International Paper Co (IP) 2008 Q4 法說會逐字稿

Good morning, my name is Amanda and I will be your conference Operator today. At this time I would like to welcome to the fourth quarter and 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions)

I would like like to turn the conference over to Thomas Gestrich Vice President Investor Relations.

Good morning everyone and thanks for joining our fourth quarter and full year earnings conference call. This call is also being web cast. Our key speakers this morning are John Faraci Chairman and Chief Executive Officer and Tim Nicholls Senior Vice President and Chief Financial Officer. During this call we will make forward looking statements that are subject to risks and uncertainties which are outlined on slide two of our presentation.

We will also present certain non-US GAP financial information. A reconciliation of those figures to US GAP financial measures is available at our Web site at internationalpaper.com.Our Web site also contains copies of the fourth quarter 2008 earnings press release and today's presentation slides. I will now turn the call over to John Faraci.

Thanks Tom and good morning everybody, thanks for joining us today.TodayTim Nicholls and I will will review our fourth quarter and full year 2008 results and will talk about the performance of individual businesses and we'll also discuss our first quarter 2009 outlook. Turning to the first slide here, in 2008 was a year of two distinct periods I think for our economy, for certainly for our industry and certainly for International Paper.

During the first 3 quarters of the year business conditions were soft but they were steady. Container board and box buy ins were down slightly from prior year levels, as were uncluttered free sheet shipments. Market downtime was minimal and prices were increasing for key grades. Info costs were also going up however. We offset a portion of these cost increases with selling prices and solid operations, during that period of time.

As we discussed in our third quarter call at the end of October, the world did indeed change. It changed in a hurry and it changed fast. I went back and looked at my notes from that call. I thought we would be shocked at how weak the fourth quarter will be. Well, now the fourth quarter is over and It is not a shock but it is reality. U.S. economic activity contracted significantly and we experienced dramatic declines and demand for market pulp, uncluttered free sheet and corrugated boxes.Our global pulp demand also declined significantly as inventories built and paper and container board prices, continued to rise. But demand fell off sharply. So, given our ongoing commitment to balancing our production with our customers' needs we took one million tons of lack of order down time during the fourth quarter. More than we have ever taken. We took most of it in our container board system which we will show you in a minute. Fortunately input costs also peaked in the fourth quarter and began to decline with prices for energy, OCC, transportation, and wood falling at the end of the year. Some faster than others, but the year really wasn't a tale of two years. Turning to the next slide.

Despite the severe and unfavorable fourth quarter business conditions we posted solid earnings for the full year and record free cash flow. And, as I think we will show you a little bit later we had strong cash flow continuing into the fourth quarter, but for the full-year it was an all time record for International Paper. Our 2008 sales increased 13% to almost $25 billion. EBITDA increased 8% to $3 billion. And 2008 free cash flow increased by a billion dollars or 160%. Fourth quarter earnings were $0.21 a chair. a share, a 70% decrease from fourth quarter 2007, but despite this year-end decrease full-year earnings were just about a little over $2, a decrease of 9% from 2007 and the second-best year we have had since 2000.

The chart on slide 6 shows the increase of our earnings per share since 2005. I think it is pretty clear we have made significant progress in increasing our earnings but the important point I want to highlight here is that I think we have also made a lot of progress in improving the quality of those earnings. In 2005 more than half our earnings were from forest resources sales including land sales. over the four-year period the percentage of earnings from forest resources has decreased steadily. In 2008 it was less than 25% of our operating profit. That included the large gas sale that we did in the fourth quarter.

Turning to input cost, input costs are still a big issue for the full-year although they were declining at the end of the year, input costs were up over $800 million. A $1.38 per share higher than 2007. Both chemical and energy prices increased by more than a quarter of a billion dollars and we also experienced record increases in fiber and freight costs. And as I said fortunately the costs for nearly all these inputs began to decrease, some substantially during the fourth quarter. So this next slide here is -- got a lot of information on it, but it is meant to show you how we've been responding to the economic contraction. I think we got out ahead of this. We didn't start thinking about what to do in September, October, we were meeting in April, seeing that business conditions weren't getting better, none of us thought they were going get as bad as they got but we were putting actions in place then.

We accelerated our efforts starting back in April to reduce our operating and overhead costs generate cash and enhance our liquidity. In each of our manufacturing businesses we reduced our production to meet lower customer demands by taking lack of order down time or making permanent pass decurtailments. You can see on the column in the left there I am not going to read all those capacity curtailments but they have been significant and they culminated at the end of the year in taking a million tons of down time in the fourth quarter. We accelerated our efforts to reduce our overhead expenses resulting in $100 million reduction on a year-over-year basis. That means our overhead costs were down year-over-year and the net (inaudible) of warehouser and since June of 2008 we have eliminated 4400 positions in the company or 5% of our total head count. And we anticipate eliminating another 3,000 positions for a total head count reduction of more than 10% by the end of 2009.

