International Paper Co (IP) 2010 Q4 法說會逐字稿

Good morning. My name is Therese and I will be your conference operator today. At this time, I would like to welcome everyone to the Temple-Inland fourth quarter and full-year 2010 earnings presentation and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions) Thank you. I would like to turn the call over to Chris Mathis, Vice President of Investor Relations and Treasury.

Good morning. My name is Chris Mathis, Vice President of Investor Relations and Treasury for Temple-Inland, and I would like to welcome each of you who have joined us by conference call or webcast this morning to discuss the results for fourth quarter and full year 2010. Joining me this morning are Doyle Simons, Chairman and Chief Executive Officer of Temple-Inland, Pat Maley, President and Chief Operating Officer, and Randy Levy, Chief Financial Officer.

Please read the warning statements in our press release and our slides concerning forward-looking statements as we will make forward-looking statements during this presentation. In addition, this presentation includes non-GAAP financial measures. The required reconciliation to GAAP financial measures can be found on our web site at www.temple-inland.com.

This morning, we will give a presentation on the results fourth quarter and full year 2010. After the completion of this presentation, we'll be happy to take your questions. Thank you for your interest in Temple-Inland. I would now like to turn the call over to Doyle Simons.

Thank you, Chris. Good morning, everyone and welcome. We had another outstanding year in 2010 as our employees again delivered solid operating results and return on investment. Excluding special items, net income in 2010 was $100 million or $0.90 per share. This compares with net income excluding special items of $78 million, or $0.70 per share in 2009.

Special items after tax for 2010 were $68 million, or $0.62 per diluted share including a tax benefit of $83 million, or $0.75 per diluted share related to the cellulosic biofuel producer credit. A charge of $18 million, or $0.16 per diluted share, primarily related to Box Plant Transformation and a net benefit of $3 million, or $0.03 per diluted share principally related to alternative fuel mixture tax credits. Our Company generated an ROI of 8.2% in 2010, up from 7% in 2009.

Turning to our segments, in Corrugated Packaging, we earned $333 million in 2010. Return on the investment for the year was 16.5%, matching our record 16.5% ROI in 2009. 2010 was the fifth consecutive year we've earned above cost of capital returns in this business.

In 2009 -- in 2010 compared with 2009, input and other costs were up by $186 million. We were able to largely offset these higher costs with $152 million of higher pricing and volumes and $20 million lower costs from Box Plant Transformation. Box Plant Transformation has been and will continue to be a key earnings driver for our Company.

Just to remind everybody, Box Plant Transformation is our strategic initiative to change the culture in our Box Plant system to run box making machines near design capacity, thereby lowering costs through improved asset utilization. It's not necessarily about making more boxes because we understand there's a finite demand for boxes. It's about making higher quality boxes and delivering them on a timely basis to our customers, but doing it with fewer plants, fewer machines, fewer people, and lower costs.

We completed Box Plant Transformation I at the beginning of 2010. Box Plant Transformation I resulted in four fewer plants, 88 fewer machines, and 1,157 fewer people lowering our annual costs by $80 million per year. The capital investment to achieve these cost savings was $174 million, resulting in an ROI of 46%.

On this call last year, we announced Box Plant Transformation II. At that time, we indicated that Box Plant Transformation II would lower our costs by an additional $100 million by year end 2013 and that the capital to achieve these cost savings would be $250 million, resulting in an ROI of approximately 40%. I'm pleased to report today that Box Plant Transformation II continues to be on schedule.

When we announced Box Plant Transformation II last year, we indicated that the $250 million capital spend would be roughly, evenly distributed in 2010, 2011, and 2012, and the benefits would be $10 million in 2010 and then approximately $30 million, $30 million, and $30 million in each of 2011, 2012 and 2013. In fact, we have accelerated the spend and anticipate approximately 85% of the spend for Box Plant Transformation II will be completed by year end 2011.

Just as we did today, we will update you at the end of the year as to the actual amount of benefit realized in 2011. We anticipate the benefit will be $30 million in 2011 and that some of the benefit in the outer years may ultimately be pulled forward. I would also remind you, just as we did when we announced Box Plant Transformation II, that the results will undoubtedly be lumpy, just as they were in Box Plant Transformation I.

