International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2006 Earnings Presentation
41 slides from International Paper's earnings presentation, Feb 1, 2007
Slide 1: Fourth Quarter 2006 Review
John V. Faraci Chairman & CEO Marianne M. Parrs EVP & CFO Exhibit 99.2 Fourth Quarter 2006 Review February 1, 2007 Fourth Quarter 2006 Review February 1, 2007 John V. Faraci Chairman & CEO Marianne M. Parrs EVP & CFO
Slide 2: Statements Relating to Non-GAAP Financial Measures
Statements Relating to Non-GAAP Financial Measures 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 www.internationalpaper.com under Invest
Slide 3: Agenda
Agenda Fourth Quarter 2006 Review Transformation Plan Update First Quarter 2007 Outlook 2007 Priorities Fourth Quarter 2006 Review Transformation Plan Update First Quarter 2007 Outlook 2007 Priorities
Slide 4: Fourth Quarter 2006 Summary
Fourth Quarter 2006 Summary Best Fourth Quarter Since 1999 Volume • Seasonally slower in North America • Improved European and Brazilian volumes Pricing • Papers improve in North America, Europe, and Brazil • Packaging flat Manufacturing operations impacted by outages Higher Real Estate sales, but r
Slide 5: Diluted EPS from Continuing Operations and Before Special Items
0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Diluted EPS from Continuing Operations and Before Special Items 0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q .10 .27 .26 .26 .11 .15 .11 .03 .02 .30 .16 .34 .27 .20
Slide 6: 4Q '06 vs. 3Q '06 EPS from continuing operations before special items
4Q ‘06 vs. 3Q ‘06 EPS from cont. ops before special items EPS $ / Share EPS $ / Share NA Papers .02 Int’l Papers .02 IP Realty ..06 Land Sales (.01) NA Papers (.03) Others (.01) NA Papers (.05) NA Packaging (.03) Coated (.03) Harvest Income (.05) LIFO . Benefits .04 .47 .40 .04 .09 .08 .05 .04 (.08)
Slide 7: 12M '06 vs. 12M '05 EPS from continuing operations before special items
12M ‘06 vs. 12M ‘05 EPS from cont. ops before special items .70 1.33 .20 .32 .24 .80 (.19) (.09) (.24) (.05) (.36) $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 12M '05 Price Volume / Downtime Cost/Mix Materials / Distrib Real Estate Corporate / Other Interest Divestitures Tax 12M '06 EPS $ / Share EPS $ / Sh
Slide 8: Raw Material & Distribution Costs
Raw Material & Distribution Costs EBIT impact 12M’06 vs. 12M’05 (130) (110) (90) (70) (50) (30) (10) Total of $214 million or $0.36 per share negative impact in 12M’06 versus 12M’05 (130) (110) (90) (70) (50) (30) (10) Energy Distribution Chemicals EBIT ($MM) (7) (12) (24) (58) Non-U.S. Wood (113) A
Slide 9: Debt Reduction
0 4 8 12 16 20 Debt Reduction June Dec Dec Dec Dec Dec 17.9 15.2 14.8 15.5 14.6 12.2 $ Billion Reduced total debt by $10.7 billion since June 2000 Except for December 2005 and January 2006, all periods include Carter Holt Harvey debt on IP’s balance sheet 7.2 Dec June 13.4
Slide 10: Printing Papers
Printing Papers $ Millions 4Q’06 Change vs 3Q’06: * Excluding a $128MM special charge $ 1,545 190* Sales Earnings 4Q’06 3Q’06 $ Millions Uncoated Pulp Europe (uncoated) Brazil (uncoated) $9 $21 €16 R$20 Volume Realizations/ton $ 1,670 4Q’06 Change vs 3Q’06: (5%) (9%) 8% 2% Average IP realization (in
Slide 11: Industrial Packaging
Industrial Packaging $ Millions 4Q’06 Change vs 3Q’06: Average IP realization (includes the impact of mix across all grades) $ 1,265 Sales Earnings 4Q’06 3Q’06 $ Millions Containerboard U.S. Container $7 ($4) Volume Realizations/ton $ 1,250 125* 4Q’06 Change vs 3Q’06: (4%) (1%) * Excluding a $13MM s
Slide 12: Consumer Packaging
Consumer Packaging $ Millions 4Q’06 Change vs 3Q’06: Average IP realization (includes the impact of mix across all grades) $ 665 Sales Earnings 4Q’06 3Q’06 $ Millions Coated Paperboard $8 Volume Realizations/ton $ 645 4Q’06 Change vs 3Q’06: (5%) Converting Businesses Sales Revenue (4%)
Slide 13: Distribution
Distribution $ Millions $ 1,715 Sales Earnings 4Q’06 3Q’06 $ Millions $ 1,730 Record fourth quarter EBIT; up 20% compared to 2005 Record Year
Slide 14: Forest Resources
Forest Resources $ 190 Sales Earnings 4Q’06 3Q’06 $ Millions $ 135
Slide 15: Special Items & Discontinued Operations – 4Q'06
