International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q3 2009 Earnings Presentation
54 slides from International Paper's earnings presentation, Oct 28, 2009
Slide 1: Third Quarter 2009 Review
Third Quarter 2009 Review October 28, 2009 Exhibit 99.2 Third Quarter 2009 Review October 28, 2009 John V. Faraci Chairman & Chief Executive Officer Tim S. Nicholls Senior Vice President & Chief Financial Officer
Slide 2: Statements Relating to Non-GAAP Financial Measures
Statements Relatin g to Non-GAAP Financial Measures Statements Relatin g 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
Slide 3: Third Quarter 2009 Solid Results
Third Quarter 2009 Solid Results • Third Quarter 2009 Solid Results Stabilized Volumes Continued Margin Expansion $1.3 Billion in Free Cash Flow* $1.3 Billion Debt Reduction Earnings from continuing operations before special items * Cash provided by continuing operations less capital expenditures, i
Slide 4: 3Q09 Financial Snapshot
3Q09 Financial Snapshot • • • $ Billion 3Q08 2Q09 3Q09 3Q09 Financial Snapshot Earnings from continuing operations before special items * Cash provided by continuing operations less capital expenditures, excluding alternative fuel credits of $0.7B in 2Q09 and $0.5B in 3Q09 and cash received under Eu
Slide 5: Overcoming Economic Challenges: EBITDA Margin Expansion in Difficult Markets
Overcoming Economic Challenges EBITDA Margin Expansion in Difficult Markets Overcoming Economic Challenges EBITDA Margin Expansion in Difficult Markets Operating profit before special items Excludes Forest Products earnings EBITDA Margins EBITDA Margins exc. xpedx
Slide 6: Free Cash Flow
Free Cash Flow $ Million 3Q08 2Q09 3Q09 Free Cash Flow Cash from Operations $946 $707 $713* Alternative Fuel Mixture Tax Credits - $688 $463 Cash Provided by Continuing Operations $946 $1,395 $1,381 Less Capital Investment ($250) ($131) ($108) Free Cash Flow $696 $1,264 $1,273 * Excludes $205MM cash
Slide 7: Debt Reduction Progress
Debt Reduction Pro g ress $3.1 Billion Reduction since Acquisition Debt Reduction Pro g ress $3.1 Billion Reduction since Acquisition Excludes the debt repayment of $1B from the proceeds of our May bond issuance: $1B 9.375% notes due Excludes the debt repayment of $1B from the proceeds of our August
Slide 8: N.A. Lack of Order & Maintenance Downtime
97 97 97 100 192 97 60 72 50 N.A. Lack of Order & Maintenance Downtime 15% of Capacity in 3Q, Down from 29% Peak in 1 Q 1,056 3Q08 4Q08 1Q09 2Q09 3Q09 Maintenance Valliant #3 LOO Lack-of-Order N.A. Lack of Order & Maintenance Downtime 15% of Capacity in 3Q, Down from 29% Peak in 1 Q Lack-of-order &
Slide 9: Capacity Management Summary
Capacity Mana g ement Summary Adjusting Mil l Capacity t o Meet our Customers’ Needs Mill Products Annual Capacity (Tons) Number of Machines % of IP Capacity Estimated Closure • • Capacity Mana g ement Summary Adjusting Mil l Capacity t o Meet our Customers’ Needs Franklin, VA Uncoated Freesheet 600
Slide 10: Aggressive Restructuring & Cost Reduction
(8) WY PKG (4) (24) Aggressive Restructurin g & Cost Reduction 28% Headcount Reductio n Headcount* Divestments & Acquisitions Headcount Reduction June Headcount Reduction September Aggressive Restructurin g & Cost Reduction 28% Headcount Reductio n * At January 1, 2005 Excludes Ilim joint venture em