Box Plant Transformation is a true game changer for our Company. When we complete Box Plant Transformation II, we will have reduced our number of plants by 24%, our machines by 44%, the number of people in our box system by 26%, and our costs by $180 million per year, giving us the lowest costs, most highly productive Box Plant system in the industry.

In addition to costs, we're also focused on the revenue side of the equation. While Box Plant Transformation has and will continue to lower our cost structure, the equipment and technology we are putting in place allows us to better service our customers and target a higher value segment of the Corrugated Packaging market. The benefits from improving our mix in margins will be additive to the $180 million in hard-dollar cost savings from Box Plant Transformation.

As many of you have heard me say, none of this matters unless we get it to the bottom line. Our scorecard is ROA, return on assets. Our goal is to have the highest return in the industry. We have made consistent progress toward that goal, and as highlighted today, there's much more to come. The additional opportunities that we have outlined from Box Plant Transformation alone will raise our return on assets by an additional 400 basis points.

Building Products. Building Products lost $19 million in 2010 compared with a loss of $27 million in 2009, an improvement of $8 million despite the fact that housing markets remain at very depressed levels. The key driver was operational cost improvements.

Despite very difficult markets, we are one of the very few companies in this industry that has continued to generate positive cash flow throughout the downturn. Historically, EBITDA in this business correlated very closely to housing starts. We changed this beginning in early 2008 and have continued to make significant changes to our cost structure. As a result, despite the fact that 2010 housing starts were at the second lowest level since 1959, we improved our EBITDA from $8 million in 2008 to $17 million in 2009, to $22 million of EBITDA in 2010.

Turning to the fourth quarter. Net income in fourth quarter 2010 was $0.24 per share, compared with $0.34 per share in fourth quarter 2009 and $1.13 per share in third quarter 2010. Excluding special items, net income in fourth quarter 2010 was $0.31 per share, compared with a net loss of $0.07 per share in fourth quarter 2009 and $0.41 per share in third quarter 2010. Fourth quarter 2010 net income and net income excluding special items includes an income tax benefit of $0.05 per share, primarily related to the expected utilization of state net operating loss carry forwards previously reserved.

Special items in fourth quarter 2010 were a charge of $0.06 per share, primarily related to Box Plant Transformation and a charge of $0.01 per share related to the purchase and retirement of debt. Company wide ROI for the quarter was 9.2%.

In Corrugated Packaging, operating income was $103 million, a record fourth quarter. This compares with $57 million in fourth quarter 2009 and $121 million in third quarter 2010. Our Corrugated Packaging ROI in the fourth quarter was 20.4%.

Box prices were up $13 in the fourth quarter compared with the third quarter. A portion of the increase in the quarter was due to seasonal mix of business.

Our box shipments were flat in fourth quarter 2010 compared with fourth quarter 2009. Industry box shipments were up 3% in the quarter. Our shipments versus the industry were against a much tougher comp, as our shipments were up 8% in fourth quarter 2009 while industry shipments were down 1% in fourth quarter 2009.

Seasonally, box shipments are down in the fourth quarter compared with the third quarter, and our box shipments were down 10,000 tons in the quarter compared with the third quarter 2010. Excluding seasonality, box demand continues to steadily improve.

We took 24,000 tons of maintenance-related downtime in the quarter. Despite this downtime, we successfully increased our inventories about 40,000 tons from their unsustainably low levels as we reduced our outside sales of container board by 32,000 tons in the quarter. Even with the increase, our inventories ended the year in line with year end 2009 levels. Our inventory rebuild is now complete.

Consistent with our increase in inventory, some of our fourth quarter input costs remained in inventory at year end. Input costs in fourth quarter 2010 compared with third quarter 2010 were higher, with OCC up $7 million, wax up $8 million, virgin fiber down $5 million and energy down $3 million. We also incurred $4 million of additional labor costs compared with third quarter due to the holidays. Compared with fourth quarter 2009, most of our input costs were higher, with OCC up $34 million, freight up $9 million, wax up $3 million, chemicals up $3 million, virgin fiber down $4 million and energy down $3 million.

