International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2010 Earnings Presentation
64 slides from International Paper's earnings presentation, Feb 3, 2011
Slide 1: Fourth Quarter and Full Year 2010 Review
Fourth Quarter and Full Year 2010 Review February 3, 2011 Fourth Quarter and Full Year 2010 Review February 3, 2011 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: Fourth Quarter 2010 Solid Finish in Transition Year
Fourth Quarter 2010 Solid Finish in Transition Year Fourth Quarter 2010 Solid Finish in Transition Year Strong Earnings Strong Free Cash Flow Incremental price realization offset seasonal volume declines More Maintenance Outages Increased Input Costs Strong Ilim JV Contribution Earnings from continu
Slide 4: 4Q10 Operating Business EPS Strongest 4Q in more than a decade
4Q10 Operating Business EPS Strongest 4Q in more than a decade 4Q10 Operating Business EPS Strongest 4Q in more than a decade Earnings from continuing operations before special items as reported at the time
Slide 5: Strong Full-Year 2010 Results
Strong Full-Year 2010 Results Strong Full-Year 2010 Results $3.3 B EBITDA $1.7 B Free Cash Flow 110 BPS EBITDA Margin Expansion 250 BPS ROI Improvement Significant Debt Reduction Progress Pension Funding Gap down $1.3 B Net Debt down $550 MM Annual Dividend Rate Increase From $0.10 to $0.75 Earnings
Slide 6: Strong Full-Year 2010 Results
Strong Full-Year 2010 Results $ Billion 2009 2010 Strong Full-Year 2010 Results See slide #34 for a reconciliation of free cash flows Earnings from continuing operations before special items Sales $23.4 $25.2 Free Cash Flow $2.2 $1.7 Year-End Debt $9.0 $8.7 Cash Balance $1.9 $2.1 EBITDA
Slide 7: 2010 Revenue $1.8 Billion Increase
2010 Revenue $1.8 Billion Increase 2010 vs. 2009 Revenue Growth 2010 Revenue $1.8 Billion Increase Reflects 100% of Ilim’s revenues U.S. 6% Non-U.S. 13% Ilim Joint Venture 33% Non-U.S., Inc. Ilim 18%
Slide 8: Earnings before special items 2010 vs. 2009 EPS
Earnings before special items 2010 vs. 2009 EPS 2010 vs. 2009 EPS Earnings from continuing operations before special items
Slide 9: $2,500 $2,000 $14,500 - $4,000 $500 $0 INTERNATIONAL) PAPER ila iad OND P7004 27000
$2,500 $2,000 $14,500 - $4,000 $500 $0 INTERNATIONAL) PAPER ila iad OND P7004 27000 COOR °n04 7005 PO0R 27007 27008 27005 320716
Slide 10: INTERNATIONAL|
INTERNATIONAL| 2000-05 2006 2007 2008 2009 2010 2H10 Average Run Rate
Slide 11: 4Q10 Financial Snapshot
4Q10 Financial Snapshot Strong EBITDA & Free Cash Flow 4Q09 3Q10 4Q10 4Q10 Financial Snapshot Strong EBITDA & Free Cash Flow Sales ($B) $6.0 $6.7 $6.5 EBITDA ($MM) $669 $1,061 $872 EBITDA Margin 11% 16% 13% Free Cash Flow ($MM) $530 $753 $601 Debt ($B) $9.0 $8.7 $8.7 Cash Balance ($B) $1.9 $1.4 $2.1
Slide 12: Earnings before special items 4Q10 vs. 3Q10 EPS
Earnings before special items 4Q10 vs. 3Q10 EPS 4Q10 vs. 3Q10 EPS Earnings before special items
Slide 13: Global Input Costs vs. 3Q10
Global Input Costs vs. 3Q10 $22 MM Unfavorable, or $0.03/Share Global Input Costs vs. 3Q10 $22 MM Unfavorable, or $0.03/Share By Business By Input Type
Slide 14: Industrial Packaging Earnings 4Q10 vs. 3Q10
Industrial Packaging Earnings 4Q10 vs. 3Q10 Industrial Packaging Earnings 4Q10 vs. 3Q10 Earnings before special items
Slide 15: N.A. Industrial Packaging Relative EBITDA Margins
N.A. Industrial Packaging Relative EBITDA Margins 4Q10 Sales N.A. Industrial Packaging Relative EBITDA Margins IP EBITDA margins based on North American Industrial Packaging operating profit before special items. Competitor EBITDA margin estimates obtained from public filings and IP analysis Exclude
Slide 16: N.A. Industrial Packaging Relative EBIT
N.A. Industrial Packaging Relative EBIT Operating Profit up 13% Operating Profit up 28% N.A. Industrial Packaging Relative EBIT Operating profit before special items.
