the runoff in pulp prices hit us in the second half of last year. We had about an 11% ROI on the business in the first quarter. If you look at the first half of last year, I think we were at our high point of about 15% ROI. And that's the range that we're going to be in until the new machine starts up, which will be about the fourth quarter of 2012, the next machine.

Got you. And let me just say, thanks to Tom, who, I think, has been terrific in helping us understand your company better. Congratulations, Tom.

Your next question comes from the line of Richard Skidmore of Goldman Sachs. Richard Skidmore - Goldman Sachs Group Inc.: John, just wanted to spend maybe just a minute on Containerboard, and how you see your inventories trending through the quarter given the amount of maintenance downtime that you're expecting to take?

Yes, Rick. This is Carol, I'll take that question. Clearly as you can see, we have a very big outage quarter coming in the second quarter. And then that will be combined with what we'll see as the seasonal uptick in box demand mainly driven by the seasonality of agriculture, of which is a significant part of our portfolio. So the expectation for us is that our inventories will come down due to that imbalance through the quarter. We entered the quarter at about where we need to be. I'm hopeful that the challenge will be for us, if there's an uptick in demand, that will create a challenge, but that will be fine. We'll manage through that. So that's the phenomenon that we're going to face as we go through the second quarter.

And Rick, our inventories are down 30,000 tons in March compared to February and also down compared to the end of last year. Richard Skidmore - Goldman Sachs Group Inc.: And then just sticking with Containerboard. On Slide 11, you showed the slide where your prices on boxes were $91 Q1 '11 versus Q1 '10. How do you reconcile that with pulp and paper weight showed if you look at -- that you had pulp and paper weight prices up, up essentially $110 over that time period?

Rick, this is Carol again. That's a great question. What we have to remember is these are quarterly averages. And so as you recall, prices were rising through the first quarter of last year. So we could average those. If you go from -- if I extract the data on a monthly basis, the high point -- from the low point to the high point on box pricing, for us, is about $107 a ton. So you have to just take that in consideration. That's a quarterly average.

We think -- Rick, this is Tim. We felt like we got the full increase. Richard Skidmore - Goldman Sachs Group Inc.: And then just one last question, John, if I might, just on the India acquisition. Can you just talk about that business a little bit more and how you see that impacting 2011 and sort of your strategy within India given that recent acquisition?

Well, we don't know how it's going to impact 2011 because we haven't closed on it yet, and we don't know when we're going to close. But we expect we will close at some point in time during the year. I'll let Tom Kadien talk to that, because he's the one who spent all the time in India over the last year, getting us to the point where we said we're ready to go.

Right now, we're in a 90-day approval period, where we have to get approval of both the Bank of India and Security Exchange Bureau of India (sic) [Securities and Exchange Board of India]. We expect that will end around the end of June. So we're hopeful to close. We've got no indication of any issues, so it could close early third quarter. The first phase for us is really to optimize the assets that are on the ground. We think that we can get about 20% productivity improvement out of the existing pulp mill and paper machines that are at the 2 locations, and we think we can do that inside of 2 years with really no capital. After that, sort of what I would call Phase 2, 2 years down the road, we'll be looking at expansion projects as we have when we got into other emerging markets. So I think it'll be incrementally positive. The business has got good EBITDA margins right now, 23%, and we think we can improve on that the next year or 2.

I'd say, we'll talk more about India once we had the business closed. But this looks to us like Poland looked with Kwidzyn, like Ilim looked, very attractive opportunities to build out what's there in a market that's got a lot of growth ahead of it, both in paper and packaging.

The next question comes from the line of Mark Weintraub of Buckingham research. Mark Weintraub - Buckingham Research Group, Inc.: Thank you, and thank you for that presentation on xpedx. I thought it was really clear. There are a couple of follow-up questions I did have. One is the $140 million, can you give us a sense of timing on when you're hoping to see that improvement flow to the bottom line. And if it's possible, perhaps, to give us a sense as to which of the buckets would it come from, if it's the buy, the handle, the sell, or how you might think about from a kind of bottoms-up perspective to how to get to the $140 million? That'd be a great start.

Mark, Mary Laschinger. First of all, in terms of the timing of the $140 million, we would begin to see those benefits impact the business as early as next year and would hope to see the full benefit within a 3-year time period. In terms of where those benefits come from, from the key levers of the business. They're across the board on all 3 of those, and they're fairly well equally weighted. Mark Weintraub - Buckingham Research Group, Inc.: And then just shifting gears. In the Containerboard business, you mentioned you had taken about 100,000 tons of market-related downtime primarily, I guess, weather related, et cetera. Order of -- wouldn't that cost like $25 million or $30 million? So is that a partial offset to the step-up in the maintenance downtime we'll see in the second quarter?

