ubs global paper & forest products conference september 13,...

UBS Global Paper & Forest Products Conference | September 13, 2012

Forward-Looking Statements

2

Certain statements in these slides and made during this presentation may be considered 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 include but are not limited to:

(i) the level of our indebtedness and 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, changes

in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of

compliance with existing and new environmental and other governmental regulations and to actual or

potential litigation; (v) whether we experience a material disruption at one of our manufacturing

facilities and risks inherent in conducting business through a joint venture; (vi) the failure to realize

synergies and cost savings from the Temple-Inland Inc. (“Temple-Inland”) transaction or delay in

realization thereof; and (vii) our ability to achieve the benefits we expect from all other strategic

acquisitions, divestitures and restructurings. 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 our Securities and Exchange Commission filings. We undertake no obligation to publicly

update any forward-looking statements, whether as a result of new information, future events or

otherwise.

2012 Global Paper & Forest Products Conference

Statements Relating to Non-GAAP Financial Measures

3

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”


Ilim JV Information

4

All financial information and statistical measures regarding our 50/50 Ilim joint

venture in Russia (“Ilim”), other than historical International Paper Equity Earnings

and dividends received by International Paper, have been prepared by the

management of Ilim. International Paper has not verified or audited any of this

information. Ilim management has indicated that the financial information was

prepared in accordance with International Financial Reporting Standards and

extracted from Ilim’s financial statements. Any projected financial information and

statistical measures reflect the current views of Ilim management and are subject to

risks and uncertainties that could cause actual results to differ materially from those

expressed or implied by such projections. See “Forward-Looking Statements.”


International Paper | Poised for Further Success

5

Significant runway with current portfolio

Balanced growth of revenue and EBITDA

North America consolidation and optimization

Emerging Market growth

Greater than cost of capital returns

Increasing cash generation enables both reinvestment and return of

capital to shareholders


International Paper Transformation | The Journey

6

International Paper Transformation Timeline/Plan

2005 2006 2007 2008 2009 2010 2011 2012 – 15

Transformation Plan

Divestitures & Strategic Reinvestment

Post Transformation

Strategic Moves

Global Recession Cost of Capital Returns

N.A. Weyco Pkg.

Acquisition

N.A. TIN

Acquisition

Russia

ILIM JV

India APPM

Acquisition

China

SUN JV

Reaching our Post Transformation

Potential

Brazil

VCP Land / Mill Swap

Luis Antonio – Tres Lagoas

Coated Papers

Wood Products

Forestland

Kraft Paper

Chemicals

Beverage Pkg.

$11B

Asset Sales

China

SCA Pkg.


Supplier Position

North America 2005 2012

Corrugated Packaging 3 1

Uncoated Papers 1 2

Coated Paperboard 1 1

Distribution 1 1

Emerging Markets

Brazil – Uncoated Papers 2 1

Russia – Paper, Pulp & Packaging 3 1

India – Uncoated Papers – 4

China – Coated Paperboard – 2

Repositioned & Well-Positioned

7 2012 Global Paper & Forest Products Conference

N.A. Packaging & Paper | Structural Improvements in Results

Corrugated Packaging

IP Industrial Packaging 2005 2011

EBITDA Margin 8% 20%

ROI (before special items) 2% 10%

$350

$400

$450

$500

$550

$600

$650

$700

$/short ton Containerboard Pricing

Linerboard Medium

2006

(RISI)

70%

75%

80%

85%

90%

95%

100%

105%

2,100 2,200 2,300 2,400 2,500 2,600 2,700 2,800 2,900 3,000 3,100 3,200

Operating Rate

Thousand Tons

Containerboard Shipments / Capacity

Capacity Shipments Operating Rate

2011 Excludes Recycling businesses; includes Saturating Kraft & Bag business

Source: AF&PA

8

2012

2012 2006

$700

$800

$900

$1,000

$1,100

$1,200

$/short ton Uncoated Freesheet Pricing Trends

RISI 20# Cutsize RISI 50# Offset

(RISI)

Uncoated Freesheet

IP Printing Papers 2005 2011

EBITDA Margin 10% 22%

ROI (before special items) 0.6% 13%

2006 2012

65%

75%

85%

95%

105%

700

800

900

1,000

1,100

1,200

1,300

Operating Rate

Thousand Tons

Shipments / Capacity

N.A. Cap NA Ship NA OpRt

Source: PPPC, RISI

2006 2012


Step-Change Improvement in EBITDA

2.8

3.7

(0.6)

(0.8)

1.2

0.4

0.4 0.2

0.1

2005 EBITDA Actual

Divested Businesses

Forest Products

N.A. Industrial Packaging

Emerging Markets

N.A. Printing Papers

N.A. Coated Paperboard

Corporate & Other

2011 EBITDA Actual

$B

9

Earnings before special items


Global Economic

Recession

Step-Change Improvement in Free Cash Flow

Free cash flow, based on data in the 10-K for each year at the time of filing.