Slide 17: Printing Papers Earnings 4Q10 vs. 3Q10
Printing Papers Earnings 4Q10 vs. 3Q10 Printing Papers Earnings 4Q10 vs. 3Q10 Earnings before special items
Slide 18: Printing Papers EBITDA Margins
Printing Papers EBITDA Margins Strong Recovery in 2010 in all Regions 2009 Margin Printing Papers EBITDA Margins Strong Recovery in 2010 in all Regions 19% 15% (6%) 24%
Slide 19: Consumer Packaging Earnings 4Q10 vs. 3Q10
Consumer Packaging Earnings 4Q10 vs. 3Q10 Consumer Packaging Earnings 4Q10 vs. 3Q10 Earnings before special items
Slide 20: U.S. Coated Paperboard EBITDA Margins
U.S. Coated Paperboard EBITDA Margins Now similar to UFS & Containerboard Margins U.S. Coated Paperboard EBITDA Margins Now similar to UFS & Containerboard Margins
Slide 21: xpedx 4Q10 vs. 3Q10
$ Million 4Q09 3Q10 4Q10 xpedx 4Q10 vs. 3Q10 Daily Sales Change vs. 3Q10 Sales $1,675 $1,755 $1,770 Earnings $31 $22 $9 xpedx 4Q10 vs. 3Q10 2010 EBIT increased more than 40% vs. 2009 Average daily sales rates increased in all segments 4Q10 results include initial investments to improve results, incl
Slide 22: Ilim Joint Venture 4Q10 vs. 3Q10
$ Million 4Q09 3Q10 4Q10 Ilim Joint Venture 4Q10 vs. 3Q10 4Q10 vs. 3Q10 4Q10 vs. 4Q09 Business Volume Price / Ton Volume Price / Ton Sales (100%) $350 $465 $490 Earnings (IP Share) $6 $22 $31 Ilim recorded an asset impairment charge (IP share was $12 million) Ilim’s results are reported on a one-qua
Slide 23: Ilim Joint Venture Three-Year Progress
Ilim Joint Venture Three-Year Progress Ilim’s results are reported on a one-quarter lag Ilim Joint Venture Three-Year Progress EPS accretive Record earnings 2007 - $0.15 per share of equity earnings $152 million in cash dividends Current Developed & implementing strategic capital expansion program
Slide 24: IP Europe, Middle East & Africa
IP Europe, Middle East & Africa 2010: 10% of IP Sales & 15% of IP EBITDA Return on Investment 2010 IP Europe, Middle East & Africa 2010: 10% of IP Sales & 15% of IP EBITDA Record earnings in 2010 Strong earnings in paper & packaging segments Strong returns in both Western & Eastern Europe European P
Slide 25: Debt Reduction Progress
Debt Reduction Progress Target: Adjusted Debt < 3X EBITDA Debt Reduction Progress Target: Adjusted Debt < 3X EBITDA Adjusted Debt reflects gross balance sheet debt plus pension gap Pension gap as of 12/31/08 Excludes debt repayments of $2.75 B from the proceeds of bonds issuances of $2.75 B Pension
Slide 26: Capital Spending 2011 Estimate
Capital Spending 2011 Estimate: $1.2 - $1.3 Billion Capital Spending 2011 Estimate: $1.2 - $1.3 Billion $ Million Normalized Target 60-70% of Depreciation % of Depreciation Reflects continuing operations Cycle Capex Target: ~$1B
Slide 27: Energy Efficiency Progress
Energy Efficiency Progress Record-Low Purchased Energy Consumption Energy Efficiency Progress Record-Low Purchased Energy Consumption U.S. Mill System 2010 Fossil Fuel Consumption per Ton 8% less than 2009 ($75 MM) 45% less than 2000 ($360 MM) Set new low-record for purchased energy usage 5 mills se
Slide 28: Fourth-Quarter Summary
Fourth-Quarter Summary Strong 4Q Earnings & Free Cash Flow Fourth-Quarter Summary Started with strong 3Q momentum Seasonal volume decline offset by price realization More maintenance outages Input cost increases Strong Ilim JV contribution