Mark, this is Carol again. I would say that your number's a little high. If you think about it from an unabsorbed fixed cost perspective, it would probably be in the -- probably $12 million range. And then in addition to that, one of the things that we've gotten pretty good at is we actually like our flexibility. Our ability to match our supply to our demand, where that used to be kind of a big headwind, now we're pretty good. So we optimize the system, optimizing low-cost fiber. So I don't think we had much of a consumption penalty with that downtime.

But, Mark, since that comes up pretty quickly, and we planned outages well and ahead to schedule contractors in, we can do a little work. But we can't do the outage work when we have market-related downtime, because we're doing that on the fly, not planning ahead for it. Mark Weintraub - Buckingham Research Group, Inc.: I understand that $12 million for the unabsorbed fixed -- presumably, though, perhaps you were then you using the fact that you'll have more tonnage to make profits on. You'd throw that into the seasonality bucket and that will also be a partial offset to the maintenance downtime, is that the way that you're thinking of it? I just want to make sure that I'm not undercounting the kind of offset to the maintenance downtime.

Yes, I think the big offset that we would see, for ourselves, will be the seasonal uptick in volume. So we will see a stronger second quarter on volume than the first, and that's the lever that we've got to offset the increase in costs due to the outages.

And you've got the uncertainty of what input costs are going to do, Mark. That's a bit of a wild card at this point.

But they're probably headed up. And if the wild card is...

The wild card is how much. Mark Weintraub - Buckingham Research Group, Inc.: I think you mentioned $50 million might be a read for the overall company.

Yes. [indiscernible] $50 million -- first to ForEx, [ph] though. It could be another $50 million, first to second.

Your next question comes from the line of George Staphos of the Bank of America-Merrill Lynch.

And, Tom and Glenn, congratulations on the new roles. And you guys do a wonderful job on Investor Relations, so keep it up. I guess the first question I had, and maybe piggybacking off of Mark's question, hopefully not putting too fine a point on this. I mean, at this juncture, given what you can see, would it be unreasonable to expect a sequential drop in 2Q earnings versus 1Q or is it too hard to call that at this juncture?

George, you know we don't give guidance.

I know, but I always try. I will take that and duly note it for next call. Okay, maybe a question for Carol. Carol, as we think about the Industrial Packaging business and the opportunity that you have to improve returns over the next 2 to 3 years, and here I'm thinking mostly about North America, do you see more opportunity within the box business improve returns? Or do you see it more in the way of mill optimization and further integration there? How should we think about that?

George, it's a great question. And my learning from being in this business for the time I've been in it, is it's a large business. And if you want to move the bottom line, you got to have a systemic approach. And in my opinion, it needs to be a fairly broad-based approach, because one thing is not going to move the needle. So we have still opportunity to get better, there's no doubt. We have a very systemic approach on our mills side. We have focus on consumption, fiber, energy, chemicals. We have focus on reliability, which then ends up impacting our spending. And we've got capital projects, which I've referenced in the past, relative to some very high return targeted. We're talking in the million-dollars range, not 50 or 100 by project. Box plant is equally important, and the great part about the box business is you got to play offense and defense. Meaning, you need very good competitive facilities, and so we're focused there on waste productivity throughput. Bricks and mortar. We closed 3 facilities last fourth quarter, because we can get more through the bricks and mortar we have. But simultaneously with that, we've got to be focused on our commercial effectiveness. This is a game that you're selling, and it's a broad-based selling effort. So we've got a lot of effort there around making sure that we sell value, that we price well, that we do the right things there. And then the other thing we've got is supply chain. I mean, we move 10 million tons across the globe. And there's a lot of opportunity to keep getting better and smarter in that, and we are making that, probably the last piece of our Weyerhaeuser, work. We're putting our operating model in the Weyerhaeuser mills right now, and that's going to allow us to really make a step change in how we operate that part. All that said, at the end of the day, the key theme that we've got to do is build low-cost mills for competitive advantage and manage supply to demand. I mean, this business has to be run well from that perspective, and then have a great box system to take it to market. And then as we put in our presentation, leverage our global reach to find the best markets and optimize. So we've got a really great hand to play, and I'm convinced we've got more opportunity to make it better.