Early in the year we implemented a hiring freeze, and a salary freeze, that will save about $50 million in costs. And, we also have changed our executive compensation plans for 2009, which will result in about a 50% reduction in terms -- up to a 50% reduction in total compensation, to senior executives. In 2008, we have generated more than $300 million in cash from sales of nonstrategic assets. This is in addition to our ongoing land sales. However as I pointed out land sales are becoming a smaller and smaller portion of our earnings and our EBITDA. We also reduced our capital spending by $300 million in 2008. And reduce 2009 spending by another $300 million, to put our capital spending for 2009, at about $700 million. And we can come back and talk about that but I would say at that level we're still able to maintain our facilities in the kind of shape we need to have them if they are going to run well when they are running. We will also preserve another $50 million of cash in 2009 by matching our employee 401(k) contributions with company stock, rather than cash.

And finally, we have extended our accounts receivable securization program which to this point we have drawn nothing on through January of 2010 and we intend to broaden this program in the U.S. and Europe. This bridge chart here and this is the last chart I have before I turn it over to Tim, just quantifies the dimension of our continuing efforts to increase employee productivity, right size our footprint, fewer, bigger, better facilities and to look for all the opportunities around the company to take costs out and show you what is happening on the people side.

Starting on the left in 2000, we had 113,000 employees at International Paper, 37,000 left the company through dispositions and that is net of acquisitions other than warehouser over that period of time. Another 25,000 came out through just ongoing head count reductions so, we came into June of 2008 with 66,000 employees world wide excluding the (inaudible)p joint venture and including warehouser. You know since then, we have reduced our head count by about 4400. So, we ended up the year with 62,000 employees and as I said, another 3,000 to go. So, you know just kind of looking at revenue per employee, it has gone up by 60% during that period of time. And I don't think we're finished. I think International Paper will continue to find ways to get more done with less. So now, I will turn it over to Tim to comment in more detail about the fourth quarter and the full-year results and then we will come back to talk about the first quarter 2009 and take your questions.

Okay, thanks John. Good morning, everyone. Slide 10 contains the bridge between our 2007 earnings at $2.22 per share and 2008 earnings of $2.01 per share. The impact of higher selling prices and improvements in cost mix increase earnings by $1.51, but this was largely offset by $1.38 impact of increased input costs. Improvements in cost and mix added $0.59 to earnings and the impact of volume declines were significant but partially offset by the CBPR volumes. interest expense increased by $0.31 per share and forest earnings decreased by $0.8 per share. On slide 11 you see fourth quarter earnings per share $0.21 versus the $0.69 in fourth quarter of 2007. Fourth quarter earnings for forest products were $0.7 versus $0.28 in 2007.

By the end of the third quarter, the economic conditions in North America had changed dramatically. As John mentioned with demand for liner board boxes, let's go to 3 sheet. Market fall in significant decline. We responded to these rapid changes by cutting production to lower demand levels in order to avoid building excess inventories and accelerated the cost reduction programs that John was mentioning just a few minutes ago.The cash flow remains our top priority. On slide 12, you see that the improvements in price and cost mix increased in the fourth quarter earnings by $0.44 combined. These gains were more than offer set by lower shipment volumes which reduced earnings by $0.27. Higher input costs decreased earnings by $0.30 and higher interest expense decreased earnings by $0.17.

On slide 13, you've got a chart for lack of order down time and I think you can see that we remain committed to matching our production to our customers' needs. In order to maintain this balance lack of order time, down time in 2008 was about 5% of our total global manufacturing capacity, and in the fourth quarter it was approaching 20%. During the fourth quarter, we took 700,000-tons of lack of order down time in the North American container board business. We shut down the number of free machine at our (inaudible) Oklahoma mill indefinitely and also shut down the Number 2 machine at our Albany Oregon mill for an extended period. We also closed five corrugated packaging plants in the fourth quarter and since then we have announced the closure of another four. We took 120,000-tons of market downtime in the North American market pulp business and implemented the permanent shut down of our Louisiana mill. We recorded 130,000-tons of downtime in the North American unfettered 3 sheet business and implemented the permanent shut down of our Number 3 machine in our Franklin Virginia mill and announced the strategic review of the nonintegrated mill in Scotland. .

