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United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

For the fiscal year ended December 31, 2010

or

For the transition period from                       to                        

Commission file number 1-03439

Smurfit-Stone Container Corporation

(Exact name of registrant as specified in its charter)

Registrant’s Telephone Number: (312) 346-6600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x  No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $2.5 billion, based on the closing price of $24.75 per share of such stock on the New York Stock Exchange on June 30, 2010.

The number of shares outstanding of the registrant’s common stock as of February 9, 2011: 93,564,459.

DOCUMENTS INCORPORATED BY REFERENCE:

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EXPLANATORY NOTE

This Amendment No. 1 amends our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (“Amendment No. 1”), which we filed with the Securities and Exchange Commission (“the SEC”) on February 15, 2011 (the “Original Form 10-K”).  This Amendment No. 1 is being filed to (1) amend certain language in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation by (a) replacing  the discussion of  certain combined financial data for the predecessor period ended June 30, 2010 and the successor period ended December 31, 2010 with a discussion of  such data  for each of the predecessor  period and the successor period and (b) providing more detailed disclosure with respect to Smurfit-Stone’s financial condition, liquidity and capital resources in light of the bankruptcy and revised financing arrangements, including a long-term assessment of liquidity needs and resources, and (2) file Exhibit 10.1. We are also including in this Amendment No. 1 the consent of Ernst & Young LLP as Exhibit 23.2 and certifications of our principal executive officer and principal financial officer as Exhibits 31.3 and 31.4.

This Amendment No. 1 is being filed in response to comments received from the staff of the Division of Corporation Finance of the SEC in connection with the staff’s review of the Original Form 10-K. We have made no attempt in this Amendment No. 1 to modify or update the disclosures presented in the Original Form 10-K other than as noted above. Also, this Amendment No. 1 does not reflect events occurring after the filing of the Original Form 10-K.  Accordingly this Form 10-K/A should be read in conjunction with Original Form 10-K.

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FORWARD-LOOKING STATEMENTS

Except for the historical information contained in this Annual Report on Form 10-K/A, certain matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those contained in such forward-looking statements. When used in this document, the words “anticipates,” “believes,” “expects,” “intends” and similar expressions as they relate to Smurfit-Stone Container Corporation, its operations or its management are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties are discussed in Part I, Item 1A, “Risk Factors” to the Original Form 10-K.

Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do so, what impact they will have on our results of operations or financial condition. We expressly decline any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL MEASURES

In the accompanying analysis of financial information, we use the financial measures “adjusted net income (loss) attributable to common stockholders” (“adjusted net income (loss)”), “adjusted net income (loss) per diluted share attributable to common stockholders” (“adjusted net income (loss) per diluted share”), “EBITDA” and “adjusted EBITDA” which are derived from our consolidated financial information but are not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These measures are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (“SEC”) rules. Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP financial measures that exclude from net income (loss) attributable to common stockholders the effects of reorganization items (income) expense, debtor-in-possession financing costs, alternative fuel mixture tax credits, loss on early extinguishment of debt, non-cash foreign currency exchange (gains) losses, interest on Predecessor unsecured debt, restructuring charges, (gain) loss on disposal of assets, a multi-employer pension plan withdrawal charge, goodwill and other intangible assets impairment charges, litigation charges, loss on ineffective interest rate swaps marked-to-market and resolution of income tax matters. EBITDA is defined as net income (loss) before (provision for) benefit from income taxes, goodwill and other intangible assets impairment charges, interest expense, net and depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA adjusted for reorganization items (income) expense, debtor-in-possession financing costs, alternative fuel mixture tax credits, loss on early extinguishment of debt, non-cash foreign currency exchange (gains) losses, restructuring charges, (gain) loss on disposal of assets, a multi-employer pension plan withdrawal charge, litigation charges, receivables discount expense and other adjustments.

We use these supplemental non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors and to establish operational goals and forecasts that are used in allocating resources. These non-GAAP measures of operating results are reported to our board of directors, chief executive officer and our president and chief operating officer and are used to make strategic and operating decisions and assess performance. These non-GAAP measures are presented to enhance an understanding of our operating results and are not intended to represent cash flows or results of operations. We also believe these non-GAAP measures are beneficial to investors, potential investors and other key stakeholders, including analysts and creditors who use these measures in their evaluations of our performance from period to period and against the performance of other companies in our industry. The use of these non-GAAP financial measures is beneficial to these stakeholders because they exclude certain items that management believes are not indicative of the ongoing operating performance of our business, and including them would distort comparisons to our past operating performance. Accordingly, we have excluded the adjustments, as detailed below, for the purpose of calculating these non-GAAP measures.

The following is an explanation of each of the adjustments that we have made to arrive at these non-GAAP measures for (1) the six months ended December 31, 2010 of the Successor, (2) the six months ended June 30, 2010 of the Predecessor and (3) the years ended December 31, 2009 and 2008 of the Predecessor, as well as the reasons management believes each of these items is not indicative of operating performance:

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Adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA have certain material limitations associated with their use as compared to net income (loss). These limitations are primarily due to the exclusion of certain amounts that are material to our consolidated results of operations, as discussed above. In addition, these adjusted net income (loss) and EBITDA measures may differ from adjusted net income (loss) and EBITDA calculations of other companies in our industry, limiting their usefulness as comparative measures. Because of these limitations, adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted net income (loss), adjusted net income (loss) per diluted share,

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EBITDA and adjusted EBITDA only as supplemental measures of our operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.

We believe that providing these non-GAAP measures in addition to the related GAAP measures provides investors greater transparency to the information our management uses for financial and operational decision-making and allows investors to see our results as management sees them. We also believe that providing this information better enables investors to understand our operating performance and to evaluate the methodology used by our management to evaluate and measure our operating performance, and the methodology and financial measures used by our board of directors to assess management’s performance.