And, George, we talked about shifting from integrating the business to optimizing it. As Carol talked about, optimizing a $9-billion business doesn't happen in 12 months. The supply chain capability we're going to have across the mill systems as we go into 2012 is going to enable us to really take another chunk of working capital out because we're going to have less rolling stock moving around the system, because we're going to have much better visibility into how to schedule mills and get the right rolling stock to the right box plants.

John, I realized it's a bit of an oversimplification, but given that you're now at cost of capital or higher return to within Industrial Packaging, and I'm presuming within North America -- perhaps one strategy might be to as you optimize, to also perhaps shrink some of your capacity either in converting or in production so as to preserve and grow the returns from that avenue. What is, in your view, wrong with that thinking, or what are the opportunities down the road perhaps for that to occur?

Well, as Carol said, we're going to match our supply to demand. We made a major shift footprint when we decided to permanently close 2 big facilities, Albany, Oregon and Pineville, Louisiana. The box business is recovering but not fully recovered. I mean, we're going to get back to 2000 levels of box consumption, and I'm talking about the industry now. It's just a question of how many years is it going to take, but that's going to happen. So we're not looking at a business that's got a shrinking demand, and as Tim pointed out, we have -- our strategy is to serve all 3 markets: the independent market in the U.S., the integrated market and the export market. And the global demand for virgin linerboard is growing at 3% a year, where the U.S. is the low-cost producer. And we're the low-cost producer in the U.S. So we're not going to go build another linerboard mill, but we're not looking to shrink the business because we don't see the market shrinking.

Last question, and I'll turn it over. With Augusta, can you remind us what have been some of the issues with that mill in terms of turning around? I think you said you had your first up quarter, I forget exactly how you phrased it, but the comparison was versus 2006. I recall wood fiber being one of the factors, and so if that was the case, would it take so long to turn the mill back to where you'd wanted it to be? Thanks. Good luck on the quarter, guys.

Much more of the wood costs. I think Tom can talk to that.

Yes, it's really -- we under-invested in Augusta for a couple of years, going back 5 years. And it was more about maintenance and reliability of the whole process from the back end through the machines and we've just gotten our process back under control. We've invested more than our usual share of maintenance capital over the last 2 years, and we worked our way from the back end to the machines and have improved for reliability. So we're seeing significantly better quality and throughput, and we don't have the upsets that we're managing from weekend or month in and out. It's all about reliability.

Your next question comes from the line of Mark Connelly of CLSA. Mark Connelly - Credit Agricole Securities (USA) Inc.: Two things. John, Mary gave us a pretty clear rundown of what you're doing within distribution to get that back to where you had it headed before. Can you just walk us through and remind us what the strategic benefits of being in that business are? It's been a long road obviously, but I think that you guys believe pretty deeply in that business and maybe a little more deeply than some of your investors do.

We do. 80% of what xpedx sells, IP makes. They're heavy into the paper merchant channel, and they're heavy in the packaging. And that's International Paper's core business in North America. And the merchant channel happens to be a big channel for paper companies, because a lot of paper gets sold to the merchants. And xpedx happens to be our largest merchant customer, but we have a lot of very good and very strategic independent customers. So we don't run the business on an integrated business, we run it as a standalone profit center. And it's a great window to the market for us around paper and packaging. If xpedx was in the plumbing supplies business, we wouldn't be in it because that's not our core business, but paper and packaging is. And we're figuring out ways also to go joint the market with xpedx and some of the other IP businesses, where we have a capability to do something, having distribution and manufacturing that the competition, just has distribution or just has manufacturing, doesn't have. Now having said that, xpedx has got to earn its cost of capital on its own capital. It's a different kind of business. As Mary said, it's a buy-handle-sell business, not a capital-intensive process business. So the linkage, the strategic linkage is what xpedx sells. Mark Connelly - Credit Agricole Securities (USA) Inc.: Very helpful. And just one more question on container. It seems to me that you not only offset your cost in the quarter, but as I look at the cost themselves, it looked like you managed the input costs a little bit better than some of the competitors did this quarter, too. So I'm wondering if, Carol, if we could just ask you one more time, what specifically were you doing this quarter that you think drove your performance to look so much better?