Slide 11: 3Q09 vs. 2Q09 EPS
3Q09 vs. 2Q09 EPS Volumes Improved, Strong Cost Mana g ement, Ilim Recovery .20 .37 .09 .03 .03 .11 .02 .07 (.12) (.06) $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 2Q09 Volume/ LOO Price Input Costs Operations/ Costs Mix Maintenance Outages Tax Ilim JV 3Q09 Earnings before special items. 3
Slide 12: Industrial Packaging Earnings 3Q09 vs. 2Q09
Industrial Packa g in g Earnin g s 3Q09 vs. 2Q0 9 (74) (9) (3) (9) $0 $50 $100 $150 $200 $250 $300 2Q09 Volume/ LOO Price Input Costs Maintenance Outages Operations/ Costs Mix 3Q09 Industrial Packa g in g Earnin g s 3Q09 vs. 2Q0 9 Includes ($7MM) cost of fire at Savannah Mill Earnings before special
Slide 13: N.A. Industrial Packaging Relative EBITDA Margins
N.A. Industrial Packa g in g Relative EBITDA Mar g ins Outperforming Competitors in 200 9 N.A. Industrial Packa g in g Relative EBITDA Mar g ins Outperforming Competitors in 200 9 IP EBITDA margins based on North American Industrial Packaging operating profit before special items Competitor EBITDA m
Slide 14: Printing Papers Earnings 3Q09 vs. 2Q09
Printin g Papers Earnin g s 3Q09 vs. 2Q0 9 (29) $0 $25 $50 $75 $100 $125 $150 $175 2Q09 Volume/ LOO Price Input Costs Operations/ Costs Maintenance Outages Mix Other 3Q09 Printin g Papers Earnin g s 3Q09 vs. 2Q0 9 Earnings Before Special Items
Slide 15: Printing Papers Earnings 3Q09 vs. 2Q09
Printing Papers Earnin g s 3Q09 vs. 2Q0 9 (4) $0 $25 $50 $75 $100 $125 $150 2Q09 NA Paper NA Pulp Europe Brazil 3Q09 Printing Papers Earnin g s 3Q09 vs. 2Q0 9 Earnings Before Special Items
Slide 16: Consumer Packaging Earnings 3Q09 vs. 2Q09
Consumer Packa g in g Earnin g s 3Q09 vs. 2Q0 9 (8) (2) $0 $15 $30 $45 $60 $75 2Q09 Volume/ LOO Price Input Costs Operations/ Costs Maintenance Outages Mix 3Q09 Consumer Packa g in g Earnin g s 3Q09 vs. 2Q0 9 Earnings before special items
Slide 17: xpedx 3Q09 vs. 2Q09
$ Million 3Q08 2Q09 3Q09 xpedx 3Q09 vs. 2Q0 9 Sales $2,075 $1,595 $1,665 Earnings $35 $10 $21 xpedx 3Q09 vs. 2Q0 9 Sales revenue up 5% vs. 2Q09 Cost savings driving the bottom line Volume improvements in all segments Printing, Packaging & Facility Supplies Winning new business in National Accounts
Slide 18: Ilim Joint Venture 3Q09 vs. 2Q09
$ Million 3Q08 2Q09 3Q09 Ilim Joint Venture 3Q09 vs. 2Q09 3Q09 vs. 3Q08 Business Volume Price / Ton Volume Price / Ton Sales (100%) $530 $290 $305 Earnings (IP Share) $5 ($30) $0 Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s 3Q08, 2Q09 & 3Q09 earnings includes after-tax fore
Slide 19: IP Asia – Building Breadth & Scale
IP Asia – Buildin g Breadth & Scale Surpassed $1 Billion Revenue Run Rate Sacheon IP Asia – Buildin g Breadth & Scale Surpassed $1 Billion Revenue Run Rate Consumer Packaging - Sun Joint Venture • 3 machines with 900,000 tons capacity • #1 in coated paperboard Shorewood & Foodservice • 4 facilities
Slide 20: IP Asia Strong Growth
IP Asia Strong Growth $15 $62 ($27) Change in Earnin g s Contribution to IP IP Asia Strong Growth International Paper’s Asian results are reported in the Industrial Packaging, Consumer Packaging and Printing Papers segments. $680 $845 $1,150 3Q09 Run-Rate 3Q09 Run-Rate Sales
