First Quarter 2009 Review April 30, 2009 First Quarter 2009 Review April 30, 2009 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 and our ability to meet our debt service obligations; (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 its products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit availability, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation and 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 First Quarter 2009 Results Summary Solid Results Despite Weak Economy First Quarter 2009 Results Summary Solid Results Despite Weak Economy Solid Results Input Cost Relief Excellent Operations Integration Synergies Reduced Overhead Expenses Strong Free Cash Flow Debt Refinancing & Reduction $0.37 $0.14 $0.08 $0.04 $0.07 1Q08 4Q08 1Q09 Forest Products EPS Operating Business EPS Earnings from continuing operations before special items $0.21 $0.41 |
5 1Q09 Financial Snapshot 1Q09 Financial Snapshot Earnings from continuing operations before special items; 4Q08 & 1Q09 includes CBPR 1 Cash provided by continuing operations less capital expenditures $ Billion 1Q08 4Q08 1Q09 Sales $5.7 $6.5 $5.7 EBITDA $0.6 $0.7 $0.6 Free Cash Flow $0.2 $0.4 $0.7 Cash Balance $0.9 $1.1 $1.0 1 |
6 Industrial Packaging Integration Progress On Track Despite Economic Recession Industrial Packaging Integration Progress On Track Despite Economic Recession |
7 $ / Share $ / Share Earnings from continuing operations before special items .48 1Q09 vs. 4Q08 EPS Weak Volume , Input Cost Relief & Strong Operations 1Q09 vs. 4Q08 EPS Weak Volume , Input Cost Relief & Strong Operations Forest Products Earnings |
8 20 81 23 $0 $15 $30 $45 $60 $75 $90 Fiber Energy Chemicals Freight OCC Global Input & Freight Costs by Segment $124MM, or $0.23/Share Favorable vs. 4Q08 Global Input & Freight Costs by Segment $124MM, or $0.23/Share Favorable vs. 4Q08 Consumer Packaging Industrial Packaging Printing Papers Input costs for continuing businesses |
9 Lack of Order Downtime 1.1 Million Tons in 1Q09 Lack of Order Downtime 1.1 Million Tons in 1Q09 (Thousand Tons) None of the businesses recorded LOO downtime in 1Q08. 1Q09 LOO downtime excludes capacity from mills or machines that have been permanently or indefinitely shut down: Valliant #3 (97,000 tons), Franklin #3 (32,000 tons) and Louisiana mill (120,000 tons) |
10 Industrial Packaging Earnings 1Q09 vs. 4Q08 Industrial Packaging Earnings 1Q09 vs. 4Q08 1 Excludes trade volume Earnings before special items 1 1 145 Vicksburg Insurance Settlement |
11 Industrial Packaging Synergies Achieved Three-Year Run Rate after 8 Months Industrial Packaging Synergies Achieved Three-Year Run Rate after 8 Months $96 MM $96 MM $220 MM $220 MM $405 MM $405 MM $400 MM $400 MM |
12 Industrial Packaging Merger Benefits Achieving Higher Savings at a Faster Rate Industrial Packaging Merger Benefits Achieving Higher Savings at a Faster Rate Total IPG Employees # of Box Plants Commercial Improvements per CBPR Ton Total Synergies $MM Base 23,700 120 -- -- Planned 21,900 109 +$23 $400 Current Run Rate 20,700 108 +$19 $405 New 2010 Target 20,100 <108 +$23 $500* * Excludes $80 million of procurement savings |
13 Industrial Packaging Relative Performance Outperforming Competitors in 1Q09 Industrial Packaging Relative Performance Outperforming Competitors in 1Q09 IP EBITDA margins based on North American Industrial Packaging operating profit before special items Competitor EBITDA margins obtained from public filings and IP analysis |
14 Printing Papers Earnings 1Q09 vs. 4Q08 Printing Papers Earnings 1Q09 vs. 4Q08 Earnings Before Special Items |
15 Consumer Packaging Earnings 1Q09 vs. 4Q08 Consumer Packaging Earnings 1Q09 vs. 4Q08 Earnings Before Special Items |
16 $ Million 1Q08 4Q08 1Q09 Sales $1,985 $1,940 $1,590 Earnings $16 $26 ($7) xpedx xpedx Weak paper and packaging demand Declining prices & gross margin dollars for coated freesheet & coated groundwood (>60% of total paper sales) Reduced headcount by 4%, or 270 positions Solid free cash flow |