Well, once again, I would say we had a very good quarter. We did operate well. And I think the fact that, believe it or not, that we possibly had, matching our supply to our demand, we had that downtime. We were able to flex our fiber where we ran. And we backed out some of our highest cost fiber, the OCC and leverage virgin, which was good. We continue to see the modest growth, which was helpful. So I think those are some of the things that we -- we've got a great system. And one of the things we're building in to our mindset and to our operations is flexibility. And so we have operators by control room, Mark, that are focused on how to get gas out of boilers, how to optimum-ly run based upon the demand we've got. So I think that's a real competitive advantage we've got. It's a big system. And if you can get your hands around it, you can really leverage it for benefit.

And commercially, Mark, if you look at our results, I mean, they speak for themselves, we've gotten $90-plus of price improvement in the box business year-over-year, and we're still getting price improvement in the box business through the first quarter. I mean, we've managed -- we're managing the business very well in the commercial side.

Your next question comes from the line of Gail Glazerman of UBS. Gail Glazerman - UBS Investment Bank: I was wondering if we could talk a little bit about underlying demand trends and help us see through some of the seasonal noise that happened in the first quarter and what you're seeing kind of early in the second quarter.

I think we're seeing what we would expect, Gail. Seasonal improvement in the U.S. in the face of -- the GDP number just came out was 1.8%. March feels a whole lot better than January and February, for obvious reasons. And April is feeling like it's the usual kind of April and, call it, at 2% GDP environment. So we're feeling pretty positive about demand in the U.S. but not euphoric. On the paper side -- I mean, the underlying structural issues haven't changed. We just got a recovering economy. I think March was the first month that we had fairly strong paper shipments. So even if we get a couple of months of positive, I mean, year-over-year paper shipments, we still think the underlying demand trends are slightly down. We'll have to see how that plays out. Around the world, it's a different story. I mean, Brazil, paper shipments were up 7% quarter-over-quarter. Our box business, including Turkey, which we do equity accounting, we've since take the volume for our box business. And in Europe, it was up 11% quarter-over-quarter. So those kinds of numbers are indicative of the fact that the world outside North America is growing at pretty healthy rates, and we're in those markets. And that's kind of one of the IP differences. So the bleached board business looks quite solid. That business came back faster than Containerboard. In terms on the demand side, it fell very sharply in the first quarter last year. That was the low watermark, but we're back to sold out with strong backlogs. So it feels like a recovering but not a fully recovered economy in North America. And outside North America, it feels like the rest of the world. Even places like Europe, where we think we really have problems, are showing some pretty good growth for us, especially in packaging. Gail Glazerman - UBS Investment Bank: Okay, thanks. That's helpful perspective. Not to deliver the issue too much, but just going back to the operating issues you might have had because of the weather in the first quarter. Is that separate from the $10 million, $12 million downtime, incremental market downtime that you had? And if so, is that something you could quantify?

I'll let Carol speak to it. But what I was talking about, Gail, was that we had stepped back from the export market's a little bit anticipating higher box shipments in North America, and then weather hit. And so we had to react to -- we had to react with the manufacturing system to what we were experiencing in the market.

Gail, I would add that I think the hit in the quarter from the weather was mainly a volume hit. I think we managed the cost side of that extremely well. And it didn't hit on mills other than, as Tim said, little less demand, which we actually, I think, to some respect, took advantage of, and our box business responded very well. So I don't see the weather as a huge cost hit in the quarter. I see it as a volume deduct.

It was more around converting plants in xpedx locations that weren't running because people couldn't get to work or people could get to work customers couldn't take product. It wasn't, as Carol said, impacting the operation of our big mills, which has happened before when we get cold weather. This is more unusual, and it hit the converting plants in the markets where we're shipping to customers.

That said, for those plants that were impacted, there was a headwind there, and they worked very hard to make that back up, so. Gail Glazerman - UBS Investment Bank: Okay, that's helpful. And just going back to the India acquisition. You mentioned the market feels a lot like kind of Poland and Russia when you went in. I know you are acquiring some plantations with those assets, but Poland and Russia actually has a pretty good fiber base for your operations. I'm just wondering kind of how you view that in India, or is the plantations there something you can build on or not to support growth?

Yes, they are. We're excited about APPM. It is not unique, but it's one of the a few -- not every paper and packaging company in India has plantations that they can get fiber from. And we think the -- to kind of the farmer forestry program that APPM has is a good one and can be expanded.

Gail, just to be clear though. We do not own those fiber plantations. Those are owned by private landowners, about 40,000 of them who grow trees and provide them to APPM. Gail Glazerman - UBS Investment Bank: So you just have contract agreement for the volume then.