Now I will turn to the segments on slide 14. Starting with industrial packaging, earnings increased from $109 million to $145 million reflecting the improvements in price and cost mix. The Vicksburg mill business interruption and property assurance proceeds, and the additional earnings from the CBCR assets. And I will just make a note here while we're showing impact of Vicksburg in the fourth quarter,for the full-year, including the insurance recoveries and the disruption to production, the impact of Vicksburg on earnings in 2008 was essentially neutral. Let me turn to synergies on slide 15. In 2008 we achieved $70 million in synergies which was ahead of our $50 million goal. We achieved these savings by shutting down a paper machine and four box plants, optimizing the mill system by reducing head count by 2200 positions. Our synergies goal for 2009 is an incremental $265 million. By the end of 2009, we would have captured $335 million of the synergy target. And, at the moment, we remain very confident that we will exceed the $300 million or $400 million target that we previously discussed.

On slide 16, turn to printing papers, printing papers earnings for the fourth quarter were $113 million. Unfettered 3 sheet earnings of $153 million were reduced by a $40 million loss in market pulp. Input costs increases -- increased by $79 million. And lower shipment volumes decreased earnings by $82 million. Selling price increases improved earnings by $62 million and cost mix improvements increased earnings by $58 million. Turning to consumer packaging, earnings declined to $1 million. Higher selling prices contributed $32 million, but were more than offset by $37 million in increased input costs and $6 million in reduced volume. Improvements in cost mix added $14 million to earnings while other items including a $12 million revaluation of pulp inventories at our sun joint venture reduce earnings by $17 million. On slide 18, -- year-over-year ERPBGS declined 7% at 26 million. Fourth quarter sales revenues dropped by 5% to $1.9 billion reflecting a significant slow down in demand for printing papers and packaging supplies that were really offset by growth in our national accounts sales to the significant portion.

We continue to focus on reducing operating costs by combining facilities, shutting down 10 unprofitable retail paper stores and eliminating nearly 100 positions in the quarter. And in 2008 we eliminated a net number of 275 positions, which will save us approximately $17 million on an annual basis. Forest products earnings on the next slide were down $38 million down from $171 million in the fourth quarter of 2007. We sold 30,000 acres in the fourth quarter, and an average price of $2,100 per acre. And at the end of 2008 we have -- we had about 200,000 acres remaining in our land portfolio with an estimated value of up to about $300 million. Sales at our joint venture were flat relative to the prior quarter. Earnings declined by $5 million reflecting the decline in pulp and paper selling prices. In the fourth quarter, received a $62 million cash dividend from the (inaudible) joint venture.

Now turn to capital expenditures. In 2008, we reduced our total capital spending by $300 million and in 2009 we will reduce capital spending by another $300 million. to be at $700 million for the year. 80% of the CapEx in 2009 will be for maintenance regulatory and cost reduction. The remaining 20% is really for the completion of strategic projects that started in 2008. Turning to cash flow, in 2009, cash generated by continuing operations the $2.7 billion or 35% increase from 2007, despite the economy in the fourth quarter, we actually generated $500 million in free cash flow during the quarter and for the full year our free cash flow increased to $1.7 billion or about 2-and-a-half times the '07 levels and all time record for international paper.

Turning to liquidity, the strong free cash flow enhanced our liquidity position, at year end we had $3.6 billion in cash and committed backup facility. As John mentioned last week we renewed our $1 billion accounts receivable securitization program, primarily intended to increase the size of the program over time to -- to take account of the warehouser receivables and we're currently looking at establishing a receivables facility in Europe as well. Debt maturities on slide 24 shows our near-term maturities by quarter. 2009 maturities are roughly equal to the cash we had on hand at the start of the year and this month, mid-month we retired first quarter debt of $362 million using cash on hand and we're currently in very active discussions with our key relationship bank to renew the EURO loan that expires in the third quarter of this year. On slide 25, you see that we have already reduced our debt levels on a pro forma basis from -- by about a billion dollars within the first six months of the warehouser packaging acquisition. At the time of the acquisition we committed to paying down at least a billion-and-a-half to $2 billion within two years and we remain committed to paying down at least an additional $500 million to a billion within the next 18 months.

Now a few comments on the pension plan. In 2008, market value of our plan assets declined by 23%. $6.1 billion. And at the -- at year end our pension benefit obligation was $9.3 billion. But because of our -- because in 2008 our funded level exceeded 100%, we made -- in fact we made a $1 billion voluntary contribution to the plan in 2006, we have a credit balance and therefore will not be required to make any cash contributions to our pension plan in 2009. And in the appendix of today's presentation, there is more information about pension expense, for 2009. During the fourth quarter on slide 27 we performed our annual good will review. And our initial analysis indicated that we had a good will impairment in our coated paper board and printing and communications businesses. We looked at the coated paper business and had recent valuation work that was performed in 2006 that we were able to -- to use and we have determined that the full amount of the good will will be impaired and booked in the fourth quarter of 2008 for a total charge of $438 million.