Looking ahead, our box shipments in the first quarter will be negatively affected by weather as the Mexico agriculture crop was severely damaged by record low temperatures in Mexico last week. In addition, most of our Box Plants did not work on January 3 due to the scheduled holidays and many of our domestic Box Plants were impacted by the widespread snowy and icy conditions resulting from last week's storm. We also anticipate higher input costs, including OCC and freight, and lower box prices due to seasonal mix in the first quarter. Mill maintenance downtime in the first quarter is anticipated to be approximately 24,000 tons.

Building Products. Building Products lost $15 million in the quarter compared with the loss of $18 million in fourth quarter 2009, and a loss of $10 million in third quarter 2010. Housing markets deteriorated in the fourth quarter as housing starts fell by 2% compared with year ago levels, and 25% compared with third quarter 2010.

Lumber prices were flat in fourth quarter 2010 compared with third quarter 2010, and up $2 compared with fourth quarter 2009. Lumber volumes were down compared with third quarter 2010, but up compared with fourth quarter 2009. Gypsum prices were down $6 in fourth quarter 2010 compared with third quarter 2010, and up $2 compared with fourth quarter 2009. Gypsum volumes were down compared with third quarter 2010, but up compared with fourth quarter 2009. Particleboard prices were down $2 compared with third quarter 2010, and up $4 compared with fourth quarter 2009. Particleboard volumes were up compared with third quarter and year ago levels.

Looking ahead, the market tone so far in the first quarter is improving and prices are expected to be higher for most of our products in first quarter 2011, compared with fourth quarter 2010. We continue to be focused on generating cash and returning to profitability in this business. With that, let me now turn it over to Randy to provide you with some financial highlights.

Thanks, Doyle and good morning to everyone. Let's start with a few highlights for 2010.

Beginning with cash flow, cash provided by operations was $260 million for the year. The operations portion, which can be thought of as funds from operations, provided $334 million for the year and includes $30 million of voluntary discretionary contributions to our qualified defined benefit plan. The working capital portion was a $74 million use of cash due to rising prices for our products, which increased our receivables and higher input costs, which increased the carried value of our inventories.

Moving to the balance sheet, our long-term debt was $718 million at year end, essentially flat as compared to a year ago. Said another way, our debt remaining flat year-over-year means that our Company generated enough cash to pay our dividend, which included a 10% increase that our Board approved a year ago; to fund our capital expenditures, including a significant pull forward of expenditures related to Box Plant Transformation II that Doyle reviewed with you earlier; and to fund the investment of working capital to support our business operations and our customers.

While our debt remained flat, Temple-Inland's shareholder equity account increased $135 million during the year to $929 million, which reduced our leverage in debt to total capital terms to 44% from 47% a year ago.

Looking at our liquidity at year end, our committed credit facilities totaled $960 million at year end, which includes a new $600 million four-year unsecured revolving line of credit and a newly extended $250 million three-year accounts receivable securitization facility. At year end, we had unused borrowing capacity of $766 million and we have no significant maturities in 2011.

Now let's move on to 2011 and talk about a few numbers that should be helpful to you. First, capital expenditures. Doyle gave you an update on Box Plant Transformation II a little earlier. We're on schedule and plan to spend about the same amount on Box Plant Transformation II in 2011 as we did in 2010. As a result, we expect capital expenditures in 2011 to be at approximately the same level as 2010 in the $225 million to $235 million range. And depreciation for 2011 is expected to be about $200 million, up a bit from 2010.

Pension. Pension funding dynamics in 2010 were very interesting. While equity market returns were in double digit positive territory, which significantly increased plan assets, discount rates fell, causing benefit liabilities to also increase. Based on the benchmarks we follow, and excluding large plan contributions in excess of service costs, the typical pension plans funding percentage was probably down a couple of percentage points for the year.

As I've mentioned in the past, we have a more conservative funding strategy designed to mitigate a substantial amount of the volatility and changes to our plan's funded status and our pension expense that may have otherwise occurred due to the volatility in the equity markets. As a result, our funding percentage remained flat versus last year and our pension expense for 2011 will be essentially unchanged at $60 million, versus $59 million in 2010.

