![]() Third Quarter 2008 Review October 30, 2008 Third Quarter 2008 Review October 30, 2008 John V. Faraci Chairman & Chief Executive Officer Exhibit 99.2 |
![]() 2 Forward-Looking Statements Forward-Looking Statements These slides and statements made during this presentation contain forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) the company's ability to realize anticipated profit improvement from its transformation plan, including our ability to realize the expected benefits of our acquisition of the assets of Weyerhaeuser Company’s containerboard, packaging and recycling business in light of integration difficulties and other challenges; (ii) increases in interest rates and our ability to meet our debt service obligations; (iii) industry conditions, including but not limited to changes in the cost or availability of raw materials and energy, transportation costs, competition we face, the company's product mix, demand and pricing for its products; (iv) global economic conditions and political changes, including but not limited to changes in currency exchange rates, credit availability, the company's credit ratings issued by recognized credit rating organizations and pension and health care costs; (v) unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and to actual or potential litigation; and (vi) whether we experience a material disruption at one of our manufacturing facilities. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in the company's Securities and Exchange Commission filings. |
![]() 3 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 internationalpaper.com under Investors. |
![]() 4 $0.41 $0.36 $0.16 $0.48 3Q07 3Q08 Forest Products EPS Operating Business EPS Third Quarter 2008 Results Summary Solid Results Despite Cost Inflation Third Quarter 2008 Results Summary Solid Results Despite Cost Inflation Input Cost Escalation Mineral Rights Earnings Selling Price Improvements Soft North American & European Demand Initial CBPR Contributions Reduced Operating Costs Strong Free Cash Flow $0.57 $0.84 Earnings from continuing operations before special items |
![]() 5 .57 (.11) (.02) .15 .28 .01 (.02) (.47) .13 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 3Q07 Price Volume Cost / Mix Materials & Freight Ilim Vicksburg Tax Interest 3Q08 $ / Share $ / Share IPG .06 CPG .04 P&C .14 Eu & Br .04 Fiber (.08) Chemicals (.15) Energy (.16) Freight (.08) Cost / Mix .17 Outages (.02) 3Q08 vs. 3Q07 EPS Higher Prices, Volume & Mix, Unfavorable Input Costs 3Q08 vs. 3Q07 EPS Higher Prices, Volume & Mix, Unfavorable Input Costs .41 .16 Earnings from continuing operations before special items; volume includes earnings from CBPR Forest Products Earnings .84 3Q08 33% 3Q07 29% .48 .36 |
![]() 6 (96) (89) (53) (48) ($120) ($100) ($80) ($60) ($40) ($20) $0 Energy Chemicals Freight Fiber North America Outside North America Increasing Global Input & Freight Costs $286MM, or $0.47/Share Impact vs. 3Q07 Increasing Global Input & Freight Costs $286MM, or $0.47/Share Impact vs. 3Q07 Input costs for continuing businesses; does not include CBPR Percentage change reflects estimated North American input cost increases 20% 15% 50% 50% N.A. |
![]() 7 ($200) $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2003 vs. 2002 2004 vs. 2003 2005 vs. 2004 2006 vs. 2005 2007 vs. 2006 6M08 vs. 6M07 9M08 vs. 9M07 Cumulative Price Increases / Decreases Input Cost Increases 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 |
![]() 8 Printing Papers Earnings 3Q08 vs. 3Q07 Printing Papers Earnings 3Q08 vs. 3Q07 210* 241 37 15 103 (13) (21) (152) $0 $50 $100 $150 $200 $250 $300 $350 3Q07 Price Materials & Freight Volume Cost / Mix Outages Other 3Q08 * Excludes a special impairment charge of $107 million to write down the Inverurie mill assets to estimated fair market value |
