International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2009 Earnings Presentation
59 slides from International Paper's earnings presentation, Feb 3, 2010
Slide 1: Fourth Quarter and Full Year 2009 Review
Fourth Quarter and Full Year 2009 Review February 3, 2010 Fourth Quarter and Full Year 2009 Review February 3, 2010 John V. Faraci Chairman & Chief Executive Officer Tim S. Nicholls Senior Vice President & Chief Financial Officer Exhibit 99.2
Slide 2: Statements Relating to Non-GAAP Financial Measures
Statements Relating to Non-GAAP Financial Measures Statements Relating to Non-GAAP Financial Measures During 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
Slide 3: IP Delivers Solid Full-Year Results Despite Challenging Economic Environment
IP Delivers Solid Full-Year Results Despite Challenging Economic Environment IP Delivers Solid Full-Year Results Despite Challenging Economic Environment $2.2 B Free Cash Flow $4.3 B Balance Sheet Improvement $3.1 B Debt Reduction $400 MM Unfunded Pension Obligation Reduction $800 MM Cash Balance In
Slide 4: Responding to the Economic Contraction: Decisive Actions in 2009
Responding to the Economic Contraction Decisive Actions in 200 9 Integration Synergies Cost Reduction Balance Sheet Responding to the Economic Contraction Decisive Actions in 200 9 NA Containerboard 1.8 MM tons (16%) LOO 1.4 MM tons (13%) closed NA Uncoated Freesheet M tons (13%) LOO 600 M tons (19%
Slide 5: Debt Reduction Progress
Debt Reduction Progress $3.7 Billion Reduction since Acquisition Debt Reduction Progress $3.7 Billion Reduction since Acquisition Excludes the debt repayment of $1 B from the proceeds of our May bond issuance: $1 B 9.375% notes due 2019 Excludes the debt repayment of $1 B from the proceeds of our Au
Slide 6: 2009 Full-Year Results: Record Free Cash Flow
2009 Full-Year Results Record Free Cash Flow $ Billion 2008 2009 $2.2 2009 Full-Year Results Record Free Cash Flow Earnings from continuing operations before special items Cash provided by continuing operations less capital expenditures before dividends; 2009 excludes cash received from alternative
Slide 7: 2009 Earnings per Share
2009 Earnings per Share Weak Demand, Input Cost Relief, Strong Operations Earnings from continuing operations before special items 2009 Earnings per Share Weak Demand, Input Cost Relief, Strong Operations
Slide 8: Improving Earnings Quality
Improving Earnings Quality Replaced Land Sales Earnings Forest Products EBIT ($B) $0.6 $0.5 $0.7 $0.7 $0.5 $0.4 < $0.1 Improving Earnings Quality Replaced Land Sales Earnings EBIT before special items including discontinued operations; Forest Products EBIT excludes Wood Products Earnings as reported
Slide 9: Fourth Quarter 2009 Strong Free Cash Flow & Debt Reduction
Fourth Quarter 2009 Strong Free Cash Flow & Debt Reduction • Fourth Quarter 2009 Strong Free Cash Flow & Debt Reduction $500 MM Free Cash Flow $600 MM Debt Reduction $200 MM Cash Increase $36 MM Input Cost Inflation Earnings from continuing operations before special items Cash provided by continuing
Slide 10: 4Q09 vs. 3Q09 EPS
4Q09 vs. 3Q09 EPS Stable Volumes, Rising Input Costs, Weather-Impacted Operations Earnings before special items 4Q09 vs. 3Q09 EPS Stable Volumes, Rising Input Costs, Weather-Impacted Operations
Slide 11: Industrial Packaging Earnings 4Q09 vs. 3Q09
Industrial Packaging Earnings 4Q09 vs. 3Q09 Industrial Packaging Earnings 4Q09 vs. 3Q09 Earnings before special items