We still have credit balances that we've accumulated from our voluntary discretionary contributions in prior years, so we anticipate having no current year funding requirements. While not required, it's been our practice for the last several years to contribute $30 million to our plan, which is an amount approximately equal to the benefits earned annually by our active participants. We anticipate contributing $30 million to our plan again in 2011.

General and administrative expenses. Our G&A costs not included in our segments were $70 million in 2010. To put that in perspective, we reduced these costs by 24% in 2008, another 8% in 2009, and then held them flat in 2010. That represents a $30 million, or 30%, reduction from our 2007 run rate. For 2011, these expenses are expected to essentially remain flat in a range of $70 million to $72 million, or about $18 million per quarter.

Share based and long-term incentive compensation. A significant portion of our share-based awards are cash settled. As a result, changes in our share price have a direct impact on our share-based compensation expense. For a $1 change in our share price, the impact to our share-based compensation expense should be about $2.5 million, similar to what it's been the last couple of years. In 2010, our share-based and long-term incentive compensation was $33 million. In 2011, this expense is expected to be about $36 million based on our year end 2010 share price. Approximately $12 million of this 2011 expense would be accrued in the first quarter with the remaining $24 million spread evenly over the last three quarters.

Interest expense. Interest expense on our corporate debt was $51 million for the full-year 2010, which was down $12 million, or 19%, as compared to 2009. For 2011, interest expense is expected to be flat as compared to 2010.

And then income taxes. In 2010, we had a tax benefit of $83 million related to cellulosic biofuel producer credits, and a one-time $3 million charge related to the impact of healthcare reform legislation on the Medicare Part D retiree subsidy program. Excluding these items, our effective tax rate was 31% for 2010, which is lower than our normal rate. Keep in mind, as noted in our release, our fourth quarter 2010 earnings included an income tax benefit of $0.05 per diluted share, primarily related to the expected utilization of some state net operating loss carry forwards that were previously reserved.

For tax rates in 2011, the guidance I would give you at this time would be to use 40% as an effective tax rate on a book basis. On a cash basis, we expect to utilize the remainder of our cellulosic biofuel producer credits as well as bonus depreciation, which should put our cash tax rate in the range of 10%. And that concludes my comments.

Thank you, Randy. Before concluding my remarks and opening up for questions, let me review our financial priorities.

Our financial priorities remain unchanged in 2011. First and foremost is returning cash to shareholders. We understand the importance of a dividend, and last Friday, we raised our annual dividend by 18% to $0.52 per share, reflecting our confidence in our ability to continue to generate cash flow and our commitment to return cash to shareholders. This 18% increase follows a 10% increase in 2010 and we were one of the very few companies in the industry that did not cut our dividends in the severe economic downturn.

Our second financial priority is to reduce debt. Our targeted debt to cap ratio is in the 35% to 40% range, which equates to roughly $600 million of debt. As we approach this debt level, we will consider share repurchase as another means to return cash to shareholders. We currently have an outstanding share repurchase authorization of 6.65 million shares.

We've also continued to invest in our business. We have invested our capital very wisely over the past number of years and these investments have clearly contributed to our return. With that said, we would anticipate a return to more normalized capital spending levels in 2012.

Finally, we will look for opportunities to properly grow our Company through acquisitions, but as always, we will be very disciplined based on ROI.

In summary, 2010 was another very good year for our Company. As we enter 2011, the economy appears to be reaccelerating. Corrugated Packaging fundamentals are solid and Building Products markets appear positioned for a rebound.

In Corrugated Packaging, we are on schedule with Box Plant Transformation II and are confident in our ability to continue to drive returns well above our costs of capital. In Building Products, we continue to benefit from our low-cost facilities, favorable geographic footprint, and a mix of products -- and our mix of products, and are well positioned to fully capitalize on a recovery in housing. Finally, we are committed to the appropriate allocation of capital to best create long-term value for our shareholders going forward. With that, we will open it up for questions.

Thank you. (Operator Instructions)Your first question comes from Rick Skidmore from Goldman Sachs.

Two questions. First, just on the seasonally lower box prices that you highlighted, can you just elaborate on that? I imagine it's just some sort of a mix issue, but can you talk to that? And then secondly, your outside sales of linerboard, now that your inventories are back to where you want them, would those -- would we expect those to ramp up again in the first quarter?