17 Forest Products Forest Products 1Q08 4Q08 1Q09 Sales ($ Million) $25 $65 $5 Earnings ($ Million) $25 $38 $2 Acres Sold 13,000 30,000 2,000 Price / Acre $1,871 $2,106 $2,108 Pending sale of 143,000 acres now expected to close in 3Q09. When that transaction closes, remaining NPV of land portfolio will be $60 - $80 million |
18 $ Million 1Q08 4Q08 1Q09 Sales (100%) $530 $530 $395 Earnings (IP Share) $17 $0 ($26) Ilim’s results are reported on a one-quarter lag IP’s share of Ilim’s 1Q08, 4Q08 & 1Q09 earnings includes $4 million, $11 million and $15 million of after-tax foreign exchange losses, respectively Ilim Joint Venture 1Q09 Ilim Joint Venture 1Q09 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Business Volume (000 Metric Tons) Price / Ton Volume (000 Metric Tons) Price / Ton Pulp (9%) ($139) (12%) ($103) Containerboard 2% ($58) 3% ($5) |
19 Free Cash Flow Free Cash Flow ($ Million) 1Q08 4Q08 1Q09 Cash from Operations $434 $713 $649 Alternative Fuel Mixture Tax Credits - - $145 Cash Provided by Continuing Operations $434 $713 $794 Less Capital Investment ($215) ($270) ($128) Free Cash Flow $219 $443 $666 |
20 Debt Reduction Progress $1.6 Billion in 9 Months Debt Reduction Progress $1.6 Billion in 9 Months Billion |
21 Cash & Committed Facilities $3.5 Billion Cash & Committed Facilities $3.5 Billion $ Billion Maturity Facility Cost Quarter-End Cash - $1.0 - $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 & Committed Facilities $3.5 - Cost includes commitment fees 1 $871 million available at quarter-end based on eligible receivable balances 2 Conduit’s rate 1 2 |
22 Debt Maturities by Quarter 2009 - 2011 Debt Maturities by Quarter 2009 - 2011 U.S. debt as of April 30; foreign debt as of March 31 Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt $50 $680 $550 |
23 Pension Funding Update No Cash Contributions Expected in 2009/10 Pension Funding Update No Cash Contributions Expected in 2009/10 December 2008 Legislation Funding Requirements – 94% of liability for 2009 – 96% of liability for 2010 – 100% of liability beyond 2010 – Allows asset smoothing which defers investment loss March 2009 Regulatory Relief – Provided relief in yield curve determination – Select discount rate between August 2008 – December 2008 – Estimated 10 - 20% reduction in 2009 liability Impact of Relief – IP credit balance likely to satisfy any 2009/10 funding requirements – No required cash contributions likely until 2011 |
24 Alternative Fuel Mixture Tax Credits Alternative Fuel Mixture Tax Credits IP generates >70% of integrated mill energy needs from renewable bio-fuels Transforming pulping waste into bio-energy is environmentally beneficial IP is not burning additional fossil fuel to qualify for these credits Black liquor energy is sustainable & merits tax treatment similar to other renewable energy sources |
25 Alternative Fuel Mixture Tax Credits $558 Million Pre-Tax in 4Q08 & 1Q09 Alternative Fuel Mixture Tax Credits $558 Million Pre-Tax in 4Q08 & 1Q09 Tax Credit Claims $ Millions Received in 1Q09 $145 Accrued in 1Q09 $413 Total Credits 4Q08 – 1Q09 $558* * Before $18 million of associated expenses and $210 million of taxes |
26 First Quarter Summary Solid Results Despite Recession First Quarter Summary Solid Results Despite Recession Solid Results in Challenging Environment 1.1MM tons of Lack of Order Downtime Excellent Operations $96 Million in Integration Synergies $30 Million in Overhead Expense Reduction $124 Million Input Cost Relief $666 Million Free Cash Flow $600 Million Debt Reduction |
27 Second Quarter Outlook Second Quarter Outlook Challenging Economic Environment Major Variables - Volume, Downtime, & Pricing Increased Maintenance Outages Lower Ilim Equity Earnings |
28 Priorities Priorities Aggressively Manage Cost Match Supply to Customers’ Needs Strengthen Balance Sheet |
29 Questions & Answers Questions & Answers Investor Relations Contacts Thomas A. Cleves 901-419-7566 Emily Nix 901-419-4987 Media Contact Kathleen Bark 901-419-4333 |
30 Appendix |
31 Special Items Net of Taxes 1Q09 Special Items Net of Taxes 1Q09 $ Million EPS Earnings from Continuing Operations & Before Special Items $34 $0.08 Special Items Net of Taxes: Alternative Fuel Mixture Credits $330 Facilities Closure Costs ($33) Overhead Reduction Initiative ($32) Integration Costs ($22) Tax Adjustments ($20) Total Special Items Net of Taxes $223 $0.53 Net Earnings $257 $0.61 |