Slide 21: IP Brazil 3Q09 vs. 2Q09
$ Million 3Q08 2Q09 3Q09 IP Brazil 3Q09 vs. 2Q09 3Q09 vs. 3Q08 Business Volume (000 Metric Tons) Price / Ton Volume (000 Metric Tons) Price / Ton Sales $255 $215 $275 Earnings $58 $23 $36 EBITDA Margin 35% 24% 25% IP Brazil results are reported in the Printing Papers segment IP Brazil Uncoated Frees
Slide 22: Third Quarter Summary
Third Quarter Summary Solid Results Despite Recession Third Quarter Summary Solid Results Despite Recession Stabilized Volumes Margin Expansion Strong Free Cash Flow Accelerated Debt Reduction
Slide 23: Biomass Crop Assistance Program & Cellulosic Ethanol Tax Credits
Biomass Crop Assistance Pro g ram & Cellulosic Ethanol Tax Credits Biomass Crop Assistance Pro g ram & Cellulosic Ethanol Tax Credits Biomass Crop Assistance Program • Investigating the program • Need final, written regulations to understand • Believe that the definition of biomass should be narrowl
Slide 24: Fourth Quarter Outlook
Fourth Quarter Outlook Changes from 3Q0 9 North America Europe Brazil Russia - Svetogorsk Asia Increasing Seasonal Decrease Pulp Increasing, Paper Stable Improving $31MM Unfavorable $10MM Favorable Increasing Increasing Increasing Pulp Up Improving Fourth Quarter Outlook Changes from 3Q0 9 Volume Pa
Slide 25: Priorities
Priorities Priorities Realize Restructuring & Cost Reduction Benefits Match our Supply to our Customers’ Needs Optimize Industrial Packaging Business Continue Debt Reduction
Slide 26: Special Items Net of Taxes 3Q09
Special Items Net of Taxes 3Q0 9 $ Million EPS Special Items Net of Taxes 3Q0 9 Earnings Before Special Items $157 $0.37 Special Items Net of Taxes: Alternative Fuel Mixture Credits $320 Debt Extinguishment Costs ($63) Overhead Reduction Initiative ($24) Integration Costs ($11) Other Previously Anno
Slide 27: Key Financial Statistics
$ Billion 2007 1 2008 2009 Estimate Key Financial Statistics Capital Spending $1.3 $1.0 $0.6 Depreciation & Amortization $1.1 $1.3 $1.5 Net Interest Expense $0.3 $0.5 $0.7 Corporate Items $0.2 $0.1 $0.2 Effective Tax Rate 30% 31.5% 30-32% Excludes discontinued operations Before special items and exc
Slide 28: Debt Maturity Profile
Debt Maturity Profile Maturities as of Quarter-End $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 Debt Maturities Monetization & Other Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Preferred Annual Debt
Slide 29: Cash & Committed Facilities
Cash & Committed Facilities $4.2 Billion $ Billion Maturity Facility Cost Cash & Committed Facilities $4.2 Billion Quarter-End Cash - $1.7 - $1.0B Accounts Receivables Program JAN 2010 Zero Drawn CP Rate + 150 bps $1.5B Corporate Revolver MAR 2011 Zero Drawn LIBOR + 50 to 60 bps Total Cash & Committ
Slide 30: Debt Covenants & Credit Ratings
Debt Covenants & Credit Ratin g s Covenant As of 9/30 Rating Outlook Debt Covenants & Credit Ratin g s Maximum Debt-to-Total Capital 60% 44.7% Minimum Consolidated Net Worth $9B $11.9B Standard & Poor’s BBB Negative Moody’s Baa3 Negative
Slide 31: N.A. Lack of Order & Maintenance Downtime
N.A. Lack of Order & Maintenance Downtime 15% of Capacity in 3Q, Improved from 22% in 2 Q N.A. Lack of Order & Maintenance Downtime 15% of Capacity in 3Q, Improved from 22% in 2 Q LOO downtime excludes capacity from mills or machines that have been permanently shutdown (Franklin #3 - 32,000 tons and