We're now in the process of conducting a similar review for our printing and communications papers business, and that review will be completed by the end of the first quarter. And it could result in an additional impairment charge of up to $1.3 billion. Finally on slide 28, we had a summary of our special items for the fourth quarter. They do include the good will impairments that I just mentioned. Shut down cost charges for overhead reduction efforts, and one time acquisition costs related to the CBCR acquisition. So with that I will turn it back over to John, for our first quarter outlook

Yes, thanks Tim. Let me just take a minute here before we go to your questions and talk about the quarter. Looking looking ahead to the first quarter with respect to selling prices we expect free sheet and container board to be under some pressure as a result of what is going on in the demand side. However, I would say inventories are in very good shape and we're pretty pleased with how we came out of the year, in terms of pricing. We expect market price -- market pulp prices to continue to be weak because, you know, inventories as everybody knows, global inventories are out of balance. Until those get back into balance it is likely that prices aren't going to cover. Our bleach board prices are expected to increase and that reflects the implementation of renegotiated contracts. Those increases are already in place. Through the renegotiating of those contracts which have been completed.

On the volume side we expect U.S. and European demand to be similar to fourth quarter levels. It was weaker in North America than it was in Europe but we expect both to kind of stay at about the same level. We may see some improvement in demand January shipments indicates that December may have been the low point but I would say think about the fourth quarter. December was certainly the weakest month of the fourth quarter for us. We also expect uncut free sheet demand in Brazil to be seasonably weaker as typically is this time of year. Global demand for market pulp is expected to be again at about fourth quarter levels at very low pricing. Demand for industrial and consumer packaging, and that's here in North America is expected to be about the same as the fourth quarter demand from what we can see. We're going to continue to match our production to customer demand. We do expect overall input costs to continue to decline. In some cases like OCC they may not be able to decline much more because they are already down to about a collection levels. Collection cost levels.

We do expect energy prices, though, in Europe on -- and in Brazil to increase but you know by and large, I think we will get some more tail wind, a little more cushion on the input cost side, in the first quarter, relative to the fourth quarter. You know, our first quarter earnings in North America are going to reflect an increase in maintenance added costs in North America. And while average costs in Europe and Brazil remain flat, thats probably good news because if we're going to take outages we might as well take them at a point in time when demand is pretty weak and that is first quarter. So, overall we expect earnings in our operating businesses that -- that excluding forest resources, to be less than fourth quarter earnings. Now how much less is a good question. I think that's -- that's one that is almost impossible to answer because it will be a function of the down time we take, the pricing we see, input costs and -- and more significantly, just what demand levels are. Equity earnings from our ELLUM joint venture will also be less than our fourth quarter earnings primarily due to weaker demand and reduced selling prices because most of that product is going to China and its market pulp and you will have an unfavorable foreign exchange impact.

So in summary I would say, everything is -- in 2009 look a little hard to call right now even including the first quarter so we're going to take it one step at a time. But, I would say 2008 was the years of significant volatile and contracting forces. You know we absorbed unprecedented input costs head winds and then when input costs started to subside, we were hit with severe demand declines near year-end and I think managed those very well. You know, despite those significant unfavorable factors we generated record free cash flow in international paper. And I am also pleased with the rapid and efficient integration of Warehousers' packaging assets into our industrial packaging business. That has gone very, very smoothly, and as Tim said we're getting more merger benefits faster and the organization is functioning as one organization. And I was out visiting some of our box plants, new box plants and customers last week in southern California and very pleased with what I saw.

So -- you know, one other thing I just want to comment on before we go to question -- question-and-answer session. We decided to postpone our investor day that we had scheduled for February until June 9, when we scheduled that investor day, the primary purpose and that was right after the warehouser acquisition was to talk about the warehouser acquisition, and the world has changed since then and I think if you would like to hear us talk about warehouser but you would also like to hear us talk about all of international paper so we're going to do that at later date and we will be talking about both those topics.

So let me just wrap up and say, you know, the year was a tough year, but it was a record year for us on a cash-flow basis. And the really important point I want to emphasize is we generated $500 million in free cash flow in the fourth quarter, and that was the toughest quarter that we had from a demand standpoint. I think we dealt with record input cost inflations and a severe demand in decline in the fourth quarter, there were strong earnings, head winds, we did a lot and have to solidify our liquidity and go into this tough downturn in very solid shape. And I am convinced we're going to come out of it in solid shape as well whenever that happens and it will happen its just matter of time. So let me -- stop right there and turn it back to you, Tom, and start the question-and-answer period.

Thanks John and thank you Tim we're ready for our first question please.

