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Forward-Looking Statements Certain statements in these slides and - - PowerPoint PPT Presentation

Second Quarter 2014 Earnings | July 29, 2014 Forward-Looking Statements 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


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SLIDE 1

Second Quarter 2014 Earnings | July 29, 2014

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SLIDE 2

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Forward-Looking Statements

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; (vi) risks inherent in conducting business through joint ventures; and (vii) our ability to achieve the benefits we expect from all strategic acquisitions, divestitures and restructurings. These and

  • ther 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.

2

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SLIDE 3

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

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.

3

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SLIDE 4

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Ilim JV Information

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. Ilim management has indicated that the financial information was prepared in accordance with International Financial Reporting Standards and extracted from Ilim’s financial statements, but International Paper has not verified or audited any of this information. 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.”

4

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SLIDE 5

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

$1,013 $920 $1,059 2Q13 1Q14 2Q14

EBITDA1

($MM)

Second Quarter 2014 Results

1 From continuing operations before special items and non-operating pension expense

5

  • Good execution resulting in strong

earnings and margins

  • Continued strong results in NA Industrial

Packaging and solid performance in other key businesses

  • Rebound from weather impact of 1Q, but

high input costs remain

  • Successfully executed peak level of

annual maintenance outages

  • Continued solid results in operating

performance at Ilim; favorable F/X

  • Additional $1.5B share buyback

authorization

  • Mark Sutton appointed President and

Chief Operating Officer

  • xpedx spin-off completed July 1
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SLIDE 6

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2Q14 Financial Results

2Q13 1Q14 2Q14 Sales ($B) $7.3 $7.0 $7.2 EBIT1 ($MM) $626 $568 $700 EPS2 $0.64 $0.61 $0.95 EBITDA1 ($MM) $1,013 $920 $1,059 EBITDA Margin1 13.8% 13.1% 14.7% Free Cash Flow3

($MM)

$452 $254 $380

1 From continuing operations before special items and non-operating pension expense 2 EPS based on Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 3 See slide #21 for a reconciliation of cash provided by continuing operations to free cash flow

$0.64 $0.61 $0.95

2Q13 1Q14 2Q14 EPS2

($MM) 6

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SLIDE 7

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

.61 .95 (.09) (.01) .05 .08 .09 .03 .02 .17

1Q14 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Corporate & Other Items Courtland Closure Ilim JV 2Q14

2Q14 vs. 1Q14 EPS

Operating Earnings

7

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SLIDE 8

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

($75) ($47) $26 ($13)

Fiber Energy Chemicals Freight

North America Outside North America

($44) ($37) ($28)

Industrial Packaging Printing Papers Consumer Packaging

Energy Wood Chemicals Freight OCC

By Business By Input Type

Input costs ($MM) for continuing businesses

Global Input Costs 1H14 vs. 1H13 | $109MM Unfavorable

Wood OCC

8

Wood

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SLIDE 9

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

467 534 (22) 6 50 20 13

1Q14 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs 2Q14

Industrial Packaging | 2Q14 vs. 1Q14

$ Million

Segment operating profit before special items

9

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SLIDE 10

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

NA Industrial Packaging Relative EBITDA Margins

1 Reflects Company’s change in accounting method beginning in 2014

IP EBITDA margins based on North American Industrial Packaging operating profit before special items Excludes the Recycling Business and revenue from trade volumes Competitor EBITDA margin estimates obtained from public filings and IP analysis

22.6% 19.8% 18.0% 22.5% 21.2% 15.2% 23.7% 21.5% IP PCA RockTenn 2Q13 1Q14 2Q14

22.3% 20.9% 17.5%

2013 2013 2013

10 RKT reports 7/30

1

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SLIDE 11

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014 11

Industrial Packaging | U.S. Corrugated Market1

Total Box Volume (Daily Basis)

2014 2Q vs. 1Q 2014 2Q YOY IP +5.1% +1.1% FBA Industry +5.3% +1.0%

West of Rockies

18% of Volume

East Of Rockies

82% of Volume

IP Volume

(2Q14 vs. 2Q13)

Daily Basis IP +2.2% FBA +1.5% Daily Basis IP (3.4%) FBA (1.0%)