32 $ Billion 2007 1 2008 2009 Estimate Capital Spending $1.3 $1.0 $0.6 Depreciation & Amortization $1.1 $1.3 $1.5 3 Net Interest Expense $0.3 $0.5 $0.7 Corporate Items 2 $0.2 $0.1 $0.25 Effective Tax Rate 2 30% 31.5% 32% - 34% 1 Excludes discontinued operations 2 Before special items and excluding Ilim 3 Estimated depreciation impacted by extensive lack-of-order downtime Key Financial Statistics Key Financial Statistics |
33 $ Millions 1Q09 2Q09E 3Q09E 4Q09E North America 19 38 39 28 Europe 7 19 13 0 Brazil 5 0 3 0 Printing Papers Total $31 $57 $55 $28 Industrial Packaging $44 $58 $6 $43 Consumer Packaging $4 $22 $11 $9 Total Impact $79 $137 $72 $80 Dollar impact of planned maintenance outages are estimates and subject to change Includes CBPR outages Maintenance Outages Expenses $58 Million Seasonal Increase Maintenance Outages Expenses $58 Million Seasonal Increase |
34 Business Segment Price Realization Business Segment Price Realization Average Selling Price Realizations Industrial Packaging ($/ton) 1Q08 4Q08 1Q09 Containerboard $545E $584 $551 Corrugated Boxes $785E $836 $846 Printing Papers ($/ton) 1Q08 4Q08 1Q09 Uncoated Freesheet $950 $1,005 $996 Pulp $646 $577 $538 Average IP U.S. selling price realizations (includes the impact of mix across all grades) Industrial Packaging price realizations include CBPR |
35 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Business Volume Price / Ton Volume Price / Ton N.A. Containerboard (23%) ($32) (49%)E $8E N.A. Container (5%) $10 (17%)E $61E European Container (3%) (€21) (9%) (€26) Industrial Packaging Industrial Packaging Average IP price realization (includes the impact of mix across all grades) Includes CBPR |
36 Average IP price realization (includes the impact of mix across all grades) 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Business Volume Price / Ton Volume Price / Ton N.A. Paper (7%) ($10) (24%) $46 N.A. Pulp (21%) ($39) (9%) ($108) European Paper 3% (€56) (1%) (€72) Brazilian Paper (16%) ($39) (15%) $19 Printing Papers Printing Papers |
37 Average IP price realization (includes the impact of mix across all grades) 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Volume Price/Ton Volume Price/Ton U.S. Coated Paperboard (25%) $38 (28%) $107 Revenue Price Revenue Price Converting Businesses (10%) NA (3%) NA Consumer Packaging Consumer Packaging |
38 Special Items Special Items Special Items Pre-Tax: 1Q08 4Q08 1Q09 Printing Papers Alternative Fuel Mixture Credits $240 Facility Closure Costs ($153) ($29) Industrial Packaging Alternative Fuel Mixture Credits $208 Integration Costs ($26) ($36) Facility Closure Costs ($8) Consumer Packaging Alternative Fuel Mixture Credits $92 Reorganization ($5) ($4) ($2) Corporate Restructuring & Other Charges ($36) ($53) ($52) Impairments of Goodwill ($1,777) Total Special Items Pre-Tax ($41) ($2,021) $421 |
39 Debt Covenants Debt Covenants Covenant 1Q09 Maximum Debt-to-Total Capital 60% 50.3% Minimum Consolidated Net Worth $9B $11.4B |
40 1Q09 EBITDA from Continuing Operations before Special Items 1Q09 EBITDA from Continuing Operations before Special Items Operating Profit $ Millions D & A $ Millions Tons (000) EBITDA per Ton Industrial Packaging North American $175 $156 2,863 $116 European $13 $8 270 $78 Printing Papers North American $84 $51 706 $191 European $25 $22 370 $127 Brazilian $20 $24 180 $244 U.S. Market Pulp ($28) $6 317 ($69) Consumer Packaging U.S. Coated Paperboard $6 $28 290 $117 Total $295 $295 4,996 $118 |
41 Operating Profits by Industry Segment from Continuing Operations before Special Items Operating Profits by Industry Segment from Continuing Operations before Special Items $ Million 1Q08 4Q08 1Q09 Industrial Packaging $97 $145 $188 Printing Papers $185 $113 $101 Consumer Packaging $14 $1 $22 Distribution $16 $26 ($7) Forest Products $25 $38 $2 Operating Profit $337 $323 $306 Net Interest Expense ($81) ($186) ($164) Noncontrolling Interest / Equity Earnings Adjustment $4 ($13) $6 Corporate Items ($21) ($21) ($51) Special Items ($41) ($2,021) $421 Earnings (Loss) from continuing operations before income taxes, equity earnings & minority interest $198 ($1,918) $518 Equity Earnings, net of taxes - Ilim $17 $0 ($26) |