(Operator Instructions) Your first question is from Claudia Hueston with JPMorgan.

Good morning,. Thank you, very much. How are you? Just a couple of questions. One free cash flow was obviously stronger than we expected in 2008 and I think working capital is a lot better as well. I just wondered, you know, how much more can you get out of working capital and how you're thinking about that for 2009?

I think we have got a big -- a big apple to pick on working capital side with the warehouser acquisition. It -- it really didn't have any impact on the 2008 results, Claudia, so -- that is -- that is real opportunity for us, probably a couple hundred million dollars there. In addition to working on the -- on the other side of the equation which was the rest of international paper.

Okay. Thanks. And -- then -- just with your guidance around corporate items, for 2009, I think you said in the appendix it says $250 million. Can you just maybe break out what is pension allocation and then maybe what of the pension goes into the segments and then, what else might be driving corporate costs higher if there is anything else there?

Yes, most of it is -- related. The only thing we allocate out to the businesses on the pension side Claudia are the service costs and we choose to take everything else and keep it at corporate.

Okay. So most of the year-over-year increase in corporate is because of the pension then?

Essentially all of it.

Okay. And then just on the consumer packaging business --

That is all noncash as well.

Yes.. Just on the consumer packaging piece, was most of the weakness in that business then the result of this pulp inventory adjustment you made in Asia or was there something else going on there. That.

Was a big piece of it Claudia. It was about $12 million of impact for the revaluation of the inventories in the joint venture.

Okay and what else are you seeing in that business just in general.

Yes, I will take that -- Claudia, you really need to buy the economy in China in two pieces. Part of the economy that is exporter oriented, shipping product out of China, a lot of it coming to North America. And the part that is serving the Chinese domestic market, the export piece has softened a lot more than the more domestic piece. Most of our business is on the domestic side. We don't do a lot of export oriented business. And Sun almost all that is sold into the domestic market. So the issue there is, we got additional capacity now, and the -- the market has slowed, as GDP growth has gone from 12 to 6. For China they call that a recession. You know we will like positive 6% GDP growth anywhere else in the world right now so I guess the bottom line is the market slowed, the export market slowed more than the domestic market and most of our packaging business there, when I say "most of it" more than 50% of it is for the domestic market.

Okay. Then what are you seeing in your U.S. consumer business?

It is better than -- on the board side, it is better that container board and printing papers. It is down 3% which I guess on a relative basis feels pretty good. And then it depends on the segment. You know, food service had been pretty strong. The tobacco has been weak as customers really move from North America to off shore. Home entertainment, you know, was actually okay in -- we're all over the map on the consumer side. Golf balls have been weak. Hair coloring had been strong. Stronger. So --

Okay.

So a lot of that goes into the food segment. It has held up better than -- than container board. Frankly if you look at the container board and -- business or box business segment, on the food side it had been okay. You know, it had been -- the durables side that had been the weakest and it had been very, very weak.

Okay. Thanks a lot. .

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

Hi everyone. Congratulations on the cash flow. Very good performance guys.

I guess at the end of the day that's all that matters?

Ultimately, that's right. Now, in terms of matters at hand, I mean the ELLUM dividend of $60 million, could you remind us what was behind that and is there possibility of getting more cash from ELLUM over the next year or two?

I think there will be. But it will depend on the performance of the business and factors for the markets they serve, George, so -- you know, we take that as it comes. We look at dividends pretty much on an annual basis, so $62 million in the fourth quarter of this year, and just, you know, probably the third or fourth quarter of '09 before it is revisited.

The joint venture agreement provides for annual dividends of payments that are obviously a function of the board -- side to make those payments. The joint venture has that in there and then of course you recall that ELLUM sold a business late last year and that generated a good chunk of cash and much of that was kept in the business and they could decide to dividend some of that out at later date or to dividend some of that out at later date or not.

And a lot of unpredictable here. Synergy from warehouser, though, seems to be going well for you and I guess I am wondering why that might not be enough to at least keep your operations earnings, ex forest products flat. Is it just a function of volume but now absorbing that synergy gain that you're getting out of warehouser?

That's exactly right, George. There are so many moving parts if you just look at any one and say this is a plus then everything else holds constant, you can talk yourself into saying Yes, operating profits could be up. Input costs come down, with -- input costs come down, more merger benefits, you know we do have some cash coming in from Vickingburg in the fourth quarter about $30 million. But at the end of the day if January and February turn out to be more like December than October it will offset all that stuff and maybe more.

Okay. Fair enough. In terms of -- again, cash flow and there being, you know, lots of unpredictable items. Obviously you focused on the right things but with the trend that we're seeing with higher interest expense is it possible that first quarter earnings could be closer to break even than the current run ate rate that you saw in the fourth quarter?