IP Select Segment Performance (YOY)

  • Poultry
  • Shipping &

Distribution

  • Beverage
  • Processed Foods
  • Beef
  • Agriculture

(West Coast)

1Corrugator plant sales

Source: Fibre Box Association (FBA), IP Analysis

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SLIDE 12

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

18 34

(5) (2) 4 3 16

1Q14 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Other 2Q14

Consumer Packaging | 2Q14 vs. 1Q14

$ Million

12

Segment operating profit before special items

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SLIDE 13

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Consumer Packaging 2H 2014 Earnings Runway

13

1H2014

  • 1Q severe weather
  • Volume constrained during

heavy outage period

  • Price increases announced
  • High input costs
  • Kwidzyn project construction

and start-up

2H2014

 Lower outages / Volume pickup  Pricing realizations  Incremental cupstock growth due to shift from foam to paper  Double digit foodservice volume growth driving solid demand for coated paperboard  Mix improvements associated with seasonality (hot cup season)  Input costs remain high, above expectations  Kwidzyn project ramp-up

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SLIDE 14

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

85 118

(5) (30) 25 20 6 12 5

1Q14 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Courtland Other 2Q14

14

Printing Papers | 2Q14 vs. 1Q14

$ Million

Segment operating profit before special items

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SLIDE 15

Earnings Presentation | Second Quarter 2014 15

Printing Papers | 2Q14 vs. 1Q14 Change in Segment Operating Profit1 ($MM)

1Before special items

India Europe

18

North America Pulp

21

North America Papers

22

Brazil

8

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SLIDE 16

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Ilim Joint Venture | 2Q14 vs. 1Q14 $ Million 2Q13 1Q14 2Q14 Sales Volume

(thousand tons)

647 781 782 Sales $465 $554 $545 Operational EBITDA1 $36 $115 $112 F/X (Impact of USD Debt2) ($56) ($114) $72 IP Equity Earnings(Loss)3 ($34) ($31) $43

  • Solid operational performance offsetting softening pulp prices
  • Favorable F/X impact
  • Bratsk productivity encouraging following July outage

16

Ilim JV results are on an IFRS basis with the exception of IP Equity Earnings which is US GAAP

1 Before F/X impact 2 2Q14 Ilim JV USD-denominated debt balance of ~$1.5B; Ilim Group’s functional currency is the Ruble (RUB); Non-functional-denominated currency balances are

measured monthly using the month-end exchange rate

3 IP Equity Earnings(Loss) for 2Q13 and 1Q14 include after-tax f/x losses of $23MM and $45MM, respectively; 2Q14 includes an after-tax f/x gain of $29MM.
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SLIDE 17

Earnings Presentation | Second Quarter 2014

Third Quarter Outlook | Changes from 2Q14

North America EMEA & Russia Brazil Asia1 Volume Paper

Stable Stable Seasonal Improvement Stable

Packaging

CPG improving Stable Stable Stable

Pricing / Mix Paper

Fluff pulp continued price realization Stable Stable Stable

Packaging

CPG continued price realization Stable Stable Stable

Operations & Other Paper

Stable Stable Stable Stable

Packaging

Stable Stable Stable Stable

Inputs & Freight Paper

Increasing Stable Increasing Stable

Packaging

Increasing Stable Stable Stable

Mill Maintenance Outages Paper

Decrease $23MM Decrease $23MM Decrease $1MM Increase $2MM

Packaging

Decrease $86MM Decrease $7MM Increase $3MM N/A

xpedx Earnings

Transitional costs and non-recurring earnings

ILIM JV Equity Earnings

Non-recurring currency impact2 1 Includes India 2 Assumes stable F/X

17

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SLIDE 18

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014 18

Financial Strength of IP | Balance Sheet Update  Moody’s credit rating raised to Baa2 Stable  Bond issue and tender offer successfully reduced 2018 and 2019 debt towers  $400MM payment associated with xpedx spin (July 1)

 Share buyback continues; additional $1.5B authorization approved by IP Board of Directors  Potential Highway Trust Fund legislation could have positive impact on future pension contributions and available cash