The following financial presentation includes a reconciliation of net income (loss) attributable to common stockholders and net income (loss) per diluted share attributable to common stockholders, the most directly comparable GAAP financial measures, to adjusted net income (loss) attributable to common stockholders and adjusted net income (loss) per diluted share attributable to common stockholders, respectively. The adjustments to GAAP net income (loss) attributable to common stockholders for the Predecessor period of the year ended December 31, 2008 and the Successor period ended December 31, 2010 were tax effected; however for the Predecessor periods of the six months ended June 30, 2010 and the year ended December 31, 2009, other than reorganization items (income) expense, the adjustments were not tax effected because it was more likely than not that substantially all of the deferred tax assets that were generated during bankruptcy would not be realized and we did not record any additional tax benefit. Due to the effects of the Plan of Reorganization, we concluded that it was more likely than not that substantially all of the deferred tax assets would be realized and we recognized an income tax benefit related to reorganization items in the six months ended June 30, 2010. For the six months ended December 31, 2010, we recorded a provision for income taxes related to the Successor statement of operations. As a result, the Successor period adjustments to net income (loss) attributable to stockholders are presented on a net of tax basis.

A reconciliation of net income (loss) to EBITDA and adjusted EBITDA is also presented.

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Reconciliation to GAAP Financial Measures

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Reconciliation to GAAP Financial Measures

OVERVIEW

We are an integrated manufacturer of paperboard and paper-based packaging. Our major products are containerboard, corrugated containers, market pulp, reclaimed fiber and kraft paper. We operate in one reportable industry segment. Our mill operations supply paper to our corrugated container converting operations. The products of our converting operations, as well as the mill and recycling tonnage in excess of what is consumed internally, are the main products sold to third parties. Our operating facilities and customers are located primarily in the United States and Canada.

Market conditions and demand for our products are subject to cyclical changes in the economy and changes in industry capacity, both of which can significantly impact selling prices and our profitability. In recent years, the loss of U.S. manufacturing to offshore competition and the changing retail environment in the U.S. has played a key role in reducing growth in domestic packaging demand. The influence of superstores and discount retailing giants, as well as the impact from online shopping, has resulted in a shifting of demand to packaging which is more condensed, lighter weight and less expensive. These factors have greatly influenced the corrugated industry.

For the six months ended December 31, 2010 and June 30, 2010 and the year ended December 31, 2009, we had operating income (loss) of $245 million, $(37) million and $293 million, respectively. Operating income for the six months ended December 31, 2010 and June 30, 2010 was positively impacted by higher segment profits principally due to higher average selling prices for containerboard, higher third-party sales volume of containerboard and corrugated containers and reduced market-related downtime, which were partially offset by higher costs for reclaimed fiber. The 2009 operating profit was positively impacted by other operating income of $633 million related to the alternative fuel tax credits but was negatively impacted by lower average sales prices, lower sales volumes and higher restructuring expenses, due primarily to the closure of two containerboard mills.

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Our outlook for 2011 is for business fundamentals and packaging demand to remain stable. While we expect inflation in our fiber, energy and other key input costs, we expect improved earnings in 2011 compared to 2010 due to higher average sales prices and volumes and incremental benefits from our selling and administrative cost reductions.

SUBSEQUENT EVENTS

On January 23, 2011, the Company and Rock-Tenn entered into the Merger Agreement, pursuant to which the Company will merge with and into a subsidiary of Rock-Tenn. This Merger, unanimously approved by the Boards of Directors of both companies, will create a leader in the North American paperboard packaging market with combined revenues of approximately $9 billion.

For each share of our common stock, our stockholders will be entitled to receive 0.30605 shares of Rock-Tenn common stock and $17.50 in cash, representing 50% cash and 50% stock on the date of the signing of the Merger Agreement. On January 23, 2011, the equity consideration was $35 per our common share or approximately $3.5 billion, consisting of approximately $1.8 billion of cash and the issuance of approximately 30.9 million shares of Rock-Tenn common stock. In addition, Rock-Tenn will assume our liabilities, including debt and underfunded pension liabilities, which were $1,194 million and $1,145 million, respectively, at December 31, 2010. Following the acquisition, Rock-Tenn stockholders will own approximately 56% and our stockholders will own 44% of the combined company.

The transaction is expected to close in the second quarter of 2011 and is subject to customary closing conditions, regulatory approvals, as well as approval by both Rock-Tenn and our stockholders.

REORGANIZATION ITEMS AND OTHER BANKRUPTCY COSTS

For the six months ended December 31, 2010, we recorded reorganization items expense of $12 million as we continued to incur costs related to professional fees that are directly attributable to the reorganization.

Reorganization items income of $1,178 million for the six months ended June 30, 2010, include a gain from the bankruptcy emergence plan effects of $580 million and a gain on fresh start accounting adjustments of $742 million, which were partially offset by other reorganization charges including provision for rejected/settled executory contracts and leases and professional fees. The gain due to plan effects represents the net gains recorded as a result of implementing the Plan of Reorganization, including eliminating approximately $2,439 million of debt. The gain due to fresh start accounting represents the net gains recognized as a result of adjusting all assets and liabilities to fair value.

During 2009, we recorded income for reorganization items of $40 million which was directly related to the process of our reorganizing under Chapter 11 and the CCAA. Debtor-in-possession debt issuance costs of $63 million were incurred and paid during 2009 in connection with entering into the DIP Credit Agreement, and are separately disclosed in the consolidated statements of operations. For additional information, see Part I, Item 1. Business — Bankruptcy Proceedings — Financial Reporting Considerations-”Reorganization Items” and “Other Bankruptcy Related Costs.”

ALTERNATIVE FUEL TAX CREDIT

The U.S. Internal Revenue Code allowed an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer’s trade or business through December 31, 2009, at which time the credit expired. In May 2009, we were notified that our registration as an alternative fuel mixer was approved by the Internal Revenue Service. We subsequently submitted refund claims of approximately $654 million for 2009 related to production at ten of our U.S. mills. We received refund claims of $595 million in 2009 and $59 million during the first quarter of 2010. We recorded other operating income of $633 million, net of fees and expenses, in our consolidated statements of operations related to this matter during 2009. In March 2010, we recorded other operating income of $11 million relating to an adjustment of refund claims submitted in 2009. We expect to receive the $11 million refund claim during the first quarter of 2011.

RESTRUCTURING ACTIVITIES

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce costs. These actions will subject us to additional short-term costs, which may include facility shutdown costs, asset impairment charges, lease commitment costs, severance costs and other closing costs.

