Good morning. My name is Amanda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to Tom Cleves, Vice President, Investor Relations. Please go ahead, sir.

Thanks Amanda. Good morning everyone and thanks for joining our fourth quarter and full year earnings conference call. This call is also being webcast. 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-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP measures is available on our website at internationalpaper.com. Our website also contains copies of the fourth quarter 2008 earnings press release and today's presentation slide. I'll now turn the call over to John Faraci.

Thanks Tom. And good morning everybody. Thanks for joining us today. Today Tim Nicholls and I are going to review our fourth quarter and full year 2008 results. We will talk about the performance of our individual businesses and we'll also discuss our first quarter 2009 outlook. Turning 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. And during the first three quarters of the year, business conditions were soft, but they were steady, container board and box volumes were down slightly from prior year levels as were uncoated freesheet shipments. Market downtime was minimal and prices were increasing for key grades. Input 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 and it changed in a hurry and it changed fast, and I went back and look at my notes in that call, I said we... I thought we were going to be shocked at how weak the fourth quarter will be, and now the fourth quarter is over and it's not a shock but it's reality. U.S. economic activity contracted significantly and we experienced dramatic declines in demand for market pulp, uncoated freesheet and corrugated boxes. Our global pulp demand also declined significantly as inventories build. And paper and containerboard prices continue to rise but demands fell off sharply. So given our ongoing commitment to balancing our production with our customers needs, we took 1 million tons of lack of order downtime during the fourth quarter, more than we've ever taken. We took most of…

Okay. Thanks John, and good morning everyone. Slide 10 contains the bridge between our 2007 earnings of $2.22 per share and 2008 earnings of $2.01 per share. The impact of higher selling prices and improvements in cost mix increased earnings by $1.51. But this was largely offset by $1.38 impact of increased input cost. Improvements in cost to mix added $0.59 to earnings and the impact of volume declines were significant but partially offset by the CBPR volume. Interest expense increased by $0.31 per share and forest earnings decreased by $0.08 per share. On slide 11, you see fourth quarter earnings per share of $0.21 versus the 69 in the fourth quarter of 2007. Fourth quarter earnings from Forest Products was $0.07 versus 28 in 2007. By the end of the third quarter instead of the economic conditions in North America has changed dramatically. As John mentioned with demand for boards additional boxes, uncoated freesheet market fall from in significant declines. We responded to these rapid changes by setting production to lower demand levels in order to avoid building excess inventories and accelerated the cost reduction programs that John was mentioning just few minutes ago. And cash flow remains our top priority. On slide 12, see to the improvements in price and cost mix increased in the fourth quarter and its about $0.44 combined. These gains were more than offset by lower shipment volumes with reduced earnings by $0.27. Higher input cost decreased earnings by $0.30 and higher interest expense decreased earnings by 17. On slide 13, we've got a chart for lack of order downtime, and I think you can see that we remained committed to matching our production to our customers needs. In order to maintain this balance lack of order downtime in 2008 was about 5% of…

Yeah, thanks Tim. Let me just a take minute here before we go to your questions and talk about the quarter. Looking ahead of the first quarter, with respect to selling prices, we expect uncoated freesheet and containerboard to be under some pressure, as a result of what's going on the demand side. However, I'd say inventories are in very good shape and we were 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 inventories as everybody knows, global inventories are out of balance, and until it gets back into balance its likely that prices aren't going to recover. Our freesheet and board prices are expected to increase, and that reflects the implementation of renegotiated contracts. So those increases are already in place into the renegotiate of those contracts which have been completed. On the volume side, we expect U.S. and European demand for paper 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 indicate that December made in the low point, but I'd say think about the first quarter, comparable to fourth quarter, because December was certainly the weakest month in the fourth quarter for us. We also expect uncoated freesheet depreciate demand in Brazil to be seasonally weaker as typically as in plenty time of the year. And 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 I'd see here North America is expected to be about the same as the fourth…

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

(Operator Instructions). Your first question comes from Claudia Hueston with JP Morgan.

