![]() Third Quarter 2010 Review October 27, 2010 Third Quarter 2010 Review October 27, 2010 John V. Faraci Chairman & Chief Executive Officer Tim S. Nicholls Senior Vice President & Chief Financial 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) increases in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation and changes in pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and to actual or potential litigation; and (v) whether we experience a material disruption at one of our manufacturing facilities and risks inherent in conducting business through a joint venture. 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 Third Quarter 2010 Headlines Third Quarter 2010 Headlines Outstanding Earnings All global segments More than double 2Q Strong Free Cash Flow More than double 2Q Cost-of-Capital Returns $1.2 B Pension Contribution & $200 MM Debt Reduction |
![]() 5 Third Quarter 2010 Significant Earnings Improvement Third Quarter 2010 Significant Earnings Improvement Excellent Earnings in All Three U.S. Mill Businesses Continued Strong Earnings in EMEA Paper and Packaging Strong Contribution from Ilim Joint Venture Restructuring Benefits Incremental Price Increase Realization Continued Strong Operations Earnings from continuing operations before special items |
![]() 6 3Q10 Financial Snapshot Strong EBITDA & Free Cash Flow 3Q10 Financial Snapshot Strong EBITDA & Free Cash Flow 3Q09 2Q10 3Q10 Sales ($B) $5.9 $6.1 $6.7 EBITDA 1 ($MM) $780 $782 $1,061 EBITDA Margin 13% 13% 16% Free Cash Flow 2 ($MM) $605 $356 $753 Debt ($B) $9.6 $8.9 $8.7 Cash Balance ($B) $1.7 $1.9 $1.4 1. Earnings from continuing operations before special items 2. Cash provided by continuing operations less capital expenditures, excluding cash received from alternative fuel credits of $463 MM in 3Q09, $132 MM in 2Q10, cash received under European accounts receivable securitization of $0.2B in 3Q09, and cash paid for voluntary pension contributions of $1.2 B in 3Q10. |
![]() 7 Transformation Enabling Improved Returns Recovering from Global Recession Transformation Enabling Improved Returns Recovering from Global Recession Cost of Capital |
![]() 8 Operating EPS Record Quarterly Earnings Operating EPS Record Quarterly Earnings 2003 2004 2005 2006 2007 2010 2002 2000 2001 2008 Impact of Mineral Rights Gain 2009 Earnings from continuing operations before special items as reported at the time Transformation |
![]() 9 EBITDA Momentum Accelerating EBITDA Momentum Accelerating EBITDA and EBITDA Margins before special items, excluding Forest Products |
![]() 10 Earnings before special items 3Q10 vs. 2Q10 EPS Price Realization, Improved Volumes, Strong Operations 3Q10 vs. 2Q10 EPS Price Realization, Improved Volumes, Strong Operations Reflects the delta between a $33 MM charge in 2Q and $16 MM recovered in 3Q |
![]() 11 Earnings from continuing operations before special items 9M10 vs. 9M09 EPS Higher Prices, Improved Volumes, Elevated Fiber Costs 9M10 vs. 9M09 EPS Higher Prices, Improved Volumes, Elevated Fiber Costs |
![]() 12 Stable Global Input Costs vs. 2Q10 $1 MM Favorable, or $0.00/Share Stable Global Input Costs vs. 2Q10 $1 MM Favorable, or $0.00/Share By Business By Input Type |
![]() 13 Industrial Packaging Earnings 3Q10 vs. 2Q10 Industrial Packaging Earnings 3Q10 vs. 2Q10 Earnings before special items |
![]() 14 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton N.A. Container (1%) $38 4% $72 European Container* (4%) €36 6% €47 Industrial Packaging Volume Recovery, Price Increase Realization Industrial Packaging Volume Recovery, Price Increase Realization N.A. Price Improvement per Ton vs. December 2009 Price Sept 2010 Price / Ton Corrugated Boxes $95 * European Container volumes reflect box shipments only, including the shipments by the non-consolidated joint venture in Turkey |
![]() 15 N.A. Industrial Packaging Relative EBITDA Margins 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 |