For the six months ended December 31, 2010, we closed two converting facilities and sold four previously closed facilities. In addition, we initiated a plan to reduce our selling and administrative costs, primarily through reductions in our workforce in these functions. We recorded restructuring charges of $25 million, primarily for severance and benefits related to the closure of these facilities and the reduction in selling and administrative workforce. Restructuring charges included non-cash charges totaling $3 million of which $4 million was due to the acceleration of stock compensation expense from the reductions in workforce, offset by a $1 million non-qualified pension plan curtailment gain. We reduced our overall headcount by approximately 960 employees. The net sales of the closed converting facilities in 2010 prior to closure and for the years ended December 31, 2009 and 2008 were $53 million, $44 million, and $31 million, respectively. The majority of these net sales are expected to be transferred to other operating facilities. We expect to realize net savings of more than $50 million in our selling and administrative costs in 2011 compared to 2010 and have identified opportunities for additional savings impacting 2012.

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For the six months ended June 30, 2010, we closed four converting facilities and sold five previously closed facilities. As a result of these closure activities and other ongoing initiatives, we reduced our headcount by approximately 900 employees. We recorded restructuring charges of $15 million, including a $12 million gain related to the sale of previously closed facilities, of which $8 million resulted from the legal release of environmental liability obligations. Restructuring charges included non-cash charges of $11 million related to the acceleration of depreciation for converting equipment abandoned or taken out of service. The remaining charges of $16 million were for severance and benefits, lease commitments and facility closure costs. The net sales of these closed converting facilities in 2010 prior to closure and for the years ended December 31, 2009 and 2008 were $21 million, $97 million, and $125 million, respectively. The majority of these net sales are expected to be transferred to other operating facilities.

In 2009, we closed 11 converting facilities and permanently ceased production at the Ontonagon, Michigan medium mill and the Missoula, Montana linerboard mill. As a result of these closures and other ongoing initiatives, we reduced our headcount by approximately 2,350 employees. We recorded restructuring charges of $319 million, net of gains of $4 million from the sale of properties related to previously closed facilities. Restructuring charges included non-cash charges of $254 million related to the write-down of assets, primarily property, plant and equipment, to estimated net realizable values and the acceleration of depreciation for converting equipment expected to be abandoned or taken out of service. The remaining charges of $69 million were primarily for severance and benefits. The net sales of the closed converting facilities in 2009 prior to closure and for the year ended December 31, 2008 were $62 million and $217 million, respectively. The Ontonagon, Michigan medium mill had annual production capacity of 280,000 tons and the Missoula, Montana linerboard mill had annual production capacity of 620,000 tons.

In 2008, we closed eight converting facilities, announced the closure of two additional converting facilities and permanently ceased operations of our containerboard machine at the Snowflake, Arizona mill and production at the Pontiac pulp mill located in Portage-du-Fort, Quebec. As a result of these closures and other ongoing initiatives, we reduced our headcount by approximately 1,230 employees. We recorded restructuring charges of $67 million, net of a gain of $2 million from the sale of a previously closed facility. Restructuring charges included non-cash charges of $23 million related to the write-down of assets, primarily property, plant and equipment, to estimated net realizable values and the acceleration of depreciation for mill and converting equipment expected to be abandoned or taken out of service. The remaining charges of $46 million were primarily for severance and benefits. The net sales of the announced and closed converting facilities in 2008 prior to closure were $264 million. The Snowflake, Arizona containerboard machine had the capacity to produce 135,000 tons of medium annually. The Pontiac pulp mill had annual production capacity of 253,000 tons of northern bleached hardwood kraft paper-grade pulp, which was non-core to our primary business.

GOODWILL AND OTHER INTANGIBLE ASSETS IMPAIRMENT CHARGES IN 2008

As the result of the significant decline in value of our equity securities and our debt instruments and downward pressure placed on earnings by the weakening U.S. economy, we evaluated the carrying amount of our goodwill and other intangible assets for potential impairment in the fourth quarter of 2008. We obtained third-party valuation reports as of December 31, 2008 that indicated the carrying amounts of our goodwill and other intangible assets were fully impaired based on declines in current and projected operating results and cash flows due to the current economic conditions. As a result, we recognized pretax impairment charges on goodwill and other intangible assets of $2,727 million and $34 million, respectively, during 2008. The goodwill consisted primarily of amounts recorded in connection with our merger with Stone Container Corporation in November of 1998.

RESULTS OF OPERATIONS

Recently Adopted Accounting Standards

Effective January 1, 2010, we adopted the amendments to ASC 860, “Transfers and Servicing” (“ASC 860”). The amendments removed the concept of a qualifying special-purpose entity and the related impact on consolidation, thereby potentially requiring consolidation of such special-purpose entities previously excluded from the consolidated financial statements. The amendments to ASC 860 did not impact our consolidated financial statements.

Effective January 1, 2010, we adopted the amendments to ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The amendments require new disclosures for transfers in and out of fair value hierarchy Levels 1 and 2 and activity within fair value hierarchy Level 3. The amendments also clarify existing disclosures regarding the disaggregation for each class of assets and liabilities, and the disclosures about inputs and valuation techniques. The amendments to ASC 820 did not have a material impact on our consolidated financial statements.

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Financial Data

Note 1: Corporate expenses and other include corporate expenses and other expenses that are not allocated to operations.

2010 COMPARED TO 2009

Effect of Fresh Start Accounting

The application of fresh start accounting affected certain assets, liabilities, and expenses. As a result, certain financial information of the Successor as of and for the period after June 30, 2010 is not comparable to Predecessor financial information. Therefore, we did not combine financial information for the Successor period July 1, 2010 through December 31, 2010 with the Predecessor period January 1, 2010 through June 30, 2010.  Refer to Note 1 to our Notes to Consolidated Financial Statements for additional information on fresh start accounting.

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Net Sales

Net sales for the six months ended December 31, 2010 and June 30, 2010 were positively impacted by higher average selling prices ($419 million and $85 million, respectively) compared to the year ended December 31, 2009 for containerboard, corrugated containers and reclaimed materials.  The average price for old corrugated containers (“OCC”) increased approximately $60 per ton and $100 per ton for the six months ended December 31, 2010 and June 30, 2010 respectively, compared to last year.