Morning.

Hi, Claudia.

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

I think we've got a big apples uptick on the working capital side with the Weyerhaeuser acquisition. That really didn't have any impact on the 2008 results Claudia. So, that's real opportunity for us probably a couple hundred million dollars there. In addition to working on the other side of the equation which is rest of International Paper.

Okay. Okay, thanks. And then just with your guidance around the corporate items for 2009, I think you said it in the appendix that this 250 million. Can you just maybe breakout what is pension allocation and then maybe what are the pension goes into the segments. And then what else may be driving corporate higher, if there is anything else there?

Most of it is pension related, the only thing that we allocate up to the business is on the pension side quality or the service cost, and we choose to take everything else so you can keep it in 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, where mostly...

That's all non-cash as well.

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

Yes, that was the big piece of the quality. 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'll take that piece, Claudia. We really need to divide the economy in China in two pieces. The part of the economy is that export oriented that's in shipping product out of China, a lot of coming to North America. And the part that is serving the Chinese domestic market. And the export piece as softened a lot more then the domestic piece. Most of our business is on the domestic side. And we don't do a lot of export oriented business and almost all of that is sold into the domestic market. So, the issue there is, we got some additional capacity now in the market that is slowed as GDP growth is gone from 12 for 6. So, for China they call that a recession, we've like 5 or 6% GDP growth, probably anywhere else in the world right now. So I guess the bottom-line is, the market slowed and the export market slowed more than domestic market, and most of our packaging business there. I mean most of... more than 50% of it is for the domestic market.

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

Its better than on the board side, its better than containerboard and print papers. Its down 3% which... I guess on relative basis feels pretty good. And then it depends on the segment. We improved service and its been pretty strong, the tobacco is been weak, as customers really move from North America to offshore, home entertainment was actually okay, and it rolled into the map on the consumer side. Pulp has been weak, here (ph) color is been strong, stronger.

Okay. Thank you.

A lot of that goes into the food segment. So it's little bit better than containerboard. And frankly, if you look at the containerboard in business or boxes and segmented the food size its been okay. It's been the durable side, it been the weakest and very, very weak.

Okay. Thanks a lot.

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

Thanks. Hi, everyone, good morning.

Hi, George.

Yes, George.

Congratulations on the cash, very good performance guys. I guess, first...

Because at the end of the day that's all that matters.

Ultimately, that's right. Now, in terms of matters at hand; the Ilim dividend of $60 million. Could you remind us what was behind that, and is there possible to get more cash from Ilim over the next year or two?

Yeah, I think there will be, but it'll depend on the performance of the business and factors for the markets that they serve, George. So, 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 probably the third or fourth quarter of '09 before it's revisited.

George, the joint-venture agreement provides for annual dividend of payments that are obviously a function of... the Boards got to decide to make those payments, but the joint-venture has that in there. And then you recall, Ilim sold the 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 a later date or not.

I had forgotten that. Thanks, John. Now in terms of the outlook for the first quarter, realize a lot of unpredictable is here. Synergy from Weyerhaeuser, there seems to be going well for you. And, I guess I'm wondering why that might not be enough to at least key your operations burnings ex Forest Products. Why is it just the function of volume for now absorbing that synergy gain that you're getting out of Weyerhaeuser?

I mean that's exactly right George. There's so many moving parts that if you just look at anyone and say this is the plus and everything else hold confident, you can talk yourself into saying yeah, yeah operating profits could be up. As input cost comedown with the... input cost comedown more merger benefits. We did have some cash coming in from Vicksburg in the fourth quarter about $30 million, but at the end of day, if we see January and February turn out to be more like December than October, its going to offset all that stuff and maybe more.

Okay, fair enough. In terms of again cash flow and there being lots of unpredictable items obviously you folks on the right things but with the trends that we're seeing with higher interest expense is it possible that first quarter earnings could be closer to breakeven than the current run rate that you saw on the fourth quarter?

