International Paper Reports Significantly Improved Second-Quarter Earnings
 
Solid Revenue Growth, Significant Margin Expansion, Strong Free Cash Flow

MEMPHIS, Tenn. – July 28, 2010 – International Paper (NYSE: IP) today reported preliminary second-quarter 2010 net earnings attributable to common shareholders totaling $93 million ($0.21 per share) compared with a net loss of $162 million ($0.38 per share) in the first quarter of 2010 and net earnings of $136 million ($0.32 per share) in the second quarter of 2009. Amounts in all periods include special items.

Diluted Earnings Per Share Attributable to International Paper Shareholders

	Second Quarter 2010	First Quarter 2010	Second Quarter 2009
Net Earnings (Loss)	$0.21	($0.38)	$0.32
Add Back – Net Special Items Expense (Income)	0.21	0.42	(0.12)
Earnings Before Special Items	$0.42	$0.04	$0.20

Earnings before special items in the 2010 second quarter totaled $181 million ($0.42 per share), compared with $16 million ($0.04 per share) in the first quarter of 2010 and $86 million ($0.20 per share) in the second quarter of 2009.

Quarterly net sales were $6.1 billion compared with $5.8 billion in the first quarter of 2010 and $5.8 billion reported in the second quarter of 2009.

Operating profits in the second quarter were $353 million, up from $20 million in the first quarter of 2010. Both amounts reflect the inclusion of special items.

“Each of our businesses posted strong results in the second quarter, leading to the significant increase in earnings per share and solid free cash flow,” said John Faraci, chairman and chief executive officer. “Operating rates are strong, inventories are low, and input costs are moderating. All of these factors position us well for a stronger third quarter.”

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. Second quarter 2010 business segment operating profits and business trends compared with the prior quarter are as follows:
 
Industrial Packaging operating profits (excluding special items) increased to $193 million as compared with $46 million in the first quarter of 2010. Earnings improved mainly from increases in linerboard and North America box demand, fewer mill outages and further realization of announced price increases. Operating profits after special items were $192 million in the second quarter of 2010 compared with $41 million in the first quarter of 2010.

Printing Papers had an operating profit (excluding special items) of $158 million as compared with $126 million in the first quarter of 2010.  Results were positively impacted by favorable pulp and paper pricing, and improved operations more than offsetting higher mill outage costs. Operating profits after special items were $47 million in the second quarter of 2010 compared with a loss of $78 million in the first quarter of 2010.

Consumer Packaging had an operating profit (excluding special items) of $49 million compared with $31 million in the first quarter of 2010.  Results were positively impacted by higher volumes, further realization of announced coated paperboard price increases and stronger operations, partially offset by planned maintenance outages and relatively higher input costs. Operating profits after special items were $48 million in the second quarter of 2010 compared with $28 million in the first quarter of 2010.

The company’s distribution business, xpedx, reported operating profits of $26 million, up from $21 million in the first quarter of 2010.  The earnings improvement was primarily driven by stronger volumes, lower costs and improved margins. There were no special items recorded in either quarter.

Forest Products operating profits totaled $40 million, up from $8 million in the prior quarter due to a mineral rights sale. There were no special items recorded in either quarter.

Net corporate expenses totaled $54 million for the 2010 second quarter, essentially in line with the $51 million recorded in the 2010 first quarter.

EFFECTIVE TAX RATE
The effective tax rate before special items for the second quarter of 2010 was 31 percent, compared with 32 percent in the first quarter of 2010.  The tax rate in the second quarter of 2010 is representative of the forecasted annual effective tax rate.
 
EFFECTS OF SPECIAL ITEMS
Special items in the second quarter of 2010 included a pre-tax charge of $144 million ($88 million after taxes) for restructuring and other charges.  Restructuring and other charges included a $111 million pre-tax charge ($68 million after taxes) associated with the closure of the Franklin mill (including $46 million of accelerated depreciation charges and $36 million related to environmental reserves), an $18 million pre-tax charge ($11 million after taxes) for early debt extinguishment costs, a pre-tax charge of $11 million ($7 million after taxes) for an Ohio Commercial Activity tax adjustment and pre-tax charges of $4 million ($2 million after taxes) for other items.

Special items in the first quarter of 2010 included a pre-tax charge of $215 million ($132 million after taxes) for restructuring and other charges and a $46 million after-tax expense to reduce deferred tax assets  related to incentive compensation ($14 million) and post-retirement prescription drug coverage (Medicare Part D reimbursements) ($32 million).  Restructuring and other charges included a $204 million pre-tax charge ($124 million after taxes) associated with the closure of the Franklin mill (including $190 million of accelerated depreciation), a $4 million pre-tax charge ($2 million after taxes) for early debt extinguishment costs, a $3 million pre-tax charge ($2 million after taxes) associated with the reorganization of the Company’s Shorewood operations, and charges of $4 million (before and after taxes) for other items. 

Special items in the second quarter of 2009 included a credit of $482 million before taxes ($294 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 energy to operate their businesses, a $48 million before and after-tax charge to write down the assets of the Etienne mill in France to estimated fair value, 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 $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 carry forwards 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.

EARNINGS WEBCAST
The company will host a webcast to discuss earnings and current market conditions at 9 a.m. EDT (8 a.m. CDT) today. 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 Second Quarter Earnings Call. The conference ID number is 82825401. 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 (706) 645-9291 or, within the U.S. only, (800) 642-1687, and when prompted for the conference ID, enter “82825401.”

International Paper (NYSE: IP) is a global paper and packaging company with manufacturing operations in North America,  Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs about 60,000 people in more than 20 countries and serves customers worldwide. 2009 net sales were more than $23 billion. For more information about International Paper, its products and stewardship efforts, visit internationalpaper.com.

This press release contains forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i)  increases in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for its products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws  and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and to actual or potential litigation; and (v) whether we experience a material disruption at one of our manufacturing facilities and risks inherent in conducting business through a joint venture. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in the company's Securities and Exchange Commission filings.