1
John V. Faraci
Chairman &
Chief Executive Officer
UBS Global Paper and Forest Products Conference
Recovering from the downturn: industry challenges and opportunities
September 16, 2009
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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, changes in
tax laws 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.
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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.comunder Investors.
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Economic Recession
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Economic Recession
66
Agenda
1) Improved Strategic Position
2) 1H09 Review
3) Emerging Market Operations
4) Cash Generation
5) Cash Allocation
6) Potential Opportunities
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IP TransformationImproved IP’s Strategic Position
• More Focused – Global Paper & Packaging
• Reduced Capital Intensity
• Stronger Businesses
• More Global
• Lower Cost
• More Profitable
• More Sustainable Cash Flow
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1H09 ReviewMaximizing Cash and Reducing Debt
Exceptional Free Cash Flow
$1.9 Billion YTDDebt Reduction
Execution
• Matching our Production
to Customers’ Needs
• Driving Integration
Synergies
• Reducing Overhead
Expenses
• Cost Reduction Programs
Environment
• Weak Demand
• Input Cost Relief
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1H09 Financial SnapshotSolid Results Despite Challenging Economy
Earnings from continuing operations before special items; 1Q09 & 2Q09 includes WY PKG1 Cash provided by continuing operations less capital expenditures; includes alternative fuel mixture tax credits2 Excludes $3.0B proceeds from WY PKG bond issuance
$ Billion 1H08 1H09
Sales $11.5 $11.5
EBITDA $1.3 $1.3
EBITDA Margin 11.4% 11.6%
Free Cash Flow1 $0.5 $1.9
Cash Balance at June 30 $1.02 $1.7
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1,181
284
58209
207
Containerboard Uncoated Papers
Market Pulp
Coated Paperboard
Th
ou
san
d T
on
s
MaintenanceLack-of-Order
N.A. Lack of Order & Maintenance Downtime24% of Capacity in 1H09
70
239327
1,388
• LOO downtime excludes capacity from mills or machines that have been permanently shutdown (Franklin #3 - 32,000 tons
and Louisiana mill - 120,000 tons) or indefinitely shut down (Valliant #3 - 97,000 tons)
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11.2%
16.3%
8.8%
5.6%
17.5% 17.2%
15.3%
8.6%
20.7%
16.9%
13.3%
9.5%
IP Competitor A Competitor B Competitor C
2Q08 1Q09 2Q09
North American Industrial PackagingIndustry-Leading Margins
EBITDA Margin
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Source: Earnings calls, press releases, public filings, IP analysis
EBITDA based on operating profit before special items
EBITDA margin equals EBITDA divided by sales
11.1 2.5 4.2 7.1Capacity (Million Tons)
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Increasing Free Cash FlowIndustrial Packaging Integration Synergies
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CategoryAmount($ Million)
Reduce Salaried Headcount $200
Optimize Mill & Box Plants $120
Improve Box Margins $105
Reduce Mill Freight $40
Rationalize Box Plants $35
Total Forecasted Synergies > $500
Does not include $90 million in procurement savings
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North American Printing PapersIndustry-Leading Margins
17.6%
15.4%
5.8%
13.7%
9.0%
13.1%13.4%
10.7%
12.7%
IP (North America) Competitor A Competitor B
2Q08 1Q09 2Q09
EBITDA Margin
Source: Earnings calls, press releases, public filings, IP analysis
EBITDA based on operating profit before special items
EBITDA margin equals EBITDA divided by sales 13
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North American Coated PaperboardIndustry-Leading Margins
11.7%12.7%
10.5%
7.1%
11.7% 11.5%
IP (North America) Competitor A
2Q08 1Q09 2Q09
EBITDA Margin
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Source: Earnings calls, press releases, public filings, IP analysis
EBITDA based on operating profit before special items
EBITDA margin equals EBITDA divided by sales
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Emerging Market OperationsNew Machines in China and Brazil
Brazil - Três Lagoas
Uncoated freesheet
machine
200,000 metric tons
Overall machine
efficiency: 90%
China - Sun JV
Coated paperboard machine
400,000 metric tons
High demand growth region
Low-cost manufacturing
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Russian and Eastern European OperationsHighlights
Volume & price rebounding in Russia & China
Cash dividend of $62MM received from
Ilim JV in 4Q08
Improved mix on Svetogorsk coated paperboard
Strong performance at Kwidzyn
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8066
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WYPKG
(8)
(24)
(4)
0
15
30
45
60
75
90
2005 Headcount*
Divestments & Acquisitions
Headcount Reduction
June 2008
Headcount Reduction
June 2009
Th
ou
san
ds o
f E
mp
loyees
Increasing Free Cash Flow 28% Headcount Reduction
* At January 1, 2005Excludes Ilim joint venture employees
Achieved year-end headcount goal during 2Q
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Increasing Free Cash FlowReducing Capital Spending
25%
50%
75%
100%
125%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2005 2006 2007 2008 2009P 2010P
Cost Reduction Strategic Regulatory Maintenance
$ Million
% of Depreciation
Normalized Target for Capital Spending 60-70% of Depreciation
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$0.6
$1.7
$2.2
2007 2008 1H09 Annualized
Billi
on
Increasing Free Cash FlowImproving in a Tough Environment
Free cash flow before dividends.
1H09 Annualized is free cash flow before dividends; excludes alternative fuel mixture tax credits.
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Debt Reduction ProgressReduced Debt by $2.5 Billion since Acquisition
12.7
~ 9.5
0.6
0.6
0.6
0.6
0.1*
$8
$9
$10
$11
$12
$13
$14
August 2008 Pro Forma
with Acquisition
2H08 1Q09 2Q09 July August Projected Year-End Balance
Bil
lio
n
* Excludes the debt repayment of $1B from the proceeds of our August bond issuance: $1B 7.5% notes due 2021
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Debt ReductionTargeting < 3X Debt-to-EBITDA
$9.5 B$8 - $9 B
2009 Year-end Total Estimated Debt
Target < 3X Debt-to-EBITDA
Pension Obligation
2222
1,255
930
550
965
$0
$400
$800
$1,200
$1,600
2009 2010 2011 2012
Mil
lio
n
Debt Maturities Monetization & Other
$3.7 Billion Maturing through 2012
Debt maturity profile as of December 31, 2008
Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt
Liquidity Management & Debt Reduction Maturities before Repayments & Refinancing
2323
20
325
75250
$0
$400
$800
$1,200
$1,600
2009 2010 2011 2012
Mil
lio
n
Debt Maturities Monetization & Other
$0.7 Billion Maturing through 2012
Debt maturity profile as of May 31, 2009
Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt
Liquidity Management & Debt ReductionMaturities as of August Month-end
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$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Mil
lio
n
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 Ceiling
Debt Maturity ProfileMaturities as of August Month-end
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Where We Go From HerePriorities
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Improve Margins
Match our Production to our Customers’ Needs
Continue Cost Reductions
Maximize Synergies
Maximize Free Cash Flow
Achieve Debt Reduction Target
Increase Shareholder Value
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Cash Flow& Earnings
Potential Opportunities to Increase Value
• Further Cost Reduction
• Recovery in North American
and European Demand
• Resumption of Emerging
Market Growth
• Potential for Price Improvement
• Reduction of Underutilized Capacity
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