I'm just not going to make the forecast, George. We don't... as you know, we don't give guidance and we don't give forecast so.

Okay, understand. And then the last one I'll turn 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'll see this year in every markets and I'm not sure anyone can predict that right now. But if you hit your expected return in 2010, and in 2009 what kind of funding would you have in 2010 or would you have some credits still build up that would push off any funding requirement. Thanks guys.

Thanks George, well on the pension front there is a lot of moving pieces there too as you know in terms of how we choose to value the assets than what we choose to do with the credit balance. So I don't want to speculate on what might happen in 2010, then I think the important point for 2009 is that we're not required to make cash contribution. And what see where we are at this time next year.

Yeah I would add to that I was in Washington yesterday on the health, and I wouldn't be surprised to see some pension funding relief legislation come up before the end of the year and get passed. So I think there is another piece... is this... in a static world what happens well this isn't static, but also I think the strong possibility of some legislative changes to provide a longer ramp period to deal with what we think or one-time events.

Well, I think that would make a lot of sense given how close cyclical would be, but we'll leave that to the side for now. All right guys. Thanks very much, I'll turn it over.

Your next question comes from Richard Skidmore with Goldman Sachs.

Good morning. Just a couple of questions, first John across the businesses have you seen, you mentioned that maybe January might be kind of flattish with December on demand. Can you just elaborate a little bit more about what you're seeing on the demand front in January specifically in corrugated?

Well it happened to have a Bill Harley (ph) sitting here. He runs our box business, so may be I'll let him talk about what he sees going on in January.

Well in comparison to December if January volumes are stronger than December but you all have to remember that the holidays in the last couple of weeks of December had a significant impact on shipments. We're seeing that the December may have been close to a bottoming out period for us and it's slightly stronger going into January and February.

We had gone on their Rick as, not we, but I think the industry is and inventory correction and so, if you look at sort of what's going on in December, I think you're going to have demand falling in excess of the underlying demand levels that people work off inventories everywhere, and try to manage tighter for cash. And so as we get to the end of the quarter whatever that inventory liquidation was, it'll be complete and we'll have a better picture what underlying demand looks like. But it is good news to hear that the box business is little bit better than was in December and I think the same is true in printing paper shipments.

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

While the 33, (ph) the answer to your question is, roughly $30 million if we talk about Vicksburg. That was an insurance proceeds. And Vicksburg did run in the quarter. Nothing ran fall that I can see in industrial packaging, we are at there, everything was up and down during the quarter because we took 700,000 tons plus of downtime.

Okay.

In terms of the footprint going forward, that's an issue we're going to deal with, and I think what you see is International Paper is willing to make tough calls whether its downtime, because we think that's... the economics are right for International Paper or permanently on the footprint side, we'll do that. So, we feel that we need to take down a facility to match our footprint to what we think ongoing underline demand is, we'll do that.

Thank you.

Your next question comes from Christopher John (ph) with Deutsche Bank.

Yeah, thanks. Good morning guys.

Good morning, Chris.

I was just wondering if you could give us some guidance about what's going to happen in 1Q in terms of non-operating item. It seems likely that pension expense is going to go up, but I am wondering what might happen with other corporate items and also what might happen with in terms of plan sales?

Well, Chris, as you know we don't forecast. I think we've spotted in the pension number and obviously the pension expense is going to be up for the full year, so it'll have, have its impact in the quarter. Land sales; I think given this market and the amount of volatility and uncertainty there, we're just not making forecast and we did in last year either, quarter-by-quarter we're taking it as it comes.

And, the pick of it, you were at a tail of land sales, I mean that's winding down, so that's not a need of moving number as International Paper going forward.

Yeah, okay. How about in terms of FX, can you give us an idea of what the impact was on 4Q and what might happen in 1Q if rates stay where they are today?