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SLIDE 19

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014 19

What Makes IP Different? | Key Levers and Runway Enterprise

  • Manufacturing expertise

with low-cost assets

  • People capability
  • EBITDA growth based
  • n IP specific initiatives
  • Ramping dividend and

sizeable share repurchase program

  • Attractive FCF yield

with improving FCF

  • Strong positions –

best margins

  • Industrial Packaging
  • ptimization
  • Consumer Packaging

foam to paper cup conversions

  • Papers repositioning

post Courtland

  • Leveraging global

platform for profitable growth

  • Coated Paperboard

quality project at Kwidzyn

  • Packaging synergies

at Orsa

  • Ilim ramp up

North America Global

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SLIDE 20

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Appendix

Investor Relations Contacts

Jay Royalty 901-419-1731 Michele Vargas

901-419-7287

Media Contact

Tom Ryan 901-419-4333

20

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SLIDE 21

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

$ Million 2Q13 1Q14 2Q14

Cash Provided by Continuing Operations

$7241 $5312 $7373

Less Capital Investment

($272) ($277) ($357)

Free Cash Flow

$452 $254 $380

Free Cash Flow

1 Excludes $31 MM cash paid for pension plan contribution and $30 MM cash received from Guaranty Bank insurance reimbursements 2 Excludes $58MM cash paid for pension plan contribution 3 Excludes $205MM cash paid for pension plan contribution

21

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SLIDE 22

Earnings Presentation | Second Quarter 2014

Maintenance Outages Expenses | 2014

$ Million 1Q14 2Q14 3Q14F 4Q14F 2014F Industrial Packaging $69 $91 $26 $47 $233 North America 69 91 23 47 230 Brazil 3 3 Printing Papers Total $31 $60 $15 $47 $153 North America 30 35 12 38 115 Europe 1 24 1 26 Brazil 1 9 10 India 2 2 Consumer Packaging $20 $26 $1 $14 $61 North America 20 19 1 14 54 Europe 7 7 Total Impact $120 $177 $42 $108 $447

22

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SLIDE 23

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014 94 19

127 167

99 88 46 118 123

143 300 49 30 1 70 276 60 58

Maintenance Market

Coated Paperboard1

6 22 13 1 24 24 20 18 53 27 24 59 52 2 38 18 53 19 58 16 20

North American Downtime

18 1 8 14 21 20 2 15 19

Containerboard Uncoated Papers2 Market Pulp

Thousand Tons Thousand Tons Thousand Tons Thousand Tons

237 36 319 49 176 23 197 100 158 322 178 181

1Augusta PM#2 was permanently shutdown in March 2013 (36000 tons / quarter) 2Courtland Mill shutdown complete in February 2014
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SLIDE 24

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Special Items Pre-Tax ($ Million) 2Q13 1Q14 2Q14 Industrial Packaging

Acquisition and Integration Costs ($14) ($14) $4 Olmuksan Bargain Purchase Gain $13 Other ($2) ($1)

Printing Papers Courtland Mill Shutdown

($495) ($49)

Consumer Pkg. Other

($1) ($1) ($1)

xpedx

Reorganization ($17) ($2) $1

Corporate

Debt Extinguishment ($3) ($262) xpedx Spinoff ($16) ($18) Guaranty Bank Insurance Reimbursements $30 Cass Lake Environmental Reserve ($6) Revaluation of Company Airplanes ($9) Other ($3) ($1) Total Special Items Before Tax

($12) ($529) ($326)

24

Special Items Before Tax | Continuing Operations

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SLIDE 25

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Special Items Net of Taxes

1Q14 2Q14 $ Million EPS $ Million EPS Earnings Before Special Items $265 $0.61 $409 $0.95 Special Items Net of Taxes: Tax Items ($9) Debt Extinguishment Costs ($160) Acquisition and Integration Costs ($8) $3 Courtland Mill Shutdown ($302) ($30) xpedx Spinoff ($10) ($20) Other ($2) ($1) Total Special Items Net of Taxes ($331) ($0.76) ($208) ($0.48) Non-Operating Pension Expense ($27) ($0.06) ($37) ($0.09) Discontinued Operations Net of Taxes ($2) ($0.00) ($3) ($0.01) Net Earnings ($95) ($0.21) $161 $0.37