42 Geographic Business Segment Operating Results from Continuing Operations before Special Items Geographic Business Segment Operating Results from Continuing Operations before Special Items $ Million Sales Operating Profit 1Q08 4Q08 1Q09 1Q08 4Q08 1Q09 Industrial Packaging North American $1,050 $2,125 $1,885 $79 $130 $175 European $315 $255 $240 $18 $15 $13 Asian $80 $75 $55 $0 $0 $0 Printing Papers North American $885 $765 $705 $106 $73 $84 European $435 $350 $325 $42 $36 $25 Brazilian $225 $215 $170 $33 $44 $20 U.S. Market Pulp $165 $170 $125 $4 ($39) ($28) Asian $5 $5 $0 $0 ($1) $0 Consumer Packaging North American $600 $635 $530 $2 $16 $4 European $75 $70 $70 $9 $5 $14 Asian $95 $95 $115 $3 ($20) $4 Distribution $1,985 $1,940 $1,590 $16 $26 ($7) Excludes Forest Products |
43 1 Assuming dilution 2 A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at presentations Pre-Tax $MM Tax $MM Minority Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares¹ MM Diluted EPS Before Special Items 1Q09 $97 ($32) ($4) ($27) $34 32% 423 $0.08 Special Items 1Q09 $421 ($198) $0 $0 $223 47% 423 $0.53 Earnings from Continuing Operations 1Q09 $518 ($230) ($4) ($27) $257 44% 423 $0.61 2009 Earnings from Continuing Operations 2009 Earnings from Continuing Operations 2 |
44 Total Cash Cost Components 1Q09 Total Cash Cost Components 1Q09 North American Mills Only |
45 Global Input & Freight Costs by Input $124MM, or $0.23/Share Positive Impact vs. 4Q08 Global Input & Freight Costs by Input $124MM, or $0.23/Share Positive Impact vs. 4Q08 Input costs for continuing businesses |
46 Global Input & Freight Costs by Input $28MM, or $0.05/Share Negative Impact vs. 1Q08 Global Input & Freight Costs by Input $28MM, or $0.05/Share Negative Impact vs. 1Q08 Input costs for continuing businesses; does not include CBPR |
47 $ / Share $ / Share Earnings from continuing operations before special items; volume includes earnings from CBPR .48 1Q09 vs. 1Q08 EPS 1Q09 vs. 1Q08 EPS .04 .37 Forest Products Earnings |
48 Industrial Packaging Earnings 1Q09 vs. 1Q08 Industrial Packaging Earnings 1Q09 vs. 1Q08 1 Excludes trade volume and includes CBPR earnings Earnings Before Special Items 1 1 |
49 Printing Papers Earnings 1Q09 vs. 1Q08 Printing Papers Earnings 1Q09 vs. 1Q08 Earnings Before Special Items |
50 Consumer Packaging Earnings 1Q09 vs. 1Q08 Consumer Packaging Earnings 1Q09 vs. 1Q08 Earnings Before Special Items |
51 2005 2006 2007 NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 28% Decrease vs. 4Q08 Average Cost Natural Gas Costs 28% Decrease vs. 4Q08 Average Cost 2008 2009 |
52 2006 2007 Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 17% Decrease vs. 4Q08 Average Cost U.S. Fuel Oil 17% Decrease vs. 4Q08 Average Cost 2008 Delivered cost to U.S. facilities 2009 |
53 U.S. Mill Wood Costs 9% Decrease vs. 4Q08 Average Cost U.S. Mill Wood Costs 9% Decrease vs. 4Q08 Average Cost Index: Jan 2005 Wood Costs = 100 2005 2006 2007 2009 Delivered cost to U.S. facilities 2008 |
54 2005 2006 2007 2009 Index: Q1’05 Chemical Composite= 100 U.S. Chemical Composite Index 7% Decrease vs. 4Q08 Average Cost U.S. Chemical Composite Index 7% Decrease vs. 4Q08 Average Cost 2008 Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes CBPR |
55 Global Consumption Annual Purchase Estimates for Key Inputs Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption; excludes consumption by permanent & indefinite machine shutdowns Estimates are based on normal operations and may be impacted by downtime Commodity U. S. Non – U. S. Energy Natural Gas (MM BTUs) 50,500,000 16,000,000 Fuel Oil (Barrels) 2,100,000 500,000 Coal (Tons) 1,100,000 230,000 Fiber Wood (Tons) 50,000,000 8,400,000 Old Corrugated Containers (Tons) 3,500,000 310,000 Chemicals Caustic Soda (Tons) 330,000 60,000 Starch (Tons) 490,000 110,000 Sodium Chlorate (Tons) 225,000 50,000 LD Polyethylene (Tons) 50,000 - Latex (Tons) 25,000 4,000 |