Let me address the first question and I'll ask Pat to address the second question. In terms of the box pricing, Rick, as we mentioned in the prepared comments, in fourth quarter, we benefited from the fact that we had a seasonally higher mix of ag and display business, which you know is typically higher priced. That will reverse in the first quarter and that's what's going to cause the lower box price in first quarter compared with the fourth quarter.

Just to add, Rick, from an outside containerboard sales standpoint, we think we're pretty well balanced and we'd expect outside sales to remain at fairly low levels through the first quarter.

Okay. Then maybe just one other one, just in terms of the input costs that you're seeing. You had the slides showing fourth quarter, quarter over quarter and year-over-year, how do you see the key cost buckets moving into the first quarter in 2011?

Good question, Rick. As we mentioned, we think the trend in cost is going to be up in the first quarter. Let me just give you some numbers and some thoughts.

Current OCC costs were up somewhere in the $5 per ton range, but I can tell you -- and it may be against conventional wisdom -- but we believe that the bias is upward for OCC costs and we could see costs go up as early as March. Now with that said, it's always difficult to predict what's going to happen with OCC, but clearly, we think the bias is up, again, driven by the demand for OCC from China.

In addition, freight is trending up, and we've seen diesel costs rise fairly dramatically over the past couple of months. I can note just at the pump you see diesel prices up $0.40 to $0.50 per gallon over the past couple of months. Virgin fiber, I would tell you is probably flat to up slightly and then natural gas is currently up $0.50 versus the fourth quarter, and we'll just have to see where that goes for the balance of the quarter.

Great. Thanks, Doyle.

Thank you.

Thank you. Your next question comes from Gail Glazerman with UBS.

Just adding-on on Rick's question on the first quarter pricing, if you adjusted for mix, what would the prices be doing? I think you had talked about maybe a little bit of remaining contract pricing that reset in January?

Gail, you broke up a little bit. Did you ask on first quarter pricing?

Adjusted for mix, is it possible to give a sense of what you think pricing will do? I thought you had some contracts that were resetting in January?

Yes. We did have some contracts that reset in January, Gail. But, as I mentioned, we had a higher value mix in the fourth quarter which will reverse in the first quarter. That will more than offset the resets that occurred on January 1, and as a result, prices from a seasonal perspective will be down in the first quarter versus the fourth quarter.

Okay. Can you give us any additional color on some of the operating issues and some of the volume issues that you saw -- that you are seeing so far in the first quarter and just how we should think about that as we model it?

Sure. I might have Pat address that, but clearly, this storm that came through US and Mexico last week is going to have an impact on us in the first quarter. And Pat, if you'll highlight that situation for us.

Yes. The majority of the severe weather actually from our business standpoint affected Mexico, and I'll draw a little comparison with severe weather that affected the majority of the United States here the first week in February, but the nights of February 3 and 4 were unkind to the ag business in Mexico. It's the most significant freeze event that that area's seen since apparently 1957. And while crop damage assessments are preliminary at this stage and moving a little bit, it looks like various crops will be damaged from 30% all the way up to 100% loss. And what we expect as a result of that, once you lose a crop, the crop is lost forever. So, the volume impact is real.

I would say that the loss in corrugated box shipments from that event is probably in the neighborhood of 15,000 tons. And if you contrast that with the weather event that went across a majority of the United States, most of that business was industrial business. And from a timing standpoint, that business will come back as both our customers and our plants dig out of the snow that they find themselves in. Now, that business will be made up substantially, but I would add it at much higher costs. So, again, we're still trying to scrub the numbers on the impact in Mexico, but that's the best data we have at this point.

Okay, that's really helpful. Thanks.

Thank you. Your next question comes from George Staphos with Merrill Lynch.

Thanks, hi guys, good morning. Congratulations on the year. I guess the first question that I had -- on the one hand, you mentioned that you may pull forward some of the spending on Box Plant Transformation Phase II and on the other hand, the CapEx is staying relatively flat in 2011 versus 2010. If I've got that correctly, where might you be lowering your capital spending in 2011?

