xpedx, the company's North American distribution business, reported operating profits of $11 million ($4 million including special items) in the fourth quarter of 2012 compared with $24 million ($15 million including special items) in the third quarter of 2012, reflecting higher operating expenses in the fourth quarter.

International Paper recorded Ilim joint venture equity earnings of $8 million in the fourth quarter of 2012, compared with equity earnings of $33 million in the third quarter of 2012. Fourth quarter results were lower as modestly higher average prices did not offset increases in input costs. In addition, the after-tax impact of favorable foreign exchange gains was $15 million less in the fourth quarter compared with the third quarter. The gains in both quarters were due to non-cash adjustments associated with the Ilim joint venture's U.S. dollar denominated debt.

Net corporate expenses, excluding non-operating pension expense, for the 2012 fourth quarter were $15 million compared with $1 million in the third quarter of 2012 and $20 million in the fourth quarter of 2011.

Effective Tax Rate

The effective tax rate before special items for the fourth quarter of 2012 was 22 percent, compared with an effective tax rate before special items of 31 percent in the third quarter of 2012.  The lower rate in the 4th quarter is attributable to the release of a $29 million valuation allowance previously imposed on state income tax attributes which the Company now foresees utilizing.  The 2012 full year rate was 29 percent compared with 32 percent for the 2011 full year.

Effects of Special Items

Special items in the fourth quarter of 2012 included pre-tax charges of $21 million ($14 million after taxes) for restructuring and other charges, pre-tax charges of $28 million ($19 million after taxes) for integration costs related to the Temple-Inland acquisition, and a gain of $3 million (before and after taxes) for other items. Also included are a net tax expense of $14 million related to internal restructurings and a tax expense of $5 million to adjust deferred tax assets related to post-retirement prescription drug coverage (Medicare Part D reimbursements).  Restructuring and other charges included pre-tax charges of $9 million ($6 million after taxes) for debt extinguishment costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations, and pre-tax charges of $5 million ($4 million after taxes) for other items.

Special items in the third quarter of 2012 included pre-tax charges of $33 million ($24 million after taxes) for restructuring and other charges, pre-tax charges of $58 million ($34 million after taxes) for integration costs related to the Temple-Inland acquisition, and pre-tax charges of $19 million ($49 million after taxes) for costs associated with the divestiture of three containerboard mills. Restructuring and other charges included pre-tax charges of $13 million ($8 million after taxes) for debt extinguishment costs, pre-tax charges of $8 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations, pre-tax charges of $16 million ($11 million after taxes) for costs associated with the restructuring of our Packaging business in Europe, and a net pre-tax gain of $4 million (a charge of $1 million after taxes) for other items.