I am just not going to make a forecast, George. As you know we don't give guidance and -- we don't give forecasts so --

Okay. Understand. And then the last one I will turn it over. Tim, in terms of pension funding, again, I realize a lot of this will be predictive, driven by, I should say, the returns you will see this year in the equity markets and I'm not sure anyone can predict that right now. But, if you hit your expected return in 2010, or 2009, what kind of funding would you have in 2010 or would you have credit still built up that would push off any refunding requirement. Thanks guys.

Thanks George. On the fence front in -- pension front there are a lot of moving pieces there too as you know in terms laugh we choose to do with the sales or the credit balance. I don't want to speculate on what might happen in 2010. I think the important point for 2009 that is we're not required to make a cash contribution. We will have to see where we are this time next year.

Yes, I would add to that. I was in Washington yesterday on the hill and you know I wouldn't be surprised to see some pension -- funding relief legislation come up before the end of the year and get passed.

Yes..

So I think there is another piece that is just in static world, what happens, The world isn't static but acquisition changes that will provide longer ramp period to deal with what we think are one-time events.

I think that would give -- make a lot of sense given how pro cyclical it can be but we'll leave that to the side for now . All right guys, thanks very much, I'll turn

Your next question is from Richard Skidmore with Goldman Sachs.

Good Morning, just a couple questions. First John across the businesses you mentioned that maybe January might be kind of flatish with December on demand. Could you just elaborate a little bit more about what you're seeing on the demand front in January? Specifically in corrugated.

I just happen to have bill Holt here who runs our box business. Maybe I will let him talk about what he sees going on in January.

In comparison to December, January volumes are stronger than December but we all have to remember that the holidays in the last couple of weeks of December had a significant impact on shipments. But we're seeing that December may have been close to a bottoming out period for us. And it is slightly stronger going into January and February here.

You know what we had going on there, Rick, is -- I mean -- not "we" but I think was an inventory correction. If you look at what was going on in December I think you're going to having demand falling in excess of the underlying demand levels that people work off inventories everywhere and you know try to manage tighter for cash. So as we get to the end of the quarter, whatever that inventory liquidation was it will be complete and we will have a better picture of what our underlying demand looks like. But it isn't news to hear that the box business was a little better than it was in December and I think the same is true in printing paper shipments.

And then just a couple -- one clarification and another question, just Vicksburg, did it run full in the quarter plus you had $33 million or Vicksburg started up in November and then had you $33 million of insurance recovery. And then the second question, given where demand is now do you see any need to permanently close any additional capacity or do you feel like it is just a cyclical downturn destocking we're in and things get back to more normal as we move through the year or 2010. .

Well, the $33 million to answer your question, roughly $30 million we talked about at Vicksburg that was insurance proceeds. Vicksburg did run in the quarter, nothing -- nothing ran full that I -- that I can see in industrial packaging. We are -- were -- everything was up and down during the quarter because we took 700,000-tons plus of down time. In terms of the footprint going forward that's an issue we're going to deal with and I think, what you see as International Paper is willing to make the tough calls whether it is down time because we think that the economics right for International Paper or permanently on the footprint side we will do that so if we feel we need to take down a facility to match our footprint to what we think ongoing underlying demand is, we will do that.

Thank you,.

Your next question comes from Christopher [Chun] with Deutsche bank.

Thanks. Good morning guys. Was just wondering if you could give us some guidance about what is going to happen in 1Q in terms of nonoperating items. It seems likely that pension expense will go up but I am wondering what might happen with other corporate items and also what might happen in terms of land sales.

Yes, well, Chris you know we don't forecast. I think we spotted the pension number and obviously pension expense will be up for the full year so it will have its impact in the quarter. Land sales I think, you know, given this market and the at of volatility and uncertainty there were's just -- you know, we're not making forecasts. And we didn't last year either, quarter by quarter. We're taking it as it comes. .

and in the thick of it, we're at the tale of land sales. That is winding down.. That is not a needle moving number at international paper going forwards.

Okay. How about in terms of FX. Can you give us an idea of what the impact was in 4Q and what might happen in 1Q if rates stay where they are today.

Quarter per quarter is about a $20 million negative. You know at this moment, if I -- you know, I have no way of forecasting what is going to happen in the first quarter -- with currency but, we have seen some negative impacts in our European businesses offset by positives in Brazil.

Okay and my last question just has to do with what is going on with (inaudible) I see in your appendix that you finally turned it down a little bit in the last month. Do you see that continuing in January?

Yes, I don't think it will move -- you know dramatically in any kind of big way but it did as you noted turn down a little we will have to see how it place out in the first quarter.