Excludes net cash pension contributions impacting 2006, 2010 & 2011, cash flows under European accounts receivable securitization beginning

in 2009 and ending in 2011, and cash received from Black Liquor Tax Credits in 2009 and 2010.

Transformation

$0.7 Billion (average)

2008 – 2011

$1.8 Billion (average)

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2005 2006 2007 2008 2009 2010 2011

$ B

illio

ns


Global Economic

Recession

Improving Return on Investment

4%

5%

6%

5%

4%

6%

8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2005 2006 2007 2008 2009 2010 2011

ROI WACC


North America

Brazil

EMEA & Russia

India

China

North America - 75%

Recognized Leader in Core Segments:

Corrugated Pkg. Uncoated Papers

Coated Paperboard Distribution

Emerging Markets - 25% Build Leading Positions in Fiber-based Packaging

& Paper Segments in High-Growth Markets

Positioned in attractive markets with low-cost assets that can generate strong free cash flow and returns that exceed our cost-of-capital

$23.5B Total Sales

$1.2B Total Sales

$2.9B Total Sales

$1.6B Total Sales

$0.2B Total Sales

2011 IP + TIN total actual sales excluding Building Products

(India total sales are November and December 2011 actual sales annualized) 1 ILIM JV total actual sales are not consolidated (IP owns 50% of JV)

12

International Paper Today | Global Packaging and Paper with Revenues of ~$30B

$2.2B1 ILIM JV Total Sales


International Paper | Segment & Regional Earnings Profile

North America

75%

Russia 9%

Europe 8%

Brazil 7%

Asia 1%

Printing Papers

35%

Industrial Packaging

50% Consumer Packaging

13%

Distribution 2%

EBITDA

by Segment

EBITDA

by Region

Based on 2011 earnings from continuing operations before special items.

Combined EBITDA reflects TIN actual results less ($100) million for mill divestitures plus $300 million in synergies (2012 projected exit rate).

Russia includes the Svetogorsk mill and IP’s share of Ilim JV equity earnings.

IP’s share of Ilim JV equity earnings reflects approximate proportional adjustments for interest & tax.


Reaching Our Post Transformation EBITDA Potential

14

5,100

(505 )

(130 )

320

435 700

340

165

75

3,700

2011 EBITDA Actual

Non-Price Commercial

Initiatives

Cost Reduction Initiatives

Inflation & Papers Decline

Temple-Inland Non-Price Commercial

Initiatives

Cost Reduction Initiatives

Inflation APPM - India Mid-cycle Potential

$M

M

$950MM EBITDA Improvement ~1% Base Revenue Growth

Industry Leading Margins

$450MM EBITDA Improvement ~7% Base Revenue Growth

200 bps Margin Improvement

Grow w/Market ,

Mix Optimization &

Asset Repurposing

Cost Reduction

Initiatives & Capital

to Offset Inflation

Temple-Inland

Base Business +

Synergies

Reinvestment

for Growth in

Core Segments

Cost Reduction

Initiatives & Capital

to Offset Inflation

APPM - India

Base Business

& Optimization

North America

Emerging Markets



ILIM JV Progress

2007 - 2011

IP purchased 50% of ILIM Holding in 2007 ($640MM)

IP received $234 million in cash dividends to date

IP EPS accretive – cumulative $213MM in IP equity earnings to date

Record ILIM Holding earnings in 2011 - $530 million EBITDA

2012 - 2015

High return, strategic capital build out underway

Mid-Cycle EBITDA Potential of $720 million (ILIM Holding)


Reaching our Post Transformation Potential

16

2005 2011 Mid-Cycle

Potential

Revenue ($Billion) 24 26 33

EBITDA1 ($Billion) 2.8 3.7 5.1

EBITDA Margin 12% 14% 15%

Free Cash Flow2 ($Billion)

0.4 1.7 2.2

ROI 4% 8% 9%

Earnings before Special Items 1 2005 EBITDA includes discontinued operations. 2 Free cash flow before dividends; 2011 excludes a $209 MM increase in working capital related to the cessation of the European A/R securitization program,

$123 MM tax receivable collected related to pension contributions, $300 MM cash paid for voluntary pension contribution and $175 MM cash received from

unwinding a timber monetization. Mid-Cycle Potential excludes similar items.