25 Earnings Presentation

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SLIDE 26

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Operating Profit

$ Million

D & A

$ Million

Tons

Thousand

EBITDA per Ton EBITDA Margin Industrial Packaging North America1 $523 $175 3,486 $200 24% Brazil2 $1 $6 76 $92 8% Printing Papers North America3 $33 $23 481 $116 11% Europe & Russia4 $20 $16 3135 $115 13%5 Brazil $53 $32 272 $313 32% India2 ($2) $4 43 $47 7% North American Pulp $14 $16 335 $90 14% Consumer Packaging North America6 $22 $43 382 $170 13% Europe $11 $5 78 $205 19%

Segment operating profit before special items

1 Includes Corrugated Packaging, Saturating Kraft & Bag businesses, Gypsum & Release Kraft business; excludes Recycling business and revenue from trade volumes 2 Includes adjustment for minority ownership share 3 Includes Bleached Kraft business 4 Uncoated Papers (excludes Pulp) 5 Excludes JMA sales 6 Includes Foodservice business

2Q14 EBITDA | Integrated Mill Business Margins

26

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SLIDE 27

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Operating Profits by Industry Segment | Continuing Operations

$ Million 2Q13 1Q14 2Q14

Industrial Packaging

$477 $467 $534

Printing Papers

$76 $85 $118

Consumer Packaging

$52 $18 $34

Distribution

$17 $7 $11

Operating Profit

$622 $577 $697

Net Interest Expense

($168) ($142) ($165)

Noncontrolling Interest / Equity Earnings Adjustment

$4 $0 $3

Corporate Items

$0 ($9) $0

Non-Operating Pension Expense

($83) ($44) ($61)

Special Items

($12) ($529) ($326)

Net Earnings from continuing operations before income taxes, equity earnings & noncontrolling interest

$363 ($147) $148

Equity Earnings(Loss), net of taxes – Ilim

($34) ($31) $43

27

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SLIDE 28

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Geographic Business Segment Operating Results

$ Million Sales Operating Profit 2Q13 1Q14 2Q14 2Q13 1Q14 2Q14 Industrial Packaging North America $3,190 $3,084 $3,210 $468 $460 $523 Europe $310 $342 $339 $8 $9 $10 Brazil $100 $85 $97 $1 ($2) $1 Asia $180 $182 $154 $0 $0 $0 Printing Papers North American $645 $515 $500 ($8) $11 $33 Europe $360 $375 $380 $31 $38 $20 Brazil $270 $245 $262 $59 $45 $53 Asia / India $60 $64 $60 ($3) ($2) ($2) N.A. Pulp $205 $207 $219 ($3) ($7) $14 Consumer Packaging North America $505 $464 $505 $33 ($6) $22 Europe $95 $91 $85 $18 $26 $11 Asia (Sun JV) $255 $274 $253 $1 ($2) $1 xpedx $1,405 $1,302 $1,326 $17 $7 $11

Does not reflect total company sales

28

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Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2014 Operating Earnings

Pre-Tax $MM Tax $MM Non- controlling Interest $MM Equity Earnings Net Income $MM Average Shares MM Diluted EPS1

Operating Earnings

1Q14 $426 ($132) $4 ($33) $265 436 $0.61 2Q14 $535 ($170) $3 $41 $409 432 $0.95

Non-Operating Pension Expense

1Q14 ($44) $17 $0 $0 ($27) 436 ($0.06) 2Q14 ($61) $24 $0 $0 ($37) 432 ($0.09)

Net Special Items

1Q14 ($529) $198 $0 $0 ($331) 436 ($0.76) 2Q14 ($326) $118 $0 $0 ($208) 432 ($0.48)

Net Earnings from Continuing Operations

1Q14 ($147) $83 $4 ($33) ($93) 436 ($0.21) 2Q14 $148 ($28) $3 $41 $164 432 $0.38

1 A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at Webcasts and Presentations

29

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Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Operating Business EPS

2005-2006 as originally reported 2007-2011 adjusted for elimination of the Ilim JV reporting lag 2005-2010 Net Earnings from continuing operations and before special items; 2010 onward reflects Operating Earnings

