International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2008 Earnings Presentation
56 slides from International Paper's earnings presentation, Jan 29, 2009
Slide 1: Fourth Quarter 2008 Review
Fourth Quarter 2008 Review January 29, 2009 Exhibit 99.2 Tim S. Nicholls Senior Vice President & Chief Financial Officer Fourth Quarter 2008 Review January 29, 2009 John V. Faraci Chairman & Chief Executive Officer
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: The World Changed: 2008 – Two Distinct Periods
The World Changed 2008 – Two Distinct Periods First Three Quarters Fourth Quarter Dramatic Decline Increasing Limited Significant in UFS & KLB Significant Increase Started Early Progress Good Good The World Changed 2008 – Two Distinct Periods Volume Steady Price Peaking, Decline in Pulp Market Downt
Slide 4: 2008 Full-Year Results: Solid Earnings, Record Free Cash Flow
2008 Full-Year Results Solid Earnings, Record Free Cash Flow 2007 2008 $0.69 $0.21 2008 Full-Year Results Solid Earnings, Record Free Cash Flow $2.22 $2.01 Earnings from continuing operations before special items; includes CBPR Cash provided by continuing operations less capital expenditures Sales (
Slide 5: Diluted EPS from Continuing Operations before Special Items
Diluted EPS from Continuing Operations before Special Items $2.01 Diluted EPS from Continuing Operations before Special Items A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at presentations Forest Products earnings percentages are based on operating i
Slide 6: Global Input & Freight Costs vs. 2007
Global Input & Freight Costs $856MM, or $1.38/Share Impact vs. 2007 Global Input & Freight Costs $856MM, or $1.38/Share Impact vs. 2007 Input costs for continuing businesses; does not include CBPR (290) (262) (169) (135) ($300) ($250) ($200) ($150) ($100) ($50) $0 Chemicals Energy Fiber Freight Nort
Slide 7: Responding to the Economic Contraction
Responding to the Economic Contraction Decisive Actions to Weather the Storm Capacity Curtailments Cost Reductions Cash & Liquidity Initiatives Asset Sales Responding to the Economic Contraction Decisive Actions to Weather the Storm Containerboard • 700,000 tons • Valliant #3 Shutdown • 5 packaging
Slide 8: IP Continues to Become a Leaner Company
IP Continues to Become a Leaner Company 10% Headcount Reduction in 2008/09 CBPR IP Continues to Become a Leaner Company 10% Headcount Reduction in 2008/09 Excludes Ilim joint venture employees * Includes 900 Weyerhaeuser positions that did not come to IP (37) (25) (4)* (3) Divestments & Acquisitions
Slide 9: 2008 vs. 2007 EPS
2008 vs. 2007 EPS Input Cost Inflation, Improved Price & Mix .74 .66 $ / Share $ / Share P&C .40 IPG .23 CPG .15 Eu & Br .14 Chemicals (.47) Energy (.43) Fiber (.27) Freight (.21) 2.22 Earnings from continuing operations before special items; volume includes earnings from CBPR Forest Products Earnin
Slide 10: Fourth Quarter 2008 Summary
Fourth Quarter 2008 Summary Dramatic Economic Deceleration $0.28 $0.07 Fourth Quarter 2008 Summary Dramatic Economic Deceleration What Changed in North America Double-digit volume declines Prices peaked & under pressure Input costs peaked & declining How We Accelerated our Actions 25% Downtime in KL