You have to think about [costic] as a classic example of demand. There is not much costic getting made because it is a by product of ethylene. A lot of that goes into PVC pipe and things housing related. If not much of it is getting made even though demand is way off, pricing is going to hold.

Okay, thanks for your help, guys.

Your next question comes from Gail Glazerman with UBS.

Hi, Gail.

Just wanted to check looking at happened with share holders equity by year end that you're looking out for further impairments. Would those have any impact on any of your debt covenants.

If it is a good will impairment no because we have an exclusion in the calculation for good will, Gail. The other big items that we had were the pensions, charge to OCI, and we had pretty significant move in our currency translation account. But even the pension piece is excluded from the calculation so no, we don't see any issues with the covenant.

Okay and maybe falling on the questions of costs (inaudible) looking at the similar chart on wood costs, those have come down. Would you expect that momentum to continue or that is -- or is what you saw kind of towards the end of the quarter as good as it gets.

What is happening Gail, is the fuel sur charges are coming off in transportation is probably a third of our delivered wood costs. So the transportation piece is coming down. The residual side from sawmills is getting worse. So, you know, we're -- our residual supply is continuing to shrink which means we have to replace that with round wood which means you ever to go more miles to get it but the costs for miles coming down. Obviously with the fall off in demand there is less wood getting consumed by everybody. That is putting more supply in the market. So I think we -- we're not going to see the fall off in wood we saw in OCC but I think gradually were -- we see wood costs come down unless we have a weather event. But it is -- it is pretty well connected to energy, though, too, because of those fuel surchargess which have gone away.

Okay. And I guess this is the last question. We're getting closer to the start up of the new machine in Brazil. And I was just wondering if you could remind us of timing or anything we need to think about in terms of startup costs in the next quarter or two.

Timing is probably the end of February, middle of the end of February. You know, it is a small machine. It is just a paper machine, not a -- not a full blown pulp mill. We're getting the pulp from VCP remember. We're railroad running the converting equipment. We have a good plan in place. You know we have the [Invery] mill in Europe under strategic review. That will be finalized fairly soon. I think we have a good allocation plan for that volume, both in Latin America, where we're going to sell most of it and that market is still growing, and around the world. So I -- I wouldn't think there would be -- not going to be a big chunk of start up costs on that machine. -- material to oh -- International Paper.

Okay thank you,. .

your next question is from Peter Ruschmeier with Barclays capital.

Thank you, Good morning,. On slide 34 you provide some of your price realizations for the quarter. And I was curious, I didn't see it in the slide deck. I was curious if you could help us with the December price or better yet the January price how that compares versus. the fourth quarter averages.

Hey, Pete, well, we don't talk about price going forward. Did you -- and really I don't think we talked about them on a period-by-period basis so I'm not sure how much help I can be to you but you know we did see price move up, from quarter to quarterback and certainly over the last year.

We felt pretty good, Pete. I was just looking at the month by month numbers. We didn't have much price slippage frankly at all in industrial packaging and printing papers during the quarter.

Okay.

I would say the exit price is close to the entry price. But I suspect there will be some price leakage in the -- in the first quarter, given that, where demand is. But inventories are also in good shape so that's a big plus.

Okay. And I had a similar question on waste paper. I got to believe you're down very, very sharply. Can you share the exit price relative to your average that you paid?

That would be the exit price -- in OCC in December was lower than the average price. I just don't have the numbers there but it was lower.

Okay. Okay. But I assume that you're tracking the indexes pretty closely that is fair?

Yes. Yes..

Okay. I am sure I can figure that out. Maybe a question for Tim. On the depreciation amortization for the quarter it was a little lower than I expected. In light of, you know, the first full quarter of Warehousers containerware business I was just curious if you could share with us any ajustments or considerations in the DNA line.

Not really. You're seeing partial -- partial year impact. We're estimating the DNA will be about $1.6 billion for 2009, full year.

Okay. All right. And then just lastly, John, I am just curious on you know if you could elaborate priorities for precash flow at this time and in particular I am you know curious about the dividend which you know, not sure it necessarily a priority, in periods of uncertainty but can you comment on your priorities there?

Well, let me jump in, Pete. Top priority is debt reduction, and I think we have all -- outlined our commitment to taking down the current debt levels over the next 18 months. Regards to the dividend we generated $500 million in free cash flow in the fourth quarter. We announced the dividend for the first quarter and at this point, you know it -- we will take all of these things quarter by quarter so I -- I wouldn't want to speculate on -- on any of the actions that we might take. We're looking at looking at our position and we feel we came out at the end of last year in a pretty strong condition all things considered. That is an answer the CEO and CFO are totally in synch on.

Okay, great, thank you, very much.

Your next question is from Mark Weintraub with Buckingham Research.