Special Items & Discontinued Operations – 4Q’06 Special Items (net of tax & minority interest) $2,740 • Forestland Sale Gains (759) • Goodwill Impairments (84) • Saillat Mill Asset Impairment (69) • Restructuring / Corporate (4) • Tax Adjustment • Other $4.06 $1,831 Total Special Items Discontinued
Slide 16: Reconciliation to 4Q'06 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $0.47 Special Items 4.06 Earnings from Continuing Operations 4.53 Discontinued Operations (0.16) Net Earnings $4.37 Reconciliation to 4Q’06 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $0.47 Speci
Slide 17: Special Items & Discontinued Operations - 2006
Special Items & Discontinued Operations - 2006 • Other (185) • Restructuring / Corporate Special Items (net of tax & minority interest) $2,964 • Forestlands Sale (1,302) • Coated Papers Sale • Other Divestitures (759) • Goodwill Impairment (121) • Asset Impairment (28) • Other $1.32 $647 Total Speci
Slide 18: Reconciliation to 2006 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $1.33 Special Items 1.32 Earnings from Continuing Operations 2.65 Discontinued Operations (0.47) Net Earnings $2.18 Reconciliation to 2006 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $1.33 Specia
Slide 19: 2006 Summary
2006 Summary Best year since 2000 Strong price realizations EBIT margin improved by 160 basis points Continued improvement in our manufacturing operations Good cost control Our supply/demand in balance Significant progress in transforming International Paper Best year since 2000 Strong price realiza
Slide 20: Transformation Plan Update Fourth Quarter 2006
Improve Existing Businesses Return Value to Shareholders Strengthen Balance Sheet Selective Reinvestment Divestitures Transformation Plan Update Fourth Quarter 2006 $.330 Billion 12M06 $1.4 Billion $6.2 B Debt Reduction $2.0 B Announced Average Returns ~ 12% Improve Existing Businesses Return Value
Slide 21: First Quarter 2007 Outlook
First Quarter 2007 Outlook Volume - seasonally stronger Prices • Implementing IP’s previously announced containerboard and coated board price increases • Implementing IP’s previously announced European and Brazilian paper price increases Continued progress in improving operations with fewer mill out
Slide 22: 2007 Priorities
2007 Priorities Improve Existing Businesses Deliver on earnings from Selective Reinvestments • Luiz Antonio • IP/Sun JV Return Value to Shareholders Improve Existing Businesses Deliver on earnings from Selective Reinvestments • Luiz Antonio • IP/Sun JV Return Value to Shareholders Building on a Soli
Slide 23: 2006 Total Overhead Cost
2006 Total Overhead Cost 28% 72% Pension, Supply Chain & Commissions $3.4 Billion Overhead Cost Base to Manage $100 Million or 4% Improvement Year-over-Year
Slide 24: Transformation Plan Update: Divestments Status
Transformation Plan Update Divestments status as of February 1, 2007 Carter Holt Harvey Brazil Coated Papers US Coated Papers Kraft Papers Forestlands Wood Products Arizona Chemical Consider Strategic Options Distribute Sales Book Evaluate Bids Sales Agreement Announced Close on Sale 5.7 MM acres Be
Slide 25: 2006 Results for Businesses Sold or Sale Announced
Transformation Plan Update 2006 Results for Businesses Sold or Sale Announced 4,460 1,340 1,050 Sales (MM) Total Wood Products Forest Harvests/ Recreation Income Arizona Chemical Kraft Papers Beverage Pkg US & Brazil Coated Paper Business Forest Products Forest Products Other Businesses Discontinued
Slide 26: Key Financial Statistics
Key Financial Statistics Updated as of February 1, 2007 29% $ 746 MM $156 MM $521 MM $1.1 B $1.1 B Effective Tax Rate Corporate Items Supply Chain Expense Net Interest Expense Depreciation & Amort. Capital Spending 20% $607 MM $135 MM $595 MM $1.2 B $1.1 B 30-32% $675 – 725 MM $215 MM $350-380 MM $1
Slide 27: Lack of Order Downtime
Lack of Order Downtime 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Containerboard Uncoated Papers Pulp Coated Paperboard European Papers *Includes indefinitely closed uncoated papers capacity at Pensacola, FL, Bastrop, LA and Jay, ME in 2Q05 (72,000 tons), 3Q05 (108,000 tons) and 4Q’
Slide 28: Q1'07 Maintenance Outages
Q1’07 Maintenance Outages (19) Q1’07 Period Impact vs. Full-Year 2007 Amortization $(MM) Total Impact Consumer Packaging Industrial Packaging Printing Papers 101,000 74,000 27,000 Maintenance Outage (tons) Maintenance outages and dollar impacts are estimated and are subject to change.