![]() 16 Printing Papers Earnings 3Q10 vs. 2Q10 Printing Papers Earnings 3Q10 vs. 2Q10 Earnings before special items |
![]() 17 Consumer Packaging Earnings 3Q10 vs. 2Q10 Consumer Packaging Earnings 3Q10 vs. 2Q10 Earnings before special items |
![]() 18 $ Million 3Q09 2Q10 3Q10 Sales $1,665 $1,630 $1,755 Earnings $21 $26 $22 xpedx 3Q10 vs. 2Q10 xpedx 3Q10 vs. 2Q10 Revenues up 8% from 2Q10 Daily sales rate best since 4Q08 Daily Sales Change vs. 2Q10 Printing 8.6% Packaging 7.0% Facility Supplies 4.4% |
![]() 19 Forest Products Substantial Completion of Land Sales Forest Products Substantial Completion of Land Sales Rock Creek Transaction Closed Sales Price $199MM Retained Profit Interest in Partnership 20% Cash Received at Closing $160MM To Be Received within 3 Years $39MM (plus Interest) IP has minimal land remaining for sale and will no longer report land sales separately after 4Q10 $ Million 3Q09 2Q10 3Q10 Earnings $2 $40 $49 |
![]() 20 $ Million 3Q09 2Q10 3Q10 Sales (100%) $305 $435 $465 Earnings (IP Share) $0 $5 $22 Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s reported earnings for 3Q09 & 3Q10 include an after-tax foreign exchange gain of $10 MM and an after-tax foreign exchange loss of $6 MM, respectively. The foreign exchange impact in 2Q10 was minimal. Ilim Joint Venture 3Q10 vs. 2Q10 Ilim Joint Venture 3Q10 vs. 2Q10 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Pulp (7%) $131 3% $327 Containerboard (6%) $61 1% $141 |
![]() 21 IP Europe, Middle East & Africa 9M10: 10% of IP Sales & 15% of IP EBITDA IP Europe, Middle East & Africa 9M10: 10% of IP Sales & 15% of IP EBITDA On Pace for Record Annual Earnings Continued Demand Recovery Price Increases Realized Solid Operations Return on Investment 9M10 European Papers, excl. Russia 19% Russian Papers 15% EMEA Container 11% |
![]() 22 Cellulosic Biofuel Tax Credit Analyzing the Potential Benefit to IP Cellulosic Biofuel Tax Credit Analyzing the Potential Benefit to IP CBTC is $1.01/gallon credit against taxable income (excess may be carried forward until 2015) OCT 5 th – IRS rules companies may qualify for AFMTC and CBTC within 2009 Companies can pick & choose in order to maximize benefit To claim higher CBTC credit, companies would have to repay cash received for AFMTC & file amended tax returns IP cannot quantify the value of CBTC because it depends on future taxable earnings, but it could be significant IP produced 3.5 billion gallons of black liquor in 2009 |
![]() 23 Balanced Capital Allocation to Increase Shareowner Value Balanced Capital Allocation to Increase Shareowner Value |
![]() 24 Fourth Quarter Outlook Changes from 3Q10 Fourth Quarter Outlook Changes from 3Q10 North America Europe Brazil Asia Volume Paper Seasonal Decrease Stable Stable Packaging Seasonal Decrease Seasonal Increase Stable Pricing Paper Paper Stable; Pulp Decrease Stable Stable Packaging Stable Improving Stable Maintenance Outages ~$37MM Increase Stable ~$6MM Decrease Input & Freight Costs Higher OCC & Chemicals Stable Stable Stable xpedx Seasonal Decrease Ilim Stable Forest Products $50MM Decrease |
![]() 25 3Q Summary & 4Q Outlook Strong, but Seasonally Lower, 4Q EPS & FCF 3Q Summary & 4Q Outlook Strong, but Seasonally Lower, 4Q EPS & FCF 3Q10 Summary Volume ended strong as quarter progressed Incremental price increase realizations Strong operations Flat input costs 4Q10 Outlook Seasonal demand declines Stable prices Higher maintenance outages Increasing OCC & chemicals costs No more Forest Products earnings Strong 3Q Earnings & Free Cash Flow Strong, but Seasonally Lower, 4Q EPS & FCF |
![]() 26 Appendix Investor Relations Contacts Thomas A. Cleves 901-419-7566 Emily Nix 901-419-4987 Media Contact Tom Ryan 901-419-4333 |
![]() 27 $ Million 2008 2009 2010 Estimate Capital Spending $1,002 $534 $800 Depreciation & Amortization $1,347 $1,472 $1,450 Net Interest Expense $492 $669 $600 - $625 Corporate Items $103 $181 $200 - $225 Effective Tax Rate 31.5% 30% 30-32% Before special items and excluding Ilim Key Financial Statistics Key Financial Statistics |