Slide 12: N.A. Industrial Packaging Relative EBITDA Margins
N.A. Industrial Packaging Relative EBITDA Margins Industry-Leading Margins Despite LOO Costs 2009 17.5% IP 2009 margins reflect 2.1 MM tons (19% of capacity) of downtime Competitor A 2009 margins reflect 200 M tons (8% of capacity) of downtime 2009 15.3% N.A. Industrial Packaging Relative EBITDA Mar
Slide 13: Printing Papers Earnings 4Q09 vs. 3Q09
Printing Papers Earnings 4Q09 vs. 3Q0 9 Printing Papers Earnings 4Q09 vs. 3Q0 9 Earnings before special items
Slide 14: Consumer Packaging Earnings 4Q09 vs. 3Q09
Consumer Packaging Earnings 4Q09 vs. 3Q0 9 Consumer Packaging Earnings 4Q09 vs. 3Q0 9 Earnings before special items (2) (7) (10) (2) $0 $15 $30 $45 $60 $75 3Q09 Price Input Costs Operations & Costs Maintenance Outages Mix 4Q09
Slide 15: xpedx
$ Million 4Q08 3Q09 4Q09 xpedx Sales $1,940 $1,665 $1,675 Earnings $26 $21 $31 xpedx 4Q09 earnings include a $17 MM favorable LIFO adjustment Paper prices stabilized as the quarter progressed 4Q08 and 3Q09 earnings include $6 MM unfavorable and $3 MM favorable LIFO inventory valuation adjustments re
Slide 16: IP Brazil
$ Million 4Q08 3Q09 4Q09 4Q09 vs. 3Q09 4Q09 vs. 4Q08 Business Volume Price / Ton Volume Price / Ton IP Brazil Sales $215 $275 $300 Earnings $44 $36 $33 EBITDA Margin 32% 25% 23% IP Brazil results are reported in the Printing Papers segment Uncoated Freesheet 7% ($29) 44% ($172) Domestic (5%) ($43) (
Slide 17: Ilim Joint Venture
$ Million 4Q08 3Q09 4Q09 4Q09 vs. 3Q09 4Q09 vs. 4Q08 Business Volume Price / Ton Volume Price / Ton Ilim Joint Venture Sales (100%) $530 $305 $350 Earnings (IP Share) $0 $0 $6 Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s 4Q08, 3Q09 & 4Q09 earnings includes an after-tax fore
Slide 18: Global Input Costs by Segment
Global Input Costs by Segment $36 MM, or $0.06/Share Unfavorable vs. 3Q09 Global Input Costs by Segment $36 MM, or $0.06/Share Unfavorable vs. 3Q09 By Business By Input Type ($30) ($8) $2 Industrial Packaging Printing Papers Consumer Packaging Fiber Energy Chemicals Freight OCC ($26) ($16) ($3) $9 F
Slide 19: Fourth Quarter Summary
Fourth Quarter Summary Positives Improved N.A. Exports Printing Papers Results Quarter-End Price Momentum Further Cost Reduction Continued Debt Reduction Offsets Increasing Fiber Costs Isolated Operating Issues Ongoing LOO Downtime Costs
Slide 20: Input Cost Inflation
Input Cost Inflation Input Costs Ahead of Price Increases Previously Announced IP Price Increases Input Cost Inflation Input Costs Ahead of Price Increases Business Increase per Ton IP Capacity (MM Tons) N. A. Industrial Packaging $50 10.0 N. A. Uncoated Freesheet $40 2.6 N. A. Coated Paperboard $40
Slide 21: From 4Q09 to 1H10: Cost Increases Precede Price Increases
From 4Q09 to 1H10 Cost Increases Precede Price Increases 1Q 2Q 4Q From 4Q09 to 1H10 Cost Increases Precede Price Increases Input Cost Inflection Isolated Operating Issues Input Cost Escalation Higher Maintenance Outages Input Cost Stabilization Price Increase Realization
Slide 22: First Quarter Outlook
First Quarter Outlook Changes from 4Q09 North America Europe Brazil Russia - Svetogorsk Asia Slight Decrease Decrease Decrease Seasonal Decrease Ramping Up Ramping Up Margin Squeeze ~$25MM Increase ~$120MM Increase Increasing Decrease Increase First Quarter Outlook Changes from 4Q09 Volume Paper Sli
Slide 23: 2010 Priorities
2010 Priorities 2010 Priorities Regain momentum after 1Q input cost squeeze Increase margins and ROI Capture benefits of higher operating rates Build on operating performance Balanced use of cash