Cost of Goods Sold

Our cost of goods sold as a percentage of net sales for the six months ended December 31, 2010 was positively impacted by higher average selling prices. Our containerboard mills operated at 97.4%, 98.7% and 85.4% of capacity for the six months ended December 31, 2010 and June 30, 2010, and the year ended 2009, respectively. Due to market conditions we took approximately 22,000 tons, zero tons and 1,029,000 tons of containerboard market related downtime for the six months ended December 31, 2010 and June 30, 2010, and the year ended December 31, 2009, respectively.

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended December 31, 2010 were favorably impacted by the initiation of our plan to reduce our selling and administrative costs, primarily through reductions in our workforce in these functions. Selling and administrative expenses for the six months ended June 30, 2010 were unfavorably impacted by amounts accrued under our 2009 long-term incentive plan and higher benefit cost in the first half of the year due to timing.

Other

Interest expense, net was $45 million for the six months ended December 31, 2010, including amortization of deferred debt issuance costs and original issue discount of $5 million. Average borrowings under the Successor Exit Credit Facilities were $1,198 million, with an overall average effective interest rate of approximately 6.75%.

Interest expense, net was $23 million and $265 million for the six months ended June 30, 2010 and the year ended December 31, 2009, respectively. Average borrowings under the Predecessor credit facilities were $3,801 million and $4,095 million, including average secured borrowings of $1,362 million and $1,656 million, for the six months ended June 30, 2010 and the year ended December 31, 2009, respectively.

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Our overall average effective interest rate, excluding unsecured debt, was approximately 3.5% and 5.4% for the six months ended June 30, 2010 and the year ended December 31, 2010, respectively. For the year ended December 31, 2009, we recorded interest expense of $163 million on unsecured debt from the Petition Date through November 30, 2009. In December 2009, we discontinued recording interest expense on unsecured debt when the Proposed Plan of Reorganization was issued, and we concluded it was not probable that interest expense that was accrued from the Petition Date through November 30, 2009 would be an allowed claim. In December 2009, we recorded income in reorganization items for the reversal of $163 million post-petition unsecured interest expense accrued from the Petition Date through November 30, 2009, and discontinued recording unsecured interest expense.

In 2009, we recorded a loss on early extinguishment of debt of $20 million for the non-cash write off of deferred issuance costs related to the Stevenson, Alabama mill industrial revenue bonds, which were repaid.

We recorded non-cash foreign currency exchange gains of $3 million and losses of $14 million for the six months ended June 30, 2010 and the year ended December 31, 2009, respectively. Upon emergence, we reviewed the primary economic indicators for our Canadian operations under the Reorganized Smurfit-Stone and determined the functional currency for our Canadian operations to be the local currency. As a result, effective July 1, 2010, translation gains or losses are included with stockholders’ equity as part of OCI.

For the six months ended June 30, 2010, we recorded an income tax benefit of $199 million primarily due to the $200 million income tax benefit related to the effects of the plan of reorganization and application of fresh start accounting which principally includes adjustments for cancellation of indebtedness, valuation allowances and unrecognized tax benefits.

For the six months ended December 31, 2010, we recorded an income tax provision of $76 million. The provision for income taxes differed from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes due primarily to income adjustments resulting from reconciling filed tax returns to the recorded tax provision, state income taxes, and the effects of foreign tax rates.

2009 COMPARED TO 2008

We had a net loss attributable to common stockholders of $3 million, or $0.01 per share, compared to a net loss of $2,830 million, or $11.01 per share, for 2008. The 2009 results benefited from the alternative fuel tax credit income of $633 million and lower costs, but were negatively impacted by higher restructuring expense of $252 million and lower sales prices and sales volume for corrugated containers and containerboard. The 2008 loss includes goodwill and other intangible assets impairment charges of $2,761 million, or $10.74 per share, but includes a benefit of $84 million, or $0.33 per share, from the resolution of Canadian income tax examination matters and $36 million of foreign currency exchange gains.

Net sales decreased 20.8% in 2009 compared to last year. Net sales were $846 million lower in 2009, as a result of lower third-party sales volume of containerboard, corrugated containers and reclaimed fiber. Third-party shipments of containerboard were lower due primarily to weaker demand in the markets in which we operate. North American shipments of corrugated containers in 2009 were negatively impacted by weaker market conditions and container plant closures. Net sales were also impacted by lower average selling prices ($622 million) for containerboard, corrugated containers and reclaimed fiber. The average price for OCC decreased approximately $45 per ton compared to last year.

Our containerboard mills operated at 85.4% of capacity in 2009, compared to 95.5% in 2008. Containerboard production was 12.0% lower compared to 2008 due primarily due to the market related downtime taken by our mills as a result of lower demand in 2009. In response to the weaker market conditions in 2009, we took approximately 1,029,000 tons of containerboard market related downtime compared to 245,000 tons in 2008. Production of market pulp decreased by 37.4% compared to last year due primarily to the closure of the Pontiac pulp mill in October 2008. Production of kraft paper decreased 24.1% compared to last year due primarily to lower demand, which resulted in market related downtime incurred during the first half of 2009. Total tons of fiber reclaimed and brokered decreased 19.8% compared to last year due to the lower containerboard production and weaker demand.

Cost of goods sold as a percent of net sales in 2009 was 90.1%, comparable to 90.0% in 2008. Cost of goods sold decreased from $6,338 million in 2008 to $5,023 million in 2009 due primarily to lower sales volumes ($761 million) for containerboard, corrugated containers and reclaimed materials and lower costs as a result of the additional market related downtime taken in 2009. In addition, we had lower costs of reclaimed material ($268 million), freight ($64 million) and energy ($53 million).

Selling and administrative expense decreased $76 million in 2009 compared to 2008 primarily due to cost reductions from ongoing and prior year initiatives. In addition, 2008 includes the impact of the Calpine Corrugated charges totaling $22 million (See Note 6 of the Notes to Consolidated Financial Statements). Selling and administrative expense as a percent of net sales increased to 10.2% in 2009 from 9.2% in 2008 due primarily to the lower sales volume.

