International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2005 Earnings Presentation
44 slides from International Paper's earnings presentation, Feb 2, 2006
Slide 1: Fourth Quarter 2005 Review
John V. Faraci Chairman & CEO Marianne M. Parrs EVP & CFO Exhibit 99.2 Fourth Quarter 2005 Review February 2, 2006 Fourth Quarter 2005 Review February 2, 2006 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 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 website at www.internationalpaper.com under Inves
Slide 3: Agenda
Agenda Fourth Quarter 2005 Review First Quarter 2006 Outlook Transformation Plan Update Fourth Quarter 2005 Review First Quarter 2006 Outlook Transformation Plan Update
Slide 4: Fourth Quarter 2005 Summary
Fourth Quarter 2005 Summary Volume increased in uncoated paper and packaging Pricing lower overall, with improvement at quarter end Manufacturing operations performed well Raw material costs skyrocketed to peak 2005 levels Volume increased in uncoated paper and packaging Pricing lower overall, with
Slide 5: Higher Raw Material Costs: EBIT impact by period
(700) (600) (500) (400) (300) (200) (100) 0 4Q'05 vs. 3Q'05 4Q'05 vs. 4Q'04 2005 vs. 2004 Higher Raw Material Costs EBIT impact by period (700) (600) (500) (400) (300) (200) (100) 4Q'05 vs. 3Q'05 4Q'05 vs. 4Q'04 2005 vs. 2004 (585) (199) (95) EBIT ($MM) Energy Wood Caustic Soda Other
Slide 6: Higher Raw Material Costs: EBIT impact 2005 vs. 2002
Higher Raw Material Costs EBIT impact 2005 vs. 2002 (500) (400) (300) (200) (100) 0 (500) (400) (300) (200) (100) Caustic Soda Energy Other EBIT ($MM) (430) (395) (125) (100) Wood Total of $1.1 billion or $1.60 per share negative impact in 2005 versus 2002
Slide 7: Diluted EPS from Continuing Operations and Before Special Items
Diluted EPS from Continuing Operations and Before Special Items * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investors .04 .12 .13 .15 .13 .33 .27 .29 .14 .20 .21 .14 .12 .41 .32 .42 .36 1Q 1Q 3Q 1Q 3Q 2Q 4Q 2Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q .31 .29 3Q 4Q .12
Slide 8: 4Q'05 vs. 3Q'05 EPS from cont. ops before special items
4Q’05 vs. 3Q’05 EPS from cont. ops before special items $0.00 $0.10 $0.20 $0.30 $0.40 3Q'05 Price Volume / Downtime Cost / Mix Raw Material Land Sales Corporate Items Tax Interest Other 4Q'05 EPS $ / Share $.29 $.08 ($.15) ($.03) $.12 $.02 ($.04) $.05 ($.02) Energy ($.09) Wood Costs ($.03) Other ($.