![]() 9 Average IP price realization (includes the impact of mix across all grades) $17 (€5) $40 $101 Price / Ton (4%) 1% 22% (6%) Volume 3Q08 vs. 3Q07 Price / Ton 3Q08 vs. 2Q08 3% (5%) 5% 0% Volume $31 Brazilian Paper (€8) European Paper ($6) N.A. Pulp $25 N.A. Paper Business Printing Papers Printing Papers |
![]() 10 Industrial Packaging Earnings 3Q08 vs. 3Q07 Industrial Packaging Earnings 3Q08 vs. 3Q07 1 Excludes trade volume and includes CBPR earnings 2 Excludes special charges of $39 million related to the write-up of inventory to fair value in connection with the CBPR acquisition and $19 million for CBPR integration costs 84 153 2 47 5 64 1 37 5 (9) (80) $0 $25 $50 $75 $100 $125 $150 $175 3Q07 Price Materials & Freight Volume Cost / Mix Outages Vicksburg Other 3Q08 |
![]() 11 €42 $72 $45 Price / Ton (5%) (1%) 0% Volume 3Q08 vs. 3Q07 €23 (9%) European Container 3Q08 vs. 2Q08 (1%) (6%) Volume $13 N.A. Container $11 N.A. Containerboard Price / Ton Business Industrial Packaging Industrial Packaging Volume and price exclude CBPR Average IP price realization (includes the impact of mix across all grades) |
![]() 12 27 6* (53) 7 25 $0 $10 $20 $30 $40 $50 $60 $70 3Q07 Cost / Mix Price Materials & Freight 3Q08 Consumer Packaging Earnings 3Q08 vs. 3Q07 Consumer Packaging Earnings 3Q08 vs. 3Q07 *Excludes a special charge of $8 million related to the reorganization of Shorewood’s Canadian operations |
![]() 13 Average IP price realization (includes the impact of mix across all grades) NA Price $67 Price/Ton 4% Revenue 2% Volume 3Q08 vs. 3Q07 Price Revenue Business 3Q08 vs. 2Q08 5% 2% Volume NA Converting Businesses $29 U.S. Coated Paperboard Price/Ton Business Consumer Packaging Consumer Packaging |
![]() 14 ($20) ($21) ($16) Fuel & Freight $35 $2,075 3Q08 $26 $1,970 2Q08 $30 $1,880 3Q07 Earnings Sales $ Million xpedx xpedx Record operating profit Solid volumes in paper, packaging and facility supplies Benefiting from operating cost reductions that reflect on going business redesign |
![]() 15 Forest Products Forest Products 33,000 30,000 36,000 Acres Sold $1,564 $1,872 $2,991 Price / Acre $305 $55* 3Q08 $41 $55 2Q08 $96 $120 3Q07 Earnings ($ Million) Sales ($ Million) Mineral rights sold for $260 million Remaining land portfolio of 237,000 acres * Mineral rights sale is not reflected in sales but in Other Income |
![]() 16 Ilim’s results are reported on a one-quarter lag IP’s share of Ilim’s 2Q08 earnings include a $14 million favorable after-tax foreign exchange impact IP’s share of Ilim’s 3Q08 earnings include a $4 million unfavorable after-tax foreign exchange impact 3Q08 vs. 2Q08 (3%) (6%) Volume (000 Metric Tons) $56 Containerboard $20 Pulp Price / Ton Business $5 $530 3Q08 $32 $555 2Q08 Earnings (IP Share) Sales (100%) $ Million Ilim Joint Venture 3Q08 Results IP’s After-Tax Share: $5MM or $0.01 EPS Ilim Joint Venture 3Q08 Results IP’s After-Tax Share: $5MM or $0.01 EPS |
![]() 17 Special Items 3Q08 Special Items 3Q08 ($22) Legal Reserves ($29) U.S. Taxes on non-U.S. Gain ($69) CBPR Acquisition Costs & Supply Chain Write-off $0.35 $149 Net Earnings $0.84 $356 Earnings from Continuing Operations & Before Special Items Special Items: Earnings per Share $ Million ($84) Inverurie Mill Asset Impairment Charge ($3) Other ($0.49) ($207) Total Special Items |
![]() 18 (.04) 1.54 (.14) 1.80 .02 .73 .34 .09 1.21 .11 (1.07) .13 (.04) $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 9M07 Price Materials & Freight Cost / Mix Volume Corporate / Other Ilim Vicksburg Tax Interest Shares 9M08 $ / Share $ / Share IPG .17 CPG .09 P&C .34 Eu & Br .13 Fiber (.21) Chemicals (.31) Energy (.37) Freight (.18) 9M08 vs. 9M07 EPS Higher Prices, Volume & Mix, Higher Input Costs 9M08 vs. 9M07 EPS Higher Prices, Volume & Mix, Higher Input Costs 1.08 .46 Earnings from continuing operations before special items; volume includes earnings from CBPR Forest Products Earnings 9M08 32% 9M07 30% .59 |
