International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2003 Earnings Presentation
35 slides from International Paper's earnings presentation, Feb 2, 2004
Slide 1: Fourth Quarter 2003 Review
Fourth Quarter 2003 Review February 2, 2004 John Faraci Chairman & CEO Christopher P. Liddell SVP & CFO
Slide 2: Forward Looking Statements
Any statements made during this presentation or in the slides accompanying the presentation that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially. Factors which could cause actual results to differ
Slide 3: Statements Relating to Non-GAAP Financial Measures
D uring the course of this presentation, certain non- U.S. GAAP financial information will be presented. A reconciliation of those numbers to U.S. GAAP financial measures is available on the company’s website at under Investor Information. Statements Relating to Non-GAAP Financial Measures www.inter
Slide 4: Key Points
2003 - Tough 4Q’03 - Mixed results 1Q’04 - Jan / Feb slow but definite signs of real momentum beyond 1Q Key Points
Slide 5: Agenda
Fourth Quarter 2003 Overview Business Review 2003 Summary Outlook Agenda
Slide 6: Fourth Quarter 2003 Review
Managing costs Better than 4Q’02, but not as good as 3Q’03 Operations can do better Volumes Mixed versus 4Q’02, broadly in line with 3Q’03 Packaging and wood products up Paper down Downtime Will continue to balance our supply with our customer demand as needed Prices Paper, containerboard and box pr
Slide 7: EPS Before Special Items
1Q 1Q 3Q .08 .75 .53 .28 2001 .55 .46 .24 2Q .05 .60 4Q 1999 .13 .14 .12 .12 .35 2Q 3Q 4Q .33 .32 .14 1Q 2003 * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information .19 2Q .24 3Q 4Q .23 EPS Before Special Items* 1Q 3Q 2000 2Q 4Q 1Q 2Q 2002 3Q 4Q
Slide 8: 4Q'03 vs. 3Q'03 EPS before special items
$0.00 $0.10 $0.20 $0.30 $0.40 $.00 EPS $ / Share $.24 ($.03) ($.02) $.23 $.02 $.00 $.02 Volume ( $0.02) LOO $0.02 Energy $0.00 Wood Costs ($0.02) 3Q03 Tax Rate 19% 4Q03 Tax Rate 11% 2003 Tax Rate 22% Paper/Pkg. ( $0.06) Wood Prod $0.06 3Q’03 Costs/ Mix Volume/ LOO Downtime Price Raw Materials Intere
Slide 9: Special Items – 4th Quarter 2003
$MM In addition, $(0.01)/share Cumulative Effect of Accounting Change for FIN 46, Variable Interest Entities * Shutdowns/Restructuring (91) Legal Reserves (29) Debt Extinguishment 19 Restructuring & Other (101) Divestitures (21) Reserves No Longer Needed 23 (99) Tax & Minority Interest Impact of abo
Slide 10: Printing Papers
1,885 66 Sales Earnings 4Q’03 3Q’03 $ Millions Uncoated Coated Pulp Europe (2%) (10%) 7% 3% ($30) Flat $10 ( €30 ) Volume Realizations/unit Average IP realization (includes the impact of mix across all grades) Europe is average commodity cut size price 1,915 120 Printing Papers 4Q’03 Change vs 3Q’03
Slide 11: Packaging
1,600 100 Sales Earnings 4Q’03 3Q’03 $ Millions Containerboard U.S. Container Bleached Board 10% (3%) 2% ($10) ($5) Flat Volume Realizations/unit Average IP realization (includes the impact of mix across all grades) 1,535 107 Packaging 4Q’03 Change vs 3Q’03:
Slide 12: Forest Products
810 236 Sales Earnings 4Q’03 3Q’03 $ Millions Lumber Plywood (4%) (12%) $10 $45 Volume Realizations/unit Average IP realization (includes the impact of mix across all grades) 800 201 Forest Products 4Q’03 Change vs 3Q’03: Includes Forest Resources & Wood Products
Slide 13: Forest Resources
IP owns or manages 8.3 million acres of forestlands in the U.S. Significant market value in forestland holdings Manage forestlands as a portfolio. Value arises from various activities: Plant seedlings Harvest Recreational and hunting income Mix varies based on several factors, including Facility req
Slide 14: Forest Resources
$ Millions 2002 2003 Earnings Sources – Gross Margin Forestland Expenses (190) (157) Land Utilization (real estate), Net of Expenses 75 71 Total EBIT $670 $644 Sale of Forestlands/Standing timber $461 $462 Harvest & Recreational Income 324 268 Forest Resources
Slide 15: Southern Pine Sawtimber Stumpage Prices
1.1% 1959-2003 Real % Trendline ‘03 Trendline Price $38 Over a long period, real prices have trended up Current prices are 30% below trendline 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 $0 $10 $20 $30 $40 $50 $60 2003$/Ton '59-'82 US Forest Service / '83-'03 IP Actual Trendline '59
Slide 16: Forest Resources earnings contribution to operating earnings
% of Total IP EBIT 30% 24% 10% 18% 29% 35% 24% 19% 31% 31% 32% * Excludes Real Estate Important and relatively stable source of earnings On average, contributes 20-30% of IP’s operating earnings 0% 10% 20% 30% 40% 50% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Forest Resources Earnings c
Slide 17: 2003 vs. 2002 EPS before special items
$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 ($.03) EPS $ / Share $1.12 $.40 ($.36) $.80 ($.23) ($.12) ($.13) $.15 Energy ($0.15) Wood Costs ($0.20) 2002 Tax Rate 29% 2003 Tax Rate 22% 2002 Costs/ Mix Volume Price Energy/ Raw materials Pension Tax rate change 2003 Other 2003 vs. 2002 EPS be