Interest expense, net was $265 million in 2009. The $3 million increase compared to 2008 was impacted by higher average borrowings ($35 million), which were partially offset by lower average interest rates ($20 million) in 2009. The higher average borrowings in 2009 were primarily due to borrowings under the DIP Credit Agreement, which were repaid in the second half of 2009. Our overall average effective interest rate in 2009 was lower than 2008 by 0.50%. For the year ended December 31, 2009, we recorded interest expense of $163 million on

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unsecured debt from the Petition Date through November 30, 2009. In December 2009, we discontinued recording interest expense on unsecured debt when the Proposed Plan of Reorganization was issued and we concluded it was not probable that interest expense that was accrued from the Petition Date through November 30, 2009 would be an allowed claim. In December 2009, we recorded income in reorganization items for the reversal of $163 million of accrued post-petition unsecured interest expense in the consolidated statement of operations. For additional information on reorganization items, see Part I, Item 1. Business — Bankruptcy Proceedings — Financial Reporting Considerations — “Reorganization Items.” In 2008, a portion of our interest rate swap contracts were deemed to be ineffective and were marked-to-market, resulting in $12 million of additional interest expense.

In 2009, we recorded a loss on early extinguishment of debt of $20 million for the non-cash write-off of deferred debt issuance costs related to the Stevenson, Alabama mill industrial revenue bonds, which were repaid.

In 2009, we recorded non-cash foreign currency exchange losses of $14 million compared to gains of $36 million for the same period in 2008.

For 2009, we recorded a gain of $40 million related to the process of reorganizing under Chapter 11 and the CCAA. For additional information on reorganization items, see Part I, Item 1. Business — Bankruptcy Proceedings — Financial Reporting Considerations — “Reorganization Items.”

The benefit from income taxes for the year ended December 31, 2009 of $23 million differed from the amount computed by applying the statutory U.S. federal income tax rate to loss before income taxes due primarily to the effect of refunds for previously unrecognized alternative minimum tax credits that we expect to receive in 2010.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2010, we had cash and cash equivalents of $449 million compared to $704 million at December 31, 2009. Related to our Plan of Reorganization, our debt was reduced from $3,793 million at December 31, 2009 to $1,194 million upon emergence at June 30, 2010. Long-term debt at December 31, 2010 was $1,194 million. As of December 31, 2010, the amount available for borrowings under the ABL Revolving Facility after considering outstanding letters of credit was $534 million.

The following table presents a summary of our cash flows for the noted periods:

Net Cash Provided By (Used For) Operating Activities

Successor

The net cash provided by operating activities for the six months ended December 31, 2010 of $211 million benefited from higher selling prices and operating income. Operating cash flows were unfavorably impacted by pension contributions of $185 million, including a discretionary pension contribution of $105 million.

Predecessor

The net cash used for operating activities for the six months ended June 30, 2010 of $85 million was impacted by payments of $202 million to settle prepetition liabilities, excluding debt.

Net cash provided by operating activities in 2009 of $1,094 million was primarily due to alternative fuel tax credit receipts of $595 million and the impact of the bankruptcy filing. Our cash flow from operating activities was favorably impacted by the stay of payment of liabilities subject to compromise, including accounts payable and interest payable, resulting from the bankruptcy filings.

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Net Cash Provided By (Used For) Investing Activities

Successor

Net cash used for investing activities was $97 million for the six months ended December 31, 2010. Expenditures for property, plant and equipment were $106 million. The amount expended for property, plant and equipment included $104 million for projects related to upgrades, cost reductions and ongoing initiatives and $2 million for environmental projects. During the six months ended December 31, 2010, we received proceeds of $9 million primarily related to the sales of previously closed facilities.

Predecessor

For the six months ended June 30, 2010, net cash used for investing activities was $73 million including expenditures for property, plant and equipment of $83 million, which were partially offset by net proceeds of $10 million from sales of previously closed facilities.

Net cash used for investing activities was $139 million in 2009. Expenditures for property, plant and equipment were $172 million. During 2009, we received proceeds of $48 million primarily related to the sale of our Canadian timberlands ($27 million) and previously closed facilities. Advances to affiliates, net in 2009 of $15 million were principally related to funding an obligation pertaining to a guarantee for a previously non-consolidated affiliate.

Net Cash Provided By (Used For) Financing Activities

Successor

Net cash used for financing activities for the six months ended December 31, 2010 was $7 million. During the six months ended December 31, 2010, we paid $6 million on the Term Loan as required under the Term Loan Facility.

Predecessor

Net cash used for financing activities for the six months ended June 30, 2010 was $206 million. We obtained proceeds of $1,188 million (net of $12 million original issue discount) under the Term Loan Facility, which together with available cash, were used to repay Predecessor debt of $1,347 million and pay debt issuance costs on exit credit facilities and other financing costs of $47 million.

Exit Credit Facilities

Pursuant to the approval of the U.S. Court on February 22, 2010, we and certain of our subsidiaries entered into the Term Loan Facility that provides for an aggregate term loan commitment of $1,200 million. In addition, we entered into the ABL Revolving Facility with aggregate commitments of $650 million (including a $100 million Canadian Tranche) on April 15, 2010. The ABL Revolving Facility includes a $150 million sub-limit for letters of credit.

We are permitted, subject to obtaining lender commitments, to add one or more incremental facilities to the Term Loan Facility in an aggregate amount up to $400 million. Each incremental facility is conditioned on (a) there existing no defaults, (b) in the case of incremental term loans, such loans have a final maturity no earlier than, and a weighted average life no shorter than, the Term Loan Facility, and (c) after giving effect to one or more incremental facilities, the consolidated senior secured leverage ratio shall be less than 3.00 to 1.00. If the interest rate spread applicable to any incremental facility exceeds the interest rate spread applicable to the Term Loan Facility by more than 0.25%, then the interest rate spread applicable to the Term Loan Facility will be increased to equal the interest rate spread applicable to the incremental facility.

We are permitted, subject to obtaining lender commitments, to add incremental commitments under the ABL Revolving Facility in an aggregate amount up to $150 million. Each incremental commitment is conditioned on (a) there existing no defaults, (b) any new lender providing an incremental commitment shall require the consent of the Administrative Agent, each Issuing Lender, the Swingline Lender and the Fronting Lender, (c) the minimum amount of any increase must be at least $25 million,

(d) we shall not increase the commitments more than three times in the aggregate, (e) if the interest rate margins and commitment fees with respect to the incremental commitments are higher than those applicable to the existing commitments under the ABL Revolving Facility, then the interest rate margins and commitment fees for the existing commitments under the ABL Revolving Facility will be increased to match those for the incremental commitments, and (f) the satisfaction of other customary closing conditions.