![]() 28 Free Cash Flow Free Cash Flow $ Million 3Q09 2Q10 3Q10 Cash from Operations $713 $509 $937 Cash Received from Alternative Fuel Mixture Tax Credits (AFMTC) $463 $132 $0 Cash Provided by Operations, as Adjusted $1,381 $641 $937 Less Capital Investment ($108) ($153) ($184) Free Cash Flow $1,273 $488 $753 Free Cash Flow Excluding AFMTC $605 $356 $753 1 Excludes $205 MM cash received under European accounts receivable securitization in 3Q09 2 Excludes $1.2 B cash paid for voluntary pension contributions. 1 2 |
![]() 29 Balance Sheet Debt Reduction Progress $4 Billion Reduction since Acquisition Balance Sheet Debt Reduction Progress $4 Billion Reduction since Acquisition 1 Excludes the debt repayment of $1 B from the proceeds of our May bond issuance: $1 B 9.375% notes due 2019 1 Excludes the debt repayment of $1 B from the proceeds of our August bond issuance: $1 B 7.5% notes due 2021 1 Excludes the debt repayment of $750 MM from the proceeds of our November bond issuance: $750 MM 7.3% notes due 2039 |
![]() 30 Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Debt Maturity Profile Maturities as of Quarter-End Debt Maturity Profile Maturities as of Quarter-End |
![]() 31 $ Million 1Q10 2Q10 3Q10 4Q10E 2010E Industrial Packaging $70 $41 $3 $26 $140 Printing Papers Total $27 $60 $52 $44 $183 North America $27 $45 $30 $28 $130 Europe 0 10 14 14 $38 Brazil 0 5 8 2 $15 Consumer Packaging $6 $19 $0 $16 $41 Total Impact $103 $120 $55 $86 $364 Dollar impact of planned maintenance outages are estimates and subject to change Maintenance Outages Expenses Maintenance Outages Expenses |
![]() 32 Average IP price realization (includes the impact of mix across all grades) 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton N.A. Paper 3% $21 (9%) $72 N.A. Pulp 30% $19 (7%) $244 European Paper 0% €34 2% €53 Printing Papers Printing Papers |
![]() 33 Average IP price realization (includes the impact of mix across all grades) 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Volume Price/Ton Volume Price/Ton U.S. Coated Paperboard 3% $37 12% $53 Revenue Price Revenue Price Converting Businesses 5% NA (1%) NA Consumer Packaging Consumer Packaging |
![]() 34 3Q10 EBITDA 3Q10 EBITDA Operating Profit $ Million D & A $ Million Tons Thousand EBITDA per Ton EBITDA Margin Industrial Packaging North America $319 $138 2,607 $175 21.9% Europe $14 $7 251 $84 8.9% Printing Papers North America $125 $49 707 $246 24.4% Western Europe $6 $5 62 $177 15.3% Eastern Europe & Russia $44 $14 249 $233 27.2% Brazil $46 $33 262 $302 28.7% U.S. Market Pulp $49 $14 279 $226 29.9% Consumer Packaging U.S. Coated Paperboard $56 $38 364 $258 22.4% 1 Excludes Recycling & Bag businesses; includes Saturating Kraft business 2 Includes Bleached Kraft business 3 Excludes Market Pulp 1 2 3 3 |
![]() 35 Operating Profits by Industry Segment Operating Profits by Industry Segment $ Million 3Q09 2Q10 3Q10 Industrial Packaging $214 $193 $332 Printing Papers $138 $158 $278 Consumer Packaging $68 $49 $71 Distribution $21 $26 $22 Forest Products $2 $40 $49 Operating Profit $443 $466 $752 Net Interest Expense ($169) ($157) ($152) Noncontrolling Interest / Equity Earnings Adjustment $5 $7 $5 Corporate Items ($46) ($54) ($58) Special Items $356 ($144) $0 Earnings from continuing operations before income taxes, equity earnings & noncontrolling interest $589 $118 $547 Equity Earnings, net of taxes - Ilim $0 $5 $22 |
![]() 36 Geographic Business Segment Operating Results Before Special Items Geographic Business Segment Operating Results Before Special Items $ Million Sales Operating Profit 3Q09 2Q10 3Q10 3Q09 2Q10 3Q10 Industrial Packaging North American $1,890 $2,120 $2,210 $201 $172 $320 European $240 $235 $235 $13 $18 $14 Asian $100 $85 $165 $0 $2 ($2) Printing Papers North American $725 $675 $715 $92 $46 $125 European $300 $320 $325 $28 $55 $58 Brazilian $275 $275 $275 $36 $39 $46 U.S. Market Pulp $155 $160 $210 ($18) $18 $49 Asian $15 $15 $25 $0 $0 $0 Consumer Packaging North American $565 $580 $615 $44 $17 $51 European $80 $80 $85 $17 $19 $17 Asian $145 $185 $170 $7 $13 $3 Distribution $1,665 $1,630 $1,755 $21 $26 $22 Excludes Forest Products |