Yeah, quarter-on-quarter and really for the year or two, its about a $20 million negative. At this point, I have no way of forecasting what's going to happen in the first quarter with currency. But, we've seen some negative impacts in our European businesses offset by some positives in Brazil.

Okay. And then my last question just has to deal with what's going on with caustic soda, I see in your appendix that it finally trended down a little in the last month. Do you see that continuing in January?

Yeah, I don't think its going to move dramatically in any kind of big way. But it did, as you noted turned down a little, we'll have to see how it plays out in the first quarter.

You got to think about caustic, because it's a classic example of supply and demand. I mean there is not much caustic getting made because of the byproduct of ethylene which, a lot of that goes into PVC pipe and things housing related. So, its not much of it getting made, even though demand is way off, pricing is going to hold.

Okay. Thanks for your helpful, guys.

Your next question comes from Gail Glazerman with UBS.

Hi. Good morning.

Hi, Gail.

Just wanted to... just check... I am looking at what happened with shareholders equity at the year-end and that you're looking at the further impairment, was there a sort of any impact on any of your debt covenant?

If its a goodwill impairment, no, because we have an exclusion in the calculation for goodwill, Gail. The other big items that we had were the pension charge to OCI, and we have pretty significant moves 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 following on the question on caustic soda, looking at this on the chart on (ph) what cost those have come down. Would you expect that momentum to continue or is that you saw kind of towards the end of the quarter as good as they get?

Well, what's happening Gail, is the fuel surcharges are coming off, in transportation it's probably a third of our delivered wood cost. So the transportation fees is coming down. The residual side from some mills is getting worse. So we're getting in. Our residual supplies continuing to shrink which means we got to replace that with round wood which means you have to go more miles to get it, but the cost per mile is coming down. And obviously with the follow-up in demand there is less wood getting consumed by everybody, and so that's putting some more supply in the market. So I think we've... we're not going to see the fall off in wood that we saw in OCC, but I think gradually, we should see wood cost comedown unless we have a weather event. But its pretty well connected to energy though to. Because of the fuel surcharges which have gone away.

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

Timing is probably the end of February, middle of the end of February. As the small machine there is not in just... its just a paper machine not a full blown pulp mill, we're getting pulp from DCP remember. We're already running the converting equipment, we've got a good plan in place as you know we've got the Invory (ph) mill in Europe under strategic review that'll be finalized fairly soon. So, I think we've got 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 in around the world. So I wouldn't think there would be... there is not going to be a big chunk of startup cost on that machine they're going to be materials International Paper.

Okay. Thank you.

Your next question comes from Peter Ruschmeier with Barclays Capital.

Thank you, and good morning. On slide 34, you provide some real price utilizations for the quarter. I was curious, I didn't see it in the slide deck as curious if you could help us with the December price or better yet the January price. How that compares versus the fourth quarter averages?

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

We felt pretty good Peter. 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.

Yeah I'd say the exit prices is close to the entry price. So as I suspect there'll be some price leakage in the first quarter given that where demand is, but inventory is also in good shape, so that's a big plus.

Okay. I had a similar question on waste paper. I mean I've got to believe that 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 and 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 index is pretty closely. Is that fair?

Yeah, yes.

Okay, so you can figure that out. Mini question for Tim on the depreciation amortization for the quarter, it was little lower than expected, I just... in light of the first full quarter of Weyerhaeuser contain more business. I just curious if you can share with us any adjustments or considerations in the D&A line.

No not really, I mean you're seeing partial impact, we're estimating the D&A to be about 1.6 billion for 2009 full year.

Okay. All right. And then just lastly, John I'm just curious on if you can elaborate priorities for free cash flow at this time and in particular I'm curious about the dividend which I'm not sure is 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're well under commitment to taking down the current debt levels over the next 18 months with regards to dividend, we generated 500 million of free cash flow in the fourth quarter. We've announced the dividend for the first quarter and at this point we'll take all of these things quarter-by-quarter. So I wouldn't want to speculate on any of the actions that we might take. We're looking at our position and we felt like we came out of the... in the last year in a pretty strong position, all things considered.