Slide 24: 4Q09 Financial Snapshot
4Q09 Financial Snapshot 4Q08 3Q09 4Q09 • • 4Q09 Financial Snapshot Sales ($B) $6.5 $5.9 $6.0 EBITDA ($MM) $671 $780 $669 Free Cash Flow ($MM) $443 $605 $530 Debt ($B) $12.1 $9.6 $9.0 Cash Balance ($B) $1.1 $1.7 $1.9 Earnings from continuing operations before special items Cash provided by continuing
Slide 25: Key Financial Statistics
$ Million 2008 2009 2010 Estimate Key Financial Statistics Capital Spending $1,002 $534 $800 Depreciation & Amortization $1,347 $1,472 $1,450 Net Interest Expense $492 $669 $620 - $640 Corporate Items $103 $181 $200 - $225 Effective Tax Rate 31.5% 30% 30-32% Estimated depreciation may be impacted by
Slide 26: Free Cash Flow 2009
Free Cash Flow 2009 $ Million 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Free Cash Flow Excluding AFMTC & European AR Cash $599 $1,667 $521 $576 $605 $530 $2,232 Free Cash Flow Cash from Operations $1,887 $2,669 $649 $707 $713* $697 $2,766* Cash Received from Alternative Fuel Mixture Tax Credits $0 $0 $145
Slide 27: Debt Maturity Profile
Debt Maturity Profile Maturities as of Year-End Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Debt Maturity Profile Maturities as of Year-End
Slide 28: Cash & Committed Facilities
Cash & Committed Facilities $4.4 Billion Maturity Facility Cost Cash & Committed Facilities $4.4 Billion Quarter-End Cash - $1.9 B - $1 B Accounts Receivables Program JAN 2011 Zero Drawn CP Rate + 100 bps $1.5 B Corporate Revolver NOV 2012 Zero Drawn LIBOR + 300 bps Total Cash & Committed Facilities
Slide 29: Debt Covenants & Credit Ratings
Debt Covenants & Credit Ratings Covenant Year-end Actual Rating Outlook Debt Covenants & Credit Ratings Maximum Debt-to-Total Capital 60% 43.3% Minimum Consolidated Net Worth $9 B $11.8 B Standard & Poor’s BBB Negative Moody’s Baa3 Negative
Slide 30: Pension Update
Pension Update Pension Update Market value of assets increased to $6.8 B 23.8% return in 2009 Benefits obligation increased to $9.5 B Unfunded obligation declined from $3.2 B to $2.8 B No cash contribution required in 2010 US GAAP basis 2009 Year-End Portfolio
Slide 31: Pension Plan Key Variables
Pension Plan Key Variables 2008 2009 2010E Average Annualized Returns Portfolio Asset Allocation at 12-31-09 Pension Plan Assumed Rate of Return 8.5% 8.25% 8.25% Discount Rate 6.2% 6.0% 5.8% * Non-cash expense for U.S. plans only Pension expense reflects service cost, interest cost, amortization of
Slide 32: Capacity Management Summary
Capacity Management Summary Permanent Capacity Reductions in 2009 Mill Products Annual Capacity (Tons) % of IP Global Capacity Closure Date • • Capacity Management Summary Permanent Capacity Reductions in 2009 Franklin, VA Uncoated Freesheet 600,000 12% Spring 2010 Coated Paperboard 140,000 4% Decem
Slide 33: N.A. Lack of Order & Maintenance Downtime
N.A. Lack of Order & Maintenance Downtime 14% of Capacity in 4Q, 20% for the Year N.A. Lack of Order & Maintenance Downtime 14% of Capacity in 4Q, 20% for the Year Lack-of-order & maintenance downtime for North American Containerboard, Uncoated Papers, Market Pulp, & Coated Paperboard. See the follo
Slide 34: N.A. Lack of Order & Maintenance Downtime by Business
N.A. Lack of Order & Maintenance Downtime N.A. Lack of Order & Maintenance Downtime Containerboard Uncoated Papers Market Pulp Coated Paperboard LOO downtime excludes capacity from mills or machines that have been permanently shutdown (Franklin #3 - 32,000 tons and Louisiana mill - 120,000 tons) as
