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Mayank Bindal Rashedur Rahman William Weintraub

Rochester Institute of Technology Saunders College of Business November 11, 2011. Mayank Bindal Rashedur Rahman William Weintraub. Disclaimer.

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Mayank Bindal Rashedur Rahman William Weintraub

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  1. Rochester Institute of Technology Saunders College of Business November 11, 2011 MayankBindal RashedurRahman William Weintraub

  2. Disclaimer Most of the data, tables and charts used in this presentation have been taken from various published International Paper documents and outside sources, as referenced on the slides. The sole purpose of this presentation is to synthesize the publicly available information about International Paper and make a recommendation on its long-term investment outlook. 2

  3. Agenda • Company Overview • Industry Analysis • Financial Analysis • Valuation • Recommendation 3

  4. A.1 The Company - Operations • A global paper and packaging company, with corporate and operational headquarters located in Memphis, TN • Manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa • Business segments: Industrial Packaging, Printing Papers, Consumer Packaging, Distribution and Forest Products • Top manufacturer of containerboard production; 70% used in industrial corrugated boxes • Owns/manages 250,000 acres of forestland in Brazil; harvesting rights in Russia Source: International Paper Company Website, http://www.internationalpaper.com/ data as of 12/31/10 4

  5. A.2 The Company – Financial Overview • Stock Symbol: IP • Sector: Consumer Goods • Industry: Paper & Paper Products • International Paper’s common stock is listed on the New York, Amsterdam and Swiss stock exchanges • Stock Price close of the day 11/09/11: $28.07 • One Year Est. Price Target: $36.31 • Common Stock diluted EPS $1.19 ($0.92 excluding special items) in 3Q11 • 2011 nine months ended 9/30/11 net sales $20 billion ($1.1 billion increase over 9/30/10) Source: 1Yr Est. Target Factset 11/04/11, EPS: IP 10Q 3Q11, Executive Summary 5

  6. A. 3 Segments & Global Portfolio Operating Earnings by Region Operating Earnings by Segments Source: IP 3Q11 Earnings Call 6

  7. A.4 Major Developments • On November 1, 2011, Carol Roberts was named Senior Vice President and CFO • On October 14, 2011, International Paper completed the acquisition of a 75% interest in Andhra Pradesh Paper Mills Limited (APPM). The Company purchased 53.5% of APPM's outstanding shares from the controlling shareholders for approximately $226 million in cash in addition to other financial arrangements. • On September 6, 2011, International Paper entered into a definitive merger agreement with Temple-Inland Inc. to acquire all of the outstanding common stock of Temple-Inland for $32.00 per share in cash, plus the assumption of approximately $600 million in Temple-Inland's debt. • On June 30, 2010, International Paper completed the acquisition of SCA Packaging Asia (SCA) for a purchase price of $202 million. Source: IP 10Q 3Q11 7

  8. A.5 Major Developments (Continued) • On June 20, 2010, International Paper completed the acquisition of SCA Packaging Asia (SCA) for a preliminary purchase price of $205 million • In March 2008, International Paper agreed to acquired the corrugated packaging business of Weyerhaeuser for $6 billion in cash • Since 2005, IP has completed a major restructuring of its operations: • Under this plan, company has concentrated on uncoated papers and industrial and consumer packaging businesses (including its distribution unit) and has divested its other operations Source: IP 10Q 3Q11 8

  9. A.6 Deal Activity 2010 - 2011 Tikhvin Forestry Andhra Pradesh Paper Shorewood Packaging Temple Inland Stock Price Months Source: Factset 9

  10. A.7 Corporate Governance Source: Source: International Paper Company Website, http://www.internationalpaper.com Proxy Report 10

  11. A.8 Sustainability and CSR Source: Source: International Paper Company Website, http://www.internationalpaper.com Proxy Report 11

  12. A.9 Risks 12

  13. B.1 Industry • Paper products industry includes about 3,500 companies with combined total revenue of $160 billion - fragmented • Major companies include Georgia-Pacific, International Paper, Kimberly-Clark, MeadWestvaco and Neenah Paper • Highly cyclical and capital-intensive. Demand depends upon: - industrial non-durable goods production - consumer spending - commercial printing - advertising activity • Volatile product prices, IP given its size still not able to influence timing and extent of price changes • Technology seems to have an impact on demand for uncoated free sheet in long run Source: 10K, S&P Report 13

  14. B.2 Peer Group Source: Street Ratings 10/2/11 14

  15. B.3 Industry % Increase Year Paper and Paper Products Production – 5 Years Source: Factset 15

  16. B.4 Industry % Increase Year Paper and Paper Products Industrial Capacity – 5 Years Source: Factset 16

  17. B.5 Industry % Capacity Year Paper and Paper Products Capacity Utilization – 5 Years Source: Factset 17

  18. C.1 Credit Analysis • IP expects to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during 2011 through current cash balances and cash from operations • Net Worth: • Maintenance Minimum Net Worth: $9 Billion • IP Net Worth: 12.4 Billion • Debt – Capitalization Ratio: • Requirement: Total Debt – Capitalization ratio: < 60% • IP Total Debt – Capitalization ratio: 41.2% Source: Morningstar 18

  19. C.2 Earnings Analysis Source: 10 K 19

  20. C.3 Operating EPS EPS Year Source: 3Q11 Earnings Call 20

  21. C.4 Profitability Analysis International Paper is superior in profitability in 2010 Financial crisis (2008-2009) greatly impacted profitability and liquidity Source: 10 K 21

  22. C.5 ROI ROI Year Source: 3Q11 Earnings Call 22

  23. C.6 Financial Statement Analysis INCOME STATEMENT (12/31) • Sales: $21.9B to $25.2B from 2007 to 2010, respectively, a 15.1% increase over the 5-year period • Net Income: $1.2B to $.7B from 2007 to 2010, respectively, a 41.7% decline over the 5-year period BALANCE SHEET (9/30/11) • Cash & CE: $2.7B • Long-Term Debt: $7.8B DIVIDEND PAYOUT • 2007: $1.00 • 2008: $1.00 • 2009: $.10 • 2010: $.50 • 2011 (Annualized): $1.05 Source: 10 K 23

  24. C.7 Financial Statement Analysis Source: 10 K 24

  25. D.1 Valuation IP EPS/Earnings Growth – 5 Years EPS Growth % EPS Year Source: Factset 25

  26. D.2 Valuation Broker Outlook– 1 year Source: Factset 26

  27. E. Recommendation - Buy Undervalued: Fundamental price using discounted free cash flow approach translates into 20% upside potential $34.43 27

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