![]() 19 Free Cash Flow Improvement Free Cash Flow Improvement $621 $72 $549 $603 ($804) $1,407 9M07 $1,224* ($732) $1,956* 9M08 Free Cash Flow Less Capital Investment Cash Provided by Continuing Operations Free Cash Flow ($ Million) * Includes $260 million from mineral rights sale |
![]() 20 Sharp Demand Declines Weak Economic Activity Significant Currency Volatility Capacity Curtailments The World Has Changed Weak Market Conditions in 4Q08 The World Has Changed Weak Market Conditions in 4Q08 |
![]() 21 4Q08 Outlook Changes from 3Q08 4Q08 Outlook Changes from 3Q08 Brazil Improving Europe Under Pressure Steady Paper Ex-North America North America Seasonal Improvement Steady Steady Decreasing Volume Pricing Declining Packaging Decreasing Market Pulp Declining Improving Realization Paper Packaging |
![]() 22 Transportation Freight Electricity Energy Starch Chemicals Fiber Sodium Chlorate Coal Wood Caustic Soda Old Corrugated Containers Commodity Fuel Oil Natural Gas 4Q Cost Trend Input and Freight Costs No Significant Input Cost Relief in 4Q Input and Freight Costs No Significant Input Cost Relief in 4Q |
![]() 23 4Q08 Outlook Changes from 3Q08 4Q08 Outlook Changes from 3Q08 Remain High Remain High Input & Freight Costs Ex-North America North America Steady Decrease Steady Operations Flat Maintenance Outages |
![]() 24 3Q08 Summary 3Q08 Summary Solid Quarter Continued Input Cost Inflation Selling Price Improvement Good Operations Strong Start on CBPR Integration Strong Cash Flow |
![]() 25 Questions & Answers Questions & Answers Investor Relations Contacts Thomas A. Cleves 901-419-7566 Ann-Marie Donaldson 901-419-4967 Emily Nix 901-419-4987 Media Contact Patty Neuhoff 901-419-4052 |
![]() 26 Appendix |
![]() 27 30% $206 $297 $1.1 $1.3 2007 1 32 - 33% $140 - $160 $475 - $500 $1.4 $1.1 2008 Estimate 29% $276 $521 $1.2 $1.1 2006 1 Effective Tax Rate 2 Corporate Items 2 ($ Million) Net Interest Expense ($ Million) Depreciation & Amortization ($ Billion) Capital Spending ($ Billion) 1 Excludes discontinued operations and Coated Papers 2 Before special items and excluding Ilim Key Financial Statistics Key Financial Statistics |
![]() 28 Cash & Committed Liquidity Cash & Committed Liquidity - $800 - Cash $3,300 $1,500 $1,000 Capacity ($MM) Facility Maturity Cost Receivables Facility (Zero Drawn ) OCT 2009 CP Rate + 30 bps Corporate Revolver (Zero Drawn ) MAR 2011 LIBOR + 40 - 50 bps Total Cash & Committed Liquidity 1 1 2 1 – As of September 30, 2008 2 – Zero drawn as of October 30, 2008 and $40 million drawn as of September 30, 2008 |
![]() 29 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 US Non-US Debt Maturity Profile Debt Maturity Profile |
![]() 30 0 7 2 0 Brazil 0 29 9 0 Europe $19 $32 $41 $28 North America $81 $10 $3 $68 3Q08 $105 $13 $40 $52 2Q08 $44 $14 $11 $19 4Q08E Total Impact Consumer Packaging Industrial Packaging Printing Papers Total $ Millions $53 $1 $24 $28 1Q08 Dollar impact of planned maintenance outages are estimates and subject to change Planned Maintenance Outages Planned Maintenance Outages |
![]() 31 Operating Profits by Industry Segment from Continuing Operations before Special Items Operating Profits by Industry Segment from Continuing Operations before Special Items $265 $302 $315 Earnings from continuing operations before income taxes, equity earnings & minority interest $5 $32 NA Equity Earnings, net of taxes - Ilim $(40) $(21) $(56) Corporate Items $(34) $4 $(77) $478 96 30 27 84 $241 3Q07 $(259) $(1) $(144) $709 305 35 6 153 $210 3Q08 $(10) Special Items $406 Operating Profit $(81) Net Interest Expense $8 Minority Interest / Equity Earnings Adjustment 41 26 26 87 $226 2Q08 Forest Products Distribution Consumer Packaging Industrial Packaging Printing Papers $ Million |