Slide 11: 4Q08 vs. 4Q07 EPS
.16 .48 4Q08 vs. 4Q07 EPS Higher Prices, Weak Volumes, Increased Input Costs .28 .07 $ $ / / Share Share IPG .07 P&C .06 CPG .05 Eu & Br .02 Chemicals (.16) Fiber (.07) Energy (.05) Freight (.02) Earnings from continuing operations before special items; volume includes earnings from CBPR Forest Prod
Slide 12: Lack of Order Downtime
Lack of Order Downtime Matching Our Production to Our Customers’ Needs Lack of Order Downtime Matching Our Production to Our Customers’ Needs (Thousand Tons)
Slide 13: Industrial Packaging Earnings 4Q08 vs. 4Q07
Industrial Packaging Earnings 4Q08 vs. 4Q07 Industrial Packaging Earnings 4Q08 vs. 4Q07 Excludes trade volume and includes CBPR earnings Includes $33 million of insurance recovery for Vicksburg mill Excludes special charges of $26 million for CBPR integration costs and $8 million for Ace Packaging f
Slide 14: CBPR Synergies
CBPR Synergies Achieving Higher Savings at Faster Rate $50 MM $70 MM $265 MM CBPR Synergies Achieving Higher Savings at Faster Rate $50 MM $70 MM $265 MM 2008 Target 2008 Actual 2009 Target Box Plants Mix Mills Overhead
Slide 15: Printing Papers Earnings 4Q08 vs. 4Q07
Printing Papers Earnings 4Q08 vs. 4Q07 * Excludes special charges of $123 million for the permanent shutdown of the Louisiana mill and $30 million for the permanent shutdown of the # 3 paper machine at the Franklin mill Printing Papers Earnings 4Q08 vs. 4Q07 NA Pulp Earnings NA Pulp Earnings
Slide 16: Consumer Packaging Earnings 4Q08 vs. 4Q07
Consumer Packaging Earnings 4Q08 vs. 4Q07 * Excludes a special charge of $4 million related to the reorganization of Shorewood’s Canadian operations * * Consumer Packaging Earnings 4Q08 vs. 4Q07 (37) (6) (17) $0 $10 $20 $30 $40 $50 4Q07 Price Input Costs Volume Cost & Mix Other 4Q08
Slide 17: xpedx: Continued Operating Cost Improvements
$ Million 4Q07 3Q08 4Q08 xpedx Continued Operating Cost Improvements Sales $2,045 $2,075 $1,940 Earnings $28 $35 $26 xpedx Continued Operating Cost Improvements Sales down 5% vs. 4Q07 Paper & packaging volumes weakened; facility supplies volumes remained solid National accounts sales growth offset m
Slide 18: Forest Products
Forest Products 4Q07 3Q08 4Q08 Forest Products Sales ($ Million) $190 $55* $65 Earnings ($ Million) $171 $305 $38 Acres Sold 61,000 33,000 30,000 Price / Acre $2,750 $1,564 $2,106 200,000 acres remaining with NPV of up to $300MM * Mineral rights sale is not reflected in sales but in Other Income
Slide 19: Ilim Joint Venture 4Q08 Results
$ Million 3Q08 4Q08 Business Volume (000 Metric Tons) Price / Ton Ilim Joint Venture 4Q08 Results Weak Demand in China & Price Declines Ilim’s results are reported on a one-quarter lag IP’s share of Ilim’s 3Q08 & 4Q08 earnings include $4 million & $14 million unfavorable pre-tax foreign exchange imp
Slide 20: Capital Expenditures
Capital Expenditures 2007 - 200 9 $1,300 $1,000 $700 Millions Capital Expenditures 2007 - 200 9 % of Depreciation 120% 75% 45% $1,300 $1,000 $700 Millions $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Maintenance Regulatory Cost Reduction Strategic Total
Slide 21: Free Cash Flow