International Paper’s Balanced Use of Cash

Maintain Strong

Balance Sheet &

Credit Rating

Appropriate Liquidity

& Debt Coverage

Prudent Contributions

to Pension Plan

Systematically Return

Cash to Shareholders

Maintain Sustainable

Dividend at 30-40%

of FCF

Share Repurchases

Effective Capital Spending

Maintenance & Regulatory

Capital Expenditures

High Return, Cost

Reduction Projects

Selective

Reinvestment

Improve Cost Position

in North America

Capitalize on Global

Demand Growth

Above Cost of Capital Returns

Capital Spending

Free

Cash

Flow


Systematically Return Cash to Shareholders | Sustainable Dividend

18

2011 Mid-Cycle Potential

%FCF 27% 30%-40%

Dividend per Share $1.05 ~$1.45-$1.95

Paid Dividends $MM $460 ~$650-$850

$3.7

$5.1

$1.7 $2.2

$0

$1

$2

$3

$4

$5

$6

EBITDA FCF EBITDA FCF

$B



Maintain Strong Balance Sheet & Credit Rating | Debt Coverage

19

1Q12 2Q12

$ B

illio

n

$2.71 Pension

Gap

3.8x

$2.71 Pension

Gap

3.7x

$11.6 Balance

Sheet

Debt

$11.3 Balance

Sheet

Debt

$1.2 Op. Lease Adj. $1.2 Op. Lease Adj.

Adjusted Debt reflects gross balance sheet debt plus pension gap and operating lease adjustment (Moody’s Methodology)

EBITDA based on 2012 Adjusted First Call EBITDA of $4.1B (Moody’s Methodology) 1 IP pension gap as of 12/31/2011; Temple-Inland pension gap as of 2/13/2012

Target: Adjusted Debt < 3X Adjusted EBITDA

Significant reduction in near term

required pension contributions

Current estimate is <$100MM in

2013 (vs. ~$500MM)

No change in accounting measure for

pension liability

No change in adjusted debt/credit

metrics

2012 Highway Law – Pension Implications


Effective Capital Spending | 2012-2015

20

25%

50%

75%

100%

125%

150%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2005 2006 2007 2008 2009 2010 2011 2012- 2015

Maintenance Regulatory Strategic Cost Reduction TIN

~1.5B Annually / ~95% Depreciation (85% excluding Boiler MACT)


ILIM JV – Phase 2

Franklin Fluff Pulp Brazil TL2

Sun JV – New PM India Build-Out

Temple-Inland

Integration ILIM JV Build-Out

xpedx Transformation India Optimization

Temple –Inland

Optimization

EB

ITD

A

Now

2012

Near Term

2013 – 2015

Future

2015+

21

Selective Reinvestment | Strategic Earnings Drivers


Temple-Inland Integration | More Synergies, Faster

Synergy Category Description

Current

Outlook

($MM)

2Q12

Run Rate

Annualized

S G & A Eliminate Duplication $115 ~80%

Achieved

Containerboard Mills / Supply

Chain

Grade / Machine Mix

Optimization

Efficiency Improvements

Logistics Optimization

$90 ~20%

Achieved

Box Plants

Efficiency Improvements

(Waste, Freight)

System Streamlining

Customer and Segment

Optimization

$150 ~70%

Achieved

Sourcing Purchasing Consolidation $45 ~55%

Achieved

Synergy Target $400 ~$240


Franklin, VA Pulp

Mill Conversion

Repurpose existing Asset

Status: Up and running

2H12-2013

xpedx

Transformation

Achieve Cost of Capital Returns in Distribution

Status: Early results favorable, offsetting print decline

2H12-2013

Mogi Guacu

Boiler

Generate Self-reliant Steam using Renewable Energy

Status: Ahead of schedule, on budget 2013

IP-Sun JV

CPB Capital

Expansion

Build Capacity to Grow with Market (China)

Status: PM installation underway; start-up on schedule 2013

Ilim JV Build-Out

NBSK (China) &

UFS (Russia)

Build Capacity to Grow with Market (Russia / China)

Status: Converting equipment running in Koryazhma; Woodyard complete and recovery boiler up in 4Q12

2013

India

Optimization

Leverage IP’s Expertise to Maximize Asset Utilization

Status: Significant planned outage completed in Q2

2013-2015

Strategic Project Updates | Ahead of Plan


N.A. Printing Papers & Pulp | Franklin Fluff Pulp Mill Start-up

24

Start-up June 29TH

Early productivity and

product quality better than

plan

Targeting accelerated fluff

pulp ramp

Optimizing Go-to-Market

plans relative to patch

testing and customer trials


Strategic Project Updates | A Closer Look

Mogi Guacu Boiler Installation

India

Sun JV PM Press Section & Dryer Section

Rajahmundry Mill Site Bratsk Pulp Mill Recovery Boiler

Mogi Guacu Biomass Boiler


International Paper | Poised for Further Success


Exited non-strategic businesses

Completed strategic acquisitions

Reduced structural capacity and fixed costs

Achieved industry-leading margins

Significantly improved balance sheet and FCF

What We’ve

Done

What We’ll

Do

What We’re

Doing

Managing our supply to meet customer demand

Maintaining strong balance sheet and increasing FCF

Capitalizing on global demand growth

Investing in high return projects and strategic acquisitions

Returning cash to shareholders

Continue to grow strong, sustainable FCF

Expand margins and earnings in all businesses

Achieve cycle-average ROI above cost-of-capital

Maintain strong balance sheet

Continue balanced cash allocation

Increase dividend over time

ubs global paper & forest products conference september 13,...

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