International Paper today reported first- quarter 2012 net earnings attributable to common shareholders totaling $188 million ($0.43 per share) compared with net earnings of $281 million ($0.65 per share) in the fourth quarter of 2011 and $354 million ($0.81 per share) in the first quarter of 2011. Amounts in all periods include the impact of special items.

Earnings from continuing operations and before special items in the 2012 first quarter totaled $247 million ($0.57 per share), compared with $312 million ($0.72 per share) in the fourth quarter of 2011 and $334 million ($0.77 per share) in the first quarter of 2011. Temple-Inland earnings were neutral, net of incremental interest expenses (before one-time costs and special items), for the first-quarter of 2012.

Quarterly net sales were $6.7 billion compared with $6.4 billion in both the fourth and first quarters of 2011.

Operating profits were $462 million in the first quarter of 2012, down from $577 million in the fourth quarter of 2011 both of which included special items.

“First-quarter results reflect solid performance in an uneven global recovery,” said John Faraci, chairman and chief executive officer. “I’m encouraged with the early progress we are making integrating Temple-Inland and we are off to a very strong start in identifying and capturing the merger benefits. As we move into our seasonally heavy maintenance outages in the second quarter, we remain confident in the full year earnings and cash flow outlook of our global portfolio.”

SEGMENT INFORMATION
To measure the performance of the company’s business segments from quarter to quarter without variations caused by special items, management focuses on business segment operating profits excluding those items. First-quarter 2012 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows:

Industrial Packaging operating profit was $278 million ($215 million including special items) compared with an operating profit of $316 million ($306 million including special items) in the fourth quarter of 2011. North American earnings were impacted by operational issues early in the quarter, increased annual outages and higher costs, including higher inventory valuation reserves and non-recurring favorable true-ups from the previous quarter. Export market containerboard price erosion also negatively impacted first quarter results.  Partly offsetting these items were volume improvements, lower input costs and earnings from the newly acquired Temple-Inland packaging operations post close.

Printing Papers operating profit was $145 million ($146 million including special items) compared with an operating profit of $190 million ($189 million including special items) in the fourth quarter of 2011. Quarterly earnings in North America were adversely impacted by lower pulp and export paper prices as well as higher Franklin fluff pulp mill start-up costs, partially offset by increased exports and lower outages. Lower operating earnings in Brazil in the quarter were due primarily to lower export prices and seasonally lower market demand in Brazil resulting in a higher export mix.

Consumer Packaging operating profit was $96 million ($103 million including special items) compared with an operating profit of $62 million ($66 million including special items) in the fourth quarter of 2011. North American Coated Paperboard operating earnings improvement is largely attributable to having no annual maintenance outages during the first quarter. Higher volume and favorable manufacturing operations were essentially offset by higher costs. Foodservice delivered record earnings in the quarter driven by improved margins, favorable operations and solid sales volumes.

xpedx, the company’s North American distribution business, reported operating earnings of $19 million (a loss of $2 million including special items) compared with $33 million ($16 million including special items) in the fourth quarter of 2011. Sales were impacted by seasonally lower volume. The benefits of the strategic transformation are continuing. Net corporate expenses for the 2012 first quarter totaled $69 million, compared with $31 million in the fourth quarter of 2011 and $44 million in the first quarter of 2011. The increase compared with the fourth quarter of 2011 primarily reflects higher pension expenses.

EFFECTIVE TAX RATE
The effective tax rate before special items for the first quarter of 2012 was 32 percent, compared with an effective tax rate before special items of 32 percent in the fourth quarter of 2011.  EFFECTS OF SPECIAL ITEMS   Special items in the first quarter of 2012 included pre-tax charges of $34 million ($23 million after taxes) for restructuring and other charges, a pre-tax charge of $20 million ($12 million after taxes) related to the write-up of the Temple-Inland inventories to fair value, pre-tax charges of $43 million ($33 million after taxes) for integration costs related to the Temple-Inland acquisition and a net pre-tax gain of $5 million ($4 after taxes) for other items. Restructuring and other charges included pre-tax charges of $16 million ($10 million after taxes) for debt extinguishment costs, pre-tax charges of $19 million ($14 million after taxes) for costs associated with the restructuring of our xpedx operations and a gain of $1 million (before and after taxes) for other items.

Special items in the fourth quarter of 2011 included a pre-tax charge of $18 million ($13 million after taxes) for restructuring and other charges, a pre-tax gain of $4 million ($3 million after taxes) for an adjustment to the loss on the sale of our Shorewood business, a net tax expense of $22 million and charges of $6 million ($5 million after taxes) for other items. Restructuring and other charges included a pre-tax charge of $14 million ($11 million after taxes) for costs associated with the restructuring of our xpedx operations, pre-tax charges of $12 million ($7 million after taxes) for costs associated with the Temple-Inland acquisition, and net pre-tax gains of $8 million ($5 million after taxes) for other items. The net tax expense of $22 million included a $24 million expense related to internal restructurings, a $9 million expense for costs associated with our acquisition of a majority interest in Andhra Pradesh Paper Mills Limited, a $13 million benefit related to the release of a deferred tax asset valuation allowance, and $2 million of expense for other items. In addition, a gain of $6 million (before and after taxes) was recorded for interest associated with a tax claim.

Special items in the first quarter of 2011 included pre-tax charges of $45 million ($28 million after taxes) for restructuring and other charges, a loss of $8 million (before and after taxes) for asset impairment charges at our Inverurie, Scotland mill which was closed in 2009 and a $7 million gain (before and after taxes) for a bargain purchase price adjustment on an acquisition by our joint venture in Turkey. Restructuring and other charges included pre-tax charges of $32 million ($19 million after taxes) for early debt extinguishment costs, $3 million ($2 million after taxes) for severance and benefit costs associated with the company’s 2008 overhead cost reduction initiative, $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations and $3 million (before and after taxes) for other items.

Discontinued Operations
Discontinued Operations in the first quarter of 2012 included the operating earnings of the Building Products business which was acquired during the quarter as part of the Temple-Inland acquisition.

Discontinued Operations in the first quarter of 2011 included a pre-tax gain of $50 million ($30 million after taxes) for an earnout provision related to the sale of the Company’s Kraft Papers business completed in January 2007. Also, the Company sold its Brazilian Coated Paper business in the third quarter of 2006. Local country tax contingency reserves were included in the business’ operating results in 2005 and 2006 for which the related statute of limitations has expired. The reserves were reversed and a tax benefit of $15 million plus associated interest income of $6 million ($4 million after taxes) was recorded in the first quarter of 2011.

EARNINGS WEBCAST
The company will host a webcast to discuss earnings and current market conditions at 9 a.m. EDT (8 a.m. CDT). All interested parties are invited to listen to the webcast via the company's Internet site at http://www.internationalpaper.com by clicking on the Investors tab and going to the Webcasts and Presentations page. A replay of the webcast will also be on the Web site beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper First Quarter Earnings Call. The conference ID number is “69472027.” Participants should call in no later than 8:45 a.m. EDT (7:45 a.m. CDT). An audio-only replay will be available for four weeks following the call. To access the replay, dial +1 404-537-3406 or, within the U.S. only, (855) 859-2056, and when prompted for the conference ID, enter " 69472027.”