![]() 37 1 2 Pre-Tax $MM Tax $MM Non- controlling Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares MM Diluted EPS Before Special Items 1Q10 $40 ($13) ($9) ($2) $16 32% 429 $0.04 2Q10 $262 ($81) ($7) $7 $181 31% 433 $0.42 3Q10 $547 ($170) ($2) $22 $397 31% 434 $0.91 Special Items 1Q10 ($215) $37 $0 $0 ($178) 17% 429 ($0.42) 2Q10 ($144) $56 $0 $0 ($88) 39% 433 ($0.21) 3Q10 $0 $0 $0 $0 $0 0% 434 $0 Earnings 1Q10 ($175) $24 ($9) ($2) ($162) 14% 429 ($0.38) 2Q10 $118 ($25) ($7) $7 $93 21% 433 $0.21 3Q10 $547 ($170) ($2) $22 $397 31% 434 $0.91 2010 Earnings from Continuing Operations 2010 Earnings from Continuing Operations 1 2 Assuming dilution A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at Webcasts and Presentations |
![]() 38 Earnings from continuing operations before special items 3Q10 vs. 3Q09 EPS 3Q10 vs. 3Q09 EPS |
![]() 39 Industrial Packaging Earnings 3Q10 vs. 3Q09 Industrial Packaging Earnings 3Q10 vs. 3Q09 Earnings before special items |
![]() 40 Printing Papers Earnings 3Q10 vs. 3Q09 Printing Papers Earnings 3Q10 vs. 3Q09 Earnings before special items |
![]() 41 $ Million 3Q09 2Q10 3Q10 Sales $275 $275 $275 Earnings $36 $39 $46 EBITDA Margin 25% 27% 29% IP Brazil results are reported in the Printing Papers segment IP Brazil IP Brazil 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Uncoated Freesheet (7%) $58 (7%) $80 Domestic 17% $5 (6%) ($10) Export (21%) $102 (8%) $153 |
![]() 42 Consumer Packaging Earnings 3Q10 vs. 3Q09 Consumer Packaging Earnings 3Q10 vs. 3Q09 Earnings before special items |
![]() 43 Total Cash Cost Components 3Q10 YTD Total Cash Cost Components 3Q10 YTD North American Mills Only |
![]() 44 Global Input & Freight Costs vs. 9M09 $476 MM Unfavorable, or $0.76/Share Global Input & Freight Costs vs. 9M09 $476 MM Unfavorable, or $0.76/Share Input costs for continuing businesses |
![]() 45 Global Input & Freight Costs vs. 3Q09 $189 MM Unfavorable, or $0.31/Share Global Input & Freight Costs vs. 3Q09 $189 MM Unfavorable, or $0.31/Share Input costs for continuing businesses |
![]() 46 U.S. Mill Wood Delivered Cost Trends 7% Decrease vs. 2Q10 Average Cost U.S. Mill Wood Delivered Cost Trends 7% Decrease vs. 2Q10 Average Cost Declining Wood Demand Poor Harvesting Conditions & Higher Wood Demand Normal Harvesting Conditions |
![]() 47 U.S. OCC Delivered Cost Trends 9% Decrease vs. 2Q10 Average Cost U.S. OCC Delivered Cost Trends 9% Decrease vs. 2Q10 Average Cost 2005-2007 represents WY PKG delivered costs; 2008-2010 represents delivered costs to the integrated system Reduced OCC Demand Reduced China Demand Increasing Demand in China & in U.S. as Wood Substitute |
![]() 48 NYMEX Natural Gas closing prices Natural Gas Costs 7% Increase vs. 2Q10 Average Cost Natural Gas Costs 7% Increase vs. 2Q10 Average Cost |
![]() 49 U.S. Fuel Oil 3% Decrease vs. 2Q10 Average Cost U.S. Fuel Oil 3% Decrease vs. 2Q10 Average Cost WTI Crude prices |
![]() 50 U.S. Chemical Composite Index 5% Increase vs. 2Q10 Average Cost U.S. Chemical Composite Index 5% Increase vs. 2Q10 Average Cost Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG |
![]() 51 2010 Global Consumption Annual Purchase Estimates for Key Inputs 2010 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 Commodity U. S. Non – U. S. Energy Natural Gas (MM BTUs) 42,000,000 13,000,000 Fuel Oil (Barrels) 1,500,000 500,000 Coal (Tons) 860,000 260,000 Fiber Wood (Tons) 44,200,000 8,800,000 Old Corrugated Containers (Tons) 3,000,000 310,000 Chemicals Caustic Soda (Tons) 250,000 70,000 Starch (Tons) 394,000 96,000 Sodium Chlorate (Tons) 180,000 40,000 LD Polyethylene (Tons) 39,000 - Latex (Tons) 22,000 4,000 |