Mayank BindalRashedur RahmanWilliam Weintraub

Rochester Institute of Technology

Saunders College of BusinessNovember 11, 2011

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.

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Agenda

A. Company Overview

B. Industry Analysis

C. Financial Analysis

D. Valuation

E. Recommendation

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• 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

A.1 The Company - Operations

Source: International Paper Company Website, http://www.internationalpaper.com/ data as of 12/31/10 4

U.S. Global20 pulp, paper and packaging mills 8 pulp, paper and packaging mills

144 converting and packaging plants 67 converting and packaging plants

19 recycling plants 2 recycling plants

3 bag facilities None

224 distribution branches 38 distribution branches

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

A. 3 Segments & Global Portfolio

Operating Earnings by Segments

Operating Earnings by Region

Source: IP 3Q11 Earnings Call 6

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

A.5 Major Developments (Continued)

Source: IP 10Q 3Q11 8

• 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

A.6 Deal Activity 2010 - 2011St

ock

Pric

e

Months

Shorewood PackagingTemple Inland

Tikhvin Forestry Andhra Pradesh Paper

Source: Factset 9

A.7 Corporate Governance

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

Commitment

Board

Committees

Risk Man-agement

Compensation

RTPs

A.8 Sustainability and CSRFocus Practices and Results

1. Promoting responsible forest management globally

2. Helping customers to meet sustainability goals

3.Partnering with stakeholders to advance mutual sustainability objectives

4. Leveraging the inherent sustainability of paper with innovative new product designs

5. Eliminating life-changing injuries and fatalities in the workplace

6. Strengthening support and participation in the communities where IP operates

Recycling: Annually recover some 6 million tons of fiber-about 12% of total U.S. fiber collection

Partnership: Cooperative agreement with China (SFA) and Brazil (Sao Paulo State Government) to support the development of sustainable forestry

Responsible manufacturing: Invested $45 million to improve energy efficiency, and reduced energy consumption by 11% between 2005 and 2009

Workforce: Improved Total Incidence Rate (TIR), diversity (32% of the total workforce are women or minorities)

Communities: in 2010, amount exceeded $10 million and was distributed to non-profit organizations. Examples includes Coins 4 Kids, National Civil Rights Museum Freedom Awards and A Walk in the Park, etc.

Source: Source: International Paper Company Website, http://www.internationalpaper.com Proxy Report 11

A.9 RisksIndustry Market and Economic Factors

Legal Proceedings & Compliance Operational Risks

-------------------------------- Analyst Findings -------------------------------- S&P

(10/15/2011) The Street Ratings:

(10/2/2011)Economic Investor

(10/11/2011)

Qualitative : MediumQuantitative: B

Poor debt management IP’s Index is 128 (Better then the competitors but below the average of Dow Jones-54, S&P,-60 and other leading such as Walmart-70, J&J-75)

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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

B.2 Peer Group

Source: Street Ratings 10/2/11 14

Company NameRecent

Price ($)Market Cap

($M)Price/

EarningsNet Sales TTM ($M)

Net Income TTM ($M)

INTL PAPER CO 24.15 10,556 8.53 26,286.00 1,279.00

SCHWEITZER-MAUDUIT INTL INC 58.32 939 14.44 751.70 67.90

CLEARWATER PAPER CORP 34.86 803 11.43 1,658.94 72.30

SCA-SVENSKA CELLULOSA AB 12.72 7,738 9.64 17,398.68 926.86

KAPSTONE PAPER & PAKIAGING 14.37 666 7.98 829.64 84.85

GLATFELTER 13.58 621 8.43 1,560.21 74.63

MEADWESTVACO CORP 25.76 4,397 13.14 5,924.00 186.00

FIBRIA CELULOSE SA 7.99 3,739 7.99 3,763.72 670.06

DOMTAR CORP 71.11 2,802 4.32 5,672.00 703.00

SAPPI LTD 3.02 1,622 NM 7,273.00 (21.00)

BUCKEYE TECHNOLOGIES INC 25.03 1,002 8.18 905.34 124.27

B.3 Industry

Paper and Paper Products Production – 5 Years

Source: Factset

Year

% In

crea

se

15

B.4 Industry

Paper and Paper Products Industrial Capacity – 5 Years

Source: Factset

Year

% In

crea

se

16

B.5 Industry

Paper and Paper Products Capacity Utilization – 5 Years

Source: Factset

Year

% C

apac

ity

17

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%

2006 2007 2008 2009 2010-202468

7.12 6.57

-1.34

2.71 2.35

Times Interest Earned

Source: Morningstar 18

C.2 Earnings Analysis

Source: 10 K 19

IP Industry

Current P/E 17.8 5.8

Net Profit Margin 7.8% 9.0%

ROE 19.1% 16.8%

Beta 2.62 1.52

P/B Value 1.61 1.78

2004 2005 2006 2007 2008 2009 2010 $(4.00) $(3.00) $(2.00) $(1.00)

$- $1.00 $2.00 $3.00 $4.00

$(0.07)

$2.26 $2.21

$2.72

$(3.05)

$1.56 $1.50

Earnings Per Share (EPS)

0

5

10

15

20 17.79 16.48 14.89

9.875.17

2010 Price Earnings Ratio (P/E)

2003 2004 2005 2006 2007 2008 2009 2010-6

-5

-4

-3

-2

-1

0

1

2

-0.52

-0.02 0.43 0.62 0.64

-4.88

0.79 0.73

Reinvestment Rate

C.3 Operating EPS

Year

EPS

Source: 3Q11 Earnings Call 20

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

2007 2008 2009 2010 $(5,000.00)

$-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

Revenues/Net Income

C.5 ROI

Year

ROI

Source: 3Q11 Earnings Call 22

C.6 Financial Statement AnalysisINCOME 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 periodBALANCE SHEET (9/30/11)• Cash & CE: $2.7B • Long-Term Debt: $7.8BDIVIDEND PAYOUT • 2007: $1.00• 2008: $1.00• 2009: $.10• 2010: $.50• 2011 (Annualized): $1.05

Source: 10 K 23

C.7 Financial Statement Analysis

Source: 10 K 24

2007 2008 2009 2010 $-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00 Revenues

International Paper Domtar CorpMeadWestvaco Corp PH Glatfelter CompanyPackaging Corporation of America

2007 2008 2009 2010 $(1,500.00)

$(1,000.00)

$(500.00)

$-

$500.00

$1,000.00

$1,500.00 Net Income

International Paper Domtar CorpMeadWestvaco Corp PH Glatfelter CompanyPackaging Corporation of America

D.1 Valuation

Source: Factset 25

IP EPS/Earnings Growth – 5 Years

Year

EPS

EPS

Grow

th %

D.2 Valuation

Broker Outlook– 1 year

Source: Factset 26

E. Recommendation - BuyValuation

Earnings

Man-agement

Earnings Quality

Corporate Gov/

Sustainabil-ity

Operating Efficiency

Undervalued:Fundamental price using discounted free cash flow approachtranslates into 20% upside potential

$34.43

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