By Susan Kelly February 4, 2004 -- International Paper (NYSE: IP) today reported fourth quarter net earnings of $48 million or $0.10 per share, compared with a net loss of $130 million or a loss of $0.27 per share in the fourth quarter 2002. Net earnings were $122 million or $0.25 per share in the third quarter 2003. For the 2003 full year, International Paper reported net earnings of $302 million or $0.63 per share, compared with a net loss of $880 million or a loss of $1.83 per share in 2002. Fourth-quarter 2003 net sales rose to $6.5 billion, compared with 2002 fourth-quarter net sales of $6.3 billion, and 2003 third-quarter sales of $6.4 billion. Sales for the full year in 2003 were $25.2 billion compared with $25.0 billion in 2002. Mr. John Faraci , International Paper's Chairman and Chief Executive Officer, and Mr. Christopher Liddell, SR VP and CFO, conducted the quarterly investor analyst call. Topics: Chairman Comments Business Segments Financial Summary and Next Quarter Outlook Q & A Chairman Comments The newly promoted Chairman, Mr. John Faraci kicked off the call with some initial comments. He stated that “2003 was a tough one and frankly we're glad to have it behind us. Paper and Packaging businesses did not meet their goals. First quarter in 2004 will be tough due to energy costs and continuing weak demand. IP is still struggling with weak underlying demand, and they have been taking in downtime, as well as restructuring charges. Fiber costs rose to their highest levels. In addition, higher energy costs and lower pricing were somewhat offset by reduced operating costs and mix improvement.” Business Segments: John Faraci reviewed results for each of primary business groups. Printing Papers: Sales for the fourth quarter were $1.89 billion virtually flat from the previous quarter. Earnings were down dramatically in fourth quarter at $66 million down from $120 million from the previous quarter. Earnings in Europe remain healthy, not due to demand but because IP is offsetting losses with currency, operations are going well and strides in improving both country and product mix. Envelopes papers, decreased as well as catalog and commercial offset papers. However, they did better that the previous quarter. Packaging: Sales were $1.6 billion in the fourth quarter compared with $1.53 billion in the previous quarter, Earnings were flat at $100 million. Containerboard volume was up 10% U.S. container box was down 3% Bleached board reflect increased price in raw materials and was up 2%. Forest Products: Lumber volume increased 6% due to a late summer rally. Plywood increased 2% due to strong housing starts and some shortages. Financial Summary and Next Quarter Outlook Mr. Liddell commented further about the Quarter performance: Special items for 4 th quarter 2003 amounted to $101 million which included shutdowns and restructuring charges. The shutdowns impacted 1300 employees. Capital spending was $1.2 billion compared to $1 billion in 2002. Capital spending is expected to be $1.3 billion in 2004. Improvement targets include increase ROI to 9% at trend line prices. Keys to reaching this target includes: mid-cycle volume and trend line pricing, energy and wood at more normalized levels, and IP's continuation to build on demonstrated capability to take cost out. Energy costs will be high in the winter months and wood costs will be high. But inventories are in better shape. Softwood, containerboard and uncoated free sheet will see price increases in the first quarter 2004. Q & A: The printing papers profit was down dramatically. The reason for this was due to operating difficulties with the coated business versus uncoated. Offset prices moved down including the envelope grades. They were also hit by the high wood costs by bringing in chips from South America and Pensacola. Uncoated free sheet pricing increases are coming because they are seeing better demand combined with broader economic activity. It will be raised to $60 per ton for envelopes, forms, and offset effective Feb 20 th as well as direct grades. This is the first time in a number of years that the prolonged bad weather in the south is creating significant increase in their hard wood costs. Analysts are pleased with the improved level of disclosure of information that IP is presenting in their earnings call. A slide presentation complete with metrics and trends lines was available for this earnings call and is posted on their website. Legal reserve in special items is for $29 million and relates to a potential settlement not disclosed at this time and not related to the Masonite issue as appeared in the article in the Wall Street Journal. IP will not comment on pending litigation. The run rate of $140 million per quarter was estimated for the corporate line and it's expected to be the same for 2004. Uncoated free sheet hasn't seen high 90's operating rates for a while. IP believes the tighter the supply situation, the better the pricing environment. IP sees a better situation now than they did last year. IP would not disclose their current operating rates.