Slide 9: Committed to Reducing Debt
0 4 8 12 16 20 Committed to Reducing Debt June Dec Dec Dec Dec Dec 17.9 15.2 14.8 15.5 14.6 12.2 $ Billion Reduced total debt by $6 billion since June 2000 Except for December 2005 and January 2006, all periods include Carter Holt Harvey debt on IP’s balance sheet 11.9 2006E Jan
Slide 10: 12M'05 vs. 12M'04 EPS from cont. ops before special items
12M’05 vs. 12M’04 EPS from cont. ops before special items $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 12M'04 Price Volume / Downtime Cost / Mix Raw Material Land Sales Corporate Items Interest Tax Other 12M'05 $.24 EPS $ / Share $1.26 ($.37) ($.87) $.71 $1.08 ($.03) $.35 ($.19) ($.11) $.09 Energy ($.37) Woo
Slide 11: Lack of Order Downtime
Lack of Order Downtime 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Containerboard Uncoated Papers Pulp Coated Papers Bleached Board 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’0
Slide 12: Printing Papers
Printing Papers $ Millions 4Q’05 Change vs 3Q’05: U.S. operations only. Uncoated excludes Fine Paper $ 2,010 Sales Earnings 4Q’05 3Q’05 $ Millions Uncoated Coated Pulp Europe (uncoated) Flat Flat ($5) €5 Volume Realizations/ton $ 1,970 4Q’05 Change vs 3Q’05: 2% (9%) 12% 5% Includes special charge of
Slide 13: Industrial Packaging
Industrial Packaging $ Millions 4Q’05 Change vs 3Q’05: Average IP realization (includes the impact of mix across all grades) $ 1,180 Sales Earnings 4Q’05 3Q’05 $ Millions Containerboard U.S. Container Flat ($20) Volume Realizations/ton $ 1,115 4Q’05 Change vs 3Q’05: 20% 2% Includes special charge of
Slide 14: Consumer Packaging
Consumer Packaging $ Millions 4Q’05 Change vs 3Q’05: Average IP realization (includes the impact of mix across all grades) $ 730 Sales Earnings 4Q’05 3Q’05 $ Millions Bleached Board $10 Volume Realizations/ton $ 685 4Q’05 Change vs 3Q’05: 1% Converting Businesses Sales Revenue 4% U.S. operations onl
Slide 15: Forest Products
Forest Products 4Q’05 Change vs 3Q’05: Average IP realization (includes the impact of mix across all grades) $ 660 Sales Earnings 4Q’05 3Q’05 $ Millions Lumber (mbf) Plywood (msf) ($30) $5 Volume Realizations/unit $ 700 4Q’05 Change vs 3Q’05: (5%) (11%) Includes special charge of $2 million in the t
Slide 16: Higher Raw Material Costs: 4Q'05 vs. 3Q'05 by business
Higher Raw Material Costs 4Q’05 vs. 3Q’05 EBIT impact by business (60) (50) (40) (30) (20) (10) 0 (60) (50) (40) (30) (20) (10) Forest Products Paper EBIT ($MM) (44) (21) (8) Industrial Packaging Total of $95 million or $0.15 per share negative impact in 4Q’05 versus 3Q’05 Energy Wood Caustic Soda O
Slide 17: Special Items 4Q'05
Special Items – After Tax • Restructuring, Reserve (142) Adjustments & Other • Divestitures (30) • Insurance Recoveries 21 • Tax Adjustments 11 Special Items Total (140) ($0.29) Special Items 4Q’05 Special Items – After Tax • Restructuring, Reserve (142) Adjustments & Other • Divestitures (30) • Ins
Slide 18: Reconciliation to 4Q'05 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $0.12 Special Items (0.29) Loss from Continuing Operations (0.17) Discontinued Operations 0.01 Net Loss ($0.16) Reconciliation to 4Q’05 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $0.12 Special I
Slide 19: Special Items 2005
Special Items – After Tax • Restructuring, Reserve (222) Adjustments & Other • Divestitures (73) • Insurance Recoveries 151 • Tax Adjustments 446 • Interest Income 33 Special Items Total 335 $0.66 Special Items 2005 Special Items – After Tax • Restructuring, Reserve (222) Adjustments & Other • Dives