Slide 29: First Quarter Outlook
First Quarter Outlook Changes from 4Q10 North America Europe Brazil Asia Higher Fiber & Chemicals Increase First Quarter Outlook Changes from 4Q10 Volume Paper Stable Stable Seasonal Decrease Packaging Stable Stable Stable Pricing Paper Stable Stable Stable Packaging Stable Stable Stable Maintenance
Slide 30: 1Q & 2011 Outlook
1Q & 2011 Outlook Momentum Continues Strong 1Q EPS & FCF Strong EPS, FCF & ROI 1Q & 2011 Outlook Momentum Continues 1Q11 Outlook Stable volumes Stable prices (with some pressure on exports) Increasing fiber & chemicals costs Strong Ilim JV contribution 2011 Outlook Global economies continue to recov
Slide 31: Key Financial Statistics
$ Million (Except as noted) 2009 2010 2011 Estimate Key Financial Statistics Capital Spending $534 $775 $1.2 - $1.3 B Depreciation & Amortization $1,472 $1,456 $1.4 B Net Interest Expense $669 $608 $575 - $600 Corporate Items $181 $226 $175 - $200 Effective Tax Rate 30% 30% 32 - 34% Before special i
Slide 32: Free Cash Flow 2010
Free Cash Flow 2010 $ Million 2008 2009 1Q10 2Q10 3Q10 4Q10 2010 Free Cash Flow Excluding AFMTC, CBTC & European AR Cash $1,667 $2,232 $39 $356 $753 $601 $1,749 Free Cash Flow Cash from Operations $2,669 $2,766 $159 $509 $937 $919 $2,524 2,3 Cash Received from AFMTC & CBTC $0 $1,684 $0 $132 $0 $17 $
Slide 33: Debt Maturity Profile
Debt Maturity Profile Maturities as of Year-End Monetization & Other: Timber Monetization debt and other debt intended to be rolled over or refinanced, (Sun joint venture debt and other foreign subsidiary debt) Debt Maturity Profile Maturities as of Year-End
Slide 34: Cash & Committed Facilities
Cash & Committed Facilities $4.6 Billion Maturity Facility Cost Cash & Committed Facilities $4.6 Billion Quarter-End Cash - $2.1 B - $1 B Accounts Receivables Program JAN 2012 Zero Drawn CP Rate + 75 bps $1.5 B Corporate Revolver NOV 2012 Zero Drawn LIBOR + 300 bps Total Cash & Committed Facilities
Slide 35: Debt Covenants & Credit Ratings
Debt Covenants & Credit Ratings Covenant 12/31/10 Actual Rating Outlook Debt Covenants & Credit Ratings Maximum Debt-to-Total Capital 60% 41.2% Minimum Consolidated Net Worth $9 B $12.4 B Standard & Poor’s BBB Stable Moody’s Baa3 Stable
Slide 36: Pension Update
Pension Update Pension Update Market value of assets increased to $8.3 B 15.1% return on plan assets in 2010 Pension benefits obligation increased to $9.8 B Unfunded obligation declined from $2.8 B to $1.5 B No cash contribution required in 2011 US GAAP basis Year-End Funded Status
Slide 37: Pension Plan Key Variables
Pension Plan Key Variables 2009 2010 2011E Average Annualized Returns Portfolio Asset Allocation at 12-31-10 Pension Plan Assumed Rate of Return 8.25% 8.25% 8.25% Discount Rate 6.0% 5.8% 5.6% * Non-cash expense for U.S. plans only Pension expense reflects service cost, interest cost, amortization of
Slide 38: Maintenance Outages Expenses
$ Million 4Q10 1Q11E 2010 2011E Maintenance Outages Expenses Industrial Packaging $22 $41 $136 $149 North America $29 $39 $131 $138 Europe $38 $35 Brazil $13 $15 Printing Papers Total $43 $39 $182 $188 Consumer Packaging $17 $0 $42 $44 Total Impact $82 $80 $360 $381 Dollar impact of planned maintena
