North American Uncoated Freesheet North American Uncoated Freesheet H. Wayne Brafford Senior Vice President, Printing & Communications Papers Credit Suisse Equity Research December 2007 H. Wayne Brafford Senior Vice President, Printing & Communications Papers Credit Suisse Equity Research December 2007
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North American Uncoated Freesheets1.q4cdn.com/597881801/files/doc_presentations/2007/CreditSuisseDEC07V7no_notes.pdfNorth American Uncoated Freesheet H. Wayne Brafford Senior Vice
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North American Uncoated FreesheetNorth American Uncoated Freesheet
H. Wayne BraffordSenior Vice President,Printing & Communications Papers
Credit Suisse Equity Research
December 2007
H. Wayne BraffordSenior Vice President,Printing & Communications Papers
These slides and statements made during this presentation contaiThese slides and statements made during this presentation contain forwardn forward--looking statements. looking statements. These statements reflect management's current views and are subjThese statements reflect management's current views and are subject to risks and uncertainties ect to risks and uncertainties that could cause actual results to differ materially from those that could cause actual results to differ materially from those expressed or implied in these expressed or implied in these statements. Factors which could cause actual results to differ rstatements. Factors which could cause actual results to differ relate to: (i) industry conditions, elate to: (i) industry conditions, including but not limited to changes in the cost or availabilityincluding but not limited to changes in the cost or availability of raw materials and energy, of raw materials and energy, transportation costs, the company's product mix, demand and prictransportation costs, the company's product mix, demand and pricing for its products; (ii) global ing for its products; (ii) global economic conditions and political changes, particularly in Latineconomic conditions and political changes, particularly in Latin America, Russia, Europe and America, Russia, Europe and Asia, including but not limited to changes in currency exchange Asia, including but not limited to changes in currency exchange rates, credit availability, and the rates, credit availability, and the company's credit ratings issued by recognized credit rating orgacompany's credit ratings issued by recognized credit rating organizations; (iii) natural disasters, nizations; (iii) natural disasters, such as hurricanes and earthquakes; (iv) the company's ability tsuch as hurricanes and earthquakes; (iv) the company's ability to realize anticipated profit o realize anticipated profit improvement from its transformation plan, and (v) unanticipated improvement from its transformation plan, and (v) unanticipated expenditures related to the cost expenditures related to the cost of compliance with environmental and other governmental regulatiof compliance with environmental and other governmental regulations and to actual or potential ons and to actual or potential litigation. We undertake no obligation to publicly update any folitigation. We undertake no obligation to publicly update any forwardrward--looking statements, whether looking statements, whether as a result of new information, future events or otherwise. Thesas a result of new information, future events or otherwise. These and other factors that could e and other factors that could cause or contribute to actual results differing materially from cause or contribute to actual results differing materially from such forward looking statements are such forward looking statements are discussed in greater detail in the company's Securities and Exchdiscussed in greater detail in the company's Securities and Exchange Commission filings.ange Commission filings.