30 .36 .31 .29 .12 .12 .35 .40 .47 .45 .52 .57 .73 .45 .49

.41

.15 .07 .27 .38 .22 .09 .49

.89

.74 .78 .81 .83 .73 .63 .53 .81 .69 .65 .64

1.05

.83 .61 .95

.42 .08 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2005 2006 2007 2010 2008

Impact of Mineral Rights Gain

2009

.83

2011

.97

Final Land Sale

2012 2013 2014

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SLIDE 31

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

.64 .95 (.07) (.03) (.06) (.02) (.04) .28 .04 .17 .04

2Q13 Price / Mix Volume Operations & Costs Input Costs NEC Courtland Closure Corporate & Other Items Ilim JV Shares 2Q14

2Q14 vs. 2Q13 EPS

Operating Earnings

31

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Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

477 534

(8) (10) (20) (12) (1) 108

2Q13 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Other 2Q14

Industrial Packaging | 2Q14 vs. 2Q13

$ Million

32

Segment operating profit before special items

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SLIDE 33

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2Q14 vs. 1Q14 2Q14 vs. 2Q13 Business

Volume Price / Ton Volume Price / Ton

U.S. Container1 5% $1 1% $43 European Container (2%) (€3) 5% €0

Average IP volume and price realization (includes the impact of mix across all segments)

1 Corrugator plant sales on FBA shipping day basis

Industrial Packaging | Volume and Pricing Trends

33

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Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

52 34

(6) (10) (8) (12) (5) 23

2Q13 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Other 2Q14

Consumer Packaging | 2Q14 vs. 2Q13

$ Million

34

Segment operating profit before special items

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SLIDE 35

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Average IP price realization (includes the impact of mix across all grades)

2Q14 vs. 1Q14 2Q14 vs.2Q13

Volume Price/Ton Volume Price/Ton

NA Coated Paperboard 8% $21 (7%) $52

Revenue Price Revenue Price

Foodservice 6% NA 11% NA Consumer Packaging | Volume and Pricing Trends

35

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SLIDE 36

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

NA Consumer Packaging EBITDA Margins

IP EBITDA margins based on North American Consumer Packaging operating profit before special items Competitor adjusted EBITDA margins obtained from public filings and IP analysis; reflects Food & Beverage segment

14.1% 10.0% 7.3% 10.5% 12.9% IP MWV 2Q13 1Q14 2Q14

13.5% 11.0%

2013 2013

MWV reports 7/30 36

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Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

76 118

(25) (2) (14) (15) (2) 45 27 28

2Q13 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs NEC Courtland Other 2Q14

37

Printing Papers | 2Q14 vs. 2Q13

$ Million

Segment operating profit before special items

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SLIDE 38

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2Q14 vs. 1Q14 2Q14 vs. 2Q13 Business

Volume Price / Ton Volume Price / Ton

NA Paper (5%) $20 (28%) $68 NA Pulp1 3% $21 2% $33 European Paper2 4% ($7) 3% ($8)

Average IP volume and price realization (includes the impact of mix across all grades)

1 Reflects Fluff and Market Pulp combined 2 Excludes JMA sales

Printing Papers | Volume and Pricing Trends

38

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SLIDE 39

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

N.A. Printing Papers Relative EBITDA Margins

5.2% 9.8% 6.6% 13.0% 12.0% 12.8% IP Domtar 2Q13 1Q14 2Q14

IP EBITDA margins based on operating profit from continuing operations before special items Competitor EBITDA margin estimates obtained from public filings and IP analysis EBITDA margins reflect the Printing Papers and Pulp businesses

11.4%

2013 2013

12.0% 39

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SLIDE 40

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

$ Million 2Q13 1Q14 2Q14 Sales $270 $245 $262 Earnings $59 $45 $53 EBITDA Margin 34% 30% 32% 2Q14 vs. 1Q14 2Q14 vs. 2Q13 Business

Volume Price/Ton Volume Price/Ton

Uncoated Freesheet 0% $21 (3%) $34 Domestic (6%) $18 (3%) $68 Export 6% $23 (2%) $4

Segment operating profit before special items IP Brazil results are reported in the Printing Papers segment Average IP Brazil price realization (includes the impact of mix across all grades)

Printing Papers | IP Brazil

40

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SLIDE 41

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Ilim Joint Venture | Pro Forma View – As Shared on February 4th Earnings Call