Slide 39: Industrial Packaging volume and price
4Q10 vs. 3Q10 4Q10 vs. 4Q09 Business Volume Price / Ton Volume Price / Ton Industrial Packaging N.A. Container (5%) $4 3% $89 European Container* 13% €7 7% €76 Industrial Packaging * European Container volumes reflect box shipments only, including the shipments by the non-consolidated joint venture
Slide 40: Printing Papers volume and price
4Q10 vs. 3Q10 4Q10 vs. 4Q09 Business Volume Price / Ton Volume Price / Ton Printing Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper (6%) $7 (12%) $91 N.A. Pulp (10%) $3 (14%) $211 European Paper (2%) €0 (7%) €68 Printing Papers
Slide 41: Consumer Packaging volume and price
4Q10 vs. 3Q10 4Q10 vs. 4Q09 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 (7%) $14 9% $77 Converting Businesses 4% NA 7% NA Consumer Packaging
Slide 42: Cellulosic Biofuel Tax Credit 4Q10
Cellulosic Biofuel Tax Credit 4Q10 Cellulosic Biofuel Tax Credit 4Q10 $40 million after-tax credit $17 million cash benefit IP cannot quantify the value of additional CBTC because it depends on future taxable earnings, but it could be significant Reflects the after-tax value of 65 million gallons of
Slide 43: Special Items Pre-Tax from Continuing Operations
Special Items Pre-Tax from Continuing Operations Special Items Pre-Tax ($Million) 4Q09 3Q10 4Q10 Special Items Pre-Tax from Continuing Operations Industrial Packaging Alternative Fuel Mixture Credits $212 Facility & Machine Closure Costs ($670) ($10) Integration Costs ($15) Other ($2) ($3) Printing
Slide 44: Special Items Net of Taxes from Continuing Operations
Special Items Net of Taxes from Continuing Operations 4Q10 2010 $ Million EPS $ Million EPS Special Items Net of Taxes from Continuing Operations Earnings Before Special Items $296 $0.68 $890 $2.05 Special Items Net of Taxes: Mill & Machine Shutdowns $1 ($196) Tax Adjustments ($46) Debt Extinguishme
Slide 45: 4Q10 EBITDA
4Q10 EBITDA Operating Profit $ Million D & A $ Million Tons Thousand EBITDA per Ton EBITDA Margin 4Q10 EBITDA Industrial Packaging North America $259 $128 2,463 $157 19.5% Europe $16 $10 $96 9.4% Printing Papers North America $92 $49 $214 21.0% Eastern Europe & Russia $37 $21 $190 19.3% Brazil $63 $
Slide 46: Operating Profits by Industry Segment
Operating Profits by Industry Segment from Continuing Operations $ Million 4Q09 3Q10 4Q10 Operating Profits by Industry Segment from Continuing Operations Industrial Packaging $84 $332 $274 $741 $845 Printing Papers $139 $278 $236 $464 $798 Consumer Packaging $49 $71 $64 $177 $215 Distribution $31 $
Slide 47: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results $ Million Sales 4Q09 3Q10 4Q10 Geographic Business Segment Operating Results Excludes Forest Products Industrial Packaging North American $1,855 $2,210 $2,135 $7,585 $8,355 European $260 $235 $275 $980 $990 Asian $95 $165 $160 $325 $495 Printing Papers N
Slide 48: Geographic Business Segment Operating Results before Special Items
Geographic Business Segment Operating Results from Continuing Operations before Special Items $ Million Operating Profit 4Q09 3Q10 4Q10 Geographic Business Segment Operating Results from Continuing Operations before Special Items Excludes Forest Products Industrial Packaging North American $65 $320