Slide 35: Maintenance Outages Expenses
$ Million 4Q09 1Q10E 2009 2010E Maintenance Outages Expenses Industrial Packaging $26 $70 $120 $140 North America $32 $25 $118 $125 Europe $39 $40 Brazil $7 $5 Printing Papers Total $32 $25 $164 $170 Consumer Packaging $16 $5 $41 $40 Total Impact $74 $100 $325 $350 Dollar impact of planned maintenan
Slide 36: Forest Products 4Q09 vs. 3Q09
Forest Products 4Q09 vs. 3Q09 4Q08 3Q09 4Q09 Forest Products 4Q09 vs. 3Q09 Sales ($ MM) $65 $5 $25 Earnings ($ MM) $38 $2 $18 Acres Sold 30,000 3,200 7,700 Price / Acre $2,106 $1,994 $2,655 4Q09 figures exclude a 17,000-acre sale of a partnership interest at $369 per acre. The previously announced a
Slide 37: Industrial Packaging Price and Volume
4Q09 vs. 3Q09 4Q09 vs. 4Q08 Business Volume Price / Ton Volume Price / Ton Industrial Packaging N.A. Container (4%) ($14) (5%) ($65) European Container 2% (€23) (8%) (€81) Industrial Packaging
Slide 38: Printing Papers Price and Volume
4Q09 vs. 3Q09 4Q09 vs. 4Q08 Business Volume Price / Ton Volume Price / Ton Printing Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper (3%) ($11) (1%) ($82) N.A. Pulp (3%) $37 (1%) ($27) European Paper 9% (€15) (8%) (€105) Printing Papers
Slide 39: Consumer Packaging Price and Volume
4Q09 vs. 3Q09 4Q09 vs. 4Q08 Volume Price/Ton Volume Price/Ton Revenue Price Revenue Price Consumer Packaging Average IP price realization (includes the impact of mix across all grades) U.S. Coated Paperboard (5%) ($10) (19%) ($3) Converting Businesses (4%) NA (10%) NA Consumer Packaging
Slide 40: Special Items Pre-Tax from Continuing Operations
Special Items Pre-Tax from Continuing Operations Special Items Pre-Tax ($Million) 4Q08 3Q09 4Q09 Special Items Pre-Tax from Continuing Operations Industrial Packaging Alternative Fuel Mixture Credits $221 $212 Facility & Machine Closure Costs ($8) ($7) ($670) Integration Costs ($26) ($18) ($15) Othe
Slide 41: Special Items Net of Taxes from Continuing Operations
Special Items Net of Taxes from Continuing Operations 4Q09 2009 $ Million EPS $ Million EPS Special Items Net of Taxes from Continuing Operations Earnings Before Special Items $101 $0.24 $378 $0.88 Special Items Net of Taxes: Alternative Fuel Mixture Credits $469 $1,413 North American Mill Shutdowns
Slide 42: 4Q09 EBITDA before Special Items
4Q09 EBITDA before Special Items Operating Profit $ Million D & A $ Million Tons Thousand EBITDA per Ton EBITDA Margin 4Q09 EBITDA before Special Items Industrial Packaging North America $68 $162 2,502 $92 13.1% Europe $17 $9 $102 9.9% Printing Papers North America $70 $58 $170 18.4% Western Europe
Slide 43: Operating Profits by Industry Segment
Operating Profits by Industry Segment from Continuing Operations $ Million 4Q08 3Q09 4Q09 Operating Profits by Industry Segment from Continuing Operations Industrial Packaging $145 $214 $84 $482 $741 Printing Papers $113 $138 $139 $734 $464 Consumer Packaging $1 $68 $49 $47 $177 Distribution $26 $21
Slide 44: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results from Continuing Operations $ Million Sales 4Q08 3Q09 4Q09 Geographic Business Segment Operating Results from Continuing Operations Excludes Forest Products Industrial Packaging North American $2,125 $1,890 $1,855 $6,170 $7,585 European $255 $240 $260 $1,
Slide 45: Geographic Segment Operating Results before Special Items