Slide 20: Reconciliation to 2005 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $1.08 Special Items 0.66 Earnings from Continuing Operations 1.74 Discontinued Operations 0.47 Net Earnings $2.21 Reconciliation to 2005 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $1.08 Special
Slide 21: Key Financial Statistics
Capital Spending Depreciation & Amort. Net Interest Expense 3 Corporate Items Effective Tax Rate 3 Key Financial Statistics Capital Spending Depreciation & Amort. Net Interest Expense Corporate Items Effective Tax Rate $ 1.2 B $ 1.4 B $ 600 MM $ 750-800 MM 30% 2006 Est. $ 1.2 B $ 1.4 B $ 650 MM $ 59
Slide 22: First Quarter 2006 Outlook
First Quarter 2006 Outlook Volume – seasonally slow start, but some positive signs Average prices improving • Implementing IP’s announced price increases in paper and packaging Continued progress in improving operations Input costs mixed, but flat overall Lower land sales Businesses under evaluation
Slide 23: Transformation Plan Update
Transformation Plan Update Process on track - sales books distributed for five of the businesses under evaluation Debt reduction of $2.4 billion in 2005 Maintaining focus on improving key platform operations – fewer, bigger, better strategy Reinvestment plan - taking a disciplined approach Process o
Slide 24: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $88 $141 $196 578 $581 Industrial Packaging 11 37 131 238 380 Consumer Packaging 21 38 39 123 165 Distribution 25 23 22 84 87 Forest Products 257 274 176 943 793 Other Businesses (5) 5 7 17 38 Operating Profit 397 518 571 1,98
Slide 25: 2005 Earnings from Continuing Operations
2005 Earnings from Continuing Operations Before Special Items Q1 (46) (2) 21% 488.9 0.36 Q2 (70) (3) 31% 487.4 0.31 Q3 (71) (3) 139 ³ 33% 507.1 0.29 Q4 (16) (4) 22% 486.0 0.12 Full Year Total (203) (12) 27.5% 509.7 1.08 Special Items Q1 (103) - (67) 35% 488.9 (0.14) Q2 (95) - (61) NM 487.4 (0.12) Q3
Slide 26: 2004 Earnings from Continuing Operations
2004 Earnings from Continuing Operations Before Special Items Q1 (34) (8) 34% 487.4 0.12 Q2 (71) (8) 30% 488.2 0.32 Q3 (82) (5) 28% 509.0 0.41 Q4 (39) (5) 16% 488.9 0.42 Full Year Total (226) (26) 26% 488.4 1.26 Special Items Q1 (14) - (9) 36% 487.4 (0.02) Q2 (122) - (118) 3% 488.2 (0.24) Q3 (31) -
Slide 27: Average Sales Realizations
Average Sales Realizations * U.S. only. Average IP realization (includes the impact of mix across all grades) Forest Products $/ton Packaging $/ton Printing Papers Segments 3Q’05 Average Sales Realizations 4Q’04 Dec 05 Plywood, $/MSF Lumber, $/MBF Corrugated boxes* Containerboard Pulp Coated Uncoate
Slide 28: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Sales of Forestlands $462 $315 $400 • Harvest & Recreational Income 268 281 269 Forestland Expenses (157) (178) (146) Land Utilization (real estate), Net of Expenses 71 124 198 Total EBIT $644 $542 $721 2004 2005 2003 Earnings Sources – Gross Margin
Slide 29: Forest Resources Earnings Sources (Quarterly)
Forest Resources Earnings Sources – Gross Margin • Sales of Forestlands $139 $125 $65 • Harvest & Recreational Income 75 63 81 Forestland Expenses (30) (43) (55) Land Utilization (real estate), Net of Expenses 40 65 55 Total EBIT $224 $210 $146 3Q’05 4Q’04 4Q’05 Earnings Sources – Gross Margin • Sal
Slide 30: Forest Resources
Forest Resources 2003 2004 * Excludes sales of Champion forestlands over last 3 years which generated $550+ million of cash and the 12/31/04 sale of 1.1 million acres of forestland in Maine and New Hampshire $967 627 130% $1,008 372 145% 2005 $1,423 285 165% * Excludes sales of Champion forestlands
Slide 31: Pension Returns
Pension Returns Average annualized returns • 11.7% • Past 5 years 7.9% • Past 10 years 9.8% Portfolio asset allocation (at 12/31/05) • 61% Equity • 28% Debt • 11% Real estate & other