Free Cash Flow New Company Record Free Cash Flow ($ Billion) 2007 2008 Free Cash Flow New Company Record Cash Provided by Continuing Operations $2.0 $2.7 $0.7 Less Capital Investment ($1.3) ($1.0) $0.3 Free Cash Flow $0.7 $1.7 $1.0
Slide 22: Cash & Committed Facilities
Cash & Committed Facilities $3.6 Billion $ Million Maturity Facility Cost Cash & Committed Facilities $3.6 Billion Year-End 2008 Cash - $1,100 - $1.0B Accounts Receivables Program JAN 2010 Zero Drawn CP Rate + 150 bps $1.5B Corporate Revolver MAR 2011 Zero Drawn LIBOR + 50 - 60 bps Total Cash & Comm
Slide 23: Debt Maturities by Quarter 2009-2011
Debt Maturities by Quarter 2009-2011 Debt Maturities by Quarter 2009-2011 $362 paid 1.15.09 500MM Euro Loan Euro denominated 500 million note due in 3Q09 assumes an exchange rate of 1.31 USD/EUR The profile does not include Timber Monetization debt or non-US short-term credit facilities and loans
Slide 24: Progress on Debt Reduction Commitment
Progress on Debt Reduction Commitment $1 Billion Reduction in First Six Months $ Billion Progress on Debt Reduction Commitment $1 Billion Reduction in First Six Months August 2008 Pro Forma with CBPR $12.7 2H08 Debt Reduction $0.6 January 2009 Debt Reduction $0.4 Total Debt Balance $11.7
Slide 25: Pension Update
Pension Update No Cash Contribution Required in 2009 Pension Update No Cash Contribution Required in 2009 Market value of plan assets decreased by 23% to $6.1B PBO increased to $9.3B* due to a lower discount rate * US GAAP basis
Slide 26: Goodwill Impairment Charges
Goodwill Impairment Charges $ Million 4Q08 Total Charge Goodwill Impairment Charges Performing annual goodwill review Testing will be completed during 1Q09 Could record an additional 1Q09 impairment charge in P&CP up to $1.3B Coated Paperboard $438 $438 Printing & Communications Papers $0 Up to $1,3
Slide 27: Special Items & Discontinued Operations
Special Items & Discontinued Operations 4Q08 ($MM) $/Share Special Items & Discontinued Operations 4Q08 Special Items (Net of minority interest & tax) Goodwill Impairments ($438) Louisiana Mill Permanent Shutdown ($75) Franklin Mill PM #3 Shutdown ($18) 2008 Overhead Cost Reduction ($32) CBPR Acquis
Slide 28: 1Q09 Outlook
1Q09 Outlook Changes from 4Q08 Declining Increasing 1Q09 Outlook Changes from 4Q08 Selling Prices Under Pressure Volumes Continued Weakness Input & Freight Costs Maintenance Outages Operations Good, but Impacted by Downtime
Slide 29: 2008 Summary
2008 Summary Record Free Cash Flow 2008 Summary Record Free Cash Flow Record 4Q and Full-Year Free Cash Flow Record Input Cost Inflation Severe Demand Decline in Fourth Quarter Rapid Integration of Acquisition Strong Earnings Despite Headwinds Significant Back-Up Liquidity
Slide 30: Key Financial Statistics
2007 2008 2009 Estimate Key Financial Statistics 1 1 Capital Spending ($ Billion) $1.3 $1.0 $.7 Depreciation & Amortization ($ Billion) $1.1 $1.3 $1.6 Net Interest Expense ($ Million) $297 $492 $700 Corporate Items ($ Million) $206 $103 $250 Effective Tax Rate 30% 31.5% 34% Excludes discontinued ope
Slide 31: Business Segment Price Realization
Business Segment Price Realization Average Selling Price Realizations Quarterly Full Year Printing Papers ($/ton) 4Q07 3Q08 4Q08 Industrial Packaging ($/ton) 4Q07 3Q08 4Q08 Business Segment Price Realization Uncoated Freesheet $925 $1,013 $1,005 $907 $988 Pulp $621 $645 $577 $598 $630 Containerboard