Geographic Business Segment Operating Results from Continuing Operations before Special Items $ Million Operating Profit 4Q08 3Q09 4Q09 Geographic Business Segment Operating Results from Continuing Operations before Special Items Excludes Forest Products Industrial Packaging North American $130 $201
Slide 46: 2008 Earnings from Continuing Operations
Pre-Tax $MM Tax $MM Non- controlling Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares 1 MM Diluted EPS 2 Before Special Items Special Items Earnings from Continuing Operations 2008 Earnings from Continuing Operations 1Q08 $239 ($75) ($5) $16 $175 32% $0.41 2Q08 $312 ($10
Slide 47: 2009 Earnings from Continuing Operations
Pre-Tax $MM Tax $MM Non- controlling Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares 1 MM Diluted EPS 2 Before Special Items Special Items Earnings 2009 Earnings from Continuing Operations Assuming dilution A reconciliation to GAAP EPS is available at www.internationalp
Slide 48: 4Q09 vs. 4Q08 EPS
4Q09 vs. 4Q08 EPS Earnings from continuing operations before special items 4Q09 vs. 4Q08 EPS Forest Products Earnings
Slide 49: Industrial Packaging Earnings 4Q09 vs. 4Q08
Industrial Packaging Earnings 4Q09 vs. 4Q08 Industrial Packaging Earnings 4Q09 vs. 4Q08 Earnings before special items
Slide 50: Printing Papers Earnings 4Q09 vs. 4Q08
Printing Papers Earnings 4Q09 vs. 4Q08 Printing Papers Earnings 4Q09 vs. 4Q08 Earnings before special items
Slide 51: Consumer Packaging Earnings 4Q09 vs. 4Q08
Consumer Packaging Earnings 4Q09 vs. 4Q08 Consumer Packaging Earnings 4Q09 vs. 4Q08 Earnings before special items
Slide 52: Total Cash Cost Components 2009
Total Cash Cost Components 2009 Total Cash Cost Components North American Mills Only
Slide 53: Global Input & Freight Costs by Input
Global Input & Freight Costs by Input $212 MM, or $0.39/Share Favorable vs. 4Q08 Global Input & Freight Costs by Input $212 MM, or $0.39/Share Favorable vs. 4Q08 Input costs for continuing businesses ($5) $10 $25 $40 $55 $70 $85 $100 Chemicals Energy Fiber Freight North America Outside North America
Slide 54: Natural Gas Costs
Natural Gas Costs 23% Increase vs. 3Q09 Average Cost NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 23% Increase vs. 3Q09 Average Cost
Slide 55: U.S. Mill Wood Costs
U.S. Mill Wood Costs 5% Increase vs. 3Q09 Average Cost U.S. Mill Wood Costs 5% Increase vs. 3Q09 Average Cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities
Slide 56: U.S. Old Corrugated Containers Costs
U.S. Old Corrugated Containers Costs 1% Increase vs. 3Q09 Average Cost Index: Jan 2005 OCC Costs = 100 U.S. Old Corrugated Containers Costs 1% Increase vs. 3Q09 Average Cost 2005-2007 represents WY PKG delivered costs; 2008-2009 represents delivered costs to the integrated system
Slide 57: U.S. Fuel Oil
U.S. Fuel Oil 9% Increase vs. 3Q09 Average Cost Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 9% Increase vs. 3Q09 Average Cost WTI Crude prices
Slide 58: U.S. Chemical Composite Index
U.S. Chemical Composite Index 5 % Decrease vs. 3Q09 Average Cost U.S. Chemical Composite Index 5 % Decrease vs. 3Q09 Average Cost Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG Index: 1Q05 Chemical Composite= 100
Slide 59: 2010 Global Consumption: Annual Purchase Estimates for Key Inputs
2010 Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. 2010 Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption Estimates are based on normal operations and may be impacted by downtime Energy Natural Gas (MM BTU
International Paper Co /New/ — Q4 2009 Earnings Presentation on 6ix