On June 30, 2010, the Term Loan Facility was funded and borrowings became available under the ABL Revolving Facility. The proceeds of the borrowings under the Term Loan Facility of $1,200 million, together with available cash, were used to repay our outstanding secured indebtedness under our pre-petition Credit Facility and pay remaining fees, costs and expenses related to and contemplated by the Exit Credit Facilities and the Plan of Reorganization. As of December 31, 2010 we had no borrowings under the ABL Revolving Facility and $1,194 million under the Term Loan Facility. As a result of Excess Cash Flows, as defined in our Term Loan Facility, during the six months

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ended December 31, 2010, we are required to pay $23 million in March 2011 on the Term Loan Facility. Borrowings under the ABL Revolving Facility are available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes. As of December 31, 2010, our borrowing base under the ABL Revolving Facility was $618 million and the amount available for borrowings after considering outstanding letters of credit was $534 million.

For additional information on the Exit Credit Facilities, see Part I, Item 1. Business — Bankruptcy Proceedings — Proposed Plan of Reorganization and Exit Credit Facilities — “Exit Credit Facilities.”

FUTURE CASH FLOWS

Contractual Obligations and Commitments

In addition to our debt commitments at December 31, 2010, we had other commitments and contractual obligations that require us to make specified payments in the future. The table indicates the years in which payments are due under the contractual obligations.

(1)         Projected contractual interest payments are excluded. Based on interest rates in effect and long-term debt balances outstanding as of December 31, 2010, hypothetical projected contractual interest payments would be approximately $80 million in 2011 and for each future year. For the purpose of this disclosure, our variable and fixed rate long-term debt would be replaced at maturity with similar long-term debt. This disclosure does not attempt to predict future cash flows or changes in interest rates. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk, Interest Rate Risk.”

(2)         Amounts shown consist primarily of national supply contracts to purchase steam and other energy resources, the processing of wood and to purchase containerboard. We do not aggregate open purchase orders executed in the normal course of business by each of our operating locations and such purchase orders are therefore excluded from the table.

(3)         Amounts shown are estimates of future spending on capital projects which were committed to prior to December 31, 2010, but were not completed by December 31, 2010.

(4)         Amounts shown consist primarily of future minimum pension contributions. The amounts also include severance costs, other rationalization expenditures and environmental liabilities which have been recorded in our December 31, 2010 consolidated balance sheet. The table does not include our deferred income tax liability and accruals for self-insured losses because it is not certain when these liabilities will become due. See Future Cash Flows — “Pension Obligations.”

Our ABL Revolving and Term Loan Facilities expire on June 30, 2014 and 2016, respectively.  We expect that our cash and cash equivalents of $449 million at December 31, 2010, amounts available for borrowings under the ABL Revolving Facility of $534 million at December 31, 2010, and our cash flows from operating activities, in combination, will be sufficient over the next five years to meet our obligations and commitments, including the projected pension contribution requirements discussed below, capital expenditures, debt service, and costs related to environmental compliance.

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Contingent Obligations

We issue standby letters of credit primarily for performance bonds and for self-insurance. Letters of credit are issued under our revolving credit facilities, generally have a one-year maturity and are renewed annually. As of December 31, 2010, we had approximately $84 million of letters of credit outstanding.

We have certain woodchip processing contracts, which provide for guarantees of third party contractors’ debt outstanding, with a security interest in the chipping equipment. Guarantee payments would be triggered in the event of a loan default by any of the contractors. The maximum potential amount of future payments related to all of such arrangements as of December 31, 2010 was $22 million. Cash proceeds received from liquidation of the chipping equipment would be based on market conditions at the time of sale, and we may not recover in full the guarantee payments made.

Pension Obligations

At December 31, 2010, the qualified defined pension benefit plans, which were assumed under the Plan of Reorganization, were underfunded by approximately $1,132 million based on actual asset values and the discount rates effective on December 31, 2010. The weighted average discount rates used at December 31, 2010 for the U.S. and Canadian qualified defined benefit pension plans were 5.32% and 5.21%, respectively. We currently estimate that the cash contributions under the U.S. and Canadian qualified pension plans will be approximately $109 million in 2011. We currently estimate that contributions will be in the range of approximately $250 million to $340 million annually in 2012 through 2015. Projected pension contributions reflect that we have elected funding relief under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, and also reflect our election of Canada’s funding relief measures made in 2009 and 2010. The actual required amounts and timing of such future cash contributions will be highly sensitive to changes in the applicable discount rates and returns on plan assets.

Exit Liabilities

Successor

We recorded restructuring charges of $25 million for the six months ended December 31, 2010, primarily for severance and benefits related to the closure of facilities and the reduction in our selling and administrative workforce.

We had $25 million of exit liabilities as of June 30, 2010, related to the restructuring of our operations. For the six months ended December 31, 2010, we incurred cash expenditures of $20 million for these exit liabilities. The exit liabilities remaining as of December 31, 2010, including the 2010 restructuring activities, totaled $27 million. Future cash outlays, principally for severance and benefits cost and long-term lease commitments and facility closure cost, are expected to be $26 million in 2011, insignificant amounts in 2012 and 2013, and $1 million thereafter. We intend to continue funding exit liabilities through operations as originally planned.

Predecessor

We recorded restructuring charges of $15 million for the six months ended June 30, 2010, net of gains of $12 million from the sale of properties related to previously closed facilities, of which $8 million resulted from the legal release of environmental liability obligations. Restructuring charges include non-cash charges of $11 million related to the acceleration of depreciation for converting equipment abandoned or taken out of service. The remaining charges of $16 million were for severance and benefits, lease commitments and facility closure costs.

We had $54 million of exit liabilities as of December 31, 2009, related to the restructuring of our operations. For the six months ended June 30, 2010, we incurred $23 million of cash disbursements, primarily severance and benefits, related to these exit liabilities. In addition, these exit liabilities were reduced by $8 million resulting from the release of environmental liability obligations upon the sale of previously closed facilities and $3 million due to the reclassification of multi-employer pension plan liabilities to liabilities subject to compromise. During the six months ended June 30, 2010, we incurred $11 million of cash disbursements, primarily severance and benefits, related to exit liabilities established during 2010.

