MEMPHIS, Tenn. -- International Paper today reported preliminary 2009 third-quarter net earnings attributable to common shareholders of $371 million ($0.87 per share) compared with $136 million ($0.32 per share) in the second quarter of 2009 and $149 million ($0.35 per share) in the third quarter of 2008. Amounts in all periods include special items.

Earnings from continuing operations and before special items in the 2009 third quarter totaled $157 million ($0.37 per share), compared with $86 million ($0.20 per share) in the second quarter of 2009 and $356 million ($0.84 per share) in the third quarter of 2008.

Quarterly net sales were $5.9 billion in the third quarter compared with $5.8 billion in the second quarter of 2009 and $6.8 billion reported in the third quarter of 2008.

Operating profits in the 2009 third quarter were $940 million, up from $788 million in the second quarter of 2009 and $536 million in the third quarter of 2008.

At the end of the 2009 third quarter, International Paper had $4.2 billion in cash and committed liquidity facilities. The company generated $1.3 billion of free cash flow (cash provided by operations less capital expenditures) during the quarter, reflecting its continued focus on reducing costs, managing capacity and working capital, and continued reduced capital spending, as well as cash received from alternative fuel mixture credits. The company also repaid $1.3 billion of debt during the quarter.

"At the end of the third quarter, we began to see some modest improvements in demand in some segments of our paper and packaging businesses," said Chairman and CEO John Faraci. "We expanded margins year-over-year and continued to deliver strong cash flow and pay down debt, and I'm confident we're in position to benefit as the economy continues to slowly recover."

SEGMENT INFORMATION
To measure the performance of the company's business segments from quarter to quarter without variations caused by special or unusual items, management focuses on business segment operating profits excluding those items. Third-quarter 2009 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows:

Industrial Packaging operating profits were $214 million, down from $255 million in the second quarter of 2009 as lower annual maintenance outages and modest volume improvement were offset by lower box prices.

Printing Papers had operating profits of $138 million compared with operating profits of $86 million in the second quarter of 2009. Improved volume, lower input costs and favorable operations offset unfavorable mix as export sales increased.

Consumer Packaging had operating profits of $68 million, up from $38 million in the previous quarter as lower annual maintenance outages, modest volume improvements and favorable input costs and operations offset pricing pressure.

The company's distribution business, xpedx, reported operating profits of $21 million, up from $10 million in the previous quarter, due to improved volumes and cost reductions.

Forest Products operating profits totaled $2 million, down from $3 million in the second quarter of 2009. The pending sale of 143,000 acres is not expected to close in the fourth quarter of 2009 although interested parties are continuing their due diligence efforts.

Net corporate expenses totaled $46 million for the 2009 third quarter compared with $44 million in the 2009 second quarter and $40 million in the third quarter of 2008. The slight increase versus the 2009 second quarter was due to slightly higher pension expense, while the increase from the 2008 third quarter reflects higher pension expense, partially offset by lower supply chain initiative costs.

EFFECTIVE TAX RATE
The effective tax rate from continuing operations and before special items was 30 percent for the 2009 third quarter, lower than 33 percent in the second quarter of 2009 and 32.5 percent in the third quarter of 2008. The lower rate in the 2009 third quarter reflects adjustments of prior-year income tax estimates upon the filing of the company's 2008 income tax return.

EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2009 included a $525 million pre-tax credit ($320 million after taxes) for alternative fuel mixture credits earned under 2007 legislation enacted to provide a tax credit for companies that use alternative fuel mixtures to produce renewable energy to operate their businesses, a $18 million pre-tax charge ($11 million after taxes) for integration costs associated with the Industrial Packaging business integration, and a pre-tax charge of $151 million ($95 million after taxes) for restructuring and other charges. Restructuring and other charges included a pre-tax charge of $102 million ($62 million after taxes) for early debt extinguishment costs, a $39 million pre-tax charge ($24 million after taxes) for severance and benefit costs associated with the company's 2008 overhead reduction program, and a $10 million pre-tax charge ($9 million after taxes) for facility closure costs.

Special items in the second quarter of 2009 included a $482 million pre-tax credit ($294 million after taxes) for alternative fuel mixture credits, a $48 million before and after-tax charge to write down the assets of the Etienne mill in France to estimated fair value, an $18 million pre-tax charge ($11 million after taxes) for integration costs associated with the Industrial Packaging business integration, and a pre-tax charge of $79 million ($55 million after taxes) for restructuring and other charges. Restructuring and other charges included a $34 million charge before taxes ($21 million after taxes) for severance and benefit costs associated with the Company's 2008 overhead reduction program, a $25 million charge before taxes ($16 million after taxes) for early debt extinguishment costs, a $15 million before and after-tax charge for severance and other costs related to the Company's Etienne mill in France, and a $5 million charge before taxes ($3 million after taxes) for other closure costs. Additionally, the second-quarter income tax provision included a $156 million charge to establish a valuation allowance for net operating loss carryforwards in France, and a $26 million credit related to the closing of the 2004 and 2005 U.S. federal income tax audit and related state income tax effects.

Special items in the third quarter of 2008 included a $107 million pre-tax charge ($84 million after taxes) to write down the assets of the Inverurie, Scotland, mill to its estimated fair value, a $155 million pre-tax charge ($96 million after taxes) for restructuring and other charges, a $3 million pre-tax credit ($2 million after taxes) for adjustments to estimated transaction costs accrued in connection with 2006 transformation plan forestland sales, and a $29 million income tax charge relating to estimated U.S. taxes on a gain in the company's Ilim joint venture.

EARNINGS WEBCAST
The company will hold a webcast to review earnings at 10 a.m. EDT / 9 a.m. CDT today. All interested parties are invited to listen to the webcast live via the company's Internet site at http://www.internationalpaper.com by clicking on the Investors tab and going to the Presentations page. A replay of the webcast will also be available 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 Third-Quarter Earnings Call. The conference ID number is 31381047. Participants should call in no later than 9:45 a.m. EDT/8:45 a.m. CDT. An audio-only replay will be available for four weeks following the call. To access the replay, dial +1 (706) 645-9291 or, within the U.S. only, (800) 642-1687, and when prompted for the conference ID, enter 31381047.