Slide 32: Industrial Packaging Volume and Price
4Q08 vs. 4Q07 4Q08 vs. 3Q08 Business Volume Price / Ton Volume Price / Ton Industrial Packaging N.A. Containerboard (23%) $48 (24%) $17 N.A. Container (18%) $85 (17%) $46 European Container (5%) €0 7% (€33) Industrial Packaging Volume and price exclude CBPR Average IP price realization (includes the
Slide 33: Printing Papers Volume and Price
4Q08 vs. 4Q07 4Q08 vs. 3Q08 Business Volume Price / Ton Volume Price / Ton Printing Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper (19%) $80 (15%) ($8) N.A. Pulp (1%) ($44) (10%) ($68) European Paper (2%) (€23) 2% (€11) Brazilian Paper (5%) $36 (1%) $24
Slide 34: Consumer Packaging Volume and Price
4Q08 vs. 4Q07 4Q08 vs. 3Q08 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 (3%) $81 (5%) $25 Converting Businesses 0% NA (3%) NA Consumer Packaging
Slide 35: Debt Covenants
Debt Covenants Covenant 2008 Year-End Debt Covenants Debt to Total Capital Maximum of 60% 52% Consolidated Net Worth Minimum of $9 Billion $11.2 Billion
Slide 36: Debt Maturity Profile
Debt Maturity Profile Debt Maturity Profile Euro denominated 500 million note due in 2009 assumes an exchange rate of 1.31 USD/EUR The 10-year profile does not include Timber Monetization debt or non-US short-term credit facilities and loans $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800
Slide 37: Pension Plan Expense Information
Pension Plan Expense Information Key Variables 2007 2008 2009E Average Annualized Returns Portfolio Asset Allocation at 12-31-08 Pension Plan Expense Information Assumed Rate of Return 8.5% 8.5% 8.25% Discount Rate 5.75% 6.2% 6.0% * U.S. plans only Pension expense reflects service cost, interest cos
Slide 38: Maintenance Outages Expenses
$ Millions 4Q08 1Q09E Maintenance Outages Expenses 2009E North America $21 $122 $125 Europe Brazil Printing Papers Total $23 $25 $170 $167 Industrial Packaging $13 $53 $80 $153 Consumer Packaging $14 $5 $38 $46 Total Impact $50 $83 $288 $366 Dollar impact of planned maintenance outages are estimates
Slide 39: Special Items & Discontinued Operations Diluted EPS
Special Items & Discontinued Operations Diluted Earnings per Share 4Q08 2008 Special Items & Discontinued Operations Earnings from Continuing Operations & Before Special Items $0.21 $2.01 Special Items ($1.29) ($1.85) Earnings (Loss) from Continuing Operations ($1.08) $0.16 Discontinued Operations $
Slide 40: 2008 Special Items
2008 Special Items ($Millions) $/Share 2008 Special Items Special Items (Net of minority interest & tax) Goodwill Impairments ($438) Louisiana Mill Shutdown ($75) Franklin Mill PM # 3 Shutdown ($18) 2008 Overhead Cost Reduction ($32) CBPR Acquisition Costs & Supply Chain Write-off ($85) Inverurie Mi
Slide 41: 2008 EBITDA from Continuing Operations before Special Items
2008 EBITDA from Continuing Operations before Special Items Operating Profit $ Millions D & A $ Millions Tons (000) EBITDA / Ton 2008 EBITDA from Continuing Operations before Special Items Printing Papers North American $435 $275 3,397 $209 European $146 $81 1,461 $155 Brazilian $186 $131 $372 U.S.