And that's an answer that CEO, and the CFO are totally in think on.

Okay, great. Guys thanks very much.

Thank you.

Your next question comes from Mark Weintraub with Buckingham Research.

Thank you. Just following up on the dividend question. Even if it's not a question of 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 in fact the highest yielding... dividend yielding stock in the group which is certainly quite unusual. And might you think it make more sense if you have cash available to be buying back stock as opposed to using it to paying the dividend?

Yeah, that's a fair question, Mark. And I think Tim's answer to the prior question is, the way to think about it. We're taking it one quarter at a time, and we're having those discussions internally and with our Board frequently. But it's a good question.

And then, totally different topic. I was just curious to hear some of the comments that you're making on December business. So it was 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, I'm recognizing that you're seeing January is getting better and since this may become a mood issue. But do you think that... are you feeling any additional pressures due to either the Weyerhaeuser inauguration process certainly, while when the Smurfit-Stone transaction took place several years back, there was a lot of loss business that they experienced. And or maybe perhaps relatively your dividend market strategy et cetera. Do you think that that is having any disproportionate hit on your box demand?

I'll let, Bill answer that, since, market seems close to it.

I am not sure what the other players in the industry add for their experience, what we saw was a really three things that curtail into the year that impacted our volume. We had some plant closures both Weyerhaeuser implemented closures before the acquisition and we announced three in the early part of the quarter. And so there is some impact from that. We also have a mix that maybe slightly more heavily weighted towards durables, building materials and distribution all three of those segments had some inventory corrections of course in December more than others and billing materials is way off. And then we did shed some business both Weyerhaeuser 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.

I'd say on the integrations side, the ability of IP and Weyerhaeuser to put their businesses together very quickly and to do it well was out losing focus on the external market has been superb. So I can't comment on what happened when Smurfit-Stone came together, but I've seen a lot of acquisitions in International Paper and this one has been smoothest and the fastest by far in terms of integration.

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

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

Okay great. Appreciate it.

Your final question comes from Joseph Reagor with John Tumazos.

Good morning, it's Shawn (ph). So far this week in some other sectors, new mining and century of Ilim upraised about $2 billion in equity, extra thought for 5 or $6 billion rights issue this morning on London and Freeport-McMoRan filed Monday morning, it was 750 million of equity. All of these companies have businesses I guess it can be tougher than paper business right now except for gold. But they want to pay down debt and fund their losses. Given the growth that you enjoyed with Weyerhaeuser last year, do you think that your equity would be a reasonable way to delever in the current period of uncertainty, and just as in aside, I am a shareholder and I like your dividend.

Well, I guess John, the easy way to answer that question is, 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 outline to you is appropriate for the circumstances we're in. And if the circumstances change we'll look at other options. And there is certainly lots of option that we have, and we got more operational options with Weyerhaeuser, really have lots of financial options. I think the important think is, as we ended this with a pretty strong position on the cash flow side and the cash balance side. I guess just wrapping up, since that was the last question. Within the conference call, so for all of this to kind of get to think anytime longer-term in the next quarter and not be more pessimistic than we were last quarter. But I was in Washington yesterday, the others going to be a stimulus package is past that's probably not going to be perfect, but I think its going to help the economy. I think that 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 so (ph) and at the end of day there is a lay at the end of the tunnel and its not a train, we just can't see it yet. So, this economy and global economies will improve and when you look beyond all the works you were pretty positive about where international paper is positioned and our ability to manage through this and I think we demonstrated that in the fourth quarter and we may have a couple of more quarters to go through it. So, I think we're well positioned to weather what is a real down in 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'll just wrap it up, I appreciated your calling in and look forward to talking to you next quarter. Thanks.

This concludes today's fourth quarter and 2008 earnings conference call. You may now disconnect.