Thank you,. Just following up on the dividend question. Even if it is not a question as to whether or not you can meet the dividend or not, I guess the question would be is it the preferred use of cash, if the market doesn't seem to be giving you a lot of credit for your dividend. I think at this point you -- in fact the highest yielding, dividend yielding stock in the group which is certainly quite unusual. And might you think it makes more sense if you have cash available to be buying back stock as opposed to using it to pay the dividend.

That's a fair question mark and I think you know Tim's answer to the prior question is the way to think about it. You know we're taking it one quarter at a time and having those discussions internally and with our board frequently. But it is a good question.

And then, totally different topic. I -- curious to hear some of the comments you were making on December business. I -- particularly in the corrugated business. Couple of your competitors had talked about how December for them had been better than November. And it sounded like from a demand perspective that was not your experience and was hoping to get first, a little bit more specificity if possible, and then second, recognizing that you're seeing January is getting better and so this may become a moot issue but, do you think that -- are you feeling any additional pressures -- due to either the warehouser integration process, certainly when the Smurfet Stone transaction took place several years back, there was a lot of lost business that they experienced. And/or maybe perhaps relatedly, your -- go-to-market strategy, et cetera, do you think that is having any disproportionate hit on your box demand?

I will let bill answer that since, mark, since he's closest to it.

I am not sure what the other players in the industry had for their experience. What we saw was really three things at the tail end of the year that impacted our volume. We had some plant closure, both Warehouser implemented closures before the acquisition, and we announced three in the early part of the quarter. And so there is some impact Frank that. We also have a mix that may be slightly more heavily weighted towards durable, building materials, and distribution. On -- all three of those segments will some inventory corrections of course in December, more than others. And building materials was way off. And then we did shed -- we did shed some business, both warehouser prior to the acquisition and then combined afterwards. We did shed some business that wasn't a good fit for International Paper. So, we may have been impacted more than the average of the industry.

You know I would say on the integration side, the ability of IP and Warehouser to put their businesses together very quickly and to do it well was -- without losing focus on the external market had been superb. I can't comment on what happened when Smurfet and Stone came together but I have seen a lot acquisitions in International Paper and this one had been the smoothest and the fastest by far in terms of integration. .

and great. Would it also be fair to say that it looks given way you reacted on the mill side that despite the weakness in the demand, you probably were actually bringing inventories down during December? Would that be -- and was that significant?

Yes. Mark, we did, for the quarter, we brought them down by 60, 70,000-tons.

Okay. Great. Appreciate it. .

Yes. .

your final question comes from Joseph Reiger with John Tumazos.

Good morning,. It is John. So far this week in some other sectors, Newmont Mining and Century Aluminum have raised about $2 billion in equity, [Extrada] filed for $500 billion or $600 billion rights issue this morning in London and Freeport [MacMoran] filed Monday morning for at least $750 million before equity. All of these companies have businesses I guess that can be tougher than paper business right now, except for gold, but -- they want to pay down debt and fund their losses. Given the -- the growth that you enjoyed, with Warehouser last year do you think that your equity would be a reasonable way to delever in the current period of uncertainty and just as an aside I am a shareholder and I like your dividend.

I guess, John, is the way to answer that question is, you know, anything can be on the table in today's environment. And I wouldn't want to -- at this point in time, speculate on what we might do down the road. But at this point in time, we think -- what we outlined to you is -- is appropriate for the circumstances we're in and if the circumstances change, you know we will look at other options. And you know there certainly are lots of options that we have. We have got more operational options with warehouser and we have lots of financial options. I think the important thing is we went into this with a pretty strong -- strong position on the cash flow side, on the cash balance side, and I guess -- just wrapping up, since that was the last question, you know listening to the conference call it is hard for all of us to kind of get -- to think any time longer term than next quarter and not be more pessimistic than we were last quarter but I was in, you know, Washington agreed yesterday. Nessu, you know, there is going stimulus package that will be passed. It probably won't be perfect but I think it is going to help the economy. I think the new administration is going to do everything they can to unfreeze the credit markets. It won't happen overnight but I think they will thaw. And at the end of the day there is a light at the end of the tunnel and it is not a train. We just can't see it yet so -- you know this economy and global economies will improve and when you look beyond all the murk, we're pretty positive about where -- International Paper is positioned and our ability to manage through this. We demonstrated that through the fourth quarter. We may have a couple more quarters to go through it. I think we're well positioned to weather what is a real down-and-dirty first class recession with a credit freeze layered on top of it. But both in time will pass. So with that I think we will just wrap it up. Appreciate you calling in and look forward to talking to you next quarter. Thanks.

This concludes today's fourth quarter and 2008 earnings conference call.