Slide 29: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $190 $249 $64 805 $499 Industrial Packaging 122 125 5 386 223 Consumer Packaging 28 48 29 131 122 Distribution 31 34 25 128 84 Forest Products 162 166 224 678 732 Other Businesses 13 22 (6) 61 17 Operating Profit 546 644 341 2
Slide 30: 2006 Earnings from Continuing Operations
2006 Earnings from Continuing Operations Before Special Items Q1 (22) (5) 26% 486.3 0.12 Q2 (89) (4) 34% 487.2 0.35 Q3 (78) (5) 28% 484.9 0.40 Q4 (83) (3) 28% 451.2 0.47 Full Year Total (272) (17) 29% 488.7 1.33 Special Items Q1 (1,308) - (1,270) 3% 486.3 (2.61) Q2 (128) - (83) 35% 487.2 (0.17) Q3 (
Slide 31: 2005 Earnings from Continuing Operations
2005 Earnings from Continuing Operations Before Special Items Q1 (18) (2) 12% 488.9 0.27 Q2 (32) (2) 24% 487.4 0.20 Q3 (34) (3) 29% 507.1 0.17 Q4 (2) (5%) 486.0 0.04 Full Year Total (83) (9) 20% 507.0 0.70 Special Items Q1 (103) - (67) 35% 488.9 (0.14) Q2 (96) - (59) 259% 487.4 (0.12) Q3 - (273%) 50
Slide 32: Average Sales Realizations
Average Sales Realizations Corrugated boxes * U.S. only. Average IP realization (includes the impact of mix across all grades) $/ton Packaging $/ton Printing Papers Segments 3Q’06 Average Sales Realizations 4Q’05 Dec 06 Containerboard Pulp Uncoated Grades* 4Q’06 Dec 05
Slide 33: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Sales of Forestlands $118 $125 $139 • Harvest & Recreational Income 26 63 75 Forestland Expenses (27) (27) (30) Land Utilization (real estate), Net of Expenses 45 5 40 Total EBIT $162 $166 $224 3Q’06 4Q’05 4Q’06 Earnings Sources – Gross Margin • Sal
Slide 34: Forest Resources Earnings Sources (Annual)
Forest Resources Earnings Sources – Gross Margin • Sales of Forestlands $447 $400 $315 • Harvest & Recreational Income 222 269 281 Forestland Expenses (114) (146) (178) Land Utilization (real estate), Net of Expenses 124 198 124 Total EBIT $679 $721 $542 2005 2004 2006 Earnings Sources – Gross Margi
Slide 35: Pension Returns
Pension Returns Average annualized returns • 14.9% • Past 5 years 11.5% • Past 10 years 10.0% • Portfolio asset allocation (at 12/31/06) • 62% Equity • 29% Debt • 9% Real estate & other
Slide 36: Pension Expense
Pension Expense (500) (400) (300) (200) (100) 5.75 5.50 5.75 Discount Rate (%) 8.50 8.50 8.50 Rate of Return (%) 2007E $ Millions 2007E Annual Pension Expense * Key Variables *U.S. plans only. Pension expense reflects service cost, interest cost, amortization of actuarial losses and expected return
Slide 37: Natural Gas Costs Trended higher in 4Q'06
Natural Gas Costs Trended higher in 4Q’06 2006 YTD Average Index: Jan 2003 Natural Gas Costs = 100 * NYMEX Natural Gas closing prices Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan 2005 Average
Slide 38: U.S. Mill Wood Costs
U.S. Mill Wood Costs Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Wood Costs = 100 * Delivered cost to U.S. pulp & paper mills 2006 YTD Average 2005 Average
Slide 39: Caustic Soda Costs Trended lower in 4Q'06
Caustic Soda Costs Trended lower in 4Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Index: Jan 2003 Caustic Soda Costs = 100 * Delivered cost to U.S. facilities 2006 YTD Average 2005 Average
Slide 40: Global Consumption
Global Consumption Key input indicative annual purchase levels 1 Energy Fiber Chemicals Units U.S. 2 Non- U.S. Natural Gas MMbtu 28,000,000 14,000,000 # 6 Fuel Oil BBL 4,100,000 400,000 Coal Tons 1,300,000 230,000 Wood Tons 40,000,000 8,200,000 OCC Tons 600,000 313,000 Caustic Soda Tons 340,000 55,0
Slide 41: INTERNATIONAL! @ PAPER
INTERNATIONAL! @ PAPER INTERNATIONAL (AA) PAPER
International Paper Co /New/ — Q4 2006 Earnings Presentation on 6ix