Slide 42: Operating Profits by Industry Segment
Operating Profits by Industry Segment from Continuing Operations before Special Items $ Million 4Q07 3Q08 4Q08 Operating Profits by Industry Segment from Continuing Operations before Special Items Printing Papers $243 $210 $113 $839 $734 Industrial Packaging $109 $153 $145 $374 $482 Consumer Packagi
Slide 43: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results from Continuing Operations $ Million Sales 4Q07 3Q08 4Q08 Geographic Business Segment Operating Results from Continuing Operations Excludes Forest Products Printing Papers North American $865 $905 $765 $3,495 $3,435 European $415 $425 $350 $1,510 $1,655
Slide 44: Geographic Segment Operating Results before Special Items
Geographic Business Segment Operating Results from Continuing Operations before Special Items $ Million Operating Profit 4Q07 3Q08 4Q08 Geographic Business Segment Operating Results from Continuing Operations before Special Items Excludes Forest Products Printing Papers North American $101 $131 $73
Slide 45: 2008 Earnings from Continuing Operations
1 2 2008 Earnings from Continuing Operations Pre-Tax $MM Tax $MM Minority Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares MM Diluted EPS Before Special Items Special Items Earnings from Continuing Operations 2008 Earnings from Continuing Operations Assuming dilution A r
Slide 46: 2007 Earnings from Continuing Operations
2 1 2007 Earnings from Continuing Operations Pre-Tax $MM Tax $MM Minority Interest $MM Net Income $MM Estimated Tax Rate Average Shares MM Diluted EPS Before Special Items Special Items Earnings from Continuing Operations 2007 Earnings from Continuing Operations Assuming dilution A reconciliation to
Slide 47: Total Cash Cost Components
Total Cash Cost Components 200 8 Total Cash Cost Components 200 8 North American Mills Only Does not include CBPR
Slide 48: Global Input & Freight Costs by Segment
Global Input & Freight Costs by Segment $192 Million Global Impact vs. 4Q07 Global Input & Freight Costs by Segment $192 Million Global Impact vs. 4Q07 Consumer Packaging ($36) Industrial Packaging ($59) Printing Papers ($97) ($100) ($80) ($60) ($40) ($20) $0 Fiber Energy Chemicals Freight Input cos
Slide 49: Global Input & Freight Costs by Input
Global Input & Freight Costs by Input $192MM, or $0.30/Share Impact vs. 4Q07 Global Input & Freight Costs by Input $192MM, or $0.30/Share Impact vs. 4Q07 Input costs for continuing businesses; does not include CBPR (99) (41) (33) (19) ($120) ($100) ($80) ($60) ($40) ($20) $0 $20 Chemicals Fiber Ener
Slide 50: North American Input Cost Escalation
North American Input Cost Escalation Input Cost Inflation Exceeded Price Increases North American Input Cost Escalation Input Cost Inflation Exceeded Price Increases North American Papers & Packaging; does not include CBPR $0 $100 $200 $300 $400 $500 $600 $700 1Q08 vs. 1Q07 2Q08 vs. 2Q07 3Q08 vs. 3Q
Slide 51: Natural Gas Costs
Natural Gas Costs 3% Decrease vs. 4Q07 Average Cost NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 3% Decrease vs. 4Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
Slide 52: U.S. Fuel Oil
U.S. Fuel Oil 34% Decrease vs. 4Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 34% Decrease vs. 4Q07 Average Cost Delivered cost to U.S. facilities Does not include CBPR
Slide 53: U.S. Mill Wood Costs
U.S. Mill Wood Costs 12% Increase vs. 4Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct U.S. Mill Wood Costs 12% Increase vs. 4Q07 Average Cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities Does not include CBPR
Slide 54: U.S. Caustic Soda Costs
U.S. Caustic Soda Costs 107% Increase vs. 4Q07 Average Cost Index: Jan 2005 Caustic Soda Costs = 100 U.S. Caustic Soda Costs 107% Increase vs. 4Q07 Average Cost Delivered cost to U.S. facilities Does not include CBPR
Slide 55: U.S. Starch Costs
U.S. Starch Costs 17% Increase vs. 4Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Index: Jan 2006 Starch Costs = 100 Delivered cost to U.S. facilities Does not include CBPR U.S. Starch Costs 17% Increase vs. 4Q07 Average Cost
Slide 56: Global Consumption: Annual Purchase Estimates for Key Inputs
Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption; excludes consumption by permanent & indefinite machine shutdowns Estimates are based on normal operations an
International Paper Co /New/ — Q4 2008 Earnings Presentation on 6ix