Slide 32: Maintenance Outages Expenses
$ Millions 1Q09 2Q09 3Q09 4Q09E Maintenance Outa g es Expenses Industrial Packaging $44 $46 $4 $26 North America Europe Brazil Printing Papers Total $31 $52 $46 $25 Consumer Packaging $4 $20 $1 $19 Total Impact $79 $118 $51 $70 Dollar impact of planned maintenance outages are estimates and subject t
Slide 33: Forest Products 3Q09 vs. 2Q09
Forest Products 3Q0 9 vs. 2Q0 9 3Q08 2Q09 3Q09 Forest Products 3Q0 9 vs. 2Q0 9 Sales ($ Million) $55* $10 $5 Earnings ($ Million) $305 $3 $2 Acres Sold 33,000 2,900 3,200 Price / Acre $1,564 $2,649 $1,994 The pending sale of 143,000 acres not expected to close in 4Q09. Interested parties are continu
Slide 34: Industrial Packaging Volume and Price
3Q09 vs. 2Q09 3Q09 vs. 3Q08 Business Volume Price / Ton Volume Price / Ton Industrial Packa g in g N.A. Container (2%) ($33) (15%) * ($15) * European Container (6%) (€14) (4%) (€92) Industrial Packa g in g * Estimate based on IP legacy plus WY PKG history
Slide 35: Printing Papers Volume and Price
3Q09 vs. 2Q09 3Q09 vs. 3Q08 Business Volume Price / Ton Volume Price / Ton Printin g Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper 8% ($24) * (13%) ($79) N.A. Pulp 15% $2 (8%) ($131) European Paper (8%) (€18) (14%) (€101) Printin g Papers * The average
Slide 36: Consumer Packaging Volume and Price
3Q09 vs. 2Q09 3Q09 vs. 3Q08 Volume Price/Ton Volume Price/Ton Revenue Price Revenue Price Consumer Packa g in g Average IP price realization (includes the impact of mix across all grades) U.S. Coated Paperboard 2% ($23) (19%) $31 Converting Businesses 0% NA (9%) NA Consumer Packa g in g
Slide 37: Special Items
Special Items Special Items Pre-Tax: 3Q08 2Q09 3Q09 Special Items Industrial Packaging Alternative Fuel Mixture Credits $208 $221 Integration Costs ($58) ($18) ($18) Facility Closure Costs* ($63) ($7) Printing Papers Alternative Fuel Mixture Credits $197 $226 Facility Closure Costs* ($107) ($4) ($1)
Slide 38: 3Q09 EBITDA before Special Items
3Q09 EBITDA before Special Items Operating Profit $ Million D & A $ Million Tons Thousand EBITDA $ per Ton EBITDA Margin % 3Q09 EBITDA before Special Items Industrial Packaging North America $201 $156 2,469 $145 19.8% Europe $13 $8 $83 8.8% Printing Papers North America $92 $58 $194 20.7% Western Eu
Slide 39: Operating Profits by Industry Segment
Operatin g Profits by Industry Se g ment $ Million 3Q08 2Q09 3Q09 Operatin g Profits by Industry Se g ment Industrial Packaging $153 $255 $214 Printing Papers $210 $86 $138 Consumer Packaging $6 $38 $68 Distribution $35 $10 $21 Forest Products $305 $3 $2 Operating Profit $709 $392 $443 Net Interest
Slide 40: Geographic Business Segment Operating Results
Geo g raphic Business Se g ment Operatin g Results from Continuing Operations before Special Items $ Million Sales Operating Profit 3Q08 2Q09 3Q09 3Q08 2Q09 3Q09 Geo g raphic Business Se g ment Operatin g Results from Continuing Operations before Special Items Industrial Packaging North American $1,
Slide 41: 2009 Earnings
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 2009 Earnin g s 2 1 Assuming dilution A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab
Slide 42: 3Q09 vs. 3Q08 EPS
3Q09 vs. 3Q08 EPS .48 Earnings from continuing operations before special items; volume includes earnings from WY PKG 3Q09 vs. 3Q08 EPS
Slide 43: Industrial Packaging Earnings 3Q09 vs. 3Q08
Industrial Packa g in g Earnin g s 3Q09 vs. 3Q0 8 (73) (93) (23) $0 $50 $100 $150 $200 $250 $300 3Q08 Input Costs Price Volume/ LOO Mix Maintenance Outages Operations/ Costs 3Q09 Industrial Packa g in g Earnin g s 3Q09 vs. 3Q0 8 Earnings before special items
Slide 44: Printing Papers Earnings 3Q09 vs. 3Q08
Printin g Papers Earnin g s 3Q09 vs. 3Q0 8 (141) (32) (21) $0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 $275 $300 $325 3Q08 Input Costs Price Volume/ LOO Mix Maintenance Outages Operations/ Costs Other 3Q09 Printin g Papers Earnin g s 3Q09 vs. 3Q0 8 Earnings before special items
Slide 45: Consumer Packaging Earnings 3Q09 vs. 3Q08
Consumer Packa g in g Earnin g s 3Q09 vs. 3Q0 8 (35) (4) $0 $15 $30 $45 $60 $75 $90 3Q08 Input Costs Price Volume/ LOO Mix Maintenance Outages Operations/ Costs Other 3Q09 Consumer Packa g in g Earnin g s 3Q09 vs. 3Q0 8 Earnings before special items
Slide 46: Total Cash Cost Components
Total Cash Cost Components 3Q09 YT D Total Cash Cost Components 3Q09 YT D North American Mills Only Fiber 28% Materials 14% Labor 14% Chemicals 12% Freight 12% Energy 11% Overhead 9%
Slide 47: Global Input Costs by Segment
Global Input Costs by Se g ment $ 17 Million, or $0.03/Share Favorable vs. 2Q0 9 Global Input Costs by Se g ment $ 17 Million, or $0.03/Share Favorable vs. 2Q0 9 By Business By Input Type
Slide 48: Global Input Costs by Input
Global Input Costs by Input $290MM, or $0.47/Share Favorable vs. 3Q0 8 ($5) $10 $25 $40 $55 $70 $85 $100 Energy Fiber Chemicals Freight Global Input Costs by Input $290MM, or $0.47/Share Favorable vs. 3Q0 8 Input costs for continuing businesses; does not include WY PKG
Slide 49: Natural Gas Costs
Natural Gas Costs 3% Decrease vs. 2Q09 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 3% Decrease vs. 2Q09 Average Cost
Slide 50: U.S. Mill Wood Costs
U.S. Mill Wood Costs Flat vs. 2Q09 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul U.S. Mill Wood Costs Flat vs. 2Q09 Average Cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities
Slide 51: U.S. Old Corrugated Containers Costs
U.S. Old Corrugated Containers Costs 36% Increase vs. 2Q09 Average Cost Index: Jan 2005 OCC Costs = 100 U.S. Old Corrugated Containers Costs 36% Increase vs. 2Q09 Average Cost 2005-2007 represents WY PKG delivered costs; 2008-2009 represents the integrated system
Slide 52: U.S. Fuel Oil
U.S. Fuel Oil 5% Increase vs. 2Q09 Average Cost Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 5% Increase vs. 2Q09 Average Cost WTI Crude prices
Slide 53: U.S. Chemical Composite Index
U.S. Chemical Composite Index 21% Decrease vs. 2Q09 Average Cost Index: 1Q05 Chemical Composite= 100 Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG U.S. Chemical Composite Index 21% Decrease vs. 2Q09 Average Cost
Slide 54: 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 Estimates are based on normal operations and may be impacted by downtime Ener g y Natural Gas (MM BTUs) 50,50
International Paper Co /New/ — Q3 2009 Earnings Presentation on 6ix