International Paper today reported third quarter 2011 net earnings from continuing operations attributable to common shareholders totaling $518 million, or $1.19 per share ($0.92 excluding special items), including record profit levels in North American Coated Paperboard and solid results in emerging markets. Despite increasing input costs on most raw materials, the company improved earnings and cash flow in the quarter with superior operational, outage and cost management performance.

Quarterly net sales were $6.6 billion compared with $6.6 billion in the second quarter of 2011 and $6.7 billion in the third quarter of 2010.

Operating profits were $571 million in the third quarter of 2011, compared with $483 million in the second quarter of 2011 and $752 million in the third quarter of 2010, all of which included special items.

"IP delivered a strong quarter in a tough environment," said John Faraci, Chairman and Chief Executive Officer. "We are consistently generating higher profits and cash flow from our transformed portfolio with an international footprint that has strengthened our earnings power. Even as some expected challenges persisted in the third quarter, including weak economic growth in developed markets and input cost inflation, we look ahead with confidence as we continue to capitalize on our balanced portfolio and realize gains from recent investments."

SEGMENT INFORMATION

The performance of the company's business segments are measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. Third quarter 2011 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging posted improved sequential earnings of $301 million ($293 million including special items) in the third quarter of 2011, versus $269 million in the second quarter of 2011. The current quarter's earnings were favorably impacted by lower mill maintenance outage spending and from resuming production at the Vicksburg mill following the May flood. North American sales volumes and prices were relatively stable in the third quarter, but were somewhat weaker in export markets reflecting seasonal declines in our integrated EMEA box plants, as well as a slower than expected overall economic recovery. Higher recycled fiber costs had a $14 million negative impact versus the second quarter of 2011.

Printing Papers' operating profits were $238 million ($239 million including special items) versus $222 million ($243 million including special items) in the second quarter of 2011. In North America, quarterly earnings were impacted by strong manufacturing performance, less maintenance outage spending and favorable paper pricing partly offset by lower pulp sales pricing along with higher input costs. Segment earnings also reflect higher costs and maintenance outage expenses in Brazil, offset by favorable foreign exchange rates late in the quarter.

Consumer Packaging operating profit was $103 million ($30 million including special items) compared with $98 million (a loss of $33 million including special items) in the second quarter of 2011. Third quarter improvement was primarily driven by the lack of maintenance outages and further sales price realizations in North America, but was partially offset by higher input costs.

xpedx, the company's North American distribution business, reported operating profits of $27 million ($9 million including special items), up significantly from $14 million ($4 million including special items) in the second quarter of 2011. Earnings improved from the prior quarter due to seasonally higher sales volumes and lower operating costs, partially offset by lower sales margins.

Net corporate expenses for the 2011 third quarter were $34 million compared with $36 million in the second quarter of 2011 and $58 million in the third quarter of 2010. The decrease compared with the 2010 third-quarter reflects lower pension costs and lower supply chain project costs.

Effective Tax Rate

The effective tax rate before special items for the third quarter of 2011 was 30 percent, compared with an effective tax rate before special items of 33 percent in the second quarter of 2011 and 31 percent in the third quarter of 2010. The lower rate in the 2011 third quarter reflects adjustments of prior-year income tax estimates as the result of filing the Company's 2010 income tax returns and the release of tax reserves due to the expiration of statutes of limitations.

Effects of Special Items

Special items in the third quarter of 2011 included a pre-tax charge of $49 million ($32 million after taxes) for restructuring and other charges and a pre-tax charge of $82 million (a gain of $148 million after a $222 million tax benefit and a gain of $8 million related to a non-controlling interest) to reduce the carrying value of our Shorewood business to estimated fair market value. Restructuring and other charges included a pre-tax charge of $16 million ($10 million after taxes) for costs associated with the acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a pre-tax charge of $18 million ($13 million after taxes) for costs associated with the restructuring of our xpedx operations, a pre-tax charge of $8 million ($5 million after taxes) for costs associated with the signing of an agreement to acquire Temple- Inland, a pre-tax charge of $6 million ($4 million after taxes) for costs associated with the sale of our Shorewood business, and a pre-tax charge of $1 million ($0 million after taxes) for other items.

Special items in the second quarter of 2011 included a pre-tax gain of $10 million ($7 million after taxes) for restructuring and other charges, a pre-tax charge of $129 million ($104 million after taxes) for a fixed asset impairment of the North American Shorewood business, a $27 million pre-tax charge ($17 million after taxes) for an environmental reserve related to the Company's property in Cass Lake, Minnesota, and a $5 million tax expense related to state tax legislative changes and audit settlements. Restructuring and other charges included a pre-tax gain of $21 million ($13 million after taxes) related to a change in estimate that resulted in the reversal of an environmental reserve due to the announced repurposing of a portion of the Franklin mill to produce fluff pulp, pre-tax charges of $10 million ($6 million after taxes) for costs associated with the restructuring of our xpedx operations and pre-tax charges of $1 million ($0 million after taxes) for other items.