Slide 18: EPS variance by quarter 2003 vs. 2002
Cost/mix improvement accelerating, but offset by higher raw material costs & tough business environment EPS $ / Share 0.00 0.10 0.20 0.30 0.40 0.50 (0.40) (0.30) (0.20) (0.10) (0.05) (0.08) (0.13) (0.10) (0.36) 0.10 0.13 0.40 (0.03) (0.03) (0.03) (0.02) 0.05 0.01 0.16 1Q 2Q 3Q 4Q Total '03 Raw Mater
Slide 19: Energy: U.S. mills natural gas consumption
Natural Gas Consumed Natural Gas Cost per unit Total US Mill Energy Purchases before Natural Gas Hedges - $MM 0 1 2 3 4 5 6 7 2001 2002 2003 0 20 40 60 80 $4.60 $3.45 $5.80 65 60 45 Energy Trillion BTUs $/MMBTU U.S. mills natural gas consumption Natural gas consumption at U.S. pulp & paper mills dec
Slide 20: Substituting lower cost energy
% of total U. S. mills MMBTU purchases % of Total Natural Gas Coal Wood Waste Fuel Oil Other Electricity $5.80 $1.90 $1.70 $4.40 $12.00 $5.19 2003 avg cost per mmbtu 8 9 32 24 9 10 23 24 15 17 16 13 0% 100% 2002 2003 Energy Substituting lower cost energy
Slide 21: 2003 Summary
Tough business environment Demand lagging U.S. economic growth Weak pricing Operating earnings down slightly Cost/mix improvements partially offset significant negative external factors Improvement initiatives on track 2003 Summary
Slide 22: Improvement Target
Increase ROI to 9% at trend line prices Non-price improvement progress Currently experiencing higher raw material costs and pension expense Keys to reaching target Mid-cycle volume and trend line pricing Energy and wood at more normalized levels Continue to build on demonstrated capability to take c
Slide 23: Near Term Outlook
Tough start to 1Q’04 Higher wood and energy costs Demand trends in packaging, wood products, uncoated paper all positive Price realizations improve end of quarter IP has announced first quarter price increases Containerboard Softwood pulp Uncoated free sheet Near Term Outlook
Slide 24: Medium Term Outlook
Positive U.S. & world economies have momentum IP well-positioned Cost structure Capacity Customers Geographic position Medium Term Outlook
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Slide 27: Lack of Order Downtime
490 * Downtime is after rationalization actions, excludes maintenance M Short Tons 430 380 350 215 65 50 270 70 90 240 185 1Q'01 2Q'01 3Q'01 4Q'01 1Q'02 2Q'02 3Q'02 4Q'02 1Q'03 2Q'03 3Q'03 4Q'03 Containerboard Uncoated papers Pulp Coated papers Bleached Board European Papers Europe 10 Bleached Bd 5
Slide 28: Average Sales Realizations
266 263 224 Plywood, $/MSF 330 322 315 Lumber, $/MBF 696 687 669 Bleached Board $/ton 366 384 392 Containerboard 436 429 384 Pulp 724 732 729 Coated $/ton 706 761 769 Uncoated * U.S. only, except pulp which includes Canada. Uncoated excludes fine papers Average IP realization (includes the impact of
Slide 29: Forest Resources
2002 2003 * Excludes sales of Champion forestlands over last 3 years which generated $550+ million of cash Average sales price/acre % of appraised value Number of transactions * $823 110% 280 $967 130% 548 Forestland prices/acre are increasing in absolute terms and increasing versus appraised values
Slide 30: Southern forestland merchantable inventory
MM Tons Federal Union Camp Champion 0 100 200 300 1993 1996 1999 2000 2003 2005 2009 2015 Assumes no future forestland sales Growing more trees on fewer acres This is not a forecast. It is for illustrative purposes only MM Acres 4.3 4.9 6.2 9.4 6.3 6.3 6.3 6.3 Forest Resources Southern forestland me
Slide 31: Pension Returns
Average annualized returns 2003 26.0% Past 5 years 6.6% Past 10 years 9.3% Portfolio asset allocation (at 12/31/03) 62% Equity 27% Debt 11% Real estate & other Pension Returns
Slide 32: Pension Expense
6.00 6.50 7.25 Discount Rate (%) 8.75 8.75 9.25 Rate of Return (%) 2004E 2003 2002 $ Millions 2002 2003 2004E Annual Pension Expense * Key Variables *U.S. plans only. Pension expense reflects discount rate, service cost, amortization of previous periods and anticipated return (60) (105) 75 (150) (10
Slide 33: Key Financial Statistics
Capital Spending Depreciation & Amort. Net Interest Expense 1 Pension Expense 2 Effective Tax Rate 3 Avg. Shares Outstanding $ 1.3 B $ 1.6 B $ 780 MM $ 105 MM 31% 480 MM 2004 Est $ 1.2 B $ 1.6 B $ 770 MM $ 60 MM 22% 480 MM 2003 $ 1.0 B $ 1.6 B $ 780 MM $ (75) MM 29% 481 MM 2002 1 Expenses related to
Slide 34: $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority
$ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority Interest; Net – Net Income; ETR – Effective Tax Rate; EPS – Earnings per Share * Before effect of accounting change of ($10) after taxes or ($0.02) per share for adoption of SFAS 143 (asset retirement obligations) ** Before effect of accounting cha
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