Environmental Matters

As discussed in Part I, Item 1. Business, “Environmental Compliance,” we completed all projects required to bring us into compliance with the now vacated Boiler MACT. However, we could incur significant expenditures due to changes in law or discovery of new information. In addition, it is not yet known when greenhouse gas emission laws or regulations may come into effect, nor is it currently possible to estimate the cost of compliance with such laws or regulations. Excluding spending on Boiler MACT projects and other one-time compliance costs, we have spent an average of approximately $5 million in each of the last three years on capital expenditures for environmental purposes and, we expect to spend approximately $3 million in 2011.

OFF-BALANCE SHEET ARRANGEMENT

At December 31, 2010, we had one off-balance sheet financing arrangement.

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We sold 980,000 acres of owned and leased timberland in October 1999. The final purchase price, after adjustments, was $710 million. We received $225 million in cash and $485 million in the form of installment notes. Under our program to monetize the installment notes receivable, the notes were sold, without recourse, to Timber Note Holdings LLC (“TNH”), a non-consolidated variable interest entity under the provisions of ASC 860, for $430 million in cash proceeds and a residual interest in the notes. The residual interest included in other assets in the accompanying consolidated balance sheet was $21 million at December 31, 2010 (See Note 8 of the Notes to Consolidated Financial Statements). TNH and its creditors have no recourse to us in the event of a default on the installment notes.

EFFECTS OF INFLATION

While inflationary increases in certain input costs, such as fiber, energy and freight costs, have an impact on our operating results, changes in general inflation have had minimal impact on our operating results in each of the last three years. Fiber, energy and freight cost increases are strongly influenced by supply and demand factors including competition in global markets and from hurricanes or other natural disasters in certain regions of the United States, and when supplies become tight, we have experienced increases in the cost of these items. We continue to seek ways to mitigate the impact of such cost increases and, to the extent permitted by competition, pass the increased cost on to customers by increasing sales prices over time.

We used the last-in, first-out method of accounting for approximately 56% of our inventories at December 31, 2010. Under this method, the cost of goods sold reported in the financial statements approximates current cost and thus provides a closer matching of revenue and expenses in periods of increasing costs.

Upon emergence from Chapter 11 and CCAA bankruptcy proceedings, property, plant and equipment was valued at fair value which approximates replacement costs of existing fixed assets.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may differ from these estimates. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments. Our most critical accounting policies and use of estimates are described below.

Fresh-Start Accounting

Upon emergence from Chapter 11, we adopted fresh start accounting as prescribed by ASC 852, which required us to revalue our assets and liabilities to fair value. ASC 852, among other things, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements.

Fresh start accounting provides, among other things, for a determination of the value to be assigned to the equity of the emerging company as of a date selected for financial reporting purposes. In conjunction with the bankruptcy proceedings, a third party financial advisor provided an enterprise value of the Company of approximately $3,145 million to $3,445 million with a midpoint of $3,295 million. Enterprise value of the Company was estimated using various valuation methods including: (i) comparable public company analysis, (ii) discounted cash flow analysis (“DCF”) and (iii) precedent transaction analysis. The preliminary equity value set forth by the third party was $2,360 million, using the midpoint enterprise value of $3,295 million and adjusting for expected cash and debt balances upon emergence and expected cash proceeds from the sale of non-operating assets. The final equity value of $2,352 was determined consistent with the third party methodology using the midpoint enterprise value of $3,295 million.

The Company’s reorganization value was allocated to its assets and liabilities in conformity with the procedures specified by ASC 805, “Business Combinations.” As a result of adopting fresh start accounting, the Company recorded goodwill of $93 million which represents the excess of reorganization value over amounts assigned to the other assets.

All estimates, assumptions and financial projections, including the fair value adjustments, the financial projections, and the enterprise value and reorganization value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there can be no assurance that the estimates, assumptions and financial projections will be realized, and actual results could vary materially.

For the impact that the adoption of fresh start accounting had on our consolidated balance sheet, see Note 1 of the Notes to the Consolidated Financial Statements.

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Long-Lived Assets Including Goodwill and Other Intangible Assets

We conduct impairment reviews of long-lived assets in accordance with ASC 360-10, “Impairment or Disposal of Long-Lived Assets” and ASC 350, “Intangibles-Goodwill and Other.” Based upon our review as of December 31, 2010, we determined that there was no impairment of long-lived assets, including goodwill. Such reviews require us to make estimates of future cash flows and fair values. Our cash flow projections include significant assumptions about economic conditions, demand and pricing for our products and costs. Our estimates of fair value are determined using a variety of valuation techniques, including cash flows. While significant judgment is required, we believe that our estimates of future cash flows and fair value are reasonable. However, should our assumptions change in future years, our fair value models could indicate lower fair values for long-lived assets, including goodwill and other intangible assets, which could materially affect the carrying value of these assets and results of operations.

Restructurings

In recent years, we have closed a number of operating facilities, including paper mills, and exited non-core businesses. Identifying and calculating the cost to exit these businesses requires certain assumptions to be made, the most significant of which are anticipated future liabilities, including leases and other contractual obligations, and the adjustment of property, plant and equipment to net realizable value. We believe our estimates are reasonable, considering our knowledge of the paper industry, previous experience in exiting activities and valuations received from independent third parties in the calculation of such estimates. Although our estimates have been reasonably accurate in the past, significant judgment is required, and these estimates and assumptions may change as additional information becomes available and facts or circumstances change.

Allowance for Doubtful Accounts

We evaluate the collectibility of accounts receivable on a case-by-case basis and make adjustments to the bad debt reserve for expected losses. We also estimate reserves for bad debts based on historical experience and past due status of the accounts. We perform credit evaluations and adjust credit limits based upon each customer’s payment history and credit worthiness. While credit losses have historically been within our expectations and the provisions established, actual bad debt write-offs may differ from our estimates, resulting in higher or lower charges in the future for our allowance for doubtful accounts.