$ Million ‘09-‘12 Average 2013 2014

Depreciation $125 $177 ~$225 Interest Expense $15 $39 ~$75

Ilim JV figures are on an IFRS basis with the exception of IP Equity Earnings which is US GAAP. IP position in joint venture is 50%. * Assumes stable FX & current pulp prices

$388 $128 $270 $350 - $400* ~$550 - $600*

'09 - '12 Average 2013 2H2013 Annualized 2014E Fully Ramped Potential

EBITDA Ramp-Up

$MM

~$100-$120 IP Equity Earnings* ~$20-$40 IP Equity Earnings* 41

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SLIDE 42

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Ilim Joint Venture | Volume and Pricing Trends 2Q14 vs. 1Q14 2Q14 vs. 2Q13 Business

Volume Price/Ton Volume Price/Ton

Pulp (3%) ($15) 14% $11 Containerboard 8% ($5) 16% ($38)

Average Ilim JV (100%) volume and price realization (includes the impact of mix across all grades and destinations)

42

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SLIDE 43

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

Total Cash Cost Components | 2Q14 YTD Fiber 31% Materials 15% Freight 15% Labor 11% Energy 11% Overhead 9% Chemicals 8%

43

North American mills only

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SLIDE 44

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

($35) ($9) ($7)

Fiber Energy Chemicals Freight

North America Outside North America

($12) ($14) ($12)

Industrial Packaging Printing Papers Consumer Packaging

Energy Wood Chemicals Freight OCC

By Business By Input Type

Global Input Costs vs. 2Q13 | $38MM Unfavorable, or $0.06/Share

Wood OCC Wood

Input costs ($MM) for continuing businesses

$13

44

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SLIDE 45

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2007 2008 2009 2010 2011

90 95 100 105 110 115 120 125 130

2012 2013 2014

U.S. Mill Wood Delivered Cost Trend | 1% Decrease vs. 1Q14 Average Cost

Cost Indexed to January 2007 values

45

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SLIDE 46

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2007 2008 2009 2010 2011

40 60 80 100 120 140 160 180 200

2012 2013 2014

Cost Indexed to January 2007 values

U.S. OCC Delivered Cost Trend | 4% Decrease vs. 1Q14 Average Cost

46

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SLIDE 47

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2007 2008 2009 2010 2011

50 100 150 200 250

2012 2013 2014

NYMEX Natural Gas closing prices

Natural Gas Costs Trend | 7% Decrease vs. 1Q14 Average Cost

Cost Indexed to January 2007 values

47

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SLIDE 48

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2007 2008 2009 2010 2011

40 90 140 190 240 290 340

2012 2013 2014

U.S. Fuel Oil Trend | 2% Decrease vs. 1Q14 Average Cost

Cost Indexed to January 2007 values WTI Crude prices

48

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SLIDE 49

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2007 2008 2009 2010 2011

75 100 125 150 175 200

2012 2013 2014

U.S. Chemical Composite Index Trend | Flat vs. 1Q14 Average Cost

Delivered cost to U.S. facilities: includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2006 - 2008 excludes WY PKG Cost Indexed to January 2007 values

49

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SLIDE 50

Earnings Presentation | Second Quarter 2014 Earnings Presentation | Second Quarter 2014

2014 Global Consumption | Annual Purchase Estimates for Key Inputs

Commodity

  • U. S.

Non – U. S. Energy

Natural Gas (MM BTUs)

65,000,000 11,000,000

Fuel Oil (Barrels)

880,000 400,000

Coal (Tons)

490,000 700,000 Fiber

Wood (Tons)

52,000,000 9,000,000

Old Corrugated Containers / DLK (Tons)

4,500,000 430,000 Chemicals

Caustic Soda (Tons)

370,000 95,000

Starch (Tons)

430,000 102,000

Sodium Chlorate (Tons)

180,000 45,000

LD Polyethylene (Tons)

40,000

  • Latex (Tons)

16,000 5,000

Does not include Asia or volume consumed by joint ventures (Sun JV, Ilim JV) Estimates are based on normal operations and may be impacted by downtime Excludes annual consumption related to Courtland operations terminated in 1Q14

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