The point we were making, George, is we actually spent more in 2010 than we originally had announced, and we will keep that at the same level approximately in 2011. And as a result, we will have less capital spend in 2012 than we normally anticipated. As I mentioned, we anticipate our capital expenditure levels in 2012 will return to more normalized levels, which is roughly 85% of depreciation.

Okay. Thanks for that clarification, Doyle. Guys if we take a step back and look at the performance of your two segments this year, what would you tell your shareholder that you learned that makes you more optimistic about their value for the future, including what you're learning out of BPT II? And, included in that also, what factors do you think are presenting themselves as greater risks right now? Maybe it's Mexico not the ag issues, but more the political issues and how are you going to manage against them?

George, needless to say, we are very encouraged by our performance in Corrugated Packaging operation in 2010 and I can tell you, we step off in a very good position in 2011. I think as I mentioned in the prepared comments, the Corrugated Packaging fundamentals are solid. Inventories remain near historic low levels, and demand continues to improve And, I think, will continue to improve as the economy reaccelerates, again, as I mentioned in the prepared comments.

In terms of our performance, we are very encouraged by the fact that we continue to get the benefits from Box Plant Transformation I and the $10 million in Box Plant Transformation II benefits in 2010. And as highlighted, we have $90 million in front of us. We are absolutely confident we will drive that to the bottom line. There's even a chance, as mentioned, that we could pull that up earlier than we originally had anticipated.

So, I'll ask Pat to give a further update on Box Plant Transformation and the benefits we have seen, and then I will come back and talk about Building Products.

Well, from Box Plant Transformation II standpoint, we're down four plants. There are 371 less people working in that business and the number of box making machines is down 31. We've also announced an additional closure scheduled for probably the second quarter in addition to the four that we've shut down so far.

I would expect that there'll be similar numbers relative to people, plants, machines in 2011 that will be reduced. We've got a number of projects that are basically wrapping up here at the end of 2010 and into early 2011. There's clearly a lot of work going on and really a lot of bright spots that we're seeing, but again, there's a lot of moving parts that we're managing our way through, but we're pretty bullish on what we're seeing. So, back to Doyle.

On Building Products, I can tell you I'm really proud of our performance in Building Products in 2010. Despite the very difficult housing markets, we continue to generate positive cash flow and not just generate positive cash flow, but we've now improved our cash flow in that business for three consecutive years. We also continue to outperform our peers during this very difficult time.

What I can tell you what I'm most excited about Building Products is with the significant changes that we've made in this operation over the past few years, we are very, very well positioned to capitalize on a recovering housing when it occurs. And when that happens, George, I think we're going to make a lot of money in this business and perform above most people's expectations.

All right.

Do you have anything to add to that?

I would just add that we've made some fundamental improvements and some learnings in our saw mill operation that I think are going to really show up as housing markets recover, that maybe weren't in place during the last bull market in housing, if you will. And I think on the gypsum side, we had historically been a player and heavily weighted to the residential markets, and we've broadened our product offerings here lately that take us into commercial markets and repair and remodel. And I think that's going to be a big positive as markets recover as well.

So, there's no concern that you have that you need to manage against going forward? I appreciate all the progress. Anything that's warning at this juncture? Thanks. I'll turn it over.

No, George. We are clearly very optimistic about both of our businesses going forward, but you always have concerns. I mean, ultimately, as I mentioned, Corrugated Packaging demand is tied to the US economy. So, we need to see the economy continue to improve going forward to drive demand for our boxes.

And then on the Building Products side, clearly the length of the downturn in housing is a cause for concern. None of us know when that's going to really start to improve, but my message to you is when that happens, we are very well positioned in that business.

Okay. Thanks.

Thank you, George.

Thank you. Your next question comes from Mark Connelly with CLSA.

Thank you, Doyle, just two quick things. Over the last couple of years, you put together a pretty solid record of outperforming box shipments for the industry. Can you keep that up with the performance you're getting out of your Box Plant Transformation? Is there going to be enough room in your system on the Box Plant side to keep outperforming?