![]() 32 Geographic Business Segment Operating Results from Continuing Operations before Special Items Geographic Business Segment Operating Results from Continuing Operations before Special Items Operating Profit Sales $ Million $26 5 8 $13 2 20 $65 0 11 51 39 $125 2Q08 $30 4 3 $20 0 10 $74 0 18 54 34 $135 3Q07 (1) 105 95 85 Asian $35 0 $7 2 11 $140 1 (9) 58 29 $131 3Q08 $2,075 80 $645 100 285 $1,935 5 210 255 425 $905 3Q08 $1,970 75 $625 95 315 $1,060 5 205 255 445 $880 2Q08 $1,880 70 $620 65 265 $975 5 165 250 370 $870 3Q07 Asian Industrial Packaging North American European Asian Distribution European North American Consumer Packaging U.S. Market Pulp Brazilian European North American Printing Papers Excludes Forest Products |
![]() 33 2008 Earnings from Continuing Operations 2008 Earnings from Continuing Operations 1 Assuming dilution 2 A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at presentations 0.35 423 45 149 5 (3) (118) 265 3Q08 (0.49) 423 20 (207) 0 0 52 (259) 3Q08 0.84 423 32.5 356 5 (3) (170) 524 3Q08 $0.35 423 30% $150 $16 $(5) $(59) $198 1Q08 $(0.06) 423 39% $(25) $0 $0 $16 $(41) 1Q08 $0.41 423 31.5% $175 $16 $(5) $(75) $239 1Q08 30 0 30 Equity Earnings 0.54 (0.02) 0.56 Diluted EPS 2 423 30 (7) 0 3 (10) 2Q08 Earnings from Continuing Operations 423 32 228 (7) (97) 302 2Q08 235 Net Income $MM 32.5 Estimated Tax Rate (7) Minority Interest $MM Special Items 312 Pre-Tax $MM 423 (100) 2Q08 Before Special Items Average Shares 1 MM Tax $MM |
![]() 34 Business Segment Price Realization Business Segment Price Realization 864 $567 3Q08 645 $1,013 3Q08 851 $556 2Q08 651 $988 2Q08 792 $521 3Q07 605 $912 3Q07 Average Selling Price Realizations Industrial Packaging ($/ton) Printing Papers ($/ton) Containerboard Corrugated Boxes Market Pulp Uncoated Freesheet Average IP U.S. selling price realizations (includes the impact of mix across all grades) Does not include CBPR |
![]() 35 .36 .49 .02 .56 .10 (.03) .84 .10 (.16) (.10) (.06) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 2Q08 Price Materials & Freight Cost / Mix Volume Interest Ilim Corporate / Other 3Q08 $ / Share $ / Share 3Q08 vs. 2Q08 EPS Higher Prices, Volume & Mix, Higher Input Costs 3Q08 vs. 2Q08 EPS Higher Prices, Volume & Mix, Higher Input Costs Earnings from continuing operations before special items; volume includes earnings from CBPR IPG .03 CPG .02 P&C .04 Eu & Br .01 Fiber (.03) Chemicals (.07) Energy (.04) Freight (.01) Cost / Mix (.02) Outages .04 Forest Products Earnings .07 .48 |
![]() 36 Printing Papers Earnings 3Q08 vs. 2Q08 Printing Papers Earnings 3Q08 vs. 2Q08 226 210* 3 33 9 (50) (11) $0 $50 $100 $150 $200 $250 $300 2Q08 Price Materials & Freight Volume Cost / Mix Other 3Q08 * Excludes a special impairment charge of $107 million to write down the Inverurie mill assets to estimated fair market value |
![]() 37 Industrial Packaging Earnings 3Q08 vs. 2Q08 Industrial Packaging Earnings 3Q08 vs. 2Q08 1 Excludes trade volume and includes CBPR earnings 2 Excludes special charges of $39 million related to the write-up of inventory to fair value in connection with the CBPR acquisition and $19 million for CBPR integration costs (24) (5) 87 153 2 54 1 14 37 (10) $0 $25 $50 $75 $100 $125 $150 $175 2Q08 Price Materials & Freight Volume Cost / Mix Outages Other 3Q08 |
![]() 38 (4) 26* 6* (5) (24) (5) 5 13 $0 $10 $20 $30 $40 $50 2Q08 Price Materials & Freight Volume Cost / Mix Outages Other 3Q08 Consumer Packaging Earnings 3Q08 vs. 2Q08 Consumer Packaging Earnings 3Q08 vs. 2Q08 * Excludes special charges of $13 and $8 million in 2Q08 and 3Q08, respectively, related to the reorganization of Shorewood’s Canadian operations |
![]() 39 Improving Logistics Efficiency Progress in Consumption Reduction Improving Logistics Efficiency Progress in Consumption Reduction Distribution Costs/Ton U.S. Paper & Packaging $58 $65 $61 $7 $55 $57 $59 $61 $63 $65 $67 1H07 1H08 Fuel & Rates 1H08 Net of Inflation |