Slide 49: 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 50: 2010 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 2010 Earnings from Continuing Operations Assuming dilution A reconciliation to GAAP EPS is available at www.internationalp
Slide 51: Earnings before special items 4Q10 vs. 4Q09 EPS
Earnings before special items 4Q10 vs. 4Q09 EPS 4Q10 vs. 4Q09 EPS Earnings from continuing operations before special items
Slide 52: Industrial Packaging Earnings 4Q10 vs. 4Q09
Industrial Packaging Earnings 4Q10 vs. 4Q09 Industrial Packaging Earnings 4Q10 vs. 4Q09 Earnings before special items
Slide 53: Printing Papers Earnings 4Q10 vs. 4Q09
Printing Papers Earnings 4Q10 vs. 4Q09 Printing Papers Earnings 4Q10 vs. 4Q09 Earnings before special items
Slide 54: IP Brazil
$ Million 4Q09 3Q10 4Q10 IP Brazil 4Q10 vs. 3Q10 4Q10 vs. 4Q09 Business Volume Price / Ton Volume Price / Ton Sales $300 $275 $315 Earnings $33 $46 $63 EBITDA Margin 23% 29% 32% IP Brazil results are reported in the Printing Papers segment IP Brazil Uncoated Freesheet 10% ($7) (7%) $93 Domestic 13%
Slide 55: Consumer Packaging Earnings 4Q10 vs. 4Q09
Consumer Packaging Earnings 4Q10 vs. 4Q09 Consumer Packaging Earnings 4Q10 vs. 4Q09 Earnings before special items
Slide 56: 2010 Total North American Mills Cash Cost Components
2010 Total North American Mills Cash Cost Components 2010 Total North American Mills Cash Cost Components
Slide 57: Global Input & Freight Costs vs. 2009
Global Input & Freight Costs vs. 2009 $643 MM Unfavorable, or $1.05/Share Global Input & Freight Costs vs. 2009 $643 MM Unfavorable, or $1.05/Share Input costs for continuing businesses
Slide 58: Global Input & Freight Costs vs. 4Q09
Global Input & Freight Costs vs. 4Q09 $168 MM Unfavorable, or $0.31/Share Global Input & Freight Costs vs. 4Q09 $168 MM Unfavorable, or $0.31/Share Input costs for continuing businesses
Slide 59: U.S. Mill Wood Delivered Cost Trends
U.S. Mill Wood Delivered Cost Trends 2% Decrease vs. 3Q10 Average Cost U.S. Mill Wood Delivered Cost Trends 2% Decrease vs. 3Q10 Average Cost
Slide 60: U.S. OCC Delivered Cost Trends
U.S. OCC Delivered Cost Trends 17% Increase vs. 3Q10 Average Cost U.S. OCC Delivered Cost Trends 17% Increase vs. 3Q10 Average Cost 2005-2007 represents WY PKG delivered costs; 2008-2010 represents delivered costs to the integrated system
Slide 61: Natural Gas Costs
Natural Gas Costs 13% Decrease vs. 3Q10 Average Cost NYMEX Natural Gas closing prices Natural Gas Costs 13% Decrease vs. 3Q10 Average Cost
Slide 62: U.S. Fuel Oil
U.S. Fuel Oil 7% Increase vs. 3Q10 Average Cost U.S. Fuel Oil 7% Increase vs. 3Q10 Average Cost WTI Crude prices
Slide 63: U.S. Chemical Composite Index
U.S. Chemical Composite Index 7% Increase vs. 3Q10 Average Cost U.S. Chemical Composite Index 7% Increase vs. 3Q10 Average Cost Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG
Slide 64: 2011 Global Consumption Annual Purchase Estimates for Key Inputs
2011 Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. 2011 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 2010 Earnings Presentation on 6ix