Mark, thank you for the comment and you're right. Historically, we have outperformed the industry in terms of our box shipments. Now, with that said, this year, as we've highlighted, we've actually -- our box shipments have been lower in the industry. That's been primarily intentional. As part of Box Plant Transformation, as I mentioned, we are looking to improve our mix and margins, and we have been successful in doing that by focusing on local, higher margin [in current] accounts. We grew those accounts in 2010 and will look to continue to grow that segment going forward.

But, in terms of Box Plant Transformation, we still, even with the changes that we've highlighted and dramatic changes that we highlighted, we will still have the capacity in place to continue to grow our production of boxes in line with our customers' demands. So, we don't see that as a issue in terms of continuing to grow our box shipments going forward, again, consistent with our customer demands.

And just one last question. You talk about growing profitably. Are you actively looking at any opportunities on the building material side?

No -- as we've said before and as I highlighted, one of our financial priorities is to profitably grow our Company. So we are constantly looking at acquisition opportunities, both on the Corrugated Packaging side and the Building Products side. With that said, we're going to be very disciplined based on ROI. What we look for when we make acquisitions is good assets that have been under managed, that fit with our strategic outlook, and in addition, where we can generate returns in excess of our costs of capital.

I'll tell you one business that we are very optimistic about in Building Products going forward is the lumber business. That's primarily driven by what's happening in Canada, specifically the pine beetle situation, coupled with the fact that more and more of the lumber being produced in Canada is being shipped to China. So, we think, going forward, there's going to be a different supply dynamic coming into the US from China, and that lumber is very well positioned going forward.

Very helpful as always. Thanks, Doyle.

Thank you, Mark.

Thank you. Your next question comes from Mark Wilde with Deutsche Bank.

Could we start off, Doyle, just maybe you or Pat talking a little bit about just sort of what's been going on in the box market in terms of pricing dynamics? It looks like net-net, you've got about $85 box price out of about $110 of reported containerboard price increase?

Now, Mark, I'm going to let Pat talk generally about the dynamics, but I don't think your number's right. We've got $100 of the -- actually, $101 of the price increase -- that $110 -- $101 of the $110 linerboard price increase was, in fact, passed through to our boxes.

But when I look at that chart you've got on how much your box prices are up, just kind of doing the quarter to quarter to quarter, it looks more like something in the mid-80s.

No, your math is right on that, but remember what you have to look at is those have averages in them from a quarterly basis -- from the low, which was in February, to the high in the fourth quarter, it was $101.

Pat, any other thoughts on that?

No, from an industry dynamics, box demand is, we think, is recovering and steadily recovering; we see underlying demand being pretty good. And supply side from a Temple-Inland standpoint, we got into a position where our inventories were costing the shareholders money. We were incurring significant expense moving paper around and trying to respond to emergencies and we've got our inventory in position now where we don't foresee having to do that.

And Doyle commented that -- and I think appropriately so -- our inventory build is over. So we're well positioned and it's going to get drawn down as we go throughout each season and get into a seasonally stronger part of the year.

Okay. And then on the mill side of the business, you talked about the maintenance outage you had in the fourth quarter and your prospective maintenance outage in the first quarter, is there anything incremental to that, in terms of any market outages?

No. We've -- again, we've described what our maintenance downtime is, both in the fourth and the first. Obviously, we have stated many times, that we're committed to matching our supply to our demand. So, that's how we're going to continue to approach our business.

But just when we model, if we just assume that the maintenance outage and we don't put anything else in there, we're going to be -- we should get pretty close to the mark?

Yes, we, again, Mark, are going to match our supply to our demand. We've got demand driving whatever supply we're going to -- we're going to match up against it.

Okay. And then, just to follow on Mark Connelly's question back in Building Products, is it possible to get any perspective on just the performance, either in terms of contribution or returns in those various Building Product segments over the last year or two?

Mark, as you know, we don't break that down. What we do provide is the shipment and pricing trend for those businesses, so you can run those through those model and make your determinations, but we don't break down the various components.

Okay, and then finally (multiple speakers) --

Mark, I would just add, though, that when I look at the various segments that make up our Building Products business, I think we made very substantial improvement both on the costs side and commercial side, if you will and how we're going to market. I feel really, really good about what's going to happen once we get any kind of lift in housing markets.