Slide 32: Pension Expense
Pension Expense (500) (400) (300) (200) (100) 5.50 5.75 6.00 Discount Rate (%) 8.50 8.50 8.75 Rate of Return (%) 2006E $ Millions 2006E Annual Pension Expense * Key Variables *U.S. plans only. Pension expense reflects service cost, interest cost, amortization of actuarial losses and expected return
Slide 33: Higher Raw Material Costs EBIT impact 4Q'05 vs. 3Q'05
Higher Raw Material Costs EBIT impact 4Q’05 vs. 3Q’05 (80) (60) (40) (20) 0 Total of $95 million or $0.15 per share negative impact in 4Q’05 versus 3Q’05 (80) (60) (40) (20) Energy Wood Other EBIT ($MM) (63) (21) (11)
Slide 34: Higher Raw Material Costs EBIT impact 4Q'05 vs. 4Q'04
Higher Raw Material Costs EBIT impact 4Q’05 vs. 4Q’04 (150) (125) (100) (75) (50) (25) 0 Total of $199 million or $0.32 per share negative impact in 4Q’05 versus 4Q’04 (150) (125) (100) (75) (50) (25) Energy Wood Caustic Soda EBIT ($MM) (112) (46) (16) (25) Other
Slide 35: Higher Raw Material Costs by business, 2005 vs. 2004
Higher Raw Material Costs 4Q’05 vs. 3Q’05 EBIT impact by business (400) (300) (200) (100) 0 (400) (300) (200) (100) Forest Products Paper EBIT ($MM) Industrial Packaging Energy Wood Caustic Soda Other Consumer Packaging (312) (103) (50) (120) Total of $585 million or $0.87 per share negative impact
Slide 36: Higher Raw Material Costs EBIT impact 2005 vs. 2004
Higher Raw Material Costs EBIT impact 2005 vs. 2004 (300) (250) (200) (150) (100) (50) 0 (300) (250) (200) (150) (100) (50) Caustic Soda Energy Other EBIT ($MM) (242) (191) (65) (87) Wood Total of $585 million or $0.87 per share negative impact in 2005 versus 2004
Slide 37: Natural Gas Costs
Natural Gas Costs Trended higher in 4Q’05 Jan Apr July Oct Jan Apr July Oct Jan Apri July Oct Jan Index: Jan 2003 Natural Gas Costs = 100 Natural gas costs peaked in October
Slide 38: U.S. Mill Wood Costs
U.S. Mill Wood Costs Trended higher in 4Q’05 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 4Q’05 U.S. mill wood costs at 3-year highs
Slide 39: Caustic Soda Costs
Caustic Soda Costs Trended higher in 4Q’05 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs are up 45% versus 1Q’03
Slide 40: Energy: U.S. mills natural gas consumption
Energy U.S. mills natural gas consumption $8.71 $3.45 $5.80 $6.47 Trillion BTUs $/MMBTU Natural Gas Consumed Natural Gas Cost per unit Natural gas consumption at current U.S. pulp & paper mills has decreased 49% since 2002 Total US Mill Energy Purchases before Natural Gas Hedges - $MM $580 $740 $780
Slide 41: Energy: Substitute lower cost energy
Energy Substitute lower cost energy 0% 100% Natural gas as a % of total U.S. mills MMBTU purchases is decreasing % of Total Natural Gas Coal Wood Waste Fuel Oil Other* Electricity $8.71 $2.88 $1.84 $6.70 $14.30 $5.51 2005 Avg Cost per mmbtu *Other includes shredded tires, recycled oil, purchased ste
Slide 42: Energy: Reducing U.S. mill consumption per ton
Reducing U.S. mill consumption per ton Energy Gas Coal Oil Electricity Steam Other* MM BTU/Ton Natural gas consumed per ton of paper produced in 2005 fell 55% and total energy consumed per ton fell about 12% since 2000 * Other fuel category includes purchased bark, shredded tires & recycled motor oi
Slide 43: Domestic Facilities Key input indicative purchase levels
Domestic Facilities Key input indicative purchase levels Energy Fiber Chemicals Units Annual Purchases Natural Gas MMbtus 38,000,000 # 6 Fuel Oil BBLs 5,200,000 Coal Tons 1,500,000 Wood Tons 65,000,000 OCC Tons 600,000 Caustic Soda Tons 400,000 Sodium Chlorate Tons 300,000 LD Polyethylene Tons 100,0
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International Paper Co /New/ — Q4 2005 Earnings Presentation on 6ix