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Latin & South America 3.7 MM tons, +1.9%
Latin & South America Latin & South America 3.7 MM tons, +1.9%3.7 MM tons, +1.9%
North America13.5 MM tons, (1.5)%
North AmericaNorth America13.5 MM tons, (1.5)%13.5 MM tons, (1.5)%
Europe12.8 MM tons
East & Russia +6.5% West +1.3%
EuropeEurope12.8 MM tons12.8 MM tons
East & Russia +6.5% East & Russia +6.5% West +1.3%West +1.3%
Africa & Middle East3.5 MM tons, +3.6%
Africa & Middle EastAfrica & Middle East3.5 MM tons, +3.6%3.5 MM tons, +3.6%
2006 Global Uncoated Freesheet DemandGlobal UFS demand continues to grow2006 Global Uncoated Freesheet DemandGlobal UFS demand continues to grow
Asia Pacific13.5 MM tons, +3-6%
Asia PacificAsia Pacific13.5 MM tons, +313.5 MM tons, +3--6%6%
Source: Poyry Consulting, RISI, EMGE
47 million short tons with a 2006 - 2011 CAGR of 1 - 2%
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UFS is used in many applicationsUFS is used in many applications
Sources: GAPTRAC, CAPV
Desktop Papers Quick Print PapersForms EnvelopesCommercial Printing Direct MailBooks ConvertingTablets Other
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Key Factors Influencing North American Uncoated Freesheet DemandKey Factors Influencing North American Uncoated Freesheet Demand
Structural Demand Decline - US Per Capita Purchases suggest a 1.2% declineStructural Demand Decline - US Per Capita Purchases suggest a 1.2% decline
Source: AF&PA, US Census Bureau
Population: 1.1%
Per Capita Usage: (2.3%)
100
150
200
250
300
350
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Mill
ions
of P
eopl
e
50
75
100
125
Usa
ge in
Pou
nds
7
8
9
10
11
12
13
14
15
16
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
MM
tons
A sawtooth demand pattern has emerged for North American UFS purchasesA sawtooth demand pattern has emerged for North American UFS purchases
Demand Trend (1.5%)
(2%) Case
Sources: AF&PA
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Key factors influencing the year-over-year sawtooth pattern of NA UFS demandKey factors influencing the year-over-year sawtooth pattern of NA UFS demand
Sawtooth Demand Factors
2 - 3%8.7%05.4%07.9%US Postal Rate Increase
Summer NoWinterNoSummer NoOlympics
(~5.5%)0.5%(4.8%)1.6%(1.3%)NA UFS Purchases
1.9%(1.2%)2.4%3.7%5.5%3.2%US Print Ad Spending Growth
No
2007E
YesCongressNoYesNoUS Elections
2008F2006200520042003
Sources: AF&PA, USPS, Universal McCann.
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Economic Cycles Impact on NA UFS DemandEconomic Cycles Impact on NA UFS Demand
1.9%2.1%2.9%3.1%3.6%2.5%US Economy (GDP)
Economic Cycles
(~5.5%)0.5%(4.8%)1.6%(1.3%)NA UFS Purchases
2007E 2008F2006200520042003
Sources: Global Insight, AF&PA, RISI
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Key Factors Influencing North American Uncoated Freesheet DemandKey Factors Influencing North American Uncoated Freesheet Demand
100WaunaGeorgia-Pacific200Hull, Port Edwards, WoodlandDomtar
125NeenahGlatfelter
M TonsFacilityCompany
Bastrop 250International Paper
Source: AF&PA, Company Announcements
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North American net UFS imports are at low levelsThe weak US$ suggests imports will remain lowNorth American net UFS imports are at low levelsThe weak US$ suggests imports will remain low
0
10
20
30
40
50
60
70
80
Jan-0
6Feb
-06Mar-
06Apr-
06May
-06Ju
n-06
Jul-0
6Aug
-06Sep
-06Oct-
06Nov-0
6Dec-0
6Ja
n-07
Feb-07
Mar-07
Apr-07
May-07
Jun-0
7Ju
l-07
Aug-07
Sep-07
Oct-07
M to
ns p
er M
o.
Imports Exports
Net Imports
Source: AF&PA, U.S. Department of Commerce
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North American UFS Operating RatesNorth American UFS Operating Rates
Based on Poyry Consulting 2006 CostTrac At 1st Quarter 2007 Prices and Exchange Rates
IP has the lowest-cost North American UFS System80% of capacity in 1st & 2nd cost quartilesIP has the lowest-cost North American UFS System80% of capacity in 1st & 2nd cost quartiles
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15.8%
8.1% 7.1%
3.0%
-1.5%
-10.8%-15%
-10%
-5%
0%
5%
10%
15%
20%
IP A B C D E
Source: Company 10Qs
North American Competitive PerformanceQ207 & Q307 Average EBIT ROS
North American Competitive PerformanceQ207 & Q307 Average EBIT ROS