Okay. Is what you've done there, Pat, has that made you kind of shift the strategy in Building Products at all from what I've always taken to be we want to be a regional producer kind of southeast, south central part of the country to maybe have a little broader focus?

I wouldn't say that there's been any strategy shift. It's taking the assets that we have, looking at how we can either reconfigure or optimize those assets, and how we can penetrate what we think are the most advantaged markets in the country.

Okay, and as you grow, you're going to stay with that more regional focus?

We believe that we have lots of capacity to grow in the markets that are approximate to our facility.

Okay. Very good. I'll pass it on. Good luck.

Thanks, Mark.

Thank you. Your next question comes from Anthony Pettinari with Citi.

In your comments you talked about signs the economy was re-accelerating and you've seen some trends in the Corrugated business that might be supporting that. I was wondering if you've also seen any signs of life in the Building's Products demand? Obviously 4Q in January are pretty seasonally slow. But, have you seen any kind of ordering activity that has been better than expected or gives you more confidence that this business -- that there's demand right now as opposed to in the future?

I would say -- this is Pat responding -- I would say that we're -- if you look at the pricing dynamics in lumber, most people would say that run -- and it's moved the other way here recently, but the run through the first week in January in lumber pricing, I think is indicative of some global strength, both from China and what we're seeing in the US.

There's -- we talked to our customers I would say there's a renewed optimism, if you will, that the future's going to be better than the past. And we went through kind of a head fake on that in advance of the tax credit that we saw, but our customers, the tone is better. And I would say that not only for solid wood, but our other product lines as well.

Great. Great. Then just another question on fiber. You talked about maybe an upward price bias for OCC. I think there's been talk about the quality of recycled fiber in the market sort of degrading as this market gets tighter and tighter. I was wondering if you'd seen any quality issues with the OCC that's out there in the market? Thank you.

Well, we've got a pretty good balance in the Company between virgin and OCC, so that helps us obviously not being 100% reliant on OCC aids the Company. But the reality is it puts, I think, a premium if you will on those that have virgin paper capacity. And to answer the question in a direct way, we have technology in place that allows us to deal with OCC fibers, and is there degradation? Yes, but at this point, it's not impacting the products that we produce.

Great. Thank you.

Thank you.

Thank you. Your next question comes with Chip Dillon with Credit Suisse.

Yes, good morning. As we look at the -- you mentioned the future for lumber. Could you just review for us how your wood costs will maybe correlate with what you expect to see with lumber prices in particular? I know you have, I think, arrangements to buy wood locally on your former lands from the subsequent owners. And I didn't know how that pricing mechanism would work with the price of lumber. And then lastly, just confirm whether or not you still have any mineral rights on any of those former lands inside of the current Temple-Inland?

Chip, we essentially have no mineral rights any more with Temple-Inland. As you know, those went to Four Stars as part of the transformation back in 2007. In terms of our acquisition of fiber, we do have long-term fiber supply agreements, but those are at market.

And markets determine kind of at a very regional, on a regional basis? It's not really based on any national average of what wood costs are, is that correct?

That is correct. Market is determined at a regional level.

Thank you.

Thank you.

Thank you. Your final question comes from Mark Weintraub with Buckingham Research.

Thank you. Just hoping to get a sense as to your box shipments in January and maybe the first little part of February here. What you are seeing year-over-year, and I realize that you were flat both in Q3, Q4. So, maybe put in that context, what are you seeing relative to what you had been seeing the prior six months?

Mark, we continue to be encouraged by box demand. As we said in our comments, box demand has continued to steadily improve. So, if you take out all of the noise, we are encouraged by what we are seeing on the box demand front. And as I mentioned earlier, it's our sense that the economy is re-accelerating and that should continue to drive box shipments going forward.

Okay. You saw that in January as well, the re-acceleration?

Correct.

Great. That's it.

Thank you, Mark.

Thank you. We have reached our allotted time for questions. So, this concludes our questioning program. Are there any closing remarks?

I just thank everybody for their interest in our Company and we look forward to visiting with you next quarter.

Ladies and gentlemen, thank you for joining today's Temple-Inland fourth quarter and full-year 2010 earnings presentation and webcast. Thank you for your participation today. You may now disconnect.