Pension and Postretirement Benefits

We have significant long-term liabilities related to our defined benefit pension and postretirement benefit plans. The determination of pension obligations and expense is dependent upon our selection of certain assumptions, the most significant of which are the expected long-term rate of return on plan assets and the discount rates applied to plan liabilities. Consulting actuaries assist us in determining these assumptions, which are described in Note 15 of the Notes to Consolidated Financial Statements.

At June 30, 2010, in conjunction with fresh start accounting, we updated our mortality rate table assumptions which increased our employer benefit liabilities by approximately $58 million.

For the six months ended December 31, 2010 and June 30, 2010, and the year ended December 31, 2009, the expected long-term rate of return on our U.S. plan assets was 8.50%. For the six months ended December 31, 2010 and June 30, 2010, and the year ended December 31, 2009 the expected long-term rates of return on our Canadian plan assets were 6.30%, 6.30% and 7.50%, respectively. The weighted average discount rates used to determine the qualified defined benefit obligations for the U.S. and foreign retirement plans at December 31, 2010 were 5.32% and 5.21%, respectively. The assumed rate for the long-term return on plan assets was determined based upon target asset allocations and expected long-term rates of return by asset class. For determination of the discount rate, the present value of the cash flows as of the measurement date is determined using the spot rates from the Mercer Yield Curve. A decrease in the assumed rate of return of 0.50% would increase pension expense by approximately $10 million. An increase in the discount rate of 0.50% would increase our pension expense by approximately $5 million and decrease our pension benefit obligations by approximately $201 million.

Effective January 1, 2011, the expected long-term rate of return on our U.S. plan assets was reduced to 7.75%. The assumed rate for the long-term return on plan assets was determined based upon target asset allocations and expected long-term rates of return by asset class.

Related to our postretirement benefit plans, we make assumptions for future trends for medical care costs. The effect of a 1% change in the assumed health care cost trend rate would increase our accumulated postretirement benefit obligation as of December 31, 2010 by $12 million and would increase the annual net periodic postretirement benefits cost by an immaterial amount.

Income Taxes

We apply the provisions of ASC 740, “Income Taxes” (“ASC 740”), which creates a single model to address accounting for uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Under the provisions of ASC 740, we elected to classify interest and penalties related to our unrecognized tax benefits in the income tax provision (See Note 14 of the Notes to Consolidated Financial Statements).

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At December 31, 2010, we had $279 million of net unrecognized tax benefits. The primary differences between gross unrecognized tax benefits and net unrecognized tax benefits are associated with the U.S. federal tax benefit from state tax deductions. (See Note 14 of the Notes to Consolidated Financial Statements for a reconciliation of 2010 activity).

For the six months ended December 31, 2010, and June 30, 2010, no interest or penalties were recorded related to tax positions taken during the current and prior years. At December 31, 2010, no interest or penalties were recognized in the consolidated balance sheet. All net unrecognized tax benefits, if recognized, would affect our effective tax rate.

Deferred tax assets and liabilities reflect our assessment of future taxes to be paid in the jurisdictions in which we operate. These assessments involve temporary differences resulting from differing treatment of items for tax and accounting purposes. In addition, unrecognized tax benefits under the provisions of ASC 740 reflect estimates of our current tax exposures. Based on our evaluation of our tax positions, we believe we were adequately reserved for these matters at December 31, 2010.

At December 31, 2010, we had deferred tax assets of $849 million. A valuation allowance of $30 million has been established on a portion of these deferred tax assets based on the expected timing of deferred tax liability reversals and the expiration dates of the tax loss carryforwards. The valuation allowance decreased during 2010, primarily to reflect our ability to utilize net operating losses in future years due to our emergence from bankruptcy and adoption of fresh start accounting. At December 31, 2010, we expect our deferred tax assets, net of the valuation allowance, will be fully realized through the reversal of net taxable temporary differences and utilization of net operating losses.

As previously disclosed, the Canada Revenue Agency (“CRA”) was examining our income tax returns for tax years 1999 through 2005. In connection with the examination, the CRA had issued assessments of additional income taxes, interest and penalties related to transfer prices of inventory sold by our Canadian subsidiaries to our U.S. subsidiaries. Additionally, the CRA was considering certain significant adjustments related principally to taxable income related to our acquisition of a Canadian company. Pursuant to the Plan of Reorganization, we entered into an agreement with the CRA and other provincial tax authorities that took effect upon our emergence from bankruptcy which settled the open Canadian income tax matters through January 26, 2009. As a result of this agreement, we reported a $39 million net income tax benefit related to the final settlement of the Canadian tax claims and the release of the previously accrued unrecognized tax benefits related to the Canadian audit for the six months ended June 30, 2010.

The U.S. federal statute of limitations is closed through 2006. There are currently no federal examinations in progress. In addition, we file tax returns in numerous states. The states’ statutes of limitations are generally open for the same years as the federal statute of limitations.

Federal income taxes have not been provided on undistributed earnings of our foreign subsidiaries during 2010, as we intend to indefinitely reinvest such earnings into our foreign subsidiaries. At December 31, 2010, undistributed earnings for our foreign subsidiaries were $9 million.

Legal and Environmental Contingencies

Accruals for legal and environmental matters are recorded when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Such liabilities are developed based on currently available information and require judgments as to probable outcomes. Assumptions are based on historical experience and recommendations of legal counsel. Environmental estimates include assumptions and judgments about particular sites, remediation alternatives and environmental regulations. We believe our accruals are adequate. However, due to uncertainties associated with these assumptions and judgments, as well as potential changes to governmental regulations and environmental technologies, actual costs could differ materially from the estimated amounts.

Self-Insurance

We self-insure a majority of our workers’ compensation costs. Other workers’ compensation and general liability costs are subject to specific retention levels for certain policies and coverage. Losses above these retention levels are transferred to insurance companies. In addition, we self-insure the majority of our group health care costs. All of the workers’ compensation, general liability and group health care claims are handled by third-party administrators. Consulting actuaries and administrators assist us in determining our liability for self-insured claims. Losses are accrued based upon the aggregate self-insured claims determined by the third-party administrators, actuarial assumptions and our historical experience. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our workers’ compensation, general liability and group health care costs.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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* Indicates a management contract or compensation plan or arrangement.

(1) Filed herewith as part of this Amendment No. 1 on Form 10-K/A.

(2) Included as part of the original Form 10-K filed on February 15, 2011.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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