![]() 40 IP Wood Cost per Ton Expecting Continuing Escalation IP Wood Cost per Ton Expecting Continuing Escalation Reduced Harvest Volume Impact on 4Q08 Wood Cost Total Impact Decreasing Diesel Fuel Cost Insufficient Logging Capacity Paper & Packaging Industry Demand Lack of Residual Wood Chips Factors 2006 - 2008YTD Wood Cost per Ton $28 $29 $30 $31 $32 $33 $34 $35 $36 $37 $38 2006 AVG 2007 AVG Jan Feb Mar Apr May Jun Jul Aug Sep |
![]() 41 Total Cash Cost Components 9M08 Total Cash Cost Components 9M08 North American Mills Only Does not include CBPR Energy 13% Materials 13% Labor 13% Fiber 27% Freight 13% Overhead 8% Chemicals 13% |
![]() 42 ($160) ($140) ($120) ($100) ($80) ($60) ($40) ($20) $0 Wood Energy Chemicals Freight OCC Global Input & Freight Costs by Segment $286 Million Global Impact vs. 3Q07 Global Input & Freight Costs by Segment $286 Million Global Impact vs. 3Q07 Consumer Packaging ($53) Industrial Packaging ($80) Printing Papers ($153) Input costs for continuing businesses; does not include CBPR |
![]() 43 (45) (24) (19) (11) ($50) ($40) ($30) ($20) ($10) $0 $10 Chemicals Energy Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $99MM, or $0.16/Share Impact vs. 2Q08 Increasing Global Input & Freight Costs $99MM, or $0.16/Share Impact vs. 2Q08 Input costs for continuing businesses; does not include CBPR Percentage change reflects North American input costs 5% 5% 10% 15% N.A. |
![]() 44 (228) (191) (129) (109) ($250) ($200) ($150) ($100) ($50) $0 Energy Chemicals Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $657MM, or $1.07/Share Impact vs. 9M07 Increasing Global Input & Freight Costs $657MM, or $1.07/Share Impact vs. 9M07 Input costs for continuing businesses; does not include CBPR Percentage change reflects North American input costs 10% 15% 40% 40% N.A. |
![]() 45 0 50 100 150 200 250 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2005 2006 2007 NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 66% Increase vs. 3Q07 Average Cost Natural Gas Costs 66% Increase vs. 3Q07 Average Cost 2008 |
![]() 46 60 80 100 120 140 160 180 200 220 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2006 2007 Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 79% Increase vs. 3Q07 Average Cost U.S. Fuel Oil 79% Increase vs. 3Q07 Average Cost 2008 Delivered cost to U.S. facilities Does not include CBPR |
![]() 47 90 95 100 105 110 115 120 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul U.S. Mill Wood Costs 13% Increase vs. 3Q07 Average Cost U.S. Mill Wood Costs 13% Increase vs. 3Q07 Average Cost Index: Jan 2005 Wood Costs = 100 2005 2006 2007 2008 Delivered cost to U.S. facilities Does not include CBPR |
![]() 48 50 75 100 125 150 175 200 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2005 2006 2007 2008 Index: Jan 2005 Caustic Soda Costs = 100 U.S. Caustic Soda Costs 75% Increase vs. 3Q07 Average Cost U.S. Caustic Soda Costs 75% Increase vs. 3Q07 Average Cost Delivered cost to U.S. facilities Does not include CBPR |
![]() 49 100 125 150 175 200 225 250 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2006 2007 Index: Jan 2006 Starch Costs = 100 Delivered cost to U.S. facilities Does not include CBPR U.S. Starch Costs 19% Increase vs. 3Q07 Average Cost U.S. Starch Costs 19% Increase vs. 3Q07 Average Cost 2008 |
![]() 50 Global Consumption Annual Purchase Estimates for Key Inputs Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption; includes consumption by Valliant #3 and Albany #2 machines 110,000 500,000 Starch (Tons) Chemicals Fiber Energy 50,000 250,000 Sodium Chlorate (Tons) - 40,000 LD Polyethylene (Tons) 4,000 25,000 Latex (Tons) 230,000 1,200,000 Coal (Tons) 8,400,000 52,000,000 Wood (Tons) 60,000 350,000 Caustic Soda (Tons) 310,000 3,500,000 Old Corrugated Containers (Tons) Commodity 500,000 16,000,000 Non – U. S. 2,100,000 Fuel Oil (Barrels) 55,000,000 Natural Gas (MM BTUs) U. S. |