Fourth Quarter and Full-Year 2016 Earnings | February 2, 2017
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 changes 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) changes in our estimates for the costs and insurance coverage associated with the recent incident at our Pensacola, Florida mill and for the time required to resume full operations at the mill; (vi) whether we experience a material disruption at one of our other manufacturing facilities; (vii) risks inherent in conducting business through joint ventures; (viii) the failure to realize the expected synergies and cost-savings from our purchase of the cellulose fibers business of Weyerhaeuser Company; and (ix) 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. Earnings Presentation | Fourth Quarter and Full-Year 2016 2
Statements Relating to Non-GAAP Financial Measures During the course of this presentation, certain non U.S. GAAP financial measures will be presented, such as Adjusted Operating EPS, Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Adjusted ROIC. A reconciliation of all presented non-GAAP measures (and their components) to U.S. GAAP financial measures is available on the company’s website at internationalpaper.com under Performance/Investors. Earnings Presentation | Fourth Quarter and Full-Year 2016 3
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. 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.” Earnings Presentation | Fourth Quarter and Full-Year 2016 4
Full-Year 2016 Highlights Adjusted ROIC 1 Strong Free Cash Flow 2 of $1.9B Delivered Adjusted ROIC of ~10%, 7th consecutive year above cost of capital Key strategic levers: • Further strengthened N.A. Industrial 11.0% Packaging business 9.9% 9.2% Acquisition of Weyco’s pulp business • • Conversion of Riegelwood Mill • Acquisition and planned conversion of Madrid Mill • Sale of Asia Box business Increased dividend by 5% to $1.85/share 2014 2015 2016 1 Adjusted ROIC = Adjusted Operating Earnings before Interest / Average Invested Capital [Equity (adjusted to remove pension related amounts in OCI, net of tax) + Interest-bearing Debt] 2 See slide #27 for a reconciliation of cash provided by operations to Free Cash Flow Earnings Presentation | Fourth Quarter and Full-Year 2016 5
Full-Year 2016 Financial Results FCF 4 $ Billion 2014 2015 2016 (Except as noted) ($MM) Sales $23.6 $22.4 $21.1 Adj. EBIT 1 $2.7 $2.6 $2.3 Adj. Operating EPS 2 $3.00 $3.65 $3.35 Operating EPS impact ($0.63) ($0.18) $0.06 of Ilim F/X 3 – IP Share $2.1 Adj. EBITDA 1 $4.1 $3.9 $3.5 $1.9 $1.8 Adj. EBITDA Margin 17.5% 17.6% 16.6% FCF 4 $2.1 $1.8 $1.9 Year-End Debt $9.4 $9.3 $11.3 Cash Balance $1.9 $1.0 $1.0 2014 2015 2016 1 From continuing operations before special items and non-operating pension expense 2 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 3 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.6B at year end 2016) 4 See slide #27 for a reconciliation of cash provided by operations to Free Cash Flow Earnings Presentation | Fourth Quarter and Full-Year 2016 6
Strong, Sustainable Free Cash Flow 5-Year Average $1.8 Billion Global Economic $2.5 Recession $2.0 $2.1 $1.9 $1.8 $1.8 Transformation: $1.5 $1.6 $ Billions $0.5 Billion (average) $1.0 $0.5 $0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Free Cash Flow, a non U.S. GAAP measure, reflects cash provided by continuing operations for 2005 – 2011, based on data in the 10-K for each year at the time of filing. Free Cash Flow reflects cash provided by operations for 2012 onward. Excludes net cash pension contributions impacting 2006, 2010, 2011, 2013, 2014, 2015 & 2016, 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. 2012 excludes $120MM cash paid for Temple-Inland change-in-control agreements, $251MM cash received from unwinding a timber monetization, $44MM cash paid for Temple-Inland pension plan contribution, and $80MM cash paid for Guaranty Bank settlement. 2013 excludes $31MM cash paid for pension plan contribution and $30MM cash received from Guaranty Bank insurance reimbursements. For 2014 onward, see slide #27 for a reconciliation of cash provided by operations to Free Cash Flow. Earnings Presentation | Fourth Quarter and Full-Year 2016 7
Expanded Spread of Adj. ROIC 1 Above Cost of Capital | Increasing Shareholder Value 5-Year Average 9.6% Global Economic Recession 11.0% 9.9% 9.5% 9.3% 9.2% 8.3% 8.1% 7.5% 6.5% 6.3% 5.0% 4.5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 WACC for 2016 1 Adjusted ROIC = Adjusted Operating Earnings before Interest / Average Invested Capital [Equity (adjusted to remove pension related amounts in OCI, net of tax) + Interest-bearing Debt] Earnings Presentation | Fourth Quarter and Full-Year 2016 8
2016 vs. 2015 Adj. Operating EPS 3.65 (.70) 3.35 .03 .16 .10 .13 (.14) .10 .02 2015 Price / Mix Volume Operations Maintenance Input Costs Tax / Interest Ilim JV Pulp 2016 & Costs Outages / Other Acquisition Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) Earnings Presentation | Fourth Quarter and Full-Year 2016 9
4Q16 Financial Results Solid results in N.A. Industrial Pkg 4Q15 3Q16 4Q16 driven by strong demand and increasing prices Sales ($B) $5.4 $5.3 $5.4 Higher input costs ($17MM) Adj. EBIT 1 ($MM) $616 $613 $498 unfavorably impacted earnings Impact from Hurricane Matthew Adj. Operating EPS 2 $0.87 $0.91 $0.73 Continued solid operational Operating EPS impact performance across businesses ($0.05) $0.01 $0.01 of Ilim F/X 3 – IP Share Strong performance at Ilim JV Adj. EBITDA 1 ($MM) $930 $927 $826 continued with adjusted operational EBITDA of $180MM Adj. EBITDA Margin 1 17.1% 17.6% 15.4% Closed acquisition of Weyco pulp business and integrating as new Free Cash Flow 4 ($MM) $501 $575 $467 Global Cellulose Fibers business 1 From continuing operations before special items and non-operating pension expense 2 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 3 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.6B at end of 4Q16) 4 See slide #27 for a reconciliation of cash provided by operations to free cash flow Earnings Presentation | Fourth Quarter and Full-Year 2016 10
4Q16 vs. 3Q16 Adj. Operating EPS 0 0 .91 (.18) .73 (.01) .03 0 (.03) .01 3Q16 Price / Mix Volume Operations Maintenance Input Costs Tax / Other Ilim JV Pulp 4Q16 & Costs Outages Acquisition Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) Earnings Presentation | Fourth Quarter and Full-Year 2016 11
Industrial Packaging | 4Q16 vs. 3Q16 Adj. EBIT 1 22 (12) (57) 429 8 (11) 379 $ Million 3Q16 Price / Mix Volume Operations Maintenance Input Costs 4Q16 & Costs Outages 1 Segment adjusted operating profit before special items Earnings Presentation | Fourth Quarter and Full-Year 2016 12
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