And, Gail, I wouldn't characterize Poland as having a great fiber base. Some of the most expensive wood in the world for us. Russia is different story. Gail Glazerman - UBS Investment Bank: And just one last question, just broadly speaking. The dividend is back, say, way above where it is. You're making some acquisitions that is kind of approaching target. Just any update on how you view capital allocation over the next year or 2. I mean, would we expect to see more return to shareholder, more acquisition?

I think you'd expect to see more of the same. We've been balanced, and we said we wanted to be balanced. And so I think if you look at our actions over the past year, you see that balance, and how we're thinking about it has not changed.

Our final question comes from the line of Mark Wilde of Deutsche Bank. Mark Wilde - Deutsche Bank AG: Congratulations, it was a good quarter. I just want to also add my compliment to Tom Cleves. I think he's done an outstanding job. And actually, I think the disclosure that the company is putting out today is just light years ahead of where we were 10 years ago. The questions I had -- first of all, in the Industrial Packaging business, can you just talk a little bit about how the performance is from a profitability standpoint in Europe and in Asia? I think you're not integrated in both of those areas.

I'll start with the Asia piece, Mark, this is Tom Kadien. We're in the middle of integrating the SCA box plants that we acquired less than a year ago. And we're also really focused on pushing our prices as we've had significant OCC pricing increases that flowed through to the recycle containerboard that we buy. We've caught up with the SCA plants. We were breakeven in the quarter but much better than that in the month of March, and we're seeing progress on the acquisitions there. But it's been a tough environment to raise box prices in.

In Europe, Mark, our Industrial Packaging business makes double-digit returns. I mean, if you take the first quarter and annualize it, they were at double-digit ROI. Mark Wilde - Deutsche Bank AG: And then also in the Containerboard business, I'm just curious, maybe from Carol's standpoint, could you envision a scenario where you might look at shutting down some smaller machines here in North America and maybe putting in something that was a larger machine or potentially a machine that gave you the ability to run lighter-weight products?

I think, Mark, we'll always be evaluating our footprint and seeking ideas to unlock more value. And if ideas like that had a stellar return, from an investment perspective, I mean, I think that would definitely be something we'd consider. I'm not sure I've seen the math that would tell me that we're there yet. We don't -- our system is pretty good today, so it's not like we've got some low-hanging fruit to go eliminate the real high-cost inefficient facility. But we will always continue to evaluate our mill footprint to match supply with demand and make it lower cost. Mark Wilde - Deutsche Bank AG: And then just finally on the cost side. I wondered -- have you put in a freight surcharges? And could you just talk with us about any contracts or hedges that you might have in place that might mute some of the cost pressures in the near term?

We really haven't, Mark. It's really difficult to do it on the transportation side. And surcharges, to the extent they exist, are really business specific, business to business. The only place we really have them to a small degree is in xpedx, but it's really very small. So it's an exposure that we pretty much take it as it comes and then look to decrease miles. So our hedge against higher transportation cost is through the supply chain operating model, and we can't offset it all when we have these spikes.

The hedges use less of it. Mark Wilde - Deutsche Bank AG: So what about just contracts, whether it's for chemicals or whatever that might be -- might provide you a little near-term protection?

Well, we, in terms of our contracts, we leverage the size of the company. Mark Wilde - Deutsche Bank AG: As you should.

And so there's not really any hedging out there, from a financial instrument standpoint, but we use the buying power of International Paper globally to look at how we supply inputs and try to maximize that leverage.

Mark, you go across the whole spectrum of commodities and raw materials that we buy, we're not buying everything on a truckload by truckload, railcar by railcar basis. But we're not buying anything on multiyear basis either. So we've got some agreements that re-price every quarter. We've got some that are coming out every month. We've got some that are 6 months. but by and large, we're going to see input cost increases if they're out there. Mark Wilde - Deutsche Bank AG: And then finally, Tim, you mentioned in terms of capital allocation just sort of more the same. One of the things we haven't seen recently is share repurchase activity. Is -- now with the dividend back up at $1.05, is it possible that we'd see a little more focus on that over the next 6 to 12 months?

Well, it's something that we look at, but I think that what we want to do is be balanced in terms of how we return cash to shareowners versus other uses of cash. And we have options around how we do that, so I'll just leave it at that.

I'll now return the call over to Tom Cleves for any closing remarks.

Thanks, Lori. Thanks for joining our call today. And Glenn and Emily and I will be available via telephone for follow-up calls.

Thank you for participating in today's International Paper First Quarter 